Value-Based Healthcare Strategies

Value-based Healthcare Strategies:

How Should Industry Stakeholders Respond to Current

Policy Trends?

Courtney Sanvido, Colin Bertram, Greg Jarvis, Chien-Wei Lan

April 18, 2016

| Value Based Healthcare Strategies | Georgetown University Student Consulting Team

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CONTENTS

EXECUTIVE SUMMARY: OBJECTIVE, METHODOLOGY & RESULTS

SECTION A: VALUE-BASED FRAMEWORKS

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1. Regulatory Environment: Legislative Fixes and Gaps

○ Medicare Access and CHIP Reauthorization Act (MACRA) 5

○ CMS Alliance to Modernize Healthcare 7

2. Various Pay for Performance (P4P) Models

○ Medicare Hospital Readmissions Reduction Program 7

○ Hospital Value-based Purchasing Program 8

○ Hospital-Acquired Condition Reduction Program 8

SECTION B: OPERATIONALIZING THE FRAMEWORKS

1. Financial and Strategic Implications 9

2. Therapeutic Specific Value-based Models 10

3. Bundled Payments, Pharmacy, and Specialty Pharmacy f r Coordination

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SECTION C: RECOMMENDATIONS FOR STRATEGY DESIGN, BUSINESS PLANNING, AND OPERATIONAL ASSESSMENT

1. Recommendation One: Pharmaceutical Best-Practice Forums 13

2. Recommendation Two: Explore Cost Sharing Strategies Between Payers

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3. Recommendation Three: Encourage Late-adopter Providers to Develop Value-Based Models

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4. Recommendation Four: Encourage Providers to be More Patient-Centered

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5. Recommendation Five: Create Cost of Care Episode Report Cards 16

6. Recommendation Six: Lobby for Tax Incentives to Adopt VBC 16

REFERENCES r18


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EXECUTIVE SUMMARY

Objective

The Kinetix Group (TKG) requested that the Georgetown University Student Consulting

Team (GSCT) conduct an analysis of emerging public and private value-based payment

models and develop strategic recommendations that will better align the interests of

healthcare providers, payers, manufacturers, and patients. The GSCT conducted an

industry analysis in order to identify common factors for success and points of failure

within these models, and present how TKG can apply these lessons towards serving

their clients.

Methodology

We conducted research across multiple channels, drawing heavily from Centers for

Medicare and Medicaid Services information, publicly available data on private payers,

healthcare journal articles, and interviews with industry experts. Analysis of policy

initiatives such as the Affordable Care Act (ACA) and the Medicare Access and CHIP

Reauthorization Act (MACRA) provided the most insight into the national direction of

value-based initiatives. Our research was driven by developing an understanding of

these policies and the industry’s response.

Results

Based on our analysis, the GSCT provides recommendations for the many stakeholders

in the healthcare system, including the pharmaceutical industry, providers, and third-

party payers. The success of value-based healthcare will be largely contingent on

system harmonization, with all stakeholders understanding why the shift from volume to

value is in their best interest. Participants must understand how the shift to value will

create more risk and responsibility for their organizations. Stakeholder will need to

identify what they can do to induce organizational change and how they can benefit

from the shift to value-based reimbursement. Providers, patients, payers, and

pharmaceutical companies will all insist that the other parties assume their fair share of

that risk, and will lobby policymakers in order to limit their own exposure.


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SECTION A: VALUE-BASED FRAMEWORKS

While value-based payment models have existed for several decades in the United

States, there has been a recent explosion in the prevalence of these models. It has

been driven by a rapid increase in national healthcare spending without an equivalent

increase in outcomes. Consumers of healthcare services and federal policymakers have

increasingly demanded a reversal of this trend, putting pressure on both public and

private health systems to improve outcomes while decreasing costs. While it has been

difficult to track cost and outcome metrics in the past, recent technological advancement

in data collection has increased end-to-end transparency and enabled widespread

systemic change. The following section will identify how the public and private sectors

have responded to consumers’ and lawmakers’ demands for value.

1. Regulatory Environment: Legislative Fixes and Gaps

The Affordable Healthcare Act of 2010 and the Medicare Access and CHIP

Reauthorization Act of 2015 created a roadmap to shift healthcare spending from

volume to value-based models. While the ACA remains a controversial piece of

legislation, MACRA passed both chambers of Congress with broad bipartisan support.

