The Cost of Care: "How high can premiums go?"
One of the less publicized requirements of the Accountable Care Act is the requirement of health plans to spend at least 80-85% of the premium dollar on medical services. Aside from the expected discussion of what qualifies as a medical expense, under the previously mentioned medical expense target, health plans that submit "excessive" rate increases will be required to justify any premium increases that are viewed excessive in light of the 80-85 percent MLR target, and will run the risk of State or federal government regulating or rolling back the premium increases.
So why am I blogging about this? What does this have to do with ACOs or redefining how health care is priced and delivered? Well, think about it. If as a health plan I am now required to spend 80 or 85 cents out of every dollar collected on "medical expenses", then I have 20 to 15 cents to pay for everything else. Depending on my profit margins set by my board or others I have to:
a) operate very efficiently;
b) have a very cooperative relationship, (clinically and financially) with my providers;
c) have the tools necessary to properly risk profile my members, to ensure that the member receives the right services from the right practitioner without excessive cost, and
d) create a customer service environment which not only attracts new members to my plan, but retains those members year after year once I have them in the plan.
Getting all that accomplished requires decision support tools (such as a the risk assessment tool), closely alligned provider relationships, clinical and financial integration and appropriate broker, consumer and provider education.
Meanwhile the provider community is faced with increasing consumer and payer demand for efficiency, accountability for quality, and timely and convenient access to services at a reasonable price. All necessary - but difficult to achieve objectives - given the prevailing practice patterns. Programs like ACO development, innovative payment approaches like bundled payment, and "cross over" provider payer initiatives like the Consumer Operated and Oriented Program and the CMS Health Initiatives program, are some of the tools available to Providers by which to achieve healthcare delivery redesign.
Come and talk to us about how we can help you strategize, identify tools and create strategic partnership with providers, vendors and other health industry stakeholders to meet your financial and medical service provision goals and to apply for and implement the programs mentioned above. We always have opinions and suggestions, and more importantly considerable expertise in the areas discussed based on successful client interactions that have spanned all aspects of the healthcare industry.
Our approach to providing the healthcare industry with business and strategic solutions is guided by a belief that there is a solution for every problem encountered --some might even be out of the box and unconventional ... but that's the idea. Think about it.
2012 has a lot in store
2012 will be a busy year for GHG and our clients. The first Legislative agenda item will be the Medicare physician Sustainable Growth Rate (SGR) fix. The 27 percent physician fee schedule cut has only been postponed for the first 2 months in 2012. The big question is how the Congress will choose to pay for the doc fix. Medicare Advantage cuts were on the table briefly as part of the House discussion, but the House ended up cutting Medicare payments to hospitals to cover their one year fix.
The Innovation Center has a lot of activities on the docket for 2012. 32 Accountable Care Organization (ACO) Pioneers are starting this month and organizations that are interested in the ACO Shared Savings model must submit their applications by January 20, 2012 for an April 1, 2012 start date or March 30 for a July 1, 2012 start date. Some of the applicants for the Shared Savings program will also be submitting an application for the Advanced Payment ACO model. Applications for the Health Care Innovation Challenge grants are due January 27 for the first round and if the $1 billion is not fully awarded there will be a second round of applications due in the summer. Due to the large provider response, CMS has extended the deadline until April 30, 2012 for applications for the Bundled Payments for Care Improvement program for models 2 — 4.
CMS will release the Advance Notice of MA and Part D Payment changes and the Call Letter around February 17 with final rates and the final Call Letter issued in April. We would also expect CMS to issue final regulations for MA and Part D Benefit Programs for CY 2013 in the first quarter of 2012.
Applications for new Medicare Advantage plans and service area expansions for CY 2013 are due February 23, 2012 followed by bids on June 4, 2012.
Work will continue on implementing meaningful use and the Medicare Advantage and provider value based purchasing initiatives that reward quality and penalize failure to meet targets.
On the Health Care Reform front the first six months of 2012 will focus on the Supreme Court review of the ACA. Oral arguments will begin March 26 and a decision is expected in late June. States will continue their work on developing the infrastructure for the Exchanges. CMS must certify that sates have made sufficient progress by January 2013. The Exchanges will go live in October 2013 for coverage and subsidies to begin January 1, 2014.
