Fairleigh Dickinson Executive MBA Health Systems Management

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Fairleigh DickinsonExecutive MBAHealth Systems
Management

• Managed Care and Provider Reimbursement
• Robert Eidus MD, MBA

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Todays Objectives

• Brief Review of Prior Session
• Discussion of Readings
• Review of Health Benefits Plans
• Management of Health Care Expenditures through
  Provider Reimbursement Strategies
• Case Study-Oxford Health Plan
• Debate on Physician Accepting Risk
• Network Contracting Issues- Any Willing Provider,
  Profiling
• Other Legislative Issues and Managed Care
• Finish Contracting Issues

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Key Points from Last Week

• Managed Care in not the same as HMOs
• Managed Care has been an evolution
• US Healthcare system is a mixture of capitalism
  and governmental social support
• Early managed care activities were in response to
  access
• In the last 30 yrs., managed care activities have
  been in response to the need to control health
  care expenditures
• Managed care strategies exist primarily a
  capitalistic, competitive sphere, where cost is
  king
• Managed care must respond to customers demands
  to control cost- however
• Societys demands for access are inserted,
  primarily through legislation, regulation, and
  political pressure
• Cost and access tend to be inversely proportional
• Quality tends not to vary until one gets to the
  extremes of utilization

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Appropriate Quotes

• Democracy is the worst form of government, except
  all the rest Winston Churchill
• I got upset because he was getting awfully close
  to my price Abraham Lincoln
• I am not a member of any organized political
  party. Im a democrat. Will Rogers
• A billion here, a billion there, pretty soon you
  are talking real money Everett Dirkson
• 100 of providers have patient populations that
  are sicker than average Bob Eidus

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Questions About Todays Readings
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Discussion About Your Health Benefits Plans

• What type of plan do you have?
• What is the cost to you?
• What is the cost to the employer?
• What are the major exclusions?
• Any limited benefits?
• How is your insurance company managing health
  care costs?
• How is your employer managing health care costs?

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Containing Health Care Costs Through Benefits
Variations

• Virtually all of benefits variations involves
  shifting costs from the payer to the insured
  (member, employee, patient)
• There is good evidence that cost shifting reduces
  demand and thereby contains costs

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Common Types of Cost Shifting

• Deductible
• Copay
• Coinsurance
• Restrictions
• Limitations
• Exclusions

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Deductibles

• Pros
• Easy to administer in a FFS environment
• Easy to understand
• Can be offered as an option
• Reduces utilization

• Cons
• Difficult for provider to know whether the
  patient has met the deductible
• May cause patients to defer necessary services or
  lump health expenditures into a single year
• Preventive services at risk
• Once the deductible is met, this deterrence goes
  away

A hallmark of virtually all indemnity plans. Also
used in PPO and some POS. May be used for
selective services in HMO benefits (e.g.
infertility)
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Co-insurance

• Pros
• Restores accountability between provider and
  patient on each episode of service
• Incentive does not extinguish unless out of
  pocket maximum is met

• Cons
• Complicated billing and statements
• Requires balance billing the patient
• Increased billing costs
• May reduce necessary services if the coinsurance
  is too high
• Can affect poor people more severely

Examples Used in virtually all indemnity
policies, out-of network POS, and PPO
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Copays

• Pros
• Smaller hit to patients
• Easy for patients to understand
• Simplified billing and collection

• Cons
• If copay is too low, may not serve as a deterrent
• Provider is not accountable to patient for
  intensity of services
• Therefore, will not affect upcoding and excess
  utilization

Used in virtually all HMO and POS (in-network)
products, including mental health, and pharmacy
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ExclusionsA service is not covered, independent
of whether it is medically necessary

• Pros
• Fixes problem for payer
• Little administration needed except for appeals,
  grievances, and lawsuits
• May provide political coverage for employers,
  at the expense of the insurer

• Cons
• May engender consumer, political backlash
• Essentially converts people to uninsured for
  these services
• May appear to be unfair or arbitrary
• May stimulate legal or legislative action
  (mandated benefits)

