Physicians and Hospitals Law Institute
New Orleans, LA
Presenters:
Dinetia M. Newman, Esq. – Bradley Arant Boult Cummings, LLP
David A. Williams CPA, MPH, FHFMA – Horne LLP
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DIAGRAM OF AN UNSUSTAINABLE MODEL
Smith, Charles Hugh “Is Fee-for-Service What Ails America's Health Care System”, Daily Finance (January 18, 2010).
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FOUR YEARS INTO ACA IMPLEMENTATION
Book, Robert A., and Ramlet, Michael, “What is the Regional Impact of the Medicare Fee-For -Service and Medicare
Advantage Payment Reductions?”
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BUT, ALSO PROVISIONS IN ACA…
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THE REDUCTION SAGA CONTINUES…
Headlines
“Obamacare and Medicare Provider Cuts: Jeopardizing Seniors’ Access”
Robert E. Moffit, Ph.D., The Heritage Foundations, January 19, 2011
“Hospitals, Providers to Lose $11.1B From Medicare Sequestration Cuts”
Bob Herman, Becker’s Hospital Review, September 14, 2012
“Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS)
Program – “Sequestration” The CMS Medicare FFS Provider e-News,
March 8, 2013
“Will Obamacare Affect Medicare? Myths and Facts”
Andrea Adelman, August 19, 2013
“President Obama Signs 2014 Budget Bill: What It Means
for Hospitals” Bob Herman, Becker’s Hospital Review ,
December 27, 2013
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Key Current Health System
Medicare Reimbursement Drivers
Mandated by ACA
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Precursor to Value-Based Purchasing Program Hospital Inpatient Quality Reporting
Program
◦ MMA 2003 – 0.4% payment reduction for failure to report
◦ Increased by Deficit Reduction Act of 2005 to 2.0%
◦ FY 2014 – reporting coordinated with EHR Incentive Program
submission guidelines
◦ Quality measures used in other Medicare payment reduction
programs
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MEDICARE DRG REDUCTION FACTORS
*Reprinted with permission of Andy Ruskin from presentation by Jolee Bollinger, Jennifer Faerberg, Andy Ruskin,
“HACs, Readmissions and VBP: Hospital Strategies for Turning Lemons into Lemonade”, Institute of Medicare and
Medicaid Payment Issues, March 28-30, 2012.
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Effective October 1, 2012 (FY 2013)
Subsection (d) hospitals paid for meeting certain quality
performance measures during “performance period”
VBP pool payments based on reduction per hospital
discharge beginning FY 2013
◦ FY 2013 – 1% increasing ¼ % annually per FFY to 2% on or after
October 1, 2016
◦ FY 2014 VBP pool - $1.1 billion
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Incentive payments distributed in budget neutral
manner
Low performing hospitals penalized despite meeting
minimum quality threshold
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VBP Requirements
◦ Minimum number of qualifying cases:
 FY 2013 – 10 cases per 4 Clinical Processes of Care Measures, 100
HCAHPS surveyed
 FY 2014 – 10 additional cases for two outcomes measures
◦ Excluded hospitals
 Those with insufficient numbers of qualifying cases
 Those having deficiencies and posing immediate jeopardy to health
and safety of patients
◦ Quality measures
 FY 2013 – Two domains: Clinical Process of Care measures and Patient
Satisfaction measure
 FY 2014 – Third domain – patient outcomes
 FY 2015 – Efficiency domain added
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Baseline and Performance Periods
◦ FY 2013: Baseline 7/1/09 to 3/31/10 and Performance 7/1/11 to
3/31/12
◦ FY 2014:
 Clinical Process and Care and HCAHPS – Baseline 7/1/09 to 6/30/10 and
Performance 7/1/11 to 6/30/12
 Outcomes – Baseline 4/1/10 to 12/31/10 and Performance 4/1/12 t0
12/31/12
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Scoring -
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Domains
“Achievement” and “Improvement Score”
◦ Achievement – if performance falls between “threshold” and “benchmark”
during baseline period
◦ Improvement – if performance falls between own performance during baseline
period and threshold and benchmark (same as in calculating achievement
score)
◦ FY2013 – Clinical Process of Care – 70% and HCAHPS – 30%
◦ FY 2014 – Outcomes 25%, Clinical Process of Care 45% and HCAHPS
30%
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FY 2013 Results
◦ 13,000 hospitals anticipated to break even
◦ 778 hospitals will see overall decrease in Medicare payments
◦ 630 hospitals will receive true bonus above reduction “payments” to VBP
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FY 2014 IPPS Final Rule
◦ Adopts FY 2016 quality measures, baseline/performance periods,
weighting, scoring methodology
◦ Adopts FYs 2017-2019 baseline/performance periods
◦ Adopts FY 2017 disaster/extraordinary circumstances exceptions process
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◦ ACA § 3008-Effective FY 2014 and subsequent years
◦ Definition of a HAC
“A condition that an individual acquires during a
hospital stay the Secretary designates to be subject to
the inpatient PPS payment restriction (nonpayment for
secondary diagnosis that results in a higher DRG), as
well as other HACs specified by the Secretary.”
