The Care Transformation Business Model

Transcription

1 Health Care Advisory Board Care Transformation Center The Care Transformation Business Model 14 Tactics to Aggregate Covered Lives and Build a High-Performing Care Delivery Network 2014 The Advisory Board Company

2 LEGAL CAVEAT Health Care Advisory Board Project Director Hamza Hasan Contributing Consultants Sarah Gabriel Vivian Ling Design Consultant Christina Lin The Advisory Board Company has made efforts to verify the accuracy of the information it provides to members. This report relies on data obtained from many sources, however, and The Advisory Board Company cannot guarantee the accuracy of the information provided or any analysis based thereon. In addition, The Advisory Board Company is not in the business of giving legal, medical, accounting, or other professional advice, and its reports should not be construed as professional advice. In particular, members should not rely on any legal commentary in this report as a basis for action, or assume that any tactics described herein would be permitted by applicable law or appropriate for a given member s situation. Members are advised to consult with appropriate professionals concerning legal, medical, tax, or accounting issues, before implementing any of these tactics. Neither The Advisory Board Company nor its officers, directors, trustees, employees and agents shall be liable for any claims, liabilities, or expenses relating to (a) any errors or omissions in this report, whether caused by The Advisory Board Company or any of its employees or agents, or sources or other third parties, (b) any recommendation or graded ranking by The Advisory Board Company, or (c) failure of member and its employees and agents to abide by the terms set forth herein. The Advisory Board is a registered trademark of The Advisory Board Company in the United States and other countries. Members are not permitted to use this trademark, or any other Advisory Board trademark, product name, service name, trade name, and logo, without the prior written consent of The Advisory Board Company. All other trademarks, product names, service names, trade names, and logos used within these pages are the property of their respective holders. Use of other company trademarks, product names, service names, trade names and logos or images of the same does not necessarily constitute (a) an endorsement by such company of The Advisory Board Company and its products and services, or (b) an endorsement of the company or its products or services by The Advisory Board Company. The Advisory Board Company is not affiliated with any such company. Advisory Board Company is not affiliated with any such company. Practice Manager Megan Clark Managing Director Christopher Kerns IMPORTANT: Please read the following. The Advisory Board Company has prepared this report for the exclusive use of its members. Each member acknowledges and agrees that this report and the information contained herein (collectively, the Report ) are confidential and proprietary to The Advisory Board Company. By accepting delivery of this Report, each member agrees to abide by the terms as stated herein, including the following: 1. The Advisory Board Company owns all right, title and interest in and to this Report. Except as stated herein, no right, license, permission or interest of any kind in this Report is intended to be given, transferred to or acquired by a member. Each member is authorized to use this Report only to the extent expressly authorized herein. 2. Each member shall not sell, license, or republish this Report. Each member shall not disseminate or permit the use of, and shall take reasonable precautions to prevent such dissemination or use of, this Report by (a) any of its employees and agents (except as stated below), or (b) any third party. 3. Each member may make this Report available solely to those of its employees and agents who (a) are registered for the workshop or membership program of which this Report is a part, (b) require access to this Report in order to learn from the information described herein, and (c) agree not to disclose this Report to other employees or agents or any third party. Each member shall use, and shall ensure that its employees and agents use, this Report for its internal use only. Each member may make a limited number of copies, solely as adequate for use by its employees and agents in accordance with the terms herein. 4. Each member shall not remove from this Report any confidential markings, copyright notices, and other similar indicia herein. 5. Each member is responsible for any breach of its obligations as stated herein by any of its employees or agents. 6. If a member is unwilling to abide by any of the foregoing obligations, then such member shall promptly return this Report and all copies thereof to The Advisory Board Company The Advisory Board Company

3 Table of Contents Executive Summary.. 4 The Care Transformation Business Model Comprehensive Network Assembly Build a targeted, low-cost network Realign business strategy to meet population health goals Refine preferred partner network.. 26 Population Health Growth Strategy Map acquisition of covered lives to core competencies Identify complementary expansions to core competencies to gain new lives Weigh integrating delivery, financing system. 38 Key Imperatives for Performance-Driven Contracts Prioritize narrow network product design Develop customized, market-specific cost targets Secure up-front financing for population health infrastructure Standardize quality metrics around internal areas of focus Negotiate to increase frequency of claims feed.. 53 Cross-Continuum Performance Management Establish internal market for referrals Dedicate team to address leakage Design principled physician compensation, bonus distribution The Advisory Board Company

4 Executive Summary The Care Transformation Business Model Eight Lessons for Financial Sustainability Under Population Health 1. Purchasers increasingly require a customized network that meets the care needs of their target populations. Networks with limited geographic coverage and clinical scope are insufficient to manage the total cost of care of a population. After evaluating purchaser demands, providers should pursue partnership agreements to provide on-demand access to care as well as comprehensive clinical services. 2. Demonstrated results with pilot patient populations spur a virtuous cycle of growth. With demonstrated cost reductions and quality improvements for existing patient populations, providers attract new covered lives, generating continued growth. 3. To scale a population health network, successful organizations prioritize payer types that match their core clinical competencies. Population health requires significant investment in many new assets. To maximize returns of initial investments, health systems should focus expansion efforts on populations with similar care needs. 4. When expanding to new populations, best-in-class organizations add populations with complementary care needs. Once a system has demonstrated its population health capabilities for one population, the experience can also serve as an effective learning lab for patient groups with similar acuity levels. Providers should take advantage of these adjacent populations as opportunities to gain market share without the need for significant investment in new resources. 5. When negotiating contracts, leaders set up a limited, welldefined network with incentives for patients to select highvalue care. Given that success under risk is derived primarily from ability to control total costs, out-of-network expenditures can severely limit potential savings. Providers must build network management directly into health plan contracting through narrow network design. 6. Organizations with sophisticated care management abilities prioritize participation in Medicare Advantage contracts. Contracting for Medicare Advantage provides two key benefits: upfront patient assignment and the ability to incent patients to choose in-network care. 7. Best-in-class systems create an internal market for referrals to channel care to highest-value providers and care sites. Provider cost and quality can vary widely across a network, limiting potential for savings. Successful organizations share provider cost and quality information across the entire network to encourage the most effective referral patterns. 8. Successful organizations migrate physician compensation changes in tandem with increased care management investments. Leaders will need to align internal compensation with care management outcomes. Given the complexity of adjusting physician compensation, however, organizations should ensure that changes closely match the development of care management programs The Advisory Board Company

5 The Care Transformation Business Model 2014 The Advisory Board Company

6 The ACO Landscape Today The rapid growth of health care costs across the past decade has spurred a national interest in new models of care delivery that provide improved clinical care at lower cost. The passage of the Affordable Care Act launched a number of programs aimed at realigning high-value care delivery and reimbursement including the Medicare Shared Savings Program (MSSP). As of this publishing, there are over 600 accountable care organizations (ACOs) across the country, and half of the US population lives within the primary care service area of an ACO. Health Systems Rapidly Adopting Care Transformation Business Models Total Number of Operating ACOs January Widening Reach of ACOs 52% 14% Portion of US population living in a primary care service area with an ACO Portion of US population treated by an ACO 23 Pioneer ACO Model 2012 MSSP 1 Cohort 2013 MSSP Cohort 2014 MSSP Cohort Private Sector ACOs Total 5.3M Medicare FFS beneficiaries treated by an ACO 1) Medicare Shared Savings Program. Source: CMS, More Partnerships Between Doctors and Hospitals Strengthen Coordinated Care for Medicare Beneficiaries, December 23, 2013; Muhlestein D, Accountable Care Growth In 2014: A Look Ahead, Health Affairs Blog, January 29, 2014; Oliver Wyman, Accountable Care Organizations Now Serve 14% of Americans, February 19, 2013; Health Care Advisory Board interviews and analysis The Advisory Board Company

7 Financially, Medicare ACOs Yielding Mixed Results Despite this dramatic growth, many providers taking part in the Medicare Shared Savings Program have struggled to attain financial returns. Only a quarter of participants in the 2012 and 2013 Medicare ACO cohorts shared in savings with Medicare. The Pioneer ACO program, which was intended for institutions more experienced with risk-based contracting, fared no better. A dozen participants have either left or are shifting to other risk-based contracts. But Clinical Quality Trending Upwards Shared Savings Bonus Distribution Among MSSP ACOs 2012 and 2013 Cohorts Did Not Earn Shared Savings 76% 24% Earned Shared Savings Reducing Participation We are continuing to reduce the size and scope of our investments to focus on those ACOs where the (shared-savings) program can work and we can truly impact the cost and quality of medical care. Richard Barasch, CEO Universal American First-Year Pioneer ACO Results 32 Successfully reported quality measures 25 Generated lower riskadjusted readmission rates Source: CMS, Fact Sheets: Medicare ACOs Continue to Succeed in Improving Care, Lowering Cost Growth, Available at: Health Care Advisory Board interviews and analysis The Advisory Board Company

