Shaping the Future: The Role of Payors in Value-Based Care

June 19, 2017
William A. Knowlton
Michael B. Lampert

Value-based care initiatives require the sustained participation of public and private sector payors, including significant investments in administrative capabilities and data management and analytics to develop meaningful quality measures and financial incentives. Ultimately, whether value-based care initiatives lead the health care sector towards a new reimbursement paradigm will depend on their replicability outside of Medicare demonstration projects and time-limited initiatives.

In this segment of our value-based health care teleconference series, “Shaping the Future: The Role of Payors in Value-Based Care,” health care partners Bill Knowlton and Michael Lampert and health care associate Katie Sullivan will discuss ongoing value-based care initiatives among private payors, the potential for payors to leverage their care management and data analytics experience, and how provider realignment may result in new types of relationships between payors and providers.

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Bill Knowlton: Good afternoon everyone and welcome to Ropes & Gray’s teleconference on shaping the future of the role of payors in value-based care, which is part of the transition of value-based health care teleconference series. Thanks very much for joining us. My name is Bill Knowlton, and I’m a partner in the health care group from the firm’s Boston office. I’m joined today by my colleagues Michael Lampert, also a partner in the health care group in Boston, and Katie Sullivan, an associate in the health care group, who is also resident in our Boston office. We hope you find the program worthwhile. Before starting, though, we wanted to run through a few reminders. First, you should have already received the slides we are using today. If you have not, please email, and someone will send the slides to you right away. Second, our presentation is being recorded. Your phone line, though, is muted. You will also have an opportunity to ask questions during the presentation. If you would like to do so, please email your question, again, to We will try to weave your question into the presentation, or if time allows, answer it at the end of the program. Fourth, we have to say this as lawyers, today’s presentation is for educational informational purposes only. Nothing we say, nor the slides should be construed as legal advice or a legal opinion on any specific facts or circumstances. Today’s presentation is not intended to create a lawyer-client relationship, and you are urged to consult with your own lawyer concerning your particular situation and any specific questions you may have. And finally, if you’re interested in receiving CLE credit, please fill out the attorney affirmation form that was included in your confirmation email. At the end of the presentation, we will give you the number code to add to the form, so you can receive CLE credit. Once you get the code, please send the form to So with all the fine print out of the way, let’s begin.

This is a program about payors and their relationship to value-based health care, we’re going to cover many different aspects of the payor involvement in value-based health care. In January, 2015, CMS announced that half of its payments will be tied to quality or alternative reimbursement models by the end of 2018. Already by March of last year, March of 2016, CMS estimated that 30% of its payments were tied to quality. Similarly, from a private payor point of view, the Health Care Transformation Task Force made up of payors, providers and suppliers, has a goal of 75% triple aim, based on value-based care arrangements by 2020. And already 40% of provider and payor business is in the form of value-based reimbursement contracts. And that was at the end of 2015, so we expect it to be even higher now.

So, turning to slide 2, and I’ll indicate the slides we’re reading because we’re not moving them – I’ll tell you where we are in each step – we want to establish a baseline terminology for our discussion in the introduction. We will then provide a brief overview of current value-based health care programs offered by Medicare and Medicaid, by private payors, and also by international payors or governmental payors in most cases. And next, I’ll turn it over to Michael Lampert, who will cover key legal factors that impact value-based health care arrangements in the U.S., and then Katie Sullivan will discuss key factors in the design of value-based health care programs. And finally, Katie will also give you an overview of our value-based health care resource center, and open the call up for audience questions.

Turning to slide 3, you’ll see an interesting diagram proposed by Michael Porter and Thomas Lee to create a high value health care delivery system that addresses both the siloed organization of care, and also the reimbursement regimes, including fee-for-service, which rewards providers for providing services, not for the cost of value, and global capitation, which rewards providers for spending less but not for improving outcomes, that reinforces separation of primary care providers, specialists, pharmaceutical and medical device suppliers and payors from delivering high-valued care. The VBHC movement represents a movement away from fee-for-service models that may encourage the delivery of unnecessary or duplicative or ineffective not evidence-based care. It really brings together the reinvention of managed care in which technology, evidence-based management and big data merge to allow the application of sophisticated quality metrics and performance measures to lead to efficient and effective delivery of care.

