Webinar — Bundled Payments: Current Strategies and Tools
In this webinar, Chilmark Analyst Matt Guldin presents key findings from our report, Bundled Payments: Current Strategies and Tools. Afterward, he and special guest Andrew Tessier (Business Development Director, Signature Medical Group) discuss the financial and strategic implications of bundled payments and the IT options for providers.
Key topics addressed:
Be sure to also check out our blog post on bundled payment basics and recent policy shifts.
To access the slides, please enter your email address in the video form or at the bottom of the page. To learn more about the report or to purchase it, please click here.
Matt Guldin · 2 years ago
Liz Gavriel · 4 years ago
John Moore · 3 months ago
Matt Guldin · 2 months ago
John Moore III · 2 months ago
What Are Bundled Payments and Are They Here to Stay?
Key Takeaways
Bundled payments have been looming on the horizon for healthcare organizations (HCOs) at varying degrees of intensity for at least the last thirty years. As healthcare costs have continued to rise, payers and providers are increasingly viewing bundled payments as a viable alternative to fee for service (FFS) payment structures.
Recognizing that this trend is here to stay, we authored the upcoming report, Bundled Payments: Current Strategies and Tools, to help HCOs understand the impetus behind bundled payments as well as provide a detailed perspective on how healthcare information technology (HIT) vendors are prepared to support this payment modality transition.
Bundled payments are positioned to serve as a transition between FFS and capitation. By definition, a bundled payment links multiple provider payments into one care management and payment system during a specific episode of patient care during a defined period of time. There are two types of bundles: prospective and retrospective.
A retrospective bundle incorporates a reconciled budget with the payer or “convener” as a financial integrator of the fees paid out instead of putting the responsibility upon one provider. This arrangement is built upon a FFS system and is retrospective because providers first receive their usual FFS payments, and then they receive an additional payment after their total costs are assessed and if cost savings were generated. However, cost assessments can take a year or more to complete after services are initially provided.
A prospective bundle pays a fixed price for a set of services covered in the bundle before all of the services are rendered. An average cost per episode of care is determined based on historical data and/or regional costs and payment is delivered to providers when an episode is initiated, rather than waiting until the entire episode has been completed. Adjustments to payments are made after the fact to account for outliers, excluded episodes, and other factors.
Retrospective payment bundles are the most widespread bundled payment system primarily due to the abundance of participation in the Bundled Payments for Care Improvement (BCPI) Initiative and the Comprehensive Care for Joint Replacement (CJR) model. Retrospective payments for bundles are also easier to understand, administer, and execute, which is why they comprise the majority of bundled payment financing arrangements to date.
CMS is still navigating how to implement this payment structure while not alienating providers, and BPCI was an attempt to find a middle ground that is palatable to providers while capitalizing on the cost savings bundled payments offer payers.
Unfortunately, determining this middle ground has led to CMS sending conflicting messages to the industry. In late 2017, CMS rescinded rule changes that required mandatory bundled payments for providers to test the effect bundled payments would have on cardiac and orthopedic care. CMS noted that responses from providers to the mandatory bundled payments cited concerns over both the process by which costs for episodes were determined as well as the ability for smaller HCOs to comply with the process.
Despite these setbacks, CMS is not withdrawing support from bundled payments as a whole and has instead created the BPCI-Advanced, a voluntary iteration of BPCI with the same goal of aligning incentives among health care providers. Early adoption of the BCPI-Advanced program has been robust although it remains to be seen how many of these providers might exit early next year. Additionally, HHS Secretary Azar indicated last month that mandatory bundles are coming in the near future for radiation oncology and possibly other providers as alternative payment models.
Commercial payers have shown interest in bundled payments, but have been slow to introduce the practice. Although we have seen increased adoption from some payers, the general consensus is that these organizations will wait until the concept is proven before devoting resources to the change. We might have to wait until bundled payments are once again mandated by CMS before commercial payers adopt the model.
While the attitude of providers towards bundled payments could be best described as “wary,” there is still opportunity for healthcare providers to lower their costs while improving the standard of care. Yet, success with bundled payments requires close coordination between multiple providers over a varying timespan, something that many providers struggle with.
