Using survey data provided by the American Hospital Association, a new report identifies benefits to hospital mergers and refutes the notion that consolidation raises prices.
Hospital mergers reduce operating costs with newfound efficiencies and economies of scale, according to a study paid for by the American Hospital Association.
"Hospital leaders consistently indicated in interviews that hospital mergers can result in substantial benefits, and their views are supported by our econometric analyses," wrote the report's authors, Monica Noether, PhD, and Sean May, PhD, vice presidents at Charles River Associates, a consulting firm that specializes in mergers and acquisitions, antitrust and regulatory support.
The report, based primarily on survey data provided by the AHA and supplemented by data compiled by Irving Levin Associates, identified three drivers in mergers and acquisitions that reduce operating costs:
Achieving economies of scale
Reducing capital costs
Boosting clinical standardization
"While these cost reductions most greatly benefit the acquired hospitals, the benefits of scale inure to the acquirers as well. These views are confirmed in our empirical analyses, which find a statistically significant 2.5% reduction in annual operating expenses per admission at acquired hospitals," the report says.
Economies of Scale
Achieving economies of scale comes from reducing fixed costs such as supply chain, business office administrative functions, and facility management, the report says.
"One hospital leader noted that his system operates about 70 imaging centers; outfitting all of them with standardized equipment reduces the costs associated with parts, maintenance, and staff training as well as enabling achievement of lower prices on the equipment purchases," the CRA study says.
Capital Expenses
Hospital mergers cut capital costs through two mechanisms, the report says.
"First, the costs to access capital in municipal bond markets are lower because larger systems typically receive higher ratings (and many smaller hospitals and systems are not rated at all)."
"Second, mergers can often allow capital expenditures to be avoided. Frequently, the acquiring hospital is highly utilized and faces capacity constraints. This is particularly the case when the acquirer is an academic medical center (AMC) with a well-established brand."
Hospital executives "universally indicated that some of the most significant savings that they have achieved through mergers result from the standardization of clinical processes," the report says.
The study cites multiple financial benefits from clinical standardization, such as fewer avoidable patient complications, reductions in supply and equipment costs, and lower staff training costs.
Notably, the study contradicts one of the most widely posed economic criticisms of hospital mergers—the contention that medical-service pricing usually increases after hospital mergers because the transactions boost the bargaining power of the merged hospital organization with payers.
In recent years, opponents of hospital mergers have cited the risk of higher medical-service pricing to successfully block M&A deals. In a 2015 Massachusetts Superior Court ruling against Partners Healthcare's attempt to acquire several hospitals in the Boston area, the ruling cited the likelihood of higher pricing as a main justification for scuttling the deal.
The report acknowledges that the Federal Trade Commission "has stated that it believes that most benefits can be achieved through looser affiliations that do not involve meaningful financial integration or joint contracting."
Post-Acquisition Price Spikes Refuted
The report concedes that its finding on the impact of hospital mergers on medical-service pricing is statistically limited, but they report a "statistically significant decline in revenue per admission following acquisition, which appears inconsistent with studies that link hospital consolidation with higher prices paid by managed care organizations."
As noted above, they found that hospital mergers reduced operating expense per admission 2.5% at acquired hospitals. They also found that hospital mergers decreased net patient revenue per admission 3.9% at acquired hospitals.
"Although these estimates suggest that mergers are associated with larger decreases in revenue than in costs, the precision of the estimates is such that the magnitudes of the reduction in costs and revenue are not statistically different from each other," the report said.
A campaign promise and market forces are placing mounting pressure on healthcare providers to give meaningful price and quality information to patients.
Boosting price transparency is one of the few specific healthcare reform proposals President Donald Trump made during the 2016 election campaign and healthcare finance executives are bracing for the challenge.
Now that he is in office, "transparency in healthcare is not going away. It is not a flavor of the month," says Amy Floria, CFO at Goshen Health in Indiana.
But efforts by individual states to advance price and quality transparency by providers have gained little traction across the country. Last summer, the vast majority of states received failing grades in a report card on transparency laws published by a pair of nonprofits—the Health Care Incentives Improvement Institute and Catalyst for Payment Reform (CPR).
There are compelling reasons to strive for price and quality transparency in the healthcare industry on a national level, says Suzanne Delbanco, PhD, executive director of CPR, which is based in Berkeley, CA.
"One is the impact that it can have on the healthcare marketplace, and the other is to provide practical information for individual consumers who need to make decisions."
On a national scale, she says, having a price and quality information tool "would allow us to see variation both across and between markets for quality and price. It would potentially support greater competition because it is possible that healthcare providers would no longer view competitors in their local market as the benchmark for pricing and look further afield."
'It Is Not Easy'
But the challenges involved in establishing price and quality transparency at healthcare providers are daunting.
"Number one," says Floria, "interpreting the information can be very difficult."
