Clinical laboratories and anatomic pathology groups should consider this another example of how CMS is taking forward steps to encourage value-based payment arrangements throughout the health system
With the sky-high cost of many prescription drugs and gene therapies, it was only a matter of time before the Centers for Medicare and Medicaid Services (CMS) would seek to link reimbursement for them to patient outcomes.
A recent CMS proposed rule (CMS-2842-P) concerning value-based purchasing (VBP) for prescription drugs covered by Medicaid encourages payers to engage in Medicaid state value-based purchasing (aka, pay-for-performance) arrangements for expensive prescription drugs. This rule may have implications for medical laboratories and anatomic pathology groups if it were extended to cover companion diagnostics linked to expensive therapeutic drugs and gene therapies.
CMS also intents the proposed rule to help drug manufacturers ease roadblocks to contracting with payers—including Medicaid—a CMS fact sheet explained.
Federal officials are looking to reimburse healthcare providers for prescribing drugs that are shown to work best on patients that truly need them, while also incentivizing pharmaceutical manufacturers to created drugs “of high patient value,” stated Laffer Healthcare Intelligence, a Nashville, Tenn. healthcare investment firm, in an email to its intelligence service subscribers.
In a press release announcing the proposed rule, Seema Verma, CMS Administrator, said “We are creating opportunities for drug manufacturers to have skin in the game through payment arrangements that challenge them to put their money where their mouth is.”
Old Regulations Don’t Address Value, Expensive Gene Therapies
According to CMS, for 30 years federal regulations have favored the “volume of drugs” sold over the “quality of drugs.” Simultaneously, during the past three years the US Food and Drug Administration (FDA) has approved four gene therapies with many more “in the development pipeline,” Verma wrote in the journal Health Affairs. “While the lifesaving impact of these often-curative therapies are profound, their costs are unprecedented,” she stated.
CMS’ new rule proposes to define value-based purchasing as “an arrangement or agreement intended to align pricing and/or payments to evidence-based measures and outcomes-based measures,” Verma added.
Companion Diagnostic: Molecular and Genetic Testing
For clinical laboratories, the case CMS makes for therapeutic drugs could be applied to expensive molecular diagnostics and genetic testing. CMS may base reimbursement on how accurately and how fast a lab test can enable a diagnosis. Also, payment could be linked to a lab’s report and guidance to the ordering provider in selecting a therapy that makes a difference in the patient’s outcome.
“This is exactly the concept of the companion diagnostic,” said Robert Michel, editor-in-chief of Dark Daily and its sister publication, The Dark Report. “Take, for example, a $5,000 genetic cancer test that that stages a $500,000 cancer prescription drug. Patients who will not benefit from the drug will not get it. And the $5,000 lab test may keep, say, 10 people from getting a drug that wouldn’t work for them. Thus, the $50,000 in lab tests could save $5 million in prescription drug costs,” he explained.
For its part, Novartis, the Basel, Switzerland-based creator of Zolgensma, said the proposed CMS changes are “an important first step,” and helpful to the company’s “access strategy” in the US, BioPharma Dive reported.
Healthcare experts envision that deals struck under the new proposed CMS rule will focus on gene therapies and expensive drugs, MedPage Today reported.
“Measuring outcomes is costly; it takes time, and everyone has to come up with a way to do it. So, if a drug costs $50, it’s not worth going to every single patient (in research). If the drug costs $500,000, maybe it’s worth it … figuring out if the drug worked. That’s why people talk about it in the context of gene therapies,” Alexander Dworkowitz (above), Partner, Manatt Health, New York, told MedPage Today. (Photo copyright: Manatt, Phelps and Phillips, LLP.)
According to the Laffer Healthcare Intelligence analysis email, CMS’ 137-page proposed rule is “very broad,” but focuses on three themes:
“First, CMS wants to establish an official definition for VBP models to accelerate development of drug pay-per-value programs.
“Second, CMS want to restrict the amount of opioids doctors can prescribe.
“Third, very subtle changes are proposed that negatively affect the PBM (pharmacy benefit management) industry.”
CMS’ proposal also includes standards aimed at fighting opioid prescription fraud and misuse in Medicaid drug programs, noted Fierce Healthcare.
