Health Care Valuations: The New, the Old and the Ugly

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The shift in health care from volume-based, fee-for-service to value-based reimbursement (VBR) continues to push forward. In its wake, unintended consequences and new challenges have emerged — not only in aspects of delivery but also when determining fair market value (FMV) and remaining compliant with the federal Anti-Kickback Statute and the Stark Law. Below we touch on those consequences and how they’ve emerged from both new and old regulations.

The New: MACRA

Now in play, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) promises to fundamentally change the way the country evaluates and pays for health care. Its new payment schedules, however, have created ramifications that not only tangle the hospital-physician relationship but also create implications for VBR transactions and valuations.

As part of the transition to value-based medicine, four new MACRA elements in particular represent significant changes:

1. Pay for Performance (P4P) Arrangements: The remuneration system makes part of payment dependent on performance, measured against a defined set of criteria, and creates measurements and performance standards for establishing target criteria.

2. Shared Savings Arrangements: The new approach incentivizes providers to reduce health care spending for a defined patient population by offering a percentage of net savings realized as a result of their efforts.

3. Episodic Payments: An episode payment system offers a single price for all the services needed by a patient for an entire episode of care; for example, all the inpatient and outpatient care needed following a heart attack. The intent is to reduce the incentive to overuse unnecessary services within the episode. It also gives health care providers the flexibility to decide what services should be delivered rather than constraining them by fee codes and amounts.

4. Global Budget: With a fixed prepayment made to a group of providers or to a health care system (as opposed to a health care plan), this arrangement covers most or all of a patient’s care during a specified time period.

Clearly the value equation is shifting. Value is defined no longer solely by how much revenue a physician generates but rather by solving problems for patients and patient experience. Value can also be derived not by revenue per patient, but by how many patient lives a physician directs, and with that comes control over how some payments are allocated for patient related services.

As the value dynamics change, hospitals have sought to establish closer relationships with physicians. Acquisitions of physician practices by hospitals have continued at dramatic rates alongside the move toward direct physician employment and provider service agreements. New players in the market and marketplace forces have also emerged as competition to hospitals. Private equity groups and insurance companies are pursuing the acquisition of physicians and clinics for control of patient lives, and therefore revenue.

While the trend toward hospital-physician alignment is intended to improve health care delivery, it has come under scrutiny for potential fraud and abuse violations due in part to established laws that now appear at odds with the new VBR movement.

The Old: Anti-Kickback Statute and Stark Law

Health care organizations, providers and their counsels are well aware of the laws in place they must abide by, namely the Anti-Kickback Statute (AKS) and the Stark Law, which have been in force for more than three decades.

Such regulatory considerations related to fraud and abuse have long had significant impact on the value attributable to each property interest and on the valuation process itself. There are in fact several distinct meanings of fraud within the context of the health care regulatory framework, and they affect a property’s profitability and sustainability, creating significant risk and uncertainty for business entities.

What constitutes fraud, however, is now under the microscope and creating potential liability under the False Claims Act. The new direction of collaborative relationships on behalf of the patient and patient outcomes can make some arrangements suspect. How do physicians refer patients in the new MACRA environment without it being considered a conflict of interest or fraudulent? How will payments made to physicians not exceed the range of FMV and be deemed commercially reasonable? How can alignment strategies be constructed to provide a full continuum of care under VBR reforms?

While there have been no changes to the longstanding regulations, discord between the old laws and the new VBR direction is necessitating a different approach to compliance. The American Hospital, in a letter to the U.S. Senate Finance Committee in a hearing on the Stark law, said, “As interpreted today, the two ‘hallmarks’ of acceptability under the Stark law — fair market value and commercial reasonableness — are not suited to the collaborative models that reward value and outcomes.”

The Ugly: The Push and Pull of the New and the Old

The friction between the enforcement of fraud and abuse laws by the Department of Justice and the Office of the Inspector General, and the VBR models being implemented by Health and Human Services is warranting a review of MACRA and the threshold and definition of commercial reasonableness. With no one clear definition of commercial reasonableness, its analysis is ripe for distortion.

Many regulators’ arguments are centered around Practice Loss Postulate (PLP) — that the acquisition of a physician practice that then operates at a “book financial loss” is dispositive evidence of the hospital’s payment of consideration based on the volume and/or value of referrals.

The problem? In maintaining the economic delineation between physicians and hospitals, the PLP focuses exclusively on immediate and direct financial (cash) returns on, and returns of, investments by health care organizations related to vertical integration transactions. The PLP ignores other economic benefits associated with vertical integration, such as social benefits, qualitative gains, efficiency gains and avoiding costs.

As a consequence, such a vertical integration move could be viewed by regulators as evidence of legally impermissible referrals under the Stark law. However, it would prevent vertically integrated health systems from withstanding fraud and abuse scrutiny. And it would create barriers to satisfying the threshold of commercial reasonableness.

More “New” Is in the Future Forecast

Active industry input and congressional committee discussion is underway in hopes of generating workable strategies to reduce the law’s burden. And although the actual outcomes are uncertain, changes are clearly ahead.