8 A Number of Strategic Reasons to Sign Up Many organizations with limited care management experience entered the Medicare ACO programs as a starting point to pilot test population health management. The program also served as a platform to align physicians in a clinically integrated network or to develop a centralized care management infrastructure. Pilots are an important first step in adopting risk-based payment models, but are not sufficient for true care transformation. Medicare Shared Savings a Starting Place for Risk Strategic Reasons for MSSP Participation Increased physician alignment Provides opportunity to reward physicians for increased alignment with health system s population health goals Momentum for population health infrastructure development Builds case for investment in risk stratification analytics and care management staffing required for successful execution under risk-based contracts Enhanced care management development Presents opportunity to experiment with the clinical models for population health management Intensified cultural change Introduces need for provider to focus on population health across entire organization 2014 The Advisory Board Company

9 Challenges to the Business Model The financial struggles of MSSP participants illustrate a broader tension of aligning clinical models and reimbursement models for population health management specifically, the ability to change utilization patterns in an open-access network. Despite their promise as an avenue toward riskbased payment, shared savings programs typically remain rooted in fee-for-service reimbursement. Significant transformation of the care delivery system requires reimbursement models that reward providers for care management, crosscontinuum collaboration, and reductions of inappropriate utilization. Difficult to Attain ROI in an Open-Access Network Medicare Shared Savings Program Attributes Program Gives patients no incentive to choose low-cost care Does not ask patients to choose a PCP Uses broad cost targets Best-in-Class Program Design Program Should Provide incentives to choose low-cost sites of care Incent usage of preventive care services Use market-specific cost targets Provides claims data six to nine months after start of program Provide timely data feeds on patient utilization of care 2014 The Advisory Board Company

10 The Building Blocks of Population Health ROI On the transition path to full-scale population health management, providers must build four key competencies. The first step is creating a targeted care delivery network that meets the needs of purchasers, from local employers to large national payers. Network assembly focuses on integrating high-quality, low-cost providers and streamlining care pathways. Next, providers must outline the growth strategy to increase the number of lives under management, starting with existing areas of strength. Care management, network management, and patient-engagement competencies should determine which populations to focus on along the transition path. After new contracts are added, organizations should prioritize elements that reward effective care management and engage patients in their own care. Negotiations should also align quality targets across contracts and improve data sharing across partners. Finally, organizations need to realign internal incentives to reward high-value care delivery, which requires data transparency among partners. Return on Investment Four Key Components of the Successful Population Health Business Model Population Health Growth Strategy Comprehensive Network Assembly Cross-Continuum Performance Management Key Imperatives for Securing Performance-Driven Contracts 2014 The Advisory Board Company

11 Build a Targeted Care Delivery Network Foundational to a sustainable population health business model is a carefully selected network of providers. A robust network of aligned partners ensures seamless transitions between sites of care and a cross-continuum focus on high-value care. The size of the clinical network will be customized to the needs of individual purchasers. Some networks are local in their geographic size and clinical scope, primarily serving the needs of local employers and purchasers. Others will be far larger with regional employers as the principal targets. Regardless of their intended population, all clinical networks must deliver low-cost, high-quality, and accessible care. Identify Low-Cost, High-Quality Partners The Expanded Population Health Care Network PACs Worksite Clinics Retail Clinics Physicians Hospitals Physicians OP Sites Home Health Affiliate Hospitals Outer Network Providers considered innetwork for network sufficiency purposes, but not actively managing patients Preferred Partner Network Partnered institutions committed to assisting with population health goals Core Delivery Network Providers responsible for majority of patient care PACs Pharmacy OP Sites Narrow Networks Supporting Lower Spending 40% Reduction in health care spending for consumers switching to narrow network plans in Massachusetts 11 Source: Gruber J and McKnight R, Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence From Massachusetts State Employees, National Bureau of Economic Research, September 2014, available at: Health Care Advisory Board interviews and analysis The Advisory Board Company 29963

12 Grow Total Number of Covered Lives Closely following the assembly of a targeted care delivery network, the next step is expanding the number of covered lives. Vital to financial success, increasing covered lives improves actuarial stability and supports investments in the transition to full-scale population health. Providers should move beyond care management pilots by mapping early payer contracts to existing areas of population health strengths. Only after successfully executing on population health within a payer type should leaders consider expansion to complementary payer types. Shifting Out of Pilot Phase with Risk-Based Model Number of Covered Lives Limited Percentage of Covered Lives Under Risk-Based Contracts n = % 6% 26% 39% 39% 9% 4% 15% As Well as Total Revenue Percentage of Total Revenue Derived from Risk-Based Contracts n = % 13% 21% 39% 38% 5% 3% 10% Under 25% 25%-50% 50%-75% Over 75% Under 25% 25%-50% 50%-75% Over 75% Today In 3 Years Study in Brief: Contracting for Population Health Management Health Care Advisory Board survey of providers from July October 2013 to offer a snapshot of their path toward population health management; available on Source: 2013 Care Transformation Survey; Health Care Advisory Board interviews and analysis The Advisory Board Company

13 Align Contract Elements to Population Health Goals As lives are added, providers should seek contract elements that reward value-based decision-making by providers and patients. Additionally, when possible, align terms across contract elements to focus care teams on key population health initiatives. In particular, leaders should prioritize contract elements that prospectively assign patients to the ACO, provide strong incentives for patients to choose low-cost sites of care, and transfer timely claims data. Poorly Designed Contracts Challenge Business Model Success Key Population Health Contractual Elements Prospective Assignment of Patients Giving ACOs greater certainty about which patients will be included in performance measurement allows for better deployment of limited resources for focused care management and preventive care Influence in Benefit Design Allowing ACOs to adopt beneficiary cost-sharing models encourages beneficiaries to seek recommended care from highvalue providers helps ACOs engage patients in their own care Regular Data Access Enabling ACOs to access data about attributed beneficiaries closer to real-time would help providers address patient needs in a more timely manner and enhances efforts to prevent avoidable utilization Medicare ACO Contract Elements a Cause for Concern The model was financially detrimental despite favorable underlying utilization and quality performance. Alison Fleury, CEO Sharp HealthCare ACO 2014 The Advisory Board Company

14 Introduce Rigorous Performance Management Realigning internal incentives to reward physicians for cross-continuum collaboration and improved care management outcomes is the final step in building a successful business model for population health management. Ultimately, organizations will have to improve performance on two fronts: care management and physician network management. Care management success is not sufficient for attaining an ROI on population health without concurrently shifting referrals to high-value providers and rewarding providers for improved outcomes. Ensuring That Cross-Continuum Care Remains High-Quality and Low-Cost Channeling Referrals, Rewarding Care Management Key to Success Ensure that referrals are sent to low-cost, highest quality providers Dedicate team to uncover unnecessary patient leakage Revamp physician compensation to reward care management and improved quality outcomes Patient Choice Adds to Care Management Challenge 67% Percentage of specialty visits treated outside ACOs in MSSP Study in Brief: Playbook for Population Health Health Care Advisory Board study on how successful population health managers organize their care delivery networks; available on Source: McWilliams JM et al, Outpatient Care Patterns and Organizational Accountability in Medicare. JAMA Internal Medicine. 2014;174(6): Health Care Advisory Board interviews and analysis The Advisory Board Company

15 Creating a Virtuous Cycle of Growth Health systems must closely align their care management investments with the financial model and network operating model required for long-term population health management. This includes coordinating providers, increasing the number of lives under management, and improving performance across the continuum. First, organizations must construct a targeted clinical network. Population health success depends on meeting the access and clinical service needs of purchasers. The next step is finding and adding covered lives to the care delivery network. This includes not only mapping out when to add new populations but also aligning contract terms around core population health initiatives. Finally, providers must manage performance in the network. This infrastructure helps keep patients in the network, and rewards physicians for delivering high-quality, low-cost care. Each step toward building a population health business plays a key role in the long-term sustainability of the model. Together, these phases reinforce each other and create a virtuous cycle of growth. Successful network and care management serve as proof of concept for payers and employers, attracting new covered lives. Building a Successful Business Model Total Cost of Care Attaining Financial Returns from Care Transformation Assemble the Low-Cost Network Building the Network Successful business model facilitates new growth 15 Identify and Secure New Lives for Management Acquiring Lives and Managing Care Operate Performance- Based Care Network 2014 The Advisory Board Company 29963

16 The Care Transformation Business Model 14 Tactics to Aggregate Covered Lives and Build a High-Performing Care Delivery Network Assemble the Targeted Network Identify and Secure New Lives for Management Operate Performance- Based Network 1 Comprehensive Network Assembly 2 3 Population Health Growth Strategy Key Imperatives for Performance-Driven Contracts 4 Cross-Continuum Performance Management 1. Build a targeted, lowcost network 2. Realign business strategy to meet population health goals 3. Refine preferred partner network 4. Map acquisition of covered lives to core competencies 5. Identify complementary expansions to core competencies to gain new lives 6. Weigh integrating delivery, financing system 7. Prioritize narrow network product design 8. Develop customized, market-specific cost targets 9. Secure upfront financing for population health infrastructure 10. Standardize quality metrics around internal areas of focus 12. Establish internal market for referrals 13. Dedicate team to address leakage 14. Design principled physician compensation, bonus distribution 11. Negotiate to increase frequency of claims feed 2014 The Advisory Board Company

