Employers are going to be increasingly interested and required to take True Health Reform into their own hands, focusing on cost and quality improvement efforts beyond the largely access-focused PPACA reform. Plan sponsors will continue to expand and refine their solutions along two major themes, a) helping their population avoid the need for medical services and time away from work by promoting more health and less care, and b) when their members do need care, helping them get the right care, at the right time, from the right provider, at the right price, leading to the best outcomes. There are many areas of health benefits and health care where employers have very limited influence, but one area that will see growth is the interest in leveraging the "power of the purse strings" to provide incentives to encourage healthy outcomes/results and the use of high value care. Value-based design (VBD) and results-based incentives are a philosophical shift from the incentives for healthy activities that have grown greatly in popularity over the past decade.

Value-based designs will challenge the health industry and providers of health business services to better package plan administration and flexibility with well defined and easy to understand high value health interventions. Early efforts at value-based design, like 3-tier pharmacy, has succeeded at becoming ubiquitous because of the relative ease of administration and ability to clearly define to all stakeholders what constitutes a "value" service (e.g. a chemically equivalent FDA approved generic drug vs. it's brand counterpart). As VBD becomes more nuanced and targets specific therapies and recommended courses of treatment, the ability to keep to the axioms of "simple, understandable and defensible" will help determine the success or failure of future iterations.

Results-based incentives - like rewards for meeting or improving towards target blood pressure, cholesterol, and waist circumference - appeal to business people's sensibilities around equity and rewards. Paying folks for "going through the motions" of activities like completing a health assessment was a fine start, but in business, people get paid for results, not a good try. The industry challenge will be to make what could be perceived as a heavy handed intrusion into personal affairs, work in a positive direction for all stakeholders, promote rather than disrupt a culture of health and be accepted as a business imperative. The industry will have to again make these initiatives simple, as easy to administer as possible, and ideally they should flow logically from prior foundational efforts in the health area.

The risk with all these more sophisticated, targeted efforts is that they spring forth as the new flavors of the month from consultants, executives or HR, rather than as well thought out change management efforts in a multi-year framework. If done poorly, they could end up deteriorating, instead of improving, the health and trust of the workforce.
 

1. Quality of Care.

Using the Institute of Medicine definition of quality--care that is safe, effective, efficient, patient-centered, equitable and timely--the continuing challenge and opportunity to improve health care quality will underlie all of the policy, business and legal issues confronting the U.S. health care system and the health care industry. This is the prism through which all of the evolving trends in health care in 2011 should be viewed. The core question always should be: What solutions to this problem are available that will enhance patient outcomes, patient satisfaction and cost efficiency. Or, put more directly in the form of the Triple Aim cited by CMS Administrator and many others: Will they improve care, improve health and reduce costs? Take, for example, the ACO market power debate, or the medical loss ratio regulations or the expected guidance from CMS on innovation projects. The same analytical framework should apply--is a particular policy position, business activity or legal guideline likely to advance quality as defined by the IOM and as articulated in the Triple Aim?


2. Antitrust and Payer-Provider Relations

The furious debate over the impact of the ACA's incentives and requirements for care coordination among providers on market power and provider pricing in the private market is a major issue for 2011 and beyond. CMS and the federal antitrust agencies are trying to coordinate their approaches to the issue, as evidenced by their October 5, 2010 workshop, but policy analysts as well as advocates for payers and providers have weighed in with cross volleys of claims as to who is at fault for health care cost increases and as to whose consolidation is more harmful. As long as the payment system rewards volume, unit pricing and individual billable transactions, this issue will be difficult to resolve. All parties need to look for solutions that use evidence-based measures of both quality and cost efficiency and that provide transparency of the results. The private sector would benefit from greater payer-provider cooperation and acceleration of the movement to accountable care. Failure to do so will put more onus on government to regulate both payer and provider prices and to regulate the contract provisions between them. There are positive signs of innovative, collaborative new payer-provider arrangements being developed that incent coordinated care and pay accordingly. This is a trend that needs to accelerate and be supported.

