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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Expanding Services Portfolios and M&A Defining Payer Landscape in Government Healthcare

The third generation of TRICARE contract RFPs celebrated turning four years old and the contracting process is still ongoing. While the initial contract awards were announced in 2009, heated negotiations are underway for the last remaining TRICARE contract. The last two weeks saw the five year $20B TRICARE West Region contract awarded to UnitedHealth Group – which was promptly counter protested from the incumbent, TriWest. Contract awards and protests are common, and to better understand the driving forces behind the highly combative and contentious atmosphere around TRICARE contracts, it is important to look at the broader market.

The Military Health System (MHS), which includes the TRICARE contracts, and the Veterans Health Administration (VHA) – represent the two largest opportunities for commercial health payers to expand their presence outside of Medicare and Medicaid. Unlike CMS, the MHS and VHA are relatively protected from government budget turmoil and political scapegoating. A decade of global military campaigns and higher combat survival rates have increased demands on DoD and VA care programs and driven combined spending to over $100 billion and counting, while persistent reimbursement challenges and healthcare reform uncertainties have spurred some payers to look elsewhere for diversification.

In order to better align with and pursue future opportunities in the government healthcare space, and recognizing the volatility of the TRICARE contracting process, commercial payers have revisited their government healthcare strategies and developed road maps for expansion going forward . With the most recent award to UnitedHealth Group, the three TRICARE contracts are all expected to be operated by large public commercial health plans, each with markedly different strategies for pursuing government healthcare expansion.

• Health Net operates a small portfolio of VA community-based outpatient clinics and has been a TRICARE North Region contractor since 2004.  It is also the contractor for the Military & Family Life Consultant Program, providing behavioral health and counseling services to youth and adults.  It wasn’t until this year that the Company identified the VA as a key opportunity and separate area of strategic focus going forward as it tries to diversify and expand beyond its TRICARE contract and grow its VA footprint.
• Humana has served as the TRICARE South Region contractor since 1996. Its MHS presence beyond that extends mostly to patient scheduling for some military treatment facilities. Within the VA, Humana has been a frontrunner in leveraging its expansive network of commercial providers to treat veterans through VA pilot programs Project HERO and Project ARCH.
  • Project ARCH (Access Received Closer to Home) is a VA care initiative designed to facilitate healthcare access for eligible Veterans by connecting them with care services closer to home.
  • Through Project HERO (Healthcare Effectiveness through Resource Optimization), Humana provides the VA with pre-screened networks of health care providers who meet VA standards for quality care when specific medical expertise or technology is not available inside the VA health care system. Critical for Humana in expanding its government presence will be continuing to find innovative ways to deploy its commercial expertise, and that of recent acquisitions Concentra and SeniorBridge, into government patient populations.
• While UnitedHealth Group may be the new kid on the block (its military and veterans services division was formed in 2007 to pursue the TRICARE opportunity), it has not spared expenses in clawing out a footprint. The recent TRICARE announcement was a massive strategic uplift for United, which had invested considerable time and resources since 2007 aimed at wresting a TRICARE contract from an incumbent.
  • UnitedHealth Group’s acquisition of Logistics Health Incorporated, a national provider of medical services to the federal government, instantly positioned the company as a government health leader.
  • At the time of LHI’s acquisition in June of last year, LHI’s operations were largely concentrated around the Reserve Health Readiness Program, providing medical evaluation and readiness exams to the military.
  • The contract win in March of last year to provide clinical disability exams to 31 VHA sites had a first year contract value of $120 million and a five year ceiling of $635 million.
  • With a substantial presence across the DoD and VA, a final decision on the TRICARE win would establish UnitedHealth Group as the undisputed government healthcare heavyweight.

The numerous program opportunities expected to enter the government health RFP pipeline in the next 6-12 months provide an impetus for commercial payers to aggressively expand their capabilities in the sector. Given the critical importance of past performance and quality of care in RFP processes, acquiring companies with government contract experience and a track record of superior results will be essential in expanding a government contract footprint in the healthcare sector.

