The Importance of Aging Services Networks in the Developing Managed Care Environment

The Importance of Aging Services Networks in

the Developing Managed Care Environment

Leading Age Missouri September 2015 Michael A. Scavotto

Management Performance Associates, Inc. St Louis, Missouri

Environment

• CD: 75 pct of annual health expenditures • 80 pct adults 65+: one chronic condition • 50 pct: more than 1

• 25 pct: some sort of activity limitation

• 1/3 confused about chronic mgt after seeing physician

• 7 out 10 deaths attributed to CD

• 81 pct of hosp admits; 91 pct all scrips; 76 pct doc visits • CDs are the leading cause of disability in U.S.

- Diabetes…cancer … heart disease

Glaxo Smith Kline, Impact of Chronic Disease; Partnership to Fight Chronic Disease

 Medicaid: Often unaffordable in current form  Built-in requirements to institutionalize

 Fragmentation (“open access”) is problematical

 FFS: cost driver

 Dual eligible: often 3x costlier than non-duals

• By the end of 2016: Tying 30 percent of traditional,

fee-for-service, Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations or bundled payment arrangements.

• By the end of 2018: Tying 50 percent of Medicare payments

to alternative payment models.

• By 2016: Tying 85 percent of traditional Medicare payments

to quality or value through programs such as Hospital Value Based Purchasing and Hospital Readmissions Reduction Programs.

“Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value” HHS Press Release – January 26, 2015

• By 2018: Tying 90 percent of traditional Medicare payments to

quality or value through programs such as Hospital Value Based Purchasing and Hospital Readmissions Reduction Programs.

• According to HHS, “[t]his is the first time in the history of the

Medicare program that HHS has set explicit goals for alternative payment models and value-based payments.”

• http://www.hhs.gov/news/press/2015pres/01/20150126a.html

“Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value” HHS Press Release – January 26, 2015

• The point is not that SNFs will transition away from FFS.

• Larger players – ACOs, health systems, health plans – will transition

to other payment forms before SNFs; this economic reality will

create downstream financial pressures on SNFs that are in network or in the referral stream

9 7 7 _{6 6} 17 10 10 20 38 25 19 26 24 24 27 0 5 10 15 20 25 30 35 40 45 50 Decrease in Mobility

(Long Stay) CC Mobility Worse AHCA State Norm

Mean UCL

LCL Linear ((Long Stay) CC Mobility Worse)

Improving Your Position

• Enormous pressure on providers to maintain net revenues • Access to capital shrinks

• If you don’t think this is true, watch the health systems • Price has always been hammered

• Now utilization will receive just as much attention

Strategic Implications from Today’s

Environment

Conditions needed for managed delivery

• Need to control costs • Provider surplus

Health Plans Assume Risk

• Some providers assume risk – usually Primary Care Physicians • Most providers, including hospitals, do not

• Industry, esp acute care, is moving towards risk assumption • Must have control of clinical process, management

• Must have committed physician group • Economic stakes are high

• Shared Risk

• Plan capitates the medical group

• Plan keeps risk and contracts with institutional providers

• Plan shares any institutional risk pool savings with the medical group • Full Risk

• Plan capitates the medical group

• Plan capitates the institutional providers, usually dealing through a hospital or health system

 Provider networks/panels/contracts  Financial incentives

 Full vs shared risk vs fee for service

 Information systems  Care protocols

 Algorithms

 Case management

Illinois SNF Utilization Trend

Resident Days per 1,000 Population 2006-13 19414 19170 18966 18283 17986 17110 16451 16028 15000 15500 16000 16500 17000 17500 18000 18500 19000 19500 20000 1 2 3 4 5 6 7 8

The Managed Care Triangle

Opportunity Grid

Open Spaces “by Contract”

18

Primary Specialty Acute

Hospital Opt SNF SLF HCBS Med Grp _{X X X} Med Home _{X X} IPA _{X X X} Hlth System _{X X X X} Other Weird Arrangement (OWA)

