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EXECUTIVE

Curb Healthcare Costs How value-based care, benefit redesign, and price transparency initiatives— deployed the right way—can be a gamechanger for your organization.

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How Bundled Payments Really Do Work

Three Pillars Healthcare Executives Must Embrace

Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

S P ONS OR’ S C ONTE NT

THREE PILLARS HEALTHCARE EXECUTIVES MUST EMBRACE

F

or years, economists have rightfully argued that the major differences between the U.S. healthcare system and that of the rest of the developed world are higher prices and administrative costs.

One of the more renowned papers was written by Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi Petrosyan in 2003, and entitled: It’s The Prices, Stupid: Why The United States Is So Different From Other Countries1. The authors used comparative data from the Organization for Economic Cooperation and Development (OECD) and concluded that, adjusted for underlying population characteristics, the difference in spending per capita between the U.S. and other countries was due to higher prices.

FIGURE 1:

67 24 Healthcare

2

In March of 2018, 15 years after the first study, a new group of researchers leveraged a now far richer OECD data set and arrived at very similar, and more refined conclusions2. Of the additional 9% of Gross Domestic Product (GDP) that the U.S. spends on healthcare compared to the average of OECD countries, half (4.5%) can be attributed to higher prices, 2.5 % can be attributed to excessive administrative costs, and 2% from over-use of services. This excess and potentially controllable spending has had major social and economic consequences.

Data from the U.S. Bureau of Labor Statistics shows that the pattern of spending of American households has changed significantly over a generation as shown in Figure 1. Spending on healthcare has grown at the expense of spending on a variety of other discretionary items.

Percent Change in Categories of Household Spending, 1984-2014

9.5

Personal Housing insurance and pensions

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6 Entertainment

-13 Transportation

-16 Food

-29 Miscellaneous

-45 Apparel and services

OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

The increase in prices has also led health insurance premiums to rise at a rate at least twice the rate of inflation, causing employers to seek a variety of benefit design options to try and control cost increases. However, most of those options have focused on trying to reduce utilization, essentially missing the bigger target. As reported in 2018 by the Kaiser Health Foundation, employer and employee contributions to healthcare premiums have reached alarming heights.

FIGURE 2:

Growth of Family Health Insurance Premiums

$12,106

$15,745

$16,764

$8,824

$11,429

$13,049

$3,281

$4,316

$5,714

2007

2012

2017

n Employer Contribution n Worker Contribution

Given that the average family income in the U.S. in 2017 was $59,000 the contributions to healthcare premiums represent close to 10% of family income, significantly greater than a decade ago.

The preferred tool for controlling rising healthcare costs has been to adopt high deductible health plans, and research has shown clearly that these plan designs have not been as effective as hoped for3, partially because price sensi3

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Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

tivity of consumers in these plans is constrained to items covered under the deductible. As such, employers are increasingly looking for alternatives, recognizing that there are three essential pillars to solving the U.S. price problem: greater transparency in prices and quality of care; payment reform; benefit design reform. All three pillars have to be deployed simultaneously to create the confluence of market dynamics that can lead to normal price competition. Price transparency alone has proven to be barely effective, with only minor changes in consumer healthcare spending patterns. For more, read “New Drug Pricing Tools Could Save Money,” on page 15.

Payment reform has reduced the rate of increase in prices, but not yet led to price decreases. For more, read “How Bundled Payments Really Do Work,” on page 8. Benefit design reform, and in particular reference pricing programs, has proven to be effective, but also limited.

A well-designed health plan benefit could include the two other pillars, making it the effective vehicle for market transformation. Let’s start by examining what has worked recently.

There are two public sector employee health benefits plans that have shown success in causing healthcare prices to decrease. The first, and largest to-date, is the California Public Employee Retirement System (CalPERS), which provides healthcare benefits for tens of thousands of Californians. CalPERS started with discrete inpatient procedures—hip and knee replacements—and created a reference price (a fixed price) for the inpatient costs of those procedures. For more, read “Model Gets Attention of High-Priced Hospitals,” on page 11. Plan members were given information on the prices of each facility in the network and an estimate of the costs above the reference price. The central element of such a program is that the plan member pays the difference between the reference price and the actual price, to the extent the actual is greater than the reference.

Within two years of the launch of that program, the average prices paid for these inpatient proOCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

cedures had decreased by close to a third4.

