Changing Care Management Models in Dual Eligible Populations

Changing Care Management Models in Dual Eligible Populations Appreciating the Dual Eligible population of healthcare consumers those who are eligible for Medicare and Medicaid is both appealing and daunting.
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Changing Care Management Models in Dual Eligible Populations Appreciating the Dual Eligible population of healthcare consumers those who are eligible for Medicare and Medicaid is both appealing and daunting. There is a large appeal in capturing the $300 billion being spent caring for duals, but health organizations will be challenged to build capabilities necessary to manage, improve care, and lower cost for this fragile and traditionally underserved population. Q4 / 2013 Industry Perspective UNCOMMON CLARITY 1 TripleTree is an independent merchant bank focused on mergers and acquisitions, financial restructuring, and principal investing services. Since 1997, the firm has advised and invested in some of the most innovative, high-growth businesses in healthcare. We are continuously engaged with decision makers across the sector including best-in-class companies balancing competitive realities with shareholder objectives, global companies seeking growth platforms, and financial sponsors assessing innovation investments or first mover opportunities. 2 Q4 INDUSTRY PERSPECTIVE Table of Contents / / / / / INTRODUCTION Defining Duals and their Challenges Healthcare Reform Takes on the Dual Eligible Challenge Vendors Enabling Care COORDINaTION in Dual Eligible POPULaTIONS looking ahead INTRODUCTION There are approximately nine million Medicare and Medicaid jointly eligible consumers in the United States. These duals are typically low-income, elderly, or disabled persons who qualify for both Medicare and Medicaid programs, and caring for them has become an unsustainable cost burden for the U.S. economy. The Centers for Medicare and Medicaid Services (CMS), federal and state policymakers, and many governmental and private healthcare organizations are acutely aware that we need to rethink how the healthcare system addresses the care needs and benefits coordination across Medicare and Medicaid programs to better serve this vulnerable and costly population. A lesser known part of the Patient Protection and Affordable Care Act (PPACA) addresses duals by establishing a coordination office within CMS to trial various programs, including creating capitated models and shared savings for managed care plans. These demonstration projects are to shift the majority of duals into capitated managed care programs within five years of the Act s passage. Many health insurers have shown strong enthusiasm toward capturing their share of the $300 billion spent annually to manage duals. In particular, payers with strong capabilities for managing seniors and Medicaid beneficiaries project significant revenue growth and profitability as these dollars move out of state or federally managed Medicaid or Medicare programs and into managed care. In addition, many insurers have quickly built out their seniors and Medicaid capabilities via both acquisition and infrastructure investments in the hopes of winning a large share of the demonstration projects, members, and dollars. This began in 2012, when CMS began lining up large-scale demonstration projects, and several payers forecasted positive revenue impacts regarding the massive dual eligible managed care opportunity. While many of the Medicaid managed care plans are still bullish about revenue upside from their dual demonstration projects, the duals opportunity seems to have lost some luster with some larger commercial payers because CMS has scaled back the scope of the 2 demonstration projects. With recently released details on sharedsavings opportunities and better clarity on Medicare rate adjustments, payers with large senior populations are struggling to balance other more immediate priorities like refining their Medicaid Advantage strategies in response to the new rate adjustments, and finalizing their individual market/exchange strategies ahead of Some of these managed care organizations recognize the investment needed in care management infrastructure and the uncertainty of shared savings benefits. Additionally, many states are bidding out their Medicaid contracts as they shift from fee-for-service (FFS) to a managed care approach to Medicaid medical management, and this represents a more immediate opportunity for many of the managed care companies. Despite this moderation in enthusiasm from some corners of the healthcare landscape, TripleTree believes that managed care companies can offer meaningful improvements in care and cost. Even though CMS is slow out of the gates with its demonstration projects with delayed project start times and smaller beneficiary participation than first envisioned, these demonstration programs will provide long term program savings and care benefits within the dual population. States are learning how to contract with CMS and payers