Future of Rural Healthcare Strategies for Success. Iowa Healthcare Collaborative 13 th Annual Conference August 16, 2016 Eric K.

Transcription

1 Future of Rural Healthcare Strategies for Success Iowa Healthcare Collaborative 13 th Annual Conference August 16, 2016 Eric K. Shell, CPA, MBA

2 The Healthcare Environment Has Changed! In the past 36 months, the healthcare field has experienced considerable changes with an increased number of rural-urban affiliations, physicians transitioning to hospital employment models, flattening volumes, CEO turnover, etc. Federal healthcare reform passed in March 2010 with sweeping changes to healthcare systems, payment models, and insurance benefits/programs Many of the more substantive changes will be implemented over the next two years State Medicaid programs are moving toward managed care models or reduced fee for service payments to balance State budgets Commercial insurers are steering patients to lower cost options Thus, providers face new financial uncertainty and challenges and will be required to adapt to the changing market INTRODUCTION 2

3 Market Overview High Deductible Health Plans Non Healthcare CEO quote: We just renewed our High Deductible Plan going into our third year, and guess what...5% reduction in premium!!! Needless to say everyone is thrilled. Not sure what the average HSA balance is, but I think it is high. Doing what it is supposed to do, turning health care patients into consumers. Underinsurance State Budget Deficits Recovery Audit Contractors (RAC) Reduced Re-admissions Accelerating shift to outpatient care MACRA (SGR Fix) Comprehensive Pay Models 340B attacks Bipartisan Budget Act of 2015 Comprehensive Primary Care Plus payment model 3

4 Growth of High Deductible Plans 4

5 Underinsurance Rates Among Adults Who Were Insured All Year by Source of Coverage at the Time of Survey Source: 5

6 Reduced Readmission Rates CMS: 2,610 PPS hospitals to receive penalties in 2015 Source: Centers for Medicare and Medicaid Services, Offices of Enterprise Management 6

7 Market Overview Results Declining Patient Volumes Iowa Admissions per 1000 Population Source: Kaiser State Health Facts, kff.org 7

8 MACRA: Modernizing Payment for Quality On April 27, 2016, the DHHS issued a proposal to align and modernize how Medicare payments are tied to the cost and quality of patient care for hundreds of thousands of doctors and other clinicians First step in implementing certain provisions of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) Proposed rule would implement changes through framework called the Quality Payment Program, which includes two paths: The Merit-based Incentive Payment System (MIPS) Advanced Alternative Payment Models (APMs) We have more work to do, but we are committed to implementing this important legislation and creating a health care system that works better for doctors, patients, and taxpayers alike. We look forward to listening and learning from the public on our proposal for how to advance that goal. - HHS Secretary Burwell Source: CMS Press Office press release 4/27/16 8

9 MACRA/SGR Fix Rate Change Methodology Track 1 Advanced Payment Models (APM) Qualification requirements Physician must have 25% of Medicare revenue tied to ACOs, bundled payments, or medical homes by Threshold rises to 75% by 2023, but can include all revenue sources, not just Medicare Qualifying physicians receive 5% bonus from Afterwards their fee increases 0.75% / year (3 x higher growth rate than physicians in traditional payment system) Track 2 - MIPS (Merit-Based Incentive Payment Systems) to incentivize physicians to create framework for moving into value based payment model. Assessments based on 4 Metrics: 1. Quality, 2. Resource Use, 3. Meaningful Use of EHR & 4. Clinic practice improvement activities Penalties and Incentive range: -4% to +4% in 2018 increasing to -9% to +9% by EXCEPTIONAL performers receive additional incentive payments up to 10% of their FFS Medicare payments per year Sources: Health Affairs, Modern Healthcare, Congressional Budget Office 9

10 MACRA Rate Changes Summary Source: "Health Policy Brief: Medicare's New Physician Payment System," Health Affairs, April 21,

11 The Merit-based Incentive Payment System (MIPS) Most Medicare clinicians will participate in the Quality Payment Program through MIPS Four performance categories Performance Category % of Score in Years 1-5 Details Quality 50% 30% Clinicians choose to report six measures from a range of options that accommodate differences among specialties and practices Advancing Care Information 25% 25% Clinicians choose to report customizable measures that reflect how they use technology in their day-to-day practice Clinical Practice Improvement Activities 15% 15% Rewards clinical practice improvements, such as activities focused on care coordination, beneficiary engagement, and patient safety Cost 10% 30% Score based on Medicare claims using 40 episode-specific measures, meaning no reporting requirements for clinicians Source: CMS Press Office press release 4/27/