CalPERS then repeated this program for outpatient procedures, such as colonoscopies, and saw prices decrease by an average 15%. Overall there was either no change or a slight decrease in the number of complications post-procedure.

The textbook definition of a reference pricebased benefit design is as follows: The plan sponsor (employer, insurer) establishes a maximum contribution (reference price) it will make towards paying for a particular service or product. This limit is set at some point along

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

that very high healthcare price increases have only plagued the private sector. Medicare and Medicaid have fixed payment rates to hospitals, physicians, and other healthcare providers.

Private sector payers, including employers, rely on negotiated prices and those are now significantly higher than Medicare rates. The state of Montana, on behalf of public sector employees, recognized that provider market power has shifted in many geographies with some providers owning significant, if not all, market share in an area. That makes negotiations somewhat lopsid-

Montana instituted a “transparent pricing” program, which is a reference price program in which the state will only reimburse a certain fixed amount per procedure or service, and that price is set against Medicare rates. Amounts in excess of that set price would be paid by the plan member. The result has been very positive for the state even though it had to withstand the strong pushback of hospitals and some disruption for plan members who were left to travel quite a distance if they wanted to avoid high out of pocket expenses. the observed price range (e.g., minimum, median). The patient must pay the full difference between this limit and the actual price charged and can reduce cost sharing by switching to a lowpriced provider. The plan member chooses his/ her cost sharing by choosing his/her provider.

Ideally, the Patient has several low priced options and full responsibility for the ultimate choice.

Applied in this way, and depending on the type of service, procedure, or specific medical event that is included in the program, the plan member could be left with very significant out-of-pocket expenses, perhaps even ruinous.

The second example comes from the state of Montana and is in reaction to the observation 4

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ed. As a result, Montana instituted a “transparent pricing”5 program, which is a reference price program in which the state will only reimburse a certain fixed amount per procedure or service, and that price is set against Medicare rates.

Amounts in excess of that set price would be paid by the plan member. The result has been very positive for the state even though it had to withstand the strong pushback of hospitals and some disruption for plan members who were left to travel quite a distance if they wanted to avoid high out of pocket expenses.

Montana’s program has spurred employers in other states to look at the differences between the prices they pay for certain services and OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

those paid by Medicare. That has come on the heels of a report by the Medicare Payment Advisory Commission (MEDPAC) in the spring of 20186 showing that efficient hospitals can make a small profit from Medicare rates. Indiana employers turned to the Rand Corporation for an analysis of inpatient and hospital outpatient prices and found that prices vary from 115% of Medicare to close to 500% for the same service7. A similar report in Colorado found that the upper bound was close to 700% of Medicare rates. These analyses suggest that fixing a reference price benefit at a certain percent of Medicare could force prices to get back to a reasonable level, and some small and medium-sized employers are adopting health plan options that are designed around Medicare-based reference prices.

The pitfall of these plans is that they can expose the plan member to significant financial liability. For example, if one assumes that the total price of a maternity event, including the costs of the baby’s first days, is $27,000, but that it can vary between $17,000 and $75,000 (or more), the new family may find itself saddled with tens of thousands in healthcare debt if the reference price is set at $25,000 and the employee is liable for all costs in excess of that reference, without any limits or ability to control the potential liability.

The challenge for employers and providers is to understand the differences between base reference price plans that may simply cost shift to employees, and those that are designed to create a more functional healthcare market. The latter fully incorporate all three pillars. Using the prior example, an enhanced model of a reference price plan would include listings of providers that will accept the reference price and not subject the plan member to balance billing. In addition, the plan member could potentially get a financial reward for going to providers underneath the reference price. And providers who accept 5

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Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

the reference price for an entire episode of care would be bound by an episode of care contract which would put the provider at financial risk if the actual costs exceeded the reference price.

Please view the table on page 6, which summarizes some of the important differences between the two approaches.

As employers continue to adopt solutions that will help them better control the rise in healthcare premiums, reference price based benefits plans can be an essential part of the solution suite. It will be important, however, to separate the wheat from the chaff—the plans that simply cost shift to employees from the plans that include the three pillars. Remedy’s programs are closely tied to and always incorporate the three pillars.

References 1 Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey, and Varduhi Petrosyan, “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries,” Health Affairs, Vol 22 #3, May-June 2003.

