Parity, Payment Systems and Health Reform

1. Parity, Payment Systems and Health Reform Richard G. Frank Harvard University and SAMHSA

2. Overview • Parity • MHPAEA Basics • Key Concepts and Features in the IFR • Open Issues • Payment Issues • Incentive Problems • Components of Payment System • Incentives and design

3. A Brief History of Parity • First parity initiative occurred under President Kennedy, when he directed the Civil Service Commission to implement parity in 1963 • Direct precursors to MHPAEA date to around 1990 and the work of Domenici and Wellstone • In 1996 the first parity statute was enacted that prohibited dollar limits and lifetime limits on mental health coverage • White House conference on mental health in 1999; President Clinton directed FEHBP to implement parity to provide a national model • MHPAEA is modeled on that effort with exceptions

4. Mental Health Parity The Mental Health Parity and Addictions Equity Act (MHPAEA) requires group insurers to ensure that the “financial requirements” and “treatment limitations” that are applicable to mental health and substance use benefits are no more restrictive than the predominant financial requirements and treatment limitations for medical and surgical benefits covered by the plan

5. Defining Parity • MH/SUD coverage is NOT mandated under MHPAEA • MHPAEA defines financial requirements as including deductibles, copayments, coinsurance and out of pocket expenses • MHPAEA defines treatment limitations as including “limits on the frequency of treatment, number of visits, days of coverage or other similar limits on the scope or duration of treatment”

6. Parity for co-payments, visit limits etc • Key Concepts • Benefit Classification • IP In Network; IP Out of Network • OP In Network; OP Out of Network • Emergency • Rx • If MH/SUD benefits are covered within any of these categories they must be covered in all categories that general medical benefits are covered • Comparisons between MH/SUD and general medical benefits are made within category • Substantially All • A plan is said to use co-payments if 66% of dollars within a category involve co-payments • Predominant • The predominant co-payment would be that accounting for 50% or more of the dollars within a category where co-payments met the substantially all test

7. The Issue of Deductibles • The IFR requires that a single cumulative deductible be used • Cost estimates from the industry for implementing such arrangements range from $35,000 per contract to $2 million • Comments were requested on this provision and more investigation was promised • The dog that didn’t bark

8. Economics of Parity in the Managed Care Era • Research shows • Managed behavioral health care cost control methods are as important as co-payments, deductibles and limits • Managed care arrangements can attain efficient mixes of mental health and other medical care without imposing special restrictions on coverage against financial risks of treating mental disorders • Because managed care arrangements may be non-contractible, incentives to attain favorable selection of enrollees may limit the desired impact of the parity statute by “over managing” MH/SUD care

9. Parity in Practice • Research and experience suggest that application of managed care tools in context of selection incentives are likely to distort MH/SUD services • Existing research does not offer guidance on what a regulator should do to implement the parity statute • Statute and Congressional intent acknowledges that mechanisms other than “nominal benefit” matter • Recall statute defines treatment limitations as including: “limits on the frequency of treatment, number of visits, days of coverage or other similar limits on the scope or duration of treatment” • So what does a regulator do to address the selection incentives on the “non-contractible” part of the benefit?

10. Answer • Create and define the term “Non-quantitative treatment limits (NQTL)” • Set out principles for the characteristics of application of NQTLs that are (in)consistent with MHPAEA • These principles are meant to recognize the frequent necessity to manage specific diseases and service circumstances differently • Requirement that health plans use the same processes, evidentiary standards, and expert opinion to establish NQTLs • Requires comparable processes not the same results

11. Example • Prior authorization • Criteria • High Cost • Rapid Cost growth • High Variation across similar providers (i.e. CV>1) • Fair application of criteria might result in: • Inpatient psychiatric care (yes) • Inpatient medical (no) • Imaging (yes)

12. Criticism/Trade-off NQTLs • NQTL rule relies on principles and examples • No definitive guidance that covers substantially all circumstances is provided • Research shows • Absent some guidance and attention to utilization controls beyond nominal benefit design—insurers responses will frequently undermine intent of MHPAEA • Review of legislative history resulted in decision to establish principles so as to limit conduct that compromises intent of Act

13. Unfinished Business • Benchmarks for NQTLs • Defining Scope of Services • Cost of cumulative deductible • Defining cost increase exemption (1%; 2%) • Cost estimates that recognize difference between MHPAEA and prior evidence

14. Results to Date • The government was subjected to a lawsuit by one segment of the health insurance industry: suit was dismissed • Sub-regulatory guidance continues to be issued clarifying details of NQTL as evidence emerges • Enforcement is moving ahead • A number of problems anticipated by consumers and industry about the regulations have failed to materialize

15. Payment Systems and Reform • The problem • Proposals in the Affordable Care Act (ACA) for addressing problems • Understanding payment system design

16. Three areas of high spending

17. Payment System Problems • Fee for Service incentives to supply more • Contribute to both levels and growth in spending • Service based payment create cost shifting incentives • Hospital vs. Community programs • Hospital vs. Nursing Homes • Fee for service structure is rigid and can stand in the way of innovations in service delivery

18. Payment System Design • Aim: to create incentives to effectively and efficiently manage care • Seeks to create balance between incentives for efficiency, flexibility to innovate, and maintaining supply for the sickest patients • Bundled payments re-organize payments to correspond with some features of clinical management • New proposals associated with health reform • Bundled payments (hospital and post acute care); Chronic condition bundles • Case Based Risk Sharing (Independence at Home Demonstration) • Risk Sharing at person level (Health Homes; ACOs)

19. Elements of Payment • Unit of Payment • Service, day, case, person/year • Timing of Payment • Prospective/Retrospective • Case Mix • Incentives for Selection

20. Examples • Capitation • Per person, prospective, risk adjusted (HCCs in Medicare) • Incentives: control annual per person costs while maintaining enrollment; possible selection incentives; under-treatment • Medicare’s Hospital Prospective Payment System • Per hospital episode, mostly prospective, case mix adjusted using DRGs • Incentives: control per episode costs, shift treatment to other settings; coding incentives • Medicare’s Psychiatric Prospective payment System • Per diem, prospective, case mixed adjusted using hybrid diagnostic system • Incentives: control per diem costs, length of stay depending on declining block structure, shift costs

21. Bundling Framework C C’ = capitation 45o = cost based reimbursement T = the spending or cost target L = lower bound of risk corridor U = upper bound of risk corridor U-L = size of risk corridor Slope of R R’ = risk sharing shares T = break even point for all payment systems

22. Special Considerations for Behavioral Health • Limited integration with general medical care • Strong selection incentives • Weak risk adjustment • Heterogeneity with diagnostic classes • Opportunities for cost shifting • Vulnerability • Differentiation of delivery system

23. Observations • Bundling with behavioral health can be used as a tool for promotion of integration (e.g. Health Homes) but requires more change than other type of bundling • Risk sharing design grows in importance with size of bundle and with weakness in risk adjustment • Rigidities in existing payment system that limit adoption of evidence based treatment can be corrected through bundling