Outcome-Based Purchasing


GMHCC Offers Comments on Outcome-Based Purchasing…

Nurses Association Also Weighs In

Response to MN Dept. of Human Services Request for Comments on:

Outcomes-Based Purchasing Redesign and Next Generation IHP


Introductory, general comments:

Greater MN Health Care Coalition (GMHCC) represents low and middle income health care consumers in the East Central, Central, and Northeast parts of the state. Its member groups have over 40 years of health care public policy involvement at the state level.

GMHCC is glad to see the Dept. of Human Services (DHS) moving further away from HMO middlemen for Medical Assistance and MinnesotaCare, since we have been persistently and strongly advocating for that, for the past ten years. However, we are dismayed to see that DHS wants to impose Managed Care Organization (MCO) mechanisms and complex payment systems onto the medical providers that might choose to participate. This is unfortunate, since direct contracting with provider groups can be done much more simply and efficiently, with less administrative expense. DHS’ hybrid proposal would require DHS to administer Fee For Service claims while at the same time administering a complicated capitation – for those same medical procedures — with various adjustments, including risk score measures. It is strange that DHS sees a need to increase its own administrative workload in order to directly contract with medical providers.

A global budgeting process would be better, simpler, and less costly to administer, for both DHS and hospital/clinic groups. A global budget system can vary in how much financial risk is placed on providers. Provisions for smaller risk would enable smaller providers to participate instead of just large integrated medical systems.

While we are glad that the Next Generation Integrated Health Partnerships (IHPs) can result in removal of HMO middlemen for many Medical Assistance and MinnesotaCare enrollees, DHS’ proposal, by still incorporating MCOs, fails to seize the opportunity to completely remove the private corporate middlemen, which would involve ceasing to contract at all with private HMOs on a capitated basis. We assert, at the same time, that the publicly-operated County Based Purchasing systems (CBPs) should still be allowed to contract with the state on a capitated basis, since they, having a very different status and motivation than the private Health Plan HMOs, actually perform the MCO function in the proper, public purpose, economically efficient and financially transparent way that is supposed to happen for all MCOs. The CBPs demonstrate how MCOs ought to operate in relationship to the state, while the private HMOs do not. It is a large mistake to lump the two together. And, depending on how the Next Generation IHP financial incentives work out for hospital/clinic systems, we might or might not end up with a majority of Medical Assistance and MinnesotaCare enrollees still enrolled in private HMOs.

To fully directly contract with hospitals and clinics, another alternative exists apart from global budgets with hospital/clinic systems. It is the managed care method known as Primary Care Case Management (PCCM), which, according to the Kaiser Family Foundation, is used as the only managed care option in North Carolina, Oklahoma, South Dakota, Vermont, Maine, Alabama, Arkansas, Idaho and Montana. It is also used partially — along with MCOs — in Connecticut, Colorado, North Dakota and a few other states. The PCCM method pays fees to primary care medical homes to be care coordinators and gatekeepers, and pays all other medical services to all providers on a Fee For Service basis. Some PCCM systems add on enhanced features such as medication management and disease management programs. A large advantage of PCCM compared to direct-contracting global budgeting (or capitated risk payments for that matter) is that providers are not economically pressured to have to combine into larger and larger groups to shoulder risk. Most important, the PCCM model has proven to reduce cost, while maintaining or improving access and quality of care, compared to MCO contracts with insurance companies. Very large reductions in overall administrative expense, compared to using private MCOs, have taken place. Unfortunately, in some states there has been push-back and reduction in the use of PCCMs, due to pressure by insurance companies who want to get MCO contracts precisely for the purpose of making money off of the states.

