P r e p a r i n g f o r G l o b a l P a y m e n t : W h a t Yo u S h o u l d B e D o i n g N o w

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1 P r e p a r i n g f o r G l o b a l P a y m e n t : W h a t Yo u S h o u l d B e D o i n g N o w Peter R. Epp, CPA Managing Director May 9, 2013

2 O V E R V I E W Commonwealth s Payment Reform Overview and Evolution of Payment Models ACOs and Global Payments PCPR Initiative Evaluating Payment Mechanism PCPR Readiness Keys to Success in Global and PCPR Payments 2

3 O V E R V I E W C O M M O N W E A L T H S P A Y M E N T R E F O R M In 2008, the Special Commission on the Health Care Payment System was created to investigate reforming and restructuring the system to provide incentives for efficient and effective patient-centered care and to reduce variations in the quality and cost of care. On July 16, 2009, Recommendations of Special Commission on the Health Care Payment System was published. Global payments with adjustments to reward provision of accessible and high quality care to be implemented over a period of five (5) years Development of Accountable Care Organizations (ACOs) composed of hospitals, CHCs, physicians and/or other providers that accept responsibility for all of most of the care that enrollees need Patient-Centered Medicaid Home (PCMH) ACOs to undergo the necessary practice redesign to become effective PCMHs Patient s selection of a primary care provider will direct insurer payments to the ACO with which the patient s primary care physician is affiliated Use of Pay-For-Performance (P4P) incentives to ensure appropriate access to care, and encourage quality improvement and care coordination among providers Global payments will be adjusted to reflect patient demographics and health conditions 3

4 O V E R V I E W C O M M O N W E A L T H S P A Y M E N T R E F O R M New for 2013 : Primary Care Payment Reform (PCPR) Initiative goal is to improve access, patient experience, quality and efficiency through a new care delivery model Emphasizes the NCQA Patient Centered Medical Home (PCMH) Care coordination for all panel enrollees and clinical care management for high-risk panel enrollees Integrates primary care services with behavioral health services Provide either internally or through contractual arrangements Creates a new payment mechanism A comprehensive primary care payment coupled with quality incentive payments and a shared savings/risk payment 4

5 O V E R V I E W O F P A Y M E N T M O D E L S Fee-For-Service a payment model in which services are unbundled and paid separately based on the number of units provided Capitation a payment arrangement in which a provider is paid a set amount for each enrolled person assigned to them, per period of time (e.g. per member per month, or PMPM), whether or not that person seeks care Global Capitation (full-risk) the provider is responsible for the full scope of covered services available to the enrollee/member Partial Capitation (partial-risk) the provider is responsible for a subset of covered services available to the enrollee/member 5

6 O V E R V I E W O F P A Y M E N T M O D E L S Incentive Payments payments made to providers for attaining certain, payor-specific measures Quality measures Process measures Patient satisfaction measures Risk-Sharing payment arrangements in which the provider can share with the payor in the losses or surpluses of overall healthcare expenditures for enrollees/members assigned to the provider (upside and downstate risk) Surplus-Sharing a risk-sharing arrangement in which the provider shares in only the surpluses in overall healthcare spending for enrollees/members assigned to the provider (no downside risk) 6

7 E V O L U T I O N O F P A Y M E N T M O D E L S Excerpt from United Hospital Fund: An Issue Brief Moving Toward Accountable Care in New York,

8 E V O L U T I O N O F P A Y M E N T M O D E L S Managing financial success in a capitated environment Patient A Annual Revenue Rate ($25 PMPM) 12 months = $300 Annual Cost: Patient B Rate ($25 PMPM) 12 months = $300 Cost per visit $125/visit $125/visit # of visits per year 2 visits/year 3 visits/year Annual Cost $250 $375 Financial Success $50 $(75) How does a health center manage financial risk? One patient with unusually high utilization can have a dramatic downward impact on financial performance! 8

9 E V O L U T I O N O F P A Y M E N T M O D E L S The paradigm shift in managing financial success Payment Model Fee-For-Service Payment based on the # of units (visits) provided Revenue Equation # of units rate = revenue Financial Success Increase productivity and the # of units to increase revenue Capitation Payment based on the # of patients assigned to the Center # of patients rate PMPM 12 months = revenue Reduce the cost per unit, manage patient utilization and minimize risk through increased # of patients and improved health outcomes 9