2 Irene Papanicolas, Liana R. Woskie, Ashish K. Jha, “Health Care Spending in the United States and Other High-Income Countries,” JAMA. 2018;319(10):1024– 1039. doi:10.1001/jama.2018.1150 3 Haizhen Lin, Daniel W. Sacks, “NBER Working Paper 22802: Intertemporal Substitution in Health Care Demand: Evidence from the RAND Health Insurance Experiment,

http://pnhp.org/blog/2016/11/07/high-deductibles-less-effective-than-previous-interpretations-of-rand-hie/

4 Hui Zhang, David W. Cowling, Matthew Facer, “Centers-Of-Excellence Approaches To Value-Based Benefit Design,” Health Affairs, Vol 36 #12, Dec 2017. https://www.healthaffairs.org/doi/abs/10.1377/ hlthaff.2017.0563 5 See NPR Review: https://www.npr.org/sections/healthshots/2018/10/02/652312831/a-tough-negotiatorproves-employers-can-bargain-down-health-care-prices 6 Medicare Payment Advisory Commission: Report to The Congress: Medicare Payment Policy, March 2018.

See: http://www.medpac.gov/docs/default-source/reports/mar18_medpac_entirereport_sec.pdf?sfvrsn=0 7 Chapin White, Hospital Price Comparisons in Indiana, Rand Corporation, 2017. See: https://www.rand.org/ health/projects/indiana-hospital-prices.html OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Transparency

Provider Payments

Benefit Design

Member Engagement and Support

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Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

BASE MODEL

ENHANCED MODEL

• List of providers that accept reference price • Reference price of targeted services

• Providers ranked as “green,” “yellow,” and “red” to clearly identify where employees may be at risk for out-of-pocket expenses • Reference price of all-inclusive episodes of care (bundles) for selected procedures, conditions and other medical events

• Mostly fee-for-service at a specific level of Medicare (e.g. the plan pays each service at a rate equal to 125% of Medicare) • Some procedural episode pricing, with specific listing of inclusions (i.e. all other services are excluded) and a limited warranty

• Episode of care pricing with upside and downside risk for high volume inpatient and outpatient procedures, combined with warranty for up to 90 days post procedure and all relevant services included in the bundle • Fee-for-service at a specific level of Medicare for all services not included in bundles

• The plan member is responsible for all costs above the reference price

• The plan member has low or no out-ofpocket costs when seeking care from “green” providers; fixed and pre-defined liability when getting care from “yellow” providers; and responsible for all costs above the reference price when going to “red” providers • The plan member can get cash back when going to “green” providers that have contracted a price lower than the reference price

• The benefit plan design offers primarily reactionary member support.

The plan member calls the customer support number or utilizes portal self help for questions about their benefits, status of claim payments, and help in selecting providers

• The enhanced support model is more proactive in its design. Plan members are offered concierge type services that assist in seamlessly navigating through the provider selection process. Members are incentivized to reach out to their customer support contacts if a reference price condition may occur, facilitating early intervention and higher quality outcomes. Plan members are also offered clinical educational content that provides options for avoidance of complications or alternatives for less invasive treatment OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

How to save Americans over $100 billion a year.

Unleash the power of episodes.

Most healthcare is delivered episodically – so why not organize and pay for health care the same way? Bundled payments for episodes of care are proving to be the most successful model for transforming how we organize, finance, deliver and measure health care. They will likely transform how we buy and sell health care services in the future.

Imagine if you could select among focused teams of health care providers who are refining how to treat your specific disease or condition. You would know how much the total episode will cost, what your out of pocket expenses will be, and how healthcare teams compare to one another.

That future is here.

Remedy Partner has the nation’s largest network of healthcare teams operating through bundled payment agreements. We already save Medicare over $200 million annually and want to do the same for your family, your employer and your health plan. Our software and services enable healthcare providers and payers to successfully adopt bundled payments for episodes of care.

We invite you to join us.

The right care, at the right place, at the right cost.

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OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

P

articipation in bundled payments seemed to be a “win-win-winwin”—meaning, a win for CMS, a win for patients, a win for the hospital, and a win for physicians, according to a study published in 2017 in JAMA Internal Medicine.

