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Fairleigh Dickinson Executive MBA Health Systems Management


Capitation requires a significant infrastructure (financial and medical ... Allows PCP capitation. Can be administratively linked with prior authorization ... – PowerPoint PPT presentation

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Title: Fairleigh Dickinson Executive MBA Health Systems Management

Fairleigh DickinsonExecutive MBAHealth Systems
  • Managed Care and Provider Reimbursement
  • Robert Eidus MD, MBA

This Week
  • Medical Management
  • Physician Integration
  • Groups, GPWW, compensation issues, PPMCs
  • Case Study Phycor, PPMCs- Tim
  • Mental Health Management
  • Case Study- Merck-Medco Ken
  • Pharmaceutical Benefits Management
  • Case Study Small Area Variation in Utilization-
    John Wennberg MD- Lia
  • Utilization Management
  • Web-site review doctorquality.com, ncqa.org
  • Quality Management

May 31
  • Population Based Health Management
  • Preventive Health Services in Managed Care
  • Demand Management
  • Disease Management
  • Case Study- Accordant Health Services
  • Final Exam (First Hour)
  • Oral Presentations of Project
  • Wrap Up

Final Exam
  • Single Essay Question (may have a choice)
  • The question will be broad
  • You will be expected to think critically,
    analyze, and defend your position
  • No memorization required
  • Reflect understanding of the managed care
    concepts we discussed that are relevant to the
  • To Prepare Review slides and handouts. Review
    synopsis of reading materials. Only study those
    concepts which you dont understand

Final Project
  • Think Critically
  • Reflect an understanding of the concepts
  • Do not regurgitate the slides or reading
  • Personal experiences can be incorporated if
  • Some external reading or research would be
    expected. Cite external reading material or
    provide quotes.
  • Dont be afraid to take a risk
  • Its quality, not quantity

Brief Discussions
  • Questions about last week
  • Questions about reading

Recap of Last Two Weeks
  • Managed care does not exist in a vacuum
  • It responds (and retracts) to societal issues
  • Initially the issue was access, then it was cost
  • Cost is King
  • Managed care exists in a framework that is a
    mixture of capitalism and social service
  • There is no perfect system of compensating
  • There is evidence that incentives do influence
  • Incentives which are excessively strong may
    adversely affect patient care and raised ethical
  • Incentives which are weak are ineffective, so why
    do them?
  • Capitation requires a significant infrastructure
    (financial and medical management to be

Quote of the Week
  • Physicians are required to do everything that
    they believe may benefit each patient without
    regard to costs or other societal considerations
  • Norman G. Levinsky, MD, The Doctors Master, 311
    NEJM. 1573, 1984

How Is This Weeks Agenda Different From Last
  • Both Deal With How To Affect Utilization of
    Health Care Services
  • Last Week We Dealt Mainly With the structure of
    how Providers are compensated by Health Plans
  • This Week We Will Discuss How Providers are
    compensated Within Health Systems
  • We Will Also Discuss Ways to Affect the Clinical
    Outcomes of Health Care Beyond Financial

Finishing Up Old Business
  • Medicaid and Medicare

  • Split Funding Between State and Federal
  • Primarily for Indigent People
  • Total Funding Based on State Budget
  • Health Plans may enroll individuals either on a
    voluntary basis competing with FFS or via a state
    mandated plan
  • Very often there is an enrolling agency

Managed Medicaid
  • Created to Address
  • Access
  • Cost Containment

Medicaid Health Plans
  • Stand Alone- For Profit
  • Stand Alone- Non Profit (Usually affiliated with
    Hospital Systems)
  • Multiproduct Health Plans

Managed Medicaid
  • Same benefits as FFS
  • Often add OTC benefits
  • Budgets and Global Cap rates negotiated with the
    state on an annual basis
  • Payments to physicians are highly discounted
  • Try to use limited hospital networks
  • Emphasize DM programs consistent with their
    population- Asthma, AIDS, HTN, Diabetes, High
    Risk Pregnancy

Managed Medicaid
  • Issues
  • Provider networks
  • Community Health Centers
  • Shifting enrollment
  • Eligibility verification
  • Ability to change health plans

