According to the Centers for Medicare and Medicaid Services (CMS), in 2014 U.S. healthcare spending grew 5.3 percent, reaching a bit over $3 trillion. Currently 17.5 percent of GDP, healthcare spending is heading (by all accounts) toward 20 percent.
Those are big numbers, almost unreal in their size and scope and hardly sustainable.
But those numbers have real consequences. For example, on August 15, 2016, Harvard Pilgrim HealthCare, an insurer serving the New England area, reported a net loss of $34.2 million for the first half of 2016 on revenue of $1.6 billion. Three days later, the Massachusetts Division of Insurance announced that premiums for small businesses and individuals covered by Harvard Pilgrim will rise by double digits over the next six months. Rates will increase 14.2 percent for Harvard Pilgrim’s 30,000 HMO members. Statewide, small businesses with fewer than 50 employees will experience a rate increase of 8.1 percent for plans that renew in October 2016. That will affect over 100,000 people.
Of course, the cost burden of the national healthcare crisis is not confined to Massachusetts.
Across the county, several major payers are withdrawing from the Affordable Care Act’s (ACA) insurance exchanges or asking for sharp increases in premiums, citing losses and rising costs. Aetna announced it will reduce by 70 percent the number of policies it offers on the ACA exchanges. UnitedHealth Group is opting out of several markets. And Geisinger Health Plan requested a 40 percent rate increase for 2017, on top of the 20 percent increase it was granted for 2016.
There are many reasons for the continuing rise in U.S. healthcare costs. Some experts point to the almost 17 million newly insured patients brought into the system under the ACA. A spokesperson for the Massachusetts Division of Insurance blamed mounting drug and hospital costs. And while the cost of emergency department (ED) care as a percentage of the total U.S. healthcare bill is hotly debated (with estimates ranging from 2 percent to 6 percent), a 2012 Jackson Healthcare study estimated the annual cost of defensive medicine – which is characteristic of all ED care – to be in the $650 billion to $850 billion range.
Inarguably, the requirement to maintain, staff, and equip emergency departments 24/7/365 is a significant contributor to healthcare costs. Not only must EDs be always at the ready, but since the 1986 enactment of the Emergency Medical Treatment and Labor Act (EMTLA), EDs are required by law to treat and stabilize anyone who comes through their doors, regardless of insurance status or ability to pay. As this care is uncompensated, it is absorbed by EDs and emergency care physicians and, ultimately, passed on to insurers and individuals.
Both providers and consumers acknowledge how expensive ED care is, but efforts to reduce the volume of people who go to EDs for treatment that could be provided more quickly and more cost-efficiently in other settings have been unsuccessful.
In 2012, Americans made 136.1 million visits to one of the nation’s approximately 5,000 EDs, and that does not represent a spike. According to the Centers for Disease Control (CDC), between 1997 and 2014 the percentage of adults 18 years old and over who visited hospital EDs one or two times a year has changed very little. That’s unfortunate. A 2010 RAND Corporation study found that 17 percent of ED visits could be handled outside EDs, either in urgent care (aka convenient care) centers or in retail clinics. This would potentially save up to $4.4 billion a year in healthcare costs, a moderate but welcome relief to payers who must pass on cost growth to employers and individuals in the form of skyrocketing premiums.
Today, EDs increasingly support (or in some cases substitute for) primary care providers by performing diagnostic workups that cannot be done in their offices, as well as handling the overflow, weekend, and after-hours care primary care physicians cannot. Meanwhile, family practice residencies continue to decline. The American Association of Medical Colleges reports that by 2020 the United States will have a shortage of 45,000 primary care physicians. When one considers that the Annals of Family Medicine notes that the United States will need an additional 52,000 primary care physicians to meet patient needs by 2025, clearly, if these trends do not change, EDs will be called upon to do more and costs will continue to rise.
In this environment, the growth of urgent care, designed to fill in the space between primary care and the hospital ED, is expected. According to the Urgent Care Association of America, urgent care facilities have been proliferating at a rate of between 300 and 600 new facilities per year since 2009. There are now between 7,000 and 9,000 urgent care facilities in the United States (depending upon how the facilities are defined).
However, this rapid growth in urgent care has been occurring independently of organized care design, without sustaining data or analysis. Its integration in the care delivery system is neither controlled nor, in many instances, even considered by small to midsized payers. Consequently, these payers are not achieving the efficiencies and cost controls that the considered engagement of urgent care could provide.
Without understanding where and how urgent care facilities can be best deployed, where potential patients are, patients’ needs, or how to incentivize members to use urgent care, payers will have difficulty shifting patient flow away from the ED. They will not be able to drive incremental revenue through the utilization of urgent care facilities, and instead will continue to incur the costs that are now roiling the U.S. healthcare landscape.
If payers could enter the urgent care space in a more data-driven fashion, they would find themselves on a firmer financial footing while better serving their members.
A Case Study in Urgent Care Planning
To see how this would work, let us look at an anonymized midsized health insurer in a metropolitan area. Call it CP Partners. It commands about a 20 percent share of the employer-sponsored and individual market in its area. CP Partners’ costs are rising due to increasing utilization of EDs among its members, but the company’s rate negotiations with providers have so far yielded only modest reimbursement rate increases.
CP Partners engaged consultants to examine its problem and suggest remedies to help it control costs and improve the service it offers its members.
