New Changes in Health Care Executive Pay

The Spring 2019 issue of Warren Salary Surveys is published and there are some interesting findings highlighted here.

Warren is the oldest and largest survey of its kind reporting 600 positions in the health care industry. Large and small health plans, health systems and ACOs are reporting their data every 6 months and the data includes salary, bonus by region and by size and type of plan.

This week saw a report of a large health system in the southwest began to move bonus payments in line with patient engagement. By using HCAPS score improvement as well as patient complaint resolution and satisfaction scoring to create a base formula for bonus pay, the health system is moving towards a more patient centric incentive system.

Signaling further changes in the health care compensation programs offered by Accountable Care Organizations and Health Maintenance Organizations, Warren is observing an increase in compensation for positions such as financial analysts representing a 3.32% increase over 2018 to $68,859 and Underwriters moving to $66,749 as an average reported nationally by over 160 plans over the past year (Collected in spring 2019).

VP of Planning and Development saw a large jump of 5% to $243,181.00 over last year, perhaps revealing more focus on new markets and new products. In the medical management departments, there was an increase in pharmacy service coordinator to $52,457, underscoring for many health plans the need to better manage pharmacy costs especially for Medicare Advantage patients.

The biggest gain was in the position of Clinical Informaticist: a 13% gain to a salary averaging $105,778. These people are very hard to find and several organizations have started to create an internal training program to move some of their health information specialists into affiliated support roles to learn the clinical informatics discipline and support the lead informatics person.

Finally, the newer lead executive positions in Accountable Care Organizations CEO show an average salary of $269,575 with a range of $211,911 in the mountain states to $356,888 in the northeast. The majority of the ACOs reporting were not-for-profit with an average of $280,953 salary. At this point few bonuses have been calculated for the ACO chief executive, but Warren sees the above formula of measuring patient engagement improvements to be a very new but a meaningful way for ACO Boards of Directors and managers to consider these types of incentives to attract and retain talented ACO executives who continue to be elusive in the marketplace.

Further information can be obtained at: www.warrensurveys.com

Independent Pharmacy Accountable Care Organizations

By William DeMarco, August 26, 2015

The competition for Pharmacy Services has become brutal as large chain stores such as Walgreens and CVS, as well as big box stores like Target and Walmart, attempt to develop exclusive service contracts with large insurance carriers and Pharmacy Management Companies (PBMs). At the same time, employers are faced with rapid increases in specialty drug costs for diseases such as Hepatitis and similar chronic illness drugs that may cost as much as $50,000 to $75,000 per year.

For example on July 24th the FDA approved a new class of cholesterol lowering drugs known as PCSK9. Many health plans were anticipating a price point of $10,000 per year, but the approval came with a recommended $14,600 annual price target. This would translate to a $6.71 per-member, per-month (PMPM) for Commercial and a $15.16 PMPM for Medicare, depending on the patients other conditions according to a Prime Therapeutics public analysis released in June.

While the clinical side of this evaluation proves these targeted drugs do work, the cost to public and private payers is changing the landscape of how employers deal with these services.

PBMs initially established a very good solution for a very complex problem by integrating costs, necessity and quality with outcomes. However, the mark up on PBM services and ability for PBMs to buy wholesale and resell retail has made some employers believe there may be better options they should consider.

In addition, the generic substitution strategy that saved employers millions in the early 1970s has worn away and generic prices are climbing - making the spending for both specialty and routine pharmacy a very large concern.

One solutions being attempted in several areas around the country is the development of an Accountable Care Organizations (ACO) like network of independent pharmacists.

In this segment of the delivery system, most pharmacies are owned by one or more families and are often one man drug stores, or represent small chains covering one or more counties. These pharmacies offer personalized service and a tradition of being a patient advocate - often providing answers to their customer's questions regarding medications, looking out for adverse reactions and communicating with the physician when a question of dosage or reaction occurs.

Organizing these smaller entities into a network with contractual obligations to a central agency that acts as a Management Services Organization (MSO), which in turn, contracts with purchasers, has employers intrigued and supportive because many of these hometown stores can also be an advocate for the employer - a resource needed more and more as value based payment emerges.

These independents not only offer dispensing, but also agree to offer Medication Therapy Management (MTM) to help the patient reconcile drugs, vitamins and even nutrition that may be playing a part in their drug therapy. Many of these stores can also offer medical appliance and durable medical equipment at less than the hospital outpatient cost. In addition, as a local provider, they are predisposed to working closely with PCPs to help introduce alternative drug therapies that may be less costly to the patient and the employer, but are just as effective as standard therapies.

Even if this connectivity is missing electronically, one can still work with purchasers to make sure the patient is adherent and getting their 30 day supply refilled on time. This can be a mutual responsibility between payer and pharmacists. The savings of substitution, the ability to control use of specialty drugs as necessary, and the coordination of care to assure adherence are all part of this new model.

Where does the PBM fit? The PBM can still process drug claims for the employer and share this with the pharmacy MSO, but it relinquishes control of the network to the employer. The employer may decide to run two networks—one of independents (the high performance network) and one of the big box and chains (the general network). If the employer really wants to test the effectiveness of the networks, they could also pay 100% of the high performance network prescription and MTM fees and 80% of the non-high performance network. This gives employees the choice but also incents new business to those who have little preference, but want to save money. It secures the patients for the local pharmacy, which creates competition for the chain stores.

Drug stores as care outlets versus retail vendors can make a very big difference in areas of managing drug costs and adherence. The leading cause of readmission to a hospital is non-adherence to drug therapy - which puts people in the ER. This is a classic example of a Preventable and Avoidable Cost (PAC) that could be better managed on an outpatient basis by having care coordinated by the pharmacists and the PCP.

While the cost of pharmacy will continue to rise as medical research promotes more effective drugs, we know employers and health plans can better manage utilization and patient experience at the delivery point of care, and that is, for many, the local home town pharmacist.

ACO Explosion

Bill Demarco, October 1, 2012

Medicare Shared Savings

Feasibility studies for three ACOs in North Carolina, a medical group in Arizona, a physician alliance in Illinois, a hospital system in Indiana and consultation with several Pioneer Plans has kept us very busy over the last several months. Most of these are physician owned medical groups, while several are IPAs with medical homes who want to collaborate with one another to form the primary care base of a Medicare Shared Savings ACO.

Over 490 applications for new ACOs are in process and due to CMS by September 6th. Add to this the several hundred earlier ACOs approved in April and June of this year and it becomes clear that the 600% growth rate in ACOs since November of last year when final rules were published brings excitement to the marketplace.

This easily represents 20% of Medicare beneficiaries who will be connected to Medicare through their ACO by January 1, 2013. When adding the Medicare Advantage beneficiaries that represent 27% of the Medicare population and growing, it is a factual statement to say that 50% of all Medicare beneficiaries will be receiving their benefits through Medicare contractors instead of Medicare directly. These contractors are all being held accountable by CMS to follow stringent guidelines including patient satisfaction.

This means Medicare has been permanently changed by focusing on shares savings for improving quality instead of merely paying claims. We anticipate ACO mergers and acquisitions will be the next step as investors and hospitals catch up to the opportunity to invest in the new chronic care business model.

We are excited for the plans with whom we have worked and their enthusiasm and innovation encourages us to expand our own resources and capabilities to serve this emerging transformation of the local delivery system.

Cautioning new applicants for next spring

We are talking to people about getting their Notices of Intent (NOI) submitted in the spring. This would make them eligible for submitting an application in fall of 2013 with a start date of January 1, 2014.

