31 Flavors of Risk: Effectively Making the Transition to Value- Based Care. November 2013

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Christian McBride
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1 31 Flavors of Risk: Effectively Making the Transition to Value- Based Care November

2 Objectives Understand the Bigger Picture Define the Flavors of Risk Understand Key Capabilities, Benefits, & Challenges Determine the Path Forward 2

Providers Should be in Full Control, Financially as well as Clinically Technology-enabled services since 1996 Serve Providers exclusively Serve 34,000

3 Providers Should be in Full Control, Financially as well as Clinically Technology-enabled services since 1996 Serve Providers exclusively Serve 34,000 physicians, 100+ hospitals Support 17 million patients 50 million member months in analytics and services 75% growth in employees, 4 offices 3

4 Market Trends are Creating Vulnerabilities for Hospitals and Physicians Environmental trends Hospitals Increasing Medicaid enrollment Mandated Managed Care penetration Pressure to demonstrate quality Pressure to manage populations Health systems focusing on population health Physicians Real income has not increased in 30 years, particularly in Primary Care Unfair negotiations with Payers Pressures to report quality and cost of care Difficult to remain independent Physicians organizing to manage populations Areas of Vulnerability Medicaid expansion New populations in 2013 and further expansion in 2014 may create downward pressure on rates and utilization Managed Care Plans attempting to reduce costs by: Reducing inpatient utilization Reducing ER utilization Care provided at lowest cost option Health Insurance Exchanges Shift commercial enrollment into new products with potentially different/lower reimbursement Increased Provider competition Consolidation Local/regional/national competitors Pricing structure Greater price sensitivity for patients/families Physician incentives to direct care to lower-price alternatives 4

5 Systems Nationally Are Re-positioning to Respond to Health Care Payment Reform Value-Based Delivery Spectrum Increasing financial opportunity and incentive alignment P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK Provider- SPONSORED PLANS 5

6 Change is NOT the Result of This 6

7 It s Really About This Costs were flat during HMO s HMOs managed unit costs Problem continues to be feefor-service compensation 7

8 .and This Life Expectancy 38th 15th 16th 20th 20th 9th 8th Source: Fischbeck, Paul. US-Europe Comparisons of Health Risk for Specific Gender-Age Groups. Carnegie Mellon University; September,

9 U.S. Costs have grown an average of 2.4 percentage points faster than GDP since 1970 Nursing/ Retirement Communities 7% Home Health Care 3% Other Health, Residential, and Personal Care Services 6% Total Spending by Health Care Service (2011) Durable Medical Equipment 2% Dental Services 5% Other Professional Services 3% Prescription Drugs 11% Physician and Clinical Services 24% Non-durable Medical Products 2% Hospital Care 37% Total Spending = $2.7 trillion Key Takeaways The US Health Care Market was $2.7 trillion in % of National GDP(~$15 trillion) 3.9% growth YoY from 2010 Hospital Care accounts for $850.6 billion Physician and Clinical Services account for $541.4 billion $8,680 per person spent on Health care Centers for Medicare and Medicaid Services. National Health Expenditures 2011 Highlights. Accessed July

markets Defer Medicare Part A trust fund insolvency until 2026 Fund a variety of pilot projects Does

10 Health Care Reform Law (Patient Protection and Affordable Care Act) went into effect March 2010 Does What PPACA Does and Does Not Do Expand health insurance coverage Impose new rules on the insurance markets Defer Medicare Part A trust fund insolvency until 2026 Fund a variety of pilot projects Does Not Reform the organization and delivery of health care but this change will come, from within the industry 10

11 A Predictive Point of View of the Future Provider revenues will be under severe pressure as payment mechanisms migrate toward value-based approaches Inpatient use rates will continue to decline Providers will consolidate at an accelerated pace, horizontally and vertically Physicians will continue to align through employment or joint-contracting models, with each other and with hospitals. There is no revenue solution to the survivability of hospitals success will depend on an institution s ability to leverage care organizations and to decrease costs 11

12 Doing Nothing Does Not Mean that Nothing Will Change Rate pressure Rate freezes Changes in payment methodology Pricing transparency Lower complexity care Utilization pressure Shift towards outpatient and observation Reduced ER visits Market pressure Shifting referrals to competitor Shift to lower cost diagnostic options High % of charges contracts are no guarantees of revenue Utilization Rates Status Quo Risk Arrangement Operating Margin Operating Margin What s a Win? Status Quo time Risk Arrangement -15% +2% Market Share time 12

