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Drive Innovation June 01, 2016

International Children’s Day: Pediatric Care Takes First Steps to Value

Partner, Health & Life Sciences, Oliver Wyman
Partner, Health & Life Sciences, Oliver Wyman
Partner, Trion/MMA
Key Takeaway
#Medicaid & #pophealth prompt pediatric #healthcare providers to take first steps to value-based care #ChildrensDay

Today is International Children’s Day. In observance, our Provider Transformation team takes a look at trends in children's healthcare. Oliver Wyman Partner Josh Michelson and Principal Parie Garg, with Trion/MMA’s Steve Cherok, offer a perspective on how children’s hospitals and other pediatric healthcare providers are changing their financial and care models in the evolving value-based market to lower costs and improve outcomes in children’s health:

To date, children’s hospitals have been relatively insulated from the trend to value-based care for three main reasons:

1) Market dynamics

  • Niche players: Children’s hospitals tend to be singular in a market due to specialization
  • Academic focus: Fewer concerns about cost pressure due to AMC association and research revenue
  • Leverage: Because of specialization, children’s hospitals have had significant leverage in negotiating with payers

2) Unique clinical needs

  • Focus on specialized care regimen: Significant portion of care occurs outside of the physician’s office in schools and day care
  • Limited focus on chronic disease: Children are a healthier population than adults, minimizing benefits of value-based arrangements
  • Caregiver involvement: The entire family is involved in the care delivery process

3) Public support

  • Revenue sources: Considerable philanthropic support for children’s hospitals limit need for changing reimbursement model
  • Perception: Desire to provide the best care for children without focusing on cost

Growing pressure to manage costs

However, children’s hospitals’ exposure to Medicaid will add pressure to manage costs and shift to value. Consider that Medicaid makes up 50-75% of revenue for most children’s hospitals and that Medicaid will face downward pressure on rates for a variety of reasons:

  • Commercial health plans are increasingly playing a larger role in Medicaid (through Medicaid managed care)
  • MCOs will better manage total healthcare expenditure
  • Within FFS Medicaid, state budgets are suffering. Medicaid expansion will add additional strain, putting pressure on reimbursement and potentially prompting a shift to value
  • States may require MCO adoption of value-based purchasing models for provider reimbursement

First steps to value

Several children’s hospitals have made incremental moves to value-based care:

Phoenix Children’s Hospital: As a result of its value-based initiatives, operating cost per adjusted patient day is 16% lower than national average. Value-based arrangements have included:

  • Member of Arizona Care Network, a Clinically Integrated Network formed with Abrazo and Dignity Health
  • ACO shared-savings agreements with United Healthcare, Health Choice, Aetna, and MSSP
  • Reimbursement based on delivering coordinated, cost-effective care that meet quality measures

Nationwide Children’s Hospital: Its value-based arrangements have led to lower cost growth than Medicaid fee-for-service programs and Medicaid managed care plans. Specifics include:

  • Capitation agreement through Partners for Kids (PFK) ACO with all regional Medicaid MCOs
  • PFK paid fixed fee through Medicaid; payers retain a percentage of the premium while hospital bears risk

Texas Children’s Hospital: Its redesigned clinical care model generated cost savings of ~$4M in 18 months. Model characteristics:

  • Reimbursed under an all-patient-refined DRG system rather than a percent of billed charges
  • Bundled payment arrangement for treating children with asthma
  • Owns a Medicaid HMO plan (Texas Children’s Health Plan); TCH assumes 100% risk

Going forward

Population health holds promise for pediatrics. For adult populations, the common adage that 5% of the population drives 50% of medical cost is more clearly understood: those who are frail and elderly and who have polychronic conditions represent the lion’s share of healthcare costs. We have seen population health managers deliver incredible results in terms of cost and health outcomes by being laser-focused on these more vulnerable population segments through new care models.

Comparable models for pediatric populations have lagged, however, in part because the children’s population pyramid has not been scrutinized and opportunity areas identified as distinctly in terms of cost, clinical needs, and social and lifestyle variances. Yet these have potential to improve cost and outcomes in pediatrics as well for several reasons:

  • Certain conditions like epilepsy, asthma, and Type 1 diabetes lend themselves to much more holistic and proactive management that extends beyond the traditional clinical model through active remote monitoring, coaching, alerts, predictive and preventative technologies, and closer relationships with local pharmacies to mitigate exacerbations
  • For more complex and rare diseases, there is opportunity to shift the specialist model by combining clinical talent with data sciences, genomics, and life health planning to improve diagnosis and treatment and care plan personalization
  • Many pediatric institutions also grapple with disenfranchised populations, where investing in rethought access modalties, a support infrastructure and set of partnerships to address social determinants of health, including literacy, nutrition, and lifestyle, and ways to reach these patients in their homes and daily setting whether through text messages or other innovative means, can be key

Obstacles and opportunities

Separately, there are a handful of related issues and opportunities for pediatrics institutions to wrestle with as they consider pursuing a path to value:

  • Changing the scope of the family and patient relationship
  • Reinventing access, engagement, and the experience for pediatrics populations and their families
  • Shifting the center of gravity from campus-based to distributed
  • Confronting the drivers of the economic model and facing the disruption of the specialist utilization model
  • Cultivating partnerships and collaborations within adult medicine and local community organizations
  • Creating the new teaching and education paradigm

Answering these and other more existential questions, such as whether children’s hospitals are in the business of providing care for “all kids” or “sick kids,” will go a long way toward informing future investments in children’s healthcare.

Sources include: Becker’s, Kaiser Health News, Navigant, CMS, Oliver Wyman Analysis, company press releases, Health Leaders, and other secondary materials

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