Top Five Industry Challenges of 2015

Reining in costs while improving care

Reducing healthcare costs while improving patient care is a common goal and continuing challenge for the industry, and there’s a lot of room for improvement. The United States has the most expensive healthcare system in the world, but is last or near last on dimensions of access, efficiency and equity, according to The Commonwealth Fund’s 2014 international healthcare review.

A number of initiatives are being pursued, among them accountable care organizations (ACOs), telehealth and bundled payments, but their implementation carries its own set of challenges.

Telehealth
If all currently deployed telehealth applications were to replace physician, emergency department, and urgent care visits today, it would save $6 billion annually in healthcare costs, according to a study by global consultant Towers Watson.

“While this analysis highlights a maximum potential savings, even a significantly lower level of use could generate hundreds of millions of dollars in savings,” says Allan Khoury, MD, a senior consultant at Towers Watson.

Senior healthcare executives are optimistic about telehealth’s ability to cut costs and improve outcomes, but agree that progress has been impeded by reimbursement and regulatory challenges, according to a recent survey by Foley & Lardner LLP.

Forty one percent of respondents said they do not get reimbursed at all for telemedicine services; and 21% reported receiving lower rates from managed care companies for telemedicine than for in-person care.

That’s changing somewhat, notes Nathaniel Lacktman, JD, partner in Foley & Lardner’s Health Care Practice. Currently 22 states plus the District of Columbia have enacted laws requiring health insurers to cover telemedicine services, and there’s widespread bipartisan support for telehealth-specific regulations. One example is the Medicare Telehealth Parity Act of 2014, introduced last summer, which proposes a three-phase rollout of changes to the way telemedicine services are reimbursed by Medicare and expands coverage to urban areas.

Secondary obstacles include licensure and scope of practice barriers, and the need for providers to better understand that there are models and approaches available to build out telemedicine programs, Lacktman adds.

Nine out of 10 health plans, looking to harness their payer networks, are pursuing telemedicine programs, says Lacktman. As a way to overcome current challenges, Lacktman suggests that managed care executives “seek out ways to partner with providers under risk sharing or subcapitated arrangements to promote and incentivize telemedicine as a key tool to manage population health of their subscribers, reduce acute inpatient stays, and improve quality care.”

NEXT: ACOs

ACOs
ACOs are provider-led groups in which payments are linked to quality improvements for a defined population. If providers reduce expected spending while meeting quality metrics, they receive a portion of the savings. Under certain models, providers also share in losses if targets aren’t met.

ACO formation is gaining momentum, but the start-up investment and downside risk are keeping some on the sidelines.

Because ACOs use 33 metrics to measure quality, a key challenge involves capturing and reporting measurement data effectively and efficiently. ACOs typically work with multiple providers and practices, all with differing IT systems, and an initial investment in infrastructure is often needed to get ACOs off the ground.

Insight into those investment costs can be gained by looking at the Shared Savings ACO program overseen by the Centers for Medicare and Medicaid Service (CMS). Of the 114 particpating ACOs in 2012, 29 met the financial target, saving $128 million and receiving $126 million in bonus payments, according to CMS.

But administration, compliance and technology costs for the group totaled $64 million, according to the Wall Street Journal. In addition, just 64 of 243 ACOs in the program in 2013 met financial targets.

The Pioneer ACO program run by CMS carries a penalty if providers fail to meet cost-reduction benchmarks. When the program debuted two years ago, one-third of the 32 participants reduced costs, but all met the quality metrics. In 2013, of 19 participating ACOs, all met the quality metrics but half didn’t realize any cost savings, and the worst-performing ACO recorded losses of more than $9.3 million, or 7% of expected expenditures.

On the plus side, the best performer of the group saved about $23 million. As a group, they saved Medicare more than $372 million. Still, the losses prompted some participants to drop out of the program.

Losses coupled with a significant up-front investment are hard for some providers to justify in the current environment, says Doug Chaet, Independence Blue Cross senior vice president and MHE editorial advisor. Chaet says some insurers have selectively offered to advance funds to ACOs, which are recouped prior to the distribution of gains. His organization has developed ACO “tool kit” capabilities for its provider partners that leverage existing health plan/population health functionality.

Insurers “would like to see these ACOs succeed as many of these organizations also have performance-based agreements with health plans for their commercial and Medicare Advantage members,” says Chaet.

NEXT: Bundled payments

Bundled paymentsBundled payments tie financial and performance accountability to episodes of care, encouraging hospitals, post-acute care providers, physicians and other practitioners to work closely across specialties and settings.