10 E V O L U T I O N O F P A Y M E N T M O D E L S The key to financial success in all payment models is based on your understanding of: The services covered by the payment What services do you provide versus other providers? Your unit cost per service How efficient are you at the provision of services? Patient utilization of services Do you understand how patients utilize services and variations based on health status? Quality of services and patient outcomes 10

11 O V E R V I E W A C C O U N T A B L E C A R E O R G A N I Z A T I O N S ( A C O s ) Per the Recommendations of the Special Commission on the Health Care Payment System: ACOs accept the responsibility for all or most for the care that enrollees need. ACOs will be composed of hospitals, physicians and/or other clinician and nonclinician providers working as a team to manage both the provision and coordination of care for the full range of services that patients are expected to need. ACOs could be real (incorporated) or virtual (contractually networked) organizations The Special Commission anticipates that a broad array of ACO models might emerge, and encourages the development of a large number of ACOs ACOs might have different central organizational forms and legal relationships among the parties associated with the central organization 11

12 Make Payments Allocate $ Leadership Coordinate Providers Pharmacy Specialists Monitor Quality Platform for Information Exchanges Home Care Other/Non Traditional Patients Ancillary Providers Hospitals Long Term Care Public Health Agencies Hospice WHAT ROLE WILL YOUR CENTER PLAY?

13 M A N A G I N G G L O B A L P A Y M E N T S Global payments prospectively compensate providers for all or most of the care that their patients require over a contract period, usually estimated from past cost experience and an actuarial assessment of future risk Providers are at financial risk for their clinical performance and coordination of care ( performance risk ) for patient-level health care for a specified period of time Insurance risk (the occurrence of health problems over which providers do not have control) to be covered through Risk-adjustments to global payments to reflect the underlying health conditions of patients Carriers might also develop stop-loss or risk corridor arrangements with providers In the global payment environment, CHCs will need to manage the budget for health care services for which they have assumed the responsibility and are at-risk 13

14 M A N A G I N G G L O B A L P A Y M E N T S Sample Construct of a Global Payment Rate: Differs based on Health Condition of Patient Service Description Expected Utilization Unit Cost Cost Per Patient Per Year Inpatient Care 1 $320 per discharge $ 320 Specialty Care 1 $100 per visit 100 Primary Care* 3 $65 per visit 195 Behavioral Health Care* 1 $50 per visit 50 Laboratory 8 $10 per lab test 80 Radiology 2 $25 per xray 50 Pharmacy 5 $25 per script 125 PCMH Services* 120 Patient Transportation 6 $10 per trip 60 Administration/HIT 100 TOTAL $1,200 In this example, the ACO would be paid $100 PMPM to cover all health care services provided to the patient! 14

15 O P E R A T I N G I N A G L O B A L P A Y M E N T E N V I R O N M E N T How does an ACO stay financially viable and generate savings? Increase members to spread risk Monitor/Reduce payments to downstream providers Reduce payment rates Reduce utilization of services (case management) Improve quality to access incentive payments What does an ACO look for in a primary care provider? Quality services Strong patient relationships and broad patient base Ability to partner and drive down the overall cost of care 15

16 O V E R V I E W P C P R I N I A T I V E P A Y M E N T M E C H A N I S M Comprehensive Primary Care Payment (CPCP): A risk adjusted*, per Panel Enrollee, per month payment for a Defined set of primary care services, and Options for a defined set of behavioral health services 3 tiers of CPCP rates will be developed - Tier Type of Behavioral Health Integration Level of Behavioral Health Covered Services 1 Non-Co-Located but Coordinated None 2 Co-Located Minimum 3 Clinically Integrated Maximum * Risk-adjusted means a health center s rate will be adjusted to reflect (1) the demographics of patients served and (2) adjusted for CPCP services provided by external providers 16

17 O V E R V I E W P C P R I N I A T I V E P A Y M E N T M E C H A N I S M Quality Incentive Payment: Additional payments for achieving certain threshold relative to selected quality measures Shared Savings/Risk Payment: Additional payment/payback, with an option of one of the following 3 risk tracks, with varying levels of risk and reward - Track Risk Arrangement Minimum Panel Size Risk/Reward 1* Upside/Downside 5,000 For all 3 years, receive/owe 60% of difference between actual and target spend levels, with a risk corridor 2* Transitioning to Downside 5,000 Year 1 & 2, similar to Risk Track 3 Year 3, similar to Risk Track 1 3 Upside Only 3,000 For all 3 years, receive an increasing amount of the savings, capped at 50% * Selection of Risk Tracks 1 and 2 require certification as a risk-bearing provider 17

