DELIVERING VALUE THROUGH POST-ACUTE CARE

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1 OCTOBER 2014 DELIVERING VALUE THROUGH POST-ACUTE CARE WHAT IT MEANS FOR HEALTH SYSTEMS

2 About The Chartis Group The Chartis Group is an advisory services firm that provides management consulting and applied research to leading healthcare organizations. The firm is comprised of uniquely experienced senior healthcare professionals and consultants who apply a distinctive knowledge of healthcare economics, markets, and organizational dynamics to help clients achieve unequaled results. For additional information or further discussion related to this report, please contact the authors: Cindy Lee Principal Anneliese Gerland Accountable Care Solutions Practice Manager Fred Bentley Principal For more information about The Chartis Group, please visit our website at

3 Delivering Value through Post-Acute Care: What It Means for Health Systems by Cindy Lee, Anneliese Gerland and Fred Bentley Many health systems have not integrated post-acute care (PAC) as a core component of their delivery systems. However, a growing number are beginning to think about how best to build strategic relationships with PAC providers and better utilize their own post-acute assets. In just one example, Ascension Health, the nation s largest Catholic health system, recently announced plans to reorganize its senior care facilities and programs into Ascension Health Senior Care to improve its ability to share best practices and grow senior care offerings. Increasingly, acute care providers should monitor changes emerging across the PAC landscape and plan for how best to align with both owned and independent post-acute care partners to improve quality and reduce the cost of care. Better integration across the continuum will be critical for all health systems, even for those not assuming risk for patient populations. This paper describes the three most important post-acute care opportunities that acute care providers should understand. Health systems have been actively creating provider networks to enable access for patients and to better organize care processes, to ultimately deliver higher value. These efforts have largely focused on achieving sufficient scale and geographic coverage to realize the benefits of improved quality and efficiency, by entering into shared savings and risk contracts with payors or by going direct to employers. Within this framework, newly formed systems of care must determine how to more effectively manage the total cost and quality of care across the continuum, inclusive of the care that precedes and follows an acute event. The landscape can be confusing for health systems with limited experience in the post-acute care health continuum. For example, PAC has a variety of definitions. In this paper, we use Medicare s definition, which focuses on four key care settings home health, nursing facilities, inpatient rehabilitation facilities, and long-term acute care hospitals (Figure 1 on page 2). While each setting has unique patient eligibility criteria, the appropriate care setting for a particular patient may be unclear given that many services overlap across these settings. For example, therapy is a key component across all care settings. However, the qualification for therapy at home or in an inpatient setting such as a skilled nursing facility may depend on factors such as the frequency of treatment required and patient mobility discretionary assessments made by the care team. 1

4 FIGURE 1 Post-Acute Care Settings Least Intensive Most Intensive Home Health Agencies (HHAs) Nursing Facilities (NFs) and Skilled Nursing Facilities (SNFs) Inpatient Rehabilitation Facilities (IRFs) Long-Term Acute Care Hospitals (LTCHs or LTACHs) Nursing, medical, and rehabilitative care delivered to the homebound. Nearly two-thirds of home health episodes are not preceded by a hospitalization or other post-acute stay. Non-acute and non-intensive nursing, medical, and rehabilitative care. Also serve long-term residents, which Medicare does not cover. Medicaid is the largest payor of NFs. Intensive rehabilitative therapy delivered by multi-disciplinary teams under the direction of a physician. Generally only used following an acute episode. Medical and rehabilitative care for patients who need hospital-level care for extended periods. Generally only used following an acute episode. Number of Medicare-Certified Providers, ,613 Agencies 15,163 SNFs 1,161 IRFs 432 LTCHs Utilization Rates among Medicare Fee-for-Service Beneficiaries, million users 1.7 million users 373,000 cases 124,000 users Source: MedPAC, A Data Book: Health Care Spending and the Medicare Program, June 2014 Opportunity #1: Improve Quality and Cost Across the Full Continuum of Care, including PAC Post-acute spending represents a small portion of total healthcare spending. For example, it represented just over 10% of total Medicare fee-for-service (FFS) spend in In recent years, however, PAC has gained increased attention as a target for savings for several reasons. First, Medicare spending on PAC services has increased significantly, with growth outpacing both total hospital expenditure growth and hospital inpatient growth, though not hospital outpatient spending growth (Figure 2). FIGURE 2 Growth in Medicare FFS Spending on PAC Care Has Outpaced that Of Hospital Spending Hosp IP Compound Annual Percent Growth Change Rate 19% 2% Spending ($B) PAC Hosp OP 68% 6% 127% 10% Source: Chartis Analysis based on MedPAC Data Book, Charts 1-1 and 8-2 (2014). 2

