Key Thoughts on Managed Care Contracting and Opportunities with Bundled Payments

Becker’s ASC 23rd Annual Meeting

The Business and Operations of ASCs

October 27, 2016

1

Current Environment

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Current Environment

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ASC Hospital JVs

Hospital Consolidation

Ambulatory Care Networks

Payor Consolidation

Physician Employment and Mega

Groups Affordable

Care Act

Payor Environment

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Important Facts

The payor environment in the U.S. is changing and extremely complex!

Virtually no two payors pay providers equitably or use the same exact

payment system in any given market.

Providers that do not understand the cost of their business relative to a

payor’s methodology can easily go out of business.

Inadequate reimbursement and payor dominance motivates consolidation

among providers.

Changing payment methodologies enables payors to reduce reimbursement

without negotiating a new contract.

Payor Environment (continued)

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Access to reimbursement is becoming limited without a payor contract due to

benefit designs targeted at changing consumer behavior.

The growing Medicare population increases the need for enhanced

reimbursement rates from commercial payors.

Understanding cost is critical to negotiating reasonable and adequate

reimbursement.

Payors are working with employers to reduce premiums by limiting access to

high-dollar, out-of-network providers and encouraging price sensitivity among

employees.

Payor consolidation is rampant and diminishes provider ability to negotiate

rates.

Traditional fee-for-service reimbursement is diminishing.

Payor Implications and

Ambulatory Surgery

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MEDICARE

» Inpatient-to-HOPD code approval

» HOPD-to-ASC code approval

» Outpatient Prospective Payment System (OPPS) for

HOPDs and ASCs

» Closure of gap on reimbursement methods and rates

» Device-intensive codes

» Bundling logic

COMMERCIAL

PAYORS

» CMS approvals to HOPD validate medical director

approvals for ASC lists

» Expansion of commercial payor ASC-approved lists is growing

beyond CMS-approved list

» Inpatient-to-outpatient cost-saving opportunities with outcomes

data validate medical director approvals

» Alignment of commercial payors with ASCs to move volume

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Five Key Thoughts on Managed Care

Contracting

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1 — Assess Payor Value

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» Do your physician users have a contract with the

payor?

» Alignment with payors enhances access.

» How much volume does each payor represent?

» What is the overall average cost per case of

providing surgery?

» What is the average net revenue per case

represented by the contract?

» Does the value of the contract represent a loss?

» How does the payor compare against other payors

the ASC is doing business with in the market?

» Do not sign a contract just to get access to

patients!

» A contract must represent revenue value that

makes it economically feasible to provide services.

Assess the

Value of the

Payor

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2 — Evaluate Payor Mix

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What Is

Payor Mix

Analysis?

2 Ranking Among Payors

1 What percentage of business does the payor

represent and how do they rank against other

payors?

Volume Charges Receipts

2 What Product lines are you contracted for?

3 Will a contract create access to new volume

or increased volume?

HMO/PPO Medicare/

Medicaid Exchange

3 — Assess ASC Value in the Market

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» What value does the surgery center provide to

the payor’s network?

» How many other ASCs are there in the market?

» What is your Case Mix?

» Do you provide services other ASCs do not

offer?

» How many hospitals are there in the market?

» What makes your surgery center different?

› Doctors

› Special equipment

› Multispecialty versus single specialty

Assess ASC

Value in the

Market

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4 — Develop a Strategy and Demonstrate

Value

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Build a business case Existing business

concerns

» Determine ASC volume

that can shift from

hospital.

» Present concerns with

facts relative to

reimbursement

» Collect EOBs to

demonstrate cost in

hospital setting versus

ASC proposed rates.

» Quantify the value to the

payor.

» If you are subsidizing the

payor, STOP!

» Educate payor about the

implications of payment

methods and inadequate

reimbursement.

» Provide surgeons with

talking points for

communications to payor

medical directors.

1 2

Develop a

Strategy and

Demonstrate

Value

S T E P

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4 — Develop a Strategy and Demonstrate

Value (continued)

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Do not do cases that you

are losing money on until

contracts are in place!

Provide data carefully

» First contracts are the

most important!

» Actions speak louder

than words!

» Do not subsidize the

insurance company.

» Only so many losses will

be made up on volume

» Provide hospital volume

by surgeon that will move

to the Center.

» Provide total projected

savings to the payor and

benefit of the contract.

» Use cost data when you

are subsidizing the payor.

» Provide proof of

inadequate

reimbursement.

» Demonstrate savings to

payor by maintaining and

enhancing contract rates

and methodology.

» Demonstrate impact of

changes in payment

methodologies.

1 2

Develop a

Strategy and

Demonstrate

Value

S T E P

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5 — Assess Payment Methodologies

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» What questions should you ask the payor about

payment methodologies?

› Current Medicare or Medicare groupers?

› Payor defined methodology mappings?

› What year APCs?

› Area adjusted or national?

› Date of publication?

› Multiple-procedure logic or add-ons?

› Implants?

› Extended Recovery Care/Overnight Stay?

› Flexibility with payment method?

› Carve outs?

› Annual escalators?

