The Health Care Investor : Healthcare Lawyers & Attorneys for Life Science Companies & Investors

U. S. dialysis providers are completing their final analyses this week as the November 1st deadline to fully opt in to the new Medicare bundling reimbursement methodology approaches.  Pursuant to the new bundling rule released on July 23, 2010, providers who do not contact their Medicare fiscal intermediaries by that date to affirmatively elect to fully opt in to the bundling methodology as of January 1, 2011 will be automatically subject to the four year phase-in methodology beginning January 1, 2011.

In prior posts, I have described in more detail the conversion to the new bundling methodology, pursuant to which CMS will make a single bundled payment to the dialysis facility for each dialysis treatment that will cover all renal dialysis services and home dialysis commencing on January 1, 2011.  It replaces the current system which pays facilities a composite rate for a defined set of items and services, while paying separately for drugs, laboratory tests, or other services that are not included in the composite rate.   

Dialysis providers are utilizing a number of tools to determine whether to fully opt in or instead wait out the phase-in approach.  These tools examine individual providers' geography, patient mix (in terms of dialysis modality and other factors), program size, typical drug dosage statistics and other key aspects of the providers' programs that will help providers determine the impact that bundling will have on their reimbursement.  Providers that anticipate a positive impact from bundling will likely elect to fully opt in now.  One such tool was developed by Jeff Lehman of Dialysis Consulting Group, Inc.  and includes a six step process focusing on six separate identifying characteristics of the individual provider. 

Regardless of a provider's decision as to fully opting in or phasing in to bundling, there will surely be a renewed industry-wide focus on keeping costs low and quality high.

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 With ACOs as such a hot topic right now, and the variety of forms these organizations can take, healthcare investors can examine not only opportunities in ACOs themselves but in healthcare related businesses that will service or be affiliated with ACOs. A fundamental tenant of the ACO model is investment in infrastructure aimed at both cost-efficient delivery of care and enhancing quality of care. Thus there will very likely be businesses that emerge or expand to focus on such infrastructure and consolidation of certain resources. Such businesses may include the following, most of which exist already today but will have the opportunity to expand their services to meet the needs of ACOs:

1)      Billing and coding services, including software manufacturers for internal billing, coding and collection functions, as well as outside third party billing companies, modified to efficiently retrieve all necessary data for the different components from the ACO for consolidated billing;

2)      Payor contracting and payor relations professionals, particularly as commercial payors integrate ACO models into their plans;

3)      Analytics companies to provide analysis of the various patient intake, record-keeping, data sharing, billing/collection and quality initiative aspects of the ACO;

4)      Purchasing organizations and equipment lessors with programs designed for ACOs rather than the individual physician practice, hospitals and other individual components;

5)      Health information technology companies.  Forward-thinking health IT hardware and software manufacturers in particular can examine the needs of ACOs seeking to roll in different provider types and a myriad of physical sites and their need to efficiently share information in a HIPAA-compliant manner.

One way that CMS seeks to better understand the efficiency opportunities with ACOs is by engaging the 10 healthcare organizations that participated in its five-year Physician Group Practice (PGP) Demonstration. The PGP Demonstration, which began in 2005 and ended in March of 2010, enabled physician groups to share up to 80% of the savings they generated above a minimum threshold by improving quality and reducing costs. CMS hopes engaging these PGP Demonstration participants will help resolve some of the outstanding issues related to quality and cost measurement. CMS has indicated that these PGP Demonstration participants may provide valuable insight into the infrastructure changes that they themselves found effective, and those exemplary changes could provide a template for future ACOs.   Healthcare investors can also follow CMS’s analysis with these PGP Demonstration participants to better understand what has worked for other organizations as a way of anticipating what related businesses may be most in demand. 

In addition to tracking these CMS inquiries, Sarah Klein’s article for The Commonwealth Fund examines the admissions, medical records, health IT, patient survey and other infrastructure changes made by four of the ten participants and their feedback as to the value of those changes. Executives from St. John’s Health System based in Springfield, Missouri, Everett Clinic based in Everett, Washington, Billings Clinic in Billings, Montana and Carilion Clinic in Roanoke, Virginia all discuss their systems’ PGP Demonstration experience.

