Texas Children

1

• Texas Childrens Health PlanPresentation to
• The Association of Community Affiliated Plan
• Our journey with risk adjustment and acuity
  systems Hopeless or Hopeful?
• July 14, 2010
• Christopher M. Born, President
• Anna E. Mateja, Chief Financial Officer

2
Agenda

• Overview of Texas Childrens Health Plan
• Why is Acuity Adjustment Important
• Effectiveness of Acuity Adjustment Systems
• New Acuity Research
• Texas Progress and Call to Action

3
Agenda

• Overview of Texas Childrens Health Plan
• Why is Acuity Adjustment Important
• Effectiveness of Acuity Adjustment Systems
• New Acuity Research
• Texas Progress and Call to Action

4
Texas Childrens Integrated Delivery
SystemCorporate Structure
5
Texas Childrens Health Plan Membership
As of June 2010
6
Statewide Market ShareMedicaid and CHIP
Membership
Source Health Human Services Commission,
May2010
7
Local Market ShareMedicaid and CHIP Membership
New State Contractors as of September 1, 2006
United purchased the UTMB CHIP product
Source Health Human Services Commission, May
2010
8
Agenda

• Overview of Texas Childrens Health Plan
• Why is Acuity Adjustment Important
• Effectiveness of Acuity Adjustment Systems
• New Acuity Research
• Texas Progress and Call to Action

9
Why is Acuity Adjustment Important?

• Used to calibrate payments to health plans based
  on the relative health of at risk populations
• Aligns incentives
• Limits gaming and effects of adverse selection
• Protects financial soundness of risk bearing
  entities
• Acuity Adjustment is the only plan specific
  adjustment to a Community Average Rate
• Accountable Care Organization
• Providers forming ACOs will need to be
  paid/budgeted fairly, commensurate with the
  health burden of their population
• Health Exchanges
• For exchanges to function effectively, states
  must implement methods to fairly adjust payments
  to insurers participating in the exchange based
  upon the health status of the members they each
  attract

10
Gaming

• ST. PETERSBURG, Fla. (AP) June 28, 2010 - The
  complaint that launched a federal investigation
  of WellCare Health Plans four years ago by a
  whistleblower within the company has now been
  unsealed, and the picture it paints of the
  state's largest Medicaid HMO contractor is grim.
• The complaint, filed by former WellCare financial
  analyst Sean J. Hellein, portrays a company so
  ethically challenged that it rewarded employees
  who dumped hundreds of sick newborns and
  terminally ill patients from the membership
  rolls, thereby pumping up profits by millions of
  dollars.
• Aug 15, 2008 Parker Waichman Alonso LLP
  Amerigroup will pay 225 million to settle
  charges of Medicaid fraud, the U.S. Justice
  Department said on Thursday. A former Amerigroup
  employee, Cleveland Tyson, who filed the original
  lawsuit against the company, will receive 56.3
  million of the settlement under federal
  whistleblower law.
• The agreement reached with both the Justice
  Department and Illinois state officials settles
  allegations that the Amerigroup's health plans
  illegally excluded pregnant women and unhealthy
  patients in the Illinois Medicaid plan. Medicaid
  is the state-federal health plan for the poor.

11
Annual Rate SettingComparing Claims Cost and
Acuity Experience by PlanCHIP Product Only
12
State Rate Setting MethodologyCHIP Product
13
Calculating Premium Rates
14
Agenda

• Overview of Texas Childrens Health Plan
• Why is Acuity Adjustment Important
• Effectiveness of Acuity Adjustment Systems
• New Acuity Research
• Texas Progress and Call to Action

15
Risk Adjuster Tools
16
Acuity Model used in Texas for Rate Setting

• Chronic Illness and Disability Payment System
  (CDPS)
• Texas Relies on CDPS because
• CMS accepts this methodology
• CDPS is used by multiple States for Rates Setting
• Differentiation is not based on plans cost
• The Calculations are performed by the Institute
  of Child
• Health Policy (ICHP) but are not well understood
  by the
• State rate setting staff or their actuaries

17
Shortcomings of CDPS

• CDPS acuity scores are not correlated with claims
  cost
• CDPS reports very low R-squared values
• CDPS does not discretely measure all the factors
  contributing to cost variances between plans
• CDPS is dependent on the accuracy of provider
  coding
• Medicaid and CHIP populations are transient
  making it harder to capture their full range of
  diagnoses within a one year period

18
Correlation of CHIP Member Acuity with Member
Annual Claims Costs
Based on TCHP CHIP Data SFY 2005
19
Chronic Illness Disability Payment System
R2 values measure how well the CDPS Acuity
scores explain Medicaid CHIP Cost Variation.
The CDPS Acuity model only explains 4.9 - 9.3
of the MCOs cost variation for children, leaving
95.1 90.7 unexplained.
ICHP Institute of Child Health Policy serving
as HHSC contractor Source Analysis prepared as
a part of the 2010 rate setting process
20
Persistency of Physician CodingTCHP evaluated
the persistency of physician coding by looking
at the frequency of cerebral palsy diagnosis
being indicated on claims over a five year
duration in the CHIP Population.
Note As evidenced with at least one instance
of a cerebral palsy diagnosis during prior 5
year claims.
21
Shortcomings of CDPS (continued)

