11

Rationalizing Health Spending andRationalizing Health Spending andGetting Top Value in Health Care: Getting Top Value in Health Care:

Challenges and OpportunitiesChallenges and Opportunitiesfor Massachusetts and Beyondfor Massachusetts and Beyond

by Susan Dentzer by Susan Dentzer Editor-in-Chief, Editor-in-Chief, Health AffairsHealth Affairs

The Massachusetts Medical Society The Massachusetts Medical Society State of the State Health Care ConferenceState of the State Health Care Conference

October 23, 2008October 23, 2008

22

This presentation at a glanceThis presentation at a glance

Current growth rates in health spending imperil the Current growth rates in health spending imperil the Massachusetts reforms Massachusetts reforms

Overall health spending projections and impact on Medicare, Overall health spending projections and impact on Medicare, and the nation’s overall fiscal healthand the nation’s overall fiscal health

What are the key drivers of higher health spending, and where What are the key drivers of higher health spending, and where does “excess” cost growth come from? does “excess” cost growth come from?

Issues in “bending the curve” of cost growth -- including how Issues in “bending the curve” of cost growth -- including how we bend it without sacrificing what we wantwe bend it without sacrificing what we want

33

Massachusetts’ Health Reforms: Massachusetts’ Health Reforms: NewsHour with Jim LehrerNewsHour with Jim Lehrer on PBS, on PBS,

April 28, 2008April 28, 2008

SUSAN DENTZER: “Amid the mixed SUSAN DENTZER: “Amid the mixed public verdict about the public verdict about the Massachusetts health reforms, Massachusetts health reforms, dozens of questions remain…dozens of questions remain…

““How can the costs of covering How can the costs of covering hundreds of thousands of uninsured hundreds of thousands of uninsured people be sustainable over time, people be sustainable over time, especially when the underlying rate especially when the underlying rate of growth of health care costs is of growth of health care costs is not?”not?”

LORI ABRAMS BERRY (CEO, Lynn LORI ABRAMS BERRY (CEO, Lynn Community Health Center): “We Community Health Center): “We haven't tackled the cost problem in a haven't tackled the cost problem in a serious way. And what it requires is serious way. And what it requires is much, much more work than much, much more work than insuring people.”insuring people.”

44

Massachusetts’ Health Reforms: Massachusetts’ Health Reforms: NewsHour with Jim LehrerNewsHour with Jim Lehrer on PBS, on PBS,

April 28, 2008April 28, 2008SUSAN DENTZER: “So back in SUSAN DENTZER: “So back in the state legislature, the state legislature, Massachusetts Senate Massachusetts Senate President Therese Murray has President Therese Murray has introduced a bill [passed and introduced a bill [passed and signed into law 8/10/08] that signed into law 8/10/08] that would broadly attack many would broadly attack many elements of rapidly rising elements of rapidly rising health costs.”health costs.”

THERESE MURRAY (D), THERESE MURRAY (D), “Massachusetts Senate “Massachusetts Senate president: We have to figure president: We have to figure out: Does everybody need the out: Does everybody need the latest robot? Does everybody latest robot? Does everybody need the latest scan or laser? need the latest scan or laser? Why can't we have this done in Why can't we have this done in one place and not replicate one place and not replicate these kind of services all over these kind of services all over the state?”the state?”

55

““An Act to Promote Cost Containment, An Act to Promote Cost Containment, Transparency and Efficiency in the Delivery of Transparency and Efficiency in the Delivery of

Quality Health Care” Quality Health Care”

Requires development of quality improvement and cost containment goals and Requires development of quality improvement and cost containment goals and performance benchmarks performance benchmarks

The promotion of electronic health records systems The promotion of electronic health records systems

Measures to increase the availability and accessibility of primary care and to Measures to increase the availability and accessibility of primary care and to improve the quality of chronic care improve the quality of chronic care

Dissemination of health care quality and cost data to consumers, providers and Dissemination of health care quality and cost data to consumers, providers and insurersinsurers

Requirements that pharmaceutical and medical device manufacturing Requirements that pharmaceutical and medical device manufacturing companies to report to state Department of Public Health any payment or gift of companies to report to state Department of Public Health any payment or gift of more than $50 made to a healthcare professional.more than $50 made to a healthcare professional.

Gifts to be publicly reported on the state's Web siteGifts to be publicly reported on the state's Web site

Measures to improve primary care delivery – e.g., retail clinicsMeasures to improve primary care delivery – e.g., retail clinics

66

National TrendsNational Trends

Copyright ©2008 by Project HOPE, all rights reserved.

