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Use Facility Image if available
A Better Way To Measure Success
January 29, 2019
Risk-Based Reimbursement Strategies
CONFIDENTIAL
CONFIDENTIAL
About UsAbout Us
1DRAFT 0100.009\469534(pptx) WD 11-16-18
Provider Compensation Service Area
» ECG has a dedicated group of consultants who focus
exclusively on complex issues related to provider
compensation.
» Our highly specialized team manages over 25
enterprise-wide compensation planning engagements
each year at some of the nation’s largest employed
medical groups.
» Additionally, we collaborate closely with other ECG
service areas as our engagements necessitate.
» We have worked with many of the best academic and
community-based organizations across the industry.
Since 2000, we have worked with more than
300 clients on over 500 projects related to
provider compensation planning.
CONFIDENTIAL
Agenda
2DRAFT 0100.009\469534(pptx) WD 11-16-18
I.Risk-Based Managed Care
Contracting
II.Physician Compensation
Development
III. Risk-Based Performance Metrics
Questions and Discussion
Appendix
CONFIDENTIAL
The Value-Based EnterpriseValue and risk are focused on three key topics
30100.009\343003(pptx) DD 9-24-15
Success will be measured by an organization’s ability to achieve the “triple aim.”
COST
QUALITYOUTCOMES/
HEALTH
I.
CONFIDENTIAL
National Healthcare TrendsTransitioning to New Payment Models
» The federal government and many states are establishing programs to distribute a material
amount of payments through alternative models. MACRA is an example of the ongoing trend
of evolving reimbursement incentives.
» The Health Care Transformation Task Force announced a goal in 2015 to shift 75% of its
business to performance-based contracts.1
40100.009\471290(pptx)-E2 DD 12-12-18
20163
~30%
85%
2018
50%
90%
2014
~20%
>80%
2011
0%
68%
GoalHistorical Performance
All Medicare FFS
FFS Linked to
Quality
APMs
1 Modern Healthcare, January 28, 2015.2 Health Care Payment Learning and Action Network: https://innovation.cms.gov/initiatives/Health-Care-Payment-Learning-and-Action-Network/.3 CMS reached the 30% APM target as of March 2016.
Medicare Payment Evolution2
At a national level, since the ACA, we have seen a large transition to alternative
payment models (APMs) and fee-for-service (FFS) payments linked to quality.
I.
CONFIDENTIAL
Growth of ACO Contracts
50100.010\466037(pptx)-E2 DD 10-4-18
The growth of commercial ACOs has outpaced
Medicare and Medicaid, and most ACOs are located in
populous states.
3.9 Million
19.1 Million
9.4 Million
ACO Lives
(13,702 per
Contract)
(43,333 per
Contract)
(26,750 per
Contract)
0100200300400500600700800900
1,0001,1001,2001,3001,4001,500
AC
Os
Total Commercial Medicare Medicaid
2018
1,477
714
686
90
2011 2012 2013 2014 2015 2016 2017
Accountable Care Contracts
Source: Muhlestein, Sunders, Richards, McClellan. “Recent Progress In the Value Journey: Growth of ACOs and Value-Based Payment Models in 2018,” Health Affairs
Blog. August 14, 2018. Leavitt Partners’ ACO database analysis.
~32 Million
Lives
Approximately 10% of the country’s population is attributed to some type of
accountable care organization (ACO) structure.
I.
CONFIDENTIAL
Moving from FFS to Value Payment Models and Care Models
60100.009\471290(pptx)-E2 DD 12-12-18
Payment and Care Delivery Continuum
Shifting toward Risk- and Value-Based Models
FFSPMPM
Arrangements
Bundled
Payments
Total Cost
of Care
Shared
Risk
Full Global
CapitationP4P
Volume-Based
Care Delivery
Care
Management
and Coordination
Chronic Disease
Management
Risk for a Small
Population
Population
Health
Management
of Episodes
of Care
Organizations need to establish a strategy and roadmap to transition to value. This
includes the development of a robust payor strategy and a funds flow/payment
model plan that paces with the organization’s transformation.
Payment Models
IT Requirements
Care Models
I.