5 Second, PAC can represent as much (if not more) of Medicare s spend for the total episode of care as does the initial index admission (Figure 3). FIGURE 3 Medicare Spending on Acute vs. Post-Acute Care for 30-Day Episodes That Began with a Hospitalization (Mean Payment per Discharge) Index admission Post-acute care $20,000 $18,414 $15,000 40% $12,456 $10,000 $9,732 $10,696 45% 50% 48% $10,470 42% $5,000 60% 55% 50% 52% 58% $0 DRG 470 Major Joint Replacement DRG 194 Pneumonia with Complications or Comorbidities DRG 292 Heart Failure with Complications or Comorbidities DRG 683 Renal Failure with Complications or Comorbidities DRG 190 COPD with Major Complications or Comorbidities Figure adapted from Mechanic, R, Post-Acute Care The Next Frontier for Controlling Medicare Spending. N Engl J Med 2014 Feb 20; 370: Data are from Gage et al, Post-Acute Care Episodes: Expanded Analytic File. Waltham, MA: RTI International, June Third, and perhaps most importantly, there is significant variation in post-acute spending. A study completed by the Institute of Medicine in 2013 suggests that as much as 73% of regional variation in Medicare s cost per beneficiary is driven by PAC. 2 Underlying this variation are significant differences in utilization, both in terms of the type of service and duration of services, which are not fully explained by acuity. The site of care chosen is a key factor given the significant differences in cost of care across post-acute care settings, even among patients with similar conditions (Figure 4). For example, one analysis estimated that spending on patients recovering from strokes or hip replacements was 25% to 40% lower on average for patients treated in SNFs versus IRFs. 3 The timing of PAC also matters; for example, keeping patients in a short-term acute care hospital for a few more days, and discharging them directly to home or home health, may reduce total cost of care compared to discharging them earlier into an SNF or IRF. 4 Unless a health system is assuming responsibility for the total cost of care, the incentives are not aligned to support rational decisions related to optimal care utilization across the continuum. 3

6 FIGURE 4 PAC Spending Variation, by Setting, and by Condition Average Medicare Post-Acute Episode Payments by Service, Relative to HHA HHA SNF 3x HHA IRF 4x HHA LTCH 9x HHA Source: Chartis analysis based on Post-Acute Care Episodes Expanded Analytic File Data Chart Book, Centers for Medicare and Medicaid Services, June 2011, Section 4, Table 1. Medicare PAC Spending Variation, by Condition Condition Spending on post-acute care within 30 days of hospital discharge Mean 25th percentile 75th percentile Ratio of 75th to 25th percentiles Coronary bypass w cardiac catheterization $5,286 $1,864 $6, Major small & large bowel procedures $6,100 $2,110 $8, Major joint replacement $8,152 $3,890 $11, Stroke $13,914 $5,936 $19, Simple pneumonia & pleurisy $7,039 $2,351 $10, Heart failure & shock $5,997 $2,034 $9, Fractures of hip & pelvis $11,688 $8,213 $14, Kidney & urinary tract infections $8,040 $3,335 $11, Hip & knee procedures except major joint replacement $13,608 $10,526 $16, Septicemia or severe sepsis w/o MV 96+ hours $8,282 $3,344 $11, Average of 10 conditions 3.2 Source: MedPAC, Medicare Post-Acute Care Reforms, Testimony before the Subcommittee on Health, House Ways and Means Committee, June 14, 2013, Table 2. What it means: When and where acute providers send their patients for care matters. Acute providers should seize this opportunity to improve quality and manage costs by assuming increased accountability for PAC spending either independently or in partnership with PAC providers. Medicare fee-for-service, the largest payor for PAC services, represents the greatest opportunity for savings and improved care coordination. There are also opportunities to enter into new payment models to better manage the cost and quality of PAC within Medicare Advantage, Medicaid, and commercial populations. 4

