Jason S. Greis, Esq. McGuireWoods LLP 77 W. Wacker Drive, Ste. 4100 Chicago, IL 60601-1818 312.849.8217 jgreis@mcguirew

1. Virtues and Vices of Medicare Episode of Care Payment Bundling:A Look at The Patient Protectionand Affordable Care Act’s Pilot ProgramChicago Bar AssociationApril 30, 2010 Jason S. Greis, Esq. McGuireWoods LLP 77 W. Wacker Drive, Ste. 4100 Chicago, IL 60601-1818 312.849.8217 jgreis@mcguirewoods.com www.GreisGuidetoLTACHs.com

2. Overview • Bundled Payment Definition • Why the Interest in Bundling? • History of Bundling Proposals • “Unbundling” the Bundling Concept • Episode of Care Payment Bundling Pilot Program under PPACA • Possible Challenges with Developing a Bundled Payment System • Other Bundling Pilot and Demonstration Programs

3. What is a “Bundled Payment”? • A “bundled payment” generally refers to a single payment covering services provided by multiple providers that otherwise would be reimbursed separately

4. Medicare Provider Reimbursement Structures: Current and Under PPACA’s Episode of Care Bundled Payment Pilot Program • Under the current prospective payment systems, hospitals (both STACHs and LTACHs), SNFs, IRFs and HHAs receive reimbursement for a bundle of services relating, respectively, to a DRG, per-diem RUG rate, FRG/CMG or HHRG

5. Medicare Provider Reimbursement Structures: Current and Under PPACA’s Episode of Care Bundled Payment Pilot Program(cont’d.) • Under PPACA’s Episode of Care Bundled Payment Pilot Program, Medicare would make a single payment that would cover inpatient services in an acute care hospital, post-acute care services required during 30 days after being discharged from an inpatient hospital, physician services and outpatient services

6. Why the Interest in Bundling? • About 20% of all 40 million Medicare beneficiaries are hospitalized in any one year. About 35% of these patients will require post-acute care. Well over half of this group will obtain services from two or more types of post-acute providers Barbara Gage et. al. (2009). Examining Post Acute Care Relationships in an Integrated Hospital System. A report to the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services. Washington, DC. Feb. 2009. Available at http://aspe.hhs.gov/health/reports/09/pacihs/report.shtml or http://post-acute.org/bundling/index_files/Page885.htm

7. Following the Patients

8. Why the Interest in Bundling? (cont’d.) • “Nearly 18 percent of hospitalizations of Medicare beneficiaries resulted in the readmission of patients who had been discharged in the hospital within the last 30 days. Sometimes the readmission could not have been prevented, but many of these readmissions are avoidable. To improve this situation, hospitals will receive bundled payments that cover not just the hospitalization, but care from certain post-acute providers the 30 days after the hospitalization, and hospitals with high rates of readmission will be paid less if patients are re-admitted to the hospital within the same 30-day period. This combination of incentives and penalties should lead to better care after a hospital stay and result in fewer readmissions—saving roughly $26 billion of wasted money over 10 years. The money saved will also be contributed to the reserve fund for health care reform.” President Obama’s FY 2010 Budget Proposal, Jumpstarting the Economy (February 2009)

9. Why the Interest in Bundling? (cont’d.) • COST CONTAINMENT • IMPROVE QUALITY • IMPROVE EFFICIENCY, COOPERATION AND COORDINATION • REDUCE PREVENTABLE READMISSIONS

10. History of Bundling Proposals • The concept of payment bundling has been re-introduced many times since the acute hospital prospective payment system (PPS) was launched in 1983, which created the development of an array of post-acute care services • Most discussions of bundling, historically, have focused on the concept of combining Medicare payments for physicians and general acute care hospitals

11. History of Bundling Proposals(cont’d.) • Only partial success in containing post-acute care costs with enactment of the Balanced Budget Act of 1997 • Medicare Payment Advisory Commission (MedPAC) report to Congress recommended the creation of a voluntary pilot program to test the feasibility of episode of care bundled payments for all Medicare Parts A and B covered services associated with hospitalization [June 2008]

12. History of Bundling Proposals(cont’d.) • Congressional Budget Office Report to Congress proposed bundling acute and post-acute care services into one payment to reduce Medicare spending $820 million over 2010-2014 and by almost $16.1 billion over 2010 to 2019 [December 2008] • President Obama’s 2010 Federal Budget supported the CBO’s bundling payment model to reduce readmission rates for preventable readmissions and to promote Medicare cost savings [February 2009]

13. History of Bundling Proposals(cont’d.) • Affordable Health Care for America Act (H.R. 3962) (House Bill) included a post-acute bundling proposal to bundle SNF, IRF, LTACH, HHA and hospital-based outpatient rehabilitation payments for a single episode of care after being discharged from a hospital [§ 1152] • The Patient Protection and Affordable Care Act’s Episode of Care Pilot Program (P.L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (discussed below)

14. “Unbundling” Bundling (Not a Simple Task) • Scope of services to be bundled • Duration of episode • Selection of patient assessment method • Selection of payment method • Selection of a bundler or accountable entity • Selection of quality and outcome metrics • Selection of risk or case-mix adjusters

15. Scope of Services to be Bundled • Post-acute services only • Acute + post-acute services • Acute + post-acute + physician services • Acute + post-acute + physician + outpatient services

16. Duration of Episode Duration of episode chosen depends upon the underlying objective: • Acute care hospitals favor a shorter episode since they will bear the risk that patients could acquire new unrelated health conditions • Post-acute care providers are in favor of a longer duration that is more consistent with the recovery period associated with a given health condition

