May 23rd Episode-Based Payments Slides

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WORKING DRAFT Last Modified 5/22/2014 12:18 PM Eastern Standard Time Printed

Implementing retrospective episode-based payments in a multi-payer environment

Presentation Document May 23, 2014

CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited


Introduction to McKinsey and our experience Last Modified 5/22/2014 12:18 PM Eastern Standard Time

Experience in payment innovation

▪ Introduction to McKinsey

Serve clients from strategy through implementation

Not political organization in any way

Experience designing and launching new payment models in private sector as well Printed

World’s leading management consulting firm, with >9,000 professionals in 102 offices worldwide

Serve six states directly and have had discussions and workshops in ~10 additional states to design and launch new payment models including episode based payment, Patient Centered Medical Homes, Accountable Care Organizations, Health Homes

Significant direct investment in proprietary capabilities including data management, advanced analytics, clinical (e.g., 150+ clinicians), statistics, actuarial, Medicaid member research, etc.

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Contents

Refresher on the mechanics of retrospective episodes

The case for retrospective episodes

Select lessons learned

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The episode model is designed to reward coordinated, team-based, highquality care for specific conditions or procedures

Accountability

A provider “quarterback�, the Principal Accountable Provider (PAP), is designated as accountable for all pre-specified services across the episode (PAP is provider in best position to influence quality and cost of care)

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Incentives

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The goal

Coordinated, team-based care for all services related to a specific condition, procedure, or disability (e.g., pregnancy episode includes delivery as well as pre- and post-natal care for the mother)

High-quality, cost-efficient care is rewarded beyond current reimbursement, based on the PAP’s average cost and total quality of care across each episode

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What is an episode?

0-90 days before surgery Initial assessment by surgeon

Selfreferral

▪ Necessity of procedure

Referral by PCP

imaging A Reduce unnecessary or duplicate imaging/services

Preadmission work

Surgery (inpatient)

▪ Pre-work (e.g.,

▪ Procedure ▪ Implant ▪ Post-op stay

blood, ECG)

▪ Consultation as necessary B

Use more cost efficient facilities

30 -180 days after surgery IP recovery/ rehab

Readmission/ D avoidable Ensure optimal complication ▪ SNF/ IP rehab recovery / rehab treatment ▪ DVT/ PEs

▪ Revisions ▪ Infections ▪ Hemorrhages

No IP rehab

▪ Physical therapy Surgery (outpatient)

▪ Home health

▪ Procedure ▪ Implant C

E

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Referral by other orthopod

▪ Physical exam ▪ Diagnostic

Procedure

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Services included in the episode Sources of value

Hip & Knee Example.

Minimize readmissions and complications

Tertiary sources of value: ▪ Reduce implant costs ▪ Optimize inpatient length of stay

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Retrospective episode model mechanics for patients & providers

Patients and providers continue to deliver care as they do today

Patients seek care and select providers as they do today

4

Review claims from the performance period to identify a ‘Principal Accountable Provider’ (PAP) for each episode

3

Providers submit claims as they do today

5 Payers calculate average cost per episode for each PAP

Payers reimburse for all services as they do today

6 ▪ PAPs may: ▪ Share savings: if average costs below commendable levels and quality targets are met

▪ Pay part of excess cost: if average costs are above acceptable level Compare average costs to predetermined ‘commendable’ and ‘acceptable’ levels

▪ See no change in pay: if average costs are between commendable and acceptable levels McKinsey & Company

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Calculate incentive payments based on outcomes after close of 12 month performance period

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Each payer assesses historic provider average costs for each episode

ILLUSTRATIVE

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Provider cost distribution Average episode cost per provider1 Cost per episode Average cost/episode $

Avg. cost per episode Individual episodes for a single provider

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Providers are sorted from highest to lowest average cost

Principal Accountable Provider

1 Each vertical bar represents the average cost for a provider, sorted from highest to lowest average cost

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Retrospective threshold model rewards providers for delivering cost-efficient, high-quality care

ILLUSTRATIVE

Eligible for gain sharing based on cost, didn’t pass quality metrics

Average cost/episode $ _

Risk sharing Pay portion of excess costs

Gain sharing

No change

+

No change in payment to providers

Risk sharing

Gain sharing Eligible for incentive payment Acceptable

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Provider cost distribution 7 Average episode cost per provider1

