PowerPoint Presentation

Understanding the Road to Payment Reform in Health Care

Michael BailitJanuary 11, 20131Questions I Plan to Address This MorningWhy payment reform, and why does it matter to employers?What are the approaches being implemented?Who is utilizing them nationally and in Minnesota?What is the evidence that they benefit employers?

2Health Expenditures Have Dramatically Increased and Continue to Rise3

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 1960-2009; file nhegdp09.zip).National Health Expenditures Per Capita 1960-2009In 1960 a gallon of gas cost $.31 in 1960s dollars, if gas prices went up at the same rate that health care has, a gallon of gas would cost approximately $17/gallon. Source: http://www1.eere.energy.gov/vehiclesandfuels/facts/2005/fcvt_fotw364.html In 1960 a dozen eggs cost $.57 in 1960s dollars, if the price of eggs went up at the same rate as health care, a dozen eggs today would cost $31.35.Source: http://www.1960sflashback.com/1960/economy.asp3MDH Projections for MN Health Care Spending4

Total Health Care Spending Health Care Spending excluding Medicare and long-term carePremiums and Workers Contributions to Them Have Dramatically Outpaced Earnings and Inflation5

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2010; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999-2010 (April to April). 5More Spending Does Not Equal Better Care6Health Care Spending Per Capita (2008)3WHO Ranking on Health System Performance(2000)4France ItalySan Marino

18. United Kingdom

36. Costa Rica37. United States38. SloveniaOECD Health Data 2010; The World Health report 2000 statistical annex, Annex Table 1 www.who.int/whr/2000/annex/en/index.htmlNeed to Improve Health Care Quality Tens of thousands of Americans die each year from medical errors and hundreds of thousands suffer nonfatal injuries that a high-quality health care system would largely prevent.*In Minnesota**:9% of patients with depression have experienced substantial improvement (i.e., PHQ-9 score at six months decreased by at least 50% from their initial PHQ-9 score) 24% of children with asthma receive optimal care37% of adults with diabetes receive optimal care40% of adults receive optimal vascular care

* To Err Is Human: Building a Safer Health System. Linda T.Kohn, Janet M.Corrigan, and Molla S.Donaldson, eds. Washington, D.C: National Academy Press, 2000.** Minnesota Community Measurement (2011). 2011 Health Care Quality Report. Retrieved from http://mncm.org/site/upload/files/Book_6_21_2012.pdf 78Growing CostsTechnological AdvancesIncrease in Chronic DiseasesLack of Evidence -Based CareLack of Provider Coordination Defensive MedicinePharmaceuticalsDiagnostics (imaging, etc.)Personalized MedicinePRICEAging PopulationLifestyle &Behaviors Duplicative/ Unnecessary CareGlobal Companies Increase US Prices to Compensate for Low Prices in Other Countries Low/ No Reimbursement Rates for Medicare, Medicaid and UninsuredConsumer PreferencesConsumer DemandPatients are Insulated from Cost of CareDirect-to- Consumer AdvertisingEnd-of-Life CareProvider Costs/ Cost-ShiftingPreference for Care in High Cost Settings (e.g., ER, specialty care) Consumers Preference for Brand Name Providers & ServicesCosts (e.g., RN salaries)Fee-for- Service Payment ModelService Volume Drives RevenueOther FactorsFraud AbuseLack of CompetitionDrug Exclusivity PoliciesInsurer ConsolidationProvider ConsolidationLack of Price-Based CompetitionVOLUMEPractice VariationMany Drivers of Growing Costs in Health CareBelief That More is Better 9Growing CostsTechnological AdvancesIncrease in Chronic DiseasesLack of Evidence -Based CareLack of Provider Coordination Defensive MedicinePharmaceuticalsDiagnostics (imaging, etc.)Personalized MedicinePRICEAging PopulationLifestyle &Behaviors Duplicative/ Unnecessary CareGlobal Companies Increase US Prices to Compensate for Low Prices in Other Countries Low/ No Reimbursement Rates for Medicare, Medicaid and UninsuredConsumer PreferencesConsumer DemandPatients are Removed from Cost of CareDirect-to- Consumer AdvertisingEnd-of-Life CareProvider Costs/ Cost-ShiftingPreference for Care in High Cost Settings (e.g., ER, specialty care) Consumers Preference for Brand Name Providers & ServicesCosts (e.g., RN salaries)Fee-for- Service Payment ModelService Volume Drives RevenueOther FactorsFraud AbuseLack of CompetitionDrug Exclusivity PoliciesInsurer ConsolidationProvider ConsolidationLack of Price-Based CompetitionVOLUMEPractice VariationTodays Focus: Problems Caused by Fee-for-Service PaymentBelief That More is Better Why is this relevant to employers?You employers, consumers and public payers - are paying the bills when your health plan gives providers a reward for doing more and doing more of what is most profitable.Employers have been absent from health plan-provider reform discussions despite the fact that they are discussing how to spend your money.Absent employer action, health plans will pay providers in the fashion in which providers prefer to be paid.Changes in payment that will truly remove the incentive for inflation need to start with employers.10What is Fee-for-Service Payment?It is the dominant payment model in the U.S. health care system and has been for decades.Fee-for-service (FFS) payment offers providers a specific amount of compensation in exchange for providing a patient with a specific service.FFS payment is inherently inflationary.11FFS: Getting What You Pay For12Care ProvidedPayment to ProvidersMore Care ProvidedMore Payment to ProvidersVery Expensive Health Care Fee-For-Service pays for volume, so that is exactly what we get:LOTS OF VOLUME(visits, tests, procedures, duplication of services)12U.S Physicians earn twice as much as physicians in other industrialized countries not because they charge more per procedure, but because patient and procedure volume is 60% higher in the U.S.15