18 E V A L U A T I N G C P C P P A Y M E N T L E V E L S Basic CPCP Rate Equation: Basic steps in the construction of a PMPM rate 1. Definition of the covered services, or the services to be included in the rate (e.g. CPCP Services) 2. Determination of the total cost of covered services 3. Determination of billable units of service (e.g. Member Months) 4. Monthly PMPM rate equation: Monthly CPCP Payment = Total Cost of CPCP Services Total Member Months 18

19 C P C P C O V E R E D S E R V I C E S Defining CPCP Covered Services : CPCP Covered Services are identified in the Model Contract which accompanied the RFA as well as Section 3 of the RFA Clinical Delivery Model Attachment C of the RFA: List of CPCP Covered Services (detailed down to the CPT code level) Attachment K of the RFA: List of Behavioral Health Covered Services Health centers need to prepare an inventory of current services provided as compared to the required covered services to identify gaps and then answer the following questions: What additional services are required to satisfy the CPCP required services, and at what cost? What level of behavioral health services are currently provided? What arrangements do we have with other providers? Should we bring additional services in-house or contract? What CPCP Tier level are we able to participate in? 19

20 C P C P C O V E R E D S E R V I C E S PCC: Physicians, independent nurse practitioners, group practices, community health centers, hospital outpatient departments Care Coordination Services (PCMHI equivalent) Behavioral Health Services Tier 1 Primary Care Bundle: Preventive Services Office Visits Immunizations Behavioral Health Services Tier 2 Clinical Care Mgmt Services (for Highest Risk Panel Enrollees) Behavioral Health Services Tier 3 Clinical psychologists, clinical social workers Psychiatrists, nurse practitioners, physician assistants, RNs 20

21 C A L C U L A T I O N O F C O S T O F C P C P C O V E R E D S E R V I C E S Calculating the Cost of CPCP Covered Services : The cost for a patient is driven by the following key drivers Cost per unit of service (e.g. visits, procedures, patients) Number of units provided per patient per year (patient utilization) The health condition of the patient 3 levels of analysis can be utilized to determine the cost per patient per month, based on the understanding of covered services Utilizing annual visit and cost data on an aggregate basis (not recommended) Utilizing patient utilization (visit) and cost per visit data Utilizing patient utilization and cost data on a per procedure basis (preferred) 21

22 C P C P C O S T D E T E R M I N A T I O N Simple Calculation Aggregate Visit Basis: Service Description Annual Utilization Unit Cost Annual Cost Primary Care 15,000 visits $175 per visit $ 2,625,000 Behavioral Health Care 5,000 visits $100 per visit 500,000 Care Management (PCMH) 5,000 patients $75 per patient 375,000 Total Direct Care 3,500,000 Administration/HIT 20% of direct 700,000 Total cost of covered services $ 4,200,000 Number of patients 5,000 Cost per patient per year $ 840 Cost per member per month $ 70 In this example, the CPCP payment PMPM would need to be $70 or more in order for the payment to cover costs! 22

23 C P C P C O S T D E T E R M I N A T I O N Simple Calculation Per Visit per Patient Basis: Service Description Patient Utilization Unit Cost Annual Cost per Patient Primary Care 3 visits PMPY $175 per visit $ 525 Behavioral Health Care 1 visit PMPY $100 per visit 100 Care Management (PCMH) 1 patient $75 per patient 75 Total Direct Care 700 Administration/HIT 20% of direct 140 Total cost of covered services $ 840 Cost per member per month $ 70 In this example, the importance of understanding patient utilization of services, on a gross level, is highlighted! 23

24 C P C P C O S T D E T E R M I N A T I O N Complex Calculation Per Procedure per Patient Basis: Service Description Primary Care: Patient Utilization Unit Cost (per procedure) Annual Cost per Patient Office Visits 3.00 $ 150 $ 450 Immunizations Medical Nutrition Behavioral Health Care: Individual psychotherapy Group psychotherapy PCMH Services: Case management Total Direct Care 820 Administration/HIT 20% of direct 164 TOTAL $984 In this example, the cost PMPM for this patient is $82! 24

