Federal officials are urging hospitals to accept a settlement for thousands of Medicare claims denied because of patients' admission status.
In a conference call Monday with hospital executives from across the country, officials from the Centers for Medicare & Medicaid Services highlighted a claims appeals settlement deal that offers 68 cents on the dollar.
Gerald Walters, senior adviser to the CFO at CMS's Office of Financial Management, said the settlement offer is both necessary and worthy of consideration. "There's been an unprecedented growth of claims appeals," he told hospital executives, adding that the federal agency's appellate apparatus faces an overwhelming caseload.
In a memorandum dated December 2013, Chief Administrative Law Judge Nancy Griswold described the caseload: "From 2010 to 2013, [Office of Medicare Hearings and Appeals] claims and entitlement workload grew by 184% while the resources to adjudicate the appeals remained relatively constant."
"To settle these claims appeals, CMS had to make an offer… Take every opportunity that is available to you," Walters implored.
The so-called two-midnight rule that went into effect in October 2013 is expected to reduce confusion over the distinction between outpatient and inpatient status, reducing the number of future appeals, Walters said.
But admission status presents major Medicare payment consequences for healthcare providers: payment rates for inpatient care under Medicare Part A are considerably higher than payment rates for outpatient care under Medicare Part B.
The CMS settlement offer is limited to acute care hospitals and critical access hospitals and they have until October 31, 2014 to submit their signed agreements.
"When we look at these claims, we believe the preponderance of the denials were from acute care hospitals and critical access hospitals, so we chose to focus on those areas," Walters said, noting that CMS has no plans to offer a similar settlement deal to other healthcare providers such as children's hospitals.
Contrary to what some hospitals may believe, organizations with multiple pending appeals will not be allowed to cherry pick from their caseload: "It's all or nothing," he said. "You may not choose to pick some claims [for settlement] and leave others out."
Walters urged hospital leaders to take CMS up on the offer. "Sixty-eight percent: Consider the net present value. It's a good solution," he said.
Key Settlement Rules
Melanie Combs-Dyer, director of CMS's Provider Compliance Group, identified four requirements for a Medicare claim appeal to be eligible for the settlement deal:
Claims have to be pending appeal
Patient admissions status has to be the main reason claims were denied
Date of hospital admission has to be prior to enactment of the two-midnight rule on Oct. 1, 2013
Claims must not have been withdrawn and resubmitted for Medicare Part B reimbursement
Combs-Dyer said one of the most crucial steps in the settlement process is when hospitals email a signed administrative agreement and caseload spreadsheet to CMS. As long as the hospital's caseload spreadsheet matches CMS's records, settlement payments should go out to hospitals within 60 days, she said: "We want to resolve these appeals as quickly as possible."
Settlement payments could take longer than 60 days if hospital and CMS records do not match. Since Medicare Administrative Contractors will be processing settlement deal payments, "The MAC and the hospital will have a discussion to try to resolve any discrepancies," Combs-Dyer said.
"I do not agree that the 68 cents on the dollar is fair," said Mark Bogen, CFO and senior VP of finance at South Nassau Communities Hospitalin Oceanside, NY, when reached for comment. He did not attend the hearing.
With the open enrollment period approaching in November, HIX supporters and detractors are assessing access to the federal health insurance exchange as well as its performance and prospects.
Implementation of the federal Patient Protection and Affordable Care Act is back in the spotlight this week in Washington, DC, and on Wall Street.
In Washington, a pair of top federal officials endured a PPACA grilling Wednesday during a hearing before the health panel of the House Committee on Ways and Means. Republican lawmakers sought assurances that flaws in the rollout of the PPACA insurance exchanges for this year would not be repeated in 2015. The GOP legislators also asked whether the Internal Revenue Service is on track to administer the impacts of the PPACA on taxpayers.
On Tuesday, Moody's Investors Service released a HIX "special comment" report, "The Affordable Care Act Exchanges: Mid-Year Summary and Assessment." Its key findings include the observation that uncertainty over health insurance policies sold through the exchanges is expected to continue for years, but that risk is not expected to affect the credit ratings of insurers operating on exchanges because HIX activity represents a small portion of their business.
Contentious House Hearing
Members of the Ways and Means health subcommittee are deeply divided over the PPACA along partisan lines. During the Wednesday hearing, that chasm was on full display.
In his opening comments, panel Chairman Kevin Brady, (R-TX) noted several flaws such as the "disastrous rollout of healthcare.gov" during last fall's open enrollment season on the exchanges. "The ACA has helped some Americans, no doubt, but hurt many more," he said.
The ranking Democrat on the health subcommittee, U.S. Rep. Jim McDermott, (D-WA), was equally strident in his opening remarks. "Despite the Republicans' best efforts at sabotage, the ACA is working," he asserted.
After the preface of political posturing, the health subcommittee members heard testimony from IRS Commissioner John Koskinen and Andy Slavitt, the recently installed deputy principal administrator of the Centers for Medicare & Medicaid Services, the federal agency with primary responsibility for implementing the PPACA.
Koskinen reported that the IRS is "on track" to administer the tax impact of the PPACA on millions of Americans. He stressed that the law's impact on most taxpayers will be limited to checking a single box on their tax forms indicating they have health insurance and received no government subsidy for coverage in 2014.
"The vast majority of Americans will have to do nothing related to healthcare other than check a box," he testified.
For taxpayers who have received federal subsidies for health insurance in 2014 through the new exchanges, the coming spring's tax filing season will be more complicated. Those taxpayers will be issued a new IRS form—1095A— from the exchange where they obtained health insurance to confirm their actual 2014 income as opposed to the estimated income they submitted on paperwork during HIX open enrollment.
"It will help us make sure that only the people who qualify for the premium subsidy will receive it," Koskinen testified.
Republican members of the health subcommittee pressed the IRS commissioner hard on the agency's readiness to administer the "reconciliation" process on the exchanges. "In my view, the American people have lost trust in the IRS for a lot of reasons, including healthcare," Brady told Koskinen. "Problems obviously remain with this and will continue next year. How do you regain the people's trust?"
