How two Kentucky hospitals are helping employed and independent physicians embrace population health and prepare for value-based care models.
At Our Lady of Bellefonte Hospital, preparing for the business-model shift from volume to value has been like a surfer paddling wildly to catch and ride the wave of a lifetime.
"The market you are in is important," says Kevin Halter, CEO of Ashland, KY-based Bon Secours Kentucky Health System, which operates the 215-bed acute-care hospital.
"We're not in a real aggressive market. My biggest challenge is getting my physicians educated on the front end because they all see the wave coming. And that's true for any of the new initiatives—bundled payment and financial changes like MACRAare in the journals, but it's not right in front of them as it is in places like Richmond, Virginia."
Bon Secours Kentucky Health System is part of the Marriottsville, MD-based Bon Secours Health System, which operates 19 acute-care hospitals in six states.
In Ashland and other markets that are just starting to fully embrace value-based delivery of medical services, the relationship between hospitals and physicians is absolutely critical, Halter says.
"Hospitals have been in value-based purchasing for five-plus years, now it's going to go to physicians, and my physicians are just now starting to see it. The reason they are seeing it is I am putting it in front of them. We had a board retreat with about 40 physicians to start educating them.
The message, he says is "This is coming, you need to get prepared, we are going to help you get prepared by putting in a clinically integrated network.' Now, we are helping them work through the change so they don't find relief in the channels outside the hospital."
Our Lady of Bellefonte has 250 physicians on staff, with 30% of the staff hospital-employed. Employment status has had a significant impact on adoption of value-based care models among physicians at the hospital, Halter says.
"Employed docs get force-fed. They are in these programs. Bundled payments for instance, and MSSP ACO. We sign them up. As part of being an employed physician, some of your freedom of choice goes away, which is good and bad. The employed docs are much further along in the continuum of healthcare reform than our independents."
An Emphasis on Primary Care
Halfway across The Bluegrass State in Elizabethtown, Hardin Memorial Health is also devoting significant effort to working with physicians to ensure the shift to value-based care is as successful as possible, says President and CEO Dennis Johnson.
Hardin Memorial Health has a 300-bed acute-care hospital and is affiliated with Louisville, KY-based Baptist Health.
Investing in primary care capabilities and building relationships with independent primary care physicians are crucial for hospitals to thrive—or at least survive—as the healthcare industry adopts value-based care models and embraces population health, Johnson says.
"You don't have to employ every physician on the planet, but you do need to drive the primary care referrals... And if you have good primary care, you are going to be able to manage a population's health."
Primary care should be a central component of strategic planning at health systems and hospitals as they prepare for value-based care models, and healthcare provider leaders should be open to enlisting help from outside their organizations, Johnson says.
In 2011, Hardin Memorial and Baptist Health engaged the Healthcare Strategy Group, a provider of physician integration services, to assist with their strategic plan.
"That plan was approved in early 2012. We've seen a lot of gains from the strategies that were outlined in that plan, and we've just engaged HSG to do a refresh of our plan," says Johnson.
"HSG assisted both Baptist and Hardin on a primary care strategy about three years ago to help identify those markets where we had an opportunity."
He is bullish about Hardin Memorial's future. "Our investments in population health are good in either a fee-for-service world or a fee-for-value world. Primary care is really a low-risk, high-return investment."
Hospitals that have case mixes with relatively high numbers of medically complex patients face unfair financial penalties, researchers say.
The Comprehensive Care for Joint Replacement model, a mandatory Medicare bundled-payment program, is financially flawed and will unfairly penalize hospitals that treat medically complex patients, University of Michigan researchers say.
In a study published last week in Health Affairs, researchers call on the Centers for Medicare & Medicaid Services to risk-adjust CJR's financial performance reward-and-penalty mechanism to reflect the high costs of treating frail patients.
Case mix has a fundamental impact on hospital operating costs, Chandy Ellimoottil, MD, a clinical lecturer in Ann Arbor and practicing urologist who is the lead author of Health Affairs study, told HealthLeaders over the weekend.
"Case mix matters across hospitals," he said. "That's called warranted variation, which is essentially differences in methods and costs that are due to complexity of patients. Unwarranted variations should be the target of bundled payments programs and most performance programs—the use of discretionary services and the unmonitored use of skilled nursing facilities, those are kinds of unwarranted cost variation and they should be targeted."
"You should want to adjust for as much warranted variation as possible just to be equitable," Ellimoottil said.
The Hospital Readmissions Reduction Program is among the prime examples of CMS performance programs that feature financial penalties and risk-adjustment for medical complexity, Ellimoottil said.
CMS began implementing CJR in April, with upside-only risk this year and two-sided risk set to kick in next year. About 800 hospitals in 67 metropolitan areas are participating in CJR on a mandatory basis.
Under CJR, healthcare providers such as orthopedic surgeons and hospitals receive standard fee-for-service payments from Medicare for all claims through 90 days after discharge.
To determine gainsharing payments and financial penalties, CMS will compare healthcare provider spending on a patient's 90-day episode of care against a target episode price.
This year, target episode pricing is based mainly on historical spending patterns. In future years, target episode pricing will be based increasingly on regional spending patterns.
The University of Michigan researchers contend that risk-adjustment for the medical complexity of patients is needed in the CJR program to help ensure that hospitals with high concentrations of frail patients are not subjected to unfair financial penalties.
As CJR shifts from target-price benchmarking based on a hospital's performance history to benchmarking on a regional basis, financial inequity in the program will increase, Ellimoottil said.
"Risk-adjustment only matters when you are comparing hospitals to one another. Risk-adjustment did not matter so much for previous bundled payment programs like Bundled Payments for Care Improvement. CJR is unique because it utilizes a regional benchmark and because it is a mandatory program. These two points often get buried when trying to understand why risk-adjustment is important for CJR."
The Health Affairs study is based on data collected from 23,251 Medicare beneficiaries who had hip and knee replacement procedures in 60 Michigan hospitals from 2011 to 2013.