Sean Keehan, Andrea Sisko, Christopher Truffer, Sheila Smith, Cathy Cowan, John Poisal, M. Kent Clemens the National Health Expenditure Accounts Projections Team, Health Spending Projections Through 2017: The Baby-Boom Generation Is Coming To Medicare, Health Affairs, Vol 27, Issue 2, w145-155w

88

Pros and consPros and cons

Alfred E. Neuman’s famous Alfred E. Neuman’s famous equation of health care equation of health care spending (as per Uwe spending (as per Uwe Reinhardt)Reinhardt)

$1 of health spending = $1 $1 of health spending = $1 health incomehealth income

Ergo, booming health spending Ergo, booming health spending means booming health means booming health economy, which is goodeconomy, which is good

99

Pros and ConsPros and Cons

If we spend so much on health care, we have less to If we spend so much on health care, we have less to spend on everything elsespend on everything else

Thought experiment: What would happen if real Thought experiment: What would happen if real (inflation-adjusted) per capita health spending grew (inflation-adjusted) per capita health spending grew just one percentage point faster than real per capita just one percentage point faster than real per capita GDP, versus if spending grew by 2 percentage points GDP, versus if spending grew by 2 percentage points faster than real per capita GDP? faster than real per capita GDP?

Both rates are above historical normsBoth rates are above historical norms

1010

Pros and ConsPros and ConsMichael E. Chernew, Richard Michael E. Chernew, Richard A. Hirth, and David M. CutlerA. Hirth, and David M. CutlerIncreased Spending On Health Increased Spending On Health Care: How Much Can The Care: How Much Can The United States Afford?United States Afford?Health Affairs,Health Affairs, July/August July/August 2003; 22(4): 15-25. 2003; 22(4): 15-25. 1% point gap: health care is 1% point gap: health care is “affordable” through 2075; “affordable” through 2075; 55% of real increase in per 55% of real increase in per capita income goes to health capita income goes to health carecare2% point gap: health care 2% point gap: health care affordable only through 2039; affordable only through 2039; 124.2% of real increase in per 124.2% of real increase in per capita income devoted to capita income devoted to health care (e.g., impossible)health care (e.g., impossible)

Michael E. Chernew, Department of Health Care Policy,Harvard Medical School

Copyright ©2003 by Project HOPE, all rights reserved.

Michael E. Chernew, Richard A. Hirth, and David M. Cutler, Increased Spending On Health Care: How Much Can The United States Afford?, Health Affairs, Vol 22, Issue 4, 15-25

1212

Strengths of U.S. health care: a samplingStrengths of U.S. health care: a sampling

Innovation and access to newInnovation and access to new

treatments and technologiestreatments and technologies

Prestigious world classPrestigious world class

academic medical centersacademic medical centers

Higher cancer survival rates than rest of worldHigher cancer survival rates than rest of world

ConvenienceConvenience

1313

Health Care: We’re Getting ValueHealth Care: We’re Getting Value Analysis of increased Analysis of increased spending on MI care, 1984-spending on MI care, 1984-9898

Nearly half of cost increases Nearly half of cost increases (45 percent) result from (45 percent) result from people getting more people getting more intensive technologies over intensive technologies over time; increased prices time; increased prices account for 33 percent. account for 33 percent.

Life expectancy for the Life expectancy for the average person with a heart average person with a heart attack was just under five attack was just under five years in 1984 but had risen years in 1984 but had risen to six years by 1998. to six years by 1998.

David Cutler, Harvard (top);Mark McClellan, BrookingsSource: David M. Cutler and Mark McClellanSource: David M. Cutler and Mark McClellan

Is Technological Change In Medicine Worth It?Is Technological Change In Medicine Worth It?Health AffairsHealth Affairs, September/October 2001; 20(5): 11-29. , September/October 2001; 20(5): 11-29.

1414

Health Care: We’re Getting ValueHealth Care: We’re Getting Value Authors valued the health Authors valued the health

benefit of this additional benefit of this additional year of life at $100,000.year of life at $100,000.

Subtracting “value” (what Subtracting “value” (what we would pay for an extra we would pay for an extra year of life) from costs, the year of life) from costs, the net benefit is about $60,000 net benefit is about $60,000

Equals $7 gain for every $1 Equals $7 gain for every $1 spent.spent.

Source: David M. Cutler and Mark Source: David M. Cutler and Mark McClellan, Is Technological Change In McClellan, Is Technological Change In Medicine Worth It?Medicine Worth It?Health AffairsHealth Affairs, September/October 2001; , September/October 2001; 20(5): 11-29. 20(5): 11-29. David Cutler, Harvard (top);

Mark McClellan, Brookings

1515

We don’t pay for goods and services with We don’t pay for goods and services with “value,” but with dollars: “value,” but with dollars: See See It’s a Wonderful Life It’s a Wonderful Life

Classic dialogue (actors Jimmy Classic dialogue (actors Jimmy Stewart, Henry Travers) Stewart, Henry Travers)

George Bailey (Stewart): “You George Bailey (Stewart): “You don't happen to have eight don't happen to have eight thousand bucks on you?”thousand bucks on you?”

