Understanding the Road to Payment
Reform in Health Care
Michael Bailit
January 11, 2013
Questions I Plan to Address This Morning
1. Why payment reform, and why does it matter to
employers?
2. What are the approaches being implemented?
3. Who is utilizing them nationally and in Minnesota?
4. What is the evidence that they benefit employers?
2
Health Expenditures Have Dramatically
Increased and Continue to Rise
National Health Expenditures Per Capita
1960-2009
$9,000
$8,000
$7,000
$6,000
$4,878
$5,000
$5,240
$5,682
$6,098
$6,458
$6,827
$7,198
$7,561
$7,845
$8,086
$4,000
$2,853
$3,000
$2,000
$1,110
$1,000
$147
$356
$0
1960
1970
1980
1990
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at
http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; NHE summary including share of GDP, CY 19602009; file nhegdp09.zip).
3
and excluding Medicare and long-term care.
MDH Projections forFigure
MN5 Health Care Spending
Health Care Spending in Minnesota Without the Impact of Reform, 2000 to 2020
$90
$80
76.6
$70
Billions of dollars
Projected Spending
Actual Spending
$60
56.2
$50
37.7
$40
$30
25.8
37.2
25.8
19.9
$20
14.0
$10
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 10/a 10/b 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Health Care Spending
Health Care Spending excluding Medicare and long-term care
Source: MDH historical spending estimates and projections from Mathmatica Policy Research, Inc.
Minnesota Health Care Spending and Projections
 Total Health Care Spending
 Health Care Spending excluding Medicare and long-term care
4
Premiums and Worker’s Contributions to Them Have
Dramatically Outpaced Earnings and Inflation
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010. Bureau of Labor Statistics, Consumer
Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2010; Bureau of Labor Statistics, Seasonally
Adjusted Data from the Current Employment Statistics Survey, 1999-2010 (April to April).
5
More Spending Does Not Equal Better Care
HEALTH CARE SPENDING PER CAPITA
WHO RANKING ON HEALTH SYSTEM PERFORMANCE
(2008)3
(2000)4
$8,000
$7,538
1. France
2. Italy
3. San Marino…
$7,000
$6,000
$5,000
$4,000
$3,696
$3,241 $3,129
$3,000
18. United Kingdom…
36. Costa Rica
37. United States
38. Slovenia
$2,000
$1,000
$United France OECD
States
Median
UK
OECD Health Data 2010; The World Health report 2000 statistical annex, Annex Table 1 www.who.int/whr/2000/annex/en/index.html6
Need to Improve Health Care Quality
 Tens of thousands of Americans die each year from
medical errors and hundreds of thousands suffer
nonfatal injuries that a high-quality health care system
would largely prevent.*
 In Minnesota**:
– 9% of patients with depression have experienced substantial
improvement (i.e., PHQ-9 score at six months decreased by
at least 50% from their initial PHQ-9 score)
– 24% of children with asthma receive optimal care
– 37% of adults with diabetes receive optimal care
– 40% of adults receive optimal vascular care
* To Err Is Human: Building a Safer Health System. Linda T.Kohn, Janet M.Corrigan, and Molla S.Donaldson, eds. Washington,
D.C: National Academy Press, 2000.
** Minnesota Community Measurement (2011). 2011 Health Care Quality Report. Retrieved from
http://mncm.org/site/upload/files/Book_6_21_2012.pdf
7
Many Drivers of Growing Costs in Health Care
Fee-forService
Payment
Model
Increase
in Chronic
Diseases
Service
Volume
Drives
Revenue
Lack of
Provider
Coordination
Aging
Population
Practice
Variation
Insurer
Consolidation
Drug Exclusivity
Policies
Diagnostics
(imaging, etc.)
Personalized
Medicine
Abuse
End-of-Life Care
Lack of Evidence
-Based Care
Pharmaceuticals
Lack of Price-Based
Competition
Fraud
Belief That
More is Better
Provider
Consolidation
PRICE
Other
Factors
Consumer
Advertising
Defensive
Medicine
Lifestyle &
Behaviors
VOLUME
Duplicative/
Consumer
Unnecessary
Demand
Care
Direct-to-
Patients are
Insulated from
Cost of Care
Low/ No
Reimbursement
Rates for Medicare,
Medicaid and
Uninsured
Global Companies
Increase US Prices
to Compensate for
Low Prices in
Other Countries
Costs (e.g., RN
salaries)
Consumers’
Preference
for Brand
Name
Providers &
Services
Growing
Costs
Preference for
Care in High
Cost Settings
(e.g., ER,
specialty care)
Technological
Lack of
Provider Costs/ Consumer
Competition Advances
Cost-Shifting
Preferences
8
Today’s Focus:
Problems Caused by Fee-for-Service Payment
Fee-forService
Payment
Model
Increase
in Chronic
Diseases
Service
Volume
Drives
Revenue
Lack of
Provider
Coordination
Aging
Population
Practice
Variation
Insurer
Consolidation
Drug Exclusivity
Policies
Diagnostics
(imaging, etc.)
