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Featured Articles:

    Scroll down to read several featured excerpts:

    "6 questions to ask when ‘hunting’ for reimbursement"
    (Healthcare Financial Management, John P. Schmitt, Ph.D, Sept. 2009)

    By knowing how to build a better business case for improved
    reimbursement from payers, medical group negotiators can potentially capture big rewards...

    Several years ago, I was sitting in a café having an early breakfast in the heart of Wyoming’s deer hunting capital when a rather bleary-eyed hunter came through the front door. He spotted a friend of his sitting at the counter

    “Well, how did you do this morning?” the friend asked.

    “Just a few sound shots,” he replied

    “Sound shots?” the man on the stool asked.

    “Yeah, you know, when it’s dark out there, you hear something, and you shoot in that direction, then search to see if you got anything.”

    I finished my coffee quickly, climbed into my car, and sped from town, watching for any unskilled hunters who might have heard my car making suspect sounds.

    In my experience, hospital-based finance professionals who are responsible for negotiating payer fee schedules for medical group practices often conduct payer negotiations with a “sound shot” approach. In the dim light of practice reimbursement, medical group negotiators tend to respond to payer compensation proposals with a “hope we got something” attitude.

    Such responses are understandable. Typically, payers address compensation provisions by giving medical groups a small sample of “representative”codes and fees. Sometimes, proposed compensation is stated as a percentage of a given year of Medicare’s relative value scale (RVS). Other proposals cite a market fee schedule the group is not familiar with as the basis for compensation. Assessing the value of any of these proposals generally leaves the group negotiator making inappropriate fee schedule evaluations based on Medicare rates or the payer’s current fees.

    A skilled hunter knows the prey he is seeking. He selects the right equipment for the hunt and uses a well-aimed shot to bag his prize. hunters of reimbursement—in this instance, a hospital’s medical group negotiator should use a skilled approach to negotiate payer fee schedules. Such an approach requires answering six questions about the medical group practice and converting those answers into a spreadsheet that the negotiator can use to begin a proactive, and specific, pursuit of the right level of payer reimbursements....FULL ARTICLE

    "Pre-contract Carve-outs Make Contracting Faster and More Profitable"
    (AMA Group Practice Journal, John P. Schmitt, Ph.D, March 2010)

    There is no more significant issue in the commercial payer and medical provider relationship than reaching agreement on a fee schedule. The payer may view the fee schedule simply as a contractual attachment listing the amount of compensation paid to medical group providers for services rendered. To medical providers, it is much more personal: the fee schedule is an assessment of the value they offer to the patient community. There is a vast difference between these two perspectives. One way for providers to narrow the gap and expedite negotiations is to initiate pre-contract fee schedule carve-outs.


    For a health plan, certain services become "carve-outs" when removed from a risk contract and given to an independent specialty provider. for a provider, a carve-out is an exception to a payer's compensation structure. Fee schedule carve-outs are often a response to a payer's use of a relative value scale (RVS) to produce a schedule of fees.

    Often, medical specialists contend that a simplistic RVS computation process can produce inappropriate fees. Medicare's Resource-Based Relative Value Scale (RBRVS), for example, was developed as a claim payment system for an elderly population. Over time, Medicare has made code additions to accommodate other population. However, the claims experience of a healthier commercial population yields a different set of relative values and fees than an RBRVS fee schedule. Therefore, it is reasonable for providers to carve out certain procedures from payers' RBRVS or other RVS-based fee schedules when they feel certain fees are inappropriate. For example, sports injuries that result in arthroscopies and subsequent repairs are often the same injuries for older patients who have more difficult or complicated repairs but the CPT4 codes used in billing are the same.  Another example is the proximal humerus fracture and surgical repair. Traditionally, this is a more complicated repair due to the poor quality bone density in older patients, but the same procedure codes are used on the claims.

    One thing is certain. Although the term "carve-out" has different meanings for payers and providers, it has traditionally been reactive. For both parties, carve-outs usually occur in response to ongoing problems and changes in previous negotiated contracts....