TripleTree is closely watching a range of upcoming contracts to underscore any possible trend including:

• TRICARE for Life: $29B program providing supplemental coverage for two million TRICARE/Medicare dual eligible military/veterans projected to grow to $48B by 2021.
• TRICARE Overseas: TRICARE services for overseas personnel
• Military OneSource, a telephonic employee assistance program
• Reserve Health Readiness Program (RHRP), providing medical and dental readiness services to all Reserve forces

The competition for government contracts will increase in pace with government healthcare spending as more large-scale public players enters the market (i.e. Lockheed Martin’s acquisition of QTC) and the scarcity of independent quality assets with scale becomes more acute. The earlier and more meaningfully a payer is able to carve out a platform in the government healthcare services area, the more defensible such a position becomes down the road. We fully expect that in addition to the proactive interest defense contractors are displaying in expanding their healthcare presence, commercial players will continue to become more active and aggressive buyers as well.  Let us know what you think-

Marc Baudry

Marc Baudry is an analyst at TripleTree covering the healthcare industry specializing in government health, population health management, informatics, and facility-based services. Follow Marc on Twitter or email him at mbaudry@triple-tree.com.

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Behavioral Healthcare: Five Key Factors Are Driving Sector Consolidation

Mergers and acquisitions, public equity financings and private equity investments in the Behavioral Healthcare industry closed with a bang in 2011, and the momentum has continued into 2012. Demand and access to behavioral healthcare services, including treatment for mental health and substance abuse disorders, has accelerated in recent years due to a number of favorable industry and legislative trends.

Within this highly fragmented industry, Acadia Healthcare Company, Inc. (NASDAQ: ACHA) has pursued an aggressive growth strategy in the last twelve months, executing a number transformative strategic decisions:

• Equity Offering: On December 15^th, Acadia completed a public equity offering of 9.5 million shares at $7.50 per share for total net proceeds of $67.5 million. Acadia plans to use the offering proceeds principally to fund its acquisition strategy. The Company certainly did not waste much time, announcing on January 5^th that is has signed a definitive agree to acquire three inpatient hospitals from Haven Behavioral Healthcare for $91 million in cash.
• Reverse Merger: On November 11^th, Acadia completed its merger with PHC, Inc., d/b/a Pioneer Behavioral Health (AMEX: PHC) and as a result became the leading publicly traded pure-play provider of inpatient behavioral healthcare services, based upon licensed beds.
• Add-on Acquisitions: Acadia purchased MeadowWood Behavioral Health System, an acute care psychiatric hospital, and Youth and Family Centered Services, Inc., an operator of 13 inpatient and outpatient psychiatric and behavioral health facilities, in July and April of 2011, respectively.

Private equity investors are also playing a meaningful role in this sector, accounting for roughly 30% of overall activity during 2010 and 2011. Just prior to the new year, Cressey & Co, a healthcare-focused private equity firm, acquired a majority stake in InnerChange, a residential treatment provider offering therapeutic services and accredited academics to young women with behavioral, emotional and substance abuse problems. This is investment marks the Cressey’s second investment in the behavioral healthcare sector; Cressey invested in Haven Behavioral Healthcare Inc. in 2008.

So what industry dynamics are catching the attention of both the public and private equity investors?

The following are a few of the more compelling attributes that in our view, will fuel the growth, investment and consolidation in the market.

