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1 Issue #1/Dec. 6, 2010 Welcome to the First Edition! CHCA is pleased to welcome and introduce you to this first edition of the ACO Update newsletter. The newsletter is in response to numerous questions from CHCA member hospital leaders on the value based purchasing initiatives (including pay-for-performance and Accountable Care Organizations, or ACOs) as contained in the new Healthcare Reform legislation ( The Patient Protection and Affordable Care Act of 2010, or PPACA) and being pursued by various state Medicaid agencies as well as many commercial payers. The intent is to track state movements and CHCA Owner hospital responses to the new environment. We have employed DeMarco Associates/Pendulum Healthcare Development Corporation (PHDC) to compile and edit the newsletter. DeMarco Associates is a consulting firm that has worked extensively with physicians and hospitals, PHOs and provider-sponsored health plans. PHDC is an infrastructure firm that provides a broad array of resources to help form and successfully operate ACOs, providersponsored health plans and pay-for-performance programs. Bill DeMarco, a noted consultant, lecturer and book author, and CEO of both organizations, will oversee newsletter production; Shel Gulinson, who has worked extensively in a number of capacities in and with hospitals and outpatient services, has managed care experience, and who has also worked previously with CHCA and many of our member hospitals, will serve as editor. We welcome your comments and suggestion as well as your questions. Please direct these to Jacqueline Kueser at CHCA Colorado Moving Forward with Medicaid Accountable Care Collaborative Colorado is one of at least three states that preceded the federal government in implementing major health care reforms. The other two are Massachusetts and Utah. Colorado began their Accountable Care Collaborative (ACC) initiative about two years ago and is now proceeding with implementation. According to the Colorado Department of Health Care Policy & Financing in June, 2010, the ACC is part of the Department s Medicaid reform effort. Its goals are to create a regional model of accountability for improving health, functioning and self sufficiency of all Medicaid clients while controlling costs,

2 reducing unexplained variation in care, improving timely access to care, enhancing client and provider satisfaction and coordinating care across provider settings and social services. Key elements include: Providing medical homes offering whole-person-centered care, in addition to family-centered care for children; Physician leadership in organizing and managing care rather than their being managed by an insurer; Provision of care management, data, and other support to providers so that they can focus on patient care; Offering coordination assistance regarding clients physical, behavioral health, long-term care and psychosocial needs; and Aligning incentives for providers to promote and be rewarded for improving health outcomes and reducing duplicate and unnecessary care. The initial step is creation of seven Regional Care Collaborative Organizations (RCCOs). The RCCOs will provide care coordination with other programs (e.g., behavioral health, long-term care, social services, food/nutrition, etc.). They will also establish criteria for incentives and make payment to providers/networks that meet certain guidelines and measurements of care. That is underway now as the state reviews proposals received by the October 22, 2010 deadline in response to an RFP issued in August. We understand that most, if not all, of the respondents are managed care plans vs. providers. The plan is to assign 8,000 Medicaid enrollees (including 2,900 children) to each RCCO. Awards are to be announced at year end for a three-phase program, beginning with a Start-up Phase that extends from award to go live date (either April 1 or June 1, 2011). The Initial Phase will run from go-live date to June 30, 2012 and will then be followed by an Expansion Phase in The state has also issued an RFP for a Statewide Data and Analytics Contractor (SDAC) that would provide: A web-based health information system that provides business intelligence to identify variation; Care management software support for benchmarking and real-time decision-making; and Identification of data-driven opportunities to improve care and outcomes. According to Bruce Harma, Director, Managed Care, The Children s Hospital, Denver, RCCOs will receive up to the state-budgeted $13 per member per month for the initial phase, with $1 per member per month to serve as incentive payments for reducing the cost of care for treating the panel population by 7%, which, if achieved, will make the program budget neutral to the state. According to Tom Nash, Colorado Hospital Association Vice President of Financial Policy, providers will continue to be paid by the state on a fee-for-service basis as before. Payments to providers from the RCCOs will be based on reaching defined utilization standards, not payments for care. Nash added that the state is probably thinking about incorporating some type of payment reform, but nothing has surfaced on that yet. 2

