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- 2. The New Performance Standard
Responding to the Changes Reshaping Health System
Economics
©2011 THE ADVISORY BOARD COMPANY • 23508A
- 3. 3
Road Map
1 Health Care on a Budget
2 Four Forces Shaping Future Margins
©2011 THE ADVISORY BOARD COMPANY • 23508A
3 Closing Remarks
- 4. 4
Meet Your Newest Medicare Beneficiaries
Happy 65th Birthday!
Donald Trump Cher Sylvester Stallone
©2011 THE ADVISORY BOARD COMPANY • 23508A
Liza Minnelli Dolly Parton Pat Sajak
Source: Health Care Advisory Board interviews and analysis.
- 5. 5
Universal Access: The Boomers’ American Dream
Baby Boomers Redefining American Industries
” From Opportunity to Entitlement?
1960s Education
Transformative at All Stages of Life
• Expansion of public
“Baby boomers didn’t just eat food; they university systems
transformed the snack, restaurant and
supermarket industries. They didn’t just wear
1970s Employment
clothes; they transformed the fashion
industry. They didn’t just buy cars; they • Greater integration of
transformed the auto industry. They didn’t women into workforce
just date; they transformed sex roles and • Rise of part-time
practices. They didn’t just go to work; they employment
transformed the workplace. They didn’t just
get married; they transformed relationships 1980s Homeownership
and the institution of the family. They didn’t • Mortgage interest
©2011 THE ADVISORY BOARD COMPANY • 23508A
just borrow money; they transformed the deductions
debt market. They didn’t just go to the doctor; • Homeowner subsidies
they transformed health care. They didn’t just Health Care
use computers; they transformed technology.
2010s • How will Medicare balance
They didn’t just invest in stocks; they
entitlement with solvency?
transformed the investment marketplace.” • Will choice, access be
Ken Dychtwald preserved?
Gerontologist
Zinkewicz P, “Baby Boomers ‘boom’ their way toward golden years,” available
at: http://www.roughnotes.com/rnmagazine/2005/july05/07p106.htm, accessed
September 23, 2011; Health Care Advisory Board interviews and analysis.
- 6. 6
An Industry Preparing For Fundamental Change
Coverage Expansion, Payment Reform Reshaping Health Care
Timeline of Health Reform Developments
Patient Protection HHS releases President CMS issues
and Affordable Care Meaningful Use Obama repeals provisions to Hospital
Act (PPACA) passes regulations 1099 reporting Readmissions
House of requirement Reduction Program
Representatives from PPACA
IMAGE CREDIT: SHUTTERSTOCK.
VA Attorney CMS releases HHS releases
General files first proposed rule for Medicare
©2011 THE ADVISORY BOARD COMPANY • 23508A
lawsuit against Medicare Shared Value-Based
individual mandate Savings Program Purchasing Program
final rule
Source: Health Care Advisory Board interviews and analysis.
- 7. 7
Before 2014, 2012
Future of Affordable Care Act Still in Doubt
Three Competing Visions
IMAGE CREDIT: GOVERNOR.STATE.TX.US.
IMAGE CREDIT: MITT ROMNEY MEDIA
IMAGE CREDIT: WHITEHOUSE.GOV.
© JESSICA RINALDI.
“I am not the first “If I were President, on “On day one, as the
©2011 THE ADVISORY BOARD COMPANY • 23508A
President to take up day one I would issue President, the executive
this cause, but I am an executive order order will be signed and
determined to be paving the way for Obamacare will be
the last.” Obamacare waivers to wiped out as much as it
all 50 states.” can be.”
Source: White House, available at: www.whitehouse.gov, accessed September 21, 2011;
Mitt Romney Media, available at: http://en.wikipedia.org/wiki/File:Mitt_Romney.jpg, Office
of the Governor Rick Perry, available at: www.governor.state.tx.us/about; Health Care
Advisory Board interviews and analysis.