Geographic considerations: Direct contracting options including Next Generation IHPs, global budgets with provider groups, or PCCM should be available from the start for provider groups statewide, not just in the Twin Cities. Some of the larger systems in Greater Minnesota would very likely be interested in contracting with the state with the Next Generation IHPs (depending on the risk exposure) or with global budgeting direct-contracting. If a PCCM system is adopted statewide instead, then all sizes of medical providers could readily participate, and enrollees’ choice of provider would be maximized. Minnesota has already put a lot of development into Primary Care Medical Homes, which would facilitate widespread PCCM use. Greater Minnesota should not have to wait years for a Twin Cities pilot project to finish.

pecific DHS Questions: In addition to the above general comments, GMHCC offers responses to some of the specific questions posed by DHS. We will respond to questions 5, 6, 7, 9, and 12.

What criteria and evidence should DHS and counties use to evaluate any potential responder’s ability to implement any proposed initiative, contract, intervention, etc.? How should DHS hold entities accountable for their proposal?

A critical component of accountability is to fully verify the medical claims data of the MCOs. There is significant evidence that the private HMOs have repeatedly given inaccurate, inflated numbers to the state, but this verification has never been imposed by DHS, the Dept. of Health, the Dept. of Commerce, or the Legislative Auditor, despite statutes and contract provisions requiring and/or allowing it to happen. Those provisions in statute are rendered meaningless if they are never utilized – a cruel joke which makes a mockery of Minnesota’s “good government” reputation. GMHCC has found it amazing, in the face of our repeated attempts to see external auditing and verification of paid claims encounter data happen, a steadfast resistance of the part of all state officials to do this. If federal authorities are not interested in enforcing the legal requirements for this accountability, that does not mean the state should put itself off the hook. Basic due diligence dictates that when Minnesota is spending over $5 billion a year, in the largest contracts by far to any private entities, it is imperative to verify if the money is being spent as intended. Note that the Health Plans collectively invest – by their own admission to the Minnesota Campaign Finance and Public Disclosure Board – about $1 million per year to lobby the state legislature. The true amount of financial influence, especially if behind-the-scenes political expenditures were identified, would be much larger.

In its document requesting comments, DHS remarks that its normal MCO rate-setting process includes an allowance for “contribution to reserves,” which for practical purposes equates to a “net income” or “profit” from the managed care contracts. However, DHS has never — and is not proposing now — to monitor the level of the reserves, and adjust the allowed contribution to reserves in relationship to how high that level is. DHS should do that. But because it doesn’t, that means, as has been the case much more often than not over the years, that the DHS contracts have inappropriately added to financial reserves that are already excessive. If you add up the net income from the state programs – including investment income – that Blue Plus, Medica, HealthPartners and UCare have reported to the state on their MN Supplement Reports, you reach an aggregate total (incorporating both gains and losses) over the last 20 years of over $1.2 billion dollars. That is an enormous contribution to reserves. If external, forensic auditing were ever to be performed, the number would likely be much higher.

Another problem with accountability is the need for reliable verification for health risk adjustment scores for MCO enrollees, which is a critical aspect of managed care rate setting. It has been shown and proven a number of times that health insurance companies will stoop to inflating their enrollee risk scores if it will bring extra, unjustified payment to them. Hospital/clinic groups which contract with the state on a capitated basis would be subject to the same temptation. In general, it is difficult to achieve meaningful risk adjustment anyway, and to do so accurately would greatly increase the expense of the analysis. The leeway to manipulate reported risk scores is huge. Furthermore, MCO and provider payments based on risk scores leads to rampant “up-coding” at the provider level (either insisted on by insurance payors or self-motivated to get better reimbursements). We have a national Medicare Advantage scandal of some $15 billion per year stolen by insurance companies inflating their enrollee risk scores — and never submitting reduced scores when they have the evidence for that – which speaks to a need for extensive, expensive regulatory monitoring if cheating is to be kept in check. Accurate health risk scores, without cheating, is a very costly proposition.

Would administering a single Preferred Drug List (PDL) across all the models be preferable to carving out the pharmacy benefit from the Managed Care or Next Generation IHP models? Would expanding the single PDL or pharmacy carve out beyond the seven county metro area be preferable to applying the changes to only the metro county contracts?

