Prospective Retrospective Target budget for each episode Will - PDF document

Fee ‐ For Service Payer Episode ‐ Based Payment: Are You Ready For Medicare’s Next Wave of Provider Payment Reform? $ $ $ $ $ Robert Mechanic, MBA Brandeis University The Estes Park Institute March 26, 2012 Post Acute Hospital Internist Surgeon Specialist Bundled Payment Bundled Payment Payer Single payment to cover costs of episode of care $$$ Outpatient Professional (30, 60, 90 days) Professional Inpatient Professional services Shared Group is Accountability Inpatient responsible for Readmission Hospital or Integrated SNF Index Hospitalization Stays all care within Network the episode $ $ $ $ $ 30 - 180 day look-forward Brandeis University 4 Prospective Retrospective • Target budget for each episode Will Bundled • All providers paid FFS $$$ Payment • Periodic CMS settlements Really Be .…. – Distribute surplus – Reclaim deficit • Health system decides Hospital or Integrated Network – Whom to contract with $ $ $ $ $ – How to distribute bonuses Brandeis University Brandeis University 5 6

This NEW ‐ NEW Thing is Actually Old CMS Heart CMS Innovation Geisinger Medicare Bypass Center Bundled Provencare ACE Demo Demonstration Payment Pilots Will Bundled Payment Become the Next DRG System? 201 201 1991 ………. 2007 2008 2013 2009 2010 1 2 IHA Commercial CMS National Prometheus Bundled Pmt Payment Payment Project CA Bundling Pilot Brandeis University 7 Brandeis University 8 CMMI Bundled Payment Pilot • More flexible than prior programs – Four models CMS Innovation Center: – Prospective and retrospective options Bundled Payment Pilot – Applicants define bundles • Physician gain sharing allowed up to 50% of Medicare fee schedule • CMS encourages groups to apply Brandeis University 9 10 Brandeis University Bundled Payment Pilot Timeline Calculating Payments Under Medicare BP Pilot 2008 ‐ 09 2013 LOI and Design Bundles Expected Research Model Finances Start Historical Update Factor * Target Price Request Engage Medical Staff Date Cost Per CMS Discount * Episode $13,320 * For illustration $12,200 update = 3%/yr Feb 28, Nov 4, 2011 discount = 3% May 16, 2012 Jan 1, 2013 2012 BPLN Episode Definitions Expect Data Application Risk Adjustment Available Due 12 Brandeis University 11

Calculating Payments Under Medicare BP Pilot Calculating Payments Under Medicare BP Pilot 2008 ‐ 09 2013 2008 ‐ 09 2013 Historical Historical Update Factor * Target Price Update Factor * Target Price Cost Per Cost Per CMS Discount * CMS Discount * Episode Episode $13,320 $13,320 * For illustration * For illustration $12,200 $12,200 update = 3%/yr update = 3%/yr Settlement discount = 3% discount = 3% $420 BPLN Actual BPLN Actual FFS Cost FFS Cost Episode Definitions Episode Definitions Risk Adjustment Risk Adjustment $12,900 $12,900 13 14 CMMI Bundled Payment Pilot CMMI Bundled Payment Pilot Model 1* Model 2* Outpatient Professional Outpatient Professional Professional Professional Inpatient Professional Inpatient Professional services services Inpatient Inpatient Readmission Readmission SNF SNF Index Hospitalization Index Hospitalization Stays Stays 30 - 180 day look-forward Brandeis University Brandeis University 15 16 CMMI Bundled Payment Pilot CMMI Bundled Payment Pilot Model 3* Model 4: Prospective Pmt* Outpatient Professional Outpatient Professional Professional Professional Inpatient Professional Inpatient Professional services services Inpatient Inpatient SNF Readmission SNF Readmission Index Hospitalization Index Hospitalization Stays Stays 30 day look-forward Brandeis University Brandeis University 17 18

The asterisk* CMS will monitor and measure care provided during a post ‐ episode monitoring period to ensure that aggregate Medicare Part A and Part B spending for included beneficiaries does not increase. Should you do this? Aggregate expenditures for included beneficiaries during the episode and post ‐ episode monitoring period will be compared to a historical baseline payment trended forward which will include a risk threshold. If spending exceeds the risk threshold, the awardee must pay Medicare for the excess. Brandeis University 20 Projected Growth in Per Capita Medicare Spending above GDP Period Excess Rate of Spending Growth 1980 ‐ 2007 2.2% 1990 – 2007 1.6% 2012 ‐ 2021 ‐ 0.4% 2020 ‐ 2021 0.8% Source: Chernew et al., NEJM, October 6, 2011 based on CBO June 2011 budget outlook 21 Brandeis University 22 Brandeis University Why Episodes? Why Episodes? • Allows providers to proceed incrementally • New margin opportunity in a time of • Can (should) be based on clinical guidelines declining FFS reimbursement • Patient ‐ focused • A chance to learn/prepare • Encourages (or requires) participation by specialists • Incentives for improved efficiency and care coordination across settings Brandeis University Brandeis University 23 24

Average Risk ‐ Adjusted Spending for Medicare Total costs per episode split between Typical and Admission Plus 30 days Post Discharge Complications Congestive Heart Failure Comparing Hospitals in the Low and High Resource Use Quartiles $14,000 Service Low Average High Percent Dollars $12,000 Total episode $7,757 $9,278 $11,019 42.0% $3,262 Total Costs in Dollars $10,000 Hospital 4,837 4,826 4,824 0.0% (13) $8,000 $6,000 Physician 612 647 650 6.9% 38 $4,000 Readmission 1,102 1,986 2,965 169.0% 1,863 $2,000 Post-acute 842 1,378 2,041 142.0% 1,199 $0 Other 363 441 539 48.5% 176 Note: Spending for each service is based on national Medicare standardized payment rates excluding spending for Medicare Study Sample: Jan 2008 - July 2010. teaching and DSH and geographic payment adjustments for input price differences 25 Brandeis University Source: MedPAC, June 2008 Brandeis University 26 Financial Results Opportunities to Improve Margins June 2009 ‐ December 2010 Medicare ACE Demonstration: Primary Baptist Health System (San Antonio TX) • Reduce supply costs (e.g. implants) Shared Savings to Shared Savings to Volume Patients • Reduce errors and complications • Reduce post ‐ acute care costs ≈ 1,985 Patients $646K Conditional (dependent on backfill) • Reduce readmissions Gainshare to Hospital Savings Physicians y • Reduce length of stay >$4.3 Million $558K • Increase throughput Impact of operating improvements on other business lines 27 Brandeis University HAZEL Challenges Brandeis University 29 Brandeis University 30

Brandeis University 31 Brandeis University 32 “Revolution” or “Run ‐ Around” Questions • Can the industry agree on standards? Robert Mechanic • Can providers re ‐ engineer processes The Heller School for Social Policy & Management ‐ Clinical, Administrative, Social? The Health Industry Forum • Can we move from easy to hard Brandeis University episodes? mechanic@brandeis.edu www.healthforum.brandeis.edu • Can new systems promote clinical improvement while limiting gaming? 33 Brandeis University 34