Advocate and BCBS Illinois Claim Large Savings

Today’s Managing Health Care Costs Indicator is 6.1%

Advocate Health Care, a large integrated delivery network in Chicago, and Blue Cross Blue Shielf of Illinois (BCBSI), the largest health plan in that metro area by far, announced last week that their collaboration on an ‘accountable care organization’ framework where medical management was fully delegated to the delivery system yielded medical trends that were 6.1% lower than the rest of the market – based on data from the first six months of claims.

I’m optimistic that this kind of collaboration can yield significant cost savings, and I’m convinced that doing medical management at the provider entity, rather than at the health plan, will yield to better patient engagement and improved results.  I’ve seen in my experience that physician groups and physician hospital dyads which accept capitation are much more creative about how to improve care while lowering overall costs.   Advocate has also been forward-looking in its data collection, and has excellent dedicated physician leadership.  So – I’m happy to see this report.

However, it’s early –and the short Kaiser Health Network report leaves a lot of questions.

1.   Was the ACO group comparable?   It appears that the Advocate ACO had a limited network –whereas the standard BCBSI product has a very wide network. This could discourage those with more illness (and more established relationships outside of Advocate) to stay out of the ACO product.   It would be nice to be sure that at least the demographics were not different for the Advocate group between the baseline year and the observed period.
2.  Was there any change in benefit design? Was the evaluation adjusted for richness of benefit design (or change of benefit design.)  Companies that choose the limited network might have also trimmed benefits further – in which case an evaluation should include out-of-pocket costs.
3.  How much of the claimed cost savings was utilization, and how much was cost per unit?It’s likely that Advocate agreed to steeper discounts to establish this limited network.  It would be nice to see a decrease in the resource cost of care – not just a decrease in trend due to lower stated prices. 
4.   How will any ‘side payments’ or reconciliation affect the overall cost savings?Note that for BCBS Massachusetts evaluation of the first year of its Alternative Quality Contract, the cost of paid claims went down, but the total cost of care went up due to bonus payments to providers.  BCBSMA has done the right thing by hiring reputable independent researchers to review its data and publish the results.    
5.  Were there any claims payment issues that could lead to differential ‘incurred but not received’  (IBNR) amounts?  It’s more likely that there would be some delay in payments in the ACO arrangement in the first few months, especially if there are any “subcapitations” or different contracts that help Advocate manage care.  If there is a different IBNR amount, that could eat into the stated savings.

It’s great to see early reports of success in lowering cost through collaborations between payers and providers.   However, early reports sometimes don’t tell the whole story, so we should look for future reports that answer the questions above before accepting claims of cost savings.

Read More

Good News Day Three: The Return of Provider Risk

Today’s Managing Health Care Costs Indicator is $1.1 billion

The Centers for Medicare and Medicaid Services recently announced that the Pioneer ACOs could save $1.1 billion over the next five years.   Blue Cross Blue Shield of Massachusetts has declared its Alternative Quality Contract a big success.  Physicians and hospitals across the country are at least asking the question “Can we deliver excellent health care and use fewer resources?”

Do I believe that the Pioneer ACO will save $1.1 billion?  I do not.

Did the AQC in Massachusetts save any money in its first year?  No

Still, this is great news!  Physicians and hospitals determine the resources that will be used in delivering health care.  The combination of the Affordable Care Act, state government shortfalls, and pressure from employers unable to tolerate continuing increases in health care expenses is driving the provider community to consider global budgeting – which was known in a different bygone age as capitation. 

Providers have shown that they can lower costs and improve quality when the incentives are aligned. See this post on Caremore earlier this fall.  Providers also can make health care a fertile environment for disruptive innovation – just as our current fee-for-service system only encourages accretive innovation.

Increased provider risk-sharing is highly likely to lead to improvements in the value delivered by our health care system.  And this year there seems to be substantial movement toward more provider risk sharing.

Who says I can’t be optimistic?

Read More

Massachusetts’ Health Care Reform: Chapter 2

Today’s Managing Health Care Costs Indicator is 52

  

Governor Deval Patrick of Massachusetts announced the state’s plans to move from fee for service to bundled payments for accountable care organizations (ACOs) last week.   The initiative could be a bold reshaping of health care in the Commonwealth It could be the opening volley in a battle to reintroduce rate regulation.  Or it could be an interesting idea that doesn’t make any legislative headway. 

Here’s my outline of the 52 page proposed legislation: 

·      * The Attorney General is instructed to:

o   Evaluate potential provider mergers and accountable care organizations (ACOs) to be sure these are not anticompetitive

o   Help arrange necessary federal waivers

o   Develop an enforcement mechanism to prohibit providers from shifting costs from one payer to another.

