CMS Bundled Payments Initiative October 4, 2011 Practice Groups: - - PDF document

CMS Bundled Payments Initiative

October 4, 2011

Practice Groups: Health Care Health Care Reform By Richard P. Church and Irene B. Nsiah

The Patient Protection and Affordable Care Act (“PPACA”), Pub. Law 111-148, authorized the creation within the Centers for Medicare and Medicaid Services (“CMS”) of a new Center for Medicare and Medicaid Innovation (“CMMI”) designed to test new payment models including bundled payment models. On August 23, 2011, the CMMI announced the Bundled Payments for Care Improvement Initiative (“Bundled Payment Initiative” or the “Initiative”). The Bundled Payment Initiative proposal includes four different payment models for providers: three retrospective payment bundling models and one prospective payment bundling model, each centered on a single episode of care or so-called “episode anchor.” The Initiative comes in follow up to CMS’s proposed Accountable Care Organization (“ACO”) rule released in April 2011,1 which has been widely criticized as impracticable in its proposed form. Since releasing the proposed ACO rule, CMS has promulgated a number of new demonstration projects, such as the Pioneer ACO, Advanced Payment ACO, and now the Bundled Payment Initiative, each of which appears designed to address some of the flaws identified in the proposed ACO rule. The Bundled Payment Initiative provides greater flexibility to the provider in determining target payment amounts, the episodes of care for which the provider will be accountable (and in turn for which beneficiaries it will be responsible), and the services to include in the bundled payment.

The Four Models

As set forth in detail in the CMS Table reprinted below, under the Bundled Payment Initiative, CMS will pay a single amount for an episode of care involving a defined period and set of services:  Model 1: covers all Part A services (including inpatient DRG, diagnostic services, and other separately billable Part A services) provided by a hospital in the 3 days prior to admission through acute discharge.  Model 2: covers the acute care stay, physician services, and other post-acute services (i.e. all Part A and Part B services, including readmissions) related to the episode of care for a period beginning with the acute inpatient stay and extending for a minimum of 30 days with a preference for longer post-acute care periods of 90 days or greater.  Model 3: covers all post-acute care services (i.e. all Part A and Part B services, including readmissions) related to the episode of care for a period beginning with a skilled nursing facility stay, inpatient rehabilitation or long-term care hospital stay, or the initiation of home health services and extending for a minimum of 30 days with a preference for longer post-acute care periods.  Model 4: covers all Part A services (including inpatient DRG, diagnostic services, and other separately billable Part A services) provided by a hospital in the 3 days prior to admission through acute discharge as well as any related Part A hospital expenses regarding a readmission and all Part B professional services during the same periods; payment is made to the hospital prospectively, i.e.

1 Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations, 76 Fed. Reg. 19528 (April 7, 2011).

CMS Bundled Payments Initiative

this is akin to a “super DRG” that includes all hospital and physician services and requires physician providers to bill the hospital for services rendered. The Initiative requires applicants in each model to provide CMS with a discount from the amount that CMS would otherwise pay for patient care under the traditional fee-for-service payment structure. CMS allows applicants to set the amount of the discount, but has stated that it will give preference to applicants that offer higher discounts. Under Model 1, in exchange for this discount, a hospital is permitted to make certain gainsharing payments to physicians, as discussed in more detail below. Under Models 2 through 4, the awardee will also share savings and bear risk for achieving an overall target price for the episode of care. CMS will pay using the current fee-for-service system. At the end

• f a patient’s episode of care, CMS will compare the total FFS payments with the target price. If the

total fee-for-service payments are below the target price, the participating organization may share in the savings. On the other hand, if total payments exceed the target price, the participating organization must pay back the difference to CMS. Under Model 4, CMS pays the participating organization a single prospective bundled payment for the episode of care. The organization must then distribute the payments to participating providers on a fee-for-service basis. KEY FEATURES OF BUNDLED PAYMENT MODELS COMPARED Model / Feature MODEL 1 Inpatient Stay Only MODEL 2 Inpatient Stay plus Post- discharge Services MODEL 3 Post-discharge Services Only MODEL 4 Inpatient Stay Only Eligible Awardees

• Physician group

practices

• Acute care hospitals

paid under the IPPS

• Health systems
• Physician-hospital
• rganizations
• Conveners of

participating health care providers

• Physician group

practices

• Acute care hospitals

paid under the IPPS

• Health systems
• Physician-hospital
• rganizations
• Post-acute providers
• Conveners of

participating health care providers

• Physician group

practices

• Acute care

hospitals paid under the IPPS

• Health systems
• Long-term care

hospitals

• Inpatient

rehabilitation facilities

• Skilled nursing

facilities

• Home health

agency

• Physician-hospital
• rganizations
• Conveners of

participating health care providers

• Physician group

practices

• Acute care

hospitals paid under the IPPS

• Health systems
• Physician-

hospital

• rganizations
• Conveners of

participating health care providers 2

CMS Bundled Payments Initiative

Model / Feature MODEL 1 Inpatient Stay Only MODEL 2 Inpatient Stay plus Post- discharge Services MODEL 3 Post-discharge Services Only MODEL 4 Inpatient Stay Only Payment of Bundle and Target Price Discounted IPPS payment; no separate target price Retrospective comparison of target price and actual FFS payments Retrospective comparison of target price and actual FFS payments Prospectively set payment Clinical Conditions Targeted All MS-DRGs Applicants to propose based on MS-DRG for inpatient hospital stay Applicants to propose based on MS-DRG for inpatient hospital stay Applicants to propose based on MS-DRG for inpatient hospital stay Types of Services Included in Bundle Inpatient hospital services

