1. Are You Ready for the Transition from Volume to Value? {Current Issues Update} HFMA Central Ohio Chapter November 19, 2015 { Presenter } Jeff Heaphy, NHA Partner Jeff.Heaphy@plantemoran.com 614.222.9035

2. What are bundled payments? ENCOURAGE BETTER CARE COORDINATION AND CASE MANAGEMENT ACHIEVE QUALITY OUTCOMES WITH COST EFFECTIVENESS TRIGGERED BY HOSPITAL ADMISSION (MODEL 2) OR POST ACUTE SERVICE OCCURRING AFTER HOSPITAL DISCHARGE (MODEL 3) 2100+ PROVIDERS PARTICIPATING IN VOLUNTARY BUNDLED PAYMENTS FOR CARE IMPROVEMENT INITIATIVE (BPCI) All models, with episode lengths of 30, 60 and 90 days HOSPITALS IN 75 MSAS TO PARTICIPATE IN 90 DAY MODEL 2 TYPE MANDATORY BUNDLED PAYMENT PROGRAM IN 2016 Comprehensive Care for Joint Replacement (CCJR) – DRGs 469 and 470 1

3. Why are bundled payments important? CONTROL ESCALATING UTILIZATION AND COST WITH EMPHASIS ON POST ACUTE SERVICES AND HOSPITAL READMISSIONS PROVIDE DATA IN SUPPORT OF STANDARDIZATION OF POST ACUTE CARE (PAC) ASSESSMENT AND PAYMENT REQUIRED BY THE IMPACT ACT OF 2014 ALLOW CMS TO TEST COST AND QUALITY OUTCOMES RELATED TO CURRENT CMS REQUIREMENTS(3 DAY HOSPITAL STAY) TWO MODEL FORMAT ALLOWS CMS TO TEST WHETHER UTILIZATION, COST AND QUALITY CHANGES IF EPISODE IS TRIGGERED AT HOSPITAL OR PAC SETTING 2

4. Bundled Payment Models 3 ©2014 Trinity Health - Livonia, MI 3

5. Background CMS is working to support the development and testing of new and innovative health care payment and service delivery models The goal of these new models is to provide better care and lower costs through the improvement of the health care system: 50% of all fee for service payments will be made under alternative payment models by 2018. Hip and knee replacements are the most common inpatient surgeries for Medicare beneficiaries and can carry lengthy recovery periods In 2013, there were more than 400,000 inpatient procedures costing more than $7 billion in hospitalization alone The cost and quality of care for these replacement surgeries can greatly vary The total Medicare expenditures for surgery, hospitalization, and recovery can range from $16,500 to $33,000 across geographic areas (CMS $100-$200 savings) This new proposed model is meant to address the way Medicare beneficiaries receive care by focusing on coordinated and patient-centered care Overview of Proposed Rule Comprehensive Care for Joint Replacement Model 4

6. Goals of the program To incentivize hospitals to provide better care coordination through the whole episode of care from surgery to recovery Increase Hospital accountability for the quality and cost of services they are providing This coordination aims to improve the consumer care experience by leading to better patient health outcomes These improved outcomes include: Fewer post-surgery complications Lower hospital readmission rates Fewer preventable infections Less prolonged rehabilitation and recovery periods More consistent costing Overview of Proposed Rule Comprehensive Care for Joint Replacement Model 5

7. The Basics The Comprehensive Care for Joint Replacement Model (CCJR) is proposed to be a 5 year mandatory program The performance period will run from April 1, 2016 to December 31, 2020 The model will test bundled payments for lower extremity joint replacements (LEJR) across a broad cross-section of hospitals nationwide The model will be in 67 geographic areas (MSAs) throughout the country including the following areas in Ohio: Akron (Portage & Summit Counties) Toledo (Fulton, Lucas & Wood Counties) Cincinnati OH-KY-IN (Dearborn, Ohio, Union, Boone, Bracken, Campbell, Gallatin, Grant, Kenton, Pendleton, Brown, Butler, Clermont, Hamilton & Warren Counties) CCJR Model Design Comprehensive Care for Joint Replacement Model 6

8. Participants Participants include IPPS hospitals in the 67 designated MSAs The only hospitals exempt from participating are those currently participating in Model 1 or Phase II of Models 2 or 4 of the Bundled Payments for Care Improvement (BPCI) initiative Hospitals outside of the 67 designated MSAs are not able to voluntarily participate (there is no application process for this model) The hospital in which the hip or knee replacement surgery takes place would be accountable for the costs and quality of care Episodes are defined as beginning with admission of a Medicare FFS beneficiary to the hospital and will continue for 90 days following date of discharge Episodes are triggered by hospitalizations of Medicare FFS beneficiaries discharged with a diagnoses code of: MS-DRG 469 – Major joint replacement or reattachment of lower extremity with major complication or comorbidities MS-DRG 470 – Major joint replacement or reattachment of lower extremity without major complications or comorbidities CCJR Model Design Comprehensive Care for Joint Replacement Model 7