- 8. 8
(As Always) It’s The Economy, Stupid
Policy Debate Dominated by Economy, Deficit, Debt
September 21, 2011 September 9, 2011
Los Angeles Times International Business Times
“Six in 10 Americans Don’t “Bank of America Layoffs: The
See Economy Improving Soon” Industry Bloodbath Continues”
September 16, 2011 August 5, 2011 January 16, 2011
Washington Post Washington Post Richmond Times-Dispatch
“Jobless Rate Climbs in “S&P Downgrades U.S. “Debt Soars to All-Time High
D.C., Maryland, Virginia” Credit Rating for First Time” of $14 Trillion”
©2011 THE ADVISORY BOARD COMPANY • 23508A
Source: “Debt Soars to All-Time High of $14 Trillion,” Richmond Times-Dispatch, January 16, 2011; Goldfarb Z, “S&P Downgrades
U.S. Credit Rating for First Time,” Washington Post, August 5, 2011; Haynes V, “Jobless Rate Climbs in D.C., Maryland, Virginia,”
Washington Post, September 16, 2011; “Bank of America Layoffs: The Industry Bloodbath Continues,” International Business
Times, September 9, 2011; “Six in 10 Americans Don’t See Economy Improving Soon,” Los Angeles Times, September 21, 2011;
Health Care Advisory Board interviews and analysis.
- 9. 9
Washington’s Newfound Budget Discipline
Debt Ceiling Increase Contingent on Massive Deficit Reduction
U.S. National Debt and Debt Ceiling
$US, In Trillions
16 Legislation in Brief:
14 Budget Control Act of 2011
12 • 74th increase to debt ceiling in 49 years
• Establishes a process to raise
10
federal debt limit by $2.4 T
8 • Initial increase offset by automatic $917 B
6 in debt reduction over next ten years
• Further increases contingent on
4 enacting additional $1.2 T in
2 debt reduction
©2011 THE ADVISORY BOARD COMPANY • 23508A
0
Source: Klein E, “Thirty Years of the Debt Ceiling in One Graph,” The Washington Post,
July 15, 2011; Ernst & Young, “Budget Control Act of 2011: Where Do We Go From
Here?,” September 8, 2011; Health Care Advisory Board interviews and analysis.
- 10. 10
No Blank Check From Employers Either
Defined Contribution Plans Displacing Defined Benefits
Transition to Defined Contribution Plan
10%
Reduction in premium
Orion contributes $125-$350 Employee selects individual costs due to switch
per month toward coverage policy on exchange
Payers Taking Notice
Wall Street Journal
Case in Brief: Orion Corporation
©2011 THE ADVISORY BOARD COMPANY • 23508A
“WellPoint, Non-Profits Invest in
• 70-employee residential services firm Private Insurance Exchange”
located in St. Paul, Minnesota
• WellPoint, Blue Cross Blue Shield of Michigan,
• Converted HDHP1 to defined and Health Care Service announce plans to
contribution plan managed by acquire 78 percent share of Bloom Health
Minnesota-based Bloom Health
• Insurers plan to offer fully operational
exchanges by 2013
Source: Bloom Health, available at: www.gobloomhealth.com, accessed September 21, 2011; Kamp J,
“WellPoint, Non-Profits Invest in Private Insurance Exchange,” Wall Street Journal, September 20, 2011;
1) High-Deductible Health Plan. Health Care Advisory Board interviews and analysis.
- 11. 11
The New Great Depression Generation?
Amid Economic Uncertainty, Consumers Tightening Their Belts
Households Postponing or
Cancelling Medical Care
95%
Percentage of primary care
20% physicians reporting that
16%
patients rationing or forgoing
medications, treatments due to
financial concerns
2006 2009
”
Is it Cyclical… …Or Is It An Enduring Trend?
©2011 THE ADVISORY BOARD COMPANY • 23508A
“In 2009, despite the economic “We have a very weak economy and it’s just a
downturn, the number of prescription different environment for the elective parts of
drugs dispensed rebounded to healthcare. This could go beyond the recession.
prerecession rates of growth.” Being a less aggressive consumer of healthcare
is here to stay.”
Paul Ginsburg, Economist, Center
Health Affairs, 2011 for Studying Health System Change
Source: Martin A, et al., “Recession Contributes to Slowest Annual Rate of Increase in Health Spending in Five Decades,” Health Affairs, 2011, 30: 11-22; Johnson A, Rockoff J, &
Mathews A, “Americans Cut Back on Visits to Doctor,” Wall Street Journal, July 29, 2010; Health Insurance, “With or Without Health Insurance, Americans Skipping Doctors Visits,
Surgeries,” available at: http://www.insureme.com/health-insurance/or-without-health-insurance-americans-skipping-doctor-visits-surgeries, accessed September 21, 2011; Thomson
Reuters, “Thomson Reuters Study Finds More Patients Postponing Medicare Care Due to Cost,” available at: http://thomsonreuters.com, accessed September 21, 2011; Health Care
Advisory Board interviews and analysis.