According to the study, Ellimoottil and his co-authors compared the impact of historical vs. regional target-price benchmarking and "found that reconciliation payments were reduced by $827 per episode for each standard-deviation increase in a hospital's patient complexity. Moreover, we found that risk adjustment could increase reconciliation payments to some hospitals by as much as $114,184 annually."
The University of Michigan researchers developed a modest risk-adjustment mechanism for CJR that steers clear of disputed risk factors such as socio-economic status (SES).
"It touches SES a little bit because the risk-adjustment model includes a variable for dual-eligible status, but we don't include race and a lot of other more controversial factors. It really is more about medical comorbidities, and most CMS programs have some kind of risk-adjustment program. What we're looking at is just basic risk adjustment."
CMS is giving medical doctors four "pick-your-pace" reporting options while ensuring that they do not receive a negative payment adjustment in 2019.
Physician groups are praising last week's announcement delaying the reporting requirements established under the Medicare Access and CHIP Reauthorization Act (MACRA).
Prior to last week's announcement, physicians were facing full implementation of the of the value-based payment system for Medicare reimbursement under MACRA starting Jan. 1, 2017. The reporting requirements are considered onerous by many, and providers and payers pressed Medicare for postponement over the summer.
In Thursday's announcement, the Centers for Medicare & Medicaid Services granted physicians four "pick-your-pace" options to comply with MACRA's reporting requirements next year.
"By adopting this thoughtful and flexible approach, the Administration is encouraging a successful transition to the new law by offering physicians options for participating in MACRA. This approach better reflects the diversity of medical practices throughout the country," Andrew Gurman, MD, president of the Chicago-based American Medical Association, said in a prepared statement Thursday.
4 Pick-Your-Pace Options
In Thursday's announcement, CMS gave physicians four options to meet the reporting requirements for the MIPS performance categories next year and ensure that they do not receive a negative payment adjustment in 2019:
Submitting enough data to the Quality Payment Program "to ensure that your system is working and that you are prepared for broader participation in 2018 and 2019."
Submitting the full set of performance data for less than the full 2017 calendar year.
Submitting the full set of performance data for the full 2017 calendar year.
Participating in an Advanced APM in 2017.
Nitin Damle, MD, FACP, president of the Philadelphia-based American College of Physicians, says granting flexibility in the reporting requirements will help physicians chart the best financial course for their practices as the new payment system is implemented.
"The minimal reporting option will also allow for a longer transition period for those practices that still need time to adjust for the new MACRA performance requirements without being at risk of negative adjustments, while other practices that are able to more fully participate in 2017, for some or all of the year, could qualify for 'small' to 'modest' positive adjustments," Damle said in a statement issued Friday.
Although CMS has delayed the reporting requirement for the Quality Payment Program, a key takeaway point from Thursday's announcement is that Medicare's new payment system for physicians will likely launch as planned in 2019, Harold Miller, president and CEO of the Pittsburgh-based Center for Healthcare Quality and Payment Reform, told HealthLeaders on Friday.
"This is not delaying implementation of MACRA, it's actually creating a less problematic starting point for the measurement that will go into determining what happens to physicians in 2019."
The reimbursement provisions of MACRA, which CMS have dubbed the "Quality Payment Program," establish two value-based payment pathways for physicians who provide services to Medicare beneficiaries:
The Merit-based Payment Incentive System (MIPS) and
Advanced Alternative Payment Models (Advanced APMs)
When the new payment system launches in 2019, most physicians are expected to receive Medicare payments through MIPS, which has four performance categories:
Quality,
Cost,
Clinical care improvement activities such as boosting care coordination, and
PCMHs, bundled payments, and Medicaid expansion are driving change and showing it is possible to transform a market on a wholesale basis, says one health insurance executive.
This article first appeared in the September 2016 issue of HealthLeaders magazine.
If you want to see what the healthcare industry landscape looks like after a statewide shift to value-based care models, look at Arkansas.
From the Mississippi Delta region in the east to the Ozark Mountains in the west, there are value-based reforms taking hold throughout the state's provider and payer markets. The patient-centered medical home has become the dominant primary care physician-practice business model; the top commercial payers and the state Medicaid program are jointly operating bundled payment reimbursement for nearly two dozen episodes of care; and private option Medicaid expansion through the Patient Protection and Affordable Care Act Health Insurance Exchange Marketplace has fueled the sharpest decline of uninsured patient rates in the country, with Gallup pollsters pegging the rate drop from 22.5% before Medicaid expansion in 2013 to 9.6% last year.
"What's different about the Arkansas market than just about anybody else you'll talk to is that the multipayer, public-private initiative did not start out as a voluntary or pilot effort. It was basically a mandatory, statewide approach that took the collaboration and consensus of multiple stakeholders to even have a chance. The story that could be learned from this marketplace is that it is possible to transform a market on a wholesale basis," says Steven Spaulding, senior vice president of enterprise networks at Little Rock–based Arkansas Blue Cross Blue Shield.
Medicaid expansion, PCMH proliferation, and a multipayer approach to bundled payments have had a significant financial impact on Arkansas providers, payers, and patients. The Arkansas Center for Health Improvement has helped spearhead payment reform efforts at the state level. In January, ACHI released the publicly and privately funded organization's Arkansas Health Care Payment Improvement Initiative: 2nd Annual Statewide Tracking Report, which shows the broad reach and deep financial effects of value-based reforms:
As of October 2015, 331,000 (82%) Arkansas Medicaid beneficiaries were receiving care through PCMHs.
In 2014, Medicaid spending on primary care totaled $522.3 million, with the program saving $34.3 million through PCMH cost reductions. Of the $34.3 million in savings, $12.1 million was allocated to per member per month (PMPM) payments to providers. The remaining $22.2 million was shared between the state and providers who met both quality and cost savings requirements. Shared savings checks were issued in October 2015, with several clinics receiving more than $100,000.
In 2014, practices enrolled in Medicaid's PCMH program posted a cost decrease of 1.2%, beating both the 2.6% benchmark increase and the 0.6% cost growth of practices outside the PCMH program.
