A Path to Accountable Care Organizations:
How Do We Get From There to Here?
Financial Considerations for Accountable
Care Entity Engagement
Presented by
Milliman, Inc.
San Francisco, CA
susan.pantely@milliman.com
415-394-3756
Six Considerations Related to Financial Success
1. Set budgets/targets accurately
pp p
g
gain/loss sharing
g reflecting
g capabilities
p
of
2. Use appropriate
provider group
3. Timely, easy to use, reports to providers and possibly to
members
4. Define how members will be assigned
5. Define scope
p of services
6. Quality measurement
2
1
Simple Secrets to ACO Success
 To be successful, an ACO must preach and practice two
challenging and often-overlooked imperatives:
1. Establish actuarial cost and utilization targets appropriate for the ACO’s
d i
designated
t db
business
i
model
d l (M
(Medicare,
di
commercial,
i l M
Medicaid)
di id)
2. Provide medical management to achieve those targets
3
Bending the Cost Curve
 Establish baseline per member per month (PMPM) claim cost
– Historical analysis of claims
 Establish trend, based on historical or concurrent information.
 Project to contract period for target PMPM.
 Savings are shared with providers. Losses may be shared with
providers also.
Baseline PMPM x Trend = Target PMPM
Projected PMPM – Actual PMPM = Savings PMPM
Payer
Savings PMPM
Provider
4
2
Performance Needed for Success
 Reduce utilization below level achieved by plan
– Varies but in general a 5% to 10% reduction in PMPM is required
– This typically translates into a >10% reduction in utilization of key
services (IP, OP hosp, imaging, specialty referrals, etc.) – reason is
need to cover cost for ACO infrastructure
– Can be a consideration for plan wanting to provide infrastructure to
ACO as plan may not have infrastructure required to achieve the
additional utilization reduction
 Minimize leakage
5
Building an ACO Budget
 The overall financial budget/target will be established by the
payer or regulator (CMS, local health plan, state Medicaid plan,
etc.).
 The ACO will need to convert these budgets/targets into
utilization targets and validate the reasonability of the targets by
performing its own actuarial analysis and building an ACO
actuarial model
 Utilization reduction and improved efficiency will likely determine
whether an ACO stays within the budget or achieves the
established
t bli h d ttargets.
t
6
3
Creating and Using an ACO Actuarial Model
 Use the designated population’s historical data to build an ACO
actuarial cost and utilization model consistent with the base
period that the payer will use to evaluate performance
 Use the ACO actuarial model to compare the historical data to
achievable benchmarks, appropriately adjusted for demographics
and risk
 Categorize the utilization data by
– Meaningful and impactable service categories
– Site of service where relevant (e.g.,
(e g hospital outpatient versus
ambulatory surgical center)
– ACO and non-ACO providers (leakage)
7
Evaluating Financial Feasibility
 Identify and prioritize potential opportunities for
– Reducing utilization by service category
– Shifting utilization to alternative lower cost sites of service
– Steering utilization to ACO providers (if lower cost)
 Monetize those opportunities and calculate the overall financial
impact – include the cost needed to implement management
programs (hospitalists, util. management, referral management,
etc)
 Determine if the calculated financial impact will meet the
financial budgets/targets.
8
4
Priorities
 Focus initial management efforts on
– Reducing leakage to hospitals and specialists that are not part of
the ACO. (This will increase volume to ACO providers and help
offset
ff t revenue loss
l
due
d to
t improved
i
d utilization
tili ti management.)
t)
– Inpatient utilization management. (Inpatient costs make up
approximately 30% of total costs for a commercially insured
population and 37% of total Medicare Part A and B spend)
 Secondary focus for management efforts should include high
tech imaging, ER visits, specialist visits & generic/brand drug
distribution
9
ACO Financial Feasibility & Actuarial
Utilization Model (MAFF)
 MAFF does all of the following:
1. Produce a financial feasibility for developing an ACO model of healthcare
delivery.
