Objective 1 - Provider Reimbursement - Provider Payment Arrangements

Question 1

Elements of “Value Based” Payment Arrangements

Answer 1

1. Providers and payers work together to better align incentives to quality at an affordable price
2. Engage all stakeholders
3. Payment reform is organization specific
4. Results of payment reform are mixed
5. Success in reform depends on on the payment reform team
6. Requires various qualities to succeed
7. Insurance companies play an important role in reform
8. Improved models incorporate provider risk

Question 2

Definitions related to payment reform

Answer 2

1. Value-based arrangement - an arrangement where a payer and a patient seek quality and efficiency. The opposite of a volume-based arrangement 2. Payment reform - the environment where more contracts move to value-based arrangements 3. Payment model - the manner in which a payer reimburses providers 4. Service deliver model - the manner in which providers organize and deliver care to patients. Can refer to an approach (such as telemedicine) or organization (such as an accountable care organization (ACO))

Question 3

The actuary’s role in payment reform

Answer 3

1. Leading the pricing exercise 2. Help quantify the risk 3. Calculate the correct price for the selected payment model 4. Help project and model cash flows 5. Help providers understand the risk of the payment model.

Question 4

Basic step in designing a service delivery model

Answer 4

1. Target a specific population
2. Use claim data for target population to determine expected CoC, Utilization and average unit cost
3. Select a model that produces better outcomes for the population and decreases health care trends

Question 5

Types of provider payment models

Answer 5

1. FFS - providers are paid for each service they perform, either through a fee schedule or as a percent of charges 2. Global capitation - providers are paid a fixed rate for each member they agree to service. The payment is based on the average costs of the population, rather than the services provided. 3. Shared savings - providers typically get reimbursed using FFS, but they also receive a percentage of the savings they create by reducing utilization below a benchmark. Usually, providers only receive the bonus if they meet certain quality targets. 4. Diagnosis-related groups (DRGs) and case rates - the hospital is paid a single price, or case rate, for an admission rather than a price per day or for each service provided during the stay. There is often an outlier adjustment where the provider gets paid an outlier per diem rate if the admission exceeds a certain number of days 5. Bundled payments - a single payment is made for an episode of care, which usually starts with a specific DRG or a surgery and extends for a specific future period (typically 30, 60, or 90 days) 6. Reference pricing - a benefit limit (i.e., the reference price) is established for a specific medical procedure or device. The patient must pay the difference between the allowed charge and the reference prices. 7. Provider excess loss reinsurance - protects the provider from high-cost outliers. It is generally paired with one of the previous payment models. 8. Pay-for-performance (P4P) - any payment arrangement can include a P4P aspect by including incentives for higher quality of care or disincentives for lower quality. This adds performance risk.

Question 6

Types of risk associated with payment arrangements, from the provider’s perspective

Answer 6

1. Utilization risk - the risk that changes in utilization will impact provider profitability 2. Technical risk - the risk of appropriately structuring technical elements of a contract 3. Insurance risk - the risk of variation in demand for medical services over time and the risk of differences in utilization within segments of the insured population. Examples include: a) Age, gender, and acuity differences b) Number of high-cost cases vs. average c) Year-to-year variation in patient demand for services d) Proportion of the population that has zero claims in a year 4. Performance risk - the risk of inefficiency, suboptimal quality, and high cost of care

Question 7

Risks to the provider under FFS

Answer 7

1. Utilization risk - for most services, the provider’s profit increases as utilization increases 2. Technical risk - this risk is low because FFS is easy to implement, design, and monitor 3. Insurance risk - providers have very little insurance risk. They are not at risk for the year-to-year variation in claims cost of a specified population 4. Performance risk - this risk may exist if the claims administrators do not carefully monitor nonspecifc codes

Question 8

Risks to the provider under global capitation

Answer 8

1. Utilization risk - changes in utilization have the opposite impact as in a FFS model. Profit increases for providers as utilization decreases 2. Technical risk - this risk is quite high. A provider organization will need complex structures in place to allocate money among various providers 3. Insurance risk - all of the insurance risk is transferred to the provider. The provider takes on the risk that members will need more services than was expected when negotiating the capitated rate. 4. Performance risk - the provider is a high risk since it takes on the financial responsibility for all of the care the patient receives

Question 9

Risks to the provider under shared savings

Answer 9

1. Utilization risk - because of the complexity of contracts, this risk is hard to quantify 2. Technical risk - this risk is high due to the complexity of calculating benchmarks, reconciling savings, measuring quality, and distributing savings and losses 3. Insurance risk - there is a risk that year-to-year variation in claims costs will result in claims costs that are different than the benchmark 4. Performance risk - there is significant risk regarding whether care management efficiencies can be achieved and whether the benchmark can be met