FFS: not only rewarding volume, but rewarding volume of highly priced servicesFFS payment provides a financial incentive to:Provide more of those services which are paid most handsomely e.g., cardiology, orthopedicsIntroduce new services that generate higher fees than longer-standing servicesFFS payment provides a financial disincentive to:Deliver services that generate comparatively lower remuneration e.g., primary care, psychiatryProvide services for which there is no FFS compensation e.g., patient outreach, care coordination, treatment plan development, e-visits, web visits13FFS: No Financial Incentive for QualityPhysicians get paid the same amount for one patient regardless of whether they provide excellent care or terrible care

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Providers may actually be paid more for poor quality due to the need for rework.Reference PricingReferencing pricing is a benefit design strategy to address variation in prices across providers.It can be effective in creating an incentive for consumers to shift care to lower priced-providers and an incentive for high-priced providers to lower their prices.While it is a strategy that addresses price variation, it does not eliminate the pay-for-volume characteristic of FFS payment, nor its underlying inflationary tendencies.15Payment Reform: Moving Beyond FFSPayment Reform means moving away from FFS and towards other ways of paying that financially incentivize provision of high quality, efficient care. The options are neither mutually exclusive nor sequential.

16Fee for Service(FFS)Pay-for- Performance(P4P)Medical Home(PCMH)Bundled Payment(Bundles)Total Cost of Care(TCOC)High Quality/ Low Cost CareGoal:Pay-for-Performance17The Center for Medicare and Medicaid Services (CMS) defines P4P as:

the use of payment methods and other incentives to encourage quality improvement and patient-focused high value care

There are different types of P4P, but generally it:offers providers financial bonuses for strong performance on specific quality measurescontinues to use FFS as the underlying mechanism of paymentFFSP4PPCMHBundlesTCOCPros and Cons of Pay-for-Performance Payment18Pros:creates a business case for providers to pursue quality on specific aspects of caresome reviews of the literature have found that P4P programs targeting providers have a positive impact on quality*

Cons:evidence of clinical effectiveness and cost savings is limitedcareful design and implementation are necessary pre-requisites for successIs unable to neutralize the inflationary force of FFS paymentFFSP4PPCMHBundlesTCOC* Christianson JB, Leatherman S, and Sutherland K. Lessons from Evaluations of Purchaser Pay-for-Performance: A Review of the Evidence Medical Care Research and Review, December 2008;65(6) supplement:5S-35S. www.ncbi.nlm.nih.gov/pubmed/19015377. and Petersen LA, Woodard LD, Urech T, Daw C and Sookanan S. Does Pay-for-Performance Improve the Quality of Health Care? Annals of Internal Medicine, August 15, 2006;145(4):265-272. www.annals.org/content/145/4/265.abstract.

