Understanding CMS s Proposed Changes to CJR and Cancellation of EPMs

Understanding CMS s Proposed Changes to CJR and Cancellation of EPMs Kristen Barlow, JD Senior Consultant Rob Lazerow Managing Director Megan Tooley Practice Manager August 23, 2017 research technology consulting

6 Today s Panel of Experts Kristen Barlow, JD Senior Consultant barlowkr@advisory.com Rob Lazerow Managing Director lazerowr@advisory.com Megan Tooley Practice Manager tooleym@advisory.com

Road Map 7 1 2 The State of Payment Reform 3 Overview of the Proposed Rule Assessing the Impact and Next Steps

8 CMS Backpedals on Mandatory Payment Reform After an Aggressive Push, CMS Proposes to Cancel EPMs, Modify CJR Timeline of Mandatory Bundled Payment Programs July 2015 CMS announces CJR, a mandatory orthopedic bundle July 25, 2016 CMS proposes three new EPM bundles for hip and cardiac episodes May 19, 2017 CMS delays implementation of the EPMs April 2016 CJR begins in 67 markets across the country December 20, 2016 CMS finalizes rule for three new EPM bundles for hip and cardiac episodes August 15, 2017 CMS proposes to cancel the EPMs and modify CJR Source: CMS; Advisory Board interviews and analysis.

9 Bundles Only Part of CMS s Payment Reform Portfolio P4P Programs, Voluntary Risk Models Remain Continuum of Medicare Risk Models Pay-for- Performance Bundled Payments Shared Savings Shared Risk Full Risk Hospital VBP Program Hospital Readmissions Reduction Program HAC Reduction Program Merit-Based Incentive Payment System Bundled Payments for Care Improvement Initiative (BPCI) Comprehensive Care for Joint Replacement (CJR) EPMs for SHFFT, AMI and CABG MSSP Track 1 (50% sharing) MSSP Track 2 (60% sharing) MSSP Track 3 (up to 75% sharing) Next Generation ACO Model (80-85% shared savings option) Next Generation ACO Model (full risk option) Medicare Advantage (provider-sponsored) Source: CMS, Advisory Board analysis.

10 Payment Reform Marches On With MACRA 1 Underway, 2017 a Pivotal Year Bipartisan Support Guarantees Continued Implementation 92-8 Senate vote on MACRA House vote 392-37 on MACRA Physician Leaders Praise Transition Year [These] actions help give physicians a fair shot in the first year of MACRA implementation. This is the flexibility that physicians were seeking all along. Dr. Andrew Gurman, President of the AMA 2017 MIPS 2 Reporting Structure 1 Clinicians report all MIPS-required data for at least 90 days and are eligible to receive the full bonus 2 Clinicians report more than one measure for at least 90 days and are eligible to receive a smaller bonus 3 Clinicians report any data for any period of time and receive no positive or negative adjustment in payment 1) Medicare Access and CHIP Reauthorization Act. 2) The Merit-based Incentive Payment System. Source: Centers for Medicare and Medicaid Services; Dickson, V., CMS will give providers flexibility on MACRA requirements, Modern Healthcare, September 2016; Health Care Advisory Board interviews and analysis.

11 MACRA Dealing Physicians in on Risk Greater Payment Updates, Bonuses Depend on Payment Migration Annual Provider Payment Adjustments 6% 5% 4% 3% 2% 1% 0% MIPS Bonuses/Penalties +/-4% +/-9% $500M Maximum annual adjustment, 2019 Maximum annual adjustment, 2022 Additional bonus pool for high performers APM Bonuses/Penalties 5% Annual lumpsum bonus from 2019-2024 (plus any bonuses/penalties from Advanced Payment Models themselves) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Advanced APM Track MIPS Track Baseline payment updates 1 : 2015 2019: 0.5% annual update (both tracks) 2020 2025: Payment rates frozen (both tracks) 2026 onward: 0.25% annual update (MIPS track) 0.75% annual update (Advanced APM track) 1) Relative to 2015 payment. Source: The Medicare Access and CHIP Reauthorization Act of 2015; CMS, Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models, April 25, 2016; Health Care Advisory Board interviews and analysis.