1. Large and Growing Market. National expenditures on mental health and substance abuse treatment are expected to reach $239 billion in 2014, up from $121 billion in 2003, representing a compound annual growth rate of nearly 7%.The demand for behavioral health services has increased in recent years due to earlier and more accurate diagnosis of mental health conditions and the de-stigmatization of seeking treatment. It is estimated that approximately 6% of people in the US suffer from a seriously debilitating mental illness and over 20% of children either currently or at some point in their life, have had a seriously debility mental disorder. Moreover, the influx of returning US veterans from Iraq and Afghanistan will result in a growing percentage of veterans with serious mental and substance abuse disorders including schizophrenia, bipolar I disorder, PTSD and major depression.
2. Favorable Legislative Initiatives.  Recent legislative trends are increasing access to industry services as more individuals obtain insurance coverage in 2014. The Mental Health Parity and Addiction Equity Act (“MHPAEA”) of 2008, which went into effect in January 2010, requires health plans to provide coverage for mental health services on par with conventional medical health services and forbids employers and insurance companies from placing greater restrictions on mental healthcare compared to other conditions. This legislation not only expands coverage for the existing insured population, but also for the newly insured in 2014, a meaningful percentage of which are said to suffer from a mental health conditions.
3. Diverse Payor Mix. Compared to other healthcare services sectors, behavioral health is reimbursed by a diverse mix of public and private payors. With the exception of a few segments within behavioral health, no single payor type (state/local/federal, Medicaid, Medicare, commercial, private pay) dominates that market. That said, Medicaid represents a significant source of funds, so potential cuts to Medicaid funding should be watched closely.
4. Attractive Financial Model. Compared to general acute care hospitals, which typically generate mid-teens margins, inpatient behavioral healthcare enjoy margins in the range of 20-40% for acute hospitalization and 15-25% for residential treatment. Maintenance capital expenditures are minimal at approximately 2% of revenue.
5. Niche markets / delivery models… Downsize fitness. The behavioral healthcare industry includes a number of different sub-segments defined on multiple dimensions, including age, gender, illness severity, diagnosis, delivery model and payors. As a result, tremendous opportunity exists for providers to expand into attractive niche/specialty markets. Companies such as, Downsize Fitness, are pursuing the obesity and eating disorder market(s) by developing niche-specialized facilities. Downsize fitness is new to the fitness center scene and is designed specifically for the chronically overweight and obese individuals. Trim men and women are not allowed as members, providing a more welcoming environment than in most conventional gyms.

With healthcare reform just around the corner, TripleTree expects the barrage of M&A and investment activity to continue and even accelerate. We look forward to sharing our thoughts as this market continues to evolve – let us know what you think.

Jon Hill

Jonathan Hill is a Vice President with TripleTree covering the healthcare industry and specializing in population health management and facility-based services.  You can contact him at jhill@triple-tree.com.

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Focus, Economics and Patient Satisfaction…three keys to understanding Ambulatory Surgery Centers

Historically, surgical procedures were performed within the four walls of a hospital.  However, the past decade has seen a dramatic rise in surgery volume being performed in an outpatient setting—largely ambulatory surgery centers (ASCs).  As seen below, the number of U.S. ASCs is approaching 6,000, and overall procedure volume has shifted dramatically from inpatient to an outpatient setting.

Source: VMG Intellimarker 2011 and 2010

ASCs are outpatient facilities at which surgical procedures are performed on patients who do not require an overnight stay.  ASCs were originally established in 1970 and most commonly perform elective procedures with short anesthesia and operating times.  Typical procedures include eye, orthopedic, hand, plastic surgery, pain management, podiatry, ear-nose-and-throat, endoscopy, and laparoscopy at facilities usually ‘free-standing’ (not part of a hospital campus).  ASCs operate within a highly regulated industry with each facility being required to comply with rigorous oversight and certification.  Many of the same standards, constraints and requirements as inpatient hospital operating rooms apply to ASCs.

ASCs receive less of their total payments from Medicare/Medicaid than an average hospital – 37% for ASCs vs 61% for an average hospital which reduces some of the reimbursement pressure.  This makes sense as most of the procedures performed in this setting are elective in nature, which tend to come from the population not utilizing government health benefits.  We’ve assessed three key advantages offered by with the ASC approach to care:

• Compelling economics:  ASCs are able to provide lower-priced procedures because they have a lower cost structure than a traditional hospital setting along with a “focused factory” approach which creates efficiencies.
  • By shifting just half of all eligible outpatient surgeries to the ASC setting, Medicare could save an additional $2.3 billion annually (Ambulatory Surgery Center Advocacy Committee, 2010)
• Consumer appeal:  ASCs are generally free standing and located in the suburbs, which provide patients with better access.  Also, ASC schedules are better maintained because there is no possibility of emergency surgeries preempting a scheduled procedure.
• Focus, specialization and quality:  It’s difficult to track the quality of care provided in ASCs compared to hospitals because ASCs are not yet required to report comparable outcomes data – which will likely change in the near future.  We do know, however, that ASCs focus on a select number of procedures at a high volume, which allows doctors to perfect their craft and deliver high quality results to patients.