Transparent Drug Prices
Medical laboratory leaders may want to monitor the progress of this proposed rule. In addition to value-based payment, the rule advances price transparency by clearing the way to sharing prices of therapeutic drugs and how they improve patient care, while also lowering costs.
Meanwhile, a refresh of lab information technology to enable authorization of genetic and molecular tests by payer also may prove worthwhile.
If insurance plans are removed from the billing cycle for primary care, it’s not clear how clinical laboratories will be reimbursed for their services
Direct Primary Care (DPC) is gaining popularity in the United States. This emerging movement enables primary care providers to bill patients directly for services rendered, bypassing traditional health plans. On a large scale, employers can contract with primary care practices directly for their employees’ primary care coverage. The idea is to lower healthcare costs. But what exactly is DPC and how are clinical laboratories affected by it?
In operation, direct primary care is similar to concierge medicine, where a patient pays an annual retainer for direct access to a specific healthcare provider. DPC practices offer members unlimited, on-demand visits to primary care physicians for a flat, monthly fee.
The DPC movement has its own lobbying group—the Direct Primary Care Coalition—which supports physicians who opt to practice direct primary care. According to the group’s website, there are currently about 1,000 DPC practices in 48 states which serve over 300,000 patients.
DPC has gained Senatorial support. In December, Senators Bill Cassidy, MD (R-LA), Doug Jones (D-AL), Jerry Moran (R-KS) and Jeanne Shaheen (D-NH) introduced legislation to “lower the cost of healthcare and expand patients’ access to their primary care providers.”
Their bill (H.R. 3708), titled the “Primary Care Enhancement Act of 2019,” would amend the Internal Revenue Code of 1986 to “allow individuals with direct primary care service arrangements to remain eligible individuals for purposes of health savings accounts, and for other purposes.”
A press release announcing the Senate version of the bill (S. 2999), described DPC as a model that “encourages patients to develop personal relationships with their primary care physician, including extending access to care beyond office visits and business hours and through telemedicine. It focuses on prevention and primary care, relying less on specialist and hospital referrals. It is a growing model used by more than 1,000 practices across 48 states and the District of Columbia.”
The press release also states, “DPC models replace copays and deductibles with flat, affordable monthly fees. Current law makes DPC incompatible with health savings accounts (HSAs) paired with high-deductible health plans (HDHPs).”
Direct Primary Care in Practice
Physicians seem to like the DPC model. It frees them, they
say, from the unnecessary interference of insurance providers, the burdens of excessive
paperwork, and ever-increasing administration costs, while allowing them to
have a better patient-doctor relationship.
“I know all my patients by name. I have time for them,” Matthew Abinante, DO, told The DO, a journal of the American Osteopathic Association (AOA). “I probably interact with about 20 patients a day when you factor in the electronic communication.”
Abinante is a board-certified family physician. He practices at Elevated Health, a direct primary care practice in Huntington Beach, CA. Patients pay an average of $75 per month for membership. This fee includes unlimited same day/next day appointments and the ability to talk to a doctor via telephone, e-mail, text, or video chat—24/7.
Matthew Abinante, DO, is shown above treating a patient at Elevated Health, a DPC practice in California. “Our goal is to keep you as healthy as possible, while saving you time and money. We remove the barriers of traditional insurance and provide you with a modern take on the personal, old-fashioned care missing in today’s healthcare industry,” he said. (Photo copyright: Elevated Health.)
At Elevated Health, some minor clinical laboratory tests and
procedures are included in the monthly fee. They include:
Other medical laboratory testing, imaging, and medications
are available to patients at contracted wholesale prices, which are quoted up
front. This is consistent with the trend for price transparency in healthcare.
“What everyone really needs to know is that patients do get better care when their doctor is more satisfied with what they’re doing. And that takes time. What the [fee-for-service] system cannot provide us is time with the patient,” Tiffanny Blythe, DO, told The DO. Blythe runs Blue Lotus Family Medicine, a DPC practice in Kansas City, MO.
When Direct Primary Care Does Not Work
The DPC model has been tried before. In 2010, a DPC provider called Qliance was formed primarily on investment capital from Jeff Bezos of Amazon. The goal was to free doctors and patients from the constraints of traditional health insurance.
Qliance opened several clinics in the Seattle area and by
2014 had nearly 50,000 DPC patients—including employees of Expedia and Comcast. It also had a contract to
provide primary care services with a state Medicaid insurer. Nevertheless, Qliance
closed in 2017.
