ACO Benchmarks and Financial Success – SOA Sponsored Research

Presented by:

Rong Yi, PhDMilliman, New York City

6th National Predictive Modeling SummitDecember 6, 2012

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DISCLAIMER

The research project is sponsored by the Society of Actuaries and overseen by the Project Oversight GroupResults included in this presentation are preliminary and subject to change as work is still in progressTools used in this project are for research purposes only. Milliman does not intend to benefit any third party or endorse any commercial tools.

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Project Structure and AcknowledgementAuthors: Rong Yi, Bill O’Brien, Chun YauSOA Project Oversight Group

SOA: Steve Siegel, Sara Teppema, and Barbara ScottOptum provided the ETG grouper for this research

Louise Anderson Dewayne UllspergerDan Bailey Greger VigenJohn Bertko Jim WhislerMark Bethke Rina VertesKristi Bohn

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Paradigm ShiftWeak economy– Federal and state deficits– Uninsured

Healthcare reformConsumer Service expectations based on iPhone/Droid, not post office

Paradigm shift: permanent pressure on cost

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New Payment Systems that Cut Revenue Are Forcing Organizations to Look at Data

Payment reform schemes all cut spending– Public sector: CMMI bundled payments, Pioneer ACOs, MSSP,

State programs contracting with ACOs directly– Private sector: % of premium, PCMH, ACOs, bundlesNot all payment reform involves providers– New capitated managers: radiology benefit managers, oncology

benefit managers, post-acute benefit managers, etc.

What makes sense?– What’s the budget? What’s in it?– How much risk?– What are critical success factors?

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Example of Commercial Ambulatory Care Sensitive Admits

Ambulatory Care Sensitive Admissions (ACSAs) (Admits/1000 Commercial)

National Well

Managed

National Loosely

Managed ClientCongestive Heart Failure 1.56 2.52 3.47Bacterial Pneumonia 1.64 2.06 2.77COPD 0.52 0.83 1.30Urinary Infection 0.63 0.87 1.22Dehydration 0.21 0.35 0.78Diabetes Long Term Complications 0.14 0.24 0.47Adult Asthma 0.12 0.19 0.35Hypertension 0.06 0.14 0.21Angina 0.09 0.10 0.14Lower Extremity Amputation 0.03 0.05 0.14Diabetes Uncontrolled 0.02 0.04 0.05Diabetes Short Term Complication 0.02 0.04 0.05Total ACSAs/1000 5.04 7.44 10.97ACSAs As Portion Of Total Non-Mat Ad 14% 15% 18%

Client is a Hospital Employee and Dependent Population

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Cost of People with Diabetes - PPPM (per patient per month)

ServiceLow Utilization

RegionsHigh Utilization

Regions

Inpatient Facility $333.17 $353.91

Outpatient Facility $197.00 $284.76

Professional $222.82 $273.43

Prescription Drugs $288.66 $286.05

Other $37.52 $47.65

Additional Benefits $8.17 $2.89

Grand Total $1,087.35 $1,248.69 Allowed amounts before cost sharing. Adjusted to common fee levels Source: Milliman analysis of Marketscan® 2010 database

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Variation in Professional Cost

Sources, Medicare 5% Sample from 2009, Milliman Health Cost Guidelines

Nationwide Avg Well Managed

BenefitTotal Util Per 

1,000 Members

Average 

Paid per 

Service

Paid 

PMPM

Total Util Per 1,000 

Members

Average 

Paid per 

Service

Paid 

PMPM

Inpatient Surgery ‐

Primary Surgeon 431  procs  $279.96  $10.06  248  procs  $452.79  $9.35 

Inpatient Surgery ‐

Asst. Surgeon 48  procs $107.36  $0.43  27  procs  $170.78  $0.39 

Inpatient Anesthesia 150  procs $171.56  $2.15  92  procs  $195.73  $1.50 

Outpatient Surgery 686  procs $192.55  $11.01  341  procs $294.23  $8.37 

Hosp Visits  3,501  visits  $61.57  $17.96  1,926  visits  $90.60  $14.54 

Office/Home Visits 7,716  visits  $49.63  $31.91  7,466  visits  $63.26  $39.36 

All Other Professional $120.68  $67.85 

Medicare Population

Oct 25, 2012. Milliman, New York

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Questions from the ACO CommunityWhat works and what don’t?– What segment of the population and what service components can

be managed effectively to generate shared savings?