The advantages are not only for patients, but also for payers and providers.  Payers are able to negotiate more favorable rates for procedures performed in the ASC which lowers their overall costs of care.  Providers which are part of the ASCs have seen large economic gains as they’re able to take economic stakes in the operations.  Overall, ASCs have grown to become an important part of the care delivery landscape and as the three advantages listed above might dictate, this an area we predict will have an increasing relevance in the healthcare landscape.

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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A Look at Oncology Medication Management

Each day, in the U.S. alone, over 4000 more people are diagnosed with cancer. In 2010, there were 13.8 million cancer survivors alive and some 18.1 million people in the U.S. are expected to be living with cancer by 2020 (Journal of the National Cancer Institute).

Of the nation’s 10 most expensive medical conditions, cancer is the highest per-person price medical condition.  Medicare data and other sources show that in 2010, care for the 16 most common types of cancers in U.S. women and 13 common types of cancers in U.S. men costs the healthcare system $124.6 billion.

Correlating Cost Increases and Survival Rates:

With the escalating cost of living with cancer and the increase in cancer survivors, technologies and services are evolving to help individuals live with cancer longer, happier, and cheaper.  Cancer is becoming an area of focus for payers to lower the cost of care and improve patient outcomes.

Health plans have begun pilot programs with Biological Management Companies (BMCs) to assist in oncology treatment.  The traditional oncology medication management approaches are evolving and payers are looking to reduce inappropriate drug utilizations and inefficiencies in distribution without impacting quality.

According to market research company HIRC, two-thirds of plans will have clinical pathways for high incidence cancer conditions by 2012.  There are numerous payers currently piloting with BMCs to help develop decision tools, medication management, and physician reimbursement schemes. A few recent pilots include:

• Aetna with US Oncology and P4 Healthcare
• BCBS of Florida and Coventry with iCore Healthcare
• BCBS of NJ with Via Oncology / PathForward
• CoreSource and Employee Benefit Management Corp with Biologics
• Highmark and AmeriHealth with P4 Healthcare
• Humana with New Century Health

Payers aren’t the only ones concerned about cancer costs.  Employers rated cancer as the number one specialty area of concern in a recent survey by HIRC.  Specialty Pharmacy Programs for the management of oncology medications continue to rise with 60% expecting to use them by 2015.  Specialty pharmacy providers (SPPs) have begun to offer oncology-specific services, including oversight of distribution and tighter management of supportive care products.

As payers and employers continue to form strategies and evolve payment methodologies for cancer, healthcare IT companies are making their bets on this high cost area:

• In late 2010, McKesson acquired US Oncology Holdings, a services, resources, and tools for cancer care delivery system for more than $2 billion.
• Following McKesson, in September 2011 AmerisourceBergen acquired IntrinsiQ, a medical data and business analysis solutions for the oncology market for $35m

The potential costs continue to escalate with direct cancer care expenditures expected to reach $158 billion in 2020.  We are continuing to watch this market as new players emerge and global healthcare services and technology vendors seek to lower cost and improve outcomes for cancer patients.

Let us know what you think!

Joanna Roth

Joanna Roth is a Senior 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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ACOs: Good News for Skeptics

As TripleTree continues to cover the rapidly evolving opportunities associated with health reform, I have remained an optimist about the potential for the many health reform experiments included in the healthcare reform bill to create meaningful healthcare savings in the long term.   In particular, I have been hopeful about the various shared savings programs to meaningfully impact cost and quality in the healthcare system, and momentum has continued to build, with CMS naming 32 organizations to the Pioneer ACO program in December.

This is what makes the recent news from CBO disheartening.  Last month, they released an analysis showing that ten different demonstration programs – six disease management and four value-based payment approaches – have usually not had any meaningful impact on reducing Medicare spending.    One of these value-based demonstrations “allowed large multispecialty physician groups to share in estimated savings if they reduced total Medicare spending for their patients.”

Sound familiar?  Troublingly, this program had little to no effect on Medicare expenditures.  (The only program of the four that did have an effect on costs used bundled payments for heart bypass surgeries.)