17 Comprehensive Network Assembly 1. Build a targeted, low-cost network 2. Realign business strategy to meet population health goals 3. Refine preferred partner network 2014 The Advisory Board Company

18 Network Assembly at Every Level Population health management requires a fundamental realignment of the provider network across three dimensions. First, the construction of a low-cost care delivery network that is targeted to meet the needs of purchasers. In particular, these networks must cover the entire market. Systems must develop partnerships to address any gaps in access points or the clinical service portfolio. Second, health system investment strategies should align with population health goals. Without this agreement, systems face internal conflicts of interest, which can stymie success. Last, and perhaps most important, comprehensive and low-cost networks must all have a strong preferred partner network. Top performers direct care to low-cost, high-quality providers, ensuring consistent standards across the care delivery system. Partners, Business Units, Network Are Key Components Three Dimensions of Network Scope Build a targeted, low-cost network Network must address market needs at the system level System partnerships Realign business strategy to meet population health goals Investments must reflect population health agenda Business units Refine preferred partner network Business must be directed to top performers to reduce cost of care Provider network 2014 The Advisory Board Company

19 1. Build a targeted, low-cost network What Makes for a Comprehensive Network? Financially sustainable population health management is not possible without a comprehensive network of providers. This set of providers and physical sites must meet the demands of purchasers for efficient and accessible care. Depends on the Target Market for Risk-Based Contracts The first step is determining the target purchaser. The geographic size and clinical scope of the network will vary significantly based on whether purchasers are local, regional, or super-regional. Many Different Options for Network Scope Local Regional Small employers Large employers Local payers National payers Super-Regional State/national employers International purchasers What is your organization s network assembly strategy? 2014 The Advisory Board Company

20 Combining Geographies to Match Purchaser Footprint For example, to appeal to large employers in their regional market, TriHealth and St. Elizabeth joined together to form the Healthcare Solutions Network (HSN). Large employers in Cincinnati draw employees from both Ohio and Kentucky. Each health system serves one part of the Cincinnati market, but neither TriHealth nor St. Elizabeth alone could provide comprehensive access to the metro area s entire population. HSN created a comprehensive network that specifically meets the needs of large employers. While the network is still very new, HSN has already secured narrow network contracts with several regional employers and commercial payers. Addressing Individual Limits in Geographic Reach Partnering to Expand Geographic Scope Cincinnati-based employers have employees living on both sides of river St. Elizabeth Healthcare TriHealth Ohio Kentucky Neither Organization Able to Offer Adequate Geographic Coverage Alone Case in Brief: Healthcare Solutions Network Joint venture collaboration between Cincinnati, Ohiobased TriHealth and Edgewood, Kentucky-based St. Elizabeth Healthcare Offers health insurers access to a unified, high-quality, low-cost network that covers the entire region Both organizations offering the network to their current employees and dependents 2014 The Advisory Board Company

21 Geographic Reach Developing a Targeted Network Strategy Ultimately, health systems will deploy a portfolio of tactics based on purchaser demand. Geiss Health, a pseudonymed Midwestern health system, employs three separate network strategies: local, regional, and super-regional. Each one appeals to different types of purchasers. First, its local network (exclusively comprising Geiss Health providers) is large enough to meet the needs of local employers. Then, a regional network built with a single nearby partner focuses on larger regional contracts. Lastly, Geiss Health is expanding to state and national employers by creating a super-regional partnership network. Flexible Approach Meets the Demands of a Wide Range of Purchasers A Multilayered Approach to Network Development Local Individual footprint sufficient to appeal to small employers in local market Regional Partnership with like-minded, geographically contiguous health system provides flexibility to sign larger regional contracts Partnership-Driven Super-Regional Discussing possibility of additional partnerships to form state-wide network able to contract with state employers Network in Brief: Geiss Health¹ Integrated health delivery system in the Midwest Segments network by geography Health system footprint is sufficient for appealing to local purchasers; regional and super-regional networks assembled through partnerships Number of Contracting Possibilities 1) Pseudonym The Advisory Board Company

22 2. Realign business strategy to meet population health goals Change Investment Strategy to Match Growth Targets As organizations shift from early pilots in care management to scaled population health, the next step is to align business planning with population health goals. New investments under population health present significant shifts from traditional business strategies. Health systems that have attained success under value-based contracts focus on primary care, care management, urgent care, retail clinics, behavioral health, and telemedicine. This dramatic shift in investment underscores a crucial point for population health: to achieve a return on investment, a health system s growth engine must shift from units of service to number of covered lives. As this occurs, organizations are evaluating physical asset planning, including repurposing existing spaces and rebalancing acute care services. Changes in Utilization Allow for Shift in Asset Deployment Ensure Capital Allocation Matches Population Health Goals Tailored, Low-Cost Network Establish comprehensive partner network appropriately sized to market Partnership results in reduced utilization, lowered costs Strategic Plans Build population health and network management into business unit oversight Infrastructure Investments Shift bricks-and-mortar investment strategy to appropriate scope of patient care 2014 The Advisory Board Company

23 Reinforce Population Health Through Budget Process Financial sustainability under population health requires the whole system to work toward reducing unnecessary utilization of care. Such a transition calls for changes in business planning practices as well as overall system culture. Committee Ensures Alignment of Capital Proposals From Maximizing Volume to Population Health To jump-start this change, Intermountain Healthcare established a committee to review capital budget proposals and ensure that all new investments align with population health goals. After three years, proposals for investment decisions have shifted considerably. Business proposals no longer center on maximizing volume-based revenue. Instead, department leaders evaluate how new investments will contribute to lower-cost and more appropriate care Capital budget proposals submitted System-wide committee review Population health prioritized in budget process Case in Brief: Intermountain Healthcare 22-hospital health system based in Salt Lake City, Utah Currently in third year of having committee review capital budget proposals for alignment with population health goals Committee Existence Drives Language Shift It s no longer We need to buy these machines to meet the volume demand, but instead we focus on understanding the volume of care that is indicated by evidence and buying the equipment to meet that need. Joe Mott, VP of Healthcare Transformation 2014 The Advisory Board Company

24 Map Inpatient Capacity to Population Health Goals Similar to restructuring the strategic planning process, organizations are also reevaluating the existing service portfolio. When faced with changes in health care utilization patterns, some organizations have used the opportunity to begin repurposing physical spaces. Mosaic Life Care, previously known as Heartland Health, took on several riskbased contracts and started to see declines in inpatient utilization. Instead of leaving the beds empty, leaders converted them into multipurpose spaces. Those spaces could then be used for outpatient visits. Because repurposing existing unused spaces is not particularly disruptive, it can serve as an effective early step on the path toward risk. Repurpose Existing Acute Care Spaces Convert Inpatient Beds to Multipurpose Spaces Inpatient bed utilization declines under population health management Case in Brief: Mosaic Life Care Regional medical center based in St. Joseph, Missouri Turned inpatient beds into multipurpose spaces after entering into risk-based contracts, and seeing declines in ambulatory sensitive admissions Converted spaces available for multidisciplinary care team use 2014 The Advisory Board Company

25 Invest in Services Essential for Care Management After repurposing unused services, health systems must add new ones that further support care management. Often, these are investments that were underutilized and poorly reimbursed under fee-for-service, such as inpatient behavioral health beds. Under risk contracts, however, top performers recognize that such facilities are essential for success. In the past year, Steward Health Care Network has proactively invested in more behavioral health capacity. By investing in access to these services, Steward ensures that its patients will receive vital services when they need them, thereby reducing costs in the long run. Additional Behavioral Health Beds Vital to Controlling Population Costs Necessity of Behavioral Health Under Different Payment Models Fee-for-Service Limited interest: Behavioral health typically unfavorably reimbursed Value-Based Necessity: Important to coordinate clinical and behavioral needs across all care settings Supporting Behavioral Health 40 21% 60% Inpatient beds added in past nine months Total increase in Steward behavioral health beds Average increase in per capita costs for Medicaid patients with behavioral health need Case in Brief: Steward Health Care Network 2,800-physician network for hospitals of Steward Health Care System, headquartered in Massachusetts Increased investment in behavioral health to better support population health efforts Source: Kowalczyk, L, Steward Health Care Expanding Psychiatric Facilities, The Boston Globe, August 7, 2014, Health Care Advisory Board interviews and analysis The Advisory Board Company

26 3. Refine preferred partner network Establish Prerequisites for Network Inclusion Last, a comprehensive network requires aligned physician partners. At a baseline, partners must share information and collaborate on care pathway development. Physicians Must Commit to Collaborating with Network For example, AtlantiCare outlines hurdle criteria for network inclusion. Both PCPs and specialists must agree to these standards to practice within the network. These criteria include use of AtlantiCare s hospitalists, timely communication across the care continuum, patient access guarantees, and use of an EMR. PCPs and Specialists Hurdle Criteria Must Be Met for Network Inclusion Use of AtlantiCare hospitalists Specialist/PCP communication Patient access guarantees AtlantiCare Network Must have EMR Case in Brief: AtlantiCare 600-physician health system based in Egg Harbor Township, New Jersey Established hurdle criteria to build high-quality, aligned physician network 2014 The Advisory Board Company

