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Is Your Organization Ready for Value-Based Payment: Commercial Shared Savings, Bundled Payments and Clinical Transformation ? . 2014 HFMA Southwest Ohio May Institute May 15, 2014. Amol Navathe, M.D., PhD

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Is Your Organization Ready for Value-Based Payment: Commercial Shared Savings, Bundled Payments and Clinical Transformation?

2014 HFMA Southwest Ohio May Institute

May 15, 2014

Amol Navathe, M.D., PhD

Managing Director, Strategy / Clinical Transformation, Navigant Consulting (Boston, MA)

Christopher Kalkhof, MHA, FACHE

Director, Strategy / Payment Transformation, Navigant Consulting (Chicago, IL)

today s presentation

Today’s presentation

Current and Emerging Risk Sharing/Risk-Based (“RS-RB”) Models: Commercial Shared Savings & Episodic Pricing Models

Best Practice Financial/Benchmark Modeling and Impact on FFS

Strategic Importance of Parallel Clinical Integration/Clinical Process Change

Organization Readiness at the Operational and Clinical Levels

Critical Success Factors: Population Health and Care Delivery Models

Implementation Roadmap Development:

Lessons Learned

Page 2

Current and Emerging Risk Sharing / Risk-Based (“RS-RB”) Models – Commercial Shared Savings and Episodic Pricing Models

Page 3

1 post reform approaches to sustainable margins systems of care triple aim

1. Post-Reform Approaches to Sustainable Margins: Systems of Care / Triple Aim

How will providers and payersoperationalize all of this?

Future Go-To-Market

Systems of Care




Physicians /

Hospitals / Other

Care Coordination

Population Health Management


Outcomes Data and Payments

Consumer Engagement

Administrators (Finance, PHM & IT etc.)

Aging and Overweight Populations, More Expensive Diseases to Treat, New Payment Models, Physician Shortages & Reduced ESI


The payer - provider contracting process has often been characterized as being adversarial vs. collaborative... absent finding a common means to demonstrate measurable value… both parties gamble with their respective futures.

Page 4

1 what will my payer contract portfolio and payment models look like in the future

1. What Will my Payer Contract Portfolio and Payment Models Look Like in the Future?

Integrated Care Systems/HEC


Global Comp

Member Attribution

Capitation + PBC

50%+ Revenues

Shared Risk

Population Management

Shared Savings


Condition/ Episode Bundling

< 50% Revenues


TME Shared Savings

Narrow Network Products

Networks of Care

Carve-Out Specialty Services

Episodic Prices

Graduated/Transitional Risk

Strategic Alliances/JVs

Risk to Provider

G. Case &EpisodePayments




COE, Global Case Rates, Episodic Pricing + PBC




Performance-Based Programs




Integrated System

Provider Integration

Page 5

Source: Navigant Best Practices

1 revenue expense management example value of contract modeling capabilities

1. Revenue & Expense Management: Example - Value of Contract Modeling Capabilities

Increasing Clinical Integration and Financial Risk Levels / Complexity

Source: Navigant Best Practices

1 major payer s criteria for commercial bundling partnership

1. Major Payer’s Criteria for commercial bundling partnership

  • The measures are nationally accepted as clinically appropriate so there is wide support for improving performance
  • Real dollars are at stake for improvement
  • For each measure, there is a range of performance targets representing a continuum from good care to outstanding care, so the model rewards performance & improvement
  • Data is made available monthly, enabling the organizations to track progress and take action to manage their patient population
  • The groups/partners have strong support from their leadership to implement new systems and act on the data
  • Dynamic/actionable data and reports made available daily, monthly, quarterly, helping organizations to identify efficiency opportunities at a patient, practice and org. level

Page 7



Acute Care

IP Rehab Hosp

OP Ctrs



  • Diffuse collection of interests between physicians and hospitals… non-aligned
  • Physician primary focus at practice level and/or ambulatory invested interests
  • Declining economics incents physicians to compete directly with hospitals for higher dollar procedural and diagnostic services
  • Volume rewarded regardless of quality and outcomes
  • Pays each provider separately with no linkage to patient care coordination
  • Payer cost containment through price, payment rules and utilization controls
  • IT tools, Clinical and Financial Systems designed for traditional FFS business model
  • Incents providers to focus on services which reimburse the most

Current FFS Model

E.G., Commercial Payer – FFS Ortho Services






Knee, Hip, Spine & Other Ortho

  • Other EP/SS Model Candidate Services:
  • Oncology, Cardiac, Neuro-Sciences, High Risk Maternity/Neonate; Senior Care Chronic Care & Other Specialist/High Dollar IP Oriented Services

Page 8



Page 9



Page 10

1 commercial payer episodic pricing deficit shared savings risk sharing to cap

1. COMMERCIAL PAYER EPISODIC PRICING: Deficit Shared Savings Risk Sharing To Cap

Shared Savings Methodology:

Net savings will be shared:

50%Provider / 50%Payer || 60%Provider / 40%Payer (if meet/exceed quality metrics)

Claims are to be paid by Payer according to each participating provider’s current contracted payment methodology/reimbursements with Payer.