13 What is Value-Based or Accountable Care? Value-Based Care = (Access + Quality = Outcomes ) Cost Financial Opportunity & Incentive Alignment VALUE-BASED DELIVERY SPECTRUM P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK PROVIDER- SPONSORED PLANS 13

14 Potential Contract-Related Alignment Models Clinical Integration Accountable Care Organization Risk-based Contracting Definition FTC-compliant joint contracting between nonfinancially integrated entities CMS-sponsored Shared Savings program offering to split cost savings on FFS Medicare patients with providers Providers taking partial or full risk for the cost of care provided Examples NEQCA, PCHI Partners, Steward Medicare Advantage; Celtic Care; Owned Health Plan Requirements 130+ metrics, Collaborative forums, Analytics capability, Investment 34 Metrics, Governance, Varies based on contract terms. (MA: HEDIS metrics, AMI, SCIP, PNE, CHF) Target Population Commercial FFS Medicare FFS Medicare Risk, Commercial Risk, Self-insured Benefits Possible incentives, reimbursement opportunity Track 1: ~30% of savings Upside on cost savings Risks Anti-trust Track 1: None Financial losses 14

15 The definition of an ACO depends on who s in the room Service Specific MSSP Population Health Payor Model CMS Model Payor Model Focused Improvement Laser focus on targeted challenges Single payor oriented P4P driven Example: Huntington- Blue Shield CA ED throughput Participant defined Medicare Specific CMS-sponsored Makes providers accountable for FFS beneficiary costs of care Shares savings if improvements realized Requires CMS application CMS defined Population Focused Provider/payor partnership to manage full risk for targeted population Capitated payment, shared savings model Example: Advocate- BCBS Illinois Participant defined 15

16 The Benefits of Risk for Providers Protect or enhance market share/position Financially benefit from bending cost curve Strengthen relationships with physicians Not as financially risky as it seems Some control network development and usage Advance / accelerate quality initiatives Charges Negotiated Price Cost Payor Risk Provider Risk 16

17 Criteria to Select Value-Based Options Do you need a laboratory to learn how to manage populations Right amount of Business Align incentives of health system to physicians and payers Cost and Utilization X Timing of Risk Assumption vs. Economic Opportunity X Economic Advantage to Provider Network Development Improve Value Early move to risk Late move to risk time Right amount of risk at the right time Market Willingness (eg What will payers be willing to do) 100% 80% 60% 90% Implications of Risk Mix 40% 60% 80% 20% Market Shift 40% 20% 0% 10% 20% 40% 60% 80% P4p / Full Risk Bearing / ACO Fee-for-Service 17

18 Contracting Strategy Needs to Address the Right Areas Independents Only Employed Only All Physicians Commercial Business Line Medicare Through Plans Medicare Direct Medicaid P 4P Shared Savings Shared Risk With Corridors Shared Risk No Corridors Full Risk With Corridors Full Risk No Corridors Health Plan Value-Based Model 18

19 Clinical Integration is a Contracting Strategy in Itself, but Also Builds Foundational Capability for Risk Increasing financial opportunity and incentive alignment P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK Provider- SPONSORED PLANS Formal program between health system and defined private physicians Designed to improve Quality & Cost Allows some benefit distribution back to the physicians No downside financial risk First step in shifting from a volumebased focus to a value-based focus Still subject to FTC/OIG scrutiny on market share Crawl Walk Run Agree to guidelines - EBM Gather, standardize, analyze data FFS Contracting (Commercial) Measure Results Enforce Performance Distribute Incentives Population Health Mgt Reduce Clinical Variation Change Behavior Focus on Patient-engaged Teams 19

Clinical Integration as the Foundation Ambulatory Quality Measurement

Efficiently manage data and reporting Identify resource needs Transparency IT

and clinical tools DSS/BI Patient HIE/connectivity engagement across the tools

Populationbased programs of care Shift to ambulatory management Care coordination

