September 2013

Discussion for 2013 IM Symposium

Arkansas Payment Transformation Initiatives

There are major health care challenges facing

Arkansas. Health outcomes in Arkansas

are poor, with the state at or near bottom of all

states on national health indicators.

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“The Big Picture and Changing Times”

The fragmented health care system is hard for patients

to navigate, and the system does not promote team-

based care.

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The status quo is unsustainable

Health care spending is growing at an unsustainable rate. Insurance premiums have doubled for Arkansas employers

and families in the past ten years.

Providing benefits to over 250,000 uninsured Arkansans will create enormous pressure on the health care financing and

delivery system. It will also create substantial budget shortfalls for the State

of Arkansas and Medicaid. It could call for additional taxes to be levied and stress on our local economy.

This is a trend which is not isolated to Arkansas – over 45 states are being faced with significant budget deficits which

are leading to reducing benefits, slashing provider payments, restricting enrollment, and moving toward a more managed

environment.

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What are they saying?

LITTLE ROCK — The Arkansas Department of

Human Services is preparing for “significant”

cuts in services to fill a shortfall of at least $100

million in the state’s Medicaid program.

Department Director John Selig said Tuesday that the Medicaid shortfall will be smaller than the nearly

$200 million gap between its funding request and

Gov. Mike Beebe’s recommendation for next

year. .

LITTLE ROCK — The Arkansas Department of

Human Services is preparing for “significant”

cuts in services to fill a shortfall of at least $100

million in the state’s Medicaid program.

Department Director John Selig said Tuesday that the Medicaid shortfall will be smaller than the nearly

$200 million gap between its funding request and

Gov. Mike Beebe’s recommendation for next

year. .

Beebe asks U.S. help to fill Medicaid

gapsGov. Mike Beebe has

asked the federal government for a wide-ranging Medicaid deal

that would allow Arkansas to access

federal funds to help plug the $4.6 billion program’s estimated $138 million deficit, quicken its payment

overhaul and pave the way to expanding its rolls by up to 250,000

people.

Beebe asks U.S. help to fill Medicaid

gapsGov. Mike Beebe has

asked the federal government for a wide-ranging Medicaid deal

that would allow Arkansas to access

federal funds to help plug the $4.6 billion program’s estimated $138 million deficit, quicken its payment

overhaul and pave the way to expanding its rolls by up to 250,000

people.

Source: AP Press release Nov 14 2012 & Ark Democrat-Gazette Nov 15 2012

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What have employers told us?

…we have been increasing employee premiums and can only push the envelope so far….

…what new solutions are you working on to improve quality of care and simultaneously reduce cost?

…cost are driven by inefficiencies in the system and over use of testing and surgical procedures..What can we do???

Transition to payment system that rewards value and patient health outcomes by aligning financial incentives

Eliminate coverage of expensive services or eligibility

Pass growing costs on to consumers through higherpremiums, deductibles and copayments (private payers),or higher taxes (Medicaid)

Intensify payer intervention in decisions through managed care or elimination of expensive services (e.g. through prior authorizations) based on restrictive guidelines

Reduce payment levels for all providers regardlessof their quality of care or efficiency in managing costs

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Arkansas Blue Cross Blue Shield and many self-funded groups face many of the same challenges that Medicaid does.

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What are the alternative solutions?

•Develop a program to more effectively use the existing health care dollars and reducing cost related to duplicated tests, unnecessary procedures, and poor coordination of services.

•Transition from fee for service or volume based treatment

•Create a new payment system that rewards high-quality, patient-centered, efficient care.

Governor Beebe and Arkansas Medicaid invited Arkansas Blue Cross Blue Shield to the table to collaborate in transforming the way we pay for medical services.

