Payment reform, accountable care, and risk: early lessons for providers

Several organizations have begun to design and even implement accountable care organization (ACO), payment reform, and risk sharing pilots. Here are some early lessons: Providers should not design and implement ACOs, payment pilots, and risk models in a vacuum. Providers should tackle five core decision areas that underlie all ACOs, payment pilots, and risk arrangements. Providers should invest in analytics to inform tactical and strategic decisions simultaneously. Successful organizations implement pilot programs before going into full production mode.

[Long-term care insurance in taiwan: theory and challenges]

Long-term care insurance, now being intensively discussed as part of the formal governmental agenda, is widely expected to be inaugurated by 2011. As all entitled citizens will be enrolled compulsorily in accordance with social insurance rules, tight scrutiny in the planning process is strongly advised. Equity of financial mechanisms and the efficiency of the delivery system for long-term care should also be carefully considered and maximized. This study explores major empirical suggestions for Taiwan's long-term care insurance scheme from a primarily theoretical point of view. The three relevant issues deliberated in this paper include risk sharing and financial equity in long-term care insurance and long-term care system delivery efficiency. Content focuses on concepts that may be easily misunderstood or misinterpreted by medical professionals.

[Development and implementation of integrated health care in pain medicine : the nationwide German headache treatment network]

Integrated care builds interdisciplinary networks across the different healthcare sectors. A conjoint effort toward clearly defined treatment goals is crucial for medically effective and economically efficient care. Allowing creativity in the implementation of integrated care triggers competition for more effective ideas and better solutions. Based on a summary of the development of integrated care and the example of the nationwide German headache treatment network, the successful organization and implementation of this cross-sectoral care within pain medicine is illustrated. An interdisciplinary nationwide network of pain therapists working hand in hand across the sectors, both in the outpatient and inpatient setting, and employing modern treatment regimens results in optimal pain relief. The treatment quality is assessed by continuous accompanying research and sustainable cost efficiency in all sectors of healthcare is confirmed through analysis of both direct and indirect costs. The project was started in May 2007. In the meantime, almost all large statutory health insurance providers in Germany have joined this healthcare project. The large treatment network confirms the significant clinical and economic efficiency of pain medicine. It demonstrates that coordinated modern therapy effectively relieves pain, lowers costs sustainably, and reduces sick leave. Patient satisfaction is very high. The healthcare providers may directly participate in treatment success through risk-sharing.

Can't get no satisfaction? Will pay for performance help?: toward an economic framework for understanding performance-based risk-sharing agreements for innovative medical products

This article examines performance-based risk-sharing agreements for pharmaceuticals from a theoretical economic perspective. We position these agreements as a form of coverage with evidence development. New performance-based risk sharing could produce a more efficient market equilibrium, achieved by adjustment of the price post-launch to reflect outcomes combined with a new approach to the post-launch costs of evidence collection. For this to happen, the party best able to manage or to bear specific risks must do so. Willingness to bear risk will depend not only on ability to manage it, but on the degree of risk aversion. We identify three related frameworks that provide relevant insights: value of information, real option theory and money-back guarantees. We identify four categories of risk sharing: budget impact, price discounting, outcomes uncertainty and subgroup uncertainty. We conclude that a value of information/real option framework is likely to be the most helpful approach for understanding the costs and benefits of risk sharing. There are a number of factors that are likely to be crucial in determining if performance-based or risk-sharing agreements are efficient and likely to become more important in the future: (i) the cost and practicality of post-launch evidence collection relative to pre-launch; (ii) the feasibility of coverage with evidence development without a pre-agreed contract as to how the evidence will be used to adjust price, revenues or use, in which uncertainty around the pay-off to additional research will reduce the incentive for the manufacturer to collect the information; (iii) the difficulty of writing and policing risk-sharing agreements; (iv) the degree of risk aversion (and therefore opportunity to trade) on the part of payers and manufacturers; and (v) the extent of transferability of data from one country setting to another to support coverage with evidence development in a risk-sharing framework. There is no doubt that--in principle--risk sharing can provide manufacturers and payers additional real options that increase overall efficiency. Given the lack of empirical evidence on the success of schemes already agreed and on the issues we set out above, it is too early to tell if the recent surge of interest in these arrangements is likely to be a trend or only a fad.