HHS will develop a back up federal Exchange for states that aren't certified. The federal government is also building a data hub to support the Exchanges that will link Social Security, IRS and Medicaid data to facilitate eligibility and subsidies.
CMS will have to issue final regulations and guidance on policies that will govern the Exchanges. While states will have flexibility on the Essential Benefits that plans must offer in the first two years, additional regulatory guidance is expected from HHS.
The presidential election in November will underscore future changes that we can expect, especially in the area of Medicare reform and additional budget cuts. Most observers expect the big cuts to start in 2013. The conventional wisdom is that it won't be the 2 percent sequester for Medicare that was passed in the Budget Control Act of 2011 but substantially higher cuts to both the public and private Medicare plans.
Capitation in Accountable Care Organizations
If you don't already subscribe, we suggest you check out Accountable Care News, an online publication focused specifically on Accountable Care Organizations.
I published an article in the December 2011 Issue that covers capitation in accountable care organizations. A sample issue of the publication is here. For a full copy of the article, click here.
Enjoy!
ACO: Change agent or fad?
Aetna recently published results of two studies suggesting that ACOs can indeed cut Medicare enrollee costs. The results came from two medical groups - one in Ohio and one in Florida. The Florida group reduced inpatient hospital days by 37% and hospital readmissions by 27%. The Ohio group reduced inpatient days by 30% and hospital readmissions by 27%. In each case the program started in 2009 - so not bad results for a 2 year program--right?
Recall that the goal of a Medicare ACO is to streamline care, reduce unnecessary care/procedures, focus more on patient health management than catastrophic treatment, thus leading to happier patients, more fulfilled providers and less medical cost per capita. So the concept seems to work and everybody is happy-right?
Well not everybody! The Aetna study shows that ACO success can be defined in terms of less procedures, inpatient days and use of resources for a defined population. And the results point to the intrinsic benefits that accompany better outcomes as well as healthier patients and less patient exposure (sometimes harmful) to unnecessary procedures. But that is just part of the story because the Hospital and the Physician--the ones who are doing less procedures than before and the hospital that is seeing its inpatient volume shrink -, they are dealing with the reality of revenue loss unless it can be replaced through seeing more patients, increasing unit cost, cost-shifting to non ACO managed populations or limiting access to ACO participating patients, etc. -- all those consequences that are an anathema to ACO believers.
Thus individual ACO enterprises may meet all the goals set out by CMS and the private health care sector but medical costs on a consolidated basis will still go up unless.....
Unless we as an industry, choose not to wait for the next health reform shoe to drop. Instead, let us shift our attention away from experimenting on different populations with multiple cost cutting initiatives. Let us focus on health care delivery and pricing solutions that cut across all populations and funding sources with the goal of extracting involuntary practitioner and consumer behavior changes with respect to health care delivery and individual responsibility for lifestyle choices. Said differently: if everyone is riding the same train at full speed it becomes difficult and potentially harmful to jump off.
That brings me back to ACOs, the topic for this blog. I happen to think that ACOs, or rather the philosophical tenets that define an ACO, are here to stay and should and can become the foundation for the wholesale change required to change our approach to accessing and funding health care. More about that later.
It's the Providers' Turn to Make the Transformation
I just read Dr. Don Berwick's speech at the IHI National Forum and I am awed with his insight and inspiration. It reminds me of the speech that I heard Dr. Ken Kaiser give at a Veterans Administration conference that led to the transformation of the VA health system from "worst to first" in the 1990s.
Dr. Berwick discusses how our nation is at a crossroads on health care where "choice is stark — chop or improve." Everyone seems to agree that the political stalemate will continue during 2012 with the election and Supreme Court decision on health care reform. Experts expect paralysis until 2013 when real and substantial budget cuts will be unavoidable. Dr. Berwick is right that in the past the usual solution has been across the board cuts through budget reconciliation. Any cuts need to be thoughtful and support value improvement.
Dr. Berwick is hopeful that sensible solutions can be found by the provider community at the local level. He notes that government, payers and regulators cannot do what must be done. "Only people who give care can improve care." He recommends six areas where providers can cut costs and improve value — overtreatment, failures of coordination, failures of reliability, administrative complexity, pricing failures, fraud and abuse. He estimates that waste in these areas could be $1 trillion a year or one-third of the total cost of production in the health care system.
