Why You Need to Understand Value-Based Reimbursement and How to Survive It

© 2014 Health Catalyst
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www.healthcatalyst.comProprietary. Feel free to share but we would appreciate a Health Catalyst citation.
Why You Need to Understand Value-Based
Reimbursement and How to Survive It
By Bobbi Brown

Changing Reimbursement Models
There is a clear shift in the
healthcare industry to move from
the old fee-for-care model to
value-based reimbursement.
This payment methodology is a key
feature of accountable care
organizations.
Fee for
Care
Value
Based
Care

Hospital Medicare Margins
Consider this downward trend in Medicare reimbursement since the
year 2000. Overall margins have been in the red since 2003.
With Medicare representing 30 to 40 percent of business this
negative trend makes like difficult for the industry.
The gray line shows the downward
trend of the overall Medicare margin.

Making Value-Based Work
To make value-based reimbursements
work you must be a high-performing
hospital, successful with risk-adjusted
mortality and readmission rates, while
maintaining a low cost structure.
Focusing on these four topics will
drive success within value-based
reimbursement programs.
Physician payment structure
Bundled Payments
Hospital Inpatient Prospective Payment Systems
Commercial Payers

Physician Payment Structure
The value-based reimbursement is
moving to the physician community.
A Medical Group Management
Association survey showed that primary
care physicians had approximately 6
percent of their compensation tied to
quality metrics in 2013.
This amount is double the 3 percent
from 2012.
CMS issued proposed 2015 regulations
that include the value modifier
beginning in calendar year 2017.

Physician Payment Structure
This regulation will require physicians to
report and meet quality cost standards.
There is potential for a reporting penalty
and a cost/quality adjustment in 2017,
possibly with a significant impact for
those physicians who don’t meet
satisfactory quality reporting
requirements for the Physician Quality
Reporting System (PQRS).
These providers could end up with a
negative 4.0 percent penalty.

Bundled Payments
Medicare wants higher quality care
and more coordinated care across
various providers at a lower cost. To
begin to achieve these goals, CMS
opened a new submission period in
January of 2014 that closed in April.
During this timeframe, organizations
completed bundled payment
applications for an entire episode of
care that included financial and
performance accountability.

Bundled Payments
There are four bundled payment
models hospitals and health systems
have the option of choosing from, but
models 2 and 3 are the most widely
used, so our focus will be there.
Providers start in Phase 1, the
preparation phase, which includes
receiving data from CMS.
Providers can move to Phase 2, the
risk bearing phase, where participants
are chosen by CMS. CMS has
announced 4,122 providers will be
added to Phase 1. They will join the
2,412 providers already participating.

Bundled Payments
Model 2: Retrospective Acute Care Hospital Stay plus Post-Acute Care
In Model 2, the episode of care
includes the inpatient stay in the
acute care hospital and all related
services during the episode.
There are 48 clinical episodes
with an end of either 30, 60, or 90
days after hospital discharge.
There are a total 2,150
participants in this model.

Bundled Payments
Model 3: Retrospective Post-Acute Care Only
For Model 3, the episode of care will
be triggered by an acute care
hospital stay and begins at initiation
of post-acute care services.
The post-acute care services
included in the episode must begin
within 30 days of discharge from the
inpatient stay and will end either 30,
60, or 90 days.
Participants can select up to 48
different clinical episodes.
There are a total of 4,617
participants in this model.

Bundled Payments
Organizations need to be able to
replicate the bundles by combining
data not typically viewed as one
episode.
For example, if an entity bid on major
joint upper extremity, data is needed
to show the payments and potential
costs for a hospital stay, outpatient
stay, the physician component, and
related post-acute care.
Organizations should embrace the
value-based reimbursement path as
they work to increase care and
decrease costs.

Inpatient Prospective Payment
Systems Regulations (IPPS)
When CMS published the regulations,
they included a fact sheet titled
“CMS to Improve Quality of Care
during Hospital Inpatient Stay.”
The title summarizes CMS’s
philosophy on what needs to change
for patients during their hospital stay:
To achieve these goals CMS updated
these four programs:
Hospital-Acquired
Condition Reduction
Hospital Value-Based
Purchasing
Hospital
Readmissions
Reduction
Hospital Inpatient
Quality Report

Under the Hospital-Acquired
Condition (HAC) Reduction
Program, hospitals with the
highest rate of HACs —
specifically, those in the top 25
percent — will receive a 1
percent reduction in Medicare
inpatient payments.
CMS estimates 753 hospitals will
be subject to the one percent
reduction and overall payments
will decrease by $330 million or
0.3 percent.
The Hospital-Acquired Condition Reduction Program

Under the Hospital Value-Based
Purchasing (HVBP) program, the
portion of Medicare payments
available to fund the value-based
incentive payments will increase to
1.5 percent of the base operating
diagnosis-related group (DRG)
payment.
In the proposed 2015 plan, 1,253
hospitals will receive a bonus
(average of 0.3 percent) and 1,475
hospitals will receive a penalty.
The HVBP program includes
additional outcome measures and
an efficiency measure.
The Hospital Value-Based Purchasing Program

The performance score will be
calculated with these weights for
the top four domains:
The Hospital Value-Based Purchasing Program
Clinical process: 20 percent
Patient experience: 30 percent
Outcomes: 30 percent
Efficiency: 20 percent
There will also be two new outcomes
measures for 2015: AHRQ Patient
Safety Indicators (PSI) composite
and central line-associated blood
steam infection (CLABSI).

