CMS Health Care Innovation Awards Update and Analysis

Christian Chai Topic Overview and Introduction Despite ongoing uncertainty surrounding the Obama administrations recently upheld healthcare reform, the CMS Innovation Center has awarded nearly $1 billion in funding through the Health Care Innovation Challenge in an effort to galvanize healthcare innovation. These grants, funded under the Affordable Care Act, aim to improve quality of healthcare among high risk/high opportunity patient populations while simultaneously lowering the cost of care. In addition, the Challenge seeks to promote innovative workforce development and deployment within the healthcare industry. The CMS Innovation Center has $10 billion over 10 years under this initiative. The grants, which range from $1 million to $30 million over a three-year period, were awarded to applicants who demonstrated an ability to develop and implement effective creative care models within the scope of Medicare, Medicaid and the Children's Health Insurance Program (Fact Sheet, 2011). Recent Updates The 26 first-round awardees and 81 second-round awardees were announced on May 8, 2012 and June 25, 2012, respectively. 107 of nearly 3,000 applications were accepted from all sectors of the healthcare industry. CMS distributed $122,603,549 to first-round awardees and $771,391,689 to secondround awardees for a total grant of $893,995,238. The CMS Innovation Center selected applicants from all 50 states, the District of Columbia, and Puerto Rico (Award profiles, 2012). Effort was made to stimulate healthcare in a wide variety of geographic and demographic locales. Thanks to the healthcare law, we are giving people in local communities the resources they need to make our healthcare system stronger, said HHS Secretary Kathleen Sebelius, who announced the awards (Announcement, June 15, 2012). As grants were only very recently announced, most projects remain in relatively nascent stages of execution. However, in its selection process, CMS prioritized proposals that could be implemented within 6 months of award, indicating that progress will likely be seen in the upcoming months (Fact Sheet, 2011). While tangible results may be scarce at present, it is important to remember that the CMS awards are three-year grants transformation does not happen overnight. In fact, HHS recognizes that certain projects may not achieve net cost savings until after the initial three-year timetable due to high start-up-costs and the implementation of new care patterns (Award profiles, 2012). Even still, HHS expects the initiative to save the healthcare system $1.9 billion over the programs three-year duration, resulting in an approximately twofold projected return on investment.

Our hope is that the most successful projects will become models for the rest of the country, according to Sebelius (Conference call, May 8, 2012). The status of future iterations of the initiative may remain in limbo, however, as congress has recently demanded more oversight over grants and projects run by the CMS Innovation Center. In a letter to HHS Secretary Sebelius, Louisiana Republican Representative Charles Boustany, Jr. demanded further documentation and transparency in regard to grant selection processes for the Challenge. The cost and opaqueness of CMMI requires thorough congressional oversight, Boustany wrote. Taxpayers deserve a public accounting for this use of their hard-earned dollars (Boustany, 2012). On July 19, HHS Secretary Sebelius announced an additional funding opportunity under the Affordable Care Act for states to design and test improvements to their healthcare systems. States can apply for either Model Design or Model Testing funding, with $50 million and $225 million available for each respective category. Up to five states will be chosen for Model Design awards, and up to 25 states will be chosen for Model Testing awards. Applications are due on September 17, 2012, with selections anticipated in November. An additional round of funding will likely be available next year ("HHS announces state," 2012). Analysis and Trends If initial healthcare savings projections remain intact, CMS will see strong returns on investment at the end of the 3-year grant period. Over the entire grant period, funding for the Health Care Innovation Challenge could yield up to a 121.3% ROI, or a simple annualized ROI of 40.4% per year. These figures, however, are under ideal conditions; that is, each project must attain its projected 3-year savings for these values to hold. Say the Innovation Challenge hurdle rate is set at a standard 12% per year (Meier & Tarhan, 2006). To achieve this benchmark for cost-saving measures, Health Care Innovation awardees must yield a cumulative 3-year ROI of 40.5%well below the projected figure based on CMS project profiles. To achieve this return on investment, the projects would have to produce $1,256,063,309 in healthcare savings over the next three years. This amounts to 63.5% of the programs total projected 3-year savings. Thankfully, these savings will not come at the expense of the healthcare workforce. According to Health Care Innovation awardee project descriptions, 2,922.37 new jobs will be directly created by the grants through 2015. Instead, these savings will be a result of improved care patterns that also provide financial incentive for the entire industry. As such, the Challenge has strong potential to stimulate the healthcare economy both locally and nationally. When evaluated strictly in terms of fiscal measures, the Health Care Innovation Challenge thus appears to be a strong investment in the future of healthcare. Lowering the cost of care confers benefits to all stakeholders within the industry. Yet, the benefits of this initiative span well beyond what can be captured by economic analysis: innovation is not a commodified good and cannot be treated as such. To prove this point, it is interesting to note that 11 projects promise a negative