There is an understanding among legislators that the current rate of growth in national

healthcare spending is unsustainable, and they have embraced value-based payment

models as a way to slow this growth. However, this legislative action was limited to

Medicare, suggesting that Congress is mainly concerned with rising healthcare costs as

they pertain to the federal budget. Together, Medicare Parts A and B make up

approximately $361 billion of the 2016 budget, representing an opportunity for

legislators to demonstrate a proactive approach to fiscal responsibility.1 However,

national healthcare spending is increasingly being viewed as a broad economic

problem, with total national spending exceeding $3 trillion in 2014. Sustained national

spending at this rate will limit opportunities to invest in other areas.2

In order to effectively slow the growth of healthcare costs, value-based payment models

need to be expanded into the private sector and implemented throughout the entire

value chain. The federal government could incentivize a shift towards value among

private insurers through a series of tax breaks, but has yet to engage the private sector

outside of the creation of the CMS Alliance to Modernize Healthcare.3 Additionally, there

is no current pending legislation that would expand value initiatives to pharmaceutical or

medical device manufacturers, and CMS is barred from experimenting with such models

due to policy restrictions.4 Another government action that could have negative impacts

on pharmaceutical companies would be the FDA requiring comparative efficacy


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standards on new drugs or devices as part of the approval process, or reducing the

duration of patent protections. While neither of these actions is currently pending, public

opinion can rapidly galvanize a legislative response, and pharmaceutical companies

should remain wary of this possibility.

Medicare Access and CHIP Reauthorization Act: What it Hopes to Accomplish

MACRA has three main policy objectives: 1) the repeal of the Sustainable Growth Rate

(SGR), 2) creating a framework for a shift from volume to value, and 3) combining and

standardizing previous quality reporting systems. The broader focus of the legislation is

to shift Medicare payments from Fee For Service (FFS) reimbursement to Pay for

Performance (P4P) models. The Centers for Medicare and Medicaid Services (CMS)

has a stated goal of tying 90% of Medicare claims to value models and 50% to

Alternative Payment models by 2018. Financial incentives are structured to reward early

adopters and penalize doctors that choose to retain a standard FFS reimbursement

model.5

Sustainable Growth Rate Repeal

The repeal of SGR was widely supported, as it had been subject to temporary annual

fixes since it was first implemented. SGR has been replaced with annual updates to the

physician fee schedule as follows: 0.5% annual update from 2015 - 2019, 0% update

(freeze) from 2020 - 2025, 0.25% annual update for MIPS participating physicians 2026

and onward OR 0.75% annual update for APM participating physicians 2026 and

onward. As the future annual updates show, providers will need to prepare for tighter

margins during the five year fee schedule freeze from 2020 to 2025. Furthermore, it will

be highly favorable to participate in MIPS or APM from 2019 and onward in order to

continue receiving physician fee schedule updates.6

Merit-Based Incentive Payment System

The Merit-Based Incentive Payment System (MIPS) combines existing quality reporting

programs into one new system based on quality, effective and efficient use of

resources, clinical practice improvement, and meaningful use of certified EHR

technology. MIPS replaces three reporting programs which will sunset on December

31st, 2018. These three programs are the Physician Quality Reporting System (PQRS),

the Value-based Payment Modifier (VBPM), and the Medicare Electronic Health Record

(EHR) program. PQRS requires Medicare Part B providers to report on a minimum

number of quality measures across various domains or face a 2% payment reduction.

VBPM compares providers’ outcomes data to their Medicare claims and adjusts

reimbursements according to cost efficiency. In the Medicare EHR program, eligible


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providers and hospitals must demonstrate meaningful use of electronic health records.

Meaningful use includes activities and capabilities such as electronically transmittable

records, engagement of individual patients through personal health records or portals,

and reporting of quality measures and public health data. Participants not able to

demonstrate meaningful use will face a reimbursement penalty of up to 1% annually or

a 25% reduction in the Inpatient Prospective Payment System market basket update.7

Providers’ MIPS Composite Score is calculated through 4 different categories of

metrics: Quality Measures (50% of score in 2019, 45% of score in 2020, 30% of score

2021 onwards), Resource Use Measures (10% of score in 2019, 15% of score in 2020,

30% of score in 2021), Clinical Improvement Activities (15% of score), and Meaningful

Use of EHRs (25% of score). MIPS Composite Scores will be made publicly available

on Physician Compare. Providers with scores above or below the performance

threshold (calculated annually) are rewarded or penalized a percentage of their total

