Transforming the Provider Market: What Pennsylvannia Hospitals Can Learn from the Maryland Medicare Waiver

Transforming the Provider Market

What Pennsylvania Hospitals and Health Systems Can Learn from the New Maryland Medicare Waiver

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

1

Agenda

Changes in the Maryland Provider Market

Assessing Readiness to Take on Risk

Implementing Population Health Strategies In Value-Based Contracts


2

Introduction

With You Today:

James Case

Manager - Healthcare Advisory

[email protected]

■ James Case is a Manager in KPMG’s Healthcare Regulatory and Compliance practice in Baltimore. James has a strong background across a spectrum of financial services including:

– strategic and business planning,

– third party hospital reimbursement, and

– compliance services.

■ James has a MHS in Health Finance and Management from the Johns Hopkins Bloomberg School of Public Health and a BA in Health Administration and Policy from the University of Maryland.


3

There is unprecedented change going on in the acute hospital provider market in Maryland

Maryland reaches milestone deal with the feds for new Medicare Waiver

Baltimore Business Journal, January 10, 2014 Sarah Gantz

Maryland may be the model for curbing hospital costs

Instead of drumming up more business with big-name doctors, stand-alone emergency departments

And high tech equipment, Maryland hospitals this yea will do the unthinkable; strive to admit fewer patients

USA Today, January 31, 2014 Christine Vestal, Pew/Stateline Staff Writer

A bold experiment in per capita spending limits

Modern Healthcare, January 18, 2014 Merrill Goozner


4

Many hospitals are evaluating risk related to population health, but Maryland hospitals have been put on an accelerated time schedule


5

In taking that leap, there are lessons the Pennsylvania hospitals can learn when evaluating their strategies going forward

What does my population demand or need for healthcare services?

How do I make population health initiatives sustainable?

How do I measure my ability to control outcomes?

What does this population health trend mean to my bottom line?

Change in the Maryland Acute Care Provider Market


7

Why Does Maryland Matter? Maryland’s Unique All-Payer System

Maryland is the only State in the nation with an all-payer system

The Health Services Cost Review Commission (“HSCRC”) sets rates for hospital services, and all payers--including Medicare and Medicaid--are required to pay those rates to hospitals in the State

Act of Congress: Section 1814(b)(3) of the Social Security Act provides for Maryland’s unique status:

■ Requires all-payer participation with no undue discrimination between payers

■ Requires the State to meet a test to maintain this legislative waiver


8

The Maryland market consists of a wide variety of hospitals


9

The original Maryland Medicare Waiver was focused on controlling inpatient unit costs

The Original “Waiver Test”

Cumulative rate of growth in Maryland inpatient Medicare payments per case compared to the cumulative rate of growth nationally over the same time period (January 1, 1981 to present)

Key Original Waiver Tenants

Inpatient cost per case focus The original waiver test was based on Maryland inpatient regulated acute and chronic Medicare payments only

■ Did not include outpatient payments

■ Did not adjust for changes in case mix over time

■ Did not include physician or post acute care

Since the inception of the Medicare Waiver 35 years ago, the delivery of healthcare changed significantly

■ HSCRC quality and readmission policies that focused on quality of care incentivized shifting lower cost cases to outpatient settings and left the remaining inpatient cases more acute and costly.

■ The focus of the original waiver on inpatient cost per case no longer aligned with the current focus on population health


10

The operating margin of Maryland hospitals deteriorated starting in 2012 which led to discussions of a redesigned Waiver

Maryland hospitals experienced declines in financial performance due to decreased volumes and low update factors designed to save the original waiver

3.3%

2.2%

2.4%

2.2%

2.7%2.9%

2.5%

1.6%

1.9%

0.6%

1.7%

3.2%

0.0%

1.0%

2.0%

3.0%

4.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

0.8%

2.4%

1.5%

Ope

ratin

g M

argi

n

Fiscal Year

Discussions of New Waiver Begin

2.5% HSCRC Operating Margin Target = 2.75%

Trend of Operating Margin Performance of Maryland Hospitals

Source: Maryland Hospital Association Financial Conditions of Maryland Hospitals; April 2013


11

Maryland decided to apply for a new Waiver to better align with today’s healthcare environment

Demonstration Project through the Center for Medicare & Medicaid Innovations (“CMMI”)

Effective 1/1/2014, Phase I is 2014-18. Phase II extends until 2022.

