healthcare reform and physician compensation— presentation examines what’s in their wallet
DESCRIPTION
Among the many questions facing physicians in the wake of healthcare reform—how will they get paid? PYA Principal David McMillan recently addressed this question at the PKF Healthcare Fly-In with “Current Reform Initiatives and Their Impact on Physician Compensation.”TRANSCRIPT
Current Reform Initiatives and Their Impact on Physician Compensation
November 13, 2013David McMillan, CPANew Orleans, Louisiana
David McMillan provides financial and strategic services to the Firm's healthcare clients. David's areas of concentration are: feasibility studies for various healthcare entities; mergers, acquisitions, and affiliations among providers; strategic planning and forecasting, clinical integration services; and valuations and operational analysis.
Speaker Biography
David W. McMillan, CPAPYA Principal
Agenda
Healthcare Reform Initiatives Overview
Regulatory Considerations
Value-Based Payment Modifier
Quality Incentives
Medicare-Medicaid Parity
Rise in Insured and Increased Access to Primary Care
Accountable Care Organizations and Bundled Payments
Healthcare Reform Initiatives Overview
The Push Towards Quality and Lower Cost
Rebuilding Primary Care
Workforce
Increasing Medicaid
Payments to Primary Care Physicians
Linking Payment to
Quality Outcomes
Encouraging Integrated
Health Systems
Expanding Authority to
Bundle Payments
The Train Has Left the Station…
2010
Healthcare reform begins with consumer-focused initiatives (i.e., focused on insurance reform)
Medicaid demonstration project – fee-for-service to global fee
2011
Physician quality reporting – Physician Compare website
Center for Medicare and Medicaid Innovation – explore models of payment based on quality
2012 2013
Hospital readmissions – Reduction in payments to hospitals for preventive readmissions
ACO program launch – shared savings
Hospital value-based purchasing program
Bundled payment initiatives
Medicare – Medicaid parity
Value-based purchasing – physician payments phased in 2015 to 2017
Value-Based Payment Modifier
• Pay for volume• No quality
measured
Fee For Service
• Quality per click• Process
improvement
Value- Based Payment • Quality
outcomes of episodes
• Whole system improvement
Care Coordination
THEN NOW FUTURE
The Future is Now
Calculation of Value-Based Payment Modifier in CY 2015
Source: Summary of 2015 Physician Value-based Payment Modifier Policies
Groups of Physicians with 100 or more Eligible Professionals
PQRS Participation (Groups that self-
nominate/register for PQRS as a group and report at least one measure, or elect PQRS
Administrative Claims)
Non-PQRS Participation (Groups that do not self-
nominate/register for PQRS as a group and do not report at least one measure)
Upward, downward, or no adjustment based on quality-tiering
0.0%
(no adjustment) -1.0%
(downward adjustment)
Elect Quality-Tiering Calculation No Election
Tiered Value-Based Payment Modifier
Both upside reward and downside risk
Focused on outliers in quality and cost
Composite scores for cost and quality
Three tiers – High, Average, and Low
Additional upward adjustment for care of sickest patients
Sum of upward adjustments will be offset by downward adjustments
Tiered Value-Based Payment Modifier
Quality/Cost Low Cost Average Cost High Cost
High Quality +2.0X +1.0X +0.0%
Medium Quality
+1.0X +0.0% -0.5%
Low Quality +0.0% -0.5% -1.0%
Quality Incentives
Quality Incentive Compensation
Overview – Arrangements by which hospitals compensate physicians for the achievement of certain pre-defined quality indicators
Increasingly common arrangements
Quickly becoming components of (or even fully characterizing) many physician-hospital alignment arrangements
Example factors generally considered when evaluating quality incentives: Core measures Patient satisfaction Specialty-specific outcomes measures
Risk reduction Quality-related educational activities
Overview – Arrangements by which hospitals compensate physicians for the achievement of certain pre-defined quality indicators
Management Company/
LLC/Committee
Hospital Physicians
•Base management fees• Incentive Compensation (limited) Including:
- Quality
- Operational
Efficiency
Hospital Pays for:
$
PhysiciansHospital
Service Contract to Manage Hospital’s Service Line at-risk for
Quality and Operational Goals
Co-Management Model
OIG Opinion No. 12-22
Employee Satisfaction –
5%
Patient Satisfaction –
5%
Quality of Care – 30%
Cost Reduction – 60%
Cardiac catheterization clinical co-management arrangement between a hospital and a cardiology group. The group received a fixed fee and a performance-based fee that was “at risk” based on the achievement of pre-determined metrics. Performance fee based on the following:
Areas of Concern Noted by the OIG
“Cherry Picking”
Stinting on Patient Care
Payments to Induce Patient
Referrals
Unfair Competition
The OIG states that “hospital cost-savings programs, in general, and the arrangement in particular, may implicate at least three Federal legal authorities: the Civil Monetary Penalty, the Anti-Kickback Statute and the Physician Self-Referral Law.”
