America s Evolving Healthcare Model. 1 America s Evolving Healthcare Model

Transcription

1 America s Evolving Healthcare Model 1 America s Evolving Healthcare Model

2 America s Evolving Healthcare Model A few years ago, Forbes released a survey of 204 CEO s, CFO s and Chief Medical Officers for leading healthcare institutions. Despite the fact that PPACA was fully operational and CMS was actively implementing value-based reimbursement, the report found that less than half of the executives (40%) felt that value-based purchasing (VBP) models would become a permanent part of the American healthcare industry i. In fact, one out of five (21%) felt that value-based healthcare would not have any lasting impact. The fear, or hope, is that conventional fee-for-service healthcare will continue as the basis of America s healthcare model and that attempts to reduce costs are futile at best and potentially destructive at worst. The objective of this paper is to address that question and evaluate the possibility that value-based healthcare will, in fact, become a core component of the American healthcare model. The focus of this evaluation will be on identifying the drivers behind value-based healthcare and assessing the likelihood that those drivers will prevail over the long term. Assuming those drivers do prevail, the result will be substantial changes in the way healthcare is marketed, purchased and delivered in America. Value-based Healthcare One of the more popular definitions for value-based purchasing models is, The concept of value-based healthcare purchasing is that buyers should hold providers of healthcare accountable for both cost and quality of care. Value-based purchasing brings together information on the quality of healthcare, including patient outcomes and health status, with data on the dollar outlays going towards health. It focuses on managing the use of the healthcare system to reduce inappropriate care and to identify and reward the best-performing providers. This strategy can be contrasted with more limited efforts to negotiate price discounts, which reduce costs but do little to ensure that quality of care is improved. ii 2 America s Evolving Healthcare Model

3 Value-based healthcare traces its origin to the Health Maintenance Organization Act of 1973 and the advent of federally qualified HMOs. The managed care concept was generally based on the Kaiser Permanente insurance plans and was directed at reducing healthcare insurance costs. The advent of managed care, in turn, gave birth to IPA s and PPO s that often entered into contracts featuring capitated or heavily discounted fees together with tightly managed plan designs. As managed care contracts became increasingly prevalent during the 70 s and 80 s, for-profit healthcare and the inevitable desire to minimize costs led to unintended consequences such as avoidance of high-risk patients, limited patient access and reduced preventative care. After two decades of expansion, public demands for improved access and healthcare led to the creation and implementation of quality measures as a form of checks and balances on managed care arrangements. Measuring Value Created in 1991, HEDIS was one of the first national quality standards applied to measuring value in managed care environments. HEDIS became the de facto standard for managed care in 1997 when it was adopted by CMS for use by Medicare Managed Care contractors (currently named Medicare Advantage). In 2001, California implemented the Pay-for-Performance (P4P) standard for HMO operations in that state and others soon followed including the Physician Quality Reporting System (PQRS) system implemented by CMS in Quality measures standards such as HEDIS, P4P and PQRS are now a component of virtually all provider contracts and materially affect reimbursement rates. Quality measures essentially provide a crude measure of the clinical value component and define the minimum level of care that must be delivered under the terms of the provider contracts. 3 America s Evolving Healthcare Model

4 Measuring Costs Despite the widespread use of managed care, healthcare costs resumed a hyperinflationary climb in the 1990 s after a decade of moderate increases. That development prompted a majority of American employers to begin actively exploring opportunities to substantially mitigate healthcare benefit costs. In America s employer-based health insurance model, businesses absorb an average of 73% of the cost of employee healthcare coverage iii. The growth of the healthcare cost component has rapidly inflated labor costs and hindered the ability of American businesses to increase employee wages and maintain competitiveness in the global market. As a result, employers are increasingly eliminating health insurance benefits or shifting employee healthcare from a defined benefit to a defined contribution. Evolving Employer Benefits Between the mid-1980 s and 2004, various sources document a 6% - 15% decrease in the number of full-time workers covered by employer based healthcare coverage iv. Towers Watson research shows that, between 2007 and 2011, the percentage of employers who were highly confident that their organization would be offering health benefits 10 years in the future fell from 70% to 23% v. During this same time frame, the number of employers shifting healthcare benefits from a defined benefit plan to a defined contribution plan was increasing. While defined benefit plans provide a standard set of health benefits with the bulk of the financial burden and risk falling on the employer, defined contribution plans allow the employer to make a fixed cash contribution to an account that the employees use to purchase insurance products of their choice. Although other issues remain, the shift to defined contribution health plans provides numerous benefits to employers, not the least of which are budgetary certainty and reduced administrative costs. The broad acceptance of defined contribution health plans is exemplified by the 2012 Republican budget proposal vi. The Republican Study Committee proposed shifting federal health benefits from a defined benefit to a defined contribution model for 4.2 million 4 America s Evolving Healthcare Model