Question 10

Risks to the provider under DRG/case rates

Answer 10

1. Utilization risk - increased admissions lead to increased profits. But the provider has an incentive to reduce the length of stay because for longer stays the provider has additional costs but no additional reimbursement 2. Technical risk - this risk is low to medium because DRGs have existed for some time and there are established models for creating DRG groupings 3. Insurance risk - the provider is at risk for longer lengths of stay, but not for incidence risk 4. Performance risk - the hospital may be cautious of discharging patients too early. That could increase the risk or readmissions, which carries financial penalties from Medicare

Question 11

Elements of a DRG Contract

Answer 11

1. Case rate schedule
   
   1. Can use CMS MSDRG calibrated to the population
2. Max Number of days
   
   1. If LOS is longer than average may move to per diem
   2. Per deim would apply to days past the max
3. Specialty RX carveouts
4. Stoploss provisions
5. Transplant treatment
6. Readmission payment decision

Question 12

Risks to the provider under bundled payments

Answer 12

1. Utilization risk - when the number of episodes increases, provider profits can increase. But within an episode, the provider will need to decrease medically unnecessary services in order to make a profit 2. Technical risk - this risk is quite high due to challenges such as defining conditions, coordinating care, and partnering among different providers 3. Insurance risk - the provider is at risk for members who have higher allowed costs than the average episode 4. Performance risk - there is risk related to proper discharge planning and communication

Question 13

Risks to the provider under reference pricing

Answer 13

1. Utilization risk - members will be less likely to use provider services as their out-of-picket share increases 2. Technical risk - there is risk related to educating the policyholder on reference pricing 3. Insurance risk - some patients may need high-cost care, in which case the insurance risk is shifted to the patient and away from both the insurer and the provider 4. Performance risk - patients who are charged high amounts for procedures may be unhappy with both their providers and their insurers

Question 14

Risks to the provider under provider excess loss reinsurance

Answer 14

1. Utilization risk - this risk is shifted to a reinsurer 2. Technical risk - this risk will vary with the structure of the stop-loss contract. The most common approach is a coinsurance arrangement, which has low technical risk. 3. Insurance risk - the provider’s risk of high outlier costs is somewhat mitigated 4. Performance risk - this risk is highly dependent on the structure of the reinsurance policy

Question 15

Domains of quality from the Agency of Healthcare Research and Quality

Answer 15

1. Access to care - whether a patient can readily obtain needed services. Performance measures include the number and geographic distribution of providers. 2. Structure of care - whether care is provided by appropriate providers who use up-to-date technology. Measures include assessment of referral policies and use of electronic health records. 3. Process of care - whether services have been provided to appropriate member subpopulations. One measure is hospital readmission rates. 4. Outcomes of care - whether treatment has been effective. Measures include what percentage of patients with diabetes meet blood sugar targets. 5. Experience of care - whether patients are satisfied with the care they have received. Is generally measured by surveys

Question 16

General Approach for designing a provider payment model

Answer 16

1. Actuary quantifies the risk, calculates the price, projects and models the cash flows
2. Payment reform team uses step 1 to determine the right payment model.

Question 17

Factors to consider when modeling payments and case flows for a provider payment model

Answer 17

1. What types of unintended behaviors may occur due to incentives created by the payment model? 2. What other factors would jeopardize achievement of forecasted results? 3. How will results be achieved during the model test be replicated? 4. Will the structure and the dimensions of the payment model change over time? 5. Will there be a phased-in approach? 6. How will the payment model promote continuous improvement of the service delivery model? 7. What key factors, including other delivery and payment reforms, may affect this progression?

Question 18

Best Practices for developing Provider Payment Model

Answer 18

1. Effective risk management
2. Understanding the risks associated with the selected payment model
3. Budget setting for ROI acheivement
4. Strong clinical staff
5. Timely and accurate information
6. Policymakers addressing systemic issues

Question 19

Formula for determining Medicare allowed amounts

Answer 19

1. Weights are determined based on: a) Relative value units (RVUs) - these are categorized by Current Procedural Terminology codes. There are three components for each RVU: work/practice cost (w), facility/cost of living (f), and malpractice (m). b) Geographic Practice Cost Index (GPCI) - these are based on provider zip coes 2. Medicare allowed amount = (GPCIw * RVUw + GPCIf * RVUf + GPCIm * RVUm) * conversion factor 3. Payments are also adjusted for various reasons, such as who performs the service (e.g., professional surgeon vs. assistant surgeon) and where the service is performed