In an observational study of 3,942 patients who received joint replacement surgery at Baptist Health System, a network of five hospitals in San Antonio, lead author Amol Navathe, MD, PhD, assistant professor, health policy and medicine, Perelman School of Medicine, and colleagues found: • For CMS, episode spending came down about $5,500 or 20.8%, e.g. from $26,785 to $21,208 per episode, for joint replacements without pre-existing complications. Most of the hospital savings came from implants and supplies and most of the post-acute care savings came from decreased use of institutional care.

• For patients, there was no decline in quality— and perhaps even improvement (e.g., cases with prolonged length of stay dropped 67%).

• Baptist Health System achieved 25% of its own savings from internal costs, over and above Medicare savings, which shows the potential for this to be good for hospital profit margins. Baptist began experimenting with bundled payments in 2008. Over seven years, the hospital system has cut Medicare’s costs on hip and knee replacements by almost 21%.

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Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

HOW BUNDLED PAYMENTS REALLY DO WORK • Orthopedists and hospitals do not focus on changing practices to save money until they are incentivized to do so in the Bundled Payment for Care Improvement (BPCI) program.

Medicare launched the mandatory Comprehensive Care for Joint Replacement bundled payment model in 67 urban areas for approximately 800 hospitals following its experience in the voluntary Acute Care Episodes (ACE) and Bundled Payments for Care Improvement (BPCI) demonstration projects. “Little information from ACE and BPCI exists to guide hospitals in redesigning care for mandatory joint replacement bundles,” the authors wrote.

According to Navathe, bundled payments pay a fixed price for an episode of services that starts at hospital admission (in this case for joint replacement surgery) and extends 30 to 90 days post discharge (30 days in this study). This includes physician fees, other provider services (e.g., physical therapy), and additional acute hospital care (hospital admissions) in that 30-day window.

“Managed care executives are accustomed to managing financial risk - and bundled payments are a growing mechanism to put risk on providers,” says Navathe. “Interestingly, until the physicians were aligned with the hospitals financially through gainsharing, the hospital was not able to drop internal costs—e.g., artificial joint implant costs—despite the financial incentive to do so under fixed DRG-based prospective payment.”

Furthermore, says Navathe, the design of the bundle really seems to matter—as internal costs OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

dropped in the ACE program (that was limited to hospital costs only), but in the BPCI program, post-acute care costs also came down rapidly.

“This has implications for these executives as they think about risk-based contracting and the design of the contracts,” he says.

There are several pros and cons to bundled payments according to Navathe:

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

• Gainsharing can align physicians with hospitals to unlock savings.

• Hospitals can win too (higher profit margins).

• Bundles can be added incrementally to cover a greater proportion of health spending.

Cons

Pros

• There is still an incentive to ‘do more’ because more episodes equal more reimbursement.

• Strong incentive to manage the cost of care while preserving quality.

• There is an incentive to pick ‘easy’ cases (i.e., healthier patients).

• Focused incentives so more actionable for hospitals (than ACOs, for example).

• Bundles don’t automatically align with population health measures.

TEN VALUE-BASED CARE UPDATES HEALTH EXECS SHOULD KNOW ABOUT

T

he race toward value-based care is hitting breakneck speed.

Healthcare organizations are starting to achieve the Triple Aim and commercial lines of business are investing in value-based innovation, according to a new study Here are 10 need-to-know takeaways about value-based innovation from Change Healthcare’s national payer study.

1. Almost 80% of payers report improvements in care quality, while 64% report improvements in provider relationships, and 73% report patient engagement improved. The main mechanism for improvements in cost and quality are

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through coordination of care by an accountable provider like a physician practice or ACO, says Andrei Gonzales, MD, director of value-based reimbursement initiatives at Change Healthcare. “This coordination requires collaboration with the provider by the health plan to share data on a patient’s care outside of the provider’s practice and across the continuum,” he says. “This results in a better provider relationship. When patients see their care as more coordinated and have better outcomes, they will be more engaged and happy.”

2. Payers say value-based care reduces unnecessary medical costs. “Unnecessary medical OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

costs fall into many different categories,” says Gonzales. “In some cases. it can be the cost of a medical device or implant where a lower cost device has equal benefit, it could be higher rates for a provider or facility than another entity with equal outcomes, or it could be excessive utilization of skilled nursing or inpatient rehab when home care would suffice.”

