Determining Health Care’s Future in Texas July 11, 2013 | Dallas, Texas

1. Determining Health Care’s Future in Texas July 11, 2013 | Dallas, Texas Bobby Hillert – Executive Director Texas Orthopaedic Association Bhillert@toa.org | 214.728.7672 c www.toa.org

2. Key Issues Facing a Typical Orthopaedic Practice State Congress/Medicare Industry • Benchmarking Effectively Across Practices (Texas Surgical Quality Collaborative) • Health IT/EHRs/Direct Project • Consolidation • Increasing Costs • Third Party Administrators/Employers Demanding More • Scope of Practice • Commercial Insurance • Silent PPO regulation (HB 620) • Decreasing OON • Pricing Transparency • Exchange – Tight Network • Workers’ Comp • Closed formulary • Outpatient functional therapy reporting • Medicaid dual eligible Co-pay • Medicare Administrative Contractor (Novitas) • IPAB • SGR fix • Site neutral payments • Fee-for-service – future? • Increased Research Data • Direct Project (the New Health IT) • ICD-10 • Continuum of Care • Physician & Hospital VBP • Site Neutral Payments • Medicare Readmissions • Opting out of Medicare • Ron Wyden Senate Finance

3. Overview: Sample of Industry Issues (July 2013) • Industry (Texas) • Freestanding cath labs • Freestanding ERs/urgent care • Consolidation • IVF ASCs • Medicare/Congressional Issues • SGR • Employer mandate • Hospital Outpatient/Physician Fee Medicare 2014 proposals (July 8) • Kidney care ACO applications (August 10) • Psych proposed payment Medicare 2014 (late July) • Debt ceiling deadline (fall 2013) • ACA open enrollment (October 1) • Medicare proposal to use PET imaging for Alzheimer’s Disease (July 3) • ESRD bundle rebase = 12% Medicare decrease • Home health Medicare 2014 proposal = 1.5% decrease (June 27) • Obesity drug reimbursement legislation (Medicare) • Post-Acute Medicare payment reform not happening (home health, nursing homes, IRFs, LTCHs

4. Health Care Stakeholders in Austin Providers Non-providers Lawmaker Physicians Senator Charles Schwertner Orthopaedic Surgeon Senator Bob Deuell Family Practice Physician Senator Donna Campbell ER Physician/Ophthalmologist Rep. John Zerwas Anesthesiologist Rep. Greg Bonnen Neurosurgeon Rep. JD Sheffield Family Practice Physician

5. Tarrant County: A Microcosm For the State’s Political Future? 2012 Presidential Tarrant County: Romney: 57.1% Obama: 41.4% 2008 Presidential Tarrant County: McCain: 55.4% Obama: 43.7% 2012 Presidential State of Texas: Romney: 57.2% Obama: 41.4% 2008 Presidential State of Texas: McCain: 55.4% Obama: 43.7% • Tarrant only one of six large counties in Texas to support Romney. • City of Fort Worth one of only four “major cities” to support Romney (Phoenix, Oklahoma City, & Salt Lake City). Source: Texas Tribune

6. U.S. Congress: 2014 Elections • U.S. House • Likely to remain in Republican control. • Heavy Texas influence within Rules, Energy & Commerce, and Ways & Means Committees. • U.S. Senate • Biggest impact on health care will be Max Baucus’ retirement (D-Montana). • Ron Wyden (D-Oregon) to take Senator Baucus’ position.

7. Slowing Health Care Costs? • National health expenditures rose 3.9% in 2011, same rate as in 2009 and 2010. • Slowest growth in the 52 years that the government tracked this spending.

