Take steps to prepare for insurance exchanges

Health insurance exchanges, not unlike the ones already operating in Massachusetts and Utah, are expected to play an increasing role in individual and micro-group insurance distribution. These exchanges will not exist in a vacuum; they will touch every part of the healthcare system and require substantial changes to the way payers do business.

Begin taking specific steps today (“no regret investments”) to prepare for the risks and opportunities exchanges will create. These investments will enable payers to improve customer service, enhance decision-making and reduce administrative and care costs, no matter the result of reform legislation over the next few years. The three areas of focus are:

1. Sales and service transaction efficiency. With potentially tens of millions of Americans accessing insurance through exchanges, health plans will need to operate more quickly and efficiently to service this fast-paced and high-volume market segment.

2. Applied business intelligence. After healthcare reform is enacted, insurance will be more retail-oriented and no longer medically underwritten. Payers will have to rely on more robust decision support to better understand their customers’ buying behavior, lifestyle preferences and medical history and to foster strong and profitable customer relationships.

3. Constituent engagement. In this new retail marketplace, competition will be fierce. Payers must differentiate themselves through systems and business processes that better engage and retain brokers, federal and state governments.

Begin with seven “no regret” investments now. These are not “no risk” investments; however, without these investments, payers may find themselves unable to compete for and profit from the expanding and sizable individual and micro-group market.

Sales and Service Transaction Efficiency

With the large influx of new individual and micro-group customers accessing insurance through health insurance exchanges, payers must focus on transactional efficiency if they are to remain profitable and competitive. Importantly, various reform proposals include taxing health plans and setting minimum medical expense ratios; therefore, plans must reduce administrative costs.

1. Quote-to-card process. Payers should create a single, integrated system that can automatically carry the customer from enrollment at the exchange, to ID card generation, and to post-sale service. Because customers likely will expect instantaneous answers when using the Web-based exchange, the old way of doing business—including full medical underwriting and lengthy case installation windows—will not provide competitive advantages or profitable outcomes. Payers should invest in multi-payer architectures that integrate case installation and policy administration.

2. Eligibility determination. To ensure proper pairing of the low-income consumer and a subsidized insurance plan, payers will need to develop multi-directional eligibility determination utilizing the exchange. Payers must ensure that the information they receive is accurate and they will need to get clarification quickly and efficiently. For example, payers should develop interfaces with payroll companies to provide for real-time wage and tax determinations.

3. Care management integration. Given that most reform efforts call for all risk to be treated equally and requires guaranteed issue for pre-existing conditions, payers must leverage key enrollment cycle data (e.g., health risk assessments) earlier and more effectively. Members who are predisposed to certain conditions or who have pre-existing chronic diseases must be routed immediately to appropriate care management programs. Payers are advised to develop processes that enable them to immediately recognize high-risk enrollees and divert them to appropriate care management programs.

Applied Business Intelligence

Working within the exchange framework—with more competition, more enrollment, and more unseen risk—intensifies the need to provide and receive decision support. Health insurance exchanges will give payers instant feedback, letting them know which offerings are enticing customers, which are not, and what needs to change.

1. Decision-support tools. In an exchange, consumers will be given multiple health plan options coupled with extensive information, but few consumers will have sufficient expertise to choose the best option. At the same time, benefits are becoming more complex. For example, value-based benefits plans or high-deductible health plans offer increased options for lowering costs, but these plans may be confusing to consumers who are new to the marketplace. That is why decision support will be vital. Payers must offer benefit-modeling tools that will work within the exchange infrastructure and help consumers choose the best insurance plan for their needs.

2. Customer segmentation. Soon, policies could prohibit insurance companies from rejecting applicants. Nor will payers be allowed to charge higher premiums based on pre-existing conditions or certain demographic information. Because premiums will be regulated and largely the same for all customers within a geographic region, payers should develop tools with which to segment, within the bounds of the law, new exchange customers. These tools will include health risk assessments, personal health records and, importantly, behavioral analytics that can determine the best health plan for each consumer.

3. Product performance. To remain competitive, payers participating in health insurance exchanges will require access to real-time product performance reporting capabilities. These will provide payers’ product development units with critical business intelligence regarding the specific products that customers are buying. Today, most health plans have visibility only into which of their proprietary products are sold; they do not have real visibility into what business is lost and why. Payers that leverage this information to quickly respond to market demands, and design and offer new plans—such as consumer-directed health plans, value-based benefit plans, wellness programs, integrated health savings account use, and more—will be able to capture, retain and enhance market share.

Constituent Engagement

Within the framework of the health insurance exchange, the goal of constituent engagement will remain the same as it is today: to create an efficient dialogue between the constituent and the payer as well as among the constituents themselves. However, the constituents will change. No longer will brokers, individuals and employers be the sole constituents. Payers probably will find that they have expanded relationships with state governments and the federal government, and that these new constituents have new rules and different needs.

States are likely to be major players in the world of exchanges, regardless of how exchanges are organized. Payers should design systems that accommodate state governments’ unique requirements, including standard enrollment applications, state commission payments, complicated billing and eligibility systems, and numerous reporting requirements. In addition, the federal government will play a role in the exchange operation and payers should prepare now to support reporting requirements. Finally, brokers will continue play a critical role in attracting good risk and explaining complex benefits to consumers. Payers should look to offer value-added services and products that can help brokers grow their business.

The future of the American healthcare system is in flux, but the future of payers is not: They will remain the primary purveyors of health insurance. In fact, their role may expand drastically as more people enter the individual and small group market.

Eric Grossman is Vice President, Enterprise Strategy and Communications, for The TriZetto Group, a healthcare IT firm whose technology touches more than half of all insured Americans.

2010 Management Guide

Dealing with Survey Deficiencies

After receiving 23 pages of citations and a threat of losing its license, a Texas ASC (that had gone three years without a state/Medicare survey) recognized its desperate situation. While many of the citations concerned the new conditions for coverage and multiple notes for the same deficiency, the center still needed to respond with corrections within 10 days. Typical of smaller facilities, the employees responsible for compliance activities are the same individuals involved in routine care. While intending to comply with regulations, patient treatment takes priority and administrative paperwork falls behind.

In addition to their daily routine, management now needed to research, evaluate and interpret the regulations in order to rewrite/update their policies within the response time. The practitioners (both administrative and physician) realized that the task they faced required the resources and skills of an outside expert. The facility searched for a consultant that could help solve their problems. Separated by 1,500 miles, with the days ticking away, recognizing travel arrangement difficulties and skyrocketing travel expenses, they requested FWI Healthcare’s assistance.

Receiving and reviewing their citations, FWI presented a cost-effective proposal to the client that was accepted. The client faxed requested documents for our analysis. We discussed existing materials and the need for changes. FWI also developed some revisions to their policy manual and the plan of correction for submission. This information was provided to the client and after telephone clarification and minor adjustments; the transcripts were ready for use.

The plan of correction was accepted and upon the surveyor’s return for a follow-up visit (finding everything to be acceptable), she recommended the license and certification be renewed.

Many small ASCs do not have personnel with experience, knowledge or time necessary to rapidly respond to deficiencies cited by survey agencies. This is where relying on the resources of consultants (who provide assistance on a fee for service basis) is invaluable. All of FWI’s work was completed with minimal expense and without either party leaving their office.

By Roger Pence, president, FWI Healthcare www.fwihealthcare.com • 419.298.3700

Challenges Unique to De Novo Facilities

De novo projects can be a long and not always painless process, but like turnarounds, they have incentives as well. With a new development, we are able to construct the center from the ground up to ensure our high standards are met and so high-quality care can be administered efficiently from day one. We are also able to form a great group of physician partners with the right balance for a successful ASC. Now, just because we get to make initial decisions on the facility and the business with our partners, it is not always roses when developing a new center. We deal with doubting partners, setbacks, stumbles and roadblocks. In the case of our new de novo facility in Mt. Dora, Fla. we hit an unusual roadblock — gopher turtles. Yes, gopher turtles. This protected species was living on our construction site. We had to have the turtles moved, but that could only be done after three consecutive days of 50 degrees or warmer weather. The turtle relocation caused about a six-week delay in the building process, and while no one could have anticipated a gopher turtle infestation, we took care of the situation and did what we could to get the project back on track.

We found that the perspective of the partnering physicians in de novo projects is quite different from that of partners in turnarounds. While in turnarounds we are often thought of as better managers than we are, sometimes in new developments we are thought of as worse. Partners focused on financial returns view any stumble on the way to distributions as a failure, when in fact, stumbles are a part of the process and sometimes result in positive outcomes. The objective is to have the “wiggle room” to adjust, correct problems, and move forward.

No matter what we encounter along the path to developing a new center, we are committed to our partners and the success of the center and look forward to developing new, successful centers across the country.

