AMERICAN HOSPITAL ASSOCIATION DECEMBER 2017 TRENDWATCH Hospitals and Health Systems Prepare for a Value-driven Future H ospitals and health systems are actively working to serve their communities in numerous ways, includ- health care needs of a given population. With no single VBP “destination,” hospitals and health systems are evalu- Definition: Value-based Payment Any payment arrangement that incorporates ing through the adoption of initiatives ating which models may best support metrics or factors other than volume of that control costs, improve outcomes, their organizational and community services provided in reimbursement determi- and enhance patient-centered care. goals. The migration from fee-for-service nations, such as shared savings models or penalties tied to performance metrics. These Many are working with payers to payment to VBP is well underway. may include quality, patient experience, cost, establish value-based payment (VBP) While the Centers for Medicare & utilization and efficiency measures. arrangements to support these goals. Medicaid Services (CMS) has recently “Payment” and “purchasing” are often There is a wide range of approaches promoted increased flexibility for used interchangeably with regard to value- to VBP, from programs that incentiv- providers in VBP models, many states based services. However, this report uses the ize public reporting on quality metrics and private payers also are pursuing and “payment” term since hospitals are recipients to prospective payments for all of the expanding VBP arrangements. of this compensation for delivered services. Hospitals are engaging in a wide range of models along the VBP spectrum; approaches may vary based on community and hospital characteristics. Chart 1: Spectrum of Value-based Payment Models Low Risk Incentives/penalties are applied to provider payments to promote improved quality/value outcomes Global Budget / Partial or • Provider payments for investments Full Capitation in care delivery and coordination, health information technology • Financial incentives for quality Shared Savings Highest Risk reporting & Losses Provider is paid a single payment • Reward-only payments for for a defined group of individuals quality performance Bundled / Episode-based • Population-based payment for • Rewards/penalties for specific conditions quality performance Payment Pay for • Capitated payment based on care for covered population Performance Moderate Risk (P4P) • Episode-based payment for clinical Models (including bundled payment) conditions (such as diabetes, where savings from care improvement end-stage renal disease) are shared between payer and provider Shared Savings • Integrated payment and delivery (upside only) • Emerging care models with reward- systems (e.g., provider-based only incentives insurance plans) • Emerging care models with financial rewards/penalties HOSPITALS AND HEALTH SYSTEMS PREPARE FOR A VALUE-DRIVEN FUTURE This TrendWatch report provides some cases — stifle VBP transitions; and hospitals and health systems at different information to help hospitals and health the tools, capabilities and approaches nec- levels of risk adoption. Participating systems evaluate which VBP model(s) essary to succeed. It considers the impact organizations are shown in Chart 2 and may support their organization’s goals, of market dynamics on VBP strategies, listed in the Appendix; profiles of the and provides insights from seven hospi- as well as the complexities and require- organizations’ VBP experience can be tals and health systems participating in ments of transitioning to value. Finally, found in a compendium to this report different VBP arrangements. This report the report highlights critical issues for available at www.aha.org. examines the drivers and prevalence of hospitals and health systems to consider VBP arrangements; the conditions and when evaluating their VBP options. This factors that foster, accelerate and — in work is based in part on interviews with Key Messages: This TrendWatch report reviews the experience of seven hospitals •  he movement to VBP is being T and health systems that have participated in VBP models. driven by a combination of rising health care expenditures, declin- Chart 2: Profiled Organizations ing reimbursement for Medicare and Medicaid, federal and state policy, market competition and payer dynamics. Billings Clinic •  There is no “one-size” fits all Billings, Mont. approach to VBP for hospitals Aurora Health Care Milwaukee and health systems — leaders will Intermountain National Children’s need to assess the most appropri- HealthCare Hospital ate model for their community Salt Lake City Columbus, Ohio and organization. Saint Luke’s Health System Kansas City, Mo. •  ast experience with VBP arrange- P Banner Health ments, organizational capabili- Phoenix ties and culture, and market and policy forces influence the ability of hospitals and health systems Health First to succeed in shared savings and Rockledge, Fla. population-based VBP models. Value-based Payment Arrangements: Drivers Rising expenditures, declining reim- VBP arrangements that incentivize qual- 1999 and 2016, while average wages bursement for Medicare and Medicaid, ity and performance improvements that rose by less than 55 percent during this federal and state policy, financial stability drive efficient, cost-effective care. Annual time.  Annual projected cost growth 1,2 and access to capital are the key drivers health insurance premiums for family rates for the nation’s two largest purchas- in the movement to a risk-based environ- coverage more than tripled between ers of public insurance, Medicaid and ment in health care. Rising Health Care Expenditures Definition: Risk-based Environment The growth in health care expenditures A health care market environment in which some or all of providers’ payment is based on is driving policymakers, employers and their ability to deliver high-quality care in a cost-effective manner. public and private purchasers to explore 2 TRENDWATCH Medicare, are expected to be nearly new Medicare pay-for-performance for beneficiaries of federal health care 6 percent between 2018–2025 and over programs, including the Hospital programs, including Medicare.  8 7 percent respectively, between 2016– Value-based Purchasing Program, the Building on the foundation set by 2025. 3 With hospitals representing Hospital-acquired Condition Reduction the ACA, in 2015, the Department 32 percent of total health expenditures, Program and the Hospital Readmissions of Health & Human Services (HHS) they have become targets for cost Reduction Program. In addition, the announced new goals to increase the reduction initiatives. 