In order for bundled payments to work for both patient and provider, an HCO needs to have the ability to identify who is eligible for bundled payments early in the treatment cycle through monitoring and tracking. They also need to have a network and processes in place to engage affiliated and community providers that are necessary to the bundled payment process. Not surprisingly, many HCOs are hesitant to invest the organizational resources necessary to establish this level of collaboration.
Specialty physician groups that are only focused on engaging in one or two retrospective bundles will be able to change more rapidly but over the longer term, it will be harder for smaller HCOs to effectively scale bundled payments across multiple services lines within their organization. Another advantage larger systems have is systems and processes for dealing with post-acute care needs that are critical for succeeding in bundled payments.
In general, large HCOs with wide networks and established reporting and monitoring processes are better equipped to handle the transition to bundled payments and effectively scale these program although several specific factors (e.g., episode type, target price, exclusion criteria, risk adjustment) will affect how a provider performs.
Our report focuses primarily on identifying the IT environment that supports, and will support, bundled payment plans. We were able to identify a number of key issues that software solutions must address, including patient tracking, care process redesign, and physician engagement. As of the writing of this report, no vendor offers a comprehensive solution to the myriad reporting and management challenges that bundled payments present.
We did identify commercially available solutions to deal with cost and quality reporting requirements inherent in the bundled payment process. Unfortunately, HCOs are going to have to develop piecemeal processes that incorporate multiple systems until vendors are able to provide a robust comprehensive solution. We expect that as bundled payments garner more support and interest, HIT vendors will recognize the market opportunity and develop systems to specifically address these issues.
The question is not whether bundled payments are going to see greater utilization, but rather to what extent will bundled payments affect healthcare payers and providers? Providers especially will need to have a plan and processes in place to reduce risk to their revenue streams as bundled payments become more ubiquitous.
Our report, Bundled Payments: Current Tools and Strategies, outlines how providers can navigate these changes and identifies IT solutions that may assist them. It provides detailed insight into what bundled payments are, how to execute them, and the challenges associated with their orchestration. Furthermore, it contains comprehensive vendor profiles and evaluations of the solutions they offer, which we hope will assist providers as they prepare for this transition.
On January 30, 2019, we are hosting a webinar on this topic. To attend or just be on the list for the recording, please click here to register.
Is Radiation Oncology Ready for Alternative Payments?
Chilmark recently released a report on the topic of bundles and enabling solutions. To learn more about this research, please click here.
Key Takeaways
HHS Secretary Alex M. Azar II’s recent speech to the Patient-Centered Primary Care Collaborative in Washington, DC, indicated that there is a significant change in thinking of CMS about value-based-care and voluntary vs. mandatory participation in alternative payment model (APM) programs.
“We need results, American patients need change, and when we need mandatory models to deliver it, mandatory models are going to see a comeback… (CMS will) revisit some of the episodic cardiac models that we pulled back, and are actively exploring new and improved episode-based models in other areas, including radiation oncology,” according to Secretary Azar.
What will this mean for radiation oncology healthcare providers and the vendors that service them? A foundational and operational re-think will be needed to manage new challenges in documentation, records management, financial analytics and reimbursement.
Although it has not yet been revealed what the new payment model will be for radiation oncology, there are clues. Both the American Society of Radiation Oncology (ASTRO) and the Large Urology Group Practice Association (LUGPA) submitted payment models to CMS to consider. The proposal by LUGPA was specific to prostate cancer and has been rejected by CMS.
It is highly probable that the new oncology radiation model will be similar to the already ongoing voluntary Oncology Care Model (OCM), but based on ASTRO’s Radiation Oncology Alternative Payment Model (RO-APM) (PDF link) and unlike the OCM, it will be mandatory. ASTRO’s RO-APM incentivizes adherence to clinical guidelines for several cancers, including breast, prostate, lung, colorectal, and head and neck cancers. It also applies to two secondary disease sites: bone metastases and brain metastases. This RO-APM is based on an episodic payment that is triggered by a clinical treatment planning CPT (rather than with the actual delivery of treatment such as with the current OCM model) and concludes 90 days after the last radiation treatment.
Regarding payment structure, ASTRO’s RO-APM is very similar to the OCM in that it would also include a monthly fee called a Patient Engagement and Care Coordination Fee (PECC), and retrospective performance-based payment incentives. The activities and goals of the PECC and retrospective measures reflect those of the OCM.
