L U C R E T I A H Y D E L L , A S A , M A A A

L I L I T H M C G H E E , F S A , M A A A

VALUE BASED CARE AGENDA & GOALS

• Introductions:

• Lucretia Hydell

• Lilith McGhee

• Value based care:

• What is Value-Based Care

• Current model of Care

• Transition drivers

• A selection of models following the progression of risk:

• The who, what and why

• Pros and cons

• Examples

• By the end of this session, attendees will be able to answer the following questions:

• What is value based care?

• Why is value based care trending today?

• How do providers move towards value based care?

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WHAT IS VALUE-BASED CARE?

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Value-Based Payment:

A payment model that rewards healthcare providers for meeting certain predetermined performance measures related to quality and efficiency

Quality

Efficiency

Value

Fee for Service

System by which doctors and other providers get paid for every service they deliver, regardless of whether it’s necessary or does any good for the patient.

Each provider is paid for doing work in isolation, no one is responsible for coordinating care.

CURRENT MODEL OF CARE

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• $$$ Hospital

• $ Specialist

• $ PCP

• $$ ER

High

Volume &

Cost

Unsustainable Healthcare Costs - Columbia University researchers estimate that there will be a $48-$66

billion increase in health costs each year between now & 2030

- Healthcare costs have risen from 5% of our GDP in 1960 to 18% of our GDP in 2015

- Center for Medicare & Medicaid Services (CMS) forecast healthcare will be 19.9% of GDP by 2025

WHAT IS DRIVING THE TRANSITION? (PART 1)

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HEALTHCARE - HOW THE US PERFORMS GLOBALLY

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HEALTHCARE - HOW THE US PERFORMS GLOBALLY

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Country

Life Exp at

Birtha

Infant Mortality

per 1,000 live

birthsa

Perc of pop. Age 65+

with 2+ chronic

conditionsb

Obesity rate

(BMI>30)a,c

Perc of pop. Age 15+

who are daily

smokersa

Perc of pop.

Age 65+

Australia 82.2 3.6 54 28.3 12.8 14.4

Canada 81.5 4.8 56 25.8 14.9 15.2

Denmark 80.4 3.5 14.2 17.0 17.8

France 82.3 3.6 43 14.5 24.1 17.7

Germany 80.9 3.3 49 23.6 20.9 21.1

Japan 83.4 2.1 3.7 19.3 25.1

Netherlands 81.4 3.8 46 11.8 18.5 16.8

New Zealand 81.4 5.2 37 30.6 15.5 14.2

Norway 81.8 2.4 43 10.0 15.0 15.6

Sweden 82.0 2.7 42 11.7 10.7 19.0

Switzerland 82.9 3.9 44 10.3 20.4 17.3

United Kingdom 81.1 3.8 33 24.9 20.0 17.1

United States 78.8 6.1 68 35.3 13.7 14.1

OECD Median 81.2 3.5 28.3 18.9 17.0

HEALTHCARE - HOW THE US PERFORMS GLOBALLY

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HEALTHCARE - HOW THE US PERFORMS GLOBALLY

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HEALTHCARE - HOW THE US PERFORMS GLOBALLY

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Federal Government Support Legislation Passed

Government Programs APMS: Alternate Payment Models ESRD-QIP: End Stage Renal Disease Quality Incentive Program HRRP: Hospital Readmission Reduction Program HVBP: Hospital Value-Based Purchasing Program

Payers and Stakeholders

WHAT IS DRIVING THE TRANSITION? (PART 2)

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2008

MIPPA

2010

ACA

2014

PAMA

2015

MACRA

Reduce cost and improve quality of care by changing the incentives Model that ties financial incentives to: Quality Cost of care targets Health outcomes

Improving value requires either improving one or more outcomes

without raising costs or lowering costs without compromising outcomes or both

GOALS OF VALUE-BASED CARE

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THE SHIFT TO VALUE BASED CARE THE CONTINUUM OF RISK

• There are many approaches a provider system can take to move toward value based care.