27 Building the Network Within the Network To further refine the network, providers highlight top collaborators. This approach allows both broad geographic access as well as a smaller sub-network of physicians committed to cost-effective care delivery. Sharp Highlights Top Tier Within Broader Group Sharp Community Medical Group established a preferred tier within its network. These physicians are selected for providing the highestquality and lowest-cost care. The preferred tier can be bundled together in narrow network offerings for purchasers. Broader Network Provides widespread geographic access Mitigates systemic capacity bottlenecks Ensures network sufficiency for contracts Preferred Tier Broader Network Attributes of Preferred Network Determined by performance, demonstrated willingness to collaborate with SCMG¹ Allocated significant IT, care coordination support from network Divided into price-competitive offerings for wholesale purchasers Case in Brief: Sharp Community Medical Group Community physician group located in San Diego, California Segments premium tier of physicians from broader group based on a series of performance metrics, demonstrated willingness to collaborate Preferred physicians receive enhanced practice investments from network, inclusion in select managed care and employer contracts 1) Sharp Community Medical Group The Advisory Board Company

28 2014 The Advisory Board Company

29 Population Health Growth Strategy 4. Map acquisition of covered lives to core competencies 5. Identify complementary expansions to core competencies to gain new lives 6. Weigh integrating delivery, financing system 2014 The Advisory Board Company

30 Pushing Past the Pilot Mentality The sustainability of the population health business model is highly dependent on increasing the proportion of lives covered by risk-based contracts. Growing covered lives improves actuarial stability, reduces the per-unit cost of care management, and facilitates cultural change across the organization. But, navigating this transition requires appropriately sequencing such contracts and building proof of concept with local payers. Providers should start by growing within a single payer type. This allows teams to leverage existing population health strengths. Next, providers should expand to complementary populations and payer types. Finally, as organizations seek additional cost accountability and greater control of the full premium dollar, many systems are evaluating partnerships or ownership of a health plan. Growing Number of Lives Under Management Patients currently covered by population health pilots Number of lives necessary under population health contracts to meaningfully change practice patterns Typical PCP Patient Panel Fundamentals of Population Health Growth Strategy Map acquisition of covered lives to core competencies Identify complementary expansions to core competencies to gain new lives Weigh integrating delivery, financing system 1) Primary care physician The Advisory Board Company

31 4. Map acquisition of covered lives to core competencies Begin with Internal Areas of Expertise Initial growth strategies should focus on populations aligned with the providers core competencies. There are three key dimensions of population health management: care management, network management, and patient engagement. Each potential patient population requires a different level of expertise across these three categories. For example, providers taking on Medicare Advantage patients are likely to require significant capabilities in care management and patient engagement. Growth Strategy Focused on Core Competencies Three Key Dimensions of Managing Population Health Care Management Expertise caring for highrisk, high-utilizers with comprehensive infrastructure of care managers Scaled infrastructure with medical home for rising-risk patients Network Management Ability to coordinate care across providers Breadth and depth of specialist, post-acute care Patient Engagement Ability to partner with patients to encourage selfmanagement Drive patient loyalty to health system 2014 The Advisory Board Company

32 Care management Building on Existing Care Management Expertise Montefiore Medical Center has managed population health for over two decades. Central to its success in managing complex Medicaid patients is a centralized care management infrastructure. Montefiore is now using that existing infrastructure and expertise to expand into a neighboring geography. The new market features a population with similar characteristics as Montefiore s current population. Montefiore Bringing Care Management Expertise and Infrastructure to Additional Populations Highly Centralized Care Management Infrastructure Disease management Patient education Care coordination across settings Current Population Under Management Includes low-income, high-risk patients Complex socioeconomic profile Complex care management programs Intensive case management Community partnerships Covered by commercial, Medicaid, Medicare Expansion population Geographically contiguous population Attributes quite similar to population currently under management Easily managed by existing infrastructure Case in Brief: Montefiore Medical Center 2,200-bed health system based in Bronx, New York CMO, Montefiore s care management company, oversees value based arrangements covering 300,000 individuals 800 employees support care management enterprise Existing population under management represents broad mix of commercial, Medicaid, and Medicare Expanding care management services into new, geographically-contiguous markets 2014 The Advisory Board Company

33 Network management Aligning Growth with Operational and Clinical Resources Steward Health Care Network aligns its growth strategy around its clinical network. When determining which populations to target for growth, Steward s leaders consider four key network elements: the breadth of the primary care network, the scope of care management in the community, the depth of the specialist network, and the availability of inpatient services. This ensures that the system s existing network capabilities offer the services and support the population requires. Map Population Expansion to Existing Infrastructure Steward Maps Growth to Four Network Assets Primary Care Network Large, comprehensive primary care group provides foundation for populations under risk Care Management Programs Extensive care management infrastructure supports primary care Specialist Network Existing specialist network extended by partnerships when necessary Inpatient Service Lines Broad inpatient service lines tightly integrated with population health resources, infrastructure Case in Brief: Steward Health Care Network 2,800-physician network for hospitals of Steward Health Care System headquartered in Massachusetts Steward considers four network components when determining whether it has the level of infrastructure and resources to effectively support the population for which it will take on risk Focusing growth on populations that fit into existing operational and clinical infrastructure 2014 The Advisory Board Company

34 Patient engagement Using Successful Worksite Wellness Programs for Growth MemorialCare Health System s growth strategy builds on its success in engaging patients specifically in managing its own employees. Its success is proof of concept on how to grow the number of lives under management. The health system built a comprehensive workplace wellness program to better manage the health needs of its own employees. Since 2010, the program reduced health care spending growth and increased employee satisfaction and engagement. MemorialCare now highlights these successes when expanding to local employers. Effective Employee Management Demonstrates Proof of Concept MemorialCare s Workplace Wellness Program Components The Good Life Wellness program targeting all employees that emphasizes smoke-free living, exercise, stress management, healthy eating 87% of 11,200 employees surveyed say they have increased knowledge, awareness of wellness as a result of the program In Balance Voluntary one-on-one disease management program for employees with chronic illnesses such as hypertension, diabetes Participating employees reduced HbA1c by 0.9, blood pressure by 20 points systolic, 13 points diastolic Local Employers Purchasing MemorialCare s experience, expertise with workplace wellness program Seeking improved health engagement solutions, access to wellness services Case in Brief: MemorialCare Health System Six-hospital integrated delivery system in Los Angeles and Orange Counties, California Created The Good Life wellness program for its employees in 2010, with expanded wellness focus and disease management approach, redesigned insurance benefits Cost of blended annual benefits increased 4.9% vs. national rate of 8.5%, reduced premiums for employees; now marketing wellness and patient engagement expertise to other employers in area 2014 The Advisory Board Company

35 5. Identify complementary expansions to core competencies to gain new lives Attaining Additional Covered Lives Requires Expanding Skill Set The next step is to expand into clinically adjacent populations that have similar care needs to the patients already under management. This allows providers to add more covered lives but does not require drastically different skill sets. Typically, these populations can be managed by infrastructure and expertise already in place. Core Competencies Alone Limit Broader Growth Stage Expansion into New Population Groups Select organizations with sufficient geographic size, clinical scope able to manage diverse populations, payer types Scale of Health System Financial sustainability requires covered life growth into similar population, payer types Patients gained through population, payer type specialization Population Covered by Population Health Contracts 2014 The Advisory Board Company

36 Stage Expansion Path by Complementary Strengths Stack Medical Center, a pseudonymed health system, participates in the Pioneer ACO program. When care management leaders reviewed the attributed patient panel under Pioneer, many of the patients were dually eligible for Medicare and Medicaid. Based on success caring for the dualeligible population through the Pioneer program, leaders are expanding to patients covered by Medicaid managed care and Medicare Advantage. These patients require similar levels of care management as the population Stack traditionally managed, making them an attractive expansion population. Focus on Similar Populations with Comparable Management Needs Significant number of patients dual-eligible for Medicare, Medicaid Population Attributed to Pioneer ACO Using infrastructure already in place for existing dual-eligible patients to expand population health management focus to: Medicaid managed care Medicare Advantage Case in Brief: Stack Medical Center 1 Large health system in the Midwest Participating in Pioneer ACO program Found significant number of patients attributed to ACO under Pioneer program were dual-eligible for Medicare and Medicaid; system planning to expand into dual-eligible market 1) Pseudonym The Advisory Board Company

