The Emergence of Value-Based Care: Present and Future Tense Erik Johnson, Vice President for Value-Based Care May 2016

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What Is Value-Based Care?

• While the concept of value-based care has existed for years, the passage of the Affordable Care Act accelerated its momentum in health care delivery

• Value is typically measured by the Institute for Healthcare Improvement’s “Tripe Aim,” which includes an approach to manage the health of a population across the continuum of care. It measures: − Patient experience − Quality of care − Cost of care

• Value-based care is primarily a public policy driven concept, the economic objective of which is to reduce per capital health care resource utilization while maintaining or raising the level of quality

• Organizations that are able to achieve value in this context will prosper; organizations that do not adapt and innovate will continue to depend on FFS and diminish with it

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Provider Reimbursement Is An Enabler of Integrated Care

Global payment/ capitation

Shared Risk

Shared Savings

Deg

ree

of ri

sk m

anag

ed b

y pr

ovid

er

Level of provider sophistication and collaboration

Bundle payment (risk among providers)

Bundle payment (single bearer of risk)

Pay for performance

Pay for activity/ coordination

Fee for service

Manage a population

Attain measure targets

Payment for service or activity

Manage event/ condition

Value-based reimbursement

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Managing Episodes Does Not Equate to Managing a Population

Examples:

• DRGs

• Bundled payment

Episodic Risk

Examples:

• ACOs

• Capitation (MA Capitation, Commercial Capitation)

Population Health Risk

Emphasis on efficiency and best practice

Emphasis on prevention, eliminating episodes

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CMS is Driving Innovation and Commercial Market Is a Fast Follower

• CMS has been the most ambitious payer in the country - ACOs - Bundled Payment (BPCI, Complete Joint Replacement) - Primary Care Transformation - Alternative Payment Models

• Commercial and Medicare Advantage payers are fast followers - ACOs - Narrow Networks - PCMH - Bundled Payment (to a lesser extent)

• Employers are tinkering with new models and approaches - Direct to provider - Third party network/CoE - Consumerism - Telehealth

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CMS Has Been Driving Innovation For 10 Years

2003 2006 2009 2008 2010 2011 2012 2013 2014

Hospital Inpatient Quality Reporting

Physician Quality Reporting System

CMS Ceases Paying for Hospital Acquired

Conditions

Health Information Technology for

Economic and Clinical Health Act

Affordable Care Act

Meaningful use incentives

First generation of Medicare Shared Savings Program

Hospital Value-Based Purchasing and

readmission penalties

Physician value-based modifier

Setting the Foundation…

…Implementation Begins

Merit based incentive payment system and alternative

payment models

2015

Payment and Delivery Reforms Measurement Regimes

Incentive for Infrastructure Development

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The Era Of Value-Based Payment Is Already Here

VBP= Value-Based Payment HAC = Hospital Acquired Conditions SOURCE: CMS

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2013 2015 2017

Value-Based Payment Puts Nearly 9% of the DRG Payment at Risk

VBP Readmission Penalties Meaningful Use HAC

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• By 2018, HHS is targeting 50% of Medicare payments though alternative payment models (APMs) and 90% through quality or value

− APMs include ACOs, bundled payments and advanced primary care medical homes − CMS appropriated $10B per year for the next 10 years for innovation efforts − Nearly 7,000 organizations patriciate in BPCI

• Medicare Advantage (MA) plans are aggressively moving into value-based models; additionally, MA is experiencing significant growth, from 10 million enrollees in 2009 to expected 20 million in 2020

CMS Payment Innovation Accelerating In Next Five Years, Followed By MA

SOURCE: CMS; HHS

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Success Is Not Easy: MSSP First and Second Performance Year

Second Performance Year –Results First Performance Year – Results

204 ACOs with reported results

53 ACOs generated total savings of $650 million

49 ACOs received $300 million

4 ACOs missed out on receiving $20 million

1 ACO had losses of almost $10 million

333 ACOs with reported results

92 ACOs generated total savings of $800 million

86 ACOs received $341 million

6 ACOs missed out on receiving up to $15 million

2 of 3 Track 2 ACOs produced net shared savings

25% ACOs generated savings

28% ACOs generated savings

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BPCI Program Has Generated Board Interest and Participation

SOURCE: CMS

• Organizations participating are given the flexibility in selecting the clinical bundle, developing partnerships across the continuum of care within their communities, and determining how to redesign care delivery.

• Models linking payments for multiple services received during an episode of care.

– Retrospective Payment (acute care Inpatient, acute care Inpatient plus post-acute care, and post-acute care only).

– Prospective Payment for acute care stay only – 48 bundles

BPCI Model 1 BPCI Model 2 BPCI Model 3 BPCI Model 4

Retrospective Acute Care Hospital Stay Only

Retrospective Acute and Post Acute Care

Retrospective Post Acute Care Only

Prospective Acute Care Hospital Stay Only

BPCI Models

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Medicare Advantage: Significant Growth

SOURCE: CMS, and MPR

Total Medicare Private Health Plan Enrollment, 2004-2016 In millions:

% of Medicare Beneficiaries: 13% 13% 16% 19% 22% 23% 24% 25% 27% 28% 30% 31%

Distribution of Enrollment in Medicare Advantage Plan, by Plan Type, 2015

Total Medicare Advantage Enrollment, 2015 = 16.8 Million

Regional PPO 7%

Traditional Fee-for-service Medicare

69%

Medicare Advantage

31%

HMO 64%

Local PPO 24%

PFFS 2% Other 3%

5.3 5.6 6.8

8.4 9.7

10.5 11.1 11.9

13.1 14.4

15.7 16.8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

The total distribution of enrollment in Medicare Advantage plans is heavily HMO weighted