– The current system pays for volume —the more I do, the more I get paid

– The current system does not include incentives forproviders treating the same patient to work together

– The result is that there is significant variation in cost and quality in the system, some of which cannot be justified

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Arkansas PaymentImprovement Initiative (APII)

Our vision to improve care for Arkansas is a comprehensive,patient-centered delivery system…

Episode-based care

Acute, procedures ordefined conditions

Population-based care Medical homes Health homes

Improve the health of the population

Enhance the patient experience of care

Enable patients to take an active role in their care

Four aspects of broader program

Results-based payment and reporting

Health care workforce development

Health information technology (HIT) adoption

Expanded access for health care services

Reward providers for high-quality, efficient care

Reduce or control the cost of care

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Objectives

Forpatients

For providers

Focus today

How care is

delivered

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How does it work?

Hip Replacement

The Orthopedic Surgeon is considered the quarterback

for this episode.

•Decision Making Authority

•Influence related to other ancillary provider

•Does have economic relevance in regards to the total cost

To create coordinated, team-based care for all services related to the episode.

Develop accountability by identifying a provider “quarterback” or Principal Accountable Provider (PAP) for all services across the episode. This provider has influence related to patient care and has economic relevance.

Create incentives for high-quality, cost-effective care which is rewarded beyond current reimbursement, based on the PAP’s average cost and total quality of care

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How does APII enhance healthcare in Arkansas?

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From a conceptual model to real world application

Patients seekcare and select

providers as theydo today

Providers submitclaims as they do

today

Payers reimbursefor all services as

they do today

Calculate incentivepayments

basedon outcomes

after performance

period, typically 12months long

(retrospective reimbursement

)

Review claims from the Performance period to identify a‘Principal Accountable Provider’ (PAP) for each episode

Payers calculate average cost per episode for each PAP

Compare average costs to predetermined ‘’commendable’ and ‘acceptable’ levels

Based on results, providers will Share savings: If average costs below commendable levelsand quality targets are met

Pay part of excess cost: if average costs are aboveacceptable level

See no change in pay: if average costs are between commendable and acceptable levels.

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Cost for an uncomplicated hip/knee replacement(general acute care hospital – highest-volume provider)

in Little Rock$18,911

in Jonesboro $22,014

in NW Arkansas $21,864

in Ft. Smith $24,114

in Russellville$22,695

in El Dorado $28,247

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Examples of episode cost variation

In APII, the Principle Accountable Provider (PAP) is in a position to share savings or excess cost for the entire episode

– For hip/knee it is the orthopedic surgeon

– For perinatal it is the obstetrician

The outcome of the risk/reward settlement is basedon the total episode payment– Thus there is an incentive to look at referral patterns for the best

cost and quality

Quality is a critical component of the episode– Need to ensure we are not incenting “underuse” of care– Encourages evidence-based medicine and practices– Identifies and improves secondary outcomes not directly tied to

the primary procedure (reduced readmits, higher patient compliance)

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Aligned incentives

Year 1: preparatory period – where we are today

high

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… Payers assess their historic provider average cost for an episode; then selects thresholds to promote high-quality, guideline-based and cost-effective care

low

CO

ST

Individual providers, in order from highest to lowest average cost

Year 1: distributionof PAP’s costs

Acceptable

CommendableGain sharing

limit

85th Percentile

50th Percentile

high

low

CO

ST

Year 2: performance period

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Selected thresholds applied to provider performance in the following year… even though we expect that cost effectiveness will have improved

Individual providers, in order from highest to lowest average cost

Year 2: distributionof provider costs

Acceptable

Commendable

Gain sharing limit

Year 1: distributionof provider costs

high

low

CO

ST

Year 2: performance period

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PAPs that meet quality standards and have average costs belowthe commendable threshold will share in savings up to a limit

Individual providers, in order from highest to lowest average cost

Acceptable

Commendable

Gain sharing limit

Shared savings

Shared costs

No change

Providers who have episode costs below the averagewill share savings

Rewards high-performing providers

Could move volumes of care

Sends a message that all could attain shared savings

Represents a decision point for some providers who need to work to improve or possibly cease providing certain services