• All chronic conditions will not present within
  the span of 1 year
• CDPS does not accurately measure the acuity of
  the highest cost members
• Plans with low risk CDPS scores are profitable
  because CDPS does not fully account for the
  magnitude of true risk differences (disease
  burden/acuity) among plans
• Provider sponsored plans tend to have higher
  market share within a service area and plans with
  high market share tend to have higher acuity and
  lower profitability

22
Analysis of CDPS Acuity for High Cost Members
Based on TCHP Medicaid STAR CHIP Data SFY 2005
23
In Texas, Acuity Risk Scores are Inversely
Correlated with Profit
24
In Texas, Risk Scores are Positively Correlated
with Market Share
25
In Texas, Profit is Inversely Correlated with
Market Share
26
Shortcomings of CDPS (continued)

• The State is overpaying plans with the lowest
  share of high cost members
• There is a lack of transparency in the
  application of CDPS in Texas
• New 5.0 Version of CDPS is substantially
  different than 4.5 Version
• HHSC does not apply below average acuity scores
  to rates, thus HHSC overpays plans with the
  lowest acuity scores

27
Agenda

• Overview of Texas Childrens Health Plan
• Why is Acuity Adjustment Important
• Effectiveness of Acuity Adjustment Systems
• New Acuity Research
• Texas Progress and Call to Action

28
A New Methodology For The Analysis And Comparison
Of Cost Differences In Health Care Delivery
Across Health Plan
Abstract Across the United States, individual
state administration of the CHIP and STAR
(Medicaid) programs takes many different
forms. A common problem, however, is how to
allocate the available state funds to the
different health plans that provide services to
their CHIP and STAR members on behalf of the
state. This paper describes a new methodology
that will help improve that process.
Prepared by Richard R. Batsell and Michael H.
Bullington January 2010
29
A New Methodology For The Analysis And Comparison
Of Cost Differences In Health Care Delivery
Across Health Plan

• Abstract Continued
• In contrast to previous approaches, this new
  methodology has two
• primary benefits.
• In modeling health care costs this approach
  achieves respectable goodness-of-fit measures
• 90 range for HCFA claims
• 80 range for UB claims
• Information from every single claim is used in
  the process.

Prepared by Richard R. Batsell and Michael H.
Bullington January 2010
30
A New Methodology For The Analysis And Comparison
Of Cost Differences In Health Care Delivery
Across Health Plan

• Abstract - Continued
• Essentially, once the health care costs are
  modeled, the method derives Cost Structure
  Equivalence Groups
• Then decomposes the total per member per month
  cost of each plan into the four sources of cost
  differences from which the overall cost
  differences derive
• The No-Use Effect
• The Unit Cost Effect
• The Quantity Effect
• The Frequency Effect

Prepared by Richard R. Batsell and Michael H.
Bullington January 2010
31
A New Methodology For The Analysis And Comparison
Of Cost Differences In Health Care Delivery
Across Health Plan
Abstract Continued From this analysis each
plan would know exactly the way its health care
claims cost structure differs from every other
plan so the results are fully transparent.
Moreover, the approach also leads to
diagnostic information that would enable the
various plans to improve over time. The new
approach, by spotlighting the source of such
differences, could form the basis for new cost
allocation policies at the state level that are
both more transparent and more fair.
Prepared by Richard R. Batsell and Michael H.
Bullington January 2010
32
A New Methodology For The Analysis And Comparison
Of Cost Differences In Health Care Delivery
Across Health Plan
Prepared by Richard R. Batsell and Michael H.
Bullington January 2010
33
A New Methodology For The Analysis And Comparison
Of Cost Differences In Health Care Delivery
Across Health Plan
Prepared by Richard R. Batsell and Michael H.
Bullington January 2010
34
Agenda

• Overview of Texas Childrens Health Plan
• Why is Acuity Adjustment Important
• Effectiveness of Acuity Adjustment Systems
• New Acuity Research
• Texas Progress and Call to Action

35
Recommendation by Provider Sponsored Plans

• The Provider Sponsored Plans propose that HHSC
  develop a work group to
• develop a methodology for making plan specific
  rate adjustments
• HHSC should establish a workgroup to select the
  new methodology. The Workgroup should have
  finalized their recommendations by January 31,
  2011.
• The new methodology should accurately itemize and
  measure differences in plan cost related to each
  of the following components cost per unit
  utilization of services differences in percent
  of members who do not utilize care and frequency
  or mix of more expensive services.
• The new methodology should demonstrate an R2 of
  70 or greater.
• The new methodology should have a proven
  hindsight analysis that demonstrates efficiency.
• The new system should be utilized to develop the
  SFY 2012 rates.
• HHSC should promote transparency by providing
  plans with the actual absolute acuity score of
  the chosen method in total and by member

36
Commitment of the Texas Health and Human Services
Commission

• Commissioner Suehs has agreed to convene a work
  Group to evaluate Acuity Models.
• Workgroup will meet between September 2010
  November 2010