As of October 2015, 780 primary care providers were participating in the Medicaid PCMH program (69% of eligible Medicaid providers).
About 250,000 Arkansas residents have gained health coverage through the state's "private option" Medicaid expansion. The 2010 U.S. Census pegs the state's population at 2.9 million residents.
For the annual period ending July 2015, Medicaid reported significant provider cost cutting for several episodes of care (EOC) in the state's multipayer bundled payment program: perinatal EOC, C-section rate reduced from 39% to 34%, with an estimated 2%–4% percent direct savings; upper respiratory infections EOC, 17% reduction in antibiotic prescriptions, with episode costs remaining flat despite a 10% increase in drug prices; ADHD EOC, average episode cost fell by 22%; and for total hip and knee replacement, the 30-day all-cause readmission rate fell from 3.9% to 0%, generating an estimated 5% to 10% direct savings.
Riding the reform rollercoaster
Medicaid expansion and physician-practice participation in federal and state PCMH programs have had profound impacts on Arkansas BCBS.
"Medicaid expansion did impact us in a big way here," Spaulding says.
"In Arkansas, they expanded Medicaid, which had a qualification point of about 18% of the federal poverty level, to 138%. And they decided to do that by getting federal money to purchase commercial insurance on the exchange. We got 140,000 people in Medicaid expansion, and we've learned a lot over the past two or three years. We originally thought these people might be a lot more like our commercial population than the historical Medicaid population, but what we found out was they probably were more like the traditional Medicaid population. We need to beef up our acute-care coordination services and our behavioral health services," he says.
In anticipation of serving thousands of Medicaid expansion beneficiaries, Arkansas BCBS boosted care management capabilities in 2013, says Maxine Greenwood, director of governmental and media relations at the health plan.
"We have community-based case managers in all areas of the state who use hospital census and discharge information to reach out to members who have been hospitalized. They also get referrals from providers and use emergency department and claims information to identify members with medical and behavioral health needs," Greenwood says. "Our case managers work closely with social workers and behavioral health staff to promote quality collaboration and care coordination for high-risk members with complex behavioral health conditions and for those with both medical and behavioral health needs. Community-based case managers are also familiar with local resources outside of the health plan that may benefit members with transportation and other services."
Since Arkansas BCBS started serving Medicaid expansion beneficiaries in 2014, the health plan has launched additional initiatives, including a telemedicine pilot designed to ease reimbursement for behavioral health services, she says.
Medicaid expansion has improved the lives of many economically disadvantaged residents, but Arkansas BCBS is grappling with a net negative financial impact from costs associated with serving Medicaid-eligible adults, he says.
"It started out as net positive. These people had never had coverage before, and they didn't really know how to use it; but as they got more comfortable and their providers helped them through the process, we've seen costs increase for us, particularly on prescription drugs. So right now, it's a financial challenge for us," Spaulding says.
"We have had to engage the delivery system in a different way to make sure we are collectively using our resources both from an insurer perspective and a provider perspective to get those people the right care, when they need it, where they need it from the people they need it from."
Medicaid expansion in Arkansas has transformed the roles of providers and payers, he says. "It's changed the whole relationship. Providers have less collectible debt. They have lower rates of uninsured patients. But now we have to battle with the way these people access the system—people who have never had insurance. For most of them, the only way they knew how to access the health system was through the emergency room."
Developing financially sustainable models to provide value-based care for Medicaid-eligible patients is daunting, Spaulding says. "It's resource intensive, and we have had to reassess our ratios of case management to population. We have had to engage the delivery system in a different way to make sure we are collectively using our resources, both from an insurer perspective and a provider perspective to get those people the right care, when they need it, where they need it, from the people they need it from; but going forward, it's going to require even more integration of both operations and culture, and there's going to have to be integration of financial incentives in all of this, so that we're all on the same end of the rope together.
"Part of that is the work that we are doing with the delivery systems across the state that are trying to organize themselves into clinically integrated networks to potentially share risk. The definition of the population under management begins with the alignment of the patient with a primary carephysician; so from that perspective,the role of the primary care physician is becoming more clearly defined," he says.
PCMH adoption has been building steadily in the state since 2010, with Arkansas BCBS launching PCMH contracting in 2010, the Centers for Medicare & Medicaid starting the Comprehensive Primary Care (CPC) Initiative in 2012—a multipayer program created to strengthen primary care that offers population-based care management fees and shared savings opportunities to primary care practices that participate, with the goal of improving care, achieving better health for populations, and lowering costs—and state lawmakers requiring all HIX-qualified health plans to participate in Medicaid's PCMH program.
Approaching population health with an emphasis on primary care is essential for PCMH success, says Alicia Berkemeyer, vice president of the enterprise primary care and pharmacy programs at Arkansas BCBS. "When we were trying to attribute members to a provider, we were quite surprised that many of our members had not seen a primary care doctor in two, three, four years. So because of our commitment to primary care and the belief in having a relationship with a primary care doctor, we spent an entire year going through our membership and educating them on the importance of primary care and having a primary care provider. If they did not choose a primary care provider in a 35-day period, we sent a second letter recommending one in their area to align them with, because if we want to get providers to manage a population, we have to identify the population they need to manage."
Another ingredient for PCMH success is financial support in the form of PMPM payments, with CPC PMPM Medicare payments in Arkansas averaging $20, Medicaid PMPM payments as high as $8, and commercial PMPM payments for Medicaid expansion patients set at a minimum of $5.
Getting up-front PMPM payments is crucial, Berkemeyer says. "That's the tool they needed to make this transformation. This is not an easy task for these providers. One of the key things that started early with the CPC money and the PMPM with the multipayers was that it enabled many of them to support care managers in their practices, and for care coordination and care management to be active and be proactive in closing gaps in care, getting the members in, making sure they're on their appropriate medication and that medication is reconciled. You could talk with any of the practices out there today with the CPC and the state PCMH—we have about 210—and they would say without that PMPM, they could not do the work that they are doing today."
