Health Care Current: April 14, 2015

Navigating the shifting course of value-based care

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.

Navigating the shifting course of value-based care

The market shift toward value-based care (VBC) continues to move along with increasing speed in hope that it will bend the curve on cost and improve quality. As is the case for other business transformations, the road to get there will be bumpy and even unpaved in some areas. And, as soon as you get to a comfortable cruising speed, you may have to change your course.

The most recent evidence of this lies in Congress’s efforts to replace the much maligned sustainable growth rate formula (SGR) that constrained Medicare reimbursement rates. For years, lawmakers in both chambers of Congress have grappled with how to replace and pay for the SGR but have failed to pass any meaningful legislation.

Although for a while it seemed this saga would never end, now it seems there is finally a solution to move forward. The bill that passed the House and now sits before the Senate would repeal the old SGR formula and create a steady stream of modest reimbursement increases for the future.

While they are at it, Congress has used this most recent legislation as an opportunity to drive us further down the road to VBC. Today’s system set a total budget cap on Medicare payments for physician services. Tomorrow’s system puts greater weight on performance and encourages physicians to migrate to VBC. It connects incentives with individual physician performance. It also gives more weight to quality and volume control and creates financial incentives for physicians to participate in alternate payment models that incorporate VBC.

The new system also alleviates some of the burden that the myriad incentive programs have placed on physicians to date. All of the existing programs – the electronic health record (EHR) Meaningful Use incentive program, quality reporting program and value-based payment program – would be consolidated into one system.

Navigating the intricacies of these programs has been a challenge for most physicians. Deloitte’s 2014 Survey of US Physicians found that almost seven in 10 of the physicians surveyed believe the Meaningful Use program does not increase productivity. The proposed new system, called the Merit-based Incentive Payment System (MIPS), would start in 2018. Like the existing incentive programs, physicians could achieve reimbursement increases if they meet performance goals or experience payment cuts if they miss them.

Hitting cruise control may not be wise

So, how should organizations navigate the terrain ahead? The road to value-based care: Your mileage may vary, a recent report produced by Deloitte Insights and the Deloitte Center for Health Solutions, framed it well: Each route to VBC may vary in length and require different capabilities, partnerships and investments along the way.

As organizations plan their route to VBC, there is no single, “right” payment model that fits all situations. The choice of model (or combination of models) will depend on each stakeholder’s capabilities, market position, financial situation and goals. Stakeholders on a VBC journey might require capabilities such as care coordination, clinical integration and physician alignment. More robust administrative capabilities may also be needed to support value-based payment models.

Required capabilities for administration/risk-bearing under each payment model

Graphic: Deloitte Insights |

Keeping the destination in sight

At every legislative and regulatory turn, the pressure to shift toward more complex and financially risky payment models will likely only get stronger. The devil will be in the details of balancing investment in new capabilities, speed of transition to VBC and managing financial risk. Organizations can start now by understanding their market position, assessing their capabilities, conducting a financial analysis and aligning around opportunities.

Whether they decide to travel solo or with partners, health care organizations that leave now on their journey to VBC can put in place the necessary capabilities and processes that may give them first-mover advantage and increased market share, while others may be left behind.

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My Take

By Mitch Morris, MD, Vice Chairman and National Health Care Provider Lead, Deloitte LLP


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CMS releases final Medicare Advantage rates

Last week, the US Centers for Medicare and Medicaid Services (CMS) finalized the payment rates and policies it proposed for Medicare Advantage (MA) and Part D earlier this year. With the final rate announcement, CMS reversed its original decision to cut MA rates by 0.95 percent in 2016. Instead, based on CMS’s estimates, MA plans will see an average change in revenue of 1.25 percent. The change is due to several adjustments to the calculation of payments from the advance notice to the final rate announcement:

The final effective growth rate that CMS used to calculate the payment adjustment includes updated projections for spending and assumes that Congress will pass the SGR bill to prevent cuts.

CMS finalized several policies included in the advance notice letter (see the February 24, 2015 Health Care Current for more information):

