Value Based Purchasing

Increasingly, payers are trying to tie payment for health care services to quality outcomes. In the Medicare program, what started out years ago as payment penalties for failure to report information associated with best practices, is being converted into payment policies with “teeth”, where payments are cut or provider rewards/penalties are defined in relationship to actual health outcomes to be regularly reported by providers. An elaborate infrastructure is evolving to define and validate quality measures that can be used in payment system reform. In 2012, the first value based purchasing requirements were built into the Inpatient Prospective Payment System and the End Stage Renal Disease Payment System, and each Medicare payment system is now scheduled to have new quality measures incorporated, along with payment penalties. Medicare has signaled its intent to standardize these measures as much as possible across the health care system and has incorporated value based purchasing into its various demonstrations and reform initiatives.

In its demonstration projects and initiatives to reform the health care delivery system and tie payment to outcomes, Medicare has developed “gain sharing” and other programs that allow providers to propose a price for certain services and either keep the difference between their bid price and actual experience, or to share the savings with Medicare or with other providers. These systems are designed to reform health care delivery by providing an incentive to providers to eliminate duplicative and unnecessary care, and to become more cost conscious in purchasing decisions. The gain or penalty will be affected by provider performance scores dependent on some configuration of outcome measures.

The Moran Company monitors the evolving value based purchasing practices and requirements across Medicare payment systems, demonstrations and initiatives. Certain quality outcomes are also being looked at for inclusion in Medicaid programs, such as those that penalize providers for high re-hospitalization rates and for hospital acquired infections. While we do not participate in the clinical activities associated with developing quality measures, we do assist providers and industry groups with exploring the implications of the inclusion of quality measures into payment systems and the associated reporting and payment penalty issues.

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Bundled Payments

“Bundling” is a strategy long used by commercial managed care companies to pay for a “case” or set of services. Over the last few years it has become a larger and larger part of thinking about payment systems in the Medicare program. The Medicare inpatient prospective payment system established diagnosis related groups (DRGs) as the unit of payment for entire hospital stays, and Medicare has gone on to integrate increasing degrees of “bundling” (sometimes referred to as “packaging”) into payment for other services. The Moran Company works across all Medicare payment systems and tracks the diffusion of payment policies from one payment system to another, including the reforms underway to increase the degree of bundling in reforming payment systems and demonstration programs.

Recent initiatives to develop post acute bundles by the Centers for Medicare and Medicaid Innovation (CMMI) look at the care that occurs during and after a hospitalization. These innovations are new and complex. The first providers to participate will have an impact on informing policy making about how hospital bundling and post acute bundling can be expanded. The Moran Company is involved with a number of clients in helping industry groups understand the complex policy issues involved in expanding bundled payments and communicating these concerns to policymakers. We also work with individual companies seeking to participate and influence these initiatives. We have the capacity to model a variety of bundling scenarios and provide both strategic and operational advice to providers about how these changes to payment can provide opportunities and threats to their financial performance.

Future bundling is expected to unfold in the Medicare physician fee schedule in 2015 related to selected conditions, and may ripple through commercial and Medicaid payment systems as well.

Various forms of bundling may be implemented in other demonstrations for dual eligible (Medicare and Medicaid) beneficiaries with 28 states slated to start programs in 2013. The tool kit to explore bundling is evolving on a constant basis, and The Moran Company is staying on top of changes as they evolve, including looking at realistic approaches to risk mitigation for those entities participating in bundling initiatives.

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Other Payment System Reforms

With health care costs increasing and the U.S. population aging, policymakers are looking to the private sector for ideas of how to contain costs in public programs. The private sector, at the same time, is monitoring changes in public programs to take advantage of changes unfolding there. In a volatile policy environment, it is difficult to predict what will happen, but increasing cost and budget pressures will continue to drive health care systems toward change that better manages costs in relation to quality of care. In this environment, some of the system changes unfolding are described below. The Moran Company tracks the flow of innovations underway and which geographic areas are subject to more or less intense reform activity. We can help our clients strategize regarding the differences in geographic regions subject to more intensive reform, to help them target their activities and to anticipate change as it unfolds.

    • Accountable Care Organizations (ACOs): ACOs both in the private sector and recently incorporated into the Medicare Program through federal rules, are responsible for the costs and quality of all health care delivered to a population, generally defined as those patients seeing identified primary care practitioners. Pioneer ACOs (a demonstration fielded by CMMI in 2011) are in place in a number of metropolitan areas, and new ACOs approved under the Medicare Shared Savings Program rules recently finalized by CMS are starting to operate as waves of them are approved. Medicare ACOs bundle Part A and Part B services, but so far exclude Part D drugs. The impact of these programs will vary markedly across different geographic regions.
    • Primary Care Medical Homes and Advanced Primary Care Programs: Both commercial insurance pilots and all-payer demonstrations sponsored by the federal government are underway to develop techniques to increase the responsibility primary care practitioners take for coordinating care for their patients. These initiatives vary widely in design, but are generally piloting ideas of paying primary care practitioners additional fees to increase their role in coordinating care, with particular attention to patients with multiple chronic diseases. Part of the design for these initiatives targets continuity for patients when their insurance coverage changes. Design elements also encourage specialists to take on primary care coordination for patients who are likely to receive most of their care through a specialist for some period of time due to the dominant role an acute condition or chronic disease plays in their use of health care resources.
    • Medicaid Expansions: New Medicaid rules are opening up options for states to reconfigure the services that are provided in Medicaid programs. Recent rule changes make expansion of home and community based waiver services available to more patients for a broader array of needs and covering more services to prevent institutional placement and prevent hospitalization. The Affordable Care Act expands the Medicaid population in 2014 to include low income adults that have historically gone without health insurance and have needs that the existing Medicaid programs are not designed to meet. While the scope of this expansion is uncertain in light of the Supreme Court’s ruling, it will require considerable adaptation within the states that decide to meet the needs of this historically uninsured population. In addition, states are making a variety of changes in Medicaid programs to address their budget shortfalls. Overall, Medicaid programs are under close scrutiny to better deploy their resources to address the needs of low income beneficiaries. Many states have increased their use of Medicaid managed care strategies in recent years and that is expected to continue.
  • Demonstrations and pilot initiatives to decrease rehospitalization and improve hospital care have been released under the CMMI to test a variety of strategies to improve post acute transitions in and out of hospital care, including prevention of hospitalization. These programs are designed to field and test a wide variety of ideas with the intention of taking ideas that prove to be successful to scale and integrating model programs into policy at state or national levels.

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