Critical Success Factors for New Business Models ASHNHA 2016 Annual Meeting

Presented by Karl Rebay, Director, Health Care Consulting

The material appearing in this presentation is for informational purposes only and should not be construed as advice of any kind, including, without limitation, legal, accounting, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although this information may have been prepared by professionals, they should not be used as a substitute for professional services. If legal, accounting, investment, or other professional advice is required, the services of a professional should be sought.

The ACA Has Been A Major Catalyst To Shaping The Health Care Industry Today

Five years ago, we were grappling to understand what the law meant and how we were going to respond to:

1. Expanding Medicaid for many states. 2. Removal of pre-existing conditions for insurance. 3. Creation of Insurance Exchanges.

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THE AFFORDABLE CARE ACT – KEY PROVISIONS

The Federal Patient Protection and Affordable Care Act (P.L. 111 – 148) was signed on March 31, 2010.

The major provisions of the ACA are:

1. Expand access to insurance coverage. 2. Increase consumer insurance protections. 3. Emphasize prevention and wellness. 4. Improve health quality and system performance. 5. Promote health workforce development. 6. Curb rising health costs.

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With A Still Simmering Public Debate On The ACA, The Wave Of Changes Are Expected To

Continue Regardless Where The Political Factions May Lead Us In November

• Telehealth continues to make inroads. • More services are being paid by value-based

reimbursements.

• Increasing access to behavioral health. • Increasing access to home health services.

• Technology innovations for consumers. • Non-physician practitioners are expanding their

roles.

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VALUE-BASED REIMBURSEMENT – GROWTH DRIVERS

1) Bending the Cost Curve.

2) Aging Population.

3) U.S. Health Outcomes Compared to Other Developed Nations.

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VALUE-BASED REIMBURSEMENT – SHIFTING FROM VOLUME TO VALUE

CMS Is Tightening Its Reins, As Announced In The January 26, 2015 Press Release By Department of Health and Human Services Secretary, Sylvia M. Burwell:

• Connecting 30% of Fee-For-Service Medicare payments to quality or value through alternative payment models.

• Connecting 50% of payments to quality models by the end of 2018.

Ms. Burwell added that HHS has also set a goal of connecting:

• 85% of all traditional Medicare payments to quality or value by 2016.

• 90% of all traditional Medicare payments to quality or value by 2018.

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THE NEW SKILLS NEEDED FOR POPULATION HEALTH

I. Population Health Delivery: A. Servicing a population of patients with the right provider

resources. B. Categorizing sub-populations of patients for risk management. C. Continually improving the population’s quality of care. D. Focusing on removing waste in care delivery.

II. Population Health Administration: A. Risk management B. Financial management C. Administrative infrastructure

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WAVE OF CHANGE – VALUE-BASED REIMBURSEMENT

The Definition of Value-Based Reimbursement Is The Payment to Promote Value and Quality Outcomes.

These programs historically have a number of names: 1) Pay-For-Performance 2) Value-Based Purchasing 3) Bundled Payment 4) Capitation 5) HCC 6) Readmission Penalties 7) HEDIS (Healthcare Effectiveness Data and Information Set) 8) STAR (Medicare Program) 9) PCMH (Patient-Centered Medical Home) 10) PGIP (Physician Group Incentive Payment) 11) PQRS (Physician Quality Reimbursement System)

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VALUE BASED MODELS – CRITICAL SUCCESS FACTORS

• Effective contracting/negotiations • For risk – large enough population of patients • Use of data and proven care pathways • Adequacy of the “network” • Coordination of care effort • Heavy communication among and between providers,

patients and caregivers • Focus on specific areas e.g.:

• Costliest disease states in capitated and other pre-paid models • High cost items and post-acute health in bundles

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FRAMEWORK OF POPULATION HEALTH

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• Define population • Define expected outcomes • Target sub populations

• Lifestyle management • Demand management • Disease management • Catastrophic management • Disability Management

• Service delivery • Support activities & issues • Strategic control

• Necessary resources • Information technologies • Integration of activities, systems & strategies • Involved & responsive providers

TARGET THE PROGRAM

SELECT STRATEGIES

IMPLEMENT & MANAGE

PROGRAM

INTEGRATE CRITICAL FACTORS

POPULATION HEALTH STRATEGY OPTIONS

LIFESTYLE MANAGEMENT

DEMAND MANAGEMENT

DISEASE MANAGEMENT CATASTROPHIC CARE MANAGEMENT

DISABILITY MANAGEMENT

– Help individuals make good choices about health behaviors & health risks.