“We would open up a clinic and add a bunch of docs before we had enough patients to pay for it,” Nick Hanauer, a Seattle venture capitalist and investor in Qliance, told STAT.
“It’s just hard to get the customers because you had to
break the paradigm that was in everyone’s heads about how healthcare had to
work, and you had to disrupt the relationships people had with their insurance
companies,” Hanauer explained.
“Somebody with more economic power than we had could do
this—and should,” he added.
Not All Physicians Support Direct Primary Care
Since the DPC model is so new, there is little research or statistics to confirm it will have a positive effect on healthcare outcomes or lower healthcare costs. Some healthcare professionals have reservations about direct primary care. Their concerns include the potential for less oversight of practitioners and the possibility that patients will slight themselves regarding insurance coverage.
“What we don’t hear about are the people who need more than can cover and what happens to them when they fall into that gap,” Carolyn Engelhard, a health policy analyst and Assistant Professor at the University of Virginia School of Medicine. “We don’t know if they just don’t get care or then enter the traditional healthcare system and start over.”
There are also concerns that DPC plans could draw a large
percentage of healthier patients, which could raise costs for those in
traditional insurance plans, and that it may be more difficult for DPC patients
to gain access to needed specialists and other services.
“Healthcare is fragmented, and if we continue to have little
carve-outs so some [doctors] can practice medicine the way they want, it is not
helping to make the system more responsive and integrated,” Engelhard added.
Nonetheless, both Direct Primary Care and Concierge Medicine
are growing in popularity in the US. And because it’s unclear how clinical
laboratories would interact with or bill DPC practices, clinical laboratory
leaders should keep a close eye on this trend.
As more patients opt for these models of care, healthcare
organizations, pathology groups, and clinical laboratories will have to create
ways to adapt. Since DPC practices are out of most networks, clinical labs may
have to bill patients directly for their services. Not all clinical labs are
prepared to do that, and those that are could experience a slowdown in the
payment process. Labs may also have to contract with physicians to provide
testing services on a pre-determined wholesale cost basis.
Medical laboratory leaders need to take opportunities to stay abreast of government and payer activity, particularly as payer audits become tougher, say legal experts
Even compliant clinical laboratories and anatomic pathology groups are reporting tougher audits and closer scrutiny of the medical lab test claims they submit for payment. This is an unwelcome development at a time when falling lab test prices, narrowing networks, and more prior-authorization requirements are already making it tough for labs to get paid for the tests they perform.
Clinical laboratory leaders can expect continued scrutiny of
their labs’ operations and financials as government and commercial payers move
forward with invasive programs and policies designed to ferret out fraud and
bad actors.
Federal officials are focusing their investigations on healthcare providers who mismanage or inappropriately use Medicare and Medicaid programs, while commercial payers are closely scrutinizing areas such as genetic testing prior authorization, say healthcare attorneys with Cleveland Ohio-based McDonald Hopkins, LLC.
“The government is looking at fraud, waste, and abuse, and all the different ways they come into play,” said Elizabeth Sullivan, Esq., a Member and Co-Chair of the firm’s Healthcare Practice Group, in an exclusive interview with Dark Daily. “We anticipate there will be more enforcement [of fraud and abuse laws] centered around different issues—anything that can be a false claim.”
Specifically, government officials will key in on violations of the Stark Law, EKRA (the Eliminating Kickback in Recovery Act of 2018), and other anti-kickback statutes and laws, Sullivan said.
“And clinical laboratories, by virtue of the type of
services and service arrangements they offer, will continue to be a target,” she
added.
Medical laboratory leaders also must prepare for aggressive tactics by insurance companies. “On the commercial side, payers are getting more aggressive and more willing to take things to ligation if they don’t get what they want and don’t see a settlement that satisfies their concerns over issues,” said Courtney Tito, Esq., also a Member with McDonald Hopkins, in the Dark Daily interview.
Current Investigations Likely to Impact Clinical
Laboratories
Sullivan and Tito advise clinical labs to be aware of the
following issues being fast-tracked by government and private payers:
EKRA (Eliminating Kickback in Recovery Act of 2018).
The TPE audits program, according to CMS, is focused on providers with high claim error rates or unusual billing practices. During a TPE, a Medicare administrative contractor (MAC) works with a provider to identify and correct errors.
