1 INTEGRATION STRATEGIES FOR A NEW HEALTH CARE ECONOMY Thomas William Baker Baker Donelson Bearman Caldwell & Berkowitz, P.C. Atlanta, Georgia (404) Prepared for East Georgia Physicians Group October 13, 2010
2 TO BE OR NOT TO BE: THAT IS THE QUESTION Focus on Survival Do you want to control your own destiny?
3 WHAT MANNER OF OUTRAGEOUS FORTUNE CONFRONTS US? RESPONDING TO MARKET FORCES. Patient Protection and Affordable Care Act of 2010 PPO/Private Market Insurance Consolidation Medical Tourism Downward Pressure on Payment Rates Regulatory Compliance Under Stark and the Anti- Kickback Statute Fraud and Abuse Initiatives Like RAC Audits
4 OVERVIEW OF THE HEALTH CARE ECONOMY Two Broad Categories: Governmental Reimbursement Programs Private Insurance Coverage.
5 GOVERNMENT REIMBURSEMENT PROGRAMS Steadily Grown since 1965 Account For Over 50% of Health Care Spending PPACA Gives Federal Coverage Up To 133% of the Federal Poverty Income (FPI) in Medicaid and Premium Subsidies For People Earning Up To 400% of the FPI. Traditional Medicare is Last Bastion of Indemnity Insurance
6 COMPETING IN THE PRESENT PRIVATE INSURANCE MARKET Covers Approximately 42% of Health Care Expenses PPOs Cover Approximately 193 Million Americans in a Consolidated Market BLUCAS Represent 80% to 90% in Many Markets Threat to Continuing Existence of PPOs Will Cause Them to Flex Influence on Washington Decision Making PPOs Are Expected to Offer Competing Models of Clinical Integration, Improved Quality, and Cost Containment
7 THE DEMISE OF THE FEE FOR SERVICE ECONOMY Fee For Service is Unsustainable in Both the Medicare and Private Payor Markets System Change Will Be Required To Create the Proper Balance Among Health Care Payors, Health Care Providers, and Patients For Cost-effective Delivery of Quality Health Care Services.
8 IF NOT FEE FOR SERVICE, THEN WHAT? PROVIDER SYSTEMS THAT REQUIRE: An Increase In Shared Risk Consolidations Into New Care Delivery Systems New Organizational Structures New Quality Measurement Approaches New Health Information Technology Systems
9 HOW WILL WE BE PAID? THERE IS NOTHING NEW UNDER THE SUN. Pay-For-Performance Hospital-Physician Bundling For Specific Diagnosis- Related Group (DRG) Codes Bundling Based On Episodes of Care Shared-Savings Capitation
10 EVOLUTION OF PAYMENT MODELS Pay For Reporting Model: Payment For Reporting Quality Criteria Pay For Performance Rewards Reporting Quality Measures and Outcome Goals, Which Will Likely Include Cost Reduction Or Efficiency Measures The Flip Side of Pay For Performance Is a No-Pay For Non-Performance CMS No-Pay List For Never Events Like Wrong- Site, Wrong-Procedure, and Wrong-Patient Surgeries Trend Toward Transparency
11 CONTROLLING COSTS THROUGH COORDINATED CARE Better Management of Individual Patient Health and Wellness As a Means For Controlling Overall Cost. Medical Home Demonstration Project. Purposes: Increase Preventive Care, Early Intervention, Coordinate Care Site Transitions, Decrease Specialist Utilization, Expand Disease Management, and Ensure Home Follow-Up Allows Integration of Services Over an Entire Episode of Care Accountable Care Organizations
12 COORDINATED CARE PAYMENT METHODS: PMPM / CAPITATION Generally On a Per-Member, Per-Month Basis Compensates For Care Coordination and Care Management and Account For the Infrastructure (Such As Electronic Health Records) Necessary To Maintain a Medical Home. Open Season On High End Specialty Practices That Rely On Performance of Expensive Procedures, Such As Cardiovascular Surgery and Interventional Cardiology, Medical Oncology, and Orthopedics. Over Time, It Also Means That There Will Be Fewer Procedures Performed In Hospitals. "Baby Boomers" Should Provide Adequate Hospital Volume, With Financial Success Dependent on ACO's, Bundling Payment Collaboratives and Other Integration Models.