By Tom Mallon, CEO, Regent Surgical Health

www.regentsurgicalhealth.com 708.492.0531

Ostrich Strategies for ASCs: Never A Good Idea

The phrase “burying your head in the sand” has become synonymous with hiding from the truth or hiding at the first sign of danger. Ostriches are alleged to do that, but they actually do not. However, owners of distressed outpatient centers sometimes really do.

Our firm gets involved in helping distressed outpatient centers, including surgery centers, and our experience has shown that it is the rare owner who does not “bury his (or her) head in the sand” hoping that something will occur that will cause the source of the distress to simply go away. Employing an “ostrich strategy” is a bad idea, as well as a waste of valuable time and resources because the sources of distress rarely go away simply and easily.

The “ostrich strategy” usually results in the center being behind in payments to lenders, landlords, the taxing authority, staff and most vendors by the time we get involved. The task of pulling your head out of the sand and developing workable strategies is complex and multi-dimensional, and involves lawyers and lots of different personalities. In addition, there are always varying degrees of trust among the owners and the managers (who are also often owners). Getting to the core problems requires information analysis, lots of conversation and a site visit or two. Once those core issues are made clear, then the people leading the charge put a simple strategy in place. It needs to be simple because additional and incremental complexity will only complicate matters and likely make things worse. Our firm often leads the charge, but many times we do it in tandem with the center’s lawyers. Depending upon how far behind the center is with various creditors and what legal actions have already been taken, the lawyers may well take the lead.

Follow your strategies, keep your head out of the sand, stay calm and focused, engage the right professionals for you and you may be able to yourself of the sources of distress that caused you the problems in the first place.

By Robert S. Goodman, managing partner, The Mansfield Group www.mansfield-group.com 609.267.0990

Adding Specialties to Increase Profitability

Foundation Surgery Affiliate of Huntingdon Valley, Pa. is an AAAHC-accredited, multi-specialty ASC that opened in 2003. With four operating rooms, two procedure rooms and 19 surgeon partners, this 18,000-square-foot facility was profitable; however, there was still a tremendous opportunity for growth through increasing OR utilization and case volume. “We continually strive to develop new tools and methods that will enhance the profitability of our centers while also adapting to the changing outpatient surgery environment,” says FSA chief operations officer Thomas A. Newman. He recalls the FSA specialty and case analysis:

1. Take inventory. FSA creates a checklist of all specialties that can be performed at an ASC.

2. Analyze and evaluate. Management performs an extensive cost/benefit analysis, weighing equipment and labor costs against typical revenues provided by the specialty.

3. Determine which specialty is most worth pursuing.

4. Recruit surgeons. Utilize data collected in steps 1-3 and tap existing surgery partners as a primary resource for new partner candidates.

In the case of Huntingdon Valley, a surgeon partner suggested that the center consider adding fertility as a specialty. Based on that recommendation, FSA performed steps 2-4. During the first month of adding fertility, case volume increased 12 percent and overall revenues increased by more than 25 percent. As a result of this exercise, FSA formalized the process and rolled it out to all of its centers.

“Our center was already doing quite well when FSA performed the specialty and case analysis and presented the impact of adding gynecology partners specializing in fertility,” says center administrator Robert Puglisi. “Now, return is even higher as a direct result of adding our reproductive medicine partners.”

Larry Barmat, MD, one of the center’s fertility partners, says, “Reproductive medicine is almost tailored to the ASC environment because the procedures are of short duration and low risk, thereby lending them to being done in an outpatient setting.”

Chairman of the board Robert Mannherz, MD, says, “The addition of reproductive medicine has been positive for the center on several levels. It has increased the utilization of the center and our cash flow, as well as diversified our services to patients.”

By Caleb Germany, Foundation Surgery Affiliates www.foundationsurgery.com800.783.0404

Reimbursement and Billing Compliance Issues

A full financial, business office and clinical evaluation was performed by Surgery Consultants of America (SCA) and Serbin Surgery Center Billing (SCB); however, this case study is reporting only reimbursement and billing compliance issues. The initial findings were determined during the evaluation. The current improvements are results obtained after twelve months of reimbursement management by SCB.

The Medicare-certified, multi-specialty center was open 18 months, has two ORs and performs an average of 100 cases per month; the physician-owned clinic shared the same site with the ASC. The challenges were as follows:

» Practice software not meeting all ASC needs

» Billing outsourced to clinic billing staff resulting in:

•overwhelming volume

•increase in errors due to lack of ASC billing knowledge

» Revenue stream reduced to trickle

» Days in A/R escalating – 97 at time of evaluation

» Claim backlog growing – minimum 7 to 10 days lag time between services rendered and subsequent posting and billing

» Denial rate climbing – 20 percent to 25 percent first time denial rate

» Cost of staffing and supplies as a percentage of revenue continuing to increase because of claim backlog

» Non-compliance concerns mounting

Our findings and recommendations were as follows:

Processes

» Using practice software

» Recommend acquiring ASC software

» No CMS list of ASC covered services or matrix of insurance contracts

» Recommend providing both to scheduler and insurance verifier

» No up-front collections

» Recommend notifying patient of financial responsibility before DOS

Reimbursement

» Billing not up-to-date

» Recommend hiring additional staff or outsourcing

» Coding inaccuracies identified

» Recommend coding audit by certified coder – rebill where necessary

» Not following up on submitted claims

» Recommend audit to determine timely filing, refunds, resubmission claims

Compliance

» Receptionist making patient contact calls

» Recommend moving these calls to back desk for HIPAA reasons

» No notification to payor of out-of-network status

» Recommend notifying payor at time of verification and again at billing

» No advance notification of financial policy to patient

» Recommend providing written policy prior to DOS via phone or brochure

Our evaluation resulted in the following changes:

» Appointed separate ASC administrator

» Changed to ASC software

» Revised fee schedule

» Acquired copies of payor contracts

» Initiated use of bank lockbox

» Created new insurance verification position

» Established process to collect co-pays

» Developed financial policies to handle self-pay patients, payment plans, financial hardship cases, etc.

» Made changes in business office task responsibilities

Improvements included:

» No billing backlog

» Decrease in days in A/R – 58 percent (97 days to 41 days)

» Increase in average net revenue per case – 14 percent

» Increase in average charge per case – 31 percent

» Meeting billing compliance guidelines

By Caryl A. Serbin, RN, SSN, LHRM SURGERY CONSULTANTS OF AMERICAwww.surgecon.com 888-453-1144

Florida ASC Increases Revenues

Acting as a strategic business partner, NovaMeda dedicates an experienced team of experts to help our ASCs grow and prosper, while assuring the best possible experience and outcomes for both patients and physicians.

We recently increased the revenue of our Florida ASCs by employing a comprehensive managed care strategy. Over the last two years, we have renegotiated contracts with major payors in Florida and increased the value of the contracts by as much as 20 percent. This has equated to an increase in revenue of 5 percent to 10 percent for each of our four ASCs in Florida.

Developing and executing an overall managed care strategy can lead to major revenue enhancement and overall improved financial performance of our ASCs. Our strategy is founded upon the principles of maximizing the revenue of all our managed care contracts, assuring that the ASC is getting paid what it should based on the contract, and monitoring the performance of managed-care contracts to ensure the ASC is realizing projected revenue.

Executing our managed-care strategy begins by reviewing our ASC’s total book of business and managed-care contracts. Using best-of-breed financial models, we assign a value to each contract based on payor case/mix and market dynamics, and then negotiate (or renegotiate) each contract to ensure maximum revenue generated for our ASC. An ongoing process, we employ a proactive stance on managed-care contract negotiations to ensure the profitability of our ASCs.

By Lisa Streit, director of managed care, NovaMed www.novamed.com 888-NOVAMED

Implementation, Cons & More

The Practice Partners in Healthcare (PPH) team met with the physicians and began to plan for the implementation of the single-specialty center. During the planning process PPH reviewed volumes, expenses and thresholds in the CON. It was determined that additional surgeons would be necessary to make the center successful. PPH began to recruit additional surgeons to the project. To recruit physicians it was necessary to modify the operating and partnership agreements to make the arrangement fair for all physicians and not have the initial group control the project. PPH negotiated with the groups for a successful operating agreement and partnership arrangement to allow the entry of new physicians.

The ability of a third party to develop an independent plan, negotiate and execute is necessary to assure the original group and joining physicians that the best plan for the total partnership is presented. During the negotiations it was clear that the groups combining were fierce competitors and the role of PPH was to make fair and strategic decisions that would demonstrate to both groups the combined strength in the ASC setting but allowing the market forces to continue in the practice setting. Furthermore, the individuals had to work together to develop block time schedules and utilization of the center that would present the most favorable results. In doing so PPH developed a block time schedule that interfaced with both practices clinic schedule and inpatient surgical schedules. PPH developed a strategy and schedule designed for each group’s physician to follow block time by that same group. In doing so the potential conflicts of another group adding on patients and extending the operative day would only affect that group and not the competitor.

