An Update on Electronic Payments & Healthcare Providers [Updated]

In today’s world of electronic connectivity and mobile payments (ePayments), the U.S. healthcare system lags not only other industries, but everyday consumers too.  Over the past ten years, nearly every component of the healthcare system has undertaken massive initiatives to transition from paper to electronic environments, but as shown below just 10% of provider payments are received electronically¹, in spite of the fact that 75% of claims are submitted electronically¹.

The laggard in the value chain prohibiting the transition is not the payers’ ability to submit ePayments, but the providers’ inability to accept them.  The benefits for providers getting on the ePayment bandwagon are real, and include:

• Improved working capital due to decreased time to post payments
• Reduced errors associated with manual, human processes
• Reduced costs associated with the additional paper, postage and manual activity (it is estimated that eliminating paper checks in healthcare could save $11 billion per year¹)

So why the slow adoption?  One reason could be that ePayments, also known as electronic funds transfer (“EFT”), add a layer of complexity due to a lack of standardization and lack of operating rules across payers and their EFT submissions.  Multiple payment submissions from multiple payers using different systems and submitting at different times all around a single claim makes reconciliation very difficult for the provider office.

When will we see change?  The Affordable Care Act (ACA) of 2010 mandates that payers must make payments to providers by electronic funds transfer (EFT) and electronic remittance advice (ERA) by January 1, 2014 or face considerable federal penalties.

These potential financial ramifications will be a catalyst for change with providers.  However, success will hinge on new levels of standardization and operating rules for EFT which allow providers to uniformly accept ePayments from many different payers.  We’re predicting (and already seeing) a mad dash by the providers to implement systems that accept EFT before the 2014 deadline.

Vendors such as Payformance, Fidelity National Information Services (FIS), InstaMed, HERAE, Wausau Financial Systems and Emdeon seem well positioned to enable the shift and we’ll be watching this space closely.  Let us know what you think.

Judd Stevens

Judd Stevens is an associate at TripleTree covering the healthcare industry, specializing in the impacts and transformation of health plans in a post-reform world.  Follow Judd on Twitter or e-mail him at jstevens@triple-tree.com.

 

Update: Made adjustments to the chart.

Source:

1. U.S. Healthcare Efficiency Index©

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Does Highmark’s Move Portend a Payers’ Path to Financial Health?

The  recent acquisition by Highmark, Inc. of the five-hospital West Penn Allegheny Health System brings into focus an emerging healthcare provider model in which payers are assuming direct control of medical facilities. Payers, seeking to curb costs amid U.S. health reform are motivated by numerous factors, including:

• Gaining an early leadership positioning in developing a self-sufficient ACO model that can be leveraged nationwide.
• Providing direct insight into best practices they can use in contracting with other medical groups.
• Allowing the capture of new efficiencies in the healthcare system by accruing part of the costs that would have gone to providers

Over the years, payers have attempted a number of different cost control mechanisms ranging from preferred drug lists to performance incentives – but have had minimal success. This feet-on-the-street approach is their most direct attempt to control spending through managing the doctors directly. The thought is that the Payer-Provider Facility strategy will truly “incentivize” doctors to control spending as it affects their direct employer; as opposed to other historical financial incentive arrangements that have failed to hold ground.

In the mid ‘90s managed care failed in its attempt to take a greater role in the care delivery as consumers rebuffed limits on provider choice and treatment options. This time around (and as depicted the graphic below), insurers adopting this strategy appear to be focused on the controlling the provision of services and owning providers as opposed to network or treatment restrictions.

Source: TripleTree, LLC

A recent Washington Post article analyzes the ongoing transition of the major managed care players – namely UnitedHealthcare, WellPoint, CIGNA and Humana – into the provider space.  Further analysis by TripleTree underscores that the strategy appears to be driven by the insurers’ desire diminish the financial pressure of health reform, however, this could also viewed as a long-term strategic move by insurers to position themselves as the central hub of future ACOs.

Source: TripleTree, LLC

Highmark’s acquisition is unique in that it is one of the only significant payer-hospital acquisitions to occur in well over a decade.  Payers (such as Humana and Wellpoint) have routinely purchased clinics in recent years in an effort to push care further outside of the hospital towards more efficient, less costly outpatient settings. The acquisition represents a bold strategy to align Highmark with their hospital provider base. However, the move also poses the risk of competitive backlash from competitors who choose to not use West Penn and withdrawal from customers fearing provider choice and location limitations.