    "The Golden Payoff for Effective Care Management"

    (Navigant Pulse, John P. Schmitt, Ph.D & Simita Mishra, Ph.D., July 2011)

    A new rainbow of acronyms has emerged in healthcare: PCMH, VBP, EMR, ACO, EBM, the list goes on. The acronyms represent the new vocabulary for a culture change in healthcare that essentially puts the patient, rather than the practitioner, at the center of a new team-based care management model. If physician practices embrace the change, there can be the golden payoff at the end of the rainbow in the form of incentives offered by Medicare and ultimately the entire payer community.

    At its core, the culture change is a new way of thinking about primary care, represented by Patient-Centered Medical Home, or PCMH. In a patient-centered medical practice, teams of health providers make coordinated decisions that achieve the triple aim of improving quality, controlling costs and improving the health of the patient population they serve. The patient isn’t just the recipient of care, but shares in the decision-making, care management, and assessment of the care given by the team. In sharp contrast to past gatekeeper and triage models that are designed to limit care provided by the system, the medical home model is designed to expand the service provided within primary care.
    The potential financial rewards of meeting care management goals with medical homes can be significant. Volume-based fee schedules will be increasingly reduced and offset by new value-based payments, or VBPs. Under this compensation system, providers measure and report care given, the results are compared to payer-desired targets and value-based payments are made by payers to providers for meeting desired targets. In addition, payers increasingly will transfer medical costs to medical providers through a continuum of risk-based payment methodologies like bundled payments and capitation. Providers who manage the transferred risk with effective care management programs will prosper. Conversely, medical providers who don’t react to this payment shift with new care management systems stand to lose huge amounts of money. Consider the experiences of a large multi-specialty practice in the Northeast. In 2010 it had the potential to earn almost $27 million in incentives through value-based payments, but the practice received only about $2.2 million. The reason for the loss was the group’s care management program did not collaborate with its contracted payers to provide care, report performance and collect all the incentive opportunities that the payers put on the table. (See Table 1-1). The good news is the VBP golden payoff is getting bigger every year. The patient panel sizes for the two payers in Tables 1-1 and 1-2 indicate commercial payers are offering incentives up to more than $60 per member per year for outpatient incentives and $130 per member per year for inpatient care management incentives.
    A PCMH practice doesn’t just happen. It takes a significant and conscious investment in practice reconfiguration, staff training, Electronic Medical Record (EMR)-based reporting systems, payer collaboration and patient engagement.

    The momentum for value-based payments is driven by the fact that the current healthcare system costs cannot be sustained. Government payers are taking the lead in VBPs, but commercial payers are beginning to conduct their own research of cost reduction, incentive generation opportunities using systems like the Prometheus Payment Model discussed in the article by John Lutz in this issue of Pulse.

    The PCMH care delivery model is strongly supported in the Affordable Care Act passed by Congress in 2010. Section 3022, the Medicare Shared Savings Program, spells out Medicare’s qualifying characteristics of an Accountable Care Organization (ACO). A qualified ACO must meet patient-centeredness criteria, practice evidence-based medicine, have a care coordination program and use a population management approach to care delivery....FULL ISSUE

    "Prepare for cooperation, scrutiny, and declining reimbursements in 2010"
    (Managed Care Contracting & Reimbursement Advisor, December 2009)

    MCCRA asked several experts on reimbursement and contracting issues to offer a forecast for 2010. The predictions ranged from greater collaboration and cooperation to more audits and review. And not surprisingly, most expect reimbursements to drop.

    Medical Homes and Accountable Care Organizations (ACO's) will continue to emerge as viable models, and payers will be placing more emphasis on performance and quality, according to some of our experts. But the biggest changes may still be unknown because they depend on the reform proposals that emerge from Washington, DC.


    Mary J. Witt, Vice President of The Camden Group in El Segundo, CA, doesn’t expect dramatic immediate changes. However, developments in 2010 may set the stage for a larger transformation in the coming decade, as government and private payers seek methods of reimbursement that are not based on a payment-per-unit-of service methodology, Witt says.

    Fredrick T. Horton, President and CEO of Horton, Smith & Associates in Overland Park, KS, doesn’t expect massive change right away, either. With the exception of ancillaries and a “general overall holding of the line on reimbursement,” Horton predicts only moderate short-term reform. “The healthcare debate is simply too volatile, and while it is necessary to have full-blown reform, the likelihood is that change will be incremental as opposed to cataclysmic,” he says.

