Health Insurance Exchanges and the Road to Value-based Payment in Michigan

Transcription

1 Health Insurance Exchanges and the Road to Value-based Payment in Michigan A report of the MHA Task Force on Future Health Insurance Markets Executive Summary

2 Health Insurance Exchanges and the Road to Value-based Payment in Michigan I. Introduction Report prepared by the MHA Task Force on Future Health Insurance Markets Executive Summary The opening of public health insurance exchanges and the continued growth of private health insurance exchanges have the potential to fundamentally alter hospitals and health systems payer mix, revenue streams and bad debt through changes in consumer health insurance and healthcare choices. In April 2013, the MHA Board of Trustees, anticipating major changes in insurance and the healthcare payment environment, established the MHA Task Force on Future Health Insurance Markets for the 2014 program year. Kaufman Hall was selected for its national perspective to provide consulting support. (See Exhibit 1, Task Force Roster.) The full report provides a review and illustration of the topics considered by the task force. These include the potential impacts of public and private health insurance exchanges in Michigan; the shift from defined benefit to defined contribution employer insurance coverage; growth of narrow networks and high-deductible health plans as well as general increases in deductibles and co-pays in traditional plans; the concepts behind value-based contracting, with a more detailed look at Blue Cross Blue Shield of Michigan s Value-based Contract model; and the difficulties and uncertainties in adapting to a new payment landscape in transition from volume to value. This executive summary covers the key points of the task force paper, as well as a set of recommendations and next steps offered by the task force. II. Health Insurance Exchanges Private and Public Exchanges present challenges and opportunities related to revenue and market share. The uninsured purchasing exchange policies represent potential new revenue. However, if many employers shift from company-purchased coverage to having employees purchase potentially less rich and lower-paying exchange policies, a hospital s existing commercial business may be cannibalized. 2

3 Areas within Michigan will face different exchange markets; i.e., the presence or absence of private exchanges and different competition and prices among insurers offering policies on the public exchange. Each hospital will face a unique situation and will have to make its own decisions about how to react to the threats and the opportunities. A. Private Exchanges A major trend in employer health benefit administration is the move from defined benefit to defined contribution plans. Private exchanges are a tool for doing this, while making the shift more palatable for employees by offering more choices of insurers, coverage and costs. History of the fast growth of 401(k) retirement plans coupled with the near death of defined benefit pension plans is worth noting; a general change to defined contribution health plan models could occur very quickly. The impact on providers of expanding private health insurance exchanges may be dramatic. A shift to lower-cost options by consumers is common, usually taking the form of high-deductible health plans (HDHPs) and/or narrow network plan designs. The rapid shift to HDHPs was unexpected, and the impact on hospital and other provider bad debt has been severe in some areas. The growth of HDHPs also greatly increases the pressure for price transparency as consumers become more careful in their spending. Retail pricing for common health services can threaten providers, particularly with the market entrance of nontraditional providers in some parts of the state, for example, health clinics within commercial pharmacies and large chain stores. Narrow networks present the promise of lower costs by limiting participating providers within a more efficient delivery system strategy while reimbursing at lower rates in exchange for increased volume. Many consumers appear willing to accept limited choices of physicians and hospitals in exchange for a lower premium. Early indications show that private exchanges are slowly gaining traction in Michigan. Currently at least four private exchanges operate in Michigan: BCBSM GlidePath, iselect, Mercer Marketplace and Willis Advantage Exchange. B. Public Exchanges The rollout of public healthcare insurance exchanges was not smooth, but initial enrollment numbers are encouraging for supporters. A key question is how much public exchange enrollment will come from the commercially insured population versus the currently uninsured. Thirteen insurers offered plans on the Michigan s federally run health insurance exchange. As expected, premiums varied considerably across the 16 Michigan rating areas. For example, the Age 50 lowest cost Silver plans ranged from $266 (Monroe and Wayne counties) to $426 (for the majority of counties in the Upper Peninsula). Rates in the Detroit area were 3

