Part one of a three-part series

As the public begins to navigate the health insurance exchanges and healthcare.gov cleans up its glitches, executive leadership of most health systems, hospitals and physician organizations are contemplating their options in reaction to the Affordable Care Act. In some cases, this reaction has been a wait-and-see approach, while others have taken a more aggressive stance often based on philosophy aligned with the Act’s triple aim. Health care providers will face reduced reimbursement and the requirement to do more with less in the future. CMS and the CMS Innovation Center piloted several programs over the past four years to test our current payment structure while moving away from a fee-for-service model to one that rewards high quality and cost efficiency. This article will explore the various payment reform programs and incentives to provide an overall picture to General Counsel of where we may be headed and what is on the minds of their Boards and executive leadership.

Accountable Care Organizations (ACOs)

Starting January 1, 2014, 123 new ACOs joined the more than 250 ACOs already accepted into the three-year voluntary program. CMS launched the Medicare Shared Saving Program (MSSP) ACO program in 2012 with stated goals under the ACA to improve the health of individuals and populations, while containing costs and improving quality. An ACO must meet set quality performance measures before it can share in any savings that are realized. Alignment with the ACO is through primary care codes designated through claims data. Savings are on a sliding scale for quality, but the ACO still must meet cost savings to be eligible for payments. CMS and the OIG issued five waivers to the fraud and abuse laws, providing the ability for funding of pre-participation, development costs and patient inducements. Similarly, the IRS provided guidance that allows hospitals to donate or pay for infrastructure costs, including electronic health records and people power under certain circumstances. The waivers and guidance do not apply outside the MSSP ACO program. An ACO entering the commercial market must consider its structure under traditional fraud and abuse and tax exempt laws. Early ACO adopters are reinventing themselves and focusing on lessons learned in participation to move toward the ability to take on loss.

Bundled Payments

In contrast to the MSSP ACO program that takes a wide view of provider interactions across care settings with various patient populations, the Bundled Payment program seeks to dive deep into caring for individuals with a specific condition. The Bundled Payment expands the definition of an episode of care beyond the hospital setting under certain models. Under this CMS Innovation Center initiative, providers propose a set price for a single episode of care and then receive a predetermined amount if financial and quality targets are met. The program currently includes four models, one of which includes prospective (or up-front) payments.

Health Care Innovation Grant and Other Grants

On November 14, 2011, the CMS Innovation Center announced its plans to award $1 billion in grants for local health care innovation projects across the country. The Health Care Innovation Grant supports programs that focus on population-based, high-risk areas, such as:

• Multiple chronic conditions
• Mental health issues
• Substance abuse
• Poor health status due to socio-economic and environmental factors
• The frail elderly

These grants are more inclusive of diverse segments of the health care industry as long as they can deploy quickly and show marked and sustainable change in population management. The use of IT and additional staff was encouraged as part of the grant application process.

Another grant entitled, Reduce Avoidable Hospitalizations among Nursing Facility Residents, looked to “enhanced care and coordination providers” to reduce readmissions from nursing facilities. Under the grant, CMS sought eligible organizations to test different, evidence-based interventions primarily focused on long-stay residents who reside in a nursing facility 100 days or more and will likely remain in that facility. Similar to other programs, CMS did not require a specific intervention or clinical model, and instead suggested the use of newly hired staff to implement preventive services and improve recognition, assessment, and management of certain chronic conditions and causes of avoidable hospitalization. Under the current readmission program, hospitals are on the hook for readmission and face potential payment reductions under Medicare. With any grant, compliance with HHS and federal government grant requirements and guidance must be taken into consideration prior to applying.

Independence at Home

The Independence at Home Demonstration seeks to measure the cost effectiveness and quality of primary services by physicians and nurse practitioners providing home-based care to chronically ill Medicare beneficiaries and to test whether home-based primary care services reduce hospitalizations, hospital readmissions and emergency room visits. The goal of the demonstration was also to increase access to care, improve patient satisfaction and promote care that matches beneficiary preferences, as Medicare beneficiaries appear to prefer aging in place. Interestingly, the definition of home in the demonstration includes a house or an apartment, as well as an assisted living facility. In this demonstration, CMS identified a set of quality measures, some of which will be used to determine incentive payments and others which will be used only to monitor performance, as well as bench marks.

Although all of these programs test current Medicare reimbursement and various reward mechanisms, common themes emerge when comparing these federal government programs. Medicare beneficiaries still have freedom to seek care as they choose. Beneficiaries may move in and out of the program and select health care providers outside any affiliation or gain sharing established by providers under these program. Providers are often paid fee-for-service payments under these programs, except providers are not eligible for a fee-for-service payment when grant monies are awarded for that service. CMS’s current analysis of program data may be the building blocks for future quality incentive regulations, a move to a capitated model for Medicare reimbursement and/or future reimbursement for care coordination or other population health efforts. Now, states turn to the Medicaid program to create similar programs to stop rising costs, while ensuring high-quality care.

Part 2 of this three-part series will discuss the current state of managed care contracting, including health insurance exchange products, commercial ACOs and current trends in managed care contracting.