37 Scale Shared Care Needs Organizations must have sufficient geographic size, clinical scope, and population health expertise to expand growth across all patient types. Memorial Hermann manages 297,300 lives through risk-based contracts and plans to continue growing the number of covered lives. Part of that success comes from identifying population health management strategies that apply to all patient types. Memorial Hermann found that transitions management, complex care management, and physician engagement benefit all patients under management, regardless of payer. Primary Competencies that Enable Memorial Hermann s Multi-payer Covered Life Growth Transitions Management Memorial Hermann staff typically track patients for at least 30 days after system encounter, ensure that patients are connected with PCP Complex Care Management Algorithm on patient intake form determines need for complex care management Provides identified patients with 18 months of ongoing care management Physician Engagement Care management team provides scorecards, relevant metrics for physician education Physicians attend quarterly meetings to understand panel composition, data Case in Brief: Memorial Hermann 12-hospital health system based in Houston, Texas Successful population health manager participating in the MSSP and multiple commercial risk-based contracts Used investments in existing infrastructure to scale covered life growth across many population types 297,300 Approximate number of lives covered by Memorial Hermann s risk-based contracts in The Advisory Board Company

38 6. Weigh integrating delivery, financing system Capturing the Full Premium Dollar May Be Next Step As population health managers move closer to managing full risk, many are evaluating more collaborative relationships with existing health plan partners or offering a health plan themselves. While each health plan strategy comes with unique advantages, none are without pitfalls. Many providers will choose not to offer a health plan, but instead will foster closer partnerships with plans. This approach allows providers to focus on their core provider-based competencies and avoid immediately taking full risk for covered lives. Acquiring a health plan offers existing capital reserves, membership, and administrative expertise, but it may be difficult to integrate the plan into the provider s culture. Conversely, building a health plan internally allows for more customization and earlier integration with broader system strategy. But building the expertise, infrastructure, and reserves needed to successfully operate a health plan quickly is challenging. Organizations Evaluate Acquisition of Lives at Purchase Decision Two Health Plan Options for Population Health Managers Partner with health plan Provider negotiates population health contracts with third-party health plans Delegated risk arrangements, with shared savings or capitated structure Pursue closer relationships with existing health plan partners Provider evolves partnerships with health plans into more collaborative, trusting relationships to facilitate move to population health Estimated number of provider-sponsored health plans across the country Offer provider-sponsored health plan Provider either acquires existing health plan or builds health plan internally Benefits include more aggressive move into full-scale population health 2014 The Advisory Board Company

39 Acquire existing health plan Existing Health Plan Offers Immediate Opportunities Organizations that choose to offer a health plan have two options for getting into the health insurance business. First, a provider may buy an existing health plan. Johansen Healthcare System s (a pseudonym) purchase of an existing health plan gave the health system access to an insurance license and an existing population. Johansen plans to use the currently Medicaid-focused health plan to gain expertise in the insurance business, before creating and selling a commercial insurance product. Benefits from Acquisition Accrue to Both Organizations Johansen Healthcare System Existing Medicaid, commercial plan members Access to insurance license Future growth opportunities Benefits of Acquisition Local Health Plan Financial stability Future growth opportunities Case in Brief: Johansen Healthcare System 1 Large health system in the East Acquired local health plan that provides coverage to Medicaid, commercial beneficiaries through both HMO and PPO options Health plan s current focus on Medicaid perceived as less threatening to existing commercial plans Health plan provides Johansen with opportunities for eventual growth across both Medicare and commercial populations 1) Pseudonym The Advisory Board Company

40 Build health plan internally From Provider Partnership to Insurance Network The other option is to build a health plan internally. In contrast to buying a health plan, building one gives providers more flexibility in determining the strategic direction of the health plan and its growth goals. For example, Western Health Advantage, a not-for-profit health plan in California, is jointly owned by Dignity Health, UC Davis Health System, and NorthBay Healthcare. These providers formed a comprehensive network across their shared geography and sell that network as a health plan. Since 1996, the health plan has successfully appealed to small employers in the Sacramento area. By 2013, the plan had over 100,000 enrollees and more than $600 million in revenue. Western Health Advantage is now expanding coverage into the individual market, offering a plan through California s public health insurance exchange. Collaborating to Create a Competitive Narrow Network Product Provider-Led Plan Appeals to Small Employers Dignity Health UC Davis Health System NorthBay Health System Western Health Advantage Case in Brief: Western Health Advantage Employers Individuals Not-for-profit provider health plan founded and governed by UC Davis Health System, Dignity Health, and NorthBay Healthcare Traditional focus is on small employers ( employees) As of 2014, offering individual plan through Covered California In addition to founding members, network includes Hill Physicians Medical Group; addition of Meritage Medical Network in 2013 enabled geographic expansion Plan has over 100,000 enrollees and current annual revenue is more than $600M 2014 The Advisory Board Company

41 Key Imperatives for Performance-Driven Contracts 7. Prioritize narrow network product design 8. Develop customized, market-specific cost targets 9. Secure up-front financing for population health infrastructure 10. Standardize quality metrics around internal areas of focus 11. Negotiate to increase frequency of claims feed 2014 The Advisory Board Company

42 Identifying the Elements of Sustainable Contracts As providers expand the number of lives under management, their attention turns to the core attributes of performance-driven contracts. Across contract terms, providers should focus on three overarching questions: First, does basic product design reinforce population health objectives? In particular, plan design should encourage both patients and providers to make value-based decisions. Second, do terms align across contracts? As providers expand the number of risk contracts, key terms such as timing of PMPM payments and quality metrics can help focus care team efforts across different populations. Finally, will the team have access to timely information to improve performance across the contract period? Specifically, will increasing the frequency of the claims data feed support care management and network management efforts? Five Core Attributes of Best-in-Class Value-Based Contracts Feasibility Appeal Sustainability Should we consider taking on this contract? 7 8 Prioritize narrow network product design Develop customized, market-specific cost targets How can we make this contract align to population health initiatives? 9 10 Secure upfront financing for population health infrastructure Standardize quality metrics around internal areas of focus How do we operationalize this contract? 11 Negotiate to increase frequency of claims feed 2014 The Advisory Board Company

43 Identify Nonnegotiable Contract Elements Before entering negotiations, providers should create a list of non-negotiable contract elements. Practice leaders at Crystal Run Healthcare developed a gold-standard template for risk-based contracts. The contract is not signed unless key provisions are included. Identifying these metrics in advance sets clear parameters for negotiation and helps the team avoid contracts with limited chance of success. Contract Not Signed Unless Key Provisions Included Elements of Crystal Run s Ideal Contract Ideal Contract Template Crystal Run Healthcare Patient Attribution Physician roster Methodology Panel update frequency Cost of Care Benchmarks Expenditure calculations Sharing rates, mechanism Quality Number, type of metrics Target methodology Reporting requirements Case in Brief: Crystal Run Healthcare 300-physician multispecialty group based in Middletown, New York Participating in the MSSP, commercial risk-based contracts Created template for what the organization seeks in commercial risk-based contracts Enters negotiations with health plans having identified the configuration of elements that are ideal for Crystal Run Healthcare Data Monthly attribution updates Claims data feed requirements Quality performance updates 2014 The Advisory Board Company

44 7. Prioritize narrow network product design Contract Must Address Attribution, Leakage, and Utilization Basic product design should reinforce value-based decision-making by providers and patients. Narrow network products with value-based benefit design encourage utilization of appropriate providers. These features address three major challenges providers face when taking on risk-based contracts. First, accurate patient attribution. Without a defined network and panel, providers may struggle to deploy care management resources effectively to improve total cost and quality of care. Second, network leakage often fragments care and contributes to elevated cost. Network and benefit design can create incentives for both providers and patients to use highvalue providers. Third, inappropriate utilization of highcost services drives up total cost across the population. Benefit design should encourage utilization of primary care services and appropriate utilization of specialty services. Narrow Network Structure Combined with Benefit Design Critical Challenges Facing Providers Taking on Risk 1 Patient Attribution Provider must ensure cost, quality measures monitored for correct cohort of patients 2 Network Leakage Patients may leave the network for care, increasing costs and making care coordination more difficult 3 Service Utilization Patients may inappropriately utilize high-cost services, settings for care, driving up total costs unnecessarily Narrow Network Patient choices limited by insurance plan Benefit Design Patients nudged toward low-cost services within defined network 2014 The Advisory Board Company

45 Defined Networks Require Active Patient Selection Narrow network design not only places strong incentives to encourage innetwork utilization; but also serves as an engagement lever for patients to select a provider network. Parcell Physician Group, a pseudonym, has seen dramatic differences across its Medicare contracts. For patients in the Pioneer ACO program, the network leakage rate is about 40%. For Medicare Advantage (MA) contracts, the rate is about 5%. The narrow network plan design keeps patients in network, but the group attributes the difference to the active choice that patients make to enroll in a narrow network MA plan. Patients Selecting Narrow Networks Have Lower Leakage Rates Selecting Network Reduces Leakage Pioneer ACO Program Open access network; patients not required to choose PCP Patients may not realize they re covered by Parcell network, may have deliberately chosen open access network Medicare Advantage (MA) Narrow network; patients enrolled in MA plans for Parcell network required to choose Parcell PCP Patients choose to enroll in MA plan; likely more activated, understand they signed up for narrow network Network Leakage Rates Pioneer ACO Program Medicare Advantage 5% 40% Case in Brief: Parcell Physician Group 1 Large physician group in the East Participates in the Pioneer ACO program, also takes risk through MA contracts Patients enrolled in plans covered by Parcell s MA contracts required to choose Parcell PCP Found lower leakage rates for MA patients than Pioneer patients, signals more care sought in the Parcell network 1) Pseudonym The Advisory Board Company