CMS added two new conditions
to their Hospital Readmissions
Reduction Program (HRRP)
reporting measures:
Chronic obstructive pulmonary
disease (COPD) and total hip
arthroplasty/total knee
arthroplasty (THA/TKA).
There is now a maximum penalty
for readmissions of 3 percent, up
from 2 percent.
As a result of the program
Medicare readmissions declined
by a total of 150,000.
Hospital Readmissions Reduction Program

For 2015, reporting requirements
are aligned for the IQR reporting
and the Electronic Health Record
(EHR) Incentive Program.
Hospitals not submitting quality
data are subject to a penalty of
one-fourth reduction to the
market basket update.
The overall IPPS regulations do
include some payment increases,
but the overall total dollars are
lower by -0.6 percent due to the
DSH (disproportionate share) and
the penalty programs.
Hospital Inpatient Quality Report

Commercial Payers
The shift to value-based
reimbursement is impacting
commercial payers as insurers
move to value-based concepts.
In fact, 90 percent of payers and
81 percent of hospitals have
already implemented a mix of
value-based reimbursement and
fee-for-service.
Over the next five years, payers
are projecting fee-for-service will
decrease from 56 percent to 32
percent to encourage the desired
quality outcomes.

Commercial Payers
BlueCross-BlueShield estimates
about 20 percent of all claims are
based on value-based care.
Initiatives include changing
payment incentives, partnering on
clinical information sharing, pricing
transparency, and engaging
patients.
By reducing admissions and
readmissions, emergency room
visits, high-cost interventions,
proactively enabling access to
preventive care, and controlling of
chronic conditions, BC/BS
insurers have saved $500 million.

3 Ways to Survive the Shift to
Value-Based Reimbursement
Data cannot be locked and
guarded; it needs to be available
to those who will use it to improve
care and lower costs.
An analytics system that can track
performance and then measure
improvements based on targeted
quality interventions is essential.
In addition to the analytics system,
it’s also important to have an
electronic data warehouse (EDW).
The EDW will help you identify
where variation exists along with
the causes.
1. Provide access to rich data.

To achieve our goals we must
share the value-based message
and its implications. We will have
to engage our peers and others
outside the organization.
Healthcare costs are now
approaching one-fifth of the U.S.
economy. Without reducing waste
we will be unable to prove we
have better health or quality.
We must maximize our tools to
build evidence-based content for
all clinicians with a structure that
facilitates learning.
2. Share knowledge and learn from each other.

What are the strategies for your
organization for the next year and
the next 5 years?
You may need to do an
assessment to determine your
current state, your deficiencies,
and a plan to overcome the
deficiencies.
How does your organization align
with the value-based future?
Will you be able to deploy your
strategies?
3. Develop strategies by doing assessments.

Value-Based Reimbursement –
Here to Stay
To survive the value-based
reimbursement model, providers
must be able to access their data
to mine improvements.
Most current healthcare data
models can’t support the need to
analyze data and pull reports from
the many different source systems.
Instead, health systems need
something different—a systematic
approach using the right
information and processes at a
system level to drive improvement.

More about this topic
How to Prepare for Value-Based Reimbursement in 4 Steps
Bobbi Brown, VP of Financial Engagement
The Key to Transitioning from Fee-for-Service to Value-Based Reimbursement
Bobbi Brown, VP of Financial Engagement and Jared Crapo, VP of Sales
Value-Based Reimbursement: Start with These Patients
Dale Sanders, Senior Vice President, Strategy
Surviving Value-Based Reimbursement in Healthcare (webinar)
Bobbi Brown, VP of Financial Engagement and Jane Felmlee, Financial Consultant
Surviving Value-Based Reimbursement: Connecting Clinical and Financial Data for the
Best ROI (executive report)
Bobbi Brown, VP of Financial Engagement

For more information:

Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Bobbi Brown is Vice President of Financial Engagement for Health
Catalyst, a data warehousing and analytics company based in Salt Lake
City. Ms. Brown started her healthcare career at Intermountain Healthcare
supporting clinical integration efforts before moving to Sutter Health and,
later, Kaiser Permanente, where she served as Vice President of Financial
Planning and Performance. Ms. Brown holds an MBA from the Thunderbird School of
Global Management as well as a BA in Spanish and Education from Misericordia
University. She regularly writes and teaches on finance-related healthcare topics.

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