4 ACA encouraged the development percentage of Medicare payments tied and implementation of new payment to value and made through alterna- Reimbursement from Medicare, and delivery models by authorizing tive payment and delivery models. Medicaid the Medicare Shared Savings Program Specifically, the department’s goal was Hospitals and health systems are moti- (MSSP) for accountable care organiza- to tie 30 percent of Medicare pay- vated to reduce costs to stem losses from tions (ACOs) and creating the CMS ments to alternative payment models the growing portion of patients that Center for Medicare & Medicaid by the end of 2016 and 50 percent by are insured through public programs. Innovation (CMMI), which is tasked the end of 2018. 9 In early 2016, HHS Reimbursement for publicly-insured with testing “innovative payment announced it had met its first goal patients is generally lower than for those and service delivery models to reduce via a combination of accountable care who are commercially insured and often program expenditures… while preserv- models, episode-based payments and below provider costs. For example, in ing or enhancing the quality of care” primary care initiatives. 2015, Medicare paid 88 percent and Medicaid paid 90 percent of the cost required to provide patient care.  The 5 Definitions: Emerging Payment Models sizable growth of public insurance popula- tions in recent years, driven by Medicaid Accountable Care Organizations episode-of-care (e.g., congestive heart fail- ACOs are broadly defined as groups of ure, diabetes, stroke). Provider payment expansion authorized by the Affordable health care providers who voluntarily come is linked to performance against the target Care Act (ACA) and the baby boomer price and on specified performance mea- together to deliver coordinated care to an transition into Medicare, increases pres- attributed patient population, with pay- sures.  As of April 2017, 1,295 organiza- sure on providers to lower the cost of ment tied to care quality and cost. In 2016, tions, including 330 acute care hospitals, care. Medicare enrollment grew to over nearly 9 million Medicare beneficiaries were participated in one or more episodes 58 million as of April 2017 — up from managed within more than 400 Medicare through this initiative. 49 million in 2011 — while Medicaid ACOs, representing almost 16 percent of the Medicare subsequently launched a and Children’s Health Insurance Program total Medicare population. separate but parallel, mandatory bundled payment initiative for joint replacements enrollment increased by more than 17 Bundled Payments that affects approximately 800 hospitals million to 74.5 million between mid– CMS has implemented multiple episode- in 67 select markets. In November 2017, 2013 and April 2017.  6,7 of-care-based bundled payment models. HHS finalized a modification to this initiative The voluntary Bundled Payments for Care that makes participation mandatory in 34 Federal Policy Improvement initiative sets a target price for of the original markets and voluntary in the Medicare is a major driver of the nearly all services delivered during a single remaining 33 geographic areas. transition to VBP. The ACA created “Increased adoption of risk resonated with medical staff, as it aligns with the way they want “” from the field to practice medicine. Clinicians were already asking how do we use our resources to provide the best care possible and keep kids well in the first place.” — Nationwide Children’s Hospital 3 HOSPITALS AND HEALTH SYSTEMS PREPARE FOR A VALUE-DRIVEN FUTURE Most recently, the Medicare Access and CHIP Reauthorization Act of Perspective on Vermont All-Payer ACO Model 2015 (MACRA) mandated a new physician payment system that further Vermont is establishing an all-payer ACO model to accelerate delivery advances adoption of value-based pay- system reform for its residents, limit health care expenditure growth and ment arrangements by tying a greater achieve three public health goals: 1) improve access to primary care, 2) percentage of physician payment to reduce deaths from suicide and drug overdose, and 3) reduce the preva- performance and encouraging participa- lence and morbidity of chronic disease. The largest payers in the state tion in risk-bearing payment models. — Medicare, Medicaid and commercial payers — will apply a common Beginning in 2019, physicians who pro- payment structure for the majority of providers throughout Vermont’s vide services to Medicare beneficiaries delivery system. This initiative will set an all-payer-total cost-of-care will be paid under one of two payment target as well as a Medicare growth target and seeks to have 70 percent tracks. Under the default payment, the of beneficiaries across all payers and 90 percent of Medicare beneficiaries Merit-based Incentive Payment System aligned to an ACO by 2022. To facilitate Medicaid’s participation, CMS (MIPS), clinicians who outperform their approved a five-year extension of Vermont’s section 1115(a) demonstration peers based on performance metrics in in October 2016. four categories will receive a bonus while those who do not will face a penalty. Alternatively, MACRA provides incen- have caused Saint Luke’s to consider More recently, CMS has signaled tives for providers who participate in accepting additional financial risk. that it may provide additional flex- an advanced alternative payment model Saint Luke’s became a participant in ibility in the move to VBP. The agency (APM) that includes downside risk. the Medicare Comprehensive Care for has issued regulations that reduce the Both tracks require participants to report Joint Replacement (CJR) bundled pay- number of hospitals and physicians on quality, efficiency, information tech- ment model when CMS selected the required to participate in VBP models. nology use and other measures. Further Kansas City market as one of the initial In September, CMS solicited input information regarding MACRA can be mandatory participation markets. More on the future direction of the CMMI, found at www.aha.org/MACRA. recently, Kansas City was selected as a and expressed interest in promoting Medicare’s push toward value may participating region for the voluntary patient-centered care, market-based encourage some hospitals to consider Comprehensive Primary Care Plus reforms, price transparency, and engaging more rapidly in APMs, (CPC+) program; Saint Luke’s also plans increased choice and competition to including models that require down- to participate in that program. The improve quality and reduce costs. side risk. For example, Saint Luke’s ability of CPC+ participants to qualify As part of this shift, CMS requested Health System pursued select VBP as advanced APMs under MACRA, stakeholder input on a range of VBP arrangements, including commercial with additional payment incentives, arrangements, including models upside-only shared savings, but had prompted Saint Luke’s to reconsider impacting physician specialties, pre- not opted to participate in other APMs more aggressive risk-based arrangements scription drugs, Medicare Advantage, that included significant downside risk. and bolstered the strategic decision to Medicaid, program integrity and However, changes to federal programs join the CPC+ program.  