46 Decreasing Increasing Encourage Appropriate Utilization Through Benefit Design With or without a narrow network, benefit design can encourage patients to receive appropriate care in the right setting. There are two types of benefit design strategies: providers can either change the prices of particular services or limit certain services. The goal is to use pricing to encourage positive utilization and discourage inappropriate use of high-cost services and settings. The key to success is communicating pricing changes to patients early and often. Providers must balance between reducing inappropriate utilization and avoiding reduced access to care. Benefit Design Levers to Inflect Utilization Patterns 1 Change Price of Services, Products Strategies to Consider: Differentiate network prices Raise emergency department copays Tier pharmaceutical price structure Reduce price of preventive services Covenant Health s Benefit Pricing Strategy ED visits Urgent care visits Service Price Generic prescriptions Primary care visits (free) As just one example, Covenant Health uses pricing to encourage appropriate utilization among its own employees. The system has discounted the price of generic prescriptions and made primary care visits free. Concurrently, copays for urgent care and ED visits were increased. 2 Limit Access to Certain Services, Products Strategies to Consider: Remove certain brand-name pharmaceuticals from formulary Require prior authorization for imaging services Case in Brief: Covenant Health Three-hospital health system based in Lubbock, Texas Already at risk for own employees Using employees health plan benefit design to encourage appropriate utilization of primary care, generic prescriptions to reduce costs 2014 The Advisory Board Company

47 Minimum network design element Up-Front Patient Assignment, Notification Helps Solve Attribution, Leakage Although narrow network products are becoming more common, health plans can be reluctant to limit patient choice. At a minimum, providers should work with payers to define the attributed patient population for cost and quality targets. Rossitano Clinic, a pseudonymed physician group, secured some of the benefits of a narrow network with an open access PPO product. Unlike many open-access products, Rossitano s health plan partner requires patients to select a home primary care clinic. As a result, Rossitano can proactively target care management efforts. At the same time, patients still have access to a broad provider network. Knowing Who to Target Is Half the Battle Patients Required to Choose Primary Care Clinic in Broad Network Rossitano Clinic receives notification of patient choice of primary care clinic Able to target patient for additional care management Rossitano Clinic PPO 2 Health Plan Other providers participating in health plan network Case in Brief: Rossitano Clinic 1 Large multispecialty physician group based in the West Partnering with commercial health plan on open-access PPO product through which any patient that picks the product is required to choose a primary care clinic for assignment Provider will receive notification from health plan when patient chooses Rossitano Clinic, also when a patient switches providers Rossitano Clinic is better able to target care management services to patients assigned under the arrangement with health plan 1) Pseudonym The Advisory Board Company

48 8. Develop customized, market-specific cost targets Cost Targets Should Reflect Institutional Priorities The next baseline contract element is how the cost target will be determined. Ideally, the cost target is customized to the institution s market, defined prior to the contract s performance period, and adjusted to reflect the organization s population. During our research, three methodologies emerged as the most commonly used for setting cost targets under risk-based contracts. The ideal methodology depends on the organization type. For example, traditionally high-cost organizations should use a comparison against a historical baseline. This methodology permits organizations to achieve savings on progress they make in reducing costs. Ideal Methodology Depends on Organization Type Attributes of Favorable Cost Targets Customized Target must be attainable and appropriate to organization s unique circumstances Defined Up-Front Organization must know the cost target prior to the performance period Risk-Adjusted Target reflects attributed population s aggregated risk Three Commonly Used Methodologies Comparison against percent of premium Health plan defines a percent of premium dollars collected from attributed population as cost target At end of performance period, total actual expenditures compared to target expenditure Comparison against local, network benchmark Health plan determines benchmark, cost growth target for provider s market, rest of health plan network At end of performance period, provider s results compared against the benchmarks for market and network Preferred methodology for low-cost organizations Comparison against historical baseline Health plan aggregates provider s historical spend for attributed population, trends historical expenditures to identify target Provider s actual expenditures compared to target at end of performance period Preferred methodology for high-cost organizations 2014 The Advisory Board Company

49 Percent of premium methodology Percent of Premium for Medicare Advantage Populations Under the percent of premium methodology, the cost target is set using the medical loss ratio (MLR). The ACA requires large group and Medicare Advantage plans to spend at least 85% of premiums collected from beneficiaries on medical care. For example, under this cost-target structure, if Lawson Health System s (a pseudonym) actual expenditures are less than 85%, the health system will share in a percentage of the savings. If Lawson further reduces expenditures, the share in savings increases. On the other hand, if actual expenditures exceed 85%, Lawson must pay back part of the cost overage. Leveraging Risk Adjustment Done by Health Plan to Set Cost Target Sliding Scale of Opportunity, Risk 85% Percent of Premium 70% 100% (MLR) Sharing Rate of Savings, Cost Overruns Health Plan Lawson Health System 1 25% 75% Savings Generated 50% 50% Cost Overage Generated 65% 35% 75% 25% Case in Brief: Lawson Health System Medium-sized health system based in the South Negotiating risk-based contract with local Medicare Advantage plan Expenditure target determined by medical loss ratio (MLR), which is set at 85% 2 of the premium collected by the health plan Bonus, cost overage sharing rate depends on performance against MLR? What Is the MLR? Created by ACA, requires health plans to spend at least 80%- 85% of premiums collected from beneficiaries on medical care Used as expenditure target in some MA contracts Health plan has already taken risk into account when setting premium, removing need for provider-based risk adjustment 1) Pseudonym. 2) 80% for individual, small group markets; 85% for large group markets. Source: Medical Loss Ratio: Getting Your Money s Worth on Health Insurance, The Center for Consumer Information & Insurance Oversight: Centers for Medicare and Medicaid Services, December 2, 2011, FAQs/mlrfinalrule.html; Health Care Advisory Board interviews and analysis The Advisory Board Company

50 9. Secure up-front financing for population health infrastructure Attracting Bridge Financing to Get Started The transition to population health management requires extensive investments in care management capabilities, analytics infrastructure, and additional staff in the ambulatory setting. To defray up-front costs, providers are balancing up-front PMPM payments with an end-of-year bonus. Under one commercial risk-based contract, Spurlock Health, a pseudonym, receives a care coordination fee (CCF) at the beginning of each quarter. The CCF is used to fund care management infrastructure. But, the CCF is closely tied to performance. At the end of the quarter, if Spurlock does not meet quality targets, a portion of the funds must be returned to the plan. Incentivizing Success by Placing Support at Risk Process for Prospective Quality Payments at Spurlock Health 1 Health plan pays PMPQ 2 care coordination fees at beginning of quarter First Quarter Spurlock Health uses funds to hire care coordinators, improve disease registry Spurlock Health achieves all quality metrics during quarter Keeps entire care coordination fee payment Spurlock Health does not achieve all quality metrics Required to pay back PMPQ received for each metric missed Case in Brief: Spurlock Health Large health system located in the West Care coordination fees paid by health plan at beginning of each quarter, receives $1 PMPQ for each quality metric included in contract, up to $8 total PMPQ Spurlock must pay back fees received for any metrics missed at end of performance period Funds investments necessary for success under population health contracts 1) Pseudonym. 2) Per-member, per quarter The Advisory Board Company

51 10. Standardize quality metrics around internal areas of focus Avoiding an Overwhelming Number of Quality Metrics As providers take on more risk-based contracts, one challenge is managing the total number of quality metrics. In some cases, PCPs are trying to manage over 100 quality measures. Tracking and improving performance on this number of metrics is unsustainable. Organizations must first select key metrics that improve patient care and then standardize metrics across all contracts. Sheer Number, Variation of Metrics Makes Targets Difficult to Hit Two Considerations When Standardizing Quality Metrics 1 Which metrics should we choose to 2 standardize around? How do we standardize quality metrics across population health contracts? Metrics commonly standardized around nationally accepted performance benchmarks (e.g., HEDIS 1 or CMS ACO measures) Insist on standardization around quality metrics that are already a priority Different metrics across contracts, with some organizations tracking more than 100 metrics across all of their population health contracts Focus on subset of metrics with a halo effect to entire metric list 1) Healthcare Effectiveness Data and Information Set The Advisory Board Company

52 Prioritize Metrics Identified by Medicare A starting place for many organizations is using metrics already identified in the Medicare Shared Savings Program. The 33 quality measures in the program provide a base from which to choose metrics for commercial contracts. Covenant Health uses those metrics as the basis for standardization across all commercial risk-based contracts. The organization s goal is to have six to eight quality metrics from the MSSP list included in each contract. Standardizing Around Most Common Third-Party Metrics Participation in MSSP requires that Covenant Health focus on 33 MSSP quality measures 33 MSSP ACO Quality Measures Covenant Health enters commercial contract negotiations with list of MSSP quality measures Asks health plans to choose six to eight quality measures from the MSSP list to include in contract Case in Brief: Covenant Health Three-hospital health system based in Lubbock, Texas Participating in MSSP, negotiating risk-based contracts with commercial health plans Goal is to have six to eight quality metrics included in each commercial contract Already required to focus on MSSP quality measures, asking health plans to choose six to eight metrics from that list to include in contracts 2014 The Advisory Board Company

