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Nephrologists: Take the lead now in population health management
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Since 2006, large dialysis organizations (LDO) have entered demonstration projects established by the Centers for Medicare & Medicaid Services, created wholly-owned Medicare Advantage CKD/ESRD Special Needs Plans, and entered contractual joint ventures with existing Medicare Advantage Health Plans. Most recently, LDOs have taken the lead with the Center for Medicare and Medicaid Innovation (CMMI) ESRD Seamless Care Organization (ESCO) demonstrations. In all cases, the LDOs have entered payment arrangements with upside financial rewards and downside risk.
But are LDOs the best leaders to move from fee-for-service to value-based payments in renal disease management? Why haven’t nephrologists taken the lead in creating and implementing these new value-based payment agreements?
Some nephrology groups are taking renal professional risk, but few take on risk for hospital and ancillary services medical costs. Few have entered Medicare/Medicaid ACOs and the ESCOs where payment models are two-sided with upside shared savings/downside financial risk arrangements. The exceptions are the nephrologists who are participating with physician hospital organizations in Medicare ACOs and those who are participating with LDOs in the Comprehensive ESRD Care Demonstration. However, the leaders here are not nephrologists.
In this article, I will discuss 1) the clinical and financial justification for nephrology practices to take the lead in financial risk assumption and alternative payments, such as capitation and shared saving, 2) how best to leverage existing resources in the nephrology group to be successful in entering these payment models, 3) techniques to collaborate with other organizations known as conveners to create the necessary data warehousing, analytics, and scalable care management services, and 4) how to use outside resources to review claims and mitigate financial risks.
Step 1: Clinical and financial justification
Nephrologists are better positioned than other physicians to change the care delivery of patients living with renal disease. Nephrologists know the opportunities to improve patient care, but in most cases, they do not have the resources to intervene. Thus, most nephrologists focus on dialysis treatments and refer patients to other physicians and specialists. This often leads to fragmented care and leaves the patient or caregiver to coordinate their primary care, leading to poor clinical and financial outcomes.
Between Medicare’s Monthly Capitated Payment (MCP) to nephrologists for ESRD patients, additional inpatient charges during hospitalizations, dialysis center medical directorships, dialysis joint ventures, and dialysis access centers, nephrologists have the potential for good subspecialty income. So why take on coordinating patient care and financial risk?
The ESRD Seamless Care Organization (ESCOs) and Medicare Advantage’s ESRD Special Needs Plan are the current business models. In these models, financed and run mostly by the LDOs, nephrologists are provided financial incentives to be involved in “principal care.” With principal care, the nephrologist collaborates with nurses and pharmacists to coordinate the patient’s care. But these models are the exceptions. Total enrollment in Medicare Advantage ESRD Special Needs Plans is currently 4,000 and patients attributed to the 37 ESCOs is around 32,000. This is still a small percentage of the 600,000 dialysis patients in the US.
Accepting financial risk
So how can nephrologists create a paradigm shift in who leads? The nephrology group will need to assume financial risk from their contracted payers. Looking at the total annual medical costs of a patient in kidney failure, nephrologists’ compensation represents 4% of the average annual expenditure of an ESRD patient and less than 2% of a late-stage CKD patient. The annual medical cost for dialysis patients is dependent on the payer.
- $84,000 per patient per year (PPPY) for a Medicaid beneficiary
- $96,000 PPPY for a Medicare-only member
- $130,000 PPPY for a Dual Eligible (Medicare/Medicaid) member
- $180,000 to over $600,000 PPPY for an employee plan member.
