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31 Flavors of Risk: Effectively Making the Transition to Value-Based Care

November 2013

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• Understand the “Bigger Picture” • Define the Flavors of Risk • Understand Key Capabilities, Benefits, & Challenges • Determine the Path Forward

Objectives

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• Technology-enabled services since 1996

• Serve Providers exclusively • Serve 34,000 physicians, 100+

hospitals • Support 17 million patients • 50 million member months in analytics

and services • 75% growth in 2012 • 360 employees, 4 offices

Providers Should be in Full Control, Financially as well as Clinically

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Market Trends are Creating Vulnerabilities for Hospitals and Physicians

• Increasing Medicaid enrollment • Mandated Managed Care

penetration • Pressure to demonstrate quality • Pressure to manage populations • Health systems focusing on

population health

• Real income has not increased in 30 years, particularly in Primary Care

• Unfair negotiations with Payers • Pressures to report quality and cost

of care • Difficult to remain independent • Physicians organizing to manage

populations

Environmental trends Areas of Vulnerability

Hospitals

Physicians

• Medicaid expansion • New populations in 2013 and further expansion in 2014

may create downward pressure on rates and utilization

• Managed Care Plans attempting to reduce costs by: • Reducing inpatient utilization • Reducing ER utilization • Care provided at lowest cost option

• Health Insurance Exchanges

• Shift commercial enrollment into new products with potentially different/lower reimbursement

• Increased Provider competition • Consolidation • Local/regional/national competitors

• Pricing structure • Greater price sensitivity for patients/families • Physician incentives to direct care to lower-price

alternatives

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Systems Nationally Are Re-positioning to Respond to Health Care Payment Reform Value-Based Delivery Spectrum Increasing financial opportunity and incentive alignment

Provider- SPONSORED

PLANS

CAPITATION FULL RISK

SHARED RISK

SHARED SAVINGS

BUNDLED PAYMENTS

CLINICAL INTEGRATION PCMH P4P

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Change is NOT the Result of This…

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It’s Really About This…

• Costs were flat during HMO’s • HMOs managed unit costs • Problem continues to be fee-

for-service compensation

8 Source: Fischbeck, Paul. “US-Europe Comparisons of Health Risk for Specific Gender-Age Groups.” Carnegie Mellon University; September, 2009.

….and This

38th

15th

16th 20th

Life Expectancy

20th 9th 8th

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Hospital Care 37%

Physician and Clinical

Services 24% Other

Professional Services

3%

Dental Services 5%

Other Health, Residential, and Personal Care

Services 6%

Home Health Care 3%

Nursing/ Retirement

Communities 7%

Prescription Drugs 11%

Durable Medical Equipment

2% Non-durable

Medical Products

2%

Total Spending by Health Care Service (2011)

• The US Health Care Market was

$2.7 trillion in 2011 • 17.9% of National GDP(~$15 trillion) • 3.9% growth YoY from 2010 • Hospital Care accounts for $850.6

billion • Physician and Clinical Services

account for $541.4 billion • $8,680 per person spent on Health

care

U.S. Costs have grown an average of 2.4 percentage points faster than GDP since 1970

Key Takeaways

Centers for Medicare and Medicaid Services. “National Health Expenditures 2011 Highlights.” Accessed July 2013.

Total Spending = $2.7 trillion

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Health Care Reform Law (Patient Protection and Affordable Care Act) went into effect March 2010

Expand health insurance coverage Impose new rules on the insurance markets Defer Medicare Part A trust fund insolvency until 2026 Fund a variety of pilot projects

Does

Does Not Reform the organization and delivery of health care…

but this change will come, from within the industry

What PPACA Does and Does Not Do…

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• Provider revenues will be under severe pressure as payment mechanisms migrate toward value-based approaches

• Inpatient use rates will continue to decline • Providers will consolidate at an accelerated pace, horizontally and vertically • Physicians will continue to align through employment or joint-contracting models,

with each other and with hospitals. • There is no revenue solution to the survivability of hospitals– success will depend

on an institution’s ability to leverage care organizations and to decrease costs

A Predictive “Point of View” of the Future

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• Rate pressure • Rate freezes • Changes in payment methodology • Pricing transparency • Lower complexity care

• Utilization pressure • Shift towards outpatient and observation • Reduced ER visits

• Market pressure • Shifting referrals to competitor • Shift to lower cost diagnostic options

• High % of charges contracts are no guarantees of revenue

“Doing Nothing” Does Not Mean that Nothing Will Change

time

Ope

ratin

g M

argi

n

-15%

What’s a Win?