53 11. Negotiate to increase frequency of claims feed Successful Management Requires Timely Claims Data The final step for a provider when evaluating a potential risk-based contract is access to data. Vital to longterm sustainability of population health is access to a data source that helps prioritize care management interventions. Providers typically lack access to actionable claims data files needed for effective population health management. No Organization Has All the Data It Needs Four Key Findings from Claims Data Understanding of services that attributed patients commonly seek outside the network Potential Actions from Findings Identify whether new services should be offered within the network Determine which services to discount, increase price Identification of patients that regularly seek care outside the network Target patients for additional care management, outreach Understanding of the cost of services sought outside the network that will be included in the shared savings calculation Budget for any out-of-network care Identification of physicians who typically refer patients outside the network Target physicians for additional education about services offered in-network Disseminate cost, quality information Data must be received as close to real-time as possible (received at least monthly) 2014 The Advisory Board Company

54 Recognizing the Importance of Timely Claims Data Before signing a risk-based contract, Covenant Health requires health plans to commit to a monthly claims data feed. If the health plan will not agree to provide claims data that frequently, Covenant refuses to sign the contract. Although receiving monthly claims data is ideal, exchanges of that frequency are fairly rare. Claims data is typically exchanged quarterly, and in some cases, in longer increments. Incorporating Claims Data Stipulations in Contracts Covenant Health Requires Monthly Claims Data Feed to Drive Population Health Efforts Contract stipulates full monthly claims data dump from health plan Health plan uploads full claims data dump to Covenant Health s analytics system Population Health Management Analytics System Claims data provides Covenant Health with insights on attributed patient population Case in Brief: Covenant Health Three-hospital health system based in Lubbock, Texas When negotiating population health contracts, requires health plans to agree to full monthly claims data dump to Covenant Health s population health management analytics system If health plan does not agree to data requirements, Covenant Health will not sign contract 2014 The Advisory Board Company

55 Cross-Continuum Performance Management 12. Establish internal market for referrals 13. Dedicate team to address leakage 14. Design principled physician compensation, bonus distribution 2014 The Advisory Board Company

56 Create a Seamless Network to Accomplish Cost and Quality Goals Accomplishing population health goals requires seamlessly delivering care across strategically aligned partners. To improve ongoing management, providers are sharing performance data, increasing patient navigation services, and aligning incentives to reward high-value care delivery. Efforts to improve quality, efficiency, and innetwork care benefit providers under both fee-for-service and full-risk contracts. Enhancing Network Performance Good Regardless of Level of Risk Attributes of High-Performing Clinical Networks Coordinated Care Transitions Alignment across all providers improves patient outcomes and reduces medical cost trend Enhanced Quality Performance Standardization of clinical processes across all sites of care to improve clinical quality metrics Clinically Appropriate Care Dedicated referral management enables continuity of care, reduces gaps and duplications Reduced Cost of Care Transparent performance data helps pinpoint opportunities for cost and utilization reduction 2014 The Advisory Board Company

57 Design Systems to Reinforce Effective Network Performance After creating a network of aligned providers, best-in-class organizations build a care management infrastructure and elevate the performance of their care delivery network. Care management, while necessary, is not sufficient to effectively manage the needs of a population under risk-based reimbursement. Best-in-class providers use three tactics to reinforce care management performance across the entire physician network. First, teams create an internal market for referrals. Increased transparency supports decision making based on cost and quality outcomes. Second, leaders deploy tools to streamline referrals and address reasons for out-of-network leakage. Last, top performers design principled physician compensation and bonus distribution focused on high-value care delivery. Improve Quality and Cost Through Referral Management, Incentives Three Essential Tactics for Improving Network Performance 12 Establish Internal Market for Referrals Increase availability of cost and quality data within network 13 Dedicate Team to Address Leakage Improve in-network handoffs and address gaps resulting in leakage 14 Design Principled Physician Compensation, Bonus Distribution Align financial incentives with cost and quality goals 2014 The Advisory Board Company

58 12. Establish internal market for referrals Lack of Data Limits Performance Improvement Efforts A critical element of network performance improvement is data transparency. Within an aligned group of providers, uncovering and sharing cost and quality data helps highlight areas of strength and opportunities for improvement. Organizations may start by sharing performance data only with individual physicians. However, many best-inclass population health managers share dashboards broadly across the network to help inform physician decision making.. Analytics Illuminate Areas for Focus Data Transparency Provides Insight into Performance Improvement Areas No way to find problem areas One-dimensional view of performance Track performance on cost, quality, and utilization Comprehensive, multi-site performance Physicians unaware of own performance Highlight top performers 2014 The Advisory Board Company

59 Track performance on cost, quality, and utilization Assess Physician Group by Cost and Utilization Patterns Summit Medical Group in Tennessee uses a dashboard to assess individual PCP performance. Analyses are run on the number of attributed patients, hospital utilization, and cost of care. This data then facilitates conversations between leadership and individual physicians, highlighting areas of strength as well as opportunities for improvement. Summit Medical Group s data also provides a comprehensive view of its specialist network. Medical group leaders examine performance for specialties, clinics, individual specialists, and even specific procedures to determine which areas drive the highest costs. When assessing each of these events, Summit not only looks at its highestcost contributors, but also compares them with benchmarks to check how performance aligns with regional and national cost targets. Summit Evaluates Individual Primary Care Performance PCP Dashboard Illuminates Practice Patterns Number of attributed patients Hospital utilization Inpatient admits ED visits Readmission rate Cost PMPM; average and risk adjusted Case in Brief: Summit Medical Group Analyze Results at Each Level Specialty Clinic Individual specialists Specific procedures 220-physician primary care group based in Knoxville, Tennessee Analyzes practice data based on individual PCP s costs and utilization rates Highlights specialist data across ACO by specialty, clinic, individual provider, and procedure to target specific areas for cost-cutting Source: Kauffman, K, Revenue and Cost Management Best Practices. National Association of ACOs, February 18, 2014, Health Care Advisory Board interviews and analysis The Advisory Board Company

60 Maintain common standards across sites Agreement on Standards and Continuous Reporting Reinforce Collaboration Data transparency across partners can also highlight areas for collaboration on care pathways. North Shore-LIJ sends Skilled Nursing Facility (SNF) partners a monthly scorecard, including metrics such as long-term mortality rates and total readmissions rates. In addition to driving high-quality SNF performance, this scorecard focuses conversations between North Shore-LIJ and its partners on areas for improvement. Monthly SNF Scorecard Long-term care mortality rate Long-term hospitalization index Total readmission rate within 30 days Total readmission rate within 72 hours Case in Brief: North Shore-LIJ 16-hospital, not-for-profit health system based in Great Neck, New York In 2008, created a SNF affiliate network of 19 from list of potential 266 Elements of SNF Partnership Create close relationships with the systems Choose the right metrics Require monthly reporting to ensure continuous performance Work together on standardized treatment protocols Reducing Readmissions and ED Visits at North Shore-LIJ s Affiliates Readmissions from Affiliated SNFs 27% 11% Source: Healthcare Financial Management Association, Bridging Acute and Post-Acute Care, Acute_Care; Health Care Advisory Board interviews and analysis The Advisory Board Company

61 Highlight top performers Share Performance Data Across the Network Open access to data helps performance management across a complex specialist network. MissionPoint HealthPartners created a scorecard mapping out physician volume and quality. MissionPoint publicizes physicians by name only if they fall in the top-right quadrant the highest performers in the network. Making data about top performers public not only helps inform referral decision making but also encourages physicians in other quadrants to match the high quality provided by their peers. MissionPoint Maps Physicians by Quality, Volume Volume Physician Performance Scores High Volume, Low Quality Low Volume, Low Quality By Specialty, 2013 Quality High Volume, High Quality Low Volume, High Quality Case in Brief: MissionPoint Health Partners Physician group based in Nashville, Tennessee Uses Crimson Continuum of Care software tool to map primary care physicians, specialists along volume, performance vectors Shares data with physician leadership to course correct when necessary 40% 30-day Readmissions Weighted Score Formula 24% Mortality Rate 20% Average Charges 16% Complications of Case Rate Medical per Member per Month Cost Trend (Dollars) Day All Cause Readmission Rate 8.99% % 150 Jan-Dec 2011 Jan-Dec 2012 Jan-Oct 2013 Nov Oct 2012 Nov Oct The Advisory Board Company