    On the other hand, Max Reiboldt, CPA, President and CEO of The Coker Group in Atlanta, suggests that the government’s increasing involvement in healthcare “will undoubtedly have the greatest single effect on compensation, reimbursement, and overall operations of the medical practice in the next few years.”


    “Providers can expect a new era of collaboration,” says John P. Schmitt, PhD, FASHRM, senior managed care consultant at Atlanta based EthosPartners. What has traditionally been an adversarial relationship with payers will become more like a partnership, Schmitt says, noting that payers are more willing to cooperate and collaborate than in past years....FULL ARTICLE

    "The Horn of the ACO Unicorn"
    (Navigant Pulse, John P. Schmitt, Ph.D, Winter 2011)

    “An ACO is like a unicorn. Everyone can describe what one looks like, but no one has seen one.” Such was the analogy offered by a speaker at the National Committee for Quality Assurance (NCQA) 2010 National Policy Conference. It’s a good analogy. Unicorns do have many familiar characteristics but only one distinctive, unusual and noticeable feature – a horn in the center of its forehead. The features of an Accountable Care Organization (ACO) are enumerated in Section 32 of the Medicare Shared Savings Program. Most of the features are variations of organizational models and payment systems quite familiar to healthcare practitioners. However, one section of the new legislation requires ACOs to meet “patient-centeredness criteria specified by the Secretary of HHS (Health and Human Services), such as the use of patient and caregiver assessments…”

    This new patient-centric criteria will be the distinctive horn of the ACO unicorn. The new criteria will distinguish ACOs from the more familiar healthcare delivery models of the past. Further, just as the power of the unicorn is found in its horn, the

    unique power of the ACO will be found in its success in delivering patient-centered care in an inherently accountable fashion.


    Almost every ACO presentation begins with a distinction between ACOs and past healthcare delivery models. The point is frequently made that an ACO is not just a new term for Health Maintenance Organization (HMO), Provider Sponsored

    Organization (PSO), Independent Practice Association (IPA) or some other similar entity. However, at the end of such presentations, skeptics often emerge contending that the ACO is really nothing new, while others see the ACO as a revolutionary healthcare development. Why the difference? In the end it is largely a matter of geography and experience. For example, many West Coast HMOs launched in the 1970s and earlier have proven more successful in managing medical expenses and measuring quality of care than similar initiatives in the rest of the country. In addition, most practitioners who entered the healthcare field in the last 10 to 15 years are not familiar with earlier delivery models which had ACO-like features.

    The ACO eligibility criteria cited in the new legislation is familiar in many respects. ACOs must have such traditional features as shared provider governance, multi-provider relationships, membership information, cost and quality measurement ability,

    case management and risk-sharing. Somewhat newer requirements include shared savings distribution capabilities, electronic prescribing and electronic medical record capabilities. One would think the successful and systemic implementation of these criteria would be sufficient for distinguishing an effective ACO. They are not. A determined conviction of the crafters of the ACO legislation is to avoid the root cause of the marketplace failure of many HMOs in the 1990s.

    HMO members deserted the organizations in large part because they did not like their inherent care restrictions, financial limitations and provider constraints. In other words, ACO success will not be ensured by organizational effectiveness, technological capabilities or positive financial performance. These will be necessary but not sufficient. The powerful horn of the ACO will be found elsewhere.…


    "Medicare Providers Alert: Bundled Payments by 2013- six considerations to get ready"

    (Ethos White Paper, John P. Schmitt, Ph.D, March 2010)

    In regard to healthcare payment reform, as Medicare goes so goes health insurers in this country. So where is Medicare going? Unless healthcare reform legislation takes it in a different direction, Medicare is going to a bundled payment system, sometimes called episode-based payment. The Centers for Medicare & Medicaid Services (CMS) is preparing to pilot numerous bundled payment initiatives for select conditions beginning in 2013. Starting in 2015 Medicare will implement bundled payments for admissions for the 20 percent of services that account for 80% of post-acute spending. If the results are favorable, the Secretary of Health & Human Services will submit an implementation plan in 2016 to make bundled payments an inherent part of the Medicare payment system in 2018. (1 &2)