9. Beneficiaries The CCJR Bundled Payment will pay for the care of Medicare beneficiaries where Medicare is the primary payer and the beneficiary is: Not enrolled in a managed care plan Enrolled in Medicare Part A & B through the duration of the episode Not Medicare eligible on the basis of End-Stage Renal Disease (ESRD) Not covered under a United Mine Workers of America health plan Beneficiaries will continue to choose their providers including their doctor, hospital, nursing facility, home health agency, and any other providers necessary for care CCJR Model Design Comprehensive Care for Joint Replacement Model 8

10. The following services are included in the CCJR episode: Inpatient hospital services (including readmissions) Physicians’ services Long-term care hospital services (LTCH) Inpatient rehabilitation facility services (IRF) Skilled nursing facility services (SNF) Home health agency services (HHA) Inpatient psychiatric facility services (IPF) Hospice services Hospital outpatient services Independent outpatient therapy services Clinical laboratory services Durable medical equipment (DME) Part B Drugs CCJR Model Design Comprehensive Care for Joint Replacement Model The following services are excluded in the CCJR episode because they are unrelated: Acute clinical conditions not arising from existing episode related chronic conditions or complications of LEJR Surgery Chronic conditions that are generally not affected by the LEJR procedure or post- surgical care Episodes All Part A and Part B services related to the episode would be included with the exception of certain excluded services that are clinically unrelated to the episode 9

11. Pricing and Payment The CCJR model is a retrospective bundled payment model which means CMS will continue to pay each provider individually under the existing Medicare payment system Payment will be set at the start of each performance year during the 5 years of the demonstration The target price (set annually) will be set at the mean episode payment for each MSA based on claims with admission dates from 7/1/2011 to 6/30/2014 (wage adjusted using the hospital wage index) The target price will incorporate a blend of the historical hospital-specific spending and regional spending and the regional spending component of the episode target price will increase over time Year 1 & 2 – 1/3 Regional & 2/3 Facility Specific Year 3 – 2/3 Regional & 1/3 Facility Specific Year 4 & 5 – 100% Regional Starting in 2017, CMS will phase in a 1% discount to the episode payment, and this discount will increase to 2% for all remaining years CCJR Model Design Comprehensive Care for Joint Replacement Model 10

12. Pricing and Payment Continued… Following completion of a model performance year actual episode spending will be compared to the target price Actual episode spending includes the total expenditures for all related services under Medicare Parts A & B Hospitals that achieve actual spending below the target price and meet quality performance thresholds would be eligible to earn a reconciliation payment for the difference, up to a specified cap Conversely, hospitals whose actual spending exceeds the target price would be responsible for paying the difference back to Medicare up to a specified repayment limit During the first year of the Model program hospitals will not be responsible for any repayment penalties The repayment amount limit will increase in Year 3 of the model CCJR Model Design Comprehensive Care for Joint Replacement Model 11

13. Pricing and Payment Limits Episode payments are capped at 2 standard deviations above the regional mean (higher payment outlier ceiling) This cap is for calculating target prices and for comparing actual episode payments to target prices There is no cap for payments to providers and suppliers under Medicare FFS for episode services Reconciliation payments are capped at 20% of target prices (stop-gain) Hospital payback to Medicare is phased-in and capped (stop-loss): Year 1: No responsibility to repay Medicare Year 2: Capped at 10% of Target Prices – changing as of 11/16/15 Years 3-5: Capped at 20% of Target Prices – changing as of 11/16/15 CCJR Model Design Comprehensive Care for Joint Replacement Model 12

14. Historical Payments & Pricing Ceilings Comprehensive Care for Joint Replacement Model 13

15. Quality Measures The CCJR Model is adopting a quality first principal This means participant hospitals are required to achieve minimum performance requirements on three quality measures before they are eligible to receive any reconciliation payments: Hospital-Level Risk-Standardized Complication Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (NQF #1550) Hospital-Level 30-day, All-Cause Risk-Standardized Readmission Rate (RSRR) Following Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA) (NQF #1551) Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) (NQF #0166) Survey Quality performance requirements for reconciliation payment eligibility will increase over the life of the model to incentivize continuous improvement CCJR Model Design Comprehensive Care for Joint Replacement Model 14