– Help individual consumers take an active role

in making decisions about health and medical care needs to reduce inappropriate demand for services.

– Identify individuals with certain diseases and

target with specific interventions. – Proactive identification of cases to provide

services needed for catastrophic injuries or illnesses.

– Employer-driven initiatives to reduce lost time

from work, improve worker productivity, and optimize employee health.

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VALUE BASED MODELS – CRITICAL SUCCESS FACTORS

• Use of data and proven care pathways • Contracting and management strategies both require data to answer

very important questions e.g.: • What does the opportunity look like from a business standpoint? • Where are the high risk areas? • Who needs to be involved?

• Value models put risk on the shoulders of the provider/hospital so you need to start thinking like an insurance company…somewhat.

• High quality drives all good things – satisfaction, efficiency. • Evidence based care pathways – doesn’t mean there isn’t innovation

but foster a culture that sticks with what works and keeps folks thinking outside the box.

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VALUE BASED MODELS – CRITICAL SUCCESS FACTORS

• Adequacy of the “network,” Coordination of care effort, Heavy communication among and between providers, patients and caregivers • Network concept should include all those important to successful

healing • Capitation – breadth and depth of the network • Chronic Disease management – Nurse case manager, primary care and

specialists, support groups, in home caregivers, patient • Bundled payment – QB, surgeon, post-acute caregivers, patient

This is all about making sure the right team is in place to deliver.

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VALUE BASED MODELS – CRITICAL SUCCESS FACTORS

• Focus on specific areas e.g. costliest disease states in capitated and other pre-paid models and high cost items and post-acute health in bundles

81% of cost caused by 20% of population* • Know your population – what drive’s cost?

• Radiology • High cost drugs (chemotherapy) • Poor management of chronic diseases • Lack of accountability by the patient

15 * Source: NIHCM Foundation Data Brief July 2012

VALUE BASED MODELS – CRITICAL SUCCESS FACTORS

• Know your population – what drive’s cost? Practical examples: • Radiology

• MRIs and CTs – there are options so how do you drive the right behavior? • Contact capitation • Bundling – post acute radiology

• Management of chronic diseases • Development of disease registries • Proactive management

• Nurse case managers • Primary care offices

• HCC Coding – hit lists

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VALUE-BASED REIMBURSEMENT – CHALLENGES

1) Not all models have not been fully tested so frail health systems are at risk.

2) Evaluating which programs are more suitable for this type of payment (e.g., comprehensive care for joint replacements).

3) Private payer models (narrow networks) may cause additional financial stress to health systems.

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VALUE-BASED REIMBURSEMENT – READMISSIONS REDUCTION PROGRAM

• Section 1886(q) added to the Social Security Act began October 1, 2012 and the penalties are real up to 3% of Medicare reimbursement.

• 2015:

• 2,592 hospitals (54%) averaging a .61% reduction (~$420M)

• Alaska – 7 (33%) averaging a .44% reduction

• 58 hospitals nationally at full 3% penalty

• N/A – VA, Children’s and Critical Access hospitals

• Think observation is a solution?

18 * Source: Kaiser Health News and U.S. Centers for Medicare & Medicaid Services

VALUE-BASED REIMBURSEMENT – READMISSIONS REDUCTION PROGRAM

• Practical Activities

• Development/partnership of OP clinic with direct scheduling at discharge

• Meaningful relationship with post-acute care provider (more than just calling around for a SNF bed).

• Hospital case management tracking and follow-up with patients and with physicians

• Communication with ER and Hospitalists regarding patients

• Key physician involvement in planning reductions (e.g. discharge planning)

• Share important information with all of the above

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VALUE-BASED REIMBURSEMENT – BUNDLED PAYMENT PROGRAM

• Revenue is fixed so focus turns to cost

• Episodes of care vs. cases

• Extends the accountability timeline

• Medicare taking the lead with CJR program

• Mandatory program began in April

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VALUE-BASED REIMBURSEMENT – BUNDLED PAYMENT PROGRAM

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Pre-op Testing Procedure Acute

Recovery Until Discharge

Diagnosis Procedure Acute

Recovery Until Discharge

Follow Up Visit(s)