    Why is this happening? A consensus has emerged among health policy experts that the current fee-for –service (FFS) payment methodology tends to reward volume of care rather than quality or efficiency. At the other end of the payment spectrum is the capitated payment method-fixed per-enrollee, per month payments. The concern with this method is that providers at risk under a capitation method might with- hold services to maximize their profits. Between the two extremes of FFS and capitation lies a new payment model called episode-based payment (EBP). (3)

    In an effort to prepare EthosPartners clients to prepare for the new advent of EBP, this article draws heavily on policy considerations published by the National Institute for Health Care Reform. Considerations offered by the Institute are explained in the context of EthosPartners’ experiences to date. The institute offers five considerations related to the design and implementation of episode-based payments. EthosPartners offers a sixth consideration based on other research designed to help prepare providers to succeed in the new world of EBP healthcare payments.


    In the EBP model, a bundled payment is made for some or all services delivered to a patient for an episode of care for a specific condition over a defined period of time. Medicare first conducted an EBP demonstration in 1992 that yielded suggested savings of $50.3 million in five years. Despite the favorable results, EBP initiatives remained dormant until recently.

    Last year, CMS momentum greatly increased for implementing a bundled payment model on a broader scale as a means to reduce national health spending. Why? In 2009 CMS reported results of an Acute Care Episode (ACE) demonstration, which bundled payments for hospital, physician, and support services for a set of nine orthopedic and 28 cardiovascular inpatient procedures. Initial returns have prompted CMS officials to estimate bundling Medicare payments could save taxpayers $26.2 billion in ten years. Researchers at RAND Health concur. In a New England Journal of Medicine posting last November, the research institute reported that, for a set of ten conditions requiring hospitalization, the bundled payment approach would reduce national health spending to a greater degree than the combined impact of hospital rate regulation, disease management, medical home and benefit design initiatives. (4) Given the growing interest of CMS in EBP, the following sections contain six things Medicare providers should consider as they prepare for EBP.


    There are two dimensions of episodes of care: 1) a clinical dimension-conditions comprising the episode and 2) a time dimension-the beginning and end of an episode. For example, one of the CMS’ ACE demonstration episodes was bypass surgery. In this instance the episode would begin with a patient presenting with acute pain at the physician’s office or emergency room, followed by hospitalization and related procedures performed and concludes with post-care during the
    recovery phase.

    Researchers and payers tend to use software packages known as episode groupers to identify episodes of care for a given patient population. The grouper software contains algorithms that search claims data or encounter data to specify episodes of care for a certain population of patients. Many commercial plans and payers have access to episode groupers via their claim payment systems. However, most episode software is generally designed to produce feedback reports for provider comparisons rather than determine costs associated with episodes. In order to promote episode-based cost analysis, CMS is supporting the development of a public domain grouper by 2012.

    Some key issues in defining and identifying episodes include: clinical definitions and guidelines, episode beginning and end points, data mapping, severity patterns, provider attribution, predictability of required services and report preparation. (5) Chronic conditions pose problems defining many of these elements therefore CMS focused its initial pilots on acute care episodes (ACEs).


    “Determining how to make payments to providers in actual program operations, establishing base payment rates and adjusting payments for the patient’s level of illness and the provider’s quality and efficiency performance” are all important considerations when determining an episode unit of payment. (3) Under episode-based payment programs, the unit of payment is tied to an episode of care while fee-for-service payments are tied to individual services. The
    complexity of calculating the cost of multiple providers involved in a patient’s episode of care over a predetermined period of time is at the heart of the challenge to determine a reasonable episode-based payment rate.

    Payment rates for episodes seem to be evolving towards the establishment of a two part payment approach: 1) a prospective base payment rate and 2) a retrospective quality incentive payment (or penalty). The base payment rate includes the varying costs incurred by providers in treating patients with a given condition over a period of time. Contributing factors include historical costs, external cost benchmarks, clinical guidelines per type of episode, cost trends and case mix adjustments. The quality incentive payment component is largely determined by the attainment of desired clinical outcomes during the episode.

    It should be noted that episode-based payment rates are evolving with experience. For example, Medicare’s ACE demonstration focused on only a small number of episode types with the idea of expanding the process in years to come. Further, episode-based incentive payment rates might focus on quality measures for only one part of a patient’s care in the beginning and add other measures later....