The Provider does not assume any claims payment liability for any Payer par provider.

Provider’s only downside riskis the multiple cap/stop-loss for Episodic budget.

The episodic budgets are inclusive of Payer and member liabilitycredit Provider’s efforts.

Process and audit rightsfor an annual retrospective reconciliation of actual eligible claims incurred per episodic budget, on an individual patient case basis, across each eligible LOB.

An interim payment during each contract year of surplus sharing... true up at year end.

Net Deficits and eligible surpluses from the prior contract yearwill be carried forward next.

Shared Savings Deficit Downside Cap= 1.5 – 2.0 x the episodic budget per case

Shared Savings will be paid In addition to the FFS rate increases.

Shared savings deficits do not impact agreed upon FFS rate increases during the contract term.

Page 12

1 commercial payer episodic pricing baseline budget and episodic definition hip knee spine


Baseline calculated from 1-1-13 to 12-31-13 actual total allowed paid claims for all Provider patients covered by eligible commercial LOBs across all Provider physician surgical sites.

Episode Inclusions

Admission/Surgery -Range of MS-DRGs, associated ICD-9 (diagnostic and procedural) and CPT codes for the hospital stay and all covered professional services provided during the admission stay.

Co-morbidity inclusion/exclusion criteria, Length of time and services included post-discharge and Complications Covered

Discharge/Post-Acute Care/Rehab - To agreed upon SNF, IRF and Home Care ICD9, CPT and other Procedural Codes (e.g., RUGs).

Co-morbidity inclusion/exclusion, length of time and complications covered.

Pre-Surgical Testing – Surgical consult, anesthesia consult, surgical team consult, patient and patient/family education, within 1 to 2 calendar days of the surgical procedure date.

Transitional Care Monitoring – During the 90 day post-surgical discharge, patients at a higher risk of readmission will require transitional care monitoring.

Page 13

1 commercial payer episodic pricing baseline budget and episodic definition hip knee spine1


Episode Exclusions

All other testing prior to defining diagnosis and determination that surgery was appropriate.

All other testing not in inclusion criteria and PAC services which exceed 90 days window..

Annual Baseline Budget Adjustmentsfor each eligible episode of care to account for:

Rate increases across its participating providers whom in the aggregate define the baseline.

Payer product adjustments/benefit levels which impact member services utilization.

Case mix/risk adjustment which occurs from member voluntary and involuntary attrition.

Co-morbidity exclusion/inclusion criterion.

A material change in historic Provider Specialist PCP referral relationships.

Shared Savings Payments – Funds Distribution:

Provider will receive the entire shared savings payment from Payer and will be solely responsible for distribution of any shared savings surplus internal to provider partners (FMV).

Quality Metrics for patient quality/improved outcomes and financial incentive awards such as Generally Accepted Ortho Quality Metrics, Patient Satisfaction Measures, HCAHPS Inpatient Facility, Functional Outcome Measures, HOOS, KOOS, VR12 and Other Metrics.

Other - such as care management/care navigation and transitional monitoring fees

Page 14

2 modeling impact of rb rs arrangements is critical to negotiating success


To assess the potential financial impact of value based payment arrangements such as commercial shared savings contracts, determine the margin/revenue impact on FFS revenues as well as potential avoidable costs/utilization with each major payer... financial/analytical models must be built.

Page 16

2 levers for savings are often not obvious

2. Levers for savings are often not obvious

Largest $$ savings from FFS... Avoidable readmissions, 1 day stays and E/D use

Page 17

illustration pmpm savings opportunities

2. Financial Budgeting & Planning for Risk Contracts: E.G. Building PMPM Budgets Based on Avoidable Cost Analysis2

Illustration: PMPM Savings Opportunities

Starting PMPM Analysis

Cost and Utilization Reductions Achieved Through Care Coordination and Clinical Process Change

PMPM After Cost Reduction

Source: Navigant Best Practices

Page 18

strategic importance of parallel clinical integration clinical process change
Strategic Importance of Parallel Clinical Integration/Clinical Process Change

Page 19

3 twin pillars to success under curve 2 payment models

3. Twin Pillars to Success Under Curve 2 Payment Models

High Efficiency Health Care

Manage Financial Risk

Coordinate and Manage Patient Populations

Patient and Physician Engagement

Payment Transformation

Clinical Transformation

Infrastructure / Operational Alignment

Clinical Integration / Care Model Redesign

Increases Value, Equitable & Sustainable

Source: Navigant Best Practices

Page 20

3 our pricing product care delivery model design levers to transition from curve 1 to curve 2

3. Our Pricing, Product, care Delivery Model Design Levers To Transition from Curve 1 to Curve 2

Absent Parallel Clinical Integration/Clinical Process Change with Payment Model Change... How Will You Manage Risks?