25 C A L C U L A T I O N O F C O S T O F C P C P C O V E R E D S E R V I C E S Pros and Cons of each method: Aggregate Visit Basis (not recommended) Simplest to calculate Cannot assess patient utilization patterns, variations and trends Per Visit Per Patient Basis Simple to calculate and can start to assess individual patient utilization variations Does not allow for an understanding of services provided in the exam room to better understand utilization patterns and how to improve health outcomes Per Procedure per Patient Basis (preferred) Most complex to calculate and requires an understanding of a costbased charge structure and capturing non-cpt codeable interventions Most accurate at understanding services provided to patients and how to improve health outcomes and improve efficiencies 25

26 E V A L U A T I N G P O T E N T I A L F O R Q U A L I T Y I N C E N T I V E P A Y M E N T S Quality Incentive Payments are available under 2 programs Pay-for-Reporting (P4R) Pay-for-Quality (P4Q) Transition In Year 1, incentive payment will only be available for P4R In Years 2 and 3, some quality measures may be assigned to the P4Q program In Year 3, some quality measures may be used to modify Shared Savings/Risk Payments Prior to each year, a maximum base payment amount will be determined for calculation of the incentive payments Preparing for Quality Incentive Payments Obtain the preliminary list of quality measures and start preparing your health information technology system to report on these measures Do not budget anticipated incentive payments too many variables can change! 26

27 E V A L U A T I N G P O T E N T I A L F O R S H A R E D S U R P L U S / R I S K P A Y M E N T S Shared Savings/Risk Payments are available under 3 risk tracks Upside/Downside risk Transitioning to downside risk Upside risk only Participating in downside risk arrangements are very risky and require very sophisticated systems and a highly integrated/ collaborative network of providers! Preparing for Shared Savings/Risk Payments Improve your electronic health record and HIT systems to encompass all aspects of your own operations Identify key partners to collaborate with to collectively improve health outcomes and drive down the overall cost of care Participate in health information exchange initiatives with other providers and payers Develop/execute best practices Consider the use of actuaries and applying for re-insurance Do not budget anticipated shared savings payments too many variables can change! 27

28 R E A D I N E S S F O R T H E P C P R I N I T I A T I V E Comprehensive Primary Care Payments (CPCP) Understand the specific covered service package and fill-in the gaps Understand your patients and their annual utilization of services, at the individual service level In-house services versus external providers Understand the individual utilization patterns of patients and assess how they can be improved Historical experience versus expected Actuarial mix of patients Understand your costs on a per patient and a per unit of service basis Compare to benchmarks and evaluate chances for financial success Evaluate and compare to payment rates 28

29 R E A D I N E S S F O R T H E P C P R I N T I A T I V E Quality Incentive Payments Ensure HIT is ready to report quality measures Ensure reporting systems in place to report/monitor quality measures Clinical staff are trained on utilizing quality measure reporting and implementing best practices to improve outcomes Shared Saving/Risk Payments Efficient and effective electronic health records at provider organizations Health information exchange systems are in-place Quality partners have been identified and arrangements executed Informatics and data reporting systems in-place to manage all services provided to the patient Benchmarks and expected utilization patterns evaluated; ability to generate a surplus (actuary?) 29

30 K E Y S T O S U C C E S S I N G L O B A L A N D P C P R P A Y M E N T S PATIENTS PCPR Initiative Global Payments Know who they are and keep them happy Increase your patient base Understand your patients utilization patterns and where they access services Minimize risk Attribution of patients Create leadership role in governance Improve financial performance; Improve health outcomes; Identify quality partners 30

31 K E Y S T O S U C C E S S I N G L O B A L A N D P C P R P A Y M E N T S SERVICES PCPR Initiative Global Payments Know the covered service package Round-out the services you provide in-house Provide quality services Partner with other quality provider organizations Required planning for success Improve care coordination Access quality incentive payments Improve health outcomes Generate savings Define who you are in the ACO Key attribute of leaders in an ACO 31

32 K E Y S T O S U C C E S S I N G L O B A L A N D P C P R P A Y M E N T S SYSTEMS PCPR Initiative Global Payments Refine finance systems to analyze cost per patient Refine finance systems to analyze cost per procedure Fine-tune data capture and reporting of EHR/PMS systems Implement health information exchange Manage profitability of provider payment models Ability to cost-out services for different payment models; Ability to analyze/improve efficiency of services Support data requirements of finance systems; Improve health outcomes Improve health outcomes Improve health outcomes; Manage utilization and create savings 32

33 C O N T A C T I N F O R M A T I O N Peter R. Epp, CPA, Managing Director CohnReznick Peter.Epp@CohnReznick.com 33