In the coming months, TripleTree will be spending a considerable amount of time monitoring the movement of payers to reposition themselves as “clinical” and “provider-focused” as ACOs develop.   In addition, we will also be analyzing how each payer’s provider strategy aligns with their efforts to expand their clinical technology platforms into the provider market.

Let us know what you think.

Joe Long

Joe Long is an analyst at TripleTree covering the healthcare sector, with a focus on the approaches and technologies surrounding health insurance exchanges.  You can email him at jlong@triple-tree.com.

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HHS Announcement Signals Start of ACO Services Race

With the proposed rule from the HHS and CMS finally released today for public comment, reactions and analysis will grow in the coming days on what it all means for healthcare providers.  We thought it made sense to offer some perspective on how we’re viewing the evolving opportunities for innovators, their investors, and their partners.

While integrated delivery networks (IDNs) and other large provider groups will have plenty to sort through to determine the tradeoffs of seeking accountable care organization (ACO) status, a number of researchers are already digging into the thorny issues surrounding ACOs to help develop standards, best practices, and collaboration between different models that are likely to spring up in the wake of health reform.  See this and this as examples.

What is most interesting to us so far is the jockeying of HIT vendors to reposition themselves as experts to the developing ACO marketplace.  While there are a number of ways to think about this – and our thinking is evolving pretty much daily – we see a few targeted areas where vendors are going to play.  None will be able to offer anything close to the end-to-end ACO functionality that several claim in their marketing materials.

Our view on the rapidly developing market for ACO services follows:

• Creating the ACO:  Provider groups will require help sorting through those 1,000 pages of regulations, and we are already seeing opportunities for large, healthcare-focused consulting and implementation firms that have the ear of the hospital CEO to help steer the design and creation of these models. Companies like Accenture, IBM, Deloitte, Dell/Perot and the Advisory Board are being asked questions every day by their clients about ACOs – and at least one have already started to work on their own solution.  Partnerships with these consulting firms will aid adoption for vendors downstream in the areas below

• Enabling the ACO:  The clinical integration of the ACO is the area of hottest focus right now – transactions in this space clearly demonstrate this.  HIE and interoperability vendors Axolotl, Medicity, and CareFX have all traded in the past 12 months.   Payers like UnitedHealth and Aetna have placed their bets on HIEs as the backbone on which clinical data will be integrated.  For provider networks looking to challenge this paradigm, the recent wave of physician practice acquisitions by hospitals and/or the subsidization of a single EMR system in an area (Minneapolis is largely an Epic market, for example) indicate that there may be another approach to achieve clinical integration.

• Optimizing the ACO:  Once an ACO is established, the network of providers will need plenty of technological capability:  decision support and evidentiary guidelines, contracting and risk tools, compliance reporting, and performance benchmarking analysis among them.  Many companies already providing these services to health insurers are sprinting to reposition themselves as experts for the provider community as well – visit the home page of any formerly payer-focused software vendor as proof.  Market interest in companies participating in this space is heating up.

• Marketing the ACO and Engaging with the Patient:  In our view, this is an overlooked area so far and will eventually be key to closing the loop on the ACO return on investment.  Vendors that will compete in this space are currently offering a range of services that can help do this, from health and wellness to member enrollment activities.  Once provider groups are operating as “mini-payers,” keeping patients healthy outside the facility walls while also keeping them happy with the level of engagement they experience with their physicians will extremely important.

Our research agenda and strategic advisory work have the ACO services space top of mind right now and our thinking is evolving constantly.  We’d love to know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

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Will Traditional Healthcare Providers Need to Become Consumer Friendly?

It is hard to believe that it has been more than seven years since the Medicare Prescription Drug, Improvement, and Modernization Act created health savings accounts (HSA).  In 2004, the pundits were espousing how consumer directed health plans (high deductible health plans tied to a HSA or health reimbursement account (HRA)) would put more healthcare spend into consumers’ hands and in-turn, consumers would demand more price transparency across the healthcare system.  Consumers were supposed to be able to use their new-found purchasing power to comparison shop and ultimately choose the healthcare services that provide the best value.

In a March 2005 report entitled Will Health Plans Profit from HSAs? Forrester Research projected that by 2010 there would be 15.9 million HSAs and HRAs holding $17.5 billion in assets.  Actual figures have trailed projections, but the move to HSAs and HRAs has continued to gain momentum.  Employee Benefit Research Institute® recently published that the number of HSAs and HRAs has grown from 1.2 million in 2006 to 5.7 million in 2010.  These accounts now hold $7.7 billion in assets, creating meaningful healthcare purchasing power for consumers.

