Embed Size (px)
Citation preview
Actuarial Perspectives on How to Make Value-Based Care Sustainable and the Impact of ACA on Provider Payment Rates
Alexander Vojta, FSA, MAAA, Actuarial Director, Blue Shield of CA, San Francisco, CA James Whisler, FSA, MAAA, Principal, Deloitte Consulting, Minneapolis, MN
Rob Parke, FIA, MAAA, Principal, Milliman, New York, NY
ACO CongressLos Angeles, CA
November 5, 2013
2
What may happen to a provider’s margin?
• Margin = Revenue – Operating Cost– Simple example of current state: Revenue = 100, Operation Cost = 95
Current Margin = 100 – 95 = 5Profit = 5/100 = 5%
• What may margin look like in say 5 years under “business as usual”? – Many hits to revenue all at once, including impacts of ACA– Lots of pressure on operating costs– Bottom line: Are you ready for a scenario where revenue takes a big hit but
operating costs still remain high? Here’s how bad it could look (assuming no intermediate intervention):
Future Margin = 75 – 90 = -15Loss = -15/75 = -20%!!!
• Margin = Revenue – Operating Cost– Simple example of current state: Revenue = 100, Operation Cost = 95
Current Margin = 100 – 95 = 5Profit = 5/100 = 5%
• What may margin look like in say 5 years under “business as usual”? – Many hits to revenue all at once, including impacts of ACA– Lots of pressure on operating costs– Bottom line: Are you ready for a scenario where revenue takes a big hit but
operating costs still remain high? Here’s how bad it could look (assuming no intermediate intervention):
Future Margin = 75 – 90 = -15Loss = -15/75 = -20%!!!
3
So, what should can we do about this looming margin problem?
Let’s take a multiple choice quiz to answer this problem. Do we:
A) Take retirement asap or try to sell your org before people really figure this out
B) Understand your organization’s particular situation through pro forma margin projections
C) Try to accelerate actions that allow your organization to operate more efficiently and at a lower cost
D) Explore alternative payment arrangements and incentive programs and evaluate upside/downside potential
E) Create a sustainable business model
F) All of the above, except for A
Let’s take a multiple choice quiz to answer this problem. Do we:
A) Take retirement asap or try to sell your org before people really figure this out
B) Understand your organization’s particular situation through pro forma margin projections
C) Try to accelerate actions that allow your organization to operate more efficiently and at a lower cost
D) Explore alternative payment arrangements and incentive programs and evaluate upside/downside potential
E) Create a sustainable business model
F) All of the above, except for A
4
We will be covering at this session• Pro forma margin projections
• Creating a sustainable business model: action steps needed – Determine where the status-quo model takes you– Develop a value-based financial roadmap that gets you back on track– Understand the challenges ahead of you
• Opportunities to create value and the impact of ACA – National Healthcare Reform– Observations from Massachusetts– Value Opportunity Potential– Provider payment methodologies
• Conclusions
• Pro forma margin projections
• Creating a sustainable business model: action steps needed – Determine where the status-quo model takes you– Develop a value-based financial roadmap that gets you back on track– Understand the challenges ahead of you
• Opportunities to create value and the impact of ACA – National Healthcare Reform– Observations from Massachusetts– Value Opportunity Potential– Provider payment methodologies
• Conclusions
5
Determining the Future Financial Gap
Illustrative Provider Reimbursement Ratio1
25% margin
(20%) (25%)
5.0%
50% 35% 15% % of Business
1 Based on an illustrative sample market 2 Based on Deloitte’s Healthcare Reform Impact Model
Here is where we are today. It’s a struggle but it works (for now).
6
Determining the Future Financial Gap
Estimated Annual Enrollment Growth 2011-2015 (US)2
2%
14% 31% -24%
Estimated Future Margins based on Enrollment Growth1,2
1 Based on an illustrative sample market 2 Based on Deloitte’s Healthcare Reform Impact Model
The business mix is not static. Here is the burning platform for change.