What the 2018 Midterm Elections Means for Health Care

Whatever you want to call the 2018 midterm elections – blue wave, rainbow wave, or purple puddle – one thing is clear: Democrats will control the House.

That fundamental shift in the balance of power in Washington will have substantial implications for health care policymaking over the next two years. Based on a variety of signals they have been sending heading into Tuesday, we can make some safe assumptions about where congressional Democrats will focus in the 116th Congress. As importantly, there were a slew of health care-related decisions made at the state level, perhaps most notably four referenda on Medicaid expansion.

In this post, I’ll take a look at which health care issues will come to the fore of the Federal agenda due to the outcome Tuesday, as well as state expansion decisions. And it should of course be noted that, in addition to positive changes Democrats are likely to pursue over the next two years, House control will allow them to block legislation they oppose, notably further GOP efforts to repeal the Affordable Care Act (ACA).

Drug Pricing

Democrats have long signaled they consider pharmaceutical pricing to be one of their highest priorities, even after then-candidate Trump adopted the issue as part of his campaign platform and maintained his focus there through his tenure as President.

While aiming to use the issue to drive a wedge between President Trump and congressional Republicans, who have historically opposed government action to set or influence prices, Democrats will also strive to distinguish themselves by going further on issues like direct government negotiation of Medicare Part D drug reimbursement.

Relevant House committee chairs, perhaps especially likely Oversight and Investigations chair Elijah Cummings (D-MD), will also take a more aggressive tack in investigating manufacturers and other sector stakeholders for pricing increases and other practices. Democratic leaders believe it will be easier to achieve consensus on this issue than on more contentious issues like single payer (more detail below) among their diverse caucus, which will include dozens more members from “purple” districts as well as members on the left flank of the party

Preexisting Condition Protections

If you live in a contested state or district, you have probably seen political ads relating to protecting patients with preexisting conditions. As long as a Republican-supported lawsuit seeking to repeal the ACA continues, Democrats believe they can leverage this issue to demonstrate the importance of the ACA and their broader health care platform.

A three-legged stool serves under current law to protect patients with chronic conditions: (1) the ban on preexisting condition exclusions; (2) guaranteed issue; and (3) community rating. Democrats will likely seek to bolster these protections with measures to shore up the ACA exchange markets. In the same vein, they will likely strive to rescind Trump Administration proposals to expand association-based and short-term health plans, which put patients with higher medical costs at risk by disaggregating the market.


Congressional Democrats believe that there were some stones left unturned in this year’s opioid-related legislation, especially regarding funding for many of the programs it authorized. This is a priority for likely Ways & Means Committee Chair Richie Neal (D-MA) and could potentially be a source of bipartisan compromise.

Medicare for All

While this issue could become a bugaboo for old guard party leaders, the Democratic base will likely escalate its calls for action on Medicare for All now that the party has taken the House. Because the details of what various camps intend by this term are still vague (some believe it is tantamount to single payer, others view it as a gap-fill for existing uninsured, etc.), we will likely see a variety of competing proposals arise in the coming two years. Expect less bona fide committee action and more of a public debate aired via the presidential primary season that will kick off about, oh, right now.

Surprise Bills

The drug industry is not the only health care sector that can expect heightened scrutiny of their pricing practices now that Democrats control the people’s chamber. Most notably, the phenomenon of surprise bills (unexpected charges often stemming from a hospital visit) has risen as a salient issue for the public and thus a political winner for the party. Republicans have shown interest in this issue as well, so it could be another source of bipartisanship next year.

Regulatory Oversight

Democrats believe they are scoring well with the public, and certainly their base, every time they take on President Trump. The wide range of aggressive regulation (and deregulation) the Administration has pursued will be thoroughly investigated and challenged by Democratic committee leaders, especially administration efforts to dismantle the ACA and to test the legal bounds of the hospital site neutrality policy enacted in the Bipartisan Budget Act (BBA) of 2015.


While it instituted permanent policies for Medicare physician payments and some other oft-renewed ‘extenders’, the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 left a variety of policies in the perennial legislative limbo of needing to be repeatedly extended. While the policies in the Medicare space have dwindled to subterranean, though not necessarily cheap, affairs like the floor on geographic adjustments to physician payments, a slew of Medicaid-related and other policies are up for renewal in 2019.

For example, Medicaid Disproportionate Share Hospital (DSH) payments face a (previously delayed) cliff next year. That and the most expensive extender, ACA-initiated funding for community health centers, alone spring the cost of this package into the high single digit billions at least, driving a need for offsetting payment cuts and creating a vehicle for additional policy priorities.

A likely addition to this discussion will be the fact that Medicare physician payments, per MACRA, are scheduled to flatline for 2020-2025 before beginning to increase again, albeit in divergent ways for doctors participating in the Merit-Based Incentive Payment Program (MIPs – 0.25 percent/year) and Advanced Alternative Payment Models (APMs – 0.75 percent/year). The AMA assuredly noticed this little wrinkle in the celebrated legislation but hundreds of thousands of doctors probably did not.