Assess

Payment

Methodologies

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5 — Assess Payment Methodologies (continued)

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» Why is this critical to your success?

› Empowers you to collect the data and structure

a proposal for the services provided

› Reduces timeline for negotiation

› Asking payors for a method or logic they

cannot administer is typically a waste of time

What about alternative payment systems?

Bundled Payments ?

Assess

Payment

Methodologies

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Opportunities with Bundled

Payments in ASCs

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Acknowledgements

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Political Landscape: Blowing in the Wind

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Make Good Choices

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Bundled Payment Experience

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Our industry-leading team helps to develop and implement

customized strategies that position organizations to reduce costs,

improve care delivery, and foster a truly collaborative clinical

culture across multiple sites and disciplines. Our team has a

demonstrated track record of success with projects involving:

Medicare Medicaid Commercial

Payors

Direct-to-Employer

Arrangements

» ACE

» BPCI

» CJR

» ESRD

» OCM

» EPM

» NY Medicaid

» Arkansas

Medicaid

» Arkansas

BlueCross

BlueShield

» Empire Blue

Cross

» United

Healthcare

» Aetna

» Cigna

» EmblemHealth

» Walmart

» Icahn

Enterprises

» SEIU

» DaVita

HealthCare

Partners

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National Bundled Payment

Landscape

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The History

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» CMS Heart Bypass

» CMS Cataract Surgery

Alternate Payment

» CMS Centers of Excellence

» CMS Cardiovascular

and Orthopedic

Centers of

Excellence

» Geisinger Health

System

» PROMETHEUS Payment Method

» ACE Demonstration

» UHC Oncology

» IHA California Commercial Bundles

» Horizon Blue Cross Blue Shield of New

Jersey Orthopedic Bundles

» CMS BPCI Initiative

» CMS CJR Mandate

» CMS OCM

» CMS EPM Proposed Mandate

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2 0 1 0 s

The Evolution

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N o w

Better Care.

Smarter Spending.

Healthier People. As Goes Medicare,

So Goes Healthcare…

Obamacare: The Gazillion-Dollar Startup

Machine

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$1.1

$1.5

$2.0

$4.3 $4.5

2011 2012 2013 2014 2015

U.S. Digital Healthcare Funding ($ in Billions)

Source: “Obamacare: The Gazillion-Dollar Startup Machine,” Inc., April 2016.

S E E N I N

Funding for digital healthcare companies—which blend tech and health-related

services—has quadrupled since the Affordable Care Act passed in 2010.

Four Bundle Domains

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Commercial Medicaid Medicare Employer Commercial

National Bundled Payment Landscape

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Medicaid

Employer

CJR MSA

2012 2014 2015 2016

Commercial BPCI Model 2

Source: Adapted from CMS.

Medicare Model Comparison

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BPCI

Model 2

669 Participants

884 Participants

BPCI

Model 3

11 Participants

BPCI

Model 1

10 Participants

794 Participants

BPCI

Model 4

CJR

(Mandatory)

196 Participants

OCM

Transplants and end-stage renal disease are already paid through a bundled payment.

800+ Participants

EPM

(Mandatory)

900+ Participants

Source: CMS proposed rule as of July 25, 2016.

NOTE: On July 25, 2016 CMS announced mandatory bundled payment models for AMI, CABG, and SHFFT that are scheduled to start July 2017.

ASCs—The Lowest-Cost Alternative

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Source: http://www.ascaconnect.org/HigherLogic.

$16,736

$9,493

$7,851

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

Inpatient Outpatient Ambulatory SurgeryCenter

Medicare Pacemaker Reimbursement Variation by Facility Setting

Ambulatory Surgery Centers

Offer Savings of

53%

Over an Inpatient Setting for

Pacemaker Insertion

Bundled Payments and CJR

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1 2

3

It’s happening.

Commercial payors and employers

are rapidly following CMS.

It’s mandatory.

Previously bundled payments

were voluntary.

Regional pricing.

Understanding and

managing the implications.

Opt in Opt out

Regional Pricing

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Source: CMS regional target prices

provided by DataGen on April 20,

2016.

469 Fracture

469 Non-Fracture

470 Fracture

470 Non-Fracture

Pacific

$51,129

$36,049

$38,359

$21,256

Mountain

$51,001

$35,959

$38,263

$21,203

West South Central

$57,910

$40,830

$43,446

$24,075

East South Central

$55,247

$38,953

$41,449

$22,968

South Atlantic

$55,000

$38,779

$41,263

$22,866

Mid Atlantic

$58,753

$41,425

$44,079

$24,426

New England

$57,303

$40,402

$42,991

$23,823

East North Central

$55,803

$39,345

$41,866

$23,200

West North Central

$52,847

$37,260

$39,648

$21,970

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The Shift to Outpatient Bundles

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Outpatient Bundle:

Orthopedics

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Includes:

» Surgeon fees

» facility fees

» anesthesia fees

» supplies and implants

» and any uncomplicated follow-up care

Does not include:

» MRI or X-rays

» Postoperative rehabilitation

» Home health services

» Physical therapy

» Durable medical equipment

» Postoperative medication

Source: Modern Healthcare, June 2016, Midwest Orthopaedics at Rush

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Direct to Consumer Bundle Payments

ACL repair:

Hip arthroscopy:

Knee arthroscopy:

Rotator cuff repair:

Shoulder arthroscopy:

Midwest Orthopaedics at Rush

$10,800

$13,250

$5,000

$11,300

$10,000

According to the Ambulatory Surgery Center Association, as of May 2016 there are

40 centers around the country performing outpatient joint replacements.

