a roadmap to high- value healthcare delivery
TRANSCRIPT
A ROADMAP TO HIGH-VALUE HEALTHCARE
DELIVERY
DENIS A. CORTESE, MDROBERT K. SMOLDT, MBA
Foreword
A Nation in Need of Resuscitation
Like a person suffering from a debilitating disease, healthcare delivery in the United States is ailing. The U.S. spends significantly more per capita and a higher percentage of GDP on healthcare than other developed nations, yet our patient outcomes (e.g., mortality, safety, access to medical care) are disparate and inconsistent. Moreover, the rapidly rising costs of healthcare delivery are making medical care increasingly unaffordable to the average citizen and threaten our national financial viability. Not unlike a very ill patient on life support, this confluence of issues requires immediate attention and action. Something needs to be done to fix the American healthcare delivery system; it is not sustainable in its current form.
How did we get here? Although unhealthy lifestyles and the growing and aging population are undoubtedly contributing to the rise in healthcare costs, two key factors must not be underestimated: a) advances in medical technology (e.g., new treatments and procedures that expand the range of available medical services) and b) powerful system incentives that inadvertently advance unchecked utilization throughout the healthcare delivery system:
• Healthcare providers have many financial, legal, and societal incentives to provide more care (e.g., reimbursement is primarily volume-based).
• At the same time, consumers demand healthcare services without regard for full economic impact of treatment since someone else (e.g., government, third-party payers) often pays most of the bill.
Thus far, efforts to tie healthcare delivery spending to patient outcomes have been very limited and, at times, unintentionally misguided (e.g., the CMS “pay for performance” program is in fact “pay for compliance with process”).
So what can we do? How do we resuscitate our health system and get it off life support? In this publication, Denis A. Cortese, MD and Robert K. Smoldt, MBA draw on nearly 80 years of combined experience in healthcare delivery, to help U.S. citizens and leaders understand the concepts and options for improving healthcare delivery, and outline a roadmap for a high-value healthcare delivery system, a system that produces the best patient outcomes at the lowest costs. Healthcare professionals, policy-makers, and concerned citizens will all benefit from considering their point of view.
Senator Howard H. Baker, Jr., Former Majority Leader, United States Senate; Former United States Ambassador to Japan
Helen Darling, President and CEO, National Business Group on Health
John Doerr, Partner, Kleiner Perkins Caufield & Byers
Peter Orszag, PhD, Vice Chairman, Citigroup
Hon. David M. Walker, Former U.S. Comptroller General
James N. Weinstein, DO, MSc, President and CEO, Dartmouth-Hitchcock Health Systemiii
Preface
This publication is a culmination of nearly 40 years (each) of immersion in and observation of actual delivery of healthcare. Our long standing interest in health policy has resulted in the establishment of the Mayo Health Policy Center and has been carried forward through our Healthcare Delivery and Policy Program at Arizona State University and the affiliated Healthcare Transformation Institute (HTI). The report aims to outline the current state of the nation’s healthcare delivery system, the resulting fiscal challenges facing the nation and its citizens, and a set of solutions and roadmap toward establishing a high value healthcare delivery system. We recognize that the overall health of the population is a very broad topic. Therefore, we focus primarily on healthcare delivery (and how we pay for it) because of its immediate cost impact on the U.S. economy and the implications for the future viability of the country.
This report would not have been possible without the excellent contributions of Dr. Natalie Landman in regard to the publication’s content and composition. We would like to thank Bruce Kelly for his profound suggestions. In addition, John Doerr, Mary Meeker and Liang Wu provided inspiration and insights throughout the development of this report. We would also like to thank the numerous colleagues around the country who reviewed early drafts and whose feedback made this report significantly better. Finally, we would like to extend our gratitude to Arizona State University, the Chan Soon-Shiong Family Foundation and the University of Arizona for their support in launching HTI.
We hope that this report will engage and energize healthcare providers to find ways to improve both the effectiveness and efficiency of the care we provide; stimulate further public discussions around healthcare delivery and the challenges it presents to our nation; and drive real legislative actions to help move us forward in a sustainable way. You can view the report online at http://healthcaretransformationinstitute.org/ and in print through www.amazon.com.
Denis A. Cortese, MD
Foundation Professor and Director, Healthcare Delivery and Policy Program, Arizona State University
President, Healthcare Transformation Institute
Emeritus President and CEO, Mayo Clinic
Robert K. Smoldt, MBA
Associate Director, Healthcare Delivery and Policy Program, Arizona State University
Senior Policy Advisor, Healthcare Transformation Institute
Emeritus Vice President and CAO, Mayo Clinic
June 2012
v
Table of contents
vii
Foreword iii
Preface v
Introduction 2
The U.S. needs better health and healthcare delivery. 7
Fundamentals of a high-value healthcare delivery system: where are we now? 17
Fallacies about improving U.S. healthcare delivery. 57
What are we striving for? 109
We all need to change; the payoff can be substantial. 161
Where do we start? 169
July 20121
A ROADMAP TO HIGH-VALUE HEALTHCARE DELIVERY
What is the problem with U.S. healthcare delivery?
2
We are not getting the results we desire for the money we are paying.
What are the symptoms?
• The same U.S. healthcare delivery system produces some of the world’s best health outcomes – and some of the worst.
• High U.S. spending on healthcare delivery does not necessarily lead to better health outcomes.
• Access to medical care is unequal and inconsistent.
3
Where do we want to be in ten years?
• Right care for the right patient at the right time.
• Better value in healthcare delivery (better patient outcomes and lower costs).
• Slower growth in healthcare spending.
4
How do we start?
5
Change the existing healthcare provider financial incentives and start paying for value.
Outline
1. The U.S. needs better health and healthcare delivery.
2. Fundamentals of a high-value healthcare delivery system: where are we now?
3. Fallacies about improving U.S. healthcare delivery.
4. What are we striving for? 5. We all need to change; the payoff can be
substantial.6. Where do we start?
6
1. THE U.S. NEEDS BETTER HEALTH AND HEALTHCARE DELIVERY
7
Our premise
• The U.S. needs:
–A healthy population.
–A high-value healthcare delivery system.
• Healthy population and high-value healthcare delivery are not the same.
8
U.S. life expectancy lags behind the top OECD country
• Japan (2006)
• U.S. (2006)
82.4 years
78.1 years
9
* OECD = Organisation for Economic Co-operation and Development.Source: OECD Factbook 2010: Economic, Environmental and Social Statistics (accessed May 17, 2011), http://www.oecd-ilibrary.org/economics/oecd-factbook-2010_factbook-2010-en.
But life expectancy is a poor measure of the healthcare delivery system quality!
Segments of the U.S. population have the best life expectancy in the world, yet receive care in the U.S. healthcare delivery system
• Japan (2006)
• U.S. (2006)
• LA county Asian-Pacific Islander Americans (2006)
• California Adventists (1988)
– No smoking, diet,exercise, weight
82.4 years
78.1 years
84.8 years
83.5 years
10
Source: OECD Factbook 2010: Economic, Environmental and Social Statistics (accessed May 17, 2011), http://www.oecd-ilibrary.org/economics/oecd-factbook-2010_factbook-2010-en; Fraser, Gary E., and David J. Sharlik. 2001. “Ten Years of Life: Is It a Matter of Choice?” Archives of Internal Medicine 161:1645-1652; Clarke et al. 2010. “Racial and Social Class Gradients in Life Expectancy in Contemporary California.” Social Science & Medicine 70(9):1373-80; Los Angeles County Department of Public Health. 2010. “Life Expectancy in Los Angeles County: How Long Do We Live and Why? A Cities and Communities Health Report.” http://www.publichealth.lacounty.gov/epi/docs/Life%20Expectancy%20Final_web.pdf.
Healthcare delivery is a minor determinant of overall health
11
Source: McGinnis et al. 2002. “The Case for More Active Policy Attention to Health Promotion.” Health Affairs 21(2):78-93.
40%Behavior
30%Genetics
10%
Healthcare delivery
15%
Socialcircumstances
5% Environmental exposures
But healthcare delivery can make a difference: For example, the U.S. is a leader in the diagnosis and treatment of cancer
12
* Estimate for Cuba not shown.Source: Coleman et al. 2008. “Cancer Survival in Five Continents: A Worldwide Population-Based Study (CONCORD).” Lancet Oncology 9(8):730-756.
0 20 40 60 80 100
U.S.
Canada
Sweden
Japan
Australia
Finland
France
Italy
Spain
Netherlands
Norway
Germany
Austria
Denmark
Portugal
U.K.
Ireland
0 20 40 60 80 100
U.S.
Austria
Canada
Australia
Germany
France
Netherlands
Sweden
Italy
Norway
Finland
Ireland
Spain
U.K.
Japan
Portugal
Denmark
Women diagnosed with cancer of the breast Men diagnosed with cancer of the prostate
5-year relative survival rate (1990-1999)*Percent
Our scope
13
We will focus primarily on healthcare delivery (and how we pay for it) because of its immediate cost impact on the U.S. economy and the implications for the future viability of the country.
Our objectives
• To help U.S. citizens and leaders understand the concepts and options for improving healthcare delivery.
• To establish a roadmap for a high-value healthcare delivery system, not a roadmap for the cheapest healthcare delivery system.
14
Our motto is the same as that of Desert Dog auto repair store…
15
Cheap is rarely good value nor Expensive necessarily the best.
16This page is intentionally left blank.
2. FUNDAMENTALS OF A HIGH-VALUE HEALTHCARE DELIVERY SYSTEM: WHERE ARE WE NOW?
17
What makes a high-value healthcare delivery system?
18
Value =Total Cost
Patient Outcomes
Patient Outcomes may include mortality, safety, service, access, fewer complications, less rework, faster return to work or functionality. It may mean readiness or productivity in different groups, e.g., individual, employee, workforce, military, student.
Total Cost may be spending over a defined time for a particular patient, a condition, a population, or a payer.
Patient outcomes: Where are we now?
• Huge variability – the same U.S. healthcare system produces both the worst and best mortality outcomes.
• Lagging in safety – despite many efforts, the U.S. healthcare safety record has much room for improvement.
• Uneven service – patient experience and satisfaction with healthcare is highly uneven.
19
Despite poor overall mortality outcomes, some U.S. states fare better than the best OECD countries
20
* Top 5 states: MN, UT, VT, CO, NE; Bottom 5 states: LA, MS, AR, TN, AL; excludes District of Columbia data.Source: The Commonwealth Fund Commission on a High Performance Health System. 2009. “Aiming Higher: Results from a State Scorecard on Health System Performance.” http://www.commonwealthfund.org/Maps-and-Data/State-Data-Center/State-Scorecard.aspx; Nolte, Ellen and C. Martin McKee. 2008. “Measuring the Health of Nations: Updating an Earlier Analysis.” Health Affairs 27(1):58–71.
0 20 40 60 80 100 120 140
Minnesota
France
Top 5 U.S. states
Japan
Australia
Spain
Italy
Canada
Norway
Sweden
Netherlands
Greece
Austria
Germany
Finland
New Zealand
Denmark
Ireland
U.K.
Portugal
U.S.
Bottom 5 U.S. states
Deaths before age 75 potentially preventable with timely and appropriate medical care(international data 2002-2003, state data 2004-2005)*Deaths per 100,000 population
21
You would expect teaching hospitals to have the best patient outcomes because of their access to the latest technology and use of best clinical practices…
But even teaching hospitals show wide variability in outcomes
22
• Best hospital in category
• Worst hospital in category
• Teaching hospital average
Mortality ratio>1.0 = better than expected
2.06
0.65
1.02
COTH hospitals*
* COTH = Council of Teaching Hospitals and Health Systems; n = 269 COTH member facilities (excludes COTH member VA and Children’s hospitals, as well as facilities with <50 actual deaths in 2009; Mortality ratio for each facility is calculated as expected deaths/ observed deaths in a given year.Source: “Council of Teaching Hospitals and Health Systems – Member Communities – AAMC.” Accessed June 2011. https://www.aamc.org/members/coth/; Medicare Provider Analysis and Review (MedPar) file 2009 (accessed July 2011).
