Analytic basics: Completeness and outlier episode flags

August 4th, 2014

By Doug Bates

Bates-DougAnalysts working with episode of care groupers for the first time often have questions about how to use the various value-added flags assigned to episodes. Episode of care groupers link together all of the claims that pertain to the treatment of a particular condition for a particular patient, to create a powerful unit of analysis. For example, a patient with a condition such as diabetes may receive multiple types of services from multiple providers and provider types for the treatment of their diabetes. An episode of care grouper will combine all of the individual claims from the different providers so that the full cost of treatment can be assessed.

Two of the value-added flags commonly assigned to episodes include completeness flags and outlier flags. Both of these flags enable analysts to filter out, or include, types of episodes to optimize their reporting. How to apply filters using these flags depends on the analysis being performed. A brief summary of these flags, and their use, is described below.

Completeness flags
Many episodes in a data set will not be complete, meaning there are still outstanding claims related to those episodes that were not available when the data were grouped. Typically, episodes that start toward the end of your grouping period are more likely to be incomplete. For instance, if you are grouping data incurred from January 2011 through December 2013 and an episode begins on December 19, 2013, there is a lower probability that all claims for this episode will be available in the data than if the episode had started in January 2013.

Episode groupers use different logic when assessing completeness for acute and chronic conditions. For acute conditions, most groupers determine that an episode is complete if there are no incurred professional claims for that condition for a predefined number of days. Chronic conditions such as diabetes are never cured, so technically those episodes never end, but in order to support analyses, chronic conditions are often divided into annual periods and may be defined as complete when a full year of data is available for the members with those episodes.

When comparing costs to benchmarks, incomplete episodes should be excluded because incomplete episodes are excluded from cost benchmarks.

If you are comparing the average length (days) or average cost of episodes across various populations or provider groups, then you should also exclude incomplete episodes. It is impossible to accurately assess average costs per episode if every claim for every episode is not included.

If the purpose of your analysis is to evaluate the prevalence of episode conditions, then include all episodes (complete and incomplete) in your reports.

Table 1 displays the distribution of complete and incomplete diabetes episodes from a sample data set. The average cost for incomplete episodes is usually lower than the average cost for complete episodes.

Table 1

Outlier flags
Episodes that have atypically higher costs or atypically lower costs compared with other episodes within the same class are flagged as high or low outliers. There are multiple methodologies for defining outlier episodes, but commonly the flags are based on statistical variance (i.e., a number of standard deviations from the mean). In and of themselves, outlier flags are not a measure of efficiency or quality, but the magnitude of the variance in their cost indicates there is something atypical about these cases.

When comparing with benchmarks, outliers should be excluded because most benchmarks will exclude outliers for consistency.

When comparing average costs across populations or provider groups, many analysts may choose to exclude all outliers, because a few outliers for a given group may skew their results. That being said, it is also important to assess if any given population of patients has significantly more episodes flagged as high outliers compared with others. A higher percentage of high outliers might warrant the need for further investigation.

For many episode classes, all that is needed to start an episode is a professional encounter with a primary diagnosis relevant to that episode class. In some cases, very short episodes may represent visits to rule out a specific diagnosis or other situations that don’t really represent full treatment for a condition. Excluding low outliers can help remove those types of episodes from your analysis.

Table 2 displays a sample of diabetes episodes by outlier status.

Table 2

Episode completeness and outlier flags can, of course, be used together. For most comparative analyses (to benchmarks or across populations), only complete non-outlier episodes are included. Table 3 displays the distribution of diabetes episodes when both flags are used as report dimensions.

Note that an analysis based solely on complete non-outlier episodes from these sample data would reduce the number of episodes from 57,193 to 34,250, removing 40% of the episodes from the analysis. When analyzing episode classes with a limited number of episodes, applying these filters may reduce your sample size to volumes that are too small to produce statistically significant results, so it is important to assess how many episodes are in your sample before you begin.

Table 3

Episodes of care provide a useful unit of analysis for evaluating healthcare utilization and cost. The episode completeness and outlier flags allow users to include, or exclude, types of episodes to further refine their analysis.

This article first appeared at Milliman MedInsight.

