Linking ICD-10 and the future of HCIT

With only 18 months left until the Centers for Medicare & Medicaid Services (CMS) ICD-10 implementation deadline, pressure to comply is mounting for a vast array of healthcare constituents.  ICD-10, or International Statistical Classification of Diseases and Related Health Problems 10^th Revision, is a medical code set used to standardize both diagnoses (ICD-10-CM) and procedures (ICD-10-PCS).  Mandated to replace the existing ICD-9 standards on October 1, 2013, its been well documented that ICD-10 will provide a level of clinical granularity far exceeding that of its predecessor; and as shown below a vast increase in the sheer number of codes.

The implementation deadline has spurred some debate.  James Madard, Executive Vice President and CEO of the American Medical Association (AMA), recently wrote a letter to HHS Secretary Kathleen Sebelius asking her to halt the ICD-10 implementation process.  “The timing of the ICD-10 transition…,” Madard wrote, “… could not be worse as many physicians are currently spending significant time and resources implementing electronic health records into their practices.”

Madard alludes to an issue that is central to both payers and providers which are that multiple Healthcare IT guidelines (ICD-10, HITECH, etc.) will need to be smoothly and quickly implemented to ensure proper reimbursement and avoid heavy government penalties.  The ICD-10 concerns for providers are becoming a boon to vendors, as solutions ranging from data analytics and terminology management to consumer focused solutions are enjoying strong demand.

In our view, vendors need not worry that an extended deadline will curb this demand.  As the healthcare universe shifts from fee-for-service to capitation and bundled-care reimbursement models, innovative technology will be a chief driver in achieving cost reduction.  In addition, we’re recommending that vendors align their business strategy and product offerings around three initiatives:

1. Effectively working with Channel partners to provide bundled “end-to-end” solutions that satisfy reporting requirements for multiple federal mandates
2. Creating flexible product platforms that can be easily integrated into legacy systems (and updated as necessary)
3. Stay out ahead of government regulation and build organizational agility that can meet changing client demands

Let us know what you think.

Jeff Farnell

Jeff Farnell is an Analyst at TripleTree covering the healthcare industry, with a specialization in revenue cycle management, compliance and tech-enabled business solutions. You can email him at jfarnell@triple-tree.com.

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Why Healthcare is Finally Going Green

Whether it’s paying a cable bill, mortgage, cell phone bill or other monthly recurring payment, consumers have been increasingly replacing paper check payments with online bill pay technologies for the past decade.  Healthcare, often dubbed as being ten years behind other industries technologically, had a recent breakthrough in the adoption of electronic payments.  The Department of Health and Human Services (HHS) recently released new rules on the electronic fund transfer (EFT) standards, a move that is projected to save the system billions of dollars and pounds of paper.

The new rules establish common interchange standards to streamline the format and data content of a transaction from a health plan (or payer) to a provider’s bank for claim payment and issuance of an electronic remittance advice (ERA).  The ERA is a notice of payment sent to providers to help reconcile electronic payments with the associated claim(s).  Historically, with minimal EFT volume, providers struggled with the reconciliation function, but the new regulations will require the use of a trace number that automatically matches the two.

Why has EFT payment adoption been slow to date and how does future adoption increase?  Despite the majority of payers possessing EFT capabilities today, providers have been slow on the uptake because payments are submitted in varying data formats making the processing and reconciliation very difficult.  With the new HHS rules, a standard data set will allow providers to rely on one system and/or format to take in and reconcile payments.  Payers are motivated to implement electronic payments for a variety of reasons, but most predicated on the associated cost savings.  I believe we will increasingly see payers forcing the transition within their provider network – perhaps even charging providers fees to cut a check.