Example of Employer Successin Minnesota: BTEMinnesota BTE implemented by The Action Group in 2006. 11 private and public purchasers, covering 900K lives, pay performance rewards for Optimal Diabetes Care, Optimal Vascular Care and Depression Remission at Six Months.Advised by multi-stakeholder Guiding CoalitionGoals: Improve the quality of care for patients; raise purchaser and consumer awareness about variation in quality; and spark provider competition based on quality outcomesIn Minnesota BTE produced diabetes scores that improved 400% over the first 5 years: 6% receiving diabetes optimal care in 2004 to 37% in 2012smaller improvements in vascular care and depression

19FFSP4PPCMHBundlesTCOCWhat is a Medical Home? A patient-centered medical home (medical home) is a primary care practice in which the patient, a primary care clinician and a partnering care team work together to develop and implement a plan of care to support patient goals for health and function.In Minnesota, medical homes are often referred to as health care homes.

20FFSP4PPCMHBundlesTCOCMedical Home PaymentInsurance companies and/or employers pay qualifying primary care practices a certain amount of money for each patient every month to support enhanced outreach, communication, coordination and care management.In Minnesota this payment is referred to as a care management fee.Some medical home projects offer practices the opportunity to share in savings if the practice is able to reduce costs. Under these programs medical homes are required to meet certain performance expectations to qualify for savings payment distribution. Such arrangements do not appear to be in place in MN.

21FFSP4PPCMHBundlesTCOCExample of Employer Success: Hill Air Force BaseIn 2009, the Air Force, Army and Navy began working together to implement a tri-service medical home project to transform care at all primary care practices throughout the Department of Defense (DOD). Results of the project at Hill Air Force Base in Utah: improved blood sugar control for 77% of patients with diabetes98% symptom control for patients with asthma. saved approximately $300,000 per year in diabetes care. according to Col. Donald Hickman, Health care costs go up 8 to 15% per year nationwide and we have managed to drive down our network care costs about 4.5% over the last two fiscal years. additionally, patients reported 95% satisfaction with the program

22FFSP4PPCMHBundlesTCOCExample of Private Employer Action with Medical HomeThree Cleveland-area employers led by Progressive Insurance agreed to fund nurse care coordinators to support care of their employees and dependents served by the Lake Health system beginning in 2013 if the practices were NCQA-recognized medical homes. The parties have agreed that in the future they will implement a shared savings arrangement whereby Lake Health will be able to share some of the savings that its PCMH practices, augmented with employer-funded care coordinators, are expected to generate.*

* Telephone interview with Tim Kowalski, MD, Progressive Insurance, November 8, 2012.23FFSP4PPCMHBundlesTCOCProgressive Insurance

24Together, we can reward value over volume, quality outcomes over treatment of incidents and provide optimal vitality for our employees and our communities.

Tim Kowalski, M.D.Medical Home in MinnesotaDevelopment sparked by 2008 state legislation.MDH had certified 214 health care homes and 2213 clinicians serving 2.4 million people as of 12-27-12.The MN DHS offers care coordination payments of $10 to $60 a month for each patient with a chronic condition who is enrolled in a state health program. The payment varies based on patient complexity.Some plans are also supporting health care homes.No evaluation results of quality or cost impact yet but"On average, health care home clinics have significantly better performance scores for diabetes and cardiovascular disease than non-health care home clinics." Leif Solberg, MD, HealthPartners Research Foundation25FFSP4PPCMHBundlesTCOCPros/Cons of Medical HomesPros:additional payments support care management and other patient support functions that are not typically reimbursed under FFSshared savings models encourage the practice to reduce costsperformance measures ensure the practice maintains or improves quality of caremany insurer and provider self-reported positive ROI findings

Cons:Incentive limited to the primary care practice (model does not alter payment for specialist, inpatient or residential care)Limited evidence of ROI in the peer-reviewed literatureDoes not address FFS volume incentive

