Making Total Cost of Care Contracting Work

Health plans are bringing back capitation, and providers who are not ready could be bypassed.

This article first appeared in the November 2015 issue of HealthLeaders magazine.

Anthem CEO Joe Swedish announced to an April luncheon of the Nashville Healthcare Council that total cost of care contracting is one of three critical concepts the giant insurer is trying to promote in 2015 and beyond. The others are related—provider collaboration and consumer focus—but all three goals tie into the concept of risk-based reimbursement.

The idea is that reimbursement contracting based on total cost of care metrics incents providers to manage costs and quality in ways they haven't had to since the last time they operated under a capitated contract, if they ever have. Capitation puts hospitals and health systems on the hook to codevelop new, more accountable systems of care with other healthcare providers, whether they be other hospitals, physicians, postacute providers such as skilled nursing or rehab, or other sites of care. At its most basic, capitation means a single per member, per month payment for managing all of a population's healthcare needs—and the costs associated with those needs.

Few seemed surprised at Swedish's statement, even though with the exception of parts of California and other geographically restricted areas, capitation had been largely abandoned by insurers since the mid to late '90s. Yet today, they are increasingly using it as a major tool to help slow the rise in the cost of healthcare. One of capitation's major modern success stories is senior-focused CareMore Health System in Southern California that started as a physician practice. It used total cost of care contracting to expand into a 26-clinic company with its own integrated health plan before being acquired by Anthem in 2011.

It's back
That capitation is back, and that largely, hospitals and health systems are accepting of the idea that some form of total cost of care contracting is coming to them, is a recognition that putting providers at risk broadly for the quality and efficiency of their care is now a fait accompli.

Models are payer-specific, but broadly, total cost of care contracting is aimed at refocusing members of the partnership on prevention, coordination of care, health maintenance and avoidance of complications, and reducing overutilization of modalities such as imaging and unnecessary hospitalizations or surgeries.

If the vision can be achieved, it will depend on partnerships with providers—in some cases, very close partnerships.

CareMore is one successful such vision. Now a subsidiary of Anthem, it started out as an elder-focused physician practice in Southern California that, over time, morphed into a health plan and delivery system serving seniors based on care protocols initially piloted at the physician practice, says Sachin H. Jain, MD, the division's chief medical officer.

"This is an organization that can model the future of healthcare," says Jain, who first heard of CareMore when he was with the Centers for Medicare & Medicaid Services, helping launch the Center for Medicare & Medicaid Innovation. Jain, who served as a senior advisor to the administrator of CMS during the first Obama administration, has also been a special assistant to the national coordinator at the Office of the National Coordinator for Health Information Technology, chief medical information and innovation officer at Merck, and practicing physician at the VA Boston Healthcare System prior to joining CareMore in January.

So given his background, what's he doing at a small, albeit innovative, California health plan for seniors? One reason: There was plenty of buzz about CareMore at CMS while he was there, Jain says.

"They built programs with breathtaking clinical outcomes and cost results," he says. "Four or five years later when I got a phone call asking if I would consider coming out to California, I said heck no … I'm an East Coast guy. But when a mutual friend said he was calling about CareMore, I told him, 'That's a different story.' "

Unique, but becoming less so
Jain calls CareMore unique in healthcare, which he says is what it needs in a time of transition.

"Here, we have the freedom to think broadly not only about healthcare delivery, but also the payment models and organizational structure to enable that," he says. "My passions, in order, are clinical medicine, policy, and business and management, and very few organizations allow you to do all three simultaneously and manage the intersection of those things with equal vigor."

He says focusing on seniors was a good starting point because that's where the majority of healthcare's cost is. As a site of integrated delivery and payment, he says organizations like CareMore are geared toward the prevention of catastrophic outcomes that many seniors are forced to deal with because a broken healthcare system doesn't help them with health—it focuses on procedures. For example, payers are funding a large portion of dialysis services because so little was done when patients were showing signs of hypertension or diabetes.

"There's a huge gap in people's understanding the interconnectedness of care..."

"How do we prevent them from getting to that place where they ever need dialysis?" he says.

"That's exciting. And then, how to expand these principles to other populations."

CareMore spreads those principles by partnering with other organizations and demonstrating the scalability of its basic structure, which hinges on a prevention benefit for patients that includes not only extended office hours, wellness programs, and patient monitoring, but also educating patients about a continuum that depends on interchange of information and putting them in participatory programs to help improve their health preconditions—hopefully preventing interventions that are more invasive and expensive.

"There's a huge gap in people's understanding the interconnectedness of care. Effective healthcare delivery is not the individual pieces; it's the sum of the parts," Jain says. "Our patients understand they're in a system of care, so, for example, if they are hospitalized outside our continuum, we repatriate patients to one of our hospitals; our settings. It's the system that produces world-class outcomes, not the individual parts of it."

CareMore's clinical model, in its original form, divides its elderly patients into two groups: the frail and chronically ill, and the nonfrail. The key principles of success under this model require that integration and coordination of care for patients and sites of care is not voluntary—managing complexity requires constant knowledge of the condition and resources must be available to adequately intervene.

Adherence to those principles make it possible to take a model developed in Southern California for the frail elderly and adapt and modify it to serve Medicaid patients age 14 and older in Memphis, says Jain, as a new CareMore-led Medicaid program in partnership with fellow Anthem subsidiary Amerigroup being implemented there is proving, he says. In Memphis, the company has taken a population that many primary care physicians don't want. It has expanded hours of access and implemented close monitoring with patients, and provides assistance with things as seemingly mundane as patient transport issues. Of course those things cost money, and paying for them is nearly impossible with fee-for-service reimbursement, but for a capitated population, such investments pay off handsomely from both health and financial perspectives, Jain says.