12 Joint Replacement Comprehensive Pay Model November 16,

13 Comprehensive Primary Care Plus (CPC+) 4/11/

14 Service Area Market Overview Healthcare Reform Coverage Expansion By 1/1/14, expand Medicaid to all non-medicare eligible individuals under age 65 with incomes up to 133% FPL based on modified AGI Currently, Medicaid covers only 45% of poor ( 100% FPL) 16 million new Medicaid beneficiaries; mostly traditional patients FMAP for newly eligible: 100% in ; 95% in 2017; 94% in 2018; 93% in 2019; 90% in Establishment of State-based Health Insurance Exchanges Subsidies for Health Insurance Coverage Individual and Employer Mandate Provider Implications Insurance coverage will be extended to 32 million additional Americans by 2019 Expansion of Medicaid is major vehicle for extending coverage May release pent-up demand and strain system capacity Traditionally underserved areas and populations will have increased provider competition Have insurance, will travel! 14

15 Service Area Market Overview Healthcare Reform Results (Source: Gallup August 10, 2015 Survey) IA 9.7% to 5.0% 15

16 Service Area Market Overview Healthcare Reform Medicare and Medicaid Payment Policies Medicare Update Factor Reductions Annual updates will be reduced to reflect projected gains in productivity Medicare and Medicaid Disproportionate Share Hospital (DSH) Payment Reductions Medicare Hospital Wage Index Independent Payment Advisory Board (IPAB) Charged with figuring out how to reduce Medicare spending to targets with goal of $13B savings between 2014 and 2020 Summary Impact 16

17 Service Area Market Overview Healthcare Reform 17

18 Service Area Market Overview Healthcare Reform Medicare and Medicaid Payment Policies (continued) Provider Implications Payment changes will increase pressure on hospital margins and increase competition for patient volume Do more with less and then less with less Medicaid pays less than other insurers and will be forced to cut payments further 18

19 Service Area Market Overview Healthcare Reform Medicare and Medicaid Delivery System Reforms Expansion of Medicare and Medicaid Quality Reporting Programs Medicare and Medicaid Healthcare-Acquired Conditions (HAC) Payment Policy By Oct. 2014, the 25% of hospitals with the highest HAC rates will get a 1% overall payment penalty Medicare Readmission Payment Policy Hospitals with above expected risk-adjusted readmission rates will get reduced Medicare payments Value based purchasing Medicare will reduce DRG payments to create a pool of funds to pay for the VBPP 1% reduction in FFY 2013, Grows to 2% by FFY 2017 Bundled Payment Initiative Accountable Care Organizations Each ACO assigned at least 5,000 Medicare beneficiaries Providers continue to receive usual fee-for-service payments Compare expected and actual spend for specified time period If meet specified quality performance standards AND reduce costs, ACO receives portion of savings 19

20 Service Area Market Overview Healthcare Reform Medicare and Medicaid Delivery System Reforms (continued) Medicare Accountable Care Organizations (continued) 154 ACOs effective August, ACOs effective January, ACOs effective January, ACOs effective January ACOs effective January million Medicare beneficiaries, or about 25% of total Medicare fee-forservice beneficiaries, now in Medicare ACOs 64 ACOs are in a risk-bearing track including SSP, Pioneer ACO Model, Next Generation ACO Model, and Comprehensive ESRD Care Model Source: HHS Press Release, January 11,

21 Where Are Medicare ACOs Forming? 21

22 ACO Growth

23 ACO Growth

24 ACO Growth

25 ACO Growth 2015 and beyond 25

26 ACOs New Regulations ACO Investment Model (AIM) October 15, 2014 Goal: help rural providers offset the cost of operating a MSSP ACO Benefits: New MSSP candidates receive upfront fixed payment ($250K) and variable payment based on attributed beneficiary ($36/beneficiary), and monthly variable payment based on attributed beneficiary ($8) Upfront payments will be recovered out of shared savings Pre-payments act as forgivable loan if applicant remains in MSSP for 3 years and meets eligibility and performance requirements Eligibility Accepted into MSSP Less than 10K lives No hospital unless CAH or rural hospital > 100 beds Competitive grant with positive points for providers willing to take downside risk 41 Participants effective January 1,

