MACRA offers a bridge away from FFS as good as the Golden Gate

Health Care Current | April 4, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

MACRA offers a bridge away from fee-for-service as good as the Golden Gate

By Bill Copeland, Vice Chairman, US Life Sciences & Health Care Industry Leader, Deloitte LLP

The idea of a bridge that could connect San Francisco to Marin County, California began to surface in the late 1880s as the region’s population started to boom.1 At the time, ferries provided an essential link between the two regions. In 1933 – decades after engineers began to discuss the concept of a bridge – construction began. Four years later, the first cars puttered across the smooth, new concrete. Now, more than 100,000 vehicles traverse the Golden Gate Bridge each day.2

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) is creating a different type of bridge – one that will transport the health care industry away from the traditional fee-for-service (FFS) model to one aligned with value rather than volume. Congress designed MACRA to be disruptive. If implemented as planned, it will alter the very nature of competition among health care stakeholders.

On March 29, 2017, Deloitte’s Center for Health Solutions partnered with NEHI (the Network for Excellence in Health Innovation) to bring 30 stakeholders from around the country to Washington, DC. Representatives from health systems, health plans, biopharma companies, and medical technology companies sat down together to discuss their mutual challenges and desire to find a bridge from their existing FFS operating models to a new destination where outcomes matter.

For health care stakeholders to thrive under a new set of payment rules, strong collaboration and partnerships will likely be more important than ever. Indeed, some of the participants said that one of the biggest hurdles is getting stakeholders on the same page. But, many agreed that once all parties are committed to accepting more risk, they will have an incentive to work together toward common goals.

MACRA’s payment models, while still based on Medicare FFS reimbursement, offer significant financial incentives to providers that participate in risk-bearing, coordinated care models. One of the key takeaways I noted is that under FFS, providers that were able to reduce their costs or improve care quality typically saved money for the health insurer or employer that paid the bills. But under MACRA, a doctor who delivers high-quality care at a lower cost has the potential to earn more than a colleague down the street – and reinvest that money back into their organization to focus further down the prevention scale. That’s never happened before.

Like any transformation, MACRA is causing anxiety and frustration among many key stakeholders.3 Convincing providers to move away from the only payment model they’ve ever known could be a significant challenge – for physician leadership as well as partners in the industry. And there are a wide range of reasons providers may want to stay put. Hospital systems that already excel in pay-for-performance models might have little room to improve and see limited value in MACRA’s improvement-based incentives. On the other end of the spectrum, some small providers may not be willing to change until seamless and affordable systems are in place that help to manage their performance. Other providers have no intention of changing. Moreover, some have concerns that we are measuring results for the sake of measurement. To get stakeholders on board, the measures required by the law need to be impactful (i.e., it really matters to get this right) – to organizations, physicians, and patients. Also, many regulatory frameworks set up to curb abuse under the FFS system will need to be revisited; laws like Stark, Anti-Kickback Statutes, and the Health Insurance Portability and Accountability Act can be restrictive enough to prevent success under these value-based models, some participants said.

Finally, there was a general consensus among many of the participants that community-based organizations will be critical partners along this journey, as many significant issues that health care organizations are trying to solve for are rooted in the social determinants of health. For example, a homeless person with diabetes or an older adult living alone in a two story house recovering from a hip replacement face very different challenges than someone who has a regular job, health insurance coverage, and a roof over their head. There was agreement that we need to figure out how to involve these organizations in order to really move the needle on providing the patient-centered care that is at the core of value-based models.

Unlike other laws, MACRA doesn’t push for one-time compliance. Rather, it’s aimed at inspiring constant improvement. The law is so disruptive because, while it impacts only Part B payments to health care providers, the measures pull the total cost of care and quality regardless of the type of service. It also encourages commercial health plans to participate in the journey over the bridge through the other payer model. But, we’ve only taken the first step in a long journey. Providers that take advantage of MACRA will likely change the basis of their competition. The tools, technologies, patient engagement strategies, compensation models, and new clinical models could be hard to replicate, and the early innovators will earn a competitive advantage and accrue all the benefits of a market leader.

The foundation for FFS was poured more than 110 years ago in the form of prepaid monthly statements made to medical groups to cover all-inclusive services. In 1930, the first Blue Shield plan began making payments to physicians, which moved the industry toward the FFS model. It is time to leverage our FFS-based system to build a bridge back to prepaid financing. This move could help improve quality and outcomes and allow the delivery care model to innovate without the constraints of the FFS rule set.

Like the Golden Gate Bridge, MACRA will be several years in the making. But with a clear view of the destination and acknowledgment of the potholes along the way, the health care industry might be relieved to watch FFS fade away in the rear-view mirror.