Two, I would love to know, when you go to some of these transparency websites, how many people actually know what their deductible is—what their maximum out-of-pocket cost is and whether they have met it?"
She says the accuracy of the information "is a huge complexity that providers need to figure out and overcome. It is not easy. If it [were] easy, more people would have figured it out by now."
Memorial Healthcare System has been figuring out how to provide price and quality transparency for its patients with a set of online tools for about three years. The Hollywood, FL-based health system launched an online cost estimator and quality assessment tool in December 2014, and it plans to have similar online capabilities available for insured patients by April.
Stanley Marks, MD, FACS, senior vice president and CMO at Memorial Healthcare, says the organization has solved many of the problems associated with healthcare transparency with a firm commitment to giving patients accurate and decipherable information about the price and quality of services.
"There was a time when I thought the cost equation was going to be much easier to project than the quality equation; but frankly, they are both extraordinarily difficult."
"The federal government has tried to standardize quality reporting using their [Centers for Medicare & Medicaid Services] metrics, and those are huge challenges," says Marks.
"The data that comes from the federal government is very complex and very difficult to understand—certainly for the average consumer. The data is hard enough for those of us who earn our livings understanding and producing this type of data."
Despite the obstacles involved in giving patients real-time information about the price and quality of its services, the leadership team at Memorial Healthcare has determined that the effort is essential to the organization's long-term success.
"If you are not showing and being transparent about both price and quality, you are not going to be able to practice healthcare. Those organizations that are in the forefront and are trying to provide transparency in a way that lends a level of clarity to both the quality and the price of services will clearly be the winners," Marks says.
Regulatory vs. Market-Oriented Approaches
While Trump favors increasing healthcare transparency, he has not said whether this goal should be achieved through regulation or market forces.
If the Trump administration and Congress embrace a regulatory approach, Floria says healthcare providers should be able to rise to the challenge if new regulations build upon successes achieved in states such as New Hampshire, which received an "A" grade for state price transparency laws in 2016.
"If President-elect Trump came out and said we have a year to figure out how to provide a cost estimate at time of service for out-of-pocket costs and the price that a patient's insurance is going to pay, healthcare providers would figure it out, as long as the language was to provide a reasonable estimate," she says.
"I am not someone who advocates for national regulation on pretty much anything; but if it came to pass, we would toe the line and figure out a way to do it just like every other regulation that has come down the pike in healthcare."
"National regulation may be what it takes to make transparency in healthcare widespread," says Floria.
"But before national regulation comes out, there needs to be a lot of conversation with providers in states where transparency is working well to see on a national level how we can have similar requirements, with some flexibility, too."
In addition to regulation, Floria says the federal government could take "carrot or stick" approaches to cajole or prod states to adopt healthcare transparency laws.
"One way the federal government could require states to pass transparency laws is to say they will not provide Medicaid funding if states do not meet the minimum requirements of price transparency. Another way to do it would be to increase Medicaid funding to states that pass transparency laws—that would be better," she says.
Matthew Muhart, executive vice president and chief administrative officer of Memorial Healthcare, says he is resigned to the inevitability of new regulations mandating healthcare transparency but asserts market forces can and should be the primary drivers of change.
"There will be regulatory approaches—regardless of whether they are good, bad or indifferent," he says. "The government realizes that the current methodology in terms of data reporting is not perfect. They will continue to try to improve that."
"The government also needs to listen to the industry. For those of us who have been making attempts at establishing transparency, the government needs to look at those attempts and incorporate them into whatever the regulatory schema will be in the future," Muhart says.
The thrusting of patients into a more active and financially committed role in their healthcare is unleashing market forces that are on the verge of making transparency an unavoidable feature of the way health systems, hospitals, and physician practices function, he says.
"I strongly believe that market forces are the greatest lever to moving transparency to a national scale. If, in fact, we are in an environment where more and more of the healthcare spend is not in the form of premium, per se, but more in the form of out-of-pocket spending at a transactional level, market forces will drive transparency across the country more than anything."
President Trump's pick for Health & Human Services secretary has suggested there are opportunities to advance healthcare reform efforts, but has offered few details as to how, a pair of healthcare policy experts say.
Two confirmation hearings for President Donald Trump's nominee to serve as Department of Health & Human Services secretary have generated more questions than answers about the future of healthcare reform, policy experts say.
Last week, Tom Price, MD, who has served as a Republican member of the House of Representatives since 2005, answered questions for nearly four hours during a hearing conducted by the Senate Committee on Health, Education, Labor & Pensions (HELP).
On Tuesday, he faced an additional four hours of questioning before the Senate Committee on Finance. [View video.]
"We have got to see the details," said Laura Wooster, MPH, interim senior vice president of public policy at the American Osteopathic Association.
"The senators have only seven minutes to have their speech, ask their questions, then give Dr. Price an opportunity to respond," Wooster said.