Status Quo

Status Quo Risk Arrangement

Utilization

Rates

Market Share time

Ope

ratin

g M

argi

n

+2%

Risk Arrangement

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What is ‘Value-Based’ or ‘Accountable’ Care?

= (Access + Quality = Outcomes )

Cost

Value-Based Care

Financial Opportunity & Incentive Alignment

VALUE-BASED DELIVERY SPECTRUM

PROVIDER- SPONSORED

PLANS

CAPITATION FULL RISK

SHARED RISK

SHARED SAVINGS

BUNDLED PAYMENTS

CLINICAL INTEGRATION PCMH P4P

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Potential Contract-Related Alignment Models Clinical

Integration Accountable Care

Organization Risk-based Contracting

Definition FTC-compliant joint contracting between non-financially integrated entities

CMS-sponsored Shared Savings program offering to split cost savings on FFS Medicare patients with providers

Providers taking partial or full risk for the cost of care provided

Examples NEQCA, PCHI Partners, Steward Medicare Advantage; Celtic Care; Owned Health Plan

Requirements 130+ metrics, Collaborative forums, Analytics capability, Investment

34 Metrics, Governance,

Varies based on contract terms. (MA: HEDIS metrics, AMI, SCIP, PNE, CHF)

Target Population

Commercial FFS Medicare FFS Medicare Risk, Commercial Risk, Self-insured

Benefits Possible incentives, reimbursement opportunity

Track 1: ~30% of savings Upside on cost savings

Risks Anti-trust Track 1: None Financial losses

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Population Focused • Provider/payor

partnership to manage full risk for targeted population

• Capitated payment, shared savings model

• Example: Advocate-BCBS Illinois

• Participant defined

The definition of an “ACO” depends on who’s in the room

Service Specific MSSP Population Health Payor Model CMS Model Payor Model

Medicare Specific • CMS-sponsored • Makes providers

accountable for FFS beneficiary costs of care

• Shares savings if improvements realized

• Requires CMS application

• CMS defined

Focused Improvement • Laser focus on

targeted challenges • Single payor oriented • P4P driven • Example: Huntington-

Blue Shield CA ED throughput

• Participant defined

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Cha

rges

N

egot

iate

d Pr

ice

Cos

t

Payor Risk

Provider Risk

• Protect or enhance market share/position

• Financially benefit from bending cost curve

• Strengthen relationships with physicians

• Not as financially risky as it seems

• Some control network development and

usage

• Advance / accelerate quality initiatives

The Benefits of “Risk” for Providers

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Criteria to Select Value-Based Options • Do you need a laboratory to learn how

to manage populations

• Right amount of Business

• Align incentives of health system to physicians and payers

• Network Development

• Improve Value

• Right amount of risk at the right time

• Market Willingness (eg What will payers be willing to do)

• Market Shift

X

X

Early move to risk

Late move to risk

Economic Advantage to Provider

time

Cost and Utilization

Timing of Risk Assumption vs.

Economic Opportunity

10% 20%

40% 60%

80%

90% 80%

60% 40%

20%

0%

20%

40%

60%

80%

100%

P4p / Full Risk Bearing / ACO Fee-for-Service

Implications of Risk Mix

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Contracting Strategy Needs to Address the Right Areas

Medicare Direct

Medicaid

Medicare Through

Plans

Commercial

All Physicians

Employed Only

Independents Only

P 4P Shared Savings

Shared Risk With Corridors

Shared Risk No

Corridors

Full Risk No

Corridors

Full Risk With

Corridors

Health Plan

Bus

ines

s Li

ne

Value-Based Model

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• Formal program between health system and defined private physicians

• Designed to improve Quality & Cost

• Allows some benefit distribution back to the physicians

• No downside financial risk

• First step in shifting from a volume-based focus to a value-based focus

• Still subject to FTC/OIG scrutiny on market share

Clinical Integration is a Contracting Strategy in Itself, but Also Builds Foundational Capability for Risk

Increasing financial opportunity and incentive alignment

Crawl

• Agree to guidelines - EBM • Gather, standardize, analyze data • FFS Contracting (Commercial)

Walk

• Measure Results • Enforce Performance • Distribute Incentives

Run

• Population Health Mgt • Reduce Clinical Variation • Change Behavior • Focus on Patient-engaged Teams