Managed Medicare
  • Introduced in the late 1980s
  • Recognition by Medicare that it had to do
    something else to control costs
  • Provider networks and health plans embraced it
  • Enrollment grew quickly, but recently there has
    been dramatic retrenchment

Managed Medicare
  • HCFA may a decision to either get out or minimize
    its exposure for costs
  • Made it easy for providers and health plans to
    accept significant risk for Medicare- the most
    risky population to manage

Managed Medicare
  • The basic model
  • Medicare allowed health plans to offer
    beneficiaries an HMO product in lieu of their
    traditional benefits
  • The benefit package had to be at least as good as
    traditional indemnity insurance, but could be
  • The health plans were given a capitated rate for
    the equivalent projected costs under the FFS
    Medicare Program

Managed Medicare
  • The Capitated Rate is known as the AAPCC (Average
    Annual Per Capita Cost)
  • Plans received 95 of the AAPCC, which varied by
  • Plans were allowed to charge a premium to be in
    the HMO
  • Most common added benefit was Rx

Early Experience
  • Many plans, including those that were loosely
    managed, took on Medicare patients at a very
    rapid rate
  • Early rapid rise in revenue and profits were
    often replaced by severe losses

Why was the Initial Experience So Bad?
  • Poor benefits design
  • Poor marketing and enrollment strategies
  • Lack of medical management infrastructure

Managed Medicare
  • Despite these early disasters, many MCOs
    registered large profits for the first decade
  • Recently, many plans have exited Medicare in many
    regions due to unprofitable business
  • Why do you think we have seen this downturn after
    the initial shakeout?

Managed Medicare Issues
  • Payment adequacy- ratcheting down
  • Ability to affect medical expense trend
  • Marketing- adverse risk selection
  • Benefits structure
  • Taking into account general factors affecting
    medical inflation

Physician Integration
  • Why integrate physicians? After all, managing
    doctors is like herding cats
  • Opportunities to create economies of scale
  • Increase purchasing power
  • Increase negotiating leverage
  • Increase internal referrals (FFS)
  • Potential to improve patient satisfaction
  • Potential to improve outcomes and lower medical
  • Potential to take on risk

Types of Physician Integration
  • PHOs, IDS- Previously discussed
  • Single and Multispecialty Group Practices-
    Previously Discussed
  • IPAs Mainly used for negotiations and as a
    method of accepting risk
  • MSOs Mainly used to consolidate administrative
  • GPWWs Almost a hybrid of group and solo
  • Offices run as separate profit centers corporate
    structure as a single group, facilities may be
    owned or rented by the group, can negotiate as a
    single entity, some functions centralized
  • PPMCs

  • Case presentation Tim
  • Phycor, Medpartners
  • Why they were created
  • What they tried to do
  • What they failed

Why did Phycor fail?
  • Operational Efficiencies
  • Extra Layer of Management
  • Contracting Power
  • Assumption of Risk
  • Management of Risk
  • Management of Physicians
  • Were physicians motivated?

Physician Compensation
  • Democracy is the worst form of government,
    except for all the rest W. Churchill

Strengths Weaknesses
Fee For Service Motivates Productivity Equitable for those who work harder Can Foster Over-utilization
Capitation Promotes efficient care Can cause under-utilization of services Hard to administer in a group practice or one where there are mixed reimbursement populations
Salary Incentive Neutral to Patient Can create low productivity
Physician ReimbursementWhat do you do when you
get a call at 430 that a child has a fever and
ear ache?
  • FFS Come right in
  • Capitation I will call in an antibiotic
  • Salary Tell the patient to go to the ER
  • No payment system is perfect. In reality, most
    physician payment schemes are hybrids
  • Paying physicians based on profitability of small
    operating units that are under their control
    makes sense to me

Mental Health Management
  • Why Manage Mental Health Separately?
  • Privacy
  • Dont Understand the Business
  • Hard to figure out what is appropriate care
  • Different nomenclature coding
  • Use of psychologists, MSWs
  • Considerable variation in benefits structure

Managed Behavioral Health Organizations
  • Largest is Magellan
  • Both Non-Profits and For Profits

