Value-Based Payment Reforms and Long-Term Care Pharmacy Opportunities

Value-Based Payment Reforms and Long-Term Care Pharmacy Opportunities: Hurricane on the Horizon or Smooth Sailing?

Shifting Sands: The Evolving Face of HealthCare in America

The pace of healthcare reform has never moved faster. Tectonic changes are shifting healthcare from a volume-based to a value-based business model. The Centers for Medicare & Medicaid Services (CMS), the nation’s largest payer of healthcare expenses, is leading the charge. Perspective is important when tallying America’s healthcare bill. The Commonwealth Fund surveyed 13 of the wealthiest countries and found:

In 2013, the U.S. spent far more on healthcare than these other countries. Higher spending appeared to be largely driven by greater use of medical technology and higher healthcare prices, rather than more frequent doctor visits or hospital admissions. In contrast, U.S. spending on social services made up a relatively small share of the economy relative to other countries. Despite spending more on healthcare, Americans had poor health outcomes, including shorter life expectancy and greater prevalence of chronic conditions.1

Americans pay more for less than the majority of developed countries. However, consumers get far less, especially when considering life expectancy. Case in point, the Centers for Disease Control (CDC) announced that while overall life expectancy in the U.S. didn’t change in 2016, it declined for the non-Hispanic white population by 0.1 years (from 78.9 to 78.8).2 This marks the first decline in generations.

The 2010 Patient Protection and Affordable Care Act (ACA) is attempting to reconcile the mismatch between healthcare quality and cost. The ACA is restructuring healthcare to align financial incentives with measurable quality outcomes. Medicare reforms are being closely followed and emulated by commercial payers. While the ACA remains controversial, large segments of the population are benefiting. The expansion of Medicaid, changes in the insurance industry and the influx of millions of new beneficiaries into health exchanges have resulted in increasing aggregate demand for healthcare services. Meanwhile, lesser-known aspects of ACA are initiating profound changes in aligning financial incentives, quality measures and shifting risk down to providers. The Center for Medicare & Medicaid Innovation (CMMI) is responsible for identifying and evaluating numerous pilot programs and demonstrations that may affect healthcare costs.3

A staggering number of pilot programs are now in place, including Patient-Centered Medical Homes, Accountable Care Organizations (ACOs), Advanced Primary Care Practices, the Comprehensive End-Stage Renal Disease Care Model, Bundled Payments for Care Improvements (BPCI) Initiatives and Medicare Shared Savings Programs.3 Broadly, these programs are all focused on improving quality and outcomes while reducing costs.

Post-acute care, however, is prohibitively expensive, poorly coordinated and has significant regional variables in costs. For example, in Connecticut, Medicare beneficiaries are more than twice as likely to end up in a nursing home as they are in Arizona. To improve these outcomes, the CMS Nursing Home Value-Based Purchasing Demonstration is underway in three states: Arizona, New York and Wisconsin.4 CMS will assess participating nursing homes’ quality performance based on four domains: staffing, appropriate hospitalizations, minimum data set (MDS) outcomes and survey deficiencies. Nursing homes with scores in the top 20 percent and homes that are in the top 20 percent in terms of improvement in their scores will be eligible for a share of that state’s savings pool. Long-term care pharmacies affiliated with these facilities have the ability to impact performance measures in several domains.

The key to reforming payments is to align financial incentives with downside risk. Under the new payment system, a single payment is paid to a hospital and a physician group for a defined episode of care (such as a hip replacement) rather than individual payments to individual service providers. Providers are required to assume financial risk for the care delivered. Therefore, healthcare providers must transform their delivery model to ensure efficiency, quality and cost containment if they expect to profit in this environment. No longer can physicians do more, bill more and expect to be paid more.

In January 2015, the Department of Health and Human Services (DHHS) announced new goals for value-based payments and Alternative Payment Models (APMs) in Medicare.5 Starting in 2016, 30 percent of Medicare payments need to be tied to quality or value through APMs. By 2018, this will increase to 50 percent of payments. Additionally, starting in 2016, 85 percent of Medicare Fee-for-Service (FFS) payments must be tied to value or quality. This will increase to 90 percent by 2018, effectively meaning that the majority of Medicare reimbursements are moving from fee-for-service to bundled payments.

Equally important in controlling costs is the need to prevent avoidable hospital readmissions. Ambulatory Care Sensitive Conditions (ACS), such as diabetes, COPD and heart failure, are health conditions in which appropriate ambulatory care prevents or reduces the need for hospital admission. Prior to the ACA, without an incentive to prevent readmissions, these patients helped drive revenue and were, in effect, annuity payments for hospital administrators.