8. Health Care Consolidation

9. Industry Issues: Rising Expenses “Many private orthopaedic practices may find significant challenges to maintaining financial solvency in the future, according to research presented during the 2013 AAOS Annual Meeting by Alberto D. Cuellar, MD. Dr. Cuellar’s Scientific Poster, ‘The Economic Conundrum of Private Practice Orthopaedic Surgery,’ was selected as the overall best poster by the Central Program Committee.” American Academy of Orthopaedic Surgeons

10. “Physician Employment” in Texas HB 1700 is signed into law by the governor and allows rural hospital physician employment. This includes counties with a population of 50,000 or less; sole community hospitals; and critical access hospitals. SB 1661 is signed into law and sets up additional requirements for 5.01(a)s to protect physicians’ clinical autonomy. Other new laws allow employment at county hospitals in Harris, El Paso, and Bexar counties. Texas Scottish Rite wins approval, too. 2009 2011 2013 2015 Physician employment should be a quiet issue in 2013. Legislation signed into law allows Parkland (Dallas) to employ physicians. Rural hospital legislation is vetoed by the governor. Could all Texas hospitals ask for employment in 2015?

11. Consolidation: Which Specialties Are Entities Acquiring • Orthopaedics – 3% • Hospitalist/Emergency – 20% • Family/Internal – 14% • Multi-specialty – 9% • Neonatology/Pediatrics – 9% • Cardiology – 14% • Other – 31% Source: The Health Care Services Acquisition Report 2007-2012. Irving Levin Assoc, Inc. Analysis: Adam Lynch, Principle Valuation

12. The Future of Fee-for-service: Two Approaches MedPAC: Switch to global payments Providers & Industry: Retain a balance • Entities Factoring into a New Payment Model: • Physicians and other providers • Facilities • Payors • Industry (medical devices) • Home health • New payment models • Site neutral payments • Tighter networks (commercial side)

13. Fee-for-service: FFS’s Death or a Balanced Approach? “What will be the balance between productivity payments and payments for these non-productivity items or, better yet, these management of care services?” - Michael McCaslin, CPA Somerset CPAs, P.C. • His Prediction: • The Short Term (Next Three Years) • 60 to 70 percent fee-for-service • 40 to 30 percent cost management • The Mid Term (Four to Seven Years) • 50 percent fee-for-service • 30 percent cost management • 20 percent quality/outcomes

14. Positives for Global Payments Positives for FFS • MedPAC embraces global payments (evidenced in their desire to keep physician ownership of ancillary services for coordinated care purpose). • Volume not as important (compared to FFS). • Does not focus on (and reward) value of care. • More volume = more data for quality measures. • Resource-based relative value scale (RBRVS) – FFS always around, but RBRVS created in early 1990s when costs started rising. • Hospitals see value in FFS, as evidenced by RVUs for hospital-employed physicians (productivity measured). • Too many hospitals in certain markets over staffed? • Physicians have “ownership” in FFS. • Care not withheld for patients.

15. SGR Replacement: Energy & Commerce Release (July 2013) Incentive Payment Program (Measured Against Peers) Traditional SGR Two Payment Models • Threshold/Benchmark Update Incentive Payment Model • All fee schedule providers able to achieve the maximum update. • Stakeholders will determine benchmarks. • Highest composite score will receive the highest update. • Percentile Update Incentive Payment Model • Covers all fee schedule providers within a Peer Composite. • Payment update based on fee schedule provider’s percentile ranking (a comparison). • Top performers earn highest update.

16. SGR Replacement: Quality Measures • Core Competency Categories (Specialty Societies to Determine) • Clinical care. • Safety. • Care coordination. • Patient and caregiver experience. • Populations health and prevention.

17. New Payment Models (Medicare & Industry) ACOs Bundled Payments Gain Sharing Medical Homes IPAB Third Party Administrators

18. Capitation Shared Savings “Balanced” FFS Traditional FFS Evolution of Payment Risk Bundled payments Gain-sharing New commercial insurance products

19. Continuum of Care Map for a Hospital Visit Pre-surgery/hospitalization Hospitalization Home health/SNF Follow-up Role of social media/patient engagement SNF vs. home health • Readmissions • Data collection