Provider- SPONSORED

PLANS

CAPITATION FULL RISK

SHARED RISK

SHARED SAVINGS

BUNDLED PAYMENTS

CLINICAL INTEGRATION PCMH P4P

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Analytics

Clinical Integration as the Foundation

Ambulatory Quality Measurement

IT Infrastructure and Capability

Cross-continuum Coordination

Clinical Integration

Collaboration Platform Organizational Structure & Planning

• Physician governance

• Building a culture of collaboration

• Best practice

dissemination • Peer review • Common

Protocols • Referral

management

• Strong primary care

• Population-based programs of care

• Shift to ambulatory management

• Care coordination resources

• Physician-guided targets and metrics

• Standardize data definitions and sources

• Efficiently manage data and reporting

• Identify resource needs

• Transparency

• Data management and reporting

• Clinical quality metrics

• Clinical risk identification

• Cost measurement

• Legal entity • Physician

governance • Committee

structure and decision making

• Financial structure

• Organizational incentive alignment

• EMR/HER • Administrative

and clinical DSS/BI

• HIE/connectivity across the

network • Clinical workflow

tools • Patient

engagement tools

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Sample Clinical Integration Clients

• 2,245 Participating Providers - 2013 Plan Year

• 180,000 unique patients since 2009

• 4.5 million encounters since 2009

• Allowed amounts $89 million (payer data 2011, 2012)

• Multi-million dollar payouts tied to incentives

• 7 health systems • 28 Hospitals • Medical School of

Wisconsin • 4,000 physicians • Clinical integration as

prelude to value-based care

• Care Management • Direct employer

contracting • Employee-based

health plan

• Highly competitive market

• Several hospitals and ~4000 physicians total

• All employed physicians on Epic (~2000)

• Combining all employed and affiliated physicians

• Over 900 physicians in CI network

• Significant incentives received by physicians

• No risk contracts yet

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Shared Savings is ‘No Risk’, but Often ‘No Savings’ for Long

Increasing financial opportunity and incentive alignment

Provider- SPONSORED

PLANS

CAPITATION FULL RISK

SHARED RISK

SHARED SAVINGS

BUNDLED PAYMENTS

CLINICAL INTEGRATION PCMH P4P

Re-baseline Cost

Year 2 Savings

Re-baseline Cost

? Year 3 Savings ?

Year 1 Savings

Prior Baseline Costs

“What have you done for me lately?”

Shared Savings • Budgeted dollars • Upside only • Premium is reset based

on medical expenses

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Bundled Payments Allow for Defined Areas of Risk

Degree of Risk

DRGs

Episode-Based

Global Cap

Single Provider’s

technical risk

Multiple Providers’

technical risk

Multiple providers’ technical AND probability risk

A single payment to cover all services from multiple providers involved in a care episode

Increasing financial opportunity and incentive alignment

Provider- SPONSORED

PLANS

CAPITATION FULL RISK

SHARED RISK

SHARED SAVINGS

BUNDLED PAYMENTS

CLINICAL INTEGRATION PCMH P4P

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Moving Further Toward Risk Creates More Opportunity

• Arrangement based upon agreed upon budget

• Could be a percentage of premium or a set amount

• Premium is reset based on medical expenses

• Upside and down-side risk

Shared Risk • Percentage of premium or

PMPM or all services • Certain services may be

carved out (e.g., mental health, pharmacy)

Full Risk

RISK CORRIDORS

• Upper and lower limits of risk sharing • Beyond the corridor, the health plan takes the risk • Can do a corridor with full risk or shared

Increasing financial opportunity and incentive alignment

Source: CSC Report: Preparing For Accountable Care: Coordinated Care, by Jane Metzger. Valence Health.

Provider- SPONSORED

PLANS

CAPITATION FULL RISK

SHARED RISK

SHARED SAVINGS

BUNDLED PAYMENTS

CLINICAL INTEGRATION PCMH P4P

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Increasing Risk Requires Different Expertise, Some of Which May be Shared or Acquired

Area of Responsibility MCO Provider Area of Responsibility MCO Provider

Appeals and Grievances X Maintain website (member, provider) X

Benefit administration X X Marketing services X

Capitation reconciliation X Member services X X

Case management X X Prior authorization X X

Claims adjudication X X Provider appeals X

COB X Provider contracting X X

Concurrent review X Reinsurance X X

Disease management X X Submission of encounter data X

Enrollment reconciliation X Submit to External Quality Review X

Fee schedule maintenance X X Track special needs X

ID card production/distribution X Transition of care X X

Implement Quality Programs X X

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Provider-Sponsored Health Plans Offer Greatest Value Opportunity

