Predictions for 2016
Since Health Reform is the overall driver for many new health care businesses and many new (and needed) health care organizational models, we have made six predictions, prepared some helpful questions to ask, and listed a summary of trends to help you understand that these changes represent opportunities as well as challenges. Let’s look at what the leading issues may be this coming year and going into 2017.
Issue 1 – The ACA changes of medical device tax delay, employer Cadillac tax removal, and other slight changes in the budgeting for ACA is dwarfed by the irony of many conservative governors refusing to allow Medicaid expansion in their state. This pushed the budget savings of ACA from $200 billion to $310 billion because money that was earmarked for subsidy by these states was not used. This makes the White House predictions positive for the ACA funding which, in turn, has chopped away quite heavily at the overall indebtedness of the country. With the deficit down and the ACA positive, the politics will begin to shift from domestic stability to international policy on global trade and terrorism. The ACA is settled law and despite the most recent vote by house and senate to repeal the law the President will veto any attempt to repeal his signature legislation. The president and 77 million insured under the law will not allow this legislation to be dismissed.
Issue 2 – The physician payment freeze is on the agenda, and, despite the cheers of many who wanted to see the SGR go down in flames, this new Medicare Authorization and Chip Reconciliation Act (MACRA) carries with it an entirely new series of stumbling blocks for payment under Medicare. For those of you who are not aware, physician fees under Medicare will be frozen effective January 1, 2018 for all physicians who are not participating in an Alternative Payment Method (APM) type of organization. The performance period begins January 1, 2017 and this baseline will dictate 2018 payment additions and subtractions. These calculations will be decided on the Merit Based Payment System (MIPS), which will replace PQRS, EHR meaningful use, and Value Based Modifiers by 2019. MIPS will use four domains: Quality, Resource Use, EHR Meaningful Use, and Clinical Practice Improvement Activities, to establish a baseline and scoring process to either add or subtract 6 to9% from the Medicare payment level. To earn even zero reductions will take work and for those who are not prepared by January 2017, they may see a substantial reduction in Medicare payment levels.
The alternative to being exempt from this payment freeze is to receive the majority of income through an Alternative Payment method (APM). For those who do participate in an eligible APM, there is a 5% bonus or higher fee schedule guaranteed beginning 2019. To qualify, an individual physician must have 25% of his or her Medicare payments coming from an APM. This includes Medicare Advantage Health Plans and Accountable Care Organizations. The catch here is twofold. First, the ACO must be a Track 2 or New Generation ACO that has a Track 2, at risk component. The Track 1 ACO risk DOES NOT exempt a physician from the Medicare freeze. When you avoid the freeze you may be able to EARN up to a 5% bonus on Medicare payments assuming you jump though a gauntlet of serious metrics for quality and outcome. This 5% may be important because the freeze will not actually be set at 2015 levels but, after calculations, will be closer to 2014 levels of payment. Ouch and Ouch.
So, if you’re thinking this 2017 date is far off in the future, think again! The better question is how long it will take you to apply for and receive an ACO or a Medicare Advantage designation to begin building your 25% of APM income to qualify for your exemption and 5 % bonus.
The long and short of this is that beginning 2026 MIPS fee schedules will grow an average of 25% per year while APM will see a 75% increase in their fee schedules.
According to the January 27, 2015 CMS press release, “Our first goal is for 30% of all Medicare provider payments to be in Alternative Payment Models that are tied to how well providers care for their patients, instead of how much care they provide – and to do it by 2016. Our goal would then be to get to 50% by 2018.” This is not going away anytime soon and physicians who get ahead of reform will have the advantage of stabilizing reimbursement and gathering incremental market share. Now you know how CMS intends to do this. Based upon these accelerator, several think tanks , including our research team, are projecting ACOs to grow to over 105 million members by 2020. Less than four years ago there were no ACOs and legislation was being proposed; as of January 1, 2016 there are over 700 ACOs operating in the USA.
Issue 3 – Hospitals will change the way they operate. Up to this point hospitals have acquired primary care physicians in hopes of controlling inbound referrals to their hospitals from owned primary care and, in some cases, specialists. This defensive strategy created some market share but in most cases hospitals lost $100,000 to $200,000 per year on each practice. Despite this loss, hospitals continued using consolidation as a means to integration. This allowed them to markup ancillary services and physician services with a facility fee that created a new income stream for the health system.
This is about to change. The forthcoming laws prevent hospitals from benefiting fr4om owning physician practices, urgent care centers, and the like. The speculation on Capitol Hill is that the current practices that are owned will be grandfathered in, but that will only be for a short time (2 or 3 years). According to the September 18th AHA news alert “Congress is considering a proposal to cap total payment for certain hospital outpatient department (HOPD) services at the physician rate. The Medicare Payment Advisory Commission (MedPAC) estimates that this would cut hospital outpatient payments by
2.7 percent, or $1.44 billion, in one year. The services in these 66 ambulatory payment classifications (APCs) are outpatient services that are integral to hospitals’ service mission. However, MedPAC identified them as candidates for site-neutral cuts because a MedPAC staff analysis showed they met several criteria, including being frequently performed in physician offices, being infrequently provided with an emergency department visit, and having minimal patient severity differences across settings. Under the policy being considered, a hospital would be paid a residual amount calculated as the difference between the payment rate the physician would receive under the Medicare physician fee schedule (PFS) for a service furnished in his or her private office and the PFS rate paid for the service furnished in an HOPD. The policy would result in steep cuts.”