A carve-out of the pharmacy benefit, if administered properly, would be preferable to administering a single Preferred Drug List (PDL). Whichever of the two methods is used, it would be best for it to apply statewide, instead of just in the metro counties. Greater Minnesota needs better formulary choices, and savings in pharmacy costs, as much or more as does the Twin Cities metro area.

A carve-out is preferable because it would allow for efficient, consolidated, lower-cost administrative expense, and because it would eliminate secret rebates that go to HMOs that drive formulary decisions which are often not the most efficacious and cost-effective choices. To realize these benefits, however, the carve-out would have to be administered by, or under the direct and detailed supervision of, the state. If the state were merely to pick and hire a Health Plan or a Pharmacy Benefit Manager to manage the carve-out, even with a competitive bidding process, the result would likely be unnecessary costs, excess profit to the contractor, hidden costs and profits, and a formulary designed to secretly financially benefit the contractor, rather than provide the most cost-effective drugs at the best prices.

The alternative method of a single PDL used by all the MCOs and Next Generation IHPs would be much less efficient, but it raises both the question and opportunity for coordinated purchasing – by the provider groups as well as the MCOs — from drug manufacturers of the chosen formulary medications and items. This would work best if the state was negotiating with the drug manufacturers on behalf of these purchasers as one pool. That might be the only feasible way for it to work.

Whether a carve-out or a PDL is used, the state has very good resources to deliberate and decide on the best evidence-based choices for a formulary, with DHS’ own Drug Formulary Committee, plus important experts such as Cody Wiberg at the MN Board of Pharmacy, and Prof. Steve Schondelmeyer at the University of Minnesota College of Pharmacy.

How can this model appropriately balance the level of risk that providers can take on under this demonstration while ensuring incentives are adequate to drive changes in care delivery and overall costs?

The question of the appropriate level of risk is very critical, and the state must acknowledge these considerations: (1) It would be a huge mistake to burden medical providers with more financial risk than they can readily handle; (2) The determination of this has to be very individualized to each provider system’s particulars; and (3) The determination, to be accurate, has to access detailed financial and operational data for each participating provider system.

Adding too much financial risk can incentivize providers to start acting like an insurer, or even cause them to join forces with an insurer to help manage the risk. It also encourages consolidation of providers into ever-larger groups which can diminish competition that could help hold down prices. Any risk that the state makes providers take on needs to be carefully calibrated with the providers’ strategies of holding down or reducing unnecessary costs while providing the full appropriate measures of medical treatments to patients.

The question of financial risk also raises the question of how long a medical provider can count on a particular patient to be with them for the long term. In general, they can’t, and this is especially true of patients enrolled in Medical Assistance or MinnesotaCare. The risk models that depend on attributing patients to a particular provider group creates a huge disincentive, which is: Providers would be naturally reluctant to spend increased resources on more prevention, primary care and disease management because the “return on investment” – savings down the road in reduced expensive specialized care – take decades to fully materialize. A provider could spend the extra money for this on their patients, who years later switch to a different provider – who realizes the financial savings caused by the previous provider’s investment. Very large integrated systems with tens of thousands of patients would maybe make the investments, but the only way to really solve the problem is to have a unified, universal payment system which shoulders the investment expense for all providers at the same time. To date, the investments that have been generally made by Accountable Care Organization (ACO) models have been very limited to the “low hanging fruit” of certain types of disease management that can prevent, in a short period of time, reduced hospitalization expense. It does not address our overriding problem of far too little preventive and primary care, which results in more specialized and expensive care than need happen otherwise, and an unnecessarily high medical expenditure overall.

The vastly problematic issue of provider risk heavily points to the desirability of the PCCM model discussed above. PCCM addresses DHS’ goal of reducing spending that is not actual medical care, by very directly and clearing slashing administrative expense. Medical providers don’t have to deal with the issues in taking on insurance risk. In PCCM models, utilization is kept in check with the primary care gatekeeper and coordination roles. The old (and very questionable) fear of “blank check” runaway costs with Fee For Service payments has not materialized in the PCCM experience. The huge administrative savings from PCCM could even enable better reimbursements to medical providers above the current DHS Fee For Service rates.