Keys to Compliance
Self referral law (Stark Law) falls outside of OIG’s jurisdiction. As such, the opinion does not discuss whether the arrangement implicates this law.
CivilMonetaryPenalty
Anti-KickbackStatute
• Cost-savings component implicates the CMP; however, sanctions not sought due to the following safeguards:- Patient care is monitored through third-party utilization review
and internal committee and board review.- Benchmarks are structured so that physicians have flexibility to
use cost-effective clinically appropriate materials.- Term is limited to three years and is subject to a cap.
• Sanctions not imposed for the following reasons:- FMV compensation and management responsibilities are
robust.- Compensation is not variable with number of patients treated.- Hospital operates only cardiac cath lab within 50-mile radius
and the group does not provide cath lab services elsewhere.- Specificity of measures ensure that pay is for quality
improvement, not referrals.- Three-year term
Keys to Compliance
• OIG states that, if the agreement is renewed, then reviewing and rebasing quality metrics is essential.
– “We would expect that quality improvement and cost-saving measures under the Agreement would be subject to adjustment over time, to avoid payment for improvements achieved in prior years and to provide incentives for additional improvements in the future. Continuing compensation for conduct that has come to represent the accepted standard of care could, depending on the circumstances, implicate the Anti-Kickback Statute.”
Medicare-Medicaid Parity
New Primacy of Primary Care
• Enhanced Medicare payments For 2011-15, Medicare pays 10% bonus for:
o PC services furnished by PC practitioners
o Professional component of surgical procedure performed in HPSA
• Enhanced Medicaid payments Payment rates to PC physicians increased in 2013 and 2014 to 100% of
Medicare rates
• Significant new funding for community health centers
• Increase PC workforce by 16,000 by 2016
Expand National Health Services Corps
Other scholarships, loan repayment, and workforce training programs
Overview of Initiative
November 1, 2012
• CMS issues final regulation implementing payment of Medicaid services at Medicare levels for 2013 and 2014
March 31, 2013
• Deadline for states to submit a state plan amendment
July 1,2013
• According to CMS, ¼ of states had implemented the temporary payment increase
States estimated to receive $8.5 billion in 2013 and $6.1 billion in 2014 to fund Medicaid parity payments.
Nationally, average Medicaid
payments are approximately
66% of Medicare
rates.
Estimated Medicaid Rate Increases by State
Approximately 73% overall increase in Medicaid
rates.
Source: http://medialib.aafp.org/content/dam/AAFP/images/ann/2013-7/Medicaid-Fee-Hike-Map.png
Who Does it Impact?
• Eligibility requirements include:– Medicaid fee-for-service and managed care payments
for primary care services delivered by a family practice, internal medicine or pediatric medicine physician.
– Self-attestation regarding board certification in above-mentioned specialties.
– If not board certified, then the physician must self-attest that at least 60% of Medicaid codes billed are Evaluation & Management codes and vaccine administration codes.
– Also applies to certain related subspecialties outlined in the regulations.
Impact on Physician CompensationHospitalist Subsidy Example
Low HighREVENUE
Professional Collections1 2,100,000$ 2,300,000$
EXPENSESPhysician Compensation and Benefits:
Physician Base Compensation2 2,200,000 2,300,000
Physician Benefits3 352,000 368,000 Total Physician Compensation and Benefits 2,552,000 2,668,000
Medical Director Compensation4 54,450 56,250
Other Expenses:
Liability Insurance5 60,450 60,450
Office Overhead6 265,460 265,460 Total Other Expenses 325,910 325,910
TOTAL EXPENSES 2,932,360 3,050,160
Estimated Net Income Before Subsidy (Loss) (832,360)$ (750,160)$
Subsidy, rounded (830,000)$ (750,000)$
Medicaid Parity Offset 7 180,000$ 197,143$ Revised Subsidy (650,000)$ (552,857)$
Hospitalist Services AgreementFinancial Assistance Calculation
Impact on Physician CompensationHospitalist Subsidy Example (continued)
7Medicaid parity offset is based on the following broad assumptions for illustrative purposes only: Medicaid revenue approximates 20% of the professional collections and was initially collected at a rate of approximately 70% that of Medicare.
1 Represents average of median (low) and mean (high) national survey data for collections per physician FTE multiplied by 10 FTE physicians to provide coverage.
