Health care reform has the potential to dramatically change the delivery and financing of health care, perhaps the greatest change since the rapid growth of HMOs in the 1970s. A key component of health care reform as embodied in the Patient Protection and Affordable Care Act (PPACA) is expanded access to comprehensive health insurance for approximately 45 million Americans currently uninsured or underinsured. These individuals will be given access over time to public or private health insurance options that meet PPACA requirements (e.g., expanded Medicaid eligibility, state insurance exchanges, and other commercial insurance options) for coverage mandates or penalties.
Hospital–physician integration is increasing due to health care reform. Hospitals and physicians increasingly work together to achieve the health care reform goals of improved quality, reduced costs, and increased access to care. Integration occurs in many ways, ranging from new types of contractual arrangements between hospitals and independent practices all the way to hospital acquisition of medical practices. For those who recall the acquisitions of the 1990s, it will be interesting to see whether they are sustainable this time around.
Parallel to this development is a drive for physician practices to align with each other and become leaders in increasing efficiency while improving health care outcomes. These physicians operate on the premise that while new arrangements with hospitals are essential to control costs, physicians must lead this process.
Meanwhile, government (Medicare/Medicaid) and commercial payers will begin to modify their payment structures from fee-for-service to capitation or bundled payment or other shared savings mechanisms. Health care reform requires insurers to accept new risks that have traditionally not been covered. At the same time that health care reform imposes new risks, it limits carriers’ permitted operating expenses by mandating a minimum loss ratio.
Risky Business II
The following are major provisions of the PPACA, effective 2010 to 2014, that present new risks to payers.
- Parents can purchase coverage for dependent children up to age 26.
- Pre-existing conditions, limitations, and exclusions will be eliminated, initially for children and ultimately for all adults, i.e., guaranteed insurability.
- Health care rescissions for any reason will be significantly limited.
- Limitations will be placed on risk pooling and community rating approaches.
- Patients will not be required to pay out-of-pocket costs for many preventive care services.
- All policies purchased must cover a defined set of benefits, including an unlimited lifetime maximum benefit.
- There will be a more stringent rate approval process for payers.
Because of these general health care reform provisions and their increased risks, all types of payers (Medicare, Medicaid, Commercial, HMOs, PPOs, insurers, and Blue Cross and Blue Shield plans, even self-funded employers) will be increasingly motivated to contract with providers utilizing capitation or some other form of risk transfer as the payment methodology, and thereby lock in a given target loss ratio.
Assuming Risk
Accountable Care Organizations are one of the few new ideas where it is hoped that the new health care reform legislation can “bend the cost curve.” An ACO is a group of providers, which may include primary care physicians, specialists, ancillary service providers, and hospitals, who agree to be held accountable for the cost and quality of health care delivered to a defined population of Medicare beneficiaries. The ACO model allows for physicians to lead both the practice of medicine and the cost-containment process rather than have those processes be led by payers.
Initially, ACOs will be paid on a fee-for-service basis by Medicare. ACOs will be eligible to receive additional payments if the ACO meets the quality performance standards and achieves savings, to be defined in the final Health and Human Services regulations.
Alternatives to fee-for-service reimbursement and shared savings payments include bundled payments and capitation. Provider capitation may produce better results than the last time capitation was prominent, for several reasons. There are more established medical standards of best practices. Expanded health care information technology capabilities have the potential to support physicians and hospitals in maximizing best practices and better coordinating care via implementing electronic medical records. Providers have learned from the past and will be more knowledgeable purchasers of risk. They will treat capitation as a business, hire appropriate business professionals, and develop management systems to manage the risks they assume. Capitation payments will also be adjusted for age, gender, and health status for a more fine-tuned approach.
Bundled payments are an additional health care reform strategy to reduce health care costs through more focus on successful outcomes rather than the number of services. Under bundled payments, providers are paid one time for a bundled set of services rather than for each service individually. The approach promotes integration, continuity, and quality of care and cost-effectiveness. Bundled payments have demonstrated success at reducing complications and readmissions. Provisions for bundled payments are included in PPACA through a national Medicare pilot program starting in 2013.
With risk come potential rewards and potential control
Providers willing and able to create an ACO or other integrated delivery system and accept some form of capitation or bundled payments will be able to earn a profit on the “spread” if they are efficient providers, i.e., able to successfully manage the frequency and severity of health care needs of a designated population for which they assume risk and are paid a commensurate amount by payers to do so.
As providers assume more risk due to the shift in payment methodology from fee-for-service to some form of capitation or bundled payment or shared savings model, they will look for excess-of-loss coverage for catastrophic claims to mitigate their risk in these regards.
The risk can be managed with provider excess insurance
To minimize catastrophic risk, providers should consider the purchase of provider excess insurance coverage, either from the health plan or from other insurance companies. In addition, the health plan may agree to retain the risk for selected catastrophic services such as transplants, out-of-area emergencies, and referrals. The health plan may also be in a position to provide consultative medical management to its delegated provider groups and assist with the review and contracting for medical management vendors for catastrophic claims.
Alternatively, physicians themselves may negotiate coverage with an external provider excess insurance company for catastrophic claims or to mitigate other risks assumed by the provider. These products include the availability of consultative medical management to assist with controlling the cost of catastrophic claims.
Physicians Insurance, working with Summit Reinsurance Services, offers provider excess insurance products and medical management services to practices that assume risk. For more information, please contact the provider excess subject expert at Physicians Insurance, Ron Shaw, Stop-Loss Manager, at (206) 343-7300 or 1-800-962-1399.