When administrators are considering modifying of implementing block time considerations on the impact of running over to other physician block time may reduce issues by this practice. The physicians could then work within their individual groups to correct reoccurring situations. Additionally, when administrators are planning for block time the utilization of historical operative or procedure times should be utilized when evaluating the duration of the individual block to allow for the anticipated daily throughput for each surgeon.

By Larry Taylor, president and CEO, Practice Partners in Healthcare, Incwww.practicepartners.org 205.824.6250

Joint Venture Feasibility

In early 2005, Alegent Health engaged Health Inventures (HI) to perform a feasibility study for joint-venturing (JV) outpatient surgery services with physicians at their Lakeside and Bergan Mercy Medical Center campuses in Omaha, Neb. HI conducted extensive physician interviews to educate physicians about the JV process and gauge interest. Based on positive feedback from the interviews and HI’s financial forecasts, it was determined that a JV was feasible.

The degree of physician interest showed enough case volume to occupy two new facilities. However, HI determined the most immediate opportunity to establish a JV was to convert an existing two OR HOPD to a free-standing ASC in a medical office building (MOB) on the Lakeside Campus. The conversion process included obtaining licensure and certification to operate as an ASC. This facility would operate for 18 months while a new facility with four ORs and one procedure room was built in the same building.

Throughout 2005, a steering committee with representatives from HI, Alegent Health, interested physician groups and legal counsel met regularly to determine the terms of the operating agreement and the governance structure of the JV. Meanwhile, valuation firm performed a third-party valuation of the existing ASC. Based on financial projections and this valuation, HI and deal counsel developed a private placement memorandum (PPM) and subscription agreement and opened the “offering” for physician investment.

The offering closed in December 2005. Two major surgeon groups and 19 individual physicians invested in the facility for a total of 31 physician users/owners. Alegent maintains 51 percent ownership in the new LLC that leases operating space from Alegent in the MOB.

The owners appointed a management board (MB) and clinical operations committee (COC) as the principal decision making authorities. The MB has equal physician/Alegent representation and the COC is physician-controlled.

In September 2007, the physician owners moved their cases from the upstairs ASC to the newly constructed facility on the ground floor of the MOB. The high subscription rate of the offering and cash flow from the existing facility provided adequate funding for the construction without any term debt financing. Only a line of credit was needed when the facility opened.

By Catherine A. Martin, contract manager, Health Inventures, LLCwww.healthinventures.com 877.304.8940

Compiled by Jessica Barreras

Retail clinics on hit-or-miss trajectory

RETAIL HEALTH clinics have embarked on a period of retrenchment, according to a recent analysis by the Deloitte Center for Health Solutions.

There are currently more than 1,100 retail health clinics in the United States offering non-urgent healthcare services in pharmacies and grocery stores.

Between July 2008 and July 2009, the number of operators increased nearly 40%, including the entry of acute care organizations via contractual arrangements with drug store and grocery chains. In addition to the six largest players in the market, more than 50 organizations now operate nearly 140 clinics, claiming 11% of the market.

But just as new players jump in, many established operators are refining.

Clinic openings slowed from an astounding 350% growth rate in 2007 to 30% in 2008. During the first five months of 2009, the market contracted 5%, although the report forecasts modest growth for the year. Nearly 150 clinics closed in 2008. Although more than half of those were associated with smaller retail stores and startups, established operators likewise contracted.

RediClinic, which operated more than 50 sites in 2007, operated just 21 by mid-2009. CVS Caremark’s MinuteClinics, which dominate the market with 451 sites, shed dozens of locations in stores not owned by the company and closed 104 underperforming clinics in the first two quarters of 2009, according to the report.

But don’t read that trend as a retreat or as a direct effect of a recession, says Paul Keckley, executive director of the Deloitte Center for Health Solutions. Keckley says disruptive innovations in healthcare delivery rarely progress on a smooth trajectory.

For the most part, the report notes, retail clinics are modestly profitable and enjoy adequate patient volume. There’s also increasing evidence that insurers are covering their services.

FORMULA FOR GROWTH

The pullback, Keckley says, “has been a decision by the hosts to really focus on refining the model to make it scalable.”

For businesses accustomed to operating in the retail arena, that means refining business models to manage extended hours, liability and additional personnel costs. The hosts likewise need to determine exactly what range of services they’ll provide in a scaled model. Most clinics offer a limited range, such as diagnosing upper respiratory infections and prescribing the appropriate antibiotic. Potential new services could include injection and infusion services, chronic disease management, smoking cessation and direct-to-employer insurance programs.

Keckley expects retail clinics to emerge from this “breather” period with more refined business models tailored to the type of host site—be it a pharmacy, supermarket, big box retailer or employer setting—where the clinic operates. He anticipates a second wave of cautious growth through 2011 followed by more accelerated growth through 2014 with the market topping out at about 4,000 clinics in 2015. Most of the growth, he says, will occur in suburban markets where clinic users would most likely have commercial insurance.

John Bigalke, national managing partner for Deloitte’s health sciences practice, says the clinics could play an important role in providing healthcare for Medicaid recipients as well. As states grapple with providing primary care for the growing Medicaid population, retail health clinics may offer one way they can “continue to uphold their end of the social contract,” he says.

No-shows at public hearing not making any friends

Massachusetts Governor Deval Patrick appears to be fighting the good fight, even though it’s making an awful lot of healthcare organizations rather uncomfortable. In October, Patrick and the state’s division of insurance began examining drivers of higher coverage costs for small business in order to find ways to make coverage more affordable. But that probe has now led to a broader, stickier investigation.

As you know, Massachusetts has an individual mandate, which has successfully pushed coverage above 90%, but the state continues to struggle with increased demand and associated additional costs. The state has a concentration of academic medical centers and some of the highest costs in the nation, dating back even before the mandate took effect.

As part of the state’s investigation, hospitals and health plans were invited to a series of public hearings to discuss rising costs at the system level. While the invitations weren’t summonses, they weren’t exactly friend requests either.

The Boston Globe slammed the many state hospitals that were invited and overtly failed to show up. In fact, even after a condemning news story identifying the first day’s no-shows by name, only eight hospitals out of the 70 that were invited ultimately showed up for the subsequent hearings.

LONG LIST OF QUESTIONS

I called up Lora Pellegrini, acting president and CEO of the Massachusetts Association of Health Plans, to find out what was going on. She says invitations were sent by the division of insurance in late December, and sample questions were provided in advance. Health plans received 60 questions to discuss at the hearings, such as how they arrive at prices for specific products.

“Our member health plans spent thousands of hours preparing for the hearings,” Pellegrini says.

The fact that the hospitals didn’t attend could be viewed as a refusal to cooperate or as a suspicious action among organizations that have something to hide—which is ironic since health plans are often accused, rightly or wrongly, of doing just that.

Here’s a situation where the health insurers were at the table, willing to be reasonably open with policymakers, and the providers were not. Criticizing hospitals and physicians who work passionately to save lives and reduce pain might be seen as distasteful, but they probably deserved it in this case. In their defense, many hospital executives claimed scheduling conflicts were the problem.

For high-level discussions—such as public hearings that the division of insurance and the governor invite you to—it would seem to be in the best interest of all the stakeholders to participate, even if their only motive is to show their faces. Perhaps the scrutiny often directed toward “greedy” insurers will start shifting onto providers.

PROVIDE POSSIBLE SOLUTIONS

Pellegrini says her association’s member plans operate on 2% margins, and 90% of their premium dollars are spent on medical services. Many are not-for-profit companies and all are as transparent as contracts will allow, she says.

She seemed a little frustrated by the hospitals’ lack of cooperation, and recommends that health plans in other states take the high road if faced with a similar situation.

“Try to provide solutions,” she says. “Operate your business in a way that you don’t have anything to hide.”

Julie Miller is editor-in-chief of MANAGED HEALTHCARE EXECUTIVE. She can be reached at julie.miller@advanstar.com [julie.miller@advanstar.com]

Julie Miller

Paying now and chasing later the worst way to counteract fraud

AS SHOWN BY several significant industry studies, fraud and abuse take an enormous bite out of national healthcare. According to a Thomson Reuters’ October 2009 report, fraud costs $125 billion to $175 billion a year, accounting for nearly one-fifth of all healthcare dollars wasted—about 7% of healthcare spending overall. Other experts put the figure as high as 10%.

Preventing funds from leaving the organization, rather than retroactively prosecuting those who took it, is critical, according to James Quiggle, director of communications for the Coalition Against Insurance Fraud, based in Washington, D.C.

“Once the money is out the door, it’s very difficult to recover,” he says. “And while an insurer is chasing money that’s already gone, new schemes spring up to take more. Health fraud is easy to get into and highly lucrative. An illiterate immigrant with minimal education could latch onto an organized gang’s scheme and be a multimillionaire a year later.”

On the bright side, efforts to prevent fraud and abuse typically provide an excellent return on investment. For every dollar a payer invests, there usually is a return of six or seven dollars, according to Louis Saccoccio, executive director of the National Health Care Anti-Fraud Assn. (NHCAA).