• Generally, the move is gradual, with additional risk taken by the provider in subsequent years.

• The path to value based care is illustrated below, with examples listed under each model.

Fee for Service

• Hospital visit is billed as facility, physician, lab, etc., with each service incurring an additional pre-negotiated payment.

• Traditional Medicare

Performance Based Contracts

• Primary care incentives

• Bonuses based on quality and cost/utilization measures

Bundled/Episode Payments

• Coronary artery bypass surgery

• Lower back surgery

• Perinatal care

Shared Savings & Shared Risk

• Medicare Shared Savings Program

• Commercial and Medicare Advantage risk share arrangements

• Accountable Care Organizations (ACOs)

Capitation & Health Plan

• Provider sponsored health plan

• Independent Practice Association

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Degree of Provider Integration and Accountability

Definition: Fee For Service (FFS) is a payment model where services are unbundled and paid for separately. Healthcare providers receive a fee for each service such as an office visit, test, procedure, or other health care service.

Pros:

Member has choice of provider

No incentive to withhold services

Familiarity

Cons:

Potential financial conflict of interest with patients due to overutilization incentive (volume drives payment)

Incentivizes self-referral (for example, to a radiology clinic)

Barrier to coordinated care

Examples:

Traditional Medicare

95% of physician office visits (2013)1

More:

Dominant payment method found in the United States

The 2010 Patient Protection and Affordable Care Act (PPACA) introduced Accountable Care Organizations (ACOs) with the purpose of moving from FFS to integrated care

THE SHIFT TO VALUE BASED CARE FEE FOR SERVICE

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1 T H E A F F O R D A B L E C A R E A C T S E F F E C T S O N T H E

F O R M AT I O N , E X PA N S I O N , A N D O P E R AT I O N O F

P H Y S I C I A N - O W N E D H O S P I TA L S ; H E A LT H A F F

( M I L LW O O D ) A U G U S T 2 0 1 6 3 5 : 8 1 4 5 2 - 1 4 6 0

THE SHIFT TO VALUE BASED CARE PERFORMANCE BASED CONTRACTS

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Definition: These contracts pay bonuses when providers demonstrate improvements in quality of care and cost effectiveness. They include a clear set of objectives, a systematic process by which to collect data on those objects, and consequences which are based on performance toward objectives.

Pros: Allow smaller physician practices (who may not have staff or budget to cover extensive technology or member

outreach) to participate in value based care Used as a way to begin provider education toward additional risk in value based care and pay for performance

Cons: Vast majority of provider reimbursement continues to be FFS with a small bonus Providers may focus on easy targets

Examples: Percentage or PMPM bonus for meeting quality measures, MIPS (Merit-based Incentive Payment System) More:

Goals used to calculate performance include: Healthcare Effectiveness Data and Information Set (HEDIS) measures focusing on patient health outcome Avoiding hospital readmissions Reducing out of network provider use

Lessons learned: Clearly articulated performance measures and incentives, developed together with providers Reliable data and defined approach to collecting and reporting Incentives must be large enough to be meaningful

THE SHIFT TO VALUE BASED CARE BUNDLED/EPISODE PAYMENTS

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Definition: Bundled and episode payment programs pay a physician a lump sum to manage the overall course of treatment for a specific condition or illness.

Pros:

Places full attention on the member’s care, instead of a focus on payment

Identifies and rewards best treatment practices, consistent evidence-based care and better health outcomes

Encourages coordination across providers

Cons:

Does not discourage unnecessary episodes of care

Providers may be incentivized to avoid patients for whom reimbursement will not cover costs

It can be difficult to distribute funds to various providers involved

Examples:

Transplants, pregnancy, certain cancers, joint replacements

More:

Payment is based on the basis of expected costs for clinically defined episodes of care. Depending on the arrangement, an adjustment may be made for the acuity of the member’s condition.