A study of CP Partners’ insurance claims found that ED claims for non-acute indications were the primary driver of ED usage growth. Patients with avoidable conditions were being seen more frequently than before in the area’s EDs. Specifically, CP Partners’ members with upper respiratory infections and pharyngitis (sore throats) were going to the area’s EDs for care. Further study revealed that although CP Partners’ geographic area had above average rates of asthma, the number of hospitals and primary care services available to CP Partners’ members was appropriate for their needs. However, the availability of after-hours care was poor. Consequently, if one of CP Partners’ members became ill at night or on the weekend, it was more than likely that he or she would turn up in a hospital ED.
What is the best course of action for CP Partners?
A 10-Step Methodology for Optimizing Urgent Care Utilization
To control rising costs and provide better care for its members, CP partners began to explore the idea of opening an urgent care facility. But first, consultants conducted an analysis of CP Partners’ situation, employing a 10-step process to properly align health outcomes with an efficient, value-added set of solutions.
- Define the catchment area. The first step was to analyze the geographic service area to determine where CP Partners’ patient population lived and where they were going for care.
- Determine existing resources. Once CP Partners’ catchment area was defined, it was essential to survey the resources available to its members: existing hospitals, pre-existing urgent care facilities, independent physician practices, and retail clinics, and what percentages of the population each entity captured.
- Analyze the population. CP Partners needed to know what demographic and socioeconomic factors prevailed within the patient population. An older population, for example, would need more intensive services for chronic conditions. A population working in certain industries might be more subject to respiratory conditions due to environmental factors. A population without easy access to transportation or car ownership might be less able to travel distances to receive care.
- Analyze spending patterns. As noted, where people receive their healthcare determines overall costs. Therefore, it was critical for CP Partners to have a good idea whether its members had adequate access to primary care physicians or if they were heavy users of ED services.
- Identify targets. Accounting for both health conditions and demographic variations and needs, CP Partners could identify how it could best achieve cost reductions and how it could begin transitioning its members from ED care to urgent care.
- Assign measurable outcomes. Beyond the immediate costs associated with an episode of care, CP Partners needed to know and measure how transitioning from ED care would impact follow-on costs. Would its members be going to hospitals for further care, incurring still higher costs? Would they be receiving subsequent primary care or be referred to specialists?
- Connect with stakeholders. Employers and payers both want to minimize costs. Providers want to drive non-inpatient incremental revenue. If CP Partners could engage motivated stakeholders – in this case, employers and providers (both in hospitals and in independent physician practices) – it becomes far easier to change patient behavior. It is one thing if an insurer suggests a course of action to a member; it’s another if a doctor speaks to a patient or an employer to an employee.
- Engage patients. That said, CP Partners needed to develop strategies for reaching out to its members – either directly, or, as noted, through employers and providers – to inform them of new options for their care that they may not have considered. Urgent care is still a relatively new entity on the healthcare landscape, and patient education is a critical part of optimizing its use.
- Operationalize processes. CP Partners understood that gathering data, while essential, is just a first step. The data must then be fed back into the system to generate new approaches and core organizational metrics. In this way, an organization can implement a process of continual improvement.
- Monitor results. Beyond keeping track of outcomes, CP Partners will need to continue listening to patients and providers to adapt its urgent care initiatives to their reported experiences.
After digesting this analysis of its catchment area, its membership, their care choices, and spending patterns, CP Partners reached out to its area’s tertiary care hospital (to which primary care physicians refer patients for specialized treatment) and to an unaffiliated independent physicians’ group serving its members. All parties agreed that patients with avoidable conditions were increasingly using EDs, driving up costs for all the stakeholders.
After reviewing potential service offerings and their earnings potential, the tertiary care hospital began exploring the idea of opening a satellite urgent care facility. CP Partners agreed to favorable reimbursement for referrals from the urgent care facility to the hospital or physicians’ group for follow-up care, such as smoking cessation support, advanced imaging, or physical therapy. This appeals to both the hospital and the physicians’ group as it increases their patient flow.
Also, CP Partners agreed to incentivize its members to use the hospital’s urgent care facility through discounted pricing by introducing a $15 co-pay for urgent care in contrast to the $300 co-pay for ED care not leading to a hospital admission.
In these ways, all stakeholders – the payer, providers, and patients – benefit. But before these benefits can be reaped, the groundwork must be done.
Making the Opportunity Real
The urgent care facility discussed (and somewhat disguised) above is its early stages of operation. As it gets up to speed, the hospital will measure ED admissions that have been avoided. The physicians’ group will keep count of referrals from the facility and emphasize the availability of urgent care when the provider’s office is closed to its patients, especially to those suffering from asthma and other indications that often require fast attention at unpredictable times. This will reduce the number of ED admissions and bend the cost curve for both CP Partners and the community it serves.
At this point, all parties – CP Partners, the hospital, and the physicians’ group – are optimistic that the capital return on their investment (in capital, time, and effort) in an urgent care facility will be positive.
Given that the cost of healthcare in the United States continues to spiral upward, placing an increasing burden on payers, providers, and patients, the opportunity afforded by the urgent care model should not be overlooked. However, that opportunity can only be seized by grounding initiatives in reliable data collection and analysis to guide strategic decisions at every step of the journey – a journey that should lead toward improved healthcare for patients and an affordable, efficacious U.S. healthcare system.
© Copyright 2016. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.