Innovative Provider Models Reveal Glimpse into Future of Care Delivery

A new topic we’ve been monitoring in the debate over healthcare spending has been the alarming shift from traditional cost centers such as inpatient care, pharmaceuticals and administration to outpatient care.

While outpatient settings appear on the surface as  more cost-effective alternatives, the limitations of the healthcare system  to establish incentives limiting utilization negates any potential for cost savings. Arguments in support of and against the shift have merit and must be considered as outpatient care is among largest and fastest growing healthcare spending categories.

In an attempt to limit the cost drivers of overutilization and overuse, various initiatives to balance care costs, quality and efficiency have been introduced. The most likely transition that will occur over the next few years will be the continued build-out of a provider capitation system designed to limit cost and utilization yet maintain quality. As the outpatient market braces for this shift, all eyes are on a few of the more progressive models where cost savings and outcome improvement under a provider capitation model are being demonstrated.

Over the past ten years, CareMorehas established itself as among the most vertically integrated Medicare Advantage plans in the country. Through its network of employed physicians and outpatient primary clinic care centers,  they are essentially “at risk” and therefore incentivized to efficiently deliver care – thus shifting the risk from health plans as in  traditional network models. Through a system of care coordination spearheaded by individual care managers who monitor primary and follow up care, Caremore has been able to generate outcomes far superior and more profitable than traditional Medicare Advantage plans.  CareMore has validated that the provider capitation model has potential to generate cost savings if operated effectively.

Perhaps the most comprehensive example of a system that has implemented a provider capitation model is the Department of Veterans Affairs (VA) health system through its network of Community-Based Outpatient Clinics (CBOCs). Over the past 20 years, the VA system has transitioned away from a pure hospital-based system to an ambulatory and primary care based model. In doing so, the VA has established CBOCs in order to improve care access and control spending by minimizing instances where non-acute conditions are treated in an ambulatory setting. Over the course of this transition, the VA has begun a process of soliciting outside groups to provide primary care to veterans in non-VA facilities on an individual capitated basis through the CBOC program. Valor Healthcare (Valor) has established itself as the leader in the contract CBOC market, both in terms of market share and clinical excellence.  Much like CareMore, key to the success of Valor has been their provider incentive system. Valor employs a robust pay-for-performance system for its physicians based on evidence-based guidelines and clinical performance. This program has driven clinical outcomes that exceed the benchmarks established by the VA. In addition to performance incentives, Valor’s use of several innovative care approaches to increase patient engagement and adoption contributed to consistent utilization levels.

With cost continuing to be a key issue across the healthcare system, it is likely that payers will continue to experiment with new incentive models aimed to improve the distribution of care yet maintain quality. As this occurs, innovative care models like CareMore and Valor will serve as building blocks as we continue to refine our delivery approaches to more effectively balance care quality, efficiency, safety, and cost.

Let us know what you think.

Joe Long

Joe Long is a Senior Analyst at TripleTree covering the healthcare industry, covering payer-focused healthcare software and service providers. You can email him at jlong@triple-tree.com.

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Utilization Sits at the Forefront of Recent and Future MCO Performance

As a host of leading managed care organizations (MCOs) roll out their most recent earnings reports, it is important to analyze some of the key drivers of plan performance. A key driver of success for MCOs recently has been low utilization, which has driven earnings that exceed market expectations.

Utilization: As indicated, utilization has been a primary driver of recent MCO performance upside; in addition to the important role it plays in setting future pricing, capitation rates and earnings expectations. So what exactly drives utilization among managed care plans? In short, utilization refers to the use of services by members or the patterns of rates of use of certain services such as hospital care, physician visits and prescription drugs. Utilization has long been viewed to be driven primarily by the economy, which has benefited MCOs in the near-term.  The current economic climate has been beneficial to many of the MCOs in terms of utilization in that people have deferred medical care. For example, given the current economic climate, it is likely that consumers are more than likely to wait it out a few days rather than going to a doctor and incurring a co-pay plus a prescription charge. As people have put off medical care, MCOs have benefited from lower than expected medical expenses. Lower medical expenses relative to premiums collected equal more profitability (all other things like MLR rebates aside).