"We're a delivery system first, and we're a model of paying for delivery second, which I frankly think is how care should be delivered," says Jain. "Most clinicians who come here, after having practiced in other environments, agree on that. And it's quite refreshing for people looking at it from the outside."

Other adaptations
Memphis is not CareMore's only foray outside its California beginnings. One way of adapting it for other geographies is through CareMore Inside, most visible in a new partnership with Emory Healthcare in Atlanta.

"Emory, a renowned academic medical center, is now building CareMore care centers, hiring CareMore-type clinicians to deliver the extensivist model of care and our chronic disease management programs regardless of the payer," Jain says.

None of this would be achievable under other forms of reimbursement, he says. Even the equations underpinning ACOs break down if one can't measure the cost of certain interventions and bill for it, he says. The CareMore model is not burdened with such strictures.

"We have a saying at CareMore: Capitation is freedom," says Jain. "It's true. In models like ours that pay for transportation or air conditioners, there's no payment code associated with those things in fee-for-service. We're launching programs that would be very difficult to launch under any other model. In our environment, where we're both the delivery system and the payer, it works."

One program he says would otherwise be impossible is a diabetes prevention program benefit for members.

"In the senior population, progression is preventable for more than half of patients, yet we don't have diabetes prevention in practice in most of the country, with a few exceptions," Jain says. Yet such programs are a bedrock of making a model like CareMore's work.

"We've got dietitians at the care centers and we stream at-risk patients into a program. We started talking about it in March, and in June, we launched. That's the beauty of capitation—the total cost of care view of it."

Growing importance
CareMore is only one example where total cost of care contracting is making quick headway. Steve Hamman, as senior vice president of enterprise network solutions at Health Care Service Corporation, the licenser of Blue Cross programs in five states, is charged with coordinating and implementing the operational aspects and ongoing operations of total cost of care agreements in some of its markets.

He calls total cost of care contracting "absolutely a core component of what we do."

Such contracting has a long history in one of HCSC's markets in Illinois, with about 100,000 members and 75 different risk-bearing entities that agree to accept professional and outpatient diagnostic risk in the form of capitation. Hamman and his team are charged with tailoring such programs for the variety of market types served by the five health plans under HCSC's banner in Illinois, Oklahoma, Montana, New Mexico, and Texas.

He says total cost of care contracting is gaining traction because of three primary components in its Blue Advantage program in Illinois: demonstrably higher quality compared with HCSC's broad PPO, often even with the same providers; member satisfaction that is at least as good as the PPO product; and costs that are lower by 26% per member, per month.

"Those are results. Not just concepts," he says. "When you put the right incentives in place, you get the right outcomes."

He focuses on the fact that member satisfaction is at least as good in the capitated group as it is with those in the PPO, which he says is counterintuitive, because the capitated plan limits patient choice.

"When you put the right incentives in place, you get the right outcomes."

For patients in the total cost of care group, all care is managed by the primary care physician entity they choose. The insurer has delegated 100% of case and utilization management to that physician.

"So it lends itself to engagement from physicians, one of the main drivers of higher patient satisfaction," he says.

The provider engagement models using their PPO benefit design are better because of things they've learned with the capitated plan, says Hamman. That means HCSC can take components of what works well and apply those attributes to the less restrictive PPO benefit design to better manage its overall cost and improve the patient experience.

"One premise of using total cost of care is using it as a baseline on which we can then structure the new care models," he says.

For example, once populations are identified and attributed in an ACO or patient-centered medical home structure, HCSC can use that denominator of patients to measure provider performance. Calculating the risk-adjusted total cost of care and quality performance measures of that provider entity against a baseline over time forms the foundation from which incentives are measured. That allows the team to create a control group using the same methodology as a means to measure and refine the overall care model effectiveness.

Implementing modern capitated contracts—given a checkered history—means learning lessons from what didn't work in the 1990s, Hamman says.

"Too many HMOs cut the capitation check back then and just hoped everything went well," he says. "Not having the appropriate incentives in place most likely led to the perception of withheld care or bad patient satisfaction."

Much of the failure of capitation back then stemmed from a lack of transparency around the cost of care, he says. HCSC has learned that lesson, he insists.

"Now, we provide them with not only the data but also help in translating that data into actionable information and the tools they need to succeed in these models."

It's one thing to identify the patient population for which providers are accountable, but it's at least as important to help providers understand the interventions they need to make, says Hamman. That means providing them with analytics, care management techniques, and outreach to the highest-risk patients.

To help ensure success for both sides under capitation, HCSC takes on the role of provider education, Hamman says, adding that the biggest impact of the cost of care is and will remain the physician's pen. Where they refer and, more important, understanding the cost and quality impact of those referrals is at least as much the insurer's responsibility as the provider's. Radiology, lab, and other commodity-type services like colonoscopy can have a huge impact on the cost of care, Hamman says.

In most cases, they have had few problems with physicians changing where they refer based on the information on cost and quality provided by HCSC.

"That's been very encouraging," he says, especially given the aggressive time frame HCSC is pursuing in incorporating total cost of care contracting as a bigger piece of its overall book of business.

Whether it's the employer base or government programs like managed Medicaid or Medicare Advantage programs, there's very little tolerance for the trajectory healthcare costs are on today, he says.

"We need to act fairly rapidly in looking to engage with providers who are willing to reconsider how healthcare is delivered."

There will be winners and losers, Hamman says.

On one end are those who are trying to hang on to the fee-for-service infrastructure to retain as much of the revenues as they can under the old model, while some are very eager and understand the necessity to change.

"Those are who we want in our core network," he says.

Reprint HLR1115-4