“Most importantly, all of the healthcare stakeholders need to share information about their fraud investigations,” he says. “Without the relevant information, technology can only do so much.”

Although everyone agrees the problem is rampant, the industry’s outlook on fraud frequently is different from that of the general public. While many in the general population focus on punishing the perpetrators, most health plans simply want to keep from paying out more money than they need to.

“The word ‘fraud’ generates a lot of excitement, because it’s easy to understand and generates a lot of interest from a public relations standpoint,” says Dean Farley, vice president with Eden Prairie, Minn.-based Ingenix Consulting.

In his role, Farley oversees the company’s prospective payment and payment accuracy consulting services. He says in many cases, the intent behind the transaction is difficult to determine, and ultimately irrelevant. From a payer’s perspective, the focus is on any type of incorrect payment or overpayment.

“The goal is to identify all types of overpayment and stop them before money leaves the organization,” he says. “And they’re less concerned with putting the bad guys in jail than they are ensuring that the bad guys don’t get the money in the first place.”

One of the greatest challenges payers have when battling fraud involves provider relations. The more aggressive a plan is when investigating suspicious claims, the more payments will be delayed.

Additionally, there are legal issues regarding prompt payment, at the state level and under ERISA. Many of the laws have exceptions for claims that a payer decides to investigate as potentially fraudulent. Still, unless the evidence is overwhelming, plans usually opt to simply pay it rather than risk worsening provider relations or legal issues.

PAYERS GIVE CHASE

Unfortunately, Quiggle says, paying now and chasing it later isn’t a very effective strategy.

“Once the money leaves the plan, it’s often gone for good,” he says. “These organized gangs are very smart in terms of covering their tracks, and steal with production-line precision and volume. They can steal tens of millions of dollars in a very short time and move much of the money overseas, making it virtually impossible to find. Even the money that stays here in the United States might have already been converted into a Ferrari or a villa by the time a health plan tracks it down.”

Anti-fraud technologies such as predictive analysis seek to identify potentially fraudulent behavior and can do it in near real-time, Quiggle says. Complex schemes that used to take investigators weeks or months of sifting through manila folders to discover, can be uncovered with predictive analysis overnight.

Because not every plan has the resources to invest in prevention, NHCAA has developed a fraud database, available to member companies and all government agencies.

“If someone is defrauding one payer, they’re almost certainly defrauding others, and government agencies as well,” Saccoccio says.

If Payer A (or a government agency) opened an investigation into potential fraud by a certain provider in a certain geographic area, they load the information into the system. Later, if Payer B has suspicions about that provider, they could see that Payer A already opened an investigation.

“The two could then compare notes and get a much better picture of what’s going on,” he says. “Much of the data we need to fight fraud already exists; we just need to share it and use it better.”

Quiggle says without collaboration, every insurance company is like the blind man touching an elephant: He can only get his arms around a small part of the problem and will never see the whole picture.

Overpayments that result from simple misunderstandings, however, might not be fraudulent, even though they cost billions of dollars each year. Part of the problem is the distance and time lapsed between the delivery of the service and the reimbursement for the service. The bill is the only real medium between the two, and payers have little insight into how providers create them.

“The bill is supposed to be a reflection of the medical record, but payers don’t have access to those unless they specifically ask for them,” Farley says. “If payers had more insight into what services are actually being delivered and the clinical condition of the patients when those services were delivered, overpayment would be a much smaller problem.”

And while health plans can’t communicate individually with every one of the thousands of providers in their network, they most certainly can communicate with them en masse. Transparency should be the first goal, Farley says.

“Health plans can use their Web portals to spell out, very clearly, exactly what their expectations are in terms of bill preparation,” Farley says. “They also need to make sure that their claims adjudication systems enforce those payment rules exactly as they are spelled out.”

Another step insurers can take is to design their processes to be similar to those of other health plans—or even the government. There’s a lot of talk about administrative simplification, but there isn’t much of it happening, Farley says.

“There’s no reason that a plan couldn’t align its methodologies with those of other payers, and there’s no reason they couldn’t use Medicare principles and Medicare billing requirements to drive their contracting,” he says. “Most providers are already familiar with those and it would help them understand what a payer’s requirements and expectations are.”

Farley also recommends that plans get serious about audits.

“You can’t check every claim, but you can convey to your network that you’re serious about identifying overpayments,” he says. “That delivers a message to the network, and prevention of overpayment is the number one goal.”

Michael T. McCue is a Virginia-based freelance writer.

Know Your APCs for ASCs

APCs for outpatient procedures performed in ambulatory surgery centers (ASCs) are part of an averaging and bundling system using CPT® procedure, HCPCS Level II and revenue codes submitted to Medicare on CMS=1500 forms, with UB-04 claim forms used by ASCs to file claims to most other payors. The APC system utilizes “packages” of CPT® and HCPCS Level II codes, based on clinical and facility resources and establishes payment rates for each APC grouping. This means the physical and human resources needed to provide the service and the geographic costs are bundled together using annually adjusted formulae, much as in hospital inpatient billing. Certain medications, services, and durable medical equipment are considered “pass through” and can be reported separately from an APC revenue code.

APCs are assigned based on the CPT® and HCPCS Level II codes reported by the provider for each service. Usually, more than one code will fall into an APC category. More than one CPT® and HCPCS Level II codes can be reported if needed.

But not all CPT® and HCPCS Level II codes qualify. They are all assigned a status indicator denoting the code’s relation to APCs — whether they qualify and how. The ASC must be careful to avoid reporting a code denoted as not reimbursable for ASC services unless a modifier and documentation support it. As a result, a limited group of modifiers are recommended as well. The status indicators can be found on CMS files including the CPT and HCPCS Level II codes, and most commercially published codebooks include them as icons.

Examples of the indicators include the following:

• A: Services furnished to a hospital outpatient that are paid under a fee schedule or payment system other than OPPS. This means fiscal intermediaries are reimbursing this code via a fee schedule not under APCs.
• C: Inpatient procedures. This is the kiss of death for an ASC claim’s success. This procedure is expected to be done in a hospital with the appropriate resources and an overnight stays.
• N: Items and services packaged into APC rates. This is paid under the APC OPPS and payment is packaged into payment for other services; there is no separate payment for this.

Restricted CPT® modifiers include:

• 50: Used when the exact same procedure is done on the exact body part of the opposite side. Also known as “bilateral”. Some insurance companies prefer the biller use the CPT® code twice instead. Ex: 10220-RT, 10200-LT. Check with carrier on which to use. Payment should be 150 percent.
• 51: Indicates multiple procedures were performed. The 51 appends to the second CPT® code and all CPT® codes thereafter. Medicare does not recognize modifier 51 for ASC services as this modifier is for use on physician claims only.
• 52: Indicates reduced services. Use when procedure is not completed as described in the official CPT® description.
• 73: Used when a procedure is discontinued before the anesthesia administration. Patient must be in the room where the procedure would have taken place. Payable at 50 percent of the Medicare allowable rate. Typically seen when patient’s blood pressure arises to a dangerous rate.
• 74: Used when a procedure is discontinued after the anesthesia administration. Patient must be in the room where the procedure would have taken place. Payable at 100 percent of rate. Typically seen when patient’s blood pressure arises to a dangerous rate.
• 78: Used when the patient has to return to the operating room during the global period for a procedure related to the first procedure, such as control of bleeding following a colonoscopy or sinus procedure.
• 79: Unrelated procedure or service by the same physician during the postoperative period. (Same day for an ASC setting.)

Rhonda Buckholtz, CPC, CPC-I, CGSC, COBGC, CPEDC, CENTC, is vice president of business and member development for the American Academy of Professional Coders (AAPC).

Cost spiral slows, stays on upward path

Squeezed by the recession, U.S. health spending growth slowed from 6% in 2007 to 4.4% in 2008, the smallest increase in nearly half a century, according to a new federal report. Still, health costs hit $2.3 trillion, rising from 15.9% of Gross Domestic Product to 16.2% as economic output sagged.

Experts say the slowdown in total spending doesn’t necessarily signal any long-term flattening of the cost curve.

“History would say it’s not sustainable,” says Bob Campbell, the state government leader for Deloitte LLP. “As the economy turns, so do healthcare costs.”

PRIVATE AND PUBLIC SPENDING

Federal healthcare spending grew much faster than private or local government spending. Costs for various federal programs soared 10.4% in 2008, with Medicare increasing 8.6% compared with 7.1% the year before. Healthcare consumed 36% of federal revenue, compared with 28% in 2007.

In contrast, spending by private businesses grew only 1.2% in 2008, while state and local government spending grew 3.4%, compared with 6.6% the year before. Health Affairs, which published the report last month, said business costs for healthcare declined as private plan enrollment dropped by 1 million people—at least partly due to lost jobs.

State Medicaid spending growth declined, according to authors, partly because cash-strapped states cut payments to hospitals and other providers.

