Part 2 of Critique of Milliman’s Whitepaper on Non-Medicare ACOs: Overly optimistic about inpatient use management, alarmingly pessimistic about primary care process transformation

Victoria Boyarsky, Howard Kahn, David Mirkin, and Rob Parke from Milliman recently released a Healthcare Reform Briefing Paper entitled “ACOs beyond Medicare.” 

The paper notes the unfavorable reception by providers to the economics of the draft regs for the Medicare Shared Savings Program, and suggests that emerging ACOs focus instead on commercial (non-Medicare) populations.  In part 1 of this critique, I called into question the authors’ interpretation of their own actuarial model, suggesting that the 28% estimated effectiveness in reducing cost by forming and ACO may be an over-estimate.  In part 2, I am examining their assumptions about the various types of clinical programs expected to be pursued by ACOs.

The authors correctly point out that very few provider organizations currently qualify as a “well-organized multi-specialty group.”  The authors suggest that nascent ACOs should partner with a health plan so the health plan can provide the missing managed care infrastructure, at least on an interim basis until the ACO can build up such infrastructure on their own.  Specifically, the authors consider four types of clinical programs that could be supplied by a health plan to an ACO: inpatient utilization management (UM), outpatient UM, case/disease management, and physician office support.  They define physician office support as including such things as e-visits, e-consults, urgent care, guideline implementation, and offering primary care physician incentives to increase their scope of practice to reduce the need for specialty referrals.  If ACOs partnered with health plans for these programs, according to the Milliman actuarial model, the expected PMPM net savings would be 2.6% — a far cry from the more impressive 28% the model calculated for ACOs formed by well-organized multi-specialty groups.

It is particularly interesting to calculate, based on the Milliman model results, the program-specific effectiveness and return on investment numbers to reveal the authors’ implicit assumptions about impact of the different types of programs.

Program Type

Return of Investment (ROI)

Gross Effectiveness in Reducing the Targeted Category of Cost Gross Effectiveness in Reducing Total PMPM Cost Net Effectiveness in Reducing Total Cost (including program cost)
Inpatient Utilization Mgmt





Outpatient Utilization Mgmt





Case/Disease Mgmt

No return




Physician Office Support





Total 3.1 3.8%



Obviously, the Milliman authors are enthusiastic about inpatient utilization management, assuming it will achieve a 59-to-1 ROI!  The authors are far less optimistic about case management (AKA care coordination), disease management, and physician practice support. These programs represent the core of the primary care practice transformations that are commonly assumed to the be active ingredients of ACO cost savings.  But, the authors are assuming all such innovations, taken together, will lead to a net increase in total cost of 0.4%.

The authors did not offer any evidence or references to support these implicit assumptions.

Based on my own experience, I am far less optimistic about utilization management program effectiveness, particularly over time, as providers tend to figure out “workarounds” to get approval for services they want to be provided to their patients.  The clinical appropriateness criteria that underlie such UM programs tend to be designed to avoid “false positive” rejections, leading to loose criteria that generate a great deal of additional paperwork for both the providers and the managed care staff, with few outright rejections.

Regarding patient-facing clinical programs such as case and disease management, I actually do share the author’s apparent belief that such programs, at least as commonly designed and implemented by health plan staff, are unlikely to achieve substantial net savings. However, I remain far more hopeful that such programs can be substantially more effective if they are integrated into primary care clinic settings. By integrating these programs into primary care, they can benefit from at least some face-to-face interaction and they are tied to the doctor-patient relationship and the medical care plan.  Also, I would be even more optimistic that such programs can reduce cost if they were designed to target the root causes of specific high cost clinical scenarios, rather than being designed to be holistically beneficial.  Although many people in the care management industry tout their programs as being “holistic,”  I prefer programs that are “targeted.”

Finally, I would be more optimistic about the cost-saving effectiveness of such programs if they were improved over time based on valid and rigorous evaluation.  Even after a couple of decades of experience, we really don’t know exactly what types of care management interventions are effective for various clinical scenarios.  The only way to create truly effective programs is to carry out the intervention in a consistent, controlled way, then rigorously evaluate it and then improve the program based on the evaluation results.   Such evidence-driven improvement requires designing rigorous evaluation into the program itself.  Sadly, too many health plans and care management vendors have viewed evaluation as an afterthought, asking evaluators to draw conclusions based on haphazardly-collected data.  Even worse, too many of those same health plans and vendors have viewed effectiveness measurement as a marketing requirement, where they work back from the conclusion that their program is successful to figure the most convincing arguments to support that conclusion.  As an industry, we can and must do better at honest, rigorous evaluation — and design such rigor right into the intervention process itself.

If targeted, rigorously evaluated, provider-based case and disease management programs are more effective than the conventional health plan-delivered programs, then the authors’ advocacy for ACOs to rely on health plans for such programs may not be so desirable.  By assuming negative net savings, the authors seem to be conceding that point, at least with respect to cost reduction aims.

I acknowledge that formal evaluation of the effectiveness of any of these provider-facing or patient-facing programs is very difficult, and the base of valid evidence is virtually non-existent.  I applaud Milliman for taking a stand by releasing quantitative information and allowing others to at least calculate the assumptions they are implicitly making.

One more thing to note.  The savings effects presented in the whitepaper are one-time shifts in cost, not changes to the slope of the trend line.  That means, you must continue to spend the program cost forever to maintain a cost advantage compared to trend.

To sum up, Milliman thinks that health plan-based utilization management can achieve about a 3% one-time downward shift in the cost trend line, and ACO-style clinical process transformation is economically wasteful, at least when executed by health plans.  Food for thought!



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1 thought on “Part 2 of Critique of Milliman’s Whitepaper on Non-Medicare ACOs: Overly optimistic about inpatient use management, alarmingly pessimistic about primary care process transformation”

  1. Pingback: Part 1 of Critique of AHA analysis showing higher ACO-related costs: Still underestimating care management cost

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