Despite all of this growth however, comparison shopping for healthcare remains challenging.

• While employers have attempted to provide price transparency tools, they have struggled with getting detailed pricing information from providers that would enable informed employee (consumer) decision making.
• Health plans have been unable to provide their members with real-time adjudication capabilities that would allow them to understand in-network pricing for services.
• Services marketed directly to consumers (with features like convenience, affordable pricing for acute care, etc) tout health plan reimbursement as a secondary feature.

This last trend started with retail clinics, such as CVS Caremark’s MinuteClinic and Walgreens’ Take Care Clinic; that effectively promote the price of services prominently at their clinics and on their websites.  In a market like Minneapolis, two large healthcare organizations (UnitedHealth Group and Health Partners) are taking similar but distinct approaches via recently announced online clinic, prescriptions and doctor-patient medical consultation services.

• UnitedHealth Group’s OptumHealth has launched NowClinic, which offers 10 minute online visits with clinicians for $45.  The service is now offered in five states, and while OptumHealth is offering discounted prices to contracted employer groups, consumers must pay for all services directly as OptumHealth does not currently accept health insurance.
• HealthPartners, a regional healthcare provider and health plan has launched a competing online service called Virtuwell.  At Virtuwell, online consultations cost $40, and the service accepts insurance plans from HealthPartners and CIGNA.

Both announcements tout convenience as the key feature and could be an easy purchase decision for some consumers.  Even if not reimbursed by insurance, consumers may opt to spend $40-$45 out of pocket without having to leave their home, when comparing the alternative of driving to a doctor’s office, paying for parking, and waiting in the waiting room with other sick people.  This decision would be made even easier for consumers that do not reach their health plan deductible during the year and thus would not get reimbursed if they visit a traditional doctor.

With HealthPartners as an exception, traditional healthcare services providers have been slow to adopt both price transparency and convenience.  As healthcare delivery models change and new players enter the market, it will be interesting to watch how traditional healthcare providers evolve to accommodate increased expectations from consumers who are more informed and demand options for where, when, and how quickly they can interact with clinicians.

There is no question that as more payment responsibility is placed in consumer hands, providers will change, the question is how quickly this will occur and which firms will benefit most.

Let us know what you think.

Jason Grais

Jason Grais is a Director at TripleTree covering the healthcare industry specializing in healthcare IT, population health management and emerging services in the life sciences sector. You can email him at jgrais@triple-tree.com

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Perpetuating the Increased Quality of Care Cycle through Value-Based Purchasing

With the majority of talk about healthcare reform centered on the individual / consumer mandate and universal coverage, many are missing another positive change proposed by CMS: value-based purchasing.

Value-based purchasing (VBP) has underlying implications on five themes:

• Measuring the patient experience
• Measuring clinical quality
• Market pricing, especially local market pricing
• Executive and clinician compensation
• The changing role of technology and technological requirements

The essence of VBP is that buyers of healthcare (including individuals and plans) should hold providers accountable for the quality of care provided.  Much like consumer satisfaction and pay-for-performance in other industries, healthcare providers are now being held accountable for not only providing the required care, but providing a quality product.  However, the question of rating the quality of care is a bit more difficult than showing compliance with a “Six Sigma” type of program.  By bringing together outcomes-based data with cost data, it is possible to show an improvement ratio such that increasingly positive outcomes are equated with reduced or targeted spending – below are a few considerations:

• Linking patient satisfaction and quality: Measuring the patient experience is trending toward monitoring key outcomes in 17 clinical measures (including patients’ views on communication with staff and doctors, cleanliness and quietness of the hospital and pain management) across five healthcare categories, including acute myocardial infarction, heart failure, pneumonia, healthcare associated infections and surgical care improvement.  Based on a hospital’s score across these measures and categories, this will impact diagnostics-related group (DRG) payments as soon as 2013.  By 2014, mortality outcome measures for additional health conditions and hospital-acquired conditions will be included.
• Clinical quality – another important VBP benchmark:   As providers are measured and compensated accordingly, top tier providers will begin to quickly separate from the pack.  However, critical access hospitals will need to remain accessible, regardless of their quality measurement.
• Market pricing and VBP:  With provider compensation schedules initially being implemented as a penalty rather than a bonus, areas with poor outcome metrics will see the cost of providing care rise. Additionally adding to the skewing of local market pricing, an incentives algorithm will be implemented, meaning high performing hospitals will continue to perform better than those being penalized, due to the financial incentives providing new resources for a high performing hospital.

