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healthcare cost

Why Healthcare Costs Soar (Part 5)

Readers of Cracking Health Costs know that healthcare is both complex and consuming, and an ever-greater share of GDP in the U.S., while our health outcomes are falling behind our peer countries.

According to the 2015 Health Care Services Acquisition Report, the deal volume for businesses in the healthcare services sector rose 18%, with 752 transactions in 2014, for a total of $62 billion; acquisitions of physician practices accounted for $3.2 billion of the total. As healthcare suppliers continue to consolidate, what does this mean for the employers who pay for these services?

With the attention around value-based contracts and affordable care organizations (ACOs), we should expect the number of ACO contracts will continue to expand beyond the 750 in existence today, and the value-based concept sounds good. But Dr. Eric Bricker’s blog pointed out that 41% of all physicians did not know if they participated in an ACO, as referenced in the Feb. 10, 2016, issue of Medical Economics magazine. Is there real motivation to change?

Hospital mergers lead to average price increases of more than 20% for care, while physician prices increase nearly 14% post-acquisition. The result: The value-based contracts will be based on higher fees for the combined entities.

In Part 3 of this series, the provider we mentioned built a strong reputation, which let it charge higher per-unit fees. But, when that provider enters into value-based contracts, renewals will depend on the ability to hit cost targets agreed on with the insurance companies. While the per-unit price in those contracts will be important, the Seattle provider’s biggest opportunity is to establish a more consistent process of care among its physicians, so employers stop paying for the wide variation in treatment and for unnecessary care.

Here’s what we know: 1) There has been value-based contracting, 2) there has been data to assess performance and 3) yet there remains extremely wide variation in care among providers, especially for patients with complex health problems. Where such variation exists in healthcare, many people are getting substandard care.

So why is there still variation? Well, if you sold a consumer product, like a flat screen TV, that had wide variation in results yet commanded a premium price and saw sales stay strong, how motivated are you to change your process?

With TVs, there is ample competition. Consumers will purchase another TV brand if one is over-priced or of poor quality. But, in self-insured benefit plans, most employers have not had the appetite to take tough but necessary steps to engage in disintermediation despite the huge differences in price and quality.

It’s high time for employers to replicate how purchasers in other industries have collaborated with their suppliers to address variations in process and quality and to eliminate cost inefficiencies.

Why Healthcare Costs Soar (Part 3)

In Part 1 and Part 2 of this series, David Toomey and I described a wildly successful collaboration with Virginia Mason Medical Center (VM) and a few Seattle employers.

During the the time of the VM collaboration, we invited major physician groups to meet with the employers. One of the most memorable meetings was with the CEO and chief medical officer (CMO) from a very well-regarded physician group in Seattle that has high fees but low performance.

As you would suspect, the employers were better prepared for this meeting than they had been for the meetings with VM. When the CEO and CMO talked about their strong emphasis on quality, the employers asked about quality monitoring and the process of care. Rather than acknowledging opportunities for further analysis and professing an openness to collaboration, the providers responded with confidence about their model of care.

Afterward, the employers expressed concerns about whether this premier provider could improve care and reduce costs. We posed a couple of questions: Are you saying you don’t want this provider in the network? Are you really ready to tell your leadership that this physician group, which many executives use, is not in the top tier?

The employers were aware of the dynamics with network configuration and the trouble that businesses have when a provider is dropped from the network and even a few employees complain. The employers responded that they wanted to have additional meetings with this group, because of its reputation.

After a couple of follow-up meetings, the employers recognized that this group was not committed to the process of care that they expected. They decided that the group should not be in the performance-based network. Importantly, the employers were now equipped to discuss their rationale with their leadership teams.

The CEO of the provider group felt respected, because of the time the employers spent with him, even though he did not like the outcome. He eventually acknowledged the group had work to do.

Employers make purchasing decisions with suppliers every day. For some reason, the healthcare procurement process involves the carriers and other vendors but often skips the actual suppliers of healthcare (except in a fairly small, but rapidly growing, number of major corporations).

The big question is: Why are more self-insured employers not engaging directly with providers?

In a broad network, there will be a bell curve around performance. Most employers say they want quality providers in their networks, but half the providers in their broad-based networks are below average. While everyone espouses “quality,” the variation in care is significant, and the medical ethics around treatment often drive that differential. Healthcare is big business. It is time to reward employees and channel them to primary care physicians and specialists who are truly committed to medically appropriate care.

