tackling back-related claims - dbc health€¦ · n this way, financial incentives are aligned and...
TRANSCRIPT
![Page 1: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/1.jpg)
Xpert Vol 8. 2012 3
The traditional model of managing medical scheme benefits through a combination of benefit
design and managed care funding rules has reached a stage of maturity where greater cost
management is difficult to achieve without sacrificing quality of care. Instead, a different
model is required, with medical schemes partnering more closely with the providers of
medical services.
In this way, financial incentives are aligned and
medical scheme members are more likely to receive
appropriate medical care. There are a number of ways
in which such an arrangement could operate, and this
article illustrates one example where a bold initiative
carried out by Sasolmed and DBC (Documentation
Based Care) is showing promising early results.
Why back surgery?
For the employer, back pain is a significant source of both
absenteeism and "presenteeism" (where employees are
at work but not able to fully perform their jobs). Back
surgery requires a long recuperation period, which
means even higher absenteeism costs for the employer.
Sasolmed saw the cost of back surgery rising year-
on-year, mainly as a result of higher average claim
amounts. For example, in 2009 back-related hospital
admissions cost Sasolmed approximately R34 million
– almost 4% of total claims. The scheme saw in its
claims experience a combined back hospital admission
rate of approximately 7 per 1 000 lives per annum. Of
these more than half were for heavily invasive spinal
fusions or laminectomies. Despite the cost, the back
problems were often not resolved. Approximately 30%
of patients were readmitted within four years of the
initial surgery.
With over 400 lives hospitalised each year for back-
related surgery, Sasolmed was open to alternative
solutions. DBC (Documentation Based Care) approached
Sasolmed and offered conservative out-of-hospital back
rehabilitation as a possible solution. DBC’s protocols,
processes and equipment were imported from Finland,
Tackling Back-Related Claims:A Case Study (Sasolmed and DBC)
Wynand Neethling
BCom (Hons) FASSA
Actuary: Medscheme Health Risk Management
Wynand has gained extensive experience in both the life
insurance and private healthcare industries. He graduated
from the University of Stellenbosch in 1998, after which he
began his career at Old Mutual actuaries and consultants.
In 2004 he moved to the retail risk product development
division where he was instrumental in reviewing and
rebuilding the underwriting and reinsurance processes. He
joined Medscheme in 2009, where he is responsible for
providing actuarial support to key medical scheme clients,
both in South Africa and Namibia.
![Page 2: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/2.jpg)
Xpert Vol 8. 20124
where they have been successfully applied in managing
chronic back pain conservatively.
The protocols typically consist of a six-week intensive
rehabilitation programme delivered by a multi-
disciplinary team at a DBC centre. The team includes a
general practitioner, physiotherapist and biokineticist
and the protocols focus on functional restoration.
Health outcomes, based on a variety of measures
which include pain experienced and a range of motion
and interference with the activities of daily living are
continuously monitored.
DBC was so confident in their methodology that
the company was willing to enter into a risk sharing
arrangement. Since applying financial rewards (and
penalties) is one of the best ways to incentivise the
correct behaviour, Sasolmed was willing to consider
this proposal.
The rest of this article discusses the key aspects of
the arrangement and the reasoning behind them. The
results achieved to date are also reviewed.
Challenges
As with any new initiative, there were challenges to
overcome. Sasolmed’s membership base is highly
concentrated, with approximately 70% of its members
based either in Secunda or Sasolburg. The closest DBC
facilities were in Johannesburg and Nelspruit – more
than 100 km away. This would have been a logistical
nightmare, since the majority of affected members
were blue-collar workers and the treatment requires bi-
weekly visits to DBC practices.
While setting up practices in these towns would have
solved the problem, this solution required a significant
capital investment – a solution which raised a number
of questions:
As with any new initiative, there
were challenges to overcome.
Sasolmed’s membership base
is highly concentrated, with
approximately 70% of its members
based either in Secunda or Sasolburg.
![Page 3: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/3.jpg)
Xpert Vol 8. 2012 5
Ultimately the solution was jointly developed by four parties:
according to the agreed protocols and processes.
provider to Sasolmed.
organisation which is the main party to the risk
transfer contract with Sasolmed, sub-contracting
DBC practices to provide the relevant services.
Finding the solution
A critical success factor was Medscheme’s IT platform.
Over many years Medscheme has invested heavily
in systems and data management and built solid
relationships with key providers, including both general
practitioners as well as specialists. The combination
of general practitioner linking (where a member has
selected a GP of choice within a contracted network)
and specialist referral management (where a member
must be referred by their GP before a specialist visit
would be funded) were key factors in ensuring a smooth
roll-out of the programme.