Applications that look simple are not acceptable by CMS with simple answers. Some of the key points we have heard from CMS include:

• Several workflow adjustments need to be made to make the patient process coordinated and all encompassing.

• Early charge reconciliations indicate the patient population notified by CMS may be different than the original ACO defined population discussed in early planning.

In addition, beneficiary engagement is a vital area of the application and connects with population management which is the backbone of successful care management. Tools and techniques vary by service area.

What’s an AHO?

What is the difference between a Medicare Shared Savings ACO and an Accountable Health Organization (AHO)? Is an AHO a private ACO?

Many people continue to be confused by private ACOs such as those sponsored by Cigna, Aetna and Blue Cross versus the Medicare Shared Savings opportunity to contract for Medicare lives in their area. While many of these private ACOs represent more of a bundled payment experiment paying global fees to doctors and hospitals tied to some sort of risk banding, the Medicare ACOs have a stronger focus on quality scores versus production of services and in so doing are able to raise the bar for both quality and cost. Private ACO sponsors are slowly making this transition but providers need to read closely what they are obligating themselves to in the future. Some are asking insurers for 2 side risk on day one and some are asking for one side risk only.

Thoughts on the Medicare Shared Savings Program Final Rule

By Bill DeMarco, October 31, 2011

The dynamics of the new final Medicare Shared Savings regulations are re-igniting interest by many who had passed this by because the proposed regulations were overwhelming.

Several associations including AHA, AMA and AGPA who were skeptics in reviewing the proposed regulations have come out publically and see some potential here. We see the upside opportunity being improved putting more on the physician plate to better plan for startup costs and see the reduction on the number of indicators to be reported making the medical management requirement a bit more realistic. Dropping EMR requirement has been a good decision by CMS as this was a burden for many physician networks.

Finally, the concern over attribution looks like it has been replaced with a more solid assignment process of patients so physicians know who they are accountable for. Several points that are missed in these comments are:

1) Value based purchasing and all that it has become is the over arching goral of this shared savings process and we see that for private or public payers that this is a good framework to start with.

2) This is truly a BIG opportunity for Primary care to band together and manage at a higher level both clinical care improvements and financial integration of their practices in a manner that makes care delivery scalable.

3  This ACO evolution gives health plans and physician something positive to discuss with the knowledge by most plans that if the providers should become dissatisfied they, the physicians, may start their own plan.

Impact and Implications of Comparative Effectiveness Research

by William DeMarco, November 2, 2010

MCOL asked me to respond to the following questions for their Thought Leaders publication: What will be the impact and implications of Comparative Effectiveness Research on U.S. health care delivery, in the short-term, and in the long-term? How dependent is CER, going forward, on federal policy and funding?

My abbreviated response is included in the current issue of Thought Leaders, but I wanted to provide a more complete response below.

Comparative effectiveness research is somewhat of a newcomer to healthcare.
Borne out of early practice variation studies at Dartmouth and other universities that reported surprising gaps in the delivery of care at the physician level, the CER takes this one step further to explain not just what the variance is but what the norm should be as a best practice.

These evidence based norms and practice guidelines are intended to give us a starting point to what we have been missing and that is ambulatory care comparators and a full disclosure of what are the best practices for a specific diagnosis for a specific population of patients with similar co morbidities and health status.

For decades we have seen hospital data on costs and length of stay being produced as DRGs and admissions data were available and understandable to many of us as a common unit of measurement and cost. Payers saw this as a large bottom line expense not realizing that the reason people were admitted was not because the hospital made that decision rather the doctors made the decision to admit based upon what they thought was a diagnosis that warranted such and action.

As we begin to look for root cause as to why the doctor thought this admission should occur we see again variation in practice style, training and capability come into play. The patient variation suddenly becomes key to understanding the physician logic and we start to see a move towards patient and population management which the CER process is trying to address.

Now we should have the ability with millions of records and billions of dollars invested in CER by HHS to discover just what is an appropriate admission for a specific diagnosis and begin to track this through impatient and outpatient treatment which is an imperative for a better understanding of how best to handle chronically ill populations as well as some of the less critically ill who need to be treated BEFORE they move to stage three or four cancer.

We have always asked about how lower back pain should be treated for the 70 year old versus the 50 year old, we have always wondered whether the mammogram should be done annually at 40 or 50 or is to tied to whether or not the patient has a predisposition and family history.

These are worth studying in terms of screening and are also worth building available database to see what works because much to the surprise of the public not all patients are treated the same because not all doctors are trained the same. Once can see a pattern of care in the medical notes and billing for a patient with hypertension yet 5 other doctors in the same group may treat this hypertension differently. Who is right and what is the best guideline to follow is.

In addition these guidelines change as we move from the discoveries and technologies of health care. CAT scans are useful but are they as useful for some illnesses as a MRI or would a simple x-ray do?

Most patients still ask for antibiotic for a cold yet truthful doctors will say it’s a virus and you have to ride it out... we can see how a national registry would enable our medical training and treatment expectations to come together over time to rid the system of wasteful tests and spending and assure both doctor and patient the results are predictable based upon good scientific population studies.

However we can also see the negative side of the argument.

In England and other countries we have seen the rise of the QUALY measurement that is used to determine wethere4 a patient really is a candidate for a specific procedure.

In several situations the QUALY dictates whether the man or women with stage 4 cancer gets treatment, whether the baby with an incurable disease is treated at all.

QUALY is the measurement of cost versus treatment for many countries and with CER we could see this occur here in the US as Harvard and other universities begin to but a VALUE on a human life.

The QUALY can be used to make some of the treatment decisions and also can place a number on ones forehead for underwriting just like a FICA score does for credit and loans.

Several states have banned using clinical effectiveness and similar means to be used to withhold issuing policies for GROUPS but as we see a move towards more individual policies with newly promised insurance exchanges and the like we see a potential for QUAYS being used to justify higher premiums or cancellation of insurance policies when the score does not justify expenditures of funds for saving or even extending a life represents a potential risk to an insurance and healthcare system that is already under funded.

One can see that in the hands of some insurers this methodology could be brutally unforgiving. In the hands of government one can see they like the idea of numbers and distancing themselves from patients just setting in motion a number and backing into a Medicare or Medicaid budget.

This Kevorkian factor represents all that most of us in health care and the health plan business are against but represents both am moral and ethical battles to fight to police one another and make sure we are not letting statistics dictate the value of a human life.
Rather we would like to see a more fruitful transition of using CER to build upon health and prevention. To determine what in a person’s lifestyle could be changed to avoid diabetes and heart problems, what could be done in an exercise routine to strengthen a back injury without needing formal rehab?

So what can health plans do? As the CER begins collecting data we see the opportunity for health plans to collaborate on a regional basis to also pool de-identified data to determine unique care patterns in their area that can be addressed or diagnosis that can be mentored to determine an outbreak of disease or unseal pattern in treatment protocols during different times of the year.

Lack of Iodine in the water in Detroit affecting thyroids, sinusitis conditions in Seattle affecting respiratory illnesses, allergies in droves in an urban population that uses antibacterial soap extensively could all tie to an unusual outcome unless treated,

Moreover these local models would have a national comparator baseline to look at but also contribute to local CER research that could help streamline care and diagnosis precision but most certainly would, be a way to obtain even further ROI on data collection process at the Health plan, ACO or similar integrated system.