- 12. 12
Getting Paid Less to Do Less
New Payment Models Calling Old Imperatives Into Question
Accountable Payment Models
Performance Risk Utilization Risk
Cost of Care Quality of Care Volume of Care
Bundled Pricing Pay-for-Performance Shared Savings
• Bundled Payments for Care • Value-Based Purchasing • Medicare Shared
Improvement program • Readmissions penalties Savings Program
• Commercial bundled • Quality-based • Pioneer ACO Program
©2011 THE ADVISORY BOARD COMPANY • 23508A
contracts commercial contracts • Commercial ACO
contracts
Source: Health Care Advisory Board interviews and analysis.
- 13. 13
Seeking Shelter in Scale
Market Pressures Driving Consolidations, Integration
Providence Health System Steward Health
One of the nation’s largest
Recent M&A Activity
Care System
Catholic health organizations Owns six Catholic
adding hospitals, practices Vanguard Health Systems hospitals in Boston
Purchased Detroit Medical market, with plans to
Center for $1.5 B acquire two more
Trinity Health
Purchased Loyola Health
System for $100 M, plus an
annual subsidy of $22.5 M
to medical school Geisinger Health System
Full merger with
Shamokin Area
Community Hospital
©2011 THE ADVISORY BOARD COMPANY • 23508A
Texas Health Resources
Acquired MedicalEdge
Healthcare Group and its Community Health Systems Novant Health
420 physicians, clinicians in has withdrawn its offer to acquire Nine-hospital system
the country’s second-largest all Tenet Healthcare experiencing recent
acquisition of an independent Corporation’s outstanding growth through
physician practice shares after Tenet rejected two of acquisition of hospitals,
its bids for buyout offers imaging centers
Source: Becker’s Hospital Review, “15 Growing Health Care Systems,” available at: http://www.beckershospitalreview.com/lists-and-statistics/15-growing-
healthcare-systems.html, accessed May 1, 2011; Lawley E, “Tenet Sues Community Health,” Nashville Post, April 11, 2011; Roberson J, “Texas Health Resources
Acquires MedicalEdge Healthcare Group,” Denton Record-Chronicle, January 5, 2011; Health Care Advisory Board interviews and analysis.
- 14. 14
Defining an Expanded Value Proposition
Three Strategic Identities
System as Preferred System as Service Provider System as Population
Network Health Manager
Redesigning benefit plans Marketing value-added services Contracting directly to
to create a closed network to capture new opportunities share actuarial risk
©2011 THE ADVISORY BOARD COMPANY • 23508A
Source: Health Care Advisory Board interviews and analysis.
- 15. 15
Health Care’s Identity Crisis
Traditional Market Distinctions Blurring
Providers Acquiring Payers Payers Acquiring Physician Groups
Case in Brief: Case in Brief:
Partners HealthCare Acquiring UnitedHealth Acquiring Monarch
Neighborhood Health Plan HealthCare
©2011 THE ADVISORY BOARD COMPANY • 23508A
• Partners HealthCare planning to acquire • UnitedHealth planning to acquire
Neighborhood Health Plan, Boston-based management division of Monarch
payer insuring more than 240,000 HealthCare, one of largest physician
primarily low-income residents groups in California
• Partners to provide grants to Neighborhood • Monarch to become part of UnitedHealth’s
Health affiliated community centers health services business unit
Source: Mathews A, “UnitedHealth Buys California Group of 2,300 Doctors,” Wall Street Journal,
September 1, 2011; Weisman R, “Partners Plans to Acquire Insurer Neighborhood Health,” Wall Street
Journal, August 10, 2011; Health Care Advisory Board interviews and analysis.