Benefits of transitioning to electronic payments:

• Faster revenue cycle, reduced AR, and improved collection metrics for providers
• Increased productivity – more claims with less staff
• Reduced potential manual errors
• Increased business intelligence opportunities

Perhaps the most important benefit is increased business intelligence.  Traditional paper checks limit payers (and providers) ability to mine data as there really isn’t much data associated with a paper check or image.  However, EFT payments create new and unique opportunities to layer business intelligence and analytic solutions on the payment data sets.  Some of the obvious low hanging fruit is Fraud, Waste and Abuse analytics which is a huge issue in healthcare with large opportunities for savings.

The healthcare system is finally closing the payment technology gap which will save billions of dollars, increase efficiency, and create new business opportunities to make healthcare smarter.  Let me 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.

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HHS Reform Timelines…Wiggle Room In Sight?

Aggressive IT deadlines have left the healthcare industry scrambling to meet a host of regulatory mandates spanning HIT adoption, payment transaction methodologies, coding standards, and state-run health insurance exchanges.  Hundreds of new regulations have been implemented over the past couple of years, leaving the industry torn in how limited time and resources are utilized among care delivery, quality and cost reduction initiatives, process/infrastructure modernization, and increasingly stringent regulatory reporting requirements.

Hospitals and doctors have been especially overwhelmed with regulations and have been reprioritizing investments to support EMR implementation, Meaningful Use qualification, and what is expected to be a tidal wave of new entrants into the system once the 2014 health reform mandates become effective.

The American Medical Association (AMA) set newswires and the blogosphere abuzz last week when they publically voiced opposition to the transition to ICD-10 coding stating “the implementation of ICD-10 will create significant burdens on the practice of medicine with no direct benefit to individual patients’ care.”  Some dispute the AMA’s move as self-serving given their interests in maintaining the stature and importance of the Current Procedural Terminology (CPT) code set.  Nevertheless, whether the AMA’s move was defensive or not is irrelevant – the vast majority of providers and a meaningful cross-section of payers are ill-prepared to meet the ICD-10 transition deadlines that CMS currently has in place.

To the relief of payers, providers, vendors, and states, the department of Health and Human Services (HHS) and the Center for Medicare and Medicaid Services (CMS) have recently backed off from a few key deadlines.  While these announcements by no means cancel any existing mandates, at a minimum they buy the industry some time to comply with the overarching legislative intent of increasing coverage among the uninsured population, incentivizing IT adoption, and driving improved levels of care delivery.  Of note:

1. HIPAA 5010– CMS announced that it would hold off enforcing the HIPAA 5010 transaction sets until March 31, 2012, a 90-day extension to the original enforcement date. While the compliance date will technically remain intact, relaxing the enforcement date “encourages all covered entities to continue working with their trading partners to become compliant with the new HIPAA standards and to determine their readiness to accept the new standards as of Jan. 1, 2012,” as stated in a release by CMS’ Office of E-Health Standards and Services (OESS).HIPAA 5010 is widely viewed as a precursor to the impending transition to ICD-10 in October 2013. The enormity of that effort will dwarf HIPAA 5010. This week’s announcement foreshadows further delays yet to come.
2. Stage 2 Meaningful Use– HHS announced this week that it would delay its compliance date for Stage 2 Meaningful Use from 2013 to 2014. The extension specifically impacts eligible providers that qualified for Stage 1 Meaningful Use in 2011. Providers, vendors, and government work groups alike have noted the timing issues and inherent disincentive posed on early adopters attempting to adhere to criteria that have yet to be finalized. The Health IT Policy Committee, a federally-chartered advisory panel to HHS, recommended these changes earlier this year to the endorsement of Farzad Mostashari, M.D., ONC’s National Coordinator for Health Information Technology.HHS Secretary Kathleen Sebelius acknowledged the progress to date, referring to the reported doubling of HIT adoption over the past two years. In its move to extend the Stage 2 deadline HHS has smartly protected its initial success by attentively listening and responding to the needs of an overwhelmed provider community.
3. Health Insurance Exchanges – HHS (though the Center for Consumer Information and Insurance Oversight – CCIIO) has seemingly relaxed (or at least clarified) a critical deadline for the states to stand-up their Insurance Exchanges. This week, CCIIO extended a grant deadline by six months until June 2012 from December 2011. Also CCIIO has committed funding for the establishment exchanges beyond the previous January 1, 2014 deadline. Now states have until December 2014 to apply for grants for continued exchange development provided that at least a portion of the exchange is operational by January 1, 2014.