23
To Err is Human: Building a Safer Health System, a landmark 1999 report by the Institute of Medicine, estimated that avoidable medical errors contributed to 44,000-98,000 annual deaths in the U.S.1
This number of deaths is the equivalent of a 747 crashing every few days.
Source: 1) Institute of Medicine. 1999. “To Err is Human: Building a Safer Health System.” http://iom.edu/Reports/1999/To-Err-is-Human-Building-A-Safer-Health-System.aspx.
More than 10 years later, and despite numerous safety initiatives, the problem of medical errors remains
• In 2010, the Department of Health & Human Services (DHHS) reported that1
– 13.5% of hospitalized Medicare beneficiaries – nearly one in seven – experienced an adverse medical event, while an additional 13.5% experienced events that resulted in temporary harm.*
– 44% of these adverse and temporary events were determined to be clearly or likely preventable.
• A 2011 study by Classen et al., in a broader patient sample, found that one in three patients in the U.S. experiences an adverse event** during a hospital stay.2
24
* An adverse medical event was defined as an event that meets at least one of the following criteria: a) the event was on the NQF list of Serious Reportable Events, b) the event was on Medicare’s list of Hospital Acquired Conditions, c) the event resulted in one of the four most serious categories on the NCC MERP index (http://www.nccmerp.org/medErrorCatIndex.html); temporary harm events were defined as events classified as E level harm on the NCC MERP index. ** An adverse event here would fall into the E-I levels of harm on the NCC MERP index.Source: 1) Department of Health & Human Services, Office of Inspector General. 2010. “Adverse Events in Hospitals: National I ncidence Among Medicare Beneficiaries.” http://oig.hhs.gov/oei/reports/oei-06-09-00090.pdf; 2) Classen et al. 2011. “'Global Trigger Tool' Shows That Adverse Events in Hospitals May Be Ten Times Greater Than Previously Measured.” Health Affairs 30(4):581-589.
Medical errors also increase medical costs
• The same DHHS report estimated that in 2008 Medicare spent an additional $4.4 billion on care associated with adverse events.1
• The Denver Health Practice of Milliman, one of the world's largest independent actuarial and consulting firms, estimates that in 2008 medical errors cost the U.S. ~$17.1B.2
25
Source: 1) Department of Health & Human Services, Office of Inspector General. 2010. “Adverse Events in Hospitals: National I ncidence Among Medicare Beneficiaries.” http://oig.hhs.gov/oei/reports/oei-06-09-00090.pdf; 2) Van Den Boss et al. 2011. “The $17.1 Billion Problem: The Annual Cost of Measurable Medical Errors.” Health Affairs30(4):596-603.
Satisfaction with inpatient services is highly variable
• The Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey is a national, standardized, publicly reported survey of patients' perspectives of hospital care.
• The survey asks discharged patients questions about their recent hospital stays and is administered to randomly selected adult patients across medical conditions between 48 hours and six weeks following discharge.
• The January 2012 HCAHPS release showed that 83% of patients were highly satisfied with their experience at the best ranked hospitals, while only 52% reported the same level of satisfaction in facilities ranked in the bottom 5%.
26
Source: “HCAHPS-Hospital Survey.” Accessed January 2012. http://www.hcahpsonline.org.
Cost: Where are we now?
• U.S. spends significantly more per capita and a higher percentage of GDP on healthcare than other countries.
• High spending does not translate into better outcomes.
• Healthcare delivery spending increases with medical technology advances, and as more people gain access to it, without regard for full cost of care.
• These spending trends are major contributors to the growing U.S. debt.
• These trends are unsustainable.
27
U.S. spends significantly more on healthcare per capita than other countries
28
* PPP = purchasing power parity, the amount of money needed to purchase the same goods and services in two different countries; used to calculate an implicit foreign exchange rate.Source: OECD Health Data 2011 (accessed February 1, 2012), http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT.
$- $2,000 $4,000 $6,000 $8,000
U.S.
Canada
France
U.K.
Total health expenditures per capita (2009)*PPP$
U.S. spends a higher share of its GDP on healthcare than other countries
29
Source: OECD Health Data 2011 (accessed February 1, 2012), http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT.
Total health expenditures as percent of GDP (1990-2009)Percent
0.0
4.0
8.0
12.0
16.0
20.0
1990 1995 2000 2005 2010
U.S.
Canada
France
U.K.
0.80
0.90
1.00
1.10
1.20
$10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
Relative Resource Use**
Quality and costs of care for Medicare patients hospitalized for heart attacks, hip fractures, or colon cancer, by Hospital Referral Regions, 2004
Qua
lity
of C
are*
(1-Y
ear
Surv
ival
Ind
ex, M
edia
n=70
%)
30
GoodEffectiveness
GoodEfficiency
GoodEffectiveness
PoorEfficiency
PoorEffectiveness
GoodEfficiency
PoorEffectiveness
PoorEfficiency
Higher spending does not correlate with better outcomes, suggesting system waste and room for improvement
* Indexed to risk-adjusted 1-year survival rate (median=0.70).** Risk-adjusted spending on hospital and physician services using standardized national prices.Data: E. Fisher, J. Sutherland, and D. Radley, Dartmouth Medical School analysis of data from a 20% national sample of Medicare beneficiaries.Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2011.
Quality and costs of care for Medicare patients hospitalized for heart attacks, hip fractures, or colon cancer by hospital referral region (2004)
But the U.S. is not unique in seeing high growth in healthcare expenditures
31
* CAGR = compound annual growth rate, data not adjusted for inflation.Source: OECD Health Data 2011 (accessed February 1, 2012), http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT.
Growth in health expenditures per capita, CAGR (1990-2009)*Percent
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
U.K.
U.S.
France
Canada
Two key factors drive healthcare delivery costs: technology and system incentives
• Technology:– Advances in medical technology (e.g., new treatments,
procedures, indications) have contributed to the rise in healthcare spending; this trend is expected to continue.
• System incentives:– Healthcare providers have many financial, legal, etc.,
incentives to provide more care (e.g., reimbursement is primarily volume-based).
– At the same time, consumers demand healthcare services without regard for the full economic impact, since they pay only a fraction of the total cost out of pocket.
32
Source: Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements, KPCB.
The U.S. has much higher access to expensive medical technology
33
* U.S. data is 2007; U.K. data is 2010 estimate.Source: OECD Health Data 2011 (accessed February 1, 2012), http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT.
MRI machines per million population (2010)*
0 5 10 15 20 25 30
U.S.
Canada
France
U.K.
The U.S. shows a higher rate of technology utilization
34
Source: OECD Health Data: Health Care Utilisation (accessed July 2011), http://www.oecd-ilibrary.org/content/data/data-00542-en.
Rate of cardiac procedures per 100,000 population (2008)
0 50 100 150 200 250 300 350 400 450 500
U.S.
France
U.K.
Canada
Angioplasty
Heart Bypass
Technology overuse: A case study
• The Everett Clinic is a nationally recognized physician group practice that provides care to approximately 250,000 patients per year across its 16 locations throughout Snohomish County, WA.
• To manage utilization of diagnostic imaging, one of the fastest growing and most expensive elements in healthcare, a team of healthcare providers at the Everett Clinic established evidence-based criteria to guide the use of advanced imaging procedures (e.g., MRI, CT scans).
• Patients now must meet evidence-based indications in order to undergo imaging studies.
• The result? A 39% decrease in advanced imaging utilization over two years, saving more than $3.2 million annually.
35
Source: “Managing the Use of Diagnostic Imaging – Adding Value to Healthcare – The Everett Clinic.” Accessed May 16, 2012. http://www.everettclinic.com/community-report/adding-value-to-healthcare/managing-the-use-of-diagnostic-imaging.ashx.
System incentives: Predominant healthcare payment models promote poor efficiency
• “Most healthcare services…are paid separately in silos. Hospitals are paid by diagnostic related groups (DRGs); most physicians by fee-for-service and nursing homes by pre-established rates. There are no financial incentives for different parts of the system to work together on the patient’s behalf.”1
• “Fee for service [FFS] theoretically aligns providers and patients’ interests by removing any incentive to deny or refuse potentially beneficial care…The downside is that FFS creates incentives to provide ever more narrowly defined, specialized, and higher priced services, even when expected clinical value added is doubtful or non-existent. Providers gain from delivering more care, but are not rewarded [for], and will often lose revenue from evidence-based parsimony.”2
36
Source: 1) Shortell, Stephen M., and Rodney K. McCurdy. 2009. “Integrated Health Systems.” In Engineering the System of Healthcare Delivery, edited by William B. Rouse and Denis A. Cortese, 369-382. Amsterdam: IOS Press BV; 2) O’Kane et al. 2008. “Crossroads in Quality.” Health Affairs 27(3):749-758.
The legal environment also contributes to higher use rate and inefficiency in the clinic…
• Defensive medicine consists of procedures or tests that a doctor
orders to avoid possible future malpractice lawsuits.
• The practice is prevalent among U.S. physicians. According to a
survey of 824 physicians in 20051:
– 93% said they had engaged in the practice of defensive
medicine.
– 59% said they often ordered more diagnostic tests than
medically necessary.
– 52% said they referred patients to other specialists in
unnecessary circumstances.
– 33% said they often prescribed more medications than
medically necessary.
37
Source: 1) Studdert et al. 2005. “Defensive Medicine Among High-Risk Specialist Physicians in a Volatile Malpractice Environment.” JAMA 293(21):2609-2617; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements, KPCB.
…and higher healthcare delivery costs
• Estimates of annual healthcare costs caused by unnecessary care – defensive medicine and associated legal costs – range from ~$50 billion to $200 billion.1,2
• “The legal environment also should be structured to encourage the sharing of information, perhaps through increased transparency and creation of a ‘safe harbor’ to report poor outcomes or errors.”3
38
Source: 1) PriceWaterhouseCoopers. 2006. “The Factors Fueling Rising Healthcare Costs.”; 2) Mello et al. 2010. “National Costs of the Medical Liability System.” Health Affairs 29(9):1569-1577; 3) Cortese, Denis A., and Robert K. Smoldt. 2006. “Healing America’s Ailing Health Care System.” Mayo Clinic Proceedings 81(4):492-6.
There are low incentives for consumers to control costs when someone else (e.g., government) pays the bills
39
Source: Department of Health & Human Services, Centers for Medicare & Medicaid Services; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements, KPCB.
Payments as percent of total healthcare spending (1960-2009)Out-of-pocket spending as percent of disposable income actually declined between 1960 and 2009
0%
10%
20%
30%
40%
50%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Out-of-Pocket Payments
Medicare + Medicaid Payments
Out-of-Pocket Medical Payments as % of Disposable Income
12%
35%
48%
7%4% 3%
Medicare introduced
Cost is an overriding issue
• Affordability is a growing challenge for the average citizen.
• Medicare and Medicaid are the biggest factors in U.S. federal debt.
40
Why cost is important to the average citizen: Our children’s and grandchildren’s lives will be affected!
41
2029E*
$133,510
$71,350
53%
Median annual family income for a working couple
2009
Average annual family healthcare premium
Healthcare premium as percent of income (Employees currently pay only a portion of this fee out-of-pocket)
$70,000
$13,375
19%
* E = estimated; assumes a 3.28% annual growth rate for family income based on CAGR of employee wages between 1999-2009 and an 8.73% annual growth rate for healthcare premiums based on healthcare premium CAGR between 1999-2009; numbers are rounded.Source: The Kaiser Family Foundation and Health Research & Educational Trust. 2011. “Employer Health Benefits 2011 Annual Survey.” http://ehbs.kff.org/; Greenstone, Michael and Adam Looney. 2011. “The Great Recession May Be Over, but American Families Are Working Harder than Ever.” The Hamilton Project's Jobs Blog, July 8. http://www.brookings.edu/opinions/2011/0708_jobs_greenstone_looney.aspx; U.S. Bureau of Labor Statistics (accessed November 7, 2011), ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb2.txt.