Providers shift delivery of care to value-based models
Clinton, Arkansas–based Ozark Internal Medicine and Pediatrics is among the state's early adopters of PCMH. A practice with about 3,500 active patients, OIMP was among the first five physician practices selected for the Arkansas BCBS PCMH Pilot Project in 2010 and among the first 69 Arkansas practices selected for CPC participation in 2012.
PMPM payments have eased the financial pain that small rural physician practices face in the shift to value-based care, says Stacy Zimmerman, MD, FACP, FAAP, the leader and sole doctor at OIMP. "Care management is the most important area and also the most expensive, especially for the small practice. PMPMs must consistently support care manager salaries and staff overhead, or the PCMH model will fail," she says.
At small practices, matching financial resources with costly investments in PCMH capabilities such as electronic medical record systems is daunting, Zimmerman says. "Decreasing our total cost of care for all of our patient populations has allowed us to be eligible for shared savings; but, unfortunately, the small practice panel put us at a statistical disadvantage compared to the large practices."
So far, the OIMP journey has been financially arduous, she says. "Ours has been net negative because we have to put a larger percentage of overhead toward the model than larger practices. For example, all overhead items associated with a PCMH like care management duties and salaries cost me the same as a 10-doctor practice."
Searcy, Arkansas–based Unity Health has experienced a payer-mix boost from Medicaid expansion but the health system, which is centered on 286-bed White County Medical Center, is seeking to offset Medicare reimbursement reductions, says Vice President and Treasurer Stuart Hill.
"We did see an improvement in our payer mix. From an inpatient perspective, we did see a payer shift to fewer self-pay patients. We did see a few more Medicaid patients; but in Arkansas, Medicaid expansion was mostly on the private insurance side. Those who were 138% over the poverty guideline qualified for commercial insurance as opposed to traditional Medicaid," he says.
"We're still taking greater Medicare cuts than we are getting benefits from the private option Medicaid expansion. In 2016, we're estimating probably a $3.5–$4 million net deficit because Medicare essentially got zero market basket increases. You add that to sequestration," Hill says.
Baxter Regional Medical Center in Mountain Home, Arkansas, a not-for-profit 268-bed acute care hospital, also is facing financial cross-currents in the state's shift to value-based care, says Ivan Holleman, former vice president and chief financial officer, who retired in August 2016. "We have seen a significant shift from more profitable inpatient services to the outpatient setting. Despite substantial efforts and success in increasing our market share, we have seen a 10% decline in acute inpatient services over 2014."
Baxter Regional is pursuing several strategies to offset declining inpatient cases, he says. "We are working to maintain our financial position through market growth; ongoing efforts at efficiency; and, in partnership with our community physicians, establishment of a clinically integrated network and a Medicare Shared Savings accountable care organization. This organization is named Baxter Physician Partners or BPP, and we have partnered with North Arkansas Regional Medical Center in Harrison and their physicians to have the state's second-largest MSSP ACO as measured by benefit lives."
From 2013 to 2015, Medicaid expansion had a net positive financial impact at Baxter Regional, Holleman says. "The private option/Arkansas Works program has had a net financial favorable impact on BRMC of $3.3 million associated mainly in reduced costs from uncompensated care. It would have been difficult for us to maintain our financial position without this program."
Arkansas is blazing a trail for other rural states seeking to make the shift to value-based care, says ACHI Director Joseph Thompson, MD, MPH.
"From a timing perspective, our increases in efficiency and decreases in hospitalization coincide with our expansion of Medicaid under the Affordable Care Act. While we have reduced the cost associated with unnecessary hospitalizations, we have increased the number of hospitalizations through the private option. One of the reasons why the feds are interested in our model is that for the 30 states that have large, rural areas, this could be a way to introduce value-based payment without necessarily having complete ownership of a single network by a major health insurance plan," says Thompson.
Last year's top shared-savings performer in Medicare's first two-sided risk model for accountable care organizations is developing a medical-services delivery strategy that can be applied nationwide.
A shared-savings care delivery model that precipitates declining inpatient revenues in the shift from fee-for-service is the stuff of nightmares for most hospital leaders. But Phoenix-based Banner Health is living the value-based dream.
"The road is rocky, but we see a clear path to where we are going. We are very confident that not only can Banner get there, but the country as a whole can do this and do this in a sustainable way," says Robert Groves, MD, CMO of Banner Health Network, the health system's Pioneer ACO.
BHN was among the 32 inaugural Pioneer ACO participants in 2012 and outpaced its peers in the program financially last year by a wide margin, according to performance data that the Centers for Medicare & Medicaid Services released last week.
For the 2015 performance year, BHN kept spending below its Pioneer ACO benchmark by $35.1 million, earning a $24.5 million shared-savings payment. Newton, MA-based Atrius Health posted the second-highest spending-benchmark performance, spending $6.7 million below its Pioneer ACO benchmark. Minneapolis-based Fairview Health Services earned the second-highest shared-savings payment, at $2.6 million.
BHN also posted the fifth-highest Pioneer ACO quality score last year, at 95%.
Enrollment in the Pioneer ACO program has dwindled steadily, however. Last year, a dozen organizations participated; BHN is among nine Pioneer ACOs this year.
Although three Pioneer ACOs exceeded their spending benchmark last year, Peoria, IL-based OSF Healthcare System is the only organization that owes CMS, with a $1.6 million shared-losses payment due. Pioneer ACO generated more than $37 million in net savings for CMS in 2015.
Pioneer ACO encourages providers to coordinate the entire care continuum, and Banner Health has embraced that vision. "This is a 9,000-square-mile market. It is hard to own everything, and that is true nationally," Groves says.
Banner Health was well-positioned to succeed in Pioneer ACO from its inception largely due to the health system's history of cooperation with independent physicians, says Lisa Stevens Anderson, vice president at Banner Health and CEO of BHN.
"Banner has a history of partnering with independent physicians," she says.