3. For the first time, commercial lines, not government lines of business, are leading adoption, advancement, and innovation of value-based care models and strategies. One theory is that commercial plans are driven more by customer demands to provide quality care at a competitive price than by political drivers that influence government lines of business, according to Gonzales. “As commercial plans have seen improvements in cost and quality in value-based care models, they have accelerated their adoption of the models,” he says.

4. Pure fee-for-service is fading faster than predicted in past studies, now accounting for only 37.2% of reimbursement, and projected to dip below 26% by 2021. The expectation is that the percentage of care in pure fee for service will continue to decline until it reaches a natural steady level, says Gonzales. “It’s not clear where this level will sit, but there will probably always be some level of fee-for-service for care that doesn’t fit well in value-based models for patients with rare conditions or extremely complicated medical conditions,” he says.

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

are key aspects in helping providers succeed in value-based care programs, says Gonzales. “Payers can help providers by delivering well-constructed reports showing their performance and opportunities for improvement, and assisting them as appropriate with selecting high-performing specialist and facility partners for their referrals,” he says.

7. Exceptional medical cost savings are motivating 66% of payers to invest in administrative staff to support future growth of episode-of-care programs. “Value-based care is still relatively new in the industry, and more focus will create a more mature operational model,” Gonzales says.

8. A third to half of payers find episode-of-care models very to extremely effective at improving care quality, across all types of episodes. The key, according to Gonzales, is that accountable providers in value-based care models are incented to coordinate care across the continuum to ensure patients have a good outcome at a reasonable cost. “This requires an understanding of where variation exists in cost and quality and an understanding of what can be done to eliminate unwarranted variation,” he says.

5. Innovation agility remains a problem, with only 21% of payers capable of rolling out a new episode-of-care program in three to six months. “With the reported benefits, executives will be focusing on improving their organizational and operational capabilities in these areas,” he says.

9. More than half of payers are not very satisfied with their current value-based analytics, automation, and reporting capabilities—despite the fact that many of these are designed and developed in house. “Since the models are relatively new, and adoption is still growing, a lot of payers built what they could do quickly to support planning and pilot phase capabilities,” says Gonzales. “Now many payers are looking for support with experience in delivering solutions that help manage their business more efficiently and profitably.”

6. Payers are struggling to engage providers in episode-of-care programs. Education on value-based models and information sharing

10. Episode models deliver savings from 5% to 5.4% on average, depending on the episode type.

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OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

MODEL GETS ATTENTION OF HIGH-PRICED HOSPITALS In a 2013 pilot program for the California Public Employees’ Retirement System (CalPERS), WellPoint designed a RBP model for hip and knee replacement. First, market prices were analyzed, then a reference price was determined. The key to the reference price, Lenko said, is to set a threshold that aligns with a sufficient number of providers to ensure access. In other words, a particularly low reference price would exclude too many providers and limit member choice.

In the CalPERS model, the reference price at the time was set at $30,000 for knee and hip replacement. Any member choosing a facility with a higher price point would be responsible for paying the difference.

Although local facilities ranged in price from $15,000 to $110,000 per procedure at the time, WellPoint did not see any evidence of higher

Fact File …

10

REFERENCE-BASED PRICING PILOT

$95,000 $30,000 Cost variance between highestand lowest-priced hospitals 11

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Reference price set for knee and hip replacement

46

Number of fatalities at or under reference price

$28,695 Average health plan cost per procedure using RBP model

Number of fatalities that dropped their prices in response to CalPERS’ RBP model OCTOBER 2018

Source: WellPoint

A

lthough reference-based pricing (RBP) has long been a tool in pharmacy benefit management, its potential in medical services is just now emerging. WellPoint has tested the model in a limited scope and began offering RBP on a broader scale to group employer plans in 2014. Shortly before the program was implemented, Managed Healthcare Executive interviewed George Lenko, who was then program director for national network management at WellPoint. He said the RBP model the RBP model builds out on price, quality, and patient experience.

“It’s helping patients be consumers and use market forces to get more rational pricing and quality— things that people see in other realms,” Lenko said.

“In retail and other services, this is how business is being done, but in healthcare, it’s still kind of new.”

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

quality among the higher-priced providers. The $30,000 threshold allowed WellPoint to create a sufficient list of qualifying facilities for members to choose from and discourage them from opting for high-cost sites.

