Tag Archives: ACOs

Critical Point podcast: Alternative Payment Models 101

In the latest Critical Point podcast, healthcare consultant Pamela Pelizzari discusses alternative payment methods, bundled payment, accountable care organizations (ACOs), and more. She explains in more detail what is meant by the term alternative payment model and why people should be interested. Pamela also explains how ACOs fit in and how alternative payments fit with Medicare and Medicaid.

To listen to this episode of Critical Point, click here.

Healthcare under the Delegated Risk Model in California: Lower cost, high quality

Health insurance is increasingly difficult to afford. As reported in the 2018 Milliman Medical Index (MMI), the typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan will have annual healthcare expenditures totaling approximately $28,166. Californians are not exempt from this trend, also paying increasingly high costs for their healthcare. According to the 2013 Berkeley Forum report, employer-sponsored health insurance premium rates were projected to nearly double from 2011 to 2022, ultimately reaching $31,728 for family coverage in 2022. Those premium increases will be borne by both employers and employees. According to the MMI, on average premiums are funded approximately two-thirds by employers and one-third by employees through payroll deduction.

Some good news for Californians is that they would likely be paying a lot more without managed care plans that use the delegated model. In brief, the term “delegated model” describes a health insurance plan where financial risk for healthcare services is transferred from an insurance company to healthcare providers (e.g., physicians or hospitals). Most commonly this involves the insurance company paying a fixed, per capita dollar amount (a capitation rate) to a group of physicians, and the physicians assume financial responsibility to provide all professional services for each health plan member. They may also have full or partial risk for hospital services provided to those same members. In California, capitation can only be used in health maintenance organization (HMO) plans. Other common types of plans, PPO-style plans and other fee-for-service (FFS) plans, cannot use capitation.

Measuring the impact of the delegated model on healthcare expenditures is tricky for at least two reasons. First, the average person who enrolls in an HMO plan might have a different health status from the average PPO/FFS plan enrollee. For example, they might be younger, or just healthier than average. Second, per capita healthcare costs vary by geographic area, for a variety of reasons. HMOs tend to be concentrated in urban areas, while PPO/FFS plans are prevalent in all areas of the state.

IHA Atlas data quantifies savings
Fortunately, data published by the Integrated Healthcare Association (IHA) allows us to compare per capita healthcare expenditures for HMO versus PPO/FFS plans, adjusted for differences in the mix of members by health status and by geographic area. Results indicate that for commercial health insurance plans (i.e., non-Medicare, non-Medicaid), total healthcare expenditures per capita are lower under HMO plans than under PPO/FFS plans, as shown in the graph below. They were 5% lower in 2013 and 7% lower in 2015.*

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The importance of accurate claims coding for MSSP ACOs

The Centers for Medicare and Medicaid Services (CMS) changed the benchmark methodology for accountable care organizations (ACOs) entering a renewal Medicare Shared Savings Program (MSSP) agreement period in 2017 and thereafter. The 2017 methodology introduced a regional adjustment, where an ACO’s historical expenditures are adjusted upward or downward based on how their costs compare to regional expenditures on a risk-adjusted basis. Because the risk adjustment depends on an ACO’s benchmark period risk scores, accurate and complete diagnosis coding during the benchmark period now has a significant influence on the calculation of the ACO’s benchmarks in future performance years.

CMS uses benchmark year (BY) 3 risk scores for the calculation of the regional adjustment, scores that are based on diagnoses from claims incurred in BY2. MSSP ACOs anticipating renewals in 2020 need to be working this year (2018) to ensure accurate and complete coding. Similarly, 2019 is the critical year for 2021 renewals.

In this paper, Milliman’s Jonah Broulette, Noah Champagne, and Kate Fitch explain how BY3 risk scores affect the benchmark calculation for MSSP renewals, present an overview of the prior and new risk adjustment calculations in MSSP, and illustrate how the change can affect an ACO’s benchmark under various scenarios.

Medicare ACO assignment methodology change may have unintended consequences

A number of Medicare Shared Savings Program (MSSP) accountable care organizations (ACOs) experienced significant, unanticipated changes in their 2017 performance year historical benchmarks and performance expenditures. These changes were not consistent in direction or magnitude. The exclusion of some nursing facility visits from MSSP assignment, effective in 2017, is the likely cause of the unanticipated changes.