4 generally lowest, with the greatest competition, while the Upper Peninsula had both a low number of exchange eligibles and fewer plans competing. More than 272,000 Michigan residents selected a private plan since Oct. 1, 2013, according to the latest enrollment report issued by the U.S. Department of Health and Human Services. Michigan exceeded the federal government goal for the first six months of enrollment by nearly 111,000 people. The state is 12 th in the nation in the number of enrollments. III. Overview of Value-based Contracting Value-based contracts are a shift from traditional fee-for-service reimbursement to payment for outcomes. What outcomes are considered most important and the measures used can vary widely and, to some degree, may be a matter for negotiation. Success with value-based payment methodologies and contracts is not assured for all hospitals. It requires new management skills and systems thinking, as well as the ability to align clinical and operational resources beyond the hospital walls. Ability and willingness to take risk will also affect decisions to enter such contracts. Success depends heavily on physician leadership, communication and participation. While other value-based contracts may look quite different, the BCBSM Value-based Contracts (VBKs) illustrate the important general concepts and the issues that should be considered before entering such a contract. The Blue Cross Blue Shield of Michigan VBK Model BCBSM has developed a three-tiered, value-based contracting model that gives hospitals the potential to share savings based on their performance on overall population-level cost measures and service-efficiency measures. Kaufman Hall characterizes VBK as a partial risk model. For some participants, it may be possible to move toward fuller risk in future iterations of the model; at present, however, an opportunity to move closer to the premium dollars has not been contemplated. The components of the VBK include: Infrastructure funding: Where a hospital and physician organizations have a shared patient population, BCBSM makes funds available for infrastructure development. Hospital cost efficiency: Hospitals may earn 50 percent of the value of a year-over-year decrease in their costs. Population-based performance: BCBSM rewards hospitals for improved coordination of care as evidenced by a reduction in per-member-per-month payout between base and performance years. Kauffman Hall, based on its experience across the country, did an analysis of the BCBSM VBK for the MHA that included interviews of BCBSM and hospital staff. It found that the VBK is comparatively less complex than other value-based contracts. In particular: 4

5 No patient attribution model is perfect; the BCBSM attribution model is straightforward compared to other payer models, but still has recognized need for improvements to control leakage and better manage overall costs. The Infrastructure funding payment is prospectively paid and is not recouped by being included in final cost calculations. The optional Hospital Cost Efficiency component builds on methodologies that are in place with existing BCBSM programs. The model and structure is consistent across all employer segments of commercial business (i.e., fully insured and self-funded employer groups). Some of the VBK contract provisions are negotiable, unlike other payer contracts that have little or no room for change. While there were no major program defects found in the BCBSM VBK program, key themes have been identified for near-term focus and improvement; these reflect details that hospitals considering a VBK contract should carefully analyze. Clearly define and improve collaboration between hospitals and physicians as well as between providers and BCBSM. Kaufman Hall observed that the word collaboration was being used in a variety of different ways by hospitals and BCBSM. Ensure robust data availability, integrity and timeliness. Data expectations (e.g., concrete goals, report content and timeliness) are inconsistent among the stakeholders. Understand and analyze payment model structures to fully quantify potential financial outcomes. Financial planning and modeling of the payment structure will be a fundamental step in negotiating and operating the value partnership program and to ensure hospital/physician alignment. Improvement in cross-stakeholder communication. There is a significant disconnect in the perception of how well each party is communicating. IV. Adapting to the New Payment Landscape The movement from payment for volume to payment for value has been slow and difficult. The general landscape of payment models that could support value-based healthcare delivery is well known. The fee-for-service (FFS) approach, with continuing reductions in payments, is not sustainable. For most providers, this will mean moving to contracts based on incentives and/or risk-based payment models. Hospitals and physicians will differ in both their starting positions e.g., experience with risk contracts, legacy costs and infrastructure and in their willingness and ability to take on risk. Many rural and smaller urban hospitals, for example, may not have the same ability to scale programs or take the same amount of risk as larger hospitals. For some hospitals, valuebased contracts with high-risk components will not be appropriate, but there are still steps that can be taken to adjust to the new general payment environment. 5

6 Hospitals face different local and regional competition, populations, payers and community resources, plus a unique history of relationships among these and other stakeholders. This will determine in large part what is possible next and how quickly it can occur; that is, the ways in which healthcare might be transformed in a particular community. Observers have impatiently waited to see what we might learn from the first open enrollment for public health insurance exchanges. The impact of private exchanges and how small business may enter the public exchange market next year are still open questions. So despite a year of exchange operation behind us, significant uncertainty remains. Among the potential forces creating continued uncertainty are: Employer use of exchanges: This will affect how quickly (and how completely) the forecast transition from a wholesale health insurance market to a retail market occurs. Given the potential dollar savings that some employers and employees could realize, it could happen very quickly in some markets. Premium changes: Premium pricing changes may be highly variable. Coupled with this are the unknowns regarding the price sensitivity of consumers, though most will be subsidy-eligible and thus insulated from price increases, given that after-subsidy premiums are tied to a fixed percentage of income. Different rates of premium changes could drive consumers to regularly switch insurers/plans from year-to-year. Price competition among insurers could drive significant consumer churn as wholesale markets disappear with increased use of exchanges. Response of consumers to their experiences with plans purchased on public or private exchanges: Given the complexities of identifying a plan that best meets their needs, consumers may not understand or like what they purchase in their first year of exchange participation. Changes in availability of competing insurers and plans by region: Increasing or decreasing choices will be important in a market driven, to a large extent, by price. Insurers that sat out the first year of public exchange participation may now choose to enter some or all regions of the state; those that did participate may increase or decrease their plan or market offerings. Population health management requires the availability of timely and accurate data over time. A major issue in moving to new payment models supporting population health management and value-driven care is that it may take five years or more for the market to settle into more predictable patterns. A high churn rate of consumers among insurers could create problems in making data available for population health management activities. While some providers have already forged ahead into value-based arrangements, some providers are not yet ready for risk-based or value-based contracts like the BCBSM VBKs; for others, such contracts are not and may never be appropriate. Even if a hospital has no intention of entering a risk-based/value-based contract in the near future, it is still time for action. In particular, steps in the following three areas should be taken: 6