12 CJR Still Creates Path for APM Qualification A Two-Track Approach Within the Remaining Mandatory Bundle How CJR Originally Stacked Up Against Advanced APM Criteria Threshold to trigger losses no greater than 4% CMS Changed CJR to Satisfy Criteria Beginning in 2018, hospitals participating in CJR will be able to choose one of two tracks: Financial Risk Criteria Loss sharing at least 30% Maximum possible loss at least 4% of spending target 1 Track 1 would require use of certified EHR Eligible advanced APM Quality requirements comparable to MIPS 2 Track 2 would not require use of certified EHR Not eligible advanced APM d Certified EHR use 1) End-stage renal disease. 2) Large dialysis organization. 3) Comprehensive Primary Care Plus. 4) Notice of intent to apply. 5) Letter of intent. 6) Application narrative due May 25, 2016. Source: CMS, Medicare Program; Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models, May 9, 2016, available at: https://s3.amazonaws.com/publicinspection.federalregister.gov/2016-10032.pdf; Advisory Board Company interviews and analysis.

Road Map 13 1 2 The State of Payment Reform 3 Overview of the Proposed Rule Assessing the Impact and Next Steps

14 CMS s Proposed Changes to Mandatory Bundles CMS Poised to Iterate on Voluntary Programs Cardiac EPMs 1 Cancelled CJR 3 Scaled Back What s Next for BPCI 1? Mandatory bundling for CABG and AMI 2, slated to go into effect January 1, 2018 Proposed rule released on August 15 th would cancel programs entirely Mandatory bundling for hip and knee replacements, originally in 67 markets Proposed rule would make participation in 33 markets voluntary, cancel planned expansion to SHFFT 4 Optional bundling program; providers may opt into any of 48 different conditions across four risk models Current Models 2, 3, and 4 extended through September 30 th, 2018 GOP Historically Opposed to CMS s Mandatory Models CMMI has overstepped its authority and there are real-life implications both medical and constitutional. That s why we re demanding CMMI cease all current and future mandatory models. Letter from GOP Lawmakers, including current HHS Sec. Tom Price to CMS, September 2016 1) Episode Payment Models. 2) Coronary artery bypass graft and acute myocardial infarction; MS-DRGs: 280-282; 246-251; 231-236 3) Comprehensive Joint Replacement. 4) Surgical hip/femur fracture treatment; MS-DRGs: 480-482. 5) Bundled Payments for Care improvement. Source: Jankowski, G., The New Price of U.S. Health Care: The Future of Value-based Reimbursement Under President-elect Trump and Tom Price, JDSUPRA, Jan. 10, 2017; Dickson, V., Hospitals call on Trump administration to end mandatory bundled pay programs, Modern Healthcare, April 24, 2017; Centers for Medicare and Medicaid Services; Health Care Advisory Board interviews and analysis.

Cardiac EPMs Cancelled 15 A Reprieve for CV Service Lines Bypass, Heart Attack Would Have Been First Mandatory Cardiac Bundles Cardiac EPMs CABG MS-DRGs 231-232 AMI MS-DRGs 280-282; 246-251 All care during index hospitalization through to 90-days post-discharge All care during index hospitalization through to 90-days post-discharge Hospital would be financially responsible for cost, quality of the episode Hospital would be financially responsible for cost, quality of the episode $40M Estimate of cost savings to CMS over five years for both cardiac EPMs Source: CMS, Advisory Board analysis.