Hospital

Physician

Inpatient Recovery Care – SNF/IRF PAC 1

Outpatient Recovery Care – Home Health / OP Therapy / OP DME PAC 2

Today (Yesterday)

Readmission Starts the Process Over Again

Bundle of Accountability

Hospital Services

Physician Services

IP Rehab

OP Rehab

DME

Part B drugs

Home Health

Readmits

VALUE-BASED REIMBURSEMENT – BUNDLED PAYMENT PROGRAM

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Tomorrow (Today)

Considerations: • DRG specific • 90 day episode • All related services are included • Excluded:

• IP PPS new technology • Transitional device

payments • OPPS Transitional

passthroughs • Unrelated pharma

Management and Coordination are

Critical!!

VALUE-BASED REIMBURSEMENT – AREAS OF FOCUS

1) Becoming a Data Driven Organization

2) Behavioral Health

3) Home Health

4) Use of Technology and Telehealth

5) Efficiency Strategies

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BEING DATA DRIVEN

• No “hunch” contracting – know, don’t think • Analysis based decision making (much like evidence based medicine)

• For broader issues / population health management - get to know your patients/members • Analyze claims data • Identify that 20%

• Disease registries • Issue lists (missing diagnoses, etc.)

• Focus on primary care and initial visits for undiagnosed members • For bundles and other such programs

• Get clinicians involved in decision making • Plan your attack so you know what cost is going to be • Then track cost religiously and report results

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WAVE OF CHANGE – INCREASING ACCESS TO BEHAVIORAL HEALTH

There Have Been Five Major Changes In Legislation:

1) Mental Health Parity and Addiction Equity Act.

2) Expansion in Medicare and Medicaid funding.

3) Increase in coverage from private insurance.

4) Marginal increase in block grant funding (SAMHSA – Substance Abuse and Mental Health Services Administration).

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BEHAVIORAL HEALTH – CURRENT SOURCES OF FUNDING

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Medicaid: 27%

Other Private: 3%

Out of Pocket: 12%

Private Insurance: 27%

Other Federal: 5%

Medicare: 8%

Other State and Local: 18%

Private:42%

Federal: 13%

State: 45%

BEHAVIORAL HEALTH – GROWTH DRIVERS

The Long-Term Prospects for Behavioral Health Are Very Positive Due To:

1) Relatively low population currently being treated and de-stigmatization of getting help.

2) Increase in government spending through the ACA’s extension of Medicaid services.

3) Growth in private insurance. 4) More accurate diagnoses. 5) Greater use of telemental health/telepsychiatry by the

Department of Veteran Affairs. Sustainability still being addressed in some states.

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WAVE OF CHANGE – INCREASED ACCESS OF HOME HEALTH SERVICES

The Drivers of Growth in Home Health Services include:

• Cost differential of home health services (95% less expensive than hospital-based care and 80% cheaper than skilled nursing facility care).

• Aging demographics.

• Bundled payments.

• Mobile telehealth.

• Patient choice.

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TYPES OF HOME HEALTH SERVICE LINES

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The following two slides depict the three home health service lines and the insurance elements.

Health Clinical Services

• Nursing • Therapists • Home Health Aides

Supportive Care

• Activities of daily living (shopping, light home cleaning, bathing, etc.) provided by Homemaker Aides

Hospices Services

• End-of-life care provided by nurses

HOME HEALTH PAYER CONSIDERATIONS

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Medicare Elements

• Heavily regulated • Covers clinical services

only • RN oversight required • RN assessment of care

plan required • Payment is based on

code based 60 day episode of care

• Annual cost report is required along with other compliance activities

Medicaid Elements

• Mirrors Medicare • Clinical services only • Lower payment than

Medicare • Annual reporting and

other compliance reporting

Private Duty

• Market responsive • Clinical and support

services • RN oversight of care

sometimes required • Recommended to direct

bill customer every two weeks – documentation is typically sent to insurance companies monthly to reimburse client/family

• Annual reporting is sometimes required

WAVE OF CHANGE – TECHNOLOGY INNOVATIONS FOR CONSUMERS

Consumers are Demanding and Receiving Greater Choices To Receiving Quality Treatments:

1) Outside of the traditional hospital or physician office setting.

2) Access to care during non-traditional hours.

3) Address the time restraints of patients.

4) Lower price point.

