Prepare  for  Coming  Medicare  Fee  Cuts  &  Other  Changes  to  Laboratory  Payment  Models  by  Focusing  on  Accurate  Cost  Accoun=ng    &  Financial  Analysis  

Brad  Brimhall,  MD,  MPH  Professor,  Pathology  &  Laboratory  Medicine  Medical  Director,  Integrated  Healthcare  Analy=cs  &  Bioinforma=cs  Data  Governance  Execu=ve  Group  University  of  Texas  Health  &  University  Health  System  San  Antonio,  Texas  

“Medicare Cuts”

“Other Changes”

Financial Schizophrenia in the Lab

Revenue  Center  

Expense/Cost  Center  

Profit  Center  

Investment  Center  

Inpa5ent   Outpa5ent  

How Medicare Pays for Care

Fee  For  Service  • Physician  fee  schedule  (PFS)  • Clinical  laboratory  (CLFS)  • Ambulance  fee  schedule  (AFS)  • Durable  medical  equipment,  prosthe=cs/ortho=c  &  supplies  fee  schedule  (DMEPOSFS)  

Prospec5ve  Payment  • Acute  inpa=ent  • Home  health  • Inpa=ent  psychiatric  facility  • Inpa=ent  rehabilita=on  facility  • Long-­‐term  care  hospital  • Skilled  nursing  facility  • Hospice  center  

Inpa5ent   Outpa5ent  

Payment  by  Episode  of  Care  

Payment  by  Specified  Service  

(Test)  

Fee Schedule: Biopsy (88305)

Real  2000  USD  (adjusted  for  CPI)  MAC  =  “Rest  of  Texas”  

$0    

$20    

$40    

$60    

$80    

$100    

TC   -­‐26   Global  

Office of Inspector General (OIG) Studies

OIG Study (2011)

Compare Medicare payments to lowest of the following rates: •  Medicaid (all state programs) •  Federal employee health benefits program 1 (FEHB-1) •  Federal employee health benefits program 2 (FEHB-2) •  Federal employee health benefits program 3 (FEHB-3)

Levinson  DR  (2013).  Comparing  Lab  Test  Payment  Rates:  Medicare  Could  Achieve  Substan=al  Savings.  US  Office  of  Inspector  General,  Department  of  Health  &  Human  Services  

HCPCS   Descrip5on  Medicare  Allowed  Tests  

(2011)    Poten5al  Savings  to  

Medicare  80048   Metabolic  panel,  total  calcium   8,870,790   $36,412,622    80053   Comprehensive  metabolic  panel   27,406,336   $130,632,849    80061   Lipid  panel   20,620,917   $125,993,031    81001   Urinalysis,  automated  with  microscopy   6,804,619   $9,801,294    81002   Urinalysis,  nonautomated  without  microscopy   4,312,499   $4,427,415    81003   Urinalysis,  automated  without  microscopy   5,078,609   $4,383,224    82306   Vitamin  D,  25-­‐hydroxy   5,394,421   $87,398,016    82570   Assay  of  urine  crea=nine   4,649,643   $10,457,972    82607   Vitamin  B12   3,363,543   $25,252,596    82728   Assay  of  ferri=n   2,401,360   $15,613,616    83036   Glycosylated  hemoglobin  test   12,678,817   $51,406,983    83540   Assay  of  iron   2,625,017   $10,256,188    83550   Iron  binding  test   2,043,112   $9,228,580    83880   Natriure=c  pep=de   1,079,558   $15,970,434    83970   Assay  of  parathormone   1,154,872   $22,934,465    84153   Assay  of  prostate  specific  an=gen,  total   3,616,338   $32,784,887    84443   Thyroid  s=mula=ng  hormone   14,761,102   $140,148,947    85025   Complete  blood  count  with  automated  diff   30,827,609   $136,848,356    85610   Prothrombin  =me   20,291,205   $24,637,107    87086   Urine  culture  colony  count   4,703,518   $15,296,087    