5 federal employees. The change would provide fixed contributions of $5,000 for single federal workers and $11,000 for families and generate an estimated 10-year savings of $27.6 billion. Comparisons between the shift in pension plan models that occurred during the 80 s and 90 s and the shift in health plan models that began in the 90 s are unavoidable. Until the 1970 s, the vast majority of employers offering pension plans used the defined benefit model. However, the passage of the Employee Retirement Income Security Act created the regulatory framework necessary for a shift from defined benefit pension plans to defined contribution pension plans. Within 15 years of the implementation of ERISA, defined contribution 401(k) plans had overtaken defined benefit pensions to become the most prevalent form of employer-based pension plan in America. The following chart summarizes the shift to defined contribution pension plans in the American marketplace vii : 5 America s Evolving Healthcare Model

6 In general, the Patient Protection and Affordable Care Act (PPACA) provides the same regulatory framework for health plans that ERISA provided for defined contribution pension plans. Aside from the PPACA s incorporation of the exchange mechanism, the legislation also implements a number of other regulatory changes that facilitate the employers shift to defined contribution and risk sharing health plans. These key changes include guaranteed issue, modified community ratings, fixed contributions (i.e., subsidies) and increased market competition among insurance vendors. Coinciding with the shift to defined contribution health plans, a new form of health insurance marketplace began to appear in the form of private health exchanges. These marketplaces allow employers to administer and employees to select various insurance benefits from multiple competing vendors. Just as 401k plans provided a mechanism for shifting pension benefits from a defined benefit to a defined contribution, a mechanism is needed for the same shift to take place with health benefits. That mechanism is the private health exchange. Exchanges allow the employer to deposit a fixed amount into an employee s account and allow the employee to choose from a variety of competitively priced benefit plans. The first prototype private health exchange appeared in Kentucky in the mid-1980 s as the creation of a group of former Humana executives. While the model was crude and initially designed to provide and administer health plans through a network of banks, the core systems of International Medical Exchange proved viable and the product rights were eventually acquired by Anthem (then known as Blue Cross Blue Shield of Kentucky). Other private health exchanges soon followed. One particularly successful example is CaliforniaChoice, established in Since its creation CaliforniaChoice has grown to include more than 10,000 employers and more than 150,000 employees. In 2006, Massachusetts created the first public health exchange. This exchange was soon followed by the Federal public health exchange, healthcare.gov. The Federal health exchange combined nearly all state marketplaces into a single portal. 6 America s Evolving Healthcare Model

7 As of 2014, Rand Corporation estimates that 10 major national private exchanges were in operation serving approximately 2.5 million enrollees including both active and retired employees. By 2015, Accenture Consulting reported that an estimated 6 million members enrolled in their benefits through a private health exchange viii. For the 2016 coverage period, the combined state and healthcare.gov portals had enrolled more than 11 million members ix. Evolving Markets The growth of both defined contribution plans and health exchange marketplaces has shifted the target market for health insurance vendors from the employer to the individual employee. This dramatic change in the target market is extremely challenging on a number of fronts. 7 America s Evolving Healthcare Model