While it is not entirely clear why these significant changes coincided in timing – perhaps it had to do with the resignation of controversial CMS chief Don Berwick – these reprieves are no doubt welcomed within the industry. The extra time will give payers, providers, and states some extra time to meet their compliance mandates.

This extra time should not be squandered. Industry participants must continue to plan for and implement systems that support new EDI standards within 5010, the reporting requirements of Stage 2 Meaningful Use, and the complexities of insurance exchanges. Furthermore, the real value in any of these mandates is not meeting the minimum requirements of the mandate itself, but rather the powerful and compelling capabilities that each enables in terms of improved communication and workflow automation that will enable entirely new quality and cost initiatives.

We’re optimistic that the timeline flexibility of HHS regarding timelines will promote more thoughtful approaches, investments and implementations across all impacted organizations, let us know what you think.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

Seth Kneller

Seth Kneller is an Associate at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

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Insurance Exchange Enablement Heats Up as the Clock Ticks Down

Today’s news that Wellpoint and two other Blues (HCSC and BCSB MI) acquired a 78% stake in Health Insurance Exchange vendor Bloom Health is not the first – and won’t be the last – move in what is sure to be a consolidating market.

The Accountable Care Act (ACA or Obamacare) requires each state to establish an online shopping portal, known as a Health Insurance Exchange (HIX) for individuals and small groups to purchase health insurance no later than January 1 2014. We have written and blogged extensively on the topic. In our estimates, HHS and the states will need to spend in the neighborhood of $4-$6 billion dollars on technologies order to create these exchanges. In addition to the ACA HIX, there is perhaps a bigger market opportunity in the private sector to create non-government sponsored insurance exchanges, creating even a bigger market opportunity. Bloom Health is one of many vendors specializing in the private exchange market.

Wellpoint, the Blues, and in fact all health insurance companies are making the individual and small group markets a top priority for new business and growth initiatives. These markets will explode in growth due to the Obamacare legislation and the carriers recognize the opportunity and the challenge with tapping this market.

The insurance exchanges, both public and private, will be the primary vehicles to reach into the individual and small group markets. Wellpoint’s move on Bloom, and Optum’s acquisition of Connextions, is recognition of this fact.

In addition to the Connextions and Bloom transactions, the vendor community is also coming together to help create insurance exchanges. Accenture’s acquisition of Duck Creek, announced partnerships from Oracle, Microsoft, CSC and others such as Maximus’ partnership with Connecture, portend of additional transactions to come in the space.

Insurance companies need help in positioning into the individual market, and also need technology to help them more effectively participate in the public and private exchanges.  Several vendors are positioning into the market but only a few have broad, proven experience with exchanges.

Companies like eHealth and Extend Health, which have consumer engagement and online shopping capabilities from market adjacencies (a leading online brokerage for eHealth and a robust Medicare exchange from Extend) will be important players in the new world of insurance exchanges. Other players like DestinationRx are similarly active in the exchange marketplace, working with HHS and multiple insurance plans, and will have a meaningful impact on the public and private HIX marketplace.  These vendors already have a head start in exchange operations, plan comparison features and tools to help consumers sort through the confusing world of insurance costs and coverage.

TripleTree’s recent HIX research report lays out a number of vendors that are currently engaged in HIX solutions. The report concludes that no vendor provides a complete solution.  Given the importance of the exchanges and the immediate market opportunity, no doubt consolidation will continue.