◦ Reduction: 1% of Medicare payments for All Hospital
Discharges in top ¼ of hospitals as compared to national
HAC rates
 Only HACs subject to IPPS restrictions and “other HACs
specified by the Secretary”
 Hospitals in top quartile confidentially alerted prior to FY
2015
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◦ Secretary determines applicable performance period and
must apply appropriate risk adjustment methodology
◦ Public reporting and posting on Hospital Compare
◦ Current HAC measures adopted in Hospital Inpatient
Quality Reporting program
◦ HAC rates calculated on CMS billing data for Medicare
FFS only
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ACA § 3025 – Effective October 1, 2012 (FY
2013)
Reduction in all base DRG payment amounts
for hospitals with excess readmissions
◦ Excludes IME, DSH, outlier payments
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Readmission means admission to subsection
(d) hospital within 30 days of discharge from
same or another subsection (d) hospital
Reductions based on ratio of actual to
expected risk–adjusted readmissions
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Applicable conditions:
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25 cases minimum per measure required
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Penalties:
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Exclusions:
◦ FY 2013 – Heart attack, heart failure and pneumonia
◦ FY 2015 – 4 additional conditions added – COPD, CABG, PTCA,
Other Vascular
◦ Evaluated against applicable measure in three years’ discharge
data
◦ FY 2013: up to 1% of base Medicare payment
◦ FY 2014: up to 2% of base Medicare payment
◦ FY 2015: up to 3% of base Medicare payment
◦ Planned readmissions
◦ Those unrelated to the original admission or a transfer to another
hospital
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ACA § 3133 - beginning FY 2014
Payment Amounts (reductions):
◦ 25% of the amount that otherwise would have been paid under
existing statutory formula
◦ 75% of remaining amount that otherwise would have been paid
 Additional payment after reductions for changes in % of uninsured
individuals (Uncompensated Care Pool payment)
◦ FY 2014 Uncompensated Care Pool:
 $9.033 billion
◦ Anticipated trend that large regional hospitals’ DSH funds will be
sizably reduced with reverse true for smaller counterparts
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Annual state allotments to fund Medicaid DSH reduced – effective
FY 2014 - FY 2020 - DSH Health Reform Methodology (DHRM)
DHRM methodology:
◦ Imposes smaller % reduction on low DSH states
◦ Imposes larger % reduction on states with lowest percentages of uninsured
individuals
◦ Imposes larger % reduction on states not targeting DSH payments to
hospitals with high Medicaid volume
◦ Imposes larger % reductions on states not targeting hospitals with high
levels of uncompensated care
◦ Takes into account extent that DSH allotment was included in states
budget neutrality calculation for expanding Medicaid prior to July 31,
2009
Estimated savings:$18.1 billion from FY 2014 to FY 2020
Medicaid DSH reductions intended to offset cost of Medicaid
expansion
* Bipartisan Budget Act of 2013 delayed Medicaid DSH payment
reductions to FY 2016 (October 1, 2015).
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ACA § 2702 incorporates Medicare HAC provisions into
Medicaid payment
Regulations dated June 6, 2011 define HAC similarly to
Medicare
States have flexibility to make payment adjustments but
must seek CMS approval
HACs must be reported and contain minimum set of
conditions
Regulations effective July 1, 2011 but compliance
delayed until July 1, 2012
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32*
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166
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*29 were from the State of New Jersey
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Robert Mechanic & Stuart Altman (Health Affairs -2009)
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Bundled Payments
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Arkansas Payment Improvement Initiative
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Arkansas Payment Improvement Initiative
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Designed to meet key objectives historically
◦ Health Care Needs, Economic Driver, Access
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Designed to meet key objectives of the future
◦ Excellence in an efficient and effective manner
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Status quo is not a strategy
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Reducing waste in health care is key to
affordable, high quality health care.
Nearly half of consumed resources
represent potentially recoverable waste in
hospitals (44%)
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Inefficiency waste is the use of resources for
no (or little) benefit, or a failure to use
resources on clearly beneficial activities.
◦ Technical –using more inputs than required
◦ Economic –using mix of inputs other than cost
minimizing mix
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Allocative (care design waste) –producing with
the wrong bundle of goods and services
◦ Quality waste is when a step in a clinical process fails,
some proportion of those process failures lead to
outcome failures (rework or scrap)
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“Clinicians and hospitals working together to
improve quality and reduce costs.”
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Shared vision and culture
Key process analysis
Integrated MIS (data)
Integrated clinical / operations structure
Aligned incentives
Financial / admin model
clinical process model
Key Concept
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Reducing variation in compliance with evidencebased guidelines.
◦ Care Process Models (CPMs)are narrative documents
that aim at representing state-of-the-art medical
knowledge.
◦ Clinical Decision Support (CDS) tools can include all
ways in which health care knowledge is represented in
health information systems.
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Way work is organized (process centered)
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Efficiency of individuals carrying out their role
(staff-person centered)
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Defects that require extra processing (rework)
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X axis =
costs/provider
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Y Axis = Grouped by APR DRG - Severity Score
Triple Aim
Better care access
Better health outcomes
Lower costs of care
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