The operational managed care environment was robust
and flexible enough to handle exception cases correctly.
Sasolmed’s Board of Trustees and Principal Officer were
innovative, open to new ideas and willing to take a risk
on these ideas.
DBC was willing to invest in new practices to back
up their confidence in the processes and protocols.
Resilience Health was willing to share in the claims risk
associated with the arrangement.
Key contract terms
The contract included the following key terms:
allowed sufficient time to recoup any initial capital
investment and to address the long-term problem of
chronic back pain. This was crucial since the scheme
could run the risk of a spike in back-related claims
once the programme ends.
Medscheme has invested heavily
in systems and data management
and built solid relationships with key
providers, including both general
practitioners as well as specialists.
![Page 4: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/4.jpg)
Xpert Vol 8. 20126
Resilience Health in exchange for a capitation fee.
This includes spinal fusion, laminectomy and back
and neck pain admissions.
defined inflation, but with no allowance for increased
utilisation over time. However, this capitation fee is
then subject to a reduction factor from year two to
six. This relates to the assertion by DBC that their
processes and protocols offer a more cost-effective
solution to treating chronic back pain appropriately.
was required to provide a bank guarantee to cover
any downside risk.
Sasolburg.
the use of DBC.
Processes
A key element to the success of the programme was to
proactively identify members with back pain. As noted
earlier, members who have had back-related admissions
are likely to have further admissions. Medscheme uses
predictive models to identify those members likely to
suffer from chronic back pain.
For example, when a member claims for a health event
that has a high probability of being due to back pain
(such as certain MRI/CAT scans, rhizotomies and facet
blocks) at Medscheme would notify Resilience Health.
Resilience Health would then contact the member and
the member’s doctor to inform them of DBC and the
relevant processes.
A further key element related to working closely with both
members and providers to ensure a seamless integrated
process. Prior to the launch of the programme, there
A key element to the success of
the programme was to proactively
identify members with back pain. As
noted earlier, members who have had
back-related admissions are likely to
have further admissions.
![Page 5: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/5.jpg)
Xpert Vol 8. 2012 7
was a comprehensive member education campaign in
place to ensure members would undergo conservative
treatment as a first resort. Due largely to this member-
centric communication effort, virtually no resistance
from members to the introduction of this programme
was experienced.
Sasolmed’s Clinical Coordination committee (a joint
forum between the medical scheme and representatives
of the general practitioners serving the members) was
instrumental in educating the general practitioners.
This committee also developed the protocols for
general practitioners when handling back pain cases.
Initially there was some resistance from specialists
(particularly orthopaedic surgeons and neurosurgeons)
and physiotherapists. Significant work was required to
convince them and DBC and Resilience Health doctors
visited the majority of specialists involved in performing
back surgery.
Prior to the introduction of the programme, the normal
sequence of events was:
1. Member suffers from back pain.
2. Member consults with a general practitioner and, if
required, is referred to a specialist.
3. Member sees orthopaedic or neurosurgeon.
4. Should the member require surgery, hospital pre-
authorisation is obtained via Medscheme.
5. Member undergoes the procedure in hospital.
As stated earlier, roughly 30% of members were re-
admitted within four years, so in many cases the
member suffered further back pain and the process
repeated itself.
Since the introduction of the DBC programme, the
process has been as follows:
1. Member suffers from back pain.
2. Member either goes directly to DBC or consults
a general practitioner who refers them to DBC for
assessment.
This committee also developed the
protocols for general practitioners
when handling back pain cases.
Initially there was some resistance
from specialists and physiotherapists.
![Page 6: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/6.jpg)
Xpert Vol 8. 20128
3. If the member’s condition does not allow
rehabilitation, authorisation for appropriate hospital
admission is provided. Alternatively, if rehabilitation
is appropriate given the member’s condition,
he/she will undergo a six-week course of treatment at a
DBC centre.
4. If the rehabilitation treatment has the desired effect,
the member should not require further intervention.
Alternatively, if rehabilitation is unsuccessful,
authorisation for the appropriate hospital admission
is provided.
Members may choose whether or not to consult DBC
as part of the process, but should they choose not to
consult DBC a R5 000 co-payment is levied for any
admissions for spinal fusion or laminectomy. There have
been relatively few co-payments levied, as members
acknowledge the advantages of conservative treatment.
Approximately 60% of members who have used DBC
consulted with them directly, while 20% were referred
to DBC by general practitioners. The remaining 20%
were referred by specialists.