Entitlements (Medicare, Medicaid, Social Security) are major contributors to the rise in federal debt
42
Data adjusted for inflation. Source: White House Office of Management and Budget; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements, KPCB.
U.S. real federal expenses, entitlement spending, real GDP percent change (1965-2010)Percent change from 1965
0%
200%
400%
600%
800%
1000%
1200%
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
Total Federal Expenses
Entitlement Programs
Real GDP
EntitlementExpenses+10.6x
Real GDP+2.7x
TotalFederal Expenses+3.3x
Federal spending on healthcare has grown from 5% in 1970 to 23% of the total federal budget in 2010
43
* Medicare, Medicaid + other health programs (e.g., CHIP)Source: Congressional Budget Office. 2011. “The Budget and Economic Outlook: Fiscal years 2011 to 2021.” http://www.cbo.gov/publication/21999.
Composition of federal spending (1970-2010) Percent total spending
5%
23%15%
20%
11%
12%
7%
6%42%
20%
20% 19%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970 2010
Other discretionary
Defense
Net interest
Other mandatory
Social security
Healthcare*
Entitlement spending + interest payments may exceed U.S. total revenue by 2025E!
44
* E = estimated.Source: Congressional Budget Office (CBO) Long-Term Budget Outlook (6/10). Note that entitlement spending includes federal government expenditures on Social Security, Medicare and Medicaid. Data in our chart is based on CBO’s ‘alternative fiscal scenario’ forecast, which assumes a continuation of today’s underlying fiscal policy. Note that CBO also maintains an ‘extended-baseline’ scenario, which adheres closely to current law. The alternative fiscal scenario deviates from CBO’s baseline because it incorporates some policy changes that are widely expected to occur (such as extending the 2001-2003 tax cuts rather than letting them expire as scheduled by current law and adjusting physician payment rates to be in line with the Medicare economic index rather than at lower scheduled rates) and that policymakers have regularly made in the past; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
Entitlement spending + interest payments vs. revenue as % of GDP (1980-2050E)*Percent
0%
10%
20%
30%
40%
1980 1990 2000 2010E 2020E 2030E 2040E 2050E
Revenue
Entitlement Spending + Net
Interest Payments
Medicaid: The biggest issues
• Growing number of enrollees:
– In 1965, when Medicaid was established to provide insurance for the low-income population, 1 in 50 Americans received benefits; now 1 in 6 Americans receives Medicaid.
– Coverage expanded to include other groups in addition to low-income Americans.
• No trust fund, yet new benefits (e.g., dental) were also added over the years.
• The Affordable Care Act will significantly expand the size of this program.
45
Source: Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
Medicaid: Enrollment is up 12x, while payments per beneficiary are up 4x from 1966 to 2009
46
Real annual Medicaid payments per beneficiary and enrollment (1966-2009)*
* Data are inflation adjusted; MM = million.Source: Department of Health & Human Services; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
Pa
ym
en
ts p
er
Be
ne
fic
iary
($
/ye
ar)
0
10
20
30
40
50
En
rollm
en
t (M
M)
Enrollment
Annual Benefits per Enrollee
Medicaid: Underfunded by $3.7 trillion over 45 years with no dedicated funding
47
U.S. federal real Medicaid expenses (F1966-F2010)*Medicaid net income ($B)
* U.S. federal fiscal year ends in September; Data are inflation adjusted. Calculation of net present value of liability based on 75-year Medicaid spending projections from CBO, assuming a 3% discount rate (long-run average of real 10-year treasury yields). Source: White House Office of Management and Budget, Congressional Budget Office; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
-$300
-$250
-$200
-$150
-$100
-$50
$0
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Real Medicaid Expenses
Medicaid (and thus government costs) will increase further with health reform bill
• It is estimated that ~16M (or half) of the newly-insured people under the Affordable Care Act will be on Medicaid:
– Beginning on January 1, 2014, Medicaid will cover nearly all non-elderly individuals up to 133% of the federal poverty guideline.
• The federal government is projected to fund about 95% of this Medicaid expansion between 2014 and 2019. Starting in 2020 the federal matching rate will continue at 90%.
48
Source: Holahan, John and Irene Headen. 2010. “Medicaid Coverage and Spending in Health Reform: National and State‐by‐State Results for Adults at or Below 133% FPL.” Kaiser Commission on Medicaid and the Uninsured. http://www.kff.org/healthreform/upload/medicaid-coverage-and-spending-in-health-reform-national-and-state-by-state-results-for-adults-at-or-below-133-fpl.pdf.
Medicare: The biggest issues
• Growing and aging population:
– When Medicare was created in 1965 to provide health insurance to the elderly (65+), 1 in 10 Americans received Medicare; now 1 in 7 Americans receives Medicare.
– Older people use more healthcare services.
• Fewer workers per beneficiary are paying into the Medicare fund.
49
Source: Department of Health & Human Services; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
Medicare: Enrollment up 2x, while payments per beneficiary up 26x from 1966 to 2009
50
Real annual Medicare payments per beneficiary and enrollment (1966-2009)*
* Data are inflation adjusted using BEA’s GDP price index; MM = million.Source: Department of Health & Human Services; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
$0
$2,000
$4,000
$6,000
$8,000
$10,000
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
Me
dic
are
Pa
ym
en
ts p
er
Be
ne
fic
iary
($
/ye
ar)
0
10
20
30
40
50
En
rollm
en
t (M
M)
Enrollment Annual Per Cap Benefits (in 2005 dollars)
The number of Medicare beneficiaries is projected to nearly double by 2030
51
Source: 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf.
Number of beneficiaries (1966-2030) Millions
19 20
34
47
80
0
10
20
30
40
50
60
70
80
90
1966 1970 1990 2010 2030
Older people use more healthcare services
52
Source: Department of Health & Human Services, U.S. Census Bureau; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
Share of population vs. healthcare spending by age group (2004)Percent share of total
25%
63%
12%13%
53%
34%
0%
10%
20%
30%
40%
50%
60%
70%
0-18 19-64 65+
Share of Population Share of Healthcare Spending
Funding is becoming a bigger issue because for each Medicare beneficiary fewer workers are paying in
53
* E = Estimated.Source: "Fewer Workers Projected Per HI Beneficiary – Public Agenda." Accessed Sept 19, 2011. http://www.publicagenda.org/charts/fewer-workers-projected-hi-beneficiary; 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf.
Number of workers per beneficiary (1970-2030)*
4.6
3.4
2.3
0
1
2
3
4
5
1970 2010E 2030E
In addition to existing $15T in federal debt, the U.S. has significant unfunded liabilities…
54
* E = estimated.Source: Department of the Treasury, Department of Health & Human Services, Centers for Medicare & Medicaid Services; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
Net Present Value of unfunded entitlements through 2085E (F2010)*$ trillions
0 5 10 15 20 25 30 35 40
Social Security
Medicare
Medicaid**
** Medicaid is paid from general tax revenue each year and does not have a dedicated trust fund.
These unfunded liabilities are a major concern for the financial viability of the country
“…the entitlement programs are not self-funded. They are unfunded liabilities to a significant extent at this point. They are the biggest component of spending going forward.”
Ben Bernanke, Chairman of the Federal Reserve
“In an uncertain world, our currency and credit are well established. But there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs.”
Paul A. Volcker, former Chairman of the Federal Reserve, former Chairman of President Obama’s Economic Recovery Advisory Board
“Over the next 20 – 30 years, the rising health costs and retirement of the baby boomers are projected to cause deficits that make the current one look puny. At the rate we are going, the U.S. would almost surely default on its debt one day.”
Dr. Christina Romer, former Chair of President Obama’s Council of Economic Advisers
55
Source: Bernanke, Ben. 2010. “State of Economy: View from the Federal Reserve.” Testimony before the House Budget Committee, June 9; Volcker, Paul A. 2010. Remarks at the Stanford Institute for Economic Policy Research, May 18; Mankiw et al. 2011. “From 6 Economists, 6 Ways to Face 2012 – Economic View.” New York Times, December 31; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements. KPCB.
"How did you go bankrupt?Two ways. Gradually, then suddenly.“
Ernest Hemingway, The Sun Also Rises
56
Now $50,147!
Source: “Quote by Ernest Hemingway.” Accessed May 16, 2012. http://www.goodreads.com/quotes/show/102579; “U.S. National Debt Clock.” Accessed May 9, 2012. http://www.brillig.com/debt_clock/; AP Photo/Jacquelyn Martin, August 1, 2011.
3. FALLACIES ABOUT IMPROVING U.S. HEALTHCARE DELIVERY
57
58
Fallacy #1: When all U.S. providers finally use electronic medical records, our quality (and cost) problems will be solved.
59
Background question: Why has it taken so long for medicine to go electronic when banks have had ATMs for years?
Medical data are substantially more complex than that of a bank
• Basic data set used by banks:
–Dollars and cents
• Basic data set used by medicine:
– Number of blood tests: 1,276
– Number of imaging procedures: 739
– Number of surgical procedures: 6,003
– Number of diagnostic codes: ~14,000
60
Source: “ICD10 Code Set to Replace ICD 9.” Accessed October 5, 2011. http://www.ama-assn.org/ama/pub/physician-resources/practice-management-center/claims
revenue-cycle/coding.page?; Mayo Clinic, personal communication to authors.
And it is about to get more complicated
• Current ICD-9 diagnosis and procedure codes:
– ~18,000 codes
• Upcoming ICD-10 diagnosis and procedure codes:
– ~155,000 codes, including (believe it or not):
• Code V91.07 = “Burn due to water-skis on fire”
• Code W22.02 = “Walked into lamppost”
– “Much of the new system is based on a World Health Organization [WHO] code set in use in many countries for more than a decade. Still, the American version…is considerably more fine-grained. The WHO, for instance, didn't see the need for 72 codes about injuries tied to birds.”
61
Source: “ICD10 Code Set to Replace ICD 9.” Accessed October 5, 2011. http://www.ama-assn.org/ama/pub/physician-resources/practice-management-center/claims
revenue-cycle/coding.page?; Mathews, Anna W. 2011. “Walked Into a Lamppost? Hurt While Crocheting? Help Is on the Way.” Wall Street Journal, September 13.
Even though these are large numbers, a medical center needs just one Electronic Medical Record system, right?
62
Number of clinical IT applications at the Mayo Clinic:
613
And they all have to talk to each other!
Source: Mayo Clinic, personal communication to authors.
63
Moreover, if all we do is turn paper into electronic records and do not change how we deliver care, the results will not change:
Source: McCormick et al. 2012. “Giving Office-Based Physicians Electronic Access to Patients’ Prior Imaging and Lab Results Did Not Deter Ordering of Tests.” Health Affairs
31(3):488-496
64
Fallacy #2: When everyone is insured, healthcare reform will be complete.
U.S. has more people without insurance than other countries – and coverage across states varies significantly
65
Source: Kaiser State Health Facts: Health Coverage & Uninsured (accessed July 1, 2011), http://statehealthfacts.org/.
Percent of population without health insurance (2008-2009)
State variationInternational variation
17
0
0
0 5 10 15 20
U.S.
Canada
UK
0 5 10 15 20
10th
25th
75th
90th
Perc
enti
le
But other factors play a role in the quality of care
• Implementing the Affordable Care Act (ACA) will expand health insurance coverage and utilization, which is the major issue in cost.
• Many of us are already insured, yet the quality of care varies greatly, with ample room for better outcomes.
• So insuring everyone without changing the delivery system will not, on its own, produce high-value care.
