Rising to the Challenges of the Evolving Reimbursement Environment

Updated on June 28, 2013

William H. Maruca_ Fox RothschildBy William H. Maruca, Esquire

Health care in the United States is undergoing another episode of dramatic change, but its significance has been amplified by highly polarized politics, online media sources and the 24-7 news cycle.  Forward-thinking hospitals and provider networks can position themselves to seize opportunities and minimize heightened risks presented by this turbulent time, but only if they develop effective data gathering and analysis tools.

Despite the firestorm that continues to rage over the Affordable Care Act (“Obamacare” to its opponents), the reimbursement changes it includes are relatively incremental and, in many cases, optional.  Contrast them with the radical realignment that was suddenly ushered in by the advent of DRGs in 1983 under the Medicare prospective payment system, which required hospitals to rapidly adapt to fixed fees per admission after decades of cost-based Medicare reimbursement.

DRGs led hospitals to focus on cost control and lengths of inpatient stays but also incentivized the growth of outpatient diagnostic and treatment services (and their associated costs) ,which were not subject to the same limitations.

The changes to today’s reimbursement world are driven by trends that move away from fee-for-service payment models and toward pay-for-performance, accountability for outcomes and care coordination, and value-based purchasing. These changes are being aggressively pushed by the Center for Medicare and Medicaid Innovation (CMMI), private insurance initiatives, purchaser coalitions, proactive providers, and the development of hybrid payor/purchaser entities.

Among the CMMI initiatives are both well-publicized programs such as the Shared Savings Program for Accountable Care Organizations (ACOs) and the Bundled Payment Initiative, as well as a long list of lesser-known pilot programs and payment/delivery models, more than 40 in all, which can be explored at http://innovation.cms.gov/initiatives/index.html.  Now that CMMI has survived the Supreme Court’s 2012 ACA ruling and the 37 (and counting) symbolic repeal attempts in the House, the agency continues to promote and evaluate a variety of alternative payment mechanisms in an ongoing search for one or more magic bullets that can bring health costs under control.

Accountable care appears to be the most popular of the various models so far.  CMMI reports that there are now more than 250 ACOs participating in the shared savings program, including 106 new ACOs added as of January 2013. One in 10 Americans are now being treated by an ACO provider, according to Richard Weil, Ph.D., of the Oliver Wyman Group consulting firm. Half of all ACOs are physician-led organizations that serve fewer than 10,000 beneficiaries, and 20% of ACOs include community health centers, rural health clinics and critical access hospitals that serve low-income and rural communities.

The Bundled Payment Initiatives, which in some ways can be described as “ACO-lite,” are surprisingly slower to catch on.  This initiative combines payments to hospitals, physicians and ancillary providers into a single payment for 48 defined “episodes of care,” such as congestive heart failure or joint replacement. Applicants can select the episodes they want to bundle, and pick from four variations covering inpatient and/or outpatient care and prospective or retrospective fee structures.

Only one provider is participating in the retrospective acute care inpatient model so far; 55 in the retrospective acute and post-acute care model; 14 in the post-acute care model; and 37 in the prospective acute care model.   Since under each of these models applicants can select only those lines of business in which they have confidence that they can deliver care at a cost savings, it suggests that relatively few health systems and networks believe they have developed the technical capability and infrastructure necessary to monitor and control such costs in real time while ensuring quality.

As it stands, the CMMI approach remains voluntary, and only the best-prepared providers choose to participate in their initiatives, so it is premature to guess whether any combination of accountability, pay-for-performance, bundled payments and similar approaches would prove effective if imposed across the board.  In the meantime, private payors, particularly on the West Coast, are increasingly implementing similar efforts on a larger scale, and large health care purchasers continue to demand proof of cost effectiveness beyond the old fee-for-service system.  Providers who dip their toes in the unfamiliar waters of alternative reimbursement methods, at limited risk, will be better prepared if they are ultimately tossed into the deep end by sweeping changes.

William H. Maruca is a health law partner with the firm of Fox Rothschild LLP. He can be reached at [email protected] or 412.394.5575.

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