Consolidation in Medicare Advantage and Prospects for Regional/Local Plans
In the past 12 months three health insurers have each acquired a Medicare Advantage HMO: HealthSpring (Bravo), WellPoint (CareMore), and Humana (Arcadian). Large plans are finding that acquisitions make more sense than investments in organic growth in certain markets, and that enrollment will be driven by millions of plan-friendly Baby Boomers and employers seeking to transfer risk for retirees to Medicare. Investors that sat on the sidelines the last couple years during the financial crisis now need to invest, many large players are sitting on piles of cash, and there are many opportunities in the fragmented MA market. So consolidation will intensify -- what does that mean to regional or local MA plans?
First, there's plenty of room in MA's pantheon for regional and local plans. It doesn't take much enrollment to make the Top 25 in Medicare Advantage given revenues for MA members typically run 4-6x what commercial members pay -- take Independence Blue Cross in Philadelphia. They have about 85,000 members and they're among that hallowed group. 10,000-12,000 members is generally thought to be the "magic number" in MA, where a plan achieves actuarial stability with an enrolled pool big enough to weather the inevitable million-dollar babies at end-stage.
If you're above that number today, you can likely endure and thrive through the next several years of ACA transition and consolidation by following some specific best practices, especially around risk adjustment and Star Ratings management. If you're not there yet, this is going to be a very challenging couple of years ahead.
The best ways for local/regional plans to offset the rate cuts in ACA is on the revenue side. Risk adjustment and Star Ratings management best practices are the keys to survival for local and regional plans, and the methodologies of each actually favor these organizations. The new state of the art in risk adjustment is the advanced prospective evaluation -- a health risk assessment on steroids, conducted in the beneficiary's home by a trained physician (see the many posts by my colleagues Dr. Jack McCallum and RaeAnn Grossman on this subject). It's a complex process, arranging the scheduling, executing the visits, reporting the data to CMS -- but one managed more easily by local/regional plans with assets on the ground than large nationals.
Star Ratings quality bonuses from CMS actually favor local/regional plans as they're calculated at the contract ("H-number") level. Large national insurers typically have sprawling MA service areas: United in California, for example, has an MA contract for the entire state, requiring United to coordinate with literally dozens of physician groups to improve their Star Ratings. By contrast, tiny GEMCare Health Plan in Bakersfield, with a 5-county service area and only a handful of provider groups, is far better positioned to secure its Star bonus than United.
On the downside, minimum Medical Loss Ratio (MLR) regulations can be harder for local/regional plans to contend with. Beginning this year the ACA requires health plans to spend 80% to 85% of premium revenue on reimbursements for clinical services and activities that improve health care quality. Further, costs associated with conversion to ICD-10 coding, EMRs and e-prescribing are harder for smaller firms to absorb. But harder doesn't mean impossible, especially with effective planning and local leadership.
In the end, I think we're probably looking at one-third fewer contracts in MA by 2016 -- 671 today, down to about 400 by then, driven by acquisitions and a hard-nosed CMS pushing weak performers out of the program. That leaves plenty of room for local/regional plans -- if they can execute as well or better than the big dogs, especially on the revenue side of the ledger.
I'll be speaking on this and related topics at AHIP's Medicare conference here in DC on September 13, and again September 26-27 at the Opal Events 3rd Annual Medicare Advantage Strategic Business Symposium. For more information, click here. Hope to see you there.
United Acquisition of Monarch Healthcare (CA): Marx Meets Managed Care, Again
The Wall Street Journal reported this morning that United Healthcare is acquiring our longtime client, Monarch Healthcare in Irvine, CA. The transaction is further evidence that Marx (Karl, not Groucho) has met managed care: a payer controlling the means of production in an intensely competitive market.
There have been several other payer/provider deals in the last few months confirming the trend: WellPoint recently closed its acquisition of provider-owned Medicare Advantage plan CareMore; in June, Highmark bought West Penn Allegheny Health System; last December, Humana bought Concentra.