We define value as a combination of care outcomes. For instance, if successfully completed a cardiac rehabilitation program and compliance with specific care pathways – are you in a smoking cessation screening for example. We define success as meeting specified cost and quality benchmarks, the extent of gain risk sharing – it varies by program of course.

They’re basically, turning to slide 4, there are two non-exclusive formats for VBHC, episode-based, also known as bundle payments and population-based. You can have both occurring at the same time. You can have a Medicare beneficiary assigned to a Medicare Shared Savings Program, ACO, and at the same time undergo a total knee replacement at the hospital that has been selected for participation in a CJR (comprehensive joint replacement) program. Although out presentation is agnostic as to which approach is better, we will present VBHC initiates to include either or both and the diagram in slide 4 shows a few pros and cons for each approach, which I won’t repeat today.

Turning to slide 5, you’ll see an interesting group of circles that shows considerations that may be included in a payor’s decision to invest in VBHC programs. Moving from left to right, the first circle – many VBHC elements may be included in medical, rather an administrative spend, offering payors to comply with MLR requirements that we have under the ACA and, which, you know, actually continue in the current house bill, if that proceeds. Moving to the next circle, in determining whether and how to cover certain medical devices, the presence of a robust value-based support program offered by medical device companies may be a relevant differentiator. We’ve seen many examples of clients in the medical device space that are offering support programs which include their devices of course, but also help reduce cost and hopefully increase outcome and quality. Moving to the next circle, there are Medicaid management services that might be available for formulary decisions and built-in medication management and adherence supports. So that’s something that may be offered in a formulary situation.

How to receive and interpret quality and outcome’s data between the payor and its provider network is a crucial component. Payors will need to analyze whether their current in-house offerings can be expanded to meet this demand, or if contracting or acquiring a third party data analytics provider will be necessary. So data analytics either developed in-house or acquired or contracted with is an important component of a VBHC design. Finally, the provider support network, the last circle encouraging providers to sign on to the value-based health care effort, particularly with regard to encouraging provider risk-taking will depend on the payor’s ability to demonstrate their commitment to working with providers as a partner and consultant by leveraging and sharing the payor’s experience in forecasting financial performance against quality – performance against quality benchmarks. Practice supports might include routine data sharing, a stream-like quality reporting offered by the payor. This should help a physician practice transition from MACRA to MACRA APMs and MIPS, as MACRA evolves over time.

Next we’re going to go over some specific VBH programs starting with Medicare and moving to Medicaid, then commercial payors and finally international.

On slide 7 now, you’ll see the various initiatives by Medicare, or initial initiatives. Medicare ACOs created as part of the Affordable Care Act. As of January 2017, there were 562 ACOs, 120 of which were risk-bearing. Bundled Payments for Care Initiative, BPCI, is another episode-based versus population-based – a voluntary program and then finally, and all of you know these programs so I won’t go into that much detail, but another episode-based program which is an outgrowth of BPCI, but narrow in scope, is the Comprehensive Care for Joint Replacement or CJR. There’s been an additional development of episode payment models, EPMs, for coronary artery bypass grafts, acute myocardial infraction, cardiac rehabilitation following heart attack or surgery. Participants are selected based on location. CMS created a formula for eligible MSAs based on the threshold number of eligible procedures in the MSA. In other words, are there enough procedures in the MSA to make it worthwhile? A subset of MSAs was independently and randomly selected for CJRs and EPMs.

Turning to slide 8, additional Medicare programs. The Comprehensive Primary Care Plus program, which is an outgrowth of the Comprehensive Primary Care Initiative started in – this one, the plus one, began in January 2017 and will run for 5 years and involves approximately 2,800 PCP practices with 13,000 physicians. There are two tracks – in Track One, physicians receive regular Medicare FFS, Track Two receive an increased prospective FFS payment. There are different payor partners, Medicaid Fee-For-Service, Medicare Advantage, Medicaid MCOs and commercial insurers including ERISA plans. The Part D enhanced MTM – Medicaid Therapy Management program – tests whether providing Part D sponsors with additional medication therapy management investments lead to reduced Medicare expenditures. Participating plans can vary the intensity of MTM items and services. There are six participating Part D sponsors already in various parts of the country. This program started in January, also January 2017, so relatively new initiatives. And finally, the Medicare Advantage Value-Based Insurance Design. It applies to enrollees of CMS specified chronic conditions. In 2017, it’s starting with diabetes, congestive heart failure, COPD, stroke, hypertension, coronary heart disease and mood disorders and in 2018, dementia and rheumatoid arthritis will be added.