7 A focused value-based readiness assessment: a thorough look at risk tolerance, evaluation of risk-bearing alternatives, needed skills and capabilities, and local market opportunities with payers, employers and partners. Invest in the infrastructure to have reliable, timely and credible data: To be ready for population health management in a fast-changing environment, hospitals must devote resources to collect and effectively analyze data. Build physician relationships: No matter where a hospital is along the risk continuum, physician engagement and alignment must be made a priority for long-term success. V. Strategic Priorities Hospitals and health systems must not wait, but must respond proactively to meet the challenges of the changing market. Strategic, financial and tactical planning for implementation of new payment models should be underway. Task Force Recommendations 1. The MHA should continue regular reporting to the membership about enrollment on the Michigan Marketplace (commercial) and private exchanges, Healthy Michigan Plan (Medicaid expansion), and other health insurance trends. 2. Accurate patient attribution models are necessary to track population health. The MHA should consider potential data options and advocacy to improve benefit design, wellness initiatives and consumer engagement. Future contract requirements should be considered for the Healthy Michigan Plan and public/private insurance exchange products, along with engaging employers and organized labor regarding a Michigan model to lead the nation. 3. MHA members should take steps to prepare and consider what future value-based payment models are appropriate to their local market and organizational readiness. 4. Data definition, measurement, analytics and usage are critical components of clinical and financial performance improvement. Infrastructure funding should build and support a solid data and information framework. Priorities should be considered for MHA development. 5. Care coordination is the responsibility of healthcare providers. Tools and measures to improve the transitions in care and for chronic care management can help Michigan lead through pilots or MHA Keystone collaboratives. Next Steps 1. The task force report will be shared with the MHA membership. Membership forums will be scheduled during the summer and fall of 2014 to discuss and receive input. 2. The task force recommends that the MHA engage employers, organized labor and health plans to consider strategies for developing a Michigan model for population health management, data analytics and benefit design. 7

8 3. Physicians should become active architects in the process and be part of gathering further input and feedback. 4. The hospital representatives to the Participating Hospital Agreement Advisory Committee will continue to provide input to BCBSM on a Michigan model for population health management and payment. 5. The MHA Board of Trustees will have a planning retreat in August 2014 to set priorities for future MHA activities. 8

9 For further information on task force activities, contact the following individuals: MHA Staff Peter Schonfeld Senior Vice President, Policy and Data Services (517) Marilyn Litka-Klein Vice President of Health Finance (517) Joe Stephansky Senior Director, Policy (517) Leigh Anne Jewison Manager, Policy (517) Kaufman Hall Staff Andrew Cohen Vice President Kaufman Hall 5202 Old Orchard Road, Ste. N700 Skokie, IL (O) (212) x 382 (M) (917) (F) (847) acohen@kaufmanhall.com Jason O Riordan Vice President Kaufman Hall 5202 Old Orchard Road, Ste. N700 Skokie, IL (O) (847) x 368 (F) (847) joriordan@kaufmanhall.com Kalani Redmayne Assistant Vice President Kaufman Hall 2101 Rosecrans Ave. Suite 6200 El Segundo, CA (O) (310) (F) (847) kredmayne@kaufmanhall.com Debbie Ryan Vice President Kaufman Hall 5202 Old Orchard Road, Ste. N700 Skokie, IL (O) (847) (F) (847) dryan@kaufmanhall.com

10 Exhibit 1 Charge: Review implementation of health insurance exchanges nationally and in Michigan to consider strategies and scenarios for future payment models, member education, provider network design, data resources and health plan relationships, along with a review of the Blue Cross Blue Shield of Michigan Participating Hospital Agreement contract administration and input process. Task Force on Future Health Insurance Markets Roster Paul LaCasse Botsford Hospital Farmington Hills, MI Edward Bruff Executive Vice President & COO Covenant Healthcare Saginaw, MI Robert Casalou President/CEO St. Joseph Mercy Hospital Ann Arbor, MI Brian Connolly Oakwood Healthcare, Inc. Dearborn, MI Thomas DeFauw Port Huron Hospital Port Huron, MI John Graham St. Mary s of Michigan Health System Saginaw, MI Loren Hamel Lakeland HealthCare St. Joseph, MI David Jahn War Memorial Hospital Sault Ste. Marie, MI Tim Johnson CEO Eaton Rapids Medical Center Eaton Rapids, MI Gregory Lane Senior Vice McLaren Health Care Flint, MI Edwin Ness Munson Healthcare Traverse City, MI Robert Riney President & COO Henry Ford Health System Detroit, MI Jay Rising Executive Vice President Detroit Medical Center Detroit, MI Douglas Strong CEO University of Michigan Hospitals & Health Centers Ann Arbor, MI 10