17. Selection of Patient Assessment Method • There is no uniform patient assessment instrument • Hampers post-discharge placement, makes comparability of outcomes impossible and prevents development of a common case-mix adjustment system • RTI is currently field testing the Continuity Assessment Record and Evaluation (CARE) Tool Item Set

18. Selection of a Bundler or Accountable Entity • Whoever is responsible for administering the bundle must be able to effectively integrate and coordinate a diverse range of services and remain accountable for both price and outcome • Possibilities include: • Hospitals • Post-acute care providers • Continuing care hospital • Accountable care organization • Other

19. President Obama’s Principles of Health Reform: A Framework for Evaluating Success (or Failure) • “Every American has the right to affordable, comprehensive and portable health insurance. America can and must do better when it comes to health care.” Barack Obama’s Plan for a Healthy America: Lowering health care costs and ensuring affordable, high-quality health care for all, available at http://www.barackobama.com/pdf/HealthPlanFull.pdf

20. President Obama’s Principles of Health Reform: A Framework for Evaluating the Success (or Failure) (cont’d.) • Reduce long-term cost growth • Protect families’ financial health • Invest in prevention and wellness • Guarantee choice • Improve patient safety and quality of care • Assure affordable, quality coverage for all • Portability of coverage • End barriers to coverage for pre-existing conditions

21. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308) • The Secretary shall establish a national, voluntary 5-year pilot program by January 1, 2013 to develop, test and evaluate the feasibility of integrated care models during an episode of care provided to an applicable beneficiary around a hospitalization in order to improve coordination, quality, and efficiency of health care services

22. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • The Secretary may expand the duration and scope of the pilot after January 1, 2016 if the Secretary determines that expansion: (i) would reduce spending and improve the quality of care; and (ii) would not deny or limit coverage or provision of benefits for individuals • Requires independent evaluation by the Chief Actuary of CMS and an interim report to Congress based on independent evaluation no later than 2 years after the start of the pilot program and a final report within three years

23. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) Scope of services to be bundled: • Acute + post-acute (LTACH, IRF, SNF, HHA) + physician + outpatient hospital services

24. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • 10 conditions selected by the Secretary, based upon: • Whether the conditions selected include a mix of chronic and acute conditions and/or surgical and medical conditions • Whether a condition is one for which there is evidence of an opportunity for providers to improve quality and reduce spending • Whether a condition has significant variation in the number of readmissions or post-acute care expenditure • Which conditions are most amenable to bundling

25. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • Duration of episode: The 3 days prior to admission to a hospital for an applicable condition, the length of inpatient stay, and 30 days following discharge (unless the Secretary determines that another post-discharge time period is more appropriate) • Selection of patient assessment method: CARE Tool specifically mentioned in PPACA

26. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • Selection of payment method: A bundled payment under the pilot program shall be comprehensive, covering the costs of applicable services and other appropriate services furnished to an individual during an episode of care (as determined by the Secretary)

27. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • Selection of a bundler or accountable entity: • The Secretary shall develop payment methods for the pilot program for participating entities • The Secretary shall make payments to the entity for services covered under the pilot • Note: This is a key element of the pilot for which the Secretary is assuming responsibility

28. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • Selection of quality and outcome metrics: The Secretary, in consultation with the Agency for Healthcare Research and Quality (AHRQ) and the National Quality Form (NQF), shall develop site-neutral quality measures for use in the pilot program • Selection of risk or case-mix adjuster: To be determined during pilot program design

29. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • Selection of quality measures: Participating providers will be required to annually report certain quality measures, including the following: • Functional status improvement • Rates of avoidable hospital readmissions • Rates of discharge to the community • Rates of admission to an emergency room after a hospitalization

30. Episode of Care Payment Bundling Pilot Program under PPACA (Sec. 3023, as modified by Sec. 10308)(cont’d.) • Incidence of health care acquired infections • Efficiency measures • Measures of patient-centeredness of care • Measures of patient perception of care • Other measures, including measures of patient outcomes, determined appropriate by the Secretary Note: Separate pilot test for continuing care hospitals

31. Key Challenges with Bundling • Perceived impact on patient choice • Risk that costs will shift to another venue (e.g., SNF to long-term care or Medicare Part A to Part B services) • Acceleration of provider consolidation undermining local price competition, and concurrent loss of freestanding providers

32. Key Challenges with Bundling(cont’d.) • Challenges with waiving or reforming post-acute regulatory scheme developed to mitigate unintended consequences of current payment systems (e.g., LTACH 25% Rule and 25-day rule, IRF 60% Rule, SNF qualifying 3-day hospitalization) • Concerns about “skimping” if acute care hospitals are chosen as the entity responsible for administering the bundle

33. Key Challenges with Bundling(cont’d.) • Concerns that most rural hospitals lack the administrative resources to administer a bundled payment • Will hospitals and post-acute care providers be penalized for patient non-compliance that could be mischaracterized as a preventable readmission?

34. Other Bundling Examples • Heart Bypass Demonstration included payment for all inpatient and certain physician services within a 90-day window • Private sector initiatives to evaluate bundling of physician payments with acute care payments for knee and shoulder replacements • Acute Care Episode (ACE) Demonstration bundles virtually all payments of certain orthopedic and cardiovascular inpatient procedures at participating hospitals in Texas, Oklahoma, New Mexico, and Colorado

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