A major reason why healthcare costs grow faster than general inflation is because most self-insured employers are simply not dealing with healthcare providers in the way we have described in this series of posts.

health

Endangered Individual Health Market

And then there were none?

The individual health insurance marketplace is endangered, and policymakers need to start thinking about a fix right now, before we pass the point of no return.

Health plans aren’t officially withdrawing from the individual- and family-market segment, but actual formal withdrawals are rare. What we are witnessing, however, may be the start of a stampede of virtual exits.

From a carrier perspective, the individual and family health insurance market has never been easy. This market is far more susceptible to adverse selection than the group coverage market. The Affordable Care Act’s (ACA) guarantee of coverage only makes adverse selection more likely, although, to be fair, the individual mandate mitigates this risk to some extent. Then again, the penalty enforcing the individual mandate is simply inadequate to have the desired effect.

Then add in the higher costs of administering individual policies relative to group coverage and the greater volatility of the individual insured pool. Stability is a challenge, as people move in and out of the individual market as they find or lose jobs with employer-provided coverage. In short, competing in the individual market is not for the faint of heart, which is why many more carriers offer group coverage than individual policies. The carriers in the individual market tend to be very good ; they have to be to survive.

In 2014, when most of the ACA’s provisions took effect, carriers in the individual market suddenly found their expertise less helpful. The changes were so substantial that experience could give limited guidance. There were simply too many unanswered questions. How would guaranteed issue affect the risk profile of consumers buying their own coverage? Would the individual mandate be effective? How would competitors price their products? Would physicians and providers raise prices in light of increased demand for services? The list goes on.

Actuaries are great at forecasting results when given large amounts of data concerning long-term trends. Enter a horde of unknowns, however, and their science rapidly veers toward mere educated guesses. The drafters of the ACA anticipated this situation and established three critical mechanisms to help carriers get through the transition: the risk adjustment, reinsurance and risk corridor programs.

Risk corridors are especially important in this context as they limit carriers’ losses—and gains. Carriers experiencing claims less than 97% of a specified target pay into a fund administered by the Department of Health and Human Services; health plans with claims greater than 103% of this specific target receive refunds. Think of risk corridors as market-wide shock absorbers, helping carriers make it down an unknown, bumpy road without shaking themselves apart.

While you can think of them as shock absorbers, Sen. Marco Rubio apparently cannot. Instead, Sen. Rubio views risk corridors as “taxpayer-funded bailouts of insurance companies.”

In 2014, Sen. Rubio led a successful effort to insert a rider into the budget bill, preventing HHS from transferring money from other accounts to bolster the risk corridors program if the dollars paid in by profitable carriers were insufficient to meet the needs of unprofitable carriers. This provision was retained in the budget agreement Congress reached with the Obama administration late last year. Sen. Rubio, in effect, removed the springs from the shock absorber. The result is that HHS was only able to pay carriers seeking reimbursement under the risk corridors program 13% of what they were due based on their 2014 experience. This was a significant factor in the shuttering of half the health co-operatives set up under the ACA.

Meanwhile, individual health insurers have taken a financial beating. In 2015, United Healthcare lost $475 million on its individual policies. Anthem, Aetna, Humana and others have all reported substantial losses in this market segment. The carriers point to the ACA as a direct cause. Supporters of the healthcare reform law, however, push back. For example, Peter Lee, the executive director of California’s state-run exchange, argues that carriers’ faulty pricing and weak networks are to blame. Whatever the cause, the losses are real and substantial. The health plans are taking steps to stanch the bleeding.

One step several carriers are considering is leaving the health insurance exchanges. Another is exiting the individual market altogether—not formally, but virtually. Formal market withdrawals by health plans are rare. The regulatory burden is heavy, and insurers are usually barred from re-entering the market for a number of years (five in California, for example).

There’s more than one way to leave a market, however. One method carriers sometimes employ is to continue offering policies but to make it hard to buy them. Because so many consumers rely on the expertise of professional agents to find the right health plans, a carrier can prevent sales by making it difficult or unprofitable for agents to do their job. Slash commissions to zero, and agents lose money on each sale.

While I haven’t seen documentation yet, I’m hearing about an increasing number of carriers eliminating agent commissions as well as others removing agent support staff from the field. (Several carriers have eliminated field support in California. If you know of other insurers making a similar move or ending commissions, please respond in the comments section).