For those hospitals attempting to control the market through controlling physicians and their referrals, and for those who own larger groups, it may be time to dust off the old PHO books and begin figuring out how to release these practices from their obligations and somehow pay for their safe transition to a private group practice of some sort. The other side of this coin is to figure out who, if anyone, will build these practice clusters up again. In the short run we may see Physician Practice Management Companies (PPMCs) reemerge, but in the long run, it would seem that insurance companies and some investors with their deep pockets and substantial control over patient delivery system approvals are in the best position to buy up and make strong practices . In any event, hospitals will not be able to mark up physician practices with facility fees and that income loss could be a problem along with finding money to pay physicians to resign from their employment contracts.
Issue 4 – You may have guessed the next area as being provider led health plans. The move to prepare for capitated and bundled payment was seen back in 1977 with the passage of the HMO Act of 1973, and there was a mad scramble to build provider led plans. Some of these plans are still thriving today but many providers got out of the business because they could not manage care, but only bill for it. Again, provider led plans were revisited during the Clinton administration with all the scrambling to integrate in advance of capitation becoming the leading form of payment, or so we thought, but this reform fell apart. Once again, the cycle is moving but this time the reform now in place is settled law. We are going to see a move to value based purchasing and reimbursement. This includes fully capitated physician, hospital and ancillary services. This is a dramatic step away from fee for service and a leading agenda item of employers and insurers with Medicare leading the way. It’s not just Medicare; it’s Medicaid and private pay who see the end of fee for service as a benefit to controlling their costs. This time it is not going away; one thing we have learned is that once a provider is able to fully capitate their population, there is no going back to fee for service. The cash flow is too good and the predictability of payment too attractive to go away from capitation.
This means more than fancy contracts and guidelines. This means truly creating a care management function within the hospital and the physician group, thinking in terms of lean engineering and workflow, and getting to the essential components of what creates a good care delivery system. The number of examples of well-run, coordinated care organizations is continuing to expand. In this case the formation of a locally owned and operated health plan allows the risk to be managed both from a clinical as well as an actuarial perspective. Using proper tools of reinsurance and medical management ALL (not just some, but ALL) savings stream back to the sponsors through premium income and equity ownership of a powerful asset.
You can expect more ACOs to move to risk and more ACO risk bearing entities to move to their own health plan as MACRA and other new changes in reimbursement create incentives to share risk.
Issue 5 – Strategically, the focus must be more on payers. As employers put the screws to managed care companies to produce more savings, expect negotiations to get more brutal, especially since the big insurers became VERY BIG insurers. These plans can control vast regions of your service area and can cut out or add providers at will by creating closed narrow networks with preferred pricing, pitting them against larger wraparound networks that may be used as a point of last resort. The one thing that will not change is that the bulk of the business will be with those physicians and hospitals that offer the deepest discount. This discount can be calculated by discount off charges or reduced charges as a function of superior care outcomes and guidelines. In other words the method to cost reduction is more about how you manage the patient population versus the discount off of services rendered.
Already, even before the mergers, we are hearing reports from physicians that insurers are requiring more metrics, deeper discounts and larger penalties for not hitting goals of reduced utilization.
The alternative for these practices is to lose the payer agreement and have their patients go out the door to a competitor. So while everyone talks about consumer/patient driven systems, we still see this as the year of paying attention to details in your managed care agreements. A good managed care arrangement encourages patient engagement and helps physicians become satisfied healers in a complex and sometimes contradictory marketplace.
Issue 6 – Physician burnout is very real. Physicians that are losing hope are now a measurable population. While every business goes through large and small changes, we see the independent practices really having a difficult time regaining a sense of stability and therefore many have lost the vision of where they fit in the big system. For these practices there must be a means to reestablish hope and certainty. So many times physicians sell out to a hospital to gain this certainty. They are soon disillusioned again because the rules here change as well. Loss of hope does affect the physician’s ability to have confidence in his/her own abilities.
We have worked with dozens of medical directors who, while trying to get physicians to observe the new care guidelines conjured up by insurers, really have a bigger job of trying to convince the surgeon that has recently lost a couple patients that he is not “all washed up” and is no longer a valuable part of the department. This loss of faith and hope can lead to early burnout as their life expectations are not met; without faith in oneself it’s very hard to generate any kind of compassion for patients who need the healer’s advice and leadership to get well and feel confidence in the physician. This can be characterized as a loss of charity as this is the part of compassion that goes outside one’s normal duties to provide that sensitive ear and selfless attitude.