"We are getting very small soundbites, and it is very hard to determine whether his answers, on the face of them alone, are satisfying or not."
"Should Dr. Price be confirmed, we look forward to seeing more proposals of what he plans to do and how he plans to offer an opportunity for Americans to have access to affordable healthcare," she added.
During Tuesday's hearing, Price avoided providing detailed answers on a host of policy questions, repeatedly saying he would follow the lead of Congress on the setting of policy.
He repeatedly deferred to the will of Congress when questioned by GOP and Democratic lawmakers about:
The tools he would use to stabilize and improve the individual insurance market
Medicare reform proposals, including privatization of the program and raising the eligibility age
Maintaining the pre-existing condition provision of the Patient Protection and Affordable Care Act (PPACA)
The Trump administration's plan for replacing the PPACA after Republican lawmakers repeal President Barack Obama's most ambitious domestic policy initiative
Increasing research funding for treatment of Alzheimer's disease
Reforming the Indian Health Service
Repealing the so-called Cadillac Tax provision of the PPACA
Finding resources to maintain medical services in Puerto Rico, which faces a deepening financial crisis
Ensuring that all veterans have access to medical care
Price, an orthopedic surgeon, who before being elected to Congress served as medical director of the orthopedic clinic at Grady Memorial Hospital in Atlanta, did offer a handful of specific policy prescriptions during the Senate Committee on Finance hearing.
He said high-risk pools to provide patients with catastrophic coverage and the pooling of individuals under "the old Blue Cross Blue Shield model" could be components of replacing the PPACA health insurance exchanges.
He committed to extending the Children's Health Insurance Program for at least five years before CHIP expires in September. And he said that the country has been "missing the boat" on promoting telehealth opportunities in rural communities.
Price and several Republican senators signaled their preference for repealing the PPACA and replacing key elements of the healthcare law with market-based and state-directed reform measures.
In response to committee chairman Sen. Lamar Alexander's (R-TN) question about setting goals for repealing and replacing the PPACA, the Price expressed a strong preference for state-based reform efforts over federal efforts. "Folks at the state level, as you well know having served there, know their populations better than we can know them," he said.
In response to a question from Sen. Rand Paul, (R-KY), about the potential impact of legalizing more forms of insurance than were allowed under the PPACA, the Price said he favors offering patients more market-oriented choices for healthcare coverage.
"Choice is absolutely vital; and I know that if we have as a principal and as a goal having patients have those choices, then I believe that patients will select the kind of coverage they want. The choices that ought to be available to them are a full array of opportunities," including high-deductible and catastrophic-coverage plans, Price said.
'A Step Backwards'
Elliott Fisher, MD, MPH, director of the Dartmouth Institute for Health Policy and Clinical Practice, told HealthLeaders that he is highly skeptical of replacing health plans on the PPACA insurance exchanges with a suite of coverage options that includes health savings accounts (HSAs), high-deductible health plans and high-risk pools.
"They are a step backwards," he said after Tuesday's hearing.
"Half of the U.S. population has at least one chronic condition. In any one year, five percent of the U.S. population accounts for 50% of healthcare costs. HSAs are great for people who are not sick," said Fisher.
"HSAs have a serious limitation in terms of their equity. High-deductible health plans also have serious limitations. They discourage patients from seeking care when they need it; and then once people exceed their deductible, they have no incentive to choose care wisely," he said.
There are more promising individual insurance market models for the Trump administration to follow, Fisher said. "Carefully crafted benefit designs that provide minimal barriers to primary care, then offer financial incentives for patients to make wise choices about elective and expensive procedures—with their involvement in the decision about whether to get the service—makes complete sense."
Widespread adoption of California's state-administered PPACA insurance exchange, Covered California, could be the best approach to establishing a sustainable individual insurance market, Fisher said.
Covered California "does several things very effectively. We know that the key element to the success of the exchanges is having as many people as possible sign up—that broadens the risk pool and keeps premiums down." In addition, Fisher said, the California model:
Makes it "easy for patients to look at health plans."
Requires "health plans to have similar designs."
Is clear: "People are not hood-winked by fake insurance, which was an old problem and still is a problem on some of the exchanges—patients can't tell what the insurance product is, so they choose a low-cost product that does not meet their needs."
As for why the exchanges are failing, Fisher explained that "they were not marketed effectively, the only people who are in the exchanges are sick… [and] plans raise[d] their prices," causing patients to withdraw, and the exchanges to collapse. "Covered California is the opposite."
The Way Forward
Despite their reservations about Price's nomination, Fisher and Wooster are hopeful that the Trump administration and the Republican-controlled Congress can find opportunities to advance healthcare reform efforts across the country and engage key stakeholders in constructive dialogue.
Republicans "could and should support access to much better information," said Fisher. States are experimenting with delivery systems, "but right now, we are not doing enough to learn which of those models of care and which of those policies are really leading to better performance for the American public," he said.