    "The Long-Term Effect of Premier Pay for Performance on Patient Outcomes"
    (New England Journal of Medicine, Jha, M.D., M.P.H., Joynt M.D., M.P.H, Orav, Ph.D., & Epstien, M.D., March 2012)

    Tying financial incentives to performance, often referred to as pay for performance, has gained broad acceptance as an approach to improving the quality of health care.The Centers for Medicare and Medicaid Services (CMS) recently completed a 6-year demonstration of pay for performance for hospitals through the Premier Hospital Quality Incentive Demonstration (HQID), and the Affordable Care Act calls for CMS to expand this program to nearly all U.S. hospitals in 2012. The policy of tying financial incentives to the quality of performance has strong face validity — that is, paying for better care should promote improvements in quality and, ideally, lead to better patient outcomes. Whether pay for performance will lead to better patient outcomes, however, is unclear.

    Although there is evidence from the Premier HQID that pay for performance is associated with modest improvements in the processes of care,much less is known about its effect on patient outcomes. Two studies examined outcomes in the Premier HQID, and neither showed any effect on mortality rates within the first 3 years however, to our knowledge, there have been no studies of the effect on outcomes over the longer term. Long-term data are particularly important because it may take years for providers to reconfigure their underlying approach to care, and improvements in outcomes from pay for performance may therefore become evident only after years of work....

    "AAOS Population Study April 2010"
    (AAOS Trade Journal, Turkelson, Schmalz, Zhao, & AAOS Dept of Research, April 2010)

    The purpose of this report is to examine state-level trends in the orthopaedic workforce. The report is a result of a request by the Council on Research, Quality Assessment, and Technology that the Department of Research and Scientific Affairs prepare a workforce report subsequent to the sunsetting of the Orthopaedic Workforce Project Team. This project is also in accordance with an Academy resolution on workforce issues.

    To prepare this report, we used data from AAOS membership records obtained in January of 2002 and January 2010, meaning that the report is based on data from approximately 96% of orthopaedic surgeons in the United States. The AAOS membership records are the only comprehensive source of state-level information on orthopaedic surgeons.

    We examined each state’s density of orthopaedic surgeons in the overall population (number of surgeons/100,000 population), density of orthopaedic surgeons in the 65 and older population, and average surgeon age. We constructed a composite variable that was a combination of these three variables, as well as a composite variable comprised of state-level changes between 2002 and 2010 in these three individual variables, and a composite variable that compared each state’s performance on each of these three variables to national changes between 2002 and 2010..

    "Healthcare Reform is On: How to get your practice ready for New Payment Models"
    (TOS Newsletter October/November 2012, John P. Schmitt, Ph.D., October 2012)

    “I would classify the readiness of (MGMA members for future payment models) as dismal.” So stated David Gans, MGMA’s Vice President of Innovation and Research, after reviewing the results of a 2012 survey of MGMA members. He was referring to survey results revealing only 17.8% of MGMA respondents track practice costs from the payer’s perspective and only 14.2% track total costs of an episode of care. (MGMA Connexion Supplement, May/June 2012).
    President Barack Obama’s re-election means healthcare reform is on whether providers are ready or not. With it will come a renewed momentum in developing new delivery models like Accountable Care Organizations (ACOs) and new payment models like bundled payments.

    In Tennessee bundled payments are already a reality. On May 22, 2012 Blue Cross of Tennessee announced a bundled payment initiative for hip and knee replacements in four pilot locations. The announcement caught most Tennessee orthopaedic practices off guard and signaled all orthopaedic practices in the state that value-based contracting was now an inevitable part of their future.

    In response to these developments, there is a growing wave of articles and whitepapers on value-based contracting. However, most of this literature is in the form of warnings rather than remedies. For example, in an October 24, 2012 news release in Modern Physician, MGMA’s David Gans again makes a dower comment, “The federal government and commercial insurance companies are in the midst of changing the way they pay hospitals and doctors. Some of these changes are the result of the Patient Protection and Affordable Care Act as well as market forces. These changes will affect practices in all settings, and it’s important to prepare for reimbursement models that place a greater share of financial risk on the practice”..
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