Clarence Oddbody, Angel Clarence Oddbody, Angel Second Class (Travers): “Oh, Second Class (Travers): “Oh, no, no. We don't use money in no, no. We don't use money in heaven.”heaven.”

George Bailey: “Comes in George Bailey: “Comes in pretty handy down here, bub.” pretty handy down here, bub.”

1616

The Value Equation?The Value Equation?U.S. versus the rest of the U.S. versus the rest of the

Organization of Economic Cooperation and Organization of Economic Cooperation and Development Countries*Development Countries*

U.S. has highest per capita expenditure on health care (50% U.S. has highest per capita expenditure on health care (50% greater than Luxembourg or Switzerland) greater than Luxembourg or Switzerland)

U.S. per capita spending grew fromU.S. per capita spending grew from $5,800 to $6,800 --17% -- in the 3 years from 2003 to 2006 $5,800 to $6,800 --17% -- in the 3 years from 2003 to 2006

The US spends ~$650 billion more annually on health care than peer The US spends ~$650 billion more annually on health care than peer OECD countries after adjusting for higher national income (wealth)OECD countries after adjusting for higher national income (wealth)

*the world’s 30 largest industrialized countries*the world’s 30 largest industrialized countries

Source: McKinsey Global Institute; OECDSource: McKinsey Global Institute; OECD

1717

Roughly 44 percent of financing is through public programs Roughly 44 percent of financing is through public programs (federal, state, local)(federal, state, local)

Roughly 56 percent is private (out of pocket plus premiums for Roughly 56 percent is private (out of pocket plus premiums for private health coverage)private health coverage)

In absolute dollars, public financing of health care in US = 5.8% In absolute dollars, public financing of health care in US = 5.8% of GDP; median for OECD countries is 5.9% of GDPof GDP; median for OECD countries is 5.9% of GDP

One interpretation: One interpretation: as share of GDP we have at least as big a as share of GDP we have at least as big a publicly financed health sector as other industrialized publicly financed health sector as other industrialized countries; we just have a far bigger private sector component countries; we just have a far bigger private sector component in addition in addition

US public sources spent $2,051 per person in 2000, making the US public sources spent $2,051 per person in 2000, making the US one of the top four spenders worldwide in terms of public US one of the top four spenders worldwide in terms of public coverage and ahead of United Kingdom’s $1,429coverage and ahead of United Kingdom’s $1,429

Source: Gerald P. Anderson, Uwe E. Reinhardt, Peter S. Hussey and Varduhi Petrosyan, “It’s the Prices, Source: Gerald P. Anderson, Uwe E. Reinhardt, Peter S. Hussey and Varduhi Petrosyan, “It’s the Prices, Stupid: Why the United States Is So Different From Other Countries.” Stupid: Why the United States Is So Different From Other Countries.” Health AffairsHealth Affairs, vol. 22, no. 3, pp. 89-, vol. 22, no. 3, pp. 89-105.105.

U.S. health spending:U.S. health spending:Public vs. privatePublic vs. private

1818

Backdrop of Fiscal Concerns: Backdrop of Fiscal Concerns: The Nation’s Implied Promises about MedicareThe Nation’s Implied Promises about Medicare

Present value of promised benefits as of 2006Present value of promised benefits as of 2006

Social Security: $6.4 trillionSocial Security: $6.4 trillion

Medicare Part A (hospital insurance): $11.3 trillionMedicare Part A (hospital insurance): $11.3 trillion

Medicare Part B (doctors and outpatient): $13.1 trillionMedicare Part B (doctors and outpatient): $13.1 trillion

Medicare Part D (prescription drugs): $7.9 trillionMedicare Part D (prescription drugs): $7.9 trillion

Total Medicare: $32.3 trillion (omitting Part C, Medicare Advantage plans)Total Medicare: $32.3 trillion (omitting Part C, Medicare Advantage plans)

Total Medicare and Social Security: $38.7 trillionTotal Medicare and Social Security: $38.7 trillion

Source: Government Accountability Office, 2007Source: Government Accountability Office, 2007

1919

““Excess” U.S. Spending on Health Care: Excess” U.S. Spending on Health Care: Where Does It Go?Where Does It Go?

Outpatient care accounts for 65% of the spending above Outpatient care accounts for 65% of the spending above expectedexpected

Growth is fueled by rising demand, technological innovation Growth is fueled by rising demand, technological innovation coupled with higher reimbursement, insurance benefit design, coupled with higher reimbursement, insurance benefit design, and physician self referral and physician self referral

Hospital outpatient care was the fastest growing component of Hospital outpatient care was the fastest growing component of overall outpatient spending from 2003 to 2006overall outpatient spending from 2003 to 2006

Compound annual growth rate: 9.3%Compound annual growth rate: 9.3%

*Source: McKinsey Global Institute Analysis, 2008*Source: McKinsey Global Institute Analysis, 2008

2020

““Excess” U.S. Spending on Health Care: Excess” U.S. Spending on Health Care: Where Does It Go?Where Does It Go?

