Medicare Comprehensive ESRD Care (CEC) Initiative May 2013 Avalere Health LLC Avalere Health LLC The intersection of business strategy and public policy
Background On February 4, 2013, the Center for Medicare & Medicaid Innovation (CMMI) issued a Request for Applications (RFA) for the Comprehensive End-Stage Renal Disease (ESRD) Care (CEC) Model CMMI estimates that ESRD beneficiaries account for 7.5 percent of Medicare spending (over $20 billion in 2010), despite constituting 1.3 percent of the Medicare population Under this initiative, dialysis provider and supplier organizations may collaborate to manage and coordinate care for ESRD beneficiaries through an ESRD Seamless Care Organization (ESCO) Participating providers are eligible to receive payments for shared savings if the ESCO meets certain quality performance standards and cost savings requirements CMMI expects between 10 and 15 unique ESCOs to participate in the CEC Model, with representation from a diverse group of dialysis providers Page 2
CEC Model Objective Establish a new Medicare model of payment to test for: Improving care for beneficiaries with ESRD Reducing costs to the Medicare program CMS has listed some potential strategies: Fewer visits to ED, reduced hospitalizations and re-hospitalizations Reduced length of stay Wider adoption of improved clinical practices resulting in improved outcomes and reduced risk of adverse events Additional referrals to transplant centers Reduction in catheter-delivered hemodialysis Increased use of home dialysis as appropriate Improved quality of life and functional status among ESRD beneficiaries Applicants will be selected based on the proposed approach to care redesign Page 3
ESCO Compositional Structure CMS ESCO (legal entity) Mandatory ESCO Participant Owners Optional ESCO Participant Non-Owners Dialysis Providers Nephrologists / Nephrology Practices Other Medicare enrolled providers and suppliers* Other Medicare enrolled providers and suppliers (other than dialysis suppliers and nephrologists / nephrology practices)* Required Risk Arrangements for Shared Savings & Losses Optional Risk Arrangements for Shared Savings & Losses * Exclude high risk categories of providers and suppliers (defined as DMEPOS, ambulance supplier, or drug / device manufacturer) Page 4
ESCO Compositional Structure Composition Signatory on Participant Agreement Assume Down-Side Risk Able to Share in Savings ESCO Legal entity X X X ESCO Participant Owners Mandatory ESCO participant owners include: At least one dialysis facility; At least one nephrologists / nephrology practice; and At least one other Medicare provider or supplier (other than DMEPOS, ambulance supplier, or drug / device manufacturer) X X X ESCO Participant Non- Owners ESCO participant non-owners may include: Other Medicare providers or suppliers (other than a dialysis facility, nephrologists / nephrology practice, DMEPOS, ambulance supplier, or drug / device manufacturer) X (not required, but allowed) ESCO Partners ESCO partners may include: Community-based organizations Source: Comprehensive ESRD Care (CEC) Model Request for Applications http://innovation.cms.gov/files/x/cec-rfa.pdf Page 5
Governance & Leadership ESCO participants (owners and non-owners) must have at least 75% control of the ESCO s governing body No one participant in the ESCO can represent more than 50% of the membership on the governing body Members must place their fiduciary duty to the ESCO before the interests of any ESCO participant The governing body must include an independent ESRD Medicare beneficiary representative and a trained and/or experienced non-affiliated, independent consumer advocate on the governing body An ESCO is a separate and unique legal entity recognized and authorized under applicable State, Federal, or Tribal law and identified by a TIN TIN: Tax Identification Number Page 6
Beneficiary Eligibility Must be enrolled in Medicare Parts A and B Must not be enrolled in MA, cost plan, or other non-ma Medicare managed care plan Must be receiving dialysis services Must reside within the market area of the ESCO and receive at least 50% of his / her annual dialysis services within that same market Must be aged 18 or above Must not have already matched to a Medicare ACO or another Medicare program involving shared savings at the date of initial matching for the CEC model Must not have a functioning transplant Must not have Medicare as a secondary payer An ESCO is required to have a minimum of 350 matched beneficiaries based on a defined look-back period prior to the start of the Model Page 7
Payment Arrangement Medicare will continue to pay each provider under the current applicable fee-for-service payment system CMMI will calculate a baseline expenditure amount using the historical experience of patients who were treated at ESCO facilities» This baseline expenditure amount will include all Medicare spending on these beneficiaries, including hospitalizations, all physicians, etc. The amount will not include Part D drugs» The baseline amount will be updated for each year of participation to account for growth in overall Medicare payments for dialysis patients nationally The update will reflect differences caused by some patient risk factors as well as differences in geographic payment modifiers (e.g., wage indexes) For each performance year, the actual spending for patients assigned to the ESCO will be compared to the target amount» If average spending per ESCO enrollee is below the target, the ESCO may be eligible to receive a portion of the difference» Conversely, if the average spending is above the target, the ESCO may be required to repay Medicare a portion of the overage CMMI: Centers for Medicare & Medicaid Innovation Page 8