2 Calculation is based on 10 FTEs to provide coverage and average of median and mean survey compensation data for clinical compensation.3 Benefits are calculated at 16% of compensation expense based upon PYA experience and information from the 2012 MGMA Cost Survey and the 2012 AMGA Medical Group Compensation and Financial Survey . No material variation in benefits is expected between low and high range.4 Calculation is based upon one physician providing services 450 hours annually at a fair market value rate ranging from $121 to $125 per hour.5 Based upon the average of the 2012 MGMA Cost Survey median professional liability insurance expense per full-time equivalent physician for physicians specializing in internal medicine and the 2012 AMGA Medical Group Compensation and Financial Survey median professional liability insurance expense per full-time equivalent physician for physicians specializing in hospital medicine. PYA utilized 10 FTE physicians based upon an analysis of historical encounter trending.6 Estimated overhead expenses at $26,546 per FTE physician per 2012 AMGA Medical Group Compensation and Financial Survey .
Rise in Insured and Access to Primary Care
Effects of the PPACA on Primary Care
Source: Abraham, Jean Marie, Hofer, Adam N. and Moscovice, Ira. Expansion of Coverage under the Patient Protection and Affordable Care Act and Primary Care Utilization. The Milibank Quarterly. Vol. 89, No.1. 2011
Enactment of provisions of the PPACA are expected to increase the number of covered individuals by 32
million.
By 2019, primary care visits are predicted to increase between 15.07 million to 24.26 million.
Assuming stable levels of physicians’ productivity, the increased demand
would require between 4,307 to 6,940 primary care physicians.
Decline in Uninsured
Source: http://kff.org/report-section/state-and-local-coverage-changes-under-full-implementation-of-the-affordable-care-act-report/
Demand on the Rise
“Demand for Family
Physicians Fuels Salary,
Compensation Increase,
Survey Finds”
Rise in
Compensati
on
• Median first-year compensation for family practice physician (without OB) increased $7,000 between 2011 and 2012.
• Median compensation for all primary care physicians increased $5,000 between 2011 and 2012.
Drivers of Pay
Increase
• Increases due in large part to rise of ACOs and integrated delivery systems that require the services of primary care physician.
• Healthcare reform extending coverage to more people has created additional demand for services.
Supply
• According to the Merritt Hawkins 2013 Review of Physician and Advance Practitioners Recruiting Incentives, family practice and internal medicine physicians are the most highly recruited specialties.
Source: Demand for Family Physicians Fuels Salary, Compensation Increase, Survey finds. American Academy of Family Physicians. July 9, 2013.
Accountable Care Organizations and Bundled Payments
ACO – Where are they now?
Nine of the original 27 organizations are leaving the Pioneer ACO program; seven of the nine will join the MSSP.
As of January 2013, 250 ACOs provided care to four million beneficiaries (27 ACOs at initiation).
Based on a white paper released by Premier healthcare alliance, only 21% of commercial payers offer upside savings arrangements.
Medicare ACO in a Nutshell(“Shared Savings Program”)
• Mandatory - Sufficient PCPs to care for at least 5,000 beneficiaries• Optional - Other Medicare-enrolled providersACO providers
• Legal entity, governing body, management structure, medical director• Meet patient-centeredness, evidence-based medicine, coordination,
and cost-effectiveness goals & measuresACO operations
• Patients assigned by CMS based on PCP TIN• Patients retain freedom of choiceBeneficiary assignment
•Receive shared savings payments if meet certain performance standards on 33 quality measures (or pay back Medicare); more demanding over time
•Minimum Savings Rate (MSR)
Performance requirements
• 1-sided – 50% shared savings• 2-sided – 60% shared savings, at risk for 2% over benchmarkShared savings payment
• Waiver from requirements of Stark Law, Anti-Kickback Statute, and Gainsharing CMP, AntitrustRegulatory waivers
• ACO participant receives same Medicare Part A and Part B FFS payments.
• ACO is eligible for annual payment based on Medicare savings.
– Savings = difference between Medicare’s projected total expenditures for ACO’s assigned beneficiaries (“benchmark”) and actual total expenditures
– Must be above Min Sav. Rt.
• Savings are based on FFS payments to all providers, including non-ACO providers.
Medicare ACO:How You Get Paid
Ben
chm
ark
Act
ual
Sav
ings $ACO
$CMS
MSR
Based on equity?
Based on revenue?
Utilization targets?
Some other way?