Medicare payments. Reimbursement adjustments for the next 5-10 years are up to 4%

in 2019, 5% in 2020, 7% in 2021, and 9% in 2022 and onward.8

Alternative Payment Models

MACRA also established innovative care models for delivery and payment that

emphasize quality and value. MACRA defines APMs as any CMS Innovation Center

Model, any Medicare Shared Savings Program (MSSP), a demonstration under the

Health Care Quality Demonstration Program, or a demonstration mandated by federal

law. APM participants may be qualifying or non-qualifying. Qualifying participants

receive an annual 5% bonus lump sum payment for 2019-2024, are not subject to

MIPS, and receive higher fee schedule updates for 2026 and onward. To qualify, a

participant must meet a threshold of their payments or patients through an eligible APM

(25% in 2019 and 2020, 50% in 2021 and 2022, and 75% in 2023 and onward). An

eligible APM is a more advanced APM that must meet certain criteria: 1) base

reimbursement on quality measures comparable to MIPS, 2) requires participants to use

certified EHR technology, and 3) bears more than a nominal amount of financial risk or

is a medical home under section 1115A(c) of the Social Security Act. Non-qualifying

participants receive favorable MIPS scoring, especially under the clinical practice

improvement section.9

Accountable Care Programs

Accountable Care Organizations are groups of healthcare providers which coordinate

care and assume financial accountability for a population of Medicare patients. As of

January 2016, there are a total of 477 qualified ACOs enrolled in CMS’s five

accountable care programs, covering over 8.9 million beneficiaries nationally. The


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Pioneer ACO program generated savings three years in a row, which will likely result in

CMMI extending the life of the program. The total savings of fiscal year 2014 were $120

million, and average savings per ACO were $6 million. The Pioneer ACOs also showed

quality outcome improvement; mean quality score increased from 72% to 87% from

2012-2014. To build upon the success of the Pioneer ACO model, the Next Generation

ACOs will emphasize financial incentives for those that have more progressive care

models. Next Generation ACOs aim to further improve health outcomes and reduce

expenditures by incentivizing greater opportunities for coordinated care.10

CMS Alliance to Modernize Healthcare and the Healthcare Payment and Learning

Action Network

These initiatives were developed in order to “drive alignment in payment approaches

across the public and private sectors of the U.S. healthcare system.”11 Together, they

represent the extent of federal action in encouraging private health insurance

companies to convert from Fee For Service models into Pay For Performance models.

The initial work of these initiatives has been to standardize how concepts are

understood throughout the industry. While these initiatives have succeeded in creating a

dialogue across the industry, they lack substantive mechanisms to encourage

compliance. For profit insurances will be reluctant to reveal truly innovative approaches,

as they will view these as a source of competitive advantage.

2. Various Pay For Performance (P4P) Models

Pay for performance models are healthcare delivery and payment programs which

emphasize quality, cost-efficiency, and value of care. P4P programs tie financial

incentives and penalties to structure, performance, and outcome measures. P4P

models exist in both the private and public sector. The most widespread of the P4P

programs are the ones that CMS has designed. These are the Medicare Hospital

Readmissions Reduction Program, Hospital Value-based Purchasing Program, and

Hospital Acquired Condition Reduction.

Medicare Hospital Readmissions Reduction Program

CMS’s Medicare Hospital Readmissions Reduction Program reduces reimbursement to

acute care hospitals with excess patient readmissions within 30-days of discharge. This

P4P program focuses on the prevention of complications from hospital treatments,

inadequate treatment, inadequate care coordination and follow-up care, and

unexpected worsening of disease after discharge from the hospital. Although these

policies have been in effect since 2012, a study conducted by US News and World


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Report Health demonstrated that nearly 2,600 US hospitals were penalized under this

system in 2014, resulting in total reimbursement penalties of over $420 million. The

program has resulted in a national drop in readmissions, but one in every five patients is

still readmitted, indicating that the program is working but still has room for

improvement.12,13 Given this, TKG can help implement proactive, cross-continuum

touch-points in post-acute care clinics to help prevent these patients from rebounding

into the hospital. Health systems and physician practices will need to form integrated

care delivery systems in order to manage the cost of care for these patients and ensure

they have high rates of post-acute follow-up. Practices will not only need to ensure they

have same-week access and capacity to handle the patients, but they will need to prove

proactive management of and high compliance rates with patients attending these

appointments.

