Entries in DeMarco, William (14)


ICD10: The Impact on P4P, Global Care, Billing and HIEs

by William DeMarco, April 28, 2009

ICD10 will have a major impact on future planning by providers and health plans. I would like to address examples relating to Pay for Performance, global care initiatives, billing documentation and health Information exchanges.

I was giving a lecture to a wonderful HFMA audience in New Hampshire on pay for performance and this topic came up, asking how will ICD10 affect P4P.

It was clear, in my opinion, that all of the use of severity DRGS and now severity levels within ICD codes that ICD 10 offered, were deliberately trying to get at the kind of detailed reporting that Medicare and many purchasers wanted. This was intended to define what process improvement s could be made to develop a better delivery system.

Benchmarking was too broad with the current system and was not fair because it could not get at the root cause without the examination of charts and abstracted medical records that offered such great detail but were labor intensive to obtain.

This statement produced several hundred nodding heads until another panelist from a well respected billing and systems firm said ICD 10 will not be implemented until 2012. When asked why she just said the insurance companies cannot even do APC reconciliation how will they ever do ICD10.

Well, many heads again nodded, probably the ones sweating bullets right now: hospitals that own PCPs and need to quickly find a way to get into ICD10 billing.

The real challenge here is not so much the electronic billing, there are crosswalks out there, but rather documentation at the physician end.

ICD10 requires a major departure from the two or three categories in an ICD 9, and will demand some documentation from physicians and physician mangers who will need to be adamant about both the precision, to avoid audits and also the electronic billing capability to get paid on time as all Medicare and Commercial will move to this system.

Of equal importance is the traveling executive whose emergency visit in Thailand will be billed using ICD 10 or ICD11. Or the family that is told if they go to India for Johnnie’s surgery ,it will be covered in full, but if they get the surgery done here it will only be 60% covered.

We are not seeing the medical tourism momentum stop, and as Blue Cross South Carolina adds Hospitals to its PPO network in Panama and Costa Rica and other employers demand credentialed professionals to see their employees overseas, the conversion to this new system is also key to success.

What we are all missing is the why?

Why are we making this so complicated?

The current system has a majority of docs using the same codes over and over.

In our work with Pendulum HealthCare Development Corporation we see level 3 office visits for a majority of doctors and patients, and yet when we compare level 1 visits of similar docs in the same region with a case mix adjusted diagnosed population, we see the end result is the same.

Why are we paying more?

In this case there were 12,000 children accessing:780 pediatricians. 1,300 pediatric specialists,60 in network hospitals.

They were generating 21,000 admissions, 190,900 clinic visits, 79,319 ED and 19,785 surgeries. The client’s goals were to integrate financial and clinical reporting capabilities to make good decisions as to how best to manage the plans medical loss ratio. When we extracted data there were many holes such as Misaligned fields for lines of business, and Claim adjustment errors.

Office Visit Level

% Medicaid Claims

% Commercial Claims
















The solution was to reconfigure reports to be useable by departments and management.


For example, by aligning financial and clinic reports into 30 summaries the providers and the health plan received reporting by line of business, specific drugs, service codes, and disease condition by provider. This allowed them to have a real time cost per patient per 1,000 and PMPM by service and set the foundation for implementing HEDIS measures and other custom quality measures for operational improvement and compliance.


What this analysis also found was providers offset lower reimbursement by increasing complexity of office visit level. For example focusing on a single procedure Otitis Media for 62,000 Medicaid patients and 400,000 Commercial patients, we found over-reliance on level 4 and 5 office visits

In looking at outcomes, variances between Commercial and Medicaid is not clinically justified, so the plan allowed physician and hospitals to look at the financial impact of reducing office payments by 21%.

This got EVERYONE’S attention.

By showing drill down reports, the Client was able to look at the practice mix compared to specialty averages for each condition. This led to a timely discussion on proper use of level 1 versus level 5 billing benchmarks

The physicians and hospital were able to identify the providers who billed 90% or greater of their visits at level 5 and show them where they stand next to their peers.