“The TPE audits are real hot right now. We are seeing a lot
of clients go through this,” Tito said.
Feds Crack Down on Genetic Testing Fraud Schemes
Genetic testing is another “hot button” issue for
enforcement by government and private payers, Sullivan and Tito state.
CMS is taking action against testing companies and
practitioners who submitted more than $1.7 billion in claims to Medicare, the
statement added.
The scheme involved medical laboratories conducting the genetic tests, McDonald Hopkins noted in an Alert about the DOJ investigation. The alert described how the scam operated:
Scam recruiters approached Medicare
beneficiaries at health fairs;
In exchange for a DNA sample (in the form of a
cheek swab) and a copy of the victim’s driver’s license, the “representative”
offered a free genetic test;
Representatives allegedly asked the seniors’
doctors to sign-off on test orders. If the seniors’ physicians refused, the
scammers offered kickbacks to doctors already in their group;
Clinical laboratories that performed the tests
were reimbursed from Medicare and, allegedly, shared the proceeds with the scammers.
“Although these opportunities may seem appealing as an
additional revenue source for providers, it is always important to review the
regulatory requirements as well as the potential anti-kickback statute and
Stark implications for any new arrangement,” Sullivan and Tito wrote in the McDonald
Hopkins Alert article.
Criminal Behavior in CMS Programs
Effective Nov. 4, 2019, CMS issued a final rule intended to stop fraud before it happens by keeping “unscrupulous providers” out of the federal healthcare programs in the first place, states a CMS news release.
Additionally, EKRA establishes “criminal penalties for unlawful payments for referrals to recovery homes and clinical treatment facilities,” Dark Daily recently reported. However, as the e-briefing points out, it is unclear whether EKRA applies to clinical laboratories.
Nevertheless, Sullivan points out that, “Even without EKRA,
the anti-kickback statute applies to any arrangement between individuals. And,
it is good to have an attorney look at those arrangements. What your sales reps
are doing in the field, how they are communicating, and their practices warrant
oversight. EKRA just makes it all the more important.”
During an upcoming Dark Daily webinar, attorneys Elizabeth Sullivan (left) and Courtney Tito (right) of McDonald Hopkins, LLC, will advise clinical laboratory leaders and financial staff on how to prepare for future aggressive payer audits, rigid enforcement of fraud and abuse laws, and more. (Photos copyright: LinkedIn/Dark Daily.)
Clinical Laboratories Need Compliance Plan, Focus on
Payers
With so many legal requirements and payer programs, Sullivan
advises medical labs and pathology group practices to work with resources they
trust and to have a compliance plan at the ready. “Have resources in place,
including but not limited to a compliance officer, a committee, and someone who
is spending time on these issues. Monitoring government enforcement and payer
activity is the most critical,” she said.
To assist labs in remaining fully informed on these critical
compliance topics, and the federal government’s latest legislation to combat
fraud, Dark Daily is offering a webinar on November 20th at 1pm Eastern
time. Sullivan and Tito will offer their insights and advice on how labs should
prepare for CMS’ battle to reign in fraud and commercial payers’ increased
scrutiny into prior authorizations.
Clinical laboratory leaders, compliance officers, and
finance staff will benefit greatly from this crucial resource.
Negative financials, low population growth, and excess inpatient capacity cited as reasons communities—especially rural areas—may lose their independent hospitals, including access to nearby clinical laboratory testing and anatomic pathology services
Could America’s independent rural hospitals actually disappear
altogether? Metrics compiled by multiple healthcare monitoring organizations
suggest that, with the increase in mergers and acquisitions of health networks,
it’s a distinct possibility.
If so, what would happen to all the clinical laboratories affiliated with and servicing those hospitals? And how might hospital-based medical laboratories that are absorbed into larger healthcare networks be required to alter their workflows? For almost three decades, the clinical laboratory profession has seen similar hospital acquisitions lead to consolidation, standardization, and regionalization of the medical laboratories inside these hospitals. Often these organizational restructurings mean layoffs of lab managers and medical technologists.
Probably the more serious challenge is what will happen to
all the rural patients who cannot get to larger health networks located in
urban settings.
Hospital Closings Create Risks for Rural Communities
Experts say rural hospitals—especially providers serving
small populations in southern and midwestern states—are in precarious positions
going forward.