Adding to the bad news, Leavitt Partners released a study late last year showing that of the 164 accountable care organizations (ACOs) they have identified (note that the Leavitt definition of ACO overlaps with – but doesn’t perfectly align with – the CMS definition), were somewhat evenly distributed across 41 of 50 states.  However, these same 164 were found in just 144 of the 306 hospital referring regions (HRRs) – a benchmark of regional health care markets where patients are referred for care.   While a number of these HRRs had three or more ACOs, large swaths of the country had yet to see even one yet suggesting that perhaps ACOs are springing up largely to compete with each other, rather than focusing on finding geographic areas where a new care delivery model could meaningfully reduce costs.  This is one of the issues that skeptics of the model are concerned about, as my colleague highlighted recently.

In any case, critics of the healthcare reform have certainly gotten some new ammunition in the past few weeks – we’ll be keeping an eye out for some good news to highlight in a future post.   As before, I still remain optimistic about the change in mentality that CMS’s ACO program seems to have brought in how payers and providers are rethinking the traditional and rigid zero sum game of treatment and reimbursement, allowing new ways for commercial payers and care delivery organizations to partner to deliver quality care.

Let us 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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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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The Divide in the ACO Debate – Beltway Rhetoric versus Marketplace Cynicism

Amid the broader – and oftentimes highly opinionated and heated – ACO conversation occurring across Washington and the private sector, The Wall Street Journal published an interesting piece last week highlighting the specific views of three individuals:

• Don Berwick is the former administrator for CMS who just stepped down last December.  Don oversaw the creation of the ACO framework under the Medicare Shared Savings Program.
• Tom Scully is currently a General Partner at the New York-based private equity firm Welsh, Carson, Anderson & Stowe.  Tom formerly served as the CMS administrator from 2001 to 2004 and CEO of the Federation of American Hospitals.
• Jeff Goldsmith is a president of Health Futures, a healthcare consulting firm out of Charlottesville, VA and an associate professor of public health sciences at the University of Virginia.

What becomes immediately apparent in the three-way dialogue (done via email) is the lens through which various participants view the industry’s efforts to improve healthcare’s fundamental problem of shifting from the traditional fee for service to a value-based approach.  There aren’t any quick, silver bullet answers to the debate, but what is evident is the divide among those that represent Washington’s political rhetoric (Don) and those that must figure out ways to make the new framework work within a dynamic, private care delivery system (Tom and Jeff).

Several disagreements bubble to the surface related to:

The role providers will play

• Berwick: “The ACO premise is different. Beneficiaries don’t join an ACO; providers of care do.”
• Scully: “The biggest flaw with ACOs is that they are driving more power to hospitals—not to doctors. Very scary, and I am a hospital guy.” … “If the doctors had the capital to organize comprehensive ACOs to control their own fate and drive us to more efficient care, I would be bullish on ACOs. But doctors are again along for the ride, not driving the bus.”
• Goldsmith: “In practice, however, the ACO is more like asking the hungry horse to guard the granary. The major savings for Medicare are to be found by keeping people out of the hospital, and reducing the incomes of the specialists who dominate hospital politics. To get those savings, hospitals and their specialists have to turn their backs on five decades of making more by doing more.”

Emphasis on the patient

• Berwick: “…the formula for ACO success is clear: keep quality high, save money by improving—not by restricting—care, and remain attractive to beneficiaries, who could go anywhere for care.”
• Scully: “The best models for ACOs are doctor groups like Monarch HealthCare in Los Angeles or JSA HealthCare in Tampa. Give doctors lots of patient data, pay them to see patients more often, follow their drug use and health status more closely to keep them out of hospitals—and give them control of the cash!”
• Goldsmith: “The biggest problem with the ACO, however, isn’t the faulty business proposition, but the patient’s role.” … “In the ACO, providers are accountable to Medicare. Patients won’t get a dime of the savings, and no choice whether to participate or not.” “Despite all the rhetoric about ACOs being patient-centered, it is a paternalistic, “we’ll decide what you need” kind of model.”