However, one of the most significant differences between the OCM model and ASTRO’s RO-APM involves the payment of fees. The RO-APM is based on an episodic model that pays a portion at the beginning of treatment planning and a final payment at the end of treatment; which, for many practices, will be a fundamental change from fee-for-service radiation oncology reimbursement, and require an overhaul of billing systems and workflows.
Healthcare IT vendors, including EHR vendors, are not yet ready with one, single solution to meet all the requirements of a healthcare provider participating in OCM.
Secretary Azar’s remarks indicate a complete about-face concerning mandatory vs. voluntary participation for APM programs by the Trump administration that may affect not only radiation oncology but all aspects of medicine.
Healthcare IT vendors, including EHR vendors, are not yet ready with one, single solution to meet all the requirements of a healthcare provider participating in OCM. While some vendors can meet various quality measure reporting components, there is not one single vendor today that can address all the financial and operational obligations inherent in this type of APM.
More than two dozen IT vendors, including several EMR vendors, have made the OCM Vendor Pledge this year, which is a step toward a comprehensive IT solution. However, the complexities of the system pose significant barriers which will take several years to overcome.
Want to learn more about the state of the IT industry regarding bundled payments and APMs? Look for our Bundled Payments report coming out in the next couple weeks (or our blog for a short primer on the state of the market) and our Payment Integrity report slated for release in mid-2019.
How will Proposed Changes to CMS Telehealth Reimbursement Affect Adoption?
Key Takeaways
On Friday, October 26, the Centers for Medicare and Medicaid Services (CMS) announced several rule changes that affect how telehealth services will be covered under Medicare Advantage (MA) and the Medicare prescription drug program (Part D). These changes are in direct response to the Bipartisan Budget Act of 2018, which eliminated historical restrictions on telehealth reimbursement, and are intended to “improve quality of care and provide more plan choices for MA and Part D enrollees.”
Also included in the proposed rule changes are adjustments to methodologies and processes that should improve access to care, as well as recover funds from payments improperly applied to insurance companies. We view this as a positive development, especially as it relates to current and projected physician shortages. Greater reimbursement should allow for providing some basic services through telehealth applications, it is going to equip providers with the ability to “do more with less.”
Our recent report, Telehealth Beyond the Hospital, provides a detailed analysis of the telehealth market as a whole, but we felt it prudent to prepare a supplemental post to give a brief examination of how these rule changes could potentially impact the provision of healthcare services.
Telehealth services have previously seen limited implementation by MA plans because they have been traditionally classified as services covered by “supplementary medical insurance.” These new rule changes shift the classification of telehealth services to the “basic benefits” category. We have witnessed lagging adoption rates of telehealth technologies over the last several years, and view the inclusion of these services into the basic benefits category as a necessary step to increase their rate of use.
CMS expects that the inclusion of telehealth services in the basic benefits category will spur more MA plans to offer these benefits beginning in 2020, and increase their support of these services in subsequent years. This isn’t happening in a vacuum, and is in line with the broader push to promote telehealth services as viable alternatives and supplements to traditional care options. The move towards parity between physical visits and telehealth services has shown to increase reliance on telehealth services before: Michigan has seen a “77.5% increase in Telemedicine encounters after supporting service parity in telemedicine.”
This isn’t happening in a vacuum and is in line with the broader push to promote telehealth services as viable alternatives and supplements to traditional care options.
Recent surveys have shown that patients are growing more and more amenable to remote care options, especially if it reduces their out-of-pocket costs. The opportunity cost of non-reimbursed care is one of the primary barriers to provider adoption of telehealth services, and by removing this barrier we will hopefully see further alignment between providers and patients on this issue.
We see this alignment as a part of the greater industry shift towards value-based care (VBC). As we noted in our Patient Relationship Management (PRM) Market Scan Report, engagement was one of the areas where adoption of these new technologies for VBC was exceeding expectations. Increased reimbursement for telehealth should continue this positive trend and hopefully allow for the realization of some PRM benefits.
We predict that the CMS rule changes will encourage diversified managed care organizations (MCOs) to expand their current commercial telehealth contracts to their MA business and also potentially drive the adoption of telehealth offerings among that trend.
These new rule changes have a large potential upside for all players in the telehealth market, but it is important to note that telehealth adoption has been incremental over the last several years and there is no reason to predict a stark diversion from that trend.