Kaiser Health News (KHN) reported in August that more than 100 rural hospitals closed since 2010, and these closures have serious implications for patients, such as a lengthy transport to another hospital’s emergency department.
“Across America, rural patients spend more time in an ambulance than urban patients after a hospital closes,” Alison Davis, PhD, Professor of Agricultural Economics at the University of Kentucky, and Executive Director of the Community and Economic Development Initiative of Kentucky, told KHN. Her team analyzed ambulance call and transport time data and found that a trip can grow from an average of 14 minutes before a hospital closed to 25 minutes after, KHN reported. (Photo copyright: Northern Kentucky Tribune.)
430 Rural Hospitals Likely to Close!
Rural hospitals usually do not have many nearby competitors. So, what brings so many of them to the brink of closure? According to a Navigant (NYSE:NCI)) analysis of more than 2,000 rural hospitals, “21% are at high risk of closing based on their total operating margin, days cash-on-hand, and debt-to-capitalization ratio. This equates to 430 hospitals across 43 states that employ 150,000 people!”
Navigant identifies the following as factors in the decline
of these struggling rural hospitals:
“Low rural population growth;
“Payer mix degradation;
“Excess hospital capacity due to declining
inpatient care; and
“An inability for hospitals to leverage
technology due to lack of capital.”
Navigant goes on to state, “Further review of the community
essentiality (trauma status, service to vulnerable populations, geographic
isolation, economic impact) of rural hospitals at high financial risk suggests
64% or 277 of these hospitals are considered highly essential to their
community’s health and economic well-being. In 31 states, at least half of
these financially distressed rural hospitals are considered essential.”
After reviewing the 2,000 rural hospitals Navigant’s analysts concluded that, unless trends reverse, one-in-five rural hospitals (21%) risk closing, a news release stated. And these hospitals are “essential” to the area’s residents.
“We show that two in three of these hospitals are considered highly essential to their communities: that’s 277 hospitals nationwide,” wrote David Mosley, Navigant’s Managing Director, in a STAT blog post. “Furthermore, if these hospitals close, already fragile rural economies will crumble while residents will be forced to travel long distances for emergency and inpatient care.”
Fierce Healthcare noted that “Of Montana’s 12 at-risk rural hospitals, all of them are considered essential to their communities. Kansas has 29 total at-risk rural hospitals with 25 of them—or 86%—considered essential to their communities. Georgia and Mississippi have seen 77% and 61% of their essential rural hospitals at financial risk, respectively.”
Navigant’s list of states with the highest percentage of
rural hospitals at risk of closing includes:
Alabama: 21 hospitals (50%)
Mississippi: 31 hospitals (48%)
Georgia: 26 hospitals (41%)
Maine: eight hospitals (40%)
Alaska: six hospitals (40%)
Arkansas: 18 hospitals (37%)
Oklahoma: 17 hospitals (29%)
Kansas: 29 hospitals (29%)
Michigan:18 hospitals (25%)
Kentucky: 16 hospitals (25%)
Minnesota: 19 hospitals (21%)
Comparing Independent Hospitals to Health Networks
But it’s not just rural independent hospitals that are
struggling. Modern
Healthcare Metrics reports that 53% of all stand-alone hospitals in the US
have suffered operating losses during each of the last five years (2012 to
2017). Conversely, about half (26%) of health system-affiliated providers have
lost money.
Statistics compiled by the American Hospital Association (AHA) show there are approximately 5,000 non-federal acute care community hospitals in the US. In 2017, about 75% of them were part of multi-hospital systems, an increase from 70.4% in 2012, Modern Healthcare Metrics data indicated.
Average length of stay increased 6.4% at
independent hospitals, while it decreased at health system hospitals by 23.5%;
Occupancy rates fell to 43.6% from 53.9% at
independent providers, compared to rates falling to 53.7% from 61% at
system-owned hospitals;
Independent hospitals seem to rely on patients
having longer lengths of stay;
Hospices and skilled nursing facilities compete
with stand-alone hospitals.
Change is coming to parts of the nation that depend on
independent hospitals, and it’s not good. Medical laboratory leaders are
advised to prepare for serving patients who may lose access to nearby tests and
diagnostic services. On a positive note, medical laboratories in independent
hospitals that consolidate with healthcare systems could bring expertise,
adding value to their new networks.
