Transcript Slide 1

The Latest and Greatest in
Pay for Performance and
ACOs
May 15, 2014
2515 McKinney Avenue, Suite 1500
Dallas, Texas 75201
Telephone: 214.369.4888
Fax: 214.369.0541
3100 West End Avenue, Suite 940
Nashville, Tennessee 37203
Telephone: 615.777.7300
Fax: 615.777.7301
Jen Johnson, CFA
 Partner at VMG Health.
 VMG Health solely provides transaction advisory and valuation services in the
healthcare industry.
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Since 1995, offices in Dallas and Nashville.
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90 professionals, over 1,200 valuation per year.
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Third party role: business valuations, real estate, fixed assets, fair value
 Leads Professional Service Agreements Division.
 Previously in KPMG’s litigation department & finance professor, University of
North Texas.
 Published and presented over fifty times related to physician compensation
and fair market value.
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April 2014 HFM Magazine “Evaluating The Fair Market Value of Pay for Performance”
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Finance Committee Attendance on major P4P initiatives
P4P Background
Why the Growth in Integration & P4P?
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Affordable Care Act
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Physicians and hospitals need to collaborate more than ever
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Security – healthcare reform, changing reimbursement
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Increased compensation: post employment or contracted arrangement
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Better hospital-based reimbursement
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Replace potential loss of ancillary earnings
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Investment requirements for information technology
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Participate in risk-based contracting, ACOs, quality initiatives
Evolution of P4P payments
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Hospitals critical success factors – shifting from production towards quality of clinical
performance and efficiencies
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Payments for Reporting (ie: PQRI)
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Pay for Process
3.
Pay for Outcomes
Standard process leading up to P4P payments
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Recognized organization identifies quality metrics or average costs
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Reporting measures is required, or costs are tracked
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Benchmarking data is gathered
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Payments for outcomes or savings is observed in market
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FMV can now be established
Common factors included in P4P arrangements
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Lowering costs without sacrificing quality
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Quality outcomes payments– individual, services line level, entire population
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Use of technology
History and Results of P4P
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In late 2003, CMS and Premier Inc. launched the Hospital Quality Incentive
Demonstration (HQID) for over 250 hospitals
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Average composite quality score (CQS), an aggregate of all process and outcomes measures
within each clinical area, improved project-wide by 18.6% over the project's six years (October
2003 through September 2009)
In 2008, the Robert Wood Johnson Foundation and California HealthCare
Foundation reported results of a national program that tested the use of
financial incentives to improve the quality of health care. Tested seven
projects across the nation that adjusted compensation based on
performance scores – hospitals and physicians. Notable findings:
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Financial incentives motivate change
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Alignment with physicians is a critical activity for quality outcomes
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Public reporting is a strong catalyst for providers to improve care
History and Results of P4P - examples
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SAVINGS: 13 Gainsharing Opinions (2001-2008)
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QUALITY: February 2012 – Committee on Ways and Means – 1 example
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UnitedHealth Group discusses results of its Premium Designation Program (PD)
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Results show over 50% decrease in some complication rates
SAVINGS & QUALITY
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2013 Results 114 ACOs in the program - 54 of the ACOs saved money - of $126 million
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2013 Greater New York Hospital Association - 100 hospitals desired to work with participating
physicians to account for the use of hospital resources. Physicians that met hospital quality targets
while lowering costs could be compensated a portion of the savings.
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There is a P4P market, but how much can be paid to physicians? It depends.
Market Comparables for P4P Payments
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Third party payors
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UnitedHealth Group – largest US health insurer by sales
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2013 paid 21 different specialties based on quality
WellPoint – largest US health insurer by membership
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Will increase primary care physician pay by 10% - coordinated care
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Additional cost savings bonus of 20% to 30% of savings achieved
BCBS and Aetna
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Growing P4P programs
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Including payments for both cost savings and quality
Governmental Programs growing
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State and Federal
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MSSP, ACOs and bundled payments
ACA Provisions & P4P
 CMS to play major role in developing P4P programs
 “VBP” – quality and cost goals simultaneously
 Section 3001: Hospital Value Based Purchasing 2012
• Quality Outcomes payments
• Efficiency measures in 2014
• Must be reporting on Hospital Compare website for
at least 1 year
• DRG reductions nationwide will fund
• UP to 2% can be earned
 Section 3006: Value Based Purchasing Skilled Nursing
Facilities and Home Health
 Section 3007: Value Based Payment Modifier under the
Physician Fee Schedule
• Payment modifier for cost and quality
• 2015 for larger groups
• 2017 for all
• Size of incentive not specified
ACA provisions continued…
 Section 3008: Payment reduction for Hospital Acquired
Conditions
 Section 3021: Establishment of Center for Medicare and
Medicaid Innovation within CMS, 3 of 18 models are P4P
• Appropriate criteria for diagnostic imaging orders
• Payments for using patient decision support tools
• Payments for using evidence based guidelines for
cancer care
 Section 3022: Medicare Shared Savings Program
• Promotes ACO development
• Cost savings and quality must be met
 Governmental programs – great roadmap for how much is
acceptable to distribute to physicians. Consider 3rd party payors
as well when defining the “P4P market”.