- 16. 16
Road Map
1 Health Care on a Budget
2 Forces Shaping Future Margins
©2011 THE ADVISORY BOARD COMPANY • 23508A
3 Closing Remarks
- 17. 17
Four Forces Shaping Future Margins
Financial, Clinical Profiles Shifting Dramatically
Decelerating Continuing Cost
Price Growth Pressure
• Federal, state budget pressures • No sign of slower cost growth ahead
constraining public payer price growth • Drivers of new cost growth largely
• Payments subject to quality, non-accretive
cost-based risks
• Commercial cost shifting
stretched to the limit
Shifting Deteriorating
Payer Mix Case Mix
©2011 THE ADVISORY BOARD COMPANY • 23508A
• Baby Boomers entering Medicare rolls • Medical demand from aging
• Coverage expansion boosting population threatens to crowd out
Medicaid eligibility profitable procedures
• Most demand growth over the next • Incidence of chronic disease,
decade comes from publicly multiple comorbidities rising
insured patients
Source: Health Care Advisory Board interviews and analysis.
- 18. Force #1: Decelerating Price Growth 18
New Baseline Already Challenging
Affordable Care Act Significantly Reduces Public Payments
Impact of Affordable Care Act on Provider Rates
Cumulative Federal Revenue from Decreased
Medicare and Medicaid DSH Payments
$22.0 B
$110 B $17.0 B
Cuts to Medicare $14.0 B
$12.6 B
Fee-For-Service rates
$8.4 B
$36 B $7.6 B
$3.6 B
©2011 THE ADVISORY BOARD COMPANY • 23508A
Cuts to Disproportionate Share $3.5 B
Hospital (DSH) payments $1.1 B $1.7 B
$0 B $500 M
2014 2015 2016 2017 2018 2019
Medicare Medicaid
Source: US House of Representatives, “Amendment in the Nature of a Substitute to H.R. 4872, as Reported,”
accessed March 18, 2010; US Senate, The Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act,” accessed December 24, 2009; Health Care Advisory Board interviews and analysis.
- 19. 19
Health Care Likely On the Chopping Block
But Little Agreement on How
Distribution of Spending in Possible Approaches to
2011 Budget Proposal Reducing Health Care Spending
Other
Interest Health Care1 Eligibility changes Provider rate cuts
14%
on Debt 7% 24%
Other 15%
Safety Net 20%
Programs 2
20% Defense Decreased Fraud, waste
©2011 THE ADVISORY BOARD COMPANY • 23508A
supplemental payments reduction
Social Security
Cost shifting to Payment model overhaul
beneficiaries (i.e. voucher system)
1) Includes spending for Medicare, Medicaid, CHIP, substance abuse and mental health services,
National Institutes of Health, and Food and Drug Administration. Source: New York Times, available at: http://www.nytimes.com/interactive/
2) Includes spending for unemployment insurance programs, food stamps, military and federal civilian 2010/02/01/us/budget.html, accessed September 17, 2011; Health Care
employee retirement and disability, and Temporary Assistance for Needy Families (TANF) program. Advisory Board interviews and analysis.
- 20. 20
Sequestration the Lesser of Two Evils?
Automatic Cuts to Health Care Relatively Small
Sequestration Impact on Breakdown of Total Cuts
Key Budget Areas Under Sequestration
2013 2013-2021
Defense Other1 Medicare Medicaid
0.0%
-2.0% Other $1.1 T $123 B Health Care
-7.8%
”
-10.0%
©2011 THE ADVISORY BOARD COMPANY • 23508A
Cutting Our Losses?
"Sequestration is the devil you know and the Super Committee is the devil you don't."
Max Richtman
National Committee to Preserve Social Security and Medicare
Source: Congressional Budget Office, available at: www.cbo.gov, accessed
on September 19, 2011; Reuters, “Healthcare Lobbyists Want Debt
Committee to Fail,” available at: http://www.reuters.com/, accessed
1) Nondefense discretionary and other mandatory spending. September 17, 2011; Health Care Advisory Board interviews and analysis.
- 21. 21
Medicaid Payment Cuts Across the Country
Budget Shortfalls, Declining Federal Funding Common Concerns
Washington: South Dakota: Wisconsin: New York: Looking to
Cut provider Cut provider Considering cut $53 B Medicaid
Medicaid Medicaid rates $500 M program by $2 B
rates by 10% by 11.5% Medicaid cut
Pennsylvania:
Increasing
California: co-pays for
Proposing certain
10% provider services to
rate cut save $50 M
Virginia: Cut
outpatient service
reimbursement by 4%
©2011 THE ADVISORY BOARD COMPANY • 23508A
Arizona: 5%
provider rate cut in
April 2011, another
5% rate cut in North Carolina:
October 2011 Dropping coverage
Mississippi: on adult eye exams,
Texas: Cut Closing mental glasses as part of
provider Medicaid health centers $354 M Medicaid
rates by 8% and crisis centers spending reduction
Source: Health Care Advisory Board interviews and analysis.