The link between quality of care, the provider’s income statement, and executive and clinician compensation also becomes much more clear and real. As the provider receives additional incentives for increased quality of care, the employees of the provider will likely see performance compensation tied to the quality of care metrics for the hospital. A higher performing provider will attract higher paid experts with better backgrounds, perpetuating the increased quality of care cycle.

Underpinning all of this is the increasing role that technology will play in the healthcare system. In order to document the quality of care metrics, a clear link to data will need to be established at the point of care. This means that data warehousing and analytics will be paramount. Sophisticated pricing and measurements of quality and satisfaction will be derived from the data and technology in use.

Value-based purchasing has the potential to radically alter how both providers and patients view healthcare.  Our team is actively advising business leaders and investors with some thinking about how healthcare will cease to be an intangible product that is provided at any cost, focusing instead on how to plan the market dynamics or “rankings” and “customer service”.

Have a great week.

Adam Link

Adam Link is an analyst at TripleTree covering healthcare delivery models, specializing in software and wireless health.  Follow Adam on Twitter at AdamJLink or email him at alink@triple-tree.com.

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Data Management Strategies for ACO’s Will Be a Good Harbinger of Success

With many providers currently assessing the viability and strategy to become an Accountable Care Organization (ACO), our team has been gauging what a successful ACO might look like in the post-healthcare reform world.

To know what one might look like, denotes having a handle on its core IP. And while many healthcare consultancies (both large and boutique) are attempting to map out strategic plans for their provider clients; the capabilities, resources and systems that providers must implement to become true risk-bearing entities is complex. Yet, we’ve boiled it down to two core competencies which will be table stakes for success.

• Care management/care coordination – Leveraging capabilities that extend the providers reach into the day-to-day lifestyles of their patients:
  • Prospective medical home assessments
  • Chronic care coordination
  • Critical care interventions
  • Remote-patient monitoring
  • Data-driven healthcare communities
  • Provider network coordination

• Data analytics/decision support – Establishing a 360° view of the patient condition to establish appropriate, patient-centric profiles
  • Data mining
  • Decision support
  • Evidence-based medical rules
  • Behavior-based messaging
  • Real-time analytics monitoring

While these two competencies have generally been managed by health plans – with the help of many third-party technology-enabling solutions – we think they will need to become core components for providers interested in sustaining a successful ACO. Beyond the sub-components listed above, our research also underscores risk for these providers, and moreover their ability to manage it.

The risk bearing providers of the future will likely address these components similar to the way health plans do it today, but the ACO model will promote better utilization. We’re in the midst of finalizing our research agenda our informatics and decision support for a formal Report Q2’11…it would be great to know what you think about this dynamic, high growth arena.

Jamie Lockhart

Jamie Lockhart is a Vice President with TripleTree covering healthcare software and service providers with a focus on consumer directed healthcare.  You can contact him at jlockhart@triple-tree.com

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Ingenix Sells Clinical Development Outsourcing Business to Focus on the Safety and Effectiveness of Drugs and Devices

This morning, inVentiv Health announced that it will acquire Ingenix’s clinical development outsourcing business. According to press releases from both organizations the proposed transaction covers “businesses that generate approximately $400 million in annual gross revenue” and business units being acquired by inVentiv Health will retain the i3 brand name.

This is a bold move for inVentiv Health, which was taken private in August of 2010 by Thomas H. Lee Partners. Previously known more for its sales and marketing-related services to the life sciences industry than its clinical services, inVentiv Health now becomes a major player in the contract research organization (CRO) market. As part of inVentiv Health, i3 will continue to be led by CEO, Glenn Bilawsky, a CRO industry veteran with a proven track record of driving growth and innovation.

Now that inVentiv Health has a broad and deep portfolio of assets across the clinical and post-marketing life sciences services market, the most intriguing part of this transaction will be to see how and if inVentiv Health can integrate these different service lines and whether they will be able to successfully leverage customer relationships that both companies have in their respective businesses today to drive additional revenue. Historically, the sales and marketing teams in life sciences companies have had very little interaction with research and development, so it will be interesting to see if inVentiv Health is able to create new types of services that drive more collaboration across their clients’ operations and ultimately lead to better life sciences products.

