Why You Need to Understand Value-Based Reimbursement and How to Survive It
In the past few weeks, I’ve noticed some clear signs that the healthcare industry is in the midst of a shift to value-based reimbursement. This is a dramatic change from the old model of fee-for-care.
One of the signs included an email I received that was promoting a newsletter about value-based reimbursement. This was noteworthy because the entire newsletter was dedicated to the value-based reimbursement movement and covered the many new payment methodologies from bundled payment to accountable care organizations. So now this movement has its own newsletter.
But you may be thinking: why do we want to change anything that we’re doing now? The answer is: we’re really in a new environment. If you look at the gray line on the graph below, you can see the overall Medicare margin on a downward trend from 2000 to 2008 and continuing negative into 2012. Our overall margins are being challenged, especially when Medicare represents 30 percent to 40 percent of business and it was a negative 5.4 percent in 2012, making life a little difficult.
Hospital dollars are now at risk with value-based reimbursements unless you have a high-performing hospital. But to become high-performing, you need to have success with risk-adjusted mortality, risk-adjusted readmission rates, and a low cost structure. To achieve these goals, it’s important to stay on top of the final Centers for Medicare and Medicaid (CMS) rulings for 2015 Hospital Inpatient Prospective Payment Systems (IPPS) value-based reimbursement. Because of the continued focus on value-based reimbursement, these regulations will have a financial impact on the healthcare industry all across the U.S.
For this article, I am going to focus on four topics related to value-based reimbursement:
- Physician payment structure
- Bundled payments
- Hospital Inpatient Prospective Payment Systems
- Commercial payers
Physician Payment Structure
The value-based reimbursement is moving to the physician community. A Medical Group Management Association survey showed that primary care physicians had approximately 6 percent of their compensation tied to quality metrics in 2013. This amount is double the 3 percent from 2012.
CMS issued proposed 2015 regulations that include the value modifier beginning in calendar year 2017. This affects physicians in groups with two or more eligible professionals and those physicians who are solo practitioners. The base period will be 2015.
This regulation will require that physicians both report and meet quality cost standards. Therefore there is potential for a reporting penalty and a cost/quality adjustment in 2017. The adjustment could have a significant impact for those physicians who don’t meet satisfactory quality reporting requirements for the Physician Quality Reporting System (PQRS) because they could end up with a -4.0 percent penalty.
In addition, CMS is proposing to increase the maximum downward adjustment under the quality-tiering methodology to -4.0 percent for groups and solo practitioners classified as low quality and/or high cost. Like all CMS programs, the emphasis on quality remains a high goal as the reach of the regulations expands to more providers and the proposed penalties continue to increase.
Medicare wants higher quality care and more coordinated care across various providers at a lower cost. To begin to achieve these goals, CMS opened a new submission period in January of 2014 that closed in April. During this timeframe, organizations completed bundled payment applications for an entire episode of care that included financial and performance accountability.
There are four bundled payment models hospitals and health systems have the option of choosing from, but models 2 and 3 are the most widely used, so I’m going to focus on them. Models 1 and 4 had few applications.
Providers start in Phase 1, the preparation phase, which includes receiving data from CMS. Providers can move to Phase 2, the risk bearing phase, where participants are chosen by CMS. CMS has announced 4,122 providers will be added to Phase 1. They will join the 2,412 providers already participating. Here’s a further breakdown of the two most popular bundled payment models:
- Model 2: Retrospective Acute Care Hospital Stay plus Post-Acute Care
In Model 2, the episode of care includes the inpatient stay in the acute care hospital and all related services during the episode. There are 48 clinical episodes with an end of either 30, 60, or 90 days after hospital discharge. There are a total 2,150 participants in this model.
- Model 3: Retrospective Post-Acute Care Only
For Model 3, the episode of care will be triggered by an acute care hospital stay and begins at initiation of post-acute care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or home health agency. The post-acute care services included in the episode must begin within 30 days of discharge from the inpatient stay and will end either 30, 60, or 90 days. Participants can select up to 48 different clinical episodes. There are a total of 4,617 participants in this model.
Participation for phase one increased in both of these models. Now, organizations need to be able to replicate the bundles by combining data that has typically not been viewed as one episode. For example, if an entity bid on major joint upper extremity, data is needed to show the payments and potential costs for hospital stay, outpatient stay, the physician component, and related post-acute care. These new data requirements indicate the need for data and analysis. It also indicates the likelihood organizations will start down the value-based reimbursement path as they work to increase care and decrease costs.