I point this out to demonstrate that having severity adjustment and having risk adjusters for the elderly will all require more and more use of ICD 10 to get at providers who often unknowingly burn more resources with some diagnosis than others.

I also wanted to point out that by sharing this data with providers the health plan allowed the peer pressure of physician and hospital to create AWARENESS of the problem and the potential fee reduction consequences if behavior did not change.

As plans have this data so will Medicare and a scoring process using ICD 10 is underway at the top of the payer’s mindset using tiering and reconfiguring networks.

Finally the discovery that was made at the HIMSS conference last month and that is that the government’s stimulus program checks for EMR are going to go to reimburse providers who create ‘Meaningful User” data.

This means data must be able to be communicated from office to office, hospital to hospital and payer to payer and especially provider to payer.

Many practice management companies will be shut down as their system operates in a vacuum. Many hospitals, we have discovered in our pay for performance work, have a large system but they cannot get their large system to cross over departments and they cannot communicate electronically with payers except for billing information. This is inadequate and ICD10 will require more data fields and therefore more complex billings but also offer the opportunity for payers and providers to construct bridge reports on performance and someday outcomes.

By having a national severity distinction and preparing the data links to both internal and external customers ( A BIG LEAP) we will see regional data bases begin to form and these collections of data will form a local practice pattern form which providers and payers can better evaluate changes and watch change happen.

In all my work with doctors for the past 30 years, I can say once the doctors actually see that improvement needle move, they suddenly feel like they are back in control and this is a wonderful thing.

We have been lacking precise data to see this behavior change, which is always been the source of the argument” my patients are sicker”. We can see this shift to performance based contracting now be supported by physicians and specialty societies using ICD10.

So ICD 10 will be a major change for us as well as the health plans, hospitals and physicians. If payers are demanding value but there is no way to prove it then the data is useless and will not produce needed change. If there is a regional data base of practice patterns that can be used by payers and providers we will have less cause for acrimony and more time spent competing on quality. This was the original intention of health plans in the 1970s. Perhaps this is a second chance to make these local plans flourish.


The new NEW DEAL

by William DeMarco, January 8, 2009

The healthcare “deal” for the near future is firming up to represent threats and opportunities for health plans and providers.

Franklin D. Roosevelt offered a “New Deal” after the Great Depression. It took 25 years after the stock market crash of 1929 and the subsequent large market crash of 1937 to begin to achieve pre 1929 levels. It worked because once people went back to the fundamentals of infrastructure repair, sharing resources and returning to the hope work brings, the economics ramped up and the vision of the nation being able to defend itself against the determined and expanding German nations and the sudden incursion of Japanese into SE Asia and eventually Pearl Harbor signaled the greatest manufacturing boom in history.

We now have before us a new President and a very deep and growing recession/depression. Every industry from housing to banks to automobiles to retail is being affected, and certainly health care insurance companies and provider organizations are feeling the tightening of capital and a large hole left in their investments as this crisis will require belt tightening. Have we learned how to do that? Is the plan the government offers going to correct all of this? It will take time. In that time we need to share resources, repair our infrastructures and recognize the fundamentals of how care management works. We apparently have not done a good job in answering the public’s question, “What is it that managed care was trying to do?”

In fact the “blueprint” discussed in the incoming HSS Secretary’s book has a very different take on what managed care was trying to do.

In reading Daschle’s book we see no mention of the early HMO movement and success still enjoyed by Greater Marshfield, Geisinger, Kaiser, Health Partners and others that established much of the industry’s PURE or Classic HMO operations and efficiency. These plans are still expanding their ideas in literature as truly integrated provider sponsored plans. (Please refer to MCOL’s managed care museum for an accurate description of the industry history.) Instead the Book goes on to say Blue Cross established the entire health industry and that what we need is a national health board similar to the Federal Reserve.

Neither is there mention of the rapid consolidation of Blue’s plans to obtain cash as for-profit entities nor a discussion on the fundamentals of the Elwood Enthoven goals of coordinated care. Their original writings and proposals to Congress emphasized quality first and price last, but insurers and third parties saw the opportunity to bring in the price and cost issue and, to this day, left most of the medical management and issues of quality as optional components when they were the core of care cost reduction. Much of coordinated care linked the providers to one another, as well as payers to one another, so there was a full integration of both delivery and financing.