for shared savings contracts, and payers will have more time to build competencies and capabilities in care management for the most complex and chronically ill within their populations. In our view, the duals are a good opportunity for plans with the right capabilities or who can, in understanding the needed areas, make the investment. The duals opportunity however, is not the pot o gold at the end of the rainbow that it may seem. The challenges in the models are many and the financial incentives are not clear. Rather, plans already are preparing for Medicare advantage (Ma), communitybased care, and even acos will likely and perhaps unknowingly be building the needed capabilities for duals, and should look there to leverage their investments. Vendors and investors should approach duals cautiously because continued delays are likely, and success will be hard. This report will assess the broad dual eligible opportunity and how some commercial payers are addressing significant market needs such as better alignment to manage care across the dual eligible population. Lastly, it identifies a handful of technology and services vendors with innovative solutions for improving care coordination and care delivery across the duals population. TripleTree has published several recent reports which drill deeper into adjacent areas related to duals, including health insurance exchanges, post-acute care, innovations in senior care, healthcare consumerism, and ACO enablement. These reports are available at INDUSTRY PERSPECTIVE Q4 / Defining Duals and their Challenges Dual eligible individuals qualify for both Medicare, a federal health benefit program primarily for those who are disabled or over 65, and Medicaid, a state health benefit program for those who fall under a given state s poverty level designation. Almost all dual eligible individuals have low or no incomes, with nearly 90% being far below the federal poverty level. Besides being poor, the dual eligible population has other unique socio-demographic characteristics. Compared to the Medicare population, they are disproportionately female and in minority groups, with many being African American or Hispanic. More than half are not high school educated, have limited English language skills, and live alone. In addition, many are disabled (physical or mental) with complicated health conditions. Nearly 40% of duals suffer from both physical and mental diseases, and these co-morbid conditions further complicate and add cost to care. 1 Medicare covers 56% of the health spending for duals, Medicaid picks up the tab for gaps in Medicare s coverage (such as long-term care or prescription drug coverage). Breaking down the 300 billion dollar cost of duals, we find: Duals represent 13% of the total Medicare and Medicaid population, but account for 34% of the total cost of these programs. 2 For Medicare, 18% of the entire population is dual eligible (8.28 million individuals) and accounts for nearly 27% of total Medicare program spending. For Medicaid, 15% of the population is dual eligible and accounts for 39% of the costs in that program. 3 Duals are responsible for 27% of total long-term care expenditures. Annual spending for a single dual eligible consumer averages over $19,400 and can exceed $38,500 if more than one mental condition is present (20% of duals meet these criteria). PMPMs (per member per month) for a dually eligible member can easily exceed $3,500, which is often more than three times the cost of a healthy senior individual. A large number of duals suffer from severe physical and mental challenges requiring extensive support services. Mental illnesses including schizophrenia, Alzheimer s and other forms of dementia, stroke, congestive heart failure, and cerebral palsy are more prevalent with duals than in the non-dual eligible Medicare populations (see Figure 3). Patients who need long term institutional care consume over $56,000 a year in healthcare resources and with 20% of duals living in an institutionalized setting (and 16% living in nursing homes), they are among the most expensive to care for on a per capita basis. Three million children are part of the dual eligible population, and many of them have special care needs, which require close monitoring in order to avoid unnecessary hospitalization. 4 In the coming years, the dual eligible population, along with their associated costs, is poised to grow. Under the Patient Protection and Affordable Care Act, Medicaid expansion will increase enrollment by 40% up to 24 million adults. Without initiatives to address the complex and costly care coordination needs of the Medicaid population, costs and spending will grow. Given the size of the duals population and their complex care needs, along with the lack of care coordination between the federally-run Medicare and state-run Medicaid programs, governments and private insurers are increasingly shifting attention to initiatives that improve care, lower costs, and reduce waste and patient abuse. This shift is resulting in opportunities for innovative businesses