Patient Centered
Community Care - Cost
Savings Analysis

 

Associated
Veterans, M:

8002 Allen Hamiltor

Contents
1.

Background.......................................................................................................... 3

2.

Scope................................................................................................................... 4

3.

Cost Savings Approach......................................................................................... 5

4.

Investment Costs and Return on Investment.......................................................5

5.

Findings................................................................................................................ 5
5.1

What is the projected cost savings for PC3 with and without Choice?...........9

5.2

What is the break-even point for PC3 with and without Choice?..................10

5.3 Since the Project HERO cost savings included only the cost of medical care,
what is the projected cost savings for PC3 independent of implementation and
administrative fees?.............................................................................................. 10
5.4 Can we determine the impact of the mandate to use the PC3/Choice
contract rather than non-contracted care in the community?...............................10
5.5 Can we determine the cost savings for being able to amend PC3 to
accommodate the Choice Program rather than having to create a new acquisition?
10
6.

Future Analysis Recommendations.....................................................................10

Appendix A – Assumptions....................................................................................... 12
Appendix B – Data Request List................................................................................ 13

2

 1.Background
Patient-Centered Community Care (PCCC) is a program established by the
Veterans Health Administration (VHA) to create a nationwide system of
contracts to purchase medical services for Veterans when another VA facility,
Department of Defense (DoD) Military Treatment Facility, Academic Affiliate,
or Indian Health Services/Tribal Health Program facility is not capable of
furnishing a required service or cannot do so in a timely manner. The PC3
program awarded regional healthcare contracts to TriWest and Health Net in
September 2013 for the use of their provider networks.
The PC3 contracts with TriWest and Health Net were modified in August 2014
after Congress passed the Veterans Access, Choice, and Accountability Act
(Choice). Choice enables Veterans to receive care in the community based on
existing VA healthcare benefits. Veterans are eligible if they have been
waiting more than 30 days for VA care, live more than 40 miles away from a
VAMC, or would face an undue burden of travel to the nearest VA facility due
to geographic challenges, environmental factors, or a medical condition.
Choice provided new authorities, funding, and other tools to help support VA
efforts to provide timely care to Veterans. If Veterans opt into the Choice
Program, they can utilize the Choice contracts to access care in the
community if they met the congressionally mandated eligibility
requirements.
In order to promote the usage of the Choice Program at the VAMCs, the
following milestone events occurred in FY15 at the direction of VA and VHA
leadership:
Table 1: FY15 Choice Program Milestone Events*
Title
Distance Eligibility
Change

Date
4/24/201
5

Choice Flyer (initial
mailing)

5/21/201
5

Choice First Phase 1

6/10/201
5

Choice First Phase 2

10/1/201
5

High Level Description
Allowed Veterans facing an undue burden
of travel to the nearest VA facility due to
geographic challenges, environmental
factors, or a medical condition to be
considered eligible for Choice.
Flyer mailed out to eligible Veterans to
increase awareness of Choice Program as
option for improved access to care.
Revised VA care coordination practices to
offer Choice as first option when care is
unavailable within a VA facility or other
federal agency (implemented Hierarchy of
Care memo).
Improved business processes to provide
Choice Program care for Veterans facing
3

 wait times over 30 days at VA.
Choice First Phase 3
11/3/201 Contractors began making outbound calls
5
to Choice-eligible Veterans to help ensure
follow-up and appointment scheduling.
This phase also implemented policy
changes to expand eligibility criteria.
*Information extracted from: http://vaww.va.gov/CHOICE

2.Scope
In April 2014, the Office of Inspector General (OIG) received a request from
the U.S. House of Representatives Committee on Appropriations to review
PC3 costs. VA’s submission to the President’s Budget stated that PC3
contracts would save it $13 million in both FYs 2014 and 2015. The OIG could
not attest to the reliability and accuracy of VA information regarding the
methodology and calculation of the PC3 cost savings estimate due to a lack
of documentation and because officials could not provide reliable information
about the cost saving estimate’s development.
In support of the Care in the Community Integrated Product Team (IPT),
VHA’s Chief Business Office (CBO) engaged Associated Veterans and Booz
Allen Hamilton (hereafter referred to as “Team AV”), to analyze the estimated
cost savings of the PC3/Choice contracts. Team AV worked with the IPT and
key VA and VHA representatives to gather pertinent cost data to answer the
following questions. These questions are answered in the Findings section in
this document.
1. What is the projected cost savings for PC3 with and without Choice?
2. What is the break-even point for PC3 with and without Choice?
3. Since the Project HERO cost savings included only the cost of medical
care, what is the projected cost savings for PC3 independent of
implementation and administrative fees?
4. Can we determine the impact of the mandate to use the PC3/Choice
contract rather than non-contracted care in the community?
5. Can we determine the cost savings for being able to amend PC3 to
accommodate the Choice Program rather than having to create a new
acquisition?
During the kickoff meeting on 10/16/2015, there was a discussion to
determine whether the qualitative benefits of PC3 and Choice could be
included in the analysis. While evaluating the PC3/Choice Program
holistically suggests that these qualitative considerations should be included,
the scope of the OIG report indicates there is not a need to address them in
this analysis; however, the table below describes the differences between
traditional non-VA Care and PC3/Choice.

4

 Table 2: Qualitative Benefits







Non-VA Care
Contracts that exist are managed
locally or regionally
VA does not credential
providers/no quality standards






Return of medical documentation
not a condition of claims
payment
Reimbursement rates not
established



PC3/Choice
Contracts managed centrally by
CBOPC
Contractors credential
providers/quality standards in
place
Claims paid only upon receipt of
medical documentation
Established reimbursement rates
in place

During the data analysis phase, the Team discovered that there were more
services provided through Care in the Community than PC3/Choice, so a
more detailed request was made to look at the information at the CPT level.
This ensured the team evaluated only data that was captured for CPT codes
that occurred in both Care in the Community and PC3/Choice, a true applesto-apples comparison.

3.Cost Savings Approach
In order to calculate the potential cost savings of PC3/Choice, Team AV first
determined the cost of non-contracted care (for comparable healthcare
services at the CPT level) through the use of individual authorizations.
Next, Team AV calculated contracted PC3/Choice program costs that include
the cost of medical care (for comparable healthcare services at the CPT
level), administrative fees, and fixed cost implementation fees – which are
expected to be paid through FY16. Those costs were then subtracted from
the baseline costs and the resulting value was the “cost savings”.
Cost Savings=NonContracted Care Costs−Contracted CareCosts
For the purposes of this analysis, PC3 was considered to be a long term
program.

4.Investment Costs and Return on Investment
In addition to providing the cost savings calculations, this analysis also
calculated investment costs and return on investment (ROI). All investments
(implementation fees) to stand up PC3/Choice were retroactive sunk costs
since they had already been paid. Once the investment costs were
considered, the ROI calculation was determined by dividing the cumulative
savings into implementation fees associated with PC3/Choice.
5

 ROI=

Cumulative Savings
Implementation Fees

5.Findings
Team AV identified two unique scenarios that estimated the range of cost
savings for PC3 over a five-year period. The Team was able to use actual
values for both FY14 and FY15, and decided to convert FY14 data to base
year FY15 dollars at a 3% factor. Team AV then varied the overall volume and
the percentage of CPTs yielding negative cost savings (i.e., percent of
negative CPTs included) in the future years, which provides a possible range
of outcomes should VHA decide to “optimize” PC3 by removing CPTs with
negative cost savings from the program. Therefore, Scenario 1 assumes that
VHA optimizes by identifying and removing negative CPTs within a six month
period (i.e., 50% of the annual cost) while Scenario 2 assumes that VHA does
not optimize. Team AV also assumed the process for identifying and
removing negative CPTs is continuous; therefore, the “% Negative CPTs
included” is constant in future years.
The data displayed below in Tables 3 – 9 shows the positive cost savings for
VHA to optimize PC3, but further analysis should include a deeper look at
CPT performance at a regional level to identify if the cost discrepancies exist
nationally or by location. As an example, the top five negative CPT codes are
identified below and represent a starting point for possible future analysis of
areas where VHA could improve cost savings for PC3:






J1120: Injection, acetazolamide sodium, up to 500 mg
C1874: Stent, coated/covered, with delivery system
C1769: Guide wire
C2627: Catheter, suprapubic/cystoscopic
2019F: Dilated macular exam performed, including documentation of
the presence or absence of macular thickening or hemorrhage and the
level of macular degeneration severity;

The series of tables that follow provide summaries of each scenario’s outcomes
based on volume adjustments, optimization, and the inclusion or exclusion of
Choice. A description of each calculation is described here:






Initial Savings: the amount saved for each CPT code processed through
PC3/Choice compared to Care in the Community
Implementation Fees: the upfront investment costs that VHA paid the
contractors to stand up their provider networks
Administrative Fees: the cost VHA paid to the contractors for each
authorization they process
Annual Savings: Initial Savings less Implementation and Administrative Fees
Cumulative Savings: the sum of annual savings year over year
6

 

ROI: Cumulative Savings divided by Implementation Fees

Additionally, the five questions identified in the PC3 Cost Analysis Program Plan are
answered in Sections 5.1-5.5.

Table 3: PC3 Cost Savings Results with Choice, Utilization Increases to 60, 70,
75%
Scenario 1 (50% Optimization, Auth Volume 60/70/75%)
Initial
Impl
Admin
Annual
Cum
Years
Savings
Fee
Fee
Savings
Savings
$24.9
FY14
$1.15
2
$2.02
-$25.80
-$25.80
$108.
FY15
$4.96
81
$7.60
-$111.45
-$137.24
FY16
$41.71
$5.13
$32.62
$3.96
-$133.28
FY17
$84.28
$0.00
$35.34
$48.93
-$84.35
FY18
$142.95
$0.00
$38.06
$104.89
$20.54
Scenario 2 (No Optimization, Auth Volume 60/70/75%)
Initial
Impl
Admin
Annual
Cum
Years
Savings
Fee
Fee
Savings
Savings
$24.9
FY14
$1.15
2
$2.02
-$25.80
-$25.80
$108.
FY15
$4.96
81
$7.60
-$111.45
-$137.24
FY16
$13.05
$5.13
$32.62
-$24.70
-$161.94
FY17
$26.38
$0.00
$35.34
-$8.97
-$170.90
FY18
$44.74
$0.00
$38.06
$6.68
-$164.22

*BY15 $ in
millions

ROI
-103.5%
-102.6%
-96.0%
-60.7%
14.8%
*BY15 $ in
millions

ROI
-103.5%
-102.6%
-116.6%
-123.1%
-118.3%

Table 4: PC3 Cost Savings Results with Choice, Utilization Locked at 14%
(FY15 Rate)
Scenario 1 (50% Optimization, Auth Volume Locked at
14%)
Initial
Impl
Admin
Annual
Cum
Years
Savings
Fee
Fee
Savings
Savings
$24.9
FY14
$1.15
2
$2.02
-$25.80
-$25.80
$108.
FY15
$4.96
81
$7.60
-$111.45
-$137.24
FY16
$36.88
$5.13
$7.61
$24.14
-$113.10
FY17
$37.27
$0.00
$7.61
$29.65
-$83.45
FY18
$37.60
$0.00
$7.61
$29.99
-$53.46

*BY15 $ in
millions

Scenario 2 (No Optimization, Auth Volume Locked at 14%)

*BY15 $ in

7

ROI
-103.5%
-102.6%
-81.5%
-60.1%
-38.5%

 millions

Years

Initial
Savings

FY14

$1.15

FY15
FY16
FY17
FY18

$4.96
$11.54
$11.66
$11.77

Impl
Fee
$24.9
2
$108.
81
$5.13
$0.00
$0.00

Admin
Fee

Annual
Savings

Cum
Savings

ROI

$2.02

-$25.80

-$25.80

-103.5%

$7.60
$7.61
$7.61
$7.61

-$111.45
-$1.20
$4.05
$4.16

-$137.24
-$138.44
-$134.39
-$130.23

-102.6%
-99.7%
-96.8%
-93.8%

Table 5: PC3 Cost Savings Results without Choice, Utilization Increases to 60,
70, 75%
Scenario 1 (50%
Yea
Initial
rs
Savings
FY1
4
$1.10
FY1
5
$4.23
FY1
6
$150.82
FY1
7
$183.55
FY1
8
$201.03

Optimization, Auth Volume 60/70/75%)
Impl
Admin
Annual
Cum
Fee
Fee
Savings
Savings
$24.9
2
$2.02
-$25.85
-$25.85

*BY15 $ in
millions

ROI
-103.7%

$0.00

$7.60

-$3.37

-$29.22

-117.2%

$0.00

$14.10

$136.72

$107.50

431.4%

$0.00

$16.45

$167.10

$274.61

1101.9%

$0.00

$17.63

$183.41

$458.01

1837.8%

Scenario 2 (No Optimization, Auth Volume 60/70/75%)
Yea
Initial
Impl
Admin
Annual
Cum
rs
Savings
Fee
Fee
Savings
Savings
FY1
$24.9
4
$1.10
2
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$45.64
$0.00
$14.10
$31.54
$2.33
FY1
7
$55.55
$0.00
$16.45
$39.10
$41.43
FY1
8
$60.84
$0.00
$17.63
$43.21
$84.64

8

*BY15 $ in
millions

ROI
-103.7%
-117.2%
9.3%
166.2%
339.6%

 Table 6: PC3 Cost Savings Results without Choice, Utilization Locked at 12%
(FY15 rate)
Scenario 1 (50% Optimization, Auth Volume Locked at
12%)
Year
Initial
Impl
Admin
Annual
Cum
s
Savings
Fee
Fee
Savings
Savings
FY1
4
$1.10 $24.92
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$25.61
$0.00
$2.82
$22.79
-$6.42
FY1
7
$25.89
$0.00
$2.82
$23.07
$16.65
FY1
8
$26.13
$0.00
$2.82
$23.31
$39.96

*BY15 $ in
millions

Scenario 2 (No Optimization, Auth Volume Locked at
12%)
Year
Initial
Impl
Admin
Annual
Cum
s
Savings
Fee
Fee
Savings
Savings
FY1
4
$1.10 $24.92
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$7.75
$0.00
$2.82
$4.93
-$24.28
FY1
7
$7.84
$0.00
$2.82
$5.02
-$19.27
FY1
8
$7.91
$0.00
$2.82
$5.09
-$14.18

*BY15 $ in
millions

ROI
-103.7%
-117.2%
-25.8%
66.8%
160.3%

ROI
-103.7%
-117.2%
-97.4%
-77.3%
-56.9%

Table 7: PC3 Cost Savings Results without Choice, Utilization Locked at 25%
Scenario 1 (50% Optimization, Auth Volume Locked at
25%)
Year
Initial
Impl
Admin
Annual
Cum
s
Savings
Fee
Fee
Savings
Savings
FY1
4
$1.10 $24.92
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$55.63
$0.00
$5.88
$49.75
$20.54
FY1
7
$56.17
$0.00
$5.88
$50.29
$70.83
FY1
$56.63
$0.00
$5.88
$50.76
$121.59
9

*BY15 $ in
millions

ROI
-103.7%
-117.2%
82.4%
284.2%
487.9%

 8
Scenario 2 (No Optimization, Auth Volume Locked at
25%)
Year
Initial
Impl
Admin
Annual
Cum
s
Savings
Fee
Fee
Savings
Savings
FY1
4
$1.10 $24.92
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$16.84
$0.00
$5.88
$10.96
-$18.26
FY1
7
$17.00
$0.00
$5.88
$11.12
-$7.13
FY1
8
$17.14
$0.00
$5.88
$11.26
$4.13

*BY15 $ in
millions

ROI
-103.7%
-117.2%
-73.3%
-28.6%
16.6%

Table 8: PC3 Cost Savings Results without Choice, Utilization Locked at 50%
Scenario 1 (50% Optimization, Auth Volume Locked at
50%)
Year
Initial
Impl
Admin
Annual
Cum
s
Savings
Fee
Fee
Savings
Savings
FY1
4
$1.10 $24.92
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$121.20
$0.00
$11.75
$109.44
$80.23
FY1
7
$122.05
$0.00
$11.75
$110.30
$190.52
FY1
8
$122.77
$0.00
$11.75
$111.02
$301.54

*BY15 $ in
millions

Scenario 2 (No Optimization, Auth Volume Locked at
50%)
Year
Initial
Impl
Admin
Annual
Cum
s
Savings
Fee
Fee
Savings
Savings
FY1
4
$1.10 $24.92
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$36.68
$0.00
$11.75
$24.93
-$4.29
FY1
7
$36.94
$0.00
$11.75
$25.18
$20.90
FY1
8
$37.16
$0.00
$11.75
$25.40
$46.30

*BY15 $ in
millions

10

ROI
-103.7%
-117.2%
321.9%
764.5%
1210.0%

ROI
-103.7%
-117.2%
-17.2%
83.8%
185.8%

 Table 9: PC3 Cost Savings Results without Choice, Utilization Locked at 75%
*BY15 $ in millions
Year
s
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8

*BY15 $ in
millions

Initial
Savings

Impl
Fee

Admin
Fee

Annual
Savings

Cum
Savings

ROI

$1.10

$24.92

$2.02

-$25.85

-$25.85

-103.7%

$4.23

$0.00

$7.60

-$3.37

-$29.22

-117.2%

$199.62

$0.00

$17.63

$181.99

$152.77

613.0%

$200.39

$0.00

$17.63

$182.76

$335.53

1346.3%

$201.03

$0.00

$17.63

$183.41

$518.94

2082.3%

Scenario 2 (No Optimization, Auth Volume Locked at
75%)
Year
Initial
Impl
Admin
Annual
Cum
s
Savings
Fee
Fee
Savings
Savings
FY1
4
$1.10 $24.92
$2.02
-$25.85
-$25.85
FY1
5
$4.23
$0.00
$7.60
-$3.37
-$29.22
FY1
6
$60.41
$0.00
$17.63
$42.78
$13.57
FY1
7
$60.64
$0.00
$17.63
$43.02
$56.59
FY1
8
$60.84
$0.00
$17.63
$43.21
$99.80

*BY15 $ in
millions

ROI
-103.7%
-117.2%
54.4%
227.1%
400.4%

Team AV has determined the following, based on the cost data provided.
5.1
What is the projected cost savings for PC3 with and
without Choice?
Reviewing the tables of data above, it is apparent that cost savings vary
significantly as the two factors are adjusted (authorization/CPT volume and
optimization). For example, PC3 without Choice locked at the FY15 utilization
rate of 12% fails to recover implementation costs through the option years.
Alternatively, PC3 without Choice locked at a 75% utilization rate starts to
show cumulative cost savings in FY16 of $13.57 million (without
optimization).
It should be noted, however, that when Choice is included and utilization
rates continue to increase based on current trending (see Table 3: PC3 Cost
11

 Savings Results with Choice, Utilization Increases to 60, 70, 75%), the
program only breaks even in FY18 if they optimize the program by
eliminating negative CPTs. Failing to optimize prevents VHA from being able
to recover the high implementation fees within a five year period.
5.2
What is the break-even point for PC3 with and without
Choice?
The PC3 program (without Choice) does not break even at the locked FY15
utilization rate of 12% unless it optimizes the program and eliminates
negative CPTs. The higher utilization rates (25, 50, and 75%) show break
even points as early as FY16 (without optimization). PC3 with Choice breaks
even in FY18 but only if it optimizes the program by eliminating expensive
CPTs.
5.3
Since the Project HERO cost savings included only the
cost of medical care, what is the projected cost savings for
PC3 independent of implementation and administrative fees?
Each of the tables above contain this information in the “Initial Savings”
column.
5.4
Can we determine the impact of the mandate to use the
PC3/Choice contract rather than non-contracted care in the
community?
The mandate that was issued to the VAMCs to use PC3/Choice and sunset
existing local contracts increased utilization, which positively affected initial
cost savings; however, as utilization increases, administrative fees also
increase causing the program to take longer to recover its initial
implementation fees. Comparing the data in Table 3: PC3 Cost Savings
Results with Choice, Utilization Increases to 60, 70, 75% and Table 4: PC3
Cost Savings Results with Choice, Utilization Locked at 14% (FY15 Rate)
shows that administrative fees increase by 256% when utilization increases
from 14% to 75% over the five year period analyzed.
5.5
Can we determine the cost savings for being able to
amend PC3 to accommodate the Choice Program rather than
having to create a new acquisition?
Without being able to include staffing data and level of effort required of that
staff to issue and award contracts, the team cannot definitively say what the
savings are or could be. Future analysis could be conducted to determine the
baseline and from that, implementation fees for Choice ($113.9 million
estimated) can be extracted.

12

 6.Future Analysis Recommendations
While the scope of this analysis answered the questions presented in the OIG
report, it is evident that VHA would benefit from further analysis in two
areas:






Recommendation 1: Evaluate CPT performance at a regional level to
identify if negative CPTs are a problem nationally or by location. This
information would be useful in the hands of Care Coordination staff
immediately while making community care decisions.
Recommendation 2: Evaluate purchasing trends at the regional level to
determine which services are purchased more frequently. This
information would be useful for building the Provider Network and
could inform a make/buy decision.
Recommendation 3: Development of an acquisition cost baseline that
can be used to calculate cost savings realized from the modification of
PC3 to accommodate Choice. This information would be used by the
program office to estimate future procurement costs associated with
issuing and awarding contracts.

Each of these additional analyses will help inform a more cost efficient
Care in the Community program.

13

 Appendix A – Assumptions
Assumption
Data received from the government is
valid.
Future state considerations (i.e., sunsetting of PC3) will not be included in
this analysis.
CPT volume data and authorization
volume data were normalized

At the top level, the CPT to
Authorization ratio remains the same
The NVCC CPT to authorization ratio
remains the same in the out years
Authorization and CPT volumes are
directly related
PC3 and Choice were combined to
determine the most likely CPT to
authorization ratio

Explanation
Due to time constraints in the period of
performance, Team AV will not conduct an
independent verification of data validity.
Cost savings estimates will be generated as
if PC3 were slated to be a permanent
program.
CPT volume data and authorization volume
data were pulled separately from different
systems, so we normalized the data
(determined the mean) for future years and
created a ratio to demonstrate that an
increase in PC3 utilization would result in an
increase in CPT volume for PC3 as well
CPT and authorization volumes were held
constant in FY16, FY17, and FY18 since no
projection data is available
CPT and authorization volumes were held
constant in FY16, FY17, and FY18 since no
projection data is available
An increase in PC3 utilization would result in
an increase in CPT volume for PC3
In both datasets with and without Choice,
this combination ratio was used to ensure
consistency

14

 Appendix B – Data Request List
Request
CC Unique Patients FY13,
FY14, FY15) broken out
by:
•
PC3
•
Choice
CC Disbursed Dollars
(FY13, FY14, FY15)
broken out by:
•
PC3
•
Choice
Health Net
Implementation Fees and
Administrative Fees (FY14
and FY15) broken out by:
•
PC3
•
Choice (if
applicable)
TriWest Implementation
Fees and Administrative
Fees (FY14 and FY15)
broken out by:
•
PC3
•
Choice (if
applicable)
Authorizations
 Health Net
 TriWest
PC3/Choice weekly usage
reports

Use Description
To calculate utilization of CC
Program

POC
Terri Schuchard

To calculate cost for care
provided outside VHA and
Sharing Agreements

Terri Schuchard

To calculate total cost for use of
Health Net provider network

Gabe Harris or
Mara Wild (DALC
Contracting
Officers) or
Supporting CORs

To calculate total cost for use of
TriWest provider network

Gabe Harris or
Mara Wild (DALC
Contracting
Officers) or
Supporting CORs

To validate calculation for
utilization of CC Program

Terri Schuchard
(contractor
provided)
Terri Schuchard

To calculate impact of the
mandate to use PC3/Choice on
CC (instead of individual
authorizations).

15