This exchange of data and service value for money and time spent was focused on a highly concentrated provider-payer linkage and this is what the Value Based proposition began with and may still endure as employers become interested in managing benefits and managing benchmark sets locally that were never corrected by insurance companies.

Why would an insurance company want to have less utilization? What would they want to correct the unnecessary care, which translates to less premium and less stockholder value?

Although we can agree that the Clinton plan went down the road with little legislative input and eventually pitted the AMA and the AHA against one another, we can also agree the plan’s complexity and attempts to oversimplify the process caught many potential supporters flat footed and unable to truly defend good parts of the plan the Clintons had worked on for so many months.

My own discussions with White House press secretaries and several of the Ira Magaziner staff showed me it was understood that while the plan made sense, Congress and others were going to offer no support as they saw it as too detailed and complicated to explain and implement. By the time Harry and Louise appeared in commercials as a campaign to sell Fear Uncertainty and Doubt ( FUD) politicians and lobbyists had taken the ideas to stunning misunderstandings, the program was over and everyone returned to production driven medicine.

Now we see the out of control costs of utilization, introducing the era of “Thelma and Louise” ready to drive over a cliff into a one-size fits all program.

The Federal Health Board concept of offering several layers of authority over the workings of a complex, structurally broken system that has perverse incentives, may offer the “fresh idea” of centralizing this system of separate fiefdoms and uneven, underfunded resources, but the ultimate questions remains, “How long will this take?” The sad truth is that many forecast the number of underinsured will exceed the number of uninsured by next year.

Who will be on this board? Will politicians be at the switch again to hold back changes that need to be made because the polling data says people do not understand the true urgency of the situation? How will existing providers fit? How will insurers fit? Will consumers use the system correctly or fill EDs with the “worried well”, forcing hospitals to assure expensive 24/7 trauma care, trained professionals to take care of sore throats and colds?

The larger issue here is that while the debate over policy and funding continues from last year (SCHIP and Physician compensation to name a few), the aging population is aging faster and faster and the uninsured ranks are sure to follow.

The simple truth is there is no funding available. This means dollars to pay for this 75 billion dollar a year MOVE TO Universal Health Care will need to come out of funds that are now in place. It has been estimated one third of this cost will be paid for by funds now going to hospitals for the uninsured. The rest could come for repealing tax cuts, raising taxes or putting caps on spending.

In exchange 30 million uninsured could become insured, of which 40% would get their care paid for by employers. Another 4.5 million would trade their current private coverage for the government subsidized program of “Medicare like” benefits.

This sounds like a plan where many will be affected and, if successful, could at least straighten out the issues of coverage and some access concerns, but are we really getting to the question of “Why does this health care cost so much”?

There are some studies conducted by the Medicare demonstration project on disease management that say improving productivity will not reduce costs. Yet last week Health Partners announced 100 million dollars (will be???) saved through improved productivity of physicians and their staff.

Other proposed funding of electronic medical records and a health info technology will take time but may be part of the answer. This, along with the value base purchasing plans, will reduce office costs and allow proficient doctors to be rewarded for superior performance, but we still have this delivery system issue of how to actually shift from a production of procedures environment to a standardized cost and quality environment. The CSC report of Health Plan CEOs mentioned earlier by Clive Riddle in his opening comments on this blog, says that medical management progress will be cut with dollars going elsewhere. Are we really understanding the fundamentals of this business if we abandon this critical means to reduce premiums in favor of acquisitions or other growth options?

If health plans can change the environment to refocus their mighty databases and tiering capability in the direction of medical management, the move to a comparative economic framework will indeed reveal why this thing called health care is so expensive. If the Chronic Care models and productivity can be measured long term, we can get this efficiency and effectiveness planning that has been so long debated moving in a forward direction.