"We have an employed medical group, Banner Medical Group, that has grown quite a bit over the past five years, but it's only been formally in existence for five years. One of the partner organizations that is part of Banner Health Network is called Banner PHO, physician-hospital organization, which has been in existence in the eastern Phoenix metropolitan area for more than 25 years."
Technology-fueled Growth
Since Pioneer ACO was launched in 2012, BHN has achieved year-over-year gains in quality scores and shared-savings payments by establishing new capabilities and deploying proven value-based care strategies, Groves says.
The health system's iCare telemedicine program is a prime example of how investing in new technology is helping BHN manage the frailest patients among the ACO's 60,000 beneficiaries.
"In their homes, we put in specialized tablets that allow instant communication with the healthcare team, including a physician if the patient needs one," Groves says.
"We put in resources that allow patients to track their weight and other key variables depending on their illness, so we get an early warning when things start to go awry."
"We also have applied traditional strategies but done them very well, like case management and care management," he says. "We take the folks who are not as sick as our highest-risk patients and manage the strategies that are likely to keep them at their optimal level of health."
"Finally, we couldn't do this without the full support and engagement of our aligned partners," Groves says.
"That not only includes physicians, but also our post-acute care partners, home care, palliative care and hospice. We are trying to put the whole puzzle together without leaving any of the pieces out."
A three-pronged strategy to reduce the appeals backlog notwithstanding, the backlog of Medicare billing disputes is expected to exceed 1 million contested claims by 2020.
Medicare's recent $1.5 billion hospital-claims settlement deal is not a big deal in the grand scheme of the program's claims appeal backlog, federal records show.
Last week, in response to a Freedom of Information Act request from Kaiser Health News, the Centers for Medicare & Medicaid Services released a list identifying the 2,022 hospitals that received billing-dispute settlement payments last year.
The settlement deal gave hospitals 68 cents on the dollar for disputed Medicare billing claims for patients admitted on or before Oct. 1, 2013. Kaiser Health News reported 35 hospitals got more than $5 million in the deal, with the median payment pegged at $307,642.
Long Island Jewish Medical Center, a 900-bed acute care hospital in New Hyde Park, New York, that is among nearly two dozen hospitals operated by Northwell Health, was among the facilities that received the largest settlement payments—$10.8 million for 1,230 disputed claims.
Participating in the settlement was preferable to waiting out the appeals process, Robert Shapiro, executive vice president of finance and CFO of the Great Neck, New York-based health system, said last week in an email to HealthLeaders Media.
"We settled with CMS in 2015 to take advantage of the 'time value' of money. At that time, we were concerned that CMS would change the rules down the road."
The ultimate venue of appeal for Medicare billing disputes is U.S. District Court. But before billing disputes reach that court, they can be challenged at four levels:
Redetermination by a Medicare Administrative Contractor (MAC)
Reconsideration by a Qualified Independent Contractor (QIO)
Adjudication hearings before an Office of Medicare Hearings and Appeals administrative law judge (ALJ)
Medicare Appeals Council hearings
Despite settling 260,000 claims in the 2015 fiscal year, the backlog of Medicare billing-dispute appeals at the ALJ and Medicare Appeals Council levels shows no sign of easing, according to the Office of Medicare Hearings and Appeals (OMHA).
A division of the U.S. Department of Health and Human Services, OMHA administers Medicare billing-dispute appeals independently of CMS. For the federal fiscal year ending September 2015, more than 884,000 Medicare claims were awaiting adjudication before administrative law judges. Another 14,800 disputed claims were awaiting hearings before the Medicare Appeals Council, which reviews appeals of ALJ decisions.
A Three-Pronged Strategy
Clearly, the capacity to conduct ALJ and Medicare Appeals Council hearings is inadequate, and OMHA acknowledges that there is a problem.
It says says federal officials have launched a "three-pronged strategy" to reduce the appeals backlog, including "administrative actions to reduce the number of pending appeals and encourage resolution of cases earlier in the process."
OMHA's forecast is grim however: "Based on the projected impacts for all CMS and OMHA administrative actions currently being implemented, the backlog is expected to be approximately 1 million appeals by the end of FY 2020. However, this is nearly 50% less than what would have been pending if these administrative actions were not taken."
Lawrence Hughes, assistant general counsel at the American Hospital Association, says the Medicare billing-dispute appeals process needs mending. "Hospitals continue to have millions of dollars tied up in the appeals process; leaving hospitals to make do with insufficient resources, and their employees and patients to pay the price," he said Friday.
"If we don't get a handle on spending at some point, we will have a government-financed system," predicts the head of the Pacific Business Group on Health.
With healthcare-spending growth continuing to outpace growth of the national economy, large employers are facing a gargantuan challenge.
"It's challenging because healthcare is not their prime business. To large employers, healthcare is just one of the many suppliers they work with, and the cost of healthcare is part of the overhead of a business that is otherwise pumping gas or selling groceries, says David Lansky, PhD, president and CEO of the Pacific Business Group on Health, a nonprofit business coalition that through its member organizations, is "demanding increased value" in the healthcare system.
"So, it is going to be difficult for them to step up to an even larger degree, but it is necessary," he says.
Employer-sponsored insurance helps cover the medical expenses of about half of all Americans, according to the Kaiser Family Foundation. Despite the cost of providing this benefit to their workers, large employers are committed to the ESI market, Lansky says.
"There's an understanding that if we don't get a handle on spending at some point, we will have a government-financed system and we will look to the taxpayers to figure out how to cap total healthcare costs. Most employers don't want to see that happen," he says.
At Some Point, Healthcare 'Becomes Unaffordable'
"They think they add value by being an advocate for their employees in the healthcare system and building wellness programs, benefits programs, mental health programs, and disease management programs that ultimately are beneficial to their employees. They don't want to give that up; but at some point, it becomes unaffordable."
The double-digit pace of healthcare-spending growth seen at the turn of the century appears to be tamed, according to the 2016 National Health Expenditures Report released last month.
It forecasts that national healthcare spending will increase at an average of 5.8% through 2025. If that prediction is accurate, the healthcare sector's share of the total economy will rise from 17.5% in 2014 to 20.1% in 2025.
