We are beginning the third transformational wave of trying to improve health care outcomes and reduce costs. The transformation is being driven by the familiar strategy of addressing “covered lives” and “bundles”.
Will it be mostly about patients, their recovery and overall well-being? Will it require provider & health plan alignment to ensure excellent customer service, coordinated care and patient tailored outcomes?
First, the background.
Wave 1 – HMOs (“Covered Lives”) & DRGs (“Bundles)
In the 1970s and early 1980s, the United States often experienced double digit inflation and the accelerating healthcare costs. With Medicare and Medicaid being established in 1965, this was affecting the Federal and State budgets. The Congress tried to address this with the Health Maintenance Organization (HMO) Act of 1973 and later the Social Security Amendments Act of 1983. The HMO Act provided money to set up organizations for physicians to “manage care” and it required employers to offer it to employees as an alternative to traditional health insurance. SSA Act of 1983 legislated Medicare to pay one bundled fee for each patient hospital stay using Diagnosis Related Groups (DRGs) rather than a payment for each individual service provided.
Wave 2 – Managed Care (“Covered Lives”) & PPS (“Bundles”)
In the 1990s, patients rejected having their services limited by HMOs and there was a rapid increase in outpatient services costs. The health plans migrated to the “managed care” models we have today and Congress passed that Balance Budget Act of 1997 to pay one fee for bundles of outpatient and post-acute services. This Prospective Payment System (PPS) was modeled to work similar to DRG bundling of hospital inpatient services.
The “managed care” insurance model (with variations) is what most people have today with private insurance (75%), Medicare (30%) and Medicaid (74.2%). To ensure quality outcomes and control costs, health plans implement the following approaches:
Narrow Networks – drive patients toward their network providers by limiting choices and reducing payments to “out of network” providers. Many new health insurance exchange plans leverage narrow networks.
Utilization Management – require patients to get referrals prior to services and require providers to get authorizations for certain interventions
Contract Pricing – incentivize local providers to lower their fees in exchange for additional patient volume. They also provide quality bonuses to providers for achieving quality measures.
Care Management – provide care management for high cost patients to ensure that they receive the medical and non-medical services they need to avoid preventable Emergency Rooms and Hospitals visits.
Wave 3 – Accountable Care (“Covered Lives”) & Bundled Payments (“Bundles”)
Healthcare costs continued to rise faster than inflation and kept increasing their share of governments, employers and consumers budgets. To address this, the Affordable Care Act of 2010 provided $10B to establish the Center for Medicare and Medicaid Innovation. The center is chartered with piloting new payment models that will improve quality and reduce costs. The most widespread pilots are the Medicare Shared Savings Program (Accountable Care Organizations) and the Bundled Payment for Care Improvement (BPCI) program. There are already over 600 Accountable Care Organizations (ACOs) operating, including commercial health plan ACOs. 6,500 providers are considering bundled payment pilots beginning January 1, 2015.
The providers have financial risk for a “covered life” via an ACO or a “bundle” initiated with a hospital stay via a Bundled Payment. The Bundled Payment essentially bundles the physician fees, hospital bundles (DRGs) and outpatient and post-acute bundles (PPSs) into single payment for up to 90 days after the patient is discharged from the hospital.
Accountable care and bundled payments have two major differences to “managed care”. First, the providers now share the financial risk for the “covered life” and “bundle”. Second, many patients (including all Medicare patients) are free to use whichever provider they choose without “managed care” restrictions. This means ACO and Bundled Payment providers need to develop new methods to effectively and efficiently manage overall patient outcomes and cost. The traditional “managed care” methods are limited by the new challenges of “assignment” and “leakage”.
Assignments – patients are assigned to ACOs based on a formula and to a Bundled Payment based on the provider participating in a bundled payment program. ACOs provide services to patients to improve outcomes and costs yet assignments can change (or “churn”) by as much as 30-40% per year. Some ACO patients are even assigned retrospectively. Bundled Payments providers get assigned patients based on the DRG and may know nothing about the patient before they arrive. Assigned patients can opt out of sharing their medicare history which could further complicate managing their care.
Leakage – assigned patients are free to go to any physician or hospital outside the ACO or Bundled Payment for services. These outside physicians and hospitals may not have the same incentives to improve overall outcomes and costs. If the patient arrives at an ER outside the assignment, the physicians may need to order a series of tests because they don’t have access to the patient’s medical records.
New Approaches for Accountable Care and Bundled Payments
Accountable Care and Bundled Payment providers will leverage the “managed care” approaches when they can and develop new approaches which may include:
Patient Experience & Relationship – ensure positive experiences and opportunities to develop trusting relationships so they call their assigned provider first and have no interest in going anywhere else
Coordinated Care – ensure patients experience a coordinated care team approach in contrast to a fragmented system outside their assigned ACO or Bundle Payment.
Patient Recovery and Well-Being – ensure patients recover or their well-being is restored as quickly as possible to reduce utilization triggered by unmanaged conditions
Efficiency & Convenience – enable patient to communicate to a physician, nurse or coordinator via email, text, video conference and after hours to reduce missed appointments or avoidable ER usage.
Patient Empowerment & Education – help enable patient to better manage their conditions, navigate the healthcare system and make healthy decisions
The impact of the third transformational wave will drive significant change, require new approaches and create unintended consequences that we hope are more positive than negative. The new approaches may include managing the overall patient experience, improving patient desired outcomes, leveraging efficiencies currently limited by traditional reimbursement and becoming the provider of choice for assigned patients. The providers that succeed will be generously compensated for delivering care that may be mostly about patients this time.