But is the provider community ready and willing? There is evidence that this is happening. A recent Leavitt report concluded that there were 164 "ACO entities" forming in the country. AHIP reports that there are 30 ACOs and 150 patient centered medical homes. And CMS is developing initiatives in Medicare and Medicaid that will build on these private sector efforts. Other leaders are trying to inspire change that avoids across the board cuts. At the recent Politico Policy conference, Dr. Ken Thorpe reminded us all that the focus needs to be on the patients with chronic illness, which will require moving away from provider silos to provider cooperation. Policy discussions at a recent Alliance for Health Reform focused on the next steps after the failure of the Super Committee. Experts noted the fundamental differences in opinions between the Republicans and Democrats on health care policy. Several experts agreed that many in the provider community understand that business as usual will not be possible and that the "gig is up". These providers are developing ACOs and medical homes and thinking about approaches to bundled payment. However it was noted that any savings from these initiatives will not be scored by CBO and that the timeline to implement these changes is longer than the Congressional budget schedule. One positive recommendation is that the CMS Innovation Center spend more time on the Hill while the providers in the community undertake the necessary transformation of the delivery system.
ACOs Are Here to Stay. They will vary in form, but not function
I just returned from the Second National Accountable Care Organization Congress. It was a three day conference focused on discussing the role that ACOs, public and private, will play in the movement to reengineer how healthcare services are delivered, evaluated, priced and paid f or.
The speaker panels consited predominately of public and private policy wonks discussing the shifting dynamics in regulatory attempt to drive healthcare reform and providers sharing their positive results in delivery sytem reenginnering efforts, including ACO and medical Home development initiatives.
Attendees to the conference were primarily physician organizations, some hospital organizations and the typical collection of consultants. The mood at the conference was both sober and decidedly upbeat. Sober because everyone recognized that the status quo was no longer an option going forward and upbeat because the underlying tenets of ACOs, i.e. Coordinated care, Stakeholder collaboration, greater patient engagement,improved information sharing, etc. were principles that everyone could support and use as drivers for healthcare delivery system reform.
The overriding themes that I took away from the conference are summarized below. Suffice it to say that all of us who work within the healthcare industy and who are committed to creating an approach to healthcare delivery that is sustainable both clinically and financially, recognize that much needs to be done and that ACOs are but one tool in that journey. We at Gorman Health Group believe it is a journey worth taking.
The themes from the ACO Congress that I believe resonated with most attendees were:
- ACO concept is here to stay and will flourish in one form or another
- ACOs will not all look alike. If you have seen one ACO you have seen one ACO. Commonalities will be collaboration, value based payment, patient engagement, attention to quality metrics, etc
- ACO development will be driven by the private sector, not by the government
- Collaboration amongst the stakeholders, (patients, providers and payers) is key to ACO success, it is key to system reengineering
- Trajectory and end point for payment reform will be global payment. The question is when, not if
- Patient centered medical homes are a core construct of an ACO, not an adjunct
- Collection, analysis and sharing of information is critical to improved, more efficient care
- Team based medicine is here to stay and will be the driving force for improvement of care quality
- Information, the collection, anlysis and reporting out, will be critical to any delivery system reengineering efforts
- And last but very important there was general agreement that CMS/CMMI significantly exceeded provider expectations regarding the positive changes to the shared savings program as reflected in the final rule.
ACO Workload
The final Shared Savings ACO regulation was published November 2, 2011 in the Federal Register. As I was reading through these regulations, I kept thinking about Bob Berenson's remark at a recent Health Affairs meeting where he said that CMS has fewer staff today than they did in the 1980s. How have they managed all of this new regulatory work on top of the routine issuance of annual fee schedule updates and other regulatory workloads? And what about the potential 270 ACOs that might apply? And now CMS is responsible for all of the ACA regulations and implementation such as overseeing the development of new exchanges in all of the states. In the meantime, CMS has implemented the Medicare Modernization Act which substantially increased the number of Medicare Advantage plans and added a whole new workload of Prescription Drug Plans. For MMA, CMS at least received some contract funding. I am wondering what will happen to staffing and funding as a result of the action or inaction of the Super Committee.