Medicaid Expansion

Of the variety of state-level health policy decisions voters made on Tuesday, perhaps the most significant related to Medicaid expansion. In there states where Republican leaders have blocked expansion under the ACA – Nebraska, Idaho, and Utah – voters endorsed it via public referenda. Increasing the Medicaid eligibility level in those three states to the ACA standard will bring coverage to approximately 300,000 people.

Notably, voters in Montana rejected a proposal to continue funding the Medicaid expansion the state enacted temporarily in 2015 by an increase to the state’s tobacco tax. Their expansion is now scheduled to lapse in July 2019 if the legislature doesn’t act to maintain it. If they do not act, about 129,000 Montanans will lose Medicaid coverage.

Finally, Democratic gubernatorial wins in Maine, Kansas, and Wisconsin will make Medicaid expansion more likely in those states.

As they say, elections have consequences. While the Republican-controlled Senate and White House can block any Democratic priorities they oppose, the 2018 midterm elections assure a busy two years for health care stakeholders.



Interpreting National Health Expenditure Projections: Issues And Challenges

Health Affairs today published the projections for health spending over the next decade from the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary. The top line estimate is that health spending will grow at 5.5 percent per year through 2026. This rate is about halfway between the pre-recession rate of 7.3 percent and the exceptionally low rate (3.8 percent) experienced during the recession and immediate aftermath. This projected spending growth is 1 percentage point above expected gross domestic product (GDP) growth, a smaller gap than for almost any 10-year period since 1990. These non-partisan, thorough projections are a valuable benchmark for all stakeholders anticipating the fiscal footprint of the health care system on the economy, but there are several important issues to keep in mind.

Modeling What Spending Would Be Under Current Law, Not What It Will Most Likely Be

First, these projections are predicated on “current law”. The authors are not trying to predict what spending will most likely be. Such a prediction exercise would require assessments of how policy may change. For example, will the low-fee trajectories called for by the Medicare Access and CHIP Reauthorization Act (MACRA) and the Affordable Care Act (ACA) productivity adjustments be realized? What will be the future of the ACA? The authors here don’t attempt to incorporate the answers to these questions. They assume that the current law will persist. Last week’s budget legislation, which included the repeal of the Medicare Independent Payment Advisory Board and other health care changes, illustrates this point because it came too late to be included in these projections. This highlights how quickly and unpredictably law and policy can change.

An Uncertain Environment

Second, as the authors recognize, there is considerable uncertainty around these projections. During the recession, we experienced a dramatic slowdown in the rate of growth in “use and intensity” of care, a catch-all phrase capturing more physician visits, hospital stays, lab tests, etc. As the ACA was implemented, use and intensity rebounded, capturing both a return to a more common rate of growth and an increase attributable to coverage expansion. (If there is one thing we know well it is that greater coverage generates greater utilization.)

The assumption moving forward is that use and intensity will revert to historical patterns, affected a bit by benefit design changes. The impact of payment reforms, in both the public and private sector, is largely not reflected in these projections. That assumption is certainly reasonable given the modest impact of such changes to date, but payment systems continue to change and their impacts may grow, suggesting that perhaps use and intensity growth will be lower than projected.

Of course, uncertainty is not one sided. Other hypotheses, such as greater introduction of new technologies or weakening commitment to controlling utilization, would yield higher spending projections.

The Policies We Choose Matter

Third, and perhaps most importantly, the actual rate of health spending growth that we experience over the next decade, and beyond, depends on what we do. Health spending is not a natural phenomenon to be predicted like the tides. Our fate is not sealed. Our actions matter. We should not ask whether health spending growth will accelerate (or not). Instead we should ask if we will let it accelerate (or not). This requires complex choices.

It is tempting to read the projections such as those by Gigi Cuckler and her CMS colleagues with alarm. The notion that health care will consume almost 20 percent of the economy in 2026 is legitimately concerning because of the implications for future taxation or borrowing to maintain publicly financed health insurance programs. In fact, Kate Baicker and Jon Skinner predicted back in 2011 that if public health spending growth consistently exceeded national income growth by 1 percentage point and was financed by taxes (increased proportionately on all income groups), the tax rate for the upper income bracket in 2060 would need to rise to 70 percent. This is unlikely to happen, but we must act to make sure it does not.

The Dual Nature Of Health Spending: Consumption And Investment

The challenge, of course, is that health spending, on average, improves health. Therefore, actions to restrain resources devoted to health—including restricting access to health care or health insurance—run the risk of slowing or reversing improvements in health. Moreover, apart from the obvious benefit associated with access to health care services, many people rely on the health care sector for jobs. Heath care is in many ways both a tapeworm on the American economy and a Keynesian stimulus— cutting health spending will have economic consequences. Moreover, while creating jobs is not a justification for waste, lower spending growth can imply lower revenue growth for health care stakeholders, which presents a significant political problem.

These two perspectives are not as hard to balance as one may think. We do not need to cut heath care spending below current levels, just slow the rate of its growth. Moreover, resources not absorbed into the health care sector can be put to valued activities. (If there are not more valued activities for these incremental resources, then more spending on health care is justified).

