Value-Based Care News

All-Payer Alternative Payment Model Targets PA Rural Hospitals

CMS announced a new all-payer alternative payment model that will use global budgets to incentivize rural hospitals in Pennsylvania to improve care.

An all-payer alternative payment in Pennsylvania will improve care and reduce spending at rural hospitals, CMS stated

Source: Thinkstock

By Jacqueline LaPointe

- A new six-year all-payer alternative payment model will focus on improving care quality and reducing healthcare costs at rural hospitals in Pennsylvania, CMS announced in a recent fact sheet.

The CMS Innovation Center’s latest project, the Pennsylvania Rural Health model, will explore how all-payer global budgets to rural hospitals will improve care quality, care access, and patient outcomes while reducing Medicare spending.

“The Model will test whether the predictable nature of the global budgets will enable participating rural hospitals to invest in quality and preventive care, and to tailor the services they deliver to better meet the needs of their local communities,” stated the federal agency.

Centers for Medicare and Medicaid Services Source: CMS

CMS partnered with the state to develop a twofold alternative payment model for 2018. The major components of the model are all-payer global budgets and rural hospital care delivery transformations.

Under the Pennsylvania Rural Health model, participating acute care and critical access hospitals will be reimbursed a global budget by all payers partaking in the alternative payment model.

READ MORE: Using an Alternative Payment Model to Reduce Hospitalizations

At the start of each performance year, CMS plans to prospectively create all-payer global budgets for each rural hospital in the program. The budget will be based on the participant’s historical net revenue for inpatient and outpatient hospital-based services from each payer in the program.

Participating payers will reimburse the rural hospitals for all inpatient and outpatient hospital-based services “based on the payer’s respective portion of this global budget.”

Rural hospitals in the alternative payment model will also be required to commit to care delivery transformations. The hospital’s anticipated care delivery changes will be considered their Rural Hospital Transformation Plan.

“As part of their Rural Hospital Transformation Plans, hospitals will develop plans to invest in quality and preventive care, to obtain support and continuous feedback from stakeholders in the community, and to tailor the services they provide to the needs of their local community,” CMS explained.

All Rural Hospital Transformation Plans, however, must be approved by Pennsylvania and CMS before the hospital can partake in the alternative payment model. Although, the state will offer the rural hospitals technical assistance as they develop care delivery transformations.

READ MORE: CMS Launches VT All-Payer Accountable Care Organization Model

“Pennsylvania and CMS expect that this care delivery transformation will help rural hospitals make meaningful improvements in the quality of the care they provide and impact the largest health needs in their community,” added the federal agency.

While participating rural hospitals and payers must manage global budgets and care delivery transformations, they must also meet program targets set by CMS. The state as well as participants will need to achieve enrollment, financial, and population health management goals.

“Together, these targets create incentives for Pennsylvania to help hospitals improve quality; enhance collaboration among health care providers and the Pennsylvania public health system to improve health for the rural population of Pennsylvania; and reduce the growth in hospital expenditures,” the fact sheet stated.

CMS intends for the six-year alternative payment model to include at least 30 rural hospitals by the end of the program in 2023. But Pennsylvania will need to enroll at least 6 rural hospitals during the first performance year in 2018 and at least 18 during the second performance year.

Similarly, the state must also enlist commercial payers to participate in the alternative payment model. Pennsylvania plans to have each participant’s global budget account for at least 75 percent of that hospital’s net revenue for inpatient and outpatient hospital-based services by the first performance year.

READ MORE: Preparing the Healthcare Revenue Cycle for Value-Based Care

The state intends to bump the net revenue up to 90 percent for each hospital for the remaining performance years.

CMS also noted that Pennsylvania must attempt to add Medicaid to the alternative payment model.

In terms of financial targets, CMS expects the state to reduce Medicare spending on hospital services by $35 million over the six-year model. The total Medicare spending per beneficiary growth rate on rural Pennsylvania also must not be above the national rural Medicare spending per beneficiary rate.

The financial targets will ensure that the Pennsylvania Rural Health model is budget-neutral for Medicare, CMS added.

The federal agency will also set all-payer financial targets, including a maximum 3.38 percent annual hospital spending growth on inpatient and outpatient hospital-based services per resident of rural areas served by the participating hospitals.

The maximum is equivalent to the compound annual growth rate for the state’s gross product from 1997 to 2015.

Additionally, rural hospitals may be eligible for value-based incentive payments depending on the state’s population health performance. Financial rewards would be available if the state achieves its three population health management goals:

• Boosting primary and specialty care access

• Decreasing rural health disparities by improving chronic disease management

• Lowering substance abuse deaths

CMS will provide the state and model participants with specific measures and population health targets as the first performance year gets closer.

The state will also assess care quality at each participating rural hospital as well as the care quality of non-hospital providers that work with the facilities. While CMS noted that “participating rural hospitals may be held accountable for a targeted set of quality measures,” the federal agency has not released specific all-payer quality targets.

To implement the alternative payment model, CMS will give the state $25 million over four years. The state must use the funding to “oversee the Model, aggregate and analyze data, compile and submit reports, propose and administer global budgets, approve Rural Hospital Transformation Plans, conduct quality assurance, and provide technical assistance to participant rural hospitals as they redesign the care they deliver.”