This moves health plans data away from the typical claims warehouse into a life-science role that could also be shared with Pharma for testing and data sharing as well as scientific studies by local and regional medical schools to look at systemic variation in population health.

Health plans are already doing this in some cities such as ICSI in Minnesota and similar efforts are being headed by employers in Las Vegas and St Louis to try and come up with a value comparison of outcomes to be shared with all health plans in developing and monitoring their individual P4P and global payment reforms.

CER offers wonderful tools and more discussion of its application by the scientific community can help us really understand what works and what works best in short term and long term treatment.

If the research should go the other direction of assigning dollar amounts to QUALYS and reduction of services to those who need hope the most we will see a rapid de-funding of the program and a very loud outcry from the scientific and religious communities.

Health reform arguments have already surfaced this debate between the use of CER as a practice guideline builder versus a potential rationale to limit care. Health Plans have it in their power to build local and regional warehouses for clinical and scientific research always sharing such research with a national clearinghouse such as CER.

Primary Care Access During this Decade

by William J. DeMarco MA CMC, President, Pendelum Health Corporation, July 1, 2010

In the current issue of MCOL’s Thought Leaders newsletter, I was asked: How big of an issue will primary care access become during this decade- what are its implications- and what initiatives (such as medical homes, retail clinics, employer on site clinics, etc) if any, do you think will bring about improvement?" Here is what I replied:

What we continue to learn is that primary care doctors graduate with hopes of becoming the family practice doctor in a smaller town, something we desperately need, but the economics do not permit this new MD to move forward with their career. Because of the large loans and debts of medical school and subhuman conditions of an internship doctors really start out very poor and in debt. The actual earning of a salary does not occur for several years and the salaries for primary care are not rising as fast as specialist salaries. So many are forced to decide to sub-specialize in a more lucrative area where they can make the dollars they want as surgeons of super specialists and join a private practice as a respected member of the medical group.

This drives demand for primary care but until the salary cap blows off or the economics of medical school costs are altered we see the logical overpopulation of specialty practitioners while PCPs are treated as an aside by both hospital’s and physicians. When one calculates the revenue from referrals to specialist and hospitals that a single PCP makes the numbers can be astounding. True the specialists has a higher revenue per patient but the volume of PCP referrals to specialists and hospitals are far greater yet hospitals have been able to keep PCP compensation low and , in some markets, threaten PCPs that they must join the ranks of employed physician or be replaced.

In this vacuum we are seeing innovation. First by remaking primary care as a retail almost impulse buy the for the consumer retailers like Walgreen’s, Target, CVS Wal-Mart and K Mart and even some grocery store chains have brought Primary care to the patient. This is packaged as a Nurse practitioners and offered for common un-complicated illnesses which , for some, is less expensive and less intrusive than the Emergency room and certainly easier than waiting for 4 to 6 weeks for a PCP visit . While this transition occurred Nurse Practitioners and Physicians Assistant salaries shot up some 27% over their colleagues who were still stuck in public health or working as a medical assistant in a practice where physicians did not make full use of their talents.

As Dr Don Berwick ,Nominated CMS chief, has said the best way to manage costs in the delivery of care is to have the most efficient person downstream from the doctors do the work. So you have NPs PAs and RNs doing more of what they are trained to do thereby making the PCP more productive at less cost. In this regard the Employer owned medical practice is gathering steam as more and more employers see the value of designing benefits around the use of early detection and health promotion and less use of unnecessary specialty care unless the PCP has approved it as necessary. A well equipped PCP group practice with NPs and PAs seeing the right patients at the right level of service can be very successful in attracting volume because of its convenience and flexibility for follow-up.

The cost of such a medical group owned by an employer can quickly be paid back in terms of savings to emergency rooms, early detection of serious disease and better coordination of admissions and discharges to avoid readmissions and reduce length of stay for illness or injury. This kind of commitment by management also can create a positive attitude in the employees who feel their employer is not only offering them a way to pay for care through an indemnity insurance plan but also guaranteeing them a place to get it in the workplace. This guarantee is becoming more and more important as less primary care are available and few insurance companies will pay for ER rooms to replace PCP visits.

These various roles of Primary care emphasize team work and coordination of care. Some of the retail clinics are picking up on this as are the hospitals who once feared these competitors have encourage discussion and referrals to assure continuity and communication between patient and practitioners as well as practitioners to practitioners dialogue. Turning this delivery system on its head by having Primary care driven medicine is slowly at work at the federal level with ACOs and MA plans requiring PCP advocates be assigned or selected by each patient. This constant pressure of demand for PCP will, we believe, force hospitals and clinics to rethink their compensation strategies but also put the pressure back on policymakers to revisit funding for primary care spots in rural and urban settings by subsidizing broadly the medical school experience.  By encouraging more newly graduating Physicians, Physicians Assistants and Nurse Practitioners to advance their education with a promise of being that family practice doctor we all want and need

The Impact of Accountable Care Organizations During the Next Few Years

by William J DeMarco, April 27, 2010

I was asked to address the following question for the current issue of MCOL’s Thought Leaders newsletter: "How large of an impact will the emergence of Accountable Care Organizations have during the next few years, and what are some of the implications we might expect as a result?”  

I supplied a brief summary statement for Thought Leaders. Here are my expanded thoughts on this topic:

We believe that ACOs will have a tremendous impact on lowering costs and improving quality long term because these initiatives will be operated at the local level and therefore make quality improvement an ongoing process versus a short term discount approach to value improvement.

The concept of having local providers competing as integrated systems has long been a scholarly supported and business researched model that theoretically should work. The problem has always been in the reimbursement at the practice level. Money and care delivery have been separated from the care coordination making payment a barrier versus the bridge it should be to better patient management.

We have spent millions of dollars as health plans, medical groups, and hospitals to come up with reporting systems that are just now yielding some patterns of care that we know offer positive solutions in the area of chronic care and general prevention.  However, the savings from this more effective care outcome has always gone to the payers. The providers, patients, and most employers never really see these savings in the form of better benefits or lower premium costs so there has never been an incentive for physicians and hospitals to work together to better coordinate inpatient and outpatient care.

We think that the bundled payment opportunities will change this and, as Medicare continues to reduce or flatten its fee increases, bundled payments will become more attractive.

By having risked adjusted patient care guidelines tied to payments for hospital, physician and drug costs for each episode of care, well planned care management protocols will yield a margin IN ADDITION to billed charges to Medicare.  Therefore, there may be a way for many providers to actually see Medicare revenue start to come closer to commercial revenue.

Managed care companies handling commercial payers would also have an interest in seeing hospitals and physicians work together to improve everything from coding to clinical outcomes in order to secure a share of the savings created by their innovation and discipline. There is talk that delegated models of medical management as seen in Florida and California may offer an even more lucrative opportunity to participate by taking 85% of premiums through global or bundled payment structures. This would represent an outsourcing of medical management to hospitals and physicians who, we have always thought, should explore this as a business opportunity to leverage care AND management of care. Health plans and insurance companies would pay a nominal fee to have this management done, but that would only enhance the ability of the caregivers to hire navigators to assist people within and outside the care system so discharges are followed up and preventive services explored before admissions.

The ACO structure will truly be following the integrated care guidelines to improve care with an incentive versus just avoiding anti trust issues. Perhaps we will see different physician driven governance and locally based quality and utilization feedback to physicians and hospital staff whose compensation is dependent upon not just delivering more services but delivering more of the right services at the right levels within the delivery system. We reaffirm this point by saying if physician are incented to deliver top quality and share the savings but the hospital staff operates business as usual to load beds and get paid based upon gross revenue, we have created a monster in terms of two factions in the delivery system going in opposite directions. This happened under early bundled and capitation payments where doctors were starting to see serious gains in income while the hospital’s losses were mounting due to reduced lengths of stay.