One of the big questions right now surrounding MCOs has to do with what future utilization will look like.  MCOs have benefited greatly from the recent 3-year cycle of lowered utilization rates starting in 2009. Perhaps the biggest question is whether the broader implications of this trend should be accounted for in setting future plan pricing or earning expectations. Is the trend of lowered utilization correlated to the recession, unemployment and economic concerns or is there a fundamental change in how people look at medical care, especially related to consumer-directed health, higher deductible plans and the cost shift to the consumer?

Given the current economic impasse in the United States and abroad, one would expect that trend is expected to continue driving continued earnings upside among MCOs. However, this has not been the case in the guidance provided by many leading MCOs. Several MCOs are predicting higher utilization for 2012. This higher utilization will have a direct impact on the earnings performance among these plans and have been a key topic among analysts and industry commentators. These recent utilization suggestions have been supported by analyst estimates that utilization rates will increase by up to 50-150 basis points in the near-term. As analysts are just now updating their 2012 models to reflect increased utilization, it is likely that model updates will lead to lowered 2012 analyst earnings forecasts and related price downgrades in the MCO sector. The analyst community generally has taken a hard stance on MCO utilization and it is likely that we will witness several MCO downgrades in the near term as analyst work to assess the impact of increased 2012 utilization assumption.

Several counter viewpoints exist that utilization rates will not move increase as much as the carriers are suggesting. The prevailing viewpoint from this camp is that although there might be marginal utilization increases this year, the profit spread will remain as pricing increases will exceed the expected increases in medical cost spending as a result of increased utilization. This stance prevailed in 2011 as utilization last year was below expectations, leading to overall MCO sector public market performance that exceeded other healthcare sectors.

While low healthcare utilization is generally beneficial to MCOs, it generally has the opposite effect on other healthcare sectors, including hospitals and healthcare IT and services companies. These groups generally benefit from the consumption of services, which was the focus of the most recent HCA earnings release. During this release, HCA cited a rise in same-facility admissions to be a key driver of their earnings increase despite a decline in domestic surgery admissions and revenue-per-equivalent admission fell amid Medicaid reduction.

However, it is important to note that role that several other factors play in formulating earnings expectations and guidance. Almost equally important to some MCOs as utilization (particularly those with Medicare enrollment) are factors related to new member enrollment and Medicare Advantage conversion rates. In addition, several MCOs face huge earnings upside related to expansion of Medicare / Medicaid dual eligible enrollment as well.

It appears that the uncertainty that plagued MCOs following PPACA’s passage has been pushed to the back burner as most MCOs have generally benefitted from the legislation. While there is still some fine-tuning on the edges of reform that still present an overhang for MCOs (namely, MLR limitations, administrative cost constraints), that is a topic for another day as the current focus appears to be squarely on near-term medical cost expenses and new opportunity capture (courtesy of dual eligible expansion, state Medicaid RFPs and commercial market pricing pressure).

Let us know what you think.

Joe Long

Joe Long is a Senior Analyst at TripleTree covering the healthcare industry, covering payer-focused healthcare software and service providers. You can email him at jlong@triple-tree.com.

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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Medicare Advantage…Here Today, Here Tomorrow…

CIGNA put a stake in the ground for the long term prospects of Medicare Advantage (M.A.) with its recent announcement that it would be acquiring HealthSpring for $3.8B (a 37% premium over its closing price prior to announcement).

HealthSpring primarily operates as a M.A. plan covering over 340K lives across 11 states (including over 800,000 Medicare Part D members).  CIGNA previously had a very limited presence in M.A. with ~44,000 lives entirely in Arizona.