A 12% reduction in medical costs, the equivalent of reducing hospital admissions by one third, could create a saving pool of $10,000 to $72,000 Payers are keenly interested in late chronic kidney disease members (CKD stage 4-5), who are not yet on dialysis, but less than a year away from transitioning. Targeting the CKD population would have a large impact if improvements in care led to reduced comorbidities and hospitalizations. Patients with CKD stages 4–5 have yearly expenditures of $28,508, demonstrating the impact of a more advanced disease state and its increasing complications. In patients with both stage 4–5 CKD and CHF, costs are higher, i.e., greater than $38,000 for whites, and approach $48,000 for African Americans.1
Considering a single nephrologist’s annual income with 80 ESRD patients (Monthly Capitated Payment + hospital visits only) is about $4,000 per patient per year, a 50% shared savings on a Medicare-only patient with an average cost of $96,000 PPPY, net the cost of care interventions, would almost double a nephrologist’s income. With more effective management of CKD stage 4-5 patients, the savings to the payers and the shared savings to the nephrologist and their income increases further. The downside, as demonstrated in Table 4, is the loss of the nephrologist’s gross fee for service income, but the upside is a significant increase in gross income from shared savings, not counting dialysis center medical directorships, joint ventures, or other forms of ancillary income. To benefit from Table 4, nephrologists need to address existing and additional resources that are not currently in the group practice, and often provided by the LDOs in their leadership positions. Nephrologists would also need to transition to compensation fully based on alternative payment models.
Step 2. Leverage existing resources
When it comes to leveraging existing resources within a nephrology group, physician governance is a critical success factor. The nephrology group must function as a team with a high degree of standardization of the patient’s clinical interventions. In addition, the nephrology group must effectively utilize dialysis centers, vascular surgeons, interventionists, and other specialists, especially endocrinologists, cardiologists, hospitalist and emergency room physicians, to reduce hospital admissions.
Activities focused on reducing hospital admissions will be the major factor in reducing medical costs and generating shared savings.
Dialysis and physician services are essentially fixed costs. The opportunity lies in variable medical costs associated with reducing hospital admissions, transplantation, and conservative care. We all know there is a perverse initiative in play.
Nephrologists generate additional income when patients are hospitalized. Avoiding an admission is not only financially counter intuitive as demonstrated in Table 4, but it is difficult to execute, and time consuming to coordinate.
Step 3. Collaborate with others
Information systems, analytical tools, and care management services are important in reducing hospital admits. The ability to aggregate, organize, report data from disparate sources, and to make data actionable to care managers are major success factors. The use of scalable telehealth services is important in reducing the cost of care interventions.
Enter the Convener organization. The Center of Medicare and Medicaid Innovation (CMMI) defines a “Convener” as an entity in partnership with providers, whereby the entity serves as an administrative and technical assistance function for the provider organizations, such as a nephrology group.
In these arrangements, the convener would not have an agreement with the payer, bear financial risk, or receive any payment from the payer. But the convener could share in the financial risk or cost savings from increased efficiencies experienced by the nephrology group through a contractual arrangement.
Step 4. Use outside resources to reconcile shared-savings agreements and mitigate your financial risk
It is not enough to have effective physician leadership and a Convener organization. Financial reconciliation with a payer can be difficult. You will need actuaries on both sides (the payer’s and yours) to finalize the shared savings and risk payments. If you take downside financial risk, you should consider a reinsurance agreement that will protect you from any catastrophic event, such as a flu epidemic. You can use reinsurance to mitigate a portion of the downside risk and to truncate or “stop the loss” of your financial risk associated with large outlier individual patient claims, e.g., annual claims exceeding $350,000 per year. Actuaries and reinsurance companies can complement each other in achieving your clinical and financial outcomes.
Summary
Adopting new compensation models requires foresight and planning. As cost and quality pressures reshape the health care industry, providers need the right tools to transform their compensation. A solid strategy and sound operational infrastructure are vital to success when evolving to payment models of higher risk and complexity. My four steps provide guidance to nephrologists interested in regaining their appropriate leadership in renal care. It will also improve the quality of care for their patients and appropriately align the financial incentives in the patient/physician/ payer relationships.
References:
1. USRDS 2012 Annual Data Report, Chapter 7. Available at: www.usrds.org/2012/view/v1_07.aspx.