Modernized Waiver Tests:

■ Limit growth in Maryland per capita Revenue (inpatient and outpatient) to 3.58% (population growth estimated 0.6% annually)

■ Demonstrate $330 million over 5 years in Medicare savings via a slower growth rate in hospital payments for Maryland Medicare beneficiaries versus the National payment per beneficiary average

■ Reduce the Medicare readmissions rate to the national level in 5 years (CY2014-CY2018)

■ Reduce Potentially Preventable Complications by 30% in five years (CY2014-CY2015)

Renewal after 5 years with favorable performance and expansion to include physician and post acute services; if not renewed, revert to the national system.


12

The HSCRC has two revenue methodologies to control per capital costs

Fee for Service

Revenue is based on volumes – number of inpatient episodes of care and outpatient procedures

More inpatient episode of care and

outpatient visits = more revenue

Encourages caring for the ill and maximizing volumes

Global Budget Revenue

Revenue is fixed—annual revenue is pre-determined and does not change from year to year

More admissions and outpatient

visits = no more revenue

Encourages cost effective delivery of care with a focus on preventative care and patient wellness.

All Hospitals in the State are moving to the Global Budget Revenue Model


13

The Global Budget Model:

■ Annual fixed revenue budget for inpatient and outpatient regulated services.

■ Annual adjustments for changes in market share and quality programs.

■ As volumes decline, prices will need to increase to achieve GBR cap. Significant volume declines will cause price inefficiency.

■ This GBR cap could be enhanced or reduced based on hospital efficiency and utilization.

To achieve success under the new Waiver, hospitals have entered into revenue agreements to set fixed revenue targets called Global Budgets


14

Not all revenue is included under Global Budgets

The regulated revenue that is being capped is not all inclusive. At this time, it still excludes areas of patient care outside of the HSCRC’s authority:

■ Outpatient Renal

■ Outpatient Programs off the Hospital Campuses

■ Physician Professional Fees

■ Non-Patient Revenue (cafeteria, parking lot, rental income, etc.)

■ Specimen Only Labs (the patient does not physically reside in the Hospital)

Out-of-state revenue may or may not be included in the cap depending on the provider

May represent collaboration opportunities between Maryland and Pennsylvania hospitals


15

The incentives under the GBR model promote a population health perspective

■ Providing appropriate care at appropriate level or location (Physician office vs. Emergency Room)

■ Move towards Chronic Disease management

Success under GBR model includes:

Preventing Unnecessary Admissions Improving Patient Satisfaction

Preventing Readmission Increasing Primary Care Services

Preventing Unnecessary ED Visits Decreasing Unnecessary Utilization

Reducing Hospital complications Increasing Physician Alignment

Reducing Unnecessary Admissions from Nursing Homes

Reduce the number of patients admitted with Ambulatory Sensitive and Chronic Conditions

Controlling hospital costs is a key success factor under GBR

Assessing Readiness to take on Risk


17

In order to evaluate the readiness for risk, hospitals must start to build the case for change

Activities

Understand Demographics & Population Needs

Confirm population /services in and out of scope Assess unmet demand using public health intelligence to identify health inequalities, morbidity,

disease prevalence and social care needs Develop and agree patient needs assessment criteria

Demand and Capacity forecast modelling

Establish current demand and capacity Model population forecasts to create a picture of demand by specialty. Project future demand Assess future unmet demand

Market Analysis

Identify all providers within market including beds, services, activity, facilities, income, financial position

Identify all providers including services provided, income, bed base, and facilities Assess patient travel times between core services Horizon scan for factors impacting on capacity and demand

Sustainability tests (Clinical / Financial /Operational)

Conduct clinical sustainability test including clinical outcomes, patient experience and medical workforce establishment /turnover against industry guidance

Carry out high level financial analysis including performance and future efficiency requirement, and service line profitability/deficit by specialty

Assess operational performance and future sustainability including access and workforce performance indicators

Baselining & Benchmarking

Select peers and KPIs Conduct benchmarking exercise to signpost areas where differences exist (strengths and

weaknesses) Interpret findings from benchmarking exercise Use outputs of above activities to collate report on implications of ‘do nothing‘ option


18

Hospitals began by looking at trends in the demographics of their populations to assess underlying patient needs

Example Calculation of Life Expectancy in Baltimore City


19

Historical utilization was analyzed to draw assumptions about future utilization with changes in demographics

All Payors FY 2010 FY 2011 FY 2012 FY 2013 ODS Cases (1) 4,261 3,954 3,121 2,771 2+ Day Stays (1) 19,703 19,334 18,104 17,042