Expect to see many more of these kinds of deals, for clear strategic reasons: with greater emphasis on performance-based risk contracting arrangements in the future of healthcare financing, and an emerging focus on the patient's experience of care, in many markets it just makes sense for payers to own their supply chain -- and the day-to-day faces of the health plan with its members.
CMS Innovations: Bundled Payments for Care Improvement Program
CMS Innovations: Bundled Payments for Care Improvement Program
On August 23, 2011 CMC/CMMI unveiled its most recent tool in its arsenal to reduce cost and impact quality and access to healthcare services for Medicare beneficiaries. Referred to as the Bundled Payments for Care Improvement Initiative, it is a variation on the theme first employed in healthcare financing back in the late eighties and early nineties known at the time as either global payments, episode of care payments or case rates. The difference is that the current CMMI initiative requests providers to submit competitive bids with built in discounted pricing thus putting the burden on the bidder to get the numbers right or suffer the consequences of cost exceeding income.
As CMS states on its website, "The Bundled Payments for Care Improvement" initiative seeks to improve patient care through payment innovation that fosters improved coordination and quality through a patient-centered approach. The CMS Innovation Center is seeking applications for four broadly defined models of care. Three models involve a retrospective bundled payment arrangement, and one model would pay providers prospectively. Through the Bundled Payments initiative, providers have great flexibility in selecting conditions to bundle, developing the health care delivery structure, and determining how payments will be allocated among participating providers".
It seems to me that the "Bundled Payments for Care Initiative approach" emphasis once again is less about improving care and more about changing the financing for that care. As you will see the focus of the program is to offer four different payment models as described in detail in the RFA. As I have opined in previous blogs, substantive reenginnering of how healthcare is accessed and delivered requires fundamental realignment in provider behavior and patient behavior as well as changes to how healthcare is financed. At best this program may be an effective component in the effort to reengineer healthcare, if in fact the program becomes part of a coordinated approach.
CMMI goes on to explain on the website referenced above that "Applicants would propose the target price, which would be set by applying a discount to total costs for a similar episode of care as determined from historical data. Participants in these models would be paid for their services under the traditional fee-for-service (FFS) system. After the conclusion of the episode, the total payments would be compared with the target price. Participating providers may then be able to share in those savings.
Applicants for these models would also decide whether to define the episode of care as the acute care hospital stay only (Model 1), the acute care hospital stay plus post-acute care associated with the stay (Model 2), or just the post-acute care, beginning with the initiation of post-acute care services after discharge from an acute inpatient stay (Model 3). Under the fourth model, CMS would make a single, prospective bundled payment that would encompass all services furnished during an inpatient stay by the hospital, physicians and other practitioners."
For detailed information on each model, I suggest interested parties access the website referenced above and click on one of the four links provided for more detailed information. Also available on the website is a link for accessing a copy of the RFA.
As you can see from the deadlines for LOI filings and proposal submission, (see below), there is limited time for providers to create the network, arrive at a bundled price and create the payment schedule for each provider. What may be problematic for more than a few provider systems interested in applying for this program is the reality that in order to submit a discounted bundled price for a specific DRG or episode of care, the system must gain acceptance from all providers involved in the episode of care on the value assigned to each part of the episode of care—in other words agreement to their individual piece of the bundled payment pie. Anyone who tried global or episode of care pricing in the past knows from experience that achieving such agreement from individual providers is not an easy or time efficient task.
So after each potential applicant has filed the requisite Letter of Intent, consideration should be given to the following: prior to filing an application:
- Selection of the DRG or DRG's that would be considered;
- Selection of the providers that will be involved in the episodes of care identified;
- Development of participation agreements with selected providers;
- Clear definition of what is included in the episode or care and the associated costs;
- A financial formula that assigns value to each component of the episode or care;
- An analysis of the avoidable costs for the DRG's under consideration;
- A provider specific fee schedule which rewards for performance, on a consolidated basis is below the discounted rate proposed to CMS and fairly distributes the savings based on quality outcomes and financial efficiency benchmarks.