10 behavioral health.11 “Our care delivery teams have been major champions for value-driven initiatives, “” from the field particularly our medical group leadership, who play an important role of building care teams and focusing on total cost of care.” — Banner Health 4 TRENDWATCH State Policy hospitals experiencing financial uncer- States have encouraged VBP adoption tainty from participating. However, as Perspective on Payer through a variety of mechanisms related VBP arrangements become more preva- Collaboration: Aurora to Medicaid, including State Delivery lent, hospitals may seek to standardize Health Care (Milwaukee) System Reform Incentive Payment clinical processes and align financially (DSRIP) programs and through con- and/or operationally with other pro- Aurora formed the Wisconsin tractual requirements with managed viders to achieve economies of scale, Collaborative Insurance care organizations. Through DSRIP improve financial stability and enhance Company as a joint venture programs, states have funded upfront access to investment capital. with Anthem Blue Cross and provider investments in transforma- Health systems and aligned provider Blue Shield earlier this year tion infrastructure and tied provider networks are more likely to seek over- to offer a commercial health payments to performance metrics. 12 sight of a larger portion of health care insurance product that meets Some states require Medicaid managed spending via VBP. These collaborative employer demand for both cost care organizations (MCOs) to adopt networks often result in more integrated containment and a national rigorous incentive payment programs, health care organizations that combine provider network. such as in New York, where Medicaid the functions of traditional hospital MCOs are required to enter into up- systems, provider networks and insurers. and down-side VBP arrangements with For example, there are approximately providers. 13 Sixteen states have passed 90 health plans sponsored by hospitals Payer Dynamics & Culture Medicaid ACO legislation or enacted or health systems (“provider-sponsored Many commercial payers also have ACO-like pilot programs. 14 Up to 22 health plans” or PSHPs) that covered begun to implement VBP arrangements states have implemented Medicaid pay- nearly 18 million lives in 2015, includ- similar to those being developed by fed- for-performance or bundled payment ing 7 million in commercial plans, eral and state governments. For example, programs.  Vermont recently partnered 15 1.6 million in Medicare Advantage following Medicare’s lead, more than with CMS to establish an all-payer products and 8.9 million in Medicaid 300 ACOs now manage approximately ACO model. 16,17 plans. 18 However, the risk associated 20 million individuals with commercial with launching a health plan continues insurance or Medicaid.  20,21 Financial Stability and Access to be significant for hospitals and health However, payers differ in their to Capital systems. Of 17 PSHPs started since 2010 interest and pursuit of VBP arrange- Hospitals and health systems’ uptake of and currently active, none made a profit ments. In some markets, providers may VBP is influenced by financial stability in 2016 and only two plans made a small need to initiate discussions with payers and access to capital. VBP arrange- profit in the first half of 2017. Three of on new payment models. Alternatively, ments inherently involve a greater level these 17 PSHPs are now in the process of in other markets, some large employ- of financial risk, which may discourage winding down operations.19 ers are bypassing the traditional insurer intermediary and establish- ing VBP arrangements directly with Perspective on Risk Exposure: Nationwide Children’s providers. Examples include Boeing Hospital (Columbus, Ohio) contracting with providers to offer a Preferred Partnership ACO to 50,000 In 1994, Nationwide Children’s began accepting sub-capitated payments employees in target markets, Marriott for the Medicaid population through Partners for Kids (PFK), a joint International contracting with local venture physician hospital organization formed with affiliated physicians. hospitals to provide primary and Nationwide Children’s determined that it was able to accept this level of urgent care through outpatient clinics, risk given that it was already responsible for most of the Medicaid-financed and Lowe’s and other employers estab- pediatric care in the region. By accepting risk, the organization gained lishing bundled payment arrangements the flexibility necessary to implement care delivery reforms, including with Centers of Excellence programs enhanced care coordination. for high-volume procedures such as joint replacement and spine surgery. 22 5 HOSPITALS AND HEALTH SYSTEMS PREPARE FOR A VALUE-DRIVEN FUTURE Value-based Payment Arrangements: Prevalence VBP arrangements vary in their structure prevalence of various VBP arrangements the national level; individual geographies and the amount of financial risk attribut- by the associated level of risk and payer and market segments may experience able to providers. Chart 3 highlights the type. This information is aggregated at VBP differently. The prevalence of each type of VBP arrangement varies by payer and patient population. Chart 3. Spectrum of Value-based Payment Arrangements Prevalence by Payer VBP Model & Definition Commercial Medicare Medicaid Shared Savings •  % of payments are 2 •  1.8% of traditional Medicare payments paid through shared 1 •  f 43 states surveyed: O (Upside-Only Risk) fee for service (FFS) plus savings arrangements as of 201325 ◦  , or 11%, have implemented 5 Upside-only payments shared savings (2014)23 •  SSP ACOs: M ACOs or shared savings comprised of a percentage •  .2% of payments are 0 ◦  1% are one-sided shared savings only as of 9 ◦  , or 7%, are currently 3 of any net savings for non-FFS shared savings January 201726 implementing shared savings providers that successfully (2014)24 ◦  over 9 million lives, or 15.5% of the entire Medicare C ◦  0, or 46%, are planning or 2 reduce spending for a population as of 201727,28 studying how to implement defined population •  3% of surveyed Medicare Advantage (MA) health plans report 5 shared savings (2015)31 (Lowest Risk) having ACOs with shared