Over the past 20 years, U.S. economic growth has not exceeded 4.7%, according to World Bank data on annual economic growth since the country emerged from The Great Recession in 2010 at 2.1%.
Large employers will play a pivotal role in determining whether annual healthcare-spending growth can be reduced to at least 3%, Lansky says. "The way our healthcare economy is structured, a great deal depends on what the buyers of services decide to reward, incentivize or require from a contractual point of view."
He says large employers find themselves increasingly working with both Medicare and the states to try to achieve impacts as buyers.
"The purchaser community has been very fragmented over the years, both employers fragmented from each other and employers working separately from state governments and the federal government. That fragmentation has been changing, where we are seeing a lot more alignment among the buyers."
A prime example of healthcare-buyer alignment, according to Lansky, is in Arkansas, where the state's largest corporation, Bentonville-based Walmart, is participating in a Medicaid-led bundled payments program that features nearly two dozen episodes of care including heart failure.
Lansky says large employers are increasingly engaged in several other strategies to help cut healthcare spending nationwide:
Centers of excellence programs where "patients are going to get the highest quality care, which is ultimately cheaper because there are so many fewer readmissions, new operations and complications."
Reference pricing "that works through benefit design to give patients information about the cost of care and where they can get comparable quality care for lower cost."
Direct contracting with accountable care organizations, which involve large employers picking high-value healthcare providers then rewarding their workers for seeing those providers with reduced cost-sharing. "Then you work with that care system to continuously improve what they do, to become more efficient, and ultimately lower costs."
"When you look at these strategies, what many of them have in common is ensuring that patients get into the hands of the highest performing providers and services; so we are rewarding the low-cost, high-quality provider with more business, and we are informing patients where they can go to get that care," he says.
More than three dozen top healthcare finance executives share insight and strategies for tackling their toughest business challenges.
Participants at the 2017 HealthLeaders Media CFO Exchange in Coeur d'Alene, Idaho last week said they are generally optimistic about weathering the storm of regulatory changes, new payment models, and shifting market forces buffeting their organizations.
The finance executives at the invitation-only event also shared many mutual concerns such as offsetting traditional revenue-stream declines at hospitals and assessing the appetite to adopt value-based care models in their markets.
Here are 10 of the most insightful comments from the gathered finance leaders:
1. Stephen Allegretto
Vice President of Strategic Analytics and Value Innovation
Yale-New Haven Health
New Haven, CT
"We treat about 100,000 patients a year. Seven percent of our patients have a complication or quality variation in care. Those patients stay three time longer and their costs are four times higher. As we are looking to produce value, if we can reduce that variation for those patients and improve the outcomes of those patients, we will not only improve their health, we will also improve our financial picture."
2. Mike Browning
Chief Financial Officer
ProMedica
Toledo, OH
"You have to be optimistic, because if you're not, you're just willing to fade away or settle for status quo, and those who we serve deserve more. You have to have optimism; the question is where are you going to find it?"
3. Michele Cusack
Senior Vice President of Finance
Northwell Health
Great Neck, NY
"Where we try to capitalize is on the physician alignment, not only among the employed physicians but also with voluntary providers at jointly owned ambulatory surgery centers and other partnerships to get them aligned with us. Even if they are not completely in our facilities, there is the potential for increased financial benefits and volume."
4. Mary Ann Freas
Senior Vice President and CFO
Southwest General
Middleburg Heights, OH
"We divested our skilled nursing and some of our other less profitable programs. But what we have tried to do is build or open new programs—general psychiatry, pain management, maternity and fetal medicine; grow our strength programs—orthopedic surgery and cancer; and bring on new physicians—particularly those who have an existing patient base."
5. Scott Hawig
Chief Financial Officer
Froedtert Health
Milwaukee, WI
"The most successful initiative for us has been on the pharmacy side—both in retail pharmacy and expanding some of our mail order and specialty pharmacy. We even have a little bit of compounding and potential manufacturing."
6. Tom Lowry
Vice President of Finance
Dignity Health Provider Resources
Rancho Cordova, CA
"Finding good talent in case management for bundled payments like CJR [Medicare's Comprehensive Care for Joint Replacement program] is very hard to do. It's a skill set that is not part of what they taught RNs in nursing school."
7. Christian Pass
Chief Financial Officer
John Muir Health
Walnut Creek, CA
"Sometimes we launch initiatives that are defensive in nature. It's challenging because there's always a race to have new technology and equipment. It could be a surgical robot. If someone's going to put a surgical robot near one of our facilities, and we don't put a robot in, will our surgeons will go to the competitor?"
8. Cheryl Sadro
EVP, Chief Business and Finance Officer
University of Texas Medical Branch
Galveston, TX
"The big thing that we all have to be thinking about is how do we use traditional analysis and make sure it is going to fit in the new payment models? How do we take the traditional analytics from fee-for-service medicine and look at it from a bundled perspective? Are we really capable of handling that payment initiative?"
9. Bob Shapiro
EVP and Chief Financial Officer
Northwell Health
Great Neck, NY
"If you go into the insurance business, it can make you, or it can break you... We did not try to hit a grand slam. It was a matter of building loyalty in areas where we already had patients who were loyal to us."
10. Kyle Wilcox
Vice President of Finance and Business Development
Grinnell Regional Medical Center
Grinnell, IA
"For any of you who have small markets, I recommend a revenue cycle strategy of being nice to your patients. You will find the majority of individuals in small towns are good people who, given the chance, will pay their bills."
How rural healthcare organizations are faring in non-Medicaid expansion states.
This article first appeared in the July/August 2016 issue of HealthLeaders magazine.
Hospitals in rural areas of the country are feeling a sharp financial pinch in states that have not expanded their Medicaid programs under the Patient Protection and Affordable Care Act.