•
Includes impact and cost of required infrastructure
–
–
–
–
Utilization management (IP & OP)
Case/Chronic disease management
Plan management support (e-visits, e-consults, urgent care/expanded access, physician
incentives)
Group practice support (reporting, management support)
•
Interactive input allows model to be matched to characteristics of specific payers,
providers and geographic locations
•
Provides a bottom line answer to financial feasibility and also what needs to be in
place to achieve this
•
Anchored by Milliman’s Health Cost Guidelines© benchmarks
2. Allows ongoing measurement of results
10
5
Sample ACO Actuarial Model Showing All
Admissions
Milliman Health Cost Guidelines 2010 Commercial Loosely Managed
11
Sample ACO Actuarial Model Showing
Impactable Admissions
Targeted Utilization Reduction for a Hypothetical Loosely Managed Medicare Population*
Types of Admissions
Ambulatory Case Sensitive
Admissions
Preference Sensitive Admissions
Readmissions
Admits/1,000
Target Reduction
Target
Admits/1,000
Admits/1
000
47 (14% of total)
15%
40
40 (12% of total)
10%
36
40 (12% of total)**
10%
36
Other Admissions
210
0%
210
Total Medical/Surgical
Admissions
337
4.5%
322
* Defined for this example as having approximately 340 admissions per 1,000 enrollees
** 12% excludes a portion of readmissions classified as ambulatory care sensitive admissions
Source: This is a hypothetical example based on Milliman Health Cost Guidelines Ages 65 and
Over
12
6
Leakage and Site of Service Analysis
 Analyze ACO versus non-ACO provider utilization by
– DRGs
– Ambulatory Surgery
– Specialists
 Identify specific leakage facilities
 Identify leakage services outside the expertise of the ACO
 Analyze site of service for OP procedures (hospital OP versus
ambulatory surgical centers)
13
Essential Management Services
Supply Side
– The more challenging side of medical management but produces
majority of savings
– Intended to reduce utilization and payment for medically
unnecessary services and ensure that care is delivered in the most
appropriate setting
– Clinical guidelines help evaluate the medical necessity of requested
(or, retrospectively rendered) services.
Demand side
– Optimize a population
population’s
s health so that demand for services will be
lower.
– Impact ambulatory care sensitive admissions, preference sensitive
admissions, readmissions, and ER visits
14
7
Case Study - Using Hospital Employee
Benefit Data
 Examples from “General Medical Center”
 Employee
E l
b
benefit
fit d
data
t captures
t
ffullll scope off services
i
iin d
detail.
t il
– This data is often not otherwise available to providers unless you
work closely with a payer
 Excellent source for benchmarking
15
ACO Actuarial Model: Start w/ Demographics
Member Demographics July 2006 to Sept 2008
Age
g Group
p
To 25
25 - 29
30 - 34
35 - 39
40 - 44
45 - 49
50 - 54
55 - 59
60 - 64
65+
Total
GMC
Members
Male
Female
16.9%
18.2%
1.7%
4.5%
2.2%
4.1%
3.6%
5.3%
3.8%
5.9%
4.0%
6.0%
4.3%
6.0%
3.0%
4.7%
1.8%
2.6%
0 8%
0.8%
0 6%
0.6%
42.0%
58.0%
Standard
Members
Male
Female
19.5% 19.4%
3.3%
3.3%
4.1%
4.2%
4.6%
4.8%
5.0%
5.2%
4.6%
5.0%
3.9%
4.4%
2.2%
2.5%
1.4%
1.6%
0 5%
0.5%
0 5%
0.5%
49.2% 50.8%
Demographic Adjustment Factors
Inpatient Admits:
Inpatient Days:
Medical Claims Costs:
Pharmacy Claims Costs:
16
8
GMC is Illustrative Hospital
Employee and Dependent
Population
1.11
1.11
1.11
1.16
Sources: Milliman Health Cost
Guidelines.