Although the HELP committee hearing on Price's nomination was short on policy details, it was a step forward in the debate over the future course of healthcare reform efforts, Wooster said.
"We are getting a good snapshot. This hearing was kind of a de facto platform for a larger conversation about healthcare reform."
For primary care physicians frustrated with the financial challenges of operating practices that bill services to insurance carriers, a cash-only practices could be a viable option.
After operating an independent practice in St. Joseph, MI, for a decade, Alan Smiy, MD, accepted an offer in 2012 to work as an employed physician at Borgess Health in Kalamazoo.
He went to work and shuttered his "very healthy" practice.
"We had a lot of patients. We had a good staff. But the business model in today's world was just not sustainable," Smiy said recently.
When he closed the doors at his primary care practice, Smiy had a patient base of 7,000 patients, with more than 4,000 having active charts. Despite the volume, however, the financial numbers were weak.
"One thing we noticed was increasing costs in our overhead from the manpower required to handle the patient load," he said.
Then there were the delays in insurance payments. "We would experience everything from a 60- to 90-day delay; and in some cases, up to six months. You would send in a claim that you thought was clean, and the insurance carriers would find ways to hang it up."
"When you add it all up," Smiy said, "a small business can only tolerate so much of that."
Employment vs. Independence
"As an employed physician, you definitely lose some autonomy in the decision making of how the practice is run; however, you also have administrative support to manage the stress of the day-to-day operations," he said. "This allows more concentrated time to focus on patient care. Also, your cash flow is at a predictable, constant rate."
"As an independent physician, you seemingly have more autonomy, but one quickly realizes that there are several imposed limitations from third-party payers who offer more obstacles in the way of patient care. Sadly, they are also responsible for a good portion of the cash flow challenges within the private practices. In both cases, the level of total compensation achieved is directly proportional to the effort given."
In 2015, the shortage of primary care physicians in St. Joseph tugged at Smiy's conscience. "Over the couple of years that we were closed, a number of other physician offices closed and one physician retired, leaving the community short about four or five primary care physicians."
"You figure if every practice was serving four or five thousand patients, that's about 20,000 patients who did not have a doctor to go to. At the same time, we noted that Medicare was not being accepted at many of the offices. We were hearing from people in town that there was more need for physicians."
After consulting with his wife, conducting research on the cash-only business model, and "saying a few prayers," Smiy took a leap of faith and re-opened his independent practice, this time on a part-time basis.
He decided to open a cash-only practice with office hours in the evenings and Friday afternoons. The schedule allowed Smiy to continue working at Borgess Health, without any conflicts of interest, he said.
"We opened in November 2015, and it's been steady growth ever since. There's been more acceptance of the cash practice. The patient population is growing."
Currently, Smiy sees about six patients a day at his part-time cash practice, and he expects patient volume to double this summer during the vacation season. The greatest factors driving growth of patient volume have been word-of-mouth and the fact that the practice offers after-hours appointments. He promotes the practice using Facebook, radio, and printed flyers distributed at area pharmacies.
Staffing includes a nurse and front-office receptionist working part-time hours, and Smiy's wife acts as office manager. It is generating a positive operating margin, he says.
Smiy cites three factors that have contributed to the measure of cash-only practice success that he has achieved so far:
Passing on savings from lower overhead costs to his patients. "Our rates are about 40% lower than other offices."
Delivering above-par service. "For some offices, you can call for an appointment and may have to wait three to six months before you can walk in the door. If I have a patient call me today, I am going to get them in Monday or Tuesday of next week."
Spending more time with patients. "What I do at this practice is what I was trained to do, and it allows me to be the physician that I want to be versus working in an environment where you are driven by quotas and government numbers."
The financial mechanism of a cash-only physician practice is relatively simple and efficient, he says.
"A patient comes in for a level of service such as diabetes follow-up. The patient get seen, they pay cash for their visit upfront, then they are given a receipt and a pre-populated insurance form—the CMS 1500 form—at the end of the visit along with instructions on how to submit the form."
The patient is instructed to submit the receipt and the CMS insurance form to his insurance carrier, and then to wait for reimbursement from the carrier.
Medicare patients are being reimbursed in about three weeks, and usually get 80% of their money back, says Smiy.
"When I took Medicare patients at my old practice, I would wait six months for many of those claims, and the reimbursement would not be anywhere near 80%. On a typical $150 charge, we might get back $22 or $23 from Medicare."
Providers and payers should prepare for more value-based payment models and significant changes in insurance coverage, a forward-looking report says.
With the healthcare industry facing an epic level of uncertainty after the 2016 election, bracing for change is the surest course for healthcare providers and payers to follow this year, according to an Avalere Health report released Thursday.
The new political reality in the nation's capital loomed large during a conference call unveiling the report, titled "2017 Healthcare Industry Outlook: Navigate the Landscape."