2014 RAND Report: Measuring Success in Health
Care - Value Based Purchasing programs
 U.S. Department of Health and Human Services requested
study
 129 VBP programs (91 P4P, 27 ACOs, 11 bundled payments)
 Measures: clinical quality, cost, outcomes, experience
 Recommendations:
 Set measurable goals, use national data
 Case-mix adjust outcomes measures, use broad set of
measures, identify overtreatment measures, monitor
 Evolve from narrow process measures to broader set
emphasizing outcomes
 Sponsor engage providers in design/implementation
 VBP sponsors should collect a common set of factors to
find best working program
 Need more information:
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HHS should develop a structured research agenda to
address gaps in VBP knowledge base
CMS should study private-sector programs, program design
information not available
Study changes and investments, experiences and
challenges
P4P Arrangements
Physician Service Agreements – P4P
May be a result of joint ventures, acquisitions, employment or
independent contractor arrangements
 Committee Meetings
 ACOs & IDNs
 Call Coverage
 Bundled Payment models
 Co-management (fixed + variable) Medical Directorships
 PSA Model
 Employment
We will be stuck between FFS and P4P for a while
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Physician Risk & Arrangement Types with
P4P
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Less risk for physicians
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Traditional deals with P4P component
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Clinical (% of base add-on)
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Medical directorships (hourly rate differential)
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Call coverage (portion at risk for outcomes)
Co-management of service line
More risk for physicians
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ACO type models
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Upside based on actual savings -> possibly downside
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->Quality initiatives provide gate or extra upside
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->Share gains/losses
Bundled Payments
Co-Management - The Basics
Fixed Fee + Variable Fee = Co-Management Fee
Structure
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Hospital and physicians enter into an agreement where physicians are
jointly responsible with hospital for managing a defined service line
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Various arrangement types exist in the market
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Joint Ventures
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Contractual arrangements
Payments contained in the agreement
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Will vary based on services outlined
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Should be linked to actual services and/or outcomes
Co-Management - Fixed Fee
Overview
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Physician service related payments are justified by need for clinical expertise
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Time dedicated to meetings designed to improve the overall quality of care for a
specific service line.
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May also include
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Medical Directorship
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Non-physician services
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Billing
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Management/administration
Call coverage
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The duties must not overlap with hospital staff
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Probably not a typical management fee
Co-Management - Variable Fee
Overview
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Quality outcomes drive payments - create payment tiers for incentives based on various
outcomes
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Improvement and superior outcomes may warrant incentive payment
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Obtain industry-recognized benchmark data for the quality metrics, (average or
median and top or 90th percentile)
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Understand historical performance and who is responsible for developing and
implementing the strategy
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Cost savings metrics
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Administrative oversight to protect quality is essential
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Measurement must be tied to physician’s input
Clinical Integration payments - ACO/IDN models
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The following payment allocations may be included within a clinical
integration model
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Bundled payment splits – understand who is providing what service
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Quality and Shared Savings splits among ACO entity and hospital and physicians
FMV process - balanced approach for overall model should be assessed
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Third party funded or from hospital
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Infrastructure cost recovery
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Buy-in or participation Fee
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Time spent/effort – hourly rate paid
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Split of savings – existence of minimum savings threshold
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Split of quality - benchmarks utilized
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Upside and downside risk
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Care coordinator payments – ie: Nurse care manager
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PMPM fee for management – consider acuity and NCQA
FMV Guidance and Regulatory Tips
Case Law Growth and Take-Aways
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Hospital is at risk for relying on unsupportable valuations
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Valuation methodology is as important as total compensation
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No opinion shopping, carefully choose your valuation firm
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Logic Test – Tuomey examples:
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Do not pay fulltime benefits/malpractice premiums for part-time services
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Physicians paid above the 75th percentile of market data should demonstrate productivity
consistent with other physicians in this percentile
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Understand arrangements where the provider is not making money
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Compensation for administrative duties should be based on significant duties
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P4P – watch out for low hanging fruit and rebase annually
Valuation Starting Point
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Agreement terms must be understood and are sometimes unclear at valuation stage, define:
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What services will be provided?