We predict that the CMS rule changes will encourage diversified managed care organizations (MCOs) to expand their current commercial telehealth contracts to their MA business and also potentially drive the adoption of telehealth offerings among that trend.
Vendors looking to capitalize on this incremental market growth are going to have to navigate the differing needs of commercial and Medicare providers. For commercial providers, telehealth is seen primarily as a cost-savings and efficiency tool. For Medicare providers, they are looking most closely at telehealth as a way to promote post-acute care management and patient engagement. To effectively sell to Medicare providers, vendors are going to have to tailor their tools and pitches to hit on the appropriate pain points.
As the costs of chronic condition management skyrocket, looking for innovative telehealth solutions is of paramount importance. Reclassification as basic services and simplification of the reimbursement process will certainly help vendors supplying these solutions overcome potential buyer uncertainty on the ROI of their products.
The most important takeaway from these rule changes from an HCO perspective is that the future of value-based care is arriving quickly. HCOs need to prepare for this future by refreshing their care delivery strategies, especially as it relates to primary care. The primary care environment is changing, and HCOs need to closely examine what they need to provide in terms of physical locations, providers, and services for their patient populations. They then need to craft strategies to meet these evolving requirements.
Last week, CMS released its proposed rule (beware – in good government fashion it’s a whooping 607 pages) for the Medicare Shared Savings Program (MSSP) Accountable Care Organization (ACO) program. CMS is taking a big leap forward with this rule on the path to value-based care. The big leap? Moving existing MSSP ACOs from all upside contracts (no risk), to taking on an ever-increasing portion of risk (downside, e.g. reimburse CMS if targets not met). This is a real wake-up call for providers, especially hospital-led ACOs, who have by and large failed to meet targets in current MSSP ACO contracts.
The advent of ACOs is a byproduct of the Affordable Care Act (ACA), wherein the Obama administration was seeking new payment models to shift Medicare spending from fee-for-service to value-based care (VBC). To get providers comfortable with the concept, various ACO models were deployed with MSSP the most popular – currently 86% of all Medicare ACOs.
Within the MSSP ACO a provider organization could choose one of three tracks, but only Track 1 carried no downside risk. Logically, nearly all providers chose Track 1 initially and today 82% of MSSP ACOs are still in this track. Unfortunately, in 2016 this track was a money-losing proposition for CMS, as hospital-led MSSP ACOs racked up losses for CMS that were higher than the savings from physician-led ACOs.
Provider readiness to take on true risk has always been the rub…With these proposed rules, CMS is going beyond meeting providerswhere they are but pushing them forward on the path to value.
At the recent Leavitt Partners conference, attendees were briefed on the political climate in Washington. Despite all the political rhetoric, there are three core healthcare principles that are non-partisan:
This event also emphasized that the federal government must take the lead in pushing the industry to VBC, again for a couple of simple reasons:
The MSSP ACO proposed rules are just another step, of what will likely be many, which CMS will have to take in its attempt to bend the cost curve. Rather than wait for providers to voluntarily accept and migrate to true risk – something we saw little of in the former MSSP ACO rules – the proposed rules foist that risk upon providers. Granted, providers are given one to two years in a “glide path to risk” in the new rules, but risk is definitely in their future; by contract year five, an MSSP ACO will take on enough downside risk to qualify as an Advanced Alternative Payment Model (APM) under MACRA.
In summary, CMS proposes ending the current Tracks 1 and 2 replacing them with a new 5-level BASIC track. The first two levels of the BASIC track begin with no risk to providers but annual auto-advancement to higher risk-reward layers will advance providers into risk sharing. Former Track 3 will become the ENHANCED track. The current 3-year agreement period changes to 5-years minimum and national inflation metrics will be replaced with regional metrics.
Somewhat depressingly, the total calculated projected 10-year savings for the new MSSP rules is a paltry $2.2B.
The proposed rules are likely causing a lot of angst in the executive offices of many a hospital, but these rules will have winners as well.
Table 1: Winners and Losers in Proposed MSSP ACO Rules*
From our vantage point, provider readiness to take on true risk has always been the rub. The recent NAACOS survey found that 71 percent of Track 1 MSSP ACOs scheduled for renewal this year were unlikely to do so if they had to assume risk. This is likely an inflated number – when push comes to shove, far more will renew – but this is a barometer of provider sentiment and overall readiness even among those with some experience with the program.