182,683,885   $909,884,669    

OIG Study: Potential Savings to Medicare

Levinson  DR  (2013).  Comparing  Lab  Test  Payment  Rates:  Medicare  Could  Achieve  Substan=al  Savings.  US  Office  of  Inspector  General,  Department  of  Health  &  Human  Services  

PAMA: Data Collection on Private Payers

•  Payment  rate  paid  by  each  private  payer  •  Test  volume  for  each  payer  •  Stra5fied  by  HCPCS  code  

Source:  Murrin  S  (2016).  HHS  OIG  Data  Brief:  Medicare  Payments  for  Clinical  Diagnos=c  Laboratory  Tests  in  2015:  Year  2  of  Baseline  Data.  US  Department  of  Health  &  Human  Services,  Office  of  Inspector  General  

PAMA: Reporting Laboratories

Independent Labs; 1,398

Physician Office Labs;

11,149

Hospital Labs; 0

Number of Laboratories

PAMA: Reporting Laboratories

Independent Labs; $3.8

Physician Office Labs;

$1.0

Hospital Labs; $0.0

Medicare Payments ($BB)

PAMA Timeline

2016   2017   2018  

Data  Collec5on  

Data  Repor5ng  

Payment  System  Implementa5on  

…  

PAMA Payment Target & Reduction Limits 2018 2019 2020 2021 2022 2023 Current Fee

Schedule (2017)

Weighted Median of Private Payers

10%

10%

10%

15%

15%

15%

Examination of 15 Common Laboratory Tests

•  Payment  targets  (3  private  payers)  •  Comparison  to  cost  structure  of  large  healthcare  system  laboratory  

Test Cost Categories

$0    

$1    

$2    

$3    

$4    

$5    

$6    

$7    

$8    

$9    

Test  

Variable  Materials  

Direct  Labor  

Local  Fixed  

Ins5tu5onal  Overhead  

UNIT  COST  

Payments & Costs: Hospital Lab

$0    

$10    

$20    

$30    

$40    

$50    

$60     Vbl   Labor   Local  

Overhead   Payment   Target  

TEST  

UNIT  PAYM

ENT/CO

ST  

Fee Schedule 2018

$0    

$10    

$20    

$30    

$40    

$50    

$60     Vbl   Labor   Local  

Overhead   Payment  

TEST  

UNIT  PAYM

ENT/CO

ST  

Fee Schedule 2019

$0    

$10    

$20    

$30    

$40    

$50    

$60     Vbl   Labor   Local  

Overhead   Payment  

TEST  

UNIT  PAYM

ENT/CO

ST  

Fee Schedule 2020

$0    

$10    

$20    

$30    

$40    

$50    

$60     Vbl   Labor   Local  

Overhead   Payment  

TEST  

UNIT  PAYM

ENT/CO

ST  

Fee Schedule 2021

$0    

$10    

$20    

$30    

$40    

$50    

$60     Vbl   Labor   Local  

Overhead   Payment  

TEST  

UNIT  PAYM

ENT/CO

ST  

Fee Schedule 2022

$0    

$10    

$20    

$30    

$40    

$50    

$60     Vbl   Labor   Local  

Overhead   Payment  

TEST  

UNIT  PAYM

ENT/CO

ST  

Fee Schedule 2023

$0    

$10    

$20    

$30    

$40    

$50    

$60     Vbl   Labor   Local  

Overhead   Payment  

TEST  

UNIT  PAYM

ENT/CO

ST  

Contribution Analysis (2017) Volume  (Annual)   26,393  

Unit   Aggregate  Net  Revenue   $11.07     $292,171    

Less  Reagents,  Consumables,  Other  Variable  Costs   $2.25     $59,384    Contribu5on  to  Labor  &  Fixed  Costs   $8.82     $232,786    

Less  Direct  Labor   $2.56     $67,566    Contribu5on  to  Local  Fixed  Costs   $6.26     $165,220    

