Healthcare Delivery and Its Financing Growing Closer

Read on to learn more about a market development that actually looks consistent with PPACA's objective of making healthcare delivery more efficient and less expensive.

Patient Protection and Affordable Care Act abuse
Healthcare reform is certainly receiving its share of abuse. Whether the conversation is local or national, private or public, one is sure to hear how the PPACA is nothing but bad news. Job destruction and the ruin of one's ability to direct personal healthcare are on the forefront of this criticism. Rarely do you hear a positive comment related to the law.

Sometimes the Obama administration releases information that the PPACA's individual market technology challenges are getting better or somehow the declining trend in healthcare expenses are connected to the legislation. Hearing that the law is actually achieving one of its objectives is atypical. Until now, that is. Read on to learn more about a market development that actually looks consistent with PPACA's objective of making healthcare delivery more efficient and less expensive.

Quality
One of the changes found in the voluminous law is the requirement for the government to begin considering the quality of care when making reimbursements under its insurance program, Medicare. A section of the law creates incentives for providers to pay more attention to the quality of their care in order to receive a greater payment for their services. These incentives encourage what has become known as accountable care organizations or ACOs. ACOs are not necessarily new legal entities, but rather are descriptions of healthcare delivery systems that place an emphasis on quality of care in order to reduce expense. Provider systems all over the country have spent big money to implement quality care initiatives and systems to keep track of their impact on the cost of the care. In return, these provider systems hope to grab a bigger payment from Medicare for their services.

Seems like a reasonably good idea, but how do these same quality efforts work in the private commercial market? Not so well. Ironically, because of the requirements imposed on the guaranteed cost first dollar insurance market by PPACA, much of the quality care initiatives developed by providers as part of their ACO efforts do not fit well with the private insurance market. First, how can the ACO initiatives be tracked when the patients are insured by third-party fully insured carriers? Who is rewarded when a provider does a good job and practices in such a fashion as to limit readmissions and escalating health costs? And, who knows when they do? Second, how does community rating distinguish between those providers applying quality low-cost care and those running up the tab to enrich their bottom line?

Fast answer, it doesn’t and so the quality care incentives being encouraged by Medicare are largely lost and certainly not encouraged when patients are covered by a fully insured or fixed-cost insurer. What about plan designs such as high-deductible plans that match with the providers’ quality, efficiency and health efforts? No, these too are limited by much of the rules now imposed by PPACA on the fixed-cost insurance market.

Community health plans
If the door is shut on providers trying to apply ACO strategies to the fixed-cost commercial market, what can be done? After all, if the providers have invested time and money to rework their businesses in a direction focused on quality and efficiency, it seems illogical to apply these efforts in only part of the market. Great quality ideas should not be applied exclusively in the Medicare reimbursement market. Fortunately, innovation in the insurance market is finding its way to provider systems. This innovation is presented to the commercial market under the name of "community health plan." A community health plan is a network, established by a regional medical provider, offering members of its community superior and affordable healthcare through a plan utilizing only that provider or other like-minded regional providers. These new community health plans overcome the obstacles found in the fixed-cost insurer market and enable all the great quality care efficiencies to be applied in the commercial market. Problems with keeping track of savings; identifying cost-effective providers; and rewarding quality directly, objectively and efficiently are removed with these new community health plans. Community rating is inapplicable. Plan design creativity is unencumbered with the capability to align provider and buyer incentives. What is this stealth solution that is taking the provider market by storm? The self-funded or stop-loss group captive (also called the "medical captive"). Yes, this alternative risk market solution is now resonating with provider systems, including large physician groups, hospitals and fully insured health plans.    