Vital to identify and describe all included services to be provided within an episode of care

THE SHIFT TO VALUE BASED CARE SHARED SAVINGS & SHARED RISK

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Definition: These contracts specify how a population is attributed to a group of primary care providers, how the target is calculated, and how much the providers share in the risk. This type of arrangement is often referred to as an Accountable Care Organization (ACO)

Pros:

Member care is coordinated, creating efficiency, reducing cost, and improving patient satisfaction

Providers are incentivized to provide efficient care and coordinate all care for a member, not just the care provided in their facility

Cons:

Attribution is complex and there exists no uniform best practice

Contracts are often complex, including adjustments for risk, demographics, paid to allowed ratios, trend, etc. Providers may feel end result does not reflect actual performance

Examples: Medicare Shared Savings Program; Commercial and Medicare Advantage ACOs

More:

Providers are usually compensated in two ways: through a PMPM payment and a shared savings bonus

Important to ensure that provider group is measured through metrics within their control

THE SHIFT TO VALUE BASED CARE CAPITATION & HEALTH PLAN

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Definition: Under capitation, a provider system receives a PMPM payment for all the care a member may need. In a provider sponsored health plan, the provider system takes on full risk and becomes the insurer.

Pros:

Care is fully coordinated

Financial risk and responsibility for care are with same entity

Cons:

Provider takes full risk for care of the population

In certain situations, the premium received for services is not adjusted for the acuity of the enrolled population

Examples:

Provider sponsored health plan – Medicare Advantage

Provider sponsored health plan – commercial (Individual, small group, large group)

Full capitation (Kaiser)

Specific service capitation (Oncology, for example)

More:

Capitation payments must be adjusted for the general risk of the population

THE SHIFT TO VALUE BASED CARE WHERE ARE WE TODAY?

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Aetna dedicated 15 percent of its 2013 spending to VBC efforts and intends to grow that amount to 45 percent by 2017

CMS appropriated $10 billion per year for the next 10 years for innovation efforts, many of which center on forms of VBC.

Blue Cross Blue Shield health plans spend more than $65 million annually, about 20 percent of spending on medical claims, on VBC

The Department of Health & Human Services (HHS) set a goal of tying 30 percent of payments for traditional Medicare benefits to value-based payment models by the end of 2016 and 50 percent by 2018

Two hundred and twenty organizations participated in the MSSP in 2014.7

Nearly 7,000 organizations participate in the BPCI.8

Twenty health systems, health plans, consumer groups and policy experts formed the Health Care Transformation

Task Force, and aim to have 75 percent of their business based on value by 2020

THE SHIFT TO VALUE BASED CARE EXAMPLE: SHARED RISK ARRANGEMENT FOR A MEDICARE ADVANTAGE HMO ACO

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WHO: the providers

• Includes all Primary Care Providers employed by Hospital System.

• Form an ACO (accountable care organization) and sign a contract with the payer

WHO: the members

• Members who enroll in the HMO product and choose an ACO PCP are attributed to the ACO.

• Simplest attribution method.

WHO: the payer

• Payer offers the HMO Medicare Advantage product and signs a contract with the ACO for the shared risk arrangement.

Members

Providers

Payer

THE SHIFT TO VALUE BASED CARE EXAMPLE: SHARED RISK ARRANGEMENT FOR A MEDICARE ADVANTAGE HMO ACO

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Contract Terms

Performance period

Calendar 2017 (plus 8 months run out)

Target MLR 85%

Shared Savings Percentage

+/- 50% (with quality adjustment)

Care coordination fee

$5 PMPM

Performance Year

Member Months

30,000

Quality 78%

Reconciliation Scenario 1

Scenario 2

Scenario 3

Scenario 4

Revenue PMPM $750 $750 $725 $775

Expense PMPM $615 $660 $630 $630

Performance MLR 82% 88% 87% 81%

Gross PMPM gain/(loss) =(target MLR – Performance MLR)*Revenue

$22.50 ($22.50) ($13.75) $28.75

Shared Savings/Loss Percentage = Quality * 50% (gain) = (1 – Quality) * 50% (loss)