13 COORDINATED CARE PAYMENT METHODS: EPISODES OF CARE A Bundled Or Episodic Payment Structure Will Be Piloted Soon, As Required by the PPACA. A Group of Providers Are Paid a Set Amount For Care Provided To a Medicare Beneficiary With One of Eight Specified Conditions That Is Intended To Cover All Care By All Providers During the Episode. "Episode" Includes a Period From Three Days Before a Hospitalization, Through the Hospitalization, and Thirty Days of Post-acute Care, Which Might Include Skilled Nursing, Home Health, Or Even Long Term Care Inpatient Hospital Services. To Participate, a Provider Entity Will Need To Be Comprised of At Least a Hospital, a Physician Group, a Skilled Nursing Facility, and a Home Health Agency
14 PPACA BUNDLED PAYMENT PILOT PROGRAM PPACA Also Included a National Pilot Program On Payment Bundling. An Episode Would Generally Be Three Days Prior To Admission To a Hospital For the Applicable Condition, During the Hospital Stay, and Thirty Days Following Discharge. A Participating Entity Would Need To Include a Hospital, a Physician Group, a Skilled Nursing Facility, and a Home Health Agency. The ACO Organizational Model Is Effective For Participation In That Pilot Program.
15 CORDINATED CARE PAYMENT METHODS: SHARED SAVINGS THROUGH ACCOUNTABLE CARE ORGANIZATIONS The Most Radical Payment Reform Structure Being Proposed Is Clinical Integration Of Providers Through Accountable Care Organizations (ACOs) Increase Quality and Efficiency of Care Through Mutual Accountability to Peers. May Be a Viable Method of Driving down Costs and Improving Quality
16 MOVEMENT TOWARD ACOs In a Report to Congress in 2009, Medicare Payment Advisory Commission (MedPac) Identified Clinically Integrated ACOs As A Way To Divert The Medicare Program Away From the Unsustainable Spending of the Traditional Medicare Fee-For-Service Program. The American Hospital Association (AHA) has Published Proposed Guidance On Establishing Clinical Integration Programs, Which Includes ACOs.
17 EFFECT OF THE PPACA ON ACOs PPACA Includes a Voluntary Pilot Program For ACOs Called the Shared Savings Program Allows Submission of Medicare Claims For Payment On Normal Fee Schedule With Distribution of a Certain Percentage of Calculated Cost Savings and No Downside Risk Requires the ACO To Have a Formal Legal Structure That Receives and Distributes Shared Savings Payments; Enter Into Three Year Participation Agreement; Comply With Reporting Requirements; and Meet Quality of Care, Patient Satisfaction, Utilization and Other Standards That Will Be Mostly Fleshed Out In Forthcoming Regulations Beneficiaries Assigned To an ACO Based On Their Utilization of Primary Care Services Minimum of 5,000 Beneficiaries Required To Qualify For the Pilot Program
18 ACO COMPENSATION MODELS ACO Will Need To Develop a Compensation Model That Will Align the Incentives of Productivity, Quality, Outcomes and Cost Reduction. Physicians Will Need To Be Engaged In the Organization and Have an Active Role In the Organizations Leadership.
19 CORRECTING MARKET INEFFICIENCY Inefficient Markets Consolidate Health Care Services is an Inefficient Market Federal Trade Commission (FTC) and Rulings and DOJ Antitrust Law Enforcement Discourage Unintegrated Networks From Collectively Negotiating Fee Schedules and Effectively Negotiating With Payors
20 INTEGRATION STRATEGIES ARE THE KEY TO ECONOMIC SURVIVAL Horizontal Integration Vertical Integration Financial Integration Clinical Integration
21 TECHNOLOGY WILL LEAD THE WAY TO REQUIRED INTEGRATION Integrated Health Care Organizations Will Leverage Their Size and Capital To Acquire and Implement Systems (Including Clinical Protocols and Electronic Health Records) The Systems Will Meet the Changing Demands of the Health Care Industry and Ensure That Their Reported Quality Measures Accurately Reflect Their Goals and Values.