Hospital Value-Based Purchasing Program

CMS’s Hospital Value-Based Purchasing Program adjusts a portion of payments to

hospitals based on: 1) how well they perform on each measure compared to all

hospitals, and 2) how much they improve their own performance on each measure

compared to their baseline performance at a prior period. These measures focus on

outcomes, patient experience, and cost and the program is funded by a 1.75%

reduction from hospitals’ DRG payments for FY 2016. These funds will be reallocated

based on each hospital’s total performance score. It is estimated that about 1,800

hospitals will receive a bonus while 1,235 will be penalized up to 1.75%. Adjustments

will increase to 2% in FY 2017.14

Hospital-Acquired Condition Reduction

In CMS’s Hospital-Acquired Condition (HAC) Reduction program, Medicare reduces

payments to the worst performing quartile of hospitals with respect to hospital-acquired

conditions (HACs). The Total HAC Score is based on 4 quality measures: 1) PSI 90

Composite, 2) Central Line-Associated Bloodstream Infection (CLABSI), 3) Catheter-

Associated Urinary Tract Infection (CAUTI), and 4) Surgical Site Infection (SSI) - colon

and hysterectomy. Total savings in FY 2016 is estimated to be about $364 million with

758 out of 3,308 participating hospitals being penalized up to 1% (up from 724 hospitals

in FY 2015).15


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SECTION B: OPERATIONALIZING THE FRAMEWORKS

For the providers who operate within a value-based system, it is imperative that they

understand their opportunities for increased financial rewards and the potential for

financial risk. Hospitals that are subject to mandatory quality measures will need to

know how they are being judged. For the providers that choose to remain outside of an

Alternative Payment Model, it will be important to understand how the value metrics

from MIPS will determine their pay, how these metrics will change over the coming

years, and what updates their practices will need in order to maximize their financial

rewards. For existing ACOs and current members of Alternative Payment Models, it will

be important to not just maintain their current profit-maximizing operational practices,

but to establish relationships with other providers who can increase the efficiencies of

their model. In order to achieve this, they will need a system to assess their needs and

to judge the worthiness of potential partners. Finally, for the small providers who wish to

gain advantages by joining an ACO or APM, it will be necessary to have a means of

conducting a self-assessment as to what strengths they possess that would make them

an asset to an ACO, or what weaknesses may need correcting before they will be

allowed into the organization.

1. Financial and Strategic Implications

Financial

Under the three pay-for-performance programs mentioned above, each hospital has

5.75% of their total reimbursement at risk. The risks are as follows: VBP may adjust

reimbursement up to 1.75% (2% in FY 2017), Readmissions reductions may adjust

reimbursement up to 3%, and HAC may adjust reimbursement up 1%. While the

specifics and metrics of pay-for-performance programs vary by program, there are

common underlying components. These metrics include process measures, outcome

measures, cost-efficiency/utilization measures, and patient satisfaction measures.

Strategic

Firstly, providers must understand the direct financial benefits along with the indirect

strategic benefits of pay-for-performance models. One potential benefit is the creation of

a positive public perception of the provider. Although many of the regulations are

mandated, providers can capitalize on being early adopters. This would not only help

shape how patients and peers view the regulations, but it could work to providers’

financial advantage. Similarly, providers can utilize the publicly reported quality metrics

as a competitive advantage.


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Secondly, these reimbursement opportunities promote refinement and enhancement of

team-based care. Both the beneficiaries and providers of healthcare services share the

perception that there are many shortcomings within the current delivery system. Health

systems can use the policy initiatives as a guidepost for implementing long-needed

changes. Bundles are an excellent example of how inter-industry competition will force

care teams (pre-operative, intra-operative, acute, post-acute, and primary care) to align

in methodology, treatment patterns/technique, and pharmaceuticals/ supplies.

Finally, and arguably most importantly, reimbursement transformation is leading to

better patient outcomes. The average time it takes for a scientifically proven best

practice to be disseminated and adopted in medicine is upward of fifteen years, a time

that lags well behind appropriate standards. The regulatory and financial changes are

forcing conversations around best practices, and are creating spaces for providers to

share techniques while enabling them to develop the best care pathways for patients. If

these techniques are adopted successfully, they will tighten the quality outcome gap

between patients. Quality assurance will be more uniform, which lessens the care

inequality between patients. Doctors who are unable or unwilling to remain up-to-date

will see significant financial loss, and will likely find themselves forced out of

organizations that rely on that doctor’s quality metrics.