CIGNA has been focused on diversifying its core US healthcare presence, so the move isn’t too much of a shocker, although many thought its approach would include international expansion versus a bold move into the government market.  It’s likely the HealthSpring business model was too alluring for CIGNA to pass on when you consider HealthSpring’s:

• Tight integration with network physicians including a high level of capitation and risk sharing;
• Strong leadership team lead by Herb Fritch whom possess the experience and know-how to operate a unique, physician-centric, coordinated care model; and
• Consumer brand presence within the senior market.

There is a large opportunity for CIGNA to leverage and replicate HealthSpring’s coordinated care model across their commercial book of business to drive efficiencies and deliver better care.  Additionally, CIGNA will benefit from its ability to cross-sell HealthSpring into new markets.

CIGNA is not the only health plan making moves in the M.A. market – recent M&A activity within the sector over the past 18 months include:

• Wellpoint – CareMore (2011)
• Aetna – Genworth’s Medicare Supplement (2011)
• Humana – MD Care (2011) and Arcadian Management Services (2011)
• HealthSpring – Bravo Health (2010)

HealthSpring was one of the few remaining M.A. plans with size and scale, and CIGNA’s move could prompt additional consolidation within the sector over the coming 12-18 months.  The list of targets with viable M.A. populations (100K+ lives) is becoming quite limited.  Some of these include Universal American and Wellcare, public M.A. plans with 100K+ lives; and XL Health, SCAN, Aveta and Universal Healthcare as examples of private M.A. plans with scale.

There have been recent headlines about increased pressure on reimbursement rates and minimum medical loss ratio (“MLR”) requirements posing a threat to the future of M.A.  My view, however, is that M.A. will not only survive, but thrive going forward and recent M&A activity would suggest the same.  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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Risk Adjusted Payment Models for Medicare Advantage – New Markets and Business Opportunities

In 2007 the Centers for Medicare & Medicaid Services (CMS) fully implemented its “HCC Risk-Adjustment Reimbursement” model for capitated Medicare Advantage (M.A.) plans.  This model was put in place to align member premiums with the condition of the individual member (i.e. M.A. plans would receive higher monthly premiums for a member with several chronic conditions than a healthy member).  So, how could health plans prove to CMS the condition of members through the prevalence of certain risk factors?

Two categories of companies have arose, both helping to solve this problem for the health plans, albeit from a very different approach:

Retrospective Chart Reviews:  Companies that pull patient charts from provider facilities and then perform clinical audit reviews to validate the presence of certain clinical codes.  Companies in this group include Leprechaun, Outcomes, The Coding Source, Health Risk Partners and others.

Prospective Medical Assessments:  Companies that actually go into the member’s home and spend time assessing the mental and physical health of the member.  This form of risk adjustment does not rely on reacting to episodes of care but rather using clinically validated surveying to prospectively identify existing conditions.  Companies in this group include Matrix Medical, Inspiris, Censeo and EMSI.

So, while it’s clear the incentive is for M.A. plans to maximize revenue by uncovering risk factors, CMS countered by announcing the Risk Adjustment Data Validation (RADV) pilot program in July of 2008 to audit M.A. plan’s risk adjusted payments more extensively.  The initial pilots found an average discrepancy rate of 35% which has lead to a system wide roll-out of RADV audits.  This now puts significant pressure on M.A. plans to ensure the HCC data submissions are accurate as plans are subject to a downward adjustment in risk scores and serious financial penalties if the audits show discrepancies.  For plans, it’s not about getting more or less risk adjusted reimbursement revenue; it’s about getting the right amount of revenue (Revenue Integrity).

So this leads us to a debate as to how M.A. plans can ensure data accuracy.  Is it more accurate and effective to utilize retrospective chart reviews for risk adjustment or utilize prospective in-person medical assessments to survey the health of the member or is it a blend of the two?  CFO’s of M.A. plans across the country are wrestling with this very same question as they evaluate their revenue integrity and compliance.