The ACA established the Hospital Readmissions Reduction Program (HRRP) as an addition to section 1886(q) of the 1965 Social Security Act.6 HRRP penalizes hospitals with higher than expected readmission rates by decreasing their Medicare reimbursement rate. The net result has been increased attention to ACS conditions with efforts to create better coordinated hospital care and improved community care management post-discharge. Some strategies to improve care transitions and coordinate community care include heart failure and COPD bridge clinics, case-management teams and narrowed post-acute care networks that identify high-quality post-acute care providers.


Released on April 27, 2016, DHHS issued a Notice of Proposed Rulemaking to implement key provisions of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).7 The 2015 MACRA legislation replaced the Sustainable Growth Rate (SGR) formula, which set Medicare fee schedules for physicians. The new quality payment programs establish two approaches to paying clinicians. The Merit-based Incentive Payment System (MIPS) will score clinicians on their cost, quality, clinical practice improvement activities and ability to advance care information (formerly Meaningful Use). Advanced Payment Models (APMs) are the CMMI models, Shared-Savings Program tracks or statutorily-required demonstrations where clinicians accept both risk and reward for providing coordinated, high-quality and efficient care. Models that qualify as APMs include:

  • Comprehensive ESRD Care Model (large dialysis organization arrangement)
  • Comprehensive Primary Care Plus (CPC+)
  • Medicare Shared Savings Program – Track 2
  • Medicare Shared Savings Program – Track 3
  • Next Generation ACO Model
  • Oncology Care Model Two-Sided Risk Arrangement (available 2018)

Not eligible for the proposed APM track are Bundled Payments for Care Improvement Initiative, the Comprehensive Care for Joint Replacement (CJR) Model and Track 1 of the Medicare Shared Savings Program (MSSP). CMS anticipates most clinicians will only be eligible for MIPS; any clinicians qualifying for the APM track will likely do so as a group.

How Does this Affect Long-Term Care Pharmacy?

According to an April 2016 IMS Health report, spending on medicines in 2015 increased 8.5 percent on a net-price basis to $309.5 billion. Spending on specialty drugs accounted for $142 billion of the overall total drug expenditures. U.S. prescription drug spending is anticipated to increase by 46 percent, reaching $640 billion in 2020. While some of this increase is attributed to greater access to health insurance, closure of the Medicare Part D “donut hole” and increased medication use in an aging population, the pharmaceutical industry’s pricing strategy is equally responsible. (Martin) Shkreli is now considered a four-letter word, and never before have consumers, Congress and payers been as sensitized to drug-prices. This puts pharmacy owners in a difficult position of simultaneously trying to expand their scope of services (think Provider Status legislation) while defending against the perception that pharmacists are responsible for price increases.8

It is therefore imperative that long-term care pharmacy owners understand how physicians and health systems are going to be paid as healthcare reform evolves. Knowing what variables influence profit margins within the context of clinically integrated or narrowed networks, APMs and MIPS will create a competitive advantage for long-term care pharmacies that can deliver on value, quality and outcomes. As Medicare increasingly requires providers to accept down-side risk, pharmaceutical spending will be heavily scrutinized. Growing prescription drug costs provide an opportunity for pharmacists to use their clinical knowledge to align their business interests with activities that reduce the total cost of care and improve outcomes.


1D. Squires and C. Anderson, “U.S. Healthcare from a Global Perspective: Spending, Use of Services, Prices, and Health in 13 Countries,” The Commonwealth Fund, October 2015.

2,3E. Arias, “Changes in Life Expectancy by Race and Hispanic Origin in the United States, 2013–2014,” NCHS Data Brief No. 244, April 2016.

4“CMS Innovation Center: Report to Congress,” CMS, December 2014,”

5“Nursing Home Value-Based-Purchasing Demonstration,” CMS, February 2015,

6“Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value,” U.S. Department of Health & Human Services,” January 2015,

7“Readmissions Reduction Program (HRRP),” CMS, April 2016,

8“Medicare Program; Merit-Based Incentive Payment System (MIPS) and Alternative Payment Model (APM) Incentive Under the Physician Fee Schedule, and Criteria for Physician-Focused Payment Models,” Federal Register: The Daily Journal of the United States Government, May 2016,

9“Martin Shkreli,”, accessed on May 17, 2016.

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