16 CMS Proposal Also Cancels Rehab Incentives Program Would Have Rewarded Significant Cardiac Rehab Utilization Cardiac Rehab Incentive Payment System 1 Normal FFS Payment + incentive payments First 11 sessions $25/session Subsequent sessions, up to a total of 36 2 $175/session $4,625 Total available incentive payments 12-Session Threshold Chosen by CMS based on evidence that beneficiaries who complete 12-23 cardiac rehab sessions have lower mortality rates An Uncertain Financial Impact +27M to -32M Range of CMS s estimate of the impact of the program: it could have resulted in additional spend or significant savings 1) Proposed cardiac rehab HCPCS codes for inclusion: G0422. 93797, 93798 and G0423. Source: CMS, Advisory Board analysis.

CJR Scaled Back 17 Half of CJR Markets Would Now Be Voluntary Programs Would Decide Whether to Opt-In by February 1, 2018 Key Changes to CJR Market Definitions Originally implemented in 67 MSAs 1 across the country Proposal would continue mandatory participation in 34 markets, with exclusions for rural and low-volume hospitals 34 mandatory MSAs have the highest average wage-adjusted historic episode costs 33 MSAs would no longer be required to participate; hospitals would be presented with a one-time opt-in period to continue participation Opt-in period would run January 1-31, 2018 All opt-in decisions would be final February 1, 2018 1) Metropolitan statistical area. Source: CMS, Advisory Board analysis.

18 Mandatory and Voluntary Markets List of Mandatory and Voluntary CJR MSAs 1 Mandatory MSAs Voluntary MSAs Akron, OH Monroe, LA Albuquerque, NM Madison, WI Asheville, NC Austin-Round Rock, TX Beaumont-Port Arthur, TX Cincinnati, OH-KY-IN Corpus Christi, TX Dothan, AL Florence, SC Montgomery, AL New Haven-Milford, CT New Orleans-Metairie, LA New York-Newark-Jersey City, NY-NJ-PA Oklahoma City, OK Orlando-Kissimmee-Sanford, FL Pensacola-Ferry Pass-Brent, FL Athens-Clarke County, GA Bismarck, ND Boulder, CO Buffalo-Cheektowaga- Niagara Falls, NY Cape Girardeau, MO-IL Carson City, NV Charlotte-Concord-Gastonia, NC-SC Milwaukee-Waukesha-West Allis, WI Modesto, CA Naples-Immokalee-Marco Island, FL Nashville-Davidson Murfreesboro--Franklin, TN Norwich-New London, CT Ogden-Clearfield, UT Portland-Vancouver-Hillsboro, OR- WA Gainesville, FL Pittsburgh, PA Columbia, MO Saginaw, MI Greenville, NC Port St. Lucie, FL Decatur, IL St. Louis, MO-IL Harrisburg-Carlisle, PA Hot Springs, AR Killeen-Temple, TX Provo-Orem, UT Reading, PA Sebastian-Vero Beach, FL Denver-Aurora-Lakewood, CO Durham-Chapel Hill, NC San Francisco-Oakland-Hayward, CA Seattle-Tacoma-Bellevue, WA Los Angeles-Long Beach-Anaheim, CA Lubbock, TX Memphis, TN-MS-AR Miami-Fort Lauderdale-West Palm Beach, FL Tampa-St. Petersburg- Clearwater, FL Toledo, OH Tuscaloosa, AL Tyler, TX Flint, MI Gainesville, GA Indianapolis-Carmel-Anderson, IN Kansas City, MO-KS Lincoln, NE South Bend-Mishawaka, IN-MI Staunton-Waynesboro, VA Topeka, KS Wichita, KS Source: Center for Medicare and Medicaid Services; Advisory Board interviews and analysis.

19 CMS s Rationale for Splitting CJR Markets CMS Weighed Alternative Changes to CJR. Voluntary in All 67 MSAs No Voluntary Participation in 33 MSAs If all 67 MSAs were voluntary, CJR would no longer show savings, and would cost CMS money If participation was limited to only the 34 mandatory MSAs, CMS would reduce the estimated savings by $30M, as opposed to the estimated $90M reduction in savings as proposed 60 to 80 Estimated number of hospitals CMS expects to opt-in to CJR in the 33 voluntary MSAs Source: CMS, Advisory Board analysis.

