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The Latest and Greatest in
Pay for Performance and ACOs
May 15, 2014
Partner at VMG Health. VMG Health solely provides transaction advisory and valuation services in
the healthcare industry.• Since 1995, offices in Dallas and Nashville.
• 90 professionals, over 1,200 valuation per year.
• Third party role: business valuations, real estate, fixed assets, fair value
Leads Professional Service Agreements Division. Previously in KPMG’s litigation department & finance professor, University
of North Texas. Published and presented over fifty times related to physician compensation
and fair market value. • April 2014 HFM Magazine “Evaluating The Fair Market Value of Pay for Performance”
• Finance Committee Attendance on major P4P initiatives
Jen Johnson, CFA
P4P Background
4
Affordable Care Act
Physicians and hospitals need to collaborate more than ever
Security – healthcare reform, changing reimbursement
Increased compensation: post employment or contracted arrangement
Better hospital-based reimbursement
Replace potential loss of ancillary earnings
Investment requirements for information technology
Participate in risk-based contracting, ACOs, quality initiatives
Why the Growth in Integration & P4P?
Hospitals critical success factors – shifting from production towards quality of clinical performance and efficiencies
1. Payments for Reporting (ie: PQRI)
2. Pay for Process
3. Pay for Outcomes
Standard process leading up to P4P payments
1. Recognized organization identifies quality metrics or average costs
2. Reporting measures is required, or costs are tracked
3. Benchmarking data is gathered
4. Payments for outcomes or savings is observed in market FMV can now be established
Common factors included in P4P arrangements Lowering costs without sacrificing quality
Quality outcomes payments– individual, services line level, entire population
Use of technology
Evolution of P4P payments
In late 2003, CMS and Premier Inc. launched the Hospital Quality Incentive Demonstration (HQID) for over 250 hospitals
Average composite quality score (CQS), an aggregate of all process and outcomes measures within each clinical area, improved project-wide by 18.6% over the project's six years (October 2003 through September 2009)
In 2008, the Robert Wood Johnson Foundation and California HealthCare
Foundation reported results of a national program that tested the use of
financial incentives to improve the quality of health care. Tested seven projects
across the nation that adjusted compensation based on performance scores –
hospitals and physicians. Notable findings:
Financial incentives motivate change
Alignment with physicians is a critical activity for quality outcomes
Public reporting is a strong catalyst for providers to improve care
History and Results of P4P
SAVINGS: 13 Gainsharing Opinions (2001-2008)
QUALITY: February 2012 – Committee on Ways and Means – 1 example
UnitedHealth Group discusses results of its Premium Designation Program (PD)
Results show over 50% decrease in some complication rates
SAVINGS & QUALITY
2013 Results 114 ACOs in the program - 54 of the ACOs saved money - of $126 million
2013 Greater New York Hospital Association - 100 hospitals desired to work with
participating physicians to account for the use of hospital resources. Physicians that
met hospital quality targets while lowering costs could be compensated a portion of
the savings.
There is a P4P market, but how much can be paid to physicians? It depends.
History and Results of P4P - examples
Third party payors
UnitedHealth Group – largest US health insurer by sales
2013 paid 21 different specialties based on quality
WellPoint – largest US health insurer by membership
Will increase primary care physician pay by 10% - coordinated care
Additional cost savings bonus of 20% to 30% of savings achieved
BCBS and Aetna
Growing P4P programs
Including payments for both cost savings and quality
Governmental Programs growing
State and Federal
MSSP, ACOs and bundled payments
Market Comparables for P4P Payments
ACA Provisions & P4P
CMS to play major role in developing P4P programs
“VBP” – quality and cost goals simultaneously Section 3001: Hospital Value Based Purchasing 2012
• Quality Outcomes payments• Efficiency measures in 2014• Must be reporting on Hospital Compare website for
at least 1 year• DRG reductions nationwide will fund• UP to 2% can be earned
Section 3006: Value Based Purchasing Skilled Nursing Facilities and Home Health
Section 3007: Value Based Payment Modifier under the Physician Fee Schedule
• Payment modifier for cost and quality• 2015 for larger groups• 2017 for all• Size of incentive not specified
ACA provisions continued…
Section 3008: Payment reduction for Hospital Acquired Conditions
Section 3021: Establishment of Center for Medicare and Medicaid Innovation within CMS, 3 of 18 models are P4P
• Appropriate criteria for diagnostic imaging orders• Payments for using patient decision support tools• Payments for using evidence based guidelines for
cancer care
Section 3022: Medicare Shared Savings Program• Promotes ACO development• Cost savings and quality must be met
Governmental programs – great roadmap for how much is acceptable to distribute to physicians. Consider 3rd party payors as well when defining the “P4P market”.