Total Admissions 23,964 23,288 21,225 19,813

Observation (OBV) (2) - 347 1,780 2,089

Total Admissions and OBV 23,635 23,005 21,902

Readmissions (3) - 1,904 1,705 1,526

Change in:ODS (307) (833) (350) (1,490) OBV 347 1,433 309 2,089

Net ODS and OBV 40 600 (41) 599 2+ Day Stays (369) (1,230) (1,062) (2,661)

Total Admissions plus OBV (329) (630) (1,103) (2,062)

Readmissions - 199 179 378

Change in Originating Volume (329) (431) (924) (1,684)

Cumulative FY 2010 - FY 2013


20

The Hospitals performed broad and specific market analyses to understand their competitors and potential collaborators

Social Care

Specialist Care

Primary Care Community Care

Mental Health

Acute Care

Community services • Reassess entire community services

provision • Linked with pathway redesign, ‘right

size’ and consolidate services, close services/sites where appropriate

• Integrate with strategic long term conditions management approaches

• ‘Facilitated network hubs’ to act as focal point for elderly and end of life care

Primary Care • With above average investment in primary

care, identify services provided, review for value for money

• Explore ‘hub and spoke’ models to maximise impact primary care can have

• Identify linkages to community/acute spend and ensure anticipated benefits are realised e.g. capacity removed

Mental Health • Address balance between

institutional and community care and ensure investment priorities are right

• Remove acute capacity where feasible

What is the optimum size of community services?

Maternity & reproductive services • Review provision of maternity services against

best practice, consolidate/close services • Review C-Section rates • Assess whether community infrastructure is

appropriate and prevent ante-natal admissions • Implement gynaecology decision aides to

reduce clinical variation

Trauma, injury & musculoskeletal • Review clinical practice, variation and ‘over-

treatment’ • For orthopaedics delineate between

specialist ‘focus factory’ non-elective care, and ‘value adding’ elective orientated services

• Integrate appropriately with community, pre/re-hab and other support services, further use of decision aides to reduce variation


21

Demand models were quantified to ultimately understand the net financial impact under various scenarios

Income Statement Impact under FFS Model $ in millions

Income Statement Impact under GBR Model $ in millions

$181$190

$200

$152$156$160

2015 2014 2016

Margin of $29M

Expenses Revenue

$200$200$200

$152$156$160

Margin of $48M

2014 2015 2016

The incremental margin can be used for further population health management investments


22

Scenario financial performance was then benchmarked to understand the implications of moving to GBR versus the status quo

3.5%

4.4%

5.0%

3.5%

3.5%3.6%

1.2%1.2%

1.7%

2.0%

2.7%

3.6%3.8%

3.9%4.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2014 2015 2016

Baa Rating

Aa3 Rating Baseline

Baseline Including Capital Investments

Status Quo

Trend of Operating Margin Performance

Implementing Population Health Strategies In Value-Based Contracts


24

After establishing this type of payment arrangement, Maryland hospital are establishing processes to implement change in their organizations

Generate insights into the health dynamics of a population and the clinical focal points and clinical teams that will address care delivery pathways and questions of pricing and revenue.

Collect

Data Identification and Collection – combine longitudinal clinical data and non-traditional fields such as income and education levels

Focus

Focal Point Analysis – calibrated to the high-risk, high-priority patient population to identify additional co-morbidities and develop targeted clinical team

Implement

Implementing Clinical Analytics – creating a road map for operationalizing clinical analytics within your organization

Develop

Clinical Pathways and Economic Pricing – establish framework for contract pricing and risk management of care delivery

Vizualize

Extraction and Analytics – application of modeling algorithms and visualization techniques to identify high-risk, high-priority focal points based upon co-morbidities.