22 ANTITRUST LAW REQUIREMENTS FOR INTEGRATION Antitrust laws allow integrated networks that produce significant efficiencies that benefit consumers to create price agreements which, absent such integration, might otherwise be illegal. The price agreement must be integral to the significant efficiencies that the integration is meant to achieve. In the absence of such financial or clinical integration, collective negotiation by physicians is an agreement between competitors on prices, which is per se illegal under the antitrust laws. For non-integrated independent physician associations (IPAs) and physician-hospital organizations (PHOs), any evidence of collective negotiation might result in antitrust law liability.
23 INTEGRATION STRATEGIES To Compete In a Changing Market, Health Care Providers Will Need To Participate In New, Emerging Payment Structures That Can Engage In Collective Negotiation of Fees and Manage Funds That Are Intended To Cover All of the Patient s Health, Wellness, and Medical Needs. Virtually All Providers and Health Systems Must Implement an Integration Strategy. There Are Two Primary Kinds of Integration: Financial Integration and Clinical Integration.
24 FINANCIAL INTEGRATION THROUGH ACQUISITION AND MERGERS Financial Integration Through Health System Acquisition of Medical Practices Profitability Challenges Limitations on Available Health System Capital Medical Practices May Also Engage in Horizontal Mergers to Gain Market Power and Achieve Operating Efficiencies
25 OTHER FINANCIAL INTEGRATION STRATEGIES Financial Integration Through Fiancial Risk Sharing In A Provider Network Capitated Rates: Predetermined Percentage Of Premium Or Revenue From The Plan; Payment By Episode Of Care For A Fixed, Pre-determined Payment, When The Cost Of That Course Of Treatment For Any Individual Patient Can Vary Greatly Due To The Individual Patient s Condition, The Choice, Complexity, Or Length Of Treatment Or Other Factors; Other Significant Financial Incentives For Its Physician Participants, As A Group, To Achieve Specified, Cost-containment Goals. Risk Withholding Programs And Rewards Programs Key: You Need An Organized Network To Participate.
26 CLINICAL INTEGRATION STRATEGIES Purpose Must Be To Achieve Significant Market Efficiencies and Promote Competition. Such Integration May Be Evidenced Through an Active and Ongoing Program To Evaluate and Modify Practice Patterns By the Network s Physician Participants and Create a High Degree of Interdependence and Cooperation Among the Physicians To Control Costs and Ensure Quality. Like Financial Integration, the Agreement and Use of a Set Fee Schedule Must Be Reasonably Necessary To Realize the Intended Efficiencies. Motivated By Consolidating PPO and Health Insurance Markets, and the Push From Government Payors To Move Toward a Pay For Performance Model.
27 CLINICAL INTEGRATION AS A VIABLE ALTERNATIVE Clinical Integration Is a Viable Response Because It Combines Independent Physicians With Hospital Systems and Their Employed Physicians Without Necessarily Requiring Direct Employee Relationships. Changes To the Medicare Program Will Provide Health Care Delivery Systems With the Critical Mass of Patients Required To Provide Incentives For Physicians To Work Within a Clinically Integrated Structure.
28 EXAMPLE OF SUCCESSFUL CLINICAL INTEGRATION MODEL: TRISTATE HEALTH PARTNERS FTC Approved Clinical Integration Program. Network Included Both Independent and Employed Physicians Non-exclusive: Payors Were Free To Contract Directly With Any Member A Core Part of the Program Was Implementation of a Webbased Health Information Technology System As Well As the More Traditional Physician Performance Targets, Utilization and Disease Management, Clinical Protocols, and Quality of Care Standards.