Many of the shortfalls in the current delivery system occur during care transitions or as a

result of the social determinants of an individual’s health. Policymakers need to address

how social determinants of health may affect outcomes regardless of the quality of care

received. This is another shortcoming that the reimbursement policy changes are

attempting to address. Not only are there newly created reimbursement codes for

treatments such as home-health, but there are funding opportunities for those systems

that successfully integrate care-coordination teams into their care models. Having these

teams integrated throughout the delivery chain is a key to success in reducing cost and

improving patient outcomes. Integration would not only decrease failures in transitions

of care, but will do so at a lower cost per hour than a provider does.

2. Therapeutic Specific Value-based Models

Oncology Care Model

The National Cancer Institute projects that annual expenditures on cancer treatment will

reach $207 billion in 2020, highlighting a need to shift the cancer care model from

volume to value. Medicare’s Oncology Care Model (OCM) is a Center for Medicare and

Medicaid Innovation program intended to improve quality, increase coordination, and

reduce the cost of cancer care treatment. OCM encourages payers and practices to


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shift towards value through an episode-based payment model. Reimbursement to

providers consists of two parts: 1) a per-beneficiary-per-month payment throughout the

duration of the cancer care episode (up to 6 months after the diagnosis) and 2) a

performance-based payment. To be an eligible participant in OCM, practices must meet

a variety of quality and coordination benchmarks. A few of these minimum requirements

include: 1) provide the core function of patient treatment navigation, 2) use a care plan

based on the Institute of Medicine’s 13 key cancer care components, 3) demonstrate

meaningful use of an EHR system, 4) use data to drive continuous quality improvement,

and 5) provide 24/7 patient access to a clinician throughout the care episode. Although

designed for Medicare, it is a multi-payer model in which state and commercial payers

may also participate. OCM is slated to begin in spring 2016 and last five years. If this

proves successful, this model would potentially serve as the model for other conditions,

especially those involving high cost treatments, high risk patients, or specialty

pharmaceuticals.16

Blue Cross Blue Shield Quality Improvement Pilot Initiative

Blue Cross Blue Shield Michigan’s quality improvement pilot initiative in cardiovascular

care is a private-payer benchmarking model. Its goal is for provider collaboration to

improve outcomes by using disease-specific measures. This private quality

improvement model is specifically focused on percutaneous coronary intervention and

was originally based on collaboration between six different hospitals in Michigan. This

initiative collects quality data from these participating providers through a central

registry, analyzed and provides immediate feedback to the participating clinical teams.

The pilot initiative shows significant improvements in a range of outcomes including a

59.3% reduction in emergent coronary artery bypass grafts (CABG), a 46.2% reduction

in all CABG procedures, and a 27.7% reduction in vascular complications. Fewer

procedures and complications has reduced expenses and improved efficiency. There

are now more than 33 providers participating in this initiative and will expect to bring

greater quality improvement and cost-efficiency in Michigan.17

3. Bundled Payments, Pharmacy, and Specialty Pharmacy Coordination

Bundled Payments for Care Improvement Initiative

The Bundled Payments for Care Improvement Initiative is another avenue that CMS is

using to reform Medicare. Rather than make separate payments to providers for

individual treatments or services, the Center for Medicare and Medicaid Innovation will

be testing various bundled payment models to test care coordination strategies. There

are four models that are being used to test efficacy of bundling: Model 1: a retrospective

bundled payment for entire inpatient, acute care episode, Model 2: a retrospective


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bundled payment for acute care inpatient stay and post-acute care services, Model 3: a

retrospective bundled payment for just post-acute care services, and Model 4: a

prospective payment to all providers for the entire inpatient stay. These models differ in

the way that revenue gets allocated between providers, but the main objective all each

is to increase the value of care delivered per dollar spent.18

Comprehensive Care for Joint Replacement Model

One of the earliest nationwide bundling programs is CMS’s Comprehensive Care for

Joint Replacement Model (CCRJ Model). In 2014, there were over 400,000 hip and

knee replacement surgeries, costing over $7 billion for the hospitalizations alone. Both

quality and costs vary tremendously across providers ($16,500 to $33,000 across

geographic areas). This model defines a bundled payment from entrance into a hospital

for either an MS‐DRG 469 or 470 (with or without complications) and ends 90 days after

discharge. The total expenses are all goods and services provided under Medicare Part

A and B. Total expenses are compared to Medicare’s target cost of the episode or care

and, depending on the hospital’s quality and spending performance, the hospital may

receive a payment bonus or penalty. This model is being tested from January 1st, 2016

to December 31st, 2020. All providers in the 67 selected geographic areas will be

required to participate in this bundled payment.19

UnitedHealthcare’s Cancer Care Payment Model

An example of a bundled payment in the private sector is UnitedHealthcare’s Cancer

Care Payment Model. The pilot program for this bundled payment from 2009 to 2012

showed a 34% reduction in total costs while improving quality. The bundle is a single

episodic payment provided at initial visit based patient data and diagnosis. All drugs and

treatments are reimbursed using the average market price of chemotherapy drugs.

