Tag Archives: Will Fox

Addressing health plan selection bias through risk adjustment

When employers facilitate health plan choices, the method for setting employee premium contributions can create selection bias toward certain options. Selection bias happens when a sicker and more costly population tends to choose one option over another. A common example is when a more open network preferred provider organization (PPO) attracts those employees who want a broader range of providers and use their benefits more than those choosing a limited network health maintenance organization (HMO).

To reduce the selection bias, employers should adjust each option for morbidity. Because selection bias does not change the overall morbidity of the group, it is important to set the premium contributions without consideration for how healthy the subpopulation is within any one option. Otherwise, the option with the sicker subgroup will become more and more costly.

Risk adjustment is used to adjust the costs of two or more cohorts of people so all cohorts can be compared as if each had the same morbidity. A risk score is calculated for each person using age, gender, and medical conditions. Risk adjustment is a way to level the playing field so that the cost differences among options reflect benefit differences as well as network and operational performance differences, but not morbidity differences.

In this paper, Milliman’s Will Fox, Brent Jensen, and Ben Diederich explain in more detail how employers can address health plan selection bias using risk adjustment.

Milliman RBRVS for Hospitals

The Milliman RBRVS for Hospitals™ Fee Schedule provides a simple solution for comparing hospital contractual allowed amounts, billed charge master levels, relative efficiency, and patient mix differences. The fee schedule is based on Relative Value Units (RVUs). There are several advantages of RBRVS for Hospitals. For example, RVUs have been developed for all hospital services, so they reflect the relative resources required to perform the care. Also, a single conversion factor can be used to benchmark a hospital contract. Milliman actuaries provide some perspective in this paper.





Hospital contract negotiations using case mix adjusted benchmarks

Zoelzer-NancyAs payment reform continues to progress and medical inflation continues to escalate, many payers and providers are improving their analytics around the hospital contracting process. Milliman MedInsight would like to make you aware of a Milliman tool that can help healthcare organizations better evaluate and manage commercial contracts. Case mix and severity adjustment of each hospital’s results is critical to answering the age old assertion that “our patients are sicker.” Having a set of reports that allows you to aggregate inpatient and outpatient data to evaluate trends, relative contractual yields, operating costs, percent of Medicare, and LOS performance is critical to getting the best contracts.

Will Fox, a principal in Milliman’s Seattle office recently presented a webinar entitled “Managing hospital contract negotiations using case mix adjusted benchmarks.” During this webinar, Mr. Fox discussed the Hospital Evaluation and Comparison System (HECS™), which combines the power of the Milliman RBRVS™ for Hospitals and a wide variety of benchmarks that can inform and improve your contracting results.

If you missed the webinar, you can access a recording of the Managing Hospital Contract Negotiations Using Case Mix Adjusted Benchmarks session. To listen to the webinar, please click on the “Register” button, enter the requested information, and click “Complete Registration”. The webinar will then automatically stream to your computer.

You can also read this informative white paper, Milliman RBRVS for Hospitals.

This article was first published at Milliman MedInsight.





Using GlobalRVUs to compare physician groups on cost and efficiency

Global relative value units (GlobalRVUs) allow measurement of unit price and efficiency across physician groups for accountable care organizations (ACOs), shared saving and total cost of care programs, and bundled payment and other capitated arrangements. GlobalRVUs are essentially an extension of Medicare’s resource-based relative value scale (RBRVS) so that every medical service has an RVU. The RVUs are based on Healthcare Common Procedure Coding System (HCPCS), diagnosis-related group (DRG), or National Drug Code (NDC) Pharmacy classifications and are not affected by the contractual allowed amount.

Milliman’s Will Fox offers perspective in this MedInsight blog post where he provides an example for the comparison of delivery systems.

For a more detailed account of Milliman GlobalRVUs download the white paper here.





Welcome to the surgery center. Would you like a menu?

Many economists and pundits who believe in market-driven healthcare have recommended increased pricing transparency as a component of healthcare reform. They tend to say that the rather baroque pricing structure of U.S. healthcare—in which the hospital charges one price, the insurance company or Medicare negotiates another, and then consumers pay yet another depending on the richness of their insurance plans—undermines the effectiveness of the free market in communicating information to consumers. Clearly, the directors of The Surgery Center of Oklahoma feel the same, as they have posted prices for their services directly on their website.

Will transparent pricing ever become a trend in healthcare, or is it simply too complex a field for menus to make sense? Milliman consultant Will Fox recently wrote about an intriguing innovation in this area—the Transparent Cost Network:

In no other area of our economy do consumers receive services where they do not know the cost in advance and are not able to make comparisons to alternative suppliers. As a result, healthcare provider costs have remained immune from the economic forces that could control them. This immunity has contributed to greatly increasing provider costs, a major component in today’s rising healthcare costs.

The lack of price information stems from the confidential nature of negotiations between providers and payors. Providers compete with each other trying to get the highest payment from payors, and payors compete with each other trying to set the lowest payments to providers. In hopes of getting the best deal, both providers and payors want their negotiated rates to be kept confidential. Information is kept from the consumer that is necessary to make the best choices and drive an improved market.

A transparent cost network is designed to break down this limitation, giving consumers the price information they need to make informed decisions. Payors that can deliver this valuable product offering to consumers will likely gain market share for this lower-cost product.

This trend appears to have significant support, at least in the group health insurance market. In Milliman’s 2010 Group Health Insurance Survey, 68% of insurers surveyed said they planned to provide more price transparency for members.





Introducing the transparent cost network

A new article in Insight offers a way to infuse more transparency into healthcare financing. Here is an excerpt:

In no other area of our economy do consumers receive services where they do not know the cost in advance and are not able to make comparisons to alternative suppliers. As a result, healthcare provider costs have remained immune from the economic forces that could control them. This immunity has contributed to greatly increasing provider costs, a major component in today’s rising healthcare costs.

The lack of price information stems from the confidential nature of negotiations between providers and payors. Providers compete with each other trying to get the highest payment from payors, and payors compete with each other trying to set the lowest payments to providers. In hopes of getting the best deal, both providers and payors want their negotiated rates to be kept confidential. Information is kept from the consumer that is necessary to make the best choices and drive an improved market.

A transparent cost network is designed to break down this limitation, giving consumers the price information they need to make informed decisions. Payors that can deliver this valuable product offering to consumers will likely gain market share for this lower-cost product.

The full article is available here.