29 FTC CONCLUSIONS FROM TRISTATE DETERMINATION The Program Has the Potential To Create Substantial Integration Among Its Participants, Which Creates Efficiencies Leading To Improved Quality of Care As Well As Cost Effective Care; The Joint Contracting Is Related To the Goal of Delivering the Coordinated Care and Achieving the Quality and Cost Efficiency Goals; and Since the Network Is Non-exclusive, There Is Still Open Competition.
30 FTC AND DOJ CRITERIA FOR ANALYZING CLINICAL INTEGRATION STRATEGIES What Do the Physicians Plan To Do From a Clinical Standpoint? How Are These Activities Designed To Improve Quality of Care, Reduce the Cost of Care, Or Produce Other Efficiencies? How Is the Program Designed To Provide Interdependence Among Physician Participants? How Will the Physicians Be Collectively Motivated To Achieve Those Goals and Efficiencies? How Significant Will the Physicians' Investment (Both Monetary and In Human Capital Form) Be? How Will Performance Be Monitored and Measured? What Are the Consequences of Physician Non-performance Or Sub-par Performance? Why Is Joint Price Negotiation Reasonably Necessary To Achieve the Intended Benefits of the Program? What Are the Likely Competitive Effects of Physicians' Joint Negotiations?
31 ESSENTIAL ELEMENTS OF CLINICALLY INTEGRATED ACO Monitoring Utilization. Establishing Mechanisms To Monitor and Control Utilization of Health Care Services That Are Designed To Control Costs and Assure Quality of Care. Measuring Quality. Clinical Protocols Must Be Established To Reward Provisions of Best Practices, Evidence Based Medicine. Selecting Efficient Providers. Selectively Choosing Network Physicians Who Are Likely To Further These Efficiency Objectives. This Is, In Essence, Pay For Performance. Investment of Capital. The Significant Investment of Capital, Both Monetary and Human, In the Necessary Infrastructure and Capability To Realize the Claimed Efficiencies.
32 FORMATION OF AN ACO An ACO is a Network Web Based Technology Is a Fundamental Requirement. Need Capital, Human Resources, and Organizational Structure Equity Versus Non-equity Models Use of an Existing PHO
33 POTENTIAL OBSTACLES TO DEVELOPMENT OF AN ACO Need Adequate Number of Primary Care Providers To Serve 5,000 Medicare Beneficiaries Effective ACOs Will Require Close Communication and Integration of a Large Group of Providers With Differing Practice Areas, Experiences, and Beliefs That Are Committed To Delivery of High-quality Health Care Delivery Through Cooperation and Risk Sharing. Rural Areas Will Be Difficult To Serve Unless There Is a Telemedicine Component Members of the ACO Will Need To Agree To a Method of Distributing Any Realized Savings Among the Group. Wide Disparity of Physician Incomes and Political Power, and a Deep Distrust Between Some Physicians and Their Community Hospitals. Absence of Incentive To Decrease Utilization For the Benefit of the ACO When the Provider Is Paid Based On Fee For Service.
34 ANTITRUST COMPLIANCE IN ACO DEVELOPMENT The Following Topics Should Be Strictly Avoided In Any Communication Between Competitors: 1. Prices and pricing policies. 2. Terms or conditions of sale. 3. Credit terms and billing practices. 4. Suppliers terms and conditions of sale. 5. Costs. 6. Profits or profit margins. 7. Advertising and marketing plans and practices. 8. Bids, including your intent to bid or not to bid for a particular contract or program, and the timing or amount of your bid. 9. Allocation of territories or customers. 10. Refusals to deal with a supplier or customer.
35 THE MANAGEMENT ALTERNATIVE Combine Providers Under an MSO Achieve Economies of Scale While Collectively Negotiating Still Need to Follow Clinical Integration Rules
36 HOW DO YOU WANT TO TAKE ARMS AGAINST THIS SEA OF TROUBLES AND BY OPPOSING END THEM? Financial Integration? Clinical Integration?
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