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Prepare for Coming Medicare Fee Cuts & Other Changes to Laboratory Payment Models by Focusing on Accurate Cost Accoun=ng & Financial Analysis
Brad Brimhall, MD, MPH Professor, Pathology & Laboratory Medicine Medical Director, Integrated Healthcare Analy=cs & Bioinforma=cs Data Governance Execu=ve Group University of Texas Health & University Health System San Antonio, Texas
“Medicare Cuts”
“Other Changes”
Financial Schizophrenia in the Lab
Revenue Center
Expense/Cost Center
Profit Center
Investment Center
Inpa5ent Outpa5ent
How Medicare Pays for Care
Fee For Service • Physician fee schedule (PFS) • Clinical laboratory (CLFS) • Ambulance fee schedule (AFS) • Durable medical equipment, prosthe=cs/ortho=c & supplies fee schedule (DMEPOSFS)
Prospec5ve Payment • Acute inpa=ent • Home health • Inpa=ent psychiatric facility • Inpa=ent rehabilita=on facility • Long-‐term care hospital • Skilled nursing facility • Hospice center
Inpa5ent Outpa5ent
Payment by Episode of Care
Payment by Specified Service
(Test)
Fee Schedule: Biopsy (88305)
Real 2000 USD (adjusted for CPI) MAC = “Rest of Texas”
$0
$20
$40
$60
$80
$100
TC -‐26 Global
Office of Inspector General (OIG) Studies
OIG Study (2011)
Compare Medicare payments to lowest of the following rates: • Medicaid (all state programs) • Federal employee health benefits program 1 (FEHB-1) • Federal employee health benefits program 2 (FEHB-2) • Federal employee health benefits program 3 (FEHB-3)
Levinson DR (2013). Comparing Lab Test Payment Rates: Medicare Could Achieve Substan=al Savings. US Office of Inspector General, Department of Health & Human Services
HCPCS Descrip5on Medicare Allowed Tests
(2011) Poten5al Savings to
Medicare 80048 Metabolic panel, total calcium 8,870,790 $36,412,622 80053 Comprehensive metabolic panel 27,406,336 $130,632,849 80061 Lipid panel 20,620,917 $125,993,031 81001 Urinalysis, automated with microscopy 6,804,619 $9,801,294 81002 Urinalysis, nonautomated without microscopy 4,312,499 $4,427,415 81003 Urinalysis, automated without microscopy 5,078,609 $4,383,224 82306 Vitamin D, 25-‐hydroxy 5,394,421 $87,398,016 82570 Assay of urine crea=nine 4,649,643 $10,457,972 82607 Vitamin B12 3,363,543 $25,252,596 82728 Assay of ferri=n 2,401,360 $15,613,616 83036 Glycosylated hemoglobin test 12,678,817 $51,406,983 83540 Assay of iron 2,625,017 $10,256,188 83550 Iron binding test 2,043,112 $9,228,580 83880 Natriure=c pep=de 1,079,558 $15,970,434 83970 Assay of parathormone 1,154,872 $22,934,465 84153 Assay of prostate specific an=gen, total 3,616,338 $32,784,887 84443 Thyroid s=mula=ng hormone 14,761,102 $140,148,947 85025 Complete blood count with automated diff 30,827,609 $136,848,356 85610 Prothrombin =me 20,291,205 $24,637,107 87086 Urine culture colony count 4,703,518 $15,296,087
182,683,885 $909,884,669
OIG Study: Potential Savings to Medicare