Per CMS/CMMI, organizations interested in applying for the program must submit a nonbinding letter of intent by September 22, 2011 for Model 1 and November 4, 2011 for Models 2-4 as described in the Bundled Payments for Care Improvement initiative RFA. Those applicants thinking of submitting a proposal for models 2-4 will want to receive historical Medicare claims data in in order to develop benchmark pricing. That will require submitting a separate research request packet and data use agreement along with the Letter of Intent. Final applications must be received on or before October 21, 2011 for Model 1 and March 15, 2012 for Models 2-4.
Let us know your views on this most recent CMS/CMMI initiative. We are here to help whether your needs relate to better understanding the requirements set by CMS/CMMI; require assistance in filing the proposal, require assistance with establishing financial feasibility or helping in achieving support and participation from select providers.
Prices in Healthcare
For months now the national and local news has focused on the price of gas. $3.79 per gallon this week in my part of the San Francisco Bay area. At Costco it is $3.59 per gallon, if you are willing to wait in line. Of course there is a website that will tell you gas prices and map them by location. Need to price a new television? Go online and price shop. Interested in quality of the television? Check out Consumers Reports or another such source. Standing in the audio store? Pull out your iPhone, bring up the RedLaser application and scan the bar code. It will give you the price of that television in some other nearby stores.
So how about healthcare? Well I shopped my Lasix eye surgery years ago for price and quality. I of course paid for all of it. I also get my dental care from a great, but not cheap, dentist. I need a crown, his staff quotes me the price. I have dental insurance, which pays a part of the price and they tell me that amount and the amount of the price I pay. I can shop if I need to for better prices, but I don't for another dentist.
So let's take a simple healthcare procedure. I need my appendix out. (Not really, and I still have mine....but an example.) I want to know the price from hospital choices in the area. Can the hospital tell me? Can anyone tell me? My neighbors know the gas prices, but could they answer a question on healthcare price? Can I get the info online? Can I get much info about which surgeon is the best person to take out my appendix, let alone his price for doing so?
So think about it. How well does this type of purchase work when we don't know the prices, let alone the typical quality of the service we are buying? More on this subject next blog when I get into: prices vs. costs, the impact of insurance, and other such fun areas of healthcare.
Medicare Advantage Plans as Laboratory for Best Practices
In announcing the 2012 Chronic Care Improvement Program and Quality Improvement Projects for Medicare Advantage plans, CMS is going back to the future.
When these quality improvement programs were begun over a decade ago, CMS established national projects on priority areas for all MA plans. CMS is returning to a national project for 2012 and will focus on decreasing cardiovascular disease. The initial experience with national projects was extremely positive, with most plans reporting interventions that resulted in measurable improvement.
The 2012 projects recognize the evolution of the quality improvement field and now the reports will be standardized with reduced burden to MA plans. Because the reports will be consistent, comparisons can be made across plans. CMS is recognizing that MA plans offer a laboratory for best practices and expects that successes can be shared among all plans, thus transferring knowledge and allowing successful projects to be replicated.
PBM merging pharmacy and medical claims: The time is right
Pharmacy claims exist in a health plan in two distinct silos. Medical pharmacy claims are billed to the medical benefit using a professional claim format such as a CMS 1500. Claims are coded with HCPCs rather than NDCs and are generally much higher cost pharmaceuticals than their retail counterparts. Medical claims are generated by physician practices, home infusion suppliers, specialty pharmacies, outpatient clinics, and hospitals.
Retail pharmacy claims are processed, adjudicated, and paid by a PBM contracted by a health plan. These claims are processed in real-time at the point of service which is usually a retail pharmacy. Health plans receive adjudicated claims data for these retail claims from the PBM and are stored in data warehouse obscurity.