• Inpatient hospital and

physician services

• Related post-acute

care services

• Related readmissions
• Other services defined

in the bundle

• Post-acute care

services

• Related

readmissions

• Other services

defined in the bundle

• Inpatient hospital

and physician services

• Related

readmissions Expected Discount Provided to Medicare To be proposed by applicant; CMS requires minimum discounts increasing from 0% in first 6

• mos. to 2% in Year 3

To be proposed by applicant; CMS requires minimum discount of 3% for 30-89 days post- discharge episode; 2% for 90 days or longer episode To be proposed by applicant To be proposed by applicant; subject to minimum discount of 3%; larger discount for MS-DRGs in ACE Demonstration Payment from CMS to Providers

• Acute care hospital:

IPPS payment less pre-determined discount

• Physician:

Traditional fee schedule payment (not included in episode or subject to discount) Traditional fee-for- service payment to all providers and suppliers, subject to reconciliation with predetermined target price Traditional fee-for- service payment to all providers and suppliers, subject to reconciliation with predetermined target price Prospectively established bundled payment to admitting hospital; hospitals distribute payments from bundled payment Quality Measures All Hospital IQR measures and additional measures to be proposed by applicants To be proposed by applicants, but CMS will ultimately establish a standardized set of measures that will be aligned to the greatest extent possible with measures in other CMS programs *Source: CMS Fact Sheet, Bundled Payments for Care Improvement Initiative, Appendix (August 23, 2011) http://innovations.cms.gov/documents/pdf/Fact-Sheet-Bundled-Payment-FINAL82311.pdf 3

CMS Bundled Payments Initiative Eligible Entities

The Bundled Payment Initiative allows a variety of health care providers to participate in at least one

• f the four models. Depending on which of the four models an organization chooses, the following

providers may participate in the Bundled Payment Initiative:  Physician group practices  Acute care hospitals  Post-acute care providers  Health systems  Skilled nursing facilities  Home health agencies  Long-term care hospitals  Inpatient rehabilitation facilities  Physician hospital organizations  Conveners of participating health care providers The request for application (“RFA”) defines a “convener” as an entity that can bring together multiple participating health care providers, such as a state hospital association or collaboration of providers. Under the Bundled Payment Initiative, a convener may apply to participate as an awardee or

• facilitator. To participate as an awardee, the convener must bear financial responsibility for the

providers that it has brought together. A convener that is not capable of bearing financial risk may apply to be a facilitator. As a facilitator, the convener provides administrative and technical support to the Initiative. In addition, a facilitator convener can share risk and cost-savings with participating

• rganizations.

Similar to the proposed ACO rule, CMS indicates that all participating awardees must:  Develop quality measures, internal monitoring mechanisms, and quality improvement protocols to insure patient care is not reduced to achieve cost savings. As an example, participants under Model 1 must report the full set of Hospital Inpatient Quality Reporting Program (Hospital IQR) measures.  Must not restrict beneficiary choice of provider/supplier.  Must notify beneficiaries the provider is participating in the Bundled Payment Initiative. Among numerous standards that CMS indicates it will review in regard to proposed applications to participate in the Bundled Payment Initiative, CMS indicates that it will give preference to applicants that:  Are meaningful users of health information technology or have a minimum of 50% of their providers meeting the standards for meaningful use.  Indicate a higher historical rate of physician participation in the Physician Quality Reporting System (“PQRS”) and describe ways to encourage greater physician participation in PQRS for the duration of the Initiative.  Include governing bodies with meaningful representation from consumer advocates, patients, and all participating provider types/organizations.  Demonstrate other partnerships with state Medicaid programs, private payors, or multi-payor collaborations to redesign care. 4