Koskinen not only defended his agency and said it takes compliance "very seriously." But he went on the offensive over funding for the IRS. "We understand there are going to be challenges in the first filing season."
The IRS commissioner said Congress had shortchanged his agency by $440 million this year and $450 million next year, which has prompted scrambling to make sure the nation's tax collector can live up to all of its responsibilities.
U.S. Rep. Bill Pascrell Jr., (D-NJ), said the underfunding of the IRS is an example of how Republicans in Congress have sought to systematically undermine the PPACA. "If you can't shoot the dog, starve it," the New Jersey Democrat said. "There are great things going on in the ACA, and the detractors won't admit it."
In his testimony, Slavitt indicated the PPACA has achieved significant healthcare reform goals, and said federal officials expect a smoother ride in the second year operating the exchanges.
"There's growing evidence the Affordable Care Act is working," he testified, noting major gains in access to healthcare through the exchanges, expansion of Medicaid in half of the states and beneficial PPACA provisions such as mandating insurers to cover individuals with pre-existing medical conditions. "In addition, we are seeing overall lower growth in healthcare spending."
U.S. Healthcare Spending Growth to Resume
Slavitt said CMS has taken several steps to help ensure there is no repeat of last fall's weak performance of healthcare.gov. Those steps involve adding new features to the site and increasing the amount of time devoted to testing its functionality.
The CMS official also addressed Republican lawmakers' concerns over a lack of trust among some Americans about the federally driven effort to reform the healthcare industry, saying transparency, accountability and straight talk are crucial factors.
U.S. Rep. Mike Thompson (D-CA), asked Slavitt whether he was confident that the problems with healthcare.govlast fall will not arise again when open enrollment for the exchanges starts in November.
"We are in a more favorable position with a website that's up and running," Slavitt said, adding "we have built a lot more time in for testing."
View from Wall Street
Risks associated with ongoing uncertainties for insurance carriers operating on the PPACA-spawned exchanges dominate the "special comment" report released by Moody's on Tuesday.
"Last year as we approached the first open enrollment period under the Affordable Care Act, health insurers were faced with many unknowns and uncertainties regarding competition, enrollment, and profitability. Almost one year after the federal and state exchanges opened for enrollment, many of these uncertainties still exist," the report says.
The uncertainties facing insurers operating on the exchanges include an incomplete set of claims data for 2014, uncertainty about consumer behavior in 2015, and an unsettled regulatory and legal framework for the exchanges.
"Insurers are faced with making pricing decisions for 2015 with very limited claims data in 2014 in a competitive marketplace ripe for irrational pricing amid an evolving regulatory environment – a credit negative to the sector," the Moody's report says.
Even though there are substantial risks associated with the new exchanges, insurers are not running away from potential HIX riches, according to the Moody's researchers. "Despite all the uncertainties and poor projected financial results for these products in 2014, insurers are planning on continuing their participation on the exchanges in 2015," the report says.
Soaring prices for some life-saving and life-altering drugs are pitting drug makers against payers, providers, and patients.
Something has to give.
This year's marketing of the hepatitis C drug Sovaldi at $1,000 per pill and last week's announcement that the FDA has approved pembrolizumab, a new kind of cancer drug said to cost $150,000 per year for treatment of melanoma, raise a vexing question in the healthcare industry and broader American society: Can the country craft a more affordable way to continue development of life-saving and life-altering drugs?
Lowell Schnipper, MD
Lowell Schnipper, MD, a practicing oncologist and leader of a task force at the American Society of Clinical Oncologyseeking to boost value in cancer care, told me this week that healthcare providers have no choice but to face the daunting drug-cost dilemma.
"It's not OK for doctors to just sweep [drug price concerns] under the rug. It comes down to finding responsible ways to maintain quality of care," he said.
"This is a real issue. We are in no way trying to damage companies that are doing research. What we're trying to do is to find a way to measure new treatments against the standard of care."
Schnipper says the rising prices of new drugs that either cure a common disease or provide life-sustaining treatment are at odds with efforts to contain costs in U.S. medicine. "We are getting to a tipping point, and we have to come to a consensus with the stakeholders. It's a collective discussion," he said.
In an email sent to me last week, Brendan Buck, vice president of communications for America's Health Insurance Plans, offered a more biting critique of the volume-based pricing model that Gilead Sciences followed with Sovaldi.
"Many of these specialty drugs are tremendous breakthroughs, and we want to find a way to provide access to them. But access is threatened by the pricing. We also cannot have affordable healthcare in America without affordable pricing. There's long been a balance kept between affordability and rewarding innovation. This pricing has brought that balance tumbling down," the health insurance industry spokesman said.
Government Solution?
Chris Wing, president CEO of Long Beach, CA-based SCAN Health Plan, tells me that the healthcare industry and regulators need to intensify efforts aimed at blunting the economic impact new specialty drugs.
"In many cases, these drugs are very expensive and cost becomes either a barrier to access or a hardship upon those expected to pay, as there are no lower-cost generics to turn to. The challenge for government and the healthcare community is to find a way to afford these miracle drugs without financially undermining the rest of the health system," he said.
What About Value-Based Pricing?
In cancer care, where patients often face out-of-pocket expenses for medication totaling thousands of dollars, Schnipper says value-based pricing has to be part of the solution.
"We're working toward the development of a formula or algorithm," factoring in drug toxicity, the cost of administering it, and its clinical benefits. "We're getting feedback. We've spoken with representatives of the pharma industry as well as specific companies. We're also going to meet with payers."
The oncologist said one way to increase value in cancer medication is to avoid "me-too drugs" that provide marginal clinical gains over existing drugs. "Those are drugs that shouldn't be highly valued like a drug that provides four times the value," he told me. "From a societal perspective, we shouldn't give them a high price designation."