Furthermore, hospitals proactively provide health data to UHC for all patients diagnosed

with lung, colon, or breast cancer. Since then, 550 physicians from 5 medical centers

have joined the program. Although the initial pilot program was not meant to uncover

why the bundled payment reduced costs, the initial analysis suggests that the cost-

saving came from reduced hospital stays, not lower drug costs. In fact, the pilot program

found the cost of chemotherapy treatment actually increased, but had a shorter

duration.20

The emergence of bundled payment models are forcing health systems to begin the

journey to reorganize their care models. For providers to be able to compete in the

bundle payment world, they are going to have to develop care pathways and

standardize treatments, which means huge changes for providers, health systems, and

medical device and pharmaceutical companies.


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SECTION C: RECOMMENDATIONS FOR STRATEGY DESIGN,

BUSINESS PLANNING, AND OPERATIONAL ASSESSMENT

The preceding sections explored several ways in which the ongoing shift to value is

forcing industry stakeholders to redefine how they interact with each other in the market.

The future state of the industry will likely be more consolidated, with fewer members

seeking their share of decreasing profit margins. Industry participants will seek every

channel, both market and nonmarket, in their attempts to remain viable in the system.

The immediate necessity will be for companies to remain profitable. Over the long term,

they will need to constantly reassess the ways in which they create value for all

stakeholders of the healthcare system. If participants cannot demonstrate their value,

they will be subject to financial penalties, scrutiny, and legislative attacks from the other

stakeholders who feel they are bearing an outsized proportion of risk. Below, we have

compiled a list of six recommendations for how industry participants can maintain their

business during times of rapid change. They consist of direct action items to be

undertaken by The Kinetix Group in service of their clients, broad recommendations

TKG can make to their clients, and long term policy goals that may better align the

industry and expedite the shift to value.

Recommendation One: Pharmaceutical best practice forums.

We recommend that The Kinetix Group engage with its biotechnology and provider

clients in order to create forums in which best practices for medication compliance can

be shared between providers. As provider reimbursement becomes increasingly tied to

outcomes, pharma will feel pressure to get patients to follow their medical advice.

Pharmaceutical companies currently have very little motivation to ensure a patient takes

the entire course of his prescription as long as the treatment is paid for in advance. If

providers are going to be held accountable for the outcomes of their patients without

being able to influence patient compliance, it is likely that they will push back on the

pharmaceutical industry in order to make them share the risk that comes from patient

noncompliance.

While our research found no indication that pharmaceutical companies are going to be

subjected to cost controls or risk sharing under the current value-based models for care,

the possibility exists for such a model to emerge in the future. Several factors are

preventing this in the short term. Medicare is currently forbidden from negotiating drug

prices, which prevents any type of risk sharing model experiment that might

demonstrate the efficacy of such a model on lowering drug prices. Additionally, the

biotechnology industry is far more unified than the provider industry, which gives an


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advantage to biotech in their ability to lobby Congress to prevent such measures.

However, providers are going to see an increase in their lobbying power as hospitals

and outpatient clinics continue to coalesce into larger networks. It is probable that

sometime in the near future, providers will have the ability to lobby Congress for

favorable legislation at a level equal to that of the biotech industry. In order to dissuade

the provider community from pushing for this legislation, the pharmaceutical industry

should take a proactive approach to enable providers in enforcing patient compliance.

Pharmaceutical companies have the resources to conduct a wide scale study on what

techniques have been successful in communicating with patients. TKG should

encourage their pharmaceutical clients to conduct industry research on which doctors

have the highest success rates in patients taking their entire course of treatment, and to

hold conferences in which the providers who have had the greatest levels of success

can be compensated to teach their strategies to other providers.

Recommendation Two: Explore cost sharing strategies between payers in order

to engage outlying providers in value-based models.