2014 RAND Report: Measuring Success in Health Care - Value Based Purchasing programs U.S. Department of Health and Human Services requested
study 129 VBP programs (91 P4P, 27 ACOs, 11 bundled
payments) Measures: clinical quality, cost, outcomes, experience Recommendations:
Set measurable goals, use national data Case-mix adjust outcomes measures, use broad set of
measures, identify overtreatment measures, monitor Evolve from narrow process measures to broader set
emphasizing outcomes Sponsor engage providers in design/implementation VBP sponsors should collect a common set of factors
to find best working program Need more information:
• HHS should develop a structured research agenda to address gaps in VBP knowledge base
• CMS should study private-sector programs, program design information not available
• Study changes and investments, experiences and challenges
P4P Arrangements
13
Physician Service Agreements – P4P
ACOs & IDNs
Bundled Payment models
Medical Directorships
Employment
Committee Meetings
Call Coverage
Co-management (fixed + variable)
PSA Model
We will be stuck between FFS and P4P for a while
May be a result of joint ventures, acquisitions, employment or independent contractor arrangements
Less risk for physicians
Traditional deals with P4P component
Clinical (% of base add-on)
Medical directorships (hourly rate differential)
Call coverage (portion at risk for outcomes)
Co-management of service line
More risk for physicians
ACO type models
Upside based on actual savings -> possibly downside
• ->Quality initiatives provide gate or extra upside
->Share gains/losses
Bundled Payments
Physician Risk & Arrangement Types with P4P
Hospital and physicians enter into an agreement where physicians are
jointly responsible with hospital for managing a defined service line
Various arrangement types exist in the market
Joint Ventures
Contractual arrangements
Payments contained in the agreement
Will vary based on services outlined
Should be linked to actual services and/or outcomes
Co-Management - The Basics
Fixed Fee + Variable Fee = Co-Management Fee Structure
Physician service related payments are justified by need for clinical expertise
Time dedicated to meetings designed to improve the overall quality of care for a
specific service line.
May also include
Medical Directorship
Non-physician services
Billing
Management/administration
Call coverage
The duties must not overlap with hospital staff
Probably not a typical management fee
Co-Management - Fixed Fee Overview
Quality outcomes drive payments - create payment tiers for incentives based on
various outcomes
Improvement and superior outcomes may warrant incentive payment
Obtain industry-recognized benchmark data for the quality metrics, (average or
median and top or 90th percentile)
Understand historical performance and who is responsible for developing and
implementing the strategy
Cost savings metrics
Administrative oversight to protect quality is essential
Measurement must be tied to physician’s input
Co-Management - Variable Fee Overview
The following payment allocations may be included within a clinical integration model
Bundled payment splits – understand who is providing what service
Quality and Shared Savings splits among ACO entity and hospital and physicians
FMV process - balanced approach for overall model should be assessed
Third party funded or from hospital
Infrastructure cost recovery
Buy-in or participation Fee
Time spent/effort – hourly rate paid
Split of savings – existence of minimum savings threshold
Split of quality - benchmarks utilized
Upside and downside risk
Care coordinator payments – ie: Nurse care manager
PMPM fee for management – consider acuity and NCQA
Clinical Integration payments - ACO/IDN models
FMV Guidance and Regulatory Tips
Hospital is at risk for relying on unsupportable valuations
Valuation methodology is as important as total compensation
No opinion shopping, carefully choose your valuation firm
Logic Test – Tuomey examples:
Do not pay fulltime benefits/malpractice premiums for part-time services
Physicians paid above the 75th percentile of market data should demonstrate
productivity consistent with other physicians in this percentile
Understand arrangements where the provider is not making money
Compensation for administrative duties should be based on significant duties
P4P – watch out for low hanging fruit and rebase annually
Case Law Growth and Take-Aways
1. Agreement terms must be understood and are sometimes unclear at valuation stage,
define:
What services will be provided?