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Impact of methodology

The Arkansas Model integrates multiple payment methodologies to align accountability of different parts of the health care value chain

SOURCE: McKinsey Center for U.S. Health System Reform

Total health, quality of healthcare, and total cost of a population of patients over time

Achieving a specific patient objective at including all associated upstream and downstream care and cost

Discrete service and related incentives for activities correlated with favorable outcomes or lower costs

Basis of payment Example approaches

Patient-centered medical homes (PCMH)

Accountable Care Organizations (ACO)

Global capitation

Retrospective Episode-Based Payment (REBP)

Prospective Bundled Payment

Bonus payments tied to quality measures

Bonus payments tied to efficiency measures

Fee-for-service including “pay for

performance”

Episode-based

Population-based

Arkansas model

Anecdotal Information

• Rational discussions about facility competitive standing based on current reimbursement levels and requests for increases

• Conversations between “virtual teammates” in an episode about how to create efficiencies

• Providers who were very resistant to having their cost/quality profiles shared are now asking us to “fix the black box problem”

Some Interesting Things Have Happened Along the Way

• Comprehensive Primary Care Initiative• Wal-Mart Financial Support• State Innovation Model Grant• Anticipated Alignment of Medicare in

Episodic Reporting• Expansion of Medicaid via the “Private

Option”• This may be replicable in other rural

markets

Lessons learned along the way• “Flood the zone”

• The power of “inevitability”

• Transparency as enabler rather than threat to providers

• Pragmatic approach to multi-payor alignment

• Tension between fairness, simplicity, and scalability

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Why does theArkansas Payment Improvement

Initiative matter to Arkansas Stakeholders?

BENTONVILLE, AR – As it looks to both reduce out-of-pocket costs for employees, while also lowering its total healthcare costs, global retailer Wal-Mart announced last month a new program that will pay 100 percent of the costs for certain spine

and cardiac surgeries plus travel expenses at six selected healthcare systems across the country.

….What is also driving the Wal-Mart program is the documented wide variations in both cost and quality for common medical procedures from region to region and

even hospital to hospital. As the largest private employer in the country, Wal-Mart also has the purchasing clout to negotiate bundled payments for care episodes

as a way to address these significant cost variations.

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Wal-Mart implements innovative care delivery model

Source: November 2012 Healthcare Finance News www.healthcarefinancenews.com

“I think what you are seeing is the beginning of what healthcare in this country is transitioning to. Whether it is employers or insurers, they are searching out the greatest value for the lives that they cover,” said Steve Sibbitt, chief medical officer for Wal-Mart Centers of Excellence partner, Scott & White.

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Several stakeholders have publicly voiced their support for Arkansas’ healthcare transformation

Maria Reynolds-DiazAARP, Arkansas StateDirector

“The Arkansas Health CarePayment Improvement Initiative

is well aligned with our worktoward a more efficient health

care system that improvesquality outcomes. We will

support consumer awareness ofnew models and benefits that

meet these goals. AARPArkansas supports the initiatives’push for coordinated care that isbetter and easier to navigate for

patients.”

Randy Zook,President and CEO ofArkansas State Chamber ofCommerce

“The value of our healthcareexpenditures is lacking, the costs

are unsustainable, and thefragmented system of care

demands major change… Weapplaud your initiative to

overhaul the healthcare paymentsystem and move from a

fee-for-servicereimbursement model

that has resulted in a fragmentedand inefficient system to one that

aligns payments with desiredoutcomes.”

Sally WelbornWalmart, Senior VicePresident of Global Benefits

“Part of Walmart’s mission is tocreate opportunities so peoplecan live better… We recognize

that our associates andcommunities that we serve

cannot live better if the healthcare they need is not available oraffordable. Therefore, we have

been active in the national healthcare reform dialog for years…

Thus, we support the effort youare leading to align payments

with needed changes.”

Source: www.paymentinitiative.org/referenceMaterials/Documents/APII%20overview.pdf

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Comments or Questions