20. New Payment Models ACOs, Bundled Payments, IPAB, Medical Homes Accountable Care Organizations Bundled Payments – The Affordable Care Act requires HHS to develop a national, voluntary bundled payment pilot program to provide incentives for providers to coordinate care. (Effective 2013.) A Medicare pilot project in the 1990s focused on on heart bypass surgery at seven hospitals. Medicare Physician Group Practice Demonstration Project (Medicare) It includes 10 physician groups (approximately 500 physicians and 22,000 beneficiaries). MedPAC cited increased quality. However, it could not quantify cost savings at this point in time. Acute Care Episode (ACE) – Gain Sharing Competitive bidding, shared savings. Over $1 million dollars in savings in San Antonio and sooner than expected payments. “Hillcrest (Tulsa) made a slight profit on the 415 patients — 295 cardiac and 120 orthopedic — that it treated through Sept. 30, 2009. Hillcrest officials say their orthopedic cases are up 2 percent this year and cardiac cases are up 27 percent, but they don’t know whether that’s because of the bonuses or the fact that the hospital just spent millions to improve its facilities.” Medical Home – The Independent Medicare Advisory Board will test medical home models. Center for Medicare & Medicaid Innovation Center/Independent Payment Advisory Board (IPAB) – Tests, evaluates, and expands different payment structures.

21. New Payment Models: Four Rounds of Medicare ACOs • July 9, 2012: 89 ACOs were announced.   • April 10, 2012: Medicare announced 27 new ACOs. • Thirty-two ACOs participating in the Medicare Pioneer Program were announced in December 2011. • Six Physician Group Practice Transition Demonstration organizations were announced in January 2011. • Another round announced January 2013. • Start Date: July 1, 2012 • San Antonio - BHS Accountable Care LLC • Texas (community health centers) - Essential Care Partners LLC • Houston - Memorial Hermann Accountable Care Organization • Texas (DFW) - Methodist Patient Covered ACO • Houston - Physicians ACO • Northern Texas/Southern Oklahoma - Texoma ACO • Start Date: April 1, 2012 • Texas (Houston-based) - Accountable Care Coalition of Texas, Inc. • Rio Grande Valley - RGV ACO Health Providers, LLC Note: this is an advance payment model • Pioneer ACOs: Announced December 19, 2011 • Austin (Central Texas) - Seton Health Alliance • Tarrant/Johnson/Parker Counties - North Texas ACO

22. January 2013: Round Four of Medicare ACOs • The largest set to date, 106, were announced on January 10, 2013. • New Texas ACOs Include: • Accountable Care Coalition of North Texas. This ACO was developed by Houston-based Collaborative Health Systems (CHS) and will include 70 physicians. CHS’s parent company, Universal American, is a Medicare Advantage provider. • Amarillo Legacy Medical ACO. • Essential Care Partners II, LLC. This is another ACO developed by CHS. • Integrated ACO. • Rio Grande Valley Health Alliance. • Scott & White Healthcare Walgreens Well Network.

23. New Payment Models Bundled Payments for Care Improvement • Several options for hospital/post acute care (PAC): • Delivered by a hospital. • Delivered by a post-acute care provider. As a Model 3 provider, Encompass is entering a fully at-risk relationship with Medicare for certain patients. The program includes 180 MS-DRGs, which are then sorted into 48 bundles with each bundle covering either a 30-, 60-, or 90-day period depending on the providers selection of duration. Each bundled payment will cover all the cost incurred from the date of the homecare admission for the agreed upon period. Encompass has elected to cover the 90-day bundled period. Any patient that is discharged from an acute care setting that had one of the 180 defined MS-DRGs and comes to Encompass as their first post discharge stop within 30 days of discharge will be subject to the bundled payment.