savings in 201529,30 Pay for •  2.8% of in-network 1 •  2.8% of traditional Medicare payments are FFS plus P4P 3 •  f 43 states surveyed: O Performance (P4P) payments are FFS-based via the Hospital Value-based Purchasing and End-stage Renal ◦  5, or 35%, have implemented 1 Financial bonuses and pay plus P4P (2014)32 Disease programs as of 201333 P4P in their MCOs penalties to align payment • Other P4P arrangements include Hospital Readmissions  ◦  , or 11%, are in the process 5 in areas such as quality, Reduction, Value-based Payment Modifier, Oncology Care Model of implementing P4P in MCOs patient experience, or cost; and Hospital-acquired Condition Reduction Programs34,35 ◦  1, or 25%, are planning or 1 typically tied to existing studying how to implement P4P fee-for-service structure programs in MCOs (2015)36 (Low Risk) Bundled / Episode-Based •  .1% of in-network 0 •  ,244 providers currently participating in the Bundled Payments 1 •  f 43 states surveyed: O Payment payments are bundled with for Care Improvement Initiative as of July 201739 ◦  , or 16%, have implemented 7 Single payment to providers quality incentives (2014)37 •  pproximately 800 hospitals required to participate in the A bundled payments for the expected costs of •  4 commercial bundled 3 Comprehensive Care for Joint Replacement (CJR) model across ◦  , or 7%, are currently 3 treating a clinically-defined payment plans across the 67 designated geographic areas. In November 2017, HHS implementing bundled plans episode of care country (2013)38 modified CJR by making participation mandatory in 34 of the ◦  1, or 29%, are planning or 2 (Medium Risk) designated areas and voluntary in the remaining 33 areas  40 studying how to implement •  3% of surveyed MA health plans report having bundled 3 bundled payments (2015)42 payment arrangements in 201541 Shared Savings & Losses •  % of in-network payments 1 •  .9% of traditional Medicare payments are shared risk 1 [See Shared Savings row above] (Up- & Downside Risk) are shared risk (2014)43 as of 201344 Financial bonuses or •  21 of the 562 Medicare ACOs are in a risk-bearing track 1 penalties comprised as of January 2017.45 This includes: of a percentage of any ◦  % of MSSP ACOs as of January 201746 9 net savings or losses in ◦  Pioneer ACOs as of December 2016, down from 19 8 providers’ spending for in April 201547,48 a defined population ▪  , or 50%, of the 12 participating Pioneer ACOs in 6 (Medium-High Risk) Performance Year 4 earned shared savings49 ◦  5 Next Generation ACOs as of June 201750 4 ◦  subset of the 37 Comprehensive End-stage Renal Disease A Care Model programs as of April 201751,52 ◦  3% of surveyed MA health plans report having ACOs with 4 shared risk in 201553 Global Budget / Partial or •  f all in-network payments O •  0% of surveyed MA health plans report having global 4 •  apitation payments are paid to C Full Capitation paid to providers, 15% are capitation arrangements with some network providers Medicaid MCOs, but MCOs may pay Fixed payment to providers fully capitated with quality as of 201555 providers on a FFS basis for each assigned patient incentives and 1.6% are • n Performance Year 2, Next Generation ACOs have the I over a defined period of time partially or condition-specific option to participate in a capitated payment model56 (Highest Risk) capitated with quality incentives (2014)54 6 TRENDWATCH Organizational Experience with VBP The timing and process of transitioning medical group. In a dyad model, a clinical that fosters collaboration among to VBP is complex. It requires con- leader and an administrator are paired to administrators and physicians. sideration of both the external factors jointly oversee a service line or clinical While clinical alignment is critical, described above and the organization’s area. 59 Both models are structured to determinations on operational con- internal readiness. The following sections enable physician leadership to participate figuration vary. Ownership of the entire consider critical requirements, reflecting in setting the course for strategic direction continuum of care is not always necessary, on the challenges and lessons shared by as well as clinical care. but can produce efficiencies in many interviewed hospitals related to clinical, Aurora Health Care adopted the cases. Systems use both internal capac- technical, financial and organizational dual reporting structure and as a ity and affiliations to offer the full care domains. In addition to these require- result experienced many benefits. For continuum — sometimes varying their ments, one of the most significant success example, Aurora’s contracting leaders approach in different markets. Aurora is factors relates to experience: providers are better versed in population health building a single provider network that with more experience tend to perform and value-based care as a result of their includes its visiting nurses agency, pharma- better in advanced VBP models, includ- close working relationship with their cies, behavioral health program, and family ing ACOs and health plans.  57,58 clinician colleagues. This first-hand service programs, while Saint Luke’s is experience enables them to negotiate establishing a preferred network of non- Provider Alignment performance metrics with payers that owned post-acute care provider partners. Value-based arrangements require are actionable by their clinicians and Another interviewed organization recently buy-in from physicians, as well as align- effective in measuring the quality of underwent a process to determine whether ment of hospitals’ clinical leadership patient care. The Billings Clinic, in to build, buy or partner within each area and the broader care delivery team. addition to having a physician CEO of the care continuum. The Billings Clinic, Some systems seeking to align and physician representation on inter- with half of its hospital patients coming leadership and engage clinical leaders nal and community governing boards, from outside of its flagship hospital in in finance and risk decisions establish uses a tightly integrated, physician- Yellowstone County, is working to closely either a dual reporting structure or a dyad led and professionally managed dyad affiliate with critical access hospitals, management model. In a dual reporting model. These management models invested in telehealth capabilities and structure, physician leadership reports to actively include clinicians, and creates utilizes swing beds to meet post-acute care both the system’s clinical lines and the staff champions across the organization needs closer to patients’ homes. Perspective on Alignment Through Varied Physician Arrangements: Intermountain Healthcare (Salt Lake City) Intermountain Healthcare