For most plans, the two data bases are not combined beyond the highest level of totals for the combined drug spend. Consequently, there is lost opportunity for plans to achieve comprehensive medication management and integrated case management. Pharmaceutical outcomes for most diseases are not independent of medical treatment. Without combining the data for both pharmacy claims and medical claims, it is impossible to monitor total drug therapy utilization and to evaluate the true cost of therapy.
By combining pharmacy and medical claims, the plan can evaluate opportunities for optimizing pharmaceutical care, for example before a patient is moved to a more expensive biological agent dispensed by a specialty pharmacy. The member may be receiving both retail and medical claims for the same condition. With medical and pharmacy claims data combined, current therapy can be matched up with nationally recognized treatment guidelines and recommendations can be made to providers. Health plans can better achieve clinical quality goals with a combined data set.
In addition, once the data are combined, both types of data can be reviewed for fraud, waste, and abuse. Outliers can be identified and sent to validation. Recovery of excess payments can occur. Trending and other opportunities can be identified such as finding duplicate billing both from the pharmacy and a physician's office, duplicate claims from a single provider, or other aberrant provider reimbursement patterns.
For many plans, particularly the smaller ones, the technical resources required for merging the two data sources often are not available. Combining medical and pharmacy claims is a service by which a PBM can bring added value to the plan.
The current PBM model of focusing solely on pharmacy claims needs to evolve into a more robust, comprehensive tool for plans to achieve better control of pharmaceutical outcomes. PBM platforms have the capability to fit the role. The time is right for the PBM industry to step up to the challenge of helping plans manage both improved outcomes and lower costs.
Medicare's Looming Risk Transfer
Please read Dr. Jaan Sidorov's Health Affairs blog on "Medicare's Looming Risk Transfer" where he describes how the ACA and Democrat and Republican proposals to reform Medicare "transfer substantial portions of Medicare's monetized risk from the government to one or more third parties."
The Water Hazard of Risk Adjustment: HCCs from Claims
I love the saying "Golf isn't a sport - It is old man walking around in ugly pants."
Ugly pants aside, golf definitely has its challenges: water hazards, sand pits ... other golfers, trees, birds... finding your inner athlete .... and so does risk adjustment.
In the last six years we have gone from focusing on chart review to launching various versions of member evaluation, but this whole time we've been forgetting about HCCs we are submitting from claims. Those claims-based HCCs are the real hazard in our program. (Chart review may be like the sand trap — open another one and another one; just keeping swinging and swinging and at some point you will move the ball closer to the hole.)
We've all been at the conferences and we hear that on average, 37% of claims-based HCCs fail during a RADV audit. Last week during our Flash Webinar, The Analytics of Risk Adjustment, we were talking with 43 health plans and we asked the question:
How many of you health plans are filtering your claims - not just for site of service, provider type, and ICDs that trigger a HCC - but also by code confidence?
The Answer: TWO health plans out of the 43 are filtering their claims by "confidence"
The real question we were driving at? - are you confident this code from claims will be found in a compliant medical record and be documented appropriately enough to pass a RADV audit? Has more the one physician noted this condition? Does this condition look clinically appropriate for this member?
Claims flow in, and submitting them to CMS is like the peaceful water on the golf course. It looks harmless enough. But when your golf ball goes into the water, you don't know if it is 6 inches or 6 feet deep. And you don't know what kind of danger you are in if you don't filter your HCC claims-based codes.
CenseoHealth is now offering CareCurrent, a current-year analytics service that sifts through your claims codes and stratifies them into confidence tiers. This enables a health plan to make an informed decision about submitting claims-based HCCs before taking further action (whether chart review or a face to face member evaluation) to ensure there are compliant conditions.
Even if your golf pants are lacking a certain style, you'll still be sitting pretty with CareCurrent as your Callaway Diablo Edge Driver. Four!
The Medicare Pioneer ACO Program: What's Next?
For those of us even vaguely involved in Medicare, the reference to the Pioneer ACO Demonstration program elicits feelings of optimism and relief—optimism because it is an approach to reengineering healthcare and relief because the application submission deadline has come and passed.
