The Importance of State The Importance of State Involvement In Controlling Involvement In Controlling

Health SpendingHealth Spending

Stuart H. AltmanStuart H. AltmanSol Chaikin Professor of Health PolicySol Chaikin Professor of Health Policy

The Heller School for Social Policy and ManagementThe Heller School for Social Policy and ManagementBrandeis UniversityBrandeis University

Involvement Need Not Mean Involvement Need Not Mean REGULATIONREGULATION

But It Might!!!But It Might!!!

States Being Pushed to Be States Being Pushed to Be Concerned About Concerned About TOTALTOTAL (Not (Not

Just Medicaid) Just Medicaid) Health Care Health Care Spending---Spending---

Why--- Problem of Rising Why--- Problem of Rising Private Insurance PremiumsPrivate Insurance Premiums

The Cost-Shift Issue---The Cost-Shift Issue---

Private Insurance Payments Used To Pay For Lower Private Insurance Payments Used To Pay For Lower Government PaymentsGovernment Payments

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

92.0%

85.0%

138.0%130.0%

157.4%

60%

80%

100%

120%

140%

160%

180%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Medicare Medicaid(1) Private Payer

Hospital Payment-to-Cost RatiosHospital Payment-to-Cost Ratios

State Regulation of Health Care State Regulation of Health Care Spending Not NewSpending Not New

All But All But MarylandMaryland Dropped All-Payer Dropped All-Payer Rate Regulation Because of Push-Rate Regulation Because of Push-

Back By Hospitals and More Liberal Back By Hospitals and More Liberal Medicare PaymentsMedicare Payments

While Past Efforts Failed---While Past Efforts Failed---

We Cannot Give Up---Failure We Cannot Give Up---Failure Has Serious ConsequencesHas Serious Consequences

High Premiums Limiting Worker High Premiums Limiting Worker Compensation and Compensation and

Employment!Employment!

Cumulative Increases in Health Insurance Cumulative Increases in Health Insurance Premiums, Workers’ Contributions to Premiums, Premiums, Workers’ Contributions to Premiums,

Inflation, and Workers’ Earnings, Inflation, and Workers’ Earnings, 2000-2010

88%

114%103%

147%

24%

36%

21% 27%

0%

20%

40%

60%

80%

100%

120%

140%

160%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Health Insurance Premiums

Workers' Contribution to Premiums

Workers' Earnings

Overall Inflation

Notes: Health insurance premiums and worker contributions are for family premiums based on a family of four.

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2011. Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999-2011 (April to April).

The Primary Issue---The Primary Issue---

Should States Promote More Effective Should States Promote More Effective Market Activities or Develop Market Activities or Develop ““All Payer” Regulatory SystemAll Payer” Regulatory System

If Markets Are to Work!If Markets Are to Work!

Need to Foster a “Value-Based” Need to Foster a “Value-Based” Delivery SystemDelivery System

““Value-Based” Services Link Value-Based” Services Link Together Services That Improve Together Services That Improve

QualityQuality (Including Positive (Including Positive Outcomes) With Commensurate Outcomes) With Commensurate

Costs Costs

Concerns About Current SystemConcerns About Current System

• Care Often Delivered in an Uncoordinated and Care Often Delivered in an Uncoordinated and Fragmented WayFragmented Way– Lack of Information SharingLack of Information Sharing– Duplicative TestingDuplicative Testing– Poor Care CoordinationPoor Care Coordination– Mismanaged Care TransitionsMismanaged Care Transitions

• Limited Use of “Cost Effectiveness” in How Limited Use of “Cost Effectiveness” in How We Use and Pay for ServicesWe Use and Pay for Services

• Few Constraints on Prices for New Drugs Few Constraints on Prices for New Drugs and Devices and Devices

Accountable Care Organizations Accountable Care Organizations (ACO’s) and Bundled Payment (ACO’s) and Bundled Payment

System Being Promoted to Change System Being Promoted to Change Current SystemCurrent System

ACO’s and Bundled Payments Offer ACO’s and Bundled Payments Offer Some Real Opportunities ---Some Real Opportunities ---

• They Encourage Integration of Care• Where Possible Substitute Less Expensive for More

Expensive Care• Reduce the Use of Marginal and Ineffective Care• Limit the Stockpiling of Substitutable types of

Services – They Facilitate the Working Together of Hospitals,

Physicians , Post Acute Care and Other Health Professionals

– They Lower the Cost of Expensive Treatments – Bundled Payments Can Be an Interim Step To a

Global Payment System

Why ACO’s and Bundled Why ACO’s and Bundled PaymentsPayments

• They Allow Providers to Decide What is Appropropriate Care

• They Reward Care That is Less Fragmented and Minimizes Duplicative and Wasteful Services

• They Permit Care Providers To Pay for Services Not Traditionally Considered as Health Care Services

But To Succeed We Need But To Succeed We Need to Avoid The Errors of to Avoid The Errors of

The Past?The Past?

The Errors of The PastThe Errors of The Past• Providers (Physicians and Hospitals) Were Providers (Physicians and Hospitals) Were

Required To Take More Financial Risk Than Required To Take More Financial Risk Than They Could Afford or Understand--They Could Afford or Understand--

• Individuals Were FORCED Into Plans They Individuals Were FORCED Into Plans They Didn’t Chose and Didn’t Like--Didn’t Chose and Didn’t Like--

• Quality of Care Measures Were Limited So Quality of Care Measures Were Limited So Choice of Plan (Choice of Plan (By EmployersBy Employers) Was Based ) Was Based Primarily on CostsPrimarily on Costs

The Errors of The PastThe Errors of The Past

• For Bundled Payments– The Medicare DRG Payment System Only

Included Hospital Services– The Medicare DRG Bundled Payment

System Only Covered Medicare Beneficiaries

ACO’s and Bundled Payments Designed ACO’s and Bundled Payments Designed To Avoid Problems of The 1990’sTo Avoid Problems of The 1990’s

• Providers Required To Assume Limited RiskProviders Required To Assume Limited Risk– ACO’s is a “Shared Savings System”. Each Groups Starts ACO’s is a “Shared Savings System”. Each Groups Starts

From Their Current Spending Levels and Downsides Risk From Their Current Spending Levels and Downsides Risk LimitedLimited

• Patients Will Not Be Locked Into a Delivery System They Patients Will Not Be Locked Into a Delivery System They Don’t TrustDon’t Trust– Patients Need to Sign Up With PCP But Can Change PCP Patients Need to Sign Up With PCP But Can Change PCP

or Network With No Penalty or Network With No Penalty • Attaining or Exceeding “Quality Standards Provider Attaining or Exceeding “Quality Standards Provider

Eligibility for Payment Depends on ”Eligibility for Payment Depends on ”– Debate on What Quality Standards to Use Is Ongoing Debate on What Quality Standards to Use Is Ongoing

ACO’s and Bundled Payments ACO’s and Bundled Payments Designed To Avoid Problems of The Designed To Avoid Problems of The

1990’s1990’s

• The Medicare Bundle Will Include Physicians Services and Post Hospital Care In Addition to Hospital Services (It does Not Include Pre-Hospital Care)

• Medicare is Encouraging (But Not Requiring) Non-Medicare Patients to Be Included in Future Bundled Payment Systems

Key To Success of ACO’sKey To Success of ACO’s

An Effective Primary Care System(Many Specialty Groups Wary of a Many Specialty Groups Wary of a

Return to the 1990’sReturn to the 1990’s)

The Key To Making Bundled The Key To Making Bundled Payment WorkPayment Work

Control Post-Acute Control Post-Acute Care Spending!!!Care Spending!!!

Avg. 2008 Medicare Payment for In-Hospital Care Avg. 2008 Medicare Payment for In-Hospital Care for Select DRGsfor Select DRGs

24Source: RTI Inc, Post-Acute Care Episodes: Expanded Analytic File, June 2011

2008 Medicare Acute and Post-Acute Payments 2008 Medicare Acute and Post-Acute Payments for Inpatient-Initiated 90-Day Episodesfor Inpatient-Initiated 90-Day Episodes

25Source: RTI Inc, Post-Acute Care Episodes: Expanded Analytic File, June 2011

Major Concerns of Current Major Concerns of Current EnvironmentEnvironment

• ACO’s and Bundled Payments Use “Shared

• Savings” Approach and Not “Fixed Budgets”• Both Approaches are Voluntary

• Patients Have The Right to Opt Out of ACO’s

• Many Important Systems Not Participating

Nevertheless States Need To Be Nevertheless States Need To Be Active Participant In Promoting Active Participant In Promoting

These New Delivery System These New Delivery System Options Options

Limit Regulatory Hurdles and Provide Limit Regulatory Hurdles and Provide Financial Assistance to Financially Financial Assistance to Financially

Stressed Systems (Because of Stressed Systems (Because of Unfavorable Payer Mix) Unfavorable Payer Mix)

But States Need to Guard Against But States Need to Guard Against Big Integrated System Using Market Big Integrated System Using Market

Power To Extract Higher Private Power To Extract Higher Private Payments Payments

Letting Private Market Letting Private Market (Commercial Insurers and (Commercial Insurers and

Individual Providers) Set Rates Individual Providers) Set Rates Can Lead to Significant Can Lead to Significant Differences in Payment Differences in Payment

Amounts Amounts

Are They JustifiedAre They Justified??

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The Massachusetts The Massachusetts StoryStory

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Relative 2008 Massachusetts Blue Relative 2008 Massachusetts Blue Cross Hospital Payment RatesCross Hospital Payment Rates

31Source: BCBSMA data submitted to the attorney general. Red = teaching hospitals.

Massachusetts First State To Pass Massachusetts First State To Pass Universal Coverage Legislation Universal Coverage Legislation

Commonwealth Has Long History of Commonwealth Has Long History of Expanding Coverage and Regulating Expanding Coverage and Regulating

Health SpendingHealth Spending

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Private Sector (Insurers Private Sector (Insurers and Providers) Join and Providers) Join

Government Efforts to Government Efforts to Reform Health System Reform Health System

33

Expanded Activity In Private Expanded Activity In Private Insurance Market Insurance Market

• After State Set Limits on Premium After State Set Limits on Premium Increase Increase (Could Be Below Underlying Health Service Trend)

– Insurers Restructure and Toughen Insurers Restructure and Toughen Payment ModelsPayment Models– Introduce Limited and Tiered Network Introduce Limited and Tiered Network

PlansPlans– Increase in High Deductible Plans Increase in High Deductible Plans

34

Major Healthcare Major Healthcare Providers Promote Providers Promote

Reform Delivery Reform Delivery System ChangesSystem Changes

35

Massachusetts Enrollment in Global PaymentMassachusetts Enrollment in Global Payment

Source: The Boston Globe, February 13, 2012. Figures for Pioneer ACO are estimated.

Blue CrossBlue Cross

HPHC

TuftsTufts

OtherMedicare Advantage

Pioneer ACO*

Medicaid & Commonwealth Care

Commercial Members

About 22 Percent of State Residents

Massachusetts Legislature Passes Massachusetts Legislature Passes Compromise Cost Containment Compromise Cost Containment

LegislationLegislation(August of 2012)(August of 2012)

Includes Many PiecesIncludes Many Pieces

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Chapter 224: Cost Control & Payment Reform

Alternative Payment Models

Transparency & Reporting

Requirements

Annual Spending Targets

Review Provider Price Variation

New State New State OversightOversight

BodiesBodies

ACO Certification & Oversight

Health Workforce

Support

Health Planning

Administrative Simplification

Health IT Requirements

Infrastructure Support

Medicaid Payment Reform

Spending & Delivery Reform OversightSpending & Delivery Reform Oversight

Executive Director and

Staff

Health Policy Commission*(11-member board)

Center for Healthcare Information and Analysis

Payment Reform Fund

$11.5M

Distressed Hospital Fund

$135M

* In EOHS but not subject to EOHS control. Exempt from state civil service requirements and pay scales.

How Is The How Is The Commission Commission

OrganizedOrganized

Sub-Committees of Commission Sub-Committees of Commission

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– Establish the annual health care cost growth benchmark for total health care expenditures in the Commonwealth.

– Conduct annual cost trends hearings and issue a final report on health care trends.

– Conduct cost and market impact reviews of health providers and health plans proposing significant market changes to the health care industry, considering the impact of these changes on cost, access, quality, and market competitiveness.

– Oversee the development and implementation of performance improvement plans for certain providers and plans.

Cost Trends and Market PerformanceCost Trends and Market Performance

▪ Examine the impact of health system changes Examine the impact of health system changes on the quality of health care in the on the quality of health care in the Commonwealth, including the impact on Commonwealth, including the impact on patient access to care, and on the providers patient access to care, and on the providers of health care, including front-line of health care, including front-line practitioners and health care workers.practitioners and health care workers.

▪ Establish the role and responsibilities of the Establish the role and responsibilities of the Office of Patient Protection. Office of Patient Protection.

▪ Track the progress of efforts regarding Track the progress of efforts regarding mental health coverage parity and ensure the mental health coverage parity and ensure the integration of mental health, substance abuse integration of mental health, substance abuse disorder and behavioral health services with disorder and behavioral health services with physical care in the development of new care physical care in the development of new care delivery and payment models. delivery and payment models.

▪ Develop guidance relative to the prohibition Develop guidance relative to the prohibition of mandatory overtime for hospital nursesof mandatory overtime for hospital nurses..

Quality Improvement and Patient ProtectionQuality Improvement and Patient Protection

Sub-Committees of Commission Sub-Committees of Commission

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– Establish a provider organization registration program.

– Develop and implement standards for a certification program of Patient-Centered Medical Homes (PCMH) and Accountable Care Organizations (ACOs) and develop model payment standards to support PCMHs.

– Administer a competitive grant program to foster the development and evaluation of innovative health care delivery, payment models, and quality of care measures.

– Coordinate the advancement, adoption, and measurement of alternative payment methodologies.

– Coordinate with the DOI regarding the development of regulations relative to the certification of risk-bearing provider organizations.

Care Delivery and Payment System ReformCare Delivery and Payment System Reform

▪ Develop and administer a competitive grant program to enhance the ability of certain distressed community hospitals to implement system transformation.

▪ Develop strategies for engaging with various constituencies and a communications plan for educating providers, businesses, consumers, and the general public regarding the implementation of Chapter 224.

▪ Develop strategies for helping consumers navigate health care cost and quality.

▪ Conduct an investigation relative to increased adoption of flexible spending accounts, health reimbursement arrangements, and health savings accounts.

▪ Work with other state agencies to minimize duplicative requirements.

Community Health Care Investment and Community Health Care Investment and Consumer InvolvementConsumer Involvement

Reaching The Goal of Reaching The Goal of The Law---The Law---

Massachusetts Statewide Heath Care Massachusetts Statewide Heath Care Spending Targets (All Payer)Spending Targets (All Payer)

Brandeis University

6.2%/yr6.2%/yr

5.9%/yr

3.6%/yr3.6%/yr

3.1%/yr3.1%/yr

Billions

Source: Author’s calculation based on historical state spending estimates and projected national health spending growth from the CMS Office of the Actuary and targets set forth in Chapter 224.

States Must Also Be Mindful of States Must Also Be Mindful of What Is Happening in National What Is Happening in National

MarketMarket

Average Annual Percent Change in National Average Annual Percent Change in National Health Expenditures, 1960-2011Health Expenditures, 1960-2011

Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health Expenditures by type of service and source of funds, CY 1960-2010; file nhe2010.zip).

Slow Down May Be PermanentSlow Down May Be Permanent

• David Cutler (Harvard) Believes Many Small David Cutler (Harvard) Believes Many Small Positive Changes In MarketPositive Changes In Market– Providers Becoming More Efficient• Less Hospital Acquired InfectionsLess Hospital Acquired Infections• Reduced Re-HospitalizationReduced Re-Hospitalization• More Patient Cost SharingMore Patient Cost Sharing• Greater Use of Limited and Tiered Insurance NetworksGreater Use of Limited and Tiered Insurance Networks

• States Becoming More Active In Slowing States Becoming More Active In Slowing Total SpendingTotal Spending

The Recession is Only About One-Third of the The Recession is Only About One-Third of the SlowdownSlowdown

Real, per capita medical spendingReal, per capita medical spendingIn 2005 dollarsIn 2005 dollars

Actual

Actuary Forecast

Actual + Recession

Source: Authors’ calculations based on data from the Bureau of Economic Analysis and the Centers for Medicare and Medicaid Services

Gap

Past Efforts To Control Spending---Regulation in 1970’s

---Managed Care in 1990’s

Strong Negative Strong Negative Reactions To BothReactions To Both

Current Improvements Likely To Current Improvements Likely To Be More Positively ReceivedBe More Positively Received

But---Most Policy Analysts Still But---Most Policy Analysts Still Very Skeptical !!!Very Skeptical !!!

What Happens If Strong Inflationary What Happens If Strong Inflationary Pressures Return? Pressures Return?

Health Policy Commission Health Policy Commission Not a Regulatory Body---Not a Regulatory Body---

Ultimate Responsibility Ultimate Responsibility Still Within Private Sector!Still Within Private Sector!

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HPC is Like The Health Systems HPC is Like The Health Systems Mother---Mother---

We Keep Reminding The System to Eat It’s Vegetables

BUT--- If Rates Shoot Up Again BUT--- If Rates Shoot Up Again What Could Happen?What Could Happen?

55

What Could Be Next? What Could Be Next?

Which Would You Prefer? Which Would You Prefer?