CONFIDENTIAL
» ACOs
» CINs
» MSSP
» Value-based payments
» Risk contracts
» Establish a value-based
payor strategy
» Evaluate risk tolerance
» Determine value-based
metrics and financial
incentives
» Obtain data and monitor
performance
» Maintain traditional FFS
contracts
» Add performance metrics
» Add corresponding incentives
» Board and stakeholders
updates
» Internal staff
» Public relations
communication/outreach
» New contract
» Amended contract
» Separate term and termination
provision
» Set minimums and targets
» Vetting of possible outcomes and
payor responses
» Preparation strategy
Innovative
Network
Arrangements
Payor
Negotiations
with Desired
Outcomes
Professional Fees
Pricing Evaluation
Negotiation
Preparation
Term and
Termination
Strategies
System
Communication
Strategies
Managed Care
Strategy
Managed Care ContractingManaged Care Strategy Development – Key Components
2826.003\407493-E2 DD 11-6-17
Risk based contracts include many traditional managed care contract components but
with an emphasis on performance metrics, financial incentives and the level of risk.
7
I.
CONFIDENTIAL
Trending Towards Value Not as Fast As Expected
80100.009\471290(pptx)-E2 DD 12-12-18
While value-based incentives are continuing to grow in the market, the pacing has been slower than anticipated.
The Market: Every market is different (e.g., health plans, employers, providers,
innovation) and as a result the pathway to risk –based models needs to be
managed.
Do you want to be a market leader for risk-based arrangements?
FFS Continues: Hospitals and physician continue to be paid
predominantly under a fee-for-service model.
Experimenting and Participating in Value-Based
Incentives: Providers are continuing to evaluate opportunities
for participation, but on a smaller, more manageable scale.
The Future: Risk based arrangements will continue to
growth at a steady pace with CMS leading and
commercial payors adopting selectively.
I.
CONFIDENTIAL
» The care management
infrastructure is vital to
managing the population.
» Management of provider
“leakage” is critical to
improve performance.
» Risk contracts align the
interests of facilities,
physicians, patients, and
payors.
» Tactics should mitigate the
impact of declining facility
utilization (inpatient and
outpatient).
» The increase in health
benefit dollars to manage
requires the appropriate
infrastructure.
» More opportunities are
available to develop direct
arrangements with
employers (cut out the
middle man).
Practical Considerations to Risk Sharing
0100.010\466037(pptx)-E2 DD 10-4-18
Strategy Finance Operations
The development of risk-sharing arrangements requires an organization to consider
multiple perspectives in ways that FFS contracts do not.
9
I.
CONFIDENTIAL
Current State of CompensationImperatives for Change
10DRAFT 0100.009\469534(pptx) WD 11-16-18
There are three interconnected imperatives driving organizations to evaluate their
physician compensation arrangements:
Imperative One: Financial Sustainability
Imperative Two: Organizational Configuration and
Development
Imperative Three: Reimbursement Changes
Moving toward value-based arrangements, including
risk contracts.
ECG has assisted dozens of clients introduce
value-based elements to their models. The most
visionary organizations are moving to offer
physician risk-based compensation.
II.
CONFIDENTIAL
Value-Based Incentive
20%
11
Measures: Four
» Allocation: 1.25% per
measure
Measures: Two
» Allocation: 2.5% per
measure
Measures: Five
» Allocation: 1% per
measure
Measures: Four
» Chart Completion: 3%
» Conflict of Interest:
0.5%
» Flu Vaccine: 0.5%
» LEARN: 1%
Access
5%Service
5%
Quality
5%Citizenship
5%
-
2682.003\450150(pptx)-E2 DD 3-22-18
Typical Approach to ValueExample Framework
II.
Many organizations use quality metrics, not a
true value-based approach that incorporates
utilization risk.
CONFIDENTIAL
Specialty ConsiderationsValue in Action
12DRAFT 0100.009\469534(pptx) WD 11-16-18
Specialty Type Considerations
Primary Care » Relative to other specialty types, primary care value metrics tend to be the most
developed.
» Many models pay physicians for specific metrics.
» More groups are including pure risk-based components into the overall plan.
Coverage-Based Specialties » Coverage-based physicians often play a central role in managing the quality of care
delivered in an inpatient setting.
» As a result, value-based incentives may be closely tied to the overall quality performance
of a hospital.
» Coverage-based specialties often share in risk pool compensation because of their role in
reducing facility utilization.