7
Creating a Sustainable Business Model
Status Quo Model
Volume Declines (Net of
Variable Cost
Savings)Rate
Pressure
New Value Based Care Model
Sizing the Problem: What Do We Need To Solve For?
Solving the Problem: How Do We Create and Capture Value?
Change in Payer Mix
(Increase to Medicare & Medicaid)
NetImpact
( - ) ( - ) ( - ) ( - ) ( + ) ( + ) ( + ) ( + ) ( + )
Invest in New ACO
CapabilitiesClinical
Efficiency and Enhanced Care
Management/HIT
Clinical Integration/HPN
OperatingCost
Improvement
Risk/Gain Shared Savings
Market Share Increase
(Commercial, Medicare, Medicaid)
Change the payment from volume to value, but that’s just the beginning.
8
Creating a Sustainable Business ModelAn illustrative example ($s in 000,000s):
Status Quo ModelVolume Declines Change in Payor Mix Rate Pressure
Current ChangePost‐Change Change
Post‐Change Change
Post‐Change
Revenue $100 ($10) $90 ($10) $80 ($5) $75Cost $95 ($5) $90 $0 $90 $0 $90Income $5 $0 ($10) ($15)
% Margin 5% 0% ‐13% ‐20%
New Value Based Care ModelACO Investment Clinical Efficiency Clinical Integration Operating Cost Shared Savings Mkt Share
ChangePost‐Change Change
Post‐Change Change
Post‐Change Change
Post‐Change Change
Post‐Change Change
Post‐Change
Revenue $0 $75 $0 $75 $0 $75 $0 $75 $2 $77 $20 $97Cost $2 $92 ($10) $82 ($3) $79 ($2) $77 $0 $77 $15 $92Income ($17) ($7) ($4) ($2) $0 $5
% Margin ‐23% ‐9% ‐5% ‐3% 0% 5%
Current Trajectory
Transformational Trajectory – Back to Sustainability
9
Capturing Market Share in a Value Based World
Is there opportunity to reduce the total cost of care and improve outcomes?What is the impact on operating margin in relation to current contracts?
What market share/revenue growth is reasonable, through steerage or new lives?Where will that market share come from and how will it be captured?
Which contracts (and when) can be moved from volume based to value based arrangements?How will those gains/losses be shared between the system and payers?
1
2
3
10
Access - Insurance Reform
Health Exchanges
Mandates/Subsidies
Restrict Underwriting
Transparency/Greater regulatory oversight/More competition = Budgets that will likely be increasing at CPI
Cost - Delivery System/Payment Reform ????
CMMI Creation to test models to reduce expenditures
– Pioneer and Medicare Shared Savings Program (MSSP) ACOs
– 2013 Medicare Bundled Payments for Care Improvement (BPCI)
Independent Payment Advisory Board
Patient Centered Outcomes Research Institute (PCORI)
National consensus developing that fee-for-service creates perverse incentives = High costs and poor quality
Healthcare Reform - National
11
Insurance Reform
Health Exchange
Mandates/Subsidies
Restrict underwriting
Merged small and individual markets
Cost - Delivery System/Payment Reform
Special Commission on Health Care Payment System – “Fee for Service payment rewards service rather than outcomes and efficiency”– Global Payments
• ACOs• Patient Centered Medical Homes
Chapter 224 of the Acts of 2012– New state bodies to monitor and enforce benchmark for health care cost growth
• New focus on health care market power, variation and cost growth at individual health care entities– New requirements for Alternative Payment methodologies and ACOs for Medicaid, the Connector,
Private payers
Healthcare Reform – Massachusetts
12
Attorney General Report “Examination of Health Care Costs Trends and Drivers”• Price NOT utilization causing increases
• Price not correlated to “value”
Department of Insurance (DOI) challenges to rate increases
The Health Policy Commission established a health care cost benchmark of 3.6% for 2013
Significant move by payers into capitation• BCBSMA’s Alternative Quality Contract (AQC)• Tiered Networks driving patient choice
Change in insurer landscape• Neighborhood Health Plan captures large membership through the Connector• Partners Healthcare’s purchase of Neighborhood Health Plan
Massachusetts – what’s happened?