Personalized
Medicine
Abuse
End-of-Life Care
Lack of Evidence
-Based Care
Pharmaceuticals
Lack of Price-Based
Competition
Fraud
Belief That
More is Better
Provider
Consolidation
PRICE
Other
Factors
Consumer
Advertising
Defensive
Medicine
Lifestyle &
Behaviors
VOLUME
Duplicative/
Consumer
Unnecessary
Demand
Care
Direct-to-
Patients are
Removed from
Cost of Care
Low/ No
Reimbursement
Rates for Medicare,
Medicaid and
Uninsured
Global Companies
Increase US Prices
to Compensate for
Low Prices in
Other Countries
Costs (e.g., RN
salaries)
Consumers’
Preference
for Brand
Name
Providers &
Services
Growing
Costs
Preference for
Care in High
Cost Settings
(e.g., ER,
specialty care)
Technological
Lack of
Provider Costs/ Consumer
Competition Advances
Cost-Shifting
Preferences
9
Why is this relevant to employers?
 You – employers, consumers and public payers are paying the bills when your health plan gives
providers a reward for doing more – and doing more
of what is most profitable.
 Employers have been absent from health planprovider reform discussions despite the fact that they
are discussing how to spend your money.
 Absent employer action, health plans will pay
providers in the fashion in which providers prefer to
be paid.
 Changes in payment that will truly remove the
incentive for inflation need to start with employers.
10
What is Fee-for-Service Payment?
 It is the dominant payment model in the U.S. health
care system – and has been for decades.
 Fee-for-service (FFS) payment offers providers a
specific amount of compensation in exchange for
providing a patient with a specific service.
 FFS payment is inherently inflationary.
11
FFS: Getting What You Pay For
“Fee-For-Service” pays for volume, so that is exactly what
we get:
LOTS OF VOLUME
(visits, tests, procedures, duplication of services)
Payment to
Providers
More Care
Provided
More
Payment to
Providers
Very
Expensive
Health
Care
Care
Provided
12
FFS: not only rewarding volume, but rewarding
volume of highly priced services
 FFS payment provides a financial incentive to:
– Provide more of those services which are paid most
handsomely – e.g., cardiology, orthopedics
– Introduce new services that generate higher fees than
longer-standing services
 FFS payment provides a financial disincentive to:
– Deliver services that generate comparatively lower
remuneration – e.g., primary care, psychiatry
– Provide services for which there is no FFS compensation –
e.g., patient outreach, care coordination, treatment plan
development, e-visits, web visits
13
FFS: No Financial Incentive for Quality
 Physicians get paid the same amount for one patient
regardless of whether they provide excellent care or
terrible care
Providers may actually be paid more for
poor quality due to the need for “rework.”
14
Reference Pricing
 Referencing pricing is a benefit design strategy to
address variation in prices across providers.
 It can be effective in creating an incentive for
consumers to shift care to lower priced-providers –
and an incentive for high-priced providers to lower
their prices.
 While it is a strategy that addresses price variation, it
does not eliminate the pay-for-volume characteristic
of FFS payment, nor its underlying inflationary
tendencies.
15
Payment Reform: Moving Beyond FFS
 Payment Reform means moving away from FFS and
towards other ways of paying that financially incentivize
provision of high quality, efficient care. The options are
neither mutually exclusive nor sequential.
Fee for
Service
(FFS)
Medical
Home
(PCMH)
Pay-forPerformance
(P4P)
Total Cost
of Care
(TCOC)
Bundled
Payment
(Bundles)
Goal:
High
Quality/
Low Cost
Care
16
Pay-for-Performance
PCMH
FFS
P4P
TCOC
Bundles
 The Center for Medicare and Medicaid Services
(CMS) defines P4P as:
“the use of payment methods and other incentives to
encourage quality improvement and patient-focused
high value care”
 There are different types of P4P, but generally it:
– offers providers financial bonuses for strong
performance on specific quality measures
– continues to use FFS as the underlying
mechanism of payment
17
Pros and Cons of Pay-forPerformance Payment
PCMH
FFS
P4P
TCOC
Bundles
 Pros:
– creates a “business case” for providers to pursue quality on
specific aspects of care
– some reviews of the literature have found that P4P programs
targeting providers have a positive impact on quality*
 Cons:
– evidence of clinical effectiveness and cost savings is limited
– careful design and implementation are necessary prerequisites for success
– Is unable to neutralize the inflationary force of FFS payment
* Christianson JB, Leatherman S, and Sutherland K. “Lessons from Evaluations of Purchaser Pay-for-Performance: A Review of the
Evidence” Medical Care Research and Review, December 2008;65(6) supplement:5S-35S. www.ncbi.nlm.nih.gov/pubmed/19015377.
and Petersen LA, Woodard LD, Urech T, Daw C and Sookanan S. “Does Pay-for-Performance Improve the Quality of Health Care?”