The report, compiled by researchers at the Center for Medicare & Medicaid Services (CMS) attributed the overall health cost slowdown to the economic recession. But the jump in federal spending was due to faster Medicare spending growth on hospitals, physicians, Part D drug benefits, and private Medicare Advantage plans, as well as a temporary new infusion of federal funds into state Medicaid programs.

Costs for Medicare Advantage plans soared 21.3% in 2008—to $108.2 billion—similar to the 22.1% growth in 2007. That was due to 13.6% enrollment growth in private Medicare plans, and to a 22.9% increase in Part D drug spending within those plans.

“The slowdown is good news but likely reflects the recession and to some extent anticipation by providers of the threat of controls from healthcare reform,” said Marilyn Moon, a health economist at the American Institutes for Research in Washington, D.C. “When people are feeling more secure, I expect we’ll see it go up again.”

By sector, U.S. spending on hospitals totaled $718.4 billion in 2008, with cost growth dropping to 4.5% from 5.9% the year before—the slowest rate of increase since 1998. Expenditures for physician and outpatient clinical services reached $496.2 billion, representing 5% growth, down from 5.8% and the slowest growth rate since 1996. But outpatient clinical costs rose faster than physician spending—6.6% versus 4.7%.

SLOW GROWTH ON DRUG SPENDING

Prescription drug prices grew 2.5% in 2008 compared with 1.4% the year before; that was still below the average annual growth of 4.1% from 1997 to 2007. Home health spending reached $64.7 billion in 2008, with growth declining to 9% from 11.8%.

Private health insurance premiums and benefits in 2008 grew 3.1% and 3.9%, respectively, the slowest rate since 1967. That was due to declines in enrollment and smaller spending growth for physician and outpatient services and prescription drugs, journal authors said. Consumer out-of-pocket spending growth slowed to 2.8%, from 6%, as people may have forgone medical care due to the poor economy and unemployment.

Moon says the new report shows that congressional health reformers are targeting the right areas for cost control—Medicare spending on hospitals and Medicare Advantage plans, which are among the fastest growing sectors.

Health Affairs authors cautioned that despite the overall spending slowdown, monitoring the drivers of cost growth will remain critical since the proportion of personal income and government revenue devoted to healthcare continues to rise and the nation faces an uncertain economic future.

Campbell warns that health reform could drive up costs as uninsured Americans obtain coverage and seek care. But Moon says reform will have highly uneven effects, with the drive toward ever-increasing prices possibly moderating when there are more paying patients.

“Those things are very hard to predict until it’s all out there in full bloom,” she says.

Congress still wrestling with cost control

One of the main criticisms of health reform legislation is that it does little to hold down outlays for services and products. In order the expand coverage without boosting federal government deficits, Congress is supposed to establish new programs and incentives to curb current and future spending, while promoting quality.

But analysts on all sides are skeptical that projected savings in the final legislation are accurate or realistic.

Almost half of some $400 billion in proposed cuts to the Medicare program would result from reductions in payments to providers, but those often get rescinded later by politicians seeking support from local medical organizations. Another portion of Medicare savings is slated to come from curbs on Medicare Advantage, which also has strong political support for providing more generous care at lower costs to seniors.

PROVIDER PAYMENTS GREW

Policymakers have a poor record in cutting Medicare spending. Even in a period of much slower growth in 2008 due to the economic recession, federal outlays continued to rise noticeably, particularly for Medicare. Payments to providers grew at a healthy pace, according to the actuaries at the Centers for Medicare and Medicaid Services, and increased enrollment in Medicare Advantage plans boosted outlays for that program.

The squeeze on state budgets also prompted Congress to approve a larger federal share of Medicaid costs to prevent reductions in state health care programs.

Besides the proposed reductions in Medicare spending, reform largely relies on a number of initiatives that promise more cost control is than likely to be realized:

• Impose an excise tax on high-priced insurance policies to discourage excess spending on “Cadillac” healthcare. There has been a lot of opposition to this from union workers who last month negotiated with the White House on a formula to tax high-end plans.
• Revise payment policies for doctors and hospitals to promote quality care over continued growth in volume of services. A number of pilot projects aim to encourage efforts by medical providers to keep patients healthy and out of hospitals, but the financial payoff of such approaches is far in the future.
• Provide more affordable private insurance policies through exchanges. The thinking is that more competition among insurers will yield lower-cost premiums for consumers and small businesses, but that will be hindered by a weak individual mandate that may not bring large numbers of young, healthy individuals into the pool.
• Develop more comparative effectiveness information to help health professionals and patients identify more effective—and cost-effective—treatments, another initiative likely to pay off only far in the future.
• Promote prevention, including vaccination and check-ups, to keep people out of hospitals and doctors’ offices. Again, initial costs will be higher than any savings.
• Establish a federal board to identify future Medicare savings that would be free from Congressional tinkering. Just how strong and effective this board will be remains to be seen.

At the same time, there’s nothing in the legislation to limit malpractice lawsuits, a strategy that many analysts believe would reduce costly defensive medicine and doctors’ costs. And there’s no longer a public plan, which advocates regarded as a way to drive down private insurance costs.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.

Medical homes in practice

Healthcare is notorious for trying out solutions that seem to work in theory, only to watch them collapse in practice. Like throwing spaghetti at the wall, players from all segments have experimented, looking for new ideas that might stick.

The most recent concept that is showing real sticking power is the patient-centered medical home.

Since 2006, more than 30 states have initiated projects to apply the medical-home concept to Medicaid and Children’s Health Insurance Programs. Reduced costs, better support for chronic care and improved population health are the impetus behind the local efforts, which comprehensively hold the potential to effect system change, piece by piece.

Although no two projects are identical, all reflect core principles of aligning reimbursement, supporting primary-care practices, measuring results and scaling the model beyond an initial pilot phase. Early results have shown promise, which is inspiring more payers and providers to adopt the model.

The general arrangement of a team of clinicians providing a home base of individualized, coordinated care and prevention emerged through the American Academy of Pediatrics in the 1960s for specific pediatric populations. It wasn’t until recent years—as the industry began to focus more on healthcare value—that the medical-home idea was identified as a potential formula for improvement of service delivery within broader primary care practice.

In 2007, four major physician groups defined a set of joint principles to describe a patient-centered medical home, which was soon followed by the creation of the Patient-Centered Primary Care Collaborative (PCPCC), which represents employers, plans, providers and other organizations that endorse the principles. The National Committee for Quality Assurance (NCQA) is currently in the process of updating standards for its medical-home recognition program, which were initially released in January 2008.

Policymakers and the healthcare industry continue to assess the local projects, anxious to determine their financial worth and their promise for large-scale implementation.

MANAGED HEALTHCARE EXECUTIVE recently brought together a roundtable of executive thought leaders to discuss the issues related to patient-centered medical homes. The panel includes:

• Paul Grundy, MD, chairman of the Patient-Centered Primary Care Collaborative and director of healthcare technology and strategic initiatives at IBM;
• Lori Heim, MD, president, American Academy of Family Physicians;
• Len Nichols, economist, New America Foundation;
• Jerry Salkowe, MD, vice president of clinical quality improvement, MVP Healthcare; and
• C. Edwin Webb, PharmD, associate executive director, American College of Clinical Pharmacy

MHE: What do you see as the long term potential of applying the medical-home model in the next five to 10 years?

Grundy: The early pilots’ results are—well, first of all, they’re early—but I think they’re quite impressive. The PCPCC presented data from 10 of those pilots to the White House a few months ago, and what we’re seeing is better integrated, coordinated care.

When you have comprehensive, accountable, accessible, integrated, coordinated care, that results in lower downstream costs. We’re seeing hospitalizations dropping by 20%. We’re seeing hospitalization readmissions dropping by 40%. We’re seeing emergency room utilization dropping by 12% when patients have access to more robust, integrated primary care—which is better upstream care. That bodes well for the future, in which we really need to look at value creation.

Salkowe: The enthusiasm is growing by leaps and bounds outside of the pilots, so physicians who have been either ignoring or sitting back and watching what the earlier doctors did aren’t sitting back and watching anymore. They’re getting very engaged and very interested in pursuing [NCQA recognition] and many of the features in medical homes now, even if they’re not an active part of an organized pilot.

Heim: I see the medical home being integral when you look forward to whether or not it’s an ACO [accountable care organization] or just more generally talking about value-based design. As hospitals and big health organizations begin to look at this, how they integrate with the small practice is going to be one of the biggest challenges.

If you look at the North Carolina Community Care project, that was community based. It showed incredible cost savings and increases in quality, but that was another way to virtually link a bunch of community based practices, which is going to be one of the models we’ll have to accept because large health organizations are not going to be in all communities. But yet, the hospitals and the communities are still going to have to figure out a way to control the costs. And the other critical component then is getting the IT linked up.

MHE: Some say medical homes will not solve the problem of fragmented care. Primary care will continued to be siloed apart from subspecialists. Do you foresee that?