While pricing is crucial, garnering the highest possible value from cancer drugs involves more than pricing models, Schnipper says. "Cancer therapy usually means drugs, but the problem needs to be seen as broader than just drugs." That's because the significant costs of treating cancer don't stop at drug costs—they include hospital services and an approach to end-of-life care that underutilizes hospice services. "It's really complex."
VBP Seen to Have Limited Impact
Drug companies are familiar with trying to maximize the value of their products, and are actively looking for new opportunities to boost the value of medications, says Matthew Hudes, a principal and bio-pharma practice leader at Deloitte Consulting. He cites drug companies' longstanding advocacy for medication compliance as a way to reduce unnecessary hospitalizations and readmissions. "There's an ability for the industry to get out in front of this," he says.
Deloitte was one of the first consultancies to publish detailed research on value-based drug pricing, but Hudes says pharma companies are exploring several other value avenues. "Pricing is a valuable component, and, if done correctly, it can have some impact. But I wouldn't hang my hat only on value-based pricing."
Hudes says pharma is moving toward "digital media mode," embracing wearable technology such as sensors that can help chronic disease patients to get the most benefit from their medications. "[Drug manufacturers] are all very much focused on this area of digital health," he said. And utilization of data analytics has the potential to boost development of more effective medications and to examine the impact of drugs on the "actual patient experience."
Vendors are already deploying technology to help connect healthcare providers with the most inexpensive medications available, says Peter Kaufman, MD, chief medical officer of DrFirst. "We make it very easy for providers using our program to enter brand name drugs and then switch to generic, to help save money if applicable. We also offer formulary information. If a patient is covered for a medication, providers will see messages suggesting less-expensive alternatives within the same class. This gives providers more insight into how much a particular drug therapy costs."
Price vs. Value
Jennifer Wall, senior director of communications for PhRMA, the industry group representing "the pharmaceutical research and manufacturers of America" says the pharmaceutical industry is ready, willing, and able to debate the value of the medications it creates. "Bio-pharma leads the world in research and development. No one spends more on R&D than us," she told me. "The return is great because patients are getting incredible medicines that do incredible things."
Wall says any efforts to establish standards of value for drugs must take the views of patients into account. "Who's talking with patients? Who's asking patients what 'value' means to them? Value means something different to everybody. A patient who lives three months, two years, or a decade longer than expected can get huge benefits from that, including more time with their family."
Echoing Warren Buffett's quotable line about stocks, "Price is what you pay. Value is what you get," Wall turns the question around and asks: "Are we willing as a society to accept the fact that many medicines, while not necessarily inexpensive, provide a great return on value because a child's life has been saved or a parent suffering from a life-threatening disease has been cured?"
Adding to its growing number of commercial accountable care collaborations with a deal in Texas, Aetna has also posted a $5 million ACO collaboration gain with Phoenix-based Banner Health Network.
Aetna has taken a pair of ACO strides.
Charles Kennedy, MD
Chief Executive of Accountable Care Solutions for Aetna
The Hartford, CT-based commercial payer has sealed an accountable care collaboration deal with Baylor, Scott and White Quality Alliance in North Texas. Last month, Aetna and Banner Health Network reported a $5 million gain-sharing bounty last year from their ACO collaboration in Arizona.
Both of the collaborations feature the Aetna Whole Health accountable care health insurance plan.
Aetna's ACO collaboration with Baylor, Scott and White Quality Alliance, which is affiliated with Waxahachie, TX-based Baylor Health Care System, will give Aetna Whole Health plan members access to more than 900 primary care physicians, 27 hospitals, 2,800 specialists and six urgent care facilities in the Dallas/Fort Worth area, officials at the companies say in a prepared statement released last week.
An Aetna spokesperson says the ACO collaboration with Baylor has two key objectives: to achieve measurable advancements in patient care and satisfaction while controlling costs for its customers and members in the Dallas/Fort Worth Metroplex.
Officials at both organizations say Aetna Whole Health members will reap cost savings for in-network care and the ACO collaboration rewards Baylor along several performance measures. The provider network will garner gain-sharing by hitting preventive care and screening targets, demonstrating improved management of patients with chronic conditions such as diabetes, reducing hospital readmissions, and curbing emergency room visits.
Aetna's ACO collaboration with Baylor will be effective for self-insured customers starting Oct. 1, and it is slated to be marketed for fully insured customers early next year.
Aetna, Banner Report $5M ACO Gain
Aetna has 47 commercial ACO pacts with healthcare providers nationwide, according to the insurer's Aug. 27 announcement of a $5 million ACO collaboration gain-sharing bonanza with BannerHealth Network in 2013.
Aetna and BHN officials prepared joint and individual responses to a series of questions:
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HL: What are the highlights of your ACO collaboration?
Aetna/BHN: Aetna and Banner Health Network began their accountable care collaboration in 2011, and the tools and learning from this relationship supported BHN's Medicare Pioneer Accountable Care Organization model in 2012. Aetna and BHN offer the Aetna Whole Health plans—ACO-centered health plan products—to employers and individuals in the Phoenix area.
The products are also available to individuals on the public exchange. In addition, Aetna care management and technologies support BHN in delivering patient-centered, accountable care to its Pioneer Medicare beneficiaries as well as Banner Health employees in seven states.
The relationship leverages the Banner Health Network, [which is] model of care focused on wellness and improving patient care outcomes through better coordination and access to patient information.
HL: Are there key aspects of the ACO collaboration that helped achieve the $5 million in cost savings?
Aetna/BHN: The cost-savings result from collaboration between Aetna and BHN to share claim and clinical information about patients and look for opportunities to improve care. Aetna supports BHN's staff with data that helps them understand patient health as well as compliance with care plans.
At Banner, a unique case management model helps to ensure that all patients have a seamless care experience. By reducing duplications, handoffs and variations in care, this model helps to simplify care processes and promotes efficiencies. Since the approach has been in place, Banner reduced its average length of stay to 3.81 days— representing an overall 7.52 percent improvement across the system of Arizona hospitals.