Prospects for care improvements and financial success of ACOs

• Berwick: “Knowing full well the results of the PGP demonstration, the CMS office of the actuary estimated base-case Medicare savings of over $400 million in the first three years of the ACO program.”  … The “32 physician groups and health-care systems selected for the pioneer program, covering 860,000 Medicare beneficiaries, [are] projected to save $1.1 billion in health-care costs over the first five years.”
• Scully: “In the system we have, ACOs are conceptually right, in that the concept inches toward differential pricing for quality, and Don should be congratulated. But we need to step back out of the trees, look at the forest and question the financing system we have created.”
• Goldsmith: “Having each community, large or small, set up its own ACO is like setting up a backyard steel mill.” … “It is the incredibly heterogeneous 5% of the population that generates 47% of all costs that you need to focus on, and if you don’t have enough of them in your “attributed” population, you cannot concentrate the resources to change their care and lives.”

Startup costs of an ACO

• Scully: “The start-up cost of a real ACO is probably $30 million and up in a midsize market.”
• Berwick: “The actual barriers to entry appear a lot lower than the $30 million cost that Tom Scully mentions; CMS estimates are only a fraction of that.” “… the CMS Innovation Center has proposed a program of advance payment to provide front-end capital and extra operating funds for care coordination, information systems and the like.”
• Goldsmith: “A more credible estimate of setup costs for a provider system with no prior managed-care experience to participate in the shared savings program: $10 million to $15 million per health system (consulting, IT systems conversions, new staff, etc.).”

 Prospects for success

• Berwick: “Smart entrants, focused on seamless care, outcomes and beneficiary satisfaction, will both reduce Medicare’s expenditures and reap financial rewards for themselves.” … “I hope and expect that ACOs will honor the trust they have been given by doing the job—lower cost through care improvements. If they violate that trust, the costs to them and to the future of seamless, coordinated care in America will be high indeed.”
• Scully: “Don’s vision is great, and who can’t like what he has tried to do with ACOs… Except that the incentives are very small, the change will be slow, and we are just nibbling at real system reform.”
• Goldsmith: “There were a lot of good ideas in the Affordable Care Act for saving money and improving quality. Unfortunately, the ACO wasn’t one of them.” … “By pushing this edgy idea from the policy world and ignoring the real-world evidence of its own trials, CMS picked the wrong horse.”

In a final from Jeff Goldsmith: “One of the most serious problems with the health-care world just now is the gap between the policy world and the real world. The ACO is Exhibit A in this yawning disconnect.”  Jeff is right to point out that there’s a divide between the public and private domains, yet progress, however small, has arguably been made.

The real question is whether “the vision” put forth by Don Berwick will ultimately evolve into a pervasive performance-based delivery model in which quality, efficiency, and choice are the driving factors behind private sector reimbursement and profitability.  To those outside of Washington, there certainly seems to be a long way to go – let us know what you think.

Seth Kneller

Seth Kneller is a Vice President 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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Hospital Readmission Stats Can Have a Meaningful Impact on Reimbursement

With the New Year fast approaching, and the start of the Centers for Medicare & Medicaid Services’ (CMS) fiscal year shortly behind us (it began October 1, 2011), it seems appropriate to evaluate the major initiatives implemented by CMS in FY 2012.  When doing so, one program stood out more than many others—the implementation of the hospital readmission reduction program. In short, CMS has implemented a program—consistent with its value-based purchasing program—designed to improve the quality of medical treatment provided to patients by penalizing hospitals that are deemed to have an excessive number of Medicare inpatient readmissions.

CMS’ program to curb readmissions, which began in 2009 when it started publicly reporting 30-day readmissions, is part of its overall effort to reduce costs and improve the quality and coordination of patient care.  The premise of the campaign against readmissions is to punish and dissuade providers from releasing patients that will likely need follow-up care for the same ailment as they were just treated, which, theoretically, will cause providers to make sure patients are provided with the necessary treatment the first time they are treated and, as a result, reduce the number of expensive follow-up trips to emergency rooms.  The program, which currently only covers readmissions for pneumonia, acute myocardial infraction (AMI) and heart failure, takes a step forward in FY 2012 from being a program that is intended to “shame” providers by making the 30-day readmission information publically available, as was done until now with CMS’ pay-for-reporting program, to being a true “penalty” program.