Have a good week.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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The Clock is Ticking for Public Health Insurance Exchanges

The success of Obamacare relies entirely on every state having a health insurance exchange as mandated by the Affordable Care Act (ACA) up and running no later January 1, 2014.

By early 2013, the federal government (via Health and Human Services (HHS)) will make a determination as to each state’s readiness to bring their health insurance exchange online. Lack of readiness by the January 1, 2014 deadline means HHS will take over the implementation and operation of each exchange.

The clock is ticking…

We are following closely the progress that is being made by the states are convinced that only a handful will be ready by the deadline.   Moreover, we question whether HHS will be able to step in and offer their working version of an exchange either, or if that federal exchange will even be legally able to offer subsidized policies.

While we are not prepared to unilaterally conclude that ACA’s exchange deadline won’t be met by any state, a former HHS secretary is equally skeptical.

We want exchanges to succeed and believe they ultimately will (in some form).  Our reviews of the exchange initiatives have included studying the Early Innovator grants and interviewing state policy administrators and vendors selling into the exchange concept.  The amount of work that will need to be done in order to get the public exchanges stood up by 2014 is daunting.

TripleTree’s recent report on exchanges, HIX: An assessment of the complexities and opportunities emanating from the ACA’s public health insurance exchange concept introduces these challenges and some innovative solutions that could emerge as part of the solutions.  Since then however, the planning, procurement and testing are in the early innings; and operational integration is far from reality.   Unfortunately very few states have a demonstrated ability to pull off the kind of implementation prowess needed to come online, on time.

Putting politics and policy aside, there are at least three major challenges that each state will need to overcome (quickly) if the public exchanges have any chance of meeting the 2014 deadline:

1. States need more clarity on what they are building even though many states have RFPs out for technology and have drafted high level architectures.  There is universal uncertainty and lack of guidance from HHS on major issues such as to exactly how payments and subsidies will be processed  or how the carriers will integrate their workflow into the exchanges
2. States lack successful architectural models and commercially proven technical capabilities because there is no working model of an exchange. Those charged with building the models – the Early Innovator grantees – are far from ready, or have dropped out of the program and/or returned their remaining funds.  The often cited Massachusetts and Utah models fall short of the ACA requirements (as do the Medicare exchanges).   And no vendor has a turnkey solution.
3. States need more time – Given the massive scale and complexity of the exchanges and the integration that needs to be done with existing state and federal systems, it will be next to impossible to build an automated exchange as envisioned by the ACA in the next 16 months.

In our report, we also introduced the notion of private entities that may have the acumen and motivation to bring an insurance exchange online by the 2014 deadline.  We speculated that the private exchanges would start to roll-out in the second half of 2011 and even identified some of the likely players that would have compelling capabilities to drive the private exchange concept.

Our research asserted the real opportunities for the private sector to capitalize on the HIX mandate through a market-aligned solution that will have more impact to improve health insurance access than the federal mandates.  We are excited to see and will continue to watch the early launches of the private exchanges and believe the states and public HIX will benefit from modeling their efforts and approaches around the early successes from the private exchanges.

Let us know what you think.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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Linking Value Based Purchasing & the Realities of Tracking Care Provider Accountability

On April 29^th the Department of Health and Human Services (HHS) officially launched the Value Based Purchasing (VPB) initiative originally proposed by Centers for Medicare and Medicaid Services (CMS) in January.  The current form of the VBP rule was created in response to the enactment of the Patient Protection and Affordable Care Act (PPACA) in 2010, and was derived to ensure that providers are held accountable for the quality and type of care provided. What’s not as well-known is that although the VBP initiative won’t begin to impact reimbursement until the beginning of the federal fiscal year 2013 (Oct. 1, 2012), providers’ performance scores will begin being tracked this July.  This means the care being provided beginning on July 1, 2011 will have an impact on Medicare reimbursement in late 2012.