Finally, the long term impact here will be collaboration between hospitals in an area where they were competing against one another in a small market. The larger delivery system and its primary care referral system offer great coverage of a larger Medicare and commercial population. This allows PCPs and specialty practices to grow and align better benchmarks and communication with other MSO services that share expense and allows a network of small practices to operate as a large multi-speciliaty group practice. This group without walls can achieve some of the economies of scale but would need to be linked by Health Information Exchange making patient records, ordering of tests, and recommending follow-up care more efficient than much of the paperwork and patient chasing by phone done now.

Assuming the demonstration projects give CMS some good feedback on key performance indicators and that many hospitals and physicians arrive at the conclusion that indeed there is an opportunity to perform better and be paid better under this ACO framework, we would say the government’s estimate of savings from ACO development is largely understated.  The costs curve will bend regionally which will create even more savings than projected for Medicare.

Even now states are talking about ACOs for Medicaid and some employer coalitions are attempting to encourage ACOs around centers of excellence to push providers to compete more on quality and less on discounts.  We have told these large, self funded employers that they need to stop being passive players in the health insurance arena and take an active interest in designing benefits that offer incentives to patients who see the ACO aligned doctors versus the non aligned doctors, who may be part of a discount network but have no real accountability when it comes to performance. Then the employer or health plan must also offer some sort of shared savings plan to continue to incent doctors and hospitals to improve quality and outcomes. This additional amount shared from savings costs employers and health plans nothing more than what they normally pay, but it opens the door to seeing waste removed from the system permanently and better coordination of services for the employee. This levels off premiums and reduces employee out of pocket costs.

We are excited about the ACO opportunity.  While there will be a large education process needed to implement these approaches in some markets, most agree this beats the alternative of price controls and further mandates on payers and providers.

The Reimbursement and Value Based Purchasing Revolution

By William DeMarco, December 21, 2009

MCOL asked me to respond to the following question for their current issue of “Thought Leaders”: Outside of pending national health care reform legislation, what trend(s) or issue(s) do you think will have the greatest impact on health care for 2010?" My abbreviated summary response is included in the newsletter, but what follows is my detailed response.

I think the entire revolution of reimbursement and value based purchasing is changing health care with or without reform.

First, consider the shift to for profit for so many organizations: Blue Cross plans that are consolidating under Well Point; not for profit hospitals that are aligning with or being bought by for profit hospitals;  and finally physicians who came out of the Physician Practice Management ( PPM) environment only to find they did need to invest in other for profit businesses or sell out to the hospital. Ambulatory care centers or buying a bone density scan to make revenue to keep ahead of the rising cost of managing the practice is new for most doctors. These were unheard of a decade ago.

All of these enterprises are having difficulty getting the asset valued that would permit them in some way to get some meaningful equity out of their hard work. That equity could be turned into cash or at least a cushion for future transactions. The new reality is bond houses are just as stingy as traditional investors and financing cost centers like facilities is increasingly difficult

At the same time reimbursement is shifting to a more sophisticated level with ICD 10 and MS DRGS and additional changes that will reveal just where the care and dollars are going. New innovations for treatment at less cost is a hoped for outcome but the ability to police more services and eventually go to a bundled payment system will put both doctors and hospital at risk for living on a budget for each episode.

This new integration is more cohesive than before and as more consolidation occurs collaboration not competition will be a key to survival. How the detail in each of these new expanded payment codes must be reported and tracked. This will be impossible with our current machines that barely report receivable and payables even for the most sophisticated practice. Collecting for managed care, now the majority payer has spawned a new business of revenue cycle management but now a new dimension of reporting utilization is also a requirement under pay for performance.

This disremediation of the old payment and billing systems physicians’ practices and hospitals used is making many rethink their “falling apart” systems.

The “new integration” brings this billing and payment all together again but not through a centralized structure. “Meaningful use” has arrived and that means web based connections to physicians hospitals employers insurance companies and even patients  is a requirement to get at bundled payment, report episodes of care and invoke some accountability into the definitions of necessary and unnecessary care.

Our point is that without the data, the payment will be reduced and where insurance companies had all the data for years its now time for providers to also invest in data driven strategies to better their reimbursements but , more importantly , begin to innovate and test methods to improve quality without increasing costs. This means permanently removing wasted effort and procedures that are inconsistent in their outcomes from the practice, but also, and this is what physicians and hospitals are most afraid of, changing behavior to make a living through more precise and frugal use of insurance and consumer dollars.

This underlying structure is shifting all at the same time reform is being discussed. Like two tectonic plates that shift causing an earthquake and then settle until the next large change. The results are unstable sections of land, tsunamis and new opportunities for growth What we see is slowly the components of value based purchasing are becoming a clear and present danger to the provider that waits too long to take action.

The providers waiting out the rules of reform right now are behind. That means for them 2010 will be remedial instruction on integration. Organizations that have the discipline to prepare the plan A and plan B of strategy are already ahead.

They are not waiting for rules to develop strategies to get around rules they are already making their own rules and slowly and consistently changing all their substructures to accommodate change with intelligent human capital, strong organizational culture and the confidence that their growth plans will eventually succeed.

Others are still cost cutting to make money. They are waiting for a bail out and telling their boards they will respond to the market AFTER an event has occurred. Henry Kissinger would often say that a crisis is a group of untreated issues that people knew they needed to change but did not change and now the cumulative effect is a crisis.

The reason we did not change them is often times because if fear or denial. We kept saying the health care delivery system is falling apart, the Institute of Medicine gave us evidence as to what was falling apart and then offered us a solution to bring these parts back together. But the understanding of what integration was supposed to look like was not clear and many organizations failed in an attempt to use it as a strategy to control doctors and or control managed care.

We now have a second chance with or without reform to re engineer our business process, right size our medical staff organizations and join together reimbursement and quality initiatives to get to the point of being able to reward superior performance with better payments and differentiate ourselves in the marketplace as providers and health plans with distinction. This may be a long road back for some which is why getting started now is the best strategy for 2010.

What Changes To Health Care During The Past Ten Years Have Had The Most Profound Impact

by William DeMarco, October 28, 2009

MCOL asked me to answer the following question for their current issue of their Thought Leaders e-newsletter: "As this first decade of the new millennium draws to a close, what change(s) to health care delivery, financing or structure that have occurred during the past ten years have had the most profound impact, and why?"

My abbreviated response appears in the newsletter, but what follows if my expanded thoughts on this matter.

To review the entire decade I think would fill a library of changes but to get it down to a few changes I would have to say first that moving physicians groups from the small cottage industry of one and two man practices into multi-specialty groups that share a model of care would be something few would have thought necessary or even possible.

In the days of early medicine many physicians worried more about the patients and the noble calling of medicine. There was an entrepreneurial spirit that led many practioners to brave the lack of equipment and resources using their diagnostic skills accumulated over a life time.

Teaching medicine still focuses on watch one, do one, teach one but now we have a narrower funnel of certainty we deal with trying to use diagnostic tests, many of which we are finding have a high false/ positive outcome, and relying on larger complex hospital, clinic and university centers that in the words of medical students “made medicine into a business”.