Annals of Internal Medicine, August 15, 2006;145(4):265-272. www.annals.org/content/145/4/265.abstract.
18
Example of Employer Success
in Minnesota: BTE
PCMH
FFS
P4P
TCOC
Bundles
 Minnesota BTE implemented by The Action Group in
2006.
– 11 private and public purchasers, covering 900K lives, pay
performance rewards for Optimal Diabetes Care, Optimal
Vascular Care and Depression Remission at Six Months.
– Advised by multi-stakeholder Guiding Coalition
 Goals: Improve the quality of care for patients; raise
purchaser and consumer awareness about variation
in quality; and spark provider competition based on
quality outcomes
 In Minnesota BTE produced diabetes scores that
improved 400% over the first 5 years:
– 6% receiving diabetes optimal care in 2004 to 37% in 2012
– smaller improvements in vascular care and depression
19
What is a Medical Home?
PCMH
FFS
P4P
TCOC
Bundles
 A patient-centered medical home (“medical home”) is a
primary care practice in which the patient, a primary
care clinician and a partnering care team work together
to develop and implement a plan of care to support
patient goals for health and function.
– In Minnesota, medical homes are often referred to as “health
care homes.”
20
Medical Home Payment
PCMH
FFS
P4P
TCOC
Bundles
 Insurance companies and/or employers pay qualifying
primary care practices a certain amount of money for
each patient every month to support enhanced
outreach, communication, coordination and care
management.
– In Minnesota this payment is referred to as a “care
management fee.”
 Some medical home projects offer practices the
opportunity to share in savings if the practice is able to
reduce costs. Under these programs medical homes
are required to meet certain performance expectations
to qualify for savings payment distribution. Such
arrangements do not appear to be in place in MN.
21
Example of Employer Success:
Hill Air Force Base
PCMH
FFS
P4P
TCOC
Bundles
 In 2009, the Air Force, Army and Navy began
working together to implement a tri-service medical
home project to transform care at all primary care
practices throughout the Department of Defense
(DOD).
 Results of the project at Hill Air Force Base in Utah:
– improved blood sugar control for 77% of patients with
diabetes
– 98% symptom control for patients with asthma.
– saved approximately $300,000 per year in diabetes care.
– according to Col. Donald Hickman, “Health care costs go up
8 to 15% per year nationwide and we have managed to drive
down our network care costs about 4.5% over the last two
fiscal years.”
– additionally, patients reported 95% satisfaction with the
program
22
Example of Private Employer
Action with Medical Home
PCMH
FFS
P4P
TCOC
Bundles
 Three Cleveland-area employers led by Progressive
Insurance agreed to fund nurse care coordinators to
support care of their employees and dependents
served by the Lake Health system beginning in 2013
if the practices were NCQA-recognized medical
homes.
 The parties have agreed that in the future they will
implement a shared savings arrangement whereby
Lake Health will be able to share some of the savings
that its PCMH practices, augmented with employerfunded care coordinators, are expected to generate.*
* Telephone interview with Tim Kowalski, MD, Progressive Insurance, November 8, 2012.
23
Progressive Insurance
“Together, we can reward
value over volume, quality
outcomes over treatment
of incidents and provide
optimal vitality for our
employees and our
communities.”
Tim Kowalski, M.D.
24
Medical Home in Minnesota
PCMH
FFS
P4P
TCOC
Bundles
 Development sparked by 2008 state legislation.
 MDH had certified 214 health care homes and 2213
clinicians serving 2.4 million people as of 12-27-12.
 The MN DHS offers care coordination payments of
$10 to $60 a month for each patient with a chronic
condition who is enrolled in a state health program.
The payment varies based on patient complexity.
 Some plans are also supporting health care homes.
 No evaluation results of quality or cost impact yet
but…"On average, health care home clinics have
significantly better performance scores for diabetes
and cardiovascular disease than non-health care
home clinics." – Leif Solberg, MD, HealthPartners
Research Foundation
25
Pros/Cons of Medical Homes
PCMH
FFS
P4P
TCOC
Bundles
 Pros:
– additional payments support care management and other
patient support functions that are not typically reimbursed
under FFS
– shared savings models encourage the practice to reduce
costs
– performance measures ensure the practice maintains or
improves quality of care
– many insurer and provider self-reported positive ROI findings
 Cons:
– Incentive limited to the primary care practice (model does
not alter payment for specialist, inpatient or residential care)
– Limited evidence of ROI in the peer-reviewed literature
– Does not address FFS volume incentive
26
What is a Bundled Payment?
PCMH
FFS
P4P
TCOC
Bundles
 Bundled payments offer reimbursement for all of the
services needed by specific patient for a particular
condition or treatment. Creates incentive for provider
coordination of efforts.
 Primary goal: reduce costs by reducing cost variation,
including through reduction in avoidable complications
 