How much of the entities’ payment should be subject to performance on quality and health outcome measures? Please explain your answer.

The concept of pay for performance (P4P) might sound plausible in theory, but it is not a good method to use, and should not be used at all, or at least not for the components that measure patient health outcomes. The chief reason is because the P4P theory depends on accurate and fair measurements which are either extremely expensive and/or impossible to obtain, and because P4P can easily lead to negative consequences. A very real danger is that physicians and clinics would become motivated to not want to see patients who “bring down” their performance scores, which can result in patients who need care the most having the most difficulty receiving it. As mentioned previously, risk adjustment is such an inadequate science that it cannot do a good job of factoring into P4P determinations.

Trying to attribute patient health outcomes to the performance of the physician makes little sense when so many factors including patient compliance with instructions; patient ability to afford out of pocket costs for medications and other expenses; and social determinants affecting the patient are all outside of the physician’s control. It is useful that the DHS proposal, and other trends, are seeking medical providers’ involvement in addressing social determinants, but that does not alleviate or negate the issue of these factors affecting outcomes and physician “performance.” P4P adjustments are very likely to lead to financial punishments for providers who treat low income and disadvantaged patients, and reduced care for those patients. That contributes to worse health outcomes, not better ones, and worsens health disparities instead of improving them. Social determinants of health such as housing, environmental factors, education, nutrition, and income are such basic societal realities – and fundamentally a result of our country’s vastly unequal distribution of income and wealth — that it does not make any sense to make medical providers responsible for them. As for personal behaviors, medical providers can influence some of those to some degree, but still have no real control over them.

In its request for comments, DHS states that “More than $212 million of this savings has occurred in the last three years with the state’s successful IHP program.” GMHCC has repeatedly asked DHS for a breakdown of the calculations to arrive at this number, with no response other than silence. It is important for DHS to provide the detailed calculations to the legislature and the public, so we can properly evaluate the claim.

An important question is: Just what shared savings has DHS actually realized from the IHPs (Medicaid ACOs) to date? When savings occur by beating spending targets, two different processes take place in regard to Fee For Service enrollees, versus MCO enrollees in the Prepaid Medical Assistance Program PMAP):

1) For Fee For Service (FFS) enrollees, DHS calculates and pays the ACO provider its share of the savings. DHS has already realized its share of the savings, by virtue of paying out less in FFS reimbursements than it would have otherwise.

2) For managed care (PMAP) enrollees, the process starts with DHS paying the MCO its normal monthly capitation for all of the MCO’s enrollees. The MCO pays the ACO provider its normal reimbursement for specific services. After the year is up, DHS calculates the total savings that the ACO accomplished. DHS then orders the MCOs to pay, on behalf of each MCO’s enrollees who are patients of the ACO, the appropriate portion of the savings to the ACO.

The big question is then: How does DHS receive its portion of the shared savings, out of the money that it already gave to the MCOs? This is apparently accomplished through some sort of adjustments in the capitated rate setting for each MCO, for the next year or perhaps only starting with the year after that. There are also negotiations between DHS and the MCOs. The bottom line is that is unknown and unclear if DHS actually gets the full amount of its shared savings, or whether the MCOs keep some of that, which they should not be retaining.

From: Minnesota Nurses Association

In response to the Minnesota Department of Human Services (DHS) request for comments regarding the “next-generation” Integrated Health Partnerships (IHPs), the Minnesota Nurses Association submits the following comments.

Nurses believe that everyone must receive the care they need when they need it without regard to their ability to pay. Minnesota has a strong tradition of providing basic health coverage for our neighbors who are most in need, but nurses know that all too often, patients do not receive necessary care. This is why we work towards the policy solution of a publicly-financed healthcare system that covers all Minnesota residents from birth until death without interruption.

