Introduction to utilization health waste in the US healthcare marketplace

September 15th, 2014

By Michael Chernew

The American healthcare system is experiencing rapid change, largely driven by the recognition by both public and private payers that the trajectory of healthcare spending growth must be slowed. Despite the recent slowdown in healthcare spending growth, which many attribute to the recession, efforts to transform benefit design and payment systems are proceeding rapidly. For example, public payers are both cutting payment rates and experimenting with bundled and global payment models. Private payers are adopting similar payment models and developing more sophisticated benefit designs that encourage patients to seek care from low cost and maybe high value providers, and to avoid expensive and maybe low value services.

In this environment it is crucial to try to eliminate waste. The new payment models allow providers to share some of the savings if utilization of wasteful services can be curtailed. The challenge of course is identifying which services are wasteful. The fact that waste exists in the healthcare system is widely accepted. Berwick and Hackbarth (2012) estimate there is about 200 billion dollars in waste due to over treatment in the United States’ healthcare system, almost 10% of total spending.

But eliminating that waste may be a challenge. Like everything in healthcare, the waste is likely to vary across geography and more importantly, across providers. Identifying which providers to focus on is a challenge. More fundamentally, aggregate measures of waste are not necessarily helpful to providers. Detailed, operational measures that can be applied to provider systems are needed. Fortunately, there has been a recent increase in effort to identify wasteful services. A number of lists exist. Perhaps the most prominent of these efforts is the Choosing Wisely campaign, sponsored by the American Board of Internal Medicine Foundation, challenged specialty societies to identify wasteful practices. Other panels, such as the United States Preventive Services Task Force, have identified services that might be wasteful. Thus clinically meaningful knowledge of what is wasteful exists.

Translating the knowledge of what is wasteful into tools that can be applied to identify that waste at the system level is difficult. Claims data is not ideal in many cases to identify waste. Often the measures of waste depend on patient history. Clinical knowledge and IT expertise are needed. Academic efforts to quantify waste using subsets of available measures are just beginning. For example, using a limited number of services, Schwartz et al. (2014) find 0.6% – 2.7% of Medicare spending may be wasteful and between 25% – 40% of beneficiaries have received at least 1 low value. Moreover, they found that there was significant regional variation in spending on low value services, suggesting some providers are more prone to use low value services than others. Finally, different measures of low value services were correlated across regions suggesting that measures of low value services based on a small number of services may be indicative of broader patterns of waste.

Commercial tools to quantify practice patterns will be crucial to many cost containment activities. Data can help focus efforts on reducing waste and thereby improve value. Such tools could be used to support payment reform, provider education, tiered benefits or even value based insurance designs. One way or another spending growth must be contained. Our goal must be to do so in a way that improves value.

This article first appeared at Milliman MedInsight.

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Regulatory roundup

September 15th, 2014

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

CMS will not suspend low-ranking Medicare Advantage Part D plans from 2016 program
The Centers for Medicare and Medicaid Services (CMS) recently released a memorandum indicating that it has decided not to terminate low-performing Medicare plans in 2015. Although CMS is authorized to end contracts for plans that fail to receive at least three out of five quality stars for three consecutive years, the agency won’t do so at least until the end of 2015.

To read the entire memo, click here.

Benefit news ,

The advantage of a top-down cost-allocation approach in developing markets

September 10th, 2014

By Javier Sanabria

A top-down cost-allocation model averages out all of a hospital’s expenses based on its activities. This type of model provides a more accurate reflection of a hospital’s expenses when defining package rates. In this short film, Lalit Baveja provides a primer on top-down cost-allocation and discusses a Milliman project for the state government of Mandholi, India, that used the methodology.

Read more about how Milliman consultants assisted India’s Meghalaya Health Insurance Scheme (MHIS) set up a top-down cost-allocation model here.

To read the video transcript, click here.

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Data confidence: The MedInsight® differentiator

September 4th, 2014

By Javier Sanabria

Milliman’s MedInsight Data Confidence Model offers advanced business intelligence methodologies to help healthcare entities benchmark healthcare costs and quality. This short video explains how the model produces high quality data integration and accuracy.

To learn more about MedInsight, click here.

Healthcare Intelligence ,

Regulatory roundup

September 2nd, 2014

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

IRS issues draft forms, instructions for ACA employer mandate
The Internal Revenue Service (IRS) released draft forms and instructions for employers on how to comply with the reporting requirements under the Patient Protection and Affordable Care Act’s (ACA) employer mandate. The IRS released drafts of the following forms and instructions:

Draft Form 1095-A, Health Insurance Marketplace Statement
Draft Form 1095-B, Health Coverage
Draft Form 1095-C, Employer Provided Health Insurance Offer and Coverage

Instructions for Form 1095-A, Health Insurance Marketplace Statement
Instructions for Form 1094-B and 1095-B
Instructions for Form 1094-C and 1095-C

IRS issues notice and request for comments on ACA employer mandate draft forms
The IRS filed a notice and request for comments on Forms 1095-A, Forms 1094-A and-B, and Forms 1095-A and B. Comments are due 60 days after publication in the Federal Register. Publication is scheduled for September 2, 2014.

IRS updates website concerning unreasonable assumptions in actuarial certifications
The IRS has updated its webpage pertaining to unreasonable assumptions in actuarial certifications for post-retirement medical benefits. For more information, click here.

Benefit news ,

Take a look inside MedInsight®

August 28th, 2014

By Javier Sanabria

Milliman MedInsight is a leading analytic platform in the healthcare industry. This short video highlights the platform’s portfolio of solutions and services for data warehousing and healthcare analytics. See why so many organizations have chosen MedInsight for their decision support and business intelligence needs.