to win large care management contracts. Figure 1: Medicaid and the Dual Eligible Population Pre-ACA 2014 Expansion 37 Million Medicare Only 9 Million Duals 51 Million Medicaid Only Source: TripleTree Analysis Note: There are 46 million individuals enrolled in Medicare (37 million Medicare only, plus 9 million duals); and 60 million individuals enrolled in Medicaid (51 million Medicaid only, plus 9 million duals). INDUSTRY PERSPECTIVE Q4 / Why is Managing Duals So Expensive? Demographics, education, and the generally poor health status of the duals population all contribute to the disproportionately high healthcare spend within this population. Emphasizing this fact is that three in five duals have multiple chronic physical conditions, and two or more cognitive issues and as such are more difficult and costly to treat than the general Medicare and Medicaid populations (see Figure 2). Figure 2: Co-Morbidity among Medicaid Beneficiaries 70% 60% 50% 40% 30% 20% 10% 0% 1 Physical Condition 1 Cognitive Condition A Physical & Cognitive Condition Duals Other Medicaid Beneficiaries Source: KCMU and Urban Institute analysis of linked 2003 MSIS data and MCBS Access to Care File. Kaiser Family Foundation, Figure 3: Prevalence of Selected Chronic Physical and Mental Conditions Among Medicare Beneficiaries Pulmonary Disease Stroke 17% 19% 24% 28% Heart Disease 11% 20% Diabetes 24% 35% Depression 8% 23% Alzheimers/Other Dementia 7% 16% Schizophrenia 0.04% 6% Duals Other Medicare Beneficiaries Source: Kaiser Commission on Medicaid and the uninsured, July To compound the problem, Medicare and Medicaid programs operate independently, meaning there is little to no program coordination and often misaligned incentives in the delivery of services. For example, Medicaid pays for long term care but not acute care; therefore state Medicaid administrators have a financial incentive to send long-term care residents to the emergency department for evaluation of minor medical issues. This translates to a vast over-utilization of emergency acute care services of nursing home residents. Similarly, Medicaid providers are perversely incented to push for a dual eligible individual to be placed into a long term care setting instead of identifying and addressing problems in care settings and interventions that are less costly and covered by Medicare. This shifting between long term care and acute care and vice versa is expensive and results in a poor overall care experience for the individual. With program inefficiencies and the lack of coordination between Medicare and Medicaid, costs continue to rise and care improvement is slow, if existent at all. INDUSTRY PERSPECTIVE Q4 / Healthcare Reform Takes on the Dual Eligible Challenge As we stated in our 2011 report on Health Insurance Exchanges 6, the PPACA provides states with a mixed bag of Medicaid expansion requirements and directives to establish health insurance exchanges. It also contains provisions and funding at the state and federal level to address care coordination for the duals. Specifically, the Act created two new divisions within CMS: The Federal Coordinated Healthcare Office (FCHCO). FCHCO facilitates the testing of various delivery systems, payment, service and/or technology models to improve care coordination, reduce costs, and improve the beneficiary experience for individuals dually eligible for Medicare and Medicaid. The Center for Medicare and Medicaid Innovation (CMMI). CMMI s mission is to test, implement, and evaluate new methods of care and help states address the coordination and financing for the dual eligible populations. In early 2011, CMMI awarded up to $1 million to 15 states to design strategies and models that coordinate primary, acute, behavioral, and long-term care support for dual eligible individuals. Under these demonstration projects, CMS would either trial: A Capitation Model involving a three-way contract between CMS, states and the state s selected managed care plan. Health plans would manage to a blended rate for primary, acute, behavioral and long-term health services. A Traditional Fee-For-Service (FFS) Model with an agreement between CMS and the state, with the state responsible for delivering integrated Medicare and Medicaid benefits and for coordinating care, and where the state would be eligible to capture the Medicaid savings resulting from care coordination initiatives. In addition to the 15 states initially named, another 23 submitted letters of intent to participate in one of the two trial models. However, by mid- 2012, 12 states had dropped out of the CMS dual eligible demonstration project citing various reasons ranging from population size to program readiness, to regulatory complexities. The 26 remaining states represent a total population of nearly three million duals. The scale of these trials are significantly larger than the previous initiatives that we ll describe below, and officially began just in 2013 (but most will not start until well into 2014). At the time of this report, seven states have signed MOUs (memorandums