Significant results seen during the second full year of the accountable care collaboration between Aetna and BHN include:
Improvements in cancer screening rates, including cervical and colorectal cancer screening
Reductions in the percent of diabetic members with poorly controlled blood sugar levels
Reductions in radiology services of approximately 9%
Increases in generic prescribing rate by almost 4%
Reductions in avoidable admissions by approximately 9%
"The primary reason for the success of the relationship is the shared accountability to improve the quality while driving down the overall cost of care," said Charles Kennedy, MD, Aetna chief executive of accountable care solutions.
Chuck Lehn
CEO of Banner Health Network
HL: From the perspective of partnership, what are the key elements of making the Aetna-Banner ACO collaboration work? What factors make Aetna and Banner good partners?
Kennedy: We share a common vision and commitment with Banner when it comes to improving population health and making an impact on clinical outcomes.
Chuck Lehn, CEO, BHN: There has been true collaboration in our work with Aetna, it's not just an exchange of data. Our two organizations work hand-in-hand to deliver the services we offer today, and imagine what is possible tomorrow.
HL: What is the forecast for your ACO collaboration? Are higher cost savings possible?
Kennedy: We believe that we can continue to generate these types of results as more people choose the ACO-based products. In fact, we saw savings and improved medical cost trend on other Aetna members in the ACO outside the Aetna Whole Health product.
Lehn: We believe additional success is possible over time as we engage members in their wellness journey through personalized care plans, telehealth visits and other proactive, patient-centered services.
An appeals backlog for Medicare claims decisions has prompted CMS to offer providers a settlement, but hospitals and health systems consider it insufficient.
Healthcare providers are raising concerns about a Medicare claims appeals settlement offer from federal officials.
From a hospital or health system's perspective, the 68-cents-on-the-dollar deal is neither a fair resolution nor an adequate step toward addressing providers' concerns over Recovery Audit Contractor reviews of healthcare service claims to Medicare, a New York-based healthcare CFO says.
"I believe that our [appeal] success rate is over 50 percent and that from my understanding many hospitals have had similar success when taking appeals to the administrative law judge," said Mark Bogen, CFO and senior VP of finance at South Nassau Communities Hospitalin Oceanside, NY.
"Additionally, we use outside consultants to help us prepare and submit theses ALJ appeals and they usually get a contingency rate based on the successful adjudication of an ALJ appeal. Therefore, I do not agree that the 68 cents on the dollar is fair when you also take into consideration the time-value of money given the length of time these cases have been at the ALJ as there is no interest given."
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In December 2013, Chief Administrative Law Judge Nancy Griswold issued a memorandum that details the claims appeals backlog at the federal Office of Medicare Hearings and Appeals. She reported the backlog had mushroomed dramatically.
"In just under two years, the OMHA backlog has grown from pending appeals involving 92,000 claims for services and entitlement to appeals involving over 460,000 claims for services and entitlement, and the receipt level of new appeals is continuing to rise."
Bogen questioned the motives behind the appeals settlement offer from the federal Centers for Medicare & Medicaid Services.
"This 'offer' is solely being done, in my opinion, by CMS to address the public relations nightmare of trying to defend their inability to timely adjudicate the appeals process and as a way to thwart the threatened/pending lawsuits from the AHA and hospital providers," he said.
"The settlement may reduce the backlog," he added, "but it will not resolve what probably has caused it. The RAC audits have gone from a focus on medical necessity/physician judgment to a place of service (inpatient versus outpatient) argument, and, as a result, the number of accounts on appeal has grown significantly and the success rate of the appeals has declined as well. The RAC process still needs to be overhauled."
The American Hospital Association is equally unimpressed.
"RACs are not neutral judges," says Alicia Mitchell, senior VP for communications at the AHA. "Their overzealous denials broke the appeals system. This offer addresses the symptoms and does not provide a solution to the underlying problems."
She added the appeals offer does nothing to address hospital officials' concerns over the two-midnight rules cutting into one of their most lucrative lines of business: inpatient care. "This offer does not apply to appeals for admissions after October 1, 2013, when the two-midnights policy became effective," Mitchell said.
CMS officials defended the settlement offer in an email to HealthLeaders: "CMS examined and evaluated multiple matters when making its determination. As is conventional practice during settlements, CMS developed a balanced value that considered both the best interest of the government, and rendering an obtainable settlement. Based on the data and CMS's analysis, we determined 68 percent was an appropriate offer for resolving these cases."
CMS says it is trying to improve the performance of the RAC program. "This settlement is only intended to address pending appeals related to place of setting," they say. "Our goal with the Recovery Audit program is to strike the right balance between our responsibility to ensure all beneficiaries maintain access to care and ensuring all Medicare claims are paid accurately. Based on feedback received, CMS made improvements to the Recovery Audit program. CMS now has in place a Recovery Auditor Validation Contractor to measure the accuracy of the Recovery Auditor determination."
AAMC spokesperson Ivy Baer said it was "hard to say" whether the offer from CMS is fair. "Each institution must weigh the cost of continuing the appeal, and the uncertainty of how the appeal concludes, against a certain amount," she said.
"However, the CMS notice mentions a 'reconciliation process' in the event of discrepancies, so it's not clear when this would be a done deal. A hospital doesn't just submit and get paid."
Baer says RAC audits and the two-midnight rule remain problematic for providers. "The RAC process remains deeply flawed. This [settlement deal] merely addresses the enormous backlog of appeals," she said. "The settlement may help some hospitals, but the problems with RAC audits and the unreasonableness of the two-midnight rule are not addressed."
Medicare Beneficiary Perspective
A patient group that has filed two lawsuits against federal Department of Health and Human Services over the Medicare appeals backlog, the Willimantic, CT-based Center for Medicare Advocacy, is pressing for an overhaul of the Medicare claims review and appeals process.