7 Opportunity #2: Reduce Readmissions The cost to Medicare of a 60-day episode of care is 2.2 times higher when there is a related readmission than without. 5 It s no surprise that Medicare is leading the way to target preventable readmissions, beginning with the penalty program introduced by the Affordable Care Act. Nearly 75% of acute care providers have been penalized for excess readmissions in the first two years of the CMS Readmissions Reduction Program. Penalties of nearly $500 million were paid by 2,500 hospitals between fy 13 and Some states are following suit and imposing additional fines for preventable readmissions. For example, Illinois recently imposed $16 million in penalties across 82 hospitals for high readmission rates. 7 Private payors are likely to introduce similar policies in the coming years. To avoid penalties, health systems need to both manage the direct care they deliver and identify the best care settings for patients after discharge: 1. A significant portion of patients who are discharged into post-acute care are later readmitted; analyses of Medicare PAC utilization suggests that as many as 30% of Medicare beneficiaries discharged into post-acute care were readmitted within 60 days At the same time, many other patients who were sent directly home with no PAC services were later readmitted. One study shows that among Medicare patients not discharged directly into post-acute care, 20% were readmitted within 60 days. 9 What it means: Forming a preferred network of PAC providers based on objective quality and service standards, increasing coordination of care or hand-offs, and aligning care objectives with PAC providers can improve the overall quality of care and should result in reduced readmissions and fewer patient bounce backs, both of which increase risk and costs. Some approaches may include increasing utilization of post-acute care for specific diagnoses or types of patients who have not historically been referred to PAC providers given misaligned payment incentives. Opportunity #3: Reposition Post-Acute Providers to Prevent Acute Care Home health and nursing facilities currently play significant roles as continuing care providers before an acute episode even occurs, due to their role as long-term care providers. With the right support, these providers could play an even larger role identifying potential at-risk patients where intervention can avoid emergency room visits and acute admissions, resulting in improved patient outcomes and patient satisfaction, while also reducing the total cost of care. Many home health providers interact with patients weekly or even daily, and may be better positioned than primary care physicians to assess a patient s changing medical and personal care needs, flagging potential risks of an acute event. Moreover, these long-term care providers can manage patients overall health through integration of services such as palliative care to support patients with chronic needs and their families. For example, research estimates suggest care improvement initiatives may 5

8 reduce hospitalizations for nursing facility residents by as much as 30% or in some cases up to 67%. 10 What it means: Under the framework of value-based payment models and aligned financial incentives, acute and post-acute providers, along with physicians, can collaborate to more effectively manage the health and personal care needs of vulnerable populations, such as the frail elderly. Acute providers should consider new ways to collaborate with home health providers and nursing facilities to assess a patient s overall well-being to detect early indicators of changing care needs. This can identify opportunities for early intervention that increase patient quality of life and reduce unnecessary utilization of acute care resources. Assessment of the Opportunities for Success CMS is experimenting with many new payment models to test which methods, and perhaps which types of providers, including acute care providers, physicians, post-acute care providers, or some combination of all three, are best equipped to manage total cost of care. For example, in the Bundled Payments for Care Improvement (BPCI) Initiative, acute care providers, post-acute care providers, and physicians have all signed up to be the owner for an episode of care. In three of the four models, this includes some degree of post-acute care management. It remains to be seen which types of providers will emerge as the leaders in demonstrating their ability to manage the total cost and quality of care. Many post-acute providers are not waiting to find out. Driven by regulatory and reimbursement pressures that threaten historical revenue streams, PAC providers are driving alignment with health systems, diversifying business lines, and consolidating. Select Medical, a large rehab provider, has formed a number of joint ventures with large health systems such as Baylor Institute for Rehabilitation in Texas, OhioHealth, and more recently a three-way joint venture with Cedars-Sinai and UCLA to open a 138-bed inpatient rehab facility in Los Angeles. Kindred Healthcare, a large full service post-acute care provider, is reorganizing and shifted a significant portion of its business away from skilled nursing to rehabilitation and home health services, largely through acquisitions. As post-acute care providers evolve, and acute and post-acute providers alike seek increased accountability for the costs and outcomes of care, health systems must consider how best to partner with post-acute providers. Aligning with a PAC provider for the long term through a clinically integrated network, an equity arrangement, or ownership of a PAC network are all possibilities. Additionally, health systems that already own post-acute assets must consider how to most effectively position these resources to support their enterprise objectives. The ideal strategy will largely depend on the individual health system s strategic goals, including plans for assuming risk, the availability of PAC providers in their market, competitor positioning, and the health system s access to capital. In particular, for acute providers ready to participate in value-based payment models, especially Medicare models, PAC could present a significant opportunity to deliver higher value and achieve savings across the full continuum of care. 6