Example of Ambulatory Care Sensitive Admits
National
Ambulatory Care Sensitive Admissions
Well
Managed
(ACSAs) (Admits/1000 Commercial)
Congestive Heart Failure
1.56
Bacterial Pneumonia
1.64
COPD
0.52
Urinary Infection
0.63
Dehydration
0.21
Diabetes Long Term Complications
0.14
Adult Asthma
0.12
Hypertension
0.06
Angina
0.09
Lower Extremity Amputation
0.03
Diabetes Uncontrolled
0.02
Diabetes Short Term Complication
0.02
Total ACSAs/1000
5.04
14%
ACSAs As Portion Of Total Non-Mat Ad
National
Loosely
Managed
2.52
2.06
0.83
0.87
0.35
0.24
0.19
0.14
0.10
0.05
0.04
0.04
7.44
15%
GMC
3.47
2.77
1.30
1.22
0.78
0.47
0.35
0.21
0.14
0.14
0.05
0.05
10.97
18%
GMC is Illustrative Hospital Employee and Dependent Population
17
Example of Preference Sensitive Procedures
Utilization of Potentially Avoidable
Preference-sensitive Admissions
DRG
Narrative
Spinal Fusion
496 COMBINED ANTERIOR/POSTERIOR SPINAL FUSION
497 SPINAL FUSION EXCEPT CERVICAL W CC
498 SPINAL FUSION EXCEPT CERVICAL W/O CC
519 CERVICAL SPINAL FUSION W CC
520 CERVICAL SPINAL FUSION W/O CC
Total
Joint Replacement
BILATERAL OR MULTIPLE MAJOR JOINT PROCS OF
471 LOWER EXTREMITY
MAJOR JOINT REPLACEMENT OR REATTACHMENT OF
544 LOWER EXTREMITY
545 REVISION OF HIP OR KNEE REPLACEMENT
Total
18
9
GMC is Illustrative Hospital Employee and Dependent Population
Data Sources:
Milliman
HealthMedical
Cost Guidelines
and DRG
models
Source:
Milliman
Management
Guidelines
Admits / 1,000 Comparison
GMC
Members
National
N
ti
l
Loosely
Managed
National
N
ti
l
Well
Managed
0.00
0.71
0.83
0.24
0.35
2.13
0.06
0.14
0.24
0.09
0.38
0.92
0.03
0.06
0.11
0.04
0.18
0.43
0.00
0.09
0.02
2.01
0.24
2.25
1.39
0.12
1.61
0.73
0.07
0.82
Example of LOS Distribution
Length of Stay Continuance: GMC versus Benchmark
GMC
July '06 - Sep '08
% Inpatient Admits <= 3 Days
72.9%
% Inpatient Admits Greater than 3 Days
27.1%
% Inpatient Admits Greater than 5 Days
13.8%
% Inpatient Admits Greater than 10 Days
6.0%
% Inpatient Admits Greater than 20 Days
3.0%
% Inpatient
pat e t Admits
d ts G
Greater
eate tthan
a 30 Days
ays
1.8%
.8%
% Inpatient Admits Greater than 60 Days
0.1%
Average Length of Stay (excl. SNF)
4.40
National
Benchmark
64.0%
36.0%
18.0%
6.6%
2.5%
1.2%
. %
0.3%
4.20
GMC is Illustrative Hospital Employee and Dependent Population
Sources: Milliman Health Cost Guidelines.
19
Example of Examining Primary/Specialty
Visit Ratios
Office/Home Visits
Primary Care Physician (PCP)/Specialist Care Physician (SCP) Split
visits per 1,000
PCP
SCP
National
Loosely
Managed
3,241
2,062
1 178
1,178
National
Well
Managed
2,917
1,857
1 061
1,061
GMC is Illustrative Hospital Employee and Dependent Population
Sources: Milliman Health Cost Guidelines.
20
10
% total
visits
63.6%
36.4%
36
4%
GMC
Experience
3727
1,650
2 077
2,077
% total
visits
44.3%
55 7%
55.7%
Global Capitation Feasibility for GMC
Global Capitation Payment from Payer
Current Cost @ GMC’s Fees
Needed Improvement for Breakeven
Goal for GMC
Needed Improvement for Goal
$270
$280
4%
$250
10.7%
(simplified)
PMPM
PMPM
PMPM
How to Reach Goal
Utilization
Reduced Hospital Admits
Reduced Imaging, Surgeries
Better Rx Management
Subtotal Utilization
Reduce GMC/Physician Fees
Total Reduction in Cost
Service
Contrib. to
Reduction Total Cost
9%
2.7%
10%
1.0%
10%
1 5%
1.5%
5.2%
5.5%
10.7%
21
Reporting
 Data warehouse and provider profiling systems need to easily
produce an up-to-date blend of,
– Health insurance type population based reports showing utilization,
cost and quality per patient per month
– Physician report cards
– Hospital based reports showing inpatient cost and resource
utilization by diagnosis and attending physician
– Physician group based reports showing risk adjusted panel
management results such as panel size, referrals, ER visits, etc per
patient
– All these report need to have outcome targets linked to financial
success.
22
11
Reporting
PCP Number
27499
32784
41301
42929
44404
45427
45807
51870
52043
53330
53595
5735
Member
Months
4,393
2,108
4,121
4,910
7,509
4,274
3,962
7,995
7,293
5,222
3,670
5,846
Average
Members
220
106
206
246
376
214
198
400
365
261
184
293
Inpatient
Hospital
$181.93
$121.66
$152.40
$107.74
$167.64
$203.93
$134.89
$193.93
$204.60
$222.28
$91.49
$301.19
Emerg.
