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.
In physician profiling initiatives, risk adjustment is often employed as part of the profiling process. The use of a risk adjuster can adjust for some of the effects of patient characteristics that may vary across providers. Using a risk adjuster can be a helpful advantage when reviewing and presenting data to physicians in a meaningful, credible manner. In most risk adjustment tools, the models offered present two perspectives. There is a concurrent model and a prospective model. Each offer different advantages and their use will vary based on the business question or need to be addressed. This post will look take a brief look at the use of concurrent model results in calculating a provider efficiency score.
The concurrent model describes the health status of a physician’s panel of patients based on the patients’ claim and enrollment experience during an assessment period. The assessment period is often the most recent 12 months. The concurrent model is particularly helpful in provider profiling when evaluating patterns or outcomes of practice.
In the following table, the populations enrolled with three hypothetical physician panels were compared to calculate efficiency scores; this process addresses a common provider concern that “my patients are sicker.” Efficiency scores are typically calculated as a ratio of physicians’ actual allowed claim costs and the expected allowed claim costs based on the concurrent risk scores of the population for which a physician is responsible.
Without risk adjustment, one may draw incorrect conclusions, because the physician practice or panel that appears to have the worst outcomes may simply have the sickest patients. In the example above, while Provider B has the lowest concurrent risk score and lowest actual PMPM cost, their efficiency score is the highest at 1.09 or 9% higher than the average for the total population.
Depending on your decision support tools and risk adjustment tools, risk scores are also available by service breakouts, such as inpatient, outpatient, and pharmacy. In this example, a further drill to the service categories to monitor the distribution of the costs across the service categories would provide additional insight. For example, a comparison of providers’ efficiency in managing inpatient costs by comparing a population’s actual inpatient costs to the costs predicted by the concurrent inpatient risk score.
Stay tuned for upcoming physician profiling blogs.