"The goal of the lawsuit we just filed on August 26 (Lessler et al. v. Burwell) is to ensure that Medicare follows the law and provides timely decisions on beneficiaries' Administrative Law Judge appeals," Alice Bers, a lawyer at CMA, said last week.
"Congress mandated that ALJ decisions be issued within 90 days of the request for a hearing being filed, but the system is far out of compliance with that standard. Beneficiaries should not have to wait so long for answers on Medicare coverage when they are on the hook financially for the services in question and may be going without needed care."
Bers says patients are paying a price for an ongoing squabble between CMS and providers over Medicare reimbursement reforms. "From the beneficiary's point of view, reimbursement to providers should be logical and efficient. Tremendous backlogs for providers in the appeal system affect beneficiaries because they use the same appeal system and are necessarily affected by the overburdened system."
The CMA attorney said the two-midnight rule, which is in effect but yet to be strictly enforced, is contributing to the appeals backlog.
"Confusion over inpatient/outpatient billing and RAC appeals do seem to be significant contributing factors to the backlog in the appeal system," Bers said.
"CMA does not believe that the two-midnight rule is clarifying inpatient/outpatient billing issues nor is it helping beneficiaries who have been caught up in the confusion."
Appeal Deal's Complicated Calculation
CMS is set to hold a conference call Tuesday to brief hospital officials on the Medicare appeal settlement offer.
"We will participate in the CMS phone call," Dartmouth-Hitchcock Medical Center officials said last week in a prepared statement. "Our questions are about the process and procedure that will need to be followed to process these claims; and what costs will be associated with filing for the settlement.
"Once we have the information we need on the offer, we will assess the appeals in our pipeline, determine those eligible and conduct a financial analysis. Our analysis will consider the cost to continue the appeal or the risk of losing the appeal versus the benefit of accepting the 68-cents-on-the-dollar settlement offer. While we don't know the final outcome, we expect there will be cases where the settlement may be the best option."
With a nationwide dearth of access to primary care services, CVS is in a prime position to compete in a basic segment of the healthcare provider market, says one observer.
The rebranding of one of the nation's largest pharmacy retailers last week is sending "new entrant" ripples through the healthcare industry.
"We've changed our company name to CVS Health to reflect our purpose of helping people on their path to better health," officials at the company formerly known as CVS Caremark Corp. stated last week.
CVS Health officials say the rebranding effort helps align the company for an expanded role in providing healthcare services beyond the traditional retail pharmacy business model.
"As a pharmacy innovation company at the forefront of a changing healthcare landscape, CVS Health is delivering breakthrough products and services and enabling people, businesses and communities to manage health in more affordable, effective ways through programs in medication adherence, specialty pharmacy and delivery of care by walk-in medical clinics," the company said.
In February, CVS announced it would pull all tobacco products from store shelves in recognition of the fundamental conflict between good health and smoking cigarettes. Last week, CVS officials told HealthLeaders that the simultaneous timing of the rebranding announcement and the actual pulling of tobacco goods from all 7,600 of the company's stores was far from coincidental.
"The decision to remove tobacco from our stores underscores our role in the evolving healthcare system," CVS said in a written statement. "Now more than ever, pharmacies are on the front lines of healthcare, becoming more involved in chronic disease management to help patients with high blood pressure, high cholesterol and diabetes. All of these conditions are made worse by smoking. Cigarettes have no place in a setting where healthcare is delivered. "
CVS says its new brand complements its goals as a "new entrant" in the healthcare provider services market. "We are taking an active and supportive role in shaping the future of healthcare through our programs in medication adherence, delivery of care by walk-in medical clinics, and support of patients with chronic and complex conditions."
CVS Health says it will offer:
Programs to help manage chronic disease
Programs to connect patients with pharmacists to help them stay on their prescribed medications
Digital capabilities to supplement those programs
It also plans to forge strategic alliances with physicians and health plans through both CVS/pharmacy and CVS/minuteclinic to provide clinical support, medication counseling, chronic disease monitoring, and wellness programs.
'Colds, Lumps and Bumps'
A pair of healthcare industry branding experts gives CVS high marks for the company's rebranding vision and execution.
"Great strategy is when it benefits you, and it benefits others as well," says Jeff Hoffman, healthcare strategist at New York-based Kurt Salmon. "It's a win for them and a win for the people who need the access."
With a dearth of primary care services in the country, CVS is in a prime position to compete in a basic segment of the healthcare provider market, said Hoffman, who has worked with many providers on rebranding campaigns.
"The private-practice model doesn't work anymore," he said. "You can't make money on $30 a visit. That failure of that model has created huge gaps in access to healthcare."
Hoffman says affordable basic care clinics for "colds, lumps and bumps" at CVS stores will help individuals who for the first time have health coverage through the new insurance exchanges or Medicaid expansion.
For these patients, who face cost-sharing such as high deductibles for the most affordable HIX health plans, "using this type of alternative is very helpful," Hoffman said. "Going to a CVS clinic where they charge $25 is pretty good."
David Shultz, founder and president of Albany, NY-based Media Logic, said CVS officials have made a significant statement in their rebranding. "'Health' is an appropriate word to use in the name of their organization. They're one of the largest [prescription] retailers in the US … one of the top pharmacy benefit managers…and they operate the nation's largest chain of medical clinics: MinuteClinic," he said in an email message last week. "Simply put, they're a significant player in the healthcare space and, I think, they want to 'mark their territory.'"
Schultz and Hoffman noted that timing the CVS Health rebranding with the removal of tobacco products from store shelves was a savvy marketing move.
"The removal of tobacco from stores was clearly going to get a lot of positive press, so why not leverage that exposure to say, 'We've changed our name to CVS Health because we're all about helping people stay healthy?'" Schultz said. "This was especially important because they're not changing the store names, which means they needed another way to get this news in front of the consumer."
"It was a stroke of genius to drop the cigarette sales," Hoffman said. "They wanted to combine the pulling of cigarettes from their stores with the name change. … We'll see over the next few years whether that makes them a more trusted healthcare partner for people."