Room
$21.77
$26.78
$21.78
$34.54
$26.87
$28.59
$20.94
$21.44
$27.18
$18.29
$18.48
$30.04
Allowed PMPM Claim Cost
Other
OP Hospital
Total Prof.
Other
$67.25
$97.56
$120.03
$65.26
$106.74
$105.18
$100.07
$88.86
$96.32
$96.50
$44.57
$137.41
$201.15
$184.93
$226.42
$209.57
$197.49
$219.41
$255.50
$202.55
$192.06
$230.09
$130.37
$338.84
$33.99
$32.40
$35.41
$27.08
$35.86
$39.98
$24.09
$44.16
$50.44
$32.23
$16.14
$46.11
Rx
$90.46
$82.80
$111.79
$117.80
$90.49
$133.52
$100.77
$100.45
$96.46
$97.82
$65.32
$165.93
Grand
Total
PMPM
Revenue
Loss Ratio
$596.55
$546.15
$667.85
$562.00
$625.09
$730.61
$636.25
$651.38
$667.05
$697.20
$366.38
$1,019.54
$1,006.90
$893.40
$1,090.14
$995.16
$1,119.54
$1,061.28
$1,098.65
$1,080.80
$1,142.84
$1,077.58
$661.47
$1,247.18
59.2%
61.1%
61.3%
56.5%
55.8%
68.8%
57.9%
60.3%
58.4%
64.7%
55.4%
81.7%
23
Reporting
PCP Number
27499
32784
41301
42929
44404
45427
45807
51870
52043
53330
53595
5735
5881
59303
24
12
Admits
260 7
260.7
214.8
245.6
179.0
267.8
292.9
184.8
291.5
330.5
311.1
156.0
384.9
247 2
247.2
159.7
Annual Utilization Per 1,000
Average
Emerg.
LOS
Days
Room
6.0
6
0
6.4
4.4
4.7
6.7
6.4
5.0
7.9
6.3
6.4
7.0
7.0
39
3.9
4.7
1 551 9
1,551.9
1,377.0
1,076.0
838.0
1,783.9
1,872.4
930.9
2,310.0
2,085.1
2,004.2
1,092.1
2,699.1
967 8
967.8
746.4
215 2
215.2
252.7
255.3
222.4
216.3
264.8
265.5
229.8
215.4
196.3
257.6
332.5
243 7
243.7
184.3
Office
Visits
6 185 2
6,185.2
5,100.3
6,217.3
6,997.8
6,405.3
5,193.4
5,868.6
5,226.8
5,265.2
5,569.4
3,994.1
8,784.5
6 223 3
6,223.3
4,493.9
Reporting
How do you make good value choices if you don’t know the
cost, efficiency and quality differences among hospitals and
specialists
For Example:
Comparison Indices
Name UnitCost Efficiency Quality
A
0.95 1.00 1.20
B
1.03 1.00 0.98
C
1.07
1 07 1.00
1 00 1.05
1 05
ProvType
Hospital
Hospital
H i l
Hospital
Cardiologist
Cardiologist
Cardiologist
A
B
C
0.95
1.03
1.07
1.00
1.00
1.00
1.20
0.98
1.05
25
Reports – Unit Cost Comparison
Standard fee schedules will allow for easier comparisons among
hospitals and specialists. This will help members and referrals.
Non-standard fee
f schedules will require more complicated and less
precise unit cost comparisons among hospitals and specialists. For
example:
Inpatient
Outpatient
Facility Medical Surgical Mat MH/SA
Avg
ER
A
1.16
1.11
1.08
0.54
1.12
0.91 0.74
B
1.38
1.22
1.53
0.68
1.28
1.39 0.84
C
1.32
1.13
0.97
1.11
1.11
1.23 0.98
Surg Rad
Avg
0.86
0.66 0.83
0.79
0.95
1.68
2.35 1.33
1.14
1.23
1.02
1.15 1.12
1.02
1.06
Note: There will still be variation within each category and contract/charge master charges will impact
historical based estimates. See Milliman’s RBRVS for HospitalsTM for methodology.