To wait or to pay for medical treatment? Restraining ex-post moral hazard in health insurance

We explore the hierarchy of two instruments, waiting time and coinsurance for medical treatment, for optimally solving the tradeoff between the economic gains from risk sharing and the losses from moral hazard. We show that the optimal waiting time is zero, given that the coinsurance rate is optimally set.

Beyond fragmentation and towards universal coverage: insights from Ghana, South Africa and the United Republic of Tanzania

The World Health Assembly of 2005 called for all health systems to move towards universal coverage, defined as " access to adequate health care for all at an affordable price" . A crucial aspect in achieving universal coverage is the extent to which there are income and risk cross-subsidies in health systems. Yet this aspect appears to be ignored in many of the policy prescriptions directed at low- and middle-income countries, often resulting in high degrees of health system fragmentation. The aim of this paper is to explore the extent of fragmentation within the health systems of three African countries (Ghana, South Africa and the United Republic of Tanzania). Using a framework for analysing health-care financing in terms of its key functions, we describe how fragmentation has developed, how each country has attempted to address the arising equity challenges and what remains to be done to promote universal coverage. The analysis suggests that South Africa has made the least progress in addressing fragmentation, while Ghana appears to be pursuing a universal coverage policy in a more coherent way. To achieve universal coverage, health systems must reduce their reliance on out-of-pocket payments, maximize the size of risk pools, and resource allocation mechanisms must be put in place to either equalize risks between individual insurance schemes or equitably allocate general tax (and donor) funds. Ultimately, there needs to be greater integration of financing mechanisms to promote universal cover with strong income and risk cross-subsidies in the overall health system.

Optimal quality, waits and charges in health insurance

We examine the role of quality and waiting time in health insurance when there is ex post moral hazard. Quality and waiting time provide additional instruments to control demand and potentially can improve the trade-off between optimal risk bearing and optimal consumption of health care. We show that optimal quality is lower than it would be in the absence of ex post moral hazard. But it is never optimal to have a positive waiting time if the marginal cost of waiting is higher for patients with greater benefits from health care.

Arrangement with teeth

* Buildings at Bristol's school of dentistry needed modernising. * A "decant, refurbish, move in" cycle was chosen. * It was completed on time and within budget.

Risk equalization and voluntary deductibles: a complex interaction

The presence of voluntary deductibles in the Swiss and Dutch mandatory health insurance has important implications for the respective risk equalization systems. In a theoretical analysis, we discuss the consequences of equalizing three types of expenditures: the net claims that are reimbursed by the insurer, the out-of-pocket expenditures and the expenditure savings due to moral hazard reduction. Equalizing only the net claims, as done in Switzerland, creates incentives for cream skimming and prevents insurers from incorporating out-of-pocket expenditures and moral hazard reductions into their premium structure. In an empirical analysis, we examine the effect of self-selection and conclude that the Swiss and Dutch risk equalization systems do not fully adjust for differences in health status between those who choose a deductible and those who do not. We discuss how this may lead to incentives for cream skimming and to a reduction of cross-subsidies from healthy to unhealthy individuals compared to a situation without voluntary deductibles.