of understanding) with CMS and are preparing to roll out their projects, as shown in Figures 4a and 4b: 8 Figure 4a: States with Demonstration Proposals as of September 2013 State demonstration proposals to align financing and/or administration for dual eligible beneficiaries, September 2013 MOU signed with CMS to implement financial alignment demonstration (7 states) MOU signed with CMS to implement administrative alignment demonstration (1 state) Proposal pending with CMS (14 states plus NY s DD proposal and WA s capitated proposal) Proposal submitted, will not pursue financial alignment but may pursue administrative alignment (1 state) Proposal withdrawn (3 states) Not participating in demonstration (24 states and DC) Notes: *CO, CT, IA, MO, and NC proposed managed FFS models. NY, OK, and WA proposed both capitated and managed FFS models; NY withdrew its managed FFS proposal. All other states proposed capitated models. Source: Kaiser Family Foundation 7 INDUSTRY PERSPECTIVE Q4 / Figure 4b: A Select List of Large High Profile Demonstration Initiatives (Both Signed and Proposed) State Status Scope/Size of Population CA Delayed until early 2014 Scaled back to 450,000 from an initial target of 800,000. There are 1.1M duals in CA IL July 2013 start date 136,000 beneficiaries MA July2013 start date 110,000 beneficiaries with demonstration project focused on non-elderly individuals MI Delayed until 2014 Scaled back from original statewide approach NY 2014 start 120,000 initially then add in another 460,000 in NYC OH Late 2013 start 150,000 out of total dual population of 214,000 TX TBD Scaled back from statewide to 19 counties VA TBD 78,000 beneficiaries targeted WA TBD 21,000 beneficiaries, scaled back from an initial target of 115,000 WI TBD 20,000 nursing home residents out of 124,000 total dual population with statewide roll-out in 2014 Source: CMS, state Medicaid agencies, news reports and TripleTree analysis Improving on the Concept of Managed Care for Duals States are desperate to improve their duals situation and have shown a willingness to experiment with a range of programs. One example is the Program of All-Inclusive Care for the Elderly (PACE), a capitated managed care program for duals in 29 states, which thus far has had limited impact due to the small percentage of duals enrolled in PACE programs. As a 15-year old demonstration program, PACE currently serves about 20,000 individuals but is restricted to nursing home bound participants. PACE has been viewed favorably with several studies showing that the program has a demonstrated track record of savings and participant satisfaction, but its impact has been limited due to the small scope. 10 Specialty Needs Plans aimed at the dual population have come online since the authorization of the Medicare Modernization act of Privately run, capitated Medicare Advantage Specialty Needs Plans (D-SNPs) have had mixed results. Some programs in Massachusetts, Wisconsin, and Minnesota have done a notable job in providing community care and keeping participants out of nursing homes, but other D-SNPs have not always been as successful. While D-SNPs are targeted at duals, its shortcoming is that it focuses on Medicare benefits rather than coordinating benefits and care management with the Medicaid systems. States like Arizona, New York, and North Carolina have recently experimented with care coordination programs for duals, trying concepts like medical homes. The PACE, D-SNPs, and other demonstration programs have shown that care coordination can work within the dual eligible population. In fact the results have convinced some states that a broader adoption of coordination activities within the dual population should drive down costs whether it is in a fee-forservice or a managed care model. With services to the dual eligible population consuming 40-50% of states Medicaid budgets, many states are attempting to improve their financial footing. Due to PPACA, they are unable to change their Medicaid eligibility rules and be forced to handle the significant increase in state Medicaid enrollment. As a result, many states are hopeful that the success of programs like those noted above can be leveraged to achieve significant savings. A big question, however, is will expanding the scope of the demonstration projects necessarily translate into savings for the states? Given the number of moving pieces, it is too difficult to judge to what extent these programs will meet the savings goals. The quality benefit however seems more easily obtainable. A major difference between programs like these and the demonstration projects being implemented as part of PPACA is the scope and scale. Previous programs have addressed only partial segments of the population, and demonstration programs envisioning up to seven million members and capitated arrangements face the challenge of scaling up. Even the five demonstration programs shown in Figure 4 are sized to manage upwards of one million beneficiaries, a relatively large an


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