Surgical or Procedural-Based
Specialties
» Value metrics within surgical specialties are often measured and reported through the use
of clinical registries.
» Metrics may focus on specific areas such as postoperative complications and
morbidity/mortality rates.
» Specialists are not typically compensated through risk pools.
Medical or Office-Based Specialties » Relative to primary care, value-based metrics for medical specialists are often immature
and may not be actively tracked by payors.
» However, certain specialties may be further along from a measurement/reporting
perspective.
» Fully integrated multi-specialty groups are the most successful at introducing risk
compensation to medical specialties.
Risk-based models must align with the specialty type or practice setting, to ensure
the model captures value components that are applicable to the providers function.
II.
CONFIDENTIAL
Integrating Value
13DRAFT 0100.009\469534(pptx) WD 11-16-18
Current
Plan
What many
proposed…
What many
did…
What
organizations
should do…
Productivity
Value
Care
Management/
Value
Infrastructure
Or even
better add…
II.
Balanced
Up- and
Down-side
All Upside All DownsideOr…
CONFIDENTIAL
Utilization-Based Metrics
» Primary care physician follow-up visits
after procedures
» Readmission rates
» ED visits per 1,000 patients
» Inpatient days per 1,000 patients
» Ambulatory care activity rates
» Post-acute care utilization rates
A-110100.010\466037(pptx)-E2 DD 10-4-18
Population Health–Based Metrics
» Social determinants of health review
» Home safety conditions
» Breast cancer screening
» Colorectal screening
» Diabetes: HbA1c control
» Diabetes: nephropathy monitoring
» Diabetes: diabetic eye exam
» Medication adherence: diabetes
» Medication adherence: RAS
antagonists
» Medication adherence: statins
» Generic prescription fill rate
» Adult body mass index assessment
» Hypertension: blood pressure control
Primary Care Leads the WayCommon Metrics
II.
CONFIDENTIAL
Market Challenges
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A critical success factor for organizations implementing risk-based contracts is to
appropriately and legally compensate providers for the value they bring to patient
care.
Relating Savings and
Compensation
What is this
relationship in the
market?
Measuring financial
and operational
performance
How are the best-
performing groups
doing under risk?
Overcoming
Regulatory Concerns
What are the
appropriate
benchmarks for this
work?
Challenge One Challenge Two Challenge Three
III.
CONFIDENTIAL
ECG Risk Compensation Survey
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Medical
Group
Risk
Revenue
Health Plan Expenses
» Administration
» Marketing
» Claims processing
» Reinsurance expense
Care Management Expenses
» Population management
» Reinsurance
» Discharge planning
Claim Expense
» Out-of-network facility
» Out-of-network professional
services
» In-network facility
» In-network post-acute care
» In-network professional services
Medical
Claims
Expense
Ratio
In-Network and
Out-of-Network
Medical Expenses
Health Plan
Expenses
PCP Risk
Compensation
(Capitation and
Shared Savings
Bonus)
Care Management
The ECG Risk compensation survey consists of individual physician compensation
data for over 400 physicians that receive risk-based compensation for over 60,000
members.
III.
CONFIDENTIAL
Survey ResultsRisk Payment Funds Flow
170100.010\466037(pptx)-E2 DD 10-4-18
Health Plan/
Government Payor
Physicians or
Practice Providers
Medical Group/
IPA
The survey’s focus is twofold: (1) risk-based contracts between the health plan and
the provider organization and (2) physician distribution models.
1. Risk-Based Contracts
2. Physician Distribution Models
The survey includes individual physician
compensation data for over 400 Primary Care
Physicians providing care for over 60,000 members.
III.
- Risk Revenue
- Risk Compensation
CONFIDENTIAL
Survey Results - Spend Rates
» Medical Claims Expense Ratio (MCER): Medical spend excluding anything paid
to the PCP
» Clinical Care Expense Ratio (CCER): Medical care plus the base capitation or
draw amount paid to the PCP.
» Total Provider Expense Ratio (TPER): Medical care plus everything paid to the
PCP
180100.010\466037(pptx)-E2 DD 10-4-18
To avoid confusion with the health plan use of Medical Loss Ratio (MLR) the survey
uses the following terms to describe the spend rates.
MLR is a regulatory term that adds
“improving health care quality expenses”
to the TPER
III.