66
Variability: Some states are twice as likely to rely on hospital care even when outpatient care may be more appropriate
67
* Hospital admissions of fee-for-service Medicare beneficiaries age 65 and older for one of 11 ambulatory care sensitive conditions (AHRQ indicators), e.g., short- term diabetes complications, asthma, chronic obstructive pulmonary disease, hypertension, congestive heart failure; excludes District of Columbia data.Source: The Commonwealth Fund Commission on a High Performance Health System. 2009. “Aiming Higher: Results from a State Scorecard on Health System Performance.” http://www.commonwealthfund.org/Maps-and-Data/State-Data-Center/State-Scorecard.aspx.
Medicare hospital admissions for conditions where appropriate ambulatory care prevents or reduces the need for admission to the hospital (2006-2007)*
States
All states - median
5 states most likelyto admit
5 states least likely to admit
Ratio to benchmark
4,136
6,262
8,768
Benchmark
1.5
2.1
Admissions per 100,000 beneficiaries
Variability: The same dramatic difference can be seen in the intensity of services during hospitalization
68
* Index is based on the number of inpatient days and inpatient physician visits among chronically ill Medicare beneficiaries; excludes District of Columbia data.Source: The Commonwealth Fund Commission on a High Performance Health System. 2009. “Aiming Higher: Results from a State Scorecard on Health System Performance.” http://www.commonwealthfund.org/Maps-and-Data/State-Data-Center/State-Scorecard.aspx.
Hospital care intensity index, last two years of life (2005)*
States
All states - median
5 states with highesthospital care intensity index
5 states with lowesthospital care intensity index
Rate
0.556
0.949
1.289
Benchmark
1.7
2.3
Ratio to benchmark
After its 2006 reforms, Massachusetts has the highest percentage of insured in the U.S.
• The Massachusetts Health Reform Law of 2006:
– Expanded Medicaid coverage for children up to 300% Federal Poverty Level (FPL).
– Created subsidized insurance for adults up to 300% FPL.
– Expanded insurance options for individual direct purchase.
– Mandated that the middle-income uninsured purchase private insurance or pay a fine; smaller fines also applied to employers who failed to offer insurance benefits.
• Results with regard to insurance coverage have been positive:
– Since the reforms took effect, 401,000 more MA residents have health insurance coverage, with 98.1% of MA residents now covered.
– No evidence of subsidized coverage replacing employer-based insurance.
69
Source: Blue Cross Blue Shield of Massachusetts Foundation. 2011. “Health Reform in Massachusetts: Expanding Access to Health Insurance Coverage.” http://bluecrossmafoundation.org/health-reform/~/media/d0dda3d667be49d58539821f74c723c7.pdf.
Even in Massachusetts, however, healthcare costs continue to accelerate
70
* Compound annual growth rate for each period.Source: Kaiser State Health Facts: Health Costs & Budgets (accessed February 17, 2012), http://statehealthfacts.org/.
Healthcare expenditures per capita (1991-2009)Dollars
$-
$2,000
$4,000
$6,000
$8,000
$10,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
MA
U.S. average
Ratio of healthcare expenditure growth rate* MA vs. U.S.:1991-2006 1.12006-2009 1.2
71
Fallacy #3:The U.S. needs more physicians to improve access to care.
U.S., the U.K., and Canada, all have similar numbers of physicians…
72
* For U.S. and U.K. data refer to practicing physicians, defined as those providing care directly to patients; for Canada data refer to professionally active physicians, including practicing physicians plus other physicians working in the health sector as managers, educators, researchers, etc. (adding another 5-10% of doctors).Source: OECD Health Data 2011 (accessed February 1, 2012), http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT.
Physicians per 1,000 population (2009)*Number
2.4
2.7
2.4
U.S.
U.K.
Canada
But, the U.K. and Canada have more generalists and fewer specialists…
73
* Primary care includes: general practice, general pediatrics, obstetrics and gynecology; Specialty care includes: psychiatry, medical group of specialties, surgical group of specialties, other. Source: OECD Health Data 2011 (accessed July 17, 2011), http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT.
Physicians per 1,000 population (2009)*Number
0 0.5 1 1.5 2
U.S.
U.K.
Canada
0 0.5 1 1.5 2
U.S.
U.K.
Canada
Specialty carePrimary care
So access to specialty treatments is faster in the U.S.
74
Source: The Commonwealth Fund. 2010. “2010 Commonwealth Fund International Health Policy Survey.” http://www.commonwealthfund.org/Surveys/2010/Nov/2010-International-Survey.aspx.
Percent of population waiting for specified periods for care (2010)
0 10 20 30 40 50
U.S.
U.K.
Canada
0 10 20 30 40 50
U.S.
U.K.
Canada
Wait ≥4 months for elective surgeryWait >1 month for specialist appointment
75
And the U.S. may already have an oversupply of physicians when compared with integrated group practices…
Prepaid integrated systems use fewer physicians…
76
* Integrated practices: Kaiser, Group Health, HealthPartners. Data adjusted for difference between the demographics of HMO enrollees and the U.S. population, the extent to which non-employed physicians provide covered care, and the proportion of providers’ time spent on patients who are not enrolled with the pre-paid group practice. U.S. supply numbers differ from OECD estimates likely due to differences in survey years and methodology (e.g., counting practicing vs. total physicians). Source: Weiner, Jonathan P. 2004. “Prepaid Group Practice Staffing and U.S. Physician Supply: Lessons for Workforce Policy.” Health Affairs. doi: 10.1377/hlthaff.w4.43.
Adjusted primary and specialty care provider supply in prepaid group practices compared with U.S. supply (2001-2002)*MDs/ DOs per 100,000 population
0 20 40 60 80 100 120 140
Primary care
Specialty care
U.S.
Integrated practice average
As do fee for service (FFS) integrated systems
• “…in several of the low input regions, much of the care is provided by large, multispecialty group practices (for example, the Mayo Clinic) or integrated delivery systems (for example, Intermountain Health Care)…. Our study suggests that even in FFS environments, group practices use fewer physicians per capita than is true in small-group or solo practices (the dominant modes in most U.S. regions).”
• “Instead of financing further growth in our medical education system, resources might be better directed to reorganizing delivery systems to models of FFS and prepaid group practice that have already demonstrated that they can deliver good care at relatively low costs.”
77
Source: Goodman et al. 2006. “End-Of-Life Care at Academic Medical Centers: Implications for Future Workforce Requirements.” Health Affairs 25(2):521-531.
78
If we all practice medicine the way integrated practices do, the U.S. already has more physicians than needed, even in primary care.
Moreover, an increase in physician supply would likely carry significant cost implications
79
Source: Kaiser State Health Facts: Health Costs & Budgets; Providers & Service Use (accessed March 14, 2012), http://statehealthfacts.org/.
Correlation of MD supply and healthcare costs in U.S. states (2008)
Hea
lthc
are
cost
per
cap
ita (
$USD
)
R² = 0.5628
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
0 10 20 30 40 50 60 70
Total MDs per 10,000 population
80
Fallacy #4: If physicians didn’t make so much money, the healthcare cost problem would be gone.
81
“Doctors are paid higher fees in the United States than in several other countries, and this is a major factor in the nation’s higher overall cost of care…”
Source: Pear, Robert. 2011. “Doctor Fees Major Factor in Health Costs, Study Says.” The New York Times, September 7.
U.S. physicians (specialists and primary care) are compensated at a higher rate than providers in the U.K. and Canada
82
Source: Laugesen, Miriam J., and Sherry A. Glied. 2011. “Higher Fees Paid to U.S. Physicians Drive Higher Spending for Physician Services Compared to Other Countries.” Health Affairs 30(9):1647 -1656.
0 100 200 300 400 500
U.S.
U.K.
Canada
0 50 100 150 200
U.S.
U.K.
Canada
Average primary care pre-tax earnings, 2008 ($000)
Average orthopedic surgeon pre-tax earnings, 2008 ($000)
U.S. specialist physicians earn ~20% more than expected based on GDP levels
83
Source: Peterson, Chris L., and Rachel Burton. 2007. “U.S. Health Care Spending: Comparison with Other OECD Countries.” CRS report for Congress; OECD: Statistics from A to Z (accessed May 31, 2011), http://www.oecd.org/document/0,3746,en_2649_201185_46462759_1_1_1_1,00.html.
GDP per capita
Spec
ialis
t co
mpe
nsat
ion
$-
$50
$100
$150
$200
$250
$300
$0 $10 $20 $30 $40 $50
United States
CanadaUKFrance
20%
Specialist compensation vs. GDP per capita (2004)$000
But physicians account for only 20% of total healthcare spending
84
* Includes ‘other health, residential and personal care’, ‘government administration’, ‘net cost of health insurance’, ‘investment’.Source: “U.S. Healthcare Costs: Issue Modules, Background Brief – KaiserEDU.org, Health Policy Education from the Henry J. Kaiser Family Foundation.” Accessed May 16, 2012. http://www.kaiseredu.org/Issue-Modules/US-Health-Care-Costs/Background-Brief.aspx?referrer=search.
20%
31%
13%
8%
28%
Physician services
Components of U.S. healthcare spending (2010)Percent
Hospital services
Prescriptions and retail
Home health and nursing care
All other*
So reducing physician income would have a minor impact on total spending
• Physician services account for 20% of total healthcare spending.
• Physician overhead is approximately 50%, so MD income is approximately 10% of total healthcare spending.
• Thus a 20% reduction in physician income = 2% reduction in total healthcare spending.
• But the main factors driving up costs would continue e.g., overutilization!
85
86
Fallacy #5: If we just put in price controls and lowered the price paid to providers, the U.S. healthcare cost problem would be solved.
What is the key to restraining healthcare spending?
87
Total Cost = Total Spending =Price Per Unit of Service x
Use Rate of Service
Price = actual payment per unit of service.
Let’s examine each component individually
88
Total Cost =Price x Use Rate
How has Medicare attempted to control its rate of spending?
• Overwhelming complexity.
• Line-item price controls.
89
How does Medicare calculate the payment for a chest X-ray in Phoenix, AZ? With complicated formulas!
90
Paymentij = [Work RVUi x Work GPCIj
+ Practice Expense (PE) RVUi x PE GPCIj
+ Malpractice (PLI) RVUi x PLI GPCIj]
x Conversion Factor (CF)
Paymentij = Payment for service “i” (e.g., chest X-ray) in geographic area “j” (e.g., Phoenix, AZ)
RVU = Relative Value Unit
GPCI = Geographic Practice Cost Index
MEI = Medicare Economic Index
UAF = Update Adjustment Factor
CF12 = CF11* x MEI12 x UAF12 x Budget Neutrality Adjustment12
0.33 UAF12 = Target11 – Actual11
Actual11
0.75 + Target4/96-12/11 – Actual4/96-12/11
Actual11 (1 + SGR12)*Pre-legislation CY11 Conversion Factor Source: Department of Health & Human Services, Centers for Medicare & Medicaid Services. 2011. “Medicare Physician Fee Schedule: Payment System Fact Sheet Series.” https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads//MedcrePhysFeeSchedfctsht.pdf; Department of Health & Human Services, Centers for Medicare & Medicaid Services. 2011. “Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2012.” http://www.cms.hhs.gov/Medicare/Medicare-Fee-for-Service-Payment/SustainableGRatesConFact/Downloads/sgr2012f.pdf.
Setting prices requires an enormous amount of effort. Total number of prices set under Medicare Part B*:
1,418,656!
91
* 21,026 line items and 1-449 geographic areas.Source: Mayo Clinic, personal communication to authors.
“No matter how simply you begin, your controls will get more complex and voluminous. We started…with 3½ pages of regulations and ended with 1,534. In an effort to correct one inequity, you create another.”
C. Jackson Grayson, Jr. Chair, U.S. Price Commission (1971-1973)
92
Source: Grayson Jr., C. Jackson. 1993. “Experience Talks: Shun Price Controls.” Wall Street Journal, 29 March.
Annual pricing updates for Medicare providers are nearing the 20,000 page mark. How does anyone keep track?
93
* CMS = Centers for Medicare & Medicaid Services.Source: Mayo Clinic, personal communication to authors.
