Health+Benefits Vital Signs the Jan/Feb 2019 issue

Health Negotiator

Q&A with Marilyn Bartlett, Special Projects Coordinator for the State of Montana’s Commissioner of Securities and Insurance
By Tammy Worth Posted on January 22, 2019
When you were hired to work in the insurance office, the state’s health plan was in trouble. What was the situation at the time?
The state of Montana employee health plan has 31,000 total lives covered, including dependents, legislators and retirees. It’s the largest plan in Montana, and they hired me in late 2014 with the clear direction to turn the plan around financially. If we didn’t do something drastic, it was projected to be $9 million in the hole in 2017 with the contracts they had at the time.

People were mad because the plan was losing so much money, the governor’s office was looking bad, and employees and unions were angry. Vendors all tended to have a solution. They would say we needed to go with this or that new plan. But there wasn’t any kind of strategy, and data wasn’t available or being used to make decisions or manage contracts.

So how did you begin? What was your strategy to understand where the excess costs were in the system?
I’m an accountant and CPA, and I knew I had to get my hands on the data to see where the spend was. I needed to find out where to target.

I found that 43% of costs were coming from Montana’s hospitals and, of that, 87% was from 11 acute care hospitals, which are the largest in the state. Only 13% were critical access, rural facilities. I also focused on pharmacy, which was 18% of our costs.

The area that was getting a lot of talk in the legislature was on-site health centers, but I realized that was a political issue. It was getting lots of noise and attention but was only about 3% of the plan’s spend.

So you knew where the spend was. How did you move forward from there?
We needed quick results because we are a state agency, so we focused first on hospitals. We could have gotten better rates by narrowing networks and kicking out the high-cost hospitals, but the governor didn’t want to narrow networks.

We prepared a graph using hospital semi-private room and board fees, which are easy to find in the data, from 2012 to 2014. I was able to chart the chargemaster fee and see the allowable costs. It clearly showed that, no matter what discount you get, you are going to follow an upward trend in cost. They control the chargemaster, so they can say they are giving you a better discount but then just raise the price that discount is based on.

If we had, instead, used a fee that is 200% of Medicare during that same time, the prices weren’t as far apart, and they didn’t go up as much, because they were limited to Medicare inflation.

A lot of people understand these chargemaster rates vary pretty dramatically, but there doesn’t seem to be a lot payers can do about it. What was your plan to manage these costs?
What I put in place is what I call contracted reference-based pricing. In the ACA, reference-based pricing is where an employer works directly with a hospital and tells it the price the employer is going to pay for services, and that’s all you pay. But the hospital has no traditional insurance contract with you, so it can go back and charge the member for the balance of the bill the employer didn’t pay. We didn’t want that. We wanted contracts where they would accept payment as a kind of Medicare-plus instead of a discount off of the charge rate.

I put out an RFP and hired Allegiance Benefit Plan Management to do the work. They looked at what our costs would have been for a year’s worth of claims if we’d reimbursed on a Medicare-plus basis. The lowest costs were around 109% of Medicare’s rates, and the highest were 611%. In that 200% range I wanted, there were about four hospitals. I knew I needed to bring the outliers in.

Were the local hospitals on board with your plans?
Four hospitals helped develop a payment model based on Medicare pricing, and a couple others came in as well. When some held out, I asked them what the problem was. Medicare makes adjustments for things like risk, geographic differences and case load. When I asked them why their adjustments were different, I never did get a really good answer. One said it was planning an expansion and needed the money to pay for it.
How did you convince the holdouts to take part?
By July 2016, I had all but one hospital on board: Benefis Health System. They refused to sign, and they went public with their decision. The CEO told the Great Falls Tribune [where Benefis is located] he couldn’t give the state what it was requesting because their largest payer was Blue Cross Blue Shield and he wouldn’t give anyone a better deal than them.

But I kept pushing because this is taxpayer money paying for these benefits. I steered union anger toward that one hospital. I said, ‘OK guys, help me.” Their pay raise was dependent on lowering the benefits, so I posted the phone numbers and addresses of the CEO and CFO and they began putting a lot of pressure on them. After that they signed, and it went into place in July 2016.