Medicare (preventive health, Rx), experimental
services, alternative medicine, services which
are not accepted as standard, birth control pills
(some employers)
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LimitationsA service is covered, however the
coverage is limited (e.g. 20 visits, 1000, etc)

• Pros
• Good for services that are difficult to manage
  otherwise (e.g.- chiropractic care)
• Limits financial exposure
• Some providers like it, because it allows them to
  bill the patient when benefits are exhausted

• Cons
• Reduces desire to manage utilization
• May appear arbitrary to the public
• May spur regulatory or legislative action

Mental health, chiropractic care, physical
therapy, acupuncture
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RestrictionsA service is covered, but only with
a specific provider, or when prior treatments
have been tried first

• Pros
• Allows funneling patients to selected providers
• May be used with deep discounting or capitation
• Can improve quality

• Cons
• Access and availability may be compromised
• May cause the payer to contract based only on
  cost
• If provider becomes overwhelmed with volume,
  quality may decrease

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Case Study Oxford Health Plans

• Ilona

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Containing Costs Through Variations in Provider
Contracting

• Types of Provider Reimbursement
• FFS
• Discounted FFS Percent of Charges
• Discounted FFS Fee schedule or fee max
• Case rates
• DRG
• Capitation
• Incentives

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General Contracting Strategies

• Like all industries Volume drives pricing power
  in negotiations
• A basic Deming Principle is to limit your
  suppliers
• If price were the only issue, insurers would
  contract with very few providers with no
  redundancy
• Balancing this is the need for access

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Managed Care 101

• Total cost Quantity times unit price
• Sounds very simple
• But Managed health care is like squeezing a
  balloon- if you push on one side, it will bulge
  on the other
• When one alters cost, one cannot assume that
  quantity will remain constant
• Why? Insurers do not determine utilization,
  patients and providers do

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Fee for Service

• Business as usual
• Providers determine fees Often based on what the
  market will bear
• Providers depend on their own marketing power to
  drive volume
• Consumers or Third Party Pays
• Expenditures determined by cost and quantity
• Example Memorial Sloan Kettering

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Discounted Fee For ServicePhysician Accepts
Payment Based on Fixed Discount Off Charges

• Pros
• Easy to administer on both sides
• Physician knows exactly how much s/he is giving
  up in return for access to participation. No
  reconciliation needed

• Cons
• Charges are arbitrary
• Charges can be changed. Therefore no real control
  over price control
• Inconsistent Payment between providers

Examples Occasionally used to pay hospitals when
it is difficult to contract with them any other
way. Was occasionally used as a reconciliation
method for physicians paid in other ways i.e. a
floor guarantee
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Discounted FFS- Fee ScheduleProvider agrees to
accept insurer fee schedule as a fee max. in
return for network participation

• Pros
• Reasonably easy to administer
• Uniform among providers
• Easy to upgrade fee schedule uniformly
• Easy for provider to understand percent of
  discount

• Cons
• Amount of discount will vary procedure to
  procedure
• Does not control utilization and may aggravate it

Examples Many HMOs, Medicare, Medicaid
(Non-HMO) most specialist reimbursement
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Discussion

• Article on Medicare fee cut-backs
• Why is this happening?
• What are the ramifications?

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Case Rates

• A fixed fee for a particular service or episode
  of illness, regardless of intensity, frequency,
  or location of services.
• Commonly used for surgery
• Good for services where other strategies for
  managing costs are not always effective (e.g.
  chiropractic care)
• Payment may be re-distributed by the entity
  accepting the case rate
• Controls frequency and intensity of services
• Examples ABMT, fracture care, centers of
  excellence, CABG
• DRGs are actually a form of a case rate

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Case rates

• Pros
• Transfers a fair amount of risk to the provider
• Spurs the provider to be more efficient
• May improve quality
• Only the best and most efficient may be capable
  of accepting case rates

• Cons
• Potential underutilization
• May have to create exceptions protocols
• Can restrict access
• Payer must be careful to screen quality and
  outcomes

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DRG (Diagnostic Related Groups)