39% 12% 12% 39%

Net PMPM gain/(loss) $8.78 ($2.72) ($1.66) $11.21

Total Gain to ACO (includes care coordination fee)

$413,250 $68,325 $100,088 $486,375

THE SHIFT TO VALUE BASED CARE EXAMPLE: NEMOURS CHILDREN’S HEALTH SYSTEM

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Our experience at the Nemours Children’s Health System suggests that value-based care (VBC) is necessary to significantly improve health outcomes and to lower costs for children with chronic illness and complex medical conditions. We have found that a VBC approach can decrease the direct costs of care for a group of children with a chronic condition. However, transitioning to a VBC approach involves added infrastructure, training costs, and complexity of delivering care in an environment that mixes fee-for-service and value-based reimbursement. In addition, we believe that in order to deliver on the promise of improved health and reduced spending, VBC must be augmented with a structured approach to eliminate waste and be delivered in conjunction with a broad-based effort to address factors that are outside of the traditional boundaries of healthcare.

-David J. Bailey, MD, MBA, President & CEO of Neumours Children’s Health System

Situation Prior to this pilot, most of Nemour’s patient revenue was from FFS contracts. In 2012 Nemours implemented a pilot program to improve asthma outcomes for a population of children in Delaware.

Details The pilot was designed to integrate population health expertise with clinical operations. The primary care clinics involved became certified patient centered medical homes, and the typical physician-nurse teams were expanded

to include a social worker, a psychologist, and a case manager. Evaluation, diagnosis, and treatment were standardized according to the best evidence and outlined in the electronic health records. Community health workers were hired to work with families to seek asthma triggers along with providing education and support.

Results 60% reduction of asthma-related ER visits; 44% reduction in asthma-related hospital admissions; more than a $2,100 reduction in annual medical costs per child. Their asthma was much more stable, requiring fewer office visits and fewer hospital services. The outpatient costs associated with this care

model were increased due to the large expansion of the team. However, this was outweighed by the reduction in utilization of hospital services.

Bottom line In a FFS model, this reduced medical cost per child benefits only the payer while the provider suffers a financial loss due to the significant

reduction of utilization of hospital services that otherwise would have been reimbursed. Even some value-based reimbursement models would not lead to financial sustainability of the piloted care model, due to their complexity

and the significant investment required at the home, community, and policy levels.

THE SHIFT TO VALUE BASED CARE EXAMPLE: GALLBLADDER REMOVAL

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• PCP refers member to hospital, where blood tests, imaging, a complete physical exam and a record of medical history are completed. Each procedure is billed separately, under the FFS model.

• Member has surgery, but does not call for follow up appointment. Member’s recovery is at risk, care is higher cost, and care is inefficient.

• PCP is reimbursed for office visit and hospital is reimbursed for inefficient care and potential readmission, regardless of lack of coordinated care.

• PCP refers member to ambulatory surgical center (ASC) which serves as a Center of Excellence, where the procedure is reimbursed as a bundled payment. ASC requests records and test results from PCP.

• Member’s care is coordinated, lower cost, and recovery is smoother. • PCP is incentivized by quality bonuses to reduce likeliness of readmission. ASC is

incentivized by bundled payments to provide efficient care.

Fee for Service

Value Based Care

Item FFS Example VBC Example

Surgery1 $10,900 $6,000

1 J A M C O L L S U R G . 2 0 0 8 F E B ; 2 0 6 ( 2 ) : 3 0 1 - 5 . D O I :

1 0 . 1 0 1 6 / J . J A M C O L L S U R G . 2 0 0 7 . 0 7 . 0 4 2 . E P U B 2 0 0 7 N O V

2 6 .

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