8 As pointed out by PricewaterhouseCoopers, the major challenges include: margin compression, administrative burdens and disintermediation. The most readily apparent challenge is in the marketing relationship. The new paradigm replaces the payer-employer relationship with a direct relationship between the payer and millions of individual health insurance consumers. Payers will experience a substantial decrease in their ability to manage the relationship and, therefore, influence retention, cross-selling, etc. In addition, much of the administrative load for managing employee education and enrollment will shift from the employer to the insurance vendor. Payers will be required to educate consumers on the features and advantages of their health plans as part of the sales and marketing process. Finally, payers will be forced to aggressively compete on pricing. This is the most significant paradigm shifts in the history of the American health insurance industry. To borrow the phrase used by PwC, employer-based health insurance is about to become consumerized. The combination of defined contributions and health exchanges will create a market in which health insurance pricing is extremely transparent to American consumers. In effect, consumers will increasingly come to understand that purchasing family health insurance is the financial equivalent of purchasing and paying off a new car every year. Payers have already accepted the fact that consumers will begin to display the same shopping behaviors in both markets. Evolving Relationships Changes in health insurance benefit structure, health insurance plan designs are driving substantial changes in the relationships among patients, providers, employers and insurance payers. The transaction structure of the American healthcare market is what is known as a 3rd party payer system. In 3rd party payer arrangements, every transaction has three parties: the buyer, the seller and the payer. Because the buyer is not directly responsible for paying the full price to the seller, normal market forces do not work to control quantity and price. 8 America s Evolving Healthcare Model

9 Because the price to the buyer is fixed (i.e., the copay amount), sellers are inclined to maximize both the price and quantity of the product or service sold. Moreover, there is no financial incentive on the part of the buyer to assess the need or value of the products and/or services being purchased. Given that economic environment, health insurance payers have accepted the fact that the only feasible method for reducing healthcare costs and, in turn, health insurance prices is to shift the financial risk away from themselves and down the transaction chain to both the healthcare consumers and the healthcare sellers. For the consumers in the American healthcare model, the financial risk sharing appears in the form of consumer driven health plans. Despite the euphemism, consumer-driven health plans operate by imposing extremely high out-of-pocket deductibles on consumers. These deductibles generally exceed the average annual cost of healthcare for an individual or family and, therefore, provide what is more commonly known as a major medical coverage. Facing the prospect of having to pay out of pocket for the full price of all products and services ordered by healthcare providers, consumers are far more inclined to: 1) demand pricing transparency, 2) question the value of the product or service and 3) to shop for the provider who delivers the best price/value combination. In effect, normal free-market forces are largely restored to the transaction. For healthcare providers, the payers are implementing several strategies directed at shifting financial risk down the ladder to the healthcare providers themselves in what is now typically referred to as value-based healthcare. Provider contracts incorporating bundled payments (capitation or encounter/case), PCMH programs and Accountable Care Organizations (ACO) have become common in America s 21st century healthcare model. Although professional services capitation contracts date from the beginning of the HMO plans, episodic bundled payments originated in the mid-1980 s with Medicare launching the first demonstration project in the early 1990 s. By 2001, CMS had adopted bundled payments as one type of blended payment method and other demonstration projects soon followed in the private sector. By 2007, organizations such as St. Joseph Hospital 9 America s Evolving Healthcare Model

10 in Denver and Geisinger Health System had implemented limited scope projects while Robert Wood Johnson Foundation implemented the Prometheus project that developed evidence based case rates for a wide range of conditions. Bundled payment contracts for major procedures have received increasing acceptance and use in the private health payer market and are now a well-established form of risk sharing contract between payers and hospital/provider organizations. In 2013, CMS launched the Bundled Payments for Care Improvement Initiative covering 48 clinical episodes. PCMH programs are directed at improving the coordination of care for patients. These models implement a team approach to providing healthcare with a primary care physician accepting responsibility for the ongoing care of patients and appropriately arranging care with other qualified professionals. At this point in time, the single largest implementation of ACO risk sharing contracts is the CMS Medicare Shared Savings Program (MSSP). However, virtually all major commercial health insurance payers have implemented various programs based on risk-sharing contracts with ACOs. With the advent of the CMS MSSP program, the number of ACOs contracted by private and/or public payers has increased dramatically. Looking Forward Source: Projected Growth of Accountable Care Organizations, Leavitt Partners, December America s Evolving Healthcare Model

11 Depending on the data source the per capita cost of healthcare in America is at least 35% x higher than the next closest country, yet America ranks 23th among OECD countries for doctor visits per capita xi, 34th in life expectancy xii and a staggering 51st in infant mortality. While the exact values of these statistics could be argued, the inescapable conclusion is that America is now laboring under one of the most economically inefficient healthcare models in the world. By 2014, the average premium for a family health insurance policy had reached $16,655 xiv. Since 1996, family premiums have increased by 336%. The cost of basic health coverage now exceeds one-third of the median household income in America. America s healthcare system is dangerously close to becoming a luxury that is unaffordable to the bulk of the American public. The percentage of American public without health insurance (private or public) increased from 11.4% in 1980 to 16% in 2010 xvi. In terms $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Average Premium - Family Policy Source: Center for Financing, Access and Cost Trends, AHRQ, Insurance Component of the Medical Expenditure Panel Survey 11 America s Evolving Healthcare Model