Retail Reality Check
In addition to helping to fill increasingly high demand for primary care services, Hoffman says CVS has powerful business motivations behind the company's new-entrant ambitions.
"I'm not sure they're being as magnanimous as they appear to be. They want people to come to their cold clinic; they want people to come into their stores to buy other products."
Hoffman believes it is unlikely that CVS will make much money in the MinuteClinic business. It is costly for any organization to offer even basic primary care services, in part because nurse practitioners and other healthcare professionals come with high staffing costs.
"You end up with four FTEs of very expensive people who are going to serve people at 25 dollars. When you look at the total benefit to CVS, it's a very good strategy for driving traffic to a store."
After decades of gorging at the fee-for-service trough, all healthcare industry stakeholders are facing a more austere future.
The healthcare party is over.
Otis Brawley, MD
CMO of the American Cancer Society
Whether you are a young doctor starting out your career with less money pouring into your bank, a health plan forced to spend at least 80 percent of every premium dollar on actual patient care, a citizen "incentivized" to stay as healthy as possible, or a hospital getting lower reimbursement for patient services from government programs such as Medicare… the squeeze is on, or at least beginning.
Don't just take my word for it. Otis Brawley, MD, chief medical officer of the American Cancer Society, believes excessive spending on U.S. healthcare is both unsustainable and unjustifiable.
"The problem is in the waste in the healthcare system," the oncologist, author, and global leader in health disparities research told me this week. "We spent $2.6 trillion on healthcare in 2010 and $1.1 trillion on food. If the U.S. health economy were a country, it would be larger than France, the world's sixth-largest economy. Yes, in 2010, we spent more on healthcare than they spent on everything in France.
"We average about $8,000 per man woman and child for healthcare [per year]. The average per-person costs in the next most expensive countries are at about $4,000. Those countries are Switzerland and Norway… Our percent of GDP for healthcare has grown every year for the past 20 years and will continue growing until it collapses the U.S. economy."
While they will be bitter pills for many healthcare industry stakeholders to swallow, Dr. Brawley prescribes curbing greed and promoting shared responsibility.
"The solution is for us to be a more evidence-driven medical system. Programs such as Choosing Wisely help, but we all have to get away from the philosophy of gaming the system for all we can. All are responsible for our healthcare system being in extremes to include doctors, healthcare systems, insurers, drug companies, lawyers and patients."
Employer-Based Change
At San Francisco-based Castlight Health, a data analytics-driven company that helps large employers manage healthcare spending, officials believe the light of day has healthcare industry party animals scurrying for the exit to make sure their own houses are in order.
"For too long, U.S. healthcare has operated as a merit-free market with little transparency, an asymmetry of information, misaligned incentives, and — as a consequence – restricted competition," says Lorie Fiber, VP of corporate communications at Castlight Health.
"This dynamic is changing, due at least in part to growing transparency to the cost and quality of healthcare. We see large employers at the forefront of this change, working closely with their employees, providers and payers, among others, to enable quality care at an affordable cost and in a highly personalized way. The change means more engagement and accountability for all involved, certainly, and that's a good thing if it means we're more effectively applying the billions spent annually on healthcare."
With America's Health Insurance Plans waging a near daily barrage of press releases, the drug companies have been enduring a beating in the media over costly medications such as Sovaldi. AHIP, in a media statement, says the high cost of specialty drugs is placing a crushing burden on health plans: "Many of these new treatments certainly represent the best care. That's why, despite the cost, health plans provide coverage for drugs like Sovaldi, which offers a chance to cure hepatitis C but also runs $1,000 per pill. When considering the limits on out-of-pocket consumer spending now in law, plans are paying at least 92 percent of the cost of Sovaldi, often more."
But the pharmaceutical industry offers some powerful statistics in defense of marketing medications with astronomical price tags, including the claim that only 2-in-10 approved medicines produce revenues that exceed average research and development costs.
Ruth Krystopolski, president of Sanford HealthPlan and executive VP of care innovation at Sanford Health in Sioux Falls, SD, says that changing the mindset of two key healthcare stakeholders is critical to any fundamental reform effort: patients and providers.
"We've had this idea that if something's broken, you can just fix it. You can take a pill," she told me, noting individuals are being cajoled into taking greater responsibility for their health, mainly through a range of economic incentives and employer-sponsored efforts such as wellness programs. "The question is, how will the public respond? For issues like charging people who smoke more, sometimes it's an agonizing talk [for health plans] to have with employers."
Krystopolski says that "changing premiums according to behavior" is one of the most effective ways to prod people to change unhealthy behaviors and adopt healthier lifestyles: "If you hit the pocketbook, that works."
Less punitive incentives may not be as effective, she says: "Positive incentives work, but I don't know how well they work."
Healthcare providers also need a new set of incentives, Krystopolski says. "People do things because they're incentivized to do them. Payment models are moving away from episodic care," and "prevention is everybody's responsibility," she says.
As millions of previously uninsured Americans gain access to affordable healthcare coverage, hospitals and health systems are reconsidering the generosity of their charity care policies.
Improved healthcare coverage access, mainly through Medicaid expansion and the new insurance exchanges, has raised a thorny question for hospitals and health systems: Should low-income people who refuse to obtain affordable coverage be eligible for charity care?
"When do we not look after patients? We don't have an answer for that question, but it's staring us right in the face," Peter Angood, MD, CEO of the Tampa, FL-based American College of Physician Executives, said last week.
While the proportions of responsibility for healthcare costs among patients, providers, and payers are changing, charity care is likely to be a flashpoint in the transformation process, he said. "It's going to get pretty contentious at times."
The future of charity healthcare as it approaches universal-access level is beginning to play out in states that have adopted some form of the prime accessibility mechanisms under the Patient Protection and Affordable Care Act: expansion of Medicaid to more adults and the new public insurance exchanges.
