Building the Future of Value-Based Payment—One Contract at a Time?

Nov. 24, 2021
Why the just-announced Humana-Allina contract speaks to an accelerating Zeitgeist that favors Medicare Advantage as the major vehicle for value-based change right now

I read with particular interest the announcement this week that the Louisville-based Humana health plan had signed a multi-year value-based contract with the Minneapolis-based Allina integrated health system; and it struck me as yet further evidence of the Zeitgeist, l’esprit du temps, of this complicated moment in healthcare.

As we reported on Monday:

“The Louisville-based health plan Humana on Nov. 22 announced that it had signed a multi-year value-based contract to expand its engagement with the 11-hospital, 90-clinic, Minneapolis-based Allina Health integrated health system.

As a press release posted to Business Wire on Monday stated, ‘Humana Inc. (NYSE: HUM), a leading health and well-being company, and Allina Health are expanding their existing agreement to focus on value-based care for Humana’s Medicare Advantage members in Minnesota. This multi-year agreement, which takes effect Jan. 1, 2022, is in keeping with Humana’s long-standing commitment to value-based care, which emphasizes:

More personal time with health professionals and personalized care that is tailored to each person’s unique health situation;

Access to proactive health screenings and programs that are focused on preventing illness;

Improved care for people living with chronic conditions with a focus on avoiding health complications;

Leveraging technologies, such as data analytics, that connect physicians and help them work as a team to coordinate care around the patient; and

Reimbursement to physicians linked to the health outcomes of their patients rather than based solely on the quantity of services they provide (fee-for-service).’

The press release quoted Chuck Down, vice president and Humana’s Medicare regional president for Minnesota. ‘This value-based agreement for Humana Medicare Advantage members is an important part of helping our members achieve their best health,” Dow said. “We’re excited to share with Allina Health a strong commitment to providing quality care while improving patient health outcomes in Minnesota.’”

And here’s the thing: Humana care-manages well over 110,000 Medicare beneficiaries in Minnesota; and Allina is a large integrated health system, with 11 hospitals, 90-plus clinics, 15 retail pharmacies, specialty care centers, and specialty medical services. Neither organization has stated publicly what the potential “universe” of enrollees might be, but it certainly is significant, given that Medicare Advantage has a market penetration in Minnesota of 51.8 percent, according to a June 21 report by the Kaiser Family Foundation. So whatever the precise numbers end up being, they’re going to be meaningful.

And what struck me in particular about this announcement was two things: first, Medicare Advantage is booming—booming. As Dan Grunebaum wrote in an article entitled “Medicare Advantage National Penetration Rates,” and updated on June 28, “Enrollment in Medicare Advantage nationwide rose from 10 million in 2008 to 25 million in 2020, making up an increasing share of all Medicare beneficiaries. Despite the rapid growth, the total number of Medicare beneficiaries has risen even faster – from roughly 45 million to some 68 million people – meaning Medicare Advantage has plenty of room to grow.” At present, Grunebaum noted, Medicare Advantage has a 36-percent penetration rate among all Medicare beneficiaries; but most experts expect that figure to quickly surpass 50 million. So this is a hyper-growth-potential area. Indeed, int hat same report, McLeod reported that two small counties in Minnesota, Meeker and McLeod, both west of the Twin Cities, the MA penetration rates are now 62.03 percent and 61.56 percent, respectively. In other words, relatively speaking, anyway, the sky’s the limit.

Second, much of the care management transformation achieved at broad scale in the U.S. healthcare system has occurred within Medicare Advantage plans. Consider that more than 25 million Americans were enrolled in MA plans in 2020, whereas, across the totality of all 477 accountable care organizations participating in the Medicare Shared Savings Program, the total number of Americans whose care management is taking place inside the MSSP is only 10.7 million, according to the “2021 Shared Savings Program Fast Facts” available on the website of the Centers for Medicare and Medicaid Services (CMS).

