Health insurers will need to cut costs, increase efficiency, collaborate with providers, and change the way they pay physicians if they are going to thrive in the changing healthcare marketplace, according to Computer Sciences Corporation's report Next Generation Health Plan.

The Falls Church, VA-based global business and technology consultants suggest the Next Generation Health Plan faces a number of challenges:

• Healthcare spending is expected to skyrocket from 16% of GDP in 2008 to 20% by 2020
• Health insurance increases are rising faster than wages
• Baby boomers are reaching retirement age
• Members are expecting more coverage and offerings
• The federal government may create a public insurance option

Insurers will need to adapt to these changes or perish, CSC warned.

The common thread in all healthcare issues is costs, and CSC suggested the Next Generation Health Plan must operate at maximum efficiency.

Health insurers have the greatest control over plan margin and overhead, but those costs pale in comparison to direct medical costs. Health plan medical loss ratio is often around 85-90%, which means the vast majority of money is going to direct medical care.

"You can squeeze the administrative and overhead bubble all you want and you are still going to be affecting a small percentage of the healthcare dollar," says Jordan Battani, principal researcher in CSC's Emerging Practices Group and author of the report, adding that rather than focusing on health plan overhead, insurers could work with providers to help reduce practice administrative costs that are influenced by health insurer programs and policies.

Health insurers have historically not been able to control costs because they have not involved providers, she says.

"If you're going to get at the inflation and escalation of healthcare costs, the payers have to partner more effectively . . . with people who are trained and are able to make clinical decisions. That's going to take some work for the industry to get to that place," says Battani.

Rather than health insurers trying to manage care on their own, CSC said the New Generation Health Plan will need to engage stakeholders and create integrated health management programs that combine traditional medical management with wellness, self-management, and disease management programs. Health plans could achieve this through providing incentives to providers and offering providers the technology and tools that help them provide care coordination.

Health insurers and physicians have rarely been on the same page and that friction has not helped healthcare. Instead, the Next Generation Health Plan must assist and enable providers to help them manage and moderate healthcare service demands, while providing incentives to spark an interest in primary care.

Battani predicts Medicare will lead the way in physician payment reforms, but suggests health plans should prepare to tweak physician reimbursements to send higher payments to primary care.

Battani says an important takeaway from the Next General Health Plan is that insurers shouldn't expect to discover new, untapped funding sources. Instead, they should reform payments, restructure care, and improve quality.

"The opportunity for bringing new money into the system to pay for things is very very limited. What really needs to happen is repurpose and redirect the funds that are available now," she says.

HHS issued a proposal for security breach notification in a 20-page report that defines acceptable conditions for covered entities and business associates to encrypt or destroy their private patient data to secure protected health information (PHI) and prevent a breach.

The guidance released Friday includes the technologies and methods specified by the Secretary of HHS that render PHI "unusable, unreadable, or indecipherable to unauthorized individuals." The American Recovery and Reinvestment Act of 2009 (ARRA) required the draft guidance by Saturday, April 18, according to an HHS press release.

Covered entities and business associates are not required to follow the guidance. However, if they do, it creates a "safe harbor" and protects them from the notification requirements when a security breach occurs, according to the new HHS report.

Though not final yet, covered entities and business associates should pay close attention to the guidance because it will help determine whether their facility had a breach of patient privacy.

Title XIII of the ARRA—the Health Information Technology for Clinical and Economic Health (HITECH) Act—describes greater notification requirements for breaches of "unsecured PHI," or PHI that is not secured through technologies and methodologies specified by the Secretary.

The report released Friday includes those specifications. After a public comment period, which ends May 21, the final guidance will be released by August 17, according to the ARRA.

Wait to make your move
"Keep in mind, this is a new federal requirement which overlaps with security breach notification laws already on the books in almost every state, and personal information disposal laws on the books in many states," says John R. Christiansen, of Christiansen IT Law, in Seattle. " . . . We're going to have to analyze state laws specifically to figure out if there are places where the state law is stronger. It probably isn't worth doing a definitive analysis until the final guidance comes out."

In general, HHS specifies two methods for protecting data: encryption (for information flowing out of a network) and destruction (for paper and electronic records).

John C. Parmigiani, president of John C. Parmigiani & Associates, LLC , in Ellicott, MD, says in effect the guidance mirrors what many state laws already say.

HHS defines acceptable encryption as:

• Electronic PHI that is encrypted as specified in the HIPAA Security Rule by "the use of an algorithmic process to transform data into a form in which there is a low probability of assigning meaning without use of a confidential process or key"
• Valid encryption processes for data in databases, file systems and other storage methods consistent with National Institute of Standards and Technology (NIST) Special Publication 800-111, Guide to Storage Encryption Technologies for End User Devices.
• Valid encryption processes for data moving through a network, including wireless, which comply with requirements of Federal Information Processing Standards (FIPS) 140-2.

HHS defines acceptable destruction as:

• Paper, film, or other hard copy media that have been shredded or destroyed consistent with NIST Special Publication 800-88, Guidelines for Media Sanitization.

The final regulations will be published in the Federal Register within 180 days of the signing of the ARRA, or by August, 17, 2009.