3 Both Nash and Harma indicated that, while the ACC will include children, there is no focus on pediatrics in the RCCO RFP. The Children s Hospital Response The Children s Hospital plans to establish a non-contractual relationship with the state s RCCOs and the state on behalf of pediatrics. The hospital will also seek state grant funding to assist in making the program a success for the state. The key to success will be aggressive case management for high cost diseases. Children s also will rely on several existing components of its infrastructure outreach programs for children s safety and prevention, care coordination affiliations, established clinical guidelines, the expanded use of provider extenders, the widely distributed network of EPIC systems across many pediatric practices, an established primary care program for target areas, such as Aurora, CO, and the established Children s Network of Care to leverage current clinical faculty and staff dedicated to the coordination of children s care. Individual hospital governance structures and relationships with primary care providers will help dictate posture and readiness to assume ACO responsibility and risk. The Children s Hospital s principle affiliation is with the University of Colorado Denver pursuant to which the hospital is the primary pediatric teaching facility for the School of Medicine (UCD-SOM). This relationship resulted in many of the Children s community based medical staff members becoming clinical faculty at UCD-SOM and has resulted in Children s becoming a significant center for pediatric medical research. The University Physicians Inc., a separate legal entity from The Children s Hospital, is the UCD-SOM faculty practice group that furnishes the majority of TCH specialty professional services. So What Is an ACO and How Will They Impact Children s Hospitals? An ACO is a local health care organization and a related set of providers (at a minimum, primary care physicians, specialists and hospitals) that can be held accountable for the cost and quality of care delivered to a defined population. The goal of the ACO is to deliver coordinated and efficient care (From: A Guide to Accountable Care Organizations, and Their Role in the Senate s Health Reform Bill, March 11, 2010 by Jordan T. Cohen, Organizations designated as ACOs will need to be clinically integrated. Clinical integration is defined as an active and ongoing program to evaluate and modify the clinical practice patterns of the physician participants so as to create a high degree of interdependence and collaboration among the physicians to control costs and ensure quality. (From: FTC/DOJ Statements of Antitrust Enforcement Policy in HealthCare, #8.B.1(1996) 3

4 The PPACA also provides for a pediatric ACO. According to the National Association of Children s Hospitals and Related Institutions (NACHRI) summary of the legislation, A Pediatric Accountable Care Organization Demonstration project to include incentive payments for organizations meeting performance guidelines is established to begin on January 1, 2012 and end on December 31, Providers must agree to participate in the project for not less than three years. The pediatric ACO demonstration project uses some of the same participating rules [as] for the Medicare shared savings program, including eligible ACOs. However, under the pediatric ACO project, providers would need to enter into an agreement with a state. The state would apply to be part of the project. Editor s Note: Exactly how children s hospitals will be affected by the adult ACO provisions, and details about the pediatric ACO demonstration are unclear at this time. The belief is that the adult ACO regulations will be issued in proposed form in December 2010 or January Work on the proposed regulations for pediatric ACOs will probably follow shortly thereafter. Medicaid agencies may also move toward recognizing ACOs on their own. In addition, many adult hospitals and their medical staffs are moving to or at least preparing for ACOs, not only for their Medicare business, but also for contracting with private payers or even directly with employers and employer groups. If primary care or pediatric physicians who refer patients to children s hospitals join such ACOs, that could pose challenges or complications for children s hospitals later wanting to form or participate in a pediatric ACO. While activation dates seem far off January 1, 2011 for adult ACOs and January 1, 2012 for the federal pediatric ACO project demonstration, according to the PPACA under the best of circumstances, it takes 6-9 months to put all of the pieces in place. We have heard that adult ACO applications will be due to Medicare as early as February 2011, or as late as July, Some Non-ACO Provisions of the Healthcare Reform Act Could Impact Children s Hospitals as Well It appears advisable for children s hospitals to also begin thinking about how to prepare for a Medicaid global payment demonstration project, as well as the prospect of bundled payments. Both could be features associated with ACOs. But such programs could be implemented independent of ACOs as well. Containing something like 2,800 pages one can bet that there are lots of sleepers in the PPACA provisions whose impact is somewhat unclear. Two identified in NACHRI s summary of the Act are as follows: The PPACA provides for The Secretary of Health and Human Services, in consultation with the newly established Center for Medicare and Medicaid Innovation, to establish a Medicaid Global Payment System Demonstration Project. Under this project, no more than five states may receive approval 4