13
Approved Monthly Premium Rates – Individual Standard Plans
InsurerOn/Off Exchange Metal/Tier New York
Aetna Life On/Off Silver $597.44Affinity On Silver $441.81Atlantis Off Silver $546.12Empire HMO On/Off Silver $468.43Freelancers On/Off Silver $394.58GHI Off Silver $609.27Healthfirst On/Off Silver $450.00HIP HMO Off Silver $386.69HIPIC Off Silver $678.66Metro Plus On Silver $359.26MVPHP‐HMO On/Off Silver $610.92New York Fidelis On Silver $390.15Northshore LIJ On/Off Silver $419.62Oscar On Silver $446.01Oxford HMO Off Silver $691.69United On Silver $635.60
Source: http://www.governor.ny.gov/assets/documents/Approved2014HealthInsuranceRates.pdf
14
Value Opportunity Quantified – Baseline (Fee-for-Service)
Annual Admissions per 1,000 ALOS
Annual Utilization per 1,000
Medicare Allowed
Charge per Service
Medicare Allowed Charge PMPM
Inpatient Facility
Medical 223.4 5.1 1,139.0 days $1,852.37 $175.82Surgical 97.1 5.5 537.9 days $3,846.46 $172.42Psychiatric 4.5 10.4 46.7 days $1,054.68 $4.11Alcohol/Drug Abuse 0.7 5.1 3.8 days $1,335.98 $0.42
Total 325.8 5.3 1,727.5 days $2,450.61 $352.78
Skilled Nursing Facility 2,101.9 days $496.74 $87.01
Home Health Care 3,276.4 visits $194.38 $53.07
Milliman Inc. National Utilization Models 2012 $492.86
Nationwide Average AssumptionsLoosely Managed
July 1,2012
15
Value Opportunity Quantified - Potential
Annual Admissions per 1,000 ALOS
Annual Utilization per 1,000
Medicare Allowed
Charge per Service
Medicare Allowed Charge PMPM
Utlization Compared to Loosley Managed
Inpatient Facility
Medical 156.4 4.0 626.5 days $2,037.60 $106.37 55%
Surgical 68.0 4.4 295.9 days $4,423.43 $109.06 55%
Psychiatric 2.0 5.8 11.7 days $1,107.42 $1.08 25%
Alcohol/Drug Abuse 0.3 2.8 0.9 days $1,469.58 $0.12 25%
Total 226.7 4.1 934.9 days $2,780.38 $216.63 54%
Skilled Nursing Facility 1,051.0 days $546.42 $47.86 50%
Home Health Care 1,965.8 visits $204.09 $33.43 60%
Milliman Inc. National Utilization Models 2012 $297.92
Nationwide Average AssumptionsWell ManagedJuly 1,2012
16
Provider Payment Methodologies – Spectrum of Risk
Payment per: Level of Risk to Provider
Section 1: Base Payment Methods (non-performance based)Svc/Event/ Population
Type of Entity (Hosp/Phys)
Traditional/ Emerging Clinical Risk Population Risk Total Risk
% of Billed Charges Svc Hosp or Phys Traditional Very Low Very Low Very Low
Fixed fee schedule, no bundling Svc Hosp or Phys Traditional Very Low Very Low Very Low
Level of Care Per Diem Svc Hosp Traditional Low Very Low Very Low
Single Per diem Svc Hosp Traditional Low Very Low Low
Case rate by DRG Svc/Event Hosp Traditional Med Very Low Low
Bundled Case Rate – Acute Care Hospital Stay Only Event Hosp & Phys Emerging Med to High Very Low Low to Med
Episode Bundled Payment Event Hosp & Phys Emerging Med to Very High Very Low Low to Med
Partial Capitation: Only for svcs provided by org, risk adjusted Population Hosp or Phys Emerging Med Low Low to Med
Partial Capitation: Only for svcs provided by org, a/s adjusted Population Hosp or Phys Traditional Med Med Med
Total Capitation: For all services for a population, risk adj Population Hosp & Phys Emerging Very High High High to Very High
Total Capitation: For all services for a population, a/s adj Population Hosp & Phys Traditional Very High Very High Very High
Payment per: Incremental Risk to Base Payment Method
Section 2: Performance Based Payment Methods Svc/Event/ Population
Type of Entity (Hosp/Phys)
Traditional/ Emerging Clinical Risk Population Risk Total Risk
