Challenges ahead for next generation of bundled payments

In late 2016, HHS announced the final models for the next group of mandatory episode-based payments. Researchers at the University of Pennsylvania in a Journal of the American Medical Association (JAMA) suggested that the next generation of bundled payments should align with population health by (1) extending the duration of the bundles, (2) expanding the accountable entities beyond hospitals, and (3) integrating bundled payments with global budget models within accountable care organizations (ACOs). All hospitals accepting Medicare patients in over 90 metropolitan areas will be required to accept new bundled payments, which include a fixed payment for hospital care plus services for the 90 days following discharge of patients with acute myocardial infarction and coronary artery bypass graft surgery (see Final rule puts quality at the heart of new Medicare payment models, Health Law Daily, December 21, 2016).

In the JAMA article, the authors noted that current bundled payment models have limitations. Namely, these models retain the fee-for-service incentive to do more, especially for conditions without well-defined criteria for intervention, and to select healthier patients, potentially increasing low-value care use that offsets efficiency savings. The researchers believe bundled payments would be more efficient if restricted with defined starting points that limit physician and patient discretion.

Bundle duration

According to the authors the central challenge of current bundles is their short duration. Most cover services up to 90 days after hospital discharge; extending the bundled payments to a year or more would allow for a broader set of conditions to be included. Extending the bundle duration could also mitigate undesirable effects, such as decreasing the incentive to avoid more complex patients who may be at higher risk for poor outcomes in the short term. The authors stressed that more importantly, bundles with a longer duration could encourage greater coordination of care between specialists and PCPs.

Bypassing hospital-centric procedures

Medicare ACOs have primarily generated savings by reducing avoidable hospitalizations. Bundled payments could generate savings in a similar manner, shifting care to non-hospital-centric procedures, such as allowing outpatient clinicians such as PCPs, outpatient health centers, and ambulatory surgery centers to take on financial accountability for performance.

ACO integration

The authors suggested that for next generation bundled payments, care should be coordinated along with ACO programs by aligning incentives and proactively disseminating information on shared beneficiaries. The current policy penalizes care organizations by attributing the high historical baseline payments for patients with poor outcomes within the bundle to the ACO’s global budget rather than the actual payments, which could be lower if an ACO improves efficiency.

Future

Regardless it was unclear to the authors whether bundles which build up the degree of financial risk a hospital or other health care organization bears is better than moving to global budgets in one step. Using bundle payment models to transition to global budgets may be the preferred strategy, giving clinicians several years to adapt and transform care delivery.

Hospital-owned physician practices continue to grow, but integration has issues

“The Affordable Care Act and changing economic conditions have encouraged an increase in the integration of physicians with hospitals,” according to a study conducted Marah Short, M.A., Vivian Ho, Ph.D., and Ayse McCracken, MBA, CPA for the James A. Baker III Institute for Public Health at Rice University. The Rice University study found that hospitals with physicians on salary rose from 44 to 55 percent between 2008 and 2013 and noted that a growing number of hospitals are employing primary and specialty care physicians, as well as hospitalists. The authors  concluded that the data showed an overall trend of increasing integration, but stated that many hospitals are transitioning to lower levels of physician-hospital integration. The study examined the trends in hospital integration over time designating four forms of integration based on the type of contractual relationship a hospital has with physicians.

Number and impact of hospital-employed physicians

The number of physician practices owned by hospitals/health systems rose 86 percent between 2012-15, with the percentage of physicians employed by hospitals or health systems increasing in every region of the country, according to a study prepared by Avalere Health and released September 7, 2016, by Physicians Advocacy Institute (PAI). This study also found that by mid-2015, one in four medical practices were hospital owned and 38 percent of U.S. physicians were employed by hospitals and health systems. In 2015, hospitals employed more than 140,000 physicians. In addition, from 2012 to 2015, hospitals acquired 31,000 physician practices. PAI noted that the acquisitions typically involve the acquisition of the services of multiple physicians through employment contracts, as well as the practice’s physical building and equipment.