Many plans are already moving in this direction, forming cooperative models of data and guideline development to share among local competitors as is done in St. Paul and Minneapolis. Several plans are being directed by their employer coalitions to share data to get a clear understanding of what costs so much and what they can do as purchasers to redesign benefits that will change patient behavior. Five of the largest health plans in St. Louis have a good chance to do this in conjunction with their employers. If this is done, the management of populations, sick or well, young or old, can be done as well.

The alternative will be stricter underwriting and discrimination against those with illnesses who cannot qualify as individual policy holders and are liabilities to employer groups, who will look for ways to remove them from the workforce.

We see the products all moving to consumer driven and think that the days of the large networks are dead and that local networks will prevail. This means much of this action will still require LOCAL planning and leadership to create a better system of care before financing can really see a difference.

Health plans and physicians and hospitals have the incentive not to wait and see but to find ways to collaborate regionally or locally to get at the means to reduce chronic care cost s and compare the current pathways to best benchmarks ands see if productivity really can improve. Plans and Providers can help one another and, in so doing, help the national health policy efforts as many in Washington still do not understand what Health Plans do and why it is done the way it is done. Many consumers are a bit suspicious of companies that grew so fast with other people’s premiums.

To let this be tied up in a legislative contest is probably the worst outcome we can see.

Instead, local experiments and collaboration towards reducing costs and improving productivity is. We must get past the walls of competition. Pricing is not the issue. Doing the right care for the right person at the right time is. If we can do this we are doing the right thing for the customer, our patient/ member.

There will never be a better time for this change to happen.


Capitation and Medical Homes Or Is this the return of the Staff Model HMO?

By William DeMarco

While Primary Care seeks new ground as medical homes and insurers look for ways to share risk between providers and insurers using global/tied to episodes of care, we are reminded of the original foundation of HMOs in the early 1970s.

In the original HMO Act of 1973 the federal government intended to encourage formation of group practices through grants and loans. The promise of assembling these efficient prepaid group practices was to have them paid on a capitated basis allowing for a margin if these groups came in under the capitation rate. The intention was to have PCP groups receive full cap and “provide or arrange to provide care for a voluntarily enrolled patient population in exchange for a fixed periodic payment.”

Thus, the original definition of an HMO in the early 1970s applied to a broad variety of delivery systems sponsored by new and existing medical groups.

In today’s world, Primary Care salaries are flagging and capitation is split to sub cap for PCP, specialty and hospitals. So instead of a full payment per episode PCPs get a small amount for a couple of office calls.

Once reimbursement split, it was further split by parts A, B, C and D of Medicare, and then the original value of PCPs was also split. The Primary Care services became a commodity as PCPs were convinced over time that they had no hope of effectively managing primary, specialty, hospital and ancillary services.

They did not have knowledge of claims and information systems, severity measurement tools or care standards and guidelines to shoot for.

In short they were flying blind and this meant they would eventually lose money unless they had a health plan partner to manage all this for them. The successful plans (Marshfield, Gisenger, Lovelace, Kaiser and Harvard and Tufts) all built an insurance partner that they owned and, as such, were able to turn this process into an asset to build market share and compete with other insurers who eventually entered the market with loose-knit networks and PPO arrangements that were HMOs – but in name only.

These anti risk models failed one after another, while those that truly did manage care, reorganized and did the work to build a care system that was fully integrated with the reimbursement system. These made whole dollars for successful care and redeployed savings into these medical groups to hire staff, buy equipment and expand the reach of their practices.

Medical Home

So where do we go from here? Medical homes, a new conceptual formation of a medical practice, recently emerged in the literature.

These homes are hailed by government and practitioners as a more comprehensive approach to Primary Care and Primary Care management. Some of these homes emerged as practices newly forming out of old hospital owned practices and some are forming with insurers as sponsors, seeing the need and the opportunity to truly change care delivery but only by becoming a provider.

This is a switch away from the IPA and network models. Employed physicians exclusively work for the health plan, and are indeed employees, insulated to the extent possible by employer-employee relationships, or in some cases by the medical group that the insurer partly owns. Insurer owned medical groups have been around in the worker comp area and also with the resurgence of interest by manufacturers owning PCPs as the company doctor.