Across the country, healthcare is anything but consistent. As Gary Loveman, former executive vice president of Aetna, pointed out at our Convergence conference last year, one has to meet providers where they are. With these proposed rules, CMS is going beyond meeting providers – but pushing them forward on the path to value. For most providers who take this path, it will be challenging, and trusted partners with previous experience in risk-bearing ACO enablement will be essential.
Without a doubt, something has to be done to bend the cost curve – and, to its credit, CMS is taking action. However, will the action that CMS is taking here with the MSSP ACO program be enough to fend off its critics, especially if projected savings are so minuscule? We’re really unsure, but one thing we are certain of is that CMS is the only entity in this market that has the ability to do something on a nationwide scale. If not CMS, then who?
* Reducing the Risk – Vendors Enabling the ACO, Chilmark Research Market Scan Report, March 2017
Promoting Interoperability: MU Fades to Black
Seeking to liberate the industry from its self-created morass of siloed data and duplicative quality reporting programs, the Department of Health and Human Services (HHS) issued 1,883 pages of proposed changes to Medicare and Medicaid. It renamed the Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs (known by all as Meaningful Use) to Promoting Interoperability Programs (PI).
As widely reported, it would eliminate some measures that acute care hospitals must report and remove redundant measures across the five hospital quality and value-based purchasing programs. It would also reduce the reporting period to 90 days. HHS will be taking comments until June 25, 2018.
HHS believes that APIs will solve all of the problems that patients and healthcare stakeholders have with data access. HHS also seems prepared to declare that TEFCA compliance and 2015 Edition CEHRT guarantees that those APIs are in place.
HHS believes that requiring hospitals to use 2015 Edition CEHRT in 2019 makes sense because such a large proportion of the hospitals are “ready to use” the 2015 Edition. Ready to use is not the same as using. 2015 Edition EHRs may not be as widely deployed as HHS indicates. The following 10 month old snapshot from ONC shows hospitals have not aggressively moved to adopt 2015 Edition CEHRT.
Figure 1: Adoption Levels of 2015 CEHRT
Source: Office of the National Coordinator for Health Information Technology. ‘Certified Health IT Developers and Editions Reported by Hospitals Participating in the Medicare EHR Incentive Program,’ Health IT Quick-Stat #29. Available at https://dashboard.healthit.gov/quickstats/pages/FIG-Vendors-of-EHRs-to-Participating-Hospitals.php.
Current adoption levels by HCOs are undoubtedly better, and many vendors have 2015 Edition technology ready to go, but hospitals can only change so fast. The rush to get hospitals on the most current edition has to do with the most relevant difference between the 2014 and 2015 Editions – the API requirement. APIs will be the technical centerpiece of better, more modern interoperability but adoptions levels are still low. APIs, by themselves, offer the promise of better data liquidity. For this promise to become a reality, healthcare stakeholders need more than just a solid set of APIs.
HHS is also proposing that hospitals post standard charges and to update that list annually.
This is a nice thought, but it will take some heavy lifting to pull this off. For starters, HHS doesn’t even have a definition of “standard charge” and is seeking stakeholder input before the final rule is published. HHS also must determine how to display standard charges to patients, how much detail about out-of-pocket costs to include (for patients covered by public and private insurance), and what noncompliance penalties are appropriate.
Above all, there’s the thorny issue of establishing what a standard charge is in the first place. Charges vary by payer. Can a hospital truly state, without a doubt, the cost of an MRI or a colonoscopy? Most cannot – and technology alone will hardly solve this problem.
The existence of APIs will stand in the stead of the old view/download/transmit (VDT) requirement. Regarded as one of meaningful use’s most troublesome and fruitless requirements, this rule has been shed by HHS because of “ongoing concern with measures which require patient action for successful attestation.”
VDT is one of several MU Stage 3 requirements pertaining to patient engagement – along with providing secure messaging or patient-specific educational resources – that HHS has proposed dropping, under the pretense that it is “burdensome” to healthcare providers. While hospitals have struggled to get many patients to participate, the VDT requirement set the bar at one patient out of an entire population. What’s more, dropping the requirements fails to take into account how burdensome it is for patients to try to access their data, communicate with their physicians, and learn about their conditions and treatment options. It is also contrary to CMS Administrator Seema Verma’s remarks, first at HIMSS18 and again this week, indicating that the agency seeks to “put patients first.”