In New Hampshire, Southern New Hampshire Medical Center, a 188-bed, two-campus acute care facility in Nashua, has restricted its charity care policy based on patients' eligibility for health coverage, the Kaiser Family Foundation reported earlier this month.
The new policy states: "Applicants who refuse to purchase federally mandated health insurance when they are eligible to do so will not be awarded charitable care." The new policy also bars charity care aid for those who are eligible for expanded Medicaid, but who decline the coverage. Enrollment in The Granite State's Medicaid expansion program began this summer.
Officials at the New Hampshire Hospital Association say most of its members are waiting to make charity care policy changes until the new public insurance exchange is performing at a higher level.
"Generally speaking, most providers in New Hampshire are proceeding slowly in regard to adjusting their financial assistance polices as they, and the public, learn how the new health insurance marketplace and the operational components on healthcare.gov [are] affecting the delivery of care," NHHA officials said last week in a prepared statement.
"One complicating factor in New Hampshire is that because of the narrow network of providers offered under the only plan available on the health insurance marketplace this year by Anthem Blue Cross and Blue Shield, not all health providers had contracts to provide care to those who were eligible for the new health insurance during the first enrollment period."
With Pennsylvania cutting a deal last week with federal officials to expand Medicaid under the PPACA, 27 states have accepted Washington's offer to help pay for expansion of the program to millions of adults.
In the remaining 22 states that have yet to expand Medicaid, charity care is literally an imperative for hospitals, W. Stephen Love, president and CEO of the Dallas-Fort Worth Hospital Council, said last week.
W. Stephen Love
President and CEO of the
Dallas-Fort Worth Hospital Council
"Unfortunately, Texas has over 6 million people with no medical health insurance coverage. Many of these people are employed but hover near the federal poverty level. The current Medicaid coverage is generally limited to pregnant women, children and disabled adults," Love said.
Since the state has decided not to expand Medicaid stranding 1 million Texans in a coverage gap where they are not eligible for Medicaid or the health insurance marketplace, Love's organization "would like to implement a 'Texas Way' program to help people caught in the coverage gap with a program similar to other states like Arkansas."
"It appears no [North Texas] hospitals have made significant changes in charity care policies…. We truly are giving our communities these services, but obviously the patients would be better served in the right setting, at the right time of intervention or treatment, with the right coverage and access," Love said.
'No One is Denied Emergency Care'
NHHA officials say there are several factors that contribute to an effective and ethical charity care financing policy currently in place at hospitals in general, and New Hampshire in particular.
"Key factors in determining financial assistance include the clinical needs of the person seeking assistance and their access to affordable health insurance," they said. "No one is denied emergency care due to health insurance or financial issues. Hospitals and medical practices welcome an increase in the availability of health insurance for the people they serve, but also recognize that the new health insurance requirements and options are complicated to understand and implement. Proceeding cautiously with any changes in the financial assistance policies and practices allows time to understand the implications of these new health insurance options."
Love says Texas hospitals have to operate under strict guidelines for charity care and other "community benefits."
"Texas has specific regulations related to tax exempt hospitals regarding community benefits," the hospital council chief said. "The hospitals are required to have 5% of net patient revenue in community benefits, including 4% from charity care and unreimbursed cost of Medicaid and 1% from unreimbursed cost of Medicare. Additionally, all hospitals spend significant dollars on community education, including prevention, wellness and chronic disease management."
Charity care policies must strike a delicate balance and reflect a hospital's commitment to its community, he added. "Obviously, any charity care policy must be flexible, and moral, ethical and legal considerations should be an integral part of any eligibility requirements.
Not-for-profit hospitals are feeling financially pinched as healthcare reform efforts seek to simultaneously increase healthcare accessibility, cut costs, and improve quality.
Marking a second consecutive year of weak financial performance at not-for-profit hospitals, 2013 expenses outpaced revenue growth in the sector and similar results are expected this year, according to Moody's Investors Service.
In a median report released this week, Moody's says "operating revenue growth dropped to an all-time low of 3.9 percent and was outpaced by expense growth for a second consecutive year, an unsustainable trend." NFP hospitals posted 5.1 percent revenue growth in 2012.
Moody's pegged the 2013 growth rate of NFP hospital expenses at 4.3 percent. Expenses grew at 5.5 percent in 2012.
Jennifer Ewing, a Moody's analyst who co-authored the report, says lower reimbursement for services coupled with a shift to outpatient care from inpatient care is bringing financial pressure to bear on NFP hospitals.
She cites several factors dragging on revenue growth: lower reimbursement from commercial payers as they drive harder pricing deals on insurance exchanges as well as shift risk to providers and patients; tighter Medicare reimbursement; "built-in" statutory cutbacks for government programs that help fund hospitals such as reductions in federal Disproportionate Share Hospital payments; and Medicare's proposed "two-midnight rule" for determining outpatient vs. inpatient status accelerating growth of outpatient services at the expense of relatively more profitable inpatient care.
Ewing says "lower-cost providers" such as pharmacy clinics and urgent care centers are also draining revenue from NFP hospitals. They are acting as "new competitor[s]," she said of the new entrants and new business models proliferating in the delivery of healthcare.
Weak Cash Flow
Cash flow is also a weak spot in the NFP hospital median report, which states, "The operating cash flow margin reached an all-time low of 9%."
Despite that grim figure, Ewing sees glimmers of hope for hospital executives. "This is the first year expense growth slowed, [and] it still outpaced revenue."
The report also noted growth in NFP hospital "absolute and relative liquidity measures." Ewing said "we believe the reasons for the increases in liquidity are the strong equity market and wiser capital spending."
"As the stock markets do well, the hospitals do well," added Lisa Goldstein, associate managing director at Moody's and a co-author of the report. "The investment returns can build up your cash."
Goldstein says the imbalance between expenses and revenue growth at NFP hospitals will likely persist over at least the short term. "We expect these 2013 trends to continue for 2014," she said.