27 ACOs New Regulations Next Generation ACO Model March 10, 2015 Goal: Test ACO capacity to take on near-complete financial risk in combination with a stable, predictable benchmark and payment mechanism Design/Benefits Prospectively-set benchmark that incorporates historical and regional costs Future trend to incorporate regional trend, patient acuity, and quality/efficiency discount Payment options including normal FFS payment, normal FFS plus monthly infrastructure payment, population based payment; and capitation Choice of one of two risk sharing arrangements that determine portion of savings or losses that accrue to the ACO Minimum of 10K attributed beneficiaries or 7.5K if deemed rural 21 Participating ACOs effective January 1,

28 ACOs New Regulations June 4, 2015 More time under shared savings Added Track 3: 75% savings on risk sharing plans New methods to identify which patients are included Refines policies for resetting ACO benchmarks Announces CMS intent to propose further improvements to benchmarking 28

29 ACOs New Regulations January 28, 2016 Modify process for resetting the benchmarks Incorporate factors based on regional FFS expenditures including: Using regional versus national trends Adjusting subsequent rebased benchmarks using a % of difference between actual and FFS 29

30 Medicare ACO 2014 Results In August 2015, CMS issued 2014 quality and financial performance results showing that Medicare Accountable Care Organizations (ACOs) continue to improve the quality of care for Medicare beneficiaries, while generating financial savings, suggesting that ACOs are delivering higher quality care to more and more Medicare beneficiaries each year. According to the results During the third performance year, Pioneer ACOs generated total model savings of $120 million, an increase of 24% from Performance Year 2 ($96 million). Total model savings per ACO increased from $2.7 million per ACO in Performance Year 1 to $4.2 million per ACO in Performance Year 2 to $6.0 million per ACO in Performance Year 3. The mean quality score among Pioneer ACOs increased to 87.2 percent in Performance Year 3 from 85.2 percent in Performance Year 2, which was itself an improvement from 71.8 percent in Performance Year 1. The organizations showed improvements in 28 of 33 quality measures and experienced average improvements of 3.6% across all quality measures compared to Performance Year 2. Ninety-two Shared Savings Program ACOs held spending $806 million below their targets and earned performance payments of more than $341 million as their share of program savings. Shared Savings Program ACOs that reported in both 2013 and 2014 improved on 27 of 33 quality measures. Source: CMS.gov 2015 Fact Sheets MARKET OVERVIEW TRANSITION FRAMEWORK STRATEGIES 30

31 Medicare ACO Results 31

32 Fee-For-Service Financial Model Assumptions Utilization Inpatient and Outpatient Impact of ACA Impact of Blue Cross steerage initiatives Revenue Third party price increases Cost based Medicare revenue DSH payments (Zeroed out in 2014) Bad debt % of patient service revenue (75% reduction in 2014) Impact of ACA Meaningful use incentive payments Other operating revenue Non-operating gains and Expenses Salaries, wages and benefits Productivity Supplies and other 32

33 Fee-For-Service Financial Model Results When operating income becomes negative in 2016, cash reserves start to decline Millions $4 $2 $- $(2) $(4) $(6) $(8) $(10) $(12) $(14) $(16) $(18) Operating income (Consolidated) Operational improvement and shared service economies of scale are insufficient to combat declining utilization Can t cut your way to sustainability 33

34 Service Area Market Overview Healthcare Reform Medicare and Medicaid Delivery System Reforms (continued) Provider Implications Hospitals are taking the lead in forming Accountable Care Organizations with physician groups that will share in Medicare savings Value based purchasing program will shift payments from low performing hospitals to high performing hospitals Acute care hospitals with higher than expected risk-adjusted readmission rates and HAC will receive reduced Medicare payments for every discharge Physician payments will be modified based on performance against quality and cost indicators There are significant opportunities for demonstration project funding 34

35 Closed Rural Hospitals 35

36 Challenges Affecting Rural Hospitals Factors that will have a significant impact on rural hospitals over the next 5-10 years Difficulty with recruitment of providers and aging of current medical staff Struggle to pay market rates Increasing competition from other hospitals and physician providers for limited revenue opportunities Small hospital governance members without sophisticated understanding of small hospital strategies, finances, and operations Consumer perception that bigger is better Severe limitations on access to capital for necessary investments in infrastructure and provider recruitment Facilities historically built around IP model of care Increased burden of remaining current on onslaught of regulatory changes Regulatory Friction / Overload Payment systems transitioning from volume based to value based Increased emphasis of quality as payment and market differentiator Reduced payments that are Real this time 3rd party steerage (surgery, lab, and Imaging), RAC audits 36