62 13. Dedicate team to address leakage Support Patients at the Point of Referral Patient leakage poses a significant obstacle to reducing costs. As patients leave the network for care, they may incur unnecessary diagnostic tests or duplicate existing tests. Uncoordinated out-of-network care is a significant driver of cost growth. To address the factors causing patients to leave the network, such as specialist availability or lack of information, health systems are streamlining in-network referrals and responding to gaps in network performance. Leakage Occurs as a Result of Avoidable Roadblocks Situations in Which Patient Might Go Out-of-Network Physician not available Convenience Physician referral to out-of-network specialist Need for immediate care Office did not have referral information 2014 The Advisory Board Company

63 Equip Practice Team with Referral Information The first step in improving the process is making sure that the right team has access to referral information. While physicians are an important constituency to engage, office managers and other staff play an important role in helping patients navigate the system. After reviewing PCP responsibilities, Arizona Connected Care determined that PCPs were too busy to add referral management to existing clinical responsibilities. Arizona Connect Care works with office managers and referral coordinators to determine whether specialists are in or out of network. Send Referral Information to Coordinators, Not Just the PCPs Disadvantages of Using PCPs PCPs too busy and do not have time to prioritize comparison between in-network vs. out-of-network Instead, referral information shared to ensure buy-in to process Advantages of Referral Coordinators Office manager and referral coordinators are more effective due to more time and increased staff capacity Use existing staff capabilities Case in Brief: Arizona Connected Care 380-physician ACO based in Tucson, Arizona Targeted PCP s office management and referral coordinators with referral management information, rather than the PCP 2014 The Advisory Board Company

64 Elevate Leakage Management to the System Another tactic to make referral management more efficient is to elevate navigation to a system-level resource. Reliant Medical Group, an independent physician group in Massachusetts, created a referral management department. When a patient calls to schedule an appointment, the team of two nurses and seven MAs takes responsibility. An integral part of the team s strategy is ensuring patients know the advantage of staying within the Reliant network. Reliant Uses Team to Connect Patients to In-Network Providers One Team for Six Clinics Patient calls Referral Management Team 2 nurses 7 MAs or analysts Uses script Patient stays in network Value of Staying In-Network: Many years spent focusing on continuity of care High quality of Reliant s services Value of continuity of care Benefit to patient of staying within the system Enhanced safety, follow-up with shared EMR Case in Brief: Reliant Medical Group 250-physician independent physician group located in central Massachusetts (formerly known as Fallon Clinic) Leveraged extensive risk-based contracts to create a comprehensive centralized referral management department Dedicated to keeping patients specialty referrals within the Reliant network 2014 The Advisory Board Company

65 14. Design principled physician compensation, bonus distribution Transition Incentives to Reward Population Health Metrics The last step is aligning incentives to reinforce population health management. Many organizations are just beginning to redesign compensation or bonus distribution models. While this is a relatively new area for many on the path to population health management, these frontier practices are a critical part of the transition. Physicians Continue to Be Reimbursed on Pure Productivity Important to Align Incentives Across the System and Physicians for Care Transformation. System Level Value-based contracts Participation in ACOs Reimbursed for population health Bonuses based on quality and costsavings Misaligned Incentives Physician Partners Reimbursed based on volume Few or no bonuses for quality Not included in ACOs Few incentives to focus on population health 2014 The Advisory Board Company

66 Link Compensation to Total Cost, Quality Hornberger Healthcare, a pseudonym, ties a portion of its employed physicians income directly to cost of care. If the clinics hit the predetermined cost target, the clinics receive their full payment. If they go over the cost limit, then a third of their overspend is paid back to the system. If they are under the cost target, they receive their full payment as well as one-third of the amount that they saved. On an individual basis, physician income is linked to productivity, quality, service, and total cost of care. This arrangement highlights cost and quality performance as a top priority across the entire health system. Incentivize Clinics and Physicians on Value-Based Metrics Physician Income at Risk for Total Cost Performance 12.5% of payment tied to budget reduced by one-third of cost overrun Total Cost of Care Target for Population Costs Exceed Target Clinics receive full payment Costs Hit Target Clinics receive full payment plus one-third of savings generated Costs Less Than Target Case in Brief: Hornberger Healthcare 1 Health system based in Midwest Pilot with 383 physicians and 15 clinics with savings linked to cost targets Individual physician income is divided further into productivity, quality, service, and total cost of care with upside and downside risk Components are paid independently 1) Pseudonym The Advisory Board Company

67 Multitiered Elements Key to Behavior Change Johansen Healthcare, a pseudonym, links multiple elements to physician compensation. These elements include cost, quality, and efficiency targets, as well as participation in key initiatives such as such as medical home development. By incorporating multiple elements into compensation, Johansen Healthcare emphasizes that population health requires a suite of strategies and success derives from physician performance on each one. Redesign Model Rewards Population Health Comprehensive Physician Compensation Package PMPM Target of Spend Quality Efficiency Strategic Development Prioritize low cost Incentivize quality care Prioritize workflow improvement Participation in medical home Case in Brief: Johansen Healthcare 1 Large health system in the East Portion of physician compensation tied to PMPM target of spend and care delivered in the network; quality, efficiency, and strategic infrastructure goals Initially had individual targets, but now have one target for the whole system 1) Pseudonym 2014 The Advisory Board Company

68 Three Methods for Bonus Distribution The second important aspect of incentive design is principled bonus distribution. Currently, three potential methods are used by the most innovative providers to distribute bonuses. While the most effective mechanism will vary depending on the individual system, the underlying objective remains constant: to align the network s incentives with those of the larger system. Weighing Both Productivity and Performance Three Methods for Allocating Shared Savings or Other Performance-Based Payments Performance-Adjusted Productivity Volume Separate Participation, Volume, and Quality Participation Rewarding Direct and Indirect Impact Direct impact on quality Volume Performance Performance Indirect impact on quality; engagement metrics 2014 The Advisory Board Company

69 Performance-adjusted productivity Allocate Funds Based on Volume, Performance DeBarber Health Partners, a pseudonymed ACO in the Southeast, chooses to distribute funds based on head count and then adjusts based on performance. Bonuses to physicians are first determined by their number of attributed patients. This amount is further modified by the percentage of quality indicators met by each individual. Start with Number of Patients, Then Adjust Based on Quality Distribution Formula for Each Physician Pool Total dollars in pool Total patients in pool X Number of patients attributed to or treated by physician X Percent of quality indicators achieved by physician = Bonus earned by physician Case in Brief: DeBarber Health Partners 1 Health system-affiliated ACO in the Southeast with 1,500 participating physicians, several shared-savings contracts Initial bonus split divides funds into separate pools for PCPs, specialists, inpatient facilities (including hospital-based physicians), outpatient facilities, and network overhead PCP distribution based on number of attributed patients; specialist distribution based on number of treated patients, with any physician who saw the patient receiving credit 1) Pseudonym The Advisory Board Company

70 Separate participation, volume, and quality Create Separate Pools for Participation, Performance Halster Physicians, a pseudonymed clinically integrated practice in the Northeast, allots a specific percentage of the bonus based on participation in the ACO, number of attributed patients, and performance. This design rewards physicians directly on their performance in every area, without one metric affecting another. Distinct Categories for Different Performance Measures Distribution Formula for Each Physician Pool 15% Bucket A: Participation Available to all physicians Pool/participating physicians = provider payout Total Earned Savings Provider Bonus = A + B + C 30% 55% Bucket B: Per Life Available to physicians with attributed patients Pool/total covered lives = per-life amount Per-life amount x attributed patients = provider payout Bucket C: Performance Available to all physicians Participants earn points based on performance Pool/total points = per-point amount Per-point amount x earned points = provider payout Case in Brief: Halster Physicians 1 Clinically integrated independent practice association in the Northeast with more than 300 physicians Joined Medicare Shared-Savings Program in 2012, also maintains two commercial shared-savings contracts 1) Pseudonym The Advisory Board Company

71 Rewarding direct and indirect impact Adding Specialists Improves Physician Alignment While the previous two strategies reward combinations of volume and quality performance, Hooper Health System, a pseudonym, takes an entirely different approach. In its model, half of the bonus goes to physicians who have a direct impact on quality, such as PCPs. The other half is distributed based on engagement metrics, such as participation in performance improvement or virtual care. Pools for Both Direct and Indirect Performance Reward All Participants Distribution Formula for Each Physician Pool Funds received from payer for hitting quality metric By distributing bonuses this way, Hooper engages the whole continuum, bringing the team together and keeping the network engaged for the long term. Individual Performance Pool (50%) Reserved for physicians who directly impact contract metric, as determined by network leaders Initial split divides equally among all physicians in pool Adjusted for individual performance on contract metric Group Performance Pool (50%) Distributed among all physicians in good standing Adjusted based on performance on engagement metrics (e.g., CME attendance, use of e-prescribing) Intended to reward indirect contributions to network performance Case in Brief: Hooper Health System physician clinically integrated network in the South Bases its distribution model almost entirely around specific payer-driven quality metrics (e.g., 30-day readmission rates). Rather than allocating funds based on attributed or treated patients, as other profiled ACOs do, the network instead divides the bonus for each quality metric separately 1) Pseudonym The Advisory Board Company