Kelly Kennedy, PAI executive vice president, stated that “The shift toward more physicians employed by hospitals could mean higher costs for the entire health system. For patients, it impacts both where they receive and how much they pay for care.” Robert Seligson, PAI president and chief executive officer of North Carolina Medical Society, added that “Payment policies from governmental agencies and health insurance companies heavily favor large health systems and [that] makes it challenging for independent physician practices, especially smaller practices to survive.”

Accountable care organizations and payment innovations

“Through integration, hospitals could better control physician practices to increase efficiency and decrease costs,” by reducing duplication of services, providing clinical benefits, and improving communication and coordination of care between hospitals and physicians, the Rice University study explained. The authors further noted that the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) encouraged the integration of physicians with hospitals when it established accountable care organizations with the goal of reducing health care costs while encouraging  doctors, hospitals, and other health care providers to come together voluntarily to give coordinated high quality care to their Medicare patients. ACOs and medical homes will continue to spur integration in coming years, the study predicted.

Regulations mandated by the ACA have offered various payment innovations and opportunities for physicians and hospitals to participate in value-based contracting. These options provide better solutions with less operating and financial risks for hospitals and physicians, the study noted, perhaps allowing hospitals and hospitals to forgo integrating. Hospitals can form a successful ACO, while physicians can maintain their private practice and both benefit from the shared savings. However, hospitals seeking to participate as a Medicare ACO must build relationships with primary care physicians (PCPs) and will have better control of hospital referrals for inpatient and outpatient care if the PCPs are hospital employees, according to the Rice University study.

Conflicting interests in integration

Conflicting interests played a role in the choice to integrate or de-integrate, the study explained. Hospital employment of physicians is influenced by a variety of factors, including preparation for value-based contracting and the attraction of certain specialists that generated a significant patient volume. Hospitals studied were uncertain whether to employ highly compensated specialists or primary care physicians. Specialists considered the risk of declining incomes and sought partnerships with hospitals because reimbursement for ancillary services are paid at a higher rate when billed as the service of a hospital provider organization than when provided in private practice.

Other issues facing the integration of a hospital and an independent physician practice include payer contracting for Part B services; billing, coding, and collections process; staffing costs, policies, and procedures; and supply chain management. The differences in operation between the two may result in increased clinic operation costs along with pressures on physicians to contain costs. The differences in operation between the two may result in increased clinic operation costs along with pressures on physicians to contain costs.  The study recommends that hospitals create a governance structure with strong physician leadership and experienced practice administrators to address  and assimilate the practices into the hospital’s infrastructure.

The study noted that “a successful partnership requires physicians and hospitals to have aligned goals and strategies consistent across the organization.” When determining whether to integrate, the study recommended that hospitals and physicians consider whether there is both a cultural and financial fit and expectations of the physician and the hospital need to be clearly defined and aligned. While physician practices operate as small businesses, hospitals function as more sophisticated business entities, the study explained.While physicians may expect few changes in the way they do business, hospitals likely will expect physicians to operate their clinics in alignment with hospital systems, processes, and policies, and align referrals with its medical staff and outpatient services. .

Medicare-Medicaid ACO Model launched to improve ‘dual eligible’ care

The Medicare-Medicaid Accountable Care Organization (ACO) Model, an effort to improve the quality of care and lower costs for beneficiaries who are enrolled in both Medicare and Medicaid, has been announced by CMS. Current Medicare ACOs often do not have financial accountability for the expenditures of Medicaid beneficiaries attributed to their organization. The new Medicare-Medicaid ACO Model is designed to build on current Medicare Shared Savings Program (MSSP) ACOs by allowing MSSP ACOs to take on accountability for the quality of care and both Medicare and Medicaid costs for Medicare-Medicaid enrollees (also known as “dual eligible beneficiaries”).

Background

Medicare ACOs are made up of groups of doctors, hospitals, and other health care providers and suppliers who come together voluntarily to provide coordinated, high-quality care to the original Medicare fee-for-service beneficiaries. Section 3021 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) created the Center for Medicare and Medicaid Innovation, which provides for the testing of innovative payment and service delivery models. The MSSP (established by ACA section 3022) and other ACO initiatives were created to change the incentives for how medical care is delivered and paid for, moving away from a system that rewards the quantity of services to one that rewards the quality of health outcomes.