3. ACOs and the ACO Backlash.

In many ways, the accountable care organization concept has become the centerpiece in the health industry public discussion of accountable care. There is danger in too narrow a focus on ACOs, especially as contemplated in the Affordable Care Act, rather than the broader concept of accountable care, which includes all sorts of ideas as to better methods to pay for and deliver inpatient, outpatient, post-acute, community-based, home-based and disease-specific care. Section 3022 of the ACA provides for a Medicare share savings program (although other payment methodologies are also allowed), which is only one of a number of approaches to improving care and reducing costs. It may or may not work very well in the end. Many other payment and delivery reform ideas are and should be tested in the both the public and private sectors. The idea of a single new organizational "model" that can be replicated everywhere to solve all problems is of course not realistic. Clearly, ACOs are a hot new trend and have created quite a buzz. Thus, given the nature of things, a backlash against ACOs is inevitable. The early stages of this backlash already are evident in policy and business circles. Clearly, the further development and extension of evidence-based medicine and its implications for coordinated care and value-based payment is a continued business trend for 2011. The question is whether we will have the patience to test various approaches over time to discover the best solutions for the long term or whether we will get impatient, try to put all our eggs in one basket and then become quickly frustrated when that one solution is not perfect.
 

The biggest trend that will affect the payer sector in 2011 is the continuing steep increases in pricing, particularly for institutional services, traditional brand name drugs and for specialty pharmacy. It's a trend that's been accelerating over the last five or more years and shows zero sign of slowing. It will add to the premium-cost compression that will occur as a result of the MLR restrictions on insured business, but price increases will affect self-funded business as well. And while the MLR restrictions may have a one-time moderating effect on premium increases for insured business, overall increases in costs will translate into higher premiums overall and greater cost-sharing by consumers. It is also likely to result in an increase in the uninsured.

The payment freeze to Medicare Advantage plans, coupled with the introduction of the star rating system will affect all MA plans, especially loosely run PFFS and PPO plans. MA plans will all have to step up their game, and we should expect to see some dropping out over the next few years. Some will be pushed out by CMS. Finally, HIT money is beginning to seriously flow through the system, and X12 5010 and ICD-10 loom on the near horizon.
 

Healthcare is beginning to join the digital network economy, albeit about 15 years later than just about every other industry. This issue will just begin to emerge in 2011, as it will take years to finish laying the foundation of information and communications technologies being primed by HITECH legislation.

Here's one example of where this will begin to play out. The big issue around ACOs is emerging as: will the primary effect be to improve clinical integration and care coordination, or will they be used to concentrate provider control and raise prices in violation of antitrust laws?

As a clue, watch to see how ACO information technologies emerge. Will ACO IT look more like open, interoperable platforms or will it look more like "walled gardens" where information is tightly guarded? Will ACOs be used primarily as vehicles of collaboration or of control?

Expect healthcare's entry into the digital network economy to be bumpy. Operations and business models will begin to look very different. As a technology optimist, I expect that the benefits to collaboration, care coordination,and automated process will far exceed the costs...but we must acknowledge the risks and the potential for harm, particularly to the privacy and security of our health records.
 

Self funding is becoming of greater interest to employers, given the flexibility they have from state mandates, as well as pending excise tax legislation under Health Care Reform.

As more employers nationally are moving toward high-deductible plans, I would expect an increasing trend toward more patient-directed care. However, we cannot ignore the potential impact Health Care Reform will have in eroding the tax benefits of health reimbursement arrangements as those provisions phase in. The increasing “skin in the game” and transparency for the consumer is expanding.

Significant pharmacy discounts have become available for an expanded list of non-profit health care organizations under the 340B Drug Pricing Program that has the potential to save a segment of health care providers millions of dollars. The broadening of the program means that such facilities as specialty hospitals (free standing cancer hospitals, for example), rural hospitals, and a broad range of smaller facilities (health centers for the homeless, for example) are now eligible to participate. Our firm has developed a program, Keenan Integrated Services 340B to assist such organizations get through the complex requirements to maximize their savings.

We can also expect to see more “competitive cooperation” as the economic downturn puts pressure on many health care organizations. There will likely be additional consolidation of the more traditional merger and acquisition type, but there may also be other forms of alliances between competitors to share resources, to build products and services on complementary competencies, and spread investment risk.

The upcoming year should provide a dynamic environment for innovation and cost saving solutions in health care. We are already seeing this become a reality.

 

As employers and carriers are continuing to explore ways of increasing care, decreasing cost, and providing increased services to their members, the new trends are likely to include PCMH, ACO and new plan designs. The last may also include increased use of high performance networks based on efficiency and quality scores, with possible tiered co-pays, increased use of incentives or disincentives to participate in disease management or lifestyle management programs if identified, reduction of co-pays for pharmacy when linked to specific medical conditions, and possibly episodic payment systems.

 

We expect that heightened attention to administrative expense management will be the focal point for health plan managers. As the interim final rule notes, “The rebate provisions of section 2718 are designed not just to provide value to policyholders, but also to create incentives for issuers to become more efficient in their operations.”