37 We Have Moved into a New Environment! Subset of most recent challenges Payment systems transitioning from volume based to value based Increased emphasis as quality as payment and market differentiator Reduced payments that are Real this time New environmental challenges are the TRIPLE AIM!!! Market Competition on economic driver of healthcare: PATIENT VALUE 37

38 Future Hospital Financial Value Equation Definitions Patient Value Patient Value Quality Cost X Population Accountable Care: A mechanism for providers to monetize the value derived from increasing quality and reducing costs Accountable care includes many models including bundled payments, value-based payment program, provider self-insured health plans, Medicare defined ACO, capitated provider sponsored healthcare, etc. Different this time Providers monetize value Government All In New information systems to manage costs and quality Agreed upon evidence-based protocols Going back is not an option 38

39 Future Hospital Financial Value Equation ACO Relationship to Small and Rural Hospitals Revenue stream of future tied to Primary Care Physicians (PCP) and their patients Small and rural hospitals bring value / negotiating power to affiliation relationships as generally PCP based Smaller community hospitals and rural hospitals have value through alignment with revenue drivers (PCPs) rather than cost drivers but must position themselves for new market: Alignment with PCPs in local service area Develop a position of strength by becoming highly efficient Demonstrate high quality through monitoring and actively pursuing quality goals 39

40 Future Hospital Financial Value Equation Economics As payment systems transition away from volume based payment, the current economic model of increasing volume to reduce unit costs and generate profit is no longer relevant New economic models based on patient value must be developed by hospitals but not before the payment systems have converted Economic Model: FFS Rev and Exp VS. Budget Based Payment Rev and Exp Revenue Dollars Profit Zone Cost Loss Zone Service Volumes 40

41 Future Hospital Financial Value Equation Value in Rural Hospitals Lower Per Beneficiary Costs Revenue centers of the future PCP based delivery system CAH cost-based reimbursement Incremental volume drives down unit costs Once commitment to community Emergency Room, system incentives to drive low acuity volume to CAH MedPAC Confusion Limited Incentives to manage costs??? 41

42 The Challenge: Crossing the Shaky Bridge Fee for Service Payment System Population Based Payment System

43 The Premise Finance Function Form Macro-economic Payment System Government Payers Changing from F-F-S to PBPS Private Payers Follow Government payers Steerage to lower cost providers Provider Imperatives F-F-S Management of price, utilization, and costs PBPS Management of care for defined population Providers assume insurance risk Provider organization Evolution from Independent organizations competing with each other for market share based on volume to Aligned organizations competing with other aligned organizations for covered lives based on quality and value Network and care management organization New competencies required Network development Care management Risk contracting Risk management 43

44 Payment Transition - CMMI 44

45 Implementation Framework What Is It? Stroudwater Associates

46 Initiative I Operating Efficiencies, Patient Safety and Quality Hospitals not operating at efficient levels are currently, or will be, struggling financially Efficient is defined as Appropriate patient volumes meeting needs of their service area Revenue cycle practices operating with best practice processes Expenses managed aggressively Physician practices managed effectively Effective organizational design Graphic: National Patient Safety Foundation 46

47 Initiative I Operating Efficiencies, Patient Safety and Quality Focus on Quality and Patient Safety As a strategic imperative As a competitive advantage U.S. HHS Hospital Compare Measures Reported Core Measures: Timely Heart Attack Care Avg. # of mins before OPs w/ chest pain or possible heart attack got an ECG OPs w/ chest pain or possible heart attack who got aspirin within 24 hrs of arrival Timely Emergency Department Care Avg. time patients spent in ED before being sent home Avg. time patients spend in ED before they were seen by a healthcare provider Avg. time patients who came to the ED w/ broken bones had to wait for pain meds Percentage of patients who left the emergency department before being seen National Avg. Tennesse Average Johnson County Community Hospital Johnson City Medical Center Sycamore Shoals Hospital Watauga Medical Center Johnston Memorial Hospital Bristol Regional Medical Center Wake Forest Baptist Medical Center Franklin Woods Community Hospital Holston Valley Medical Center Caldwell Memorial Hospital 97% 96% 97% 96% 98% 100% 98% 100% % 2% 1% 2% 0% 2% 0% 2% 3% 1% 2% 4% Best Score Better than State Worse than State Worst Score Source: Date: 7/1/2014-6/30/