Elizabeth Carpenter, senior vice president of Avalere's policy practice, said the Washington, DC-based healthcare consultancy has been focusing on "a couple of key themes that we really expect to carry through the healthcare policy landscape in the coming year."
"We have really been focused on… the trend toward capping and limiting government spending on healthcare programs over time. You see that manifest itself in policies like Medicaid block grants and moving Medicare to a premium support model," Carpenter said.
"At the same time, you really see a trend and a theme around state and stakeholder flexibility."
Vigilance will be important for healthcare providers and payers who are anticipating impacts from efforts to repeal and replace the Patient Protection and Affordable Care Act (PPACA), she said.
"When things start to happen, they will happen quickly. Now is the time to prepare and to understand the various scenarios and really be at the ready to advocate and influence your positions."
10 Things to Watch For
With Republicans in control of the White House and both houses in Congress, significant changes are likely in the health coverage market such as alterations to Medicaid and Medicare programs. States will likely have a larger regulatory role as well.
In the employer-sponsored insurance market, businesses will continue to pass more healthcare costs from businesses to workers, with consequences such as employees skipping medical services and selecting low-premium health plans with high deductibles.
Public pressure to lower prescription drug prices is expected to continue, but new regulatory efforts to lower drug prices will likely focus on market-based solutions such as efforts to improve price and quality transparency as opposed to price controls.
Despite calls from Republican lawmakers for repeal and replacement of the Patient Protection and Affordable Care Act, efforts to establish value-based payment methodologies for healthcare providers are expected to continue.
Gaps in quality metrics for some diseases, settings of care, and patient-reported outcomes are not only expected to persist but also to generate a slew of superfluous and conflicting quality measures.
Optimization of post acute care is expected to be a top priority for healthcare providers seeking to boost clinical outcomes, lower readmissions, and reduce costs.
Prescription drugs that have a high-cost impact on healthcare payers will be ripe for outcomes-based contracting this year, particularly for drugs that have easily identifiable and measurable clinical outcomes.
Concerns over healthcare spending levels will persist among policy makers and patients, and developing frameworks that help patients define value in the delivery of medical services and products will be a priority for providers and payers.
With the Food and Drug Administration approving four biosimilar medical products in 2016, this year could be a turning point for the biosimilar market.
Digital technology is expected to continue transforming the way providers and payers engage with patients, including real-time digital monitoring of patient medical conditions.
Low-performing hospitals must focus on reducing complications and readmissions to close the gap on high-performing organizations, researchers say.
Clinical outcomes for hip and knee replacement surgery vary widely from hospital to hospital, and there are significant opportunities to boost patient care and to lower costs.
Two factors—inpatient complications of care and readmissions following discharge—are prime drivers of clinical performance levels for hip and knee replacement procedures, according to research published in The Journal of Bone & Joint Surgery.
The findings show the need for improvement among poor-performing hospitals, stated Donald Fry, MD, lead author of the research and executive vice president for clinical outcomes at MPA Healthcare Solutions. He made his remarks in a media release.
Medicare's Comprehensive Care for Joint Replacement (CJR) bundled payment model requires mandatory hospital participation in 67 geographic areas of the country.
Under CJR, Medicare bundles payments for hip and knee replacement procedures for hospital, professional, and other patient services through 90 days post-discharge.
CJR has established a powerful financial incentive for low-performing hospitals to curtail complications and readmissions, the researchers wrote.
Under the CJR, it is imperative that organizations understand the "excess costs" of total patient care. "Because most hospitals have already improved inpatient efficiency, reductions in complications and readmissions must become the focus of attention," they wrote.
Methodology
The research is based on Medicare Limited Data Set information collected from 2010 to 2012. The data set features clinical outcome information from 253,978 total hip replacement patients and 672,515 total knee replacement patients.
For hip replacements, the researchers examined data from 1,483 hospitals. For knee replacements, the researchers examined data from 2,349 hospitals.
The data were risk-adjusted for several factors including patient comorbidities. Adverse-outcome rates were based on factors such as patient death and prolonged lengths of stay.
The Outcome Gap
The risk-adjusted data found a wide gap in the adverse-outcome rates at the top 10% of high-performing hospitals compared to the bottom 10% of low-performing hospitals.
For hip replacement procedures, the top 10% of high-performing hospitals posted a 6.6% adverse-outcome rate compared to a 19.8% adverse-outcome rate for the bottom 10% of low-performing hospitals.
For knee replacement procedures, the top 10% of high-performing hospitals posted a 6.4% adverse-outcome rate compared to a 19.3% adverse-outcome rate at the bottom 10% of low-performing hospitals.
Closing the gap between high-performing and low-performing hospitals would generate significant clinical benefits for patients and cost savings for taxpayers, the authors wrote.
"Improvement of suboptimally performing hospitals to the mean level would have a dramatic impact on patient morbidity and costs," they wrote.