Because CMS will evaluate two separate clinical scores (achievement and improvement), CMS must establish a benchmark for each provider so that it can determine the improvement portion of each clinical measurement (score).  Then effective in 2012, CMS will track the performance of each qualifying provider from July 1, 2011 to March 31, 2012 to set the respective baselines for improvement. Given that this measurement period is quickly approaching, and the dollars that will be at risk for providers (estimated at $850 million in the first year) are so significant, we are puzzled to find a lack of VBP activity in the market (we note that there is a fair amount of patient satisfaction improvement initiatives and solutions, but few specific VBP offerings).

As a reference and based on the March 15 post by my colleague Adam Link, the graphic below represents key VBP data points that should be top of mind for hospital administrators:

source: TripleTree

While we continue to hear “value-based purchasing” thrown around a great deal, the impact of the initiative with regards to timing, structure and implementation schedule is widely unknown.  Further, it has become increasingly from our research and advisory based briefings that there are few technology enabled assets able to offer a comprehensive VBP reimbursement improvement platform.  Solutions do exist that can help providers assess “at-risk” reimbursement dollars and improve their HCAHPS scores and decision support solutions; which may be able to help providers improve their VBP clinical care scores/measurements.

However, we are unaware of any comprehensive, end-to-end VBP solution that will not only help providers measure and assess at-risk reimbursement, but can also analyze the relevant measures to help providers maximize Medicare reimbursement.  As we’ve opined in previous blog posts, we believe that such a solution will be highly valuable and coveted by providers as they appreciate the magnitude of the reimbursement dollars VBP will impact.  We’ll continue to watch this area and seek briefings with organization espousing market-ready VBP solutions. 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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HIX: Finding the pony hidden within the ACA’s “exchange concept”

Change is coming to the U.S. health insurance market and the road will be bumpy.  Nowhere is the change more apparent than the current debate surrounding the state-run public health insurance exchanges. Our research underscores that the Affordable Care Act of 2010 underestimated the cost and complexity of establishing public exchanges. In spite of these issues, new and unforeseen opportunities are emerging relative to health insurance distribution. The application of retail, product design and customer service expertise could be transformational relative to the health insurance market for individuals.

As the Affordable Care Act (ACA) marks its first anniversary, a number of key questions remain. One of the largest revolves around the costs and benefits for the federally mandated and state-run competitive marketplaces called Health Insurance Exchanges (HIX), where individuals will be able to shop for and purchase health insurance. The public (state-run) HIX is one of the cornerstones of the health reform legislation, and for individuals without healthcare coverage today – an estimated 34 million people – the public HIXs are the intended mechanism by which individuals will acquire health insurance.

Our latest research report assesses the ACA requirement that each state build and operate a multi-channel (i.e. online, phone, and paper-based) marketplace where any qualified individual can shop for and buy health insurance.  The legislation provides some specifics as to what types of “essential health benefits” must be provided within the exchange, dictates guidelines and mandates as to how the states must run the HIX, and defines specific features the exchanges must possess. These include:

• A choice of certified and approved health plans from different carriers.

• Simple plan comparison tools that allow consumers to research and select the best policy for their needs.

• Enrollment assistance for those purchasing private insurance, and eligibility information for those qualified to receive government subsidies or Medicaid enrollment.

• A process for recouping operational costs of the HIX through surcharges in order to make them self-sustaining.

For these exchange-based insurance policies, federal and state law will closely regulate the products and benefits offered and the prices insurance companies can charge for their products. To keep the HIXs viable, insurance companies are forbidden from undercutting prices of products sold on a public exchange with competing products in the open market. They will also be required to pool risks across exchange and non-exchange participants. Further, the U.S. Department of Health and Human Services (HHS) will mandate a set of essential health benefits that must be provided under each policy, including coverage and deductible tiers for each plan offered.