Source: Navigant Best Practices

Management of Pricing, Product, Network, Operational, Clinical, Financial, Distribution Channel and Competitive Risks?

  • Y3
  • Y1
  • Y4
  • Y2

Page 21

prioritizing areas of focus based on payment model and areas of need

3. Common analytics base links clinical and payment transformation

Prioritizing areas of focus based on payment model and areas of need:

Cross-cutting Quality & Performance Metrics and Variation Analysis

Page 22



Workshop Type #1: SCAMPs

Standardized Clinical Assessment and Management Plans (SCAMPs)

Utilized to dive into clinical decisions with high impact on outcomes and costs. Key to:

Evidence-based care customized to treatment patterns

Physician engagement and buy-in

Workshop Type #2: RIEs

  • Rapid Improvement Events (RIEs)
  • Aimed at improving flow through operational bottlenecks or key process misalignments
    • Focus on early consideration of “root cause analyses”
    • Inter-disciplinary approach to improvement
    • Allow for optimal buy-in and adoption into practice.

Page 23

organization readiness planning and assessment process at the o perational and clinical levels
Organization Readiness Planning and Assessment Process at the Operational and Clinical Levels

Page 24

4 key framing questions preparing for payment and clinical transformation changes

4. Key Framing Questions: Preparing for payment and clinical transformation changes

Longer term, how sustainable is our current FFS payment model?

If we move away from our FFS to an early stage value-based payment models -- how do we minimize the risk of margin erosion?

To optimize our net revenue/payment yield part of the margin equation:

What employer, geographic and payer LOB’s should we target?

What steerage/keepage opportunities exist and how do we best avoid cannibalizing our higher payments with the same patients?

To optimize the labor/non-labor cost part of the margin equation:

What types of avoidable costs and utilization need to be removed?

What types of administrative costs can be reduced?

Which incentives need to change, if any, to achieve the above?

What operational and clinical process changes do we need to make to be successful under value-based payments?

What risks do we need to plan for and manage?

Page 25

4 what capabilities do systems need to add to be successful under rs rb payment models

4. What capabilities do systems need to add to be successful under RS-RB Payment Models?


Global Comp

Population Management

Integrated Care Systems/HEC

Member Attribution

Change Management

Patient Monitoring

Predictive Modeling

Payment Distribution Process

Cost of Care Reduction

Quality Improvement Focus

Physician Leadership

Clinical Decision Support Systems

Condition/ Episode Bundling

Strategic Leadership

Focus on Prevention

Risk to Provider

Comprehensive Improvement Metrics

Clinical & Operating Efficiency

Outcomes Based Metrics

Care Coordination

Practice Variation

Clinical & Financial Integration

Reduce Avoidable Costs


Improvement Metrics

Reporting / Tracking Tools

Standardized Processes

Organizational Leadership/

Governance Structure

Analytic Tools

Member Engagement




Integrated System

Provider Integration

Source: Navigant Best Practices

4 your operational and clinical readiness for value based payments starts with a risk assessment

4. Your Operational and Clinical Readiness for Value Based Payments Starts with a risk assessment

  • Summary of Risks – Population Health Management & Risk Based Contracting
  • Plan for Risks
  • Invest in Capabilities to Avoid/Mitigate Risks
  • Timelines are Important
  • Develop Detailed Implementation Plans & Execute
  • Manage Risks Across are Continuum
  • Performance Accountability
  • Start in… When?
  • Alignment w/ Strategic Plan
  • Results to Report Across Formal PMO Process
  • Products, Pricing & Distribution Channel Risks
  • Execution Risk
  • Payer Contracting & Value-Based Payment Risks
  • EBM / PHM Clinical Care Model Risks
  • Care Continuum Composition Risks
  • Unified Analytics & Infrastructure Risks
  • Financial, Capital & Budget Risks
  • Competitive Risks

Page 27


4. Readiness Ratings: performing a Finance/Contracting/ Infrastructure Gap Assessment

Unprepared with No Plans

Plans for Developing Capabilities

Ready for Success

Page 28

4 moving toward managing populations shifts the strategic imperative to high system performance