26FFSP4PPCMHBundlesTCOCWhat is a Bundled Payment?Bundled payments offer reimbursement for all of the services needed by specific patient for a particular condition or treatment. Creates incentive for provider coordination of efforts.Primary goal: reduce costs by reducing cost variation, including through reduction in avoidable complicationsGenerally includes payments for all of the providers and the care settings that may be required, but does not include services that are unrelated. Essentially provides a warranty.Example: hip replacement surgery bundleInclude: the surgery, pre and post-operative appointments, rehabilitation and the treatment of any complications associated with the procedure. 27FFSP4PPCMHBundlesTCOCExamples of Bundled Payment Success: CMS Acute Care Episode (ACE) Project at Baptist Health* Implemented bundles of physician and hospital services related to 28 cardiac and nine orthopedic services. saved more than $2,000 per case saved a total of $4.3 million Medicare Heart Bypass Center Project Medicare offered participating hospitals a single price for all inpatient services related to heart bypass surgery.Over the first 27 months of the demonstration program, project saved more than $17 million at four participating hospitals. From 1990-1993, the total cost per case fell in three out of the four hospitals28FFSP4PPCMHBundlesTCOC* The Health Industry Forum. Episode Payment: Private Innovation and Opportunities for Medicare Conference Report, Brandeis University, May 17, 2011, Washington, DC, available at http://healthforum.brandeis.edu/meetings/materials/2011-17-may/Final%20cr5-17-11.pdf. Employers Exploring Bundled PaymentsEmployers are now beginning to experiment with bundled payment arrangements Example: Employers Coalition on Health (ECOH) in Rockford, IL*In 2011 ECOH began a three-stage glide path towards the implementation of their bundled payment program While no results are available, they anticipate seeing significant savings over time for their employer members.29FFSP4PPCMHBundlesTCOC* Burns ME, Bailit MH. And Painter M. Bundled Payment Across the U.S. Today: Status of Implementations and Operational Findings Health Care Incentives Improvement Institute, Newtown, CT, May 2012.

Bundled Payments in MNWhile 2008 state legislation tried to advance bundled payments (baskets of care), there was not much traction among providers and payers.Services within 7 baskets were identified by multi-stakeholder committees.Progress stalled when it came to the question about how to implement.MNBTE systems of excellence project exploring bundled payment initially for spine surgery We were unable to identify any active bundled payment activity in Minnesota, althoughproviders have brought proposals to payers to do sosome Minnesota providers may have applied to participate in the forthcoming Medicare bundled payment demonstration.30FFSP4PPCMHBundlesTCOCPros/Cons of Bundled PaymentsPros:provide a strong incentive to reduce costs including both volume and priceprovide an incentive to improve quality and reduce costly complications associated with the proceduresstrong evidence of success at reducing costs in the Medicare population

Cons:impact limited to specific procedures/ treatment of specific conditionsdoes not provide an incentive to reduce the volume of procedures (only the costs associated with each procedure)administratively challenging to administer

31FFSP4PPCMHBundlesTCOCWhat is Total Cost of Care (TCOC) Payment?Sometimes called global payment, population-based payment or capitation.Under TCOC payment a provider entity agrees to accept responsibility for the health care for a group of patients in exchange for a set amount of money. Goal: align the financial incentives of the providers with the interests of the patients and the payers so that everyone wins if patients are healthy and costs are held down. 32FFSP4PPCMHBundlesTCOCTwo Types of TCOC Payment ArrangementsShared savings (upside-only): If the provider effectively manages cost and performs well on quality of care targets, then the provider may keep a portion of the savings generated. Shared risk (two-sided): Exactly the same as above on the upside. However, if the provider delivers inefficient, high-cost care, it will be held responsible for a portion of the additional costs incurred. There are usually caps to limit downside exposure. Also, stop loss or reinsurance requirements protect providers.33FFSP4PPCMHBundlesTCOCHistoricalContractAligned Incentive ContractYear 1Year 1Year 2Year 3QualityProvider At Risk Total Cost of Care Provider At RiskQualityFee for ServiceGuaranteed Increase Fee for Service