While these comments are specific to the MLR rules, the same incentives also apply to the effects of exchanges and rate reviews. Put a different way, since there will be minimum loss ratios, and maximum premiums, health plans optimize reduce administrative expenses to remain solvent.

 

While reforms are all encompassing, from tax laws with mandates and state insurance commissioners playing a role in MLR, it seems we have left out the local opportunities for cities and counties to perhaps create some experiments of their own. Accountability and high value health care as a community development issue could and should be a way to draw more jobs and businesses to a community.

Beacon Communities sponsored by CMS was close to this idea of a community driven collaborative between purchasers and providers and as we see several states like Vermont consider single payer, we can say that the large federal act will be broken down into two large pieces: Insurance reform and health care delivery reform. Although both are inter-related via insurance exchanges and payment reforms, we are excited about the latter. Insurance reform is what all consumers view as health care. They rarely have an understanding of what is behind the policy and the mechanisms for underwriting and managing care until a large bill goes unpaid or someone is excluded from coverage.  But what we have learned is one can reform insurance, increase deductibles and exclude services and patients from coverage, but the root cause is the answer to the question “why does it cost so much?”

Much research and few conclusions have really been reached in a definitive way to redesign delivery systems. What we have discovered with new data analysis capabilities and technical approaches to benchmarking is that:

1. Variation of practice costs and outcomes vary widely even between neighboring cities and within small towns. Dr. Ken Wenberg and Dartmouth University pioneered this analysis early on and are still reporting great unexplained gaps in care.

2. There is no correlation between price and quality. The Institute of Medicine in their series points out over and over again that value is missing and needs to be a combination of fair pricing and quality outcome that is consistent.

3. If you are near a 4 star hospital and have a heart attack your probability of recovery is 80% better than at a one star rated hospital. This reveals the fact that good care has more to do with where you live than any other variable. The disheartening fact here as reported by AHRQ is that while ratings are published annually fewer and fewer hospitals actually make 4 star and many more are one star, meaning we are slipping backwards, not jumping forward into quality.

4. As more and more workers are uninsured either because their salary can not keep up with inflation and premiums or are simply out of work, hospitals, physicians and state Medicaid programs are shouldering an increasing amount of uncompensated care delivery which has prompted some states to recast their eligibility requirements for such things as transplants. In Arizona, this executive order from the governor stranded nearly 100 people who may have received a life saving transplant but are now having to rely on bake sales and charity to save their lives.

So, what reform could do is change these and other trends now occurring in the marketplace.

Let’s say for example that Massachusetts, Vermont, and others move to a single payer system. The tradeoffs are many, one of the biggest being everyone has insurance, the unemployed are covered, small business no longer foots the bill for insurance (employees do), and that means more hiring and reinvestment in the community.  Repeatedly, we heard from Peter Orzag ,former OMB chief, and others that one cannot solve the employment crisis without solving the largest single cost of employment -- benefit coverage. We will hear more about mandates and dances across the stage by states who think they can overrule an IRS issue, but the arguments in favor of mandate are greater than against it.  This community development issue is a big one.

The idea of Accountable Care Organizations as part of the reform really does get at the delivery reforms that MUST be coupled with insurance reform to make the cost curve bend in the right direction. Practice variation can be somewhat standardized and that leads to discussion of prices and charges being standardized, especially if bundled payment is brought to bear as part of the changing payment reform. This would work through the goals of being a 4 star ACO and also reduce the readmissions and fraud now experienced as waste in many communities. The ultimate goal however may not be a national solution but rather a state and even regional solution.

Greater Marshfield Clinic, who recently earned the majority of the $21 billion paid out by CMS to pay for performance participants, holds an envious position as a totally integrated, rural, regional care system. Others, like Intermountain, have grown into statewide success stories. What these two systems, as well as Essence, Mayo and Lovelace have in common is that they are all physician driven. Conceptually, the creation of an Accountable Care Organization is the foundation upon which these organizations work within their physician governance and management structures but also proves to be the local enterprise which gains local community support.

Through reform, we see interest being generated in the development of ACO like structures which will address and answer the question “why does health care cost so much?” The successful provider ACO will become a sought after partner for insurance exchanges and direct contracting with employers, and will influence insurance reform by sharing regional care guidelines and goals and providing a healthy competition based on quality and costs.

So our conclusion is that the biggest trend may be that health reform becomes part of community development trying to make care quality of a high standard and yet affordable. This brings in more jobs and companies that, in turn, support an ever expanding population of patients to support a sustainable health system. Providers who seek to sell value will integrate with their community not just each other. That is true accountability.