Commendable

Principal Accountable Provider

1 Each vertical bar represents the average cost for a provider, sorted from highest to lowest average cost

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Printed

Gain sharing limit


Transparency and feedback is crucial to making payment reform work Providers will receive several reports from payers:

Sample provider report

▪ Summary – Overview: Total number of episodes

▪ ▪

Printed

(included and excluded) – Risk adjusted average cost of care compared to other providers – Quality and utilization metrics summary – Risk adjustment summary – Gain sharing and risk sharing eligibility Performance summary – Individual PAP cost distribution – Inputs to gain/risk sharing calculation Quality detail – Detailed benchmarks for quality metrics across all providers Cost detail – Breakdown of episode cost by care category Episode detail – Cost detail by care category for each included episode – List of excluded episodes

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ILLUSTRATIVE

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Contents

Refresher on the mechanics of retrospective episodes

The case for retrospective episodes

Select lessons learned

Last Modified 5/22/2014 12:18 PM Eastern Standard Time

Printed

McKinsey & Company

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Case for Retrospective Episode Based Payment

▪ ▪ ▪

Directly targets large, clear sources of value around unjustified variation in provider performance Potentially applicable to as much as 50-70% of healthcare spending Growing evidence it can be implemented at scale quickly at reasonable investment for payors and providers Potential to offer true win-win for payor and accountable provider

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Evidence it can and does motivate provider behavior change, potentially more quickly than other payment models Growing competitive requirement, but with opportunity for competitive advantage

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Potential for improvement: Sources of value

Root causes of inefficiency, poor clinical outcomes and patient experiences

Episodes

Episodes and pop’n based approaches

Primary prevention and early detection

Choice of tests, treatment, and setting of care

Efficient and effective delivery of each clinical encounter

▪ Behavioral health

▪ Overuse or misuse

▪ Medical errors ▪ Poor treatment ▪ Clinicians practicing compliance below top of license ▪ Missed follow-up ▪ High fixed costs due care leading to

risks (e.g., smoking, poor diet, sedentary lifestyle, etc.)

▪ Delayed detection

▪ Use of medically unnecessary care

▪ Use of higher-cost setting of care where not indicated

to excess capacity

▪ High fixed costs due to sub-scale

▪ Use of branded drugs instead of generic equivalents

▪ Use of medical

preventable complications

Printed

contributing to increased severity and preventable complications

of diagnostics

Care coordination and treatment adherence

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Addressed by payment model :

Pop’n based approaches

▪ Ineffective transitions of care

▪ Misaligned treatment guidance among providers

devices ill-matched to patient needs

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Average cost per episode varies significantly across providers Difference in cost between the 10th and 90th percentile providers

Cholecystectomy

Pregnancy/delivery

Acute asthma exacerbation

Gallbladder removal plus 90 days

Prenatal care through 2 mo. post birth

Hospital visit plus 1 mo. post discharge

U.S. State A

U.S. State B

U.S. State C

189%

192%

368%

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Distribution in average total cost per episode, by provider

Printed

▪ % of cases done in inpatient ▪

setting varies from 0% to 20% >400% variation in hospital length of stay

▪ >500% variation in imaging ▪

and diagnostic costs C-section rate varies from 20% to 70%

▪ Rate of admission from the ▪

ER varies from 0% to 100% >400% variation in rate of repeat visit to ER or hospital (within 30 days of discharge)

Each bar represents the average total cost per episode for 3-5 providers with similar costs (performing surgeons for a cholecystectomy, delivering providers for a birth, and facilities for an acute asthma exacerbation). Total costs include all relevant professional, facility, and other inpatient and outpatient claims. Patients with meaningful co-morbidities or risk factors are excluded or risk-adjusted. Outlier (high cost) episodes were also removed.