- 22. 22
Medicaid Budget Crisis Forcing Innovation
Three State Responses to Medicaid Budget Pressure
Cut Rates, Limit Services Outsource Program Operations Force Provider Innovation
• Washington, California, • Florida Medicaid overhaul • North Carolina placing
©2011 THE ADVISORY BOARD COMPANY • 23508A
Texas, South Dakota to shift all Medicaid enrollees into enhanced
proposing provider rate cuts enrollees to private medical homes through
of over 8 percent managed care plans Community Care of
• Mississippi closing mental by 2014 North Carolina program
health and crisis centers
Source: Health Care Advisory Board interviews and analysis.
- 23. 23
Some Moving Beyond Traditional Cuts
Oregon Bill Ties Medicaid Cuts to Third-Party Care Coordination Plan
Oregon Medicaid Contracting Model Medicaid Payment Rates
Additional reduction if
CCOs fail to produce
sufficient savings
State pays fixed global payment to Care (19%)
Coordination Organizations (CCOs)
(15%)
CCOs contract with providers to coordinate care, Current 2012 2014
develop new delivery models that lower costs
©2011 THE ADVISORY BOARD COMPANY • 23508A
Case in Brief: Oregon Health Care Transformation Law
• Law reduces Medicaid rates by 19 percent in 2012, mandates creation of care coordination organizations
(CCOs) composed of managed care plans charged with coordinating providers, developing new delivery
models to lower costs
• If CCOs fail to achieve expected $250 M in savings, lawmakers may propose additional cuts of up to 15
percent to take effect in 2014
Source: Managed Healthcare Executive, "Oregon Medicaid shifts to global payments, coordinated care,“ available at:
http://managedhealthcareexecutive.modernmedicine.com/mhe/News+Analysis/Oregon-Medicaid-shifts-to-global-payments-
coordina/ArticleStandard/Article/detail/732912, accessed September 11, 2011; Health Care Advisory Board interviews and analysis.
- 24. 24
Future Payments Depend on Performance
Upside Opportunity Available, But Downside Risk Prevails
Prominent Pay-for-Performance Programs
Payment Driver Description Payment Reduction Timeline
• Mandatory pay-for-performance program
Value-Based
• Percentage of hospital inpatient payments • Withholds begin at 1% in
Purchasing
withheld, earned back based on quality 2013, grow to 2% by 2017
Program
performance
• Hospitals with greater than expected
Hospital • Penalties capped at 1% of
readmission rate subject to financial penalty
Readmissions total DRG1 payments in 2013,
• Performance based on 30-day readmission
Reduction 2% in 2014, and not to exceed
metrics for three conditions in 2013, expanding
Program 3% in 2015 and beyond
in 2015 to include four others
©2011 THE ADVISORY BOARD COMPANY • 23508A
Hospital-Acquired
• Hospitals in top quartile of national, risk- • 1% penalty deducted from
Condition (HAC)
adjusted HAC rates subject to financial penalty DRG payment starting in 2015
Penalty
Source: US Senate, “The Patient Protection and Affordable Care Act and the Health
Care and Education Reconciliation Act,” February 19, 2010; Health Care Advisory
1) Diagnosis-Related Group. Board interviews and analysis.
- 25. 25
Picking Winners, Losers Based on Performance
Performance Scores Drive Payment Redistribution
Final Rule: Value-Based Purchasing Program Structure
Measure Performance Compare Hospitals Adjust Payments
• CMS evaluates hospitals based • Medicare ranks all hospitals • Medicare converts TPS into
on achievement and based on TPS incentive payments
improvement on selected • For achievement score, • Calculation will use linear
clinical care, patient hospitals ranked below the 50th exchange function
experience measures percentile do not receive points • Hospitals that receive higher
• Based on weighted average of towards TPS
©2011 THE ADVISORY BOARD COMPANY • 23508A
TPS will receive higher
achievement and improvement • For improvement score, incentive payments
scores, CMS calculates Total hospitals whose performance • CMS to notify hospitals of
Performance Scores (TPS) for has not improved relative to a incentive payment for FY 2013
each hospital1 baseline score do not receive on November 1, 2012
points toward TPS
1) In FY 2013, clinical care measures are weighted at 70 percent Source: Centers for Medicare and Medicaid Services, “CMS Issues Final Rule for First Year of Hospital
and patient experience measures are weighted at 30 percent. Value-Based Purchasing Program,” April 29, 2011; Health Care Advisory Board interviews and analysis.