So, what can be done? In a presidential election year, there’s not much to be done legislatively. Republicans will want to use an imploding individual market to justify their calls for repealing the ACA altogether. Sen. Bernie Sanders will cite the situation as yet another reason we need “Medicare for all.” Former Secretary of State Hillary Clinton, however, has an incentive to raise the alarm. She wants to build on the ACA. Having it implode just before the November presidential election won’t help her campaign. She needs to get in front of this issue now to demonstrate she understands the issue and concerns, to begin mapping out the solution and to inoculate herself from whatever happens later this year.

Congress should get in front of the situation now, too. Hearings on the implosion of the individual market and discussions on how to deal with it would lay the groundwork for meaningful legislative action in 2017. State regulators must notice the endangered individual market, as well. They have a responsibility to ensure competitive markets. They need to examine the levers at their disposal to find creative approaches to keep existing carriers in the individual market and to attract new ones.

If the individual market is reduced to one or two carriers in a region, no one wins. Competition and choice are consumers’ friends; monopolies are not. And when consumers (also known as voters) lose, so do politicians. Which means smart lawmakers will start addressing this issue now.

The individual health insurance market may be an endangered species, but it’s not extinct … yet. There’s still time to act. There’s just not a lot of it.

healthcare

Future of Work Comp Healthcare Delivery

Reform is changing healthcare delivery models, but there is a large gap between the healthcare related to workers’ compensation and the group health approach.

As a result of healthcare reform, the industry has experienced significant consolidation of health systems and medical practices, with an added emphasis on patients as consumers of healthcare, all as providers continue to evolve. As employers, though, our message is confused.

We tell employees that we have a great healthcare system for them, encourage them to choose the best physician to meet their needs and remind them to get regular checkups. However, if an employee gets injured, we have a separate system with a separate set of doctors and a separate set of rules.

If employers can find better doctors to treat workers, they can improve the quality of the workers’ compensation system. Employers are not going to get better doctors just by paying more; but, if they can identify which doctors are doing a better job and reward them, results improve.

California’s model has been experimenting with the concept of rewarding doctors for providing superior care, which has resulted in significant cost reduction. Great doctors are actually reducing the amount of medical attention required and, overall, workers’ compensation claims costs. As a result of better care and employee satisfaction, litigation costs have also dropped. Quality matters.

With advancements in technology, reimbursement models, a focus on quality and the movement of connected care, health systems across the U.S. are offering accountable care organizations (ACOs) for employer benefit solutions. Many think mergers and consolidation are a bad thing, however, in this consolidated world where health systems have changed, mergers and consolidation are changing “well care” to “sick care.” By taking a holistic approach, you are able to take a patient from wellness to injury care. Workers’ compensation needs to be part of this discussion. If not, we cause an even greater divide.

This holistic approach is not a new concept. In the 1990s, there were three 24-hour care pilot programs that tried this approach and resulted in lowered cost and improved medical control. At the same time, 10 states also mandated 24-hour pilot studies. Employers generally liked the pilot programs, which resulted in benefits such as increased medical control and reduced costs. On the national front today, the National Institute for Occupational Safety and Health (NIOSH) has a total worker health program that considers the total person and the factors that affect the individual’s health. The workers’ compensation system could borrow and apply successful elements from these programs.

When you send an injured worker to the best and brightest, you make the workers and their families feel like you are treating them well. This gets the patient to do what the doctor wants and stops the unfortunate spiral of delays in care. Technology is going to refine this approach even further. Technology will enable patients to get in touch with doctors immediately and will make the worker feel like he was properly cared for. This has the potential to be extremely effective and efficient for the system.

When a connected care system is not in place, the gaps in care are leading to needless disability and extended absence. Technology and telemedicine are essential components of this connected care. Gathering and analyzing health data is also important to drive positive behavior and improve overall quality of care.

The patient base is also more complicated, and that is where finding the great doctor comes into play. Today, if you have a patient with a broken arm, you may, in fact, have a patient with a broken arm and diabetes, which is much more difficult to treat. We need to find these great doctors and find systems for them to work with that operate far more efficiently. Technology is a very big part of that.

The current workers’ compensation system is not set up to reimburse for payments under this new model, including the use of nurse practitioners and physician’s assistants. The system needs to move in this direction. There are simply not enough physicians to see everyone. These healthcare professionals are essential elements of the group system, and the workers’ compensation system could be improved significantly by recognizing the need for these important providers.

Workers’ compensation currently works in silos, and that is an obstacle. The health system ACO model is communicating directly to the employers. As this model becomes adopted, the board room is not seeing the financial benefits just yet. However, when employers decide they want change, change happens. It is just a matter of getting their attention.

