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Paying and Charging for Health Management Services, Round 2: Fixed-Fees

by Scott MacStravic

Paying a flat fee for a particular HM program, or one that is based on the number of people in the population at risk, is the simplest of all charge methods. It enables HM providers to predict their revenue, and HM prospects/clients to know what their costs will be – before any health risk assessment (HRA) that is typically part of HM programs is purchased or implemented. HRAs may be purchased separately, of course, and used to predict costs or set charges, which may then be based on fixed or per member cost, based on the overall risk scores of the population at risk. HM purchasers can compare the costs of competing options, as long as they use the same flat or per member fee approach. It makes budgeting by sponsors and clients simple as far as costs are concerned.

The predictability of costs is often what makes this approach attractive to clients, whether insurance plans or employers, and the predictability of revenue is attractive to providers, as well. But the predictability of costs comes with almost total unpredictability of results. Since these are definitely important in budget planning for clients, it can complicate the budget process overall. In order to predict results, clients must be able to predict: 1) what the effects of participation in specific HM interventions will be; 2) how many individuals in the population might benefit from each intervention; and 3) how many of these will participate in each. While past experience may offer a basis for guessing results based on past averages, there are likely to be wide variations across populations.

HM providers should be able to describe what the average effects of each of their interventions has been in the past, perhaps even promise or guarantee some minimum level of effects per participant. But clients will not usually know up front how many of their plan members or employees will be logical targets, eligible for any particular intervention, unless they have already performed a claims analysis, screening, or health risk assessment (HRA) required to do so.

Moreover, predicting the number of eligible members that will participate in particular HM interventions is impossible up front, since what the client or provider offers in the way of incentives and rewards for doing so has a powerful impact on that. Such a prediction is largely dependent on decisions regarding enrollment effort and incentives, rather than merely characteristics of the population at risk.

And since incentives and enrollment efforts add to costs, decisions about these must be made before prospects can estimate their ROI, assuming they will pay incentives. If HM providers are to pay incentives, they will not be likely to offer a fixed fee or per member price, since only knowing how many are eligible and will choose to participate will enable them to predict their costs.

On the other hand, charges that are based on flat fees or per employee rates are usually used by the lowest-priced HM providers. This is because the only kinds of HM interventions that can be charged for in this way are those whose costs to the provider can be predicted up front as well, without knowing how many members of the population will be eligible for or participate in particular interventions. This means the HM interventions must vary only modestly in costs to providers based on the numbers of population members that participate.

When HM providers use expensive face visits or phone contacts with professionals as their basic HM intervention method, the costs for programs vary almost totally based on the numbers of people to be managed. The number and duration of the personal contacts involved per participant may vary based on the risk/reward potential of individuals or different segments in the population at risk, but this potential can only be estimated based on past provider experience up front. To improve predictability of the numbers of people who should participate in an HM intervention, the HM program must have already been implemented, at least as far as conducting a health risk assessment (HRA) of the population.

By contrast, even before HRAs are conducted, HM providers that employ computer-automated HRA analysis and HM coaching that consists of automatically computer-customized recommendations, coaching and feedback to participants, can