CMS Bundled Payments Initiative Regulatory Parameters

Under PPACA, CMS is authorized in conjunction with CMMI projects to provide waivers to key health care regulatory parameters, such as the federal physician self-referral law,2 the federal anti- kickback statute3 and the Civil Monetary Penalties provisions related to gainsharing.4 To what extent CMS intends to utilize that authority similar to what was provided in regard to waivers to the proposed ACO rule5 is unclear. The RFA requests providers and suppliers to identify what waivers are requested as to fraud and abuse provisions. Further, the Initiative specifically contemplates waivers of the gainsharing rule similar to those found in other CMS demonstration projects and CMS identifies minimum parameters for the gainsharing component of proposals, including:  Physician and nonphysician practitioners may not reduce or limit services that are medically necessary to a patient entitled to benefits under Medicare.  Gainsharing arrangements must be transparent and auditable.  Physician participation in the gainsharing aspect must be voluntary; however, physicians may be required to be paid through the bundled payment model for all patients admitted for included DRGs.  Overall quality of care for beneficiaries cared for by physicians and nonphysician practitioners participating in gainsharing must meet minimum quality requirements and then remain constant or improve for the duration of the arrangement.  Individual physicians and nonphysician practitioners must meet quality thresholds and engage in quality improvement.  Payments may not be based on the volume or value of referrals or business otherwise generated between hospital and physician.  Payments to physicians and nonphysician practitioners may not exceed 50% of the amount that is normally paid to physicians and nonphysician practitioners for the cases included in the gainsharing initiative. Clinical integration models may also implicate federal and state antitrust and tax-exempt entity standards, however, and the RFA is silent on whether CMS will work with the Federal Trade Commission, Department of Justice, and Internal Revenue Service to obtain similar guidance to that promulgated in conjunction with the ACO rule as to this program.6 Further, such arrangements should also be reviewed carefully under state insurance laws (as to risk-bearing models) and cor practice of medicine guidance. porate

Timeline

Organizations interested in Model 1 must submit a nonbinding letter of intent (“LOI”) by October 6, 2011, and the application by November 18, 2011. For Models 2 through 4, interested organizations

2 42 U.S.C. § 1395nn. 3 42 U.S.C. § 1320a-7b(b). 4 42 U.S.C. § 1320a-7a(b) (prohibits a hospital from making a payment, directly or indirectly, to induce a physician to reduce or limit

services to Medicare and Medicaid beneficiaries under the physician’s direct care).

5 Medicare Program; Waiver Designs in Connection With the Medicare Shared Savings Program and the Innovation Center, 76 Fed.

• Reg. 19655 (April 7, 2011).

6 Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare

Shared Savings Program, 76 Fed. Reg. 21894 (April 19, 2011); Internal Revenue Service, Notice 2011-20 (March 31, 2011).

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CMS Bundled Payments Initiative

6 must submit a nonbinding LOI by November 4, 2011 and the application by March 15, 2012. Organizations interested in receiving historical Medicare claims data in preparation for Models 2 through 4 must file a separate research packet and data-use agreement in conjunction with the LOI. CMS will not consider applications from organizations that do not submit an LOI. The anticipated start date for Model 1 awardees is the first quarter of 2012, with a performance period

• f 3 years, and the possibility of extending an additional 2 years. CMS has not indicated the

anticipated start date for Models 2 through 4.

Conclusion

The Bundled Payment Initiative may provide a valuable alternative to health care providers interested in integrated delivery and payment models without incurring the organizational complexities and expense associated with development of an ACO. The Bundled Payment Initiative has certain key advantages over ACOs, such as:  Not requiring the establishment of new legal structures.  Allowing a provider to know in advance which beneficiaries and periods of care for which it will be accountable.  Limiting the amount of risk-bearing a provider will be involved in (and similarly the development

• f protocols and processes to effectively manage costs) by focusing only on key DRGs for which

the provider will participate. With this said, the Bundled Payment Initiative still involves significant complexity. Depending on the level of flexibility offered by CMS in regard to regulatory waivers, current information technology infrastructure, the need to develop integrated care protocols, and the complexities associated with administering the program (e.g. under Model 4 - becoming a payor), providers may still face substantial costs in effectively participating in the Bundled Payment Initiative that should be reviewed

• carefully. Further, entities participation in Models 2 through 4 must be capable of achieving savings

and prepared to bear substantial down-side risk if failing to do so. Nonetheless, given that LOIs are nonbinding and CMS indicates subsequent applications can be withdrawn, providers may want to file LOIs now to insure their ability to participate, while assessing the value and costs of doing so under the RFA. Contacts:

Boston Jan E. Murray 617.261.3191 jan.murray@klgates.com Chicago Daniel J. Lawler 312.807.4289 daniel.lawler@klgates.com Harrisburg Ruth E. Granfors 717.231.5835 ruth.granfors@klgates.com Miami William J. Spratt 305.539.3320 william.spratt@klgates.com Newark Stephen A. Timoni 973.848.4020 stephen.timoni@klgates.com Pittsburgh Edward V. Weisgerber 412.355.8980 ed.weisgerber@klgates.com

CMS Bundled Payments Initiative

Research Triangle Park Mary Beth Johnston 919.466.1181 marybeth.johnston@klgates.com Richard P. Church 919.466.1187 richard.church@klgates.com Washington, D.C. Stephen H. Cooper 202.661.3882 stephen.cooper@klgates.com

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