Small providers with low numbers of Medicare patients, greater numbers of payers

among their patient population, and/or undeveloped EHRs are commonly left out of

alternative payment models. Blue Cross Blue Shield Louisiana describes the following

strategy: “In the initial year, Blue Cross focused on engaging and enrolling those

primary care – general medicine, internal medicine and family practice – practices that

treat higher numbers of Blue Cross members.”21 Given the startup costs that come from

enrolling a provider’s patients into a new payment model, insurance companies will

show reluctance to include providers with lower numbers of their patients. Providers

without modern EHRs are similarly left out of value-based initiatives. Furthermore, the

payers who institute these quality initiatives create an opportunity for other payers to

“free-ride,” as these initiatives modernize and streamline the workflow for the provider’s

entire patient population, not just the patients who are enrolled with the insurance

provider sponsoring the initiative. If payers were to share in the costs of implementation,

it is likely that they would be able to include previously ignored providers in their new

quality initiatives.

The Kinetix Group should explore the creation of a provider database that lists all

primary care providers by the patients they have enrolled in various insurances. With a

better understanding of how the patient population is divided among payers, insurance

companies can devise an equitable strategy for instituting these new initiatives, and will

find it more financially feasible to engage with previously uninvolved providers.


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Recommendation Three: Encourage late-adopter providers to develop value-

based models.

We suggest that The Kinetix Group work closely with providers who are slow to shift

their care model from volume to value. As recent policies and marketplace regulations

have shown, and based on The Department of Health and Human Services’ goal of

tying 85 percent of all Medicare payments to quality or value by 2018 and 90 percent of

all Medicare payments to quality and value by 2019, all providers will have to adapt.22

Specifically, TKG should work with these providers to identify which quality measures

they are fittest to report and which quality measures need the most improvement.

Furthermore, TKG should ensure that these providers have the appropriate and

approved means to report these quality measures, whether that is through their EHR

system, Medicare claims records, or another reporting method. TKG should also help

these providers and systems adapt post-acute management systems, such as

telehealth and contracts with specific long term care facilities, to better manage risks. If

up to 9% of providers’ reimbursement will be subject to MIPS after 2021, concentrating

on these metrics offers the greatest return on investment.

A key to successful adoption of these models requires creating a “burning platform” for

change. It is imperative for practice staff to understand why the shift from volume to

value is happening, recognize the importance of value for both their patients and their

practice, and identify existing organizational mechanisms to coordinate care and

improve value.23

Recommendation Four: Encourage providers to be more patient-centered: Better

use of patient-reported outcome measures (PROMs) & health behavior changes

for incoming greater patient involvement.

We suggest that The Kinetix Group encourage providers to reassess how they integrate

the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS)

survey, as it is one of the core components in the recent shift to payment & quality of

care is patient-centeredness. The Kinetix Group must make providers aware that

greater patient involvement is key to future success. We recommend encouraging

providers and clients to involve patients directly in the discussions around and decisions

in implementing care pathways. By involving patients in these conversations, it will likely

uncover barriers not known to the provider and thereby increase patient compliance

with the improved pathway.

The Hospital Value-Based Purchasing program began incorporating HCAHPS in 2010.

It was expanded to discharges in October 2012, and accounted for up to 1.5% gain or


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loss of payments from Medicare in fiscal year 2015 for providers and will shift upward to

2% of total Medicare reimbursement in 2017.24 With a growing amount of revenue at

stake based on these scores, strategic programs must be proposed for providers such

as providing financial incentives to employees & publicizing the financial result of

HCAHPS scores within the hospital.

Recommendation Five: Create Cost of Care Episode Report Cards by provider

and care center to benchmark against each other.

Hospitals and providers will need to conduct a deep dive into their costs in order to

optimize treatment care paths. By developing a standardized cost-tracking report card,

TKG will give providers transparency around the large cost drivers per patient by

diagnosis and determine variation in these costs among providers. By using this data to

create a centralized database, TKG will be able to provide a benchmarking database for

clients which will allow better working relationships between companies involved in an

entire patient’s episode of care. This will also allow comparison of cost per DRG linked

to individual patient outcomes, which will help TKG provide best practice guidance to

other practices.

Moving forward, care paths will likely force a reduced number of vendors/SKUs and

drugs that providers prescribe and by using this data, TKG will be able to proactively

identify which pharmaceuticals and interventions have the most value in specific care

episodes. They will then be able to leverage that knowledge with pharmaceutical and

medical device clients so they can increase sales and possibly even help create

bundles with these items. Historically, physician and consumer preferences have been

the deciding factors for the supplies and technique chosen to treat patients. However,

the regulatory change is forcing a different approach and one in which will touch all

segments of the value chain, squeezing out non-value added activities and eliminating

waste. This means touching suppliers of products and medical supplies.