Community hospitals in rural counties of Tennessee, one of the states that have opted not to embrace Medicaid expansion, are facing financial pressure that could be relieved if more of their low-resource patients had Medicaid coverage. "In our health systems, they manage it. They have figured it out. Where it's really hitting is our rural hospitals," says Craig Becker, president of the Tennessee Hospital Association. "We've lost six rural hospitals in the last year, and we're going to lose another one this year."
In economically disadvantaged Tennessee communities, many nonelderly adults are either reliant on Medicaid for their health coverage or fall into the "self-pay" category, Becker says. "We only get about 5% of payment for self-pay patients."
Medicaid is a public form of medical insurance jointly funded by the states and the federal government. Under the PPACA, states can expand their Medicaid programs with federal financial assistance to include all adults in families with incomes below 138% of the federal poverty level.
As of this year, 31 states including the District of Columbia have expanded Medicaid through provisions of the PPACA. Nineteen states have not expanded Medicaid under the federal law: Alabama, Florida, Georgia, Idaho, Kansas, Maine, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wisconsin, and Wyoming.
Failure to expand Medicaid pushes rural hospitals to brink
The absence of Medicaid expansion played a role in this year's closure of McNairy Regional Hospital in Selmer, Tennessee, says Wayne T. Smith, chairman of the board and CEO of the facility's parent company, Franklin, Tennessee–based Community Health Systems. The 45-bed acute-care hospital closed in May.
"Several factors impacted the decision, primarily the unforeseen and significant repairs to the hospital's plumbing system and a steady decline in patient use. As a rural hospital, McNairy Regional was also challenged by cuts in federal reimbursement for services as part of the Affordable Care Act. The reimbursement changes were predicated on more people having insurance, whether through Medicaid expansion or insurance exchanges. The lack of Medicaid expansion—to date—has left many of the state's most vulnerable citizens without access to health insurance, leaving hospitals to address the unsustainable burden of uncompensated care," Smith says.
Community Health Systems owns, leases, or operates 159 hospitals in 22 states. For 2015, the health system posted net operating revenue of about $19.4 billion.
Rural hospitals in Tennessee and other non-Medicaid-expansion states are in a fundamentally weak financial position, Smith says. "Rural areas tend to have higher unemployment, more uninsured individuals, and a greater percentage of patients on Medicare and Medicaid. Many of the more rural communities where CHS-affiliated hospitals are located in Tennessee are facing these same challenges. Hospitals in states where Medicaid expansion has stalled have been left to absorb reimbursement cuts—estimated at more than $7 billion over 10 years for Tennessee hospitals—as well as increases in bad debt and uncompensated care, with very little of the off-setting revenue that would result from expansion.
"In addition to providing uninsured patients with access to care, Medicaid expansion would reduce the charitable care and bad debt costs that are spread throughout the system. According to a report from the Boyd Center for Business & Economic Research at the University of Tennessee, Tennessee hospitals spent $1.1 billion on charitable care and bad debt in 2014."
Medicaid expansion would provide health coverage to thousands of poverty-stricken adult Tennessee residents, which would improve their lives and ease financial pressure on hospitals, Smith says.
"More than 200,000 Tennesseans with annual incomes less than 138% of the federal poverty levels could benefit from expansion. There has been a focus on the financial implications of not expanding Medicaid, but the impact it has on individuals is significant. Every day, people come to our emergency departments with conditions that, in many cases, could have been avoided if these patients had access to primary care services. From our perspective as a healthcare company, we want patients to receive the care they need, particularly preventive services that could delay or prevent the onset of chronic diseases, which is why we encourage every state where we operate affiliated hospitals to expand Medicaid.
"In Tennessee, the number of uninsured patients seeking care at our hospitals has decreased slightly but not at the same rate as in states that have expanded Medicaid. This is occurring as hospitals are experiencing significant Medicare payments reductions—in part to pay for expansion—as well as other significant issues, such as meaningful use, value-based purchasing, and soaring drug prices."
Local taxpayers help rescue hospital
Houston County is a rural area at least an hour's drive west of Nashville with about 8,300 residents and one hospital, which has been teetering on the edge of financial disaster since declaring bankruptcy in 2008. In March 2013, the county commission bought Houston County Community Hospital for $2.4 million.
"I've learned more about healthcare in the past three years than I ever wanted to know," County Mayor George Clark says of his ownership role for the 25-bed hospital. "I'm not there every day, but I get a report from them every day."
In 2013, the reports Clark was receiving from HCCH were grim. "They were having a census of 0 to 1 patients a day," he says.
In fall 2014, HCCH was reeling, with hundreds of thousands of dollars in bad debt inherited from the previous owner and an equally daunting gap between costs and revenue. To keep the hospital afloat, the Houston County Commission approved a 60-cent increase in the local property tax rate to raise about $700,000 for the facility the following year. "It's the largest tax increase I've ever had to do," says Clark, who has served as the county's mayor for more than three decades.
"We were looking at losing a hospital. It would have affected everything," he says, noting a 1,500-bed nursing home in the county was one of the dominoes that local officials feared would fall if HCCH closed its doors. "Economically, it would have been a big impact to us."
Lives were also at stake if the hospital shut down, Clark says. "Our county is long and narrow. If I had a situation in the western half of our county, it would take an hour to an hour and a half to get to a hospital.…Without this hospital, people could die, and how do you put a price on that?"
C. Timothy Gary, CEO of Nashville-based DW Franklin Consulting Group, has been helping to lead HCCH's financial revival efforts. The strategy features both cost-cutting and garnering new revenue, he says. "You can't cut your way to prosperity. You also have to generate revenue."
To decrease costs more than $2.5 million annually, HCCH has renegotiated contracts with vendors, reduced staffing, and cut supply expenditures, Gary says. Slashing the hospital's full-time equivalent labor budget from about 95 employees to 65 was a painful process, he says. "That's a discipline that a lot of hospitals are not used to. … They had three nurses on staff with two or three patients in the hospital. They've gone from that to a minimal staffing pattern. Reductions were across the board, as the entire staffing model really didn't take into account the changes in the market realities. However, the nursing staff was the area that required the most attention."