  • Key Functions
  • Access and Triage
  • Referral Management
  • Authorization of Treatment Plans
  • Concurrent UM of Hospitalized Patients
  • Some Case Management
  • Claims Payment
  • Quality Management and Reporting

Pharmaceutical Benefits Management Companies
  • Why Manage Rx?
  • Most Rapidly Growing Part of Health Care Market
  • Difficult to Manage
  • Integration Potential with Medical Management and
    Medical Date
  • Quality and Outcomes Potential

  • Merck-Medco Ken
  • How do PBMs create value
  • Why was it purchase by Merck?
  • Why is Merck now trying to sell it?

Pharmaceutical Benefits Management
  • Benefits Design
  • Covered Benefits
  • Formularies
  • Discounting of Medications
  • Often tied to formulary
  • Discounts received from Manufacturer, although
    product purchased from distributor
  • Manufacturers rebates
  • Passed through to health plan or insurer
  • Occasionally tied to formulary

Pharmaceutical Benefits Management
  • Retail Store Management
  • Drive Hard Discounts (AWP, filling fee)
  • Retail Utilization Management
  • OTC Switch
  • Brand/ Brand switch
  • Brand/ Generic Switch
  • Mail Order
  • The origination of PBMs
  • 90 fills
  • Lower copay (single copay)
  • PBM functions as a pharmacy

Pharmaceutical Benefits Management
  • Utilization Management
  • Patient profiling (unauthorized refills)
  • MPA
  • Vioxx, for example
  • Costly, with minimal, if any advantaged over
    other NSAIDS
  • Orthopedists give it out like water
  • If you are a hammer, everything looks like a nail

Quality Management
  • Takes advantage of a rich data base
  • Adherence Programs
  • Testing reminders
  • Patient education
  • Disease Management

Case Discussion
  • Small Area Variation John Wennberg, MD
  • Lia

Utilization Management
  • Principle is that there is significant
    over-utilization of health care services which
    does not help and may detract from quality and
  • Fueled by lack of counterbalancing incentives
    between patients and providers (both want to do
  • Different from financial/ payment structuring to
    reduce utilization
  • Under-utilization can be dealt with separately

Three basic types
  • Prospective
  • Referral Management
  • Prior Authorization for surgery
  • SSO
  • Concurrent
  • Is continued hospitalization still necessary?
    Transfer to lower level of care
  • Retrospective
  • Carve out excess length of stay and un-necessary
    services (not needed fro in-lier DRG payments)

Referral Management
  • Members need to go to PCP first
  • PCP then authorizes referral to participating
  • Some services (eg specialized x rays may still
    need prior authorization from health plan
  • Sometimes includes number of visits and
    procedures or tests
  • Opposite is direct access
  • Health Plans that use referrals often have
    exception for certain services
  • Womens health maintenance with Ob/Gyn
  • Special situations eg cancer care
  • Eye care

Referral Management
  • Rationale
  • Puts up a barrier to access
  • Assumes that PCPs can manage most illnesses
  • Allows PCPs to be at risk for system wide costs
  • Mimics the British system
  • Emphasizes preventive health
  • Allows PCP capitation
  • Can be administratively linked with prior

Referral Management
  • There is some evidence that PCPs manage a broad
    range of illnesses more cost effectively or
    better than specialists
  • There is some evidence to support the contention
    that specialists manage some illnesses better
    than generalists
  • There is virtually some that referral management
    programs contain costs

Referral Management Systems
  • Pros
  • Makes sense
  • May contain costs
  • May avoid un-necessary procedures
  • Better coordination of care
  • Supports PCP capitation
  • Supports preventive services better
  • Cons
  • Another layer of management
  • Resented by many specialists and patients
  • Mixed response at best from PCPs
  • May prevent appropriate care or timely
    intervention for some illnesses by some providers

Prospective UM
  • Prior authorization (also known as MPA,
  • Participating Provider (usually specialist, but
    may be hospital, diagnostic treatment center, or
    PCP) is required to notify health plan of
    requested serviced and get authorization for
    specific services, number of visits, length of
  • Providers who perform services which require
    prior authorization without obtaining prior
    approval risk not getting paid member is held
  • In indemnity plans, it may be the insured who is
    responsible for prior authorization