The trend toward shorter inpatient stays for hip and knee replacement is having a significant impact on complication and readmission rates, the researchers stated.
"The trend to shorter lengths of stay and early transfer of frail patients to skilled nursing and rehabilitation facilities means that many complications of care are not identified until after discharge," they wrote.
To achieve clinical and financial success in bundled payment programs such as CJR, hospitals must have a firm grasp on what happens to their patients in postacute care settings such as skilled nursing facilities.
"Too often, hospitals don't know their own outcomes," Fry said.
Often, neither the hospital nor the surgeons are aware of post-discharge deaths without readmissions, or readmissions that occurred in facilities other than where the original operation was performed, he stated.
Medicare's most popular ACO program is criticized for failing to save taxpayer dollars and perpetuating a fee-for-service approach to the financing of healthcare services.
A healthcare payment reform advocate is calling on Medicare officials to shift away from agency's biggest shared savings program and to foster more alternative payment models that generate value for patients and taxpayers.
Harold D. Miller, president and CEO at the Center for Healthcare Quality and Payment Reform, a non-profit, is lambasting the new Track 1+ in the Medicare Shared Savings Program and the Centers for Medicare & Medicaid Services.
"The CMS MSSP program has been a failure. CMS has lost money on the program for three straight years from 2013 to 2015, and the annual losses tripled from 2013 to 2015, totaling $216 million in 2015. CMS is losing money because nearly half—48%—of the accountable care organizations are increasing spending and the shared savings payments it makes to the ACOs that did save money wipe out any net savings it received," Miller says.
More healthcare providers participate in MSSP than any other ACO initiative that CMS has launched. Last year, 433 healthcare provider organizations participated in the program.
Until CMS rolls out MSSP Track 1+ in 2018, there are three tracks in the program, with varying levels of financial risk and shared-savings rates. MSSP Track 1 has no downside financial risk and the lowest shared-savings rate. MSSP Track 2 and Track 3 both have downside risk and higher shared-savings rates compared to Track 1.
Last month's announcement about the creation of Track 1+ highlights key elements of the new MSSP payment model, such as the opportunity for participating ACOs to qualify for Advanced Alternative Payment Model status under the Medicare Access and CHIP Reauthorization Act (MACRA).
"The new Medicare ACO Track 1+ Model will test a payment model that incorporates more limited downside risk than is currently present in Tracks 2 or 3 of the Medicare Shared Savings Program in order to encourage more rapid progression to performance-based risk," CMS officials said in last month's announcement.
CMS is 'On the Wrong Track'
In doubling down on MSSP, CMS is on the wrong track in promoting value-based care, Miller says.
"CMS is creating Track 1+ because it has been criticized for failing to create the kinds of alternative payment models that physicians can use to meet the requirements of MACRA," he says.
"But rather than creating true alternative payment models that would actually pay physicians and hospitals differently so they can deliver better care to patients, CMS is creating another variant of the same failed ACO approach it has been using for the past five years. It has more downside risk than Track 1 and less downside risk than Tracks 2 or 3; but otherwise, it's the same program that has been failing to date."
"The primary attraction of Track 1+," says Miller, "is that it has the minimum downside risk needed to meet the CMS requirements for 'more than nominal financial risk' under MACRA, which means that physicians participating in Track 1+ would be eligible for a 5% bonus."
"So if they participate in Track 1+ in 2018, they would get a 5% bonus on their revenues in 2019 and be subject to a maximum penalty of 8% of their revenues. Even if they achieve no savings at all, they would get a 5% bonus. But an ACO should be about improving patient care, not simply creating a way for a physician to get a 5% bonus."
CMS needs to adopt alternative payment models that are truly value-based, he says, unlike MSSP, which was designed to squeeze more efficiency out of the fee-for-service business model that has dominated the financing of healthcare services in the country for decades.
"Hopefully, say Miller, "the Trump administration will recognize that the way to get higher quality, more affordable healthcare is not to shift more risk onto either physicians or patients, but to accelerate efforts to create true alternative payment models that enable physicians to deliver care to patients in different, better and lower-cost ways."
"There are many examples of physicians who have shown that they can dramatically improve quality and reduce costs if they can be paid to deliver services differently, but Medicare doesn't pay that way, and ACOs don't either. CMS needs to accelerate the process of implementing the alternative payment models that many physicians and medical societies have developed."
Texas Health Resources has developed a strategy to recruit and retain top physicians. Learn THR's top tips for physician recruitment and engagement by watching this live HealthLeaders Media webcast, Key Physician Recruitment Strategies from Texas Health Resources, on January 11.
The American Osteopathic Association (AOA) is urging President-elect Donald Trump and leaders in Congress to concentrate their healthcare reform efforts on boosting access to affordable and value-based medical services.
With Trump and Republican members of Congress vowing to repeal and replace the Patient Protection and Affordable Care Act, AOA President Boyd Buser, DO, is calling for reforms that support the osteopathic mission, which features physicians and patients working together to achieve better health through wellness and prevention.
