executive briefing

Top 10 Trends For 2013: Get ready for some healthcare sausage making
By Jane DuBose
Its hard to cite a year in the recent history of healthcare more transformative than 2013 promises to be. This will be the year when the sausage gets made in managed healthcare. Its when millions of dollars will be spent assembling state and federal health benefits exchanges. It will be when health insurers declare if theyre in or out of both public and private exchanges. And its likely to be a year when the drumbeat for cost control accelerates mergers and acquisitions activity. The unprecedented expansion of the insurance market creates not only significant access to new customers, but also forces health plans to rethink their business models: How will they create affordable products for low-income Americans buying insurance for the first time? How will they distinguish themselves from competitors in a new era of more standard benefits? And how will they partner with already-taxed providers to assure quality healthcare for members? For those reasons and several others, HealthLeaders-InterStudy analysts believe preparation for the 2014 exchanges and for Medicaid program expansion, as called for in the Affordable Care Act, will be the No. 1 trend for 2013. In addition, we foresee increased movement by employers into defined contribution products through private exchanges; a significant shift toward retail and mobile-based health; and the continued pairing of insurers and provider groups through narrow networks and accountable care systems.

No. 1 The ACA train is definitely leaving the station

For months, it seemed everyone in the healthcare business held their breath during legal challenges to the Accountable Care Act. Then the Supreme Court upheld the lawbut allowed states latitude to expand Medicaid programsand Barack Obama was re-elected. Suddenly, it was decision time. Nowhere was that more apparent than in an early December 2012 conference on exchanges sponsored by Americas Health Insurance Plans, where some 500 health plan executives and consultants were wondering what their next moves were. This much we do know: most of the exchanges in states will be federally run. The chief exchange implementer, Gary Cohen, promises the feds are up to the job, but there are doubters. Among large states running their own exchanges will be California and New

York; at least 16 more states are on track to do their own version with another seven working on a so-called partnership model with the federal government. As of Jan. 1, 2014, most Americans will be required to carry health insurance, or pay a (small) fine if they dont. At the same time, individuals wont be denied coverage based on their medical conditions.

The uninsured, as well as some small-business employees and those already in the individual market, will be able to obtain health benefits through the exchanges. The exchanges will be complex (underneath the hood anyway) online marketplaces linking individuals to benefit choices. The exchanges will determine who is eligible for benefits and whether they can get government subsidies; then consumers, or small business employees, will be able to choose among Qualified Health Plans, or QHPs. Those QHPs are likely to be health plans, big and small, across the country. All bets are on large insurers playing big roles, although some carriers such as Aetna have indicated they will make their exchange decision by state. QHP requests will be solicited in the second quarter of 2013, with notification in the third quarter, just before open enrollment begins. How many people will sign up for exchanges in the first year is a moving target, but there are estimates of as many as 9 million. As for Medicaid expansions enrollment potential, that is still unknown because most states have not made a decision on whether they plan to expand their programs.

Executive Briefing

Winter 2013

No. 2 But, private exchanges are on a speedier track

While public exchanges are being constructed in 2013, online marketplaces for the private market will launch in many states. With private exchanges, employers make deposits, or defined contributions, toward employees healthcare expenses, allowing employees to use an exchange vendor to choose from a variety of health benefits options. For employers, the exchanges provide for more certainty on health benefits costs and a reduction in their administrative burden. For employees, there is more choice in plan designs, more education and guidance from the exchange, and the potential portability of their insurance should they change jobs.

Table 2: Private Exchange Activity

Exchange
Aon Hewitt Bloom Health Liazon NFP Health

Year Founded
2012 2009 2007 1969

Home Base
Illinois Minnesota New York Massachusetts

Notable Carriers
UnitedHealth

Number of Businesses Using

N/A

BCBS of Michigan, HCSC, 132 WellPoint Aetna, Independent Health 2,000 Harvard Pilgrim, UnitedHealth 32,000