Pharmaceutical risk-sharing agreements

Increased spending on pharmaceuticals continues to foster debate over healthcare policy. The increasing costs of bringing products to the market, as well as increased utilization of pharmaceuticals contribute to increased pharmaceutical expenditure; however, appropriate pharmaceutical use can, in certain cases, reduce overall healthcare costs. Nevertheless, the perception of high drug prices still puts pressure on pharmaceutical companies to build confidence in the proposition that their products are worth the additional expense. One potential approach to building this confidence, and maintaining investment incentives, is for the pharmaceutical company to share the risk of a situation in which there is uncertainty about whether the product is effective for the consumer and payer. Such risk-sharing arrangements for pharmaceuticals, like warranties, can be used to signal high quality when product quality is not fully observable. While there may be difficulties in devising such schemes for every product, such risk-sharing plans may become a staple feature of the market in the future.

The pharmaceutical industry at risk: how excessive government regulation stifles innovation

In the fall of 2006, I published a book, Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation. The book goes against the conventional wisdom found in the academic and popular literature on the topic by offering a more sympathetic view of the pharmaceutical industry.

Liability, insurance and medical practice

We test for effects of tort liability on the use of certain diagnostic procedures, where the health care providers' expected cost of litigation is proxied by the risk-sharing arrangements agreed with their insurers. 2SLS and GMM estimators are adopted to test for possible endogeneity of these risk-sharing arrangements. Our findings are consistent with the exercise of liability-induced discretion by hospitals, especially regarding use of costly diagnostic imaging procedures. Hospitals facing higher expected costs per claim as a consequence of higher deductibles used these tests more frequently, after controlling for activity levels and casemix. These results are consistent with hospitals reacting to the incentives provided by a clinical negligence compensation system.

Prediction of Medicare Drug Formulary Drugs for Treatment of Overactive Bladder

PURPOSE

With the establishment and signing into law the Medicare and Prescription Drug Improvement and Modernization Act of 2003, also known as Medicare Part D, medical costs are expected to soar. In fact, the program is expected to cost more than a trillion dollars through 2015. Establishment of the Medicare Part D drug formulary will allow cost containment but still absorb patient and physician preferences as well as a consideration of efficacy and safety data.

MATERIALS AND METHODS

Potential Medicare formulary choices were examined in the anticholinergic class, as commonly used by urologists, and small in number of available drugs. Formulary selection parties and issues were individually analyzed, including the government in respect to cost containment, patients in relation to efficacy and cost, physicians in relation to preferences and influence and drug companies in relation to lobbying power, country of base of operations and market shares. Costs to Medicare and patients were calculated using discount Internet sites for pricing and simulated using Medicare Part D benefits.

RESULTS

Generic oxybutynin is likely to be included because it is the least expensive to patients and Medicare, but it has the lowest efficacy. Detrol LA is likely to be the long acting choice due to efficacy, cost and manufacture by a United States based company.

CONCLUSIONS

A simulation of cost analysis of anticholinergics for treatment of overactive bladder would help urologists better understand the Medicare formulary selection process.

Medicaid programs turn to managed care and capitation to control costs

Data Insight: State Medicaid programs are moving to capitation reimbursement and away from fee-for-service payment systems for most covered population groups, according to a report by the National Academy for State Health Policy.

A matter of classes: stratifying health care populations to produce better estimates of inpatient costs

OBJECTIVE

To stratify traditional risk-adjustment models by health severity classes in a way that is empirically based, is accessible to policy makers, and improves predictions of inpatient costs.

DATA SOURCES

Secondary data created from the administrative claims from all 829,356 children aged 21 years and under enrolled in Georgia Medicaid in 1999.

STUDY DESIGN

A finite mixture model was used to assign child Medicaid patients to health severity classes. These class assignments were then used to stratify both portions of a traditional two-part risk-adjustment model predicting inpatient Medicaid expenditures. Traditional model results were compared with the stratified model using actuarial statistics.

PRINCIPAL FINDINGS

The finite mixture model identified four classes of children: a majority healthy class and three illness classes with increasing levels of severity. Stratifying the traditional two-part risk-adjustment model by health severity classes improved its R(2) from 0.17 to 0.25. The majority of additional predictive power resulted from stratifying the second part of the two-part model. Further, the preference for the stratified model was unaffected by months of patient enrollment time.