Service  Contracts,  Proficiency  Tests,  Other  Local  Fixed   $18,211    Contribu5on  to  Overhead  Costs   $147,009    

Less  Ins5tu5onal  Overhead  Costs   $60,968    Excess  of  Net  Revenue  over  Expenses   $86,041.18    

$0    

$2    

$4    

$6    

$8    

$10    

$12    

Ucx  

UNIT  PAYM

ENT/CO

ST  

Contribution Analysis (2023) Volume  (Annual)   26,393  

Unit   Aggregate  Net  Revenue   $4.96     $130,909    

Less  Reagents,  Consumables,  Other  Variable  Costs   $2.25     $59,384    Contribu5on  to  Labor  &  Fixed  Costs   $2.71     $71,525    

Less  Direct  Labor   $2.56     $67,566    Contribu5on  to  Local  Fixed  Costs   $0.15     $3,959    

Service  Contracts,  Proficiency  Tests,  Other  Local  Fixed   $18,211    Contribu5on  to  Overhead  Costs   ($14,252)  

Less  Ins5tu5onal  Overhead  Costs   $60,968    Excess  of  Net  Revenue  over  Expenses   ($75,220)  

$0    

$2    

$4    

$6    

$8    

$10    

$12    

Ucx  

UNIT  PAYM

ENT/CO

ST  

Annual Revenue Changes (15 Tests)

Net Revenue Change (YoY) % Change (YoY) 2017 $1,857,776 N/A N/A 2018 $1,709,681 ($148,094) -8.0% 2019 $1,569,149 ($140,533) -8.2% 2020 $1,443,672 ($125,477) -8.0% 2021 $1,288,657 ($155,016) -10.7% 2022 $1,159,532 ($129,125) -10.0% 2023 $1,049,775 ($109,756) -9.5%

Estimated Tests with Increased Payments

0   1   2   3   4   5   6   7  

Number  of  Tests  in  Top  25  

Cost Accounting Comparison

$0    

$10    

$20    

$30    

$40    

$50    

$60    

$70    

TSH   CMP   CBC   PT   Urine  Cx  

A:  Vbl   A:  Labor   A:  Local  Fx   A:  O/H  

B:  Vbl  Direct   B:  Fx  Direct   B:  Fx  Indirect  

TEST  

UNIT  COST  

Cost Accounting Comparison

$0    

$10    

$20    

$30    

$40    

$50    

$60    

$70    

Vit  D   Vit  B12   Ferr   Lipid  Pan  

HgbA1c  

A:  Vbl   A:  Labor   A:  Local  Fx   A:  O/H  

B:  Vbl  Direct   B:  Fx  Direct   B:  Fx  Indirect  

TEST  

UNIT  COST  

Cost Accounting Comparison

$0    

$10    

$20    

$30    

$40    

$50    

$60    

$70    

Urine  Creat  

Iron  Sat   BNP   PTH   PSA  

A:  Vbl   A:  Labor   A:  Local  Fx   A:  O/H  

B:  Vbl  Direct   B:  Fx  Direct   B:  Fx  Indirect  

TEST  

UNIT  COST  

PAMA: Longer Term Implications

Payment Trajectory FFS Episode of Care Capitation

No Value-Based Payment

Adjustment

Value-Based Payment

Adjustment

Increasing Risk / Increasing Enterprise-Wide Focus

PAMA

DHHS Goals for 2018

50.0%  

42.5%  

7.5%   Value-­‐Based  Alterna5ve  Payment  Models  

Value-­‐Based  FFS  

Tradi5onal  FFS  

Source:  Department  of  HHS.  Beger,  Smarter,  Healthier:  In  historic  announcement,  HHS  sets  clear  goals  and  5meline  for  shihing  Medicare  reimbursements  from  volume  to  value.    