While the public HIX concept seems simple and straight forward, our research predicts that their implementation will be fraught with costs, technical challenges, and sustainability issues that are neither recognized nor acknowledged, much less understood. Thus far, much of the debate about HIXs has focused on constitutional questions – and therefore political issues – related to the individual mandate which would compel citizens to purchase health insurance. As the states ramp their HIX implementation efforts in order to meet the 2014 deadline, we anticipate that several new challenges will come to the forefront. They will need to be addressed and will propel further change.

Healthcare reform and the resultant need for serving the individual market are propelling new approaches to capturing share in the insurance marketplace, and we expect that a range of new market entrants are just around the corner. Recognizing that it is still early in the progression of these alternative, free-market approaches, this report will review the concept of “private” insurance exchanges and reveal how they will likely serve a larger population than their public counterparts, and will provide more compelling insurance options and opportunities.

Thanks and have a great week.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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As Tenet Digs in, Getting beyond the Headlines and into the Numbers is Illuminating

Community Health Systems [NYSE: CYH] and Tenet Healthcare [NYSE: THC] have squared off in what is turning into an ugly hostile takeover attempt of Tenet. Tenet has attempted to thwart the takeover by accusing Community Health Systems of Medicare fraud, and Community is denying the charges. The chain of events has rattled investors and jeopardized Community’s ability to complete the takeover.

Following Community’s offer back in November 2010, Tenet alleged that Community used unethical and illegal business practices to defraud CMS and private payers. According to Tenet, these practices have artificially inflated Community’s stock price and its being argued that Community’s offer (which at the time included cash and stock) was inadequate because of its artificially inflated earnings.

Both parties are tossing around pages of statistics to support their positions and win over Wall Street and investors, but regardless of Community’s defense and their ability to regain investor confidence, our team anticipates that until the dust settles, the potential financiers that could support the deal with favorable term will be spooked.

Tenet filed its Complaint in US District Court for Northern Texas. Tenet argues that:

• Tenet argues that Community’s use of their own proprietary admissions standards are overly aggressive and have led to the increased admissions rates above industry averages.  Tenet points to Community’s low observation rates as evidence that their admissions rates are abnormally high.
  

• Community’s aggressive admissions practices can be seen in studying the “synergies” realized by the hospitals it has acquired.  The chart below (from the complaint), helps demonstrate the significant reduction in Medicare Observation Rates following Community’s acquisition of Triad in 2007; showing Community’s practice of using aggressive admissions policies to artificially boost profit.
  

• The increased admissions generated an additional $280-$377M in Medicare revenue for Community from 2006-2009 (the compliant estimated that the total figure could exceed $1B if Private Insurance revenue and fines are included).

Tenet’s argument appears flawed in that it asks both the court and its shareholders to conclude that there is a direct correlation between low observation and high admission rates. Tenet fails however, to produce the evidence that Community’s admission rates are so high that fraud must be occurring.

The Office of the Inspector General (OIG) for HHS has also began investigating anomalies in Community’s admission rates based on multiple whistleblower complaints from Community employees.  The OIG investigation could quickly spill over into the DOJ for additional criminal investigations.

Community’s stock value has dropped 22 percent (based on its closing price on April 10 to April 27) and as continued questions are posed relative to earnings and potential adjustments, the ripple effect could be significant.    Community has denied the claims and has stated a willingness to cooperate with the OIG investigation.  In its Q1 earnings call, Community builds a good case that Tenet’s analysis selectively uses statistics and false metrics, and ignores data more favorable to Community to skew its findings.

Tenet’s allegations paint a negative spotlight and overhang on all hospital earnings quality, not just their own or that of Community.  Debt holders, it follows, may be gun-shy in lending to fuel acquisitions going forward. This is an industry that is rapidly consolidating as organizations attempt to scale operations and gain pricing power.  If access to the debt that’s fueling hospital-to-hospital acquisitions is curtailed, other players (i.e. Payers) will have an advantage as they look to vertically integrate.  This is critical advantage within the new realities of Accountable Care Organizations (ACOs).