CONCLUSIONS

Stratifying health care populations based on measures of health severity is a powerful method to achieve more accurate cost predictions. Insurers who ignore the predictive advances of sample stratification in setting risk-adjusted premiums may create strong financial incentives for adverse selection. Finite mixture models provide an empirically based, replicable methodology for stratification that should be accessible to most health care financial managers.

Refocusing disaster aid

With new modeling techniques for estimating and pricing the risks of natural disasters, the donor community is now in a position to help the poor cope with the economic repercussions of disasters by assisting before they happen. Such assistance is possible with the advent of novel insurance instruments for transferring catastrophe risks to the global financial markets. Donor-supported risk-transfer programs not only would leverage limited disaster-aid budgets but also would free recipient countries from depending on the vagaries of postdisaster assistance. Both donors and recipients stand to gain, especially because the instruments can be closely coupled with preventive measures.

Understanding contracts is one key to improving capitation management

Capitated contracts have become much more complex with new provisions for gain-sharing, pay-for-performance incentives, carve-outs, and updates for new technology, pharmaceuticals, and injectables. Use these strategies to protect your organization in today's risk contracting environment

Pharmaceutical policy in Italy: towards a structural change?

Italian pharmaceutical policy has recently moved towards a "two lanes" approach, with regulation differing according to a drug's patent status. This study analyses the Italian regulatory framework, focusing on policies related to "off-patent" drugs. Three main regulatory innovations have been examined: (i) generics, introduced in Italy for the first time in 1996; (ii) the reference pricing (RP) scheme, under which consumers pay part of the cost of high-priced products; (iii) pharmacists' right of substitution, supported by a regressive margins system. The recent reforms are already producing some worthwhile results, at least in terms of competitive pressure on the (few) substances that run out of patent protection. However, further intervention could be required to achieve long-term sustainability.

Some rationales for risk sharing and financing adaptation

Current climate variability and anticipated climate change challenge our water systems and our financial resources. The sharing of economic losses due to weather related hazards and the sharing of costs that result from protecting lives and property take place in different forms, but are currently insufficient. In this paper we discuss three different rationales for financing disaster losses through public and private arrangements, as well as options for financing adaptation, with a special focus on water management. We propose that financial arrangements for risk sharing and climate change adaptation should be reconsidered, in a more structured approach, to be able to deal with both disaster losses and the costs that arise because of climate change adaptation, e.g. for water management, in both developing and developed countries.

Milwaukee-based employer group may bring back risk contracting

Milwaukee's health care prices are higher than the national average because hospitals and physician groups consolidated to a point that they control the market and demanded fee-for-service payments, according to a new study by the U.S. General Accounting Office.

Noninvasive risk stratification in postinfarction patients with severe left ventricular dysfunction and methodology of the MADIT II noninvasive electrocardiology substudy

Sudden cardiac death occurs as a result of a complex interplay of changes in myocardial substrate, imbalance of autonomic regulation of the heart, and myocardial vulnerability. Noninvasive electrocardiology serves as a comprehensive tool for investigating factors representing mechanistic pathways leading to cardiac events. Heart rate variability, nonlinear dynamics of heart rate, and heart rate turbulence provide insight into autonomic control of the heart. Prognostic value of these parameters in postinfarction patients is well established for predicting cardiac death, but there is less evidence for their association with sudden death or arrhythmic events. Electrical manifestation of changes in myocardial substrate include QRS and QTc prolongation, presence of conduction disturbances, presence of late potentials, abnormalities of repolarization morphology, and presence of nonsinus rhythm, namely atrial fibrillation. Electrocardiogram (ECG) measures reflecting myocardial vulnerability to arrhythmias include frequent ventricular premature beats, T wave alternans, or QT variability. Prognostic significance of these parameters is documented in studies focused mostly on them as individual markers of risk. The noninvasive electrocardiology substudy of the Multicenter Automatic Defibrillator Implantation Trial II (MADIT II) allows for simultaneous analysis of several of the above ECG markers of risk and will provide insight about relative contribution of mechanistic pathways leading to cardiac death in postinfarction patients with severe left ventricular dysfunction. Combination of a standard 12-lead ECG and 10-minute high-resolution Holter recordings serves to evaluate the prognostic significance of noninvasive electrocardiology parameters for mortality in patients randomized to conventional treatment and for arrhythmic events in patients randomized to implantable cardioverter defibrillator therapy.

