Introduction

Medical practices are now receiving copious amounts of data that were unheard of only a few years ago. The information includes not only the results of labs and other diagnostic studies or specialist visits, but information on both cost and quality, as reflected in gaps in care as well as patient satisfaction with their experience in the health care continuum. Given the limited time practices have to analyze reports, where should they focus their efforts?

As more practices transition to value-based contracts and taking a greater responsibility for the cost of care, either through a full risk or capitated model of payment, or even a value-based arrangement with upside potential and no downside risk, there is a greater need to understand the cost of care patients are receiving and how to better get control.

The purpose of this article is to assist practices in understanding the value of looking at the total cost of care, and how that would better guide their efforts in controlling the use of healthcare resources.

What is The Total Cost Of Care?

In general, physicians are aware of what makes up the cost of treating a patient, many are surprised by the cumulative cost of treating specific conditions. Each time a physician writes an order or a prescription, or orders a test or a consultation, a charge for that service is created and applied to the patient’s insurance or bill. Accounting for all those services and costs can add up quickly. The aggregation of these costs associated with treating a given condition is typically referred to as an episode of care, or a “grouper”. Elements that can be included in a grouper are:

• Inpatient services
• Outpatient or ambulatory services
• Facility services
• Professional services
• Ancillary services, including labs, radiology and other diagnostic services
• Rehabilitation therapies, including physical, occupational and speech therapy
• Post-acute care
• Pharmacy services (when the benefit and data is available)

Episodes are often categorized by Hierarchical Condition Categories (HCCs) where medical codes are linked to clinical diagnoses. Since 2004, HCCs have been used by the Centers for Medicare and Medicaid Services (CMS) as part of a risk- adjustment model that identifies individuals with serious acute or chronic conditions. The costs associated with treating these HCCs are placed together in what is known as an Episode of Care, or an Episode Treatment Grouper.

There are ways we can look at surgical and other procedure episodes as well by using a tool called Procedural Episode Groupers that view costs of treating a condition that ultimately results in a procedure and maps the total cost of treating that condition, including the procedure. Costs can be set to register from a set period prior to the procedure being done (usually 60-90 days prior to the procedure) and go on for a period after the procedure is completed (usually 90-180 days after completion).

Advantages Of Using Total Cost Of Care

There are several reasons for using the total cost of care as outlined above.

1. Severity and Risk Adjustment: The use of episode groupers allows for automatic risk and severity adjustment, accounting for patient complexity and eliminating the bias of sicker patient population
2. Comprehensive cost analysis for the entire episode: Short-term, acute episodes can be accounted for over the entire period of the illness and care. Longer term episodes or chronic conditions are looked at typically for a 12-month period, and adjusted for severity of the condition
3. Assignment for the cost of care: This is typically based on the key provider for services as determined by the provider who incurred the largest portion of the cost within the episode, typically 50% or greater (there are some that allow for multiple assignment of the episode with providers responsible for 30% of the episode or more

Disadvantages Of Using Total Cost Of Care

1. Data availability: A best practice is updating the episodes and total cost of care data annually from an analytics program. While it can be updated more often, meaningful cost changes and change behavior are unlikely to be seen over a shorter period.
   1. Monthly per member per month (PMPM) values can help practices to see progress by trending prior PMPMs and comparing current data
2. Rates used in determining the actual cost are not always available: Depending on the source of information on total cost of care, rates used in determining the actual cost may not be accurate. When the total cost of care is determined by a payer, they have access to proprietary contracted rates for all aspects of care, therefore the data provided tends to be more exact. However, this data is limited to only that payer and often cannot be generalized across all payers. For third party, claims history and predetermined benchmarked averages offer broader applicability but result in relative, not absolute, cost estimates.
   1. Using this method of calculating the total cost of care allows you to use this information across multiple payers and gives you the best idea on how efficient a practice is running across all payers versus for just one payer.

Access to total cost of care data is invaluable for IPAs, ACOs and individual practices to help understand how well they are performing in a risk-bearing environment. It paves the way to help optimize networks, identifying high performing practices and those requiring improvement relative to their peers, track where costs are coming from and helping to correct them. These steps are critical in returning a high value to those physician groups that are performing more efficiently and effectively with desirable patient outcomes.

If you would like more information on using episodes of care for your practice, please reach out to our team of experts at COPE Health Solutions at info@copehealthsolutions.com or directly to the authors at czincke@copehealthsolutions.com and jfrank@copehealthsolutions.com.