Beyond How Much We Spend: Does It Bring Value And How Will We Finance It?

Finally, all of this highlights the heterogeneity in value associated with greater health spending. We currently pay higher prices in the United States than in other countries. While health care price inflation slowed between 2014 and 2016, the projections assume that price growth in health care will exceed general inflation. While we cannot conclude that prices in the United States should match those in other countries (there are many differences in our economies), much of the reason for high and growing prices in the United States is a lack of competition associated with consolidation in the health care sector (largely in the commercial sector) and other institutional features. Paying too much for care or other services not only distorts behavior, but also represents a transfer from the broad population to the health care sector. Policy actions to address this issue should be high on the agenda.

Use and intensity also varies in value. While innovation and delivery of appropriate care is the centerpiece of a high-value health care system, our system too often provides care that offers little or no health benefit. Great strides have been made to quantify low value care, through initiatives such as Choosing Wisely, but a lot remains unmeasured. Eliminating such care is hard because the value of care depends on patient traits and delivery system reform requires motivation of influential and invested stakeholders, which does not occur rapidly. Nevertheless, efforts to move in this direction are important.

Ultimately, the question we should ask when we ponder projections of higher health spending is this: Will we get enough value for the added spending? We should also ask how we should finance this spending: Any way we do so—through taxation, higher premiums or cost sharing at the point of service—has dramatic distributional and moral implications.

There are no simple answers to these questions, politically or operationally. One thing is clear: We cannot continue to publicly finance health spending if it grows 1 percentage point faster than GDP. We are not in crisis yet, but at this rate, eventually we will be. Yet, changing health care takes time. Many innovations in both payment and benefit design show promise, but success is uncertain. With luck (or more importantly dedication and hard work) we will be able to spend less than these projections suggest and maintain, or even improve, the care delivered to Americans. Unless we keep trying, however, we will fail.



Fewer doctors are opting out of Medicare

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The CMS saw a sharp decrease in the number of providers opting out of Medicare in 2017, after several years where thousands indicated that they did not want to participate in the program.

Physicians and practitioners who do not wish to enroll in the Medicare program may file an “opt-out” affidavit that will prevent the provider and beneficiaries seeing them from submitting bills to the CMS.

For years, the CMS had few providers opting out of Medicare, with the number first hitting triple digits in 2010, with 130. But those numbers jumped to over 1,600 opt-out requests going into effect in 2013, more than doubling to over 3,500 in 2015, and spiking at 7,400 in 2016. Opt-outs dropped to just 3,732 in 2017, according to data released by the CMS Monday.

The agency did not elaborate on why it may have seen such a change.

One theory is that MACRA ended the need for providers to renew opt-out affidavits every two years; now opt-outs can be indefinite, and providers must ask to rejoin the program.

“Figures from 2015 and 2016 may represent the first wave of physicians opting out and lower 2017 data may reflect the fact that physicians no longer need to file affidavits to renew,” said Anders Gilberg, senior vice president of government affairs for the Medical Group Management Association.

Doctors have shown less and less interest in Medicare participation as the program’s reimbursement has not kept up with the cost of providing care and regulations have increased, according to Donna Kinney, director of research and data analysis at the Texas Medical Association.

“Between price controls and the administrative burden, there is real concern about Medicare,” Kinney said.

Medicare remains a vital part of many doctor practices. But some clinicians, particularly in wealthy metropolitan areas, feel they can opt out of the program because they can fill their practice with patients who have commercial insurance or are willing to pay out-of-pocket for care, according to Dr. Charles Rothberg, president of the Medical Society of the State of New York.

“Patients in these areas are not as price-sensitive as they may be in other places,” Rothberg said.

New York City, for instance, had a 76% acceptance rate for Medicare patients in 2017 compared to a 100% acceptance rate in Fargo, N.D., according to Merritt Hawkins, a physician search firm.

Some groups like the American Medical Association have noted that by and large, doctors are staying in Medicare and accepting patients. The CMS estimates that just over 1.3 million providers now bill Medicare.

However, in a time when overall wait times are growing longer, even a few thousand doctors choosing to opt out of Medicare could mean restricted access to care for some individuals, especially in rural areas, Rothberg said.

Even if doctors chose to not opt out of Medicare, there are increasing reports that some are capping the number of Medicare patients they’re seeing, Kinney said.

The Texas Medical Association found in a 2016 survey that 35% of its members said they would not accept new Medicare patients, up from 22% in 2000.

The drop in opt-outs may also stem from the nation’s aging population. As many as 10,000 Americans become eligible for Medicare every day, thus decreasing the number of patients in other forms of coverage.

“As the percentage of Medicare patients goes up it makes it harder to walk away from that program,” said Dr. Jaan Sidorov, CEO of the Care Centered Collaborative, a consulting firm founded by the Pennsylvania Medical Society to help independent physicians with regulatory matters.

Another reason may be that physicians are increasingly employed versus being in private practice, and their contracts may prohibit them from opting out of Medicare, according to Dr. Jane Orient, an internist and executive director of the Association of American Physicians and Surgeons, a far-right provider group.