- 26. 26
Redefining the Acute Care Episode
Bundled Payments Drive Delivery System Integration
Bundled Payment Framework
Lump Sum Payments Drive Integration Program in Brief: Medicare’s Bundled
Through Shared Accountability Payments for Care Improvement
• Program seeking voluntary participation in
four bundled payment models
• Models 1-3 provide retrospective
Payer reimbursement; Models 2 and 3 include
post-episode reconciliation; Model 4 offers
single prospective payment
• Acute care hospitals, physician groups,
health systems eligible for all models;
post-acute facilities may participate without
©2011 THE ADVISORY BOARD COMPANY • 23508A
hospitals in Model 3
• Physicians eligible for gainsharing bonuses
up to 50 percent of traditional fee schedule
• For all models, applicants must propose
Physician Hospital Post-Acute quality measures, which CMS will use to
Services Services Services develop set of standardized metrics
Source: Centers for Medicare and Medicaid Services; Health Care
Advisory Board interviews and analysis.
- 27. 27
All Models Require Discount of FFS1 Pricing
Model 1: Model 2: Model 3: Model 4:
Hospital Inpatient Services Hospital and Physician Post-Discharge Hospital and Physician Inpatient
for All DRGs Inpatient and Services Only Services
Post-Discharge Services
Model 1 participants
Physician groups, acute care
plus post-acute care
hospitals reimbursed under
Eligible Model 1 participants plus post- providers, long-term
IPPS2, health systems, PHOs, Model 1 participants
Participants acute care providers care hospitals, inpatient
conveners of participating
rehab facilities, home
providers
health agencies
Clinical
All Medicare DRGs Select inpatient DRGs, proposed by applicants
Conditions
Inpatient hospital and
Inpatient hospital and physician
Included physician services; Post-acute care;
Inpatient hospital services services;
Services related post-acute care and related readmissions
related readmissions
readmissions
Minimum of 3% for
Minimum increases
Expected 30-89 days post-discharge Proposed by applicant Minimum 3% discount (larger for DRGs
from 0% for first six months
Discount services; minimum 2% for 90+ (no set minimum) in ACE Demonstration)
to 2% in Year 3
days post-discharge
©2011 THE ADVISORY BOARD COMPANY • 23508A
IPPS payment less discount for
Prospectively established payment;
Provider Part A services; physicians Traditional FFS payment,
hospitals distribute payment
Payments reimbursed on traditional fee subject to reconciliation with target price
to clinicians
schedule
All Hospital IQR3 measures,
Quality Proposed by applicants, with CMS ultimately establishing a standardized set of metrics aligned with
plus additional measures
Measures measures in other CMS programs
proposed by applicants
1) Fee-For-Service.
2) Inpatient Prospective Payment System. Source: Centers for Medicare and Medicaid Services;
3) Inpatient Quality Reporting. Health Care Advisory Board interviews and analysis.
- 28. 28
Bundling Not Limited to the Medicare Program
Bundled Payment Initiatives Developing Nationwide
Reimbursing for
“Baskets of Care”
Participating in
Prometheus Pilot Exploring
Participating in cardiac
Bundling for Prometheus Pilot bundling
obstetrics
Developing
orthopedic Bundling for
bundling CABG1
Participating in
Prometheus Pilot
©2011 THE ADVISORY BOARD COMPANY • 23508A
Bundling joint Bundling total
replacements, knee replacement
procedures with
“defined outcomes” Bundling for
cardiac surgery
Bundling for
Bundling total joint prostate surgery
replacement
1) Coronary Artery Bypass Graft. Source: Health Care Advisory Board interviews and analysis.