Beginning October 1, 2011, providers’ 30-readmission data will be collected and used to generate an overall score for each hospital for FY 2012.  This score will then be used to determine if a hospital’s readmission rate is higher than the Medicare-calculated “baseline” readmission rate (which was calculated by CMS using reported readmission information from July 1, 2008 through June 30, 2011).  If so, the total operating payments due to the hospital will be reduced by CMS, with the maximum reductions being as follows: FY 2013 =1%, FY 2014 = 2%, and FY 2015 = 3%. In addition, beginning in FY 2015, CMS can expand the list of covered conditions to broaden the impact of the program.

While the reimbursement risk associated with this program may seem insignificant to some, many providers are operating under very thin margins, which will make even a 1% reduction in Medicare reimbursement meaningful.  For example, if a hospital’s total inpatient operating payments for FY 2012 were $25mm, that hospital will have $250k at risk for reimbursement reduction pursuant to this program. With the maximum penalty increasing 1% per year until FY 2015, the penalty and dollars at risk will undoubtedly heighten providers’ focus on their readmission rates. It stands to reason that many will also look to new solutions, technologies, and programs to help them avoid being penalized. New solutions aimed at patient engagement as well as remote-patient monitoring are areas of opportunity that we think will continue to be instrumental in addressing the readmission dilemma providers are facing.  

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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Humana Bolsters Care Management Capabilities with Acquisition of SeniorBridge

Humana announced an agreement this past week to acquire SeniorBridge, a New York-based provider of in-home care services to the chronic care and senior populations. The acquisition marks the latest example of Humana’s attempt to position itself as a more retail-focused company through a series of acquisitions and strategic initiatives.

Over the past eleven years, SeniorBridge has established itself as a leader in managing complex chronic conditions for seniors in the self-pay (or private-pay) market. Through the acquisition, Humana will be presented with a host of opportunities to leverage SeniorBridge’s model across a broader market base:

• Medicare – upon receipt of Medicare certification, Humana will be able to leverage SeniorBridge’s suite of care management capabilities across its nearly 2 million Medicare plan members.
• Humana Cares – SeniorBridge bolsters the Humana Cares segment of the company, which provides on-the-ground care management services to over 185,000 chronically ill plan members. The Humana Cares segment of the company has been vital to Humana’s emergence as a leader in the Medicare Advantage Special Needs Plan (MA-SNP) market.
• Other Payer Groups – several reform related initiatives, such as reimbursement reform and medical loss ratios, have positioned in-home care to be a large growth area for SeniorBridge given its significance to payers as a cost-saving tool (managed care has traditionally only contributed to a small portion of SeniorBridge’s overall business).

Humana has been among the most progressive payers in promoting member self-management and wellness through a number of initiatives, including:

• Humana Guidance Centers – “store-front” hubs located in select cities provide members with access to a suite of wellness and self-management products.
• Remote Medical Monitoring – provides real-time condition monitoring solutions to help address member health challenges in real-time.
• Humana Center for Health & Well-being – Humana’s LifeSynch subsidiary provides face-to-face health coaching resources to plan members. In addition, the Company has established a partnership with MinuteClinic to provide quick-access to routine treatments.

In addition, Humana’s recent acquisition of Concentra, along with several urgent care clinics from NextCare, signaled their entrance into the provider marketplace. These strategic moves have provided Humana with a mechanism to execute on their strategy to become more consumer-facing and the flexibility to adapt to some of the new realities established through health reform as they are implemented over the next few years.

Other recent investment activity in the payer marketplace signals that Humana might not be alone in their efforts to diversify and establish an “on-the-ground” presence (for example, UnitedHealth’s purchase of Inspiris, BlueCross Blue Shield of Florida’s investment in CareCentrix).  Payers appear to have realized the disconnect that has existed historically between themselves and their customer base. Given the “bets” that payers have made across the landscape, it is clear that payers are seeking to re-orient themselves around the consumer and provide consumers with an opportunity to take a greater role in controlling their healthcare. While a variety of strategies are being used, payers have been prioritizing investments and services around the “consumer experience” to increase overall access and transparency.

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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