1. Bundled Payments: Why and Why Not?

2. 2  Why bundled payments?  What are current Medicare Payments?  What costing systems need to be developed?  What key factors drive bundled cost: MSDRG 469/470 + Outline

3. 3  A method for shifting payment risk to healthcare providers with the following dimensions? The Unit of Payment The Time Period Number of Providers Risk/Return Arrangements + Bundled Payments

4. 4 The Unit of Payment Specific Services-service intensity is issue Encounter -MSDRG/APC- encounters are issue but not services Episode-Episodes are issue but not encounters Capitation-Episodes are not an issue + Bundled Payments

5. 5 The Time Period Specific number of Days + Bundled Payments

6. 6 Number of Providers At Risk One –Complete risk shift e.g. Hospital in CCJR Multiple-Partial risk shift + Bundled Payments

7. 7 Risk/Return Arrangements Collaboration Agreements Common Ownership-Transfer Pricing + Bundled Payments

8. 8  Medicare Insolvency + Why Bundled Payments?

9. 9  Reduce Benefits  Reduce Beneficiaries-Increase age to match retirement  Reduced Covered Services  Increase Revenue  Taxes  Premiums  Reduce Service Expenditures  Cut Provider Payments  Reduce Utilization + Medicare Strategies

10. Discharge Destination of Medicare Fee-For-Service Beneficiaries 2006-2013 Destination 2006200920122013 Percentage change 2006- 2013 Home Self-care52.3%50.1%48.0%46.9%-5.4% Skilled Nursing or Swing Bed18.819.820.320.61.8 Home with Organized Home Health Care13.815.215.916.72.9 Inpatient Rehabilitation Facility3.43.33.5 0.1 Long-term Care Hospital0.91.11.2 0.3 Hospice1.62.12.72.81.2 Transferred to Other Acute Care Hospital2.52.2 2.1-0.3 Died in Hospital3.83.53.33.4-0.4 + Medicare Post Acute Care Services Are Increasing

11. 11 + Per Capita Medicare Spending Among FFS Beneficiaries 20042013% Change Inpatient Hospital3,2613,69513.3 Physician1,5802,02027.8 SNF and HHA7971,25757.7 Outpatient Hospital463987113.2 + Source: CMS Office of the Actuary

12. 12 + Provider Payment by Medicare

13. 13 + Provider Payments SNF 20062013 Facilities15,17814,978 Hospital Based %85 For Profit %6870 Medicare Payments (Billions)$19.5$28.7 Medicare Margin12.8%13.1% For Profit Margin15.1%15.3% Non-Profit Margin3.2%5.0%

14. 14 + Provider Payments SNF(Must Be Above Average)

15. 15 + Provider Payments Home Health 20022013 Episodes (Millions)4.16.7 Visits per Episode18.416.5 Medicare Payments (Billions)$9.7$18.3 Payment Per Episode$2,335$2,674 Medicare MarginNA12.7% For Profit MarginNA13.7% Non-Profit MarginNA10.0%

16. 16 + Provider Payments Inpatient Rehab 20042013 Number of IRF Cases495,000373,000 Average LOS12.712.9 Medicare Payments (Billions)$6.6$6.8 Payment Per Case$13,290$18,258 Medicare Margin16.711.4 For Profit Margin24.423.4 Non-Profit Margin12.81.5

17. 17 + Provider Payments Long-term Care Hospitals 20042013 Number of Cases121,955137,827 Average LOS28.526.5 Medicare Payments (Billions)$3.7$5.5 Payment Per Case$30,059$40,070 Medicare MarginNA6.6% For Profit MarginNA8.4% Non-Profit MarginNA-1.7%

18. Medicare Episode Providers/Initiating Hospital Initiating Hospital Actual payments > Target payment YES – Payment to Medicare NO – Payment to Initiating hospital Target Payment Actual Payments + CCJR Payment Model

19. 19  Critical Questions in Cost Design  What are we trying to cost?  Episode of Care Across Providers  What time period is being costed?  Historical – Management Control  Future – Budgeting/Planning + Bundled Care Costing

20. 20  Costing Framework for Bundled Payments  Cost= Sum of all Provider Costs  Costs Incurred by Hospital  Variable  Variable and Fixed  Direct Payments to Other Providers  By Medicare  By Hospital to Contracted Providers + Bundled Care Costing