For some senior executives, the pain was too much to bear. "Some of the longtime management understood it, but they couldn't get there, so we had some retirements," Gary says. "We had to bring in some folks who understand that you manage to a budget or you don't have a hospital."
Supply chain savings from changing HCCH's group purchasing organization have been less dramatic but significant nonetheless, Gary says. "They were spending about a half million dollars on supplies. We cut $100,000 per year out of their spend. That's two people we were able to save with that kind of a change."
One of the ways HCCH has increased revenue is by boosting the capability to perform ambulatory surgical procedures, he says. "We partnered with a surgeon who does arthroscopic surgeries. He works for three facilities."
The partnership with the arthroscopic surgeon is part of a broader strategy to boost the hospital's image in the county and draw more inpatient cases, Gary says. "The ambulatory services that we added are almost exclusively outpatient. However, offering those services has raised the profile of the hospital in the community, which has resulted in greater utilization and an increase in the inpatient census."
By adding the arthroscopic surgeries, the hospital has boosted its daily inpatient census to about six, Clark says, noting there are plans to add gastroenterology services soon. "Our business is growing. We're bringing the hospital back to where it needs to be."
The county mayor says 10 is the magic number for HCCH's inpatient census. "That's where we can get to breaking even. We're not there yet, but we're getting there."
The hospital has also increased revenue through one-time infusions of cash, such as grants and federal meaningful use payments linked to investments in electronic medical record technology. Last year, HCCH received a $1 million payment from the meaningful use program after spending $200,000 on EMR upgrades, Gary says. This year, the hospital is expecting a $700,000 net gain from federal payments tied to EMR upgrades, he says.
HCCH is showing financial improvement, according to annual auditor reports.
For the year ending June 30, 2014, HCCH posted total operating revenue at $4.2 million and an operating loss pegged at $1.8 million. For the year ending June 30, 2015, HCCH posted total operating revenue at $5.2 million and an operating loss pegged at $464,000.
'The problem is systemic and cumulative'
In Missouri, hospitals have been struggling financially from the absence of Medicaid expansion in ways that mirror the experience in Tennessee, says David Dillon, vice president of public and media relations for the Missouri Hospital Association. Failure to expand the program has played a role in the closure of four hospitals in the Show Me State, including two rural hospitals, he says.
"Although there has not been a hospital closure exclusively due to the lack of Medicaid expansion, it has been a significant contributing factor in every Missouri hospital closure since ACA implementation. Moreover, the lack of expansion has reduced investment in hospital services, staff, facilities, and community-based programs throughout the state. The problem is systemic and cumulative."
Missouri-based health systems also are feeling the non-Medicaid- expansion-state financial pain, says Kris Zimmer, senior vice president of finance at St. Louis-based SSM Health.
For 2015, SSM Health posted total operating revenue at $5.4 billion. The health system operates 20 hospitals in a Medicaid expansion state—Illinois—and three states that have not expanded the program—Missouri, Oklahoma, and Wisconsin. In the non-Medicaid expansion states, SSM is enduring a significant financial drain, Zimmer says. "When the ACA was originally proposed, we understood that much of it would be funded by reducing Medicare reimbursements for hospital services. As it has rolled out, we continue to feel the impact of these reductions, especially as three of the states we serve have not adopted Medicaid expansion. We have been able to overcome these challenges by reducing costs in several ways, including revenue cycle improvements, centralizing and standardizing support services, and renegotiating supply and vendor contracts."
A pilot program at two Scripps Health hospitals is using data analytics to generate $1 million in annual spending reductions on prescription drugs.
Scripps Health is banking on data analytics to help contain spending on prescription drugs.
In a pilot program launched this year at a pair of Scripps Health hospitals (684-bed Scripps Mercy Hospital San Diego and 183-bed Scripps Mercy Hospital Chula Vista, CA), the health system is expecting to generate annual cost savings of about $1 million in 2016 and 2017 mainly from purchasing medications from low-cost sources.
Kenny Scott, executive director of pharmacy operations at Scripps Health, says "It has helped us a great deal in terms of identifying potential opportunities just in the early stages of using the new system."
San Diego-based Scripps Health operates five acute-care hospitals, with a total of 1,495 licensed beds. For the fiscal year ending September 2015, the system posted total annual operating revenue at $2.8 billion, with patient services accounting for $2.2 billion of the health system's revenue.
It generated a $143 million positive operating margin in FY2015.
Now, with help from a third-party partner, Scripps Health is starting to compare the organization's internal database for prescription drugs against a broader set of potential sources for purchasing medications
"In healthcare," says Scott, "everyone is very concerned about costs and trying to get their arms around costs. Scripps has "been challenged with our data system in terms of being able to extract data" that would lead to opportunities for cost reductions.
Sentry Data Systems has helped Scripps Health identify at least $1 million in annual savings from optimized purchasing of prescription drugs, he says.
"We have identified the drugs that we had opportunities to purchase at a lower cost—there were opportunities to improve that in terms of looking at the charge master that we were using within our database compared to what Sentry had," says Scott.
By applying data analytics to examine prescription-drug spending and utilization, Scripps has been able to:
Understand what's being purchased versus what's being used.
Look at variation in terms of utilization by physician.
Make sure it is purchasing drugs at the lowest price possible.
The tool helps Scripps know "fairly easily where the opportunities are from procurement, to prescribing patterns, to utilization within the hospital, and also making sure those drugs will be administered in the most appropriate site," says Scott.
Care Setting Affects Drug Costs
"When a patient receives oncology agents in the hospital, it's at a higher cost; but if we have that patient receive the medication in the clinic setting, the costs of the setting would be less as well as the fact that we can leverage the 340B program and get a 35% to 50% reduction in the cost of the drugs," he says.
Scott says harvesting data and sharing the bounty with clinical teams has reduced intravenous acetaminophen use at Scripps Health hospitals.
As a result of the work of the Scripps' newly formed system-wide pharmacy and therapeutics council, "which used the data and analysis to reduce the utilization of IV acetaminophen," improvement was seen.