12 of economic impact, the percentage of America s GDP consumed by healthcare has increased from 4.5% in 1950 to 17.9% in Unchecked, these trends threaten the strength and global competitiveness of America s economy. America s private and public sectors have responded to these trends by adopting a variety of changes in the way healthcare is marketed, purchased and delivered. P To remain profitable and competitive, employers are shifting healthcare benefits from a defined benefit to a defined contribution. To maximize the efficiency of those benefit dollars, employers are increasingly turning to health exchange portals to provide competitive marketplaces from which employees can purchase insurance products. P Facing increasing competitive pricing pressure from the health exchange markets, insurance payers are shifting financial risk to both the patient and the healthcare providers. P Patients, facing dramatic increases in out-of-pocket costs, are demanding increased pricing transparency, questioning necessity and carefully weighing value propositions. P Providers, the point of delivery for America s healthcare, are responding to all of these drivers by aggregating into larger operational entities that exploit potential economies of scale and invest heavily in increased risk management capabilities. In general, every stakeholder in the American healthcare industry is dramatically altering their relationships to accommodate an inexorable pressure to mitigate healthcare costs and remain economically viable. All of these drivers are increasing in prevalence and producing permanent structural and cultural changes throughout America s healthcare system. Value-based healthcare is merely the term we have coined to describe this evolution. 12 America s Evolving Healthcare Model

13 Sources i Getting From Volume to Value in Healthcare: Balancing Challenges & Opportunities, Allscripts, June 2012 ii Jack Meyer, Lisa Rybowski and Rena Eichler. Theory and Reality of Value-Based Purchasing: Lessons from the Pioneers. Rockville, MD: Agency for Healthcare Policy and Research; AHCPR Publication No iii Kaiser Family Foundation, retrieved June 16, 2016 iv v vi vii viii ix x xi xii Health Affairs, November 2006, Vol 25, No 6, Employment-Based Health Inurance: Past, Present and Future 17th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Healthcare, 2012 The Washington Post, New GOP budget proposal wold change federal retirement, health contributions, March 28, 2012 Employee Benefit Research Institute Private Health Insurance Exchanges and Defined Contribution Health Plans: Is it Déjà Vu All Over Again?, July Products/Effectuated_Quarterly_Snapshots.html OECD Statistics. Organisation for Economic Co-operation and Development. OECD (2016), Healthcare utilisation, OECD Health Statistics (database). DOI: (Accessed on 17 June 2016) Global Health Observatory Data Repository: Life expectancy Data by country (CSV). Geneva, Switzerland: World Health Statistics 2015, World Health Organization, WHO Retrieved the technical health information is based on data accurate with respect to the year indicated (2013) xiii CIA The World Factbook: Infant Mortality Rate. Retrieved xiv Center for Financing, Access and Cost Trends, AHRQ, Insurance Component of the Medical Expenditure Panel Survey xv Retrieved xvi COUNCIL OF ECONOMIC ADVISERS December 18, 2014, Methodological Appendix: Methods Used to Construct a Consistent Historical Time Series of Health Insurance Coverage 13 America s Evolving Healthcare Model Why Citra? Citra s patient-centric technology platform aggregates clinical, financial, and patient information from multiple sources to create a holistic perspective of a provider s panel and individual patient interventions within the health care ecosystem. Citra ensures that the right information is available to the care team and provides care capabilities to support the patients engagement in issues related to optimal health outcomes. P P P P Increased Quality Lowered Cost Achieve the Quadruple AIM! Increased Patient Satisfaction Improved Provider Satisfaction As additional services are anticipated, care extensions are available from Citra to schedule, redirect and / or service patient needs to improve patient satisfaction, quality of service and financial outcomes. Improved care and gaps (in care) closure rates Care plan development and management by the extended (Citra) care team Discharge plans are incorporated into longitudinal (chronic condition) care plan to avoid readmissions and associated costs/penalties Learn more about how we make the business of healthcare simple: