HA580 Unit 4 Care Management Business Case Example

Every Avoided Admission Counted Three Times: A Business Case for a Composite Five-Hospital System's Care Management Program Under a Shared-Risk Contract, Showing Where It Loses Money, Where It Gains and Which Cardiology Capital Waits to Fund It

[Student Name]

Purdue University Global

HA580: Leading Health Care Transformation With Strategy Integration

Unit 4 Business Case

[Instructor Name]

[Date]

The system, the contract and every figure are composite and bracketed for the writer's own data; the arithmetic shows the method, not a real budget.

The Request

Approve a care management program of [24] nurse care managers, [6] clinical pharmacists and [10] community health workers serving the [1,450] highest-risk members attributed to the system under the insurer's contract, at [$4.6] million a year at full size, phased in over [18] months.

Who the Program Serves

The [1,450] members were selected by a risk score built from the insurer's claims and the system's records: two or more admissions in the past year, three or more chronic conditions, or a recent stay in a skilled nursing facility. Their average spending last year was about [$38,000], nearly five times the average member's. Care managers will meet each member within [30] days of identification, often at home, and follow up by phone; pharmacists will review medications for anyone taking ten or more; community health workers will address transportation, food and housing problems that cause missed visits. The model is built around the few members whose care drives most of the spending, which is where care management has the best chance of changing results.

Unit Economics: One Avoided Admission

Payment forgone if the admission would have been at the system's own hospital: [$11,900]. Variable cost saved by not treating it: [$4,300]. The system's share of the savings to the insurer, at [50] percent: [$5,950]. Net for an avoided stay at the system's own hospital: minus [$11,900] plus [$4,300] plus [$5,950], or minus [$1,650]. Net for an avoided stay at an unaffiliated hospital: plus [$5,950], since the system loses no revenue. The program loses money on every admission it prevents in the system's own beds and makes money on every one it prevents somewhere else. Unit economics come before totals because a program can look profitable in aggregate while losing money on its core activity.

Where Savings Fall

Projected annual savings to the insurer at full operation, sorted by where the spending would have occurred: Admissions to the system's hospitals: [240] avoided, [$2.86] million. Admissions elsewhere: [170] avoided, [$2.02] million. Skilled nursing facility days, mostly at unaffiliated facilities: [$3.20] million. Emergency visits and other services: [$1.10] million. Added drug spending from better adherence: minus [$0.40] million. Total net savings: [$8.78] million. System's [50] percent share: [$4.39] million. Lost contribution on avoided stays at the system's own hospitals: [240] times [$7,600], or [$1.82] million. Net benefit before program cost: [$2.57] million. After program cost of [$4.6] million: minus [$2.03] million a year in the upside-only years. Splitting savings by site is the move the case turns on: savings at unaffiliated facilities carry no lost payment, so they are the program's real return.

Why Fund a Program That Loses Money?

Because the contract changes in year three. From then, the system shares losses as well as savings, up to [four] percent of a benchmark near [$340] million. If members' spending rises [1.5] percent above the benchmark without the program, the system's share of the loss is about [$2.55] million a year. The program is less a profit center than insurance against that loss, and the system's means of learning to manage risk before it bears it.

Options Over Four Years

Option A, do nothing: no cost in years one and two; expected losses of about [$2.55] million in each of years three and four. Four-year total: minus [$5.1] million, with wide uncertainty. Option B, a heart failure and lung disease program only, [$1.9] million a year for [600] members: minus [$0.6] million in each of years one and two; plus [$0.4] million in years three and four. Four-year total: minus [$0.4] million. Option C, the full program: minus [$2.6] million in year one during ramp-up, minus [$1.2] million in year two, plus [$1.1] million in year three, plus [$1.6] million in year four. Four-year total: minus [$1.1] million, with the largest reduction in downside risk.

Recommendation

Approve Option B now and expand to Option C in year two if, at [12] months, avoidable admissions among enrolled members have fallen at least [15] percent. This stages the spending to evidence. Option B is chosen over Option C at the start because heart failure and lung disease account for the largest share of avoidable admissions among the high-risk members, the system already has a heart failure clinic to build on, and a smaller team can be hired faster in a tight nursing market. If the twelve-month test fails, the system will have learned that at a cost of [$1.9] million rather than [$4.6] million.

Displacement: What Waits

Funding comes from deferring the replacement of the flagship's second cardiac catheterization lab, [$3.8] million in capital, by [two] years. The existing lab has [five] years of rated life left, and volume has fallen [6] percent as outpatient procedures shift. The cardiology department opposes the deferral; the case records that opposition and proposes revisiting the lab in the year-three capital cycle.

How the Finance Office Should Read the Figures

All figures assume the insurer's attribution of members stays stable and that the benchmark grows at the trend written into the contract. Revenue cycle and accounting conventions also matter: shared savings arrive months after the year closes, so the system books the program's costs well before its returns, which strains cash in the first two years (Cleverley & Cleverley, 2018).

Risks

Hiring: [14] percent nurse vacancies may slow staffing. Data: the program depends on monthly claims from the insurer. Benchmark: if the insurer lowers the benchmark, savings shrink. Evidence: early results from shared-savings programs show modest savings, larger among physician-led organizations than hospital-led ones (McWilliams et al., 2016).

Measures

Avoidable admissions per thousand enrolled members, monthly total cost of care for each member, care manager caseload and the share of high-risk members reached within [30] days of identification.

Why Costs Must Be Measured Correctly

The case depends on the variable cost saved per admission. Department-level averages overstate variable cost and make the program look better than it is. Costing each care process, as time-driven methods do, gives a sounder figure (Kaplan & Porter, 2011). The finance office should recalculate the [$4,300] figure before year two.

Conclusion

The program loses money while the contract pays only for savings and protects the system once it must share losses. Staging it to evidence, and funding it by deferring a lab the system can wait for, is the prudent path.

References

Cleverley, W. O., & Cleverley, J. O. (2018). Essentials of health care finance (8th ed.). Jones & Bartlett Learning.

Kaplan, R. S., & Porter, M. E. (2011). How to solve the cost crisis in health care. Harvard Business Review, 89(9), 46-64.

McWilliams, J. M., Hatfield, L. A., Chernew, M. E., Landon, B. E., & Schwartz, A. L. (2016). Early performance of accountable care organizations in Medicare. New England Journal of Medicine, 374(24), 2357-2366. https://doi.org/10.1056/NEJMsa1600142