Beyond Simple Fee Schedules 2008 2010 2012 2014 2015 2018 2019

Legislation Passed

Program Implemented

MIPPA ACA PAMA MACRA

ESRD-QIP

HVBP

HRRP

HACRP PVBM SNF-VBP MIPS

APMs

Legislation MIPPA: Medicare Improvements for Patients & Providers Act ACA: Affordable Care Act PAMA: Protecting Access to Medicare Act MACRA: Medicare Access &CHIP Reauthorization Act of 2015

Source:  CMS.  What  are  the  Value-­‐Based  Programs.  Dept.  of  Health  &  Human  Services.  September  2015.  hgps://www.cms.gov/Medicare/Medicare-­‐Fee-­‐for-­‐Service-­‐Payment/PhysicianFeedbackProgram/Timeline.html  

Programs ESRD-QIP: End-stage renal disease quality incentive program HVBP: Hospital value-based purchasing program HRRP: Hospital readmissions reduction program HACRP: Hospital-acquired condition reduction program PVBM: Physician value-based modifier SNF-VBP: Skilled nursing facility value-based purchasing program MIPS: Merit-based incentive payment system APMs: Alternate payment models

Hospital Value-Based Purchasing (HVBP) “Rewards acute-care hospitals with incentive payments

for the quality of care they provide to people with Medicare. CMS rewards hospitals based on the Quality of care provided to Medicare patients, how closely best clinical practices are followed, and how well hospitals enhance patients’ experiences of care during hospital stays. Hospitals are no longer paid solely based on the quantity of services they provide.”

[2011, CMS]

HVBP: Percent Withheld

Source:  CMS.  Hospital  Value-­‐Based  Purchasing.  Dept.  of  Health  &  Human  Services.  September  2015.  

0.0%  

0.5%  

1.0%  

1.5%  

2.0%  

2.5%  

2013   2014   2015   2016   2017   2018  

Percen

t  of  Paymen

t  Withh

eld  

Year  Note:  2%  of  typical  large  hospital  pa5ent  service  revenue  would  be  approximately  $10M  ($500M  x  2%)  

HVBP: Domain Weights

Source:  CMS.  Hospital  Value-­‐Based  Purchasing.  Dept.  of  Health  &  Human  Services.  September  2015.  

0%  

10%  

20%  

30%  

40%  

50%  

60%  

70%  

80%  

90%  

100%  

2013   2014   2015   2016   2017   2018  

Dom

ain  Weight  (%)  

Year  

Safety  

Efficiency  &  Cost  Reduc=on  

Outcomes  

Pa=ent  &  Caregiver-­‐Centered  Experience  of  Care/Care  Coordina=on  

Clinical  (Process  of)  Care  

Hospital-Acquired Condition Reduction Program

DOMAIN  1  (AHRQ  PSI  90)  35%  

PSI  3.  Pressure  ulcer  rate  

PSI  6.  Iatrogenic  pneumothorax  rate  

PSI  7.  Central  venous  catheter-­‐related  bloodstream  infec5on  rate  

PSI  8.  Postopera5ve  hip  fracture  rate  

PSI  12.  Postopera5ve  PE  or  DVT  rate  

PSI  13.  Postopera5ve  sepsis  rate  

PSI  14.  Wound  dehiscence  rate  

PSI  15.  Accidental  puncture  and  lacera5on  rate  

DOMAIN  2  (CDC  NHSN)  65%  

Central  line-­‐associated  bloodstream  infec5on  (CLABSI)  standardized  infec5on  ra5o  (SIR)  

Catheter-­‐associated  urinary  tract  infec5on  (CAUTI)  standardized  infec5on  ra5o  (SIR)  

Surgical  site  infec5on  (SSI)  for  colon  surgery  or  abdominal  hysterectomy  

Methicillin-­‐resistant  Staphylococcus  aureus  (MRSA)  standardized  infec5on  ra5o  (SIR)  

Clostridium  difficile  (CDI)  standardized  infec5on  ra5o  (SIR)  

NHSN:  Na5onal  health  safety  network  PSI  90:  Pa5ent  safety  indicator  composite  measure  90  

Lowest  performing  25%  of  hospitals  are  penalized  Penalty  of  -­‐1%  for  all  Medicare  MSDRG  payments  HAC  Score  comprised  of  two  domains  

