Senator Baucus recently presented proposals for health care reform to the Senate Committee on Finance.  The document covered multiple issues and areas of reform, closely paralleling the MedPac recommendation.  Reformation of the Medicare payment policy and a move towards quality of care and care management were central themes in his proposals.

Value Based Purchasing (VBP)

VBP has been discussed for several years at CMS and Senator Baucus is interested in moving it forward for Acute Care IPPS hospitals.  Incentive payments will be based upon hospital performance of select quality measures, initially selected from those currently being used in the CMS Pay for Reporting or RHQDAPU program.  Incentive amounts shall be based upon the hospitals performance score or their level of improvement from the prior payment period.  The payments will apply to all MS-DRGs and hospitals that are in the bottom quartile of performance shall receive no incentive, a sliding scale will be used for those at 26-75 percentiles, and the full incentive will be paid to those above the 75^th percentile.  All unused funds shall be returned to the Medicare Trust Fund.  The program will begin in FY 2012 for baseline performance and payments shall be adjusted beginning FY 2013 based upon the hospital’s performance under the VBP program.  The funding for the incentive pool will be generated by reducing Medicare IPPS payments to participating hospitals for all MS-DRGs:  2% reduction in FY 2013, 3% in F 2014, 4% in 2015 and 5% in 2016 and thereafter.

Hospitals are already being impacted by the economic climate and the reducing funds available to them.  The commencement of the VBP and reduction in MS-DRG payments will place additional strain on these already tasked institutions unless they are able to meet and exceed performance minimums.  Change is not quick in coming, so institutions that are not top performers in the current RHQDAPU system will have to make immediate and significant changes to address their quality performance to impact their results upon the roll out of the VBP program.  Pharmaceutical companies and device companies need to be sensitive to their customers’ quality performance and the scores impacting their product lines, and should be prepared to assist their customers in attaining these quality objectives.

CMS is also given the authority to weight the measures for calculation of the final score, so those product-lines which influence a hospital quality performance or patient outcomes need to ensure that the weighting of individual measures accurately reflect the best outcome, safety, efficiency and patient satisfaction in the overall score.

Currently, only hospitals will be involved, but CMS is tasked with completing a plan for physician VBP program in 2010 and a proposal for VBP for home health agencies and skilled nursing facilities by 2011 and 2012, respectively.  Therefore, quality and performance measures need to be developed for future adoption into a VBP plan and assistance rendered to those institutions to prepare them for these quality initiatives. 

Readmissions

Beginning in 2010, CMS will identify and establish hospital data related to 30 day readmission rates of hospitals for eight conditions with the highest volume ad highest rate of readmission.  Benchmarks shall be set in 2011 for all readmissions that are not potentially preventable, but which are the result of complications or related conditions.  By 2013, hospitals with readmissions within 30 days from discharge above the 75^th percentile will be subject to a payment withhold on a MS-DRG by MS-DRG basis, equal to 20% of the MS-DRG payment amount from the prior year.

Readmissions are being closely tracked and shall soon have some financial dis-incentives behind them.  Pharmaceutical and medical device companies need to be aware of the readmission rates and causes related to the disease categories they treat, and be prepared to address these concerns with their customers.

Bundling

Readmission is a temporary phase in the move towards bundled payments.  Bundled payments will have far-reaching implications since it is proposed to cover all IPPS hospital and post-acute care services for 30 days after discharge, beginning with the top 20% of post-acute spending in 2015 and extending to all conditions post acute care spending by 2018.  This puts a price on a hospital’s efficiency, complication rates, and patient outcomes regardless of whether they are preventable or not.  The bundled payment will arrive at a risk adjusted rate based upon overall costs by condition, so any deterrence from the norm will entitle the hospital to payments which will fall under or over their cost.  Products designed to assist the hospital in reducing complications and errors and improving their time and efficiency will become critical to the hospitals’ success in meeting these goals.

Accountable Care Organization (ACO)

Physicians are not involved in the readmission or bundled payment initiatives, but they are central to the hospital being able to meet its performance goals, and paramount for the continued care of the patient and the outcomes of care.  Baucus is promoting the creation of ACOs which would be a group of providers (hospital/physician, physician/physician, networks of group practices, etc) that would continue to be paid fee for service but would be entitled to an incentive payment drawn from the cost savings they generate for the Medicare program.  Quality of care is also an important element in this program, and certain thresholds must be met for any incentive payment to be made.

Disease Management

The ongoing management of chronic disease has been identified as a priority and the Baucus proposal is promoting additional bonus payments for primary care physicians, payment for care management services after hospital discharge for certain major chronic diseases (CHF, CAD, COPD, Asthma, Diabetes, Depression), or reimbursement for evaluation and management for a chronic disease if they are not readmitted within 60 days after hospital discharge.  The creation of a Chronic Care Management Innovation Center (CMIC) will also allow CMS to test alternative payment policies for high cost, chronically ill Medicare beneficiaries.

Comparative Effectiveness Research (CER)

The Obama administration has already slated 1.1B for CER in the stimulus package but they have stated that CMS will not be using these studies for its coverage determinations.  Baucus similarly spoke of the importance of CER, but in his proposal to limit the use of CERs by HHS, he actually opened the door for the use of these studies by CMS.  He placed certain parameters which must be met (such as transparency and standards), but which if met, would allow CMS to make use of the information.

Conclusion

Additional issues were also addressed in the Baucus proposal, such as the drive towards greater transparency of relationships between physicians and manufacturers, and more detail is available in the attached slide presentation.  The quality initiatives, however, shall be felt the most by IPPS acute care hospitals and thus are discussed above.  Health care reform can only be achieved by the participation of all interested parties and the services they provide need to ensure higher-quality and more cost effective care.  Hospital focus needs to look beyond the baseline product cost, but also look at the impact pharmaceutical products or devices have on the hospitals cost of services, efficiency and outcomes  and how they impact potential reimbursement.