You tackled pharmacy as well. What did you do there?
I dug into our pharmacy benefit and analyzed the contract that was through a purchasing co-op. We didn’t have direct contracts with a PBM [pharmacy benefit manager]. We had one with a PBM to adjudicate claims and one with CVS to manage rebates. Then another one for specialty medications and care management for utilization review and another for formulary drugs. There were so many, but I was able to get my hands on only four of those contracts.

The state always assumed we had a transparent pass-through model and there was no spread pricing [which means a PBM pays the pharmacy one price for a drug and charges the employer a much higher price]. Rebates were capped at $20 per prescription, which was low, and the rest went to the co-op or CVS. The spread pricing excess went to the co-op, and there were tons of administrative fees.

So we did another RFP. In our new plan, we get 100% of the rebates, and we can audit that. The new plan also cut out spread pricing on brand drugs.

This seems like a huge overhaul of the normal system. What were your results?
We had significant dollar savings. In the first year, we saved $7.4 million, and that included more than 25% off our total spend on drugs. In December 2017, we were $112 million positive instead of minus $9 million, which was what had been projected. The employees haven’t had any increase in premiums or change in their out-of-pocket expenses.
Did you make other changes aside from the hospital and pharmaceutical contracts to cut back on costs and waste in the system?
I was also able to save in other places by reducing staffing, moving to cloud-based enrollment and getting rid of duplicate wellness contracts.

Members get a premium incentive if they have an annual physical at one of the state’s health clinics. There’s also no co-pay for that visit. That has improved access and is less expensive for us than if they go to a private-sector provider.

Our medication therapy management [MTM] was mostly done by phone or letter before. I worked with an independent pharmacy group and the University of Montana School of Pharmacy to create an MTM program where they did personal outreach. They analyzed our pharmacy data and identified more than 3,000 members who could be targeted for help with the medications. That began in July 2018.

Montana’s employee plan has a lot of purchasing power. How can others with fewer covered lives duplicate your efforts?
They can immediately look at their pharmacy plan, and they’ll get hits there. I wrote up a clear RFP asking for a transparent pass-through with rebates and no spread pricing. They also couldn’t collect fees from other sources and couldn’t sell our data and keep the profit from that. There ended up being two that offered this kind of model, and I just chose the one that was cleaner.

I have seen small school districts that have joined together to create a purchasing co-op. I encourage them to join an employer forum or something similar where they can get access to data, education or training.

And as a small employer, they really have to delve in and ask questions about their contracts. You can’t just look at the reports you are given by a broker or TPA [third-party administrator].

I saw a group in Indiana when I was speaking there once with 700 covered lives, and they have done a lot to manage their coverage. But they have a disruptor. Their HR director who leads the efforts is on top of it all and is calling the shots. She has a large health center nearby and does direct contracting and has saved a lot of money that way.

You really have to get the data and find out what you are paying. You can’t let the insurance company tell you what the repricing of Medicare is. Get an independent entity to see what you are really paying. That’s the first step, and you can do that pretty fast. Most companies could compile the data and turn it around for you within a month. It’s not all that costly. Once you have that, you can start a dialogue with providers. You just have to remember that everyone involved is going to have to give up something.

What about among employees? They knew you were there to make changes. How did you communicate what was happening to them?
Employees in the beginning were upset and worried they were going to be balance billed for services or that there wouldn’t be adequate provider networks.

We did a lot of communication with employees about what we were doing just because it was causing some anxiety. We focused on working on incentives and helping employees take charge of their own health. We pulled in the vendor who manages our health centers and had a nurse and wellness coordinator involved at the health centers to get people more engaged. The jury is still out on the effectiveness of wellness programs, but it was good to offer them something they could take action on to reduce some of the fear of change.

If you were to ask them about it now, they would probably say they really didn’t know that much about it and they don’t see anything different. You’re probably not going to hear much from your employees. All of the hospitals have had record profits in the past couple of years and are doing just fine, which I was glad to hear.

Anything else you learned during this process?
The system is completely chaotic. I have been shocked at all of the ways people make money in the system. You have to check everything, because you probably don’t know what money is coming back to you and what is not. When everyone has a hand in the pot, you almost can’t follow where it’s all going.
Tammy Worth Healthcare Editor Read More

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