HHS says that third-party developed apps that use APIs will deliver “more flexibility and smoother workflow from various systems than what is often found in many current patient portals.” Whether such apps deliver “smoother workflow” is not a foregone conclusion.
HHS proposes “a new scoring methodology that reduces burden and provides greater flexibility to hospitals while focusing on increased interoperability and patient access.” The proposed scoring methodology uses a 100-point system (explained over 24 pages) in which attaining a score of at least 50 means there will be no Medicare (or Medicaid) payment reduction.
Table 1: Proposed Scoring Methodology for Promoting Interoperability Program (PI)
HHS is also mulling whether to abandon these measures altogether in favor of scores calculated at the objective level.
The biggest regulatory effort in recent months related to interoperability, other than this proposal, has been ONC’s proposed Trusted Exchange Framework and Common Agreement (TEFCA), required under the 21st Century Cures Act. TEFCA, well along in the planning stages, is a new set regulations from ONC whose goal is to catalyze better data availability using APIs. HHS in this regulation wants public comment on whether participation in a TEFCA-compliant network should replace the process measures in Health Information Exchange objective. Stated another way: Should TEFCA compliance replace 80 percent of the score for PI (75 percent in 2020)?
TEFCA is widely expected to provide a safe harbor from data blocking liability although ONC has been mum on this point. TEFCA then could do double duty: Eliminate the need to meet or report on health information exchange metrics and provide a shield from data blocking enforcement.
But there are, as yet, unanswered questions about TEFCA:
HHS is also considering doing away with Public Health and Clinical Data Exchange objective. It floated the idea that a provider that supports FHIR APIs for population-level data would not need to report on any of the measures under this objective. This would replace 90 percent of the score for PI (85 percent in 2020) when combined with the TEFCA knockout.
The specific API mentioned, called Flat FHIR and still in development, will probably contribute to part of the complex process of public health and registry reporting. This activity currently requires highly skilled data hunter-gatherers, usually with clinical credentials. In many organizations, these hunter-gatherers manually sift and collate multiple data sources to meet the varied requirements of the recipients of different registries. Flat FHIR, assuming it were production-ready, will certainly help, but it is unlikely that it could provide all, or even most, of the information needed for the range of public health reporting programs.
HHS acknowledges that providers are less than thrilled with aspects of the Quality Payment Program (QPP). HHS wants to know how PI for hospitals can better “align” with the requirements for eligible clinicians under MIPS and Advanced APMs. In particular, it wants ideas about how to reduce the reporting burden for hospital-based MIPS-eligible clinicians. It is undoubtedly looking for market-acceptable ideas to reduce the reporting burden where it is arguably more deeply felt – among non-hospital-based MIPS-eligible clinicians. While reducing or eliminating the reporting burden would help such providers, the big unanswered question, as it is with hospitals, is the burden of getting to 2015 Edition CEHRT.
HHS also asks the industry how it could use existing CMS health and safety regulations and standards to further advance electronic exchange of information. It is ready to change Conditions of Participation (CoPs), Conditions for Coverage (CfCs), and Requirements for Participation (RfPs) for Long Term Care Facilities regulations to this effect. It wants to know whether requiring electronic exchange of medically necessary information in these regulations would move the interoperability needle.
HHS believes that APIs will solve all of the problems that patients and healthcare stakeholders have with data access. HHS also seems prepared to declare that TEFCA compliance and 2015 Edition CEHRT guarantees that those APIs are in place. It roundly ignores the mesh of incentives that make stakeholders unwilling to share data and patients unable to access data. The industry has cried out for less process reporting and better insight into outcomes for years. This will accomplish the former but set the industry back with respect to the latter if interoperability is declared solved based on technology alone.
One More Step in the Long Road of Precision Medicine
For any new therapy, diagnostic or device brought forth by our healthcare innovation community, there are three high-level barriers generally encountered on the path to commercialization: Regulatory approval, payment confirmation (generally coverage by public and/or private healthcare payers) and adoption by healthcare providers. For new classes of therapy, such as genetically targeted therapies and their companion diagnostics, there is often a greater challenge to pass regulation, assure coverage and gain adoption since there is little precedent.