As we work towards a Single Payer healthcare system, we seek to build the pillars of that system in our publicly-managed programs, including Medical Assistance and MinnesotaCare. Those pillars include (1) direct contracting between the State and providers, (2) prioritization of preventive care, care coordination, and proactive management of chronic conditions, (3) full choice of providers, (4) the ability to negotiate prescription drug prices, and (5) global budgeting for hospitals.

The “next-generation” IHP program has some positive advancements, though we remain concerned with the overall direction of IHPs and Managed Care Organizations (MCOs) generally.

We applaud the upfront per-member per-month payments to providers for care coordination. This advancement will allow providers to invest in higher-quality, provider-initiated interactions with patients, as well as allow patients to contact providers with basic questions about their health. Right now, nurse hotlines and patient outreach are not reimbursable and are therefore underutilized.

We are concerned, however, with a number of elements within the IHP and MCO models.

First, all risk in healthcare should be held by the population as a whole, not a business. The opportunity and risk of shared savings should not be part of this public-provider relationship as it creates possible perverse incentives to provide less care or lower-quality care in order to maximize profits. Nurses seek to remove profit incentives from healthcare delivery.

Second, and relatedly, the regular rebasing for Total Cost of Care (TCOC) savings determinations leads to a healthcare system more similar to the Walmart style of business – regularly forcing providers to decrease supply costs and thus reduce quality over time – than to one that delivers a high-quality product or service. When we also consider the difficulty or even impossibility to accurately make risk adjustments, the TCOC determinations are largely arbitrary. This is particularly detrimental financially to small clinics that serve high-need patients.

Lastly, no public healthcare dollars should go to insurance companies or any healthcare system that assumes risk for a pool of patients. Insurance companies and hospital system billing agents do not provide any care to patients. Payments should only be made for direct patient care and care coordination.

Instead of expanding on the IHP model, given our aforementioned concerns, we recommend the following to DHS for management of its Medical Assistance and MinnesotaCare programs.

First, that DHS fully invest in preventive care and care coordination by paying clinics a small but reasonable capitated payment for care coordination. DHS should pay higher rates for patients with certain diagnoses and chronic conditions.

Second, that DHS pay set fees for any service or procedure provided beyond general appointments and care coordination. As those services would be included in the capitated payment, reimbursement for other services and procedures would allow providers to use capitated payments exclusively for maintaining regular contact with patients, ensuring they are taking prescribed medication and receiving the care they need when they need it.

Third, that no capitated payment go to a hospital system: only independent clinics and providers. This would remove possible perverse incentives that could include providers from hospital-owned clinics sending patients into hospital systems for unnecessary procedures simply to meet quotas, for example.

Fourth, that DHS work with each hospital in Minnesota to create global budgets and begin making annual per-hospital payments based on the number of public patients each hospital serves. These budgets would include infrastructure improvements, maintenance, and investment in new technology, among other needs. It is important that these global budgets concern individual hospitals and that hospital systems not be allowed to transfer this money between hospitals within their system.

Fifth, that patients have a full choice of providers. Patients should be able to choose any primary care provider, as well as any hospital system for other procedures and services. DHS should rescind current network restrictions that prohibit this.

Sixth, that DHS seek necessary approval to begin negotiating prescription drug prices for patients on public programs.

Finally, that all payments be made directly from DHS to providers for all services. Again, we have no need for insurance companies, and this would also help reduce the rapidly-increasing number of billing agents providers are required to hire.

In summary, nurses work towards a system that guarantees every patient receive the healthcare they need when they need it without regard to their ability to pay. We look to DHS to help construct the pillars of a publicly-financed healthcare system that meets all Minnesotans’ healthcare needs within its current public programs. Direct contracting with providers, investments in preventive care and care coordination, full patient choice, negotiated drug prices, and global hospital budgeting are all among those pillars.

If we move in this direction through DHS public programs, Minnesotans can finally begin to take control of our broken healthcare system

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