21. 21 + Data Sources Name Of FileScope Standard Analytical Inpatient FileAll traditional IP claims from hospitals Standard Analytic Outpatient FileAll traditional OP claims from hospitals Standard Analytic Home Health FileClaims submitted by home health agencies Standard Analytic Hospice FileTraditional and HMO claims from hospices Standard Analytic Skilled Nursing FileAll traditional claims from skilled nursing facilities Carrier File CMS-1500 claims from non-institutional providers (5% sample) Durable Medical Equipment FileClaims from durable medical equipment suppliers (5% sample)

22. 22 + Key Factors USOHDifference % Difference Hospital15,45413,6621,792-11.5% Other IP4,3354,012323-7.5% Home Health1,8701,577293-15.7% Physician/PT/ot her4,4033,942461-10.4% SNF6,4785,738740-11.4% Hospital OP932935-30% Hospice155210-5535.5% Other1689474-44.1% 33,79530,1733,622-10.7% + 469/470 Episode Cost

23. 23 + Key Factors USOHDifference % Difference Hospital22,28618,5283,758-16.1% Other IP7,6679,263(1,597)20.8% Home Health1,9551,284671-36.1% Physician/PT/ot her6,3943,942534-8.4% SNF6,3946,5732,907-45.5% Hospital OP1,6221,267355-21.9% Hospice40037921-5.1% Other20264138-68.3% Total 50,00543,2176,788-13.5% + 469 Episode Cost

24. 24 + Key Factors USOHDifference % Difference Hospital14,18712,9431,244-8.8% Other IP3,7173,237480-12.9% Home Health1,8551,621234-12.6% Physician/PT/other4,0333,659374-9.3% SNF5,9225,615307-5.2% Hospital OP804886(82)10.2% Hospice110185(75)68.2% Other1629963-38.9% Total 30,79028,2452,545-8.3% + 470 Episode Cost

25. 25 + Key Factors Total Episode Cost DRG 469DRG 470 Procedure USOHDifferenceUSOHDifference Partial Hip54,93041,61113,31941,78838,5283,260 Total Hip47,94144,0853,85628,62526,4112,214 Total Knee41,98145,666(3,685)26,74524,7452,320 + Procedure Cost Differences

26. 26 + Key Factors Home Health Inpatient FacilitySNFOther MSDRG 469 Partial Hip39,26068,65656,24236,483 Total Hip36,04968,03047,66034,658 Total Knee32,33263,29440,66234,281 MSDRG 470 Partial Hip27,14350,44141,90534,293 Total Hip22,25041,62032,81821,513 Total Knee22,24232,68130,27222,313 + Discharge Status

27. 27 + Key Factors HCC Quintile469470 1 (.283 to.428)26,45224,190 2 (.429 to.706)31,23526,137 3 (.707 to 1.071)37,93230,030 4 (1.072 to 1.675)44,83337,083 5 (1.676 to 6.67)55,80043,392 + Hierarchical Condition Category (HCC) Scoring Based Upon CMS Risk Scoring for Medicare Advantage

28. 28 + Key Factors MSDRG 469MSDRG 470 ALL US2.15.85 Ohio2.17.90 Michigan2.18.84 Kentucky2.21.94 Indiana2.20.87 + Hierarchical Condition Category (HCC) Scoring

29. 29 + Key Factors 469470 Hospital A2.14.77 Hospital B2.21.96 Hospital C2.09.75 Hospital D2.31.74 Hospital E1.91.70 Hospital F2.09.78 Hospital G2.20.89 All US2.15.85 + Hierarchical Condition Category (HCC) Scoring

30. 30 + Key Factors Impact Variables469470 Intercept17,61415,789 Avg LOS1,5091,602 Home Health Discharge5,920(598) SNF Discharge16,6567,578 IP Fac Discharge31,25414,865 Partial Hip9244,526 Total Knee(2,833)(1,121) HCC Community Score2,9373,416 + Regression Results

31. 31  Medicare post acute care payments are rising rapidly  Post acute care payments often exhibit the greatest variability in total episode cost  Medicare profit margins for post acute care providers have been significantly higher than hospital Medicare margins.  Budgeting and management control require the development of realistic benchmarks for post acute care.  Critical drivers of episodic cost require extensive data analysis + Summary

32. + Thank you! ADDRESS 438 E Wilson Bridge Rd Worthington OH 43085 WEB www.cleverleyassociates.com EMAIL info@cleverleyassociates.com PHONE 888-779-5663 FAX 614-413-3455 Cleverley + Associates