• Enrollment in HMOs grew more than other plan types – growing from 5.3 million beneficiaries in 2004 to 10.7 million in 20151

MA is experiencing significant growth

• Total eligible beneficiaries that choose Medicare Advantage (MA) increased from 24% to 31% from 2010 to 2015

• The number of MA enrollees have increased by 10 million in 2009 to an estimated 20 million in 2020

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Transformation from Medicare Fee-For-Service to Medicare Advantage

Medicare Advantage

170-180

750-850

Low Teens

60-70

800-900

Low Teens

Successful ACO

190-200

900-1,000

Mid Teens

80-100

2,300-2,350

Low Teens

Medicare FFS

280-300

1,400-1,450

High Teens

130-140

4,200-4,250

High Teens

Key Operating Indicators

Inpatient Acute Admits/K

Inpatient Acute Days/K

IP Acute Readmit Rate

Skilled Nursing Facility Admits/K

Skilled Nursing Facility Days/K

Skilled Nursing Facility Readmit %

Same Population

Different Population, Same PCPs

Medicare FFS patients use more resources than patients in value-based models

Illustrative Example

100 admits/K at $10,000 per admit for a 40,000 member ACO = $40,000,000 value annually

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• As employers demand containment of health care costs, plans are launching hundreds of Commercial ACOs and other value based pilots

• The Health Care Transformation Task Force, made up of 20 health systems and insurers, committed to make 75% of contracts value-based by 2020

• Other major payers are doubling down on value based care - Aetna dedicated 15 percent of its 2013 spending on VBC efforts and intends to

grow that amount to 45 percent by 2017 - Blue Cross Blue Shield health plans spend more than $65B annually, about 20

percent of spending on medical claims, on VBC - United Healthcare plans to increase payments tied to value-based arrangements to $65 billion

by end of 2018 - Anthem ramping up value-based payment around country

Following CMS’ Lead, Value-Based Care is Proliferating in the Commercial Market

SOURCE: Health Care Transformation Task Force

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Accountable Care Organizations Take Multiple Forms ACO MODEL Model Characteristics Payer Roles Payment Models

Adapted Integrated Delivery ACOs

Single entity acts as Payer, Provider(s), or groups of providers and possibly with employers

Stronger in organization alignment, and accept financial risk associated.

Pre-defined set of patients

Two varieties - Primary Care focus or Full spectrum with PCP & Specialty groups

Primary care focused – designed between Payer and PCP. Easy to govern, focus on preventive care

Full Spectrum - Wider range of services. Challenging to govern

Virtually Integrated

ACOs

Primary care focused – Payer is closely involved with PCP, in setting up financial incentives , infrastructure etc.

Full spectrum –Payer will provide infrastructure assistance and financial incentives for performance.

Full spectrum of payment model can be used – from limits to FFS increases to global capitation.

Shared Savings between Provider,

Payer and employers.

Could include some form of global capitation

Sets up financial incentives, for performance (bonuses or shared savings)

Seek total responsibility for total cost of care

Provide risk management assessment, data analytics, and possibly disease management

Primary care focused – PCP’s control small portion of total medical cost. May enter into performance-linked bonuses, but not shared savings.

Could assume more risk, but not total cost of care for patient population - two-sided shared savings, not global payment.

Provider group formed & led Possibly physicians with or without

hospitals, substituting payers with third party to provide support functions.

Since no payer involved, focus on care coordination for improved cost and possible savings

Payers role is least in this, may be none

Possibly physicians with or without hospitals, substituting payers with third party to provide support functions.

Mainly FFS chassis, focused on capturing shared savings (for providers)

Provider Led ACOs

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Continued Growth of Public and Private “ACO-like” Models is Projected

SOURCE: Leavitt Partners

Figure 2. Estimated Future Growth of Lives Covered by ACOs

Live

s C

over

ed (m

illio

ns)

80

70

60

50

40

30

20

10

0 2010 2011 2012 2013 2014 2014 2015 2016 2017 2018 2019 2020

72 Million Predicted

Projected growth of ACOs will contribute to cover over an estimated 70 million people by 2020, and more than 150 million by 2025 (Figure 2).

The growth of ACOs in public and private programs has increased from 64 in 2011 to 744 in early 2015 (Figure 1).

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Haven’t We Seen This Movie Before?

• Adoption of health IT at the bedside and in the office setting

• Development of value-based payment methodologies

• Advancement of clinical science

• An increasing willingness of physicians to seek employment arrangements with hospitals

Is this enough to guarantee a happy ending this time around?

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Typical Value-Based Care Delivery Challenges

Lack of Strategy

Inability to Assess Risk

Limited Population Insights

Misaligned Network and Leadership

Outdated Technology

Limited Expertise

Limited Change Tolerance (culture)

Limited Data / Analytics

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Value-based Care Strategy & Governance

To Achieve Value-Based Care, A Set of Coordinated Capabilities Are Necessary

High Performance Network Management

Population Health Management & Quality

Data Management Analytics & Reporting

Enabling Technology

Enterprise Risk & Financial Management

O

rganizational Change &

Talent Acceleration

2 3 4

5 7

8

1

11

Business Operations Excellence 9

Prod

uct L

eade

rshi

p

Consumer Engagement

10

6