MedPAC votes 14-2 to junk MIPS, providers angered

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The Medicare Payment Advisory Commission voted 14-2 to repeal and replace a Medicare payment system that aims to improve the quality of patient care. Providers immediately slammed the move.

To avoid penalties under MACRA, physicians must follow one of two payment tracks: the Merit-based Incentive Payment System, or MIPS, or advanced alternative payment models like accountable care organizations.

On Thursday, the Commission voted to asks Congress to eliminate MIPS and establish a new voluntary value program in which clinicians join a group and are compared to each other on the quality of care for patients. Physicians who perform well would receive an incentive payment. The suggestion will be published in the advisory group’s annual March report to Congress.

MedPAC wants to junk MIPS because it believes the system is too burdensomefor physicians and won’t push them to improve care. Members have criticized the program’s design for primarily measuring how doctors perform, including whether they ordered appropriate tests or followed general clinical guidelines, rather than if patient care was ultimately improved by that provider’s actions.

The CMS estimates that up to 418,000 physicians will be submitting 2017 MIPS data.

Prior to the vote, the majority of the debate centered on whether or not MedPac had developed an adequate replacement for MIPS.

David Nerenz, one of the no votes, said he was against the replacement because he worried that only providers with healthy patients would ban together, while those with high risk patients would face difficulty finding anyone to partner with.

He also said evidence was lacking that the group reporting approach would be an effective way to hold providers accountable for quality.

Dr. Alice Coombs, a commissioner and critical-care specialist at Milton Hospital and South Shore Hospital in Weymouth, Mass., was the other no vote. She said she was against getting rid of MIPS as providers are just now getting used to it. Those concerns increased when MedPac staff noted that MIPS repeal likely wouldn’t take place until 2019 or 2020 depending when or if Congress accepted its recommendation.

Warner Thomas, a commissioner and CEO of the Ochsner Health System in New Orleans, LA voted yes, but said he did so with some trepidation as MedPac had not received comments from industry that they were supportive of what the Commission was doing in terms of repealing and replacing MIPS.

“There hasn’t been any support from the physician community around this, and we should be cautioned by that fact,” Thomas said.

Clinicians and providers criticized MedPac following the vote.

“I think they’re wrong,” Dr. Stephen Epstein, an emergency physician at Beth Israel Deaconess Medical Center in Boston said in a tweet. “MIPS could change practice patterns by aligning incentives with performance measures.”

The Medical Group Management Association said it did not support the Commission’s suggestion for a replacement to MIPS.

“It would conscript physician groups into virtual groups and evaluate them on broad claims-based measures which is inconsistent with the congressional intent in MACRA to put physicians in the driver seat of Medicare’s transition from volume to value,” Anders Gilberg, senior vice president of government affairs at MGMA said in a statement.


Humana CMO: “As we improve the quality of healthcare, costs decrease”

Dr. Roy Beveridge has served as CMO of Louisville, Kentucky-based Humana since 2013. Two years into his tenure, he opened the MedCity ENGAGE conference with a discussion calling for the democratization of healthcare.

In a recent phone interview, Beveridge discussed everything from value-based care to social determinants of health.

This exchange has been lightly edited.

What has been Humana’s biggest accomplishment in 2017?

From a physician and patient standpoint, we’re really moving quickly into value-based arrangements with MACRA and MIPS. There’s been a mind shift around physicians recognizing that in order to accomplish their goals of population health and value-based reimbursement, the whole discussion has changed around the need for analysis of data and a very different type of communication between the payer and the provider. Without that data, they can’t close gaps or improve the quality metrics that are becoming the norm.

A few years ago, I mistakenly thought value-based care was something that was going to be focused on the primary care physician and would not impact the specialist as much. But what you’re seeing is specialists recognize this value-based payment system is something they have to participate in.

From our standpoint, what that has resulted in is this continuous focus around community relationships. If payers like Humana are going to be successful, we need to be engaging our physicians’ patients. Services are needed for patients in the home. That’s the shift we have thought about and been successful at as we continue to recognize that an increasing amount of care will be in the home.

Why is it important to incorporate social determinants of health, and what work is Humana doing in this space?

When I was early in my practice and would see someone with diabetes, I remember having this belief that my role was to recognize what the patient’s diagnosis was and give a prescription for insulin. And then I thought I’d done a good job.

That was the mindset up until recently. Simply giving someone a prescription is the easy part. The more complicated part is explaining what their disease is and helping them take their medicine. We used to think that was a social worker’s problem. But if giving someone a prescription that they can’t fill doesn’t really help them.

As we look into the social determinants of health, transportation is big. Social isolation is a big one, and food insecurity goes hand in hand with diabetes and everything else.

I don’t think five years ago you’d be asking a question about social determinants of health. But at this point, the recognition of social determinant health issues is fundamentally linked to population health.

If you’re looking at a fee-for-service model, writing the prescription is all I need to do. If we shift the model to health outcomes, then you’re aligning everyone’s incentives to make sure people are thinking about these social determinants of health.