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1 Golden Gate Bridge Research Library, Golden Gate Bridge, Highway and Transportation District
2 Annual Vehicle Crossings and Toll Revenues, Golden Gate Bridge, Highway and Transportation District
3 Deloitte Center for Health Solutions, MACRA: Disrupting the health care system at every level,

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Implementation & Adoption

CMS issues final rule on limits for DSH funding after third party payments

The US Centers for Medicare and Medicaid Services (CMS) issued a final rule on Thursday, March 30 to clarify that disproportionate share hospitals (DSH) payments to hospitals are limited to costs left over after accounting for uncompensated care payments made by third parties. Third party payments include ones to hospitals by or on behalf of Medicaid-eligible individuals, including Medicare and private insurance, to cover the care provided to such individuals.

CMS says that the rule clarifies a 2008 rule that said that uncompensated care costs are calculated after accounting for other third party payments. After the 2008 rule was published, CMS received comments that suggested the limit on DSH payments is inconsistent with statute.

The American Hospital Association (AHA) opposes the latest final rule, which mirrors the proposed rule issued by the Obama Administration last year. It said in a comment letter last fall that rather than being a clarification of existing rule, it establishes a new policy.

HHS provides DSH funding to hospitals that serve a disproportionate share of low-income patients with special needs to help cover the cost of providing medical care.

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New CMS campaign to pair patients with doctors in ACOs

CMS aims to increase patient and provider participation in accountable care organizations (ACOs) by automating the process of pairing patients with ACOs. Medicare beneficiaries will be able to list their primary care doctor online at during open enrollment. If their primary care doctor is enrolled in an ACO, CMS will pair them with that doctor’s respective ACO.

CMS proposed these changes after providers said that they wanted to know earlier which of their patients CMS will count as being in ACOs and consider when it measures quality and cost. Currently, CMS assigns patients to ACOs retroactively, so providers do not know until the end of the year.

Stakeholders have had mixed reactions to the new process. The American Academy of Family Physicians (AAFP), for example, says that Medicare beneficiaries may not know how to navigate to list their doctor. Moreover, a previous campaign that asked Medicare enrollees to list their primary care doctor through regular mail was not successful. The AAFP asked CMS to consider creating a pilot program and/or using claims to assign Medicare beneficiaries and educate beneficiaries on the benefits of ACOs and the importance of being able to pick their own primary care doctor.

The new pairing process will start next year.

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Report: Payment policies can help manage the cost of prescription drugs

A recent report explored how other countries pay for prescription drugs and contain spending on them. The US spends twice as much per person on prescription drugs compared with other high-income countries. Many lawmakers have expressed interest in lowering the cost of prescription drugs in the US.

The report described six types of payment policies used by other high income countries.

While not all of these payment policies may apply to the US health care system, if adopted, those that do apply might reduce prescription drug spending. Political and legal barriers in the US might not make some payment policies feasible. For example, public and private insurers required to cover all drugs cannot deny drug coverage.

(Source: The Pew Charitable Trusts, “Payment policies to manage pharmaceutical costs,” March 2017)

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Report: Health IT, community health workers can reduce costs of care for innovative delivery models

A new Health Affairs study found that innovative care delivery models using health information technology (IT) and community health workers were more likely than other similar programs to reduce health care costs.

Researchers identified the following five common components of these models and analyzed their effects on total cost of care for Medicare, Medicaid, and Medicaid Advantage.

  • Health IT
  • Community health workers
  • Medical homes
  • Behavioral health
  • Telemedicine

The study suggests that all these programs save money, with an edge to those that use health IT and community health workers. However, because of a small sample of models, the findings were not significantly significant.

Overall, models that used telemedicine as a main component actually increased cost per beneficiary, possibly because telemedicine is more difficult to implement and so could take longer to produce cost savings.

Background: Authors analyzed data from 43 ambulatory care programs that received grants to test innovative approaches for care delivery from the CMS Innovation Center Health Care Innovations Awards program in 2012. The study’s authors selected the subset of ambulatory care demonstrations that used comparison-group matching in their evaluations to estimate the effects of specific model designs on federal health care expenditures.

(Source: Health Affairs, “Impact of Health Care Delivery System Innovations on Total Cost of Care,” March 2017)

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AHRQ seeks input on telehealth for acute and chronic care consultations

Last week, the Agency for Healthcare Research and Quality (AHRQ) requested input on how telehealth can be used for acute and chronic care consultations. The agency’s Evidence-based Practice Centers requested information on completed and ongoing studies using telehealth consultations at any point in diagnosis, treatment, or management of a patient, as long as outcome measurement occurs after the telehealth consultation.

AHRQ wants to understand how telehealth impacts outcomes and asks the following questions:

  • Are telehealth consultations effective in improving clinical and economic outcomes?
  • Are telehealth consultations effective in improving intermediate outcomes?
  • Have telehealth consultations resulted in harms, adverse events, or negative unintended consequences?
  • What are the characteristics of telehealth consultations that have been the subject of comparative studies?