'In a Tough Spot'
"The hospital community has been under pressure for some time," said Peter Angood, MD, CEO of the American College of Physician Executives. The ongoing financial squeeze has prompted hospital officials reconsider how they deliver care to patients across the board.
Two of the prime efforts to expand healthcare accessibility—the new public health insurance exchanges and Medicaid expansion—are likely to be a net negative for many hospitals, Angood said.
"That's going to increase pressure on hospitals to manage that new population of patients," he said, noting traditionally low Medicaid reimbursement rates and the bill collection burden linked to the high level of patient cost-sharing on the exchanges.
Katherine Hempstead, team leader and senior program officer at the Princeton, NJ-based Robert Wood Johnson Foundation, said financing an NFP hospital is a lot like keeping an airline afloat, with both industries "highly regulated, with a high cost of entry and high cost structure."
"They really are in a tough spot," she said of NFP hospitals. "The good news is they are becoming more efficient. … Hospitals are becoming much more mindful of what they do that is wasteful and what they do that is efficient."
Hempstead pointed out that a key finding of the Moody's report is the shift away from inpatient care in dollars and cents. "If I were a hospital, I would be looking for other places in the delivery chain where there's growth," she said. "Hospitals are not going to go away, but there are so many forces that are pulling away from inpatient care."
In addition to focusing on efficiency gains and opening new lines of service, NFP hospitals can also hold the line financially through consolidation efforts that build market power and by establishing high quality standards, Hempstead said.
"Hospitals need to demonstrate superior quality," she said. "It's possible we have excess capacity. It's possible we'll see hospital closings. But there's no substitute for hospitals. I don't think [the financial situation] is an existential threat for the whole sector."
Data-driven consumer engagement is the vanguard of the effort to provide cost-effective treatment of chronic disease. How one payer is tracking psychosocial indicators for the neediest patients.
I hear bugles in the distance.
As they trailblaze the vast value-based healthcare delivery frontier opening up before them, insurance carriers have encountered two daunting obstacles: engaging individual customers, who are becoming determinants of value; and harnessing a treasure trove of health data.
Consumer engagement has risen to pivotal importance in the healthcare industry, Margaret Rowland, MD, chief medical officer of Portland-based CareOregon, told me this week. "Consumer engagement is essential for achieving ideal health outcomes. If you are going to get good health outcomes, a population has to be engaged in the process. If they are not involved, then it won't make a long-term difference," she says.
CareOregon, a nonprofit that covers 160,000 people and focuses primarily on the low-income and vulnerable, has teamed up with Health Integrated to leverage the Tampa, FL-based company's data analytics and consumer engagement capabilities to help provide cost-effective care to the health plan's most costly patients: members of medically vulnerable populations such as people suffering from multiple chronic illnesses.
About half of American adults have at least one serious chronic condition such as hypertension or kidney disease, according the Centers for Disease Control and Prevention. "The majority of US healthcare and economic costs associated with medical conditions are for the costs of chronic diseases and conditions and associated health risk behaviors," the federal agency's website states.
Rowland told me health plans are facing challenges in reaching out to these members that go far beyond the bounds of traditional approaches to healthcare. Data analytics is riding to the rescue.
"Increasingly, we are understanding the psycho-social issues that affect vulnerable populations. For example, when we speak to a diabetic about a blood test, if they have nowhere to sleep that night then a blood test is just not their priority. As healthcare providers, we need to understand their lives when we speak to them. We need to help stabilize their social lives before we can really expect them to self-manage their health issues," she says.
Zachary Fritz, executive VP for sales and marketing at Health Integrated, told me last week that there are three main elements to the company's approach to helping health plans serve vulnerable populations:
"Biopsychosocial" care management uncovers the physical, psychological, and social dimensions of a member's health conditions, then a "personal clinician" trained in social work and medical sciences targets interventions at particular needs
Data analytics tools "identify, stratify, and intervene with greater customization and scalability" while measuring the impact of interventional measures
A coordinated and integrated care delivery model strives to get the health plan, providers, and community resources "working together in the best interests of the individual and driving adherence to mutually agreed upon, medically necessary, and evidence-based treatment and care plans"
Deploying data analytics is a necessary step to target individuals in vulnerable populations who could benefit from health services, but delivering that care is a more personalized consumer engagement exercise, Fritz says. "The first step is identifying the right people through data analytics. But we go further because when an individual is simultaneously facing behavioral barriers and social impediments along with managing their multiple chronic conditions, it's a difficult challenge for them to be fully engaged in their physical health. Traditional, one-size-fits-all clinical programs don't have optimal impact for most people. We believe that a care team must first address what we call the 'root-root' causes of the barriers for better self-management."
Once data analytics have identified a health plan member in a vulnerable population, a personal clinician can assess the entirety of factors affecting the individual's medical conditions and help craft a globalized treatment plan, Fritz says. Addressing a member's "root-root" problems such as substance abuse or an ongoing domestic dispute can result in significant health gains: "Vulnerable individuals and people in vulnerable health situations face under-identified and under-treated behavioral barriers. When we engage this way, we influence the medical outcomes."
Unless health plans boost their data analytics and consumer engagement efforts, they face the risk of "missing" members in vulnerable populations and paying the price in unnecessarily high health service costs, according to Fritz.
"For us, a missed member is part of the 5-to-10% cohort that is driving 35-to-40% of the costs in Medicaid and Medicare populations. These members suffer from multiple chronic conditions exacerbated by psychosocial factors that may be in the form of a diagnosed behavioral health condition like depression or an undiagnosed, underlying challenge like poor social support, substance abuse, or a personality disorder. These factors impact physical symptoms and disease progression and often result in patterns of avoidable, costly healthcare utilization.
"In addition to being clinically complicated, these individuals are hard to reach and, understandably, difficult to motivate. Emails, text messaging, web portals, and even mail are usually not enough to engage this type of member," he says.
Engaging these types of members is in the interest of health plans. The value-based healthcare frontier will be an inhospitable place for insurers if the costs of chronic disease care continue to mount.