26
13
Total
Lab Other Avg
Reports – Site of Service Variation
For Colonoscopy (Proc Code = 45378)
Location
Professional*
Facility**
Total
Office
$390.81
$0.00
$390.81
ASC #1
$216.97
$406.54
$623.51
ASC #2
$216.97
$406.54
$623.51
Hospital A
$216.97
$664.70
$881.68
Hospital B
$216.97
$797.65
$1,014.62
Hospital C
$216.97
$997.06
$1,214.03
Hospital D
$216.97
$1,130.00
$1,346.97
Hospital E
$216.97
$1,329.41
$1,546.38
*All physicians in this sample accept 100% of the base fee schedule
** Each hospital has a different negotiated rate
27
Gain/Loss Sharing
Sample agreement

Actual paid claims minus target calculated and reported each month

Exclude 90% of claims above $25,000 for each member in
exchange for $xx.xx pooling charge

First payment made after 1 year

Gains/Losses distributed 75% to provider and 25% to plan

Only 50% of gains are paid out until 5% of prior 12-month target is
accrued in account to fund future losses
28
14
Gain/Loss Sharing
Alternate agreements can vary gain/loss percentages.

–
Less risk may be more appropriate for PCP only or Multispecialty
only ACOs (as opposed to integrated systems)
Corridor
Losses > 10%
Losses 3% ‐ 10%
Gains/losses +/‐ 3%
G i 3% 10%
Gains 3% ‐ 10%
Gains > 10%

Plan
Provider
75%
25%
25%
75%
0%
100%
25%
75%
75%
25%
Total
100%
100%
100%
100%
100%
Provider groups may need support in distributing gains to
individual physicians and hospitals
29
Medicare Proposed Rules
 PCP only
– Defined as internal medicine, geriatric medicine, family practice and
general practice
– Must be exclusive to a single ACO
 Primary Care Services
– HCPCS codes 99201-99215; 99304-99340; 99341-99350;
Welcome to Medicare (G0402); annual wellness visit (G0438,
G0439)
– Option 1: Assign based on primary care services, assigns most
b
beneficiaries
fi i i ((especially
i ll iin regions
i
with
ith PCP shortages)
h t
)
– Option 2: Assign based on provider (PCP) and primary care
services
– Option 3: Step-wise. Assigned to specialist providing primary care
services if member has no PCP visits. More complex.
30
15
Medicare Proposed Rules
 Prospective vs. Retrospective
– Prospective: Assigned at beginning of year based on historical
utilization.
tili ti
• Providers know who is assigned and can develop targeted programs
such as identifying high risk members and outreach programs.
Providers can track and monitor experience.
• Opponents contend providers should do this for all members not just
assigned members.
• Will always be some retrospective adjustments for various reasons such
as a member moving
moving.
– Retrospective: Assigned at end of year based on actual utilization.
• Year to year movement of beneficiaries significant
• Decision based on higher accuracy and desire to change provider
behavior for all beneficiaries rather than assigned beneficiaries
31
Medicare Proposed Rules
 Majority vs. Plurality
– Plurality: More beneficiaries assigned. Most Medicare members
see multiple
lti l providers
id
and
dd
desire
i was tto assign
i as many members
b
as possible. No minimum threshold.
– Majority: Stricter, less beneficiaries assigned. Provider has more
responsibility.
 Determination by Count of Services or Total Dollars
– Number of Services:
– Total Dollars: No tie
tie-breaker
breaker rules
rules. Not necessarily provider seen
most often. May reflect intensity/resource use.
 Beneficiary Notification
– ACOs will post information about their participation
– CMS to provider educational material to beneficiaries
32
16
Scope of Services
1.
Capitation agreements have Division of Financial Responsibility and
often remove out of area, pharmacy, transplants, etc.
2.
Typically, all covered services are included as goal is to coordinate
care.
3.
If not, alternative target rates need to be created allowing for various
exclusions.
4.
Pooling of large claims provides some protection for large
uncontrollable events.
33
Quality
 Ambulatory
– Preventive Visits
– Eye exams for Diabetics
– Cancer Screening
 Hospital
– AMI: Aspirin at admission & discharge; Smoking cessation
– Pneumonia: Smoking cessation; Oxygen assessment; Antibiotic
w/in 6 hrs
 Outcomes
– Hypertension: Controlling high blood pressure
– AMI or Pneumonia after major surgery
 Patient Experience
34
17
Common Mistakes
 Flawed analysis:
–
–
–
–
Failure to capture trend; IBNR; stoploss; fees too high
Assume claims costs will be enough (ignore admin cost)
Underserved population generates surge in services
Uncontrollable leakage
 Flawed design
– Rich benefits
– Internal competition/greed takes over instead of “common enemy”
– Payer
P
b
barriers
i
tto reducing
d i utilization
tili ti removed
d ((no more UM)
utilization surges
– Services provided to ineligibles
35
36
18