is an and approved by physician leaders, Intermountain who participate example of how some organizations formalized in practice models, and in small panel shared savings/ may align both employed and affiliated reinforced by Intermountain’s clinical losses sign a contract, or “citizen physicians. Intermountain physicians information and reporting systems. agreement,” that defines 18 require- — whether contract or employed — Physicians who choose alternate care ments, including complying with are expected to care for all patients in pathways must provide documented evidence-based practices, linking a consistent way. This consistency is justification. All physicians — whether electronic health records (EHRs) to supported by clinical standards that employed or affiliated — must follow Intermountain, treating other clini- have been adopted across 10 service these standards. cians with respect and providing equal lines. These standards are based on best Furthermore, both contract access to all patients, regardless of practices that are reviewed, discussed and employed physicians within their payer source. 7 HOSPITALS AND HEALTH SYSTEMS PREPARE FOR A VALUE-DRIVEN FUTURE Technical Capabilities As providers accept increasing levels of Perspective on Technology Partners: Banner Health (Phoenix) financial risk, they must invest substan- tial time and resources to develop new Banner Health previously sought to develop its own customer-centric care man- capabilities. The technical requirements agement infrastructure, data analytics and electronic tools (e.g., EHR, registries) associated with VBP expand as hospitals but now collaborates with partners — including population health vendors and and health systems increase their expo- health plans — for more rapid technical development. This approach allows sure to financial risk. Chart 4 examines Banner to focus on quality and outcomes, member satisfaction and affordability. major areas of required capabilities across Banner believes it is important to seek partners that offer interoperable approach- the spectrum of VBP arrangements. es, pursue alignment of capabilities and serve as allies in co-developing solutions. An expanded set of skills and capabilities is needed to be successful under VBP models to effectively manage additional financial risk. Chart 4: Spectrum of Required Capabilities *Upside-only shared savings arrangements do not require the same level of capabilities as up- and downside shared savings arrangements. Low Risk VBP arrangements at higher levels of risk require increasing provider capabilities High Risk Pay for Performance Bundled Payments & Up- and Downside Capabilities (P4P) Upside Shared Savings Shared Savings Global Budget/Capitation Contracting & •  ontracting with payers C •  ontracting with payers C •  ayer, provider and group contracts P Provider Network •  rovider agreements with P •  ffiliation and participation agreements with providers A •  ulfillment of network adequacy, F Management quality commitment and •  rovisions requiring adoption of protocols, standards of care, P division of financial responsibility P4P funds distribution shared savings distribution terms/approach (DOFR) and provider payment terms terms/approach Clinical and Care •  evelop and engage D • Care coordination •  are management capabilities, C •  tilization management and U Management patients in quality capabilities, including including high-risk case utilization review improvement and disease discharge planning management •  ost-acute care management and P management programs •  evelopment of quality and D •  linical integration with C coordination •  evelop registries and D utilization benchmarks and affiliated provider network •  harmacy benefits management P performance dashboards, standards, clinical protocols •  argeted disease management T •  revention and wellness programs P identify and report quality and coordinated work flow programs targets with provider processes network participants Analytics •  linical, financial and C •  obust population health capabilities, including: R • Actuarial analytics patient experience ◦  isk stratification, identification of high-cost patients (hot- R • Predictive modeling performance reporting spotting, frequent flyers) •  linical and administrative C ◦  ystems to track utilization, adherence to protocols and S data integration guidelines, variations in care and outliers •  isease registries; reporting D ◦ dentification and connection of high-risk patients to care I and analysis management •  ata security infrastructure D ◦  eporting and analysis of quality, utilization and financial metrics R Financial •  inancial and payment F •  inancial and payment modeling of P4P measures F •  ayment processing and claims P Management modeling of P4P measures •  anagement of funds for distribution to affiliated providers and M adjudication capabilities • Performance-based funds downside payments (losses) to payers • Underwriting distribution to affiliated • Reinsurance providers •  aintenance of reserves M Governance and •  edical direction and M •  edical oversight of and M •  edical oversight of care and M •  orporate governance with clear C Organization oversight of quality provider engagement in disease management programs role for board, executive, medical improvement (QI) programs quality, care coordination, •  linical integration governance C direction, state regulatory reporting, •  rovider engagement in QI P protocol and standards •  egal and antitrust evaluation L compliance, management and program development development programs and operations • Change management processes expertise 8 TRENDWATCH Financial Requirements Organizations meet the requirements Perspective on Organizational Change: Health First described in Chart 4 by building (Rockledge, Fla.) internal capabilities, establishing partnerships with others or procuring Health First has undergone a comprehensive, multi-year effort to transi- services from vendors. The financial tion from a siloed holding company with internally competing interests to investments to build new competen- a fully integrated health system in which the health plan functions as the cies can be significant. For example, organizer of care. Health First applied integration science lessons from the ACO start-up costs, much of which are aerospace and defense industries, specifically using Capability Maturity attributable to information technol- Model Integration which is an approach to performance management ogy and other systems infrastructure, [that]…helps integrate traditionally separate organizational functions, set were estimated to be $4 million in 2013 process improvement goals and priorities, provide guidance for quality while provider-sponsored plan start-up processes, and provide a point of reference for appraising current processes. costs were estimated to be $9 million Through this approach, Health First developed new feedback loops across in 2014.  