• The most common method of paying hospitals for
  in-patient services
• Created via TEFRA (tax equity and fiscal
  responsibility act) of 1982
• Hospitals paid a fixed amount, regardless of
  intensity of services provided within a
  hospitalization
• Trim points (low and high) used to deal with
  exceptions

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DRGs

• Covers in-patient stays only
• Factors in operating costs only
• Capital requirements and Graduate Medical
  Education dealt with separately
• Created effective internal utilization management
  capabilities (instead of occupancy, the critical
  measures became admission rate and length of
  stay)
• Ambulatory surgery and emergency room care dealt
  with separately on a cost basis
• Some regional variation in payment

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DRGs

• Pros
• Created improved operating efficiency with
  shorter LOS
• UM management shifted internally
• Created ability for better comparisons
• Created a common set of nomenclature
• Made contracting easier

• Cons
• Did not address inefficiencies and inappropriate
  utilization in ambulatory care
• Cases were shifted from in-patient to outpatient,
  where reimbursement was cost-based
• Concerns about premature discharge

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DRGs

• Infrastructure to be successful if you are a
  hospital
• Knowledge of what your true costs are
• Effective UM, especially discharge planning
• Capacity to take new admissions
• Excellent coding capabilities
• Cooperative medical staff

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Per Diems

• Alternatives to DRGs
• Used by many MCOs
• Fixed cost per day
• Payment independent of intensity of service,
  although there is often a front loaded payment
• DRGs above and below the trim points are often
  compensated by per diems

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Per Diems

• Pros
• Fixed unit cost
• Control for um shifted to hospitals except for
  LOS
• Hospital not concerned about premature disch
• Rewards hospitals that are efficient
• Simple- no upcoding

• Cons
• Doesnt control LOS
• Penalizes inefficient hospitals
• U/M done externally

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Infrastructure necessary for hospitals to be
successful with per diems
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Next Week

• Reading Kongsvelt, Chapter,17,26,15
• Physician Integration, Pharmaceutical Benefits
  Management, Quality Management
• Case Study Phycor, PPMCs- Tim
• Case Study Small Area Variation in Utilization-
  John Wennberg MD- Lia
• Web-site review doctorquality.com, ncqa.org

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Debate and Discussion

• Should physicians be at financial risk for the
  costs of health care rendered to their patients

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Network Contracting Issues

• Discounts are driven by the ability to drive
  business
• Hospitals need to refuse the temptation to
  contract on the margin
• Value to a hospital and a specialist is dependent
  on how exclusive the network is and how large the
  health plan is
• Providers get concerned about being dependent on
  any one payer
• Insurers need to balance cost and access

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Any willing provider

• Many states have enacted any will provider
  legislation
• The laws basically state that any provider that
  meets the quality and credentialing standards of
  a health plan and is willing to agree to
  financial and other terms must be allowed to
  participate
• Upheld in appelate courts
• Recently unanimously upheld by the US Supreme
  Court

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Discussion

• Why cant health plans chose their vendors just
  like any other business?
• Why did the Supreme Court uphold these
  constitutionality of these laws?

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Other Legislative and Regulatory Issues Regarding
Managed Care

• Gag rules
• Termination cooling off periods
• Prudent layperson laws
• Mandated benefits
• ABMT, drive through deliveries, wellness, mental
  health
• Ability to sue health plans for malpractice
• Provider significantly at risk

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Physician Incentives

• Purposes
• Drive improved (lower) utilization
• Drive improved quality
• Provide buffers and protection for cost over-runs

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Types of Incentives

• Withholds
• Bonuses
• Quality Adjustments

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Withholds

• Can be based on individual or group performance
• Usually is a combination of both. Usually
  maximizes at about 20
• Withholds cover cost over-runs in personal,
  specialty, hospital, and ER budgets
• Because the ability to influence magnitude of the
  withhold return, this is primarily a re-insurance
  mechanism for the health plan, rather than an
  inducement for providers to be efficient
• Similar to national health plans in Europe

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Bonuses

• Really no different than withholds

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Quality Incentives

• Usually based on preventive health services and
  patient satisfaction
• Often considered a balance to financial
  incentives
• Some disease specific measures
• Tend to closely parallel HEDIS measures
• Some evidence that they might influence behavior
• Examples Pt. sat., waiting time, mammography and
  immunization rates, beta blocker use after
  myocardial infarction

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Mini Project for May 31

• Accordant Health Services
• What is their disease management strategy
• Why do you think it is successful?
• How do you think they are compensated by insurers?