What’s more, the MSSP was teetering significantly in the final months of the Trump administration, with that administration’s CMS Administrator, Seema Verma, locked in an ongoing war of words with the leading associations representing ACOs and advanced provider organizations over the details of benchmarks, due dates for re-up in the MSSP, and penalties for sub-optimal performance in the program. Fortunately, Chiquita Brooks-LaSure, the new administration’s CMS Administrator, and Liz Fowler, the administration’s Director of the CMMI (Center for Medicare and Medicaid Innovation), seem to be working as hard, and as intelligently, as possible to reestablish trust with providers going forward, in contrast to the widespread mistrust that Verma had engendered during her rocky, rather chaotic, tenure at CMS.

But, back to Medicare Advantage. With MSSP participation still a challenging proposition for many provider leaders, even under an arguably more provider-friendly senior leadership at CMS, is it any wonder that many provider leaders will look to Medicare Advantage as a relatively safer “port in the storm” of alternative payment model development? It seems like an obvious choice.

Now, even MA has its own “issues,” particularly as it has recently come under fire from none other than Donald Berwick, M.D., and Richard Gilfillan, M.D. Those prominent healthcare policy leaders published an article on September 30 in the Health Affairs Blog entitled “Medicare Advantage, Direct Contracting, And the Medicare ‘Money Machine, Part 2: Building on the ACO Model,” in which they took on both the new Medicare Direct Contracting program and Medicare Advantage as a core concept. Drs. Berwick and Gilfillan didn’t hold back, either. After pretty much laying waste to Direct Contracting as it’s been inaugurated so far, they wrote that “For 35 years, privatized Medicare plans have failed to achieve their primary objective of controlling costs while preserving the quality of care. Aside from some notable exceptions with group model and staff model HMOs, capitation of privatized Medicare plans has simply allowed insurance companies to collect from CMS a toll of 15 percent or more on the total cost of care, to deny or downgrade provider claims, and then to pass through the dollars they finally pay using Medicare’s FFS payment systems and prices. Their ability to game the Medicare “star quality rating” system rivals Lake Wobegon: most plans are now rated above average. It is far easier to game the codes than to improve the care or change health care delivery.”

What’s more, they wrote, “Based on this track record, insurers should be eliminated from the Direct Contracting initiative. Risk-score gaming is today necessary for business success in MA. Low risk scores lead to higher prices and lower benefits, a recipe for health plan failure. It is extremely costly to continue to ignore the corrosive, insidious effects of the defective MA HCC risk adjustment system. It undercuts the many dedicated hardworking plan and provider teams caring for MA patients. It is fundamentally redefining our primary care networks, turning PCP practices into insurer-owned or investor-owned coding shops, and impacting large integrated systems the same way. If this trend is left unchecked, CMS will witness even more rapid MA growth and, with it, a more rapid approach to Trust Fund insolvency.”

Well, then.

Yet, it must be said, pace Drs. Berwick and Gilfillan, that, when one scans the current APM landscape, with regard to what might appeal to provider leaders, it is Medicare Advantage in general, and Direct Contracting in some form, that seem like the most appealing bets for the leaders of patient care organizations to make, in the currently very unsettled climate, particularly given that provider leaders are still struggling financial during the ongoing COVID-19 pandemic. In such an environment, why would provider leaders go for the riskiest levels of new risk…?

The industry analysts at the Chicago-based Kaufman Hall consulting firm made it clear that hospital-based organizations are still reeling from the various impacts of the pandemic, when they released a report on the subject on October 18. As they noted in the report, “2021 State of Healthcare Performance Improvement Report: COVID Creates a Challenging Environment,” that “The COVID-19 pandemic continues to undermine performance improvement efforts at hospitals and health systems across the country”; and “Supply chain disruptions and shortages have driven up prices and forced a return to the costs of carrying larger inventories of needed supplies. Labor shortages and high employee turnover are pushing up base salaries and recruitment costs and have led many organizations to implement retention bonus programs. Volumes in many service lines remain below pre-pandemic levels, putting downward pressure on revenues; clinical staff shortages make recovery even more difficult.”