Driving much of this was a change in reimbursement when insurers and the government stepped in between the patient and the physician offering to handle the payment and coding review and many doctors thought this was great as patients often time did not pay on time if at all and now we can bill these service bureaus claims processors for more and more volume.

That allowed practices to purchase equipment that here to fore was a hospital revenue stream. When Medicare A and B separated the fight between hospitals and doctors turned into a turf war ending with hospitals buying doctors as a bonding strategy. Integration disintegrated except for many providers who owned their own health plan and therefore could control with some precision the model of care and the type of care provided.

Our physician friends and advisors often comment on their observation of new graduates being technically savvy but unwilling to be that entrepreneur to start a practice or work 7 days a week to build a following. Instead working three days a week and having family time is a priority and it often takes 2 doctors to make up one FTE.

This same outline applies for hospitals getting bigger. Hospital systems offering tertiary care even in smaller hospitals is driven to a great extent by reimbursement where more income per patient and high volumes of complex patients are the keys to success according to many managers.

Hospital networks formed to squeeze even more reimbursement out of HMOs and Insurance companies and have succeeded in many markets to chase insurers away or demand 250% above Medicare fees for specialty care as the sole commodity in a given geographic area. This morning I heard the argument that many of these community based not for profit hospitals would eventually have to become for profit in order to survive the health reform legislation. Right now 70% of our nations hospitals are not for profit and although there is a solid economic argument to take equity out of the hospitals to refinance growth and sustainability the opposing argument is that will a for profit hospital focus on the needs of the patients or the needs of the financial enterprise that the hospital would be based upon.

Many not for profit hospitals already act like for profit hospitals forcing projects to have a economic ROI but not really be able to measure their investments in Human return on investment. Do we need tertiary care in every community? Can we even staff these needs with newly minted doctors? Are we driving our own costs up by looking at revenue gain instead of expense of this care? Will our community trust us as the local hospital? Will our physician see us as part of the noble mission or just a workshop and bank?

One only needs to look at the transition of the trusted HMO movement of the early 70s when most plans were built around a community need to inject competition and offer better benefits at traditional major medical insurance plans. Then the government allowed insurers to become HMOs and also the government stopped funding HMOs so many went to the for profit side of the equation. We see more and more consolidation of Blues plans and provider based plans as premium income and utilization go opposite directions. Over time the physician and many consumers lost faith and trust for these plans as money people took the reins of these health plans and the social entrepreneurs left to build medical management and disease management companies.

Consider then the largest single issue that has followed this evolution is the trust of the patient, well or ill, the trust of the community that helped fund and support the not for profit an the fact that as insurance executives bonuses could fund the deficits of a small country that this lifecycle in medicine of moving towards a for profit mindset has eroded peoples respect for insurers perhaps the continuous move by hospitals and even for profit physician structures is not , in itself, a solution but could be the biggest change in a decade that will erode confidence in the healing profession, reduce mutual respect for the leaders of hospitals and insurance companies and stifle the very innovation we now need to carry out the re engineering of our health system to emerge as the admired system of the future.

So loss of some levels of trust is the trade off for moving to an exclusively for profit model too quickly. I fear this more than government run insurance because it is the worst form of rationing that will eventually discriminate between profitable patients and those who restrict earnings per share.

Doctors and Hospitals Revisit a New Definition of Clinical Integration

By William DeMarco, August 25, 2009

I was just asked to provide a brief comment on the question for MCOL’s Thought Leaders newsletter on the question - "Have you observed any emerging trends, developments or initiatives of note with Integrated Health Care Delivery Systems?"

Here’s my more complete response:

In my travels observing workshops and client work and in my general reading I am seeing a change in the definition of what was once called integration.

Early on integration was defined as a means for physicians and hospitals to deal with capitation as a joint inpatient/outpatient service center versus having insurance companies pit providers against each other. This step towards a joint PHO framework involved legal issues of antitrust and market power and community benefit, but once structured, people had the idea that demanding more money because they offered comprehensive services was the goal. What was NOT discussed was reimbursement and gain sharing, which would have led to discussions on what we now call lean engineering to make sure that what the PHO charged the insurer was higher than the actual cost to provide services. In other words they were able to share savings with the insurance company. But integration usually stopped at the legal step and many PHOs failed as capitation was not the norm and hospitals got out of the risk business.

Now I am seeing a resurgence of interest in this, partly brought on by the scrutiny of the Federal Trade Commission who is reviewing many false PHOs who are operating under the assumption that they can still collectively bargain with payers without taking risk. This is an incorrect assumption for both PHOs and IPAs who must either be financially at risk or clinically integrated to proceed with any kind of collective negations with plans. Any other options may be seen as non competitive behavior and there are still IPAs and Super PHOs losing out because they do not have a fundamental understanding of what the federal government means by integration.

This reason, along with several others, is now motivating doctors and hospitals to revisit a new definition of clinical integration.

For example:

Payment Integration  

Many of these hospitals are reading the recent MedPac report that is recommending physician and hospital payments be combined like a Global payment based upon diagnosis. Medicare is going in this direction, as are some of the newer Pay for Performance models being developed. . By using episodes of care versus fee for service or traditional capitation, providers can start matching populations and identify gaps in process. To accept this global payment means there needs to be payment integration and a billing capability for both hospital and physicians as part of their managed care agreements.

Clinical measurement and reporting  

There continues to be discussion that P4P programs can be considered by the FTC as partial clinical integration and will make an organization exempt for an antitrust challenge as long as they are participating in Clinical measurement programs. This is also a platform for lean engineering by, again, allowing savings for the efficiency and effectiveness improvement to stream back to the providers IN ADDITION to their normal pay.

Value Based Purchasing

As employers begin revisiting direct contracting or discovering benchmarking information from “Leapfrog” and/or “Bridges to Excellence”, these larger employers are looking for reports on quality and safety from the health plans. Providers want to make sure their efforts are not mis-reported so they are preparing basic reporting data for employers to see as well as using HealthCare Compare data to begin their internal Performance based contracting efforts. Smart Health plans are helping the providers achieve the goals in basic process compliance for diabetes and heart treatments but are also able to report to hospitals valuable data on readmissions and other normative data based upon regional paid claims data.

Probably the biggest change is the understanding that most of the IT information systems in hospitals are obsolete under the new “ meaningful user” definition. Meaningful user requires web based practice management and hospital billing to permit payers and providers to do immediate real time link ups for billing and reporting. Current systems are closed systems, meaning they are designed to create data in-house only and do not connect to the community at large.

Patient and community demands

Many of us believe that the biggest trigger will not be in physician EMRs but consumer Personal Medical Records (PMRs). As more and more patients ask for their x-rays on digital CD and their medical records be put on a thumb drive, and ask that the doctors use the internet to correspond lab values and other updates to their medical history, doctors are truly beginning to understand that the real definition of integration is connecting with the patients and outside community, not just data reporting in their practice. As Health Vault and Revolution Health sell these services through insurance companies and provider organizations, we see this will change the use of data and redefine the relationship between providers and payers who have this capability versus those who are behind the curve in adopting integration as a community value.

Health Reform: What Should Pass or Run Out of Gas

by William DeMarco, June 25, 2009

I was asked to provide a brief answer to the following question for the current issue of MCOL’s Thought Leaders newsletter: “Which specific component of various current major health care reform proposals do you feel is most likely to be adopted before the end of the year, and which component is least likely to be adopted?"

What follows is a more thorough discussion of how we view the outcome of some key provisions that have surfaced in the national reform initiatives.

We believe the public plan and the exchange will be adopted although not in its current proposed form.