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Capitation

• Definition
• Prospective payment to providers for a defined
  period of time to provide defined services to a
  defined population of insured people
• Usually paid and calculated on a PMPM basis

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Varying Levels of Risk

• Personal services only
• Professional services (PCP and Specialist Care)
• Full Risk (Professional services plus acute
  hospital and ER care /- Pharmacy /- long term
  care

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Levels of Risk

• If you are only at risk for your own services,
  you basically are at risk for your time
• Risk increases dramatically when one accepts risk
  for others services
• Providers should only accept risk for those
  things they can truly control
• Otherwise, we have turned doctors into insurance
  companies

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How to Calculate the Capitation Rate

• Determine the affected population
• Determine what services are included
• Determine what the projected utilization rate is
  (A)
• Determine what an acceptable level of
  compensation is for the unit of service (B)
• Multiply AB and divide by 12 to get a PMPM

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A Very Crude Capitation Determination

• PCP cap
• Females age 20-39
• Average number of visits per year (3.0)
• Reasonable reimbursement per visit (50)
• Co-payment (10)
• Cap is (503)- (103)/ 12 10PMPM
• What is the cap rate if the copay is 20 per
  visit? (this is a trick question!)

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Capitation Determination Refinement

• Age/ Sex (common)
• Case Mix (Number of diabetics/ hypertensives,
  etc.
• Severity of Illness (Ambulatory Care Groupers)
• Socioeconomic

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Types of Capitation

• PCP cap Common
• Specialty cap Used in certain specialties
  especially in those where utilization is
  difficult to control (chiropractic, PT)
• Special circumstances (Lab)
• Global cap (used with IDS, PHO) In these
  situations, physicians risks are usually limited

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Requirements to Accept Significant Capitation Risk

• Clear definition of what is included in the cap
  rate (Prego commercial)
• Ability to understand the burden of illness of
  the population
• Large numbers
• Relatively homogenous population in terms of
  utilization
• Medical Management Infrastructure
• Adequate reserves
• (Doesnt this sound like an insurance company?

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Ways to Even Out the Bumps

• Carve outs (AIDS, Advanced Breast Cancer)
• Catastrophic thresholds
• Stop loss or re-insurance
• Risk adjustors
• Sub-capitation or other risk sharing methods

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Why Did So Many Group Practices in Ca. Fail ?

• They got greedy
• They believed there own press clippings
• Fundamental factors affected cost escalation were
  not taken into account
• Lack of mechanisms to share risk
• Health Plans Ratcheting Down

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CapitationThe Perspective of the Provider

• Pros
• Steady cash flow
• Predictable revenue
• No billing costs
• Opportunity to make more by improving capacity or
  improving utilization

• Cons
• Down-side risk
• May put providers in adversarial position with
  their patients
• Need to disclose incentives if at significant
  risk
• Infrastructure required
• Reconciliation to FFS equivalent payments may be
  complicated

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CapitationThe Perspective of the Payer

• Pros
• Risk off loaded (helps convert them from a
  managed care to a money management company)
• Less utilization review required
• Less claims payment infrastructure

• Cons
• Upside may be taken away
• Bad PR
• Potential medicolegal issues (probably not
  different from FFS)

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CapitationThe Perspective of the Patient

• How would they know, since they are not
  informed?
• But, are the incentives to under-utilize any
  worse than the incentives to overutilize?

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Break-Even Analysis Exercise
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To Maximize Profit
Capitation Minimize Intensity of Services
Minimize Frequency of Services
DRG Minimize Intensity of Services
Maximize Frequency of Services
Fee For Service Maximize Intensity of Services
Maximize Frequency of Services