Committee structure and decision making Financial structure Organizational

metrics Clinical risk identification Cost measurement Collaboration Platform

20 Clinical Integration as the Foundation Ambulatory Quality Measurement Physicianguided targets and metrics Standardize data definitions and sources Efficiently manage data and reporting Identify resource needs Transparency IT Infrastructure and Capability EMR/HER network Administrative Clinical workflow and clinical tools DSS/BI Patient HIE/connectivity engagement across the tools Clinical Integration Cross-continuum Coordination Strong primary care Populationbased programs of care Shift to ambulatory management Care coordination resources Organizational Structure & Planning Legal entity Physician governance Committee structure and decision making Financial structure Organizational incentive alignment Analytics Data management and reporting Clinical quality metrics Clinical risk identification Cost measurement Collaboration Platform Physician governance Building a culture of collaboration Best practice dissemination Peer review Common Protocols Referral management 20

Sample Clinical Integration Clients Highly competitive market Several hospitals and ~4000 physicians total All employed physicians on Epic (~2000) Combining all employed and affiliated physicians

21 Sample Clinical Integration Clients Highly competitive market Several hospitals and ~4000 physicians total All employed physicians on Epic (~2000) Combining all employed and affiliated physicians Over 900 physicians in CI network Significant incentives received by physicians No risk contracts yet 2,245 Participating Providers Plan Year 180,000 unique patients since million encounters since 2009 Allowed amounts $89 million (payer data 2011, 2012) Multi-million dollar payouts tied to incentives 7 health systems 28 Hospitals Medical School of Wisconsin 4,000 physicians Clinical integration as prelude to value-based care Care Management Direct employer contracting Employee-based health plan 21

22 Shared Savings is No Risk, but Often No Savings for Long Increasing financial opportunity and incentive alignment P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK Provider- SPONSORED PLANS Prior Baseline Costs Year 1 Savings Re-baseline Cost Shared Savings Budgeted dollars Upside only Premium is reset based on medical expenses Year 2 Savings Re-baseline Cost What have you done for me lately?? Year 3 Savings? 22

payment to cover all services from multiple providers involved in a care episode Single Provider s technical risk Degree

23 Bundled Payments Allow for Defined Areas of Risk Increasing financial opportunity and incentive alignment P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK Provider- SPONSORED PLANS A single payment to cover all services from multiple providers involved in a care episode Single Provider s technical risk Degree of Risk Multiple Providers technical risk Multiple providers technical AND probability risk DRGs Episode-Based Global Cap 23

24 Moving Further Toward Risk Creates More Opportunity Increasing financial opportunity and incentive alignment P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK Provider- SPONSORED PLANS Shared Risk Arrangement based upon agreed upon budget Could be a percentage of premium or a set amount Premium is reset based on medical expenses Upside and down-side risk Full Risk Percentage of premium or PMPM or all services Certain services may be carved out (e.g., mental health, pharmacy) RISK CORRIDORS Upper and lower limits of risk sharing Beyond the corridor, the health plan takes the risk Can do a corridor with full risk or shared Source: CSC Report: Preparing For Accountable Care: Coordinated Care, by Jane Metzger. Valence Health. 24

25 Increasing Risk Requires Different Expertise, Some of Which May be Shared or Acquired Area of Responsibility MCO Provider Area of Responsibility MCO Provider Appeals and Grievances X Maintain website (member, provider) X Benefit administration X X Marketing services X Capitation reconciliation X Member services X X Case management X X Prior authorization X X Claims adjudication X X Provider appeals X COB X Provider contracting X X Concurrent review X Reinsurance X X Disease management X X Submission of encounter data X Enrollment reconciliation X Submit to External Quality Review X Fee schedule maintenance X X Track special needs X ID card production/distribution X Transition of care X X Implement Quality Programs X X 25

26 Provider-Sponsored Health Plans Offer Greatest Value Opportunity Increasing financial opportunity and incentive alignment P4P PCMH CLINICAL INTEGRATION SHARED SAVINGS BUNDLED PAYMENTS SHARED RISK CAPITATION FULL RISK Provider- SPONSORED PLANS Greater impact on Mission, more people insured Able to impact premiums Control network development and usage Access to data Run health plan as you see fit Able to control provider rates Closer to the first dollar Ability to Impact legislation/benefit design Likely over 100 plans in operations today 26