A majority of interviewed 60,61 the organization by forming overlapping governing councils (strategic, organizations funded their own invest- operating, clinical, etc.) to compensate for the loss of immediate — yet ments, opting not to seek capital from siloed — feedback that it experienced in its linear reporting model. external sources. However, a 2016 survey of hospital executives found that small hospitals, defined as those having fewer than 200 beds, were five times less likely Culture and Organization establish clear definitions and measure- than larger hospitals or systems to have Ensuring that an organization’s culture ments of success that apply throughout sufficient capital to build the infrastruc- and institutional supports align with the organization. Health First no longer ture necessary to succeed in risk-based delivering value is essential for success tracks net operating performance of contracting.  Acknowledging these 62 in VBP models. Hospital executives individual units and, instead, estab- limitations in accessing capital for small surveyed in 2016 reported that cul- lished a single system-wide bottom line and rural hospitals, CMS announced tural alignment on quality was key to with rigorous attention to key perfor- the ACO Investment Model in March, impacting value-based care success, mance indicators. It also migrated away which provides pre-paid shared savings to second only to analytics. 64 Integrating from an annual budgeting processes participating hospitals to support invest- the network of providers and care toward financial forecasting. These ment in ACO operations.63 sites to deliver coordinated services changes stimulated a cultural shift Systems can complement their to patients across the care continuum among Health First’s executive lead- own operations by leveraging partners’ requires particular consideration. The ers from silos independently seeking capabilities. For example, in its new joint organizational transition to become to drive change to an effective and venture insurance company, Aurora pro- a truly integrated delivery system can cooperative team. Banner Health also vides strong risk management proficiency be challenging. maintains common performance metrics and leverages Anthem’s predictive model- Strong leadership and consistent across all areas of institutional leader- ing and service center capabilities, which incentives across management, opera- ship, combining annual short-term enables Aurora to focus on customers and tion, and clinicians along the care measures and longer term measures that enhancing responsiveness to patients. continuum is critical. Leaders must rotate on three-year cycles. “We learned a lot through participation in bundled payments, leading us to re-evaluate our “” from the field post-acute care strategy, increase coordination with critical access hospitals and expand our social service capabilities.” — Billings Clinic 9 HOSPITALS AND HEALTH SYSTEMS PREPARE FOR A VALUE-DRIVEN FUTURE Conclusion Hospitals and health systems — risk spectrum. Depending on the model, incentives. These efforts may include influenced by both policy and market organizations will need skills and infra- changing the organization’s governance forces — are increasingly moving away structure to support provider contracting and reporting structures and ensuring from fee-for-service payments towards and network management, clinical and that clinicians are engaged and repre- value-based arrangements. There is no care management, analytics, and risk/ sented in leadership roles. single model that will work for every financial management. Organizations Hospitals and health systems may organization. Hospital and health need to decide whether to partner, find that their value-based “destination” system leaders should assess the person- purchase or develop these capabilities evolves over time as policy, market and nel, infrastructure and other capabilities in-house. Such decisions depend on organizational forces change. Leaders will required for success in each model when available resources, timing issues, and want to frequently revisit their vision and considering the most appropriate path existing internal and external capabili- objectives to assess which model may best for their organization. ties. Some have found that success in help them achieve organizational goals The breadth of competencies neces- VBP models has required an intense and and understand the tools, information, sary to succeed at VBP increases as a focused effort on evolving the culture resources and delivery network required hospital or health system moves up the of the organization to align with new to succeed in a particular model. POLICY QUESTIONS 1.  ow can federal and state policies drive alignment across H 2.  What financial mechanisms should the federal and state public and private VBP efforts to reduce challenges governments make available to support providers in the associated with managing many different forms of value- transition to VBP? based payment? 3. Are there instances — for example, in sparsely populated  regions — in which VBP is not appropriate? 10 TRENDWATCH Appendix A: Hospital and Health System Interviewed Institution Interviewee Name & Title Position on VBP Spectrum & Relevant Activities Aurora Health Care Richard G. Klein Shared Savings & Losses: Milwaukee Executive Vice President, •  artnering with national health plans to establish Medicare P Enterprise Business Group Advantage ACOs • Created joint-venture insurance company with payer partner Banner Health Chuck Lehn Shared Savings & Losses / Capitation: Phoenix President, Banner Health Network •  artnering with national health plans to establish ACOs across all P market segments Billings Clinic Nicholas Wolter, M.D. Bundles / Shared Savings: Billings, Mont. Former Chief Executive Officer •  iscontinued Medicare bundles and Medicare Advantage health plan D •  ositioning for commercial ACOs P Intermountain Healthcare Gregory P Poulsen . Capitation: Salt Lake City Senior Vice President & Chief Strategy Officer •  ormed health plan that offers commercial, Medicare Advantage, F Medicaid and exchange products Health First Steven P Johnson, PhD . Capitation: Rockledge, Fla. President & Chief Executive Officer •  eveloping a fully integrated delivery system and health plan D Nationwide Children’s Timothy C. Robinson Capitation: Hospital Executive Vice President, Chief Financial/ •  ccepts full risk sub-capitation from Medicaid managed care plans A Columbus, Ohio Administrative Officer as part of a joint-venture physician hospital organization formed with affiliated physicians Saint Luke’s Health System Leonardo J. Lozada, M.D., MBA Bundles: Kansas City, Mo. Chief Physician Executive •  articipates in Medicare bundles arrangements P •  onsidering participation in CPC+ program after Kansas City was C selected as target region ENDNOTES 1.  