Heim: If people are saying that medical homes will further fragment care, I don’t think they understand the model because it’s the opposite that’s true. The basic tenet of the medical home is the personal physician is the coordinator of the care, and there’s integration of the patient’s needs, not only when they walk into the office, but by taking advantage of knowing your population and doing population management, using IT and tools and a team approach to coordinate that care.

Without something like the ACOs and aligning incentives, we have a mismatch in terms of how much the subspecialists and the other members of the team are brought into integrating that care. I definitely would say it’s not going to go in the opposite direction.

Webb: I’m not sure we could fragment healthcare any worse than it is right now, particularly across professions and disciplines. One of the things that is exciting to the pharmacist community is the potential for the medical home model to integrate across professional care concerns—again, assuming that we can find mechanisms to realign payment incentives, also understanding it’s obviously not possible to have a pharmacist in every three- or four-person medical practice in the United States.

Community Care in North Carolina has done an excellent job of integrating pharmacists’ services as part of the team in a virtual environment across several small- and medium-size practices. The only way we can integrate health professionals into a team is with the medical home because the current payment methodology and our cottage-based industry of silos just isn’t doing the job anymore.

Grundy: From the standpoint of the patient, the patient wants to see the specialist or the person who focuses on a certain part of the body as part of their medical home team. When they need a hip replaced, they have more than a hip. They have a whole bunch of other parts that somehow interconnect, and there has to be medication management adjudication, for example. There have to be linkages and integration, and that’s not happening now at all.

There are places in the United States where it will cost $177,000 for the last six months of life and other places where it costs $17,000. When you look at the places where it costs us seven times as much, what you’ll find is seven specialists doing seven different things—none of it linked, none of it coordinated, none of it integrated, and some of it, by the way, toxic to what the other providers are doing.

I just happened to be in New Mexico at Presbyterian Hospital recently and in Dallas and Tulsa where they’re doing a fantastic job of actually integrating the specialists into the medical home, where everybody’s practicing at the top of their license. In Tulsa, the primary care docs will email the specialists and integrate and pay for an email consult, which the specialists love, and the primary care docs love, but most importantly, the patients love it because it keeps them from wasting half a day [at a medical appointment] when the primary care doc’s doing a good job.

I would agree that whoever asks that question doesn’t understand the model.

Salkowe: There is one aspect of this we need to be conscious of. There are individuals who have one major chronic illness, and 90% of their care is being provided by a specialist: a gastroenterologist, rheumatologists or an oncologist, for example. And health plans are expected to and allow such a specialist to function as a PCP, even though we know that the focus of that care is on specialty needs, and there may be gaps in preventive health needs or other unrelated health conditions. That’s an important reality.

Now, I think we all agree that in a well managed medical home, care that specialist is providing is enhanced because of the improved communication coordination with other physicians that invariably are involved, whether it’s preventive services or hypertension or something else. There is a bit of hesitancy on the part of some of the specialists because of the scenario and uncertainty of whether a PCP should be treating everything. What happens when I have a patient where I really need to be out in front in terms of making decisions?

Heim: There are certainly many patients that I have had over the years, when the oncologist is functioning as the patient-centered medical home. I have no problem with that. From the standpoint of being recognized as a patient-centered medical home, that’s different than a subspecialist who then begins to assume the majority of the care and becomes the director. The problem is that oftentimes they’re handling maybe 70% of what’s currently going on in that patient’s life. However much of the other stuff gets either ignored or sidelined.

So if a rheumatologist becomes the patient-centered medical home, then in order to make sure that they are truly functioning in the whole aspect of managing that patient, they need to fulfill some sort of recognition program. In order for this model to work, you have to realign the payment. That would not be a major barrier if the payment were going to switch from the patient’s PCP to a subspecialist as the designated patient-centered medical home and have the payment model then switch over to that of a patient-centered medical home. That’s not a problem so long as they are then willing to take on the requirement to manage or coordinate the entire care of the patient.

MHE: What is the best strategy for reimbursement in medical home models?

Salkowe: The model that most programs seem to circle around is one that preserves perhaps 60% of the compensation as traditional fee-for-service reimbursement with the other 40% divided between process measures, care management activities and outcomes. The numbers that I’m generally seeing are 30% for the care management piece and 10% for the outcomes piece, although from the early projects where the outcomes just haven’t been measured yet, it may focus solely on care management.

That seems to get us to the dollars that are needed for support, the additional resources the practices need, whether it’s trained staff or new systems, and also to include the extra remuneration that’s needed to really engage the primary care physicians and the work around this new model.

Nichols: I like the structure that Jerry just described, and it makes a whole lot of sense, especially in transition, which is what we’re going to be in probably for three to 10 years—with a fee-for-service base but with a lot of incentives packed around care management and outcomes. Those proportions may very well change over time and may be different in different parts of the country.

The most creative thing we can do in the pilots that we hope come out of healthcare reform is to work out different kinds of shared-savings models. What’s an average cost for a diabetic? You think about the number of diabetics and different comorbidities and you can work out an expected expenditure over the year, including, in my view, expected hospitalizations and utilizations of specialists.

Then instead of holding a primary care team or even a formal medical home at risk, you could have them share in the savings that they might achieve if they hit the targets to achieve savings. Then you really do align incentives. A 2.0 model might include some incentives back to the patient so they too can see a real monetary gain in participating, because after all, health is a participation sport. You want the patients very much engaged. It’s unambiguously true we have to find a way to leverage our rather short supply of primary care professionals, in particular as we think about expanding coverage and access to care in the next five years.

Heim: One of the concerns that I’ve had with shared savings is it being time-limited. If you look at the efficiencies you will gain over time, eventually those efficiencies are going to diminish. Have you thought about making sure that the shared savings don’t become the major component of the blended payment model?

For example, I was in the Air Force for 25 years and after I had a stable population and managed them, I had already found disease and managed it and achieved significant cost savings and decreasing utilization. But then we reached a steady state, relatively. Were you saying, Len, that would be something on top of a designated funding stream for the blended payments?

Nichols: Well, Lori, remember I used the word ‘transition,’ and you are talking about a steady state and a longrun. I would agree that the ideal would be we will get to a place where all patients, especially those with chronic illnesses, are managed optimally and there are no savings to be reached out of the system. I think we all know we are a very long way from there.

What I’m talking about is a mechanism that can enable us to turbo-charge the transition. Ultimately I think you’re right. You would want to go to a more blended payment at the end, but I don’t see how you get from here to there fast without a shared savings component.

It enables you to reach beyond the primary care team to enable the hospital and the specialist and the pharmacist and everybody else to participate. That has a greater potential for aligning interests quicker in a way that is much more likely to be transformative. And yes, once we’ve reached the level of efficiency you reached with your patients in the Air Force, it’ll be a different world. But we’re a long way from there.

Webb: The blended payment model approach that PCPCC has recommended has one other interprofessional political advantage, and that is it defuses some of the potential battles at the feeding trough of fee-for-service. If all members of the team are participating in a blended payment approach, that brings revenue into the medical home based on those performance parameters, then the physician-directed leadership of the practice can then pick and choose among the various members of the team who are needed to be involved in the care of a particular patient at a particular time. There’s not that kind of competition for the fee-for-service dollars among the providers blended into a payment model that rewards team performance rather than individual fee-for-service performance.

As a profession that’s been fighting for years and years to have its non-dispensing services recognized under Medicare Part B—pharmacists have been fighting that battle for 10 or 15 years—this may be a very good thing in terms of an approach that blends all of the qualities that have been mentioned already because that really is what will generate patient-centric care among all the team members.

Grundy: I think there’s another constituency that we need to include in the considerations around shared savings. There’s also the reality that our employers are not competitive in a world market, and in many ways that’s because of healthcare costs. We have large numbers of individuals who can’t afford insurance so some of the savings really needs to come back to those who are actually paying for the healthcare…which will allow them to be more competitive with other parts of the world where healthcare may be more heavily subsidized by the government.

Nichols: That’s right and trust me, they can get their share of the same things, too. I definitely would concur in the short run, the best thing we could do is incentivize clinicians to work together across the traditional silos. Then I’m pretty sure the employers and plans will figure out how to get their piece of that.

MHE: Are behavioral health professionals increasingly being included as part of the medical home?

Grundy: I was in Albuquerque at Presbyterian, and they had a very integrated behavioral health model and a very integrated pharmacy model. The combination was really magic. We were seeing medication-management education and behavior-management education that was enhancing care and amplifying and cadencing the message that the primary care provider was delivering—on ’steroids.’ I mean, it was really impressive.

I was in Dubuque, Iowa, with a primary care provider who was seeing an 84-year-old nun. The issue with her was medication management and care coordination. Once the relationship part of it was established with the primary care provider, it migrated over to a nurse care coordinator working with the pharmacist who was working with a behavioralist with a team approach to care for the next year. I saw that mapped out for the nun, and it had gone over well enough to the point that she really began to understand it and give feedback.

MHE: With all these easily accessible services, what about the potential for increased utilization?