Levinson DR (2013). Comparing Lab Test Payment Rates: Medicare Could Achieve Substan=al Savings. US Office of Inspector General, Department of Health & Human Services
PAMA: Data Collection on Private Payers
• Payment rate paid by each private payer • Test volume for each payer • Stra5fied by HCPCS code
Source: Murrin S (2016). HHS OIG Data Brief: Medicare Payments for Clinical Diagnos=c Laboratory Tests in 2015: Year 2 of Baseline Data. US Department of Health & Human Services, Office of Inspector General
PAMA: Reporting Laboratories
Independent Labs; 1,398
Physician Office Labs;
11,149
Hospital Labs; 0
Number of Laboratories
PAMA: Reporting Laboratories
Independent Labs; $3.8
Physician Office Labs;
$1.0
Hospital Labs; $0.0
Medicare Payments ($BB)
PAMA Timeline
2016 2017 2018
Data Collec5on
Data Repor5ng
Payment System Implementa5on
…
PAMA Payment Target & Reduction Limits 2018 2019 2020 2021 2022 2023 Current Fee
Schedule (2017)
Weighted Median of Private Payers
10%
10%
10%
15%
15%
15%
Examination of 15 Common Laboratory Tests
• Payment targets (3 private payers) • Comparison to cost structure of large healthcare system laboratory
Test Cost Categories
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
Test
Variable Materials
Direct Labor
Local Fixed
Ins5tu5onal Overhead
UNIT COST
Payments & Costs: Hospital Lab
$0
$10
$20
$30
$40
$50
$60 Vbl Labor Local
Overhead Payment Target
TEST
UNIT PAYM
ENT/CO
ST
Fee Schedule 2018
$0
$10
$20
$30
$40
$50
$60 Vbl Labor Local
Overhead Payment
TEST
UNIT PAYM
ENT/CO
ST
Fee Schedule 2019
$0
$10
$20
$30
$40
$50
$60 Vbl Labor Local
Overhead Payment
TEST
UNIT PAYM
ENT/CO
ST
Fee Schedule 2020
$0
$10
$20
$30
$40
$50
$60 Vbl Labor Local
Overhead Payment
TEST
UNIT PAYM
ENT/CO
ST
Fee Schedule 2021
$0
$10
$20
$30
$40
$50
$60 Vbl Labor Local
Overhead Payment
TEST
UNIT PAYM
ENT/CO
ST
Fee Schedule 2022
$0
$10
$20
$30
$40
$50
$60 Vbl Labor Local
Overhead Payment
TEST
UNIT PAYM
ENT/CO
ST
Fee Schedule 2023
$0
$10
$20
$30
$40
$50
$60 Vbl Labor Local
Overhead Payment
TEST
UNIT PAYM
ENT/CO
ST
Contribution Analysis (2017) Volume (Annual) 26,393
Unit Aggregate Net Revenue $11.07 $292,171
Less Reagents, Consumables, Other Variable Costs $2.25 $59,384 Contribu5on to Labor & Fixed Costs $8.82 $232,786
Less Direct Labor $2.56 $67,566 Contribu5on to Local Fixed Costs $6.26 $165,220
Service Contracts, Proficiency Tests, Other Local Fixed $18,211 Contribu5on to Overhead Costs $147,009
Less Ins5tu5onal Overhead Costs $60,968 Excess of Net Revenue over Expenses $86,041.18
$0
$2
$4
$6
$8
$10
$12
Ucx
UNIT PAYM
ENT/CO
ST
Contribution Analysis (2023) Volume (Annual) 26,393
Unit Aggregate Net Revenue $4.96 $130,909
Less Reagents, Consumables, Other Variable Costs $2.25 $59,384 Contribu5on to Labor & Fixed Costs $2.71 $71,525
Less Direct Labor $2.56 $67,566 Contribu5on to Local Fixed Costs $0.15 $3,959
Service Contracts, Proficiency Tests, Other Local Fixed $18,211 Contribu5on to Overhead Costs ($14,252)