We envision Federal Board very similar to the Federal Employees Health Benefits program that governs structure, benefits levels and perhaps some consumer complaints. However we do see this Board overseeing each of the states to implement the public plan in their own fashion.

This would meet current insurance commissioner laws and interstate commerce laws for licensure and would also follow consumer protection with existing insurance departments. Such things as post claim underwriting/recessions would be outlawed nationally and the fed may require the states cap to place a on margins as there are in some states already.

The exchange is vital to distribution channels for this and other plans and would reduce and perhaps eliminate the need for brokers and brokers fees which would reduce costs by 10% or greater. Again these exchanges would need to follow state licensure laws but would be overseen by the Federal Board to make sure they meet the rules of selection, open enrollment and fair disclosure.

Least likely to pass are the Comparative Economics CER legislation. Not because it is not needed but only because people do not understand yet that quality and process are uneven and in a state of flux. This means Dartmouth Atlas and Health Grades and others will do well to show distinctions in the delivery system and tiering and profiling will continue.

We believe MedPacs recommendation to move to ETGs and bundled reimbursement tied to severity follows our early concepts for integration. Many hospitals and physicians continue to fail because they cannot get the reimbursement and utilization data to track together. Given the opportunity to combine these two will support further Information technology and advance web based connections between provider’s, plans and employers.

This will create a new interest in hospitals and physicians working together to form their own product especially as the public plan forces consolidation of local plans thereby giving a handful of plans incredible bargaining power.

Provider sponsored plans have a distinct advantage in the market as the owners control the means of production. Using this bundled reimbursement we see that providers who do well can harvest their reward for their improved care outcomes and , in doing so, apply these savings to more benefits at less cost competing effectively with insurance companies that are unable to control volume and quality and therefore cannot control price.

What this means is that launching things state by state may take a year but once uninsured and underinsured have an option and small business can hire without worrying about this overhead of insurance we will see a spark in hiring and productivity. Without a public plan this will not happen and extend the recession far beyond next year. This time the recession has, and will continue to affect health care employment and this affects service quality and availability so we are truly in a historic moment in history.

William J De Marco MA CMC

De Marco and Associates

Bill.demarco@demarcohealth.com

ICD10: The Impact on P4P, Global Care, Billing and HIEs

by William DeMarco, April 28, 2009

ICD10 will have a major impact on future planning by providers and health plans. I would like to address examples relating to Pay for Performance, global care initiatives, billing documentation and health Information exchanges.

I was giving a lecture to a wonderful HFMA audience in New Hampshire on pay for performance and this topic came up, asking how will ICD10 affect P4P.

It was clear, in my opinion, that all of the use of severity DRGS and now severity levels within ICD codes that ICD 10 offered, were deliberately trying to get at the kind of detailed reporting that Medicare and many purchasers wanted. This was intended to define what process improvement s could be made to develop a better delivery system.

Benchmarking was too broad with the current system and was not fair because it could not get at the root cause without the examination of charts and abstracted medical records that offered such great detail but were labor intensive to obtain.

This statement produced several hundred nodding heads until another panelist from a well respected billing and systems firm said ICD 10 will not be implemented until 2012. When asked why she just said the insurance companies cannot even do APC reconciliation how will they ever do ICD10.

Well, many heads again nodded, probably the ones sweating bullets right now: hospitals that own PCPs and need to quickly find a way to get into ICD10 billing.

The real challenge here is not so much the electronic billing, there are crosswalks out there, but rather documentation at the physician end.

ICD10 requires a major departure from the two or three categories in an ICD 9, and will demand some documentation from physicians and physician mangers who will need to be adamant about both the precision, to avoid audits and also the electronic billing capability to get paid on time as all Medicare and Commercial will move to this system.

Of equal importance is the traveling executive whose emergency visit in Thailand will be billed using ICD 10 or ICD11. Or the family that is told if they go to India for Johnnie’s surgery ,it will be covered in full, but if they get the surgery done here it will only be 60% covered.

We are not seeing the medical tourism momentum stop, and as Blue Cross South Carolina adds Hospitals to its PPO network in Panama and Costa Rica and other employers demand credentialed professionals to see their employees overseas, the conversion to this new system is also key to success.

What we are all missing is the why?

Why are we making this so complicated?

The current system has a majority of docs using the same codes over and over.

In our work with Pendulum HealthCare Development Corporation we see level 3 office visits for a majority of doctors and patients, and yet when we compare level 1 visits of similar docs in the same region with a case mix adjusted diagnosed population, we see the end result is the same.

Why are we paying more?

In this case there were 12,000 children accessing:780 pediatricians. 1,300 pediatric specialists,60 in network hospitals.

They were generating 21,000 admissions, 190,900 clinic visits, 79,319 ED and 19,785 surgeries. The client’s goals were to integrate financial and clinical reporting capabilities to make good decisions as to how best to manage the plans medical loss ratio. When we extracted data there were many holes such as Misaligned fields for lines of business, and Claim adjustment errors.

Office Visit Level	% Medicaid Claims	% Commercial Claims
1	0.3%	2.3%
2	6.5%	35.0%
3	59.9%	58.8%
4	30.0%	3.6%
5	3.3%	0.3%

The solution was to reconfigure reports to be useable by departments and management.

For example, by aligning financial and clinic reports into 30 summaries the providers and the health plan received reporting by line of business, specific drugs, service codes, and disease condition by provider. This allowed them to have a real time cost per patient per 1,000 and PMPM by service and set the foundation for implementing HEDIS measures and other custom quality measures for operational improvement and compliance.

What this analysis also found was providers offset lower reimbursement by increasing complexity of office visit level. For example focusing on a single procedure Otitis Media for 62,000 Medicaid patients and 400,000 Commercial patients, we found over-reliance on level 4 and 5 office visits

In looking at outcomes, variances between Commercial and Medicaid is not clinically justified, so the plan allowed physician and hospitals to look at the financial impact of reducing office payments by 21%.

This got EVERYONE’S attention.

By showing drill down reports, the Client was able to look at the practice mix compared to specialty averages for each condition. This led to a timely discussion on proper use of level 1 versus level 5 billing benchmarks

The physicians and hospital were able to identify the providers who billed 90% or greater of their visits at level 5 and show them where they stand next to their peers.

I point this out to demonstrate that having severity adjustment and having risk adjusters for the elderly will all require more and more use of ICD 10 to get at providers who often unknowingly burn more resources with some diagnosis than others.

I also wanted to point out that by sharing this data with providers the health plan allowed the peer pressure of physician and hospital to create AWARENESS of the problem and the potential fee reduction consequences if behavior did not change.

As plans have this data so will Medicare and a scoring process using ICD 10 is underway at the top of the payer’s mindset using tiering and reconfiguring networks.

Finally the discovery that was made at the HIMSS conference last month and that is that the government’s stimulus program checks for EMR are going to go to reimburse providers who create ‘Meaningful User” data.

This means data must be able to be communicated from office to office, hospital to hospital and payer to payer and especially provider to payer.

Many practice management companies will be shut down as their system operates in a vacuum. Many hospitals, we have discovered in our pay for performance work, have a large system but they cannot get their large system to cross over departments and they cannot communicate electronically with payers except for billing information. This is inadequate and ICD10 will require more data fields and therefore more complex billings but also offer the opportunity for payers and providers to construct bridge reports on performance and someday outcomes.

