Will or won’t private payers join CMS’ Primary Care Demo?

by Torsten Bernewitz

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In two weeks, on November 15, public and private payers interested joining the CMS Comprehensive Primary Care Initiative, or “primary care demo”, must file a non-binding letter of intent. Final applications will then be due in mid January. See more details here: (http://innovations.cms.gov/documents/pdf/cpc_initiative_solicitation.pdf)

But what is in it for the payer – and at what cost?

The program will test new payment and delivery approaches with the aim of lowering Medicare, Medicaid and Children’s Health Insurance Program (CHIP) spending. CMS will enter into agreements with practices in selected (still to be defined) markets.

Payers and practices will have to sign agreements of their own in order to accommodate a shared-savings component envisioned to kick in after two years, when CMS’s additional per-beneficiary care management fee will be reduced.

The model will reward primary care providers for improved, comprehensive care management. The hope is that better outcomes will also lower overall costs.

CMS will pay – in addition to their usual Medicare reimbursement - an average risk-adjusted care management fee of $20 per Medicare FFS beneficiary per month to participating primary care practices. This fee is to compensate providers for several activities, including helping patients with serious or chronic illnesses follow personalized care plans, giving 24-hour access to patients for care and health information, providing preventive services, and working with specialists to improve care coordination.

Like most other alternative healthcare delivery and payment models, the program will incorporate systematic data sharing with practices about cost, utilization and quality metrics to monitor improvements. The monthly fee will drop in later years of the program – the time when benefit sharing with payers will become available.

So how attractive is all this for the payers, in particular the private ones?

At the recent AHIP Shared Responsibility Summit, which showcased alternative delivery and payment models very similar to the one envisioned here, it was highlighted that in all cases significant upfront payer investment is needed to get things started, in particular to help with the processes and systems managing data and money flows (see http://payer-strategies.blogspot.com/2011/10/love-is-all-you-need-well-not-quite.html).

It is not quite clear to what extent the additional CMS fees will covers this need, and that is of course a headache for the payers who are contemplating if they should join or not.

Of course the CMS argument is that the increased effectiveness of the primary care physicians will also benefit the payer. And this may be true – in other places system cost saving could indeed be shown.

However, there is potentially also a “free rider” effect here – if providers change the way they deliver healthcare, for example through more cost conscious referral approaches, we can expect this to spill over into all patients they handle. We see a this phenomenon time and again when the benefit designs of one health plan influences provider behavior and then has a halo effect on other plans. 

Thus all plans will benefit, even if they do not sign up for the initial program. So if I am a payer, what is my motivation to sign up for more costs (at the hope of cost savings later), and share the benefits (that I might have enjoyed anyway)?

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com

It's all in the contract - part 2

by Torsten Bernewitz

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Yesterday I wrote about checks and balances in the contracting negotiation between health plans and manufacturers, and asked the question what strengths a health plan can leverage in this process (http://payer-strategies.blogspot.com/2011/10/its-all-in-contract-how-payers-are.html).

For medical devices, this is a complex and difficult question. First: who do we actually negotiate with – providers, manufacturers, or both? Second: what do we negotiate for - reimbursement rates or rebates (or both)?

Contracting scenarios

With whom to negotiate, and what to negotiate for, depends on the money flows, and on the type of device under consideration, and the contracting scenarios can be very different.

In many cases, the provider will purchase the device from the manufacturer and seek reimbursement from the payer. Provider reimbursement is the common model in the hospital setting, and typically includes products like implants or pacemakers. Payers and providers can contract for inclusive payment for certain procedures (i.e. including the cost of the device in a case based lump sum), or separate payments for the device and the intervention.

Separate payment - although less common today - may be the smarter choice for the payer, as will be discussed below.

In other cases, the provider is not involved in the money flow, and the payer reimburses the patient directly. Patient reimbursement is most common in outpatient settings and home care, typical products in this category include insulin pumps, glucose monitors, nebulizers or negative pressure wound therapy. Here, success factors and strategies and very similar to negotiations with pharmaceutical manufacturers.

Unbundling can be an effective way to obtain better leverage

If the payment is inclusive, it may seem that the payer does not need to worry about the cost of the device too much; this question is then more a concern for the provider’s financial officers, and the contract they have with the manufacturer. However, payers still need to keep close tabs on device costs to make sure that they are not paying too much when the provider uses cost increases as an argument to ask for fee increases. And anyway, it is generally a good idea to understand the individual cost components of the procedure to estimate provider margins and estimate the resulting room for negotiation of reimbursement rates.

If the device payment is separate, payers will aim to contain provider reimbursement rates. In particular, they will try to squeeze out potential provider margins on the device (i.e. reimbursement should be very close to the net amount the provider pays to the device manufacturer). Alternatively (or in addition), the payer may go to the manufacturer and negotiate a rebate. Rebating to the payer may be beneficial to the manufacturer as well. If there is more room for reimbursement to the provider, utilization controls may be less restrictive, and the manufacturer’s market penetration can increase.

Unbundling - moving from inclusive payments to separate payments - is probably in the interest of payers, at least as long as the fee-for-service model prevails. This strategy is similar to the moves payers are making to shift specialty pharmaceuticals – the big drug spending headache – from the buy-and-bill model under the medical benefit to the pharmacy benefit, which can be better controlled.

The model for patient reimbursement is equivalent to contracting for pharmaceuticals. Payers and manufacturers negotiate rebates for “market access”. There are different dynamics at play in this environment - more about that in a subsequent post.

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com