Bonus payments, upside only Any Hosp or Phys Both No Change No Change No Change
Risk arrangements, upside and downside Any Hosp or Phys Both 1 to 2 Levels 1 to 2 Levels 1 to 2 Levels
Definitions1)Capitation: Payment made to provider regardless of patient utilizing svcs2)Fee for Svc (FFS): Payment made to provider contingent upon patient utilizing svcs. Definition of svc can vary from the most granular itemization of svcs to a full event.3)Clinical Risk: Risk within a given medical event4)Population Risk: Risk of events occuring for a given population5)Total Risk: Combined clinical and population risk
17
IHA’s Value-Based P4P Shared Savings Model
In order to help align physician organizations (POs) and health plans toward a more price competitive HMO product, POs are accountable for:
• Total Cost of Care (TCC)
• Quality of Care
• Efficiency of Care
Emphasis is on cost control and affordability
To that end, POs are required to have a year-over-year TCC trend of CPI + 1%* or less in order to participate in shared savings program.
*Initially the trend requirement is CPI + 3% but scales down to CPI + 1% by 2016.
18
ACO example of risk share arrangement
Service Category Target (pmpm) Hospital Physician Group PlanHospital services (provider partner) $115 50% 25% 25%Hospital services (non provider partner) $25 20% 30% 50%Physician services $90 20% 50% 30%Ancillary services $10 20% 30% 50%Pharmacy card $50 10% 45% 45%Total Cost $290
Partner at Risk
Actuarial considerations in setting risk targets:
Attribution
What is the overall trend target for Total Cost of Care?
How much should each entity have at risk for each svc category?
How should high dollar claims be considered?
19
Inpatient stay plus ALL post-discharge services for 30, 60 or 90 days
Inpatient hospital and physician services
Post acute-acute care services
Related readmissions
Traditional Fee-for-service payment for all providers
PLUS reconciliation with pre-determined target
Target price discount
3% + discount for 30 - 89 day bundle
2% + discount for 90 day bundle
Savings beyond target paid to participants
CMMI Bundled Payment for Care Improvement Initiative - Model 2
20
Anchor DRG 470 - Major joint replacement or reattachment of lower extremity w/o MCC 2009 Anchor Admissions (Discharged prior to 8/1/2009) with readmissions with excluded DRGs and Part B claims with an excluded primary ICD9 codes removed
CMMI Bundled Payment Model 2 Example – Summary
Average Allowed Cost per Patient
25% of the way towards
WM benchmark
50% of the way towards
WM benchmark
75% of the way towards
WM benchmark
Admission $15,150Post Acute Care ‐ 1‐30 Days after Discharge $14,590 ($1,810) ($3,655) ($5,370)Post Acute Care ‐ 31‐60 Days after Discharge $1,650 ($180) ($365) ($570)
Total Costs $31,390 $29,400 $27,370 $25,450
Savings 6.3% 12.8% 18.9%
Cost Impact per Patient
21
CMMI Bundled Payment Model 2 Example – Admission
Anchor DRG 470 - Major joint replacement or reattachment of lower extremity w/o MCC 2009 Anchor Admissions (Discharged prior to 8/1/2009) with readmissions with excluded DRGs and Part B claims with an excluded primary ICD9 codes removed
Cost Categories Allowed Cost Part AInpatient Facility $12,300
Part BProfessional ‐ Inpatient Surgery $1,600Professional ‐ Inpatient Surgery ‐ Assistant Surgeon $110Professional ‐ Inpatient Anesthesia $400Professional ‐ Inpatient Visits $500Professional ‐ Cardiovascular Testing $10Professional ‐ Radiology $50Professional ‐ Pathology/Lab $50Ambulance $100DME and Supplies $5All Other $25
Total ‐ Part A and B $15,150