Two things happened in pilot: hip and knee replacement prices dropped by 19% in one year; and outcomes remained the same.

“It’s not like the highest cost sites are the highest quality sites,” Lenko said. “And many high-quality sites are at the lower end of the threshold, so the opposite is true as well.”

Other applications RBP can be used for a variety medical services.

In a similar pilot among Kroger grocery store employees, imaging services were limited to a reference price.

“For CAT scans and MRIs, they set a threshold of payment at $800,” Lenko said. “At that point, there are many commonly available services so if a member goes to a higher priced site like hospital-based, outpatient imaging at twice the price, they are exposing themselves to that liability. If you talk about a difference in price that is not correlated to a difference in quality, it makes sense to buy at a lower price.”

To alert members of the reference prices and their choices at the time, WellPoint and plan sponsors used either proactive outbound calls to the ordering physician or member, or broader web-based communication. WellPoint’s online transparency tools—which have been growing since 2006—display member choices and out-ofpocket costs.

Lenko said RBP models are best suited for high-cost services when the plan has advance knowledge of an upcoming event, such as a planned imaging scan or joint replacement. Even more so, RBP aligns ideally with bundled payment arrangements.

“Where all services are bundled into one price, you can be sure all services are covered and that 12

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Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

also includes the ‘warranty’ work,” he said.

However, Lenko cautioned that medical homes and accountable care organizations have a different take on how members relate to providers, and it makes more sense to interact with the provider than the member to drive value in pricing.

“The ACO will do what it can to keep care in their system, and that discourages choice,” he said.

Providers on alert RBP has potential to bring prevailing market prices down as well. The transparency data can cue high-end providers to reduce their prices not just to draw in more business but also to maintain favorable reputations.

“As we started down the path of more transparency, in some instances there was wariness from high-cost providers that we were exposing them as high-cost,” Lenko said. “There’s always been that potential that transparency would yield market power to drive down prices. We only had anecdotal evidence it was working, but it was not as powerful as we thought it would be. As we ramped up transparency, we saw the effect more and more.”

He said that then, some California providers did bring their joint replacement prices down to stay under the $30,000 target. CalPERS is a large book of business that most hospitals wouldn’t want to lose out on.

The potential for RBP is increasing as more prices are being made public. Lesko said it’s a good alternative to narrow-network models because it maintains broader access and more consumer choice.

And member engagement is paramount for plans that are implementing the RBP model.

“As long as you have good transparency, good information, good navigation and high engagement, it’s doable,” he said. “If you don’t have those things, you run the risk of member abrasion. Members need to they have limitations and have to be able to find care alternatives.”

OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

WHEN GIVEN THE CHANCE, WILL PATIENTS CHOOSE CHEAPER PRESCRIPTION DRUGS?

S

ignificant cost savings and changes “It thus promotes price transparency and unin drug selection has been linked links the patient’s cost sharing from the drug’s to reference pricing, which leveraglist price.” es insurer/employer contributions With prescription drug reference pricing, the to encourage patients to select insurer or employer establishes a maximum cheaper drugs that are as effective as their contribution it will make toward the price of a name-brand counterparts, drug, a benchmark. according to a new study.

If the drug is above “Reference pricing is a benefit A UC Berkeley-led study, the benchmark, the published in the New Enpatient pays the design that moves patients to gland Journal of Medicine, difference, according select low-priced drugs, rather found that when given the to David Henka, who choice between easy acat the time of this than the conventional tiered cess to cheap drugs within interview was presiformulary administered by a each therapeutic class, dent and COO, RxTE PBM, which moves them to and the responsibility to Health. He is now CEO pay for more expensive at ActiveRADAR, a drugs that charge high pricdrugs, patients switched to company specializing es but offer high rebates—of cheaper drugs, leading to in pharmacy cost-reextensive reductions in the which the PBM takes a share.” duction programs average price paid and in based in Sacramento, –James Robinson, professor of health economics, California. total spending. director, Berkeley Center for Health Technology, “Reference pricing is a Reference pricing UC Berkeley School of Public Health benefit design that moves is an insurance benpatients to select lowefit design that has priced drugs, rather than the conventional tiered been employed extensively for drugs in European formulary administered by a PBM, which moves nations and in the U.S. for non-pharmaceutical them to drugs that charge high prices but offer services (such as surgical procedures), but only high rebates—of which the PBM takes a share,” recently has been applied to drugs in the U.S., says James Robinson, professor of health ecoaccording to Robinson. nomics, director, Berkeley Center for Health Previous studies of reference pricing by the Technology, UC Berkeley School of Public Health.

