San Diego Business Journal

— San Diego-based health systems Scripps Health and Sharp HealthCare have been selected to participate in Medicare demonstration programs offering financial incentives to organizations that deliver high-quality medical care while saving taxpayer money.

The federal Centers for Medicare & Medicaid Services announced Jan. 18 it has accepted the organizations’ applications to be part of its “alternative payment model” projects. Their participation took effect Jan. 1.

While the two systems will work under different programs set up by CMS, the activities of both will revolve around what are known as accountable care organizations, or ACOs, designed to align the work of hospitals, physicians and other health care providers.

The guiding principle in each case is that Scripps and Sharp stand to receive higher reimbursements for medical care than they normally would, providing they reach new savings targets without sacrificing quality. ACOs aim to do that by sharing information across an organization and coordinating care for patients suffering from chronic diseases such as diabetes.

New Approach

The programs are a significant change to CMS’s traditional “fee for service” Medicare model, in which health care providers have been paid according to the volume of services they provide, not necessarily the quality.

Participation in the programs carries different kinds of financial risk for Scripps and Sharp. Not only does it require up-front investment in personnel, but the health systems’ performance will determine whether they end up having to return money to the government.

Additionally, there is no guarantee the Trump administration will not cancel the project, which was launched under former President Barack Obama; parts of it are tied to the Accountable Care Act Trump has taken steps to dismantle.

The two health systems’ ACOs were among 572 nationwide accepted to take part in the Medicare ACO project.

Sharp’s Past Experience

Sharp has previous experience in a Medicare alternative payment model. It joined CMS’s Pioneer ACO project in 2012 but chose to withdraw from it in 2014 because of what it called an inappropriate reimbursement level indexed not to regional but national health care costs.

That cost-indexing mismatch was addressed in the 2017 program, persuading Sharp to join CMS’s 2017 Next Generation ACO model, said Alison Fleury, CEO of Sharp’s Next Gen ACO.

Under the new program, expected to involve 43,450 Medicare beneficiaries living in San Diego County, health care delivered by Sharp will be reimbursed at a rate of 0.16 percent below the national standard. Nationally, the discount can range to as high as 2 percent, but Fleury said Sharp’s adjustment was smaller because of its success in coordinating quality care. The discount rate applies throughout 2017 but may be changed next year.

Risk and Reward

The company’s Next Gen ACO stands to benefit by as much as $25 million, or 5 percent of the total Medicare reimbursements Sharp can expect to receive under the program. Conversely, it could lose up to the same amount if its results don’t live up to expectations.

Sharp’s participation in the project is expected to improve patient care beyond the traditional model, where health care was sometimes fragmented, said Dr. Alan Bier, president of Sharp Rees-Stealy Medical Group, which is part of the Sharp ACO participating in the demonstration project.

“Under the Next General ACO Model, we will focus on engaging patients and health care providers in a comprehensive and coordinated approach to meet each patient’s needs and ensure the right care is given at the right time and in the right place,” Bier said in a news release.

Sharp’s Next Gen ACO is among 28 new to the program this year, raising the total participation to 45 nationwide.

Scripps Program

The model Scripps enrolled in, known as a Shared Savings Program ACO, structures risks and potential benefits differently.

For Scripps to benefit financially, its participating ACO must improve the quality of care delivered to some 38,000 Medicare beneficiaries for less than the total “spend” amount targeted by CMS.

If the health system’s net savings exceed the CMS target by at least 2 percent, Scripps will share in the government’s savings. But if its costs exceed the set amount by 2 percent, it must pay the agency a portion of the losses.

Its gains are capped at 20 percent, and its losses at 15 percent. Corresponding dollar figures were not available.

“The better we do on improving quality, the (greater) the savings we can achieve and the less we have to pay if there is a loss,” Scripps said in a written statement. “So, quality performance is very important.”

While Sharp has experience with the federal alternative payment program, Scripps has none.

It was among 99 health systems nationwide that this year joined 480 organizations already enrolled in CMS’s Shared Savings Program ACO model established in 2012.

Sharp has four acute-care and three specialty hospitals, as well as a health plan, two affiliated medical groups and outpatient facilities.

Scripps has five acute-care hospitals and other facilities, including 28 outpatient centers and clinics.