Organizational elements complement functional capability building:

Physician/Hospital Alignment

Performance based on best practice benchmarks

Cost Restructuring

Efficient utilization of overhead in organization is mission critical

Coordinated Care Continuum

Clinical Integration and care management has to be coordinated across the entire continuum of care

Care Management/Reimbursement Risk

Management of variability in underlying utilization and costs in providing clinical services to patients

Pathway Toward High-Performance

Page 29

4 quantifying the size of the performance gap where are your physicians today

4. Quantifying the size of the performance Gap: Where are your physicians today?

Required Movement toward Best Practice Performance Expectations

Evaluation of the current financial and operational gaps

Best practice performance targets established in coordination with incumbent physician and administrative leaders

Reliance upon legacy and / or performance expectations will hinder achieving high performance

Page 31

4 maximizing physician engagement is a key success factor in clinical transformation

4. Maximizing Physician engagement is A KEY SUCCESS FACTOR in clinical transformation

Both Payer & Integrated DS

Payer Support Programs

Integrated DS Services

  • Direct Invest.
  • EMR/
  • MU
  • PCMH
  • Program Support
  • CCRN
  • Shared Savings
  • Practice Population Management Capabilities

Integrated DS Affiliated PCPs

  • Practice Patient Needs
  • Practice Characteristics - # Physicians, Specialties, Patient Panel Size, Geography
  • Customized Engagement Opportunities for Physicians & Practices

Page 32

5 data analytics and benchmarked best practices must drive redesign of your organization

Data Driven Analytics





Populations & Risk Stratification


ACO quality metrics

Differentiated services

Process vs. Outcome

Risk Management, Finance & Budgeting

Revenue Management & Productivity

Clinical Operations


Benchmarks & Best Practices


Shared Savings Cliffs

Episode definition and payments

Direct Investment

Population Management

Risk stratification

Care manager staffing ratios

Information systems

Evidence-based practice guidelines

Practice variation management

Process and workflow design

Governance & Leadership

Page 37

5 analytics drive direct value capture patient flows


Illustration: Joints 30 Day Post

Page 38

5 analytics enable efficient targeted re design physician variation illustration


Post Acute Care Costs by Physician

High IRF Spending (& variation)

Avg. Episode Cost

# of Episodes

Page 39

implementation road map development
Implementation Road Map Development:
  • Financial/IT/Other Administrative and Operational Capabilities
  • Organizational Re-design and Governance
  • Physician Engagement and Communication
  • Transitions in Care
  • How Physicians Can Close the Performance Gap Key Risk Mitigation Issues to Address

Page 40


6. RS/RB Contracting Gap Assessment Illustrative Implementation Roadmap – Roadmap Components

  • Monthly Operating Reports
  • Governance and organizational model alignment
  • Risk Contract Budgets
  • Preferred Pricing Methodology
  • Product Strategy
  • Payer Negotiations for Risk Contracts
  • Credentialing/Signing Providers
  • Data Sharing & Reporting
  • Avoidable Cost/Utilization
  • Payer Risk Contract Analytics
  • Medical Home, Disease Mgmt. & Clinical Programs/Protocols
  • Funds Flow & Success Metrics
  • Payer Specific FFS Negotiations & Execution
  • Joint Contracting with Payers for RS-RB Payments / Delegated Risk
  • Provider Network Modeling & Funds Flow
  • Predictive Modeling
  • Population Health Management
  • Medical Management at Clinic Level
  • Network Design & Distribution Channels
  • Direct Employer Strategy

Page 41

6 establish a population health roadmap to hit the milestones and achieve success

6. ESTABLISH A POPULATION HEALTH ROADMAP to hit the milestones and achieve success

Phase 0

Phase 1

Phase 2

Phase 3

Phase 4

Phase 5

Pre-evaluation, Gap Assess., Strat. Planning

Program Design and Initiation

Process and Infrastructure Implementation

Scaling and Dissemination

Evaluation and Monitoring

Synthesis, Learning, and Re-design

Population/Beneficiary Segmentation

  • Navigating the roadmap along these key components requires:
  • Sustained leadership across components of health system
  • Analytics to identify opportunities, prioritize, and measure performance
  • Definition of near-term  long-term value capture
    • Near-term: generic vs. branded prescribing, PAC routing
    • Mid-term: Post-acute care refinement, readmissions
    • Long-term: comprehensive care management
  • Systematic processes for workflow development
    • Rapid Improvement Events (RIEs) for inter-disciplinary bottlenecks and cost drivers
    • E.g., SCAMP (Standardized Clinical Assessment and Management Plan) development for key areas of need (post-op infections, prosthesis/implant infections, etc.)
    • Care Management function development