CONFIDENTIAL
Survey Results –
MCER by Compensation Model
190100.010\466037(pptx)-E2 DD 10-4-18
Physicians compensated under net income models had the lowest MCERs, while
those compensated under quality bonus models had the highest.
III.
0
5
10
15
20
25
30
35
40
45
50
Below32%
37% 48% 58% 68% 78% 88% 98% 108% 118% Above124%
Nu
mb
er
of
Ph
ysic
ian
s
MCER
Net Income Model Net Revenue Model Quality Bonus Model
MCER by Compensation Model
CONFIDENTIAL
Survey Results – MCER by Panel Size
200100.010\466037(pptx)-E2 DD 10-4-18
On average, physicians with larger risk-based panels were able to achieve lower MCERs.
III.
0%
20%
40%
60%
80%
100%
120%
140%
- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
MC
ER
Member Months
Panel Size Tier 1 Panel Size Tier 2 Panel Size Tier 3
Panel Size Tier 4 Panel Size Tier 5 Panel Size Tier 6
MCER versus Risk Panel Size
CONFIDENTIAL
Survey Results – Risk Revenue PMPM
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Reductions in MCER directly increase shared savings and result in higher risk
revenue PMPM. Some groups are protected by floor or base PMPM rates.
III.
$(100.00)
$-
$100.00
$200.00
$300.00
$400.00
$500.00
30% 40% 50% 60% 70% 80% 90% 100% 110% 120%
Rev
en
ue P
MP
M
MCER
MCER Tier 1 MCER Tier 2 MCER Tier 3 MCER Tier 4 MCER Tier 5 MCER Tier 6
Risk Revenue PMPM versus MCER
CONFIDENTIAL
0100.010\466037(pptx)-E2 DD 10-4-18
Observations
» Shared savings performance is highly correlated with the
physician’s compensation model.
» Physicians with larger risk-based panels generally perform better.
» Risk-based revenues are driven by lower MCERs and bear little
relation to traditional volume-based measures.
» Physician performance typically improves over time, with the
largest improvements coming from the worst performers.
However, high performers are actually the most consistent and
stable group.
Conclusion
Physician compensation models are most effective when they
are tied to risk-based revenues and reward physicians for
investing in value-based care.
Survey Results – Implications: Part One
22
III.
CONFIDENTIAL
Survey Results -
Risk Compensation PMPM
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Physicians with better MCER performance generate higher risk-based revenues,
which translates into higher risk compensation PMPM.
III.
$0.00
$50.00
$100.00
$150.00
$200.00
30% 40% 50% 60% 70% 80% 90% 100% 110% 120%
Co
mp
en
sati
on
PM
PM
MCER
MCER Tier 1 MCER Tier 2 MCER Tier 3 MCER Tier 4 MCER Tier 5 MCER Tier 6
Risk Compensation PMPM versus MCER
CONFIDENTIAL
Survey Results -
Total Cash Compensation
240100.010\466037(pptx)-E2 DD 10-4-18
Physicians with the largest risk panels received the highest cash compensation
levels observed in this survey and surpassed benchmarks from the standard ECG
survey.
III.
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
TC
C
Member Months
Panel Size Tier 1 Panel Size Tier 2 Panel Size Tier 3 Panel Size Tier 4 Panel Size Tier 5 Panel Size Tier 6
90th Percentile
Median
CONFIDENTIAL
0100.010\466037(pptx)-E2 DD 10-4-18
Performance
Experienced physicians and provider organizations that invest in delivering
value-based care are able to generate substantial shared savings on
managed populations.
Effect
Risk-based contracts with health plans enable these provider organizations
to earn substantially higher revenues in comparison to traditional contracts.
Conclusion
Physician compensation plans need to adequately incentivize physicians and
should be aligned with the size and shared savings performance of risk-
based panels.
Survey Results - Implications: Part Two
25
III.
CONFIDENTIAL
Critical Success Factors
26DRAFT 0100.009\469534(pptx) WD 11-16-18
Care Management
Open-Ended Incentives
Clinical Autonomy
Performance under risk-sharing contracts can vary, but the best-performing
groups from the 2018 Risk-Based Compensation Survey are aligned with three
common attributes.
» Emphasize care management, including transitions of care and health maintenance.
» Support providers by providing services and personnel to assist patients in making lifestyle changes.