Calculation of initial capitation fee
The initial capitation fees were based on the average of
in-hospital back-related claims costs over the four-year
period from 2006 to 2009. This long period was used to
reduce volatility by using a longer-term average. Claims
in each year were adjusted for inflation in order to obtain
comparable numbers in real terms.
Back-related claims included the full hospital cost plus
any associated in-hospital provider costs and prosthesis
costs, using the Medscheme Hospital Account Summary
(HAS) database referred to above.
Allowance was made for the impact of a large group
of young, low-income employees who joined Sasolmed
during this period, as this group was expected to
generate lower back-related costs than existing
members, on average.
The capitation fee was adjusted to allow for the actual
start date of the contract (August 2010). As there is a
fairly regular seasonal variation in back-related claims,
a full-year average would not have been appropriate for
the first five months (August to December 2010).
A decision was also made to limit the maximum amount
per claim, with Sasolmed retaining the excess to avoid
distortions in the capitation fee and profit calculations.
It was also assumed that claims exceeding this limit
were due to complications that would not be reasonably
controllable. These often included motor vehicle accidents
and were not directly relevant to the programme.
Calculating annual increases in capitation fees
At the beginning of each calendar year, the capitation
fees are increased to allow for inflation. This inflationary
adjustment is carried out according to a formula defined
in the contract which is based on:
respect of prostheses)
No allowance for increased utilisation is made in the
calculation of this adjustment. From year two to six, a
constant reduction factor is applied to the capitation fee
after the inflationary adjustment is added.
The large claim limit is also indexed for inflation each year.
Aligning financial incentives
The purpose of the incentives was to transfer only
the back-related risk. The current cost of back-related
hospital admissions was therefore determined which
would form the "income" for the risk-taker (Resilience
Health). This "income" would be used to fund all
back-related costs, including in-hospital costs and
rehabilitation costs.
The initiative faced a significant challenge in that
Resilience Health did not have significant capital at their
disposal. The total in-hospital back claims for Sasolmed
amounted to approximately R34 million per year.
Transferring these funds to Resilience Health would
have created a significant financial risk to Sasolmed
had Resilience Health become unable to meet their
obligations under the contract.
To avoid this risk, it was decided to use a virtual
capitation fee arrangement, in place of the traditional
approach. Under this arrangement Sasolmed initially
funded all in-hospital back-related claims as well as the
out-of-hospital rehabilitation costs. At the end of every
quarter, a profit/loss calculation is performed and the
net result paid by the relevant party.
If a profit was generated, this would be paid to Resilience
Health, while a loss would be paid to Sasolmed.
The purpose of the incentives was to
transfer only the back-related risk. The
current cost of back-related hospital
admissions was therefore determined
which would form the "income" for
the risk-taker (Resilience Health).
![Page 7: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/7.jpg)
Xpert Vol 8. 2012 9
The calculation included an allowance for outstanding
claims (both in– and out-of-hospital), based on
methodology as agreed between the parties. The profit
calculation is always carried out on a cumulative basis,
to allow any over- or under-estimation from previous
periods to be corrected.
The profit/loss for the period to date was calculated as:
the notional capitation fees
less in-hospital claims
less out-of-hospital rehabilitation claims
= profit or loss
From this profit or loss, any payments already made
under the contract was deducted, and only the balance
is payable to the relevant party.
Advantages to Sasolmed
The annual increase in capitation fees makes no
allowance for increased utilisation. This is normally a
significant additional source of claims cost increases
and should be seen as a cost saving to the scheme.
From the second year, a constant reduction factor is
applied to the capitation fee after the increase has been
calculated, so that the scheme sees a real reduction in
their back-related claims costs over time.
If the programme achieves its promise of better health
outcomes, members should also be more satisfied with
the services received, and be less likely to complain
about related matters. This therefore assists Sasolmed
in meeting its goal of providing valued employee
benefits to its members and their dependants on behalf
of the employer.
Results to date
As at the date of writing there have been seven
quarterly profit calculations. Of these six were positive
and one negative.
Figure 1 below shows the real hospital claims per life for
each month (adjusted for inflation to be comparable).
Figure 1: Real hospital claims plpm
0
10
20
30
40
50
60
70
80
2008
01
2008
07
2009
01
2009
07
2010
01
2010
07
2011
01
2011
07
Real Cost plpm (Smoothed) Real Cost plpm (Unsmoothed)
![Page 8: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/8.jpg)
Xpert Vol 8. 201210
![Page 9: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/9.jpg)
Xpert Vol 8. 2012 11
Smoothed claims in Figure 1 are taken as the average
per life per month for each year from August to July (to
correspond with the start date of the contract).