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TECHNOLOGY INNOVATIONS FOR CONSUMERS - SUCCESSES

1) WALK-IN CLINICS

2) HOUSE CALLS

3) HOME CARE

– Within a retail environment (pharmacy, supermarket or other shopping location) walk-in clinics are growing quickly at about 16% in 2015.

– Mobile technology is allowing consumer

to have a doctor within two hours or less (Curbside Care, Heal and Mend).

– Startups, Home Hero and Honor are

introducing convenience with screened home care providers as a way of streamlining the selection of caregivers.

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TECHNOLOGY INNOVATIONS FOR CONSUMERS – QUESTION MARKS

Oscar Health Insurance Corporation – A Four Year Startup With A Valuation of $1.75 Billion - $3.0 Billion (as compared to Centene’s purchase of Health Net with six million customers at $6.8 billion).

• Started in New York and has expanded to New Jersey.

• Founders have tried to simplify the health insurance by only requiring five pieces of information and providing a surprise-free experience.

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TECHNOLOGY INNOVATIONS FOR CONSUMERS – QUESTION MARKS (continued)

But There Have Been Stumbles.

• Complaints about expense bills that were suppose to be covered.

• Lost $92.4 million in New York and $12.8 million in New Jersey at the end of 2015.

Company Blames Its Troubles Not on Exchange Rules But On Providers.

Note, to allow for rapid growth, Oscar Rented its Provider Networks (MagnaCare in New York and QualCare in New Jersey).

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TECHNOLOGY INNOVATIONS FOR CONSUMERS – QUESTION MARKS (continued)

Oscar’s Response to Its Troubles Have Been Three Familiar Health Plan Tools:

1) Increased Scale – The Company is expanding to San Antonio and Dallas, Texas as well as Los Angeles and Orange County, California.

2) Turned to Using Narrow Networks: • San Antonio, TX – Baptist Health System (part of Tenet

Healthcare Corp.)

• Los Angeles County, CA – Providence Health and Services

• Dallas, TX – Tenet and Baylor Scott & White Health

3) Increased Rates – In New York, Oscar increased its premiums in line with other health insurers on The Exchange.

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TECHNOLOGY INNOVATIONS FOR CUSTOMERS – CHALLENGES

• DATA SHARING – While data analytics are being widely adopted by health care companies, restrictions related to HIPAA make it is very difficult to share data across providers to have comprehensive information on patients.

• ADVERSARIAL RELATIONSHIPS BETWEEN PROVIDERS AND INSURERS – A lack of trust between these parties also make data sharing difficult. Attempts are being made although such as Vivity (Anthem Blue Cross) and several hospitals in southern California.

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TELEHEALTH GROWTH DRIVERS

1) Enhanced Reimbursement

2) Readmission Penalties

3) Open App Development Software

4) Enhanced Computing Power

5) Physician Shortages

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TELEHEALTH CHALLENGES

1) Licensure (State)

2) Reimbursement Limits

3) New Practice Management Resistance

4) Cost

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WAVE OF CHANGE – NON PHYSICIAN PRACTITIONERS ARE EXPANDING THEIR ROLES

• Both the shortage of primary care physicians and the increasing number of insured are creating an expanded role (nurse practitioners, physician assistants and pharmacists).

• State rules vary widely. In Oregon, a supervising physician must review a percentage of patient charts that the physician assistant has seen on a monthly basis.

• However, working within the various State rules, forward thinking medical groups are doing more: • Improve timely access to care while increasing clinical face time with patients. • Expand intake points into the clinic. • Quality initiatives. • Cost saving initiatives.

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• To enhance the delivery of care with physician extenders, there is a tendency of these groups to be more receptive to implementing technologies:

• Mobile technologies. • E-visits. • Adoption of other new technologies to enhance the

effectiveness of care.

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WAVE OF CHANGES – NON PHYSICIAN PRACTITIONERS ARE EXPANDING THEIR ROLES

(continued)

IN SUMMARY

• After five years of the ACA, the health care services industry is starting to see the impact of the law through changes in: • Reimbursements • New Technologies • Care Models

• Whether you agree or disagree with the law, it is pushing evolution in the heath care industry and is driving innovation and consolidation.

• There is hope that these changes will have a positive impact on quality and cost of care in the future.

• Survival will require adaptation.

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Questions?

Karl Rebay Director, Health Care Consulting karl.rebay@mossadams.com (509) 777-0130