Even if the ultimate success of various ACO models is murky, one thing is clear. There will likely be significant focus on how businesses that service the healthcare industry can fill the needs of ACOs, and interested investors will need to examine the viability of these businesses in light of the ultimate potential and staying power of the ACOs they serve.

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With the authorization of Accountable Care Organizations (ACOs) in the healthcare reform law (PPACA), there has been a tremendous amount of industry attention on understanding ACOs and the opportunities and challenges they present. With ACOs as such a hot topic and the variety of forms these organizations can take, healthcare investors can examine not only opportunities in ACOs themselves but in healthcare related businesses that will service or be affiliated with ACOs.   Understanding the role and possibilities of ACOs is highly valuable in order to assess these opportunities.

PPACA directs the Secretary of Health & Human Services to establish a Shared Savings Program under both Parts A and B of Medicare to improve quality and efficiency of the healthcare delivery system no later than January 1, 2012.    ACOs may be created by ACO professionals in group practice arrangements, by networks of individual practices of ACO professionals, by partnerships or joint venture arrangements between hospitals and ACO professionals, by hospitals employing ACO professionals, by such other groups of providers of services and supplies as the Secretary determines is appropriate.

An approved ACO will be assigned Medicare beneficiaries, will participate in the Shared Savings Program and will be eligible to receive additional payments from Medicare when certain performance guidelines are met and cost-savings targets are achieved. The amount of the additional payment will be a percentage of the difference between the estimated per capita Medicare expenditures for patients assigned to the ACO and the cost-savings per capita Medicare expenditures threshold.

While ACOs are often heralded as the solution to the current ailing model of healthcare delivery for Medicare, including the need for enhanced quality, improved outcomes, better coordination of care, and greater cost-savings, there are many misconceptions about the Shared Savings Program and a seemingly unending list of questions about what form ACOs will take under the final regulations. CMS is tasked with fleshing out the details of how the organizations will work and be reimbursed. Right now, CMS has issued very little guidance on its vision of ACOs and the Shared Savings Program, but CMS has issued a brief Preliminary Questions & Answers piece on its website. A recent article by our McGuireWoods colleague Tom Stallings and Brent Rawlings addresses some of the common misconceptions about ACOs and the Shared Savings Program.  Additionally, our colleagues Scott Becker and Helen Suh discuss nine observations in their recent article about ACOs, including movements by commercial payors toward this model.

In future posts we will focus on the businesses that we envision will emerge or evolve to service these ACOs and those potential investment opportunities.  

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McGuireWoods has announced its Second Annual Medical Device, Durable Medical Equipment & Diagnostics Conference to be held on November 3rd in Deerfield, Illinois just outside of Chicago.  Medical device manufacturer and distributor managers, compliance officers, investors in medical device manufacturers and distributors, regulatory personnel, general counsel and legal counsel are invited to join us for an interactive conference addressing key legal and business issues facing medical device, durable medical equipment and diagnostics manufacturers.

Click here to view the full conference agenda and registration information. 

Presentations and panels include the following topics:

• Keynote: A Health Plan’s Preparation for Healthcare Reform
• Roundtable: Deals & Financing Issues for the Medical Device Industry
• Key Issues in Outsourcing Medical Device Manufacturing, Marketing & Distribution
• Medical Device & DME Distribution: Consolidation & New Reimbursement Challenges
• Maximizing Value in Medical Device Product Launches
• Preparing for Deals: Due Diligence, Compliance Planning and Other Issues
• Antitrust 101: Understanding Current Antitrust Issues Facing the Medical Device Industry
• Physician Payment Sunshine Act & Other Transparency & Compliance Issues for Medical Device Manufacturers
• False Claims Act Changes & Compliance Effectiveness: Preventing Through Risk Based Planning, Auditing & Monitoring
• Mitigating Litigation, Product Liability & Product Approval Risks Facing Medical Device Manufacturers

Contact Krist Werling at kwerling@mcguirewoods.com for registration information or to inquire about discounted attendee rates. 

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