How to make a difference in the health care of a population. One person at a time

Individual clinical and fiscal outcomes can be realized with implementing a community-based advance practice nurse case management program (CBCM) for a self-insured employer. The personalized partnership and interventions for high-risk, complex clients have proven to be the key for their self-management outcomes. The case management service was at no cost to the client. The cost savings came from the decrease in patterned utilization of total health care dollars.

Public sector health insurance trusts

Public sector associations have successfully developed and run employee health insurance pools for almost 30 years, providing members with savings and flexibility not available from commercial health insurance carriers. This article looks at the models, technical tools and governance philosophy that have contributed to their success in a very challenging business environment.

Financial risk reduction for people with disabilities in Medicaid programs

A growing number of states are enrolling Medicaid beneficiaries with disabilities into prepaid health plans. This shift from fee-for-service insurance to pre-paid insurance typically transfers the risk from the state to the health plans. However, health plans want the state Medicaid program to minimize their financial risk. Interviews with Medicaid officials in six states provided insights into how each state selected its financial risk reduction method. Officials also offered advice for other states. Widespread recommendations included allowing ample time for discussions with disability advocacy groups and health plans, allowing two years for financial modeling and start up, and selecting a method that is politically acceptable, financially feasible, and actuarially sound. The primary impediment to diagnostic-based payments is lack of data.

Service-level selection by HMOs in Medicare

In the federal Medicare program, contracting health maintenance organizations (HMOs) are paid on a capitated basis. There has long been concern that an "adverse selection" of risks remain in the traditional fee-for-service (FFS) sector, since beneficiaries with low costs may leave the FFS sector and join the HMOs. The distortion associated with this form of selection is that health plans may design their mix of health care services in order to effectuate favorable selection. This paper scrutinizes patterns of HMO membership and costs by service in the FFS sector for evidence consistent with the hypothesis that HMOs engage in service-level product distortion. We develop a multi-service model of choice between FFS and HMOs and show that if the HMO sector is underproviding (overproviding) a service relative to the FFS sector, we should observe a positive (negative) correlation between the HMO market share and average costs of those remaining in the FFS sector. We estimate the correlation between the HMO market share and the average FFS costs for different health care services using Medicare data for 1996. We find evidence indicating that there exists significant service-level selection by HMOs.

Tertiary care centers: A strategy for fiscal survival

BACKGROUND

Managed care organizations use a variety of payment strategies to contract for high-end tertiary services with academic healthcare centers. We assessed the financial outcome of these strategies and attempted to identify those that maintain a balance between cost and reimbursement.

METHODS

Patients admitted with an Injury Severity Score > or =16, hospital charges > or =$100,000, and a managed care organization as the payer were evaluated.

RESULTS

A fixed reimbursement contract decreased reimbursement by 28% and negatively impacted the margin by 215%. The addition of a stop-loss provision to a fixed reimbursement contract is the best strategy to share the risk between payer and provider. If the fixed reimbursement strategy continued, the negative impact to the margin would have been $36,984 per patient.

CONCLUSIONS

Fixed reimbursement strategies shift all the risk to the academic healthcare center. If volume, severity of illness, or cost is not controlled, they negatively affect the financial outcomes. The addition of a stop loss at $100,000 of charges paid at 40% of the entire claim most equitably distributes risk between the academic healthcare center and the managed care organization. It also excludes the negative impact of increasing severity of illness and volume and should induce cost control.