20 CJR Markets No Longer Taking on Hip Episodes Hospitals Would Have Added Hip/Femur Repair Episode Current CJR Program SHFFT EPM Hospitals within 67 geographically defined MSAs 1 Medicare enrollees with parts A and B, discharged with LEJR (DRG 469 or 470) Medicare enrollees with parts A and B, discharged with SHFFT (DRGs 480-482) CJR Changes by the Numbers $294M Estimated episodic cost savings under CJR for the remaining 3 year period $130M Estimated additional episodic cost savings from the SHFFT EPM $204M Revised estimated savings under proposed changes to CJR for the remaining 3 year period Source: CMS, Advisory Board analysis.

21 Outpatient Shift a Major Impact on CJR TKA Proposed to Exit IPO List in CY 2018 Procedure 27447: Total Knee Arthroplasty (TKA) 55866: Laparoscopy, surgical prostatectomy, retropubic radical, including nerve sparing; includes robotic assistance New APC Assignment: C-APC 5115 Level 5 MSK Procedures Assignment: C-APC 5362 Level 2 Laparoscopy & Related Services Related TKA Proposals Proposed 2018 TKA Reimbursement $9,912.69 $12,380.78 Two-Year RAC Delay HOPD reimbursement APC 5115 Inpatient reimbursement MS-DRG 470 2 CMS has proposed to ease any transition by prohibiting RAC review for any inpatient TKA procedures for two years if the rule is finalized. Possible Future Addition to ASC List These procedures would be eligible for reimbursement in the outpatient setting. Clinically appropriate procedures would still be reimbursed in the inpatient setting. 1) Lower extremity joint replacement without major complications and comorbidities. CMS is seeking comments on potential future inclusion of TKA on ASC Covered Services list, allowing Medicare to reimburse TKA in the ASC setting as well Source: CMS; Advisory

22 The Consequences of a TKA Outpatient Shift Payment Rate Reduction Clinical Documentation 20% Difference in reimbursement between the inpatient and outpatient setting 1 Select Implications Diligent documentation will be necessary to demonstrate: Medical appropriateness of outpatient procedure Medical appropriateness of short-stay inpatient procedures Competitive Landscape Providers will need to strengthen physician relationships and employ consumer engagement strategies to capture outpatient TKA volumes CJR/BPCI Interactive Effects Any significant shift of TKAs to the outpatient setting would effectively reduce eligible volumes for these bundled payment programs, unless CMS adjusts current program methodology

23 Expanding APM Eligibility under CJR Proposal Would Increase Opportunities for APM Qualifying Participants Eligible Clinicians Under CJR Physicians, nonphysician practitioners, or therapists Must be in a sharing arrangement, distribution arrangement, or downstream distribution arrangement Proposed Changes to Eligibility Physicians, nonphysician practitioners, or therapists who do not have a sharing/distribution arrangement but who have a contractual relationship with the CJR hospital Contractual relationship must be based at least in part on supporting the CJR hospital s quality or cost goals Source: CMS, Advisory Board analysis.

What s Next for BPCI? 24 CMS to Announce New Program for 2018 A Voluntary Bundled Payment Program Would Qualify for APM Track The program would be designed to meet the criteria for an Advanced APM under MACRA As a program that would build upon the BPCI program, likely to be broad and offer participants multiple DRGs as bundled payment options Entirely voluntary, will test CMS s position that providers will elect to take on episodic risk in the absence of current or future mandatory programs Source: CMS, Advisory Board analysis.

