Welcome to TIM Talks: Business 

Acumen

April 12th, 2016
“This is a time of rapid and dramatic change in the way we approach 

healthcare in this country. That change brings great opportunity for 

community-based organizations that are the backbone of the aging and 

disability networks.” 

- Kathy Greenlee, Assistant Secretary for Aging and Administrator, 

Administration for Community Living
TIM TALKS: Business 

Acumen and Comprehensive 

Joint Replacement Model

Timothy P. McNeill, RN, MPH
Business Acumen

Market Changes

Comprehensive Joint Replacement Model

Q & A

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Agenda
Why is Business Acumen Important?

• The growth of the population of older adults and persons 

with disabilities is quickly outpacing the available 

funding to support them

• Community Based Organizations that support older adults 

are increasingly finding that they do not have enough 

funding to meet the demands for services

• Diversifying your organization’s revenue streams will 

provide opportunities to serve more people in your 

community

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Can Non-Profits make money?

• Non-profit status does not mean that your organization is 

not allowed to make revenue over expenses (margin)

• Non-profits are often mission oriented

• The greater the margin, the more capacity your 

organization will have to achieve your mission

• Example: 

– DSMP Title III funding allows us to provide four classes per 

year serving approximately 50 people

– Billing for DSMT will allow us to provide 15 classes per year 

serving 180 people per year

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50 Year Anniversary of the Older Americans 

Act (OAA)

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$0.00

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

DoD CMS OAA

2004 Budget $379.90 $523.40 $1.80

2014 Budget $527.50 $747.70 $1.88

Billions

Federal Funding Trends: 2004 – 2014 (Billions)

Sources: U.S. Department of Defense, Under Secretary of Defense Comptroller. CMS Research Statistics Data Reports. AARP Public Policy 

Institute.
Healthcare Landscape Changes Have Arrived

• The Patient Protection and Affordable Care Act

– Health Reform. Commonly called the Affordable Care 

Act or ACA

– Signed into law by President Obama on March 23, 

2010

– On June 28, 2012, the Supreme Court rendered a final 

decision to uphold the law

• MACRA: Medicare Access and CHIP Reconciliation Act

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The Evolution of the System

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• Understanding the changes coming to the health care 

delivery system requires understanding how the current 

system evolved.

• You have to understand the financial incentives in the 

market to track where there are opportunities
Shift Toward Value-Based Purchasing

• The current system is changing from Fee-For-Service to 

payment for outcomes.

• A Value-Based Purchasing system provides financial 

incentives for outcomes (Value)

• MACRA legislation provides direct incentives to 

Physicians and Hospitals to move towards a system that 

pays for outcomes

• In the past, there were real financial incentives to 

providers, when complications occur

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Target Population

• The target population of many of the current changes in 

Healthcare are Medicare Eligible Beneficiaries

• The healthcare change mandates are dramatically 

impacting the actions of providers that serve Medicare 

beneficiaries

• Medicare Eligible Beneficiaries include the following:

– People 65 or Older

– People under 65 with certain disabilities

– People of ANY age with End-Stage Renal Disease

• Permanent kidney failure requiring dialysis or a kidney 

transplant

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Where are there costs in the system?

• A system that pays for value will focus on where the 

highest cost drivers are

– Reduction in Institutional Care

– Readmissions

– Nursing Home Placement

– Preventable Primary Admissions

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Emphasis on Duals

• The term “Dual” generally refers to beneficiaries that 

quality for both Medicare AND Medicaid

• Duals make up the population that is most vulnerable to 

cost increases

• Eligibility generally requires

– Aged (65+) or;

– Disabled AND

– Meets means testing for Poverty status

• Many Reforms impact both Public Payers

– Medicare + Medicaid

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What is the Role of Medicaid for Duals?

• Medicare is the primary payer for Healthcare services for 

Duals

• Medicaid becomes the secondary payer

– Operates in a manner as the Medigap policy

• When a Dual has both

– Medicare pays for health services

– Medicaid pays supplemental costs

– *Medicare is most often the primary 

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How do we prepare for the market?

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• Now that we have a better understanding about the 

dynamic healthcare market, what do we do next?

• It is important to prepare and know your market 

before seeking contracts

• Know who your customer is

– Customer is the entity that buys your services

– Beneficiary is the recipient of the services that are paid 

for by your customer

– BOTH the Customer and Beneficiary needs must be 

met
Know Your Market

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• Medicare population

• Those at-risk for Institutional Care

• Target services to those impacted by change

• Define how your services will lead to cost 

reduction and improve health outcomes.

• Drive value and continually document the ROI 

that your organization can provide.
What is your competitive advantage?