Submissions are due to AHRQ by April 24.

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On the Hill & In the Courts

HHS Secretary Price testifies at the House Appropriations Committee in support of the president’s budget proposal

Last week, US Department of Health and Human Services (HHS) Secretary Tom Price testified before the House Appropriations Committee on the president’s preliminary budget proposal for fiscal year 2018. In his first congressional testimony since being confirmed, Secretary Price expressed support for the priorities outlined in the president’s preliminary budget proposal. The budget proposal, called a ‘skinny’ budget, is not a line-by-line appropriations document and does not include funding proposals for mandatory spending like Medicare and Medicaid.

The skinny budget proposes reducing funding for HHS by $15 billion (see the March 21, 2017 Health Care Current).

The committee asked Secretary Price about the proposal to reduce funding for the National Institutes of Health (NIH) by $5.8 billion. Secretary Price said that roughly 30 percent of money authorized for research through NIH goes to indirect expenses, such as overhead laboratory costs (e.g., lab equipment and utilities). Price said that reducing indirect costs could free up the NIH spend the remaining funds on research. The budget also proposes to consolidate AHRQ into the NIH. Secretary Price stated that there is often administrative overlap between the NIH and AHRQ and that consolidating the agencies would create efficiencies and reduce redundancies.

During the hearing, some lawmakers asked Secretary Price how he will manage oversight of the exchanges and Medicaid programs while Congress debates repeal and replace legislation. Secretary Price said he was committed to upholding the law and reiterated that the Affordable Care Act (ACA) was written and approved by Congress and that he would respond to any changes in the law. He also expressed support for increasing states’ ability to set their own essential health benefits in health plan design.

Finally, Secretary Price announced a new partnership with the White House to address pharmaceutical drug prices, a priority area for the president.

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House E&C hearing generally supportive of the direction of FDA medical device user fee agreement

Last week, the House Committee on Energy and Commerce (E&C)’s Subcommittee on Health held a hearing on the upcoming reauthorization of the Medical Device User Fee Amendments (MDUFA). Witnesses included the Director of the US Food and Drug Administration (FDA)’s Center for Devices and Radiological Health (CDRH), Dr. Jeffrey Shuren, as well as leaders of health plans, device manufacturing firms, and policy research centers.

Witnesses and lawmakers discussed:

  • Shorter device approval timelines: Lawmakers support CDRH’s use of MDUFA funds to shorten the time from application to approval. Witnesses said that the time to approve a new device decreased from 427 days in 2009 to 276 days in 2015. Additionally, CDRH reduced the median timeline for a clinical trial submission, a key step in the regulatory pathway, from 442 days in 2011 to an average of 30 days in 2016. Several lawmakers said that reducing the time to approval would improve patient access to new medical device technologies.
  • How to incorporate patient perspectives: Dr. Shuren stated that the MDUFA IV agreement would help the agency measure outcomes that patients care about, including patient-reported quality of life and measures of disease burden. Incorporating patient lifestyle into new clinical trials can reduce trial dropout rates and support volunteer recruitment. Dr. Shuren committed to establishing a patient advisory committee made up of patient representatives to make patient issues a priority.
  • How technology should improve data collection: Under the proposed MDUFA agreement, the new the National Evaluation System for health Technology (NEST) program would receive $30 million over five years to fund pilot programs and develop technology infrastructure. Witnesses said that NEST will allow manufacturers to use real world evidence, expand indications for already approved devices, and allow easier data collection to meet post-market reporting requirements.
  • Aligning review across countries: Lawmakers asked about progress of the FDA and European Union’s Mutual Recognition Agreement, an international effort to implement a single review program. Under the agreement, approvals made by one European country’s regulatory agency are valid under the FDA, and vice versa. Dr. Shuren committed to working with foreign agencies and implementing the least burdensome approach to device approval.

Background: MDUFA is up for reauthorization in September 2017 as a part of the Prescription Drug User Fee Act (PDUFA) (see the March 28, 2017 Health Care Current). MDUFA authorizes the FDA to collect user fees from medical device manufacturers to fund the agency’s approval processes. In exchange, the FDA agrees to provide the industry and manufacturers with technical support and a clear, timely pathway through the regulatory approval process. The Subcommittee on Health, as well as the Senate Committee on Health, Education, Labor, and Pensions, will hold hearings on all of PDUFA’s amendments before voting on reauthorization.

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Around the Country

States debate path forward with Medicaid

Nineteen states have not expanded Medicaid under the ACA. Given that the American Health Care Act (which might have slowed Medicaid expansions) has been tabled and the administration has signaled interest in state innovations, (see the March 21, Health Care Current) many states are now debating what Medicaid expansion could look like for them.