As of mid-March, there is new precedent to leverage for gene-based diagnostics and all stakeholders in the development of genomics applications in medicine. Following the November 2017 approval by the FDA of Foundation Medicine‘s FoundationOne CDx, (F1CDxTM), the Centers for Medicare & Medicaid Services (CMS) proposed a National Coverage Determination (NCD) for diagnostic lab tests that include Next Generation Sequencing (NGS). These first steps were the culmination of a great deal of work by industry players, researchers and regulators. On March 16, 2018, CMS announced a finalized NCD for NGS for Medicare patients with advanced cancer (including Stage III, Stage IV, recurrent, relapsed, refractory or metastatic cancers). These are diagnostic tests that, as companions to other diagnostics, identify treatment options based on certain genetic mutations.
As policymakers and payers take on the burden of cost coverage, the progression of the healthcare sub-industries focused on leveraging patient’s genetic and other “-omic data” will benefit from the step toward better coverage.
The burden of payment for genetic sequencing was a topic of discussion at HIMSS18 among players in the space of gene-based therapy (HIT, providers, etc.). Prior to the CMS coverage decision, patients often had only the option to pay out of pocket for genetic sequencing. Based on this NCD, Medicare patients with advanced cancer have coverage. That coverage will be limited to FDA approved diagnostics, such as F1CDxTM, but the test results may be used both to match patients with FDA-approved gene based therapies and to identify patient candidacy for clinical trials of therapies not yet approved by the FDA. This potentially charts a clearer, more predictable path for additional NGS diagnostics in development, not only because of payment and regulatory precedent, but importantly because of the potential to speed up clinical trials for gene based therapies if candidates are identified more quickly.
Patients diagnosed with cancer, or really any life-threatening condition, want and deserve access to the latest proven advancements in medicine. This NCD marks a big step in patient access and for development of targeted therapies and companion diagnostics. It also brings stakeholders attention to the looming challenge of payment at a systemic level. This remains a primary focus of the discussion among payers and policy makers.
CMS Administrator Seema Verma and other high-ranking Government officials have discussed their intentions to curb costs for Medicare and Medicaid specifically related to novel genetically targeted therapies because they come at notably high cost. Therapies of this type can be priced between $300,000 and $500,000, with some reaching as high as $1 million. CMS does not negotiate prices, so its efforts to reduce the cost burden are focused on alterations to the format of payment for state agencies and managed care organizations who do. Some concepts floated by officials include paying less for a given drug based on the target indication used with a patient, or paying for high-cost drugs over a longer period of time. The CMS final NCD for genetic sequencing diagnostics only further brings this cost challenge to the forefront.
As policymakers and payers take on the burden of cost coverage, the progression of the healthcare sub-industries focused on leveraging patient’s genetic and other “-omic data” will benefit from the step toward better coverage. However slow and bumpy the progress may seem, expect to see continued or accelerated investment in diagnostics and therapy by both public research sources as well as private equity.
As these areas of investment continue, HIT vendors will have an opportunity to differentiate. Cancer in particular offers a slightly more carved out business channel for vendors to target with specialized solutions and a big market to warrant the investment. Cancer patients often have large care teams to manage, often have greater needs to make contact with the care team or show up for therapy and have a lot of test results to manage. EHR systems, telehealth companies, care management, risk based business models and other subsets of HIT all have an opportunity for differentiation within this specialized care community.
Vendors such as Flatiron, recently acquired by Roche for $1.9 Billion, Syapse, 2bPrecise, Orion Health and others have taken early focused steps both with respect to “Precision Medicine” and to advancements in oncology care (as the CMS NCD specifically pertains to). Healthcare IT vendors, with this NCD, have yet another signal to consider the role of genomic and other comparable complex data types in their systems.
Here are a few specific applications to keep an eye on related to this evolution:
As NGS data becomes more readily available and expected as a component of care, analysis and facilitating utility of these complex forms of data will be an opportunity for competitive advantage.
Amid the Fire & Flurry – #JPM18
This past week I attended the annual J.P. Morgan Healthcare Conference, and the multitude of satellite events surrounding it, which attracts about 40,000 people from across the industry. It is where the business of health occurs, where money (Wall Street, PEs, VCs) looks to make a deal with just about any business in healthcare (life sciences, medtech, hospital systems, payers, start-ups, etc).