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Regulatory roundup

August 4th, 2014

By Employee Benefit Research Group

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

Medicare Trustees Report projects solvency until 2030
The Medicare Trustees recently projected that the trust fund that finances Medicare’s hospital insurance coverage will remain solvent until 2030, four years beyond what was projected in last year’s report. In part because of cost controls implemented in the Patient Protection and Affordable Care Act (ACA), per capita spending is projected to continue to grow slower than the overall economy for the next several years.

The report points to a number of factors contributing to the improved outlook including lower-than-expected spending in 2013, and lower projected utilization in the types of healthcare needed by Medicare patients.

To read the entire report, click here.

CRS report: Implementing the ACA: Delays, extensions, and other actions taken by the administration
The U.S. Congressional Research Service (CRS) has issued the report “Implementing the ACA: Delays, extensions, and other actions taken by the administration.” The report, which is updated periodically to reflect significant changes taken by the White House in the administration of the Patient Protection and Affordable Care Act (ACA), contains a table that summarizes selected administrative actions taken by the Centers for Medicare and Medicaid Services (CMS) and the Internal Revenue Service (IRS) to address ACA implementation. The table entries, which are grouped under general topic headings, are not organized in any particular priority order. Each entry includes a brief summary of the action and some accompanying explanatory material and comments to help provide additional context. Where available, links are provided to relevant regulatory and guidance documents online.

To read the entire report, click here.

CMS offers webinar recap article on preparing for the Medicare Part D open enrollment period
The Centers for Medicare and Medicaid Services (CMS) has posted a recap of the recent Retiree Drug Subsidy (RDS) Community Information Group (CIG) webinar on preparing for the Medicare Part D open enrollment period. The webinar covers the following topics to help the RDS community get beneficiaries ready for the 2015 application plan year:

• Impact of the Medicare Part D open enrollment period on qualifying covered retirees
• Educating retirees about creditable coverage
• Establishing qualifying covered retirees early
• Monitoring and managing qualifying covered retirees
• CMS’s RDS center help line hot topics

To access the entire webinar, click here.

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Rulings from the U.S. Supreme Court: Fiduciaries, ACA, and union fees

July 29th, 2014

By Employee Benefit Research Group

The U.S. Supreme Court in late June decided three cases that, while apparently narrow in scope, may be of broad interest to employers. The cases involve: standards for fiduciaries in ERISA-covered retirement plans with employer stock as an investment option; the requirement of the Patient Protection and Affordable Care Act (ACA) that certain preventive healthcare benefits—which include coverage for contraceptives—be provided at no cost to group health plan participants; and the required payment of union fees by certain state workers under a state law.

For Milliman perspective regarding the three rulings, read this Client Action Bulletin.

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The proposed federal exchange auto-enrollment process: Implications for consumers and insurers

July 29th, 2014

By Javier Sanabria

The U.S. Department of Health and Human Services (HHS) has proposed, for the federal health exchange, that the majority of policyholders receiving premium subsidy assistance will be automatically reenrolled in the same plan unless they elect otherwise during the 2015 open enrollment period. State-run exchanges may follow this guidance but also have the option of requiring consumers to reenroll through the exchange or proposing an alternative reenrollment methodology. Approximately 83% of enrollees on the exchanges receive federal subsidies. Policyholders who are automatically reenrolled will receive the same dollar-amount subsidy for 2015 as they did in 2014. In most cases, this will be less than the advanced subsidy that would be applicable if the policyholder enrolls through the exchange in 2015 through the “redetermination” process.

The proposed federal exchange auto-enrollment process only impacts a policyholder’s net premium contribution—total premium less Advanced Premium Tax Credit (APTC)—prior to the reconciliation process. Regardless of how a policyholder enrolls in a plan in 2015, the final premium subsidy will be reconciled with enrollees’ 2015 tax returns to ensure consistency with the prescribed subsidy formula of the Patient Protection and Affordable Care Act (ACA).

This Milliman healthcare reform briefing paper by Paul Houchens and Susan Pantely summarizes the potential implications for policyholders and insurance companies related to changes in federal subsidies and the renewal process.