Financial Modeling and Results

Workflow – Administrative, Clinical

Org Structure, Staffing and Human Capital

Data Infrastructure and Analytics

Reporting and Evaluation

Page 42

7 lessons learned from value based payment and clinical process change initiatives

7. Lessons Learned from value-based payment and clinical process change initiatives

When you change your core payment model and provide incentives to modify practice behavior to focus on optimal care with the lowest cost mix of services… you must also address how prepared your organization is prepared to manage clinical, operational, financial and competitive risks. For example:

Are our analytics capabilities aligned to track/report/manage risk?

Do we have the right configurations in our “Network” to navigate patients “in-network” and draw “shared savings” from other providers in the market beyond our own organization?

Are our Finance/Accounting/Billing/IT operations prepared to manage value-based payments and associated performance metrics?

How will we risk stratify patients and what clinical process changes will we need to make to manage high and moderate risk patients?

How do we need to structure our organization to achieve results? Who will lead the change?

How are we doing relative to our competitors and to systems in similar markets on contracting? On quality? On staffing and productivity?

Page 44

7 preparing for the future integrated clinical and payment transformation

7. Preparing for the Future: integrated Clinical and Payment Transformation

"The best way to predict the future is to invent it." – Alan Kay

"The future belongs to those who see possibilities before they become obvious." – John Sculley

“All organizations are perfectly designed to get the results they are now getting. If we want different results, we must change the way we do things.” – Tom Northrup

What clinical and operational changes does your organization need to address to serve patients, retain the best staff and remain a financially sustainable organization in the post 2014 ACA business environment?

Page 45

today s presenters

Today’s Presenters

Amol Navathe, M.D., Ph.D.

Managing Director, Clinical Transformation, Navigant Consulting, Inc.101 Federal Street | Suite 2700 | Boston, MA 02110617.748.8304 Office | 267.975.8833 Cell|

As a Managing Director in Navigant’s Healthcare practice, Dr. Amol Navathe serves as a practicing physician, health economist and engineer with expertise in the utilization of advanced health data analytics and technology to improve healthcare delivery. He serves a diverse client base of payer, provider, and government clients on transformational payment and care delivery issues. His pioneering work on utilizing claims and clinical data to re-engineer the fundamental processes of care offers clients exceptional business, operational and patient management efficiency expertise.

Dr. Navathe has applied his skills to delivery transformation and innovations, federal policy for health data infrastructure development, and the study of physician and hospital economic behavior. Through his extensive thought leadership, he is the founding co-editor-in-chief of “Health Care: The Journal of Delivery Science and Innovation.” He is also the founding director of the Foundation for Healthcare Innovation.

Having served as Medical Officer and Senior Program Manager for the Office of the Secretary Department of Health and Human Services, Dr. Navathe led the $1.1 billion Comparative Effectiveness Research (CER) program. He is regarded as one of the chief architects of the nation’s CER and research data infrastructure strategy.

Dr. Navathe led a $19M data infrastructure to create a multi-payer multi-claims database (MPCD), which promotes CER. He has led delivery systems to improve management of high-risk and high-cost patients through predictive analytics and brings his CER knowledge to driving evidence-based care.

  • Christopher Kalkhof, FACHE
  • Director, Payment Transformation, Navigant Consulting, Inc.30 S. Wacker Drive | Suite 3100 | Chicago, IL 60606312.583.2143 Office | 716.912.0309 Cell
  • Chris is a senior healthcare executive with over twenty-eight years of operations, finance, managed care/contracting, M&A, strategic alliance and new business development experience across hospital, physician organization, post-acute care and health plan industry verticals. More recently, Mr. Kalkhof has worked on varied planning, development and implementation initiatives associated with post-reform care delivery and financing models designed for business model sustainability.
  • Since joining Navigant, Chris has worked with some of the leading academic medical centers, health systems, health plans and medical groups around the country on the following strategic initiatives:
  • Operational readiness for population health management and risk based contracting and strategy alignment
  • Comprehensive managed care reimbursement benchmarking to support/revise pricing strategy and service line care continuums
  • Commercial global case rate and episodic pricing model development and shared savings payment models for payer contract strategy development and negotiations, along with concurrent clinical transformation initiatives
  • Best practices contract and rate amendment language for national health systems and payers
  • Strategic alliance and joint venture development between health plans and provider organizations which cover product, value-based reimbursement, network composition, distribution channels and partnership zones
  • M&A due diligence support of provider and health plan acquisitions

Page 46