Georgia Society for Healthcare Materials Management. The status of ACO s in the market and how they impact materials management.

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1 Georgia Society for Healthcare Materials Management The status of ACO s in the market and how they impact materials management October 25, 2013

2 A Highly Volatile And Complex Industry Key Trends Impacting Health Systems, Physicians, and Others Macro Economic Factors 1. Impact of demographic and disease burden tools 2. Increasing healthcare as a percent of GDP and highest cost globally 3. Global financial crisis, national debt crisis, state budget crisis 4. Healthcare reform and changing payment models, flat NIH funding, scrutiny on cost and impact on research 5. Growing regulatory burden and increased transparency 6. Natural disasters Science and Technology Trends 1. Growth in interdisciplinary and team service 2. Growth of comparative effectiveness research and implementation science 3. HIT adoption/proliferation, evolving into database/statistical science, digital revolution 4. Blurring boundaries among academia, industry, government and funders Workforce and Education Trends Health Care Trends 1. Generational shifts in leadership, faculty, staff, residents and students 2. Physician/nurse shortages and resident work hours 3. Team-based care and educational training 4. Diversity shifts in patients, trainees and faculty/staff 5. Evolution of maintenance of licensure and certification 1. Growing payer concentration 2. Increased focus on outcomes, reliability, safety, cost and the patient experience 3. Increasing emphasis on prevention and population health 4. Health system consolidation and physician acquisition 5. Emergence of accountable care organizations to improve quality and reduce waste 6. Migration to lower acuity/costs settings

3 Evolving Healthcare Environment 3

4 A Two-Curve Problem 4

5 Healthcare Reform Timeline 2013 Medicaid Payments for Preventive and Primary Care Increase. CMS has approved over 220 Medicare Shared Savings ACOs. Now more physician only ACOs than Hospital System owned/partially owned. Next application cycle will be for Applications due by July 31. Expect another very large expansion Individual mandate begins. Federal & State Health Exchanges open. Medicaid Coverage Expands. GA thus far no expansion. Annual caps on the dollar amount payable by insurance plans prohibited Implementation of pay or play employment based insurance. Employers with more than 50 employees can choose to offer health coverage or pay a penalty and send their employees to the Health Exchange for coverage. 5

6 National ACO Facts 220 Nationally Only 5 are two sided. Average membership is 15k per ACO. CMS SE region average is 9, % of Medicare population in an ACO nationally; Essentially the same in GA. Over half are physicians without a hospital Median benchmark cost $10,030 annually. 6

7 Two tracks of ACO s 1) System oriented ACO s was the trend the first year as 75% of the first 100 ACO s were centered around health system. The approach to MM for these ACO s. 2) The trend now is physician centric ACO s, as 75% of the last 100 ACO s are physician driven. The approach to MM for these ACO s. 7

8 Key ACO Points Assigned based on plurality of primary care services for each beneficiary. Based on allowed charges, not a simple count of services. PCPs can only participate in 1 Medicare ACO. The Provider has joined the ACO, not the patient. Their patients have NOT joined or been enrolled in the ACO. Patients are not members of the ACO. There IS NO CHANGE to customer service for patients. Medicare still handles service-related calls. There IS NO CHANGE to claims payment processes for patients. Providers still submit claims directly to Medicare. 8

9 Georgia ACO Activity The Southeast has the highest cost/least managed Medicare costs in the country and are therefore ripe for ACO invasion. To date, CMS has approved 9 ACOs in Georgia (out of 220 in US). The majority of the ACOs approved in Georgia are operated by Collaborative Health Services. In the following cities: * Rome * Augusta/Statesboro * Athens (2) * Duluth/Dekalb County * Columbus * Savannah * Warner Robins * Albany * Atlanta More are being applied for during this application cycle.. 9

10 ACO Impact on Non-ACO Providers An ACO will have all the data on the outcomes and cost-effectiveness of the providers who are treating the lives attributed into the ACO. What if that data suggests that individual physicians are not be the provider of choice? If the ACO is a primary-care driven ACO, they can hire their own specialists and subspecialists. Is this the next employment model for physician groups? What if a physician performs the majority of their procedures in one hospital and the ACO decides that another hospital is the more cost effective/higher quality option? What if a carrier decides to build their ACO model around a health system; would that exclude a physician or their ASC? For commercial carriers who do not have the same set of data that CMS has, currently their ACO models will be built solely on pricing models. 10

11 Scorecards You must understand scorecarding Provides physicians and the general public a reliable and defensible source of critical metrics concerning the timeliness, transparency and accuracy of claims processing by health insurance companies. Metrics include - Episodic cost per diagnosis over period of time. Quality measures: Quality of Life measures irrelevant. Measurements of future foregone costs are important. Unit cost vs. surrounding physicians How do we challenge bad scorecarding? 11

12 Sample Scorecard Example Scorecard sample.. $6, Average per Patient Cost for 1 year $5, $4, $4, $4, P a y m e n t s $3, $2, $2, $3, $2, $3, $3, Series1 $1, $1, $- $- $5, $10, $15, $20, $25, Charges

13 Exchange/ Contracting Strategy Address Exchange networks as they roll out: BCBS Humana Attempt to renegotiate key plans: BCBS UHC Cigna Wellcare Revisit whether direct agreements can outpace SGPA rates to eliminate participation sooner. Use new IPA if available quickly enough. 13

14 IPA What is an IPA? Independent Physician Association An association of independent physicians or small groups of physicians formed for the purpose of contracting with one or more managed health care organizations. Member physicians provide medical services for HMO patients in their own offices and are allowed to maintain private practices. - medilexicon

15 IPA Pros 1) Aligns interests of physicians while each retain its own autonomy. 2) Allows physicians to come together in creating best practice standards of care. 3) Provides a united front to payers even if start with a messenger model. 4) Allows for mechanism of incentive based payer contracting once scorecards are developed and tracked. 5) Provides a potential mechanism in the future for consolidated managed care contracting (when clinical or financial integration is achieved). Medicare Advantage Plans and CMOs are already asking for it.