Though widely touted, the model presents challenges to payers and providers alike, as evidenced by a 2010 California pilot program, organized by the Integrated Healthcare Association (IHA) to test the feasibility and scalability of bundled payment episodes for orthopedic services in a multi-payer environment.

Six commercial health plans and eight hospital systems attempted to form a consensus regarding episode definitions, eligibility parameters, payment amounts and consumer cost sharing. The result was that “the design and implementation of episode payment has proven far more difficult than any one anticipated,” according to a report by the IHA. Only a few health plans signed contracts with orthopedic providers, and not enough data were collected to test the bundled payment hypothesis on quality and costs.

Chaet agrees that bundled payment arrangements can be challenging due to the administrative complexity and politics involved. “This challenge is undoubtedly compounded when multiple payers and provider groups have to agree on the parameters like cost-sharing,” he says. As an example, he cites the baseline cost, which may differ among the various health plans and provider groups, making the establishment of targets difficult. To overcome those challenges, Chaet recommends retaining  a third party to develop the program methodology, with provider and payer input. “Once developed, the program could then be offered to various payers and provider organizations and those who have an interest could opt in,” says Chaet.

Keeping up with policy shifts

Trying to plot strategy while key provisions of the Affordable Care Act (ACA) remain unresolved is an ongoing issue for payers and healthcare organizations. Legislative challenges to the law loom large in 2015. The U.S. Supreme Court will hear arguments on the legality of the federal tax subsidies in March and a new GOP-controlled Senate has vowed to dismantle the law piecemeal.

Medicaid Expansion
Twenty-seven states and the District of Columbia have chosen to expand Medicaid since the U.S Supreme Court decision in June 2012 made expansion a state option, according to HHS. Three states have implemented or are pursuing a customized expansion option: Indiana, Utah and Wyoming. Two additional states, Tennessee and Virginia, are considering a customized expansion option.

But most of the remaining states are firmly opposed to expansion, including the country’s two poorest states, Mississippi and Louisiana. More than 15% of the population in those states between the ages of 18 and 65 remains uninsured, according to the New York Times. In Tennessee, where expansion could mean coverage for 363,000 residents, three hospitals have closed or stopped offering in-patient services since January, according to Craig Becker, president of the Tennessee Hospital Association. Becker said the closures were due in part to the state’s decision not to expand Medicaid. The uncertainty surrounding Medicaid expansion makes planning a challenge, notes MHE Editorial Advisor Don Hall, M.P.H., of DeltaSigma L.L.C., a managed care advisory firm. As states continue to expand, insurers can leverage experience from previous expansion states about staffing, enrollment issues, and new member education, he notes.

NEXT: Court challenges to ACA

Court challenges to subsidies
The Supreme Court, in a decision expected by July 2015, will hear arguments on the legality of the federal tax subsidies available to low and moderate income consumers that are a key component of the ACA.

The justices accepted an appeal from the Fourth U.S. Circuit Court of Appeals for King v. Burwell, which argues that the language of the ACA allows subsidies to be applied only to healthcare plans offered on marketplace exchanges “established by the state.”

Because only 16 states and the District of Columbia have set up their own exchanges, a Supreme Court ruling affirming the plaintiff’s argument would eliminate subsidies now offered on the remaining 34 federally-facilitated exchanges.

Federal tax subsidies reduce premium costs for healthcare plans purchased through the federal marketplace and state exchanges. The credits are tied to income and are available at the time of purchase or can be claimed as a tax deduction at the time of filing.

Eight-five percent of those who signed up for health insurance during the first open-enrollment period qualified for a tax subsidy, according to HHS. The average premium was $346, the average tax credit was $264, and the average after-tax credit premium was $82.

Hall notes that the loss of premium subsidies would have a serious impact on insurers’ ability to retain their customers  who receive subsidies. “It could create death spirals among the remaining high utilizers, because the premium on this smaller group would not cover their costs,” says Hall.

If subsidies are eliminated, 11 million people would lose their health insurance, marketplace enrollment would drop 68%, and premiums would rise by as much as 43%, according to a study by the RAND Corporation.

Hall doesn’t think affected states will sit by and allow the subsidies to be reversed. “I would expect states to alter contracts for management of their exchanges so that they are in effect managing them,” he says.

Congressional challenges
The 2014 midterm elections ushered in a GOP majority in the Senate, and with it, renewed vows from leaders to repeal Obamacare.