No one wants to tangle with their physician over price and coverage; most physicians are not aware of how benefits are approved but only that the patient’s terrible insurance company may deny the treatment plan the physician would like to recommend. Instead the physician is relegated to doing the x-ray before the MRI for a suspected rotor cuff tear. This is a waste but insurers dictate who gets paid and who does not so they wield the power unless physicians begin their own Health Plan and become less reliant on third parties and more self-sufficient in their own right. Doing the less costly procedure or diagnostic seems to save money but can prolong the suffering of the patient. The physician knows the more expensive treatment would have resolved the illness or injury more quickly. Choosing a more or less expensive procedure is still in the hands of the physician but as we have seen over years of litigation the insurance company that treats every physician like the enemy and makes them bark to be fed is doing patients no favors. Having the knowledge and the power to make good decisions seems to be less and less important as insurance companies and even Medicare want to standardize care delivery and price from top to bottom, causing a conflict between payer and patient and provider.
As we enter the era of primary care scarcity and the potential for many physicians to be cut from hospital employment contracts and told to fend for themselves, we see this area of provider engagement becoming a driving force in the areas of access, cost and quality.
You can prepare for the immediate future by asking yourself the following questions:
- How many departments are redundant and could be combined to get at essential data?
- Can your data system report employer specific data or is it still in the four buckets of reimbursement era: self-pay, insurance, Medicare and Medicaid – which tells you nothing?
- How many payer contracts represent which employers? What happens if a payer is bought out/merges with another or a newer payer comes into the area and moves a lot of business from your network?
- When was the last time you convened a meeting of large self-funded employers in your market to talk about satisfaction, quality, and what kind of measures they are using? What are the TPAs in the area telling employers about your medical network? What about the TPA that processes claims for your own employees? What are their findings and do they have any ideas about how to improve the data outputs their employers are demanding?
- What are your trends in capacity? Are there months that are busy and some that are not?
- Should you be referring some of the really hard cases out to a university tertiary care facility instead of trying to be all things to all people?
- Who are the likely candidates to design and develop a medical neighborhood for your community? What payer agreements do they have? Are they part of an ACO?
- Are the aligned physicians and hospitals aware of the new legislation on physician reimbursement for Medicare and the difference between a Track 1 and a Track 2 ACO?
- Are some of your lead physicians showing signs of burn out? Are they unhappy working in practices affiliated with your hospitals or network? Are they coming to meetings saying, “Oh no, one more thing I have to do.”?
- The alternative payment methodology (APM) may seem far off, but to gain an exemption for 2017, what do you have to do today? (ACO applications are due in April and MA applications in March 2016 for a January 2017 start date.)
- Have you ever done a feasibility study for an HMO owned by the community and operated through your sponsorship independent from an insurance company?
Physician alignment, not ownership or consolidation, rather collaboration and cooperative partnerships.
Payer as customer, employers are pushing third parties to do their bidding, what are they telling their managed care companies to do and why?
Building your own community health plan is one of several options to accelerate change and improve the network’s capability as a locally owned ACO or HMO product.
All of this can be an exciting break from the past while also giving physicians hope that the future can and should be better.
Maybe an alliance of networks would give you, as a rural provider, a way to start as your own payer and still have autonomy of services. Moody’s reports providers with ownership in a successful health plan get a better bond rating than those who do not
Have you ever visited a small but successful, locally owned HMO that is provider led? A site visit with executive and medical staff leadership can open your eyes and create additional questions for immediate research to determine if this is feasible
Overall we see a convergence of two large trends.
One is the consumerism in health care with focus on direct consumer marketing by providers because less and less decisions are being made by employers on behalf of employees. Exchanges and direct contracting make having a brand name critical for physicians and hospitals. Add to this the new wellness technology such as Fitbit and other “wearables” and we see personal health data can be reported and monitored directly at the physician’s office for their population. Inventors are strongly pushing the envelope to make this part of every lifestyle with promises of genetic rebuilding of organs and a predicted individual lifestyle plan being created for each person within 5 years. This is the first time in history that more people are covered through government programs versus private coverage, so the government can lead this change.
At the other end of the spectrum the trend away from fee for service has been happening in select states with package pricing and bundles for the past ten years. Now mandates by specialty will continue to make bundled payments a priority forcing physicians and hospitals to work more closely together integrating at the product level and eventually in the total care model.
This was destined from the beginning to see Total Cost of Care (TCOC) as the goal for Medicare, Medicaid and private payers. This along with Medicare Shared Savings Programs (MSSP) has established a new way for purchasers and providers to share in successful outcomes if they can effectively manage risk. This has reorganized many hospitals’ way of thinking by looking for partners to manage the risk or selling their hospitals to bigger systems. Physicians are also consolidating, placing in jeopardy the innovation and patient loyalty that accompanied private practice, all because the payment has shifted away from patient needs to third party profits.
These two trends will, we believe, produce the third trend of patient needs being met at the local level by physicians and hospitals forming their own third party solution and creating an incentive to gather in savings on top of the traditional fees billed. As risk arrangements become the norm, physicians who lead this change will be far ahead both in terms of patient loyalty and revenue. More importantly they will have an option to build a creative solution to integrating care throughout their community and build a stronger relationship with employers who are desperately looking for physician leadership amidst all these changes.
W.J DeMarco MA CMC
President and Founder
Pendulum HealthCare Development Corporation