9 Implications Health systems should take steps to understand several key issues that support development of a more comprehensive approach to cross-continuum network development inclusive of post-acute care needs, including: Post-acute care utilization and quality: When and where do we refer patients for post-acute care today? Clinical conditions? Patient populations? Settings? Specific providers? How do these PAC providers compare in terms of: Quality? Readmission rates? Access? Communications? Patient service? How can post-acute care support our broader objectives: What readmission penalties are we incurring today? For which clinical conditions, patient populations? What are the sources of readmission (from home, PAC setting)? How could post-acute and long-term care capabilities help in supporting our transition to value? How should we best position our current owned post-acute assets? Understanding the evolving market landscape: How is the PAC landscape changing consolidation, partnerships with other acute care systems? Are PAC providers in my market willing to take risks or form creative partnerships? How are other acute care systems aligning with PAC providers e.g., joint venture, building, buying? 7

10 References 1. Chartis analysis based on MedPAC Data Book: Health Care Spending and the Medicare Program, June 2014, Chart 1-9 and Chart 8-2. Does not include beneficiary cost sharing. 2. Institute of Medicine. Variation in Health Care Spending: Target Decision Making, Not Geography. Washington, DC: The National Academies Press; Note: does not reflect Medicare Advantage spending. 3. Medicare Fee-For-Service Payment Policy Across Sites of Care, Statement of Mark E. Miller, PhD, Executive Director, Medicare Payment Advisory Commission, Before the Subcommittee on Health, Committee on Energy and Commerce, U.S. House of Representatives, May 21, MedPAC Testimony. Washington, DC. Retrieved from: Last accessed: October 2, Mechanic R. Post-Acute Care The Next Frontier for Controlling Medicare Spending. N Engl J Med Feb 20; 370: Retrieved from: Last accessed: October 2, Dobson A et al. Use of Home Health Care and Other Care Services Among Medicare Beneficiaries, Clinically Appropriate and Cost-Effective Placement (CACEP) Project Working Paper Series, Working Paper #4: Baseline Statistics of Acute Care Hospital Readmissions by Episode Type for Select MS-DRGs and Chronic Conditions. Vienna, VA: Dobson DaVanzo & Associates. July 18, Retrieved from: Last accessed: October 2, Medicare Readmission Penalties by Hospital (Year 2). Kaiser Health News. August 2, Retrieved from: Last accessed: October 2, Frost P. Illinois hospitals fined $16.3 Million for Unnecessary Readmissions. Chicago Tribune Sept 5. Retrieved from: story.html. Last accessed October 2, Gage B et al. Examining Post Acute Care Relationships in an Integrated Hospital System, Final Report. Office of the Assistant Secretary for Planning and Evaluation (ASPE), U.S. Department of Health and Human Services. Washington, DC. February Retrieved from: pacihs/index.shtml. Last accessed: October 2, Chartis analysis based on Dobson et al. Op Cit. 10. Jacobson G et al. Medicare Spending and Use of Medical Services for Beneficiaries in Nursing Homes and Other Long-Term Care Facilities: A Potential for Achieving Medicare Savings and Improving the Quality of Care. The Henry J. Kaiser Family Foundation. October Retrieved from: Last accessed: October 2,

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