Berkeley center examined the strategy’s impact

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OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

on consumer choices and on employer spending on surgical procedures, hospital procedures and tests. The current study was funded by the U.S. Agency for Healthcare Research and Quality and the Genentech Foundation.

Researchers analyzed changes in prescriptions and pricing for 1,302 drugs in 78 therapeutic classes in the United States, before and after an alliance of private employers began using reference pricing. The trends were compared to a cohort without reference pricing. The study used multivariable differences-in-differences regression analysis on more than 1 million drug claims over the 2011 to 2014 period.

Implementation of reference pricing was associated with a 7% increase in prescriptions filled for the low-price reference drug within its therapeutic class, a 14% decrease in average price paid, and a 5% increase in consumer cost sharing, the study found.

“Reference pricing influences patient choices and reduces spending for surgical and diagnostic procedures,” Robinson says. “This study indicates that it influences choices and spending for drugs as well.”

Reference pricing results Reference pricing is a response to the wide and unjustified variability in prices charged for similar drugs (and other medical services), according to Robinson.

“Under reference pricing, the employer or insurer sets a maximum payment it will contribute towards the price of drugs within each therapeutic class, pegging that level to the lowest or one of the lowest charged within the class,” he explains.

“Patients who select the low-priced ‘reference’ drug pay only a modest $10 copay per prescription—rather than high copayments or coinsurance often found in tiered drug formularies.”

However, if the patient continues to prefer a more expensive drug, he or she must pay the full difference, according to Robinson. “If the 14

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Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

patient’s doctor believes the patient needs to expensive drug for a clinical reason, the extra cost sharing is waived—the patient is exempted from reference pricing,” he says.

“For self-funded plan sponsors or purchasers, prescription drug reference pricing is a strategy that can measurably lower the non-specialty drug spend and stabilize the overall rating trend,” says Henka. RxTE identifies drugs within a specific medication group that are therapeutic equivalents and clinically interchangeable.

“RxTE’s model is built upon a choice architecture,” Henka says. “Empowering choice is a philosophical orientation toward shared decision making in healthcare—allowing patients and physicians to achieve the best possible outcomes by selecting the right drug therapy at the right price.”

Therapeutic substitutions are based on therapeutic equivalence and can only be made when the doctor (and patient) agrees to make the switch. RxTE’s prescription reference pricing leverages the importance of doctor/ patient relationship to facilitate an informed and medically directed choice. Reference pricing isn’t new, many European nations use reference pricing as a method to mitigate increases in pharmaceutical spending.

Based on this study, Robinson has three takeaways: 1. Consider reference pricing as a supplement or alternative to the traditional tiered formulary approach to managing drug choice and cost.

2. Unlink the consumer’s cost sharing (e.g. deductible) from the list price of the drug, when the PBM and insurer (but not the patient) receive negotiated price rebates. “A consumer and regulatory backlash is coming,” Robinson says.

3. Don’t just expose patients to ‘naked’ high-deductible designs. “Offer them easy to identify low-priced options—help them save money—while making them responsible for the extra costs if they continue to select the more expensive options,” Robinson says.

OCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

NEW DRUG PRICING TOOLS COULD SAVE MONEY

D

rugs are often considered a commodity but unlike other products, most people don’t know what they really cost. “We live in an era where you know the exact price of a car before you buy it and of a cab ride before you take it, but healthcare remains one of the few areas where there is still a need to lift the veil on drug pricing to patients,” says Richard Cohan, president, Patient Innovations Division, DrFirst, a Rockville, Maryland-based provider of medication management solutions.

In response to the lack of transparency, health organizations are creating tools that deliver patient-specific drug price information, helping physicians and pharmacists make more cost-effective decisions at the time of prescribing.

Solutions for physicians In April, San Francisco-based Blue Shield of California and Gemini Health, a health IT firm in Sausalito, California, collaborated to launch the Drug–Cost Transparency Service. Matt Nye, PharmD, vice president of pharmacy services for Blue Shield, calls it a “real-time benefits tool.”