• You have to mobilize quickly

• The window of opportunity will not remain open 

indefinitely

• SOMEONE will fill the need

• No one should be able to mobilize faster in your 

community than YOU

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Customer Vs. Consumer

• The new marketplace requires that you meet the needs 

of the customer and the consumer

• Customer – Managed Care Plan

• Consumer – Beneficiary receiving services paid for by 

the Managed Care Plan

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What does the Customer need?

• Data

• Data

• More Data

• Integrated Care Organizations have performance goals to 

meet 

– Financial and Quality Risks

• How do you contribute to improving quality and reducing 

financial risk?

– If you are not, why should they contract with you?

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Bundled Payments for Care 

Improvement Initiative

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• Initiative first awards were announced January 31, 2013

• Under this initiative, organizations enter into payment 

arrangements that include financial and performance 

accountability for episodes of care

• Episode of Care

– Key component of the initiative

– All services rendered are bundled into one payment for an 

episode of care

– Provides a financial incentive for the org to keep costs 

down
Is there a BPCI Near You?

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CJR Model Overview

• Bundled Payment for Lower Extremity Joint Replacement 

(LEJR) for designated hospitals

– Start Date: April 1, 2016

• Final Rule established November 16, 2015

• Link to the Final Rule: 

https://www.federalregister.gov/articles/2015/11/24/2015-

29438/medicare-program-comprehensive-care-for-jointreplacement-payment-model-for-acute-care-hospitals

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Participating Hospitals

• Hospitals geographically located within 67 Metropolitan 

Statistical Areas (MSAs) are included

• Proposed rule listed 75 MSAs. This number was reduced 

to 67 in the final rule

• Approximately 800 hospitals participating

– An Excel file listing all participating hospitals will be provided

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Episode Description

• Episode: Hospitalization + 90 days post discharge

• The day of discharge is counted as the first day of the 90 

day post discharge period

• The model establishes a target price for each participating 

hospital

• The participating hospital & “Collaborators” must work 

together to keep included Medicare costs at or below the 

target price

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Inclusion Criteria

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• Inclusion Criteria

– Medicare eligible beneficiaries enrolled in Original 

Medicare

– MS-DRG 469

• Major Joint Replacement or Reattachment of Lower 

Extremity with MCC

– MS-DRG 470

• Major Joint Replacement or Reattachment of Lower 

Extremity without MCC

• *MCC – Major Complications or Comorbidities
MS-DRG

• Medicare Severity Diagnosis Related Groups (MS-DRG)

• 2007 - Implemented as part of the Inpatient Prospective 

Payment System for Acute Care Inpatient Hospital Stays

• One DRG is assigned to each inpatient hospital stay

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Exclusion Criteria

• Exclusion Criteria

– Medicare Beneficiary eligible for Medicare due to EndStage Renal Disease (ESRD)

– Beneficiary enrolled in Medicare Advantage (MA)

– Beneficiary enrolled in a Special Needs Plan (SNP)

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Included Services

• Physician Services

• Inpatient hospitalizations

• Hospital readmissions

• SNF

• Home Health

• DME

• Hospice

• Outpatient therapy

• Clinical laboratory

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Excluded Services

• Acute or Chronic conditions that are not related or 

affected by the LEJR procedure or post-surgical care

• Example 1: 67 Year old with Breast CA undergoes a 

knee replacement and then gets admitted for 

chemotherapy during the 90 day post acute period

• Example 2: 67 Year old with Diabetes develops a 

surgical wound infection contributed by her nonadherence to her diabetes regimen

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Payment Model

• Two-sided risk model

• Actual spending during the episode is aggregated and 

compared to the target price

• When the target price is above the aggregate spending 

there is a Gain

• When the target price is below the aggregate spending 

there is a Loss

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How is the Target Price set?

• Initially there will be a target price set for each individual 

facility

• Target price is established based on historical trends 

• Gov. includes a 3% discount, based on projected spending

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Gain Limits (Stop-Gain)

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• Gain sharing begins immediately

• There is a limit to the amount of gains that a facility can 

receive. This is referred to as the “Stop-Gain”

• Stop-Gain

– Years 1 and 2: Capped at 5%

– Year 3: Capped at 10%

– Years 4 – 5: Capped at 20%
Repayment Ceiling (Stop-Loss)

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• There is a cap to the total amount of losses a facility can 

incur

• This cap is losses is referred to as the “Stop-Loss”

• Stop-Loss

– Year 1: No responsibility to repay Medicare

– Year 2: Capped at 5% of target price

– Year 3: Capped at 10% of target price

– Years 4 – 5: Capped at 20% of target price
What about Rural Hospitals in the MSA?

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• There were additional protections put in place for Rural 

Hospitals. 