Less Ins5tu5onal Overhead Costs $60,968 Excess of Net Revenue over Expenses ($75,220)
$0
$2
$4
$6
$8
$10
$12
Ucx
UNIT PAYM
ENT/CO
ST
Annual Revenue Changes (15 Tests)
Net Revenue Change (YoY) % Change (YoY) 2017 $1,857,776 N/A N/A 2018 $1,709,681 ($148,094) -8.0% 2019 $1,569,149 ($140,533) -8.2% 2020 $1,443,672 ($125,477) -8.0% 2021 $1,288,657 ($155,016) -10.7% 2022 $1,159,532 ($129,125) -10.0% 2023 $1,049,775 ($109,756) -9.5%
Estimated Tests with Increased Payments
0 1 2 3 4 5 6 7
Number of Tests in Top 25
Cost Accounting Comparison
$0
$10
$20
$30
$40
$50
$60
$70
TSH CMP CBC PT Urine Cx
A: Vbl A: Labor A: Local Fx A: O/H
B: Vbl Direct B: Fx Direct B: Fx Indirect
TEST
UNIT COST
Cost Accounting Comparison
$0
$10
$20
$30
$40
$50
$60
$70
Vit D Vit B12 Ferr Lipid Pan
HgbA1c
A: Vbl A: Labor A: Local Fx A: O/H
B: Vbl Direct B: Fx Direct B: Fx Indirect
TEST
UNIT COST
Cost Accounting Comparison
$0
$10
$20
$30
$40
$50
$60
$70
Urine Creat
Iron Sat BNP PTH PSA
A: Vbl A: Labor A: Local Fx A: O/H
B: Vbl Direct B: Fx Direct B: Fx Indirect
TEST
UNIT COST
PAMA: Longer Term Implications
Payment Trajectory FFS Episode of Care Capitation
No Value-Based Payment
Adjustment
Value-Based Payment
Adjustment
Increasing Risk / Increasing Enterprise-Wide Focus
PAMA
DHHS Goals for 2018
50.0%
42.5%
7.5% Value-‐Based Alterna5ve Payment Models
Value-‐Based FFS
Tradi5onal FFS
Source: Department of HHS. Beger, Smarter, Healthier: In historic announcement, HHS sets clear goals and 5meline for shihing Medicare reimbursements from volume to value.
Beyond Simple Fee Schedules 2008 2010 2012 2014 2015 2018 2019
Legislation Passed
Program Implemented
MIPPA ACA PAMA MACRA
ESRD-QIP
HVBP
HRRP
HACRP PVBM SNF-VBP MIPS
APMs
Legislation MIPPA: Medicare Improvements for Patients & Providers Act ACA: Affordable Care Act PAMA: Protecting Access to Medicare Act MACRA: Medicare Access &CHIP Reauthorization Act of 2015
Source: CMS. What are the Value-‐Based Programs. Dept. of Health & Human Services. September 2015. hgps://www.cms.gov/Medicare/Medicare-‐Fee-‐for-‐Service-‐Payment/PhysicianFeedbackProgram/Timeline.html
Programs ESRD-QIP: End-stage renal disease quality incentive program HVBP: Hospital value-based purchasing program HRRP: Hospital readmissions reduction program HACRP: Hospital-acquired condition reduction program PVBM: Physician value-based modifier SNF-VBP: Skilled nursing facility value-based purchasing program MIPS: Merit-based incentive payment system APMs: Alternate payment models
Hospital Value-Based Purchasing (HVBP) “Rewards acute-care hospitals with incentive payments
for the quality of care they provide to people with Medicare. CMS rewards hospitals based on the Quality of care provided to Medicare patients, how closely best clinical practices are followed, and how well hospitals enhance patients’ experiences of care during hospital stays. Hospitals are no longer paid solely based on the quantity of services they provide.”