*Source: McKinsey Global Institute Analysis, 2008*Source: McKinsey Global Institute Analysis, 2008

Hospital inpatient spending grew 6 percent annually between 2003 and 2006

75 percent of the increase was hospital prices

2121

What’s Happening in Massachusetts? What’s Happening in Massachusetts? Hospital utilization of chronically ill Medicare Hospital utilization of chronically ill Medicare

beneficiaries, last 6 months of lifebeneficiaries, last 6 months of life

Total Medicare reimbursements per enrollee, last 6 months of Total Medicare reimbursements per enrollee, last 6 months of life (adjusted), 2001-2005life (adjusted), 2001-2005

$29,541 per beneficiary$29,541 per beneficiary, sixth highest state rate (only NJ, DC, , sixth highest state rate (only NJ, DC, CA, NY and MD are higher)CA, NY and MD are higher)

Hospital days per decedent, last six months of life, 2001-2005: Hospital days per decedent, last six months of life, 2001-2005: 11.57 days, 2311.57 days, 23rdrd highest state rate highest state rate

For comparison, 9.64 days per decedent in Maine, 8.77 days in For comparison, 9.64 days per decedent in Maine, 8.77 days in Vermont, 9.39 days in New Hampshire, 11.62 in ConnecticutVermont, 9.39 days in New Hampshire, 11.62 in Connecticut

Source: Dartmouth Atlas of Health Care, www.dartmouthatlas.orgSource: Dartmouth Atlas of Health Care, www.dartmouthatlas.org

2222

““Excess” U.S. Spending on Health Care: Excess” U.S. Spending on Health Care: Where Does It Go? Where Does It Go? Prescription DrugsPrescription Drugs

*Source: McKinsey Global Institute Analysis, 2008*Source: McKinsey Global Institute Analysis, 2008

U.S. pays far more for branded pharmaceuticals, less for generics than other OECD

U.S. consumers pay for higher pharma marketing expenditures in U.S.

2323

““Excess” U.S. Spending on Health Care: Excess” U.S. Spending on Health Care: Where Does It Go?Where Does It Go?

*Source: McKinsey Global Institute Analysis, 2008*Source: McKinsey Global Institute Analysis, 2008

U.S. spends $91 billion more annually than would be expected on health administration and insurance

$34 billion annually on administration and marketing of private health insurance

Largely attributable to existence of private insurance system, which is intrinsically more expensive

With respect to public insurance administration, 20% of increase over last 3 years has come in spending to administer Medicare Part D

2424

The Value Equation?The Value Equation?U.S. versus the rest of the U.S. versus the rest of the

Organization of Economic Cooperation and Organization of Economic Cooperation and Development Countries*Development Countries*

U.S. has lower life expectancy and higher infant U.S. has lower life expectancy and higher infant mortality mortality

Leaving aside social determinants of health, we know Leaving aside social determinants of health, we know U.S. health care isn’t “fixing” the situationU.S. health care isn’t “fixing” the situation

*the world’s 30 largest industrialized countries*the world’s 30 largest industrialized countries

Source: McKinsey Global Institute; OECDSource: McKinsey Global Institute; OECD

2525

What are the key drivers of long-term increases What are the key drivers of long-term increases

in health spending?in health spending? The Synthesis Project, Center The Synthesis Project, Center for Studying Health System for Studying Health System Change (funded by Robert Change (funded by Robert Wood Johnson Foundation)Wood Johnson Foundation)

Paul Ginsburg, director, rightPaul Ginsburg, director, right

www.hschange.orgwww.hschange.org and and www.rwjf.orgwww.rwjf.org

2626

What is Driving the GrowthWhat is Driving the Growth in Health Care Spending? in Health Care Spending?

Advancing technology Advancing technology

Accounts for between one-third and two-thirds of growth in Accounts for between one-third and two-thirds of growth in health spendinghealth spending

Technology drives spending through both substitution and Technology drives spending through both substitution and expansionexpansion

Much technology beneficialMuch technology beneficial

Some doesn’t provide sufficient value or is applied too broadlySome doesn’t provide sufficient value or is applied too broadly

2727

Example: ImagingExample: Imaging

Between 1997 and 2004, the number of MRI scanners in Between 1997 and 2004, the number of MRI scanners in Massachusetts tripled to 145Massachusetts tripled to 145

Roughly equal to total MRI scanners in CanadaRoughly equal to total MRI scanners in Canada

From 1998 to 2002, the number of patient MRI scans in the state From 1998 to 2002, the number of patient MRI scans in the state increased by 80 percent, to almost 500,000 a year. increased by 80 percent, to almost 500,000 a year.