  • Value-based contracting: CMS intends to ask MA organizations to share data regarding their adoption of alternate payment models. CMS will work with all interested parties, including physician groups, beneficiary advocates and plans, to better understand how incentive payments can improve quality and reduce costs. 
  • Star rating system revisions: CMS supports research efforts (both internally and through contractors) to examine how MA plans that enroll dual eligible and low-income subsidy beneficiaries fare under star ratings. CMS did not go forward with its proposal to reduce the weight of seven measures in 2016; it will work with HHS and other stakeholders to gather more information. CMS aims to propose any changes for the 2017 star ratings later this year.
  • Provider network information requirements: CMS emphasized that plans will be expected to maintain accurate provider networks that are updated in real time. Plans are also expected to have regular, ongoing communication with providers (on at least a monthly basis) to maintain accurate information about provider networks. CMS intends to monitor plans’ compliance with this guidance through direct monitoring, a new audit protocol and compliance and/or enforcement actions.
  • Risk adjustment: CMS finalized the full implementation of the 2014 CMS Hierarchical Condition Categories (HCC) Risk Adjustment model. Before 2016, CMS was using two models blended together. The 2014 version of the model eliminates some categories based on general diseases and replaces them with more specific disease categories. 
  • Preferred cost-sharing pharmacies (PCSPs): CMS has been concerned that beneficiaries may be misled into enrolling in plans that advertise low preferred cost-sharing when there are, in fact, few or no PCSPs within a reasonable distance from their residence. CMS plans to publish information on plans’ 2016 PCSP networks on its website this year and will publish information on Medicare Plan Finder in the future. CMS also will require plans whose PCSP networks offer limited access to PCSPs in 2016 to disclose this in their marketing materials. CMS will disclose this on the Medicare Plan Finder and will communicate with and try to improve access to PCSPs for plans in this situation.

Reaction: While generally pleased with the reversal of the rate adjustment, many health plans also expressed concern about CMS’s final decision to move to full implementation of the 2014 CMS HCC risk adjustment model. CMS received many comments from MA organizations that said “the [2014] model did not adequately account for specific populations such as beneficiaries with chronic care conditions or dual eligibles.” Several companies issued revised earnings projections after learning this policy had been finalized. For example, DaVita Health Care Partners expects to see a loss of approximately $50 million in operating income in 2016. Humana estimates that its average MA payments will increase only 0.8 percent in 2016 due to the risk adjustment policy. CMS said it will evaluate the impact of this policy on enrollees and consider adjustments in the future if it finds a negative effect.

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Implementation & Adoption

Open Payments data now open to physicians and teaching hospitals

As of April 6, 2015, physicians and teaching hospitals can review information on payments that pharmaceutical and device manufacturers and group purchasing organizations (GPOs) have reported about them. This is part of the agency’s Open Payments database initiative. Manufacturers and GPOs had to submit 2014 information to CMS by the end of March; the information will be public at the end of June. Open Payments contains information regarding financial relationships about payments like consulting fees, gifts or research grants and whether they were associated with a particular pharmaceutical product or device.

Analysis: Dr. Harry Greenspun wrote about the launch of Open Payments in the October 7, 2014 Health Care Current. The goal of the Open Payments program is to shed light on the practice of payments to physicians and providers by life sciences companies. While some argue that these payments lead to negative consequences for the health care industry (e.g., overprescribing of certain drugs, skewing results of patient studies), many in the industry also see them as helpful. For example, physicians and providers need to participate in research programs in order for life sciences companies to create better products that factor patient outcomes and experiences into the development process.

The data contained in Open Payments could significantly change the health care industry if it garners enough attention to spur calls for stronger conflict of interest rules or if it affects research and development relationships and innovation. However, despite efforts across the health care sector to increase transparency, consumer interest in and use of public data has historically been low. For example, only one in eight consumers surveyed report having referred to score cards or report cards to compare doctors in the past year.

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Study: Measuring technology innovation, health care costs and health outcomes

Innovation and advancements in health care technology often increase health care costs while improving health outcomes. These outcomes have seldom been reconciled into one measure. A study published in Health Affairs combined these concepts into one measure, the quality-adjusted cost of care. The authors believe this measure better captures changes in cost and care outcomes for new technology.

The quality-adjusted cost of care measure balances growth in costs with the value of improved health and longevity and social benefits that the new technology brings. For example, antiretroviral therapy innovations in the 1990s dramatically increased the cost of treatment for patients with HIV/AIDS, but the new treatments allowed patients with HIV to survive and lead relatively normal lives. The social value of these gains is many times the cost of the treatment. The researchers considered case studies of the change in cost and quality of two illnesses:

The study relied on data from clinical trials to measure outcomes. The authors acknowledged clinical trials have limitations; it can be difficult to translate clinical results to the real world. However, the researchers hope that the quality cost-adjusted cost of care measure will be useful to policy makers and health care executives to measure the impact of new technology and innovation. They also hope it will complement other efforts to quantify and track quality outcomes in health care.