25 Lessons from BPCI 1.0 In the Past, Voluntary Participation Dropped Once Risk Was Added BPCI s Two Phase Implementation Timeline Number of BPCI Participants Over Time 1 April 2013 BPCI Model 2, 3 and 4 enrollment begins 6,652 6,293 66% drop off in enrollment once mandatory risk kicked in Phase I (non-risk) Phase II (risk) 2,603 July 2015 Last date for providers to transition at least one episode bundle to Phase II 2,093 1,239 Q2 2014 Q3 2014 Q2 2015 Q3 2015 Q2 2017 1) Participants here are measured as unique organizations enrolled in at least one of the 48 episodes of care covered under BPCI Models 2, 3 or 4. Participant organizations are comprised of all eligible providers such as acute care hospitals, physician groups, or skilled nursing facilities. Source: Bundled Payments for Care Improvement Initiative: Archived Materials, Centers for Medicare & Medicaid Services, https://innovation.cms.gov/initiatives/bundled- Payments/Archived-Materials.html; Post Acute Care Collaborative interviews and analysis.

Road Map 26 1 2 The State of Payment Reform Overview of the Proposed Rule 3 Assessing the Impact and Next Steps

27 The Future Outlook for Payment Reform Four Implications of the Proposed Rule for the Future Direction of Payment Reform 1 CMS unlikely to announce new mandatory bundled payment programs in the near-term; results from CJR will be closely scrutinized for cost-savings and quality outcomes 2 Options for voluntary episodic payment models will continue to grow in Medicare; likely participation levels are unclear 3 EPM and CJR represent one portion of the payment reform landscape, P4P and other voluntary risk models will continue to play important roles in payment reform 4 Providers still need to develop and execute an intentional Medicare risk strategy Source: Advisory Board interviews and analysis.

28 Key Takeaways for CV Service Line Leaders Implications of the Proposed Rule for CV Leaders 1 2 3 Cancellation of the mandatory cardiac bundles will be a relief to some programs; however, CV leaders must now consider MACRA strategy in the absence of EPMs that would have classified as Advanced APMs Episodic cost scrutiny for CV will continue to increase, regardless: both MACRA tracks, P4P programs (e.g., Value- Based Purchasing), and private payers are increasingly focusing on episodic cost measures CV leaders will need to consider whether participation in the new voluntary bundle will benefit their program, and if they are prepared to be successful under CV bundles 4 Cancellation of the cardiac rehab incentive payment model is a disappointment for many, although CMS may revisit this model in the future; CV leaders should still focus on increasing utilization of rehab to reduce readmissions and additional costs Source: Advisory Board interviews and analysis.

29 Key Questions for Providers Across the Continuum Three Key Questions 1 How does this proposal fit into CMS s broader approach to payment reform going forward? 2 What factors should I consider when deciding to participate in a voluntary bundled payment program? 3 What are the implications of CMS s proposal for post-acute care providers? Source: Advisory Board interviews and analysis.

30 How Can We Help You Prepare? Key Advisory Board Resources Executive Education Data and Analytics Consulting Services Technologies Stay tuned for future webinars, publications, and best practice guides on EPM payments Request a tailored discussion with our team, where we can use our analytics to identify opportunities We have decades of experience in managing costs and utilization to help you win under EPM Our Dedicated Advisors will help you harness and optimize the value of your current technologies To set up time with our experts or for more information, please complete the survey question at the end of this section or email pacc@advisory.com Source: Advisory Board analysis.

31 Analytical Resources Available The Hospital Benchmark Generator Episodic Cost Profiler Care Coordination Episode Profiler Organization-specific data relative to national benchmarks for orthopedic and cardiac complications, readmissions and HCAHPS National and Customized Episodes available for MS- DRGs. Episodes include average index hospitalization, post acute care spending, physician and outpatient care over 30, 60 and 90 days View episodic spending allocation at specific locations and time intervals following anchor discharge Modify view in intervals of 5 days (up to 90) following anchor hospitalization Source: Advisory Board analysis.

32 Introducing the Post-Acute Pathways Explorer Market-Level Insights At Your Fingertips Key Use Cases 1 2 3 The Size Post-Acute your Pathways Explorer Identify Provider Medicare Market Relationships Assess Care Quality and Efficiency Source: Post-Acute Care Collaborative.