Recommendation Six: Lobby Congress for tax incentives for private insurers to

implement and coordinate with each other in implementing alternative payment

models.

The CMS Alliance to Modernize Healthcare and the Healthcare Payment Learning

Action Network are the two main government sponsored initiatives for shifting the

private sector to value-based models. Together, they offer an opportunity for the

industry stakeholders to discuss best practices, but provide few incentives to do so. As

long as insurance companies are competing to capture a larger market share or attract

investors to higher profit margins, they will be reluctant to share best practices or trade


17

secrets that are a source of competitive advantage, and these forums will not enable the

flow of information that is required to harmonize the industry. Insurance companies

should be compensated for developing proprietary payment models. While The Kinetix

Group is limited in its power to lobby Congress, it may be in a position to offer

recommendations to its payer clients on how they can more effectively communicate the

necessity of tax incentives in advancing private value-based models.


18

REFERENCES

1. "HHS FY 2016 Budget in Brief." HHS.gov. Accessed April 18, 2016.

2. Auerbach, D., and A. Kellerman. "How Does Growth in Health Care Costs Affect the American

Family?" 2011. Accessed March 5, 2016.

3. "Business Transformation & Program Integrity." The MITRE Corporation. Accessed April 1, 2016.

4. Goozner, M. "Keep CMS' Value-based Pay off My Medicare Drugs!" Modern Healthcare. March 12,

2016. Accessed April 5, 2016.

5. "Better, Smarter, Healthier: In Historic Announcement, HHS Sets Clear Goals and Timeline for Shifting

Medicare Reimbursements from Volume to Value." HHS.gov. January 26, 2015. Accessed April 7,

2016.

6. "H.R.2 - 114th Congress (2015-2016): Medicare Access and CHIP Reauthorization Act of 2015."

Congress.gov. Accessed April 2, 2016.

7. Ibid.

8. “MACRA, MIPS, and APMs Timeline.” CMS. Accessed March 5th, 2016.

9. Conway, P. “Presentation for Panel: Medicare Payment System Reforms: What Do We Know?. CMS

Alliance for Health Reform. Washington, DC, April 11, 2016.

10. “Half of U.S. Hospitals Face Medicare's Readmission Penalties.” Kaiser Health News. Accessed

March 17th, 2016.

11. “Alternative Payment Model (APM) Framework Final Whitepaper.” Alternative Payment Model

Framework and Progress Tracking (APM FPT) Working Group. Accessed March 15th, 2016.

12. “Linking quality to payment.” Medicare.gov. Accessed March 17th, 2016.

13. “The Hospital Readmissions Reduction (HRR) Program.” Medicare.gov. Accessed March 17th, 2016.

14. “The Hospital Value-based Purchasing (HVBP) Program.” Medicare.gov. Accessed March 17th, 2016.

15. “Hospital-acquired Condition (HAC) Reduction Program.” Medicare.gov. Accessed March 17th, 2016.

16. “Oncology Care Model.” CMS.gov. Accessed March 20th, 2016.

17. “Quality Blue Primary Care: A Framework for Value-based Innovation in Health care Delivery.” Blue

Cross Blue Shield of Louisiana. Accessed March 25th, 2016.

18. “Bundled Payments for Care Improvement (BPCI) Initiative: General Information.” CMS.gov. Accessed

March 17th, 2016.

19. “Comprehensive Care for Joint Replacement Model.” CMS.gov. Accessed March 17th, 2016.

20. “Study: New Cancer Care Payment Model Reduced Health Care Costs, Maintained Outcomes.”

UnitedHealthcare. Minnetonka, MN, July 8th, 2014. Accessed March 15th, 2016.

21. “Aligning Payers and Providers Around Value: Blue Cross Blue Shield of Michigan’s Collaborative

Quality Initiatives.” International Consortium for Health Quality Measurement. June 2015. Accessed

March 20th, 2016.

22. "Better, Smarter, Healthier: In Historic Announcement, HHS Sets Clear Goals and Timeline for Shifting

Medicare Reimbursements from Volume to Value." HHS.gov. January 26, 2015. Accessed April 7,

2016.

23. Horak, B. Personal interview and email correspondence. March 29th, 2016.

24. “HCAHPS Fact Sheet.” CMS. Accessed, April 4th, 2016.

Value-Based Healthcare Strategies

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