- 29. 29
Shared Savings Options Taking Shape
Choices Cater To Varying Appetites For Risk
Medicare Shared Savings Program Pioneer ACO Model
• First ACO contracts to begin April 2012; • Accelerated pathway to ACO formation
contracts to last minimum of three years designed for organizations able to assume
• Final rule issued October 20, 2011 utilization risk immediately
– Physician groups and hospitals eligible • Participating providers must serve at least
to participate, but primary care 15,000 Medicare beneficiaries
physicians must be included in any • Offers higher risk, higher reward model;
ACO group providers can obtain rewards ranging from
– Participating ACOs must serve at least 50-75% of Medicare savings achieved
©2011 THE ADVISORY BOARD COMPANY • 23508A
5,000 Medicare beneficiaries • Providers can choose retrospective or
– Bonus potential to depend on Medicare prospective patient assignment
cost savings, quality metrics methodology
– Two options available: • Quality measures to match those in final
• No downside risk, lower bonus rule for Medicare Shared Savings Program
payment • Deadline to apply was in August 2011;
• Downside risk, higher bonus payment CMS expected to select Pioneer ACOs by
January 2012
Source: Health Care Advisory Board interviews and analysis.
- 30. 30
Mechanics of Shared Savings
Applying Total Cost Accountability to Fee-for-Service Payments
Shared Savings Payment Cycle
Assignment
1 Patients assigned to ACO
Program in Brief: Medicare Shared based on terms of contract
Savings Program Billing
Providers bill normally, receive
• Program begins April 1 or July 1, 2012; 2 standard fee-for-service
contracts to last minimum of three years
payments
• Physician groups and hospitals eligible to
participate, but primary care physicians must Comparison
be included in any ACO group Total cost of care for assigned
3
• Participating ACOs must serve at least 5,000 population compared to risk-
Target Actual adjusted target expenditures
Medicare beneficiaries
• Bonus potential to depend on Medicare cost
©2011 THE ADVISORY BOARD COMPANY • 23508A
Bonus
savings, quality metrics Bonuses or penalties levied
• Two payment models available: one with no 4 based on variance of
downside risk, the second with downside risk expenditures from target
in all three years
Distribution
ACO responsible for dividing
5 bonus payments among
stakeholders
Source: Health Care Advisory Board interviews and analysis.
- 31. 31
Final Rules for Medicare Shared Savings
Summary of Final Rules
Who Can Participate?
1. Minimum population size: 5,000 beneficiaries
2. ACO Founders: PCPs, PCP Independent Practice Associations, employed groups, Federally
Qualified Health Centers, Rural Health Centers, some Critical Access Hospitals
3. ACO Participants: Hospitals, specialists, PCPs with <5,000 patients, other suppliers and providers
4. ACO must be a legal entity with own tax identification number, governance, management
Patient Attribution
1. Retrospective based on plurality of primary care E&M billings by ACO provider
2. Patients may not opt out of being counted against ACO performance measure
3. Patients retain unrestricted choice of providers
Shared Savings
1. ACOs receive shared savings payments if spending per attributed beneficiary grows slower than
national per beneficiary spending
Quality and Reporting
©2011 THE ADVISORY BOARD COMPANY • 23508A
1. 33 quality measures (patient/caregiver experience, care coordination/patient safety, preventive
health, at-risk populations)
2. Bonus payout to ACO is adjusted based on quality performance
3. Significant transparency requirements around ACO operations and financing
Legal Considerations
1. No mandatory antitrust review required for ACOs, but regulators will monitor ongoing market impact
2. Voluntary pre-approval antitrust review available for ACOs above 30% market share
3. Five new waivers create ACO-specific exemptions from fraud and abuse laws
Source: Health Care Advisory Board interviews and analysis.
- 32. 32
CMS Re-Calibrates SSP in Response to Providers
Changes in Final Rule Increase Attractiveness of SSP Participation ”
Broadening Participation Options
Critical Improvements Included in Final Rule
“Today’s menu of ACO options allows
America’s hospitals to create new models
of accountable care organizations on which
Greater reward, lower-risk financials the transformation of health care delivery is
so dependent.”
Richard Umbdenstock, President and CEO
Simplified quality requirements ” American Hospital Association
A More Attractive Financial Model
Decreased barriers to entry
©2011 THE ADVISORY BOARD COMPANY • 23508A
“We are very pleased that this rule allows
ACOs to share in every dollar of cost
savings and includes an option that limits
financial risk, which is important for many
physician practices.”
Peter Carmel, MD, President
American Medical Association
Source: American Hospital Association, "Statement on Final ACO Rule," available at: http://www.aha.org/presscenter/pressrel/2011/111020-st-acorule.pdf,
accessed October 24, 2011; Herman B, "10 Healthcare Leaders Share Thoughts on Final ACO Rule," Becker's Hospital Review, available at:
http://www.beckershospitalreview.com/hospital-physician-relationships/10-healthcare-leaders-share-thoughts-on-final-aco-rule.html, accessed October 24,
2011; Health Care Advisory Board interviews and analysis.