The plans offer supplemental benefits or reduced cost-sharing to a defined population. This started with the Medicare Advantage and Medicare Advantage Part D plans in seven states and will be expanded to three more states in 2018.

Moving to slide 9. On the Medicaid side, it’s getting to a point where it’s easier to talk about who hasn’t incorporated at least some aspect of VBHC into their state program. The map on your slide is a conservative estimate of states engaged in some form of VBHC; there are many newly approved and pending waivers that may change this significantly relatively soon. But the green states represent additional payments from the state to support delivery system reform. Light blue represents states that have Medicaid programs with evidence-based payments and yellow states represent population-based payments including Medicaid ACOs.

Turning to slide 10 to give you an idea of some examples of different programs that are currently ongoing – Arkansas launched in 2013, an episode-based program. They defined 14 episodes of care with new episodes planned areas of surgical intervention and hospitalization management. They closely coordinate with their Arkansas Blue Cross and Blue Shield and Arkansas QualChoice and cover a majority of Arkansas residents. This means that providers have consistent incentives and reporting tools across all payors. These tools are used beyond Medicaid in Arkansas. And they’ve developed an analytic capacity, including a multi-payor portal on a common platform which allows for the production of quarterly reports to providers.

Near and dear to us in Massachusetts – Massachusetts received approval for a new waiver supporting a reform to ACOs. It’s the first major overhaul of MassHealth and Medicaid program in over 20 years. ACOs are intended to provide care to the majority of MassHealth members when this is totally up and running. There are three models for the ACO program. An MCO in Massachusetts can partner directly with an ACO; an ACO can contract directly with the state; or an ACO can subcontract with the MCO. So, full partnership with MCO, subcontract with an MCO or direct contract with the state. The ACOs have a variety of options to participate. The ACO/MCO partnership gets a comprehensive per member, per month capitation rate. ACOs that contract with Mass Health or MCOs have risk tracking options that vary in the amount of potential for losses and gains. This is still a work in progress and we’re working with a bunch of clients that have applications that have just been approved, and they’re proceeding through the system. What’s a very interesting component of this, which is we think is pretty novel, the ACOs are required to partner with community-based home and behavioral health services to address the care needs of individuals with high-cost chronic conditions such as the disabled or residents with mental health issues.

The third example we wanted to identify is Ohio. Ohio received a state innovation grant that included the adoption of episode-based payments and since 2013, they have defined over a dozen episodes to be addressed to the program.

Similar to Arkansas, while the episode-based payments only apply to services provided to Ohio Medicaid members, additional commercial payors have been participating in the model and have released their own performance data.

Moving to slide 11, we’ll talk a little bit about the commercial payors. Blue Cross and Blue Shield has been running a program since 2009, prior to the passage of the Affordable Care Act. In their model, you get a modified five-year global budget to cover all Blue Cross Blue Shield HMO and PPOs as patients that have a PCP in the group. The budget is adjusted for changes in the patient’s health status and groups have the option to engage in risk-sharing – quality incentive payments constitute up to 10% of a total per member per month payment.

Humana is partnered with different provider groups in four states – New York, Indiana, Pennsylvania and Colorado. Wal-Mart, like many self-insured or self-funded employers, is implementing some interesting programs: packaging payments in a single bundle payment, directing patients or their employees, I should say, to certain medical centers that have proven that they provide high-value, high-quality procedures. They pay for the travel to those medical centers, for instance the Cleveland Clinic for Heart Care, and there are no out-of-pocket costs. Different companies, as I’ve said, have adopted similar arrangements and we’re seeing more and more of that.

Just to point out, that reducing cost – it doesn’t depend on the payment or your national health care program or the model that you’ve adopted in your own country, there is a fair amount of international VBHC in public situations. I won’t go through each of them because I’m going to turn it over to Michael now, but you’ll see the slide in the UK, Germany and the Netherlands – three different government programs – Netherlands being managed competition and UK and Germany being more public affairs, but you’ll see that this is a trend that is hitting the international scene as well and regardless of what health care reform we have, it will be an interest in reducing cost.