By having a national severity distinction and preparing the data links to both internal and external customers ( A BIG LEAP) we will see regional data bases begin to form and these collections of data will form a local practice pattern form which providers and payers can better evaluate changes and watch change happen.

In all my work with doctors for the past 30 years, I can say once the doctors actually see that improvement needle move, they suddenly feel like they are back in control and this is a wonderful thing.

We have been lacking precise data to see this behavior change, which is always been the source of the argument” my patients are sicker”. We can see this shift to performance based contracting now be supported by physicians and specialty societies using ICD10.

So ICD 10 will be a major change for us as well as the health plans, hospitals and physicians. If payers are demanding value but there is no way to prove it then the data is useless and will not produce needed change. If there is a regional data base of practice patterns that can be used by payers and providers we will have less cause for acrimony and more time spent competing on quality. This was the original intention of health plans in the 1970s. Perhaps this is a second chance to make these local plans flourish.

The new NEW DEAL

by William DeMarco, January 8, 2009

The healthcare “deal” for the near future is firming up to represent threats and opportunities for health plans and providers.

Franklin D. Roosevelt offered a “New Deal” after the Great Depression. It took 25 years after the stock market crash of 1929 and the subsequent large market crash of 1937 to begin to achieve pre 1929 levels. It worked because once people went back to the fundamentals of infrastructure repair, sharing resources and returning to the hope work brings, the economics ramped up and the vision of the nation being able to defend itself against the determined and expanding German nations and the sudden incursion of Japanese into SE Asia and eventually Pearl Harbor signaled the greatest manufacturing boom in history.

We now have before us a new President and a very deep and growing recession/depression. Every industry from housing to banks to automobiles to retail is being affected, and certainly health care insurance companies and provider organizations are feeling the tightening of capital and a large hole left in their investments as this crisis will require belt tightening. Have we learned how to do that? Is the plan the government offers going to correct all of this? It will take time. In that time we need to share resources, repair our infrastructures and recognize the fundamentals of how care management works. We apparently have not done a good job in answering the public’s question, “What is it that managed care was trying to do?”

In fact the “blueprint” discussed in the incoming HSS Secretary’s book has a very different take on what managed care was trying to do.

In reading Daschle’s book we see no mention of the early HMO movement and success still enjoyed by Greater Marshfield, Geisinger, Kaiser, Health Partners and others that established much of the industry’s PURE or Classic HMO operations and efficiency. These plans are still expanding their ideas in literature as truly integrated provider sponsored plans. (Please refer to MCOL’s managed care museum for an accurate description of the industry history.) Instead the Book goes on to say Blue Cross established the entire health industry and that what we need is a national health board similar to the Federal Reserve.

Neither is there mention of the rapid consolidation of Blue’s plans to obtain cash as for-profit entities nor a discussion on the fundamentals of the Elwood Enthoven goals of coordinated care. Their original writings and proposals to Congress emphasized quality first and price last, but insurers and third parties saw the opportunity to bring in the price and cost issue and, to this day, left most of the medical management and issues of quality as optional components when they were the core of care cost reduction. Much of coordinated care linked the providers to one another, as well as payers to one another, so there was a full integration of both delivery and financing.

This exchange of data and service value for money and time spent was focused on a highly concentrated provider-payer linkage and this is what the Value Based proposition began with and may still endure as employers become interested in managing benefits and managing benchmark sets locally that were never corrected by insurance companies.

Why would an insurance company want to have less utilization? What would they want to correct the unnecessary care, which translates to less premium and less stockholder value?

Although we can agree that the Clinton plan went down the road with little legislative input and eventually pitted the AMA and the AHA against one another, we can also agree the plan’s complexity and attempts to oversimplify the process caught many potential supporters flat footed and unable to truly defend good parts of the plan the Clintons had worked on for so many months.

My own discussions with White House press secretaries and several of the Ira Magaziner staff showed me it was understood that while the plan made sense, Congress and others were going to offer no support as they saw it as too detailed and complicated to explain and implement. By the time Harry and Louise appeared in commercials as a campaign to sell Fear Uncertainty and Doubt ( FUD) politicians and lobbyists had taken the ideas to stunning misunderstandings, the program was over and everyone returned to production driven medicine.

Now we see the out of control costs of utilization, introducing the era of “Thelma and Louise” ready to drive over a cliff into a one-size fits all program.

The Federal Health Board concept of offering several layers of authority over the workings of a complex, structurally broken system that has perverse incentives, may offer the “fresh idea” of centralizing this system of separate fiefdoms and uneven, underfunded resources, but the ultimate questions remains, “How long will this take?” The sad truth is that many forecast the number of underinsured will exceed the number of uninsured by next year.

Who will be on this board? Will politicians be at the switch again to hold back changes that need to be made because the polling data says people do not understand the true urgency of the situation? How will existing providers fit? How will insurers fit? Will consumers use the system correctly or fill EDs with the “worried well”, forcing hospitals to assure expensive 24/7 trauma care, trained professionals to take care of sore throats and colds?

The larger issue here is that while the debate over policy and funding continues from last year (SCHIP and Physician compensation to name a few), the aging population is aging faster and faster and the uninsured ranks are sure to follow.

The simple truth is there is no funding available. This means dollars to pay for this 75 billion dollar a year MOVE TO Universal Health Care will need to come out of funds that are now in place. It has been estimated one third of this cost will be paid for by funds now going to hospitals for the uninsured. The rest could come for repealing tax cuts, raising taxes or putting caps on spending.

In exchange 30 million uninsured could become insured, of which 40% would get their care paid for by employers. Another 4.5 million would trade their current private coverage for the government subsidized program of “Medicare like” benefits.

This sounds like a plan where many will be affected and, if successful, could at least straighten out the issues of coverage and some access concerns, but are we really getting to the question of “Why does this health care cost so much”?

There are some studies conducted by the Medicare demonstration project on disease management that say improving productivity will not reduce costs. Yet last week Health Partners announced 100 million dollars (will be???) saved through improved productivity of physicians and their staff.

Other proposed funding of electronic medical records and a health info technology will take time but may be part of the answer. This, along with the value base purchasing plans, will reduce office costs and allow proficient doctors to be rewarded for superior performance, but we still have this delivery system issue of how to actually shift from a production of procedures environment to a standardized cost and quality environment. The CSC report of Health Plan CEOs mentioned earlier by Clive Riddle in his opening comments on this blog, says that medical management progress will be cut with dollars going elsewhere. Are we really understanding the fundamentals of this business if we abandon this critical means to reduce premiums in favor of acquisitions or other growth options?

If health plans can change the environment to refocus their mighty databases and tiering capability in the direction of medical management, the move to a comparative economic framework will indeed reveal why this thing called health care is so expensive. If the Chronic Care models and productivity can be measured long term, we can get this efficiency and effectiveness planning that has been so long debated moving in a forward direction.

Many plans are already moving in this direction, forming cooperative models of data and guideline development to share among local competitors as is done in St. Paul and Minneapolis. Several plans are being directed by their employer coalitions to share data to get a clear understanding of what costs so much and what they can do as purchasers to redesign benefits that will change patient behavior. Five of the largest health plans in St. Louis have a good chance to do this in conjunction with their employers. If this is done, the management of populations, sick or well, young or old, can be done as well.

The alternative will be stricter underwriting and discrimination against those with illnesses who cannot qualify as individual policy holders and are liabilities to employer groups, who will look for ways to remove them from the workforce.

We see the products all moving to consumer driven and think that the days of the large networks are dead and that local networks will prevail. This means much of this action will still require LOCAL planning and leadership to create a better system of care before financing can really see a difference.