Inpatient Prospective Payment Systems Regulations (IPPS)
When CMS published the final regulations, they included a fact sheet titled “CMS to Improve Quality of Care during Hospital Inpatient Stay.” The title summarizes CMS’s philosophy on what needs to change for patients during their hospital stay: the quality of care.
To achieve these goals, CMS updated the following programs: the Hospital Acquired Condition Reduction Program (HAC), the Hospital Value-Based Purchasing Program (HVBP), the Hospital Inpatient Quality Reporting Program (IQR), and the Hospital Readmissions Reduction Program. In specific, CMS’s focus is on penalties for underperforming health systems, with the total maximum penalty hospitals could face being as high as 5.5 percent. This does not include any penalty for non-reporting of the IQR measures because 99 percent of hospitals report these measures. Penalties for the four programs are as follows:
- The Hospital-Acquired Condition Reduction Program
Under the Hospital-Acquired Condition (HAC) Reduction Program, hospitals with the highest rate of HACs — specifically, those in the top 25 percent — will receive a 1 percent reduction in Medicare inpatient payments. CMS estimates 753 hospitals will be subject to the one percent reduction and overall payments will decrease by $330 million or 0.3 percent.
- The Hospital Value-Based Purchasing Program
We are entering the third year of value-based reimbursement for Medicare. Under the Hospital Value-Based Purchasing (HVBP) program, the portion of Medicare payments available to fund the value-based incentive payments will increase to 1.5 percent of the base operating diagnosis-related group (DRG) payment. In other words, all hospitals will have payments decreased by 1.5 percent with the potential to earn a bonus, rewarding those hospitals that perform well. According to CMS estimates, the total amount available for value-based incentive payments in fiscal year 2015 will be approximately $1.4 billion. In the proposed 2015 file, there are 1,253 hospitals that will receive a bonus (average of 0.3 percent) and 1,475 hospitals with a penalty. New measures under the HVBP program include additional outcome measures and an efficiency measure. Then the total performance score for each hospital will be calculated by using the following weights to determine the performance for the top four domains:
- Clinical process: 20 percent
- Patient experience: 30 percent
- Outcomes: 30 percent
- Efficiency: 20 percent
There will also be two new outcomes measures for 2015: AHRQ Patient Safety Indicators (PSI) composite and central line-associated blood steam infection (CLABSI). For efficiency CMS has chosen the Medicare spending per beneficiary (MSPB). An MSPB episode includes all Medicare Part A and Part B claims paid during the period from 3 days prior to a hospital admission through 30 days after discharge.
The HVBP program has many measures and complicated formulas to compare improvement and achievement. There have been several studies and articles stating this program has not shown significant changes; many feel the penalty and reward are not great enough to impact change.
- Hospital Readmissions Reduction Program
CMS added two new conditions to their Hospital Readmissions Reduction Program (HRRP) reporting measures: chronic obstructive pulmonary disease (COPD) and total hip arthroplasty/total knee arthroplasty (THA/TKA).In addition to the new conditions, there is now a maximum penalty for readmissions of 3 percent. This is up from 2 percent. CMS estimates from January 2012 to December 2013 already show significant improvement as a result of the program: hospital Medicare readmissions declined by a total of 150,000.
- Hospital Inpatient Quality Report
The measures for Hospital Inpatient Quality Reporting (IQR) have been revised. In specific, for 2015, CMS reporting requirements are aligned for the IQR reporting and the Electronic Health Record (EHR) Incentive Program. The rule’s changes to Medicare quality incentive programs will continue to encourage high quality care while decreasing the time and effort it takes for providers to report the information. For 2015 those hospitals not submitting quality data are subject to a penalty of one-fourth reduction to the market basket update.The overall IPPS regulations do include some payment increases, but the overall total dollars are lower by -0.6 percent due to the DSH (disproportionate share) and the penalty programs. CMS continues to stress value, which means change for hospitals. In specific, hospitals need to engage physicians and post-acute providers to work together. This can be achieved by using insightful, near real-time data to show providers which areas will benefit the most by process improvement initiatives. The insights from this data will be paramount to the hospital’s success in the value-based movement.
