Alternative Payment Models: The Good, the Bad, and the Ugly

Tennessee Society of CPAs 2017 Health Care Conference
Tuesday, November 28, 2017
Presented by:
Angie Caldwell, CPA, MBA, Principal
Carol Carden, CPA/ABV, ASA, CFE, Principal
ISSUES ASSOCIATED WITH THE VALUATION
OF ALTERNATIVE PAYMENT MODELS
Alternative Payment Models:
The Good, the Bad, and the Ugly

Prepared for: Tennessee Society of CPAs
© 2017 PYA (Pershing Yoakley & Associates, PC)
Page 1
Agenda
 Trends
 Introduction to APMs
 Market Data and Regulatory
Guidance
 Considerations in Determining
FMV and CR

Page 2
Driving the (Good) Trend
Hospitals
Thinking outside of
the box
Physicians
57% independent in
2000 to 33%
independent in 2015
Themes
Cost savings
Talent
accumulation
Access
 Changing delivery model

Page 3
Shift to Value-Based Reimbursement
3
(the Ugly)

Page 4
CMS VBR Goals
30% of traditional Medicare
payments through APMs
50% of traditional Medicare
payments through APMs
85% of Medicare fee-for-
service payments tied to scores
on quality and efficiency measures
90% of Medicare fee-for-
service payments tied to scores
on quality and efficiency measures
03/03/2016 - Mission Accomplished
By December 31, 2016: By December 31, 2018:

Page 5
Introduction to APMs
Medicare Access and CHIP
Reauthorization Act of 2015
Advanced Alternative
Payment Model
Merit-Based
Incentive Payment
System
Quality Payment
Program

Page 6
Transition Period
Through
December 31, 2018
Starting
January 1, 2019
 0.5% annual MPFS update
(2016-2019)
 Payment adjustments
• Potential 2% PQRS reporting
penalty
• Potential 3% EHR meaningful
use penalty
• Up to +/- 4% Value-Based
Modifier bonus/penalty
 Annual MPFS update:
• 0% in 2020 through 2025
• 0.25% thereafter (0.75% for
Advanced APM participants)
 Payment Adjustments
• 5% bonus for participation in
advanced APMs thru 2024
• Up to +/- 9% MIPS
bonus/penalty

Page 7
Advanced APMs (Traditional Medicare)
Definite
Medicare Shared Savings Program
(Tracks 2 and 3 Only)
Next Generation ACO Model
Comprehensive ESRD Care
(LDO Arrangement and Two-Sided Risk)
Comprehensive Primary Care Plus
(Re-Open Applications)
Oncology Care Model
(Two-Sided Risk)
In Development
Medicare Shared Savings Program
(Track 1+)
Comprehensive Care for Joint
Replacement
(CEHRT Track)
Episodic Payment Model
(CEHRT and Non-CEHRT Tracks)
Cardiac Rehabilitation
Incentive Payment Model
Medicare Diabetes
Prevention Program
New Voluntary Bundled Payment
Program
Vermont Medicare ACO Initiative

Page 8
Qualifying Participant
Qualifying Participant
 Higher % of patients or payments
 Bonus = 5% of MPFS payments
Partial Qualifying Participant
 Lower % of patients or payments
 No bonus, no MIPS
Non-Qualifying Participant
 Subject to MIPS
Payment Year 2019 2020 2021 2022 2023 2024
QP Threshold 25% 25% 50% 50% 75% 75%
Partial QP
Threshold
20% 20% 40% 40% 50% 50%
Payment Year 2019 2020 2021 2022 2023 2024
QP Threshold 25% 25% 50% 50% 75% 75%
Partial QP
Threshold
20% 20% 40% 40% 50% 50%
Medicare Option – Payment Amount Threshold
Medicare Option – Patient Count Threshold