aiser Family Foundation. Health Research and Educational Trust. (14 September K 11.  enters for Medicare & Medicaid Services (20 September 2017). Innovation Center New C 2016). Employer Health Benefits 2016 Annual Survey. http://files.kff.org/attachment/ Direction RFI. https://innovation.cms.gov/Files/x/newdirection-rfi.pdf. Report-Employer-Health-Benefits-2016-Annual-Survey. 12.  uyer J. Manatt Health. (7 October 2014). An Overview of Delivery System Reform G 2.  ocial Security Administration. (2015). National Average Wage Index. https://www.ssa. S Incentive Payment (DSRIP) Waivers. https://www.manatt.com/insights/white- gov/oact/cola/AWI.html. papers/2014/an-overview-of-delivery-system-reform-incentive-pa. 3.  enters for Medicare & Medicaid Services. (15 February 2017). National Health C 13.  ew York State Department of Health. (February 2017). Delivery System Reform Incentive N Expenditure Projections 2016-2025. https://www.cms.gov/Research-Statistics-Data-and- Payment (DSRIP) Program. https://www.health.ny.gov/health_care/medicaid/redesign/dsrip/. Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/proj2016.pdf. 14.  uhlestein D. (31 March 2015). Growth And Dispersion Of Accountable Care M 4.  enters for Medicare & Medicaid Services. (6 December 2016). National Health C Organizations In 2015. Health Affairs Blog. http://healthaffairs.org/blog/2015/03/31/ Expenditure Data. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics- growth-and-dispersion-of-accountable-care-organizations-in-2015-2/. Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html. 15.  ational Association of Medicaid Directors. (November 2015). State Medicaid N 5.  merican Hospital Association. (December 2016). Underpayment by Medicare and A Operations Survey: Fourth Annual Survey of Medicaid Directors. http://medicaiddirectors. Medicaid Fact Sheet. http://www.aha.org/content/16/medicaremedicaidunderpmt.pdf. org/wp-content/uploads/2015/11/namd_4th_annual_operations_survey_report_-_ november_2_2015.pdf. 6.  enters for Medicare & Medicaid Services. (June 2017). Medicare Enrollment C Dashboard. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends- 16.  reen Mountain Care Board. (29 September 2016). Vermont All-Payer Accountable G and-Reports/Dashboard/Medicare-Enrollment/Enrollment%20Dashboard.html. Care Organization Model Draft Agreement: Explanation and Overview. http://gmcboard. vermont.gov/sites/gmcb/files/files/meetings/presentations/9-29-16-VT-AP-ACO-MODEL- 7.  edicaid.gov. (April 2017). April 2017 Medicaid and CHIP Enrollment Data Highlights. M GMCB-Ena.pdf. https://www.medicaid.gov/medicaid/program-information/medicaid-and-chip-enrollment- data/report-highlights/index.html. 17.  enters for Medicare & Medicaid Services. (26 October 2016). Vermont All-Payer ACO C Model joins growing state-based efforts to deliver better health care, reduce costs. 8.  enters for Medicare & Medicaid Services. (13 February 2017). CMS Innovation Center. C https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2016-Press- https://innovation.cms.gov/about/index.html. releases-items/2016-10-26.html. 9.  enters for Medicare & Medicaid Services. (23 February 2017). Comprehensive Primary C 18.  hanna, G, et al. (2015). McKinsey & Company. Provider-led health plans: The next K Care Plus. https://innovation.cms.gov/initiatives/comprehensive-primary-care-plus. frontier — or the 1990s all over again? http://healthcare.mckinsey.com/sites/default/files/ 10. n addition, HHS aims to tie 90 percent of Medicare fee-for-service payments to value I Provider-led%20health%20plans.pdf. — including both pay-for-performance programs and alternative payment arrangements 19.  odern Healthcare (25 September 2017). Hospitals Find Launching Health M — by the end of 2018. Plans Remains an Expensive Experiment. http://www.modernhealthcare.com/ article/20170923/NEWS/170929947. 11 HOSPITALS AND HEALTH SYSTEMS PREPARE FOR A VALUE-DRIVEN FUTURE 20.  uhlestein D and McClellan C. (21 April 2016). Accountable Care Organizations In M 43.  atalyst for Payment Reform. (2014). National Scorecard on Payment Reform. C 2016: Private And Public-Sector Growth And Dispersion. Health Affairs Blog. http://www.catalyzepaymentreform.org/images/documents/nationalscorecard2014.pdf. http://healthaffairs.org/blog/2016/04/21/accountable-care-organizations-in-2016-private- 44.  atalyst for Payment Reform. (2015). National Scorecard on Medicare Payment Reform. C and-public-sector-growth-and-dispersion/. http://www.catalyzepaymentreform.org/images/FINAL_Medicare_Report_MP_print.pdf. 21.  au J. (26 January 2015). Kaiser Health News. HHS Pledges To Quicken Pace Toward R 45.  enters for Medicare & Medicaid Services. (18 January 2017). New Participants C Quality-Based Medicare Payments. http://khn.org/news/hhs-pledges-to-quicken-pace- Join Several CMS Alternative Payment Models. https://www.cms.gov/Newsroom/ toward-quality-based-medicare-payments/. MediaReleaseDatabase/Press-releases/2017-Press-releases-items/2017-01-18.html. 22.  oo E and Lansky D. (2016). American Health Policy Institute. Medical Network and H 46.  enters for Medicare & Medicaid Services. (January 2017). Fast Facts: All Medicare C Payment Reform Strategies to Increase Health Care Value. Shared Savings Program (Shared Savings Program) Accountable Care Organizations 23.  atalyst for Payment Reform. (2014). National Scorecard on Payment Reform. C (ACOs).https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ http://www.catalyzepaymentreform.org/images/documents/nationalscorecard2014.pdf. sharedsavingsprogram/index.html?redirect=/sharedsavingsprogram. 24. Ibid. 47.  enters for Medicare & Medicaid Services. (23 February 2017). Pioneer ACO Model. C 25.  atalyst for Payment Reform. (2015). National Scorecard on Medicare Payment Reform. C https://innovation.cms.gov/initiatives/Pioneer-aco-model/. http http://www.catalyzepaymentreform.org/images/FINAL_Medicare_Report_MP_print.pdf. 48.  enters for Medicare & Medicaid Services. (April 2015). Fast Facts: All Medicare Shared C 26.  enters for Medicare & Medicaid Services. (January 2017). Fast Facts: All Medicare C Savings Program (Shared Savings Program) ACOs and Pioneer ACOs. Shared Savings Program (Shared Savings Program) Accountable Care Organizations https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/ (ACOs). https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ Downloads/PioneersMSSPCombinedFastFacts.pdf. sharedsavingsprogram/index.html?redirect=/sharedsavingsprogram. 