The new model

According to a CMS fact sheet, The Medicare-Medicaid ACO Model will allow new and existing MSSP ACOs to take on accountability for the full spectrum of Medicare Part A, Part B, and Medicaid costs for their patients. If Medicare-Medicaid ACOs in a state generate Medicare savings for their Medicare-Medicaid enrollees, states (as well as the Medicare-Medicaid ACO) may be eligible to share in those savings with CMS. States may choose from three options for when to begin the first 12-month performance period for the Model ACOs in their state: January 1, 2018; January 1, 2019; or January 1, 2020.

Through the Medicare-Medicaid ACO Model, CMS also seeks to encourage participation from safety-net providers in alternative payment models. Medicare-Medicaid ACOs that qualify as “Safety-Net ACOs” will be eligible to receive pre-payment of Medicare shared savings to support the ACO’s investment in care coordination infrastructure.

Eligibility and application process

CMS is accepting letters of intent from states that wish to work with CMS to design certain state-specific elements of the model, such as the details of the Medicaid financial methodology and shared savings/shared losses arrangements, selection of additional quality measures, and additional ACO eligibility requirements. States will also have the option to include additional Medicare-Medicaid enrollees not assigned under the MSSP and Medicaid-only beneficiaries in the target population for the Model.

CMS will enter into participation agreements with up to six states with preference given to states with low Medicare ACO saturation. Once a state is approved to participate in the model, a request for application will be sent to ACOs and health care providers in that state.

In addition to applying to participate in the Medicare-Medicaid ACO Model, ACOs will be required to apply to participate in the MSSP and ultimately sign a participation agreement to participate in the MSSP in order to participate in the Medicare-Medicaid ACO Model.

Federal and beneficiary spending on Medicare will skyrocket if ACA repealed

Repeal of the Affordable Care Act, as promised by the incoming Congressional leadership and President-elect Donald Trump’s (R) Administration, would not only increase Medicare spending but also lead to higher beneficiary costs, a less-solvent Part A trust fund, and the return of the Part D drug benefit “doughnut hole.” The Kaiser Family Foundation (KFF) published an issue brief on the Medicare implications of repeal of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), finding that the Medicare provisions of the ACA have strengthened Medicare’s financial status for the future, and repeal would weaken the program.

KFF noted that the Congressional Budget Office (CBO) estimated an increase in Medicare spending of $802 billion from 2016 to 2025 if the ACA were repealed in full (see Repealing the Affordable Care Act—an unaffordable idea?, Health Reform WK-EDGE, June 24, 2015). This increase would primarily be attributed to higher payments to health care providers and Medicare Advantage (MA) plans, which the ACA reduced based on the expectation that due to coverage increases, hospitals would have fewer uninsured patients.

Repeal of the ACA would increase Medicare Parts A and B spending by $350 billion over 10 years. It would also increase Part A deductibles and copayments and Part B premiums and deductibles. Similarly, the ACA removed a payment per enrollee discrepancy that paid MA plans 14 percent more than traditional Medicare; in 2016, MA plans only received 2 percent higher payments than traditional plans. A repeal would increase MA spending; however, it would also potentially reduce MA enrollees’ costs or allow them to receive additional benefits.

Under the ACA, certain Medicare benefits are available with no cost-sharing, including a yearly exam and some preventive screenings. The ACA also closed the coverage gap, or doughnut hole, in the Part D drug benefit. Without these changes, beneficiary costs would increase for preventive services and drugs.

The ACA played a role in extending the solvency of the Medicare Trust Fund by establishing new dedicated sources of revenue. As a result, four years’ time was added to the Medicare trustees’ projection of asset depletion in 2014 (see Life expectancy of Medicare trust funds extended to 2030, July 30, 2014). A repeal of these revenue provisions would give the Trust Fund a shorter lifespan.

The analysis also considered repeal of the ACA’s provisions for the following:

  • Freezing income thresholds for the Part B income-related premium;
  • Creating a formal method to expand payment and delivery system reforms through the Center for Medicare and Medicaid Innovation (CMMI);
  • Reducing preventable hospital readmissions and hospital-acquired conditions; and
  • Establishing new accountable care organization (ACO) programs.

Overall, KFF determined that ACA repeal without corresponding replacement legislation would weaken Medicare’s financial status for the future while costing beneficiaries and the federal government more.