Question 20

Considerations when negotiating terms of commercial ACO contracts

Answer 20

1. Target costs - how are the baseline costs developed? Is there re-basing from one year to the next? 2. Risk adjustment - the actuary can help the payment reform team understand the benefits and impacts of the different risk adjusters to use in creating the target cost 3. Trend - will the baseline and measurement years be trended, and at what rate? 4. Shared savings - what are the savings rate and loss rate, and are the targets achievable? 5. Attribution - the attribution method is extremely important, but the details can be quite complex 6. Random variation - is the number of members attributed to the ACO large enough that gains and losses will not just be due to statistical fluctuation? 7. Stop loss - the ACO and the payer may swish to negotiate specific and aggregate stop loss 8. Data and reports - the ACO will need member-level detail on enrollment, medical claims, and pharmacy claims. It will also need detailed reporting in order to reconcile gains and losses 9. Quality - are there a sufficient number of measures to ensure reliable results and reasonably determined benchmarks and targets? 10. Infrastructure cost support - will there be a care coordination fee to help the ACO get up and running with its infrastructure?

Question 21

Expected sources of savings for ACOs in the MSSP

Answer 21

MSSP = Medicare Shared Savings Program 1. Reducing unnecessary care and duplication 2. Redirecting care to cost-efficient providers 3. Preventing medical errors

Question 22

Profit formula for ACOs in the MSSP

Answer 22

Net gain/loss = - Revenue reductions + Bonus/share of revenue reductions - Start-up costs of the ACO - Administrative costs of operating the ACO + Reduction in direct expenses

Question 23

Elements of a DRG contract

Answer 23

1. DRG/case rate schedule - shows the case rate for each DRG for an initial length of stay and the per diem for days beyond that level 2. Maximum days - the number of days for which the case rate applies. Cases that exceed that length of stay are then paid a per diem rate for each additional stay 3. Carve-outs for specialty drugs and implant devices - additional payments may be made for these items 4. Stop loss - a contract may also have a stop loss to be applied on a case level 5. Transplants - payment for transplants is usually negotiated separately 6. Readmissions - the contract must state whether payment will be made for readmissions

Question 24

Steps for bundled payments

Answer 24

1. Obtain claims data 2. Select DRGs or conditions - look for enough volume, a population that will have similar treatment patterns, and potential for savings that is due to variation in care. Knee and hip procedures are popular selections. 3. Define the episode - specify the full time period and mix of services for which the organization is financially responsible and at risk. Typically includes: a) Anchor stay - period of time between admission and discharge b) Post-discharge period or post-anchor event period - typically covers 30, 60, or 90 days from the discharge date c) Post-episode period - covers 30 days past the episode end date as the quality control to make sure providers are not waiting until the end of the episode to provide services 4. Define exclusion criteria - should be easy to implement and not overly specific 5. Estimate cost of the bundle - done by analyzing claims data 6. Identify savings opportunities - these will be different for every episode and every organization. For example, discharging more knee replacement surgery patients to their home instead of a rehabilitation center will lead to savings

Question 25

Major issues with pay-for-performance methods

Answer 25

1. Unintended incentive to avoid the most severely ill patients 2. Gaming the system by miscoding diagnoses or services 3. Selecting patients on the basis of the likelihood of a positive outcome 4. Compliance with treatment protocols rather than need 5. Unmeasured objective could be ignored

Question 26

Functions (or components) of patient-centered medical homes

Answer 26

1. Comprehensive care - provided through several different care providers 2. Patient-centered - a relationship-based process to educate patients and allow them to define the levels of care with which they are comfortable 3. Coordinated care - incorporating the entire health case system in order to facilitate communication about the patient and discuss best practices among different provider groups 4. Accessible services - providing multiple channels for the patient to be able to reach out and gather information or receive care 5. Quality and safety - implementing quality improvement measures while taking into account the patient’s progress, concerns, and overall well-being

Question 27

Qualities an organization needs to succeed under payment reform

Answer 27

1. Highly integrated system 2, Efficient care management initiatives 3. More efficient health system than the rest of the market 4. Select and restricted networks 5. Collaborative relationship between the provider organization and payers to reduce costs 6. Reasonable methods to establish capitation rates, episode payments, and other payments 7. Equitable methodology for allocating global capitation payments or quality incentives among the individual participating providers