Hospital Readmissions Reduction Program

DIAGNOSTIC  GROUPS  REPORTED  

Acute  myocardial  infarc5on  (AMI)  

Chronic  obstruc5ve  pulmonary  disease  (COPD)  

Heart  Failure  (HF)  

Pneumonia  (PN)  

Stroke  

Total  hip  arthroplasty/total  knee  arthroplasty  (THA/TKA)  

Coronary  artery  bypass  grah  (CABG)  

Pa5ents  readmiged  to  hospital  within  30  days  of  previous  hospitaliza5on  Scores  rate  of  “Excess  Admissions”  Risk  adjustment  for  pa5ent  age,  sex,  diagnosis,  and  comorbidi5es.  Current  maximum  penalty  of  3%  (since  2015)  

Roberson  B  (  Oct  2015).  The  Hospital  Readmissions  Reduc=on  Program:  Four  Years  of  Data.  Essen=al  Hospitals  Ins=tute  

HRRP: Average Penalties

0.0%  

0.1%  

0.2%  

0.3%  

0.4%  

0.5%  

0.6%  

0.7%  

0.8%  

0.9%  

1.0%  

2012   2013   2014   2015  

Average  Penalty  by  Hospital  Quar5le  Score   Quar5le  1  

Quar5le  2  

Quar5le  3  

Quar5le  4  

YEAR  

MEA

N  PCT

 RED

UCT

ION  

Roberson  B  (  Oct  2015).  The  Hospital  Readmissions  Reduc=on  Program:  Four  Years  of  Data.  Essen=al  Hospitals  Ins=tute  

Medicare Access & CHIP Reauthorization Act

Current Physician Fee Schedule

(PFS)

Merit-Based Incentive Payment

System (MIPS)

Advanced Alternate Payment

Models (APM)

Adjustments for Quality

Incentives to Adopt/Join

Merit-Based Incentive Payment System (MIPS)

Quality

Resource Use

Advancing Care Information

Clinical Practice Improvement Activities

Physician Quality Reporting System (PQRS)

Value-Based Payment Modifier (VBP)

Medicare EHR Incentive Program (MU)

NEW

MACRA: Changes & Incentives 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+

PFS

MIPS

Advanced APM

+5% Bonus

Excluded from MIPS

± Adjustment ± 4% ± 5% ± 7% ± 9% ± 9% ± 9% ± 9%

+0.5% per Year No Change +0.25%

/ year

+0.75% / year

PFS with MIPS adjustments: Biopsy (88305-26)

$30 $31 $32 $33 $34 $35 $36 $37 $38 $39

2017 2018 2019 2020 2021 2022 2023

MIPS: Component Weights

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2019 2020 2021

Com

pone

nt W

eigh

t

Year

Clinical Practice Improvement Activities

Advancing Care Information

Resource Use

Quality

Implications for the Lab

If payers no longer paid for laboratory testing, would healthcare systems still perform laboratory tests?

What opportunities will emerge for the laboratory as new payment models are deployed?

How important will it become for laboratories to accurately understand their underlying cost structure?

Pay for Service

Profit = Revenue – Expenses

1.  Increase  net  revenue  =  more  products/services  (tests)  

2.  Decrease  costs  =  nego5ate  lowest  costs  (variable,  labor,  etc.)  

3.  Quality  is  Assumed  

Pay for Value

Value = Benefit

Cost

2.  Decrease  cost  =  manage  u5liza5on,  improve  efficiency  

1.  Improve  quality  =  beger  pa5ent  outcomes,  pa5ent  sa5sfac5on,  pa5ent  safety  (measurable)  

3.  Revenue  moving  toward  fixed  episodic/periodic  but  adjustable  according  to  quality  measures  

Impact Outside the Laboratory

Pharmacy  Pathology   Biomedical  Engineering  

Popula5on  

Management  

Opera5ons  Management  Lab

Questions? Thank you!