● Greater impact on Mission, more people insured

● Able to impact premiums

● Control network development and usage

● Access to data

● Run health plan as you see fit

● Able to control provider rates

● Closer to the first dollar

● Ability to Impact legislation/benefit design

Increasing financial opportunity and incentive alignment

Likely over 100 plans in operations today

Provider- SPONSORED

PLANS

CAPITATION FULL RISK

SHARED RISK

SHARED SAVINGS

BUNDLED PAYMENTS

CLINICAL INTEGRATION PCMH P4P

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8 Key Dimensions Determine Value-based Readiness

Market Intrinsic

MSA Market Population

Population Density of

MSA

MSA Payer Mix

Population Trends

MSA Utilization

Rates

Value Prop

Primary Care

Specialist

Hospital

Payer

Market Competitive

Value-based Competitors

PCP Control

Market Share Differentiable Service Lines

MD Reimburseme

nt

Payer Relations

Org Capacity

MD-Hospital Collaboration

Financial Position and

Strength

Claims-Based Performance

Data

Cross- Continuum Services

Executive Alignment

Bandwidth

Physician Alignment

Hospital – Private MD Relations

Economic Alignment

Clinical Alignment

Urgency for Change

P4P Experience

Collaboration Culture

PCP – Specialty Relations

System-ness

Referral Management

Forums

Care Continuum

Service Distribution

VNA & SNF

PCMH

Disease Mgt

Care Coordination

Pharmacy

Technology

EMR

HIE

Analytics

Portal

Pop. Health

Patient Registry

Patient Attribution

Least Influence Greatest Influence

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Evaluation of Capability for Clinical Integration

Strong executive

alignment, fast

Organizational Capacity

Consensus-based

leadership

Divided leadership, Slow. Low bandwidth

Active Competitive

Market Competitive

Emerging Competition

Minimum/No Competition

High utilization,

Mod Comm rates

Market Intrinsics

Low Comm payor mix,

Highly managed

Adverse population

trends

Owned and tightly

contracted SNFs

Care Continuum

Loose affiliations with

SNF,LTC,HC

No management or ownership

Highly collaborative,

Cross continuum

Collaboration Culture

Limited Collaborative

experience

Isolated & adversarial

groups

All on common platform

Technology

Most on EMR, limited

connectivity

Limited EMR, no

connectivity

High urgency, non-financial

predominates

Value Proposition

Financial predominates

High reimbursement,

Low urgency

MDs in leadership;

Strong PCPs

Physician Alignment

Emerging PCP

alignment; No PHO

Little PCP connection

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An Informed Approach to Developing Capability Avoids Execution Failure

Feasibility

• Market assessment

• Appetite for risk • Organizational

readiness assessment

• Financial pro forma

Planning

• Financial projections

• Operational plan • Market analysis • Incentive design • Network design • Risk

arrangement design

Implementation

• Create CIN • Develop

network • Negotiate with

payers • ID services to

provide • Determine

make, buy, rent by service

• Hire team

Operations

• Ongoing processes

• Measurement • Incentive

management • Reporting • Continuous

improvement

2-3 months 2-3 months 6-12 months Ongoing

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Crawl Walk Run

It Doesn’t All Have to Happen at Once

Program Focus

• Build Program Foundation

• Obtain the Data • Get Payer Buy In • Participation Measures

• Refine Metrics • Educate Physicians • Publish Data • Process Measures

• Focused CM Programs • Hold Physicians

Accountable • Assume Risk • Outcome Measures

Tactics

UM/CM/Referrals: • Basic “blocking and

tackling” • Adopt care guidelines ,

measure and share data

DM/Populations: • High cost • High frequency • High risk • Quality, utilization &

financial reporting

Enhanced capabilities: • PCMH, Navigators/Coach • Care

Continuum/Transitions • Practice Pattern Changes • Focused PI

Network/ Incentive Focus

• Participation -> Process

• Process -> Outcomes • Outcomes -> VALUE

Patient Focus • Educate • Engage • Empower

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• It takes 1-2 years to educate executive leadership and medical staff • Don’t underinvest in capabilities: build/buy/rent • Focus on primary care alignment • Diversify value proposition for physicians • Develop payer strategy as early as possible and aggressively pursue • Focus on your product = Quality+Cost care model

Key Lessons Learned So Far

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• Market relevance • Strong physician leadership and governance encompassing multiple

constituencies • Well defined physician participation criteria • Transparent, aligned financial incentives tied to quality and efficiency • Strong and credible clinical performance measurement capabilities • Significant investment in technology focused on the creation of a patient-

centric, comprehensive view of clinical data across all providers • A blend of individual and group accountability through alignment of

incentives: economic rewards, remediation efforts, and enforcement standards

• A value-based focus which ties compensation to a combination of clinical quality and productivity

Attributes of Successful Provider Systems