It’s a fascinating event to attend and arguably one of the best for getting a broad read on the entire healthcare sector and its future trajectory. Following are 8 significant takeaways:
Loud noises, but steady hand at the tiller. A lot of political “fire and fury” came out of Washington in 2017 regarding the Affordable Care Act, but despite several attempts ACA repeal did not occur. Political noise may continue to spout from Pennsylvania Avenue – but over at HHS, new leadership will quickly get down to business, proceeding with value-based care initiatives. The latest example: CMS’s reinstatement of rules for voluntary bundles as an APM under MACRA.
Medicaid in stormy seas. While CMS stabilizes Medicare, state-run Medicaid programs will see turmoil. As of this writing, CHIP remains unfunded, and Medicaid funds distributed via state designated health programs under 1115 waivers will evaporate. This will impact many states significantly, as healthcare costs are already a leading line item in their budgets – nearly 40% in our home state of Massachusetts. How states address this federal shortfall bears close watching.
Cost consciousness arises. The transition to value-based care (VBC), contractions in CMS spend and likely increase in uncompensated care will force healthcare organization (HCOs) to take a hard, deep look at costs. Administrative and supply chain costs will be primary targets. As a corollary, this cost consciousness extends to health IT. If your solution does not deliver a clear ROI in a year or less, you will get the brush-off.
New breed of CIO. The majority of CIOs that oversaw go-lives of enterprise EHRs over the last decade are not likely to be the ones to drive their HCO’s digital health strategy going forward. A new breed of CIO is on the rise: One with a combination of clinical, business, informatics, and IT skills. They intuitively understand the operational and strategic value of IT in both a clinical and business context.
Tax reform accelerates M&A. Recent passage of the tax reform bill brings fresh cash into the coffers of businesses. This cash influx will be leveraged to drive further consolidation rippling across all sectors of the healthcare market. The proliferation of start-up health IT companies with few exit options will lead to rapid consolidation as larger companies leverage cash for strategic fold-in acquisitions.
Next generation of start-ups emerge. I spent some time at the Startup Health Festival to hear many a pitch from young start-ups. Instead of conversations on how to disrupt or transform healthcare, which were the norm a couple of years back, conversations this year addressed a specific issue or problem in the healthcare system. These companies demonstrate a deeper level of understanding of healthcare than years past – typically on how they will provide a “tech-enabled service.”
There’s gold in removing administrative burden. From physician burnout to increasing expenses, administrative friction creates a huge burden across this sector. HCOs will increasingly look for solutions that minimize this burden. During a panel I moderated on Blockchain, the panel was unanimous: Blockchain, in conjunction with cloud computing and smart contracts, shows significant promise of removing administrative friction in provider-payer interactions.
Blockchain is coming, and coming fast – but it will not be widely deployed until ~2022. More near-term is the use of AI/ML to optimize and automate administrative activities. I spoke with several companies, typically at Series A funding level, which have already gained significant wins in relatively short order. This is one area to watch closely in 2018; growth in demand for these solutions will ramp up significantly.
The Fury
Vice President Joe Biden spoke at the Startup Festival, reflecting on his son Beau’s death due to cancer. Biden spoke passionately to the crowd about the Cancer Moonshot initiative and the dire need to change the current system of health in this country.
He did not mince words.
Biden implored the audience to dedicate themselves to improving healthcare delivery and persist until they get it done. But Biden also deplored the industry for failing to deliver, after $38B in federal investment, a digitized healthcare system with data liquidity at its core. Unlike most, who readily level this charge at vendors, Biden placed blame squarely on HCOs, which is not unfounded.
Will FHIR come to the rescue in 2018? Unlikely in any significant degree, as we wrote in our 2018 Healthcare IT market predictions, outside of clearly defined clinically integrated networks.
The Flurry
It is clear that the flurry of activity that concluded 2017 (Optum-DaVita, CVS-Aetna, Providence-Ascension, Dignity-CHI, Advocate-Aurora, Humana-Kindred) will not subside anytime soon. 2018 will be yet another year of significant consolidation as the entire industry grapples with tighter margins and the need to migrate from tertiary, system-centric care to preventive, consumer-driven care.