Moreover, this ongoing dispute has weakened credibility on both sides of the debate. Wall Street has been reluctant to accept Tenet’s claims but also has placed considerable scrutiny on Community to provide closure on the issue. Given Community’s continued silence following their Wednesday’s earning announcement, it is likely that Community will need to provide Wall Street and especially debt insurers with a more detailed answer or face additional pressure in the near future.

Let us know what you think.

Joe Long & Scott Donahue

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.

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@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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While Obamacare Exchanges Remain Controversial; Opportunities Exist for Commercial Insurance Exchanges

With the seating of the new Congress, much attention has been given to the Republican pledge to repeal Obamacare, or at least their desire to defund major parts of the Patient Protection and Affordable Care Act (PPACA). High on the list of defunding targets are the state mandated health insurance exchanges (section 1311).

The state exchanges are designed to be a marketplace where people not covered through their employers would shop for and purchase health insurance, and if qualified, would receive subsidies.  The PPACA mandates that all states must establish insurance exchanges for individuals to purchase insurance by 2014, or the Department of Health and Human Services (HHS) will establish and run the exchange for the states who aren’t compliant.

The exchanges remain one of the most controversial aspects of the PPACA because of the large unfunded mandates they place on the states, in addition:

• The exchanges are the vehicle for supporting the Individual Mandate (the portion of the Reform Act that requires all US citizens to be covered under health insurance), and because of the very ambiguous rules legislated in the establishment of the exchanges.
• Half of the U.S. State Attorneys General are suing the federal government to block the mandate to implement insurance exchanges, claiming the rules are too ambiguous, that the unfunded mandate will bankrupt the states, and that the mandate is an overreach of federal powers.

The national debate on healthcare and popular sentiment to make health insurance more accessible and affordable has forced the health insurance companies to re-think how they market and sell their products.  As we have spoken about many times in the last year, the health insurance market is at the forefront of a fundamental shift to a retail business model from its legacy wholesale roots.

Despite the public scrutiny being paid to the insurance exchange mandate and congressional risks to rejigger the entire legislation, TripleTree is seeing a much more interesting dynamic forming in the healthcare insurance marketplace – early steps to establish alternative insurance exchange marketplaces by commercial entities.

A commercial healthcare exchange is a private venture between one or more insurance companies and a retailer (such as Walmart), bank, property and casualty insurance company.  It could in reality, include a range of consumer-oriented entity that unite to create a health insurance marketplace.

In the individual and small group market, consumers may find much higher value (and savings) in bundled insurance products (i.e. property, auto, life and health) than they would in singulary buying health insurance in the state dictated and controlled exchange.   Complicating things, this is especially true for consumers that would not qualify for the federal or state subsidies that can only be received if insurance is purchased in the public state exchange.

Today, most property and casualty holders get a discount for carrying multiple policies from the same carrier (e.g. homeowners and auto combined might yield a 15% discount on both policies).   Our research has led to many discussions with property and casualty insurers interested in bundling health insurance though a partnership (rather than direct underwriting).  Their goal?…aggregate and manage a larger share of consumer spend on insurance products.

Similarly, we are aware of large national retailers seeking to implement a proprietary insurance marketplace of as a way of extending a service mix to their customers, building brand loyalty and retaining customers within their own pharmacies.  While some retailers may form single entity partnerships, others see themselves as a marketplace for multiple carriers competing for business.  We anticipate seeing these commercial insurance exchange marketplaces begin rolling out sometime in 2011.

Though these commercial exchanges may not solve the adverse selection problem that the PPACA exchanges were designed to address, they should prove a successful partnership for the retailer and the insurance company that otherwise has difficulty marketing directly to consumers.  While states dither and politics hinder the roll-out of the public exchanges, many forward thinking commercial business recognize the market opportunity to provide a better insurance buying experience and are moving quickly to meet a market need – the way that free economies are supposed to work.

This is a thorny, emotional issue – and our research and sell-side mandates are paying close attention as technology-based solutions emerge.

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

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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