The American Nurses Association (ANA), the AHA, and AHIP have all written letters to the incoming administration articulating their concerns and wishes for healthcare policy.
"As the incoming Administration and Congress consider potential changes to the healthcare system, the AOA would like to emphasize that as part of this philosophy, it is our priority to ensure access to affordable care and coverage for our patients," Buser wrote in a letter this week.
It was addressed to Trump, Vice President-elect Mike Pence, Senate Majority Leader Mitch McConnell, (R-KY) Senate Minority Leader Charles Schumer (D-NY), House Speaker Paul Ryan (R-WI), and House Minority Leader Nancy Pelosi (D-CA).
The organization's prescription for federal healthcare reform initiatives this year includes both broad and specific policy recommendations.
It believes any grand scheme for healthcare reform should be designed to promote stability in the health insurance market and lessen uncertainty.
At a more granular level, changes in the delivery of medical services should help the country's healthcare industry build a "foundation based on prevention and care coordination," Buser wrote.
The letter offers the incoming Trump administration and Congress several suggested building blocks for that foundation:
Re-examining mandates for use of health information technology that compromises the relationship between physicians and patients
Expanding the patient-centered medical home (PCMH) model to more areas of the country
Maintaining the mandate for health plans to provide coverage of preventive services without out-of-pocket expenses for patients
Promoting the development of a stronger physician workforce in rural communities such as payment models that reward physicians for serving rural and underserved populations
Boosting coverage and access to care based on the principle that all patients should have health insurance coverage and access to "a core set of essential benefits and a broad network of physicians to include primary and specialty care across all aspects of medical and behavioral health"
Preserving the law's requirement that health plans provide coverage for people with pre-existing medical conditions
The AOA is the accrediting agency for osteopathic medical schools and represents nearly 130,000 osteopathic physicians and medical students.
Texas Health Resources has developed a strategy to both recruit and retain top physicians by remaining competitive in an ever-changing marketplace. Learn THR's top tips for physician recruitment and engagement from this live HealthLeaders Media webcast, Key Physician Recruitment Strategies from Texas Health Resources, on January 11.
Despite headwinds, Medicare officials are launching mandatory cardiac-care bundled payments and expanding similar episode-of-care reimbursement programs for orthopedic care.
The Centers for Medicare and Medicaid Services is forging ahead with efforts to expand mandatory bundled payment programs, but increasing resistance to the initiatives is adding uncertainty to the reform effort.
On December 20, CMS announced it will implement a trio of Medicare cardiac-care bundled payment programs beginning in July 2017: the Acute Myocardial Infarction (AMI) model, the Coronary Artery Bypass Graft (CABG) model, and the Cardiac Rehabilitation (CR) incentive payment model.
The cardiac-care bundled payments programs will be mandatory for hospitals in 98 markets nationwide.
CMS also unveiled a new episode-of-care model for the agency's Comprehensive Care for Joint Replacement (CJR) bundled payments program for orthopedic care.
The Surgical Hip and Femur Fracture Treatment (SHFFT) model expands CJR reimbursement for hip and knee replacement procedures to include payments for Medicare beneficiaries who undergo surgery for hip fractures.
The AIM, CABG, CR and SHFFT bundled payments programs will follow the same implementation timeline: the first performance period for the new episode-of-care models will begin July 1, 2017, and the models are scheduled to operate through December 2021, according to the CMS website.
New Hurdles
As CMS presses the agency's campaign to expand Medicare's mandatory bundled payment programs, internal and external hurdles are looming in 2017.
Next year, internal opposition to mandatory bundled payment programs is likely to be most intense among the leadership of the Department of Health and Human Services (HHS), the Cabinet-level agency that oversees CMS.
President-elect Trump's nominee to lead HHS—Rep. Tom Price, MD, R-GA—has been among the fiercest congressional critics of mandatory bundled payments.
Physicians Split on Price HHS Nomination
In September, Price and fellow House members Charles Boustany, R-LA, and Erik Paulsen, R-MN, led an effort calling on CMS to abandon mandatory payment programs including CJR and the new cardiac-care bundles.
In a letter to CMS acting Administrator Andy Slavitt and Deputy Administrator Patrick Conway, signed by Price and 178 other House lawmakers, the congressmen accused the agency of overreach.
"[CMS] has exceeded its authority, failed to engage stakeholders, and has upset the balance of power between the legislative and executive branches," the letter says. "What makes these proposals even more disconcerting is their potentially negative effects on patients, especially our vulnerable seniors."
Healthcare providers have also expressed skepticism about Medicare's mandatory bundled payments programs. In surveys released earlier this year, a majority of hospitals reported they were either unprepared for CJR or expected to lose money on reimbursement from the program.
The Chicago-based American Hospital Association is sounding alarm over this week's CMS announcement about the new mandatory cardiac-care bundled payments and SHFFT.