The savings for insurers and employers is obvious when the PCP builds a referral network of specialists and hospital services that are only needed when and if the PCP cannot perform the service directly.

Recent expansion of CVS, Target and Wal-Mart into the Primary Care area shows how needed the services are. But again these professionals treated as a commodity leaves much to be desired in terms of continuity of care, so the medical home has been created and is a new definition...

  • Each patient receives care from a personal physician
  • The personal physician leads a team of providers who are responsible for a patient's ongoing care
  • The personal physician is responsible for the "whole person"
  • A patient's care is coordinated across the health system and community
  • Quality and safety are hallmarks of the practice
  • Enhanced access to care is offered through open scheduling, expanded hours, and new care options such as group visits
  • The payment structure recognizes the enhanced value provided to patients

Newly developed NCQA standards for these homes as credentialed contractors for Bridges has furthered the interest by payers to link up with PCP.


On January 22nd the Boston Globe announced that Blue Cross would be returning to capitation. The spokesperson for the Blue Cross organizations stated that it was more of a globally packaged program but, as with most reimbursement schemes, there needs to be a top line and a bottom line of reimbursable dollars to make the cost predictable for insurers to construct premiums.

Although the “one size fits all” capitation calculation of the past created large controversies over what to do with sicker patients, the direction capitation has been going is much more towards a flexible dollar amount tied to diagnosis.

This risk adjusted amount based upon the patient’s health status, diagnosis, overall age and complications, seems to make more sense as patients with a greater burden of care needs are given a budget for their providers that reflects this greater need.

This amount also reflects the broader variety of services from diagnosis to a plateau of healing following generally accepted guidelines. These episodes of care are gradually replacing the word capitation but in fact represent a risk model and not to exceed cost for providers. So, again the providers do have some risk to make sure they are prescribing necessary outpatient care and hospital services.

The follow-up care in many of these episodes is a tremendous value as physicians, both primary and specialty, are financially rewarded for follow-up care and a form of case management reporting that goes back to the insurer and the attending physician.

As we see further risk adjustment play an important role in performance payment systems, we see PCPs being able to operate medical homes on a salary plus performance incentive thereby sharing in savings created through their own accurate diagnosis and care management skills.

To date FFS and former capitation models offered little savings back to PCPs, especially for seniors who took the physicians and staff extra time with care and administration. As Medicare experiments with risk adjusters for the chronically ill population and private insurers begin using a form of episodes of care to manage the commercial population, we see that research on guidelines will improve as will outcomes analysis using comparative economics.

End result

What this means for health plans and underwriting is that, with some work, their analysis of health assessments and patients’ previous illnesses will allow plans to forecast with some certainty the potential ailments of a prospective population. Rather than exclude this population for coverage, reallocating care management resources in the direction of stabilizing theses patient or, in some cases, reversing the disease course as is being done in heart disease and diabetes, will be the norm.

For providers, especially PCPs, this means a welcome source of additional payments for the fragile and chronically ill population of Medicare eligibles and a return to a vital role as the front entry point for most care. This role is expanded in the medical home, and a certification as a home differentiates these professionals in the marketplace.

For patients who seek more transparency in their doctor’s pricing and performance, the distinction as a medical home is again a meaningful message to send to new and existing patients that this practice is certified as best practices for Primary Care. Further, this is important as the package or episode of care is driven off of accurate diagnoses.

Payment and structure can come together under this medical home concept, but we still have much to learn about how consumers must also see the Primary Care physician as the essential key to open the delivery system in a productive but prudent manner.


William Demarco's Welcome


As a contributor to the MCOLBlog, I’ll be sharing our perspectives on issues surrounding healthcare delivery system redesign and transformation, with particular respect to provider owned enterprises. Among other things, I’ll be discussing provider and employer prospective payment approaches in addressing Pay for Performance models, for purposes of developing direct employer/provider contracting entities, benchmarking collaboratives under the new value purchasing initiatives, as well as single specialty centers of excellence.

Of course, there’s lots more under the sun to talk about, and I do hope to hear from you as we continue down this path.

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