How am I doing currently? Where can I be going forward?– What’s the benchmark and how do I compare to benchmarks?

or?

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SOA ACO Project’s Main ObjectivesEstablish a methodology to develop cost and utilization benchmarks within an episode of care

• Control for benefit design and reimbursement• Control for health status

Develop a financial model to estimate potential savings within episodes of care, as an ACO’s care efficiency improvesBring population payment methodology and bundled payments together under one analytic structure

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SOA ACO Project’s Main Objectives (cont.)

Develop an analytic framework to evaluate different delivery systems– Hospital based vs. physician based– High cost vs. low cost area

Financial stability in relation to the size of the ACO

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Step 1 - Selecting Episodes

10 Base ETGs– Essential part of the commercial population– Highly relevant to population health management– Included in published literature such as PROMETHEUS– High cost variation at the episode level, perhaps resulting from

• Medical comorbidities and health status– Risk adjustment

• Various treatment options– Repricing claims

• Practice pattern differences – referrals, care setting, prescriptions• Patient socioeconomic status, preferences, compliance • Other factors

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10 Base ETGs

Hyperlipidemia, otherHypertensionJoint degeneration, localized – backDiabetesIschemic heart diseaseCerebral vascular diseaseAsthmaPregnancy, with deliveryCongestive heart failureChronic obstructive pulmonary disease

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DRAFT Table 1ACO Episode Risk‐Adjustment StudyAggregate Costs by Episode TypeEntire 3 Million Population

Episode Type:

 Included Episodes per Thousand 

Member per Year 

 Normalized Allowed Cost per Included Episode  PMPM

Asthma #No Complication and No Surgery 0 32.6                              803.3                       2.18$     

with Complication Only 1 8.1                                1,415.8                   0.95$     with Surgery Only 2 ‐                                ‐                            ‐$        

with Complication and Surgery 3 ‐                                ‐                            ‐$        

Total Asthma 40.7                              924.51                    3.14$     

Ischemic Heart Disease #No Complication and No Surgery 0 11.6                              3,290.4                   3.17$     

with Complication Only 1 0.4                                13,231.2                 0.39$     with Surgery Only 2 0.8                                36,800.3                 2.35$     

with Complication and Surgery 3 0.5                                45,241.1                 1.77$     

Total Ischemic Heart Disease 13.2                            7,006.66               7.68$    

At Population Level

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Aggregate Costs by Episode Type1 Million Population with Area Factors

High Cost Area Medium Cost Area Low Cost AreaEpisode Type: PMPM PMPM PMPM

AsthmaNo Complication and No Surgery 2.29$                    2.09$                           2.17$                  

with Complication Only 1.06$                    0.92$                           0.87$                  with Surgery Only ‐$                      ‐$                             ‐$                    

with Complication and Surgery ‐$                      ‐$                             ‐$                    

Total Asthma 3.36$                    3.02$                           3.03$                  Ischemic Heart Disease

No Complication and No Surgery 2.91$                    3.33$                           3.28$                  with Complication Only 0.36$                    0.42$                           0.38$                  

with Surgery Only 1.98$                    2.54$                           2.54$                  with Complication and Surgery 1.53$                    1.86$                           1.91$                  

Total Ischemic Heart Disease 6.78$                    8.16$                           8.12$                  

Variations in Cost & Utilization (draft exhibit)

* Areas defined using Milliman’s area factors for total cost

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“High/Medium/Low” areas are based on Milliman’s area factors for total cost

Table 4 ‐ SubPopUtilization per 1,000 Episode Base ETG Ischemic Heart Disease ‐ All