(Source: Darius Lakdawalla, Jason Shafrin, et al., “Quality-Adjusted Cost of Care: a Meaningful Way to Measure Growth in Innovation Cost Versus the Value of Health Gains,” Health Affairs, 34, No. 4, 2015)

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WEDI survey finds varied ICD-10 readiness; prior delay may be the cause

More than half of respondents to a recent survey expressed uncertainty about ICD-10 implementation. The Workgroup for Electronic Data Interchange (WEDI) conducted a survey on the implementation date, which is scheduled for October 1, 2015. Uncertainty around the date, which was moved first by regulatory and then legislative action, and potential for delays are seen as a major obstacle to transition. Respondents are less confident about vendor product availability and progress in provider testing than they were in August 2014. They are more confident about progress vendors have made on product development and health plan progress on impact assessments testing. However, confidence only improved moderately over 2014. In the letter, WEDI past-chairman Jim Daley stated that the previous ICD-10 delay “has had a negative impact on some readiness activities.”

Background: The results from WEDI’s February survey were published in a letter to US Department of Health and Human Services (HHS) Secretary Sylvia Mathews Burwell on March 31. Survey respondents included 1,174 provider, health plan and vendor representatives. While the survey study population more than doubled since the last survey in August 2014, the results about readiness were mixed. On several measures, readiness declined. ICD-10 is a standardized diagnostic coding system used by providers for clinical and reimbursement purposes. The US currently operates under the ICD-9 system. Although stakeholders have made efforts to transition to the updated system and the industry is generally supportive of the transition, the administration or Congress have delayed the implementation date three times (see the February 17, 2015 Health Care Current).

(Source: Workgroup for Electronic Data Interchange (WEDI), “Letter to HHS Secretary Sylvia Mathews Burwell: WEDI ICD-10 Survey Results,” March 31, 2015)

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SGR deal faces Senate

A bill to permanently “fix” the SGR, the Medicare Access and CHIP Reauthorization Act of 2015, passed the House of Representatives last month. From there however, it may run into difficulty in the Senate, despite widespread support among the health care industry. After the Congressional Budget Office reported that the legislation would increase federal budget deficits by $141 billion over the next decade, many lawmakers in the Senate have argued for greater offsets. In the health care sector, many actors support the bill as it stands, but some patient advocates have pressed for changes favoring Medicare beneficiaries. Some of the industry’s stances:

While the Senate did not take up the legislation before the payment cut took effect on April 1, discussions around the bill resumed yesterday, April 13, when the Senate returned from recess.

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On the Hill & In the Courts

FDA launches Expedited Access Pathway program for medical device approval

Last week, the US Food and Drug Administration (FDA) announced that it will begin accepting applications for a new expedited device approval program. The guidance describes the new program as intended to speed the approval process for medical devices that address unmet medical needs. The Expedited Access Pathway for Unmet Medical Needs for Life Threatening or Irreversibly Debilitating Diseases or Conditions program will help patients access these medical devices more quickly while assuring that the devices meet safety and effectiveness requirements. The program will allow medical devices with premarket approval and de novo, or low-risk novel medical devices, to have priority review.

Notably, the FDA did not include 510(k) medical devices in this new program. The latest discussion draft for the 21st Century Cures legislation includes language that would revise the Food, Drug and Cosmetic Act to create a broader priority review program. That program would include 510(k) devices.

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CMS proposed rule would require Medicaid managed care plans to provide mental health parity

A 2008 law mandated that commercial health insurance and group health plans provide the same level – or parity – of benefits for mental or substance-abuse treatment as for medical and surgical care. On April 5, CMS proposed a rule that would apply certain parity provisions of that law to Medicaid managed care and other alternative Medicaid benefit plans and the Children's Health Insurance Program (CHIP). Under the rule, states would have to include mental health services parity in contracts for Medicaid managed care; FFS Medicaid would be excluded. The proposed rule would affect about 21.6 million Medicaid beneficiaries and approximately 850,000 CHIP beneficiaries. Currently, 70 percent of Medicaid enrollees are in managed care plans.

Response: The National Association of Medicaid Directors (NAMD) responded to the draft rule shortly after it was released. Medicaid is the largest payer of mental health services in the US, and roughly 30 percent of Medicaid dollars are spent on “individuals with behavioral health needs.” NAMD expressed optimism that the parity rule would “level the playing field” and help more people get care at the right time. However, NAMD also stressed that the change could cost state governments roughly $150 million in the near term.

Recent reports, such as one from the National Alliance on Mental Illness (NAMI), have questioned the effectiveness of the 2008 mental health parity law. NAMI found that health insurance plan adherence to the law varies. For the most part, insurers have eliminated separate deductibles or higher copays for mental health or substance abuse services. However, some patients still face hurdles when accessing mental health or substance abuse care as many insurers require medical necessity reviews prior to covering these services.