Verify

Data Integrity – reconcile and validate data to ensure consistency and completeness


25

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

DIAGC DIAGIM NEURAD NUCRAD RAD

Med

icare

Allo

wed

Am

ount

s,

Radiology Services, 2010-2013

There is financial risk associated with clinical variation that is controllable through process redesign

Under a capitated arrangement, clinical variation creates economic risk as well as financial opportunity

■ Need to identify opportunities to eliminate clinical variation

– Example: an analysis we performed on Medicare-based Radiology expenses illustrates tremendous variation even after adjusting for risk factors or clinical complexity

$1,000

$10,000

$100,000

$1,000,000

$10,000,000

DIAGC DIAGIM NEURAD PEDRAD RAD

Med

icar

e A

llow

ed A

mou

nts,

Lo

gari

thm

ic S

cale

Radiology Services, 2010-2013

65th Percentile

Average

Medicare Based Radiology Charges

Variation in costs that need further explanation and analysis

Radiology Charges By Practice Radiology Charges Per Unit, Non-traumatic joint disorders


26

Identifying clinical variation will lead to creation of clinical cohorts to target interventions and protocols

■ Identify patients with significant costs of care across multiple conditions

– (i.e. patients with a non-chronic digestive disease diagnosis that are also diabetic)

■ The assumed complexity of cases identified by this analysis helps frame potential teaming and/or care management efforts

FOCUS

1. FOCUS COHORT IDENTIFIED

2. CLINICAL TEAM ASSEMBLED BASED ON CO-MORBITITIES WITHIN

FOCUS COHORT

Outcomes Treatment Pathways

and Protocols

Secondary Diagnosis

Primary Diagnosis

e.g., Hypertension

e.g., Diabetic

e.g., Arthritic

3. CLINICAL TEAM DEFINES THE CLINICAL PATHWAYS AND PROTOCOLS TO ADDRESS CLINICAL VARIATION AND TO IDENTIFY ADDITIONAL SOURCES OF CARE DELIVERY AND FINANCIAL RISK


27

Focusing on high risk patient types first have created the most initial value

■ Clinical Team Focuses Redesign of Care Delivery Process on High Economic Risk Populations

■ Outcomes differ for each “pathway”; leverage published materials such as AHRQ, HEDIS or HHS’ quality – and cost-based resources

■ For each pathway, need to identify sources of volatility (e.g., population risk drivers) and care service delivery variability (e.g., operational and supply chain issues)

Case Based Reasoning

Outcomes Treatment Pathways

and Protocols

Secondary Diagnosis

Primary Diagnosis

e.g., Hypertension

e.g., Diabetic

e.g., Arthritic

Primary disease states

Co-Morbidities

Dat

a An

alyt

ics

Focus Sub-Population

Multi-Disciplinary Clinical Team

Case Based Reasoning


28

Finance and performance management competencies may need to be augmented to support development of these types of programs

Identifying Care Needs Providing Population Health Management

Care Coordination Evidence-based Practices Provider Services Measurement &

Quality Improvement Program

Management

Case Assessment Transition of Care Management

Gaps in Care Analysis

Remote Monitoring & Management

Readmission Management

Authorization of Care

Comprehensive Utilization

Review Peer Review Standards &

Compliance Appeals & Grievance

Analysis of Utilization

Costing & Savings

Analysis Report

Patient Diagnosis

Secondary Preventive

Care

Planning or Implementing

Treatment

Follow-up Management

Hospital Provider

Efficiency

Cost Reductions

Evidence-based

Standards

Core Performance Measures

Patient Experience Measures

Practice Performance Reporting

Reporting Performance Publicity

Finance Information Technology Human Resources Operations Compliance

Patient Services Improved Patient Convenience Patient Education Patient Involvement Patient Satisfaction

Population Health

Management

Disease Management

Case Management

Utilization Review

Clinical Decision &

Support

Performance Management

Core Infrastructure

Patient Engagement

Tale

nt M

anag

emen

t

Pro

cess

Impr

ovem

ent

Tech

nolo

gy E

nabl

emen

t

Dat

a M

anag

emen

t


29

Pennsylvania hospitals will need to think through the types of cases that could use the Maryland model as learning platform

■ Encounters for a relatively low dollar amount (think preventive services or singular office visit) may be candidates for capitation

■ Less frequent and slightly more expensive care, e.g., office procedures and follow-ups etc., may be bundled because of the one-off nature of the services and needs

■ More complex encounters (but which are still manage-able) represent lower frequency and greater clinical variability, requiring a cross functional team and a more complex value-based reimbursement structure as well – Accountable care organizations, with a performance attribution methodology down to the

physician level, may be an example of this type of VBP arrangement ■ Random, catastrophic events are largely uncontrollable or manage-able, and are likely best

suited for fee-for-service arrangements ■ One budgeted value can be derived across these bands and across the population,

considering the distribution of major epidemiology or diagnostic groups


30

Presenters Contact Details

Questions and Discussion

James Case Manager

KPMG LLP 410.949.8895

[email protected]

mailto:[email protected]�

mailto:[email protected]�

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