·      * The Division of Insurance will

o   Collect data on provider contracts and determine if they are consistent with legislation, including increases below certain thresholds.

o   Disapprove rate hikes that are based on provider contracts inconsistent with this legislation

·      * The Executive Office of Health and Human Services will

o   Help arrange necessary waivers

o   Establish an ACO pilot with early-adopter provider organizations

o   Report on progress

·      * The Division of Health Care Finance and Policy (DHCFP) gets substantial new responsibilities:

o   Evaluate alternative payment methods

o   Determine how to share reporting on payments with the public

o   Examine terms of health plan contracts with providers, and require annual reporting on these, including an inventory of payment methods to be completed by March, 2012

o   Figure out how to apply the state’s preferred payment methodology to self-funded employers

o   Study best practices from other states and other countries

·      * Establishes a Health System and Payment Reform Coordinating Council with responsibilities including:

o   Collects data and report on quality and cost

o   Determines what entities qualify as an ACO

o   Monitors and reports on ACO performance

·      *Establishes a Health Care Information Technology Council and a Behavioral Health Task Force

·      *Mandates that primary care physicians participate in only a single ACO

·      *Establishes a mandatory self-funding reinsurance plan for ACOs 

·      *Standardizes and enforcesuniform risk adjustment so that ACOs and health plans will not “win” by failing to serve those with serious illness.

o   Risk adjustment is supposed to include socioeconomic status, which is notoriously difficult

·      *Malpractice reforms include

o   “Cooling off” period before malpractice claims can be filed, to allow for settlement talks.

o   Disallows apologies from being used against providers in malpractice claims.

o   Protects peer review privilege within ACOs

This is a big bill – and will be changed significantly as it winds its way through the legislative process.

Here are some key observations about factors which will determine this bill’s success.

•  There are many new responsibilities, especially for DHCFP.   Will there be staff to complete these requirements? Will there be adequate budget to hire independent actuaries and analysts for what the department cannot do within its own staff?
• Providers and health plans feel proprietary about their contractual arrangements, and have spent years developing the expertise to maximize returns.  The contracts are complex and often not easily comparable
• It isn’t easy to compare provider prices
• It’s easiest to compare cost using relative discount rates.  But the ‘chargemaster’ used by most providers is hopelessly irrational.
• It’s also possible to compare charges for high volume units of service (such as medium intensity office visits.) 
• However, it’s more appropriate to compare the cost of risk-adjusted episodes of care, so that the provider who uses more units of service doesn’t inappropriately appear to be offering a better “deal.” 
• Risk adjusting episodes of care is doable- but it’s not for the faint of heart.
•  The current bill appears to target rate of increase, which would not address existing disparities in allowable fee schedules.
• A substantial portion of Massachusetts residents get coverage through ERISA eligible plans, where an employer self-funds the health insurance benefit.  These plans are not subject to Massachusetts regulations.   If these plans continue to be fully committed to fee for service, it might be hard to get traction with the provider community
• On the other hand, Patrick has announced that he expects full participation of 1.7 million beneficiaries who have state-funded health care (state employees, many municipal employees, and Medicaid recipients).

This proposed legislation is ambitious and groundbreaking – a fitting followup to the health care reform that has led to insurance coverage for 98% of Massachusetts residents. 

Read More

In search of an accountable care organization

A funny and a bit disturbing short (3 minute) video from YouTube.

Read More

Consolidation of Providers: Better Integration, or Threat to Competition

Today’s Managing Health Care Cost Indicator is 40%

The Washington Post  had an article last week about Carilion Health System, in Norfolk VA.  The hospital system credits a merger that created the system with allowing the creation of a true integrated delivery network. Not everyone agrees. 

The Wall Street Journal had an article in 2008 about this system. The US Justice Department opposed the merger that created Carilion, but lost in court.  The WSJ noted that over two decades southwestern Virginia health insurance rates went from the lowest in the state to the highest.

The Robert Wood Johnson Foundation  reported in 2006 that mergers of nearby hospitals are associated with cost increases of as much as 40%.   Of course, it’s easy to know what happens with hospital charges, and measuring what happens with actual payments is substantially more difficult.  Here’s a link the classic Uwe Reinhardt paper in the chaos of hospital pricing.   Harvard Link

The CEO of Carilion, Edward Murphy says “"We need to fundamentally get off a transaction system where you're paid for what you do to patients to being paid to care for them."  The real question is whether Carilion will accept a change from the fee for service system that has treated them very well.  The WSJ noted that colonoscopies at Carilion are billed at over $4700!

Many communities are facing the question of whether to support the development of accountable care organizations, or whether to promote more robust competition among providers.  It’s a tough choice – we all want better coordination, but on the other hand we worry that more bundling of payments will lead to diminished consumer choice.

Here are some questions I’d ask from a public policy perspective about the move toward greater provider integration:

1)     Is the integrated entity accepting accountability for the cost and the quality of care.   If the integrated entity insists that all payments continue to be fee for service, cost is likely to increase with more integration.

2)     Will the integrated entity commit to robust transparency, sharing process metrics, as well as outcome metrics.   These outcomes should be risk adjusted – but risk adjustment shouldn’t be an excuse to delay disclosure for an inordinate period of time.

3)     What is the integrated entity doing to lower the resource cost of care delivery within its own system?  The more it is doing, the better the chances that further integration will lower costs.  I’m seeing more hospital systems looking to move past fee for service. Integration can help providers have the depth and scale to lower costs.  But getting larger can also give providers the leverage to keep charges artificially high, and thus prevent cost savings. One cautionary note is that disruptive innovation is likely to help drive lower health care costs –but larger, more complex organizations are more likely to resist disruptive innovation.

4)     Will there still be competition after the merger?  In Carilion’s case, the answer seems to have been “no.”  Without competition, it’s hard to drive lower costs and force greater efficiency.  Since care delivery is local, competition has to be defined in a narrow geographic area.

Read More