I’m going to turn it over now to Michael Lampert now, my colleague, to talk through some of the legal issues. Michael…

Michael Lampert: Thank you Bill. And so I’m on slide 13 now. Hello to everybody and thanks for joining. I’m going through some legal issues really from the payor perspective as the theme of this iteration and installation of our teleconference. But these, of course, are relevant for providers and for other sectors, other participants in the industry, who will be on the other sides of deals with payors, will be responsible for implementing them, or will be seeking them as opportunities to distinguish themselves and position themselves in the market based on the value of care delivered.

We’ll focus on four particular areas – medical loss ratios, the Anti-Kickback Statute, Civil Monetary Penalties Law and insurance regulation. These of course begin to scratch the surface and they go deeper than the surface of the core of legal issues that organizations need to consider when entering into value-based deals with payors and that payors need to consider, but are intended to be illustrative of the key issues. And with that, we’ll turn to slide 14.

We begin intentionally with the medical loss ratio requirements here. We begin with them, of course, looking at the definition of what they are, which we show up at the top of the slide. The medical loss ratio is just the ratio. It’s the calculation of health care claims, plus eligible quality improvement expenses, over net premiums. And that’s premiums net of taxes, licensing and regulatory fees. The reason that we look at these first, or there are really two reasons, I should say, we’ll look at these first. Number one – MLRs are a driver. They are a driver for value-based care. Enacted under the Affordable Care Act, section 2718 of the Public Health Services Act requires that 80% of individual and small group premiums and 85% of large group premiums have to be spent on a combination of health care claims and eligible quality improvement expenses. So to have an MLR of at least 80% or at least 85%, this is a requirement that applies to all types of licensed health insurance, whether on or off the exchange, does not apply to self-insured plans, but otherwise, really does apply to all insurance.

The reason this is a driver for value-based care is that from the payor perspective, the MLR restrictions and requirements really limit an insurer’s profit to fundamentally, we’ll use the large group market, 15% of premium. And that’s not all profit because, of course, in there needs to go ineligible expenses and administrative costs which fundamentally sets an incentive to set risk-sharing arrangements with other participants in the health care market, really those being covered by the payors and by the premiums, to set that risk sharing at 85%, which is to say that if a provider group or even group of non-providers, but other participants of the industry, like pharma companies, like med device companies, collectively, will provide care for 85% of the premium dollar, then that can, number one, reduce administrative expenses for insurers and therefore by increased profit and number two, of course, can simply preserve profit within the MLR permitted lane. And so, the MLR rules, by putting a cap on administrative expense plus profit, really lead to a shifting of risk from the insurance industry, from the payor side, to other participants. And a way to shift risk is to pay for value and to reward the delivery of value with a gain-sharing percent of the savings up to that 85% and to penalize losses by taking some of the money back. So the MLR really is a driver and that’s one of the reasons we’ve focused on it first.

The other reason that we focus on it first is because whenever developing programs, especially innovative programs, it really matters on which side of the equation the costs fall. The costs need to count, fundamentally, for this to work, as health care claims, or as eligible quality improvement expenses. If they don’t, then there really isn’t an incentive or a strong incentive for a payor to provide them because it comes directly out of the payor’s 15%. Now Bill mentioned the Medicare Advantage Value-Based Insurance Design or VBID initiative. That is something that is not of course unique to Medicare Advantage, but is really a description of the payor industry movement toward encouraging intelligent and efficient use of health care by enrollees, by beneficiaries, by those who are covered, and it’s not just by setting the co-pays to try to drive patients to the most efficient and effective providers, but providing other benefits, providing supplemental benefits that can assist in driving patients toward more effective lifestyles fundamentally and toward low-cost decision making. A question then, of course, that payors face when developing these sort of expenses and that providers and others in the industry face when trying to pitch these types of programs to payors, is whether the programs will count as eligible quality improvement expenses.

We show in the lower right hand corner of the slide, fundamentally, the definition of qualified improvement expenses. That they’re expenses that must be designed to improve care quality, that the desired positive outcomes need to be objectively verifiable and calculable, that the spending should be directed toward enrollees or a population that includes enrollees and that they should be grounded in evidence-based medicine, widely accepted clinical best practices or other criteria. These are all requirements that to be a qualified improvement expense, an eligible qualified improvement expense, a program needs to meet. There are then a variety of categories of different allowable qualified improvement expenses, which we show in the lower left hand corner. There is a category for expenses programs that improve outcomes through quality reporting, care management and coordination or care compliance. These are things that payors frankly have an incentive to do and to do in partnership with others involved in the care continuum.