The other thing we have learned in the last year or two is that care really is local. We as a society have to recognize that what happens in South Florida is different than what happens in Texas or Minnesota or Massachusetts. There’s not one size that fits everything.

Humana recently released its inaugural value-based care report, which outlines numerous topics, including how Humana Medicare Advantage members affiliated with physicians in value-based models typically have healthier outcomes. Which finding from the report most surprised or shocked you?

I don’t think anything shocked me. There were parts of this that I think a couple years ago would have shocked people.

Five or 10 years ago, I would have said to you that in order to improve quality, you have to make an investment globally and that investment is going to cost the system more.

What’s pretty clear in the report is quality metrics do all the right things, yet at the same time, they lower the global cost of care. I don’t think that’s shocking, but it’s something that’s still hard for people to recognize and internalize. Fundamentally, as we improve the quality of healthcare, costs decrease.

News recently surfaced that Humana will acquire a 40 percent stake in Kindred Healthcare’s home care business for approximately $800 million. What does this mean for Humana?

We’ve only made the proposal. We haven’t gotten government approval for anything.

We’re thinking about, “How can we always get closer to the patient? How do we help improve someone’s health by being where someone is more of the time?” [Patients are] not in the hospital most of the time — they’re at home most of the time. We recognize we need to get closer to where people are if we’re going to help them in their destination of improving health.

What is your number one prediction for healthcare in 2018?

My number one prediction in healthcare is the pace of change within the system is going to continue to be fast.

CMS is pushing — and appropriately so — down a health orientation that moves from fee-for-service to quality-based outcomes.

My prediction for ’18 is that we’re going to hit an inflection point where the light bulb goes off because of the number of patients in the system who have moved from fee-for-service into this health outcomes model. Once it hits a certain amount of engagement within your hospital, then it becomes something everyone is aligned around.


MIPS Takes a Beating at MedPAC

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MedPAC has been set on defeating the Merit-based Incentive Payment System for a long time; but whether the program should be simply “repealed” or “repealed and replaced” wasn’t clear at Thursday’s meeting.

Health policy experts sometimes battle for consensus over payment issues, but when it comes to the new way of paying most doctors under Medicare, one group reached near-unanimous agreement: Scrap it.

The Merit-based Incentive Payment System (MIPS) should be spiked, virtually all members of the Medicare Payment Advisory Commission (MedPAC) said during a meeting on Thursday morning.

MedPAC, whose members include physicians, healthcare executives, and other policy experts charged with advising the Department of Health and Human Services on Medicare policy issues, has been set on defeating MIPS for a long time; but whether the program should be simply “repealed” or “repealed and replaced” wasn’t clear at Thursday’s meeting.

At the start of the meeting, MedPAC’s analysts addressed the challenges with the MIPS program and proposed a potential alternative.

The Problem with MIPS

The MIPS program is one of two payment vehicles created as a result of the the Medicare Access and CHIP Reauthorization Act (MACRA) — which replaced the almost universally despised Sustainable Growth Rate (SGR) formula. The other payment pathway consists of an array of advanced Alternative Payment Models (APMs), which weren’t discussed in any detail at the meeting.

The main problem with the MIPS program, as MedPAC’s analysts see it, is that MIPS won’t achieve the policy goals that it’s designed to achieve.

The flexibility of the program — the various options for how physicians can report measures and the broad exemptions for certain types of clinicians — has made it overly complex. There are also statistical challenges that stem from trying to develop individual-level performance scores, due to the relatively small case sizes for some providers.

“Everyone will seem to have high performance when in fact many of the measures are topped out or appear to be topped out … and that will limit Medicare’s ability to detect meaningful differences in clinician performance,” said David Glass, a principal policy analyst for MedPAC.

In the end, Medicare gives clinicians a score based on their performance and either raises or reduces their Medicare payment based on that score, but for all the reasons Glass mentioned, he believes it is “extremely unlikely that physicians will understand their score or what they need to do to improve it.”

“Our most basic concern is that the measures in MIPS have not been proven to be associated with high-value care,” he said.

Alternative Proposed

Glass and MedPAC senior analyst Kate Bloniarz suggested an alternative policy approach that leverages population-based measures.

The Voluntary Value Program, as they’ve dubbed the alternative, would get rid of the MIPS program and all three types of reporting requirements — Advancing Care Information (ACI), Clinical Practice Improvement Activities (CPIA), and quality measures — and scrap CMS support for Electronic Health Records reporting.

In the new model, all clinicians would see a portion of their fee schedule dollars withheld, which would be lumped into a pool — for example 2%, though analysts stressed the percent amount had not been decided.

Clinicians would then have three options:

  • Choose to be measured with a “sufficiently large entity” of clinicians and be eligible for value payments
  • Choose to participate in an advanced APM model
  • Lose the withheld fee schedule dollars

In the first option, the “sufficiently large entity” could be those physicians affiliated with a single hospital or one geographic area, she said.

“An entity’s performance would then be collectively measured using a set of population-based measures,” Bloniarz added.

A limitation of the model is that entities must be “sufficiently large” in order to have “statistically detectable performance on the population based measures.”