High Medium LowService Type

Inpatient Med/Surg Admissions 130.6      132.8      138.8     Other Inpatient 1.2           0.4           0.9          Total Inpatient 131.7      133.2      139.7     

Outpatient Avoidable_ER 1.4           1.3           1.6          Advanced Imaging 21.5        26.5        20.2       ER ‐ Urgent 88.5        113.8      131.1     OP Surgery 98.3        127.2      133.3     Radiology ‐ General 85.2        126.9      126.2     Pathology_FOP 245.6      337.4      365.1     Therapies 4.0           5.8           4.8          Other Outpatient 691.8      917.5      993.3     

Draft Exhibit

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Table 4 ‐ SubPopUtilization per 1,000 Episode Base ETG Ischemic Heart Disease ‐ All

High Medium LowService TypeProfessional/OthOffice Visits 1,719.4  1,620.4  1,621.2 

ER Visits 203.8      231.7      259.1     Consults 216.3      186.5      183.0     Inpatient Surgery 289.7      328.8      330.4     Outpatient Surgery 160.7      190.0      210.7     Inpatient Visits 491.6      489.7      487.7     Preventive Services 499.9      456.3      398.9     Pathology_PROF 2,877.5  2,426.5  1,562.1 Radiology 1,030.4  1,035.8  1,017.2 Physical Therapy 3.2           1.1           2.2          Cardiovascular 3,010.1  2,922.7  3,007.4 Durable Medical Equip 68.0        75.3        93.3       Home Health 24.3        33.4        23.7       Other Pro/Other 678.4      595.1      542.8     Total Pro/Other

Pharmacy Branded Drugs 3,150.3  2,995.8  3,496.7 Non‐Branded Drugs 4,006.1  4,472.2  5,442.3 Total Pharmacy 7,156.4  7,467.9  8,939.0 

Table 4 continued…

Draft Exhibit

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Step 2 – Data Standardization Exhibits in Step 1 show significant cost and utilization variation.

control for the variations that we can control for:– Contractual/pricing– Health status

Repriced claims to a uniform fee scheduleRisk adjustment – Applied risk adjustment to all cost and utilization outcomes, except

for branded vs. generic drugs• Factors include age/gender and HCCs

– Some cost and utilization outcomes are correlated with health status and some do not (see next slide)

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Risk Adjustment Models for Cost Outcomes

Base ETG Label

 # Episodes in Model Dev Sample  Outcome Variables

Average Episode Cost

Model R‐Sq (%)

601100 Pregnancy, with delivery              44,068  Professional and all other costs $5,166.37 85.80%601100 Pregnancy, with delivery              44,068  Inpatient facility cost $6,834.91 83.57%163000 Diabetes            233,263  Professional and all other costs $521.19 39.42%386500 Ischemic heart disease              76,647  Professional and all other costs $1,392.30 39.27%601100 Pregnancy, with delivery              44,068  Outpatient facility cost $2,108.26 34.30%316000 Cerebral vascular disease              20,129  Professional and all other costs $1,466.70 28.39%386500 Ischemic heart disease              76,647  Inpatient facility cost $3,447.94 27.58%

Highest R-Squared

Lowest R-Squared

Base ETG Label

 # Episodes in Model 

Dev Sample  Outcome Variables

Average Episode Cost

Model R‐Sq (%)

386800 Congestive heart failure     11,126  Outpatient prescription cost $199.71 0.39%164700 Hyperlipidemia, Professional and all other costs   398,559  Professional and all other costs $120.84 0.80%316000 Cerebral vascular disease     20,129  Outpatient prescription cost $190.07 0.91%438800 Asthma   236,976  Outpatient prescription cost $501.32 1.56%386500 Ischemic heart disease     76,647  Outpatient prescription cost $757.91 1.74%388100 Hypertension   654,739  Outpatient prescription cost $297.19 2.15%386800 Congestive heart failure     11,126  Outpatient facility cost $852.05 2.60%