27 8 Key Dimensions Determine Value-based Readiness Least Influence Greatest Influence Market Intrinsic Value Prop Market Competitive Org Capacity Physician Alignment Collaboration Culture Care Continuum Technology MSA Market Population Primary Care Value-based Competitors MD-Hospital Collaboration Hospital Private MD Relations PCP Specialty Relations Service Distribution EMR Population Density of MSA Specialist PCP Control Financial Position and Strength Economic Alignment System-ness VNA & SNF HIE Analytics MSA Payer Mix Hospital Market Share Differentiable Service Lines Claims-Based Performance Data Clinical Alignment Referral Management PCMH Portal Population Trends Payer MD Reimburseme nt Cross- Continuum Services Urgency for Change Forums Disease Mgt Pop. Health MSA Utilization Rates Payer Relations Executive Alignment P4P Experience Care Coordination Patient Registry Bandwidth Pharmacy Patient Attribution 27

Evaluation of Capability for Clinical Integration High utilization, Mod Comm rates Market Intrinsics Active Competitive Market Competitive Physician Alignment MDs in leadership; Strong PCPs Strong

28 Evaluation of Capability for Clinical Integration High utilization, Mod Comm rates Market Intrinsics Active Competitive Market Competitive Physician Alignment MDs in leadership; Strong PCPs Strong executive alignment, fast Organizational Capacity Low Comm payor mix, Highly managed Emerging Competition Emerging PCP alignment; No PHO Consensusbased leadership Adverse population trends Minimum/No Competition Little PCP connection Divided leadership, Slow. Low bandwidth Owned and tightly contracted SNFs Care Continuum All on common platform Technology High urgency, non-financial predominates Value Proposition Highly collaborative, Cross continuum Collaboration Culture Loose affiliations with SNF,LTC,HC Most on EMR, limited connectivity Financial predominates Limited Collaborative experience No management or ownership Limited EMR, no connectivity High reimbursement, Low urgency Isolated & adversarial groups 28

29 An Informed Approach to Developing Capability Avoids Execution Failure Operations Feasibility Market assessment Appetite for risk Organizational readiness assessment Financial pro forma Planning Financial projections Operational plan Market analysis Incentive design Network design Risk arrangement design Implementation Create CIN Develop network Negotiate with payers ID services to provide Determine make, buy, rent by service Hire team Ongoing processes Measurement Incentive management Reporting Continuous improvement 2-3 months 2-3 months 6-12 months Ongoing 29

It Doesn t All Have to Happen at Once Crawl Walk Run Program Focus Build Program Foundation Obtain the Data Get Payer Buy In Participation Measures Refine Metrics Educate Physicians Publish Data

30 It Doesn t All Have to Happen at Once Crawl Walk Run Program Focus Build Program Foundation Obtain the Data Get Payer Buy In Participation Measures Refine Metrics Educate Physicians Publish Data Process Measures Focused CM Programs Hold Physicians Accountable Assume Risk Outcome Measures Tactics UM/CM/Referrals: Basic blocking and tackling Adopt care guidelines, measure and share data DM/Populations: High cost High frequency High risk Quality, utilization & financial reporting Enhanced capabilities: PCMH, Navigators/Coach Care Continuum/Transitions Practice Pattern Changes Focused PI Network/ Incentive Focus Participation -> Process Process -> Outcomes Outcomes -> VALUE Patient Focus Educate Engage Empower 30

31 Key Lessons Learned So Far It takes 1-2 years to educate executive leadership and medical staff Don t underinvest in capabilities: build/buy/rent Focus on primary care alignment Diversify value proposition for physicians Develop payer strategy as early as possible and aggressively pursue Focus on your product = Quality+Cost care model 31

32 Attributes of Successful Provider Systems Market relevance Strong physician leadership and governance encompassing multiple constituencies Well defined physician participation criteria Transparent, aligned financial incentives tied to quality and efficiency Strong and credible clinical performance measurement capabilities Significant investment in technology focused on the creation of a patientcentric, comprehensive view of clinical data across all providers A blend of individual and group accountability through alignment of incentives: economic rewards, remediation efforts, and enforcement standards A value-based focus which ties compensation to a combination of clinical quality and productivity 32

Achieving Value-based Care in Rural Populations through Provider-Sponsored Health Plans. February 11, 2014

Achieving Value-based Care in Rural Populations through Provider-Sponsored Health Plans February 11, 2014 1 Value-Based Care is No Joke 2 What is Value-Based or Accountable Care? Value- Based Care = (Access