- 33. 33
Rule Update Warrants a Second Look
Program Changes and Implications
Initial Concern Change in Rule Implications
• Upfront payments to capitalize physician-only • Smaller providers face lower financial
Insufficient capital to ACOs, others hurdles to participation
fund transition • Meaningful use no longer a prerequisite for • Advance Payment ACO Model smoothes
participation cash flow concerns
• Relaxed requirements attractive to physician
• Meaningful use no longer a prerequisite for
stakeholders
Resistance from key participation
• With structural hurdles lowered, provider
stakeholders • Elimination of mandatory anti-trust review
focus can shift to financial, strategic
• Lessened quality reporting, performance burden
considerations
• First-dollar savings, elimination of downside risk • Creation of relative “shallow end” minimizes
Unfavorable risk/reward from Track 1 risk of slower transition
calibration • Benchmark calculation more sensitive to patient • Still, program designed for organizations
mix already working to manage utilization risk
• ACOs benefit from ongoing insight into
Patient assignment • Retrospective attribution supplemented with panel composition
©2011 THE ADVISORY BOARD COMPANY • 23508A
method prospective patient information • ACO panel still comprises only patients
served by ACO
Overwhelming quality • Fewer quality measures • Less burdensome reporting requirements
performance, reporting • Slower transition to pay-for-performance • Underperformance on any given measure
burden • Technical changes to bonus calculation method less harmful
• Elimination of mandatory anti-trust review • For ACOs confident in anti-trust compliance,
Onerous program design • Relaxed governance prescriptions, leadership formal review hurdle eliminated
prescriptions requirements • Clarity around permissible activities with
• Extended waivers for Stark, anti-kickback ACO participants, professionals
Source: Health Care Advisory Board interviews and analysis.
- 34. 34
Reality Check: Success Remains a Heavy Lift
Key Determinants of Successful SSP Participation
Manage Utilization Maintain Exceptional Operate Under
Risk Quality Elevated Transparency
• Drive care to ambulatory • Meet high standards for • Provide all necessary
medical network care quality across documentation, data
©2011 THE ADVISORY BOARD COMPANY • 23508A
• Reduce preventable multiple dimensions to CMS
acute care episodes • Demonstrate care • Manage communication
coordination across to key stakeholders
sites of care, over time
Source: Health Care Advisory Board interviews and analysis.
- 35. 35
Implications for Organizations Сonsidering the SSP
Eliminating Downside Risk from Track 1 Creates a Relative “Shallow End" for Prospective ACOs
• The elimination of any formal downside risk and the promise of first-dollar savings mean the one-sided
model is now a much more attractive option for wary ACO prospects hoping to remain in the shallow end of
the pool for the time being.
With Greater Risk in Track 2 Comes Greater (and Greater) Reward
• The higher basic sharing rate (60%, as compared to 50% in the one-sided model) along with a fixed MSR
(2%, compared to a sliding scale in the one-sided model) offers higher upside to successful ACOs. Of
course, that potential reward comes with the risk of having to repay losses, so those considering the two-
sided model will need to feel very prepared to perform well from the beginning of the program.
No Changes to the Criteria for Success as a Medicare ACO
• Managing utilization risk, delivering exceptional quality and operating under intense transparency from day
one are all critical factors for succeeding in the Shared Savings Program. Although the structural barriers
are far lower, the fundamental strategic imperative to develop an integrated care enterprise capable of
managing population health across the care continuum remains the baseline for success as an ACO.
©2011 THE ADVISORY BOARD COMPANY • 23508A
SSP Provides New Potential Upside—with Low-Risk—for Additional Return on Investments
• Whether in anticipation of accountable payment, in preparation for the challenges of an aging and
chronically ill patient population, or simply for reasons of clinical mission, many providers are building care
management infrastructure that can be leveraged to reduce the total cost of care. The Shared Savings
Program, especially the low-risk one-sided model, is a chance to convert a substantial portion of a
provider’s book of business to a payment model that rewards, rather than penalizes, this clinical
improvement.
Source: Health Care Advisory Board interviews and analysis.