16 ACO Incentives In Medicare s traditional fee-for-service payment system, doctors and hospitals generally are paid for each test and procedure. ACOs don t do away with fee for service, but they create savings incentives by offering bonuses when providers keep costs down Doctors and hospitals have to meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. In other words, providers get paid more for keeping their patients healthy and out of the hospital. If an ACO is unable able to save money, it could be stuck with the costs of investments made to improve care, such as adding new nurse care managers, and also may have to pay a penalty if it doesn t meet performance and savings benchmarks ACOs sponsored by physicians or rural providers, however, can apply to receive payments in advance to help them build the infrastructure necessary for coordinated care a concession the Obama administration made after complaints from rural hospitals. 16

17 How ACO s receives a bonus 1. ACO must meet quality standard minimum scoring. 2. ACO must save more than 3% from projected trend (expected cost without an ACO). 3. If both are met, ACO shares savings 50/50 up to a cap. 17

18 How ACO participants receive a bonus 1. Not set by law. Determined by the group based on their operating agreement. 2. Typically something like: a. Individual physician scorecards developed measuring quality and cost actual vs. benchmarks. b. Weighting determined for quality vs. cost measurements. c. Individual scoring computed. d. Physician A's % of total scores computed = His share of the bonus to be distributed. 18

19 Incentive Trends FFS FFS / Bonus Sub Cap wrvu wrvu / Quality Clinical Integration 19

20 General Key Takeaways Hospital and Physician models Transparency for cost and outcomes data In a market with increasing ACO/Exchange/bundling activity, standing alone is risky. Total health care $ s are going down, not up. There will be winners and losers. Failure to understand our own data will cost the practice in the long run (either patients or incentives). Being stuck in fee for service mode will work for a little while longer, then will cost practices money. What s our value case to a payer? 20

21 How does all of this affect Supply Chain?

22 Impact to MM Two tracks of ACO s (Physician and Hospital based) impacts your physician relationships and vendor review processes in different ways. The key components of creating an ACO include improving healthcare delivery, improving health and reducing costs through the quality improvement process. Reducing costs is the supply chain component. In a Hospital based ACO, partnering with incentivized physicians offers new opportunities to sit down with physicians to: Explore cost savings in supply and equipment standardization Review supply utilization streamlining by comparing and benchmarking outcomes in related clinical product lines Identify the outliers and present potential cost savings opportunities Identify and leverage vendor preferences

23 Physician Based ACO s Since the physicians are not partnered with the hospital in this model, they are not as incentivized to work with you to lower their costs. Hospitals and Materials Management need to find other ways to improve support physician ACO practices. Opportunities may include identifying improved distribution service, support services like Biomed, housekeeping, laundry and capital equipment sourcing and negotiation support. Align physician ACO s under Hospital GPO as an affiliate.

24 Hospital Based ACO s In a Hospital based ACO, partnering with incentivized physicians offers new opportunities to sit down with physicians to: Explore cost savings in supply and equipment standardization Review supply utilization streamlining by comparing and outcomes of related clinical procedures benchmarking Identify the outliers and present potential cost savings opportunities of best practices Leverage vendor preferences

25 How will Vendors React? Vendors will increase marketing efforts focused on new products, technology and services specifically targeted at the ACO market. This will include products that claim to reduce LOS, lower infection rates, improve quality outcomes, less invasive procedures for patients and overall lower costs. How do you sort through good marketing claims v. true opportunities? Utilize the Value Analysis Team process. Partner with vendors who will go at risk to back up their claims. Check references to confirm claims. Track and review cost savings and outcomes. Make it part of the VAT process.

26 Supply Chain Role in Driving Quality Improvement & Lower Costs If your hospital becomes an ACO, quality & costs will become a focus of your Strategic Plan How do we identify the types of supplies, equipment and technology systems should we invest in that will improve quality yet help reduce costs? Scorecarding by payors will establish the parameters for quality measures. Create or re-establish Value Analysis Teams with strong emphasis on physician and senior management involvement. Surgery and other clinical departments will focus on supply and equipment utilization patterns and outcomes to determine the outliers v. best practices. Physician and administrative peer review teams will use this data to focus on how to best standardize and align physician utilization. Why will this work now when it hasn t before? (Remember the new physician incentive bonus structure )

27 MM Top 5 Takeaways 1) Physicians are now motivated to be involved with supply chain efforts to help reduce costs and enhance bonus potential. 2) Physicians will want to be more involved with the supply chain utilization review process to streamline consumption based on comparative best practices data. 3) Outcomes will be even more of an influential driver with getting physicians to the table with vendors. 4) With physician based ACO s, it will be essential to keep a good relationship to prevent the possibility of loss of referrals. 5) Physicians will be more directly involved with the negotiation process with vendor preference initiatives.

28 Wrap Up ACO s will impact each of you in this room one way or another. Physician relationships will grow and be more instrumental in your every day processes. Negotiations will now include input from physicians as they will become more interested in the cost structure of supplies used. Transparency of cost and outcomes will become more prevalent. Hospitals should gain leverage due to transparency and newly engaged physician interest in cost structure being as important as vendor preference.

29 Contact Information Mike Scribner (912) Phil Church (912)

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