Nationally, more than 7,000 sites offering MRI, performing more Nationally, more than 7,000 sites offering MRI, performing more than 26 million scans annuallythan 26 million scans annually

Each additional MRI scanner associated with 733 additional Each additional MRI scanner associated with 733 additional MRI procedures among Medicare beneficiaries, 1995-2004MRI procedures among Medicare beneficiaries, 1995-2004

Source: Liz Kowalczyk, Boston Globe, September 28, 2004; Source: Liz Kowalczyk, Boston Globe, September 28, 2004; Health AffairsHealth Affairs (forthcoming); (forthcoming); IMV Medical InformationIMV Medical Information

2828

What is Driving the GrowthWhat is Driving the Growth in Health Care Spending? in Health Care Spending?

Health StatusHealth Status

Increasing rates of obesity a major Increasing rates of obesity a major drier of health spendingdrier of health spending

Explains approximately 12 percent of Explains approximately 12 percent of growth of health spending in recent growth of health spending in recent years (Congressional Budget Office)years (Congressional Budget Office)

Will continue as driver until obesity Will continue as driver until obesity trend reversedtrend reversed

Source; The Synthesis Project; Source; The Synthesis Project; Congressional Budget OfficeCongressional Budget Office

2929

What is driving the growth in health spendingWhat is driving the growth in health spending? ? Productivity in the health care Productivity in the health care sector is in all likelihood sector is in all likelihood increasing at a low rateincreasing at a low rate

There is little competition on There is little competition on the basis of pricethe basis of price

Benefit structures offer little Benefit structures offer little reward for choosing low-cost reward for choosing low-cost providersproviders

Fee-for-service payment Fee-for-service payment penalizes rather than rewards penalizes rather than rewards re-engineering care to increase re-engineering care to increase efficiencyefficiency

Source: The Synthesis ProjectSource: The Synthesis Project

Real health care: It’s not like on “House”

3030

What is Not Driving Health Spending What is Not Driving Health Spending to a Substantial Degreeto a Substantial Degree

Not demographics; “aging” of Not demographics; “aging” of population at present roughly population at present roughly stablestable

This will change in futureThis will change in future

Not medical malpractice – Not medical malpractice – neither a large factor in health neither a large factor in health care costs or a major driver of care costs or a major driver of spending growthspending growth

Source: The Synthesis Project

3131

What is to be done?What is to be done?

3232

Minimize unnecessary variations in supply-Minimize unnecessary variations in supply-sensitive health care: sensitive health care:

The Dartmouth Institute AgendaThe Dartmouth Institute Agenda

3333

Variations in Chronic Disease CareVariations in Chronic Disease Care

2006 edition of the 2006 edition of the Dartmouth Atlas of Health Dartmouth Atlas of Health CareCare

Analysis of records of 4.7 Analysis of records of 4.7 million Medicare enrollees million Medicare enrollees from 2000-2003from 2000-2003

Enrollees had at least one Enrollees had at least one of 12 chronic illnessesof 12 chronic illnesses

Atlas examined care and Atlas examined care and cost in last 6 months of life cost in last 6 months of life

3434

Inexplicably wide range in care and costInexplicably wide range in care and cost

Average number of days spent in Average number of days spent in hospital, chronically ill Medicare hospital, chronically ill Medicare beneficiaries, last 6 months of lifebeneficiaries, last 6 months of life

10.1 at Stanford University 10.1 at Stanford University HospitalHospital

12.9 at Mayo Clinic (St. Mary’s 12.9 at Mayo Clinic (St. Mary’s Hospital, Rochester MN)Hospital, Rochester MN)

16.5 at Massachusetts General 16.5 at Massachusetts General HospitalHospital

23.9 at New York Presbyterian, 23.9 at New York Presbyterian, NYC (right)NYC (right)

3535

Physician visits in last 6 months of lifePhysician visits in last 6 months of life

New York University Medical New York University Medical Center: 76.2 visitsCenter: 76.2 visits

Robert Wood Johnson Robert Wood Johnson University Hospital, NJ University Hospital, NJ (right): 57.7 (right): 57.7

University of Kentucky University of Kentucky hospital: 18.6 visitshospital: 18.6 visits

3636

Commonwealth Fund’s Commonwealth Fund’s “Bending the Curve” report, Dec. 2007“Bending the Curve” report, Dec. 2007

A package of initiatives A package of initiatives could slow U.S. health could slow U.S. health spending growth by $1.5 spending growth by $1.5 trillion over 10 years, trillion over 10 years, through such measures as through such measures as

Promoting health Promoting health information technology: $88 information technology: $88 billionbillion

Comparative effectiveness Comparative effectiveness research: $368 billionresearch: $368 billion

..Patient shared decision-Patient shared decision-making: $9 billion making: $9 billion