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Regulatory roundup

July 28th, 2014

By Employee Benefit Research Group

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

IRS releases draft forms for reporting employer health coverage under ACA
The Internal Revenue Service (IRS) has released draft forms that employers should use to report the health coverage they offer their employees. The draft Form 1095-B, Health Coverage, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, were posted to the IRS’s website.

Form 1095–B collects information under tax code Section 6055, which under the Patient Protection and Affordable Care Act (ACA), sets the standards for reporting information on whether plans meet minimum essential coverage. Form 1095–C falls under the jurisdiction of Section 6056, which lays out the requirements that must be followed by employers with the equivalent of at least 50 full-time employees to report whether they offer employees coverage that meets minimum value and affordability standards.

The reporting ties into the ACA’s employer mandate, which, when it fully goes into effect, will require such employers to offer such coverage or potentially face penalties.

The IRS also released draft versions of two related forms, Form 1094-B, Transmittal of Health Coverage Information Returns, and 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.

To access draft Form 1095-B, click here.
To access draft Form 1095-C, click here.
To access draft Form 1094-B, click here.
To access draft Form 1094-C, click here.

GAO issues testimony on the ACA
The U.S. Government Accountability Office (GAO) has released a report entitled “Patient Protection and Affordable Care Act: Preliminary results of undercover testing of enrollment controls for healthcare coverage and consumer subsidies provided under the Act” (GAO-14-705T).

The GAO was asked to examine issues related to controls for application and enrollment for coverage through the federal marketplace. This testimony discusses preliminary observations on “(1) results of undercover testing in which we obtained health care coverage; (2) additional undercover testing, in which we sought to obtain consumer assistance with our applications; and (3) delays in the development of a system needed to analyze enrollment.”

To read the entire testimony, click here.

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Medicaid risk-based managed care: Analysis of financial results for 2013

July 18th, 2014

By Javier Sanabria

Most states require that contracted managed care organizations (MCOs) file annual statements with state insurance regulators. The statements are typically based on a standard reporting structure developed and maintained by the National Association of Insurance Commissioners (NAIC), with prescribed definitions enabling comparisons across reporting entities.

This report by Christopher Pettit and Jeremy Palmer provides a summary of benchmarking financial metrics for the calendar year 2013 based on these statements, including medical loss, administrative loss, underwriting, and risk-based capital ratios. The target audience includes state Medicaid agencies and MCO personnel responsible for reviewing and monitoring the financial results of risk-based managed care programs.

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First quarter financial results for medical professional liability specialty writers

July 16th, 2014

By Javier Sanabria

Based on the collective financial results of 81 insurers specializing in medical professional liability (MPL) coverage, another good year appears to be in the offing for 2014, even as profit margins will likely decline relative to the levels seen in recent years. Pricing pressure continues to be fueled by increasing surplus levels and the desire to maintain exposures against increasing competition and the potential migration of physicians to self-insured employment settings. The largest remaining uncertainty lies in the likelihood that prior-year reserve releases can be sustained to the extent observed in recent years.

For more perspective download and read this article.

The article was originally published in the July 2014 issue of the Medical Liability Monitor.

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Regulatory roundup

July 15th, 2014

By Employee Benefit Research Group

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

IRS updates overview of PCORI fee
The Internal Revenue Service (IRS) has updated its overview of the Patient-Centered Outcomes Research Institute (PCORI) fee. The Patient Protection and Affordable Care Act (ACA) imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fee, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.

The fee applies to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. The Patient-Centered Outcomes Research Institute fee is filed using Form 720, Quarterly Federal Excise Tax Return. Although Form 720 is a quarterly return, for PCORI Form 720 is filed annually only, by July 31.

The web posting provides information on how to calculate the fee for specified health insurance policies and applicable self-insured health plans, as well as providing more detail on the reporting and paying of the fee. Links are also provided to the final regulations, questions and answers, a chart summary, and the Form 720.

For more information, click here.