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

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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Humana’s Acquisition of Concentra Is A Multi-Pronged Move

Yesterday’s announcement that Humana has signed a definitive agreement to acquire Concentra represents a dynamic shift for Humana, diversifying the company from a healthcare payer to a large provider as well.   Perhaps the most interesting component of the transaction to watch will be how Humana can leverage Concentra’s footprint of more than 300 medical centers across the U.S. to grow revenues for both the payer and provider businesses.

As consumerism increasingly impacts the healthcare landscape and individuals have more choices and fewer obstacles for choosing health insurance, health plans are keenly aware they will need to significantly expand their consumer marketing capabilities.  Will Humana be able to use Concentra’s clinics as a storefront to sell Medicare Advantage and Prescription Drug Plans to seniors, or individual insurance products for other consumers?  Furthermore, how can Humana structure these plans to encourage the use of the Concentra medical centers while saving consumers money?

In addition to potential consumer implications, Humana joins Walgreens and Cerner, as large healthcare entities that have acquired businesses providing onsite health centers at large employer campuses.  As the first managed care organization with a large footprint of worksite health centers, it will be interesting to see how Humana can combine onsite services with the company’s provider network and population health offerings to attract additional business from large employers.  Concentra’s capabilities in occupational medicine add further employer-focused services that Humana can use to deepen employer relationships.  If integrated well, Concentra’s onsite and offsite medical centers, combined with Humana’s telephonic and online population health programs focusing on wellness and behavioral health, could help employers make a material impact on their healthcare costs.

TripleTree will continue to monitor how health plans continue to diversify their businesses through technology and healthcare services in order to stay relevant in the rapidly evolving healthcare landscape.

Have a great Thanksgiving!

Jason Grais

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

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Health Plans & Provider Networks Seek Optimized “Channel to the Chart” – 08/30/2010

Our definition of Healthcare Compliance spans a variety of topics that include ICD-10 conversion, Meaningful Use, Medical Necessity, Clinical Auditing and others.

Relative to clinical auditing, the healthcare industry continues to rely on a payment system where coding needs to be compliant, accurate, and complete in order to maximize reimbursement.

Market forces and change in this arena abound.  The convergence of Healthcare Effectiveness Data and Information Set (HEDIS) – a set of standardized performance measures for managed care organizations – and risk adjustment – a Medicare Advantage plan reimbursement methodology based on the patient’s health acuity – has led to an emerging new sector, Clinical Auditing.

Mandated by National Committee for Quality Assurance (NCQA) and the Medicare Modernization Act (MMA) respectively, HEDIS and Medicare risk adjustment have legitimized clinical auditing as a new industry, creating opportunities for emerging tech-enabled outsourcers with a myriad of relevant solutions.

With Clinical Auditing top of mind, payers and providers must find an efficient, accurate, and scalable “channel to the chart” with a vendor who can effectively acquire, analyze, mobilize, and aggregate clinical data to improve payment integrity. While member targeting, chart extraction, data management reporting, and clinical coding are each critical to reimbursement for healthcare, the merging of these features into one suite provides an “one-stop-shop” solution for clinical auditing services.

Recently we announced that Parthenon Capital was investing in our client, The Coding Source, LLC a clinical auditing firm at the forefront of this emerging sector.

Health reform and an evolving set of challenges at Centers for Medicare & Medicaid Services (CMS) is causing the clinical auditing landscape to change. This change is evident as businesses like The Coding Source grow, and dynamics drive change across the marketplace with:

• Technology firms seeking services businesses,
• Services businesses seeking technology firms, and
• The industry seeking a scalable, “full service” alternative to the mega-vendors like MedAssurant.

If your business is seeing a similar transformation thanks to healthcare compliance, let us know.

Have a great week!

Joanna Roth

Joanna Roth is an Analyst at TripleTree covering the healthcare and technology industry, specializing in education solutions. Follow Joanna on Twitter or e-mail her at jroth@triple-tree.com.

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