The second, readmissions prevention, including patient education and counseling, anything of course that keeps patients out of hospitals and maintains the patients’ health, is an effort that will save money ultimately from the payor perspective, from the industry perspective, and therefore is an eligible expense.

Patient safety and reduction of medical errors is the third category and fourth category is improving wellness and health promotion activities. So these are all categories of activities that, consistent with the MLR rules, count toward that 85% in the large group market, 80% in the small group market and therefore are activities that a value-based insurance program, part of a value-based care initiative that might be put together in collaboration between a payor and a provider group or a payor and others in the industry, including new entrants in the industry, digital health based entrants in the industry, may focus on. Now as currently written we’ve all certainly been hearing and reading and watching about the AHCA, the potential repeal bill. As currently written and at least as passed by the House, and to the extent we know what’s going on in the Senate, does not repeal the MLR requirements. And the absence of that repeal does suggest that this driver toward value-based care initiatives anyway and overall and particularly the calculations that payors will make about the types of programs that they will be excited about supporting because they fall on the right side of the ledger, would be expected to continue.

And with that, I’ll turn to slide 15, getting toward the Anti-Kickback Statute. Now this is obviously a statute about which health care practitioners across the industry are familiar and have been familiar for a long number of years. There’s nothing new about the Anti-Kickback Statute. It’s been around for decades. But that, in part, is the point that we wanted to address in this slide. That it has been around for decades. Of course what the Anti-Kickback Statute, as we describe it at the top of the slide in that box next to scope, is intended to do, is to prohibit payments that are intended fundamentally to drive volume. Either to increase volume or to drive volume to a particular place. Now from a thematic perspective, the Anti-Kickback Statute is really intended and addresses, incentives that exist in a fee-for-service world. Of course, that’s not inconsistent with activities that organizations, together with payors would want to undertake in a value-based world, because value is not volume. Incentives to increase value, incentives to increase performance, incentives to increase the quality of care that’s delivered, are incentives that are consistent with the objectives of the Anti-Kickback Statute, but, while there is no conflict in theory, value can beget volume. Value can lead to volume, value can lead to and in fact, would be expected to, lead to a reorientation of care to high value providers and then the Anti-Kickback Statute begins to pop back toward relevance. Because where there can be financial incentives that are developed either within provider groups or between providers and others within the industry and the care delivery continuum, or involving payors, those incentives, if they drive delivery, and if they drive volume to one place or another, or it might be alleged to increase volume, then, of course, bring the Kickback Statute into direct focus.

So most federal programs that Bill discussed earlier, including BPCI, CJR, ACOs, Medicare Shared Savings Program, have had fraud and abuse waivers that have been issued by HHS. Now commercial arrangements, commercial ACOs, arrangements put together by commercial payors that do exactly the same things, don’t benefit from those same waivers. The waivers aren’t applicable. Nonetheless, participants in the industry have been very comfortable for the most part operating in congruence with the waiver programs when doing more or less the same thing. Questions, of course, arise when moving outside of something that looks just like the Medicare Shared Savings Program or when moving outside that looks like a bundle that’s aimed at the hips and the knees and that’s put together the same way CJR or BPCI might be put together. And that’s really where the questions arise and where people, of course, look toward the safe harbors. Now the managed care safe harbors, there are a few of them that depend on the nature of the plan involved, and they can protect price reductions, but there are questions that become presented when the payor is deeply involved in delivery of services. There can be questions that are presented when the risk ratios or the risk arrangements that are in play, vary from those that make a particular payor arrangement eligible for one of the particular safe harbors there. So these safe harbors matter quite a lot in any deals that payors enter into with providers, with device companies, with pharma companies, with digital health companies, and getting into novel deals, which of course are those that value-based health care seems to be leading toward and that the industry is excited about and the questions that become presented under the managed care safe harbors have to do with the specifics of coverage. They have to do with whether there are new forms of rebates being proposed, they have to do with whether there are organizations participating in the deal with the payor that aren’t organizations that typically had deals with payors in the first place, take device companies as the prime example of that, where the applicability of the managed care safe harbors comes into question.