Clinical laboratory leaders will want to pay close attention to a significant development in Maryland. The state’s All-Payer Medicare program—the nation’s only all-payer hospital rate regulation system—is broadening in scope to include outpatient services starting Jan. 1. The expanded program could impact independent medical laboratories, according to the Maryland Hospital Association (MHA), which told Dark Daily that those labs may see hospitals reaching out to them.
The Centers for Medicare and Medicaid Services (CMS) and the state of Maryland expect to save $1 billion by 2023 in expanding Maryland’s existing All-Payer Model—which focused only on inpatient services since 2014—to also include primary care physicians, skilled nursing facilities, independent clinical laboratories, and more non-hospital settings, according to a CMS statement.
Healthcare Finance notes that it represents “the first time, CMS is holding a state fully at risk for the total cost of care for Medicare beneficiaries.”
Value of Precision Medicine and Coordination of Care to Clinical Labs
“If a patient receives care at a [medical] laboratory outside of a hospital, Maryland hospitals would be looking at ways to coordinate the sharing of that freestanding laboratory information, so that the hospital can coordinate the care of that patient both within and outside the hospital setting,” Erin Cunningham, Communications Manager at MHA, told Dark Daily. Such a coordinating of efforts and sharing of clinical laboratory patient data should help promote precision medicine goals for patients engaged with physicians throughout Maryland’s healthcare networks.
The test of the new program—called the Total Cost of Care (TCOC) Model—also could be an indication that Medicare officials are intent on moving both inpatient and outpatient healthcare providers away from reimbursements based on fees-for-services.
CMS and the state of Maryland said TCOC gives diverse providers incentives to coordinate, center on patients, and save Medicare per capita costs of care each year.
“What they are really doing is tracking how effective we are at managing the quality and the costs of those particular patients that are managed by the physicians and the hospitals together,” Kevin Kelbly, VP and Chief Financial Officer at Carroll Hospital in Westminster, told the Carroll County Times. “They will have set up certain parameters. If we hit those parameters, there could be a shared savings opportunity between the hospitals and the providers,” he added. (Photo copyright: LifeBridge Health.)
The TCOC runs from 2019 through 2023, when it may be extended by officials for an additional five years.
How Does it Work?
The TCOC Model, like the earlier All-Payer Model, will limit Medicare’s costs in Maryland through a per capita, population-based payment, Healthcare Finance explained.
It includes three programs, including the:
Maryland Primary Care Program (MDPCP), designed to incentivize physician practices by giving additional per beneficiary, per month CMS payments, and incentives for physicians to reduce the number of patients hospitalize;
Care Redesign Program (CRP), which is a way for hospitals to make incentive payments to their partners in care. In essence, rewards may be given to providers that work efficiently with the hospital to improve quality of services; and,
Hospital Payment Program, a population-based payment model that reimburses Maryland hospitals annually for hospital services. CMS provides financial incentives to hospitals that succeed in value-based care and reducing unnecessary hospitalizations and readmissions.
CMS and Maryland officials also identified these six high-priority areas for population health improvement:
Substance-use disorder;
Diabetes;
Hypertension;
Obesity;
Smoking; and
Asthma.
“We are going to save about a billion dollars over the next five years, but we are also providing better quality healthcare. So it’s going to affect real people in Maryland, and it helps us keep the whole healthcare system from collapsing, quite frankly,” Maryland Gov. Larry Hogan, told the Carroll County Times.
OneCare in Vermont, Different Approach to One Payer
Maryland is not the only state to try an all-payer model. Vermont’s OneCare is a statewide accountable care organization (ACO) model involving the state’s largest payers: Medicare, Medicaid, and Blue Cross and Blue Shield of Vermont, Healthcare Dive pointed out. The program aims to increase the number of patients under risk-based contracting and, simultaneously, encourage providers to meet population health goals, a Commonwealth Fund report noted.
Both Maryland’s and Vermont’s efforts indicate that payment plans which include value-based incentives are no longer just theory. In some markets, fees-for-service payment models may be gone for good.
Clinical laboratory leaders may want to touch base with their colleagues in Maryland and Vermont to learn how labs in those states are engaging providers and performing under payment programs that, if successful, could replace existing Medicare payment models in other states.