» Offer providers an upside incentive that is CR and has a high ceiling.
» Limit barriers to achievement and avoid slicing the incentive into too many parts, which could
complicate or dilute the opportunity for providers.
» Allow physicians to make the best decisions for patients within the context of protocols and other
clinical indications.
III.
CONFIDENTIAL
Regulatory Considerations
» Risk Exception - The risk exception to the Stark law has less rigid requirements
than the FMV exception which can provide more flexibility when developing
compensation models.
» Commercial Reasonableness - Appraisal of risk compensation should be
accompanied by a commercial reasonableness opinion.
» Market Information - There is limited information regarding risk-sharing
arrangements in the market.
› Agreement terms are inconsistent and often unavailable.
› Physician disbursement data is often unavailable or only represents a small
portion of a physician’s total compensation.
› Capitation arrangements and other value-based incentives do not have a long
history of benchmarking in the market.
27DRAFT 0100.009\469534(pptx) WD 11-16-18
Risk-based arrangements offer some regulatory advantages but also have several
aspects that make them challenging to appraise.
Reduce regulatory risk by working with an organization
experienced in developing these arrangements and a
trusted history of appraising these models.
III.
CONFIDENTIAL
Key Take-Aways
» Managed Care contracting
› Structure and terms (e.g., reporting requirements) are supportable by your
team
› Ceilings and floors in place to manage the risk profile of the arrangement
» Compensation Planning
› Physician participation throughout optimizes adoption of the plan
› Alignment with reimbursement funds flow ensures sufficient funding
» Compensation Model
› Basing compensation and bonuses on a per member basis eliminates the need
to focus on WRVU production
› Tying the compensation model more closely to the risk pool results in the
largest behavior changes
» Regulatory Compliance
› Rates and total compensation meet FMV
› Structure and terms are commercially reasonable
28DRAFT 0100.009\469534(pptx) WD 11-16-18
III.
CONFIDENTIAL29DRAFT 0100.009\469534(pptx) WD 11-16-18
Questions & Discussion
CONFIDENTIAL30
Appendix
DRAFT 0100.009\469534(pptx) WD 11-16-18
CONFIDENTIAL
CR Framework: Key Questions
0100.010\466037(pptx)-E2 DD 10-4-18
Financial
RiskDo the physicians bear financial risk under the arrangement?
Funding
Alignment
» Is the risk pool from which distributions are calculated based on
actual savings/loss using accurate allocations?
» If not, is the proxy calculation highly likely to coincide with the true
savings/loss?
ProportionalityIs each party’s share of the risk pool reasonably related to its respective
downside risks and/or efforts and investments toward the generation of
a surplus?
Performance
DrivenIs physician distribution contingent on meaningful measures of effective
population health management?
Windfall
ProtectionIs there reasonable protection against windfalls to the doctors,
particularly when financial downside is limited?
31
ECG tests five key areas when specifically assessing the CR of a risk-sharing
agreement.
CONFIDENTIAL
Risk-Based Contract Terminology
» Net Premiums: Total premiums paid for health plan enrollees
» Member Month: One member being enrolled for one month
» Shared Savings or Surplus: Total funds available after payment of all medical expenses and the health
plan administrative allocation
» Risk-Based Revenues: Total payments from the health plan to the physician organization, which is
determined by the shared savings net of all contract terms, including shared savings percentages,
capitation rates, and floor values
» Risk-Share Percentage: The percentage of the shared savings distributed to the physician organization
» Capitation Draw: A PMPM rate paid to the physician organization that is netted out of the shared savings
at the end of the year
» Capitation Rate: A guaranteed PMPM rate paid to the physician organization that counts as an expense
to the shared savings
» Capitation Floor: A floor value applied to the shared savings on a PMPM basis
» Expense Ratios: Expense Ratios defined in this survey
› Medical Claims Expense Ratio: This sums all medical spend except the amount paid to the primary
care organization under the risk contract with the health plan and compares it to net premiums.
› Clinical Care Expense Ratio: This sums all medical spend, including capitation payments/draws to
PCPs, except the shared savings paid to the primary care organization and compares it to net
premiums.
› Total Provider Expense Ratio: This sums all medical spending paid to providers, including shared
savings payments, and compares it to net premiums.
320100.010\466037(pptx)-E2 DD 10-4-18