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Outpatient Orthopedics Bundle: Orthopedic

Surgery Center of Orange County

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Includes:

» Surgeon fees

» Facility fees

» Anesthesia fees

» Supplies and implants

» Radiology used during procedure

» Overnight stay (for certain procedures)

Source: Becker’s ASC Review, January 2016.

Direct-to-Consumer Bundled Payments

ACL repair:

Hip arthroscopy:

Knee arthroscopy:

Rotator cuff repair:

Open rotator cuff repair::

$13,250

$11,800

$11,600

$10,475

$7,925

Minimally invasive hip replacement

and 23-hour stay:

Partial knee replacement and

overnight stay:

$20,250

$20,250

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Outpatient Spine Reimbursement

» Of the 700,000 spine procedures performed in 2015, 300,000 were performed on

an outpatient basis.

› There has been a 40% growth in outpatient spine procedures over the last

10 years (5% of all spine procedures were done in the outpatient setting during

2005).

» CMS reimburses certain surgical spinal procedures in both the outpatient and ASC

settings.

› CMS added nine new procedure codes effective in 2015, which helped drive

historic inpatient volume to the outpatient setting.

» There is an increasing interest in outpatient spine bundled payments from

commercial payors.

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Sources: “Spinal Surgery: Variations in Health Care Costs and Implications for Episode-Based Bundled Payments,” Spine, July 2014; Ambulatory Surgery

Center Association, October 2015; Becker’s Spine Review, February 2016.

There is a large variation in spine surgery costs, as 30-day bundles can range from

$11,180 to $107,642. The majority of spine payments go toward the hospital stay.

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Outpatient Spine Bundle: Orthopedic

Surgery Center of Orange County

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Includes:

» Surgeon fees

» Facility fees

» Anesthesia fees

» Supplies and implants

» Radiology used during procedure

» Overnight stay (for certain

procedures)

Source: Becker’s ASC Review, January 2016.

Direct-to-Consumer Bundled Payments

Discectomy, laminectomy, laminotomy:

2-level discectomy, laminectomy, laminotomy:

1-level lumbar fusion and overnight stay:

2-level lumbar fusion and overnight stay:

Facet joint injection, cervical/thoracic at one level:

Transforaminal epidural lumbar/sacral:

Radiofrequency ablation, cervical:

$14,225

$16,200

$30,000

$38,000

$2,100

$2,100

$2,475

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ASC Colonoscopy Bundle: DIGESTIVE

HealthCare Center

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21 Days Post Days of Service 7 Days Pre Prospective bundle contract with small payor

» Bill for contracted, pre-established bundle price

» Practice distributes payment among providers involved in

episode of care

» Initial in-office

consultation

» Prep

» Professional

endoscopy fee

» ASC facility fee

» All pathology fees

» All anesthesiology

fees

» Follow-up

appointment in

office

» Post-polypectomy

bleeding

» Repeat

colonoscopy if

prep was

inadequate

Retrospective bundle contract with large payor

» Negotiated pre-established bundle price based on 2-year

retrospective analysis of practice’s cost for services

» Practice continues to receive fee-for-service payments

» Every quarter, retrospectively calculate the total

reimbursement paid for each patient participating in bundle

and compare to pre-establish bundle price

» Practice receives and distributes savings among providers if:

‒ Actual costs were below pre-established bundle price

‒ Quality targets and patient satisfaction targets were met

30 Days Post

Colonoscopy

(triggering Event) 7 Days Pre

» Initial in-office

consultation

» Prep

» Professional

endoscopy fee

» ASC facility fee

» All pathology fees

» All anesthesiology

fees

» Follow-up

appointment in

office

» Post-polypectomy

bleeding

» In process of

negotiating

potentially

avoidable

complications

Source: American Gastroenterological Association.

Currently engaged in two bundled payment

contracts for colonoscopy with two payors

6 Member GI Group

Own one ASC in NJ

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Designing Outpatient and ASC Bundles

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Select elective procedures.

Ensure a clear and defined care pathway.

Minimize clinical variation.

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2

3

Failure Tolerance is Essential

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Failure Tolerance is Essential (continued)

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What did you fail

at this week.” -Sarah Blakely’s dad

Failure Tolerance is Essential (continued)

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Failure Tolerance is Essential (continued)

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Discussion

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Q A & Q U E S T I O N S & A N S W E R S

Contact Information

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Deirdre Baggot, Ph.D. Principal Washington, D.C.

303-335-7047

dbaggot@ecgmc.com

I. Naya Kehayes, MPH Principal Seattle

206-689-2200

nkehayes@ecgmc.com