Mandatory Prior Authorization
  • Common uses
  • Surgeries such as hysterectomy
  • Diagnostic testing (PET scans, MRI)
  • Pharmacy ( Lamisil,Cipro,Clarinex, Growth
    Hormone, Ribavirin, Vioxx)
  • Trend is to narrow the MPA lists to those where
    continuing to manage this way is felt to be
    beneficial and there are no other alternatives

Mandatory Prior Authorization
  • Pros
  • Effective in many areas
  • Can link to case management and disease management
  • Cons
  • The quintessential hoops and hurdles management
  • Docs learn to game the system
  • Another layer of management

Concurrent Utilization Management
  • Generally done my nurses
  • Can be telephonic or on-site
  • Targets the last days of a hospital admission
  • Not needed for DRG in-liers
  • In the early days, was the single most effective
    way of managing costs
  • May use Max LOS as an alternative or as a trigger
  • Use national criteria (Interqual, MR)
  • Intensity of service, severity of illness

Concurrent Utilization Management
  • Pros
  • Felt to be effective
  • Good link with care management
  • Cons
  • Requires systems and hiring large numbers of
  • Adversarial with hospitals and sometimes with
  • Telephonic less effective than on-site

Retrospective UM
  • After the service has been rendered
  • For participation providers only
  • Generally for emergency admissions or instances
    where prior authorization was required but was
    not received
  • Participation provider at risk
  • No balance billing of member
  • Medicare now required signed consent prior to
    delivering services which may not be covered by

The Managed Care Dashboard
Range of U/M Data
Loosely Managed Moderated Managed Well Managed
Admits / 1000 83.70 70.80 57.42
ALOS 5.38 4.19 3.11
Days / 1000 450 296 178
  • doctorquality.com
  • ncqa.org

Other Quality Sites
  • Various government sites (State and Fed)
  • Some Health Plans
  • www.consumerlab.com (herbs and supplements)
  • www.hi-ethics.com (evaluates health sites on the

Quality Management
  • What is the case for quality?
  • The best quality is also the lowest cost
  • Price does not track with quality
  • Good quality reduces re-work

Why Did Health Plans Embrace Quality Management
  • As a defense against allegations of
    under-utilization causing worse quality
  • To allay fears
  • Marketing/ In response to some employers
  • To meet Federal Qualifications and Accreditation
  • It meshed with their systems
  • Some pioneering spirit

Traditional QM Activities
  • CME- Doesnt work
  • Guidelines Promulgation- Make good door stops
  • Case review- only deals with complaints
  • Randomized audits- not systematic doesnt point
    to a fix
  • Peer review- bad apple management

QM Tactics Employed by Health Plans
  • Provider Directed
  • Guidelines
  • Disease Registries
  • Notification of outliers
  • Incentives
  • Mirror HEDIS indicators
  • Disease Management activities

QM Tactics Employed by Health Plans
  • Patient Directed
  • Pt education
  • Reminders
  • Care management
  • Disease management
  • Incentives

Contribution of Managed Care To Quality
  • Prevention
  • Childhood immunizations
  • Mammography
  • Colon Cancer Screening
  • Adult immunization
  • Chronic illness
  • Asthma
  • Diabetes care
  • Beta blockers after heart attack

Next Week
  • AM RUGS, MDS and long term care (Mike McDonough,
    St. Barnabus Health System).
  • Financial indicators of hospital performance
    (John Hazel, NJDHSS)
  • PM Managed care and provider performance
    measurement (Don Zimmerman, CHMS, FDU).
  • Readings In class handouts

Final Session
  • AM Examination (60 minutes)
  • In-Class presentations and submission of Final
    Research Project
  • PM In-Class presentations and submission of
    Final Research Project- (cont.)
  • Emerging issues in managed care and
    reimbursement. Population based health
    management. The role of prevention in managed
    care. Prospective care management
  • Readings Konsveldt Chapter 19, pp. 822-832,
    Chapter 13, Chapter 11 pp. 198-202
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