[2011, CMS]
HVBP: Percent Withheld
Source: CMS. Hospital Value-‐Based Purchasing. Dept. of Health & Human Services. September 2015.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2013 2014 2015 2016 2017 2018
Percen
t of Paymen
t Withh
eld
Year Note: 2% of typical large hospital pa5ent service revenue would be approximately $10M ($500M x 2%)
HVBP: Domain Weights
Source: CMS. Hospital Value-‐Based Purchasing. Dept. of Health & Human Services. September 2015.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017 2018
Dom
ain Weight (%)
Year
Safety
Efficiency & Cost Reduc=on
Outcomes
Pa=ent & Caregiver-‐Centered Experience of Care/Care Coordina=on
Clinical (Process of) Care
Hospital-Acquired Condition Reduction Program
DOMAIN 1 (AHRQ PSI 90) 35%
PSI 3. Pressure ulcer rate
PSI 6. Iatrogenic pneumothorax rate
PSI 7. Central venous catheter-‐related bloodstream infec5on rate
PSI 8. Postopera5ve hip fracture rate
PSI 12. Postopera5ve PE or DVT rate
PSI 13. Postopera5ve sepsis rate
PSI 14. Wound dehiscence rate
PSI 15. Accidental puncture and lacera5on rate
DOMAIN 2 (CDC NHSN) 65%
Central line-‐associated bloodstream infec5on (CLABSI) standardized infec5on ra5o (SIR)
Catheter-‐associated urinary tract infec5on (CAUTI) standardized infec5on ra5o (SIR)
Surgical site infec5on (SSI) for colon surgery or abdominal hysterectomy
Methicillin-‐resistant Staphylococcus aureus (MRSA) standardized infec5on ra5o (SIR)
Clostridium difficile (CDI) standardized infec5on ra5o (SIR)
NHSN: Na5onal health safety network PSI 90: Pa5ent safety indicator composite measure 90
Lowest performing 25% of hospitals are penalized Penalty of -‐1% for all Medicare MSDRG payments HAC Score comprised of two domains
Hospital Readmissions Reduction Program
DIAGNOSTIC GROUPS REPORTED
Acute myocardial infarc5on (AMI)
Chronic obstruc5ve pulmonary disease (COPD)
Heart Failure (HF)
Pneumonia (PN)
Stroke
Total hip arthroplasty/total knee arthroplasty (THA/TKA)
Coronary artery bypass grah (CABG)
Pa5ents readmiged to hospital within 30 days of previous hospitaliza5on Scores rate of “Excess Admissions” Risk adjustment for pa5ent age, sex, diagnosis, and comorbidi5es. Current maximum penalty of 3% (since 2015)
Roberson B ( Oct 2015). The Hospital Readmissions Reduc=on Program: Four Years of Data. Essen=al Hospitals Ins=tute
HRRP: Average Penalties
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
2012 2013 2014 2015
Average Penalty by Hospital Quar5le Score Quar5le 1
Quar5le 2
Quar5le 3
Quar5le 4
YEAR
MEA
N PCT
RED
UCT
ION
Roberson B ( Oct 2015). The Hospital Readmissions Reduc=on Program: Four Years of Data. Essen=al Hospitals Ins=tute
Medicare Access & CHIP Reauthorization Act
Current Physician Fee Schedule
(PFS)
Merit-Based Incentive Payment
System (MIPS)
Advanced Alternate Payment
Models (APM)
Adjustments for Quality
Incentives to Adopt/Join
Merit-Based Incentive Payment System (MIPS)
Quality
Resource Use
Advancing Care Information
Clinical Practice Improvement Activities
Physician Quality Reporting System (PQRS)
Value-Based Payment Modifier (VBP)
Medicare EHR Incentive Program (MU)
NEW
MACRA: Changes & Incentives 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+
PFS
MIPS
Advanced APM
+5% Bonus
Excluded from MIPS
± Adjustment ± 4% ± 5% ± 7% ± 9% ± 9% ± 9% ± 9%
+0.5% per Year No Change +0.25%
/ year
+0.75% / year
PFS with MIPS adjustments: Biopsy (88305-26)
$30 $31 $32 $33 $34 $35 $36 $37 $38 $39
2017 2018 2019 2020 2021 2022 2023
MIPS: Component Weights
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2019 2020 2021
Com
pone
nt W
eigh
t
Year
Clinical Practice Improvement Activities
Advancing Care Information
Resource Use
Quality
Implications for the Lab
If payers no longer paid for laboratory testing, would healthcare systems still perform laboratory tests?
What opportunities will emerge for the laboratory as new payment models are deployed?
How important will it become for laboratories to accurately understand their underlying cost structure?
Pay for Service
Profit = Revenue – Expenses
1. Increase net revenue = more products/services (tests)
2. Decrease costs = nego5ate lowest costs (variable, labor, etc.)
3. Quality is Assumed
Pay for Value
Value = Benefit
Cost
2. Decrease cost = manage u5liza5on, improve efficiency
1. Improve quality = beger pa5ent outcomes, pa5ent sa5sfac5on, pa5ent safety (measurable)
3. Revenue moving toward fixed episodic/periodic but adjustable according to quality measures
Impact Outside the Laboratory
Pharmacy Pathology Biomedical Engineering
Popula5on
Management
Opera5ons Management Lab
Questions? Thank you!