Guaranteed Increase Aligning Incentives Around Value$TBD based on performance to cost of care targetSavings are shared$ pool based on outcomes improvement Annual increase is ceiling for cost of care targetEppel J. The Role of Payment Reform in the Transformation of the HealthCare System BCBSMN, November 29, 2012.FFSP4PPCMHBundlesTCOC34Set sufficient contract term, 3 years to foster collaboration (instead of negotiation)Address utilization and unit cost Accrue savings to providers and customersDemonstrate measurable improvements in clinical outcomes and population healthDistribute responsibility to recognize strengths of providers and Blue Cross Achieve transparency and sharing of claims and clinical dataSeparate insurance risk from care delivery riskCreate joint governance and mutual accountability Develop new products and transparency tools to attract members to affordable, high quality providers

34How does TCOC contracting work?Two methods of administration: a) health plan pays PMPM budget monthly, or b) plan pays FFS and then reconcile against a budget target after the contract year has ended and claims have been paid. If PMPM method, self-funded employers see savings in lower PMPM rate and/or end-of-year settlementIf FFS method, self-funded employers see savings in lower claims spend, but may need to share some in end of year settlementIf provider takes downside risk and exceeds budget, will owe that amount back through withhold or reduction in future payments.Plan and provider decide upon quality targets which are used to adjust payments.

35FFSP4PPCMHBundlesTCOCQuality Improvement: BCBSMN TCOC measuresCHRONIC ILLNESSOptimal diabetic care (composite measure)Optimal vascular care (composite measure)Hypertension controlPREVENTION & WELLNESSBreast cancer screeningColorectal cancer screeningBody mass index (measurement and referral)Tobacco cessation (measurement and referral)PATIENT CARE INTEGRATIONDepression remission rateSAFETYReduction of elective deliveries < 39 weeksReduction in elective c-sectionsHospital-associated deep vein thrombosis/pulmonary embolusPulmonary embolism for knee and hip replacementUTILIZATIONPotentially preventable events: admissions, readmissions, complicationsLow back pain (MRI, CT, X-ray utilization)Advanced care directives36FFSP4PPCMHBundlesTCOCEppel J. The Role of Payment Reform in the Transformation of the HealthCare System BCBSMN, November 29, 2012.36BCBSMN redesigned its quality program in AIC to achieve several goals1. Change quality paradigm prevalent in the MN market from pay for process to pay for outcomes2. Move upstream in the disease process to prevent costly conditions caused by obesity, low rates of cancer screenings, and tobacco use.3. Make the incentive economically meaningful to providers to drive behavior change. BCBSMN is enabling CMOs of care systems to get the attention of their medical staffs and administration to change how care is delivered. Reengineering care delivery costs money and there is now a potential ROI for these efforts4. Broaden the domain of quality to include appropriate utilization of resources, reduction of waste (re-work, re-admissions), better coordination of care (PPEs) and safety5. Tackle the populations driving the majority of the cost in health care those with chronic illnesses.6. Integration of health plan data (claims-based) with provider data (EMR-based) to achieve a holistic view at the population and member levelExample of Employer Success with TCOC: CalPERSIn 2010, the California Public Employees Retirement System (CalPERS) launched a TCOC pilot program in collaboration with Blue Shield of California and Catholic Healthcare West & Hill Physicians Group (CHW/Hill).Blue Shield agreed to pay CHW/Hill a set amount to provide care to 41,500 CalPERS employees and dependents.Impressive results:by the end of the first year, the pilot had exceeded all expectationssaving more than $20 million in costs (preventing a rate hike).over the first three years of the project, CalPERS has seen $32 million in aggregate savings.meaningful reduction in utilization 15% reduction in inpatient readmissions15% reduction in inpatient days, 13% reduction in surgeries.

37FFSP4PPCMHBundlesTCOCExample of Private Employer Action with TCOC PaymentIntel has worked directly with the Presbyterian Health System in Albuquerque to create the Connected Care program, a narrow network benefit that offers care through a Patient-Centered Medical Home model. Starting in January 2013, in exchange for caring for 10,000 of Intels employees and their families, Presbyterian agreed to put a certain percentage of its revenue at risk.If Presbyterian performs well, it receives the at-risk amount back. If Presbyterian performs even better, it will receive additional performance payments.*

* Telephone interview with James Dickey, Intel Corporation, December 7, 2012.