22
CMMI Bundled Payment Model 2 Example – Post Acute Days 1 - 30
Anchor DRG 470 - Major joint replacement or reattachment of lower extremity w/o MCC 2009 Anchor Admissions (Discharged prior to 8/1/2009) with readmissions with excluded DRGs and Part B claims with an excluded primary ICD9 codes removed
Cost Categories
Average Allowed Cost per Patient
25% of the way towards
WM benchmark
50% of the way towards
WM benchmark
75% of the way towards
WM benchmark
Part AInpatient Readmissions ‐ Facility $500 ($70) ($150) ($200)Acute Inpatient Rehab ‐ Facility $5,000 ($1,200) ($2,500) ($3,600)Long Term Acute Care (LTAC) ‐ Facility $10 $0 $50 $75Skilled Nursing Facility ‐ Facility $5,800 ($300) ($575) ($900)Home care $2,300 ($150) ($300) ($500)
Part BInpatient Readmissions ‐ Professional $75 ($10) ($20) ($25)Acute Inpatient Rehab ‐ Professional $350 ($75) ($150) ($200)Long Term Acute Care (LTAC) ‐ Professional $0 $0 $0 $0Skilled Nursing Facility ‐ Professional $175 ($5) ($10) ($20)OP rehab $150Part B drugs $5Other outpatient facility (lab, radiology, etc) $25Other outpatient professional $100Other outpatient (including DME) $100
Total Post Acute Care ‐ Part A and B $14,590 ($1,810) ($3,655) ($5,370)
Cost Impact per Patient
23
CMMI Bundled Payment Model 2 Example – Post Acute Days 31 - 60
Anchor DRG 470 - Major joint replacement or reattachment of lower extremity w/o MCC 2009 Anchor Admissions (Discharged prior to 8/1/2009) with readmissions with excluded DRGs and Part B claims with an excluded primary ICD9 codes removed
Cost Categories
Average Allowed Cost per Patient
25% of the way towards
WM benchmark
50% of the way towards
WM benchmark
75% of the way towards
WM benchmark
Part AInpatient Readmissions ‐ Facility $175 ($60) ($125) ($200)Acute Inpatient Rehab ‐ Facility $50 ($5) ($10) ($15)Long Term Acute Care (LTAC) ‐ Facility $0 $0 $0 $0Skilled Nursing Facility ‐ Facility $350 ($50) ($100) ($150)Home care $300 ($50) ($100) ($150)
Part BInpatient Readmissions ‐ Professional $50 ($10) ($25) ($50)Acute Inpatient Rehab ‐ Professional $0 $0 $0 $0Long Term Acute Care (LTAC) ‐ Professional $0 $0 $0 $0Skilled Nursing Facility ‐ Professional $20 ($5) ($5) ($5)OP rehab $525Part B drugs $10Other outpatient facility (lab, radiology, etc) $50Other outpatient professional $100Other outpatient (including DME) $20
Total Post Acute Care ‐ Part A and B $1,650 ($180) ($365) ($570)
Cost Impact per Patient
24
• Health care reform mandates, rising costs, and declining reimbursements are changing the landscape of the healthcare industry
• Existing operating models will need to undergo significant changes in the future in order to create a collaborative care system
• The current model of continually increasing volume is increasingly unsustainable
• Population budgets limited to CPI (CPI +1%?)
• Transition will be difficult but the time to act is now
• The “survivors” will be those who embrace and implement value based care structures
• There will be winners and losers
Conclusions
25
Qualifications
Alexander Vojta is employed by Blue Shield of California and is a member of the American Academy of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion in this presentation.
James Whisler employed by Deloitte LLP and is a member of the American Academy of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion in this presentation.
Rob Parke is employed by Milliman, Inc. and is a member of the American Academy of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion in this presentation.