Healthcare Intelligence ,

Regulatory roundup

August 25th, 2014

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

Bureau of Labor Statistics issues annual health and retirement plan provisions survey
The Bureau of Labor Statistics has issued the National Compensation Survey: Health and retirement plan provisions in private industry in the United States, 2013. The National Compensation Survey (NCS) provides comprehensive measures of compensation cost trends, the incidence of benefits, and detailed benefit provisions. This bulletin presents estimates of the detailed provisions of employer-provided health and retirement plans in private industry in 2013.

To read the entire survey, click here.

Benefit news ,

Do not overlook the value of claims auditing

August 20th, 2014

By David Cusick and Brian Anderson

When seeking ways to keep expenses under control, healthcare plan sponsors may overlook the value of claims auditing. Auditing fees may not be inconsequential, but the fact is that an accurate audit including both pharmacy and medical claims has the potential to pay back the investment many times over.

The more members a plan has enrolled and the more complex the plan’s benefit setup, the more likely a plan is to have a greater amount of claims payment errors. Every plan will have claims paid in error. It is often tempting simply to assume claims have been paid with a certain degree of accuracy, and then move on without verifying whether the assumption is correct. Nevertheless, there will always be instances of duplicate billing, wrong or missing discounts and rebates, mistakes in member eligibility, incorrect plan setup, or other problems.

Regular audits of medical and pharmacy claims can find these discrepancies, leading to the recovery of overpayments. Even more importantly, audits can identify problems in the way a plan is set up and point the way to eradicating inaccuracies, reducing cost, and preventing waste in the future. Auditing can give plan sponsors vital information for revising and improving contracts with third-party administrators and pharmacy benefit managers, which can lead to significant reductions in costs.

Many engagements begin with auditing one plan year, and then extend to multiple plan years based on the results of the first audit. Some plans have implemented processes that include monthly oversight reporting, which provides ongoing auditing and trend metrics. The monthly reporting is set up as an online service so that the reports can be automatically emailed to the health plans and accessed via an encrypted web portal.

Auditing is applicable to all types of healthcare plans, including self-insured plans, Medicaid, Medicare, Taft-Hartley funds, and commercial plans. In our opinion, any organization that is at risk for paying medical or pharmacy claims must consider the value of claims auditing.

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Actuarial practices help continuing care retirement communities deal with unique risks

August 12th, 2014

By Javier Sanabria

Continuing care retirement communities (CCRCs) offer seniors numerous housing and healthcare options. The unique fee structure and full range of healthcare services provided by CCRCs expose them to risks that other types of senior living communities do not face.

Actuarial practices can help CCRCs evaluate and manage such risks through population projections, actuarial balance sheet calculations, pricing analyses, accounting calculations, and other analyses. Milliman’s Gregory Zebolsky provides more perspective regarding these services in his article “An introduction to continuing care retirement communities.”

What type of work do actuaries do for CCRCs? In general, actuaries help these communities manage and analyze risk. Possible actuarial assignments for CCRCs include the following:

Population projections – These projections of the resident population at a CCRC—including independent living, assisted living, and skilled nursing—provide a valuable planning tool for management. Key projection results include independent living units released for resale each year, numbers of deaths (mortality) in each level of care, and numbers of transfers (morbidity) between ILU, ALU, and SNF. These projections also provide an actuarial basis for performing other financial analyses (below). Both open group (includes existing and future new residents) and closed group (existing residents or new entrant cohort only) population projections are performed as of a starting (valuation) date.

Actuarial balance sheet – The purpose of the actuarial balance sheet is to evaluate the CCRC’s ability to satisfy all its obligations to current residents and thus remain a viable operating concern. The actuarial balance sheet provides an analysis of the long-term relationship between the community’s assets and liabilities. The existing resident closed group population projection forms the basis of this financial analysis. The actuarial balance sheet varies from the GAAP (accounting) balance sheet and generally recognizes all income and expenses at the times they occur. No deferral of recognition of entrance fees or expenses occurs. Actuarial calculations include the present value of future monthly fees and other revenues, the present value of future allocated operating expenses in each level of care, and the actuarial values of fixed assets and capital depreciation expenses.

Actuarial pricing analysis – The purpose of this analysis is to evaluate the adequacy of the current pricing structure for new entrants at a CCRC. A theoretical cohort (new entrant model) is projected from entry through the end of the lifetime of all residents in the cohort. This new entrant closed group population projection forms the basis of the actuarial pricing analysis. Actuarial calculations include the present value of all income and expenses incurred over the lifetime of the cohort of residents, including a charge for depreciation of fixed assets.

Actuarial cash flow projection – This basic financial forecasting tool estimates future sources and uses of funds on an open group basis and includes key items such as monthly fees, attrition income, entry fee refunds, health center fee income, operating expenses (separately for independent living, assisted living, and skilled nursing), and others that depend on actuarial estimates. The open group population projection forms the basis of the actuarial cash flow projection.

Accounting calculations – CCRCs are required (under current American Institute of Certified Public Accountants guidance) to calculate the “obligation to perform future services” related to current residents as of the valuation date. They are also required to amortize non-refundable entrance fees into income over the life of the resident and to determine the related deferred entrance fee liability. Actuaries often assist with these calculations.

By utilizing one or more of the above analyses, actuaries assist CCRCs in meeting regulatory requirements, pricing new or alternative residency agreements, evaluating the future need for nursing beds, strategic planning, and many other tasks.

To learn about Milliman’s CCRC consulting services, click here.

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Regulatory roundup

August 11th, 2014

By Employee Benefit Research Group

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

Updated procedures and requirements for HIPAA exemption election
The Centers for Medicare and Medicaid Services (CMS) has provided regulatory guidance updating procedures and requirements for HIPAA exemption election by nonfederal governmental plans that are self-insured.

For more information, click here.

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