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Alternative payment models such as bundled payments or shared savings will continue to make up a greater share of how Medicare services are paid for.

Navigating health reform

Payment Reform Continues to Shape Health Care

  • 4/8/2015

In January, the Department of Health and Human Services (HHS) released its timeline for how traditional Medicare services (or fee-for-service [FFS]) would be paid in the coming years. By 2016, it aims to pay at least 30 percent of these expenditures through alternative payment models like bundled payments or shared savings via an accountable care organization (ACO) model, and 85 percent of FFS Medicare through some type of value-based payment. The goals are more aggressive for 2018, ramping up to 50 percent and 90 percent respectively.

HHS Secretary Sylvia Burwell also noted that the Centers for Medicare and Medicaid Services (CMS) was creating a Health Care Payment Learning and Action Network made up of private payers, employers, consumers, providers, states, and state Medicaid programs. The goal of the group is to work with private payers and states to adopt alternative payment models.

Even providers that do not rely heavily on Medicare revenue currently may be affected by reforms. Recently, several large health systems and insurers formed a private coalition with the intent to follow the CMS lead. This coalition’s target is that 75 percent of their contracts will include incentives for quality and lower-cost health care by 2020.

Value-based payments prompt hospitals to consider referrals

With the hospital value-based payment (VBP) program, HHS already has a platform to help achieve some of its goals as the percentage of inpatient hospital reimbursement at risk payments continues to increase. In addition, hospitals have a new performance criterion this year under the VBP program — cost efficiency. Based on 2013 performance, fiscal year 2015 payments have already been adjusted.

Essentially, hospitals are being held accountable for the average Medicare beneficiary cost across the continuum. This may make them more sensitive to where they refer patients for post-acute care (PAC). It may increase direct discharge to home with home health services and bypass skilled nursing facilities (SNFs) in some cases, or result in hospitals referring more heavily to lower-cost facilities. As they weigh these options, hospitals must keep in mind the ramifications of potential readmission penalties under VBP.

Powerful data used to negotiate new rates for SNFs

As one of the key conveners in the CMS Bundled Payment for Care Improvement initiative, naviHealth is using the knowledge gained from Medicare expenditure data and the bundled payment initiative to renegotiate contracts with PAC providers. Armed with extensive information and its reimbursement algorithm, it has started working with commercial plans and Medicare Advantage plans. As a result, these insurance plans are offering PAC providers contracts that no longer pay for any ultra-high resource utilization groups (RUGs). Though there are mechanisms to challenge this policy on a case by case basis, the implications are clear. Because the average skilled nursing facility has 40 – 60 percent of its patients in the ultra-high category, SNFs would be in the position of having to care for higher need patients at a lower per diem rate. Currently this approach is being used in several states with “Blues plans,” such as Blue Cross, Blue Shield and similar affiliates.

Picking winners with referrals

At a MedPAC meeting late last year, members began to explore whether hospitals, health systems, and ACOs should be allowed to “hard steer” patients to PAC providers that are proven to be higher quality and lower cost. Simultaneously, the proposed revisions to Medicare ACO rules are considering the same thing. This could allow these acute care (AC) providers to identify preferred PAC partners and shut out others from receiving any referrals with potentially dismal financial consequences. Soft steering may already be happening, but this change could essentially pick winners and losers in the market. A key clarification to watch for is how the criteria for referrals to a post-acute setting are defined and how aggressively AC providers will be allowed to hard steer patients.

Proposed Medicare ACO rules consider waivers for restrictions

Proposed Medicare ACO rules are also looking at providing broader waivers for some additional ACOs in the Medicare Shared Savings Program (not just the Pioneer ACOs) including:

  • The three-day hospital stay before paying for PAC requirement
  • Eliminating the homebound requirement for accessing home health services
  • Broader use of telehealth services

In some markets, Pioneer ACOs are approaching PAC providers with payer contracts, which outline that the provider will take some percentage of Medicare FFS (e.g., 90 percent) and then has to meet certain performance metrics related to process (e.g., timely notification compliance), care (e.g., readmission rates), and cost (e.g., average beneficiary cost). Although the public comment period has passed, the final rules have not yet been issued.

How we can help

As you continue adapting to value-based payment, CLA can help your organization decide which metrics you should track. We can help you draft and understand your value proposition to payers and prospective partners as you negotiate partnerships, contracts, and new reimbursement methodology. We can also assist you in understanding the financial and reimbursement impacts of value-based payment programs by modeling new payment approaches, and illustrating the effect on your bottom line. Seeing your costs in new ways (e.g., by diagnosis or patient) will help you embrace new payment methodologies.