49.  enters for Medicare & Medicaid Services. (25 August 2016). Medicare Accountable C 27.  enters for Medicare & Medicaid Services. (18 January 2017). CMS Welcomes C Care Organizations 2015 Performance Year Quality and Financial Results. New and Renewing Medicare Shared Savings Program ACOs. https://www.cms.gov/ https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets- Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/2017- items/2016-08-25.html. MSSP-Fact-Sheet.pdf. 50.  enters for Medicare & Medicaid Services. (June 2017). Next Generation ACO C 28.  enters for Medicare & Medicaid Services. (April 2017). Medicare Enrollment C Model. https://data.cms.gov/Special-Programs-Initiatives-Speed-Adoption-of-Bes/Next- Dashboard. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends- Generation-ACO-Models/tn2j-iqcf. and-Reports/Dashboard/Medicare-Enrollment/Enrollment%20Dashboard.html. 51.  enters for Medicare & Medicaid Services. (6 February 2017). Comprehensive ERSD C 29.  iudice L, et al. (2016). Deloitte. Unlocking the potential of value-based care in G Model. https://innovation.cms.gov/initiatives/comprehensive-esrd-care/. Medicare Advantage. http://www2.deloitte.com/us/en/pages/life-sciences-and-health- 52.  enters for Medicare & Medicaid Services. (2016). Comprehensive ERSD Model Data C care/articles/value-based-care-in-medicare-advantage.html. Set. https://data.cms.gov/dataset/Comprehensive-ESRD-Care-Model/3gz6-gn7x. 30. Ibid. 53.  iudice L, et al. (2016). Deloitte. Unlocking the potential of value-based care in G 31.  ational Association of Medicaid Directors. (November 2015). State Medicaid N Medicare Advantage. http://www2.deloitte.com/us/en/pages/life-sciences-and-health- Operations Survey: Fourth Annual Survey of Medicaid Directors. http://medicaiddirectors. care/articles/value-based-care-in-medicare-advantage.html. org/wp-content/uploads/2015/11/namd_4th_annual_operations_survey_report_-_ 54.  atalyst for Payment Reform. (2014). National Scorecard on Payment Reform. C november_2_2015.pdf. http://www.catalyzepaymentreform.org/images/documents/nationalscorecard2014.pdf. 32.  atalyst for Payment Reform. (2014). National Scorecard on Payment Reform. C 55.  iudice L, et al. (2016). Deloitte. Unlocking the potential of value-based care in G http://www.catalyzepaymentreform.org/images/documents/nationalscorecard2014.pdf. Medicare Advantage. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life- 33.  atalyst for Payment Reform. (2015). National Scorecard on Medicare Payment Reform. C sciences-health-care/us-dchs-medicare-advantage-vbc-final.pdf. http://www.catalyzepaymentreform.org/images/FINAL_Medicare_Report_MP_print.pdf. 56.  enters for Medicare & Medicaid Services. (May 2016). Next Generation ACO Model: C 34.  enters for Medicare & Medicaid Services. (September 2015). Computation of the C Frequently Asked Questions. https://innovation.cms.gov/Files/x/nextgenacofaq.pdf. 2016 Value Modifier. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ 57.  ervey D and Muhlestein D. (April 2016). Leavitt Partners. Ten Early Takeaways from H PhysicianFeedbackProgram/Downloads/2016-VM-Fact-Sheet.pdf. the Medicare Shared Savings ACO Program. http://leavittpartners.com/wp-content/ 35.  enters for Medicare & Medicaid Services. (13 February 2017). Oncology Care Model. C uploads/2016/04/MSSP_ACOs_takeaways_whitepaper_final.pdf. https://innovation.cms.gov/initiatives/oncology-care/. 58.  opeland B, et al. (2015). Deloitte Health Solutions. Provider-sponsored health plans: C 36.  ational Association of Medicaid Directors. (November 2015). State Medicaid N Positioned to win the health insurance market shift. https://www2.deloitte.com/content/ Operations Survey: Fourth Annual Survey of Medicaid Directors. http://medicaiddirectors. dam/Deloitte/us/Documents/life-sciences-health-care/us-dchs-provider-sponsored-plans.pdf. org/wp-content/uploads/2015/11/namd_4th_annual_operations_survey_report_-_ 59.  pencer Stuart. Health Research and Educational Trust. (April 2014). Building S november_2_2015.pdf. a Leadership Team for the Health Care Organization of the Future. https://www. 37.  atalyst for Payment Reform. (2014). National Scorecard on Payment Reform. C spencerstuart.com/~/media/pdf%20files/research%20and%20insight%20pdfs/ http://www.catalyzepaymentreform.org/images/documents/nationalscorecard2014.pdf. healthcareleadershipteamaha-13aug2014.pdf. 38.  dvisory Board. (2013). Commercial Bundled Payment Tracker. https://www.advisory. A 60.  ational Association of ACOs. (21 January 2014). National ACO Survey: Conducted N com/Research/Health-Care-Advisory-Board/Resources/2013/Commercial-Bundled- November 2013. http://www.naacos.com/assets/docs/pdf/acosurveyfinal012114.pdf Payment-Tracker. 61.  opeland B, et al. (2015). Deloitte Health Solutions. Provider-sponsored health plans: C 39.  enters for Medicare & Medicaid Services. (14 July 2017). Bundled Payments for Care C Positioned to win the health insurance market shift. https://www2.deloitte.com/content/ Improvement (BPCI) Initiative: General Information. https://innovation.cms.gov/initiatives/ dam/Deloitte/us/Documents/life-sciences-health-care/us-dchs-provider-sponsored-plans.pdf. bundled-payments/. 62.  ealth Catalyst. (2016). Hospitals and Value-based Care. https://www.healthcatalyst. H 40.  enters for Medicare & Medicaid Services. (23 February 2017). Comprehensive Care for C com/wp-content/uploads/2016/06/Risk-Based-Contracting.pdf. Joint Replacement Model. https://innovation.cms.gov/initiatives/CJR. 63.  enters for Medicare & Medicaid Services (24 March 2017). ACO Investment Model. C 41.  iudice L, et al. (2016). Deloitte. Unlocking the potential of value-based care in G https://innovation.cms.gov/initiatives/ACO-Investment-Model/. Medicare Advantage. http://www2.deloitte.com/us/en/pages/life-sciences-and-health- 64. Ibid. care/articles/value-based-care-in-medicare-advantage.html. 42.  ational Association of Medicaid Directors. (November 2015). State Medicaid Operations N Survey: Fourth Annual Survey of Medicaid Directors. http://medicaiddirectors.org/wp-content/uploads/2015/11/namd_4th_annual_operations_ survey_report_-_november_2_2015.pdf. TrendWatch, produced by the American Hospital American Hospital Association Manatt Health Association, highlights important trends in the 800 Tenth Street, NW 7 Times Square hospital and health care field. Manatt Health supplied Two CityCenter, Suite 400 New York, NY 10036 research and analytic support for this issue. Washington, DC 20001-4956 212.790.4500 TrendWatch — December 2017 202.638.1100 www.manatt.com Copyright © 2017 by the American Hospital Association. www.aha.org All Rights Reserved