The Centers for Medicare and Medicaid Services (CMS) now excludes nursing facility provider evaluation and management visit codes with place of service (POS) 31 as a qualifying claim type for beneficiary assignment. This assignment methodology change is referred to as the POS 31 exclusion. It started with the 2017 performance year and is also applied to the corresponding baseline years for all MSSP tracks.

Some ACOs likely lost and some likely gained costly nursing facility beneficiaries due to the new exclusion in both the baseline and performance years. The POS 31 exclusion only works as intended if POS codes correctly differentiate between Part A skilled nursing facilities and other nursing facility patient services. Unfortunately, our analysis across the Medicare 5% sample indicates that POS codes for nursing facility-based claims may not always be reliable.

To read more about the possible impact of these changes, read this article by Tia Sawhney, Kate Fitch, and Cory Gusland.

Controlling rising medical costs

The 2017 Milliman Medical Index noted that medical expenditures (inpatient, outpatient, and professional) made up about 80% of the total cost of healthcare for a family of four, and that nationally the cost increases from 2016 to 2017 were about 4%. However, many employer plans have experienced much higher cost increases, especially in certain areas of the country. In 2016, for the first time, independent physicians made up less than half of the practicing physicians in the United States, according to an American Medical Association (AMA) study. Physicians who work with hospitals charge a facility price at their offices, which could result in increases in costs and significant discrepancies in prices for the same services. Additionally, hospitals have continued to merge with each other, and while these mergers offer the potential for lower costs by increasing efficiencies, a 2016 study by Northwestern University, Harvard University, and Columbia University found that prices at merging hospitals actually increased 7% to 10% if the hospitals that merged were within the same state. Given these factors, along with general price inflation and increased utilization, plan sponsors should consider ways to mitigate costs using any or all of the strategies below.

Price transparency and quality

Providing price transparency, coupled with information on quality of care, is a way to promote consumerism within a health plan so that both the plan sponsor and the members who are receiving benefits can save costs. There are various vendors that offer plan sponsors and members the ability to “shop” for surgical procedures and doctors based on price and quality metrics. Cost and quality advantages can result from steering members to specialized “Centers of Excellence” for given procedures. Members can be incentivized to choose the lower-cost facilities or physicians (without sacrificing quality) through a reduction or elimination of member cost sharing, or even with rebates (that is, the plan will “pay” the member to choose a lower-cost alternative).

Narrow networks and carve-outs

Another way to steer members toward cost-effective facilities is through the use of a narrow network. Most health plans offer a narrow network option (for both insured and self-insured plans), which limits member access to smaller pools of doctors and hospitals within their larger networks. The narrow (or preferred) network promises better discounts on claims than regular in-network claims, and the plan sponsor can encourage members to use these facilities by reducing member cost sharing within the narrow network. The plan is designed to have an additional tier of cost sharing, with the preferred network having the lowest member cost sharing. Furthermore, plan sponsors with direct contracts can consider carving out a particular facility from in-network if the facility is not a cost-effective, high-quality option (and there are other options available to the members).

Alternative payment strategies

In addition to steering members through plan design and incentives, certain plan sponsors can look to alternative payment strategies to further control costs while ensuring that quality of service does not suffer. For example, a bundled payment can be used in place of fee-for-service for certain procedures with predictable episodes of care (e.g., total joint replacement). The plan sponsor pays the same amount regardless of days spent in the hospital or on rehab visits, which can help to reduce unnecessary services. A plan sponsor can also enter into a shared savings arrangement with a group of providers, such as an accountable care organization (ACO). An ACO is a group of doctors and hospitals whose focus is on providing coordinated care to certain members within a plan. Ideally, the main goal of both the ACO and the plan is to keep costs low without sacrificing quality. If successful, both share in the savings achieved. Plans with a large enough membership can enter into these alternative payment strategies on their own; for smaller plans, they may be able to contract through their insurance carrier or third-party administrator.

This article first appeared on LaborPress.org.

Maximizing value-based care program performance

Over the past few years, there has been a proliferation of value-based care programs offered by health plans and government payers. These programs, including accountable care organizations, bundled payment programs, and quality incentive programs, often include a multitude of measures related to costs, quality, patient experience, and outcomes, along with various methodologies to determine success.

As the use of value-based reimbursement programs and the associated financial impact increases, it is important for providers to learn the program’s intricacies as well as the analytical, operational, and clinical requirements to ensure its success. In this paper, Milliman consultants Rod Martin and Laurie Lingefelt discuss how success with these programs is possible.