Risk Management Tools Provide Protection from High Cost Procedures

By Chuck Newton, Senior Vice President, Evergreen Re

While there are many factors driving the continuing healthcare cost increases, one of the most expensive is the increasing frequency of highly advanced medical procedures such as transplants.

For example, the number of organ transplants has doubled in the last 10 years and the number of organ donations from live donors has increased 135% during the same time period.

As of November 2004, there are more than 87,000 individuals on organ transplant waiting lists, and so far this year there have been nearly 19,000 transplants performed, with more than 5,000 individuals receiving organs from living donors. The incidence of organ transplantation is now 16.2 per 100,000. Additionally, the growing number of donor stem cell transplants to treat a variety of diseases and bone marrow transplants, increasingly used in the treatment of blood diseases and solid tumors, will also continue to drive the increase in organ transplantation.

With an average claim cost of more than $200,000, the increased frequency of transplants can pose a threat to the financial stability of smaller organizations. Health plans and self-insured employers need to accurately forecast the cost impact of these expensive procedures and then take the necessary steps to protect their risk.

It is estimated within the next few years the increase of Hepatitis C will create a demand for liver transplants five times what it is today. As programs expand to increase both traditional organ donations as well as living donors, utilization could dramatically increase and pose a risk for those self-funded employers or managed care organizations not prepared. As a result, more and more payors are turning to transplant carve-out coverage.

Carve-out coverage and other types of risk protection are growing in popularity

Carve-out coverage, with partial to full risk assumption and intensive care management, is available for transplants and also for severe burns and other trauma, premature birth, and oncology. Coverage will soon be available for a number of other conditions such as congestive heart disease and renal disease. Firms that provide these services generally use sophisticated processes to evaluate disease conditions and treatment protocols and have advisory boards comprised of the leading specialists in the particular field.

Complete disease carve-out programs allow an organization to transfer the financial obligation to a third party. Generally, the risk is typically transferred on a first dollar or very low (e.g. $10,000 per incident) deductible basis as soon as a covered employee is identified as needing a qualifying treatment.

With managed transplant coverage, organizations can protect themselves from 100 % of the costs of covered transplants. In addition, most plans cover organ and tissue harvesting, travel benefits for the patient and companions and most immunosuppressant drugs.

Quality of care is closely watched with most transplant programs assigning a patient advisor to help select the most appropriate facility and guide the patient through the process.

For managed care organizations, these plans provide financial predictability, since the coverage can be purchased on the basis of per-member per-month pricing that enables allocating claim costs evenly throughout the year.

Neonatal intensive care is another area where carve-out coverage can be helpful. One in eight babies is born prematurely and neonatal ICU costs exceed $8 billion a year. Various forms of coverage are available for full or partial risk transfer of catastrophic claims associated with premature infants.

Another area of escalating costs that merits special attention is biotech drugs. Once the subject of science fiction, they are now routinely prescribed. With more than 100 biotech products currently available and hundreds more in the pipeline, payors need to pay close attention to their use. They are often the chief reason chronic disease patients – who usually make up less than 5% of plan members – often incur 25-30 % of overall pharmacy costs. Special programs are available that enable plans to obtain lower prices on biologics and injectable drugs, pay only for drugs used and promote adherence to therapy.

Carve-out coverage not only eliminates unpredictable and catastrophic risks, it can also provide significant cash-flow advantages.