Getting to some of the other safe harbors, we note the personal services safe harbor, personal service arrangements for any types of consulting or other arrangements that organizations that are subject to value-based reimbursement might want to engage in, or if they are dealing with those that are subject to value-based reimbursement, might want to sell. Now that safe harbor, of course, requires that compensation has to be set in advance and value can never be determined in advance. That’s sort of the thing about value and in a way, it’s the point of all of this. That we’re supposed to determine the value of care and pay for it at a level precisely determined based on what’s delivered and that’s not set in advance and therefore that safe harbor tends not to be available. There are other safe harbors that we don’t note on the slide, but the discount safe harbor being one, the warranty safe harbor being another, that come directly into play in arrangements that organizations enter into with providers, think about organizations that pharma companies might enter into with payors around the different differential rebates based on outcomes. The discount safe harbor, of course, anticipates that the buyer is an HMO, is a cost reporter or is a beneficiary, and so questions come into plan when the recipient of the discount isn’t directly in that payment chain.

The warranty safe harbor is a safe harbor that is, of course, in a way, directly built around delivery of value. That if a product fails to perform pursuant to a warranty offered in writing at the time of the purchase, that the purchase price is refunded because that product had no value. The warranty safe harbor, however, is limited because it doesn’t allow for any coverage, or for safe harbor coverage, of any arrangement that refunds more than the cost of the product being sold unless the refund is to a beneficiary. And so if, one wants to enter into a deal with a payor that says, dear payor, if this arrangement doesn’t work out very well, if we don’t deliver the value that you’re supposed get, if this product does not succeed, we will pay not only a refund of the price paid, but also, for example, the cost of the attendant surgery or attendant in-patient hospitalization that the patient might require as a result of that failure, the warranty safe harbor becomes of much more limited use.

Turning to slide 16. We point out really that we’re not the first to make this observation. In response to the FY17 HHS-OIG solicitation for suggestions for new safe harbors, a number of organizations, including PhRMA and AdvaMed, the industry groups for the pharmaceutical industry and for the medical device, medical technology industry, Eli Lilly, Medtronic, as named organizations who submitted publicly reported and publicly available letters, to HHS-OIG, acknowledged the limitations of the current safe harbors, decried somewhat that the resulting questions about protection – regulatory protection – can hamper and impede development of value-based programs wherever they fall on the spectrum. These could be programs directly involving payors or they could be downstream from payors, and sought expanded safe harbor protection either through expansion, for example, the discount safe harbor, the warranty safe harbor, or through development of new value-based health care safe harbors for these types of arrangements in order to support them. So these letters sit, there has not been public action taken by HHS-OIG with regard to them, but they nonetheless provide a very focused description of some of the arrangements that different participants within the industry seek, how those arrangements can push forward, the ultimate aim of lower cost for higher value, but how the Anti-Kickback Statute can pose a hurdle for pushing those arrangements out so that they are available throughout the industry.

We’ll turn to slide 17 next. Moving on to the Civil Monetary Penalties Law. Civil Monetary Penalties Law does a lot of different things and on this slide we really focus on just two of them. We focus on the gainsharing prohibition and we focus on the beneficiary inducements prohibition. So the gainsharing prohibition has been historically a stumbling block to value-based programs. The gainsharing program really arose out of what some may call value-based health care 1.0, which was the IPPS. Hospitals are paid, of course, for the most part, under the in-patient perspective payment system that pays the hospital a bundled price for all care that a patient receives from admission through discharge. That, in a way, is paying for value because it is at least holding hospitals responsible for putting controls on the cost of care that are delivered. Now hospitals historically sought to, in some programs, push that risk down by entering into gainsharing deals with physician groups or provider groups to say, hey help us to save money. Help us spend less in the delivery of care to patients and if you do, and if we do spend less, then we will share some of that with you. Those were gainsharing programs.

Now those programs, if undertaken by a payor, did not run into federal prohibition other than Civil Monetary Penalties Law, but if undertaken by a hospital, if the hospital was the one making those payments did, and so that actually, historically led to an opportunity for payors to provide some more innovative programs, more innovative gainsharing programs, than could others within the industry and within the continuum. With the passage of MACRA that changed because the statute was amended to permit hospitals to make payments to reduce the delivery of items or services so long as they were not medically necessary. What that did was number one of course, to open up those opportunities to hospitals and number two, it did remove a little bit of the advantage that payors had in sponsoring those programs from a regulatory perspective. So of course, there are advisory opinions in this area and the safeguards that are articulated in those advisory opinions though do remain relevant even with the change under MACRA to hospitals engaged in these programs and also to payors that are participating in developing programs like this.