• Expect per diems, maybe some case rates • Do not expect discounts from charges

• Expect pay-for-performance criteria including

payment withholds or bonus

• Plan to control your clinical processes – too much

variation will be costly

• Do not assume risk unless you can control the

medical management of a large population

Pricing Under Managed Delivery

20

Method Expect Issue

Fee For Service (FFS) No No provider incentive to manage cost

Discount No Same as above

Per Diem Yes Provider at risk for daily

cost

Case Rate Yes Provider now at risk for

LOS

Capitation No No business reason to

• Control/reduce cost

• Reduced utilization of high cost services • controlled access

• alternate settings • alternate services • alternate providers

• Improved clinical outcomes and patient satisfaction

Objectives of Managed Care

• Incentives are aligned for some players…. But not for all

• What is my importance to the health plan?

• Your contract reflects your strategic importance to

the health plan.

• There is a clear strategy and structure to managed

delivery.

• The business model for the MCO could not be more

different than what we are used to.

• If managed delivery gains traction, its market forces

can be very powerful.

• Embracing the change and being proactive will make a

difference in your organization.

 Is there a provider surplus in the market?

 What makes my position different from any other provider?

 How much leverage will a single SNF have with the MCO?

 How does managed care delivery (MCD) work when objectives are not

aligned?

 Do I have core strengths that will help the managed care organization (MCO)

achieve its objectives?

 How much does the MCO need me?

 How much do I need the MCO?

Strategy Questions

• Major impact in larger metro areas

• Utilization will drop (case management)

• Activity will move downstream (network build-out) • Remaining volume = higher acuity (cost pressure)

How Will the Revolution Develop?

What Can We Expect?

• ACOs will pressure pricing – not just rate, but value • Fixed cost per unit of service will increase

• Access to capital (already tight) will decline • Industry consolidation will likely begin

• Extraordinary opportunities for strategic visionaries

How Will the Revolution Develop?

What Can We Expect?

• Will exodus from hospitals off-set downstream movement of

SNF?

• Will Plans create sufficient network capacity to handle

downstream volumes?

• Can providers off-set volume declines with other business? • What will be the political & regulatory complications?

• Do you have chronic disease skills (and data) to

assist in population health management?

• What new services will be created by the need to

manage chronic disease?

• How will they be organized and delivered? Can you

do it?

Strategic Determinants in a Managed

Market

• Do you know the importance of Medicaid in your

market?...

• How do volume reductions (by payer class) impact

all competitors?

• Is your Medicare volume tied to Medicaid? Under

State dual eligible programs, it could be.

Strategic Determinants in a Managed

Market

• Provider surplus

• Pricing for services rendered

• Contract terms & conditions – as important as price • Market share = bargaining power

• Payer mix

• Reliable & replicable results

• Remember: only physicians deliver medical care

Hot Buttons

Which Provider Is Stronger?

33

• Large metro facility

• Well located, easy access • Specialty niche in ALZ

and renal dialysis

• 5-Star rating • Impeccable reputation • Consistently high occupancy • Financially stable • No trouble accessing capital

• The Place to Be Seen

Aging Network of 30 SNFs Broad mkt coverage

5 and 4 Star rankings

ALZ & Diabetes mgt carve-out Consolidated approaches to:

medical & case mgt clinical protocols accreditation rehab pharmacy compliance quality risk mgt

Market Share and Strategic Advantage

35 • More geography, more facilities are better

• Single provider = no leverage

• Price is a synonym for commodity, especially if supply exceeds demand

• Providers need inpatient volume, plans don’t

• Add value: we are experts at…….and here is our data”

• More geography, more facilities are better • Single provider = no leverage

• Price is a synonym for commodity, especially if

supply exceeds demand

• Providers work on volume, plans need

premiums

• Add value: we are unique; nobody does it this

way … and here is our data

• Add value: we have expert clinical management

…….and here is our data

Competitive Advantage

• Managed care needs a surplus of providers to be most

effective

• In a provider surplus, providers can become commodities • How does a commodity create competitive advantage?

• Objectives of MCO and provider are fundamentally

different

• The importance of business definition • Are we in the skilled nursing business?

• Is our business managing chronic disease?

• Is our business managing chronic health for a set

population?

• Does a network give us a strategic advantage? • Each view dictates what strategy you pursue