Page 9
Other Payer Advanced APMs
 Credit for participation in Other Payer Advanced APMs starting in 2019
 Three criteria: (1) Use of CEHRT; (2) quality measures; and (3) more
than nominal financial risk or medical home model
 Submission and approval process
 Still requires some level of participation in Advanced APMs
Payment Year 2019 2020 2021 2022 2023 2024
MCR MCR Total MCR Total MCR Total MCR Total MCR
QP Threshold - - 50% 25% 50% 25% 75% 25% 75% 25%
Partial QP
Threshold
- - 40% 20% 40% 20% 50% 20% 50% 20%
Payment Year 2019 2020 2021 2022 2023 2024
MCR MCR Total MCR Total MCR Total MCR Total MCR
QP Threshold - - 35% 20% 35% 20% 50% 20% 50% 20%
Partial QP
Threshold
25% 10% 25% 10% 35% 10% 35% 10%
All Payer Combination Option – Payment Amount Threshold
All Payer Combination Option – Patient Count Threshold

Page 10
MIPS Final Score Components
Quality
Cost
Performance
Improvement
Activities
Advancing Care
Information
60%
0%
15%
25%
50%
10%
15%
25%
30%
30%
15%
25%
2017
Performance Year
2018
Performance Year
2019
Performance Year
Impacts 2019
Payments
Impacts 2020
Payments
Impacts 2021
Payments

Page 11
2017 Final Score Calculation
Quality
Component Score
Cost
Performance
Component Score
Improvement
Activities
Component Score
Advancing Care
Information
Component Score
Multiply Each By
Component Weight
Final
Score

Page 12
MIPS Payment Adjustments
2019 2022+2020 2021
+4%
-4%
+5%
-5%
+7%
- 7%
+9%
-9%
Up to 12% Scaling
Factor*
Up to 15% Scaling
Factor
Up to 21% Scaling
Factor
Up to 27%
Scaling Factor
Performance
Threshold**
* Due to budget neutrality, higher bonuses will be paid if total penalties exceed projections, not to exceed 3 times the base bonus percentage
** Performance threshold will be adjusted each year based on historical performance

Page 13
March 31, 2018
Deadline for
individual/group to
report on required
measures
Performance-to-Adjustment Cycle
Perform Submit AdjustFeedback
CY 2017
Period of time for
which performance
will be evaluated
2017 only: may
elect 90-day
continuous
performance
period
Q3 2018
CMS reports on
prior year
performance,
including
calculation of Final
Score and payment
adjustment for
upcoming year
CY 2019
Positive or
negative MPFS
payment
adjustments based
on 2017 Final
Score

Page 14
MIPS Participation Election
 Final Score is assigned to each NPI/TIN
 Group reporting must include all NPIs who reassign to
TIN; cannot pick and choose
 NPI who reassigns to TIN reporting as a group may also
report individually
Individual (NPI) Group (TIN)
OR

Page 15
Low-Volume Threshold
 For 2017, individual or group exempt from
MIPS if:
 $30,000 or less in allowable Part B charges; or
 See 100 or fewer traditional Medicare beneficiaries
 If elect group reporting, NPIs who would be
exempt if reporting individually are NOT
exempt
 Two determination periods (both with 60-day
claims run-out)
 September 1, 2015, to August 31, 2016
 September 1, 2016, to August 31, 2017

Page 16
2017: Pick Your Pace
2017 Reporting Option 2019 Payment Impact
No reporting 4% penalty on all MPFS payments
Report performance for minimum of 90-day
continuous period
 One quality measure OR
 One clinical practice improvement activity OR
 All required measures for advancing care
information
No penalty, no bonus
Report performance for minimum of 90-day
continuous period
 More than one quality measure OR
 More than one clinical practice improvement
activity OR
 More than the required measures for
advancing care information
Eligible for up to 12% bonus on all MPFS payments (amount
varies based on Final Score and budget-neutral scaling factor)
Report performance on all required measures for
minimum of 90-day continuous period
Eligible for up to 12% bonus on all MPFS payments (amount
varies based on Final Score and budget-neutral scaling factor)
If Final Score ≥ 70, eligible for additional Exceptional
Performance Bonus (amount varies based on Final Score and
distribution of $500 million annual fund; cannot exceed 10% of
Part B allowed charges)