• Rural and Sole Community hospitals have the following 

stop-loss figures:

– Year 2: 3% of target price

– Years 3 – 5: 5% of target price
Gainsharing

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• Participants have a waiver that allows for Gainsharing

• Hospitals can share in the gains and the losses with 

participating “Collaborators”

• Hospitals must execute an agreement for gainsharing

• Collaborator must be a Medicare provider

• Hospitals are free to pay directly for services to nonMedicare providers
Beneficiary Incentives

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• Hospitals may provide in-kind patient engagement 

incentives to beneficiaries.

• Incentives are to be used to encourage positive behaviors

– Examples: 

• Adherence to drug regimens, 

• Adherence to care plan,

• Reduction in readmissions,

• Management of chronic diseases that may affect the 

LEJR procedure
Suggested Collaborators

• Collaborators can participate in Gainsharing

– Collaborators must be Medicare providers

– Physicians, Home Health, SNF, DSMT providers, DME 

providers, etc.

• Hospital is free to pay directly for services to support the 

beneficiary as part of the in-kind beneficiary incentive 

– Example: Two week home delivered meal service in the 

immediate post-acute period

– Example: Participation in an evidence-based group 

exercise program targeting knee movement

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What About Quality?

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• Facilities will receive a composite quality score.

• The composite quality score is a hospital-level summary 

reflecting performance and improvement on two defined 

quality measures:

– Complications measure

– HCAHPS Survey measure

– The composite score will factor into the payment 

reconciliation process

– *Readmissions was removed as a contributing factor 

to the composite quality score in the Final Rule. 

However, the cost associated with a readmission are 

included in the price aggregation process.
Are Duals Included?

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• Duals are included unless they are enrolled in a Medicare 

Advantage Plan or Special Needs Plan (SNP)

• A Dual that receives Managed Long-Term Services and 

Supports is also included

• A Dual on Medicaid Waiver for HCBS is included

• *Medicaid costs DO NOT attribute to the final aggregated 

costs. Therefore, a strategy of maximizing Medicaid 

spending to lower Medicare costs can have positive 

financial benefits (Gain)
What are the characteristics of Duals?

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• According to the CBO, in 2009, there were 9 million dual 

eligibles and they cost Federal and State governments 

more than $250 billion in healthcare benefits.

• Medicaid provides health care coverage to low-income 

people who meet requirements for income and assets

• All Duals qualify for full Medicare benefits, but they differ 

on the Medicaid benefits they qualify for
Duals and Chronic Disease

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• Full duals are twice as likely as non-dual Medicare 

beneficiaries to have at least three chronic conditions

• Duals are nearly three times as likely to have been 

diagnosed with a mental illness, including chronic 

depression

– Many more have undiagnosed or untreated chronic 

depression 

• In 2009, total average healthcare spending:

– Nonduals - $8,300 per year

– Full Duals - $33,400 per year
LTSS for Duals

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• Less than 0.5% of partial duals are institutionalized

• 15% of full duals are institutionalized

• Partial duals often transition to a full dual after completing 

the spend down period after a SNF/nursing home 

admission.

• Full duals are five times as likely to use LTSS as non-duals

• Full duals are twice as likely to use LTSS as the non-dual 

ABD population
Can Other Programs Support Medicare Costs?

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• Many of the reform initiatives focus on lowering 

Medicare costs

• If an organization can leverage services from nonMedicare sources to provide more support for the 

consumer, there can be a decrease in Medicare costs
VD-HCBS?

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• A Veteran that has Original Medicare and uses their 

Medicare benefit to obtain a LEJR in a target MSA is 

included

• If the Veteran uses VD-HCBS or VA Choice post 

discharge does this cost get included in the final cost 

aggregation? NO. The VA pays for these services and 

they are not included in the Medicare final cost aggregate. 
HCBS Waiver Services?

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• Are beneficiaries receiving Medicaid HCBS Waiver 

Services included: Yes if they also have Medicare (Dual).

• *A Dual receiving Medicaid HCBS will NOT have their 

Medicaid costs included in the final Medicare cost 

aggregation after 90 days

• Maximizing HCBS to drive down Medicare costs can be a 

real strategy in a partnership.
OAA Services?

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• Are OAA Services included in the final price aggregation for 

the beneficiary – NO

• The aggregation of all expenses includes all Medicare Part A 

and Part B services. Therefore, OAA expenses are not 

included.
Alignment of Payment Incentives

• Incentives to reduce Medicare and Medicaid directly 

impacts providers that serve duals

• Reductions in Medicare costs and Medicaid costs can 

have a dramatic impact on the overall cost of care 

• Medicare

• Medicaid (Medicare Supplemental Coverage)

• Managed Long-Term Services and Supports 

– Medicaid Waiver

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Questions

• Time for Q & A