Final ACO Regulations and Guidance
I have finally finished reading the Shared Savings ACO regulations and companion guidance. No wonder it took so long. There are so many changes ranging from major policy changes to smaller changes intended to reduce burden. In my career with CMS, I do not remember any final regulation where the policy moved so far from the policies outlined in the NPRM. It is clear that CMS really listened to all of the comments. I think CMS wants this program to work. Initial feedback from stakeholders seems to be mostly positive.
However, the devil is in the details. While there are substantial improvements in the final rule, there are still a lot of requirements that organizations must meet to be approved for the Shared Savings program. The timetable is very tight. We haven't seen the application yet and even though the start dates have been extended, interested organizations need to consider the real timeline prior to the start date. This includes strategy discussions, organizational and financial assessments, and the work necessary to develop the detail that will be required to complete an application. Organizations interested in applying for the Advance Payment funds will need to apply for an April or July 2012 start date as well as submit two separate applications — the ACO application and an application for Advance Payments. It will be interesting to see how many organizations want to be on the cutting edge of delivery system reform with Medicare as a partner.
New ACO Reg has some zingers
The newly minted ACO regulation from Medicare has some zingers hidden in its 696 pages. Okay, to be fair, the actual regulation is only 70 pages long, double spaced. The rest is all preamble, where CMS describes the 1200 comments on the proposed rule, and how they have responded (or not) in the final rule.
The first zinger has to do with the Physician Quality Reporting System, known to its friends as PQRS. Since 2007, CMS has paid a bonus to physicians who report quality data. Under current rules, CMS will pay physicians ½% of allowed charges from 2012 through 2014. BUT, docs in an ACO will only be able to participate in the PQRS through the ACO. The ACO will report as if it were a group practice. If the ACO fails to report in compliance with the PQRS rules, its docs won't get the PQRS bonus. This could be an issue in recruiting doctors who may not see a clear advantage to the ACO to begin with, given all the other requirements.
A second zinger is the approach to risk adjustment. CMS has agreed to use the Medicare Advantage HCC risk adjuster for newly assigned beneficiaries. They won't use HCCs for continuing beneficiaries — people who were assigned to the ACO last year. HCCs are based on diagnosis codes on last year's claims. CMS reasons that an ACO would improve coding accuracy in year one, to get the best risk adjustment they could for continuing beneficiaries in year 2. So only new-to-the-ACO beneficiaries will get risk adjusted for higher HCC scores. BUT, if the average HCC score for continuing beneficiaries goes down in year two, then CMS will risk adjust and reduce the benchmark accordingly. The inference is that reduced scores could only reflect reduced average risk. So ACOs that are not diligent in keeping their risk scores up could be docked a chunk of money for apparent losses resulting from poor coding, not from poor care management.
To read GHG's summary on the CMS Final Rule for the Medicare Shared Savings Program, click here.
Medicare ACO Regs Out While Private Sector Surges
CMS released the final Medicare ACO Shared Savings Program regulations yesterday after taking a beating in over 1,200 industry comments on the draft. Let's hope they made some big changes, as Medicare is in danger of being left in the dust as ACOs surge forward in the commercial sector.
Aetna has created a company-wide organization whose entire focus is on integrating ACOs into all products and services . The HealthPartners Total Cost of Care system is now applied to two-thirds of its members, Wellpoint's multi-payer Medical Home model is expanding beyond California and New York with emerging evidence of its success, and Blues plans in Massachusetts, New Jersey and Maryland are moving forward with their own commercial ACO initiatives. Ten large national and regional health plans gave an update on how fast the ACO concept is exploding.
By contrast, the Medicare ACO program has been quiet as CMS toiled away on a rewrite of the regs, with the final rules out yesterday but relatively little interest emerging beyond the Pioneer ACO Demonstration finalists -- and many of them are still tentative pending review of the new final rule. All 7 of Gorman Health Group's applicants for Pioneer were selected -- but they're not necessarily in yet. CMS's recalcitrance on considering partial and global capitation models for Pioneers is tamping down our clients' enthusiasm as we're told capitation isn't operationally feasible for CMS until Year 3 of the demo. If the final reg isn't a dramatic improvement over the "fart in church" draft regulation in March, I worry that CMS will be left at the altar as payers and providers seek less burdensome opportunities in the commercial and Medicaid markets.
Watch this page for our take on the final regs.