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Around the Country

Study: Michigan’s fee-for-value physician incentive program reduces costs and improves primary care

As payers and policy makers move toward VBC, states and payers have experimented with new ways to deliver care and structure payments. One strategy, called fee-for-value, keeps the FFS structure but adds payments that reflect spending and quality results. Researchers recently published a study in Health Affairs that evaluated the effectiveness of Blue Cross Blue Shield of Michigan’s Physician Group Incentive Program. They found that the program reduced spending and improved quality performance measures over a three-year period (2008-2011).

The study found that physicians who improved population-based cost measures and evidence-based processes of care metrics got higher payments. To receive the highest possible payment, physician practices in the program had to achieve higher performance on population-level metrics compared with other organizations in the program. The researchers found that participating physician practices:

  • Reduced their total per-member-per-month spending by $4.00 more than physician practices outside of program (a 1.1 percent difference)
  • Performed the same or improved performance on eleven of fourteen quality measures over time
  • Improved on three of the seven quality measures for preventive care (adolescent well care, adolescent immunization and well-child visits at ages 3–6)

Physician practices in the program increased their per-member-per-month spending by $5.95 during the first year in the program compared with practices already in the program. This difference suggests that the $4.00 per-member-per-month savings was offset by higher spending during the first year. The plans saw net savings the second year.

The study population included roughly 3.2 million employed, commercially insured people under the age of sixty-five. For this population, the study found no significant reduction in hospital spending. Though with a population under 65 years of age reductions in hospital spending may take longer to come to fruition.

The results suggest that health plans may incur higher costs at the outset of these types of programs. Increased spending may come from additional screenings and more consultations about managing chronic diseases. Establishing patient homes may also contribute to increased costs. However, over time, the return on investment may pay off through reduced outpatient facility fees and professional charges.

(Source: Christy Harris Lemak, Tammie A. Nahra, Genna R. Cohen, Natalie D. Erb, Michael L. Paustian, David Share and Richard A. Hirth, “Michigan’s Fee-For-Value Physician Incentive Program Reduces Spending And Improves Quality In Primary Care,” Health Affairs, April 2015)

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Engaging customers through education and incentives

Health insurance plans are increasingly investing in mobile app development to inform and engage consumers. Before the Affordable Care Act, employers selected plans for their employees, and fewer individuals purchased their own policies. Now, private exchanges, public health insurance marketplaces, defined contribution plans and other factors are increasing the number of individuals who are shopping for coverage.

According to Deloitte's 2013 health plan retail capability survey, product, pricing and consumer experience capabilities are top of mind priority investments for health plans. Technology investments in transparency, mobility, customer relationship management and analytics are fundamental to supporting these capabilities. Last month, UnitedHealthcare announced it is piloting a new app that offers financial incentives for individuals who practice healthy behavior. The app, Reward Me, rewards individuals for healthy eating, relaxation and physical activity. The app was not only created to engage users in healthy behavior, but to increase exposure to the company’s Health4Me app. Health4Me is a pricing transparency tool for members and nonmembers who want to check health care pricing and locate health care providers, convenience care, urgent care and emergency care facilities. It has market average prices for more than 520 medical services across 290 episodes of care.

The two apps are integrated so that users can make secure payments through their mobile device, track claims and medical expenses and integrate data from their fitness trackers. UnitedHealthcare plans to continue piloting the apps in Arizona and Illinois and to add new markets later this year. Thousands of UnitedHealthcare consumers have already used the Health4Me app to pay medical bills since its launch in 2013, and to date, the app saw an increase of 43 percent in users as a result of the integration of the Reward Me app.

Other national and regional health plans are marketing their mobile apps. Aetna has two apps that allow users to search for and ask medical questions, check symptoms, connect to care options and manage their health information. Humana’s MyHumana mobile app enables members to access their claim status, find in-network providers, research health care prices, refill prescriptions and set medication reminders.

Analysis: Preliminary findings from Deloitte’s 2015 survey of health care consumers shows that use of digital tools and mobile technology for health improvement and monitoring is on the rise. Twenty-eight percent of consumers used technology to measure fitness and health improvement, compared with 17 percent in 2013. Ten percent of consumers used a mobile app to get a pricing estimate at the time they made an appointment, while 26 percent are interested in doing so in the future. To consistently attract, enroll, satisfy and retain members, many health plans are interested in increasing services that focus on concerns and preferences that matter most to them. Developing tools that help consumers make informed choices and offering incentive programs that influence healthy choices may help keep costs down and assist consumers who are looking for ways to increase engagement in their health and health care.

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Breaking Boundaries

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