Most people working in healthcare know that the cost for the same service can vary significantly by setting (e.g. office based vs hospital) and by provider within a setting. The example below illustrates this for a simple surgery with the price doubling in the Ambulatory Surgery Center (ASC) setting and being almost 5 times as much in the hospital setting.
The RVUs are higher if the surgery is performed in a facility setting and the unit price is higher in the hospital vs the ASC, these all impact the total cost at the bottom. This illustration uses the average commercial cost in each setting. If you selectively choose the providers to shift from and to, the savings could be much greater. There are savings opportunities due to shifting from the inpatient setting too. A few leading providers are now doing hip replacements in the outpatient setting!
Milliman research shows that approximately 15% of commercial costs can be eliminated by site of service shifting (assuming no utilization reductions). For Medicare plans the opportunity is only about 5% due to more synchronized fee schedules (e.g. Lab is paid the same in hospital outpatient setting as in office setting), however, that 5% is still around $45 PMPM so the opportunity is significant.
A brief list of the services that we have evaluated the site of service savings opportunities for include:
- Outpatient Surgeries moving to ASC or Office
- Drugs (office and outpatient based, not prescriptions)
- Lab, Imaging, other outpatient services moving to office/free-standing settings
- Emergency Room (transition to Urgent care)
- Maternity (use of birthing centers and home births)
- Inpatient moving to Observation
To learn more about cost savings opportunities for ACOs and payers, join us at our next MedInsight webinar:
Evaluating ACO Performance and Identifying Savings Opportunities
August 19, 2014, 2:00-3:00 PM ET
Accountable care organizations (ACOs) are popping up everywhere and much work is being done to improve outcomes and reduce costs. This informational webinar will focus on sharing actual reports on how to compare ACOs (with drill downs into medical groups, clinics, and PCPs) as well as how to identify and quantify savings opportunities. The session will be helpful to many, including ACOs and payers that are creating analytics to measure performance of medical groups.
Presenter: Will Fox, FSA, MAAA, Milliman Principal & Consulting Actuary
There is a huge opportunity to reduce healthcare costs if patients understand the expected costs before receiving services and especially if they can compare providers. One of the many provisions in the Affordable Care Act1 is a requirement that every payer must have a patient cost calculator so that members can get an estimate of their costs before receiving services. Most payers already have some type of patient cost calculator but there are significant variations in the range of estimates and specifics for individual providers.
The best calculators allow the user to compare services (e.g. office visits, MRIs) or episodes (e.g. surgeries that include the surgeon, anesthesia, diagnostic tests and facility charge). For episodes they allow the user to build the total cost by component, adjusting which facility and physician(s) to use. The leading calculators show alternative providers within the service area radius input by the user.
Quality and satisfaction scores are typically integrated with the calculator so that users can make a complete informed decision. This has been the goal of consumer driven health plans and transparency efforts for a long time. There are a few stumbling blocks that are slowing the process and/or making the calculators less effective than they could be:
1) Confidentiality provisions in payer/provider contracts. Historically many contracts between the insurers and the hospital/physician providers had confidentiality provisions. It should be easy to eliminate these but many payers and providers are still resisting the transparency push. Most current calculators are listing some provider cost data as “not available” but they usually list them in such a way that implies they are the highest cost provider. If members are educated on how to use these tools and they are able to reduce their out of pocket costs that will pressure the “confidential” providers to eliminate those regulations. Alternatively, legislation could be passed to eliminate confidentiality provisions.
2) Hard to compare fee schedules and reimbursement arrangements. Most payers still have a variety of fee schedules for their providers so that even if you find out hospital A is 15% more expensive than Hospital B for a CT Scan, it may be that a different procedure could be lower cost at Hospital A. Payers can use the same fee schedule for all providers with varying multiples to allow providers to be high or low cost which will allow the estimates to still be relevant even if other services are performed. Currently most calculators are limited to the most frequent services and episodes, standard fee schedules will allow the calculators to cover every service. See my article on the Transparent Cost Network for more information. http://insight.milliman.com/article.php?cntid=7927
3) Efficiency comparisons for episodes of care. The variation within types of episodes is still very large. It is difficult to account for all the reasons for variation and have enough episodes for each provider to have a good estimate of their efficiency for every type of episode they perform. This is an area that will continue to evolve and improve.
Currently these calculators are not being utilized very frequently. There is a huge opportunity to engage members in the cost of the care they are receiving and educate them on their options. I believe this will have a significant impact on the level of competition among providers and will reduce costs. Alternative benefit design options that leverage reference based pricing can make this information even more effective. That will be the subject of a future article.
Exhibits A and B illustrate service and episode based estimates assuming 20% coinsurance.
Wouldn’t it be nice to know whether a given physician or group is high cost or low cost, is efficient or inefficient? If they are high cost, is it due to their own unit costs, the high cost of the hospital they admit to, or just their inefficiency? The GlobalRVUs allow you to measure unit price and efficiency across physician groups for accountable care organizations, shared saving and total cost of care programs, bundled payment and other capitated arrangements. GlobalRVUs are essentially an extension of Medicare’s RBRVS so that every medical service has an RVU. The RVUs are based on HCPCS, DRG or Pharmacy NDC and are not affected by the contractual allowed amount.
For example, the table below shows that Group B is significantly higher cost driven by high unit prices and worse than average efficiency while Group C is better than average for both resulting in about a 20% difference. By looking deeper at the Group B experience we were able to determine that while they had low use of diagnostic services in a physician office setting their use of the higher cost outpatient hospital setting for diagnostic tests (e.g. imaging, lab, cardiovascular) was a significant driver of the high unit costs.
|Primary Care Group
||Risk Adjusted Allowed PMPM
||Risk Adjusted RVUs PMPM
||Relative Unit Price
| Area Average
| Group A
| Group B
| Group C
| Group D
| Group E
| Group F
This report is created by using member PCPs or attributed PCPs, concurrent risk scores, and GlobalRVUs assigned to each claim service line. This type of analysis is very powerful in identifying opportunities to reduce costs and increase physician group income. For example, using these reports, the physician group can understand the relative unit cost of the hospitals and specialists that they refer to. Easy savings may be available just by changing referral patterns. A common opportunity is to use the GlobalRVUs to understand the relative cost of imaging and lab services in different settings and the potential savings to the at-risk physician group.
The Milliman GlobalRVUs white paper describes the GlobalRVUs in detail.