The final post in our “Ten strategic considerations of the Supreme Court upholding PPACA” blog series looks at the perplexing question facing American healthcare: What do we do about increasing healthcare costs?
PPACA focuses on expanding coverage and insurance reform, and in some cases it shifts costs from one party to another, but it does not directly affect the unit costs and utilization that are among the major underlying drivers of healthcare costs.
Certain aspects of PPACA have the potential to affect costs. The option to implement an accountable care organization (ACO)13 reprises the managed care movement of the ’80s and ’90s, but with better technology and information, and by transferring the financial risk onto the provider to create an incentive for efficiency. With many potential ACOs already establishing the tools required to succeed,14 this reinvigorated movement is already in motion. The nuts and bolts of an ACO are still the parts needed for a more efficient system.
Most of PPACA’s explicit ACO efforts center on Medicare, and while the Medicare Shared Savings Program (MSSP) and Pioneer Programs will continue, the potential for commercial ACOs15 may prove just as significant.
Accountable care is not a solution to everything that ails the entire healthcare system, but it offers some hope and, to the extent it can meaningfully control unit costs and utilization, it just may work.
Rob Parke and Kate Fitch discuss accountable care organizations here. For more on ACOs, consider reading “ACOs Beyond Medicare” and “Nuts and Bolts of ACO Financial and Operational Success: Calculating and Managing to Actuarial Utilization Targets.” You may also be interested in the Milliman Medical Index.
In July 2012, New York state is scheduled to roll out a mandate that individuals receiving community-based long-term care services funded by Medicaid must enroll in managed long-term care (MLTC) plans. This mandate will be implemented gradually, starting with the five boroughs of New York City.
Provider organizations need to be aware that under this mandate managed long-term care plans are funded using a capitation mechanism in which they receive a lump sum per member from which they must pay most long-term care and other ancillary expenses. The risk shifts from the Medicaid program to the plan. Running a successful managed long-term care plan therefore requires significantly more investment in risk management, financial management, and strategic planning than do fee-for-service arrangements.
Health plans and home healthcare agencies that were successful under fee-for-service reimbursement need to understand and plan for these changes, which will ultimately result in reduced utilization per long-term care patient.
This paper discusses these and other issues pertaining to MLTC plans in New York.
Long Term Care
With accountable care organizations (ACOs) soon to serve more than a million Medicare patients, it is clear that this model of care delivery is receiving an unprecedented test of its viability, and, if it works as intended, may reshape how healthcare is paid for on a larger scale. Cigna alone plans to have more than a million people enrolled in ACOs by 2014, and says it believes that ACOs are going to be important regardless of the Supreme Court’s ruling on the Patient Protection and Affordable Care Act (PPACA).
With so much focus on the topic, it’s worth taking a look back at some of the research and analysis on ACOs published by Milliman on the topic over the past couple of years.
First, for a good summary of ACOs—what they are and how they work—start with this overview video featuring a number of Milliman experts.
For many observers, the key question about ACOs is whether they represent a financially viable model compared to fee-for-service. Effective financial management will be key to success. Milliman has produced a number of relevant papers:
With all the attention on Medicare ACOs, it’s easy to forget that they exist in the private market, as well. For more on such entities, look at “ACOs Beyond Medicare,” which describes the potential advantages for providers who partner with a private insurer rather than with CMS. A 2011 Managed Healthcare Executive roundtable featuring Milliman consultant Rob Parke also discussed ACOs in the private market.
A number of other papers have also been published discussing various aspects of ACOs such as:
Modern Healthcare looks at the financial risks facing potential accountable care organizations (ACOs). Here is an excerpt:
The highest performers may not achieve the most savings, warned actuary firm Milliman in a separate report. Providers will need to conduct risk analyses before signing on to Medicare’s shared savings program, according to Milliman. For instance, high-performing systems may not be able to produce sufficient savings. “It will be easier for the inefficient systems to beat their targets,” according to the report.
For instance, “ACOs operating with low inpatient utilization and low cost will need to work hard on non-inpatient services to achieve significant savings,” according to Milliman. In conclusion, Milliman actuaries said the proposed rule offers “much less upside to ACO ‘A’ students who operate in very efficient systems than to ACO ‘C’ students who operate in systems with a lot of inefficiencies.”
Cost, Quality of Care
Financial success or failure of an accountable care organization (ACO) will depend on meeting rules-based budgets set by the Centers for Medicare and Medicaid Services (CMS). The ACO will need to demonstrate quality as well as reduce spending below targets.
Will ACOs achieve these efficiency requirements? Improving quality will create some savings but probably not enough to generate shared savings payments to the ACO. Furthermore, the financial targets will be harder to accomplish for providers already operating efficient systems.
Actuarial models can help potential ACOs assess the financial risk and make the right decision as they contemplate whether to establish an ACO.
Read the full briefing paper here.
Cost, Quality of Care
Accountable care organizations (ACOs) must manage toward actuarial targets, which is a key means to attain the end of more efficient care. This process requires both “supply-side” medical management and “demand-side” medical management. Here is an explanation of each:
Supply-side medical management services are what many consider the more challenging side of medical management but they are also what produce the savings. These services are intended to reduce utilization and payment for medically unnecessary services and also ensure that care is delivered in the most appropriate setting, which for an ACO should mean delivered by an ACO-associated provider. Clinical guidelines help evaluate the medical necessity of requested (or, retrospectively, rendered) services…
Demand-side medical management services optimize a population’s health so that demand for services will be lower. In particular, these services can impact ambulatory care sensitive admissions, preference sensitive admissions, readmissions, and ER visits.