Webb: Particularly with regard to the use of medications, the some of the evidence from the model in North Carolina does indicate that in some cases, the medication-use costs go up. But with a concomitant reduction in consumption of some of the other more expensive services, particularly emergency department business and things like that, the increased utilization of some things may well be a very good thing and what the patient may benefit from most. You have to look at utilization across the entire spectrum of service consumption rather than just in the silos.

Grundy: From the perspective of the buyer of care, we really do want to see increased utilization of appropriate medication, and we want our patients to be healthy and productive. For us, the cost of the care is just the tip of the iceberg. We also have the whole issue of productivity. So it’s really a matter of appropriate utilization addressing both under- and overutilization of services. It’s a win-win for the pharmaceutical companies because increased utilization means they sell more medication, also a win for us because we want our folks healthy and productive. The best way to do that is for them to take their medication and comply with wellness instructions and other things.

Heim: Look at some of the data that came out of the Kaiser Foundation surveying patients. Twelve percent of the patients said the doctor had to redo a test or procedure because they didn’t have the earlier test results. So those are the low hanging fruit. We can decrease unnecessary procedures just from that standpoint alone.

MHE: How do we measure the success of medical homes? How can we quantify whether they’re doing any good?

Grundy: The state of Vermont’s early studies indicate a 7% reduction in overall costs. That’s a real bending of the curve. That’s data, right? We’re seeing improved outcomes in terms of indicators of compliance with diabetic management and asthma management. I was just at a physician’s practice in Florida where he used to have on average of one patient a month hospitalized for asthma. In the past 19 months, he’s only had one asthma hospitalization, and that’s data, right? We’re beginning to see pretty robust data and would love comments from other folks on that.

Nichols: I think another aspect of measuring success has to do with the experience of care both from the patient and the physician perspective. For this to be sustainable, patients need to recognize that this is something different, and it’s something different that they really like. It may not be an easy sell for some patients who’ve just been accustomed to picking a specialist out of the yellow pages or calling a friend to see who to go to next.

From the provider’s side, there are two big issues around the experience. There’s a lot of work up front [in creating a medical-home model] so it’s important that physicians see this as being something very positive, something that they advocate to their colleagues. But perhaps even more importantly is one of the underlying driving factors, which is the critical state of primary care in this country and the need to convince more and more of the upcoming graduates from medical school to pursue primary care as a field. The more convincing stories there are about the positive experience that these models are bringing to practice, the more likely we’ll succeed from that perspective.

MHE: What cautions do you have for the industry regarding medical homes?

Heim: Coming from the TransforMED demonstration project that AAFP did, we learned you have to provide enough resources to pull this off. It has to be adequately financed, and the transformation process can be stressful. So provide strong leadership to enable that to occur. The other problem that we’ve seen is that many of the projects have too short a timeline. They’re looking for a quick return on investment in less than two years, and two years is probably the bare minimum.

Nichols: Payers have to have a realistic timeline, and I do think five years is a much better frame. It’s easy for a think-tank guy to say, but I just think that’s the reality. The clinicians will tell you the same thing because of the up-front investment.

I would also hasten to emphasize my favorite phrase from Ronald Reagan: ‘Trust but verify.’ The people who claim that these models don’t work are stuck in defending the status quo, fee-for-service, unaccountable model. They’re just afraid of change, that’s part of it, but they don’t want to move to a world in which they’re going to be held accountable and things are going to be measured.

Not every patient is going to go to some quantitative provider comparison on a Web site, but enough will as we evolve as a society. Look at the number of people using smart phones. And now we’re going to move to a world in which if you can’t show that your treatment modalities and your health plan are achieving outcomes as good as [top-rated] systems and medical homes and health plans, you’re going to be at a competitive disadvantage.

Just look at the companies that…are in many ways poised for the new world because they’ve invested in information systems and information management, and selected forward-thinking and better organized providers. The other plans are really going to have to step up and participate in that ‘trust but verify’ competition or risk very serious competitive problems.

Grundy: That is not an easy transition for the providers to make. We learned in working with MVP Healthcare and others that we need to help pay for the process of this transformation. We’re dealing with oftentimes small groups of providers that are trying to survive on either a -1% margin or a 1% margin. We need to instill a bit of hope in them. If we’re reaping the benefit of that, we as the buyers have to begin to pay for the process of this transformation.

Heim: What we hear most from people who are practicing in a patient-centered medical home is that they feel like they’re back to practicing medicine the way they were trained to. They’re back to taking care of their friends, their patients and their communities, and that is incredibly rewarding for them.

Salkowe: I think just one area that we need to be careful with is the enthusiasm around this topic and the eagerness to move forward.

There’s been a tendency to slip outside of the structured pilots and just throw money at the medical home by financially recognizing providers solely based on recognition rather than how well they’re coordinating and managing the care of their patients.

The practice transformation that’s required goes well beyond whatever any individual recognition can possibly measure. In the pilots, for the most part, there’s been a structure that’s enabled practices to learn from each other and to share and develop communitywide resources. It’s going to take some time for resources to be well enough established in a community that all physicians in the community might be able to readily become a part of this.

We just need to be careful that we don’t get ahead of that infrastructure development and make sure we’ve figured out how to do this right before it becomes a standard for everybody.

Heim: Jerry, are you talking about concern whether or not the NCQA recognition program now truly recognizes those things that are of value?

Salkowe: No. I think it does recognize those things that are of value. It’s necessary, but I don’t think it’s sufficient. Over time we’ll come up with additional measures that will help, but testing itself never really tells the whole story, particularly in something like this, which isn’t just about what an individual practice does. It’s really about what’s happening in a community and how that practice interfaces with the community. Unless you have the right infrastructure in place, a practice might pass the test and really still not be able to deliver on the promise.

Webb: One of the challenges that we face is being flexible enough to recognize that how you construct these teams virtually in small communities and small practices is going to take a lot more creativity. It’s a lot more difficult to do than in those settings where you have large physician groups or managed care organizations or hospital-based teams where that functionality has been existent for a long time.

Particularly from the pharmacy side, we’re looking to create models that integrate pharmacists into the team in a very creative and constructive way. For the small medical practices, the best way to do that remains to be defined… With IT and with virtual framework, it’s entirely possible to do this even if we can’t all be physically present in this mythical place called the medical home.

Squeeze out waste

Understandably, the painstaking scrutiny of healthcare costs has reached a fever pitch. While administration is a relatively small percentage of the overall costs in the system, the pressure is on payers to trim as much waste from their operations as possible.

Administrative costs—or any outlays that are not specifically tied to medical care—are a political hot button. Insurers defend what they spend on tasks such as case management and disease management as well as investments in technology as necessary spending that results in net savings and improved health. Some critics of the insurance industry characterize administrative costs as nothing more than profits and executive compensation and seek legislation to control how premium dollars are spent.

In fact, 15 states have implemented laws dictating minimum medical loss ratios (MLRs), ranging from 50% to 80%. In 2008, California Governor Arnold Schwarzenegger vetoed a bill that would have forced insurers to maintain an MLR of 85%.

According to America’s Health Insurance Plans, in a 2008 study conducted by PricewaterhouseCoopers (PwC), 87 cents of every premium dollar goes to healthcare and medical services, and just 3 cents goes toward profits.

PASSING THE BLAME

Governments are taking some steps that could eventually result in lower healthcare costs, such as smoking bans in public places and removing soda and sugary snacks from school vending machines. On Jan. 1, 2010, California became the first state to ban the use of trans fats in restaurants and bakeries. New York City adopted a similar ban several years ago.

Nonetheless, it was inevitable that scrutiny would intensify on payers and their efforts to reduce costs and minimize wasted resources in the system, and now that it has, they’re possibly receiving more blame than is fair.

“When people look at waste in claims processing, for example, they assume [all of the money is being wasted] by insurers, when a lot of it is wasted by providers,” says Mark Merlis, a health policy consultant who has written several papers on the topic of healthcare waste. “But in fairness to providers, they have to comply with many different insurers’ administrative processes, so we should be doing as much as we can to promote uniform transactions.”

Merlis says the more uniformity that can be achieved among payers, the more money the system overall is going to save. Market complexity makes it difficult to identify who is “committing” the waste. Furthermore, cutting waste from one area might simply shift costs to another. For example, in an attempt to fight losses from fraud, payers could investigate more claims in detail, but that will delay payments to providers, damaging relations and potentially resulting in legal action under prompt payment laws.

TECHNOLOGY TO THE RESCUE

The siloed yet sprawling nature of the U.S. healthcare system—payers, physicians, pharmaceutical companies, hospitals, government agencies and consumers—means that waste elimination isn’t as easy as making an individual organization operate more efficiently.

Some Americans, including some physicians, believe a shift to a single payer system would simplify healthcare administration, but the large majority is firmly opposed to such a change. As Merlis points out in his paper, “Simplifying Administration of Health Insurance” (January 2009), complexity is not just a byproduct of the insurance system—it is what insurers are selling.