GAO report: Early effects of MLR requirements and rebates on insurers and enrollees
The U.S. Government Accountability Office (GAO) has released “Private health insurance: Early effects of medical loss ratio requirements and rebates on insurers and enrollees” (GAO-14-580). The report was published after the GAO was asked to review the effects of the Patient Protection and Affordable Care Act (ACA) medical loss ratio (MLR) requirements on insurers and enrollees and how rebates would change if agent and broker payments were excluded from the MLR formula. The report examined:

• The extent to which insurers met the ACA MLR standards, and how much they spent on the MLR components of claims, quality improvement activities, and nonclaims costs.
• The amount of rebates insurers paid and how this amount would have changed with agents’ and brokers’ commissions and fees excluded from the MLR.
• The perspectives of insurers on the effects of the MLR requirements on their business practices.

To read the entire GAO report, click here.

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Auditing a health plan’s claims can reduce costs

July 11th, 2014

By Javier Sanabria

Employers looking to manage the cost of their healthcare plans should think about the value of conducting a claims audit. In this Employee Benefits News article (subscription required), Milliman consultants Brian Anderson and David Cusick consider how routine audits can detect flaws in a plan’s design, leading to better claims handling procedures and reductions in plan costs.

Here is an excerpt:

If feasible, it is a good idea to have claims audited every one or two years. At least as important, however, is the implementation audit. An implementation audit takes place shortly after a plan has been set up. A good time frame is 90 days after beginning work with a new vendor or any substantially new contract. Implementation audits are akin to taking off the training wheels. They help ensure that a plan has been set up correctly and that the plan sponsor is getting all of the benefits it contracted for during the implementation process. They happen after enough time has passed to gain a body of experience data but still soon enough to head off a major course change requiring extensive retroactive corrections.

Expect an audit to take three to six months. After that the recovery effort begins, in twofold fashion: recovering any money that the plan may have overpaid, and the equally important work of correcting errors in the system that were identified in the audit. Plan sponsors may engage an overpayment recovery vendor, or choose to handle it in-house.

The benefits of proactive auditing for the plan sponsor should be evident: to verify the integrity of vendor contracts and to meet fiduciary responsibilities. As with anything, there is no guarantee an audit will pay for itself every time. But it is not unusual for an audit to have findings about 3% to 5% of paid claims costs, with recoveries of about 1% to 2%. Today, for many reasons, claims audits are more effective than ever. They can be relied on to uncover something in the working of a plan that can be improved, isolated issues as well as systemic and redundant errors, contractual compliance questions, or basic data entry problems.

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Agencies issue final rule on the ACA’s orientation period

July 10th, 2014

By Employee Benefit Research Group

Employment-based orientation periods for group health plan eligibility under the 90-day waiting period limitation of the Patient Protection and Affordable Care Act (ACA) must not extend beyond one month before counting the 90-day period, according to a final rule released by the U.S. Departments of Labor, Treasury, and Health and Human Services. The final rule applies to group health plans and health insurance issuers offering group health insurance coverage for plan years beginning on or after January 1, 2015. Plan sponsors will be deemed in compliance through the end of this year by satisfying the provisions of the proposed rule that was published February 20, 2014—read this Client Action Bulletin for more perspective.

Under the 90-day waiting period requirement, group health plans and health insurance issuers offering group health insurance coverage may not impose a waiting period longer than 90 days for employees and their dependents. A waiting period is the time that must elapse before an individual who is otherwise eligible to enroll can become covered under the group health plan. Being “otherwise eligible” requires the employee to have satisfied plan-specified conditions, such as being in a certain job classification or obtaining a job-required certification.

The newly released final rule allows plan sponsors to apply a one-month orientation period for an employee to be eligible to enroll in a plan before counting the 90-day waiting period. The orientation period is measured by adding one calendar month and subtracting one calendar day, beginning with the eligible employee’s starting date. During this orientation period, the agencies “envision that an employer and employee will evaluate whether the employment situation is satisfactory for each party, and standard orientation and training processes will begin,” according to the final rule’s preamble.

The agencies also caution that compliance with the final rule will not be determinative of an employer’s compliance with the ACA’s shared responsibility provisions that require large employers (with 50 or more full-time-equivalent workers) to offer affordable, minimum value coverage.

For additional information about the newly issued final rule on the ACA’s orientation period, please contact your Milliman consultant.

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