Payment Arrangement Design Feature LDO ESCO* 2-Sided Risk Throughout Non-LDO ESCO 2-Sided Risk from Start Non-LDO ESCO 2-Sided Risk Phase-In Risk Structure 2-sided 2-sided 1-sided Years 1-2 2-sided in Year 3 Minimum Savings Rate (MSR) +/-1% threshold for first dollar shared savings or losses (option for higher threshold if desired) +/-1% threshold for first dollar shared savings or losses (option for higher threshold if desired) Year 1-2 +4% for first-dollar shared savings at 500-1,999 beneficiaries, +2% for +2,000 beneficiaries for Years 1-2 Year 3 +/-1% under 2-sided risk in and no longer dependent on the number of beneficiaries Guaranteed Discount Year 1: 1% Year 2: 2% Year 3+: 3% Year 1: none Year 2: none Year 3+: 1% None Shared Savings After locking in guaranteed Year 1: Up to 60% first dollar share/loss Years 1-2: 50% / Shared Loss discounts, sharing up to: Year 2: Up to 70% share/loss Year 3+: 60% Percentages Year 1: 70% of first-dollar savings Years 3+: Same as LDO Y1 (lock in 1% Years 2+: 75% of first-dollar savings discount and share up to 70% on either side) Caps on Shared Years 1-2: 10% years All years: 10% Years 1-2: 5% Savings/Shared Losses Years 3+: 15% Years 3+: 10% under 2-sided risk Rebasing Rebase for Years 4 and 5 on data from PY1-PY3, including net shared savings dollars as baseline expenditures Rebase for Years 4 and 5 on data from PY1-PY3, including net shared savings dollars as baseline expenditures Rebase for Years 4 and 5 on data from PY1-PY3, including net shared savings dollars as baseline expenditures Large Dialysis Organization (LDO): LDO is an organization that owns greater than 200 dialysis facilities Page 9
Shared Savings / Losses While all eligible ESCO participants can receive a portion of shared savings, only ESCO participant owners are required to take on down-side risk The minimum amount of risk that each participant owner must assume is a function of the owner s respective contribution to the ESCO s total Medicare feefor-service revenue for the matched beneficiary population Other than a minimum percentage risk, CMS will not dictate how the ESCO distributes shared savings or losses Participant owners must assume downside risk at a level that is equivalent to a minimum of 50% of their portion of the ESCO s total revenue* * An ESCO s total revenue is defined as the total of all Medicare Part A and Part B claims paid to all ESCO providers / suppliers for the care of matched ESCO beneficiaries. A participant s portion of the total revenue is calculated by the total of all Medicare Part A and B claims paid to the participant s TIN for matched ESCO beneficiaries divided by the ESCO s total revenue. Page 10
Total Medicare Spending on ESRD Patients (2010) National Medicare Spending per Patient Hemodialysis Peritoneal dialysis All dialysis Rhode Island Medicare Spending per Patient Hemodialysis Peritoneal dialysis All dialysis Outpatient dialysis 26,135 22,194 25,837 26,917 25,522 26,808 Nephrologist 2,900 2,631 2,888 2,936 2,209 2,910 Vascular access 1,666 263 1,573 1,035 348 1,012 Inpatient hospital 32,581 27,039 32,612 31,923 31,623 32,411 Ambulance 3,376 497 3,190 7,504 1,124 7,309 Other physician 4,726 3,761 4,668 6,243 5,275 6,203 Other providers* 10,499 4,902 10,189 12,457 6,042 12,391 Total $81,883 $61,288 $80,955 $89,015 $72,143 $89,044 Source: USRDS 2012 Annual Data Report, Costs of ESRD Note: Excludes Other Dialysis * Other providers includes outpatient hospital/emergency room, skilled nursing, home health, hospice, radiology, non-dialysis laboratory, and durable medical equipment Page 11
Shared Savings / Losses (Illustration) 2013 (Historical) 2014E PY (Savings) 2014E PY (Losses) ESCO Matched Beneficiaries 500 500 500 Historical / Target (Per Enrollee) $89,200 $91,000 (2% target growth) $91,000 (2% target growth) ESCO Target (Total) $44.6M $45.5M $45.5M Spending (Per Enrollee) - Inpatient Hospital $32,400 $29,000 (-10%) $35,400 (+10%) - Dialysis $27,000 $27,500 (+2%) $27,500 (+2%) - Nephrologists / Other Physicians $9,100 $9,300 (+2%) $9,300 (+2%) - Other providers * $20,700 $21,100 (+2%) $21,100 (+2%) - Total Spending (Per Enrollee) $89,200 $86,900 $93,300 Savings / Loss Per Enrollee $4,100 (4.5%) -$2,300 (-2.5%) Total Savings / Loss $2,050,000 -$1,150,000 Portion of Savings / Loss for ESCO $1,025,000 -$575,000 PY: Performance Year Note: losses only applicable for 2-sided ESCOs * Other providers includes outpatient hospital/emergency room, skilled nursing, home health, hospice, radiology, non-dialysis laboratory, and durable medical equipment Page 12
Quality Performance ESCOs will be required to meet a minimum threshold score in order to be eligible for shared savings Quality measure domains:» Preventive health (influenza immunization, pneumococcal vaccination, screening for fall risk, depression screening)» Chronic disease management (dialysis-related infection, incidence of inpatient admissions for significant bleeding, appropriate referral to transplant center, evaluation of medication therapy management)» Care Coordination/Patient Safety» Patient/Caregiver Experience» Patient Quality of Life CMMI will release further details on quality measurement and scoring prior to requiring participants to sign agreements Page 13
Opportunities Allowing dialysis providers and nephrologists to play a leadership role in the redesign of ESRD care model Expanding financial stake in care redesign Current high level of expenditures for ESRD care Applying for regulatory waivers that can better enable care redesign Managing risks through risk adjustments (similar to that used in the Shared Savings Program) and individual beneficiary s truncation point for expenditures CMS / CMMI has been responsive to issues raised in the previous payment reform models Page 14
Challenges Limited scale (only 10-15 contracts to be awarded) Less opportunities for providers who are already efficient Lack of available data to understand historical spending for all types of services Developing care model design to realize cost reduction potential Rebasing in near term» Rebase for Years 4 & 5 on data from PY1-PY3 including net shared savings dollars as baseline expenditures Page 15