Sources: Private exchange websites

Major health plans have made investments in private exchange ventures, and consulting firms are also aggressively entering this market. Some 10 percent to 20 percent of employers surveyed by McKinsey & Co. in 2012 were interested in shifting to private exchanges because of rising costs. Blue Cross Blue Shield of Illinois is expected to launch a defined-contribution option for small-group and middle-market employers in 2013, and possibly for large groups in 2014. Meanwhile, Pennsylvania is a hotbed of private exchange activity, with UnitedHealthcare, Aetna, Highmark and UPMC all rolling out private-exchange models. For pharma, the private exchange movement carries worries and opportunities. As individuals begin shopping on their ownrather than having choices spoon fed by their companies HR departmentsthey may naturally migrate to lower-cost options with tighter formularies. On the other hand, most private exchanges will have much more information on plan designs, and those consumers who want to use specific branded drugs may have an easier time finding a design that offers it at a lower cost share.

No. 3 MCOs casting a narrow net for providers

Carriers participating in public and private exchanges likely will use narrow, or preferred, networks to lower costs for purchasers. The allure for employers, and through exchanges, for consumers will be cheaper prices, sometimes as much as 15-20 percent less than plans with access to a larger network. What was once a West Coast (California)/East Coast (Massachusetts) phenomenon has spread to the heartland and parts beyond. In Buffalo, N.Y., this year Independent Health formed a narrow network for self-insured employers with Catholic Health and affiliated physicians, while BlueCross BlueShield of Western New York teamed up to offer a

Executive Briefing

Winter 2013

narrow network for self-insured employers with Kaleida Health and physicians. The networks, which are also launching in New Orleans and Milwaukee, are in many cases leading to accountable care arrangements between plans and providers. In addition, narrow networks are arising from the conclusion of medical home pilots. Such pilots have produced data and staffing alliances that make sense to continue.

No. 4 Speaking of narrow, PBMs pare down formularies

Health plans, PBMs and pharma have been at loggerheads recently over pharmas use of drug coupons to reduce out-of-pocket spending by consumers on prescription drugs. One way PBMs are fighting back is by putting more emphasis on closed or preferred formularies. A preferred formulary targets a specific category and covers a limited number of brands (such as growth hormones). CVS Caremark in 2012 excluded 34 branded drugs from its preferred formulary and revealed that in 2013 it plans to exclude 17 more. Express Scripts reportedly has a preferred formulary in the works. UnitedHealths Specialty Designated Pharmacy Network, for its part, is no longer honoring copay coupons from the manufacturers of six select specialty drugs. Within public exchanges, however, formularies will likely take on the flavor of the states benchmark plan, which will often be the largest small-group plan in the market. Depending on the state, those choices could be relatively broad.

No. 5 Healthcare M&A activity continues, but with more scrutiny

HealthLeaders-InterStudy has tracked 178 merger and acquisition deals involving hospitals, 56 involving physician groups and 35 among health plans in 2012, mostly in the top markets HLI analyzes. M&A is likely to stay on the front burner as companies look for efficiencies and scale to compete in a new era of reform. Medicare and Medicaid-focused MCOs have been targets of larger health insurers. Among providers, M&A has primarily affected cardiac care, hospitalist and anesthesiology-based practices. However, some mergers may face more stringent review from the Federal Trade Commission than others, depending on the level of competition in specific markets. For example, the two systems that are trying to merge in Greensboro, N.C. (Cone Health and Alamance Regional Medical Center) believe that extensive review by the FTC will be the norm for all health system mergers. Short of outright mergers or acquisitions, some small, struggling hospitals in rural or suburban areas will become outpatient outposts of large health systems. These smaller hospitals may become urgent-care centers. In addition, hospitals will continue to form alliances and partnerships for particular service lines in order to gain advantages over competitors.

No. 6 Reimbursement models also continue to evolve

The past two years have seen movement to total cost-of-care contracts between payers and providers in which large health systems are able to assume risk for the total, or near total, spectrum of patient care. Some ACOs may be moving to total risk sharing, especially those in the commercial world.

Executive Briefing

Winter 2013

Meanwhile, bundling experiments will expand. These have been initiated by the Centers for Medicare & Medicaid Services and by employers working with premier medical centers. Companies such as The Boeing Co. and Lowes have contracted with The Cleveland Clinic and Johns Hopkins for employee access to cardiac and complex joint replacement procedures, no matter the employees home base. The Cleveland Clinic has said it is pursuing these direct-to-employer service agreements. Bundling allows a payer to make a single payment for a total episode of care rather than receiving multiple bills during the multiple touches of a patients care. CMS recently released a list of 48 conditions that it plans to use for bundling experiments with hospitals.