In the Voluntary Value Program, measures could potentially fall under three categories: clinical quality, patient experience, and value. For example, a clinical quality measure might include mortality or avoidable admissions.

Unlike the MIPS program, all of the measures could be pulled from Medicare claims data or “centrally conducted surveys” avoiding the clinician reporting burden, Bloniarz explained.

Repeal and Replace?

Most members of the commission expressed support for the new model or at least felt it was a good start.

One new commissioner, David Grabowski, PhD, of Harvard Medical School in Boston, said he favored having a replacement, but he worried that some physicians, particularly those in rural areas, or those treating dual eligible patients (enrollees in both Medicare and Medicaid) might be left out. He stressed that incorporating proper risk adjustment mechanisms into the measurement process would be critical.

Paul Ginsburg, PhD, of the Brookings Institution, also supported a repeal-and-replace strategy.

“My sense is that the politicians don’t want to do nothing. They want to do something,” he said.

However, several commissioners were more hesitant, asking whether replacing the MIPS program was necessary.

“Are we creating something that is so close to the advanced APM structure that it’s almost not worth it?” asked Dana Gelb Safran, ScD, of Blue Cross Blue Shield of Massachusetts.

Gelb Safran suggested that if the commission does choose to recommend an alternative, distinctions between it and the APMs would need to be clear. She also wondered aloud whether with these new entities would revive some of the challenges of the old SGR formula.

The challenge with the SGR was that individuals weren’t truly accountable to each other even though they were lumped together, she explained.

“That really undercuts the desire to behave in the way that the incentives should make them behave because somebody else could kill their incentive, so why bother.”

Craig Samitt, MD, MBA of Anthem in Indianapolis, said he would favor a repeal-only approach, based on the replacement model he’d seen that day.

“If a replacement is a voluntary model that would allow us to keep practicing healthcare the way we’ve been practicing, then that replacement is not a good replacement,” Samitt said.

MedPAC member Kathy Buto, MPA, of Arlington, Virginia, suggested another idea: repeal the MIPS program, but continue to withhold the funds from the clinicians who aren’t participating in the advanced APMs. Then use those dollars to reward APM performance.

“I would actually increase the penalty and make it less attractive to stay in MIPS regardless,” she said.

Commission Chairman Francis J. Crosson, MD, joked that he would be happy to escort Buto from the meeting after it adjourned — implying her idea might be dangerously unpopular with physicians.

In the end, Crosson determined that MedPAC’s technical team would return to the group with draft recommendations for repealing the MIPS program and offer two options: a voluntary replacement program similar to the one discussed at Thursday’s meeting with some revisions, and suggestions on how to make the advanced Alternative Payment Models more accessible for physicians.

The commission could then decide whether to recommend one or both options to HHS.

Top 10 MACRA Considerations for Providers

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Most physician practices are running a race against time to implement Medicare’s value-based payment system, survey data indicates. They have a lot to think about as they go about it.

As Medicare’s reviled Sustainable Growth Rate (SGR) formula for physician reimbursement fades to extinction, its replacement, the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, is posing a new set of challenges.

This week Black Book Research identified 10 of the top MACRA challenges that physician practices are facing. The survey is based on responses from 8,845 physician practices collected from February to April.

1. MIPS compliance technology: Physician practices are seeking technological solutions to help them achieve reporting compliance, with 77% of practices that have at least three clinicians mulling the purchase of Merit-Based Incentive Payment System Compliance Technology Solutions (MIPS) software.

2. Electronic Health Record (EHR) optimization: MACRA appears to be a golden opportunity for the largest EHR vendors. For the top eight EHR companies, 83% of their physician-practice users reported working to upgrade their system for MIPS compliance. At physician practices with smaller EHR vendor partners, however, 72% reported they were not working with their vendor partner to upgrade their system for MIPS compliance.

3. Consultant opportunity: The EHR capabilities required for participation in MIPS or Alternative Payment Models (APMs) represent a business opportunity for EHR consultants. Most (80%) of physician practices report that conducting a technology inventory is key to strategic planning for a value-based payment system.

4. Data wrangling: Taming data to conform with the reporting requirements of MIPS and APMs is daunting for many physician practices. At practices with at least four clinicians, 81% of physicians report being unable to align their data with the new reporting requirements.

5. Paying for procrastination: Physician practices that have not developed an in-house strategy for participating in MIPS or an APM are looking for outsourcing options. Of these practice procrastinators, 80% are planning to find turnkey software or a MACRA-administration partner this year.

6. MACRA-induced physician-practice consolidation: Black Book found that three-quarters of independent physician practices surveyed are considering selling their practice to a health system, hospital, or large group practice because of the regulatory and capital-cost burdens of MACRA.

In an equally dour data point, 68% of independent physicians predicted that MACRA would either burden or bankrupt their practice by 2020.

7. Economic incentives: For the first five years of the Quality Payment Program, there are powerful economic incentives to beat the MIPS performance threshold.

In 2019, MIPS is set to redistribute about $199 million from physicians who perform below the performance threshold to physicians above the threshold, and this redistribution mechanism is set to expand over time.