Think about it, community health plans were first developed because providers wanted traction with their local community. They desired local patients and buyers to call and buy from them first. That's why many have already adopted or at least looked into a community health plan years ago. What they found, however, was mountain-sized red tape, inconsistent application to their objectives, and new rules related to PPACA that made the idea of a community health plan a bad one. Enter the medical captive solution. A medical captive is a reinsurance vehicle where policyholders pool and share a layer of their self-funded health benefit risk.  The medical captive solution enables these same providers to offer their community a health plan immediately. No regulatory red tape. They have a commercial market health plan where quality care initiatives can be objectively monitored so cost savings and efficiency is not a guess or lost to a third-party insurer. Cost-saving rewards arising from quality and efficiency can be measured quarterly if not monthly under the medical captive approach. A provider's cost-saving ideas receive real time feedback.

The medical captive is built on a self-funded chassis that also delivers benefits over the traditional market. The post-PPACA insurance environment includes community rating and restricted plan designs, however, self –funded insurance programs avoid these potholes. Put another way, a self-funded insurance program fits nicely with the provider's ACO efforts and allows most of the Medicare-inspired initiatives to be realized in the commercial market. So long as the medical captive is the financing vehicle being utilized by the provider’s community health plan, the disconnect between PPACA's quality initiatives and the commercial insurance market are resolved.

Who?
Hospitals are attracted to the medical captive as a form of community health plan for several reasons. First, the narrow network is gaining ground as a viable solution for keeping medical expenses under control. Employers and employees are now receptive to the notion of limiting choice to the local provider in exchange for a lower price. This is good news for the hospital without an existing health plan that is looking for traction with its local employers. The hospital-sponsored narrow network is an approach that is simple to implement with the medical captive. In addition, hospitals with existing community health plans of the fixed-cost variety now are looking to add the medical captive as another choice. Frequently, the hospital’s investment in claim paying services, network and, of course, ACO strategies seamlessly integrate into the medical captive.

Larger physician practices find themselves in a similar place to many hospitals in their quest to retain and grow their customers. Offering a health plan with a capitated physician service component is easily accomplished with a medical captive. Physician practices can quickly distinguish their practices from the rush of hospitalists with a health plan that incorporates much of their treatment philosophies, including ACO solutions. The flexibility of the medical captive built on a self-funded platform enables creativity in plan design and buyer incentives that mesh nicely with efforts by physician practice efforts directed at reducing high cost diseases. Hospital services can then be delivered to the buyers through the health plan on a contracted basis. Measuring the effectiveness of the physician practice efforts at cost control is readily verified by reference to the medical captive underwriting results. Not hard to understand why larger physician practices are quickly moving to the medical captive as part of the solution for reinventing healthcare delivery.

Shared objectives
Everyone agrees with the objective of lowering the cost of healthcare. Not everyone, however, agrees with or understands what goes into the cost of healthcare. The cost and purchase of healthcare is more complicated than buying a pair of shoes, unfortunately. Most consumers do not see what it actually costs to receive a medical procedure or purchase a medicine. This is because many do not directly pay or see the cost of the care, but rather the buyers pay a fixed cost or premium and then enter a buffet of healthcare providers. Cost efficiency is a low priority and only mentioned at renewal time or when the overall price trend for the fixed cost interferes with the buyer's budget. PPACA was created with one objective of changing the incentives surrounding the purchase of healthcare. We may disagree on whether it does so in the most effective manner, but we should be able to go back and agree with the initial motive for the law, lower healthcare cost.

Looking then at PPACA and connecting it to the primary objective of lowering healthcare cost, we should be encouraged that the healthcare providers are growing closer to the financing of care. If the law is encouraging the formation of new healthcare financing mechanisms that offer objective and immediate feedback on quality cost saving solutions, we are starting to reach our shared objective. When buyers and sellers take even one step closer to achieving the same goal, healthcare starts looking more like buying a new pair of shoes.

Michael A. Schroeder is president of the Roundstone Management, Ltd., based in Westlake, Ohio. He has more than 20 years of insurance industry management experience with responsibilities in the captive market, self insurance trusts, publicly held insurance companies and the regulatory environment. Roundstone Management is focused on the development, underwriting and servicing of specialty insurance programs, including single-parent, agency and group captives.

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