38FFSP4PPCMHBundlesTCOCIntel Corporation and Payment Reform

39Its time for the employer market to step up.

James DickeyIntel CorporationTCOC Payment in MinnesotaBHCAGs ChoicePlus was an early TCOC payment model in Minnesota in the 1990s.Within the commercial market, health plans report between 1/3 and 2/3 of covered lives or spending associated with Total Cost of Care contracts, with higher percentages in the Twin Cities region than elsewhere in the state.Medicare ACO pilots in place and MN DHS testing too.Most Total Cost of Care contracting arrangements appear to be upside-only for provider organizations, although there are also shared risk arrangements.Has it had an impact on trend? Its hard to know, since the economic downturn has had such a dramatic impact on care-seeking behavior.

40FFSP4PPCMHBundlesTCOCTCOC Payment in MinnesotaSome have expressed concern that too many MN TCOC arrangements are upside only and that the underlying FFS is still the primary economic driver for providers.True payment reform cannot be achieved by adding new layers of bonuses and penalties on top of what is still funda-mentally a fee-for-service payment system.*Some have also expressed concern that market consolidation could temper the impact of TCOC contracting large providers agree to TCOC but demand high budgets and large annual increases.

* Miller HD. Ten Barriers to Payment Reform and How to Overcome Them Center for Healthcare Quality and payment Reform, December 2012.41FFSP4PPCMHBundlesTCOCPros/Cons of TCOC PaymentPros: financially incentivizes providers to improve quality, keep patients healthy, reduce volume of care and keep costs downsystems approach to payment reform that can remove the inflationary effects of FFS

Cons:TCOC will only succeed if providers can change the delivery of care and better coordinate care. This is not easy.TCOC payment requires that individual provider pay incentives are also adjusted and aligned. This is essential.shared savings may not create the required burning platform for real change in care deliveryproviders must avoid excessive risk assumption

42FFSP4PPCMHBundlesTCOCIn ConclusionThe current fee-for-service payment system incentivizes high-cost, low quality care.Payment reform means paying for care in ways that incentivize improvements in quality and reductions in cost.Payment reform is not an end. It is a means to spark fundamental changes in health care system function.

43In Your Words

44The only way employers will have any influence is if they come together. We shouldnt just sit back and pay whatever they tell us to pay.

Minnesota employerFollow-up QuestionsMichael Bailitmbailit@bailit-health.comwww.bailit-health.com

45Chart1147356.2111028534878524056826098645868277198756178458086

Billions ($)

Sheet1196019611962196319641965196619671968196919701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619972000200120022003200420052006200720082009Billions ($)$147$155$167$179$196$211$230$255$287$320$356$391$432$475$535$604$686$772$860$964$1,110$1,262$1,408$1,537$1,677$1,818$1,932$2,084$2,310$2,546$2,853$3,043$3,266$3,468$3,618$3,783$3,937$4,103$4,878$5,240$5,682$6,098$6,458$6,827$7,198$7,561$7,845$8,086

Chart100000.1117243880.04870641330.0230.0220.21940619090.15805286310.0567590.0148460.38201932390.38476837980.0969158420.0544249940.56602263960.56262819630.1385986440.08184004380.71833617410.72424450710.18300399110.11970444540.8788809740.75797868620.21494509890.1588941010.98248081850.92602288760.24045894590.18554866531.09053107111.12610390680.27767271430.21163073591.18961460951.17344574430.31089220490.23101682771.30977230931.27771410620.36201700090.2716403831.37790959721.58995236810.41649768090.3110612349

Health Insurance PremiumsWorkers' Contribution to PremiumsWorkers' EarningsOverall Inflation

Sheet1199920002001200220032004200520062007200820092010Health Insurance Premiums0.0%11%22%38%57%72%88%98%109%119%131%138%Workers' Contribution to Premiums0.0%5%16%38%56%72%76%93%113%117%128%159%Workers' Earnings0.0%2%6%10%14%18%21%24%28%31%36%42%Overall Inflation0.0%2%1%5%8%12%16%19%21%23%27%31%