Overall, providers who already encrypt their data are in good shape, says Kate Borten, CISSP, CISM, president of The Marblehead Group in Marblehead, MA.

"Use what's already out there and government-approved," Borten suggests.

According to Christiansen, covered entities and business associates should read this guidance and check their state's security breach notification laws.

"HITECH works like HIPAA when one of its provisions and a state law both apply: The one that is more protective trumps the other," Christiansen says. "My feeling is that the HITECH provision plus this guidance is probably more stringent than almost all state laws. I haven't yet tried to analyze it against California, which has the strongest law in this area—but generally I expect HITECH will apply."

Editor's note: To learn more about HIT initiatives, view the American Recovery and Reinvestment Act of 2009.

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Dom Nicastro is a senior managing editor at HCPro, Inc. in Marblehead, MA. He edits the Briefings on HIPAA and Health Information Compliance Insider newsletters. E-mail him at dnicastro@hcpro.com.

By incorporating increased collaboration and coordinated care, proponents of healthcare "villages" say the concept is the wave of the future—both from a consumer and business standpoint.

The healthcare village is designed as a one-stop healthcare destination where consumers are provided easily accessible outpatient and preventive wellness services.

"Think of it in terms of an upscale shopping mall, but only with healthcare services, and the wellness center is basically like the anchor tenant—the major department store," says Donna Jarmusz, senior vice president of Alter+Care, a healthcare real estate company that works with healthcare providers around the globe to develop healthcare villages.

"That generates a lot of visibility, a lot of high traffic, because people join the wellness center as members and they are frequenting it two or three times a week. That creates a lot of pedestrian traffic for the other services that may be in the same location."

And the idea is catching on: From Wisconsin to Dubai, healthcare villages are cropping up all over the world.

"It's really taken off from a global perspective, it's not just a U.S. concept," Jarmusz says, noting that having a stake in a healthcare village abroad helps some U.S. organizations expand their brand.

For example, Harvard has ties with Dubai Healthcare City (DHCC). The organization now known as Partners Harvard Medical International was founded originally as Harvard Medical International, a self-supporting subsidiary of Harvard University and Harvard Medical School. PHMI has "played a significant role" in the development of Dubai's Healthcare City and other major initiatives of the Government of Dubai, according to the DHCC's Web site.

"It benefits them because it gives them another source of revenue, another way to provide healthcare services to more people, and it benefits the foreign countries because they don't have to internally develop that expertise, they can import it from our country," she adds.

Jarmusz says that the easy accessibility of healthcare villages aligns with the business strategy of attracting consumers by creating a positive "experience." Patients visiting a healthcare village can meet with their physicians, then very easily have lab work completed, pick up prescriptions, buy their eyeglasses, or even attend educational wellness classes?and do it all within walking distance.

"Consumers have become very accustomed to having an experience—that whole ambiance to make it very positive and enjoyable," Jarmusz says. "Healthcare is just now really starting to embrace this concept. Healthcare providers want to penetrate new market areas, and they want to have their services closer to where people work and live, and a healthcare village can really accomplish that for them."

But it is not just consumers who benefit from the village concept. Having a wide variety of healthcare services—including urgent care, rehabilitation, and prescriptions—in one complex benefits physicians as well.

"Physicians like to have their offices in these healthcare villages, because everything they need and their patients need are right there," Jarmusz says.

And although the medical village concept has raised some concern among physicians in regards to payments (as Kirk Mathews, MBA, recently wrote on HCPro, Inc.'s hospitalist blog), in some cases the villages provide physicians and hospitals with economic alignment opportunities as well.

For example, if a physician has an office in a building that is part of a healthcare village where there is also an ambulatory service center, that physician or that practice may be partnering with the hospital in a joint venture for the center, Jarmusz says.

"That gives the physicians an opportunity to increase their revenue, as well as providing an opportunity for the physicians and the hospital to work together more cooperatively . . . ultimately providing a higher quality product or service for the consumer."

Jarmusz says the simple, strategic delineation of healthcare services that a healthcare village affords can save providers in the long run. For example, some of the healthcare villages have freestanding emergency departments or urgent care centers where patients with minor emergencies can go, rather than wasting the time and resources of a major emergency room that can be used strictly for major injuries.

By moving some of those minor emergencies to an urgent care center or a freestanding emergency department that is part of a healthcare village is one example of how the village concept cuts down the cost of medical care, Jarmusz says.

"The cost of healthcare has skyrocketed, so healthcare providers are trying to find different ways to provide high quality healthcare services at a lower cost," she says. "Healthcare providers can provide services more economically in this environment than they can when they are providing the same outpatient services on their campuses where they have a lot of high overhead and expenses."

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Mexican authorities are investigating a group of physicians at Tapachula General Hospital in Chiapas who allegedly refused to treat an illegal Nicaraguan migrant. The man's leg later had to be amputated as a result. The man says doctors would not treat a foot infection he developed after stepping on a nail while running from Mexican immigration officers. He also alleges that the same doctors have offered him money to withdraw his complaint. Several of the doctors have since been suspended, pending the investigation.