16. Quality Measures Continued… Hospitals will have an additional opportunity to have reconciliation payments adjusted each year if they successfully submit complete data on a patient-reported functional outcome measure, Hospital-Level Performance Measure(s) of Patient-Reported Outcomes Following Elective Primary Total Hip and/or Total Knee Arthroplasty, beginning in performance year 1 In addition to the required quality measures, the CCJR model incentivizes hospitals to avoid expensive and harmful events (i.e. complications & readmissions) since they will increase episode spending and reduce opportunity for reconciliation payments CMS will provide additional tools to participating hospitals to improve the effectiveness of care coordination. These include: Spending & utilization data Waiving certain Medicare requirements to encourage flexibility in the delivery of care A Learning and diffusion program which would facilitate the sharing of best practices between participant hospitals CCJR Model Design Comprehensive Care for Joint Replacement Model 15

17. Overlap with BPCI Hospitals in BPCI Model 1 or BPCI Models 2 or 4 Phase II would remain in BPCI for the LEJR episode BPCI Phase II participants that terminate from a BPCI model and are located in one of the 67 CCJR MSAs would be required to participate in CCJR Hospitals not currently in BPCI may not elect to participate in the program in lieu of participation in the CCJR Model BPCI Model 2 & 3 episodes initiated by a participating physician group or PAC facility take precedence over CCJR episodes Overlap with ACOs & Other Models Hospitals participating in the CCJR program may also participate in ACOs The financial reconciliations under CCJR and other CMS models and programs will to the extent feasible account for all Medicare Trust Fund payments for beneficiaries in those models and programs and generally ensure that Medicare saves the expected 2% discount on CCJR episodes CCJR vs. Other Programs Comprehensive Care for Joint Replacement Model 16

18. Financial Arrangements Participant hospitals can create arrangements with collaborators to support their efforts to reduce costs and improve quality Collaborators can include many different providers on the continuum of care including but not limited to: Physicians, SNFs, HHAs, and Inpatient Rehab Facilities Hospitals can share with collaborators both reconciliation payments and internal cost savings realized In addition to sharing savings hospitals will also share with collaborators in risk Hospital’s sharing in the financial accountability for increased episode spending is proposed to be limited to 50% of total repayment to CMS Hospital can not share more than 25% of its repayment responsibility with any one provider Collaborating Comprehensive Care for Joint Replacement Model 17

19. SNF 3-Day Stay CCJR will waive the SNF 3-Day rule beginning in performance year 2 Beneficiaries discharged pursuant to the waiver must be transferred to SNFS with a 3 Star rating for at least 7 of the preceding 12 months Home Visits CCJR will waive the “incident to” rule for physician services Waiver allows for a maximum of 9 visits during the episode, billed under the Physician Fee Schedule using a HCPCS code created specifically for the model Telehealth Waives geographic site requirement and originating site requirement to permit telehealth visits to originate in the beneficiary’s home or place of residence Telehealth visits cannot substitute for in-person home health services paid under home health prospective payment system Telehealth services must be furnished in accordance with Medicare coverage and payment criteria Facility fee paid by Medicare to an originating site for a telehealth service is waived if service originated in the beneficiary’s home Program Waivers Comprehensive Care for Joint Replacement Model 18

20. Risks Hospital Centric Reduced or loss of control over practice and placement Loss of volume to Home Health Significant revenue risk Only 3+ star facilities likely to be included in networks Risks & Opportunities Comprehensive Care for Joint Replacement Model Opportunities SNF payer does not change as hospital is at risk for spending and quality Hospitals may share in savings with SNFs SNFs may gain volume from LTCHs & IRFs 3-Day Stay waiver for SNFs with 3+ Stars SNFs with positive patient outcomes, low LOS, and reduced rehospitalization rates will be attractive partners 19

21. Next Steps 1.Gather data around volume of LEJR patients at hospitals and whom are the downstream partners of these hospitals 2.Track episodic cost data with and without readmission to the hospital 3.Know your value proposition to the bundle: What is my episodic spend compared to others? What is my average length of stay to others in my area? What is my readmission rate compared to others in my area? 4.Post acute care providers must: Transition to an electronic documentation platform Redesign clinical delivery patterns to enhance patient outcomes and lower readmissions Understand cost data in a whole new way: integration of cost and outcome data Network development: need to be included to stay relevant 20

22. Statistics Historical Quantitative Information 21

23. Cost and Length of Stay Statistics for MS-DRG 470 for Various Episode Durations Cost & Length of Stay Statistics Comprehensive Care for Joint Replacement Model Average PAC LOS = 47.3 days 22

24. State Statistics Comprehensive Care for Joint Replacement Model Source: LeadingAge Webinar 8/26/15 23

25. Discharge Destination From First Site of Care State Statistics Comprehensive Care for Joint Replacement Model Source: LeadingAge Webinar 8/26/15 Distribution of Episode Payment Length of Stay Readmission $1,535 $1,035 $5,150 $1,313 $11,763 24

26. Questions?