return on investments over the three-year grant period. Perhaps the most glaring example is Christiania Care Health Services, which was awarded $9,999,999 in grants yet expects a 3-year return of $376,327. This should not necessarily diminish the projects significance, however. The hope is that negative-ROI projects will provide innovative solutions for healthcare improvement that outweigh any savings deficit incurred. For example, the Christiania Care Health Services project will create and a heart disease data hub by combining Delaware HIE with third-party cardiac care registries. While the project may be pricy, the endeavor is expected to decrease emergency room visits and avoidable readmissions to hospitals as well as improve interventions and care transitions (Award profiles, 2012). This may prove an invaluable model for future care patterns; it is likely that we will see certain CMS programs, like this one, implemented nationally within the next few years. Furthermore, the project may not be as costly as figures suggest: Christiania Care Health Services expects to generate cost savings beyond the initial grant period. The Health Care Innovation Challenge will be expected to not only improve efficiency and treatment quality within the healthcare industry, but to make innovative healthcare more accessible. The Challenges ties to Medicare, Medicaid, and CHIP give the program some geographic parity: projects will be implemented in all 50 states, the District of Columbia, and Puerto Rico. In fact, 21 states have 5 or more projects acting within their boundaries, and only Alaska and Puerto Rico will be covered by a singular grant. This widens the availability and quality of care throughout the nation, as both rural and urban communities alike will reap the benefits of Challenge funding. The usual states still received more than their fair share of coverage, though, as California (17), New York (13), and Massachusetts (12) set the pace for the rest of the country. Nevertheless, funding likely will not be too heavily concentrated in any given area: the Challenges 5 largest grants cover 28 states alone, and 30 of the 107 projects feature a geographic reach spanning at least two states. The recently announced CMS state healthcare innovation initiative is a welcome addition to the current awards. The program is, in a sense, the states counterpart to the CMS Health Care Innovation Challenge. States will work with multiple healthcare stakeholders to design or test multi-payer payment and improved delivery systems. Though primarily targeted toward Medicare, Medicaid, and CHIP beneficiaries, innovation stemming from successful models is expected to benefit privately insured patients as well ("Hhs announces state," 2012). These awards are an incentive for states to, recruit partners, and accelerate the work that many of them are already doing to improve health care and lower costs, according to CMS Acting Administrator Marilyn Tavenner (Ibid). While many states are already working toward this end, federal assistance will hopefully accelerate the process. In tandem with the original private sector initiative, this opportunity should further galvanize healthcare innovation if successful models gain traction.