And while President Barack Obama has vowed to veto any repeal measure, Republicans have said they plan to use tactics that would force him to compromise on certain aspects of the legislation. House Speaker John Boehner, (R-Ohio), and incoming Senate Majority Leader Mitch McConnell, (R-Kentucky), writing in a Wall Street Journal op-ed the day after the midtern elections, said they will challenge the hourly work week that currently defines the employer mandate portion of the ACA.

Under the law, companies with 50 or more employees have to provide healthcare coverage to full-time employees or face a penalty. To prevent employers from dropping hours to just below the common 40-hour-a-week threshold, the ACA set the definition of full-time at 30 hours a week.

Putting the threshold at 40 hours is a move supported by business groups including the National Retail Federation and the National Restaurant Association.

About 7 million employees would be affected if the threshold is raised from 30 to 40 hours, according to The Commonwealth Fund. Many would be pushed to the federal marketplace and state exchanges for insurance, and it’s estimated that over 500,000 would be eligible for tax subsidies, which would raise government spending.

But the impact would likely also be less than the GOP may hope, says Hall, because the job market has improved considerably since the ACA was enacted. “Its also likely that many of the people affected are dependents of full-time employees who could cover them on their plan,” says Hall.

NEXT: Capitalizing on new opportunities

Capitalizing on new opportunities

The ACA has accelerated the shift to a consumer-centric market for health plans, and that presents a huge challenge for an industry that evolved over time to support an employer-group model rather than individual consumers.

“Health plans have a lot of siloed activity that doesn’t support customer service,” says Greg Scott, national health plans sector leader for Deloitte LLC. In fact, health plans ranked last out of 14 sectors for customer service in Forrester’s 2014 industry survey, he notes.

In order to capitalize on new opportunities, insurance providers first have to look at business structure and culture, says Scott. “Right now, [they’ve] not run organizations where there’s an overarching cultural emphasis on anticipating and resolving customer questions and issues.” Most health plans, says Scott, now have put improving customer service, customer engagement, and retail capabilities at the top of their strategic plan.

Next, they need to change the way they conduct business. “It requires a good old fashioned business process transformation: looking at roles and functions and how those basic business processes should be recast in order to be anticipatory and responsive to actual consumers,” says Scott.

Finally, and perhaps most important, data systems need to be updated, because, says Scott, “Even when [health plans] figure out what’s needed, the market demands simply aren’t supportable by legacy IT systems.”

The move from volume to value in healthcare calls for new models, some of which are beginning to emerge, notes Scott. He points to cloud-based solutions that can facilitate new provider collaborations and support customer service initiatives. But the shift is a “multi-year undertaking that requires a lot of investment.” Smaller plans may not be able to make the level of investment needed to stay competitive, adds Scott.

The ACA has been good for health plans, and they’re committed to changing. Four of the country’s top five insurers reported positive third-quarter news in 2014. Aetna, WellPoint and UnitedHealth Group all posted third quarter results that exceeded Wall Street expectations, and shares of all three companies are also at all-time highs. Kaiser reported third quarter spending was down and revenue was up by $1.1 billion. And though Humana’s third quarter earnings dropped, it expects revenue to increase 10% in 2015, from $53.5 billion to $54.5 billion.

All five insurers also maintained or added to the number of plans offered on the federal marketplace and state exchanges during the ACA’s second enrollment period, which began November 15.

Changing employer market
The individual market expansion comes at a time when small employers are cutting back on healthcare plans and pointing employees to the exchanges for coverage. While just 4% of all large employers believe it is likely that they will terminate their employee health plans within the next five years, according to global consultant Mercer,  the country’s third largest insurer, WellPoint, reported last fall that its small business plan membership is shrinking faster than expected. In a call to analysts on October 29, the insurer said it has lost 300,000 small-business enrollees since the start of the year, according to the Wall Street Journal. But it offset those losses by adding 751,000 insureds to its rolls through state exchanges, as well as 700,000 new Medicaid customers, according to the Associated Press (AP).

Aetna also reported losing customers in employee-driven plans, but it, too, offset losses in those plans with 600,000 new enrollees through the exchanges, according to the AP.

But the shift away from employer plans will be gradual, says Scott. “It’s an evolution, not a revolution.” In fact, as a percentage of revenue and membership, the group business remains the health insurance industry’s largest segment, notes Sally Poblete, M.B.A., chief executive officer of Wellthie, a healthcare technology company. “The industry evolution toward the individual consumer paying the bill is still relatively new. The shift to retail requires a big organizational, cultural, operational and technological change,” she says.