Hospital
1,032
PublicationNumber of Federal Register pages
• Proposed 2012 Prospective Payment System rule
• Hospital Value-Based Purchasing Final Rule
• Hospital Outpatient 2011 Final Rule
194
1,852
Physician
1,562• Physician Fee Schedule 2011 Final
Subtotal 4,643
3,599• Contractor bulletins
• CMS communications 11,177
Other estimated pages from CMS* and contractors
Total 19,419
94
If price controls worked, all the complexity they introduce might be worth it, but…
Price controls do not result in lower total spending: Physician fees example
95
* Fee for service Medicare beneficiaries.Source: Guterman, Stuart. 2006. “Medicare Physician Payment: Are We Getting What We Pay For? Are We Paying for What We Want?” Invited testimonyEnergy and Commerce Committee Subcommittee on Health U.S. House of Representatives, July 25.
Physician expenditures perMedicarebeneficiary*
Physician fees
3.4
-0.7
7.4 7.4
-2
-1
0
1
2
3
4
5
6
7
8
1997-2001 2001-2005
Ann
ual %
cha
nge
Providers are already paid below their cost by the government and stand to lose more with healthcare reform implementation
96
Source: Avalere Health Analysis of American Hospital Association Annual Survey Data for Community Hospitals. 2007. Morgan Stanley Healthcare Research; Meeker, Mary. 2011. USA Inc.: A Basic Summary of America’s Financial Statements, KPCB.
U.S. community hospital profit margins by payer class (2007)Percent
Profit margins from patients
with employer sponsored
insurance are sufficient to
leave hospital industry with
positive overall margin,
despite being only 36% of
inpatient volume.
Reimbursement cuts to
Medicare and/or Medicaid
would pose significant
challenges, as hospitals
already realize negative
margins from those payer
classes.
-45
-12-9
32
TotalSelf-PayMedicaidMedicareEmployer
Sponsored
Insurance
4.5
%
% %
%
%
Reform reliance on across-the-board reductions in Medicare payments has severe implications for providers and patients
• Half of the health reform bill was "paid for" with across the board reductions in what Medicare will pay for medical services.
• These reductions will lead down the road to providers getting 50% less than at present (according to the Medicare actuary).
• As the Medicare actuary said (and as CBO implied), these reductions will lead to less access to providers for Medicare beneficiaries or reduced quality – or both.
97
Source: 2011 Annual report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads//tr2011.pdf.
98
Why don’t price controls work in healthcare? The same reason they don’t work elsewhere in the economy…
Grayson’s maxim
“Add [price] controls and you will see ‘new’ services appear. Expect ‘unbundling’ of services with the price of individual units, when added together, totaling more than the original services.”
C. Jackson Grayson, Jr.
Chair, U.S. Price Commission (1971-1973)
99
Source: Grayson Jr., C. Jackson. 1993. “Experience Talks: Shun Price Controls.” Wall Street Journal, 29 March.
Exhibit 1: The Medicare Price Control Cycle
Cost too high
Reduce payment rate
to providers
Providers
See more
patients per day
Order more
tests, images
Costs go up
anyway
Reduce line item payment rate to
providers
The Medicare price control cycle
100
• So, we shouldn’t be surprised that we are spending less time with our physicians and having more tests ordered.
• It is a natural result of Medicare’s price control approach.
101
“The secret is not, however, to re-jigger 10,000 prices in 3,000 counties so that we get them ‘right’ once and for all (until medical knowledge or technology or input prices change again)…. The secret is to pay for what we want – health – and then monitor our progress toward that end with EHRs [Electronic Health Records] while bundling ever-larger sets of services into one payment, which frees clinicians and providers to find the most efficient way to deliver health, given our particular circumstances.”
Len M. Nichols, PhDTestimony to U.S. Committee of the Budget, June 26, 2007
102
• Medicare is committing significant effort to price paid per unit of service, when use rateis actually the more important variable.
• The use rate is a direct function of the medical practice style in the delivery system.
103
Let’s examine each component individually
104
Total Cost = Price x Use Rate
“It’s all about the use rate!”
• "… utilization - not local price differences - drives Medicare regional payment variation….”1
• “Most of this variation [in Medicare spending] was not due to differences in the price of care in different parts of the country, but rather to differences in the volume….”2
• “…there is nearly a twofold difference between the MSA [Metropolitan Statistical Area] with the greatest service use (the Miami, FL, MSA) and the MSA with the least service use (the La Crosse, WI, MSA) [after adjusting for regional prices, added payments for Graduate Medical Education, demographics, beneficiary health statues, etc.].”3
105
Source: 1) Gottlieb et al. 2010. "Prices Don't Drive Regional Medicare Spending Variations.” Health Affairs 29(3):537-543; 2) Wennberg et al. 2008. "Tracking the Care of Patients with Severe Chronic Illnesses.” The Dartmouth Atlas of Health Care. http://www.dartmouthatlas.org/downloads/atlases/2008_Chronic_Care_Atlas.pdf; 3) MedPacReport to Congress. 2011. “Regional variation in Medicare services use.” http://www.medpac.gov/documents/Jan11_RegionalVariation_report.pdf.
Additional services provided in high-cost areas are those that depend most on individual physician practice style
106
Services with existing clinical practice consensus• Mammogram, women 65-69• Pneumococcal immunization• Total hip replacement• Back surgery
Services where individual clinical practice style prevails• Total inpatient days• Inpatient days in ICU or CCU• Evaluation and management (visits)• Imaging• Diagnostic tests
0.5 1.0 1.5 2.0 2.5
Source: Orszag, Peter. 2008. “New Ideas About Human Behavior in Economics and Medicine.” Eighth Annual Marshall J. Seidman Lecture, Harvard Medical School, October 16.
Risk-adjusted ratio of high-spending vs. low-spending regions’ use rates by service
Both high spending areas and low spending areas do mammograms at the same rate per 1,000 population. Thus it is not a factor that makes a high spending area more costly. However, high spending areas use about twice as many ICU days per 1,000 population – thus being a major factor in what drives high cost.
Your likelihood of having a cardiac procedure depends on where you get your care
107
Source: The Dartmouth Atlas of Healthcare (accessed May 25, 2011), http://www.dartmouthatlas.org/data/topic/; “U.S. News Best Hospitals: Cardiology & Heart Surgery.” Accessed May 16, 2012. http://health.usnews.com/best-hospitals/rankings/cardiology-and-heart-surgery.
Variability in the rate of angioplasty procedures by hospital referral region (2007)
Rat
e pe
r 10
00 e
nrol
lees
Baltimore, MD 12.4
Cleveland, OH 11.2
Houston, TX 10.1
Rochester, MN 8.0
Boston, MA 7.0
Elyria, OH 26.8
Locations and angioplasty rates of top 5 U.S. News Best Hospitals: Cardiology and Heart Surgery
11
21
31
Researchers at Dartmouth concur that clinical practice is key to addressing the issue of healthcare spending
“Efforts to improve the quality and cost of U.S. health care have focused largely on fostering adherence to evidence based guidelines, ignoring the role of clinical judgment in more discretionary settings…. Clinical judgment, not clinical guidelines, should be the focus of policy efforts to improve the quality of care and address disparities in spending.”
108
Source: Sirovich et al. 2008. “Discretionary Decision Making by Primary Care Physicians and the Cost of U.S. Health Care.” Health Affairs 27(3):813-823.
4. WHAT ARE WE STRIVING FOR?
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Our goal is straightforward
110
Highest-value healthcare delivery!
• We can achieve a high-value healthcare delivery system by focusing on three key concepts:
– Pay for value
– Insurance for all
– Integration and coordination
• Significant savings are possible – if the right steps are taken.
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Key concepts in better healthcare delivery
1. Pay for value – All participants in the healthcare delivery system should be paid for value. Incentives must be aligned across the entire continuum of care.
2. Insurance for all – Individuals should own their insurance and have the means to choose appropriate medical care.
3. Integration and coordination – Care and information must be integrated into all services, creating a seamless, personalized experience for both patients and providers.
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Pay for value: Reward results and outcomes, not compliance with process
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Value =Total Cost
Patient Outcomes
Patient Outcomes may include mortality, safety, service, access, fewer complications, less rework, faster return to work or functionality. It may mean readiness or productivity in different groups, e.g., individual, employee, workforce, military, student.
Total Cost may be spending over a defined time for a particular patient, a condition, a population, or a payer.
• The majority of current payment schemes are not tied to patient outcomes or to total cost of care.
• Attempts to institute “pay for performance” schemes have fallen short of true “pay for value” because performance has been equated with compliance with process – not with patient outcomes.
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Existing Pay for Performance (P4P) approaches are not necessarily Pay for Value, but rather Pay for Compliance
“These current [P4P] efforts…carry some risks. Most…are not actually about quality results, but processes. Most ‘pay for performance’ is really pay for compliance. Compliance to too many process standards…runs the risk of inhibiting innovation by the best providers.”
Michael Porter and Elizabeth Teisberg
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* Pay for performance is a payment scheme in which a portion of the payment is based on performance assessed against a defined measure.Source: Porter, Michael E., and Elizabeth Olmsted Teisberg. 2006. Redefining Health Care: Creating Value-Based Competition on Results. Boston: Harvard Business School Press.
• As Porter and Teisberg point out, we should concentrate on quality, not process.
• So take the case of two California metropolitan teaching hospitals that treat similar Medicare patients.
• Assume both complete the P4P Medicare processes and receive a 5% P4P bonus.
116
P4P bonus structure pays for lower efficiency… and worse outcomes!
117
Medical Center A Medical Center B
• Hospital days per patient
• Physician visits per patient
• Total Medicare reimbursement per patient ($000)
5% P4P bonus
11.1
35.5
$37.0
$1,851
23.0
81.8
$62.2
$3,112
Mortality ratio (>1 = better than expected)
1.43 0.88
Care efficiency (utilization & cost)
Care effectiveness (outcomes)
* All data are for Medicare beneficiaries, last 6 months of life; data from two prominent teaching hospitals in CA.Source: The Dartmouth Atlas of Health Care (accessed May 25, 2011), http://www.dartmouthatlas.org/data/topic/; Medicare Provider Analysis and Review (MedPar) file 2009 (accessed July 2011).
P4P process metrics bring few – if any –gains in patient outcomes
• “Among hospitals participating in a voluntary quality-improvement initiative, the pay-for-performance program was not associated with a significant incremental improvement in quality of care or outcomes for acute myocardial infarction.”1
• “We are aware that improvements in process measures do not necessarily translate into improved clinical outcomes. As illustrated by our results, it is much easier to make sure a patient with diabetes received a [cholesterol] order each year, than it is to ensure that the [cholesterol] is controlled to appropriate levels.”2
• “Our analysis…demonstrates that the current generation of P4P measures based on process is inadequate. Hospital quality measures did not correlate with complications or mortality.”3
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Source: 1) Glickman et al. 2007. “Pay for Performance, Quality of Care, and Outcomes in Acute Myocardial Infarction.” JAMA 297(21):2373-2380; 2) Weber et al. 2008. “Employing the Electronic Health Record to Improve Diabetes Care: A Multifaceted Intervention in an Integrated Delivery System.” J Gen Intern Med 23(4):379–382; 3) Bhattacharyya et al. 2009. ”Measuring the Report Card: The Validity of Pay-For-Performance Metrics in Orthopedic Surgery.” Health Affairs 28(2):526-532.
Moreover, compliance with process has the potential to stifle clinical innovation
• A number of clinical processes widely accepted in the past have seen significant revisions in current medical practice, e.g.,
– Bed rest of 3-6 weeks, previously a standard of care following an episode of acute myocardial infarction (AMI), has been shown to be not only unnecessary but potentially harmful to AMI patients.
– Beta-blockers, that were absolutely contraindicated in patients with congestive heart failure (CHF), are now considered to be standard of care and a key component of the medication regimen in CHF treatment.