Arkansas: Governor Asa Hutchinson said that he plans to seek CMS approval to transfer 60,000 people from Medicaid into the exchange and implement mandatory work requirements for beneficiaries who do not have disabilities. However, the state legislature did not approve the changes in the Medicaid budget reauthorization. The governor now plans to call a special session to address his proposed changes.

Georgia: Governor Nathan Deal has said that he is interested in working with HHS Secretary Tom Price, a former US Representative from Georgia, to explore possible changes to the state’s Medicaid program.

Maine: A citizen initiative to expand Medicaid received enough signatures to qualify for the November ballot. Maine residents will vote on the measure in November.

North Carolina: New Governor Roy Cooper has expressed support for expanding Medicaid but the state legislature has opposed it. In his recently released budget proposal, Governor Roy Cooper calls for working with the new administration to expand Medicaid.

Virginia: Governor Terry McAuliffe has advocated for Medicaid expansion for three years, but failed to convince the legislature to approve it. Now he has introduced an amendment to the budget that would give his office the authority to expand Medicaid. Many analysts predict that the legislature will not approve the amendment.

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Wisconsin launches mandatory PDMD to combat opioid abuse

Wisconsin providers are now required to use a state prescription drug monitoring database (PDMP) when prescribing opioids and other controlled substances. The state has required pharmacies and other entities that dispense drugs to use the database since 2013, and many providers have done so voluntarily. But, starting last week, the state began requiring providers to notify the state’s Controlled Substances Board no later than midnight of the business day after a controlled substance is dispensed, except in cases of prescriptions for three days or less, for use in hospice care, and in certain emergencies.

As a part of the state legislature’s Heroin, Opioid Prevention and Education (HOPE) efforts, lawmakers passed several bills targeting heroin and opioid abuse. The state Medical Examining Board also issued guidelines to help providers make informed decisions about pain and opioid treatment. Lawmakers took action in response to the rate of drug overdose deaths, which increased 48 percent over ten years. Opioid deaths decreased slightly in 2015.

Wisconsin is the 31st state to implement a mandatory PDMP.

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Breaking Boundaries

Reducing opioid use: Innovations from the ED, the dental community, and the federal government

Many people who follow health care news are aware of the growing and persistent opioid abuse and addiction epidemic the country is facing. According to the US Centers for Disease Control and Prevention, the amount of prescription opioids sold in the US has nearly quadrupled since 1999, without an overall change in the amount of pain that Americans report. Deaths from prescription opioids have also more than quadrupled since 1999. While many stakeholders, including the federal, state, and local governments, hospitals and health systems, health plans, and community organizations are working to combat the epidemic, several promising initiatives are happening in the emergency department (ED) and the dentist’s office.

Last year, St. Joseph’s Regional Medical Center in New Jersey launched a plan to better manage the opioid prescriptions in the ED and find other solutions to treat pain. The Alternatives to Opiates Program uses non-narcotics and advanced pain management strategies when clinically appropriate. The program has led to a 58 percent reduction in opioid prescriptions in the ED. A few other hospitals in the state have implemented the program, as has MultiCare Auburn Medical Center in Seattle, Washington.

Other hospitals have found that transparency about prescribing patterns is an effective solution. The Ochsner Health System in New Orleans, which has approximately 350,000 ED patients a year, started publicizing how often its ED physicians prescribe opioids, along with educating them on non-opioid pain control. Allowing the physicians to have data about the problem and see how they compare to their peers has led to positive changes – the health system decreased prescribing in the ED by 28 percent in one year.

The dentists’ office is another common health care site for treating pain. Dentists prescribe about 8 percent of opioids in the US. Many patients have come to expect strong pain medications to treat pain from common procedures such as a tooth extraction or root canal. In fall of 2016, the American Dental Association issued guidance on the use of opioids, recommending that dentists consider over-the-counter pain relievers first-line therapy for pain. The guidance also encourages dental students, residents, and practicing dentists to seek continuing education in addictive disease and pain management as related to opioid prescribing. Some states are starting to require new dentists and those renewing their licenses to undergo training in best practices to manage pain.

Related: Last week, the White House issued an executive order that creates a high-level commission to combat opioid abuse, addiction, and overdose. The White House will appoint members to serve in the commission in the coming weeks and tasks it with conducting a review of the opioid crisis and recommend new action within three months.

The order calls for the commission to:

  • Identify and describe existing federal funding used to combat drug addiction and the opioid crisis
  • Assess the availability and accessibility of treatment services and identify underserved areas
  • Report on best practices for prevention, including provider education, and use of state prescription drug monitoring programs
  • Review the literature on effectiveness of educational messages for youth and adults with respect to prescription and illicit opioids
  • Evaluate federal programs to prevent and treat drug addiction for their scope and effectiveness
  • Recommend changes for improving the federal response to the drug addiction and opioid crisis

The commission is tasked with developing recommendations for agency heads based on the findings.

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