It’s a shift that’s blurring the traditional lines of business, says Poblete. “Small group members are moving to individual insurance as businesses decide not to offer group coverage. Consumers buying commercial insurance with tax credits will be blending in with Medicaid-eligible members, as consumers’ incomes fluctuate within a year.” It’s estimated that up to 29.4 million consumers under age 65 will ‘churn’ across coverage lines in the next few years, says Poblete.

NEXT: New marketing strategies 

New marketing strategies
Marketing strategies are also changing, says Poblete, with health plans welcoming partnerships with innovative companies, including early stage start-ups, to provide new software platforms, mobile tools, data analytics and novel ways to engage with the consumer.  

Consumers are going through the entire shopping experience using different channels, including public marketplaces like Healthcare.gov, private online marketplaces, and broker and health plan websites, says Poblete. “In a retail environment, health plans have the biggest opportunity to differentiate their brand and their offerings within their own domain - their websites, retail locations, and customer service/sales associates on the phone and in the community. It is very difficult to stand out in an online marketplace with 100 products that are easily sorted by premium and where the benefit details start to look alike. Health plans that focus on being the most simple, educational and transparent in their approach with consumers will win the retail game,” she notes.

Investing in technology

Two technology challenges related to the digitization of healthcare records now confront the industry: interoperability, and cyber-risks.

Interoperability
In an ideal world, electronic health records (EHRs) would follow a patient across a chain of providers and stakeholders, leading to lowered costs and improvements in care. In the real world, dozens of different proprietary systems that don’t talk to each other have created silos of information, or roadblocks to interoperability.

Interoperability of EHRs is now a top priority for the U.S. government, which has funneled $19.2 billion in incentive payments since 2009 to promote their adoption. But according to the most recent Black Book survey of payers and providers, 81% of hospitals and 94% of insurers/payers remain meaningfully unconnected in regards to intelligent interoperability. In addition, 82% of all payers and providers agree that an operational national public health information exchange (HIE) is at least a decade off. The survey polled 1,550 provider organizations utilizing health information exchanges and 794 payers and insurers in the last six months of 2013.

“There are two major reasons why interoperability has and remains a challenge for the industry,” says MHE Editorial Advisor Dennis Schmuland, M.D., FAAFP, chief health strategy officer for Microsoft’s U.S. Health & Life Sciences division. “First, the majority of health information exchanges today originated from provider-centric designs that prioritized the needs of the provider within a facility above the needs of the patient beyond the facility. Second, the business case for interoperability hasn’t been strong enough to divert scarce capital away from existing boardroom priorities. In the absence of a compelling business model, the lives of most HIEs have been artificially prolonged by grant dollars or local hospital subsidies.”

Major progress toward interoperability was made last spring when the Office of the National Coordinator for Health Information Technology (ONC) released its commissioned

says John Kelly, principal business advisor at Edifecs, an information exchange for payers and providers. The report, authored by a group of highly credentialed but anonymous scientists and technology luminaries, “essentially indicted the U.S. healthcare IT community as being grossly negligent at best and completely incompetent at worst,” says Kelly.

The industry has responded to the Jason Report challenge to make the data locked within EHRs more accessible and usable. Current plans, says Kelly, call for a rapid adoption of the Fast Healthcare Interoperability Resources Specification (FHIR), an operable standards framework. Adoption of the FHIR will require major EHR vendors to build standards-based application programming interfaces (APIs) that will allow open access to their data.

“To date, the lack of free and open access to that data has been a source of revenue for the vendors, so we are yet to see what it will take to move from public statements to fully implemented technical interoperability,” notes Kelly.

NEXT: Cyber Threats

Payers are also challenged by public HIEs, which provide data from public health departments and community organizations. The majority were initially funded by grants. As that funding dries up, operators are forced to find alternate forms of revenue, including access fees. Just 31% of payers reported participating in a public HIE,  and 86% objected to the annual fees, according to the Black Book survey.

As a result, private HIEs are growing, with payers saying they expect to take a leading role going forward. In addition, 33% of multi-provider networks and hospital systems are considering private HIEs for more standardized sharing of patient data, according to the survey.

Stakeholders are also moving from provider-centric, everything-to-everything connections to patient-centric, everything-to-one HIEs, says Schmuland. “A patient-centric HIE offers the potential to drastically reduce the complexities, costs, delays and errors of the conventional provider-centric HIE model,” he says.

Cyber Threats
Cyber threats are another data challenge, and one that is growing. In 2013, breaches in the healthcare sector (43.8%) surpassed even those in the business sector (34.4%) according to the Identity Theft Resource Center.