No. 7 Managed care will be increasingly consumer-centric

Healthcare delivery is fraught with intermediariesfrom PBMs to insurance brokers to employers and health plans. If, within a year or so, millions of consumers are able to shop for insurance much as they do for a plane ticket, will price transparency, convenience and mobile health be far behind? Vendors are working toward mobile health, telehealth, retail health and transparent health. With the system remaining fragmented and few people still able to access personal health records, clearly there is an uphill battle before it becomes as easy to manage ones own healthcare as it does ones travel. Nevertheless, 2013 holds the promise of change. Telehealth, in which doctors communicate remotely, retail-based clinics, and Web-based consumer tools will all become more commonplace as more people gain access to insurance benefits. In addition, large employers are funding efforts by the Catalyst for Payment Reform to force health plans into more price transparency. For health plans and pharma, the movement presents unprecedented opportunities to communicate directly to consumers without the usual filters. The challenge, however, will be to explain coinsurance, step edits, formularies and negotiated provider rates.

No. 8 And it will move beyond traditional offices

Retail-based medical clinics continue to proliferate, and hospitals are getting in on the act. More health systems will partner with retail chain clinics such as CVS MinuteClinic on staffing and sharing of clinical information through integrated EMR. An example is in Nashville, Tenn., where physicians affiliated with HCAs TriStar Health System serve as medical directors at 14 MinuteClinic locations.

Table 3: Largest Retail Clinics in U.S.

Clinic Chain
MinuteClinic Take Care The Little Clinic *Walgreens total includes workplace clinics

Owner
CVS Walgreens Kroger

Number of stores
650 700* 80

Source: HealthLeaders-InterStudy

Executive Briefing

Winter 2013

Some health systems are creating one-stop outpatient healthcare centers. In Houston, Memorial Hermann is opening a convenient-care center that combines primary, specialty and emergency services in one location. The center will offer physical therapy and rehabilitation and centralized scheduling and billing through its EMR system. Also in the convenience category: one coordinated bill to each patient.

No. 9 Medicare Advantage star program shines on

The star program awarding top-performing Medicare Advantage plans for better service and care delivery promises to raise the bar for senior care in 2013 and beyond. CMS says beneficiaries will have access to 127 four or five-star MA plans, which will serve about 37 percent of the 13.7 million MA enrollees. In 2012, the highest-rated plans served some 28 percent of enrollees. Five-star plans receive bonuses of up to 5 percent additional reimbursement and are allowed to market year-round, whereas lower-rated plans can only sign up new members during the fall open-enrollment period. The star program is forcing care improvements in a myriad of ways, from increased preventive screenings to medication compliance. For now, the highest rated plans have been those managed by integrated systems such as Kaiser, Group Health Cooperative and Gundersen Lutheran, but for-profit insurers such as Humana and UnitedHealthcare have also seen significant improvements on ratings in certain markets.

No. 10 Post-acute care gets acute attention

Heres another trend moved forward by CMS, which began in late 2012 penalizing hospitals for unnecessary readmissions within 30 days for certain medical conditions. The penalties have created post-discharge care coordination players ranging from health plans to physician groups to medical homes to hospice organizations. The focus on readmissions also promises to put a spotlight on how hospitals decide whether patients are fully admitted or just under observation. The metrics give ACOs, medical homes and other care-coordination models a key tool to measure their value.

Conclusion
In summary, the U.S. healthcare system is poised to undergo profound changes in expanding health insurance coverage, monitoring quality and cost-effectiveness, and offering consumer-centric models. Some states will adapt more quickly than others. All will see continued consolidation among hospitals and physicians and a mad scramble by health plans to capture millions of people coming into the exchanges.

Executive Briefing

Winter 2013

About the Author

Jane DuBose is principal director, advisory services, for HealthLeaders-InterStudy.

For more information, contact:

HealthLeaders-InterStudy 800.643.7600 sales@hl-isy.com www.HL-ISY.com

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About HealthLeaders-InterStudy
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Executive Briefing

Winter 2013