24. Medicare Spending on Post-acute Care During 90-day Bundle (5% of 2007 & 2008 claims)

25. Medicare Spending on Bundles: SNF vs. HHA vs. IRF

26. New Payment Models Bundled Payments for Care Improvement

27. Quality Issues Industry: Benchmarking Against Other Practices Public Policy: Medicare VBP for facilities & Physicians

28. Quality Benchmarking Across Practices: A Negotiation Tool for Physician Practices? For a number of surgeons, quality benchmarking data are largely anecdotal and involve a pen and paper. Increasing a physician’s ability to benchmarking quality data against numerous sources could enhance the physician’s negotiating power with commercial health insurance plans. Texas Surgical Quality Collaborative Employer-based Health Plan Consultants & Quality

29. VBP for Medicare Physicians: Quality & Satisfaction Ratings 2015: CMS to adopt VBP by this date; VBP for some; pay for reporting for all (EHR, not ACA). January 2012: CMS to announced VBP measures; reports to physicians regarding comparisons. 2010: Affordable Care Act & VBP for physicians 2011: Physician Compare launched 2013: 2015 VBP payments will be based on 2013 data 2017: All physicians will participate in VBP. Source: Press Gainey.

30. Value-based Purchasing: April 23 TOA eConnect Thoughts from Press Ganey (April 23 TOA eConnect Article) • Practices preparing for Medicare VBP • A large multi-specialty group in Texas will only award the previously withheld patient experience bonus if a physician meets the 90th percentile rank in his or her specialty. • Other groups have phased in a patient experience component to their compensation plan, and may ramp up the required rank over the course of 24 to 36 months. • What’s Coming from Medicare • 2012: Physician Compare Web site launched. • 2013: Data for both quality and patient experience are on the verge of being publicly reported (PQRS data added to web site in 2013). • 2014: PQRS & CGCAHPS data publicly reported – 1.5 percent adjustment for failure to report. • 2015: Payment adjustments begin. • 2017: Full VBP program in place for all physicians.

34. Medicare Hospitals: Value-Based Purchasing Overview July 1, 2009 – March 31, 2010 Baseline Calculation Period October 1, 2012: 1st Inpatient VBP Payments July 1, 2011 – March 31, 2012 Comparison Period

35. 30% of VBP: Texas Patient Experience of Care Source: CMS HCAHPS; patients who had overnight stays from July 2009 – June 2010; updated April 11, 2011.

36. 70% of VBP: Texas Clinical Process of Care Source: CMS HCAHPS; patients who had overnight stays from July 2009 – June 2010; updated April 11, 2011.

37. December 2012: CMS VBP Report Source: American Medical News. “Physician-owned hospitals seize their moment.” April 29, 2013.

38. EHRs: One Central Texas Practice Experience • 2012: $468,000 • 26 physicians received Year 1 payment • 2013: $240,000 • 20 physicians received Year 2 payment • 5 are now completing Year 2 in 2013, • 1 didn’t meet criteria • (Payments received after April 1st are subject to the 2% sequestration adjustment.)

40. “Quality or Value-based” Incentives • Document Process measures: (SCIP, PQRI) • NQF endorses quality measures to select • Appropriate Use Criteria from societies • Clinical Practice Guidelines: Evidence Levels

41. Medicare Inpatient Policy Considerations Medicare Readmissions Medicare Administrative Contractor (Novitas)

42. Medicare Hospitals: Readmissions According to the Centers for Medicare & Medicaid Services (CMS), in 2009, more than seven million Medicare beneficiaries experienced over 12.4 million inpatient hospitalizations. One in seven Medicare patients will experience some adverse event such as a preventable illness or injury while in the hospital. One in three Medicare beneficiaries who leave the hospital today will be readmitted within a month. • Starting in October 2012, hospitals subject to penalties of up to 1 percent for patients with primary condition of AMI, HF, or PNEU. • In the FY 2014 IPPS proposed rule, CMS proposes to apply an algorithm to account for planned readmissions. • In addition, a proposal to add THA, TKA, and COPD for FY 2015. • Beginning in October 2013, the penalty increases to 2 percent and 3 percent in October 2014.