Page 17
APMs
Pay for Performance
(P4P) Shared Savings Bundled Payments Global Budgets
Structure Model co-exists with FFS One- or two-sided models,
depending on risk tolerance
Single-payment rate for all
services under an identified
care episode, prospective or
retrospective, depending on
risk tolerance
Advance payment for provider
network to assume full
responsibility for defined
population
Definition Rewards the achievement of
specified performance
standards
Rewards providers for working
together to reduce cost of
care for defined population
Rewards coordination and
efficiency among all providers
with a specific episode of care
Rewards provider network for
managing a defined patient
population with a specified
budget
Incentive Upward or downward
adjustments to FFS
payments based on scores on
objective performance
measures
Portion of the realized savings
(in addition to FFS payments)
Retention of overage of
payment, if costs are less
than target
Reduction in unnecessary and
avoidable services to remain
within budget
Examples Hospital Value-Based
Purchasing Program
Hospital Readmissions
Reduction Program
Medicare Quality Payment
Program
MSSP
Next Generation ACOs
Bundled Payment for Care
Improvement
Episodic Payment Models
Comprehensive ESRD Care
Model
Direct Primary Care
Provider-Sponsored Medicare
Advantage Plans
Shift from FFS

Page 18
APMs: Compliance Concerns
 The Bad
 Until the rules change, APMs with commercial payers must be
structured to comply with the Anti-Kickback Statute and the
Stark Law
Even if the APM is protected under a Medicare
APM waiver, demonstrating FMV may be prudent
Best
Practice

Page 19
APMs: Compliance Concerns (cont.)
 The Good –More value is assigned to quality and
efficiency in care delivery, NOT productivity
 The Bad and the Ugly – New and different concerns:
 Improper care
 Poor quality of care
 Patient steerage (“lemon dropping” or “cherry picking”)
The more the APM in question is structured
similarly to Medicare programs and their
associated waivers, the better the argument that
payments made under those models are
incentives and rewards to deliver high-quality
efficient care and NOT to induce referrals
Best
Practice

Page 20
FMV and CR Considerations: P4P
 The Ugly – Little market data or consistent practice
 The Bad – Traditional approaches make no sense
 The physician may spend LESS time and effort
 The physician may spend MORE time and resources that cannot
be measured by wRVUs

Page 21
FMV and CR Considerations: P4P (cont.)
 Measures for compensation should be
appropriate
 Reasonable relationship between behavior
incentivized and value of the payment
 Criteria for payment should be
communicated in advance

Page 22
FMV and CR Considerations:
Shared Savings
•Network/physician receives a portion of the
difference between the actual total cost of care for a
specified population and a pre-determined benchmark
One-Sided
•Network/physician repays the payer if the actual total
cost exceeds the benchmark
Two-Sided
 The Good – Both are intended to incentivize the
identification and implementation of strategies to reduce
costs and maintain quality

Page 23
Levels of Fund Distribution

Page 24
Levels of Fund Distribution: Level 1

Page 25

Page 26

Page 27

Page 28
Shared Savings – Individual Distributions
Gatekeeper measures
Distributions based on patient attribution – reasonable
substitute for wRVU production
Best
Practices

Page 29
Shared Savings – Individual Distribution (cont.)
Distributions based on performance of selected
measures – where metrics are tied to reductions in
costs, a portion of the distribution could be rewarded to
the best performers on those metrics
Cap on individual distributions – may prevent
significant inequality between effort and reward
Best
Practices

Page 30
Shared Savings – Caution
 The Ugly
 IRS Private Letter Ruling 201615022
 Denied tax-exempt status to a non-MSSP ACO
comprised of a tax-exempt health system and
independent community physicians

Page 31
 Background
 “Health System” implements an orthopedic shared savings
“Program” at several of its “Hospitals;” combined as one legal
entity, the Hospitals share equally in the cost savings with the
Health System
 A “Committee” is responsible for identifying, developing, and
monitoring cost savings “Opportunities”
 Among other tasks, the Committee estimates cost savings
associated with each Opportunity based on the difference between
base year and current year costs
Shared Savings – Case Study 1

Page 32
 Problem
 The Bad
 Program setup is lengthy, involving extensive planning, oversight,
and legal expenses (e.g., entity conversion/formation as LLC,
establishing the Committee, etc.)
 The Ugly
 The nature of the Program’s one-time savings occurring upon
implementation and shortly thereafter has a plateau-effect (e.g., on
bottom-line improvements), making it difficult to continue to raise the
bar through cost reductions or efficiency increases in the future
Shared Savings – Case Study 1 (cont.)