Return of withhold
Sharing of bonuses
Funding of losses
Return of withhold
Sharing of bonuses
Funding of losses
Funds Sharing Challenges
• 1st two years, upside only• 3rd year, must convert to two-sided model• Subject to 25% withhold
Not responsible for losses
initially
Key issues:
• MSR set using historical expenses
• Benchmark adjusted annually
• Bonuses limited to 50% savings off the MSR, capped at 7.5%
One-sided model-MSSP
Two-sided model-MSSP
Key issues:
• MSR set using historical expenses
• Benchmark adjusted annually
• Bonuses limited to 60% after savings exceed 2%, capped at 10%
• Losses capped at 5%, 7.5% and 10%
• Eligible for a larger percent of savings• Exposure to 40% of losses• Subject to 25% withhold
On the hook for losses
immediately
Shared Savings Models-MSSP
One-Sided Model (performance years 1 & 2)
Two-Sided Model
Sharing Rate (assuming maximum performance on quality measures)
Up to 50% Up to 60%
FQHC/RHC Participation Incentives
Up to 2.5 percentage points Up to 5 percentage points
Maximum Sharing CapPayments capped at 7.5% of
ACO's benchmarkPayments capped at 10% of
ACO's benchmark
Shared Losses Cap N/A Year 1 - 5% Year 2 - 7.5% Year 3 - 10%
Considerations for Primary Care
Care delivery will likely shift to
mid-level practitioners changing the cost
structure of practices
Work relative value unit assignments likely to increase over the next
few years
Critical to the success of an ACO or bundled payment initiative
Will likely be a shortage by 2014 – even more so
than currently
Five-year initiative launched
January 31, 2013
Private payers already using
bundled payments
Bundled Payments for Care Improvement Initiative
Based on Medicare ACE Demonstration Project –
free-range ACO
Single payment for defined group of services within specified episode
of care
Pricing based on discount of payer’s historic total cost
Gain-sharing incentives
Bundled Payment Initiative PilotMODEL MODEL 1 MODEL 2 MODEL 3 MODEL 4
Types of Services Included in Bundle
All inpatient hospital services
• Inpatient hospital and physician services
• Related post-acute care services• Related readmissions• Other services defined in the
bundle
• Post-acute care services• Related readmissions• Other services defined in
the bundle
• Inpatient hospital and physician services
• Related readmissions
Expected Discount Provided to Medicare
To be proposed by applicant; CMS requires minimum discounts increasing from 0% in first 6 mos. to 2% in Year 3
To be proposed by applicant; CMS requires minimum discount of 3% for 30-89 days post-discharge episode; 2% for 90 days or longer episode
To be proposed by applicant
To be proposed by applicant; subject to minimum discount of 3%; larger discount for MS-DRGs in ACE Demonstration
Payment from CMS to Providers
• Acute care hospital: IPPS payment less pre-determined discount
• Physician: Traditional fee schedule payment (not included in episode or subject to discount)
Traditional fee-for-service payment to all providers and suppliers, subject to reconciliation with predetermined target price
Traditional fee-for-service payment to all providers and suppliers, subject to reconciliation with predetermined target price
Prospectively established bundled payment to admitting hospital; hospitals distribute payments from bundled payment
Quality MeasuresAll Hospital IQR measures and additional measures to be proposed by applicants
To be proposed by applicants, but CMS will ultimately establish a standardized set of measures that will be aligned to the greatest extent possible with measures in other CMS programs
Bundled Payments - So, How’s it Working So Far?
Understanding data is critical
to success
Determination of episodes that offer the
greatest opportunity
Engaging physicians
Influencing utilization of post-acute
care services
Patient Engagement
Case Study from DataGen and New York-Presbyterian Hospital Addresses Key Success Factors for the Bundled Payment Care Initiative
Source: New Case Study Examines Key Success Factors for Medicare Bundled Payment Initiative. Yahoo! Finance. September 4, 2013.
Key Implications for Valuations
Physician Alignment
Transactions
Hospitalist Strategies
Quality Incentives
Call Pay Arrangements
Clinical
Co-Management Agreements
Direct Employment
Physician Practice
Acquisitions (“Buy and Employ”
Transactions)
Common Types of Physician Alignment Strategies
More IntegrationLess Integration
More Common
Less Common
Equipment JV
EMR
Co-Management
Medical Directorships
Shared Savings
Real Estate JV
Physician Advisory Council
PHO
Quality
Physician Services
Agreement
Physician Leasing
Agreement
Physician Employment
Physician Alignment Vehicles
Road100m
Menu
STARK LAWProhibited self-referrals for Medicare and Medicaid patients.
ANTI-KICKBACK STATUTEKnowingly and willful
offers, payments, or receipts for referrals.
IRS-NFP REQUIREMENTSIRC Section 501(c) 3 requirements
Navigating the Regulatory Environment
FAIR MARKET VALUE
COMMERCIAL REASONABLENESS
Overall Arrangement
“WHY?”
SENSE CENTS
Range of Dollars Only
“HOW MUCH?”
Scope
Key Question
Compliance Issues Regarding Hospital-Physician Financial Relationships