Table 1 below shows the reduction (adjusted for
membership) in claim frequency observed in the year
following the introduction of the programme.
Table 1: Reduction in claim frequency
Spinal
fusionLaminectomy
Back and
neck pain
Reduction -36% -13% -11%
Projected profit/savings
Looking ahead and based on the experience to date,
we can estimate the ultimate profit Resilience Health
is expected to earn from the arrangement, as well as
the cost savings Sasolmed is expected to realise. To
calculate these figures, some assumptions are required:
programme had not been introduced, assumed at
2% p.a. from 2010 onwards.
in the claims frequency of 5% p.a. is assumed from
2012 onward.
Figure 2 below illustrates the results of this projection
graphically.
The blue area in Figure 2 represents the savings to Sasolmed
resulting from the introduction of the programme.
The red area in Figure 2 represents the profit made by
Resilience Health in exchange for accepting the risk
under the programme.
The purple area in Figure 2 represents the cost of
rehabilitation claims.
Based on the assumptions, over the course of the
six-year contract (ignoring discounting), Sasolmed
is expected to save approximately R48 million while
Resilience Health is expected to show a profit of
approximately R20 million. These results are sensitive to
the assumptions made above, and a range of outcomes
are possible depending on how actual experience differs
from the assumptions made.
Resilience Health’s profit is particularly sensitive to the
hospital admission rate assumption, from 2012 onwards.
Table 2 below illustrates how their profit varies based on
different values for this variable.
Table 2: Resilience Health profit sensitivity
Change in claim
frequency paProfit (Rm)
-10.0% 37.0
-7.5% 28.6
-5.0% 19.9
-2.5% 10.4
0.0% 0.4
2.5% -10.3
5.0% -21.7
A reduction of approximately 1% p.a. from 2011 levels
is required going forward for Resilience Health to break
even over the remainder of the contract.
Sasolmed’s savings are relatively protected, since the
capitation fee increases are predefined. The key variable
here is the assumed level of utilisation from 2010
onward, had there been no programme. Table 3 below
illustrates how the scheme’s savings would vary based
on different values for this variable.
0
10
20
30
40
50
60
-5 -4 -3 -2 -1 1 2 3 4 5 6
Ran
d M
illio
ns
Year (1 = 1st year of intervention)
Claims w/o intervention
Capitation Fees
Hosp Claims & Rehab
Hospital Claims
Figure 2: Projected profit/savings
![Page 10: Tackling Back-Related Claims - DBC Health€¦ · n this way, financial incentives are aligned and medical scheme members are more likely to receive appropriate medical care. There](https://reader036.vdocuments.mx/reader036/viewer/2022081522/5f349bf37b12151d7a4315c6/html5/thumbnails/10.jpg)
Xpert Vol 8. 201212
Table 3: Sensitivity of scheme savings
Utilisation p.a. Profit (Rm)
0.0% 31.1
1.0% 39.2
2.0% 47.6
3.0% 56.2
4.0% 65.1
In this context, even if there were no future utilisation
increases, Sasolmed would realise a saving of more than
R31 million, due to the reduction factors applied to the
capitation fees.
Further benefits
To date, more than 170 Sasolmed members have avoided
intensive back surgery (spinal fusion and laminectomy)
and over 1 000 members have undergone conservative
back rehabilitation through DBC. Assuming a two-month
recovery period, the employer has saved approximately
28 working years in terms of employee productivity.
Sasolmed is likely to see other back-related costs
reduce over time, including, for example, the medication
required for ongoing treatment, radiology costs and
physiotherapy costs. These benefits have not been
quantified as part of this exercise. It is also noted that
the incidence of hip replacements has reduced by 40%.
However, it is unclear whether this is related to the
programme or not.
Risks to the scheme
The key risk of the arrangement is the entire deal
unravelling and that the savings will not be realised.
If the back admission rate does not reduce, Resilience
Health is unlikely to be able to fund the downside risk.
The maximum protection Sasolmed has is the bank
guarantee of R3,5 million.
These risks are however mitigated by monitoring the
programme monthly, including monthly draft profit
statements – even though these are only settled quarterly.
Summary
In summary, collaboration by the various parties has
resulted in what appears to be a win-win situation:
admissions (at least 170 fewer)
Conservative back treatment appears to reduce the
incidence of members requiring back surgery, and
significantly reduces the overall cost of treating chronic
back pain.