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Source: Packer et al. 1996. “The Effect of Carvedilol on Morbidity and Mortality in Patients with Chronic Heart Failure.” NEJM 334:1349-1355; Allen et al. 1999. “Bed Rest: A Potentially Harmful Treatment Needing More Careful Evaluation.” Lancet 354(9186):1229-33.
What happens when guidelines become dogma?
• 1970s bed rest post AMI strictly enforced?
• 1980/90s no β-blockers for CHF?
• 1990s high tidal volume ventilation?
• 2000s tight glucose control?
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These things were hard enough to change in the absence of guidelines. What happens when payment is linked to adherence?
A recent Congressional Budget Office report found that Medicare’s “value-based payments” aren’t paying for value
• Evaluated 10 major Medicare demonstrations over the last twenty years.
• 9 of the 10 did not decrease total cost (and some actually increased total costs).
• Report conclusion: “The [one] bundled-payment demonstration achieved savings for the Medicare program, but the [remaining nine] demonstrations that paid bonuses to providers on the basis of their quality scores* produced little or no savings.”
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*Quality was defined as compliance with specific care processes.Source: Congressional Budget Office. 2012. “Lessons from Medicare’s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payments.”http://www.cbo.gov/publication/42860.
Medicare’s idea of value rewards process scores, not outcomes
• Medicare’s Pay for Performance and Value-Based Purchasing pay bonuses to providers based on quality process scores.
• We can expect the same results that CBO found in the demonstrations projects.
• True pay-for-value payments reward providers who get the best outcomes with below-average costs.
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Where to start on true Pay for Value
• Start with expensive patients (those hospitalized) and evaluate DRG by DRG.*
• Use lump-sum (bundled) payments to establish Expanded DRGs, and thus encourage judicious use rates:
– Expanded DRG = Current DRG + (post-discharge care + physician services) related to the medical condition for a specified period of time.
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* DRG – Diagnosis Related Group, a patient classification system. It relates the type of patient admission with the costs a hospital incurs, and thus determines how much hospitals are paid.
Bundled payments have the potential to lower costs while improving patient care
• A 2009 Commonwealth Fund survey of healthcare opinion leaders showed that provider payment reform, specifically the move toward bundled payments, was viewed as the primary option to controlling costs while maintaining quality (with 70% of leaders selecting bundled payments as an “extremely effective” or “very effective” option).1
• “Imagine…a patient who comes to the hospital for a hip replacement. That patient and his insurer…will be billed separately for the X-rays, laboratory tests, the surgeon’s fee, the anesthesiologist’s fee, the rehabilitation services, the hospital bill and the visits to the doctor after he’s discharged. In a bundled payment system, all the bills are rolled into one standard hip-replacement charge. The idea is to force all of a patient’s care providers to work together. They have a strong incentive to eliminate unnecessary tests and treatments and use less expensive implants, drugs and devices that don’t compromise quality, and to prevent infections and other complications that could land the patient back in the hospital.”2
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Source: 1) The Commonwealth Fund. 2009. “Modern Healthcare Health Care Opinion Leaders Survey: Views on Slowing the Growth of Health Care Costs.” http://www.commonwealthfund.org/Surveys/2009/April/Health-Care-Opinion-Leaders-Survey-on-Slowing-the-Growth-of-Health-Care-Costs.aspx; 2) Emanuel, Ezekiel J. 2011. “Saving by the Bundle.” New York Times, November 16.
Define outcomes, not process metrics
• True pay-for-value means tying payments to outcomes and costs over time.
• Outcomes should be specific to one condition or DRG.
• Favor independent or private oversight, because:
• Government efforts are often subject to politics and lobbying.
• Government defined outcomes are watered down and turned into process measures.
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Give providers two to three years to self-organize: Experience shows it can be done
126
Metric Pre-DRG* (1980-1985)
Post-DRG(1988-1992)
Percentchange
Average length of stay (days)
6.9 6.4 -8%
Hospital admissions (per 1,000 population)
163 125 -23%
Hospital days(per 1,000 population)
1,129 800 -29%
* The DRG hospital payment, where hospitals accept a pre-determined lump sum for individual diagnostic categories, was rolled out in 1984 to curb the growth of Medicare healthcare costs.
Source: Department of Health & Human Services, Centers for Disease Control and Prevention. 1989. “Trends in Hospital Utilization: United States,1965-1986. Data from the National Health Survey.” Series 13, Number 101; Department of Health & Human Services, Centers for Disease Control and Prevention. 1996. “Trends in Hospital Utilization: United States, 1988–92. Data From the National Health Survey.” Series 13, number 124. http://www.cdc.gov/nchs/nhds.htm.
How to set the payment amount
• Don’t use formulas.
• Use reality-based pricing:
• Base amount = Cost of resources used by medical centers getting best risk-adjusted outcomes.
• Payment = Base amount plus 3% (without a small margin even a not-for-profit organization cannot stay in business).
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Source: Luft, Harold S. 2008. Total Cure: The Antidote to the Healthcare Crisis. Cambridge: Harvard University Press.
Example distribution of outcomes and costs for a given DRG at teaching hospitals
128
Cost for EDRG “x” ($000s)
Out
com
es f
or E
DRG
“x”
Hospital
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0 10 20 30 40 50 60
GoodEffectiveness
GoodEfficiency
GoodEffectiveness
PoorEfficiency
PoorEffectiveness
GoodEfficiency
PoorEffectiveness
PoorEfficiency
Concept source: Luft, Harold S. 2008. Total Cure: The Antidote to the Healthcare Crisis. Cambridge: Harvard University Press.
Each symbol represents a single medical center; EDRG = Expanded DRG
Set base amount at median cost of the top third of hospitals with the best outcomes
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Cost for EDRG “x” ($000s)
Out
com
es f
or E
DRG
“x”
Hospital
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0 10 20 30 40 50 60
Source: Luft, Harold S. 2008. Total Cure: The Antidote to the Healthcare Crisis. Cambridge: Harvard University Press.
Each symbol represents a single medical center; EDRG = Expanded DRG
Top 1/3 of hospitals on outcomes
Median Cost all teaching hospitalsMedian cost of top 1/3 of hospitals on outcomes
Proposed base amount
The AMA has suggested additional approaches to pay for value which we feel should be considered
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Partial capitation An Accountable Care Organization (ACO*) receives a pre-defined, risk-adjusted monthly payment to cover all costs of services for a defined beneficiary group.
Condition-specific capitation
Accountable medical home
Private contracting
Inpatient care warranties
Mentoring programs
Group of physicians receives a fixed amount to cover all services for a specific condition, such as congestive heart failure.
Group of physicians receives up-front resources to restructure primary care delivery. It commits, in return, to reducing inappropriate healthcare utilization.
Physicians and hospitals set Medicare payment rates and give warranties for inpatient treatment, agreeing not to charge more for infections and complications.
Patients and physicians freely contract for services, allowing them to agree on rates for services without having to forgo Medicare payment.
Medicare offers financial and technical support (e.g., patient utilization, cost, and quality analyses) to small or solo physician practices working with regional health improvement collaboratives.
Payment model Description
* ACO = a healthcare delivery model that ties provider reimbursements to quality metrics and reductions in the total cost of care for a given population of patients.Source: American Medical Association. 2011. “The need to move beyond the SGR.” Statement of the American Medical Association before theHouse Energy and Commerce Committee Subcommittee on Health, May 5.
Medicare could lead the way
• Present Medicare reimbursement encourages quantity over value.
• If Medicare moves to true “pay for value,” other payers might take the same approach.
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Key concepts in better healthcare delivery
1. Pay for value – All participants in the healthcare delivery system should be paid for value. Incentives must be aligned across the entire continuum of care.
2. Insurance for all – Individuals should own their insurance and have the means to choose appropriate medical care.
3. Integration and coordination – Care and information must be integrated into all services, creating a seamless, personalized experience for both patients and providers.
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Lack of insurance is a contributing factor to poor health outcomes…
133
Dea
ths
per
100,
000
popu
lati
on
Uninsured (percent)
0
20
40
60
80
100
120
140
160
0% 5% 10% 15% 20% 25% 30%
Source: The Commonwealth Fund Commission on a High Performance Health System. 2009. “Aiming Higher: Results from a State Scorecard on Health System Performance.” http://www.commonwealthfund.org/Maps-and-Data/State-Data-Center/State-Scorecard.aspx; Kaiser State Health Facts: Health Coverage & Uninsured (accessed July 1, 2011), http://statehealthfacts.org/.
Mortality amenable to healthcare vs. uninsured population by state (Mortality data, 2004-2005; Uninsured data, 2008-2009)
And poor chronic disease management
134
* Diabetes: HbA1C <9.0; Blood pressure: <140/90. Source: The Commonwealth Fund Commission on a High Performance Health System. 2008. “Why Not the Best? Results from the National Scorecard on U.S. Health System Performance, 2008.” http://www.commonwealthfund.org/Publications/Fund-Reports/2008/Jul/Why-Not-the-Best--Results-from-the-National-Scorecard-on-U-S--Health-System-Performance--2008.aspx.
Chronic disease under control by insurance status (1999-2004)*Adults, 18+ (percent)
0 10 20 30 40 50 60 70 80 90
Diabetes under control
Blood pressure under control
Insured
Uninsured
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Private insurers may be better at controlling utilization, and therefore total costs, than public payers…
A 2009 report in the New Yorker by Atul Gawandereported that Medicare spending for the elderly in McAllen, TX is much higher than in El Paso, TX despite essentially the same demographics.
A follow up study on the commercially-insured population in the same communities painted a different picture…
136
Source: Gawande, Atul. 2009. “The Cost Conundrum.” The New Yorker, June 1; Franzini et al. 2010. “McAllen and El Paso Revisited: Medicare Variations Not Always Reflected in the Under-Sixty-Five Population.” Health Affairs 29(12):2302–2309.
Commercial payers in two Texas towns show better spending and utilization management than Medicare
137
1 Blue Cross and Blue Shield of Texas; 2 Per 1,000 enrollees, Medicare ratio calculated based on hospital discharges in the last 2 years of life.
Source: Franzini et al. 2010. “McAllen and El Paso Revisited: Medicare Variations Not Always Reflected in the Under-Sixty-Five Population.” Health Affairs 29(12):2302-
2309; The Dartmouth Atlas of Healthcare (accessed July 19, 2011), http://www.dartmouthatlas.org/data/topic/.
Total spending per enrollee
Medicare ratioMcAllen to El Paso
Commercial ratio1
McAllen to El Paso
0.93
0.84
1.86
1.31
Indicator
Inpatient utilization2
Outpatient spending per enrollee
0.691.32
Inpatient spending per enrollee
1.101.63
Healthcare costs grew in line with GDP during the Health Maintenance Organizations (HMO) era
138
Source: OECD: Statistics from A to Z (accessed May 26, 2011), http://www.oecd.org/document/0,3746,en_2649_201185_46462759_1_1_1_1,00.html.
GDP per capita (nominal)
Healthcare expenditures per capita (PPP$)
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
HMO era
Growth in healthcare expenditures vs. GDP in the United States (1990-2009)Change in growth, percent
Insurance for all: How do we get there?
1. Consumer choice has long been a key component of American society:
– “…it is doubtful if the broad [U.S.] middle class is willing to give up the options, convenience, and quality, which a highly structured service is not likely to give.”1
– Numerous studies have found that choice is a key contributing factor to patients’ satisfaction with their health plans.2,3,4
2. Consumer involvement is key to ensuring an appropriate level of healthcare utilization.
139
Source: 1) Anderson, Odin W. 1972. Health Care: Can There Be Equity? The United States, Sweden, and England. New York: John Wiley & Sons; 2) Davis et al. 1995. “Choice Matters: Enrollee’s Views of Their Health Plans.” Health Affairs 14(2):99-112; 3) Kaiser Family Foundation. 2001. “2001 Employer Health Benefits Annual Survey.” http://www.kff.org/insurance/20010906a-index.cfm; 4) Simonet, Daniel. 2005.“Patient Satisfaction Under Managed Care.” International Journal of Health Care Quality Assurance 18(6-7):424-40.