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How will parties be compensated?
Commercially Reasonable – gaining importance
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Facility needs – check for overlap of services (numerous medical directors needed)
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Operational assessment (quality metrics relevant for patient population)
There are no published standards for physician compensation valuations, P4P new
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Appraisal firm should understand
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Healthcare regulations
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Valuation principles
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Fair Market Value
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Data considerations – competing hospital, extra caution
Fair Market Value Definition
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Based on the anti kickback statute, and other healthcare regulations and guidelines, any
transaction between hospitals and physicians must be at Fair Market Value.
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IRS definition - “the amount at which property would change hands between a willing seller and a
willing buyer when the former is not under any compulsion to buy and the latter is not under any
compulsion to sell and when both have reasonable knowledge of the relevant facts.”
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Provides a conclusion which should not reflect consideration for value or volume of referrals.
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Offer equal P4P opportunities to all providers
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Do not tie P4P compensation to expected referrals
P4P comparables
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Stick to regulatory guidance when it comes to paying for quality or shared savings
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Governmental programs and third party payors are good market comparables
Regulatory Guidance - Quality
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Quality measures should be clearly and separately identified
Quality measures should utilize an objective methodology
verifiable by credible medical evidence
Quality measures should be reasonably related to the hospital’s
practice and consider patient population
Do not consider the value or volume of referrals. Consider an
incentive program offered to all applicable providers
Incentive payments should consider the hospital’s historical
baseline data and target levels developed by national
benchmarks
Thresholds should exist where no payment will accrue and
should be updated annually based on new baseline data.
Hospitals should monitor the incentive program to protect
against the increase in patient fees and the reduction in
patient care
Incentive payments should be set at FMV
Regulatory Guidance – Shared Savings
Gainsharing Guidance – Favorable OIG Opinions
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Each member of the physician group should have medical staff privileges
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The arrangement should be administered by a program administrator, whose compensation was not
tied in any way to the incentive compensation.
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A program administrator should identify cost-savings metrics after reviewing historical practices
and understanding its medical appropriateness.
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The savings targets should be “re-based” at the end of each year in multi-year arrangements.
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The hospital should calculate the cost savings separately for each group and for each cost
savings recommendation.
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The arrangement should include objective measures to monitor quality (i.e., CMS Specification Manual
for National Hospital Quality Measures).
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Incentive payments should be set at FMV
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More complex factors should be considered for allocating savings associated with patient population
and bundled payments
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Responsibility for outcomes and savings
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Risk adjustment for patient population
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Responsibility for infrastructure costs (if applicable)
Caps are prudent and seen in demonstration projects
Common Challenges with P4P
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Evolutionary Process, “Seen one, seen one”
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Reported Data for making P4P decisions – provider and payor concerns
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Inaccurate
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Inconsistent, outlier treatment
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Expensive/timely to aggregate and report
IT Infrastructure – other issues
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Sharing and access
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New software options
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Connectivity of information among integrated parties
Common Topics in the Boardroom with P4P
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Allocation of payment methodologies
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Primary care versus specialists
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Primary care – PMPM and allocation of shared savings
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Specialists - service line co-management and bundled payments
Year 1 versus Year 2+
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Care coordinators – needed?
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Risk taking
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Choosing Metrics - inconsistent among P4P programs
P4P Program Starting Tips
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Modest set of metrics – perhaps consistent with those found in both
commercial ACOs and Medicare ACOs
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Start small
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Have a written agreement
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Update and rebase metrics annually
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Understand who is driving cost savings and quality
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Have safeguards which prevent cherry picking and lemon dropping
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Identify flow of funds allocation early on in process
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Compliant P4P payment formula = Good Data + Logic + FMV
guidance
Questions?
Jen Johnson, CFA
Partner
[email protected]
214.369.4888