The shift to value-based reimbursement is impacting the commercial payer world as insurers move to value-based concepts. In fact, 90 percent of payers and 81 percent of hospitals have already implemented a mix of value-based reimbursement and fee-for-service. While these may seem like big changes, there are even more changes on the horizon. Over the next five years, payers are projecting fee-for-service will decrease from 56 percent to 32 percent to encourage the desired quality outcomes.
To highlight the changes insurers are experiencing, take the BlueCross BlueShield companies for example. They are moving from fee-for-service to value-based reimbursement models by designing and implementing programs that emphasize primary care. These programs reimburse physicians and hospitals on pre-set, non-fee-for-service contracts to proactively manage their patients’ care rather than letting patients use medically-unnecessary, expensive hospital care. The overall goal is to improve care while managing costs.
To date, BlueCross Blue Shield estimates about 20 percent of all claims are based on value-based care. The initiatives they’ve put in place include changing payment incentives, partnering on clinical information sharing, pricing transparency, and engaging patients. The results have been favorable, as BlueCross insurers were able to document $500 million in savings in 2012 by reducing admissions, reducing readmissions, reducing emergency room visits, reducing high-cost interventions, proactively enabling access to preventive care, and controlling of chronic conditions.
Imagine the impact insurers could have across the entire healthcare industry, though, if they sped up their adoption of value-based reimbursement? According to a recent report from the President’s Council of Advisors on Science and Technology, if insurers increased their rate of adoption, then the entire healthcare industry could “implement systems-engineering principles that will boost efficiency of care.” The Council found the current fee-for-service environment a disincentive to more efficient care.
3 Ways to Survive the Shift to Value-Based Reimbursement
So, what should health systems be doing now that the final rules are in place? There are three important steps to take as we move towards a better future for patient care.
1. Provide access to rich data.
We need to increase data available from the many silos we have created. The data cannot be locked and guarded; it needs to be available to those who will use it to improve care and lower costs.
The latest issue of H&HN (Hospitals and Health Network) magazine includes the most wired survey. This survey includes the results that 86 percent of most wired hospitals provide quality scores to clinical leaders on at least a monthly basis. An analytics system that can track performance and then measure any improvements made based on targeted quality interventions is essential.
In addition to the analytics system, it’s also important to have an electronic data warehouse (EDW). The EDW will help you identify where variation exists along with the causes. This is critical because eliminating variation and waste can raise the efficiency of your Medicare care exponentially.
With these solutions, health systems will be able to track their performance, find answers to their questions about their performance, and measure what they’ve done — all important steps to meeting the constantly changing requirements for value-based reimbursement.
2. Share knowledge and learn from each other.
We all need to be sharing the value-based message and implications. We need to ask our peers for help to achieve the goals we need. This may involve others outside of our organization.
Healthcare costs are now approaching one-fifth of the U.S. economy. We have substantial waste and cannot prove we have better health or quality. There are many tools like value stream mapping to improve workflow. We now need to have evidence-based content for all clinicians and a structure that will facilitate learning.
3. Develop strategies by doing assessments.
What are the strategies for your organization for the next year and the next 5 years? You may need to do an assessment to determine your current state, your deficiencies, and a plan to overcome the deficiencies. All organizations have strengths and weaknesses. How does your organization align with the value-based future? Will you be able to deploy your strategies?
Value-Based Reimbursement — Here to Stay
The healthcare industry has gone through a lot of changes, updates, and new reporting measures. And they’ll only continue as CMS and other payers work through the challenges to improve care and also reduce the cost of care through various improvement programs. But as the penalties increase, health systems will be at a disadvantage if they don’t work to improve the quality of care they provide. In fact, these reductions can exceed the average margin for most hospital systems and cause significant financial hardships.
To be able to survive the value-based reimbursement model, health systems need to access their data to determine where they can improve. But most current healthcare data models can’t support the need to analyze data and pull reports from the many different source systems that have already been purchased. Instead, health systems need something different — a systematic approach that uses the right information and the right processes at a system level to drive improvement.
I’m interested in hearing about the steps you’ve taken to prepare your health system for value-based reimbursement. Have you found strategies besides these three that have been effective? Do you have concerns I can help address?
Resources White House advisers urge faster shift to value-based payment http://www.fiercehealthcare.com/payer/white-house-advisers-urge-faster-shift-to-value-based-payment?utm_medium=nl&utm_source=internal
Would you like to use or share these concepts? Download this quality improvement presentation highlighting the key main points.