48 Initiative II Primary Care Alignment Understand that revenue streams of the future will be tied to primary care physicians, which often comprise a majority of the rural and small hospital healthcare delivery network Thus small and rural hospitals, through alignment with PCPs, will have extraordinary value relative to costs Physician Relationships Hospital align with employed and independent providers to enable interdependence with medical staff and support clinical integration efforts Contract (e.g., employ, management agreements) Functional (share medical records, joint development of evidence based protocols) Governance (Board, executive leadership, planning committees, etc.) Potential Model for Rural: New PHO 48

49 Initiative III Rationalize Service Network Develop system integration strategy Evaluate wide range of affiliation options ranging from network relationships, to interdependence models, to full asset ownership models Interdependence models through alignment on contractual, functional, and governance levels, may be option for rural hospitals that want to remain independent Explore / Seek to establish interdependent relationships among small and rural hospitals understanding their unique value relative to future revenue streams Identify the number of providers needed in the service area based on population and the impact of an integrated regional healthcare system Conduct focused analysis of procedures leaving the market Understand real value to hospitals Under F-F-S Under PBPS (Cost of out of network claims) 49

50 Payment System Strategy Initiative I Develop self-funded employer health plan Hospital is already 100% at risk for medical claims thus no risk for improving health of employee population Change benefits to encourage greater consumerism Differential premium for elective risky behavior Enroll employee population in health programs health coaches, chronic disease programs, etc. FFS Quality and Utilization Incentives Maximize FFS incentives for improving quality or reducing inappropriate utilization (e.g., inappropriate ER visits, re-admissions, etc.) 50

51 Payment System Strategy Initiatives II and III Initiative II: Implementation planning for transitional payment models Transitional payment models include: FFS against capitation benchmark w/ shared savings Shared savings model Medicare ACOs Shared savings models with other governmental and commercial insurers Partial capitation and sub-capitation options with shared savings Prioritize insurance market opportunities Take the initiative with insurers to gauge interest and opportunities for collaborating on transitional payment models Explore direct contracting opportunities with self-funded employers Initiative III: Develop strategy for full risk capitated plans 51

52 Population Health Strategies A narrow rural/urban provider network focused on patient value Aggregates multiple rural/cah populations for critical mass Restricted to payers willing to commit to population health and payment On CCO s terms NOT for existing fee-for-service or cost contracts Actively secures and manages risk/reward-based payer contracts Supports PCP-focused quality & care coordination across the network Retains local hospital independence, but with contractual accountability Houses care management infrastructure 52

53 Population Health Strategies Phase I Phase I: Develop Population Health building blocks Goal: Infrastructure to manage self insured lives and maximize FFS Utilization and quality incentives Initiatives: PCMH or like structure Care management Discharge planning across the continuum Transportation, PCP, meds, home support, etc. Transitions of care (checking in on treatment plan) Medication reconciliation Post discharge follow-up calls (instructions, teach back, medication check-in) Identifying community resources Maintain patient contact for 30 days Develop claims analysis capabilities/infrastructure Develop evidenced based protocols 53

54 Implementation Framework In Review Stroudwater Associates

55 Conclusions/Recommendations For decades, rural hospitals have dealt with many challenges including low volumes, declining populations, difficulties with provider recruitment, limited capital constraining necessary investments, etc. The current environment driven by healthcare reform and market realities now offers a new set of challenges. Many rural healthcare providers have not yet considered either the magnitude of the changes or the required strategies to appropriately address the changes Core set of new challenges represents the Triple Aim being played on in the market Locally delivered healthcare (including rural and small community hospitals) has high value in the emerging delivery system Shaky Bridge crossing will required planned, proactive approach Finance will lead function and form Maintain alignment between delivery system models and payment systems building flexibility into the delivery system model for the changing payment system CONCLUSIONS / RECOMMENDATIONS 55

56 Conclusions/Recommendations (continued) Important strategies for providers to consider include: Increase leadership awareness of new environment realities Strategic plan to be updated to incorporate new strategic imperatives Bridge Strategy Improve operational efficiency of provider organizations Adapt effective quality measurement and improvement systems as a strategic priority Align/partner with medical staff members contractually, functionally, and through governance where appropriate Seek interdependent relationships with developing regional systems CONCLUSIONS / RECOMMENDATIONS 56