A model like the federal employee benefits program offers patient choice and potential savings
• The Federal Employee Health Benefits Program (FEHBP) administered by the Office of Personnel Management (OPM) is a successful model of premium support:
– FEHBP enrollees choose from a variety of health plans, including managed care, conventional insurance, high-deductible plans, etc.
– Enrollees can buy a plan that is more expensive than the capped government contribution and pay the difference out of pocket.
– OPM’s regulatory role in FEHBP is light, focusing mainly on consumer protection and a level playing field for health plans.
– FEHBP is exempt from state mandates.
• In 1999, a bipartisan commission estimated that the movement to premium support would slow the growth in Medicare spending by 1-1.5% annually.*
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* National Bipartisan Commission on the Future of Medicare. 1999. “Building a Better Medicare for Today and Tomorrow,” March 16.Source: Moffit, Robert E., and Kathryn Nix. 2011. “Transforming Medicare Into a Modern Premium Support System: What Americans Should Know.” The Heritage Foundation.
The model has advantages for both patients and providers…
1. The government could focus limited resources on those who need help, an imperative as the baby boom generation reaches Medicare's current eligibility age.
2. Everyone could choose among multiple insurance offerings. Individuals may buy coverage that exceeds the minimum if they wish.
3. Patients may be more fully engaged as purchasers and customers.
4. A dynamic private market could allow more freedom to provide innovation and productivity gains to reduce healthcare costs.
5. The model offers assurance of universal access to a basic level of affordable, market-based health insurance.
141
Source: Cortese, Denis A., and Robert K. Smoldt. 2006. “Healing America’s Ailing Health Care System.” Mayo Clinic Proceedings 81(4):492-6.
As well as a lower regulatory burden
• In contrast to the light regulatory role in FEHBP offerings and administration, the Affordable Care Act (ACA) mandates that every qualified health plan offer an “essential benefits package” to be defined by the Department of Health & Human Services.1
• As a national exchange exempt from state mandates, the FEHBP has fewer administrative burdens and costs. But the ACA leaves primary implementation with the states, so health insurers must comply both with the federal requirements and with the varying mandates of each state they operate in:
– “As we have learned with Medicaid, the Health Insurance Portability and Accountability Act (HIPAA), and other programs, state implementation of federally directed programs is at best awkward and at worst ineffectual.”2
142
Source: 1) Kaiser Family Foundation. 2011. “Summary of New Health Reform Law.” http://www.kff.org/healthreform/8061.cfm; 2) Jost, Timothy S. 2010. “Health Insurance Exchanges and the Affordable Care Act: Key Policy Issues.” The Commonwealth Fund. http://www.commonwealthfund.org/Publications/Fund-Reports/2010/Jul/Health-Insurance-Exchanges-and-the-Affordable-Care-Act.aspx.
The Federal employee model is not without its shortcomings, but they can be addressed
• Government contribution is set such that even if a plan’s premium is so low that the maximum government contribution would cover it fully, the enrollee must still pay 25%, thus making it a potentially prohibitive option for low-income participants.
– Potential solution: Provide a set dollar amount as the government premium contribution to all participants (e.g., based on 75% of the least expensive plan and up to 100% of the least expensive plan for those who cannot afford any payments).
• FEHBP premiums are not truly adjusted for demographic factors, health risk or geography, thus setting the stage for adverse selection nor do they accurately reflect the value of benefits or plan efficiency.
– Potential solution: Keep community rating for the employees, but build in incentives that promote efficiency and adjust income for health plans that end up with a disproportionate share of high-risk and high-cost enrollees.
143
How to pay for government healthcare subsidies: Phase out tax free nature of employer sponsored healthcare
“According to estimates by the staff of the Joint Committee on Taxation, [one of] the three largest tax expenditures* in income tax law…[is the] preferential treatment for employment-based health insurance [>$600 billion in 2010-2014]…uncapped tax expenditures may…encourage overconsumption of the favored good or subsidize activity that would have taken place without the tax incentives. For example…may prompt people to consume more health services than are necessary….”
144
* Features of the tax code that allow for income exclusions, exemptions, deductions, preferential tax rates, etc., are classified as “tax expenditures” and their costs to the federal government are measured in terms of forgone revenues.Source: Congressional Budget Office. 2011. “Reducing the Deficit: Spending and Revenue Options.” http://www.cbo.gov/publication/22043.
Although, other funding sources are feasible, capping tax-free employer-financed health benefits is the only proposal that can truly offset the costs of healthcare reform
145
Affordable Care Act projected spending to boost insurance coverage1
Possible “real” funding sources2
• Capping tax-free health benefits at 50th percentile, unindexed
• Surtax on high income
• Employer play or pay tax
• Increasing alcohol tax to $16 per proof gallon
• Taxing sweetened beverages 3 cents per 12oz. can
2019 ($B)
$224
$232
$86
$28
$6
$5
Source: 1) Congressional Budget Office. March 2012. “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act.” http://cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf; 2) Aaron, Henry J. 2009. “Why Paying for Health Care Reform Is Difficult and Essential — Numbers and Rules.” NEJM 361:937-939.
Insurance for all: How do we get there?
1. Consumer choice has long been a key component of American society:
– “…it is doubtful if the broad [U.S.] middle class is willing to give up the options, convenience, and quality, which a highly structured service is not likely to give.”1
– Numerous studies have found that choice is a key contributing factor to patients’ satisfaction with their health plans.2
2. Consumer involvement is key to ensuring an appropriate level of healthcare utilization.
146
Source: 1) Anderson, Odin W. 1972. Health Care: Can There Be Equity? The United States, Sweden, and England. New York: John Wiley & Sons; 2) Davis et al. 1995. “Choice Matters: Enrollee’s Views of Their Health Plans.” Health Affairs 14(2):99-112; 3) Kaiser Family Foundation. 2001. “2001 Employer Health Benefits Annual Survey.” http://www.kff.org/insurance/20010906a-index.cfm; 4) Simonet, Daniel. 2005.“Patient Satisfaction Under Managed Care.” International Journal of Health Care Quality Assurance 18(6-7):424-40.
Changing consumer incentives: The Safeway experience
• Increased individual premium for each of the following: smoking, overweight, high blood pressure, high cholesterol.
• Encouraged employees to take charge by subsidizing high-deductible health plans:
– Coverage at 100% for preventive services.
– Company puts half of each employee’s deductible into a Health Savings Account (HSA) or Health Reimbursement Account (HRA).
• Results:
– 40% reduction in high cholesterol.
– Total costs to company and employees fell 12%.
147
Source: Burd, Steven A. 2009. “How Safeway Is Cutting Health-Care Costs.” Wall Street Journal, June 12; personal communication to authors.
Changing consumer incentives: The State of Indiana experience
• In 2006-2007, Indiana expanded its offerings to include two high-deductible Consumer Driven Health Plans (CDHPs):
– The state funds an employee’s HSA in the amount of 55% of the deductible.
– Preventive services covered 100%.
• Independent, actuarial review by Mercer confirmed that after adjusting for demographics (age, gender, family size) and health, CDHPs’ annual costs were 10.7% lower than costs of other plans:
– State savings in 2010 = $17-$23M.
– Employee savings in 2010 = $7-$8M.
148
Source: Gusland et al. 2010. “Consumer-Driven Health Plan Effectiveness. Case Study: State of Indiana.” Mercer. http://www.in.gov/spd/files/CDHP_case_study.pdf.
Transition to CDHPs resulted in better utilization of healthcare resources
149
2009 Healthcare utilization PPOCDHP2 (% change
from PPO)CDHP1 (% change
from PPO)
ER visits (per 1,000) 308 -32% -47%
Physician visits (per 1,000) 5,012 -28% -46%
Hospital admissions (per 1,000) 114 -44% -68%
Average length of stay (days) 4.9 -16% -22%
Average cost per Rx $ 65 -17% -38%
* CDHP1 has a higher deductible and higher HSA funding than CDHP2.Source: Gusland et al. 2010. “Consumer-Driven Health Plan Effectiveness. Case Study: State of Indiana.” Mercer. http://www.in.gov/spd/files/CDHP_case_study.pdf.
Recommendations for payers on health benefit design
• Eliminate co-pays and co-insurance for visits to coordinating, primary provider.
• Vary premium/deductible on such factors, as tobacco use, weight, blood pressure, cholesterol.
• Retrospective rebate on employee cost for prescriptions related to such conditions as congestive heart failure, hypertension, diabetes, if patients fill all prescriptions.
• Establish a CDHP option with preventive care covered at 100%.
• Set employer contribution toward employee premiums as a constant dollar (rather than a defined percentage) amount to encourage CDHP.
150
Key concepts in better healthcare delivery
1. Pay for value – All participants in the healthcare delivery system should be paid for value. Incentives must be aligned across the entire continuum of care.
2. Insurance for all – Individuals should own their insurance and have the means to choose appropriate medical care.
3. Integration and coordination – Care and information must be integrated into all services, creating a seamless, personalized experience for both patients and providers.
151
Integration and coordination: For healthcare leaders, the best way to control costs
152
“How effective do you think each of these proposals for structural change in health services markets would be in reducing the growth of health care costs?”(Percent responding as either extremely effective or very effective)
62
61
54
50 52 54 56 58 60 62 64
Promote growth of integrated delivery systems
Increase supply of PCPs through payment reform
Comparative effectiveness research
Source: The Commonwealth Fund. 2009. “Modern Healthcare Health Care Opinion Leaders Survey: Views on Slowing the Growth of Health Care Costs.” http://www.commonwealthfund.org/Surveys/2009/April/Health-Care-Opinion-Leaders-Survey-on-Slowing-the-Growth-of-Health-Care-Costs.aspx.
Integrated delivery system defined
153
Source: Shortell et al. 1996. Remaking Health Care in America. San Francisco: Josey-Bass.
“A [singular] network of organizations that provides or arranges to provide a coordinated continuum of services to a defined population and is willing to be held clinically and fiscally accountable for the outcomes and health status of the population served.”
Integrated delivery systems exhibit higher quality and better cost containment
• Integrated groups engage in more prevention and health promotion than non-integrated practices (e.g., heart disease screening); they also score better on a variety of outcome measures such as the Healthcare Effectiveness Data and Information Set (HEDIS).1
• Diabetes patients treated within the Veterans Affairs system show better scores than commercial managed care patients on a variety of quality of care measures, including annual exams, cholesterol control and overall satisfaction with care.2
• A comparison of the UK National Health System (NHS) with Kaiser Permanente (KP) showed that KP performed better than NHS in quality (e.g., more comprehensive and convenient primary care services) at roughly the same cost per beneficiary.3
154
Source: 1) Shortell, Stephen M., and Rodney K. McCurdy. 2009. “Integrated Health Systems.” In Engineering the System of Healthcare Delivery, edited by William B. Rouse and Denis A. Cortese, 369-382. Amsterdam: IOS Press BV; 2) Kerr et al. 2004. “A Comparison of Diabetes Care Quality in the Veterans Healthcare System and Commercial Managed Care.” Annals of Internal Medicine 141(4):272-281; 3) Feachem et al. 2002. “Getting More for Their Dollar: A Comparison of the NHS with California's Kaiser Permanente.” British Medical Journal 324:135-143.
155
• “[Kaiser Permanente’s] business model integrates fixed-price health insurance with treatment at its own hospitals and clinics. This has led to big efficiency gains, making KP one of the cheapest health-care providers in most of the regional markets in which it competes.”
• “Moreover, [Kaiser Permanente’s] medical results are as good as its financial ones. By many clinical measurements, it is the best-performing health-care outfit in the regions it covers.”
Source: “Controlling Healthcare Costs: Another American Way.” 2010. The Economist (print edition), April 29.