Operating through a provider’s EHR, the service displays information including: 15

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• Patient out-of-pocket costs for selected medications based on a patient’s health plan benefits and formulary • Accurate total drug cost savings (based on actual payer costs and rebates) for up to three lower cost, dose-matched, clinically equivalent alternative medications • Total drug costs to the plan • Accurate patient cost and total savings for alternative pharmacies (e.g., specialty or mail order) • Whether prior authorization is required, and/or alternative medications that don’t require it • Any coverage notices that would create pharmacy callbacks to the prescriber’s office “If we can provide patient-specific, accurate information at the point of prescribing—at the point of decision making—doctors will prescribe what is covered and is most effective,” Nye says.

“An EHR needs to include decision support.”

He says the tool could lower out-of-pocket costs, reduce the need for medical office staff to check on prior authorization, and improve adherence.

As a physician, Edward J. Fotsch, MD, founder and CEO of Gemini Health, agrees that doctors don’t know the cost of drugs for patients when they prescribe them, though they would like to help paOCTOBER 2018

Three Pillars Healthcare Executives Must Embrace

How Bundled Payments Really Do Work

Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

tients lower their drug costs. “Doctors also would • If there are lower-cost options covered under a like to receive fewer callbacks from a pharmacy patient's pharmacy benefit, such as a generic when they prescribe a drug requiring prior authorimedication or therapeutic alternative with equivzation or one that is too expensive,” he says. alent efficacy of treatment The tool is available to Blue Shield of Califor• If a patient might be able to save money by filling nia’s network of physician groups at no cost, a 90-day prescription rather than a 30-day one but members of other health plans using the same physician network can access the service • Other potential savings options for eligible or uninthrough Gemini. Although no physicians ae using sured patients if no generic or a lower-cost alterthe service at press time, native is available as they are still working “[These tools] help avoid rejects “These tools on EHR integration, Nye help improve the at the pharmacy that can lead to estimates that 30% to experience 40% will have access by primary non-adherence of required patient and lower costs,” the end of 2019. therapies; they save patients out- says Casey LeonSolutions for etti, senior vice of-pocket costs by helping them of PBM pharmacists maximize their drug benefit to find president innovation, CVS To keep drug costs in tow— the lowest cost option; and they Health, “Specificalespecially for patients with reduce administrative burden and ly, they help avoid high-deductibles—CVS rejects at the Health developed two new costs for providers and plans.” pharmacy that can tools: the Pharmacy Rx Savlead to primary ings Finder and a real-time –Casey Leonetti, senior vice president of PBM innovation, CVS Health non-adherence of benefits program. required therapies; Recently launched in they save patients out-of-pocket costs by helping April, the real-time benefits program, s similar to Blue Shield’s product, provides real-time, memthem maximize their drug benefit to find the lowber-specific drug costs and up to five lower cost alest cost option; and they reduce administrative ternatives based on a patient’s formulary. Prescribburden and costs for providers and plans.” ers receive the information through their EHRs. If Early results, according to CVS, show that preprior authorization or step therapy is required, prescribers accessing the information switched a scribers can immediately submit an electronic prior patient's drug from a noncovered drug to a drug on authorization request and in most cases, receive formulary 85% of the time, and when a patient's a near real-time decision. Members can access drug was covered, prescribers switched the patient information through the member portal. to a lower cost alternative 30% to 40% of the time, The other tool, the Pharmacy Rx Savings Finder, saving an average of $75 to $100 per prescription. lets the company’s retail pharmacists evaluate individual prescription savings opportunities at Contributors to this whitepaper include Mari Edlin, the point of sale. Designed initially for CVS Carea frequent contributor to Managed Healthcare mark PBM members, the tool indicates: Executive, and Tracey Walker, content manager, • If a prescribed medication is on a patient's formuManaged Healthcare Executive. lary and if it is the lowest cost option available 16

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OCTOBER 2018

How Bundled Payments Really Do Work

Three Pillars Healthcare Executives Must Embrace

Ten Value-Based Care Updates Health Execs Should Know About

Model Gets Attention For High-Priced Hospitals

When Given the Chance, Will Patients Choose Cheaper Drugs?

New Drug Pricing Tools Could Save Money

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