Conclusion Preliminary data released by CMS gives reason for us to be cautiously optimistic about the Health Care Innovation Challenges ability to foster innovation in upcoming years. So long as awardees perform within reasonable expectations, the health care industry should see benefits more than commensurate with the $1 billion initial investment. It is also encouraging to see CMS promoting innovation from multiple stakeholders by sponsoring initiatives for both the private sector and the state. This stimulus comes at a critical period of transition for healthcare. As the industry shifts toward a performance-predicated model of payment, and away from the current fee-for-service protocol, care patterns must be incentivized for both quality and efficiency. The Health Care Innovation Challenge will hopefully be able to address this issue and accelerate the transition. If the most successful projects can be implemented nationally, patients, and providers, payers alike should see benefits in upcoming years. While initial impressions are optimistic, an improved healthcare workforce will be needed for these projects to achieve success. As advancements in care patterns care patterns and technologies are made during the 3-year grant period, the current healthcare workforce will require additional training, education, and expansion to facilitate such development. It is encouraging to see projects deliberately address this important facet of growthinnovation can only predicate progress with an effective and properly trained healthcare workforce. This is not to say the program will be free of impediment, though. While initial data appears promising, it is important to remember that 3-year savings figures are merely projectionsawardees must still successfully deliver upon their proposals for initial statistics to maintain any significance. Additionally, the ongoing Congress probe may impact current awardees, as well as the remaining $9 billion in CMS innovation funding over the next decade. While many questions remain, periodic project updates will allow us to better evaluate the success of the initiative as the 3-year grant period progresses. Even with all of the uncertainty, however, we should be hopeful in our assessment of the CMS Health Care Innovation Challenge and its great potential to effect change.

CMS Health Care Innovation Challenge Quick Facts Total Funding: $893,995,238 First-Round Award Funding: $122,603,549 Second-Round Award Funding: $771,391,689 Total Projected 3-Year Savings: $1,978,665,091 Total Jobs Created: 2922.37 Average Grant Awarded: $8,355,096 Average Projected 3-Year Savings: $18,492,197 Projected ROI: 40.44% Simple Annualized ROI: 121.33% Top 5 Project Grants: 1. 2. 3. 4. 5. $26,583,892 $26,172,439 $24,000,000 $20,750,000 $19,920,338 Finger Lakes Health System Agency Dartmouth College Board of Trustees Carefirst BlueCross/BlueShield TransforMED Johns Hopkins University

Top 5 Projected 3-Year Savings: 1. 2. 3. 4. 5. $81,345,987 $74,100,000 $67,719,052 $67,120,215 $63,798,577 Mayo Clinic Pittsburgh Regional Health Initiative Rutgers University IHC Health Services (Intermountain Health Care) Dartmouth College Board of Trustees

Top 5 ROI by Project: 1. 2. 3. 4. 5. 659.76% 611.17% 590.24% 535.95% 440.16% Northeastern University Pittsburgh Regional Health Initiative IHC Health Services (Intermountain Health Care) Eau Claire Cooperative Health Centers, Inc. MedExpert International, Inc.

*All data calculated from Health Care Innovation Award Profiles

Resources Boustany, C. W., Jr. U.S. House of Representatives, Committee on Ways and Means. (2012). Boustany letter to secretary sebelius. Retrieved from website: http://waysandmeans.house.gov/UploadedFiles/Boustany_letter_to_Sec_Seb elius_6.13.12.pdf Center for Medicare & Medicaid Services, CMS Innovation Center. (2011). Health care innovation challenge fact sheet. Retrieved from CMS website: http://innovations.cms.gov/Files/fact-sheet/Health-Care-InnovationChallenge-Fact-Sheet.pdf Center for Medicare & Medicaid Services, CMS Innovation Center. (2012). Health care innovation award profiles. Retrieved from CMS website: http://innovations.cms.gov/Files/x/HCIA-Project-Profiles.pdf HHS announces state health care innovation initiative. (2012, July 19). Retrieved from http://www.hhs.gov/news/press/2012pres/07/20120719a.html Meier, I., & Tarhan, V. (2006). Corporate investment decision practices and the hurdle rate premium puzzle. Informally published manuscript, Finance, HEC Montral, Montral, Canada. Retrieved from http://www.gresicetai.hec.ca/cref/sem/documents/060329.pdf