'Too Much, Too Soon'
"While we are pleased they made some improvement to the programs, such as flexibility on risk adjustment and MACRA participation, we remain very concerned about several key issues, particularly the pace of change," Tom Nickels, AHA executive vice president, said in a prepared statement.
Majority of Hospitals Eye Losses in CJR
"The bundled payment model for cardiac care is the second mandatory demonstration project the agency has finalized in just the past 15 months. This is too much, too soon," Nickels said.
"Regrettably, at the same time, the agency finalized its plans to expand and further complicate its existing mandatory hip and knee bundled payment model less than a year after it began, and before fully evaluating its results."
Clinicians who participate in AIM, CABG, CR and SHFFT will qualify for Advanced Alternative Payment Model (APM) bonus payments under Medicare's new value-based payment system, the Medicare Access and CHIP Reauthorization Act.
The Advanced APM payment pathway under MACRA awards bonuses as high as 5% for participating clinicians.
The forecast for healthcare finance in 2017 hinges largely on the fate of Obamacare, a couple of anti-trust cases, and a new law that relaxes oversight on drug and device makers.
1. MACRA
In 2017, federal officials will start implementing the new Medicare payment system for clinicians. Next year's rollout of the Medicare Access and CHIP Reauthorization Act features voluntary performance-category reporting for the main MACRA payment pathway—the Merit-based Incentive Payment System (MIPS).
Mandatory MIPS reporting begins in 2018. Full implementation of MACRA—the successor to the reviled Sustainable Growth Rate payment system—is set for 2019.
Kyle Wilcox, MHA, vice president of finance and business development at Grinnell Regional Medical Center in Iowa, says MACRA poses daunting challenges for rural healthcare providers. "Small, rural practices need result-oriented rules that don't hinder them from taking care of patients. Paperwork and reporting timelines simply add to the reasons why rural America doesn't have enough providers."
2. Obamacare's Fate
Ira Wilson, MD, professor of medicine at Brown University in Providence, RI, says the stakes are huge as President-elect Trump and Republicans in Congress plan to repeal and replace the Patient Protection and Affordable Care Act.
"Consider as an exercise the extreme case: Full repeal, with little or no replacement, or repeal and delay. First, some 20 million Americans stand to lose their health insurance. It is hard to imagine the chaos and suffering that such a scenario would cause in the lives of our friends and neighbors."
"It is easy to forget that every dollar not spent on healthcare is a dollar of revenue that some provider does not get. So providers of all kinds—from nurses, to physicians, to hospital systems—will all experience dramatic falls in revenue, which will lead to layoffs. When this is 18.8% of the economy—about $3.2 trillion dollars—the kinds of changes that we have to consider have far-reaching consequences," he says.
Lynn Guillette, vice president of finance for payment innovations at Dartmouth-Hitchcock Health in New Hampshire, says the collapse of Medicaid expansion under Obamacare would rock The Granite State.
It "would result in a significant increase in uncompensated care costs for the state's hospitals and physician practices. While these moves may result in 'savings' at the state and federal levels, these costs would simply be shifted to the provider and lower-income individuals," she says.
3. Defining Value
Eugene Nelson, DSc, MPH, a professor at Dartmouth College's Geisel School of Medicine and director of the Population Health Measurement Program at The Dartmouth Institute for Health Policy and Clinical Practice, says perfecting methods for measuring value looms large in 2017.
"There will be continued movement toward paying for value over paying for volume, but what practical and sufficiently accurate measures can be used to measure value?"
"There will need to be a 'set' of value measures for general populations (e.g., adults or children in primary care populations) as well as for high impact sub-populations (e.g., children with asthma, older adults with multi-morbidity, people undergoing total joint replacement). Co-designing and testing 'sets' of value measures that reflect the interests of patients, clinicians, payers and policy makers is an activity whose time has come," he says.
4. Payer Consolidation
With the $37 billion Aetna-Humana and $48 billion Anthem-Cigna mergers both enduring federal anti-trust trials this month, rulings on the cases next year will likely set the commercial-payer stage for many years to come.
The commercial-payer market is already concentrated to a handful of players, including the country's largest for-profit payer, UnitedHealthcare. If the megamergers withstand the federal court challenges, three mega-payers could establish dominant market shares.
5. Prescription Drugs and Medical Devices
During the wave of healthcare reforms under the Obama administration, the pharmaceutical industry was one of the only stakeholders in the industry spared significant belt-tightening or regulatory changes that upended the market playing field.
Next year, drug makers have the potential to seize new opportunities even as criticism over drug pricing mounts.
This month's enactment of the 21st Century Cures Act is seen by patient advocates as a boon to pharmaceutical companies, which stand to benefit from provisions that ease regulatory oversight of drug and device makers.
PhRMA, the industry's trade organization, lobbied for the bill and applauded its passage.