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Before and After Risk AdjustmentInsert table 1AIschemic Heart Disease ‐ All

Population  Entire 3 Million PopulationMean Percentiles ‐ Raw Data (No Risk Adjustment)

Service Type Measure Unit Raw 22.5 ‐ 27.5th 47.5 ‐ 52.5th72.5 ‐ 77.5th 87.5 ‐ 92.5th 92.5 ‐ 97.5th 97.5 ‐ 100th

Inpatient Med/Surg Admissions per Episodes 0.134  ‐              ‐           ‐           1                  1                  1                Total Inpatient Costs Cost per Episo 3,447  ‐              ‐           ‐           11,045       27,507       56,306    

Outpatient Avoidable ER Visits per Episodes 0.001  0                  0               0               0                  0                  0                Advanced Imaging per Episodes 0.023  0                  0               0               0                  0                  0                Total Outpatient Cost per Episo 1,409  60               234          2,406      5,622         5,052         6,178       

Mean Percentiles ‐ Risk AdjustedService Type Measure Unit Raw 22.5 ‐ 27.5th 47.5 ‐ 52.5th72.5 ‐ 77.5th 87.5 ‐ 92.5th 92.5 ‐ 97.5th 97.5 ‐ 100th

Inpatient Med/Surg Admissions per Episodes 0.134  0                  0               0               0                  0                  1                Total Inpatient Costs Cost per Episo 3,447  657             1,543      4,094      9,637         16,027       20,086    

Outpatient Avoidable ER Visits per Episodes 0.001  0                  0               0               0                  0                  0                Advanced Imaging per Episodes 0.023  0                  0               0               0                  0                  0                Total Outpatient Cost per Episo 1,409  951             1,507      1,929      2,490         1,761         2,879       

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Before and After Risk Adjustment (cont.)Insert table 1A

Table 5BEpisode ranking before and after risk adjustment

Ischemic Heart Disease ‐ AllPopulation  Entire 3 Million Population

Mean Percentiles ‐ Raw Data (No Risk Adjustment)Service Type Measure Unit Raw 22.5 ‐ 27.5th 47.5 ‐ 52.5th72.5 ‐ 77.5th 87.5 ‐ 92.5th 92.5 ‐ 97.5th 97.5 ‐ 100th

Professional/OthOffice Visits per Episodes 1.675  1                  2               2               3                  3                  4                Total Pro/Other Cost per Episo 1,392  303             727          1,337      3,503         5,342         11,310    

Pharmacy Total Pharmacy Cost per Episo 758      187             894          1,279      1,040         1,216         1,366       

Total Cost per Episo 7,007  551             1,855      5,022      21,210       39,118       75,160    

Mean Percentiles ‐ Risk AdjustedService Type Measure Unit Raw 22.5 ‐ 27.5th 47.5 ‐ 52.5th72.5 ‐ 77.5th 87.5 ‐ 92.5th 92.5 ‐ 97.5th 97.5 ‐ 100th

Professional/OthOffice Visits per Episodes 1.652  1                  2               2               2                  2                  3                Total Pro/Other Cost per Episo 1,392  680             1,071      1,845      3,077         3,713         4,825       

Pharmacy Total Pharmacy Cost per Episo 758      663             753          777          853             1,004         1,090       

Total Cost per Episo 7,007  2,951         4,874      8,645      16,057       22,506       28,879    

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Steps underway

Finalize risk adjustment methodologySimulations - ACOs with different population sizeDevelop the financial model for ACOs under different efficiency assumptions

Report expected to be released in late 2012 or early 2013

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Some Takeaways (so far…)

Risk adjustment can reduce some of the cost and utilization variations within an episode“My patients are sicker” cannot always be used to justify higher cost and utilization

• Professional cost has the highest correlation with health statusindustry’s emphasis on standardize preventive care and population

health management• Prescription cost has the lowest correlation with health status

Prescription patterns matters more

Savings opportunity varies by episode• Episodes conforming to standard or EBM seem to have less savings

opportunity