5 from the Secretary to adjust payments to an eligible safety net hospital system or network from a fee-for-service payment structure to a global capitated payment model. The project will operate from FY 2010 FY 2012, after which an evaluation will be conducted of the project and a report on the outcomes would be submitted to Congress. The Secretary has the discretion to define eligible safety net system or network. *Section 2705 (PPACA)+ The Secretary is directed to establish a demonstration project in up to eight states to evaluate the use of bundled payment for Medicaid beneficiaries with regard to episodes of care that include hospitalizations and for which concurrent physician services are provided during the hospitalization. Hospitals participating in demonstration projects shall establish robust discharge planning programs. *Section 2704 (PPACA)+ How Will ACOs Work Financially? While the regulations will provide clarity on this issue, with regard to Medicare, it is anticipated that CMS will set spending benchmarks based on past spending in a given geography. ACOs providing the necessary services, and who meet the quality of care standards on an ongoing basis, will receive a portion of the savings to distribute among the ACO s owners, and/or to make program and service improvements. ACO owners will either have to provide, or contract for the provision of, all services covered under Parts A and B of Medicare. Providers will be paid on a fee-for-service basis. But there could be considerable upside for those able to provide care at less cost than the benchmark. Again, experience has shown that Medicaid and other payers tend to mimic Medicare. Public Policy as It Impacts Children s Hospitals ACO Update interviewed Aimee Ossman, Director of Policy Analysis, National Association of Children s Hospitals (N.A.C.H.), October 21, to get N.A.C.H. s perspective on ACO and related developments and learn about their efforts on behalf of children s hospitals and the patients and families they serve. N.A.C.H., the public policy affiliate of NACHRI, works with children s hospitals across the country on federal legislative priorities, monitors and influences federal agency activities and regulations and provides information on state legislative and regulatory trends to inform children s hospital s about advocacy efforts at the state level. N.A.C.H. has created a work group to outline recommended principles for ACOs focused on the unique considerations for pediatrics and to highlight the uniqueness of children s hospitals to help ensure CMS takes such special needs and circumstances, and those of the patients and families they serve, into consideration. 5

6 N.A.C.H. has issued a series of questions to work group members. Ms. Ossman reported that NACH expects to have a draft of principles for pediatric ACOs completed in a month or so. What is clear so far is the desire for flexibility due to the differences among the various states. States will have a role in the pediatric ACOs. So, it is expected that, under the federal guidelines, states will be able to design ACO programs based on the current structure of their Medicaid programs. It is anticipated that pediatric ACOs will be designated by individual states versus the federal government issuing such designations for adult ACOs. N.A.C.H. anticipates the states would have to decide they want to pursue ACO programs and designation and that CMS will provide guidance but give the states flexibility. Ms. Ossman noted that CMS will release guidance on pediatric ACOs separate from and after it releases Medicare ACO regulations, which are expected to be issued in December. She added, however, that, We need to review the Medicare regulations closely and respond if there are provisions that would not work for pediatrics. Medicare policy often impacts Medicaid, so it will be important to identify these issues and bring them to CMS attention so that they will be aware of them as they develop the pediatric specific guidance. Somewhat complicating predictions about what the states will do is that states are experiencing significant budget pressures which impact resources they can devote at the state level. She added that some states may not be ready to restructure their programs if they have already implemented Medicaid managed care programs. While Medicaid managed care is not the same as an ACO, its existence may play into a state s decision to take on a new structure. There are likely to be other states that will pursue the demonstration to improve the care provided while reducing costs. It is unclear at this time how many states will pursue pediatric ACOs and which will not. Large Employers Health Plan Design Changes Could Impact Revenues The National Business Group on Health (an organization devoted to representing large employers perspective on national health policy issues and providing practical solutions for its members most important health care and health benefits strategies) issued a report in August on large employers expected health plan design changes. Its members are primarily Fortune 500 companies and large public-sector employers who provide coverage for 50 million people, including workers, retirees and families. Seventy-two employers responded. Respondents reported that their healthcare costs increased 7% in 2010 but ranged from a 2.7% decrease to a 14% increase. Those estimating cost increases for 2011 reported an average expected increase of 8.9%. Top three strategies for controlling health care costs reported were Consumer- Directed Health Plans, wellness initiatives to improve employee health, and increased employee cost sharing. The majority of responding employers (53%) were continuing to make planned changes to their 6

7 health plan design despite uncertainty surrounding preservation of grandfathered plan status as recognized in the federal Healthcare Reform legislation. Many will be making benefit changes to comply with the new legislation (required even for grandfathered plans ). Thirteen percent reported that they will have to remove pre-existing condition exclusion clauses for children. While 76% of responding employers offer wellness programs for employees who are obese or overweight, fewer offer these types of programs to spouses/domestic partners (42%) and children (25%). In 2011, 63% of employers will be increasing the employee percentage contribution to premium costs, and 46% will increase out-of-pocket maximums, while 44% will increase in-network deductibles. Editor s Note: These changes will likely affect hospitals incomes, cash flow and collections expense. 7

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