Most of you will recall that the Pioneer ACO Demonstration program is a CMS/CMMI initiative to partner with sophisticated integrated provider organizations in an effort to improve the provision of healthcare services to Medicare eligible beneficiaries. The program is one of several initiatives first telegraphed by CMS Administrator Berwick in a November 16th 2010 press release announcing the formation and mission of the Center for Medicaid and Medicare Innovation. In part the mission of the center is to "rigorously and rapidly assess the progress of its programs and work with providers and other payers to replicate successful innovations in communities across the country. It will test models that include establishing "open innovation communities" that will serve as information clearinghouses for best practices of health care delivery reform.
By all indications, the Pioneer demonstration program is envisioned to achieve results which will hopefully become part of the CMS/CMMI toolbox for innovation and best practices. Consequently, those organizations that applied and will be selected are those who can demonstrate a history of patient/provider/payer collaboration; the existence of performance based approaches to delivering superior diagnosis and treatment of patient health issues; the presence of prerequisite governance; infrastructure and technology capabilities to integrate the clinical and financial requirements; and the financial strategies for implementation, operations and income distribution.
The good news is that the application development period is behind us and that those integrated provider systems that were assisted by GHG in their application development and submission process will have an excellent chance of moving to the next phase of the CMMI application evaluation process.
We believe the process will unfold as follows, (however we reserve the right to change our predictions once CMS/CMMI publishes its next update).
First, CMMI will review each application filed for completeness and timely submission. Some of the applications may be rejected outright. Others may be asked to submit additional information, clarify certain supporting documentation or correct omissions. It is highly likely that this initial review process will be quick and applicants will have a short window of opportunity to correct any deficiencies.
Second, those that pass the initial screen for completeness will be contacted by CMMI to schedule a face to face interview. It will focus on the content/detail of the application responses and a thorough Q & A is intended to demonstrate to CMMI the applicant's familiarity with operating a coordinated clinically and financially integrated delivery system in line with CMMI's triple —aim vision for Medicare healthcare.
Third, if the applicant interview is successful, CMMI will offer the applicant a contract to operate a Pioneer ACO for a minimum of three years and possibly for at least five years. Fortunately the applicant is not alone in navigating the post Pioneer ACO application development waters—GHG stands ready to provide assistance along every step of the way calling on our senior executives' long standing experience with the inner workings of CMS.
Those who decided not to apply for the Pioneer ACO demonstration program have not been eliminated from participating in CMMI innovation programs/initiatives, the most recent of which is the recently announced Bundled Payments for Care Improvement Initiatives.
I will be reviewing this new innovations program during my next blog and comment on GHG's perspective. Until then stay healthy.
Too Much of a Good Thing
Ever find yourself in the cereal aisle, staring blankly at the mosaic of options, your enthusiasm for the task waning with each passing second?
Everyone has heard (and experienced) the phenomenon of being overwhelmed by choice. Now, a new study, published in Health Affairs and conducted by Harvard Medical School appears to show that as the number of Medicare Advantage plans exceeds a certain threshold in a market, participation in the program actually decreases. This study has much in common with what has become known as The Paradox of Choice: too many choices overwhelm our brains and lead to indecision--- ultimately restricting us instead of freeing us. Thus, after a certain point, more choice means less freedom. As reported in Medical News Today:
The researchers gathered data on 21,815 enrollment decisions from 2004 to 2007 that 6,672 participants had made. They compared enrollment decisions made by participants with varying cognition levels, as well as types of plans offered in their areas.
They found that as long as the number of plan options being offered was fewer than 15, a rise in the number of plans resulted in an increase in Medicare Advantage enrollment. However, when there were over 30 options the number of enrollments actually dropped - this was the case in 25% of US counties. [emphasis added]
There is more interesting stuff in the study, including the impact of choice on members with varying levels of cognitive functioning. For more on the Paradox of Choice, listen to Barry Schwartz fascinating TED talk from 2006. A pre-emptive political point: Note that his quibble is with the way we promote more "freedom," not "freedom itself.