Very, very quickly, we’ll address the beneficiary inducement prohibition. That is more or less a kickback statute aimed at beneficiaries. That thou shall not, the statute more or less says, provided an inducement to a beneficiary that would be likely to cause that beneficiary to select a particular provider or supplier. The beneficiary inducement provisions do apply universally, not just to hospitals and are relevant, of course, for value-based arrangements, where getting the patient to do the right thing, from a care, quality, and cost prospective can be hard to do and where little nudges along the way may be very helpful. Think about what Bill described about value-based insurance design. Having co-payments sized in order to get the patient going in the right direction. Having other elements of support provided to the patient. These are questions that come up in the Medicare space and therefore with Medicare Advantage plans and products serving them, in developing arrangements that can effectively channel patients the right way. So for payors, there has obviously, for a long time, there’s been focus on network coherence and on the limitations on enforcing network coherence, driving patients into the right place within a narrow network or somewhat broader network, and so this though is an opportunity for a partnership between payors and providers because there have been changes to the statute that now do permit, for example, items or services that promote access to care and pose a low risk of harm. These types of arrangements – remuneration that can be provided to patients to support intelligence insurance design – are an area that can be of growing focus in partnerships along the care spectrum.

And we’ll spend just a very brief moment now, on slide 18. For the last set of legal considerations which fall around state laws. State laws are very varied and they’ll affect payors and potentially providers really depending on the state. Insurance licensure is the first area to address quickly. Now some states’ insurance rate regulations can apply to entities that bear risk under value-based health care arrangements. Payors, of course, are accustomed to compliance with state laws, but this can be a new area for their partners who accept insurance risk, who accept downside risk, and it therefore matters very much both to the participants who do deals with payors and to the payors themselves on what the partners can do and under what regulation they fall subject, which can be different across the 50 states, based on the structure of their value-based risk sharing deal. Risk-bearing provider organizations, very quickly, is a category of organization that has been recognized in some states that have developed requirements that may be alternative to, or additions to, traditional state insurance regulations, that again present the questions of whether a provider group for example, that organizes to accept risk, faces capital requirements. Does it face reserve requirements? Does it face insurance holding act type requirements? Those are the questions presented to RBOs.

Network adequacy, of course, has always been an issue for plans to have the ability of plans to deliver benefits by providing access to a sufficient number of providers that are coherent. Under MACRA, CMS may establish network standards for managed care that will nonetheless allow states flexibility to establish further standards for network coherence. The tension in value-based health care under network adequacy, has always been between developing a network that’s participating in initiatives and providing sufficient access to providers, but that may not be participating in value-based health care arrangements, if there aren’t enough providers to ensure compliance with the network adequacy standards in the first place, who agree to accept that type of risk.

Lastly, and then we’ll move on to the implementation, is ACO certification. Really, a flag that there are several states, including New York and Massachusetts, that have created ACO certification programs. The National Care Quality Association is an organization that recognizes these types of certifications. Certification is voluntary for the CMS programs, but can be required for participation in state programs and so is a further area that organizations need to face.

And with that, I will turn for design and implementation to my colleague, Katie Sullivan.

Katie Sullivan: Great. Thank you Michael for that really, really in-depth legal analysis and also Bill thank you for the earlier overview of value-based health care program.

Moving on to slide 19. The point of this section is that we’re going to discuss a few key aspects of design and implementation of these types of programs. Taking into account the type of concepts that Bill and Michael previously discussed, just as an advisory, this discussion is purposely topical. Measure selection, which we’ll discuss here on a single slide, for example, is something on which one could base an entire career.

Moving on to slide 20. This diagram depicts elements of VBHC implementation. Beginning with target population identification, including whether to incorporate payments that are population-based, episode-based or both and moving clockwise around the diagram, we’ll cover these types of key inputs into the VBHC design.

Moving on to slide 21. What we have here are key questions that are relevant to identifying a target population which is the first step in implementation of a VBHC program. A payor or other parties would need to identify where there are opportunities for improvement in the system. For the most part, the fraud and abuse laws discussed previously are not implicated in this step. Rather, it requires establishing reliable baseline costs and identifying a population that will receive the VBHC intervention. However, network adequacy requirements could come into play here if the initiative does not provide sufficient provider uptake and enrollment for beneficiaries enrolled in the payor’s program.

