UpClose with Dave Kalb, Vice President, Evergreen Re

Understanding Carve-Out Coverage

For some time now, the HMO/Managed Care Industry has embraced the concept of disease management for chronic disease states such as asthma, diabetes, COPD, CHF and others for reasons that are very clear:

1. They found they can more effectively provide continuity of care across a wide spectrum of complex medical needs, which result in better clinical outcomes.
   
   
2. Quality care is cost effective care, and the economic outcomes achieved and support it.

We are now seeing a trend in the reinsurance industry toward disease specific care management and risk transfer, simply known as “carve-out programs.” Much like the HMO industry focused on managing diseases where a high percentage of the dollars were being spent, the reinsurers are focusing on the categories of care which represent a large proportion of the reinsurance dollars.

Today the efforts have been focused on transplants, NICU (neonatal intensive care), and trauma, although we know reinsurers have plans to create a cancer carve-out program in the near future. Combined these services represent a high percentage of the overall reinsurance claims costs.

The fundamental principal of any carve-out program is that a carve-out company can produce better outcomes -- both economic and clinical -- than an individual health plan. Keep in mind we are talking about low frequency but very high severity cases. It is difficult for most health plans to dedicate the resources necessary to manage these very complex cases when they may experience only a few of them within a year.

Care management for transplants, NICU, and trauma, require a very specialized and experienced team of people, and it is not cost effective for most health plans to build the internal capabilities. These are highly specialized activities effectively delegated to companies with specific resources health plans may not have:

Specialty Contracting: A company specializing in a particular area of catastrophic medical care will see far more cases than any regional health plan, and as such, will have greater volume to negotiate with centers of excellence, as well as have the data and expertise to use in negotiations to obtain more favorable terms of payment.

Medical Management: For transplants, NICU and trauma, the medical centers will focus on managing the member to a stable state. However, much of the unnecessary additional cost associated with these cases is a result of inadequate follow up care. As an example, a member having just received a transplant may be on numerous medications, which requires a well coordinated system to administer them at the appropriate time and in the appropriate dosage. Something very simple, yet non-compliance can result in an expensive hospital readmission.

Another common concern is the fact that medications taken after a transplant can make the patient feel very ill. When they stop taking the medications, they feel better and so continue to avoid their post transplant protocol. The result of this can lead to a second transplant, which could have been avoided. The key to a better outcome is to coordinate and manage the member’s care well beyond the date they are sent home. This holds true for NICU and trauma as well.

Eligibility Management: Through predictive modeling software, one can identify people with a high likelihood of qualifying for government financed programs (Medicare and Medicaid). Most health plans are aware of the opportunity to move members with end stage renal disease to Medicare, but few people are aware of the many other state and federal programs for medically fragile members. As an example, any baby born under 1200 grams is considered presumptively disabled and can be moved to Medicaid, and the family may be eligible for other state and federal support.

The combination of the above disciplines puts the specialty carve-out companies in a better position to manage the overall health and economics for these categories of care. To demonstrate the anticipated value, these companies will take risk from the health plan. This can be done on a first dollar basis (100% risk transfer) or by implementing a risk sharing corridor. The bottom line is that the range of cost for the carve-out program should be slightly below, to slightly above your historical costs depending on the anticipated economic gain inured by the carve-out company. As a health plan the question becomes:

1. By outsourcing these services will I bring a high level of quality management to these very complex procedures and will our member achieve better outcomes?
   
   
2. Is there an economic value in transferring a volatile and unpredictable risk for a fixed per member per month fee?

For many HMOs the answer to the above questions is yes, and why wouldn’t it be? Shouldn’t the same concepts that have inured great value for HMO’s in disease management apply to complex catastrophic care?