“The value-added of the managed care industry consists of the very features that make insurance complicated: different coverage rules and formularies, authorization requirements and careful scrutiny of claims, and so on,” he writes. “The variations are what differentiate one plan from another, and competition and uniformity may be conflicting goals.”

Still, that doesn’t mean plans can’t improve their internal operations and their relationships with other healthcare stakeholders. There are also high hopes that technology can eliminate some waste in the system, and at least one project is proving that to be true.

In 2008, Blue Shield of California (BSC) created its Partnership in Operational Excellence and Transparency (POET) transactions-tracking tool to improve payment accuracy and dispute resolution, speed claims turnaround, and increase operational transparency. The program is available online for 90 of the hospitals Blue Shield of California contracts with across the state.

“POET has been enhancing our working relationships with network hospitals by providing opportunities for data-driven discussions that directly improve operational efficiencies,” says Juan Davila, the plan’s senior vice president for network management. “Using key claims performance indicators and transparent claims data, we work jointly with our facilities to target and prioritize impactful process improvements.”

Davila says the claims-processing related improvements have been impressive, and the benefits of improved relations with network providers are even more so.

“We wanted to show that we were really trying to get at the root of the problem,” he says. “We paid for the system up-front, and we were increasing our transparency to them, as opposed to trying to cover up our errors. We genuinely wanted to develop a more collaborative relationship with our network hospitals, and that’s changed the way we think of each other in a very positive way.”

The hospital association of Southern California recently approached BSC to help the association with another large-scale project.

“I have been in this business for 20 years and have never gotten a phone call like that before,” Davila says.

Within administrative functions, such as those BSC is addressing, it’s hard to know exactly what is waste. A 2008 study by PwC’s Health Research Institute, “The Price of Excess: Identifying Waste in Healthcare Spending,” points out that “inefficiency” and “waste” are not interchangeable terms; the former is merely one component of the latter.

Authors define waste as costs that could have been avoided without a negative impact on quality, which is similar to the definition used by the Institute of Medicine and the authors of another watershed study conducted by Thomson Reuters in October 2009: expenses that don’t add value.

WHERE TO FIND WASTE

The PwC research estimates that slightly more than half of all healthcare spending ($1.2 trillion of the annual $2.2 trillion spent) is wasteful and breaks it into three categories:

• Behavioral waste, which accounts for $303 billion to $493 billion each year;
• Clinical waste, accounting for $312 billion annually; and
• Operational waste, which consumes $126 billion to $315 billion.

The study further breaks the operational waste segment down into four subsets:

• Claims processing, which accounts for $21 billion to $210 billion in waste;
• Inefficient use of technology ($81 billion to $88 billion);
• Staff turnover ($21 billion); and
• Paper prescriptions ($4 billion).

The research by New York-based Thomson Reuters Healthcare Analytics (October 2009) is slightly less pessimistic, estimating that each year, between $600 billion and $850 billion of healthcare spending is wasted.

The study, “Where Can $700 Billion in Waste Be Cut Annually from the U.S. Healthcare System?” identifies six primary culprits:

• Unnecessary care (40% of waste), accounting for $250 billion to $325 billion;
• Fraud (19%), $125 billion to $175 billion;
• Administrative inefficiency (17%), $100 billion to $150 billion;
• Healthcare provider errors (12%), $75 billion to $100 billion;
• Preventable conditions (6%), $25 billion to $50 billion; and
• Lack of care coordination (6%), $25 billion to $50 billion.

Those figures are so staggering that the system can’t expect to “cut” its way out of them, according to Bob Kelley, Thomson Reuters’ vice president of healthcare analytics and author of the report.

“Simple external controls on cost and utilization will not work, and any effort to control costs by eliminating waste must be careful to consider possible unintended impact on access to appropriate and necessary care,” he says. “We should expect that any change to the system of care that improves its performance will require a realignment of the types and levels of professional and facility resources and the relationships among these resources.”

The best solutions will effect positive changes and recognize that the healthcare market dynamic is much different from other product or service markets. Most consumers believe that their access to all potentially useful services is a right.

“We need to shift the public’s perception and expectation [of quality] away from ‘more services is better’ to ‘the care that will most likely result in the outcomes that are best for me,’” he says. “Simultaneously, we must begin to reward physicians for providing this type of care, and recognize and pay for the required time and effort.”

CONSUMER BAD HABITS

Shifting public perception is critical, because for many Americans, “waste in healthcare” brings to mind images of bloated, lethargic mega-plans with outdated technologies and overpaid, fat-cat executives. Although the U.S. Centers for Disease Control and Prevention estimate that fully half of the nation’s deaths each year are the result of bad and avoidable habits, most Americans, rather than look in the mirror, latch onto headlines about excessive health plan profits and executive bonuses.

When consumers learned that former UnitedHealth Group CEO William McGuire received more than $124 million in total compensation in 2005, it’s understandable that many of them reacted with indignation. While the public’s sensitivity to what they perceive as excessive income is at an all-time high, salaries and bonuses paid to health plan executives are a very small number in a very large sum, according to Dan Munro, principal with The DMM Group.

“If you added up all of the executive bonuses and salaries for the entire healthcare industry, it would just be a drop in the bucket compared to the other costs,” he says. “Healthcare is nothing at all like Wall Street, where firms are racing to pay back their Troubled Asset Relief Program funds because they want to go back to handing out those huge bonuses again.”

Merlis agrees, saying executive compensation “might look ugly when you see how much money certain people are being paid, but it’s really not a driver of healthcare expenses.”

It’s clear that politicians are doing what they can to foster greater use of technology in healthcare, particularly with federal funding included in the stimulus package to spur greater adoption of electronic medical records, which are not yet widely adopted.

“The government is trying to encourage the meaningful use of electronic health records,” Munro says. “For the first time, the government is mandating that EHR applications engage the consumer. If you tell most EHR vendors that you’re going to develop a patient-focused system, they’ll laugh at you. They have always been provider-focused, because that’s where the money is.”

An EHR system can cost millions of dollars, so small providers are less likely to adopt them simply because of the cost. The government has realized that use of health IT won’t progress if it doesn’t engage the consumer, Munro says.

THE OPPORTUNITIES ARE REAL

To further explore IT’s opportunities to improve healthcare, Kelley and Thomson Reuters are working on a follow-up whitepaper highlighting specific initiatives that have been successful in eliminating waste, or that show the potential to do so.

“There are certainly high expectations for the contributions of IT to both improved quality and reduced waste,” he says. “Many of these initiatives are either directly related to new or enhanced IT applications or require IT system support to enable new relationships between providers, or between providers and patients.”

Examples of the first type include electronic medical records, health information exchanges, and clinical registries. Examples of the second type include patient-centered medical homes and bundled or episode-based payment systems.

“I think that these opportunities are real, but changes in the systems of care and the relationships among providers and patients will be required if the great potential for these solutions is to be ultimately realized,” he says.

According to Davila, BSC’s POET program is improving efficiencies at the larger system level.

“Historically, when we would show up to renegotiate a contract, the hospital representative would say, ‘My people are telling me that you don’t pay your claims right, you don’t handle appeals well, and you owe us X million dollars. Before we recontract, I need you to fix that.’ The result, inevitably, was a lot of negative energy.”

To solve the problem, BSC worked with a third-party vendor to develop a system that enables participating hospitals to review 24 months of processed claims information and performance metrics on the POET Hospital Dashboard, an online performance analytics portal specifically designed for those hospitals.

Those facilities routinely receive quarterly claim summary reports that provide information on key indicators such as cycle time; submission type; denial volume and reasons for denial; appeal volume, outcomes, and reasons; and claim volume for patients with Bluecard, a national program that allows any Blue member to receive care from another Blue company when traveling or living outside of their usual service area.

“It’s all right there in black and white for everyone to see,” Davila says. “One national hospital system was upset because they thought we weren’t paying as quickly as we should, until POET revealed the problem: We were paying the claim in 12 days, but it was taking them 25 days to get the claim to us. The system showed them exactly where the process was broken so they could fix it.”

PHYSICIANS’ WEIGH THEIR COSTS

The need for such transparency is significant, according to research from the American Medical Assn. Its second annual National Insurer Report Card study attempts to diagnose the strengths and weaknesses of the claims processing systems used by eight of the nation’s largest health insurers. Five of the eight plans showed improvements in the median amount of time necessary to respond to providers’ claims, but the report estimates that providers still divert as much as 14% of their revenue to ensure they are receiving accurate payments.

Physicians reported spending three hours weekly interacting with plans in 2006, according to a Web Exclusive produced by Health Affairs in May 2009. When time is converted to dollars, the cost to practices is estimated at $23 billion to $31 billion annually, or 6.9% of all U.S. expenditures for physician and clinical services. Further, 45.9% of physicians surveyed for the report said the cost of dealing with health plans had “increased a lot.”

The report goes on to note that administrative cost cannot be reduced to zero dollars and that interactions that cost money also can produce benefit, such as prior authorization, which can reduce inappropriate use.

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