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Perinatal care, practice pattern variation

PRELIMINARY

Average C-section rate per quarterback – Quarterback C-section rate distribution: Perinatal Low-volume quarterback

High-volume quarterback

100 80 60 40 20 0

Quarterbacks

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n = 33,606 episodes, 488 quarterbacks1

Distribution of ultrasounds – Variation in ultrasounds per episode: Perinatal n = 33,467 episodes2, 488 quarterbacks3

Count of episodes4 8,000

6,692

4,000 2,000

4,681

5,757 4,243

1,818

2,776 1,919

0

0

1

2

3

4

5

6

Printed

6,000

1,332 915 742 545 516 381 318 244 169 128 110

7

8

9

10

11

12

13

14

15

16

17

87

47

47

18

19

20

# of ultrasounds/episode Count 1 Excludes unknown providers (3914 episodes) 2 Excludes 139 episodes with over 20 ultrasounds an episode 3 No other exclusions applied (except unknown providers (3914 episodes) were removed) 4 Ultrasounds claims were counted if they were performed on different days SOURCE: TennCare, trigger dates during 2012

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Contents

Refresher on the mechanics of retrospective episodes

The case for retrospective episodes

Select lessons learned

Last Modified 5/22/2014 12:18 PM Eastern Standard Time

Printed

McKinsey & Company

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New payment models must meet 8 requirements to drive cost-reducing innovations

Significant

Maximize the proportion of provider revenue and earnings that are subject to outcomes-based payment

at Scale

Ensure that a critical mass of providers transition to outcomes-based reimbursement

Stable

Clarify long-term vision and make a long-term commitment to providers

Striving but practical

Design the new approach so that it is effective in current regulatory, legal, and industry structures

Sustainable

Ensure that providers that adapt thrive financially

Supportive

Champion innovation with information, insights, and infrastructure

Synch with consumers

Align payment with benefits, network design, and consumer engagement

Printed

Create clear roles for Component Providers, Healers, and Partners; pay through a mix of enhanced fee-forservice, episode-based, and population-based payments

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re-Set expectations and align payment

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Ingredients for state-led large-scale improvements to healthcare systems Last Modified 5/22/2014 12:18 PM Eastern Standard Time

1 Clear and repeated “case for change”

Healthcare cost growth and “waste” hurt economic growth Stakeholders, irrespective of all politics or role, increasingly agree that “paying for outcomes” is positive and required States have opportunity to lead the innovation

2 Executive leadership

▪ ▪ ▪

Power of inevitability (i.e., not debating “if”, but “how”) State as “convener” and “leader” vs. “prescriber” Active leadership/involvement of Governor, Medicaid Director, agency heads, and ultimately CEOs of large stakeholders

3 Stakeholder engagement

▪ ▪ ▪ ▪

Appreciation for sensitivity around payment models Everyone needs potential to benefit Power of objective facts and open dialogue Seeking and incorporating stakeholder feedback

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Printed

Evidence ▪ Several states have made significant progress in last 3-5 years ▪ Dozens of private sector initiatives ▪ Multiple global examples ▪ Many more failures than successes

▪ ▪


Payment Innovation showing positive impact in Medicaid Changes in provider behavior

Performance improvement

Provider assessment of performance - both cost and quality Growing support/acceptance from many (but not all) larger hospitals/health systems and special needs providers

Deeper understanding of economic implications of clinical decisions within control Explicit acknowledgement of changes in treatment patterns

▪ ▪

Improvements quality (e.g., reduction in antibiotic use, alignment with guidelines) Reduction in episode specific costs Mitigation of overall trend

Investments in care coordination and infrastructure

Printed

Thousands of clinicians and administrators engaged in design process

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Provider engagement and growing acceptance

Greater openness to sharing performance risk

Examples of “at scale” contracting and/or enrollment in programs McKinsey & Company

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Early signs of success from Arkansas episodes Last Modified 5/22/2014 12:18 PM Eastern Standard Time

Taking the Payment Improvement Initiative to heart (Apr 2014) Cardiologist David Rutlen and UAMS team make changes in the best way to care for their patient “The approach was to see "what exactly do we need to know to take care of the patient?" Rutlen said. The result was a "sea change," impacting not just its Medicaid patients but all heart patients seen at the medical center.”

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Better health care, lower cost. (Apr 2014) Arkansas's Payment Improvement Initiative shows it can be done “…since the PII began to provide doctors with information on their peers' costs and outcomes in the treatment of upper respiratory infection, the prescribing of antibiotics to treat a common cold has fallen more than 10 percent. The number of doctors that prescribed two courses of antibiotics has fallen by 40 to 50 percent, Golden said.”

SOURCE: http://www.arktimes.com/arkansas/taking-the-payment-improvement-initiative-to-heart/Content?oid=3257813 http://www.arktimes.com/arkansas/better-health-care-lower-cost/Content?oid=3257807

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