43. Lowering Readmissions: June 2013 MedPAC Report

44. NQF Endorsed Quality MeasureFor THA/TKA CMS Validation Contract - June 2012 • 30 Day Risk-Standardized Readmission Rate (RSRR) to check transitions: Outpatient Coordination of care Medicine Reconciliation Discharge planning • Medicare 2008-2010 Part A claims • Mean 30 day RSRR = 5.7% 5th percentile, 4.6% 95th percentile, 7.0% Source: Marc DeHart, MD – Austin, Texas

45. NQF Endorsed Quality MeasureCMS Validation Contract - June 2012 • Risk-standardized complication rate (RSCR) following elective primary THA and/or TKA – mean = 3.6% • Surgical Site Complications: Surgical site bleeding – 30 days Mechanical complications – 90 days Periprosthetic joint infection/wound infection - 90 days Death – 30 days • Medical Complications: Acute myocardial infarction – 7 days Pneumonia – 7 days Pulmonary embolism – 30 days Sepsis/septicemia/shock – 7 days Source: Marc DeHart, MD – Austin, Texas

46. “Risk-Adjusted” • Not finding and reporting comorbidities will cost the “readmission score” • Not “maximizing” medical comorbities will hurt the complication and readmission score. Source: Marc DeHart, MD – Austin, Texas

47. Medicare MAC Audits: Case Study #1 • Case Study #1: • A Large Texas Hospital System • January – December 2012 • 908 DRG 470 Cases: • 163 claims denied after record review/audit. • 105 claims denied were successfully appealed. • 58 claims denied are waiting an administrative law judge hearing. • Typically Associated with Documentation Errors: • Insufficient documentation. • Failure to demonstrate conservative treatment. • Insufficient duration of conservative treatment. • Lack of medical necessity. • Denial rate – 25 percent. • No audits in the last quarter of 2012. • $887,000 in billed hospital services withheld and under appeal. • Source: Talk by Patrick Palmer, MD at the TOA Socioeconomic Summit in February 2013.

48. Outpatient vs. Inpatient Policy Considerations Site Neutral Payments (total savings of $900M/year; > $140M/year beneficiary cost sharing savings) Ancillary Services Physician Ownership

49. MedPAC’s June 2013 Annual Report: Consolidation & Costs “Growth of Hospital Employment of Physicians Leads to Higher Spending by Private Plans and Their Enrollees.” The growth of hospital employment of physicians is leading to higher spending by private plans outside of Medicare and higher cost sharing for their enrollees (Alexander et al. 2012, Dutton 2012, Kowalczyk 2013a, Kowalczyk 2013b, Mathews 2012). In one example, a patient found that his insurance plan paid $1,605 for an echocardiogram after his cardiologist’s practice was acquired by a hospital system—more than four times the amount paid by the plan when the practice was independent (Mathews 2012). The patient’s share of the bill was about $1,000. According to the patient, “Nothing had changed, it was the same equipment, the same room.” In another example, a patient who received a 20-minute exam in a hospital-owned practice was charged a $500 facility fee in addition to the physician’s $250 professional fee (Kowalczyk 2013a). In some cases, private plans have stopped paying the additional facility fee for routine office visits provided in hospital-owned entities (Kowalczyk 2013a, Ostrom 2012).

50. MedPAC: Site-Neutral Payments • Round 1: E&M Site-neutral Payments • 2012 MedPAC discussions focused on limiting HOPD payments for E&M services at the physician fee schedule. • Round 2: Ambulatory Payment Classification (APC) Groups • MedPAC believes these procedures do not require an inpatient facility and an ED. As a result, it may recommend significant payment cuts. • Of a sample of 100 of the most negatively impacted hospitals, over half were specialty hospitals and those with low ED rates. • First group of 25 APCs (diagnostic tests – bone density): • Performed in physician office more than 50 percent. • Rarely provided during ED visits (less than 10 percent) • Minimal differences in patient severity. • Similar packaging as the physician fee schedule. • Second group of 61 APCs: • More packaging ancillaries than the PFS. • Payment could be set at sum of PFS for the primary service and the packaged ancillary services. Source: Initial MedPAC analysis in 2012.