1. The Impact of Health Reform on Care Delivery: Hospitals, Home Health, Physicians AFT Healthcare Program and Policy Council January 19,2011 National Harbor, MD

2. Glossary ACA – Accountable Care Act – “health reform” CMS – Center for Medicare and Medicaid, part of HHS FFS – Fee for service PCP – Primary Care Provider PCMH – patient centered medical home ACO – accountable care organization. 2

3. 3 Where the System’s Going Away from FFS payments that encourage a lot of procedures; Away from expensive specialty care and towards increased primary care; Away from hospital-based care to clinics and ambulatory care; Towards large integrated systems with providers bearing risk and responsibility.

4. How do we get there? Primary care: Patient Centered Medical Homes (PCMH) Integrated systems: Accountable Care Organizations (ACOs) Changes in Medicare and Medicaid Reimbursement 4

5. Primary Care – Encouraging More Primary Care Providers PCPs get 10% payment bonus for Medicare office visits, nursing home, home visits. (2011-2016) Medicaid PCP payment rates raised to Medicare levels (2013) Scholarships, loan repayment and training demonstration programs. 5

6. Patient Centered Medical Home Replace episodic care based on illnesses and patient complaints with coordinated care and “a long term healing relationship.” Each patient has personal physician who is responsible for coordinating all care. Care is team-based. Care is facilitated by electronic health records and other I.T. 6

7. Patient Centered Medical Homes Access to Care: online appointments and e- visits; telephone consultations; electronic prescribing/refills. Patient Engagement: care reminders; pt access to medical records; shared decision making with pts and families. Care Coordination: Coordination of specialist care and post-discharge; systems to prevent errors for pts with multiple doctors; chronic disease mgmt. 7

8. Patient Centered Medical Homes Team-based Care: multi-disciplinary, physician-led team responsible for primary care. Clinical information systems with decision support: EHRs, patient access to lab, test results; pt and physician reminders; clinical practice guideline software. Feedback to Physicians: patient surveys, outcomes analysis, PDSA for pt suggestions. 8

9. PMCH Group Health pilot – 2007 –Reduced pcp panels from 2327 patients to 1800 –Expanded visits from 20 to 30 minutes –Included planned telephone and e-mail visits –Allocated time for outreach coordination Resulted in: –16% reduction in hosp admission –$10/pmpm reduction in total costs –29% reduction in Emergency Dept use 9

10. PCMH Group Health Pilot –Return on investment was $1.50 for every dollar spent. –4% more patients achieved targets on quality measures –Reduced staff burnout –Improved staff recruitment and retention. 10

11. PCMH Geisinger reduced hospitals admissions by 18% and readmissions by 36% for Medicare Advantage members. North Carolina Medicaid/SCHIP programs had cumulative savings of $974 million over six years. V.A. currently piloting PCMH clinics. 11

12. PCMH - Challenges The PCP practice doesn’t retain savings. They make no money from cutting hospital utilization, specialty care. Specialists not interested in working with PCMHs, seeing their income cut. 12

13. Accountable Care Organizations An ACO is an “Organization of providers that agrees to be accountable for quality, cost and overall care of Medicare beneficiaries in traditional FFS program who are assigned to it. 13

14. ACOs Begin in 2012 41% of organizations say they are already part of one; of remaining 59% - 70% plan to form one. Why? - Beginning in 2012 ACOs are eligible to receive additional Medicare payments…. At a time when Medicare FFS payments will be going down. 14

15. ACOs Formal legal structure that will allow it to receive “shared savings” payments and distribute them. Must show it can meet quality and reporting standards. Agree to three-year contract with HHS. Accept responsibility for Medicare pt population of at least 5000. 15

16. ACOs – Shared Savings Payments Physicians and facilities treating the assigned Medicare population are paid on traditional FFS basis. ACO receives a share of savings Medicare realizes relative to cost benchmarks, if they also meeting quality performance standards. (process, outcomes, pt experience, utilization.) ACO redistributes shared savings to constituent physicians and facilities. 16

17. ACOs – Next steps Tier 1: FFS, shared savings if spending below target. Tier 2: FFS, partial capitation, some bundled payments. –Partial Capitation: ACO assumes risk for some part of Medicare A&B services and receives pmpm payments. –Bundled Payments: Single payment for all services 3 days prior to hospitalization, inpatient and 30 days post discharge. Tier 3: Full capitation. 17

18. ACOs - Challenges Grafted on top of current FFS system so incentives are at cross purposes. Specialists resist because they lose income. Solo practitioners, small groups, small hospitals can’t afford data systems and organizational structure. Legal issue – self-referral, cherry picking, kickback laws 18

19. ACOs - Questions How will beneficiaries be assigned? How will ACO control costs when patients are free to go outside ACO? What level of savings will trigger payment? How are start-up costs covered? Are incentives enough to get physicians to participate? Will CMS prescribe how savings and bundled payments are distribute? 19

20. Reimbursement Changes – Hospital Market Basket Updates - Hospital –Reduction in market basket updates due to “diagnosis creep.” FY 2010-2011:0.25% FY 2012-2013:0.1% FY 2014:0.3% FY 2015-2016:0.2% FY 2017-2019:0.75% 20

21. Reimbursement Changes Home Care Market Basket Updates – Home Care –FY 2010: update eliminated –FY 2011-2013:reduced by 1.0% –FY 2014: “rebase” Starting in 2014, reduce outlier payments Productivity adjustment beginning 2015. 21

22. Reimbursement Changes Productivity Adjustment. –Beginning in 2012. –Ten-year moving average of changes in productivity for general economy. –Added onto market basket reductions. –May result in negative market basket update at some point. –Likely to stay a little below l.5% for near future. 22

23. Reimbursement Changes Value Based Purchasing – Incentive payments for hospitals that met specified performance targets on quality measures. –First year: acute myocardial infarction, heart failure, pneumonia, surgeries and hospital-acquired infections. –Subsequent years: HHS expands measures to include ones based on efficiency – i.e., Medicare spending per beneficiary. 23

24. Reimbursement Changes Hospital Acquired Infections: Hospitals in top quartile of HAI will receive 99% of normal payment. Readmissions: Reduce payments to hospitals with “excess readmission rates” for AMI, heart failure, pneumonia. Disproportionate Share – Starting in 2014, inpatient payments reduced to 25% of the normal amount. 24

25. Reimbursement Changes New requirements -Tax exempt hospitals –Conduct community needs assessment and adopt implementation strategy to meet needs. –Limit amounts charged for emergency and medically necessary care to amounts generally bill to pts with insurance. –Develop written financial assistance program for pts. Independent Payment Advisory Board: recommend ways to slow growth in Medicare spending. 25

26. Time Line 2011:Market Basket Reductions 2012:Productivity Adjustments, Readmissions Reduction,ACOs, Value-Based Purchasing, 2013: Pilot on bundled payments. 2014:DSH reductions 2015: HAI reductions 26

27. Moody’s Investor Reports Restrictions on insurers will mean tougher negotiations on rates from private insurers. By 2019 reductions will result in negative margins for 15% of hospitals, skilled nursing facilities, home health. Reform creates more incentive for consolidation in the industry. Pressure on single-site and small hospital systems. 27