The leaders at the Charlotte-based Premier Inc. have studied this situation as well, the labor issue in particular. What they found, using analysis executed by PINC AI, the organization’s comprehensive technology and services platform, housed inside its Performance Services division, is that “Overtime and use of agency staff are the most expensive labor choices for hospitals - typically adding 50 percent or more to a typical employee’s hourly rate. Hospital workers aren’t just putting in more hours, they are also working harder than ever before. The PINC AI analysis shows that productivity, measured in worked hours per unit of departmental volume, increased by an average of 7 percent to 14 percent year-over-year across the intensive care, nursing and emergency department units. Observing increased overall staffing cost during a period of improved staff productivity highlights just how significant the increases in cost-per-hour have become.”

So, what’s to be done? Fundamentally, provider leaders need to believe that they have a path forward; they’re willing to take on risk, including two-sided/downside risk; but they’re not willing to go out of business, which is an actual possibility these days. And that leads to the core question of which types of entities should be in the driver’s seat in all this: purchasers (Medicare, Medicaid, and corporate purchasers), payers (private health plans, which operate Medicare Advantage plans), or providers (hospitals, medical groups, and integrated health systems. Perhaps MA really can be a kind of de facto arbiter of power dynamics here. Consider what Jon Kingsley, Ph.D., a director at the Boston-based Wakely Consulting Group, and an associate professor in the Boston University School of Public Health, wrote in an article entitled “Medicare Advantage for Most,” published in the March 2021 issue of The Milbank Quarterly: “Commercial insurers often pay as much as two or three times the average price paid in peer countries for the same prescription drugs, hospital care, surgeries, and radiology scans.25 This means that private insurers in the United States also pay far more than Medicare—nearly two and a half times more than Medicare pays on average for hospital services.26 Not only are average prices high, but fees for similar services also vary greatly from region to region, depending on the providers’ concentration and relative negotiating leverage. With the continuing consolidation of hospitals and their acquisition of physicians’ practices and other clinical services, the providers’ leverage to dictate prices only grows. As politically difficult as this situation is, we simply cannot address health care spending without confronting the high prices that private insurance pays,” he wrote. “Fortunately, we have a ready‐made private solution in MA plans, though one that is heavily regulated.”

In effect, he wrote, as Medicare Advantage enrollment has more quadrupled since 2005, MA has the potential to help drive the bulk of care management and cost-control innovation work in value-based contracts. And, he wrote, “Key to the plans’ growth is a provision in the 2003 act establishing a default fee schedule: absent a negotiated contract specifying otherwise, Medicare providers must accept Medicare payment rates for MA plan members. This not only caps out‐of‐network charges, but more important, it also anchors negotiations over payment rates to Medicare’s own fee schedule. Although MA plans are free to pay more when necessary to attract providers—or less if they can negotiate that—most MA plans pay hospitals rates similar to Medicare’s. This prevents oligopolistic providers from dictating fees and leads to creative dollar flows that encourage value‐based care, which is critical in the face of continuing provider consolidation.”

Ultimately, Professor Kingsley believes, the long-term solution to the Medicare cost cliff must include the creation of a public option—something that right now appears politically impossible. But, even looking at gradual, evolutionary change, he writes that “A gradual, voluntary transition to better, more affordable employer‐sponsored coverage is critical for its political and economic feasibility. The cost to employers of expanding ESI [employer-sponsored insurance] coverage and the consequent economic impacts could be materially offset by simultaneously reducing the claims costs for covered services. This would be done by giving all employers the option to replace their conventional group insurance with experience‐rated or self‐insured MA plans or to add it as an option side‐by‐side with conventional private insurance.”

So, as the nationwide healthcare system struggles forward to reform itself internally, the signing of contracts like that of the Humana-Allina contract in Minnesota really does seem to offer hopeful signs for the near future. Humana has proven itself to be a serious leader in value-based collaboration with providers; and Allina is a very serious, respected leader among integrated systems, having shown long-term commitment to delivering value to purchasers, payers, and consumers.

So let’s hope that this news development is a sign of things to come, even as provider leaders pick and choose their paths forward into value. It’s going to be a very long journey ahead; every step forward needs to be celebrated.

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