Page 33
 Solution
 The Good
 The Program incentivizes a win-win-win scenario for the Health
System, Hospitals (e.g., the “Physicians” performing surgeries at the
Hospitals), and patients
 The Hospitals and the Health System work collaboratively through
the Committee to set applicable quality of care standards and
performance measures (e.g., patient satisfaction), which the
Physicians must meet to avoid reduction in respective share of cost
savings
 Physicians disclose the nature of the Program to patients, obtain
written consent, and cater to patient preferences

Page 34
 Background
 “Hospital” and urologic “Clinic” enter into a co-management
services “Agreement,” which establishes two “Committees” (i.e.,
the patient experience committee, and the operational efficiency
committee) under the oversight of Clinic and Hospital leadership
 The Committees set “Performance Goals” for the Hospital’s
urology service line, comprised of three tiers of incentive
compensation with percentage achievement goals across four
distinct elements: the use of urology medical directorship
services, total supply cost savings, improved consecutive case
completion, and improved patient satisfaction
 The Hospital identified potential supply cost savings by changing
vendors, meeting vendor purchasing compliance by purchasing a
certain volume of supplies, and through negotiated volume discounts
Shared Savings – Case Study 2

Page 35
 Problem
 The Bad
 The Hospital committed significant time and incurred expenses in
implementing the Agreement, including the expenses associated with
negotiating with vendors and obtaining professional regulatory legal
opinions
 The Ugly
 Supply cost savings required limiting freedom of choice to just a few
vendors, which limits Clinic’s choices along the cost-to-quality
spectrum

Page 36
 Solution
 The Good
 The Agreement reduces costs of inpatient services by improving the
efficiency of care and supplies utilized to render services
 The Agreement provides a mechanism for aligning the economic
incentives and interests of the Hospital and the Physicians, while
also serving to benefit the Clinic

Page 37
FMV and CR Considerations: Prospective
Bundled Payments – Case Study
 Background
 Ambulatory surgery center (Center) enters into prospective
bundled payment arrangements (BPAs) with orthopedic
“Physicians,” holding partial ownership interest in the Center
 Center negotiates BPA contracts with commercial insurance
“Payers” in which the Payer will pay a flat, per-case fee for
Physician professional services, facility fees, supplies, and most
other expenses related to a case
 Center is responsible for billing and collecting all fees at the
contracted Payer’s rates as well as distributing an agreed-upon
portion of the payment to the rendering Physician

Page 38
Bundled Payments – Case Study (cont.)
 Problem
 The Bad
 The Center incurred significant time and expenses in negotiating
and implementing the BPAs, including the professional expenses
associated with regulatory legal opinions
 The Ugly
 Professional fair market value appraisal analyses must be custom-
tailored for the Center due to the lack of available, pertinent
benchmark data
 Physicians must exhibit incredibly high level of expertise to safely
conduct the specific orthopedic surgeries in the ambulatory surgical
setting, as these services are typically performed on a hospital
inpatient basis

Page 39
Bundled Payments – Case Study (cont.)
 Solution
 The Good
 The BPAs enable a win-win-win-win scenario for the Payers, Center,
Physicians, and the patients
 The Center negotiated more profitable Payer rates, enabling the
Physicians and the Center to receive a greater economic benefit
than would be possible under similar FFS arrangements
 The Payers benefit from substantial savings under the BPAs as
compared to alternative hospital (e.g., inpatient) reimbursement
rates
 Patients benefit from less expensive, faster, and increased access to
services beyond the inpatient hospital setting

PERSHING YOAKLEY & ASSOCIATES, P.C.
800.270.9629 | www.pyapc.com
Angie Caldwell, CPA, MBA
Principal, PYA
acaldwell@pyapc.com
(865) 684-2728
Thank you!
Carol Carden, CPA/ABV, ASA, CFE
Principal, PYA
ccarden@pyapc.com
(865) 684-2728

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