How will parties be compensated?
2. Commercially Reasonable – gaining importance
Facility needs – check for overlap of services (numerous medical directors needed)
Operational assessment (quality metrics relevant for patient population)
3. There are no published standards for physician compensation valuations, P4P new
Appraisal firm should understand
Healthcare regulations
Valuation principles
Fair Market Value
Data considerations – competing hospital, extra caution
Valuation Starting Point
Based on the anti kickback statute, and other healthcare regulations and guidelines, any
transaction between hospitals and physicians must be at Fair Market Value.
IRS definition - “the amount at which property would change hands between a willing seller
and a willing buyer when the former is not under any compulsion to buy and the latter is not
under any compulsion to sell and when both have reasonable knowledge of the relevant
facts.”
Provides a conclusion which should not reflect consideration for value or volume of referrals.
Offer equal P4P opportunities to all providers
Do not tie P4P compensation to expected referrals
P4P comparables
Stick to regulatory guidance when it comes to paying for quality or shared savings
Governmental programs and third party payors are good market comparables
Fair Market Value Definition
Quality measures should be clearly and separately identified
Quality measures should utilize an objective methodology verifiable by credible medical evidence
Quality measures should be reasonably related to the hospital’s practice and consider patient population
Do not consider the value or volume of referrals. Consider an incentive program offered to all applicable providers
Incentive payments should consider the hospital’s historical baseline data and target levels developed by national benchmarks
Thresholds should exist where no payment will accrue and should be updated annually based on new baseline data.
Hospitals should monitor the incentive program to protect against the increase in patient fees and the reduction in patient care
Incentive payments should be set at FMV
Regulatory Guidance - Quality
Gainsharing Guidance – Favorable OIG Opinions Each member of the physician group should have medical staff privileges The arrangement should be administered by a program administrator, whose
compensation was not tied in any way to the incentive compensation. A program administrator should identify cost-savings metrics after reviewing historical
practices and understanding its medical appropriateness. The savings targets should be “re-based” at the end of each year in multi-year
arrangements. The hospital should calculate the cost savings separately for each group and for
each cost savings recommendation. The arrangement should include objective measures to monitor quality (i.e., CMS
Specification Manual for National Hospital Quality Measures). Incentive payments should be set at FMV
------------------------------------------------------------------------------------------------------- More complex factors should be considered for allocating savings associated with patient
population and bundled payments Responsibility for outcomes and savings Risk adjustment for patient population Responsibility for infrastructure costs (if applicable)
Caps are prudent and seen in demonstration projects
Regulatory Guidance – Shared Savings
Evolutionary Process, “Seen one, seen one”
Reported Data for making P4P decisions – provider and payor concerns
Inaccurate
Inconsistent, outlier treatment
Expensive/timely to aggregate and report
IT Infrastructure – other issues
Sharing and access
New software options
Connectivity of information among integrated parties
Common Challenges with P4P
Allocation of payment methodologies
Primary care versus specialists
Primary care – PMPM and allocation of shared savings
Specialists - service line co-management and bundled payments
Year 1 versus Year 2+
Care coordinators – needed?
Risk taking
Choosing Metrics - inconsistent among P4P programs
Common Topics in the Boardroom with P4P
Modest set of metrics – perhaps consistent with those found in both commercial ACOs and Medicare ACOs
Start small
Have a written agreement
Update and rebase metrics annually
Understand who is driving cost savings and quality
Have safeguards which prevent cherry picking and lemon dropping
Identify flow of funds allocation early on in process
Compliant P4P payment formula = Good Data + Logic + FMV guidance
P4P Program Starting Tips