Health plans and physicians and hospitals have the incentive not to wait and see but to find ways to collaborate regionally or locally to get at the means to reduce chronic care cost s and compare the current pathways to best benchmarks ands see if productivity really can improve. Plans and Providers can help one another and, in so doing, help the national health policy efforts as many in Washington still do not understand what Health Plans do and why it is done the way it is done. Many consumers are a bit suspicious of companies that grew so fast with other people’s premiums.

To let this be tied up in a legislative contest is probably the worst outcome we can see.

Instead, local experiments and collaboration towards reducing costs and improving productivity is. We must get past the walls of competition. Pricing is not the issue. Doing the right care for the right person at the right time is. If we can do this we are doing the right thing for the customer, our patient/ member.

There will never be a better time for this change to happen.

Capitation and Medical Homes Or Is this the return of the Staff Model HMO?

By William DeMarco

While Primary Care seeks new ground as medical homes and insurers look for ways to share risk between providers and insurers using global/tied to episodes of care, we are reminded of the original foundation of HMOs in the early 1970s.

In the original HMO Act of 1973 the federal government intended to encourage formation of group practices through grants and loans. The promise of assembling these efficient prepaid group practices was to have them paid on a capitated basis allowing for a margin if these groups came in under the capitation rate. The intention was to have PCP groups receive full cap and “provide or arrange to provide care for a voluntarily enrolled patient population in exchange for a fixed periodic payment.”

Thus, the original definition of an HMO in the early 1970s applied to a broad variety of delivery systems sponsored by new and existing medical groups.

In today’s world, Primary Care salaries are flagging and capitation is split to sub cap for PCP, specialty and hospitals. So instead of a full payment per episode PCPs get a small amount for a couple of office calls.

Once reimbursement split, it was further split by parts A, B, C and D of Medicare, and then the original value of PCPs was also split. The Primary Care services became a commodity as PCPs were convinced over time that they had no hope of effectively managing primary, specialty, hospital and ancillary services.

They did not have knowledge of claims and information systems, severity measurement tools or care standards and guidelines to shoot for.

In short they were flying blind and this meant they would eventually lose money unless they had a health plan partner to manage all this for them. The successful plans (Marshfield, Gisenger, Lovelace, Kaiser and Harvard and Tufts) all built an insurance partner that they owned and, as such, were able to turn this process into an asset to build market share and compete with other insurers who eventually entered the market with loose-knit networks and PPO arrangements that were HMOs – but in name only.

These anti risk models failed one after another, while those that truly did manage care, reorganized and did the work to build a care system that was fully integrated with the reimbursement system. These made whole dollars for successful care and redeployed savings into these medical groups to hire staff, buy equipment and expand the reach of their practices.

Medical Home

So where do we go from here? Medical homes, a new conceptual formation of a medical practice, recently emerged in the literature.

These homes are hailed by government and practitioners as a more comprehensive approach to Primary Care and Primary Care management. Some of these homes emerged as practices newly forming out of old hospital owned practices and some are forming with insurers as sponsors, seeing the need and the opportunity to truly change care delivery but only by becoming a provider.

This is a switch away from the IPA and network models. Employed physicians exclusively work for the health plan, and are indeed employees, insulated to the extent possible by employer-employee relationships, or in some cases by the medical group that the insurer partly owns. Insurer owned medical groups have been around in the worker comp area and also with the resurgence of interest by manufacturers owning PCPs as the company doctor.

The savings for insurers and employers is obvious when the PCP builds a referral network of specialists and hospital services that are only needed when and if the PCP cannot perform the service directly.

Recent expansion of CVS, Target and Wal-Mart into the Primary Care area shows how needed the services are. But again these professionals treated as a commodity leaves much to be desired in terms of continuity of care, so the medical home has been created and is a new definition...

• Each patient receives care from a personal physician
• The personal physician leads a team of providers who are responsible for a patient's ongoing care
• The personal physician is responsible for the "whole person"
• A patient's care is coordinated across the health system and community
• Quality and safety are hallmarks of the practice
• Enhanced access to care is offered through open scheduling, expanded hours, and new care options such as group visits
• The payment structure recognizes the enhanced value provided to patients

Newly developed NCQA standards for these homes as credentialed contractors for Bridges has furthered the interest by payers to link up with PCP.

Capitation

On January 22nd the Boston Globe announced that Blue Cross would be returning to capitation. The spokesperson for the Blue Cross organizations stated that it was more of a globally packaged program but, as with most reimbursement schemes, there needs to be a top line and a bottom line of reimbursable dollars to make the cost predictable for insurers to construct premiums.

Although the “one size fits all” capitation calculation of the past created large controversies over what to do with sicker patients, the direction capitation has been going is much more towards a flexible dollar amount tied to diagnosis.

This risk adjusted amount based upon the patient’s health status, diagnosis, overall age and complications, seems to make more sense as patients with a greater burden of care needs are given a budget for their providers that reflects this greater need.

This amount also reflects the broader variety of services from diagnosis to a plateau of healing following generally accepted guidelines. These episodes of care are gradually replacing the word capitation but in fact represent a risk model and not to exceed cost for providers. So, again the providers do have some risk to make sure they are prescribing necessary outpatient care and hospital services.

The follow-up care in many of these episodes is a tremendous value as physicians, both primary and specialty, are financially rewarded for follow-up care and a form of case management reporting that goes back to the insurer and the attending physician.

As we see further risk adjustment play an important role in performance payment systems, we see PCPs being able to operate medical homes on a salary plus performance incentive thereby sharing in savings created through their own accurate diagnosis and care management skills.

To date FFS and former capitation models offered little savings back to PCPs, especially for seniors who took the physicians and staff extra time with care and administration. As Medicare experiments with risk adjusters for the chronically ill population and private insurers begin using a form of episodes of care to manage the commercial population, we see that research on guidelines will improve as will outcomes analysis using comparative economics.

End result

What this means for health plans and underwriting is that, with some work, their analysis of health assessments and patients’ previous illnesses will allow plans to forecast with some certainty the potential ailments of a prospective population. Rather than exclude this population for coverage, reallocating care management resources in the direction of stabilizing theses patient or, in some cases, reversing the disease course as is being done in heart disease and diabetes, will be the norm.

For providers, especially PCPs, this means a welcome source of additional payments for the fragile and chronically ill population of Medicare eligibles and a return to a vital role as the front entry point for most care. This role is expanded in the medical home, and a certification as a home differentiates these professionals in the marketplace.

For patients who seek more transparency in their doctor’s pricing and performance, the distinction as a medical home is again a meaningful message to send to new and existing patients that this practice is certified as best practices for Primary Care. Further, this is important as the package or episode of care is driven off of accurate diagnoses.

Payment and structure can come together under this medical home concept, but we still have much to learn about how consumers must also see the Primary Care physician as the essential key to open the delivery system in a productive but prudent manner.

William Demarco's Welcome

Welcome:

As a contributor to the MCOLBlog, I’ll be sharing our perspectives on issues surrounding healthcare delivery system redesign and transformation, with particular respect to provider owned enterprises. Among other things, I’ll be discussing provider and employer prospective payment approaches in addressing Pay for Performance models, for purposes of developing direct employer/provider contracting entities, benchmarking collaboratives under the new value purchasing initiatives, as well as single specialty centers of excellence.

Of course, there’s lots more under the sun to talk about, and I do hope to hear from you as we continue down this path.