Since 2009, 32 million Americans have had their medical records compromised, according to the HHS. Some of the breaches resulted from employee carelessness, but many point directly to password vulnerabilities and encryption issues.

Schmuland calls 2014 a “cyber security wake-up call” that has the industry and its executives playing catch up. “Many organizations have mistakenly assumed that a ‘security by compliance checklist’ would protect them from present-day threats,” says Schmuland. “The problem is that the HIPAA privacy and security regulations were drafted when the greatest cyber threats came from basement hobbyists looking for fame and notoriety, not sophisticated bankrolled cyber terrorists.”

Medical records are an attractive target of cyber thieves because they contain enough information to build a full identity, worth $500 on the black market, according to the FBI. In April, the federal agency warned healthcare organizations that the industry is at risk for wide-scale breaches because it is not as “resilient” as financial and retail sectors.

Several factors contribute to healthcare organization’s vulnerabilities to hacking, according to a recent brief by Forrester, a research and advisory firm. They include:

• unclear regulations surrounding end point data protection,
• perception within management that healthcare data is not an attractive target for hackers, and
• modest security budgets.

By 2015, as healthcare continues to grow  more connected, 50% of healthcare organizations will have experienced from one to five cyber attacks in the last 12 months, says Schmuland. Those statistics mean healthcare organizations need to invest in a multi-pronged security strategy to avoid disruptions to normal operations and incurring fines and notification costs, he notes.

But the weakest link in the security chain, says Schmuland, “will always be people.” As such, executive leaders “can’t afford to miss the opportunity to instill a perpetual culture of privacy and security wherein everyone recognizes that they are accountable for protecting [data] from unauthorized access, use, destruction, and loss.

“The entire workforce must become maniacal defenders of patient privacy and that includes the large, extended workforce of non-employed physicians and their office staff,” says Schmuland.

NEXT: Controlling drug costs

Controlling drug costs  

A variety of challenges confront pharmacy managers in 2015 including the high cost of specialty pharmaceuticals.

Only 1% of all patients take specialty pharmaceuticals, but they represent 30% of total drug expenditures, says MHE Editorial Advisor Perry Cohen, Pharm.D., FAMCP, chief executive officer of the Pharmacy Group.  In 2012, the U.S. spent about $87 billion on specialty pharmaceuticals, according to a study by UnitedHealth’s Center for Health Reform and Modernization.

The cost challenge posed by specialty pharmaceuticals came into focus in early 2014 when Gilead Sciences priced its breakthrough hepatitis C drug, sofosbuvir (Sovaldi), at $1,000 a pill, or $84,000 for a three-month course of treatment. Payers were outraged, but in spite of complaints, there was little they could do.

In correlated developments that show just how much the drug has benefitted its owner and how much it has cost insurers, Gilead Sciences announced 2014 third quarter sales of Sovaldi totaled $2.8 billion, while the country’s number five insurer, Humana, attributed 2014 third quarter losses in part to “higher specialty prescription drug costs associated with a new treatment for hepatitis C.”

Gilead Sciences defends the price, saying it actually saves money compared with the alternative, which is a lifetime of chronic disease and a possible liver transplant. Hepatitis C affects about 3.2 million Americans and is the leading cause of liver transplants in the U.S. 

Employers and insurers are responding to costs of expensive drugs like Sovaldi with step therapy, or higher tiers of drug-payment categories, and shifting the site of care from hospitals to physician offices, says John Santilli, partner in Access Market Intelligence.

Payers and pharmacy benefit managers (PBMs) are also employing strategies like prior authorization and the use of specialty pharmacies to control specialty drug costs. Specialty pharmacists are a growing trend, says Cohen. “The next 10 years will also see the emergence of a specialty pharmacist, based in the physician’s office, who will manage the patients taking certain specialty medications.”

PBMs are also controlling costs by limiting their formularies. CVS Health Corp.’s unit will keep 95 drugs off of its main formulary in 2015, up from 70 in 2014, according to Bloomberg News, while Express Scripts will exclude 66 brand-name drugs including the multiple sclerosis drug Rebif, an injection that costs $5,000 for a four-week supply.

Another challenge for a managed care pharmacy practice will be developing systems needed to track patients across the healthcare system and monitor use, says Cohen.

“When pharmaceuticals were considerably less expensive, if patients tried a drug and it didn’t work even 35% of the time, the cost-risk was acceptable to most stakeholders,” he says. “Conversely, when the therapeutic window is narrow and adverse events are possible, we will need more tools to predict effectiveness versus risk. This applies to all medications, including specialty products.”