We’ve seen the slow and steady growth of pay-for-value reimbursement models in the health care system. From Medicaid, the Medicare, to commercial payers – value-based care is the name of the game (see How Prepared Are Health & Human Service Provider Organizations For Value-Based Reimbursement? and Exactly Where Are We With Value-Based Reimbursement?). One of the big developments happened at the end of last year with the first mandatory Medicare bundled payment model from the Centers for Medicare & Medicaid Services (CMS) – Comprehensive Care for Joint Replacement or CJR (see The Latest Telehealth Example: Pay-For-Value).
Under the CJR, hospitals are responsible for the costs from the time of the surgery through 90 days after hospital discharge. Hospitals, physicians, and post-acute care provider organizations will be paid fee-for-service (FFS), and their total payments will be reconciled against a target amount. If the hospitals that are accountable for the bundled payments come in under budget, they will receive a bonus. If they spend more than the target, they will pay a penalty beginning in 2017. The program went live in 67 metropolitan statistical areas, including 789 hospitals, on April 1, 2016 (see Comprehensive Care for Joint Replacement Model). CMS expects to save about $343 million over the five-year program, from 2016 through 2020.
But hospitals are not the only organizations that will feel the pressure under this new payment model. As we wrote a couple months ago, CMS has tied the performance of skilled nursing facilities to their ability to fully participate in the program’s benefits – CMS waived the three-day stay rule allowing consumers to be discharged from a hospital to a SNF; but only for SNFs that have a rating of three or more stars under the CMS Five-Star Rating system (see The Next Evolution Of Nursing Home Performance Ratings).
It is inevitable that these value-based reimbursement models, as they factor in “total” costs of services, will start to affect how technology, devices, and medications are reimbursed. Bloomberg BNA reports that the medical device industry is concerned that the CJR initiative will pressure hospitals to limit the types of medical devices that can be used in efforts to lower their costs (see For Medicare’s Joint Replacement Model, a Steep Learning Curve). In a related story in FierceMedical Devices, Hospitals To Shift CMS Hip, Knee Implant Cost Pressure To Medical Device Makers: Report, author Stacy Lawrence reports that this pressure from hospitals, “will push medical device companies to refocus R&D efforts toward technology that lowers total episode costs – versus their traditional bias to incremental product enhancement…In addition to pricing pressure, devicemakers are also likely to face less risk-tolerance from hospitals that could translate into fewer procedures – as they focus only on the patients who are most likely to benefit from them.” Lawrence also reports that according to a new report from S&P Global Ratings, the CRJ initiative may “discourage joint replacement procedures for patients with an elevated risk of complications” as both consumers and clinicians begin to see the predictive data.
Pharmaceutical companies are also being pulled into these fundamental changes in system financing. CMS recently announced that it will test Medicare Part B payment models to purchase medications based on value – payment for medications according to clinical effectiveness (see Feds To Test New Medicare Part B Payment Models). And last fall, UnitedHealth Group’s drug benefits arm Optum Rx, struck performance-based agreements with drug manufacturers to lower the high cost of hepatitis C treatments for Medicaid beneficiaries in Missouri. Humana made similar contracting changes for cancer, multiple sclerosis, and diabetes medicines (see Payers, Providers Push Manufacturers Toward Value-Based Deals). And earlier this month, Cigna announced it had entered into new value-based contracts with both Amgen and Sanofi/Regeneron for their PCSK9 inhibitors. The contracts modify the cost of the new cholesterol-lowering drugs Repatha and Praluent, based on how well customers respond to the medications, aligning incentives by linking financial terms to improved customer health. In addition to these contracts for cholesterol medications, Cigna now has similar value-based contracts in place with pharmaceutical companies covering medications for heart failure, diabetes, multiple sclerosis, and hepatitis C (see Cigna’s Two New Value-Based Contracts With Pharma For PCSK9 Inhibitor Cholesterol Drugs Tie Financial Terms To Improved Customer Health).
What does this mean? I think this is only the start of a trend in which we see the risk in value-based reimbursement models. The payment philosophy will “trickle down” not just to other service provider organizations – but to providers of medical devices, treatment technologies, and medications. For health plans, this ushers in an entirely new era of contracting – one not just based on the lowest price, but based on the “value equation” of the intervention (see The (Inescapable) New Value Equation In Health & Human Services: Why It Will Determine Who Succeeds and The Business Model Transition To Value-Based Care). For executives of provider organizations, this adds a new element to the selection of treatment technologies of all types – not just clinical effectiveness but also the relative “value” of the technology in the system.
If you’re working with one of those treatment technology organizations – and offering a new medication, a new treatment device, a new tech-based treatment intervention – your value proposition needs to include “value” to the payer and the consumers. That means being able to measure and report on both clinical and financial performance to produce the data payers are looking for to manage mandated performance requirements and value-based contracts (see What Do You Need To Demonstrate & Manage Your Value? and What Do You Bring To The Table?). On the flip side, innovators with new tech solutions or programs will need to not only demonstrate the components of value – but also be willing to accept some degree of financial risk, based on their performance.
For even more on the shifting value chain in the health and human service market, join my colleague and OPEN MINDS chief executive officer Monica E. Oss on June 2, 2016 for an executive briefing on the industry trends that are shaping the value equation of the current market – Quality Mental Health Care In A Value-Based Environment: Keeping The Vision Beyond Mental Health Month.