For more on managing to actuarial targets, read the recent paper, “Nuts and bolts of ACO financial and operational success.” For more on medically unnecessary services, view this blog post or this paper.
Accountable care organizations (ACOs) need to properly deploy medical management in pursuit of certain utilization and cost targets. This dynamic is explained as part of a recent briefing paper on the nuts and bolts of ACOs. Here is an excerpt:
ACO’s should focus initial medical management efforts on reducing leakage to hospitals and specialists that are not part of the ACO. This will increase volume to ACO providers and help offset revenue loss due to improved utilization management. Inpatient utilization management is another target for initial medical management efforts particularly since inpatient costs make up approximately 30% of total costs for a commercially insured population and 37% of total Medicare Part A and B spend. Successful ACOs will focus medical management efforts both on avoiding potentially unnecessary admissions and on reducing inpatient hospital leakage (admissions to hospitals not associated with the ACO). Potential reductions in admission vary significantly by admission type, so identifying real opportunities requires analyzing historical data to identify impactable and non-impactable admissions. In particular, ambulatory care sensitive admissions, preference sensitive admissions, and readmissions are considered as impactable (see Definitions). Claims data logic available from the Agency for Healthcare Research and Quality and published reports can help identify benchmark rates for these impactable admissions—and a sense of how many can actually be eliminated.
See the full paper for more detail and for citations.
Here are some key concepts for anyone who wants to understand accountable care organizations (ACOs):
Ambulatory care sensitive admissions (ACSA) are those for which good outpatient care can potentially prevent the need for hospitalization, or for which early intervention can prevent complications or more severe disease. ACSAs are considered a measure of the quality of ambulatory care delivery in preventing medical complications. High rates of ACSAs might indicate inadequate access to high-quality ambulatory care, including preventive and disease management (DM) services. DM programs focus on individuals with chronic conditions to aggressively monitor and educate patients in self-management of these chronic conditions. ACSAs that involve complications of diabetes, chronic obstructive pulmonary disease (COPD), congestive heart failure (CHF), coronary artery disease (CAD), asthma, and hypertension are admissions that are directly impacted by effective DM/primary care coordination efforts. Based on a Milliman analysis of Medicare claims data, 14% of total admissions are considered ambulatory care sensitive admissions.
Potentially preventable hospital readmissions are an important indicator of quality care and cause unnecessary expense. Preventable readmissions can occur because of inadequate discharge planning, inadequate post-discharge follow-up, or lack of coordination between inpatient and outpatient healthcare teams. Transition of care programs, case management, and disease management services aim to coordinate care at discharge and after; with effective care coordination and oversight, preventable readmissions should be reduced. The rate of preventable readmissions within 30 days has been reported at 11% from a study of all hospital admissions in Florida. The rate of all readmissions reported from a recent Medicare analysis is 19% with the majority reported to be preventable.
Preference sensitive admissions are admissions for elective surgical procedures where the evidence does not suggest greater efficacy between surgical management and medical management for treating particular conditions in some patients. Examples include spinal fusion, joint replacement, hysterectomy, bariatric surgery, cardiac catheterization, percutaneous transluminal coronary angioplasty (PTCA), coronary artery bypass graft (CABG), benign prostate surgery, and others. There is significant variation in the rate of these procedures by region suggesting that local medical opinion and practices have a strong influence on the choices of treatment. There has been a recent focus on the need for patients to be better informed about the treatment options along with consideration for a patient’s personal values and preferences when making medical treatment decisions. This recent trend in patient decision support has been reported to reduce the rate of these procedures. A Milliman analysis identified that, for a commercial population, approximately 16% of non-maternity admits are preference sensitive admissions.
Leakage is defined by services delivered by non-ACO providers that could be delivered by providers associated with the ACO.
For more information, see the recent healthcare reform briefing paper.
Electronic Health Records
The Patient Protection and Affordable Care Act (PPACA) calls for the creation of accountable care organizations (ACOs) as a more cost-effective way of paying for healthcare. In order to succeed, ACOs will have to establish actuarial cost and utilization targets and use medical management to achieve those targets. This process of benchmarking and managing toward targets requires a delicate balance of actuarial and clinical know-how.
A new briefing paper offers a practical guide for approaching this analytic and management imperative. In addition to identifying the steps required, it identifies the medical management priorities for an effective ACO and highlights some of the risks involved.
We have talked about this before: So much in estimating the cost of covering the uninsured depends on starting with the right assumptions. The Wall Street Journal has an article on this topic today. Here’s an excerpt:
The Census Bureau estimates that the number of uninsured amounts to 45.7 million people. But the agency might be overcounting by millions due to faulty assumptions. Another problem: That 45.7 million figure includes undocumented immigrants, even though they aren’t likely to be covered under new laws.
“There is a range of uncertainty in health legislation that probably exceeds that of most other issues before Congress,” says Robert D. Reischauer, who headed the Congressional Budget Office when it was analyzing the Clinton health plan.