From the Ingenix standpoint, this transaction is a clear illustration of the increased focus healthcare payers and providers are placing on health outcomes and comparative effectiveness of life sciences products. The remaining assets from i3 that are not being sold to inVentiv Health, including the Innovus, Quality Metric, Pharma Informatics, and Drug Safety/Epidemiology business units, and the CanReg and ChinaGate Regulatory Consulting businesses will be part of a newly-formed Ingenix Life Sciences division. According to a press release from Ingenix, these units “offer global solutions for evaluating health economics outcomes and late phase research, market access and reimbursement, data and informatics services, epidemiology and drug safety, patient-reported outcomes and regulatory consulting.”

With more and more blockbuster drugs going off patent and the economic pressures being felt across the healthcare industry, life sciences manufacturers can no longer rely on large marketing budgets to drive demand for their products. Healthcare payers have become much more selective in the products they will reimburse and have sponsored outcomes studies and comparative effectiveness research to help determine which care regimens create the highest return on investment. Additionally, with additional reimbursement risk being shifted to providers as a result of healthcare reform, physicians are and will continue to seek out products that will create the best outcomes for the lowest costs. These dynamics are clearly the impetus behind today’s announcement from Ingenix.

For now, we’ll continue to monitor this deal and new emerging ramifications of this deal on the sector…we’d be interested to know what you think.

Have a great week!

Jason Grais

Jason Grais is a Director at TripleTree covering the healthcare industry specializing in healthcare IT, population health management and emerging services in the life sciences sector. You can email him at jgrais@triple-tree.com

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Closing the Chasm between Cost and Quality in Healthcare

Consumer directed health has long been viewed as an initiative finding its way into products like High-Deductible Health Plans (HDHPs), Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs).  It’s not surprising that adoption of these programs has historically underperformed against expectations and in light of economic turmoil and pending reform, these products will be altered as cost burdens for healthcare shifts to the consumer.

With consumers now tuned into costs, they are not surprisingly focused on making better informed decisions.  Just like buying any other consumer product or service – the informed consumer is the empowered consumer.  This was a key point of discussion in a recent web cast we facilitated on the topic of specialty benefit management – find a summary and replay of that web cast here.

The net result to all of this change is that consumers are starting to “shop” for better, affordable healthcare from providers.   Similar to the phenomenon over a decade ago that accompanied the rise of eCommerce (an increased reliance on direct marketing, price matching and an intense focus on customer service) hospitals, clinics and physicians are going to need to focus on ways to retain and attract patients through providing greater value – a previously foreign concept.  While value is a subjective label, a formula including many elements of cost, outcomes, and patient satisfaction need to be assembled to help healthcare providers as they rapidly adjust their business models to meet marketplace changes and cater to a new breed of healthcare consumer.

TripleTree believes that information will be a key driver in this new era of retail-based healthcare. We are seeing many companies attempt to provide consumers with the necessary healthcare information-centric tools to support informed decisions about matching the right providers to the quality and cost of care being sought.  Many of these vendors could learn a thing or two from CRM vendors, where features like enterprise feedback management and unstructured data analysis have proven adoption.   As a result, we’re seeing both vertical and horizontal players get a seat at the table where healthcare needs and retail delivery are coming together.  A few examples:

• Wide ranging consumer portals like WebMD, Angie’s List, HealthGrades and The Leapfrog Group are providing comparative tools that allow patients to evaluate doctors, hospitals, cost, outcomes, and quality.
• The federal government offers solutions that aren’t as user friendly, via the Centers for Medicare & Medicaid Services (CMS) and companies that seek to demystify this data such as Healthcare Reviews and MyHealthCompare.  Each are striving to provide consumers with survey driven information on patient experience (i.e. customer satisfaction) based on cost and quality of care (Note:  Much of the data reported in CMS is dated, sometimes by as much as a year).

Healthcare provider comparative analysis tools are still in the early innings of relevance because they lack depth of information and a broad suite of capabilities.  However, we are confident that a lot of innovation and investment will occur in this space and are watching the likes Castlight Health (a consumer health comparative shopping engine weighing service, location, cost, quality and convenience) prove that the delta between cost and quality is starting to close.

Let us know what you think and have a great week.

Jamie Lockhart

Jamie Lockhart is a Vice President with TripleTree covering healthcare software and service providers with a focus on consumer directed healthcare.  You can contact him at jlockhart@triple-tree.com

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