Employers are paying attention to the data they receive on the types of health systems. If the data around what is working in group health becomes available to employers, they will evolve.

Holistic care is certainly a trend that is largely becoming a reality. Workers with sedentary lifestyles who become injured on the job bring complicated connections between injury and pre-existing conditions that are hard to separate. It makes sense to treat people as they are—as a whole person. It is very important to try to get all of the systems to work together to treat the employee as one person.

We need a network that drives total employee health, and we can only have that if group health and workers’ compensation can talk to each other. Data is going to drive this evolution. The best-case scenario is if all this wonderful science and data can be put to use to help patients and merge what currently are parallel systems.

These issues were discussed in more details during an Out Front Ideas with Kimberly and Mark webinar, which was broadcast on Sept. 30, 2015. The archived webinar can be viewed here.

How Work Comp Can Outdo Group Health

We all know the current healthcare system in the U.S. delivers erratic quality at unsustainable, yet ever-increasing, costs. Workers’ compensation medical care is affected by those costs. 

A major shift in the health industry, value-based healthcare, will benefit workers’ compensation. Embracing selected new medical management methodologies put forth in value-based healthcare has the potential to be powerful.

Value-based healthcare means restructuring how medical care is organized, measured and reimbursed. It moves away from a supply-driven system organized around what physicians do to a patient-centered system organized around what patients need. The focus is shifted from volume and profitability to patient outcomes (quality care). When fully implemented, the overall impact will be nothing less than staggering.

Porter and Lee, healthcare industry strategists at Harvard, have described six value strategies necessary to achieve healthcare industry transformation. Many of the changes are now underway in ACOs (accountable care organizations) such as the Cleveland Clinic, proving the concept. These defined initiatives produce desired results—quality care at less cost. 

Six components of value-based healthcare

The following briefly describes the methodologies necessary to transform healthcare, according to Porter and Lee.

  1. Integrated practice units (IPUs)—meaning multiple specialists practice together, resulting in comprehensive and integrated medical care rather than fragmented, duplicated services
  1. Measure true outcomes and costs for every patientWhen outcomes are measured and reported publicly, providers are under pressure to improve. Fraud and self-dealing are reduced.
  1. Bundled paymentsPayment bundles are capitated single payments for all the patient’s needs during defined episodes of care, such as specific surgical procedures. Providers are rewarded for delivering quality while spending less.
  1. Integrate care delivery systemsServices are concentrated and integrated to eliminate fragmentation and to optimize the quality of care delivered at any given location.
  1.  Expand geographic reachCenters of excellence are developed where expertise is gained through higher volume of similar procedures.
  1.   Information technologyData mining powerfully enables the first five initiatives and informs services and decisions.

As Porter and Lee say, “Whether providers like it or not, healthcare is evolving from a proficiency-based art to a data-driven science, from freelance physicians to hospital-employed physicians, from one-size-fits-all community hospitals to vast hospital networks organized around centers of excellence.”

Value-based medical management in workers’ comp

The goal of value-based medical care is to enhance quality outcomes for patients (injured workers) while reducing costs. Focusing on quality (what the patient needs) actually reduces costs.

For group health, the measures are physical and philosophical, requiring widespread disruption in how services are organized, delivered and reimbursed. However, workers’ compensation payers can benefit by incorporating three of the six value measures into their medical management process now.

  1. Measure true outcomes and costs for every patient (the injured worker)

Physician performance is scored based on injured workers’ experience and outcomes along with cost. Providers who score poorly can be avoided.

  1. Bundle payments

Bundling is capitating payments for all the services required for procedures such as specific surgical procedures, including all associated pre-op and post-op care. The costs are kept in line because providers need to stay under the cap to be profitable. They also focus on quality, because re-dos, redundancy and complications add cost to the service bundle, thereby diminishing profits. Prepare to see bundled payment options available to workers’ compensation sooner rather than later.

  1. Information technology

The data in workers’ compensation, while in silos, is all organized around individual claims and injured workers. When the data is integrated at the claim level, patient experience, provider performance, outcome and cost analysis opportunities are unlimited. The more comprehensive and accurate the data, the greater the opportunity for gain.

Those who cling to traditional seat-of-the-pants medical management will be left behind. Those in group health may be hampered by slow regulatory change, organizational upheaval and resistant providers, while workers’ compensation payers are free to adopt transformative value measures now. Organizations that progress rapidly to implement the value agenda will reap huge benefits.