There also is $500 million in supplemental funding available for each of the first five years of MIPS implementation. To chase these opportunities, 64% of hospital-networked physician organizations reported including incentives in physician-compensation packages to boost MIPS performance.

8. Reputation risk: A majority (54%) of those surveyed did not know that MACRA would result in performance data being reported publicly through Medicare’s Physician Compare website and other rating systems.

9. ACO appeal: Joining an accountable care organization can increase the odds of MIPS success through penalty avoidance and resource utilization bonuses. Small physician practices have taken notice, with 67% considering joining an ACO to increase the likelihood of MIPS success.

10. Cost and quality transparency: Based on its physician-practice survey and other research, Black Book Research expects MACRA to be one of the market factors driving healthcare cost and quality transparency.

One survey noted 52% of large group practices, independent practice associations, ACOs, and integrated delivery networks reported they were preparing to release cost and quality measures for individual physicians by next year.


The Future Of Delivery System Reform

Over the past several years, the federal government has put billions of dollars into a variety of programs aimed at improving the way health care is delivered. The Affordable Care Act (ACA) authorized a broad agenda of reform projects, including accountable care organizations (ACOs), bundled payments, value-based purchasing, primary care initiatives, and other payment and service delivery models. The Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 established new ways of paying physicians intended to promote high-quality patient care.

What will happen to these initiatives under a Congress where Republicans are still seeking to enact major new health reforms and a president who could aggressively use authority granted by the ACA to make sweeping changes in Medicare and other health programs? Does this spell the end of delivery system reform, or could this be a new start with a greater potential to promote efficient and effective health care?

The prospect of ACA repeal has raised concerns among advocates, who argue that the enactment of Medicare-led efforts to promote higher-value care represents a real turning point in the battle to reduce waste and inefficiency. They fear that any reversal of the ACA framework would be a setback to the cause of lower costs and higher quality.

Those fears are overblown. There is bipartisan agreement on the goal of promoting more efficient and effective health care. MACRA, which is aimed at improving the value of physician services through payment changes, was enacted on a bipartisan basis. The debate is over the best way to accomplish the goal, not the goal itself.

We agree that it would be unwise to jettison entirely the delivery system reform provisions of the ACA, but their demise would not be the end of efforts to improve US health care. Rather, we see those provisions as far less consequential than their advocates claim, yet they can serve as departure points for putting in place more effective changes that provide room for private initiative and consumer preferences alongside changes in Medicare’s payment systems.

Summing Up

The cost of health care in the United States has grown rapidly for many years, typically well above growth in the overall economy. Those high costs have not guaranteed high-quality care or good patient outcomes, and our delivery system remains inefficient. What is needed is a process of continuous improvement in the efficiency and quality of the care delivered to patients. That is the core belief motivating the delivery system reform effort, which should be continued even as important features of the ACA come under review.

The key question is how best to pursue more cost-effective care delivery in the United States. At the moment, the federal government is trying to use its leverage to bring about greater efficiency, employing its regulatory powers under the Medicare program. That approach, while understandable, should be amended to make room for more private initiative and consumer incentives. Those are the driving forces for productivity improvement in other sectors of the national economy, and they should be harnessed to produce better outcomes in health care as well.


MedPAC discusses Part B reforms, MACRA: 6 takeaways

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The Medicare Payment Advisory Commission held a public meeting March 3, where commissioners discussed recommendations to reduce growth in Part B drug spending and ways to help physicians transition from Medicare’s Merit-based Incentive Payment System to Advanced Alternative Payment Models.

Here are six takeaways from MedPAC’s discussion.

1. Commissioners addressed the chairman’s many proposals for reforming Medicare Part B, which covers prescription drugs administered in a physician’s officer or hospital outpatient department. The proposals call for modifying the reimbursement for Part B drugs that are paid for based on wholesale acquisition cost — a manufacturer’s undiscounted price to wholesalers or direct purchasers. Under the proposals, the payment rate for WAC-priced drugs would be reduced to WAC plus 3 percent, down from the current rate of WAC plus 6 percent.

2. Under the proposals, all Part B drug manufacturers would be required to submit annual average sales price data. Currently, only Medicare Part B drug manufacturers with Medicaid drug rebate agreements are required to submit annual average sales price data. The proposals would also increase the penalties for not reporting.

3. For drugs that are paid for based on average sales price, physicians and hospital outpatient departments are typically paid the ASP of a drug, plus a 6 percent add-on. The proposals would require manufacturers to pay Medicare a rebate with the ASP for their product if it exceeds an inflation benchmark such as the consumer price index.

4. The Medicare Access and CHIP Reauthorization Act established two pathways for clinician participation: the Merit-based Incentive Payment System, or MIPS, and the Advanced Alternative Payment Models, or Advanced APMs. To help move clinicians from MIPs to Advanced APMs, the commissioners discussed limiting the potential upside in MIPS.

5. The commissioners also discussed proposals that would make Advanced APMs more attractive to clinicians, including creating an additional upside for two-sided ACOs.

6. MedPAC will vote on the proposals next month for possible inclusion in the commission’s June report to Congress.