Source: C. Schoen, S. Guterman, A. Shih, J. Lau, S. Kasimow, A. Gauthier, and K. Davis, Bending the Curve: Options for Achieving Savings and Improving Value in U.S. Health Spending, The Commonwealth Fund, December 2007. www.cmwf.org

Commonwealth Fund PresidentKaren Davis

3737

Commonwealth Fund RecommendationsCommonwealth Fund Recommendations

Promoting Health and Disease Prevention: Promoting Health and Disease Prevention:

reducing tobacco use - $191 billion reducing tobacco use - $191 billion reducing obesity - $283 billionreducing obesity - $283 billion positive incentives for health - $19 billionpositive incentives for health - $19 billion creating positive incentives for healthcreating positive incentives for health

Realigning Incentives to Encourage Quality and EfficiencyRealigning Incentives to Encourage Quality and Efficiency

Hospital pay-for-performance - $34 billionHospital pay-for-performance - $34 billion Episode of care payment - $229 billionEpisode of care payment - $229 billion Strengthening Primary Care and Care Coordination - $194 billionStrengthening Primary Care and Care Coordination - $194 billion Limit federal tax exemptions for employer premium contributions - Limit federal tax exemptions for employer premium contributions -

$131 billion$131 billion

3838

Commonwealth Fund RecommendationsCommonwealth Fund Recommendations

Correct Price Signals in Health CareCorrect Price Signals in Health Care

Reset “benchmark” rates for Medicare Advantage Plans - $50 Reset “benchmark” rates for Medicare Advantage Plans - $50 billionbillion

Negotiate Prescription Drug prices under Medicare - $43 billionNegotiate Prescription Drug prices under Medicare - $43 billion

All-payer provider payment methods and rates - $122 billionAll-payer provider payment methods and rates - $122 billion

Limit payment updates in high-cost areas: $158 billion Limit payment updates in high-cost areas: $158 billion

3939

The Solutions? The Solutions? It’s partly the payment system, dummy!It’s partly the payment system, dummy!

Fee-for-service system Fee-for-service system “increasingly viewed as an obstacle “increasingly viewed as an obstacle to achieving effective, coordinated to achieving effective, coordinated and efficient care”*and efficient care”*

One solution: Base payment in One solution: Base payment in whole or part on total care of patient whole or part on total care of patient across an acute episode of illness across an acute episode of illness or period of timeor period of time

Endorsed by Institute of Medicine Endorsed by Institute of Medicine Committee on Redesigning Health Committee on Redesigning Health Insurance Performance Measures, Insurance Performance Measures, Payment and Performance Payment and Performance Improvement ProgramsImprovement Programs

*Source: Karen Davis, “Paying for Care *Source: Karen Davis, “Paying for Care Episodes and Care Coordination,” NEJM Episodes and Care Coordination,” NEJM vol. 356:1166-1168, March 15, 2007vol. 356:1166-1168, March 15, 2007

4040

RAND Health’s Advice to StateRAND Health’s Advice to State

Substantial infrastructure Substantial infrastructure investments may be needed investments may be needed to rationalize care and curb to rationalize care and curb excess spendingexcess spending

E.g., HIT; electronic health E.g., HIT; electronic health record/personal health record/personal health record platforms and data record platforms and data analysisanalysis

Revised payment Revised payment methodologiesmethodologies

Elizabeth McGlynn, PhDRAND Corp.

4141

Synthesis Project RecommendationsSynthesis Project Recommendations

Better target medical technology to patients likely to obtain Better target medical technology to patients likely to obtain high valuehigh value

Effectiveness researchEffectiveness research Provider payment reformProvider payment reform Consumer incentives to use most efficient providersConsumer incentives to use most efficient providers

Reduce obesity, improve wellnessReduce obesity, improve wellness

Improve efficiency through provider payment reformImprove efficiency through provider payment reform

Source: Synthesis Project report posted at www.hschange.org

4242

Price TransparencyPrice Transparency

Increasing feature of “medical tourism” destinationsIncreasing feature of “medical tourism” destinations

E.g., Bumrungrad Hospital, Bangkok, Thailand E.g., Bumrungrad Hospital, Bangkok, Thailand

One of Thailand’s leading hospitals and has a range of services One of Thailand’s leading hospitals and has a range of services available for overseas patientsavailable for overseas patients

Already certified by some US insurers to provide care and be Already certified by some US insurers to provide care and be reimbursed (e.g., Aetna)reimbursed (e.g., Aetna)

Web site allows price comparisons (Web site allows price comparisons (www.bumrungrad.comwww.bumrungrad.com))

E.g., “package price” for CABG = $14,470 E.g., “package price” for CABG = $14,470

4343

Americans and Chronic IllnessAmericans and Chronic Illness

Chronic disease is the #1 Chronic disease is the #1 cause of death and disability cause of death and disability in the USin the US

More Americans suffer from More Americans suffer from chronic illness than voted in chronic illness than voted in the last Presidential electionthe last Presidential election

Expenditures on chronic Expenditures on chronic illness account for 75% of total illness account for 75% of total US health spendingUS health spending

About 2/3 of the rise in About 2/3 of the rise in spending over the past 20 spending over the past 20 years is linked to rising years is linked to rising prevalence of chronic diseaseprevalence of chronic disease

Source: Partnership to Fight Chronic Disease, Policy Platform, September 2007

4444

The Solutions?The Solutions?