156
Remember, use rate is the key to more efficient healthcare…
Integrated systems use resources more efficiently: Up to 40-50% fewer ICU days…
157
ICU/ CCU days per decedent, last 6 months of life (2007)
* Rounded Source: The Dartmouth Atlas of Health Care (accessed May 25, 2011), http://www.dartmouthatlas.org/data/region/.
Region
La Crosse, WI
Temple, TX
Salt Lake City, UT
Danville, PA
Integrated average
United States
Miami, FL
Los Angeles, CA
Integrated systems
Days*
Ratio to benchmark (integrated average)
1.2
1.5
1.8
2.5
1.7
3.7
10.1
7.5
Benchmark
2.1
5.8
4.3
And as many as 40-50% fewer physician visits
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Physician visits per decedent, last 6 months of life (2003-2007)
Source: The Dartmouth Atlas of Health Care (accessed May 25, 2011), http://www.dartmouthatlas.org/data/region/.
Region
La Crosse, WI
Temple, TX
Salt Lake City, UT
Danville, PA
Integrated average
United States
Miami, FL
Los Angeles, CA
Integrated systems
Visits
15.5
18.9
15.6
22.5
18.1
30.7
56.6
60.3
1.7
3.1
3.3
Ratio to benchmark (integrated average)
Benchmark
Key attributes of high-value care in integrated systems
1. Clear vision and physician alignment with organization’s overall goals:
• Physician leadership.
• Use of physician income models that remove link between pay and volume.
2. Creation of a learning organization through the science of healthcare delivery, including:
• Continuous peer review.
• Systems engineering initiatives.
• Continuous search for and use of best practices (i.e., those that yield the best patient outcomes).
• Decision support systems.
3. Care coordination:
• Greater use of team-based care.
• Flexibility to use non-physicians where appropriate.
4. Focus on health promotion:
• Preventive care.
• Patient involvement.
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Source: Rouse, William B., and Denis A. Cortese, editors. 2009. Engineering the System of Healthcare Delivery. Amsterdam: IOS Press BV.
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5. WE ALL NEED TO CHANGE; THE PAYOFF CAN BE SUBSTANTIAL
161
The need for change…
162
Source: Don't Squat With Your Spurs On: Volume No. 2. by Bender, Texas Bix. Copyright 2009. Reproduced with permission of GIBBS SMITH, PUBLISHER in the format Textbook via Copyright Clearance Center.
…involves everyone in healthcare
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PROVIDERS
• Improve effectivenessand efficiency
• Improve coordinationand integration
• Emphasize treatment adherence and prevention
PAYERS AND EMPLOYERS
• Encourage prevention, compliance and health
• Adopt value-based benefit design
• Change payment to reward providers for value
PATIENTS
• Purchase coverage
• Embrace healthier lifestyles and treatment compliance
• Have a stake in the costsof healthcare
GOVERNMENT
• Focus on value and pay only for value
• Help people afford insurance
• Remove barriers for achieving high-value care
• Simplify and standardize billing
• Enact malpractice reform
Specific recommendations (1/2)
• Change how we pay to encourage good outcomes from fewer resources:• Start with the most expensive patients (those hospitalized).• Establish Expanded DRGs with both hospital and physician services and set
payment at cost + 3% based on centers with the best outcomes from fewest resources.
• Other payment approaches after Expanded DRGs are in place:• Establish payments to providers for following the most expensive chronic
disease patients.• Experiment with mini-capitation, e.g., condition- or population-specific.
• Insurance for all:• Move to Federal employee benefit model with premium support.• Satisfies Democrats’ goal of insuring everyone and Republicans’ goal of a
market-based solution.
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Specific recommendations (2/2)
• Other steps to improve value:• Establish a common billing form and billing process to trim overhead
costs.• Expand “Coverage with Evidence Development” programs for expensive
new technology.• Develop and communicate best practices for the most expensive medical
and surgical conditions.• Encourage health IT that effectively uses decision support systems (rather
than just having an electronic version of a paper record).• Institute malpractice reform.• Encourage patient financial incentives in insurance packages – e.g., higher
premiums for smoking, overweight, high blood pressure, high cholesterol, etc.
• Promote shared decision-making for expensive procedures: patients review educational material on alternative treatment.
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These changes can lead to substantial healthcare cost savings
• If the U.S. could reduce health spending by 6.2%over a ten-year period, health cost growth would be in line with expected GDP growth.
• Although it is unlikely that significant savings can be achieved in the near term, several groups estimate that over a ten-year period, potential cumulative healthcare savings can amount to ~5-10% ($1.6-$3.6 trillion) of total healthcare spending over the same time period.
166
Source: Thomson Reuters. 2010. “A Path to Eliminating $3.6 Trillion in Wasteful Healthcare Spending.” http://healthcare.thomsonreuters.com/thought-leadership/testimony/WP_6_15_10.pdf; Hussey et al. 2009. “Controlling U.S. Health Care Spending — Separating Promising from Unpromising Approaches.” NEJM 361:2109-2111; AHIP. 2008. “Technical Memo: Estimates of the Potential Reduction in Health Care Costs from AHIP’s Affordability Proposals.”; Schoen et al. 2007. “Bending the Curve: Options for Achieving Savings and Improving Value in U.S. Healthcare Spending.” The Commonwealth Fund. http://www.commonwealthfund.org/Publications/Fund-Reports/2007/Dec/Bending-the-Curve--Options-for-Achieving-Savings-and-Improving-Value-in-U-S--Health-Spending.aspx.
The 6.2% savings is feasible as the most efficient providers already operate at a 12%-17% savings when compared to the national average.
167
Top 20% of hospitals are already operating at 12%+ savings when compared with the national average in cost of care
168
* Total = National average standardized risk adjusted per capita cost x total Medicare beneficiaries in sample; Total Medicare beneficiaries n = 25,832,920; Standardization of Spending: To standardize payment rates, examined Medicare’s various FFS payment systems and identified the factors that lead todifferent payment rates for the same service (e.g., local wages, input prices, DSH, GME); Estimated what Medicare would have paid for each claim without those adjustments; Risk-Adjustment of Spending: Used total Hierarchical Condition Category (HCC) risk scores to risk-adjust spending data; Calculatedstandardized risk-adjusted costs by taking the standardized costs for each beneficiary in a region and dividing them by his/her actual individual risk score** Includes VI, PR, DC and unassigned data.
Medicare fee-for-service spending and estimated savings by hospital referral region (2008)
Region
Decile 2
National average**
Decile 1
Average standardized risk-adjusted per capita costs ($USD)
Potential Medicare savings (% total)*
$6,194
$6,613
$7,500
17.6%
12.5%
--
Decile 9
Decile 10
$8,301
$8,849
--
--
Source: Institute of Medicine. 2011. “New Data on Geographic Variation.” http://iom.edu/Activities/HealthServices/GeographicVariation/Data-Resources.aspx.
6. WHERE DO WE START?
169
170
When trying to contain health costs, remember why robbers rob banks…
In any given year, 20% of the population accounts for ~80% of the cost!
171
100% 100%
20%
81%
10%
65%80%
% Total population % Total healthcare spending
1%
22%
Concentration of healthcare spending in the U.S. population (2009)
Source: “Health Care Costs: A Primer - Kaiser Family Foundation.” Accessed May 17, 2012. http://www.kff.org/insurance/7670.cfm.
Begin with a focused approach to cost control…
• Focus on the sickest patients – start with the five most expensive medical conditions and procedures.
• Improve efficiency and effectiveness for these conditions and procedures based on outcomes and costs over time.
• Once completed, move on to the next most expensive set.
• By reducing costs in this way, more resources may be freed up for broader population health initiatives.
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And start paying for value
• Establish Expanded DRGs:
– Start with Medicare's most expensive DRG (and evaluate DRG by DRG).
– Agree on outcomes.
– Set payments based on cost of resources at medical centers with best risk-adjusted outcomes + 3%.
– Announce a plan and give providers two to three years to self-organize.
• Favor independent or private oversight because:
– Government efforts are often subject to politics and lobbying.
– Government defined outcomes are watered down and turned into process measures.
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New legislation has some potential to move us in the right direction
• The Affordable Care Act includes features that may lead to high-value care:
– Contracting directly with provider groups through risk-based payment or salary-based payment.
– Allowing states to test and fully integrate care for Medicare and Medicaid (dual-eligible) patients, including oversight of all funds.
– Establishing a high-value care collaborative to implement, document and disseminate proven care methods.
– Rewarding hospitals to provide high-value care.
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However, success of many of these proposals depends on their subsequent implementation.
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The current proposal to move to Value-Based Purchasing falls short of true Pay for Value
• Hospital payments will remain on the traditional Medicare payment structure, with a 1% across-the-board reduction in payment to finance incentive payments.
• Incentive payments will be set by a total performance score based on meeting specific process measures (70%) and patient satisfaction scores (30%).
• Since key components of the value equation – resource utilization and patient outcomes – are not truly factored into the score, the CMS approach will continue to benefit the least efficient or effective providers.
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Source: “Administration Implements New Health Reform Provision to Improve Care Quality, Lower Costs.” Accessed October 3, 2011. http://www.healthcare.gov/news/factsheets/2011/04/valuebasedpurchasing04292011a.html.
There is also a need for a firm commitment to keep high-value organizations in business…
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• Park Nicollet, a large medical group based in St. Louis Park, MN, carried out a “virtual” exercise to redesign primary care delivery.
• In the new concept clinic, patients with routine complaints (e.g., sinus infection) would be treated by less expensive caregivers (e.g, nurse practitioners), sometimes remotely.
• Despite the need to expand office hours and hire additional clinical staff, Park Nicollet estimated that the model will lead to 10-15% cost savings.
• However, given that Medicare pays less or nothing for new delivery models, Park Nicollet discovered that the new concept clinic would run at a 40% loss.
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CMS needs to change the way providers are paid to ensure sustainability of healthcare delivery innovation
• On June 15th, 2012 the Center for Medicare & Medicaid Innovation announced its second batch of Healthcare Innovation Awards to support projects that aim to improve health and healthcare while lowering costs for high-need individuals enrolled in Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).
• These awards provide up to three years of funding and in many cases are being used to cover services, settings, and/ or providers not currently reimbursed by CMS.
• Each application was required to address the financial sustainability of the proposed model beyond the three year grant period.
• Given that CMS is often the final payer for the populations these projects address, unless CMS changes the way providers are reimbursed, sustainability beyond three years remains a concern.
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Now that the Supreme Court has made the decision to uphold the Affordable Care Act, it is even more important to improve the effectiveness and efficiency of the healthcare delivery system.
Otherwise, with the increased demand for health services, it will not be affordable.
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If we could implement just one thing to get started…
• Change existing financial incentives and start paying for value: Set payment based on outcomes and true cost of care by establishing Expanded DRGs.
• If we accomplish this correctly, providers will self-organize into systems that produce high-value care.
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Like a person suffering from a debilitating disease, healthcare delivery in the United States is ailing. How did we get here? Although unhealthy lifestyles and the growing and aging population are undoubtedly contributing to the rise in healthcare costs, two key factors must not be underestimated: a) advances in medical technology and b) powerful system incentives that inadvertently advance unchecked utilization throughout the healthcare delivery system.
So what can we do? In this publication, Denis A. Cortese, MD and Robert K. Smoldt, MBA draw on nearly 80 years of combined experience in healthcare delivery, to help U.S. citizens and leaders understand the concepts and options for improving healthcare delivery, and outline a roadmap for a high-value healthcare delivery system. Healthcare professionals, policy-makers, and concerned citizens will all benefit from considering their point of view.
“This excellent document is the best, single, easy to read summary of the problems in U.S. healthcare I have seen. This report provides very promising solutions that would move us away from the clearly failed, dysfunctional payment policies now prevalent in the U.S. From some of the most talented medical leaders in the country, the emphasis on payment reform which would drive significant delivery changes has the greatest probability of success.” Helen Darling, President and CEO, National Business Group on Health.