Moving on to slide 22. This slide goes over key questions that tackle determining what performance measures are relevant. As I mentioned earlier, this is a very, very, very high level view. The first question here is one that we started with at the beginning. Are we looking at outcomes or process? And then, in terms of identifying relevant metrics, there are thousands of quality measures that are potentially available for use. Selection here needs to be balanced against whether the measure is being used by other programs, the ease of use, and the reliability of the measure. Consistency with other programs is becoming increasingly important as more and more programs are getting started, particularly this is something that alleviates administrative burden on providers if they are reporting under the quality metric for CMS, a private payor, Medicaid, or even employer-specific purchasing programs.

Moving on to slide 23. Appropriately structured participation incentives are key to both provider uptake and also compliance with fraud and abuse requirements. As Michael discussed, we are in an in-between phase with fraud and abuse laws and in the absence of clearer guidance from HHS-OIG and CMS, incentives provided should be structured to comply with an available safe harbor or advisory opinion guidance as closely as possible. Also, as Michael mentioned, some incentives may be capable of being included in a payor’s medical spend for purposes of medical loss ratio compliance and that would also be a key consideration. Other potential incentives for providers would include a lower administrative burden, perhaps through changing or reforming how reimbursement is requested or changes to billing requirements. Available reimbursement for patient counseling or other types of care services that are not traditionally reimbursed. Alleviation on the pressure on providers to spend as little time as possible to achieve a patient visit. And dedicated support for coordination between other providers and care team networks that are part of the network.

Moving on to slide 24. Not only does implementation do you have to chose quality metrics and outcome metrics, these need to be verified and monitored over time. For programs that are intended to span multiple years, or even be open-ended, it’s possible that quality metrics established at the outset may eventually become outdated or even superseded by new clinical evidence. Similarly, it’s possible for improvement to plateau. In a program that’s based on expectation of continuing improvement against an initial benchmark, this can become problematic in the later years of a program’s operation. And it’s also possible that measures can be selected that are in hindsight incorrect or misaligned with the value-based intervention. For example, a study of CMS’s mandatory hospital value-based purchasing program, which imposed an outcome-based quality measurement, but left quality improvement interventions up to providers found that the program did actually not show a meaningful decline in 30-day risk-adjusted mortality following introduction.

Moving on to slide 25. This slide is more of an overview of potential impediments to successful VBHC implementation. A lot of the conflicts here are, what are payor and provider readiness to actually move forward into VBHC. Are administrative supports there, have network alliances already been created, do they exist, or is there tension between a provider in perhaps one integrated care organization needing to coordinate with another provider in another integrated care organization.

Finally, moving on to slide 26. We see the same diagram that we started off the hour with and the point here is that bundled payment design is but a single element of what Porter & Lee consider necessary to deliver value in the health care system. This presentation is mostly concentrated on items 1, 2 and 3 over on the right side of the slide, but many of the changes needed to fulfill this vision of value and health care will come from outside the payor’s sphere, as providers self-organize and respond to changes to payment methodologies. As even more sophisticated information technology and data-driven health IT platforms become available to track and measure outcomes, suppliers, including medical device and pharma offer complete integrated solutions to care pathways.

Moving on to slide 27. This is going to be very brief, but we just wanted to highlight that Ropes & Gray has put together a website that covers many of these topics.

Moving on to slide 28. This is a screen shot of our website. You can see the URL at the bottom. The website is intended to provide easy access to materials relevant to VBHC initiatives including this webinar.

Moving on to slide 29. The website is divided into industry segments and also topics, as you can see here on the slide.

Finally, moving on to slide 30. The website also provides analyses on rapidly evolving trends, developments and issues related to value-based health care. The tools we’re providing include CLE presentations, compilations of research materials, hotline help desk assistance and template agreements. So we invite everyone on the call to check that out.

Moving on to slide 31. I’ve been advised that we have no questions today. So if you are interested in CLE credit, please enter CLE code 3097 on the affirmation form and send it to

Moving on to the final slide. In the absence of questions, this concludes our program. I’d like to thank you all for joining us. If you are interested in more information on our topic, please feel free to contact Bill, Michael or myself. Also, please feel free to check out the website I mentioned, and we hope that you can join us again soon.