Chronic Care Model Chronic Care Model

Includes: Includes:

organizational supportorganizational support clinical information services clinical information services

and disease registriesand disease registries team-based careteam-based care case managementcase management regular follow-upregular follow-up For patient: decision For patient: decision

support, self-management support, self-management support, community support, community resourcesresources

4545

The Solutions?The Solutions? The “Patient-Centered Medical The “Patient-Centered Medical Home”*Home”*

Based on ongoing personal Based on ongoing personal relationship with physician relationship with physician who provides and coordinates who provides and coordinates continuous and continuous and comprehensive health care comprehensive health care through team of health care through team of health care professionalsprofessionals

Care is coordinated across Care is coordinated across health care system (hospitals, health care system (hospitals, home health agencies, nursing home health agencies, nursing homes, consultants etc.homes, consultants etc.

**Source: American Academy of Pediatrics, Source: American Academy of Pediatrics, American Academy of Family Physicians, American Academy of Family Physicians, American Osteopathic Association, American Osteopathic Association, American College of Physicians joint American College of Physicians joint statement of principles, February 2007 statement of principles, February 2007

4646

The Patient-Centered Medical HomeThe Patient-Centered Medical Home

Evidence-based medicine Evidence-based medicine and clinical decision-and clinical decision-support tools support tools

Physician accountability for Physician accountability for continuous quality continuous quality improvement through improvement through voluntary performance voluntary performance measurementmeasurement

Information technology Information technology supports optimal patient supports optimal patient care, enhanced care, enhanced communicationcommunication

Open scheduling, expanded Open scheduling, expanded hourshours

4747

How Geisinger Does ItHow Geisinger Does It

Source: Ronald A. Paulus, Source: Ronald A. Paulus, Karen Davis, and Glenn D. Karen Davis, and Glenn D. SteeleSteeleContinuous Innovation In Continuous Innovation In Health Care: Implications Of Health Care: Implications Of The Geisinger Experience.The Geisinger Experience.Health AffairsHealth Affairs, , September/October 2008; 27(5): September/October 2008; 27(5): 1235-1245. 1235-1245.

4848

AnatomyAnatomy2.6 million in service area 2.6 million in service area 43 of PA’s 67 counties (including Geisinger Health Plan)43 of PA’s 67 counties (including Geisinger Health Plan)Rural, aging, non-transientRural, aging, non-transient

Medical informatics (strategic commitment) Medical informatics (strategic commitment)

> 700 physicians> 700 physicians40 community practice sites; ~200 primary care physicians40 community practice sites; ~200 primary care physiciansMultiple specialty hospitals and ASCsMultiple specialty hospitals and ASCs

Tertiary/quaternary care medical centersTertiary/quaternary care medical centers and specialty hospitalsand specialty hospitals

Hub & Spoke “Continuity of Care” designHub & Spoke “Continuity of Care” design

Geisinger Health System

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Targets for the Geisinger Targets for the Geisinger TransformationTransformation

Unjustified variationUnjustified variation

Fragmentation of care-givingFragmentation of care-giving

Perverse payment incentivesPerverse payment incentives

– Units of workUnits of work

– Outcome irrelevantOutcome irrelevant

Patient as passive recipient of care, not active Patient as passive recipient of care, not active participantparticipant

Managing to Success

5050

Transformation Initiatives*Transformation Initiatives*

Geisinger Medical Home (ProvenHealth Navigator)Geisinger Medical Home (ProvenHealth Navigator)

Chronic Disease Care OptimizationChronic Disease Care Optimization

Transitions of Care Transitions of Care

ProvenCareProvenCareSMSM for acute episodic care (the “warranty”) for acute episodic care (the “warranty”)

*Achievable only through innovation*Achievable only through innovation

5151

What is Needed (at the least):What is Needed (at the least):Care model design capabilitiesCare model design capabilities

Dedicated innovation teamDedicated innovation team

Financial incentive alignmentFinancial incentive alignment

5252

ProvenHealth NavigatorProvenHealth NavigatorPartnership between clinical delivery and insurance Partnership between clinical delivery and insurance organizationorganizationIncludes components of chronic care management, Includes components of chronic care management, Medical Home, and Patient-Centered Primary CareMedical Home, and Patient-Centered Primary CarePartnership between primary care physicians and GHP that Partnership between primary care physicians and GHP that

provides 360-degree, 24/7 continuum of careprovides 360-degree, 24/7 continuum of care““Embedded” nursesEmbedded” nursesAssured easy phone accessAssured easy phone accessFollow-up calls post-discharge and post-ED visitFollow-up calls post-discharge and post-ED visitTelephonic monitoring/case managementTelephonic monitoring/case managementGroup visits/educational servicesGroup visits/educational servicesPersonalized tools (e.g., chronic disease report cards)Personalized tools (e.g., chronic disease report cards)

5353

Admission MetricsAdmission Metrics

BaselineBaseline

Pre-Program Pre-Program

Jan – Oct. 2006Jan – Oct. 2006

First Year ofFirst Year of

Pilot Pilot

Jan-Oct. 2007Jan-Oct. 2007

Percent Percent ReductionReduction

GHP MC GHP MC MedicareMedicare 311/1,000311/1,000 311/1,000311/1,000 0%0%

LewistownLewistown365/1,000365/1,000 291/1,000291/1,000 -20%-20%

LewisburgLewisburg269/1,000269/1,000 232/1,000232/1,000 -13.8%-13.8%

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Readmission MetricsReadmission MetricsBaseline: Pre-Baseline: Pre-

ProgramProgram

2005 Q4 – 2006 Q32005 Q4 – 2006 Q3

Readmission RateReadmission Rate

First Year: PilotFirst Year: Pilot

2006 Q4 – 2007 Q32006 Q4 – 2007 Q3

Readmission RateReadmission Rate

% % ReductionReduction

GHP Managed Care GHP Managed Care (MC) Medicare(MC) Medicare

16.6%16.6% 16.5%16.5% 0%0%

GHP MC Medicare GHP MC Medicare

GHS SitesGHS Sites17.0%17.0% 16.6%16.6% -2.3%-2.3%

All Medical Home All Medical Home SitesSites

19.5%19.5% 15.9%15.9% -18.5%-18.5%

Lewistown (2,120 pts)Lewistown (2,120 pts) 20.3%20.3% 17.8%17.8% -12.3%-12.3%

Lewisburg Lewisburg

(645 pts)(645 pts)15.2%15.2% 7.9%7.9% -48.0%-48.0%

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““Supply-chain” managementSupply-chain” management

How Wal-Mart brought the U.S. How Wal-Mart brought the U.S. the $4-a-month generic the $4-a-month generic subscriptionsubscription

Recognized retail pharmacists Recognized retail pharmacists on average reaped 80% margin on average reaped 80% margin on generic drugson generic drugs

Priced monthly prescriptions at Priced monthly prescriptions at $4 to undercut $5/month health $4 to undercut $5/month health plan co-pays on genericsplan co-pays on generics

““Gave margin back” to Gave margin back” to customerscustomers

Now many retailers offer them – Now many retailers offer them – Target, Safeway etc. Target, Safeway etc.

John Agwunobi, President, Health & Wellness Business Unit, Wal-Mart Stores Division.Former U.S. Assistant Secretary of Health, HHS

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ConclusionsConclusions

U.S. probably not likely to U.S. probably not likely to create “global budget” or create “global budget” or overall ceiling on health overall ceiling on health spendingspending

Ergo, question is: How do we Ergo, question is: How do we get the health care we value and get the health care we value and want and banish the part that is want and banish the part that is unnecessary or wasteful?unnecessary or wasteful?

How do we improve Americans’ How do we improve Americans’ health while doing this? health while doing this?

Narrow efforts probably amount Narrow efforts probably amount to “squeezing the balloon” to “squeezing the balloon”

5757

The Lessons?The Lessons?

No magic bullets; battle must be waged on multiple frontsNo magic bullets; battle must be waged on multiple fronts

Substantial infrastructure investments may precede savings – Substantial infrastructure investments may precede savings – e.g., HIT, comparative effectiveness researche.g., HIT, comparative effectiveness research

Major systems changes needed – e.g., payment reform to Major systems changes needed – e.g., payment reform to encourage efficiency; performance-based payment; encourage efficiency; performance-based payment; reexamining certificate-of-need?reexamining certificate-of-need?

Major delivery system changes probably needed; e.g., Major delivery system changes probably needed; e.g., accountable health organizations?accountable health organizations?

Increasing wellness/fighting obesity may require more public Increasing wellness/fighting obesity may require more public health than conventional health care interventionshealth than conventional health care interventions

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The Verdict on Reforming Health Care?The Verdict on Reforming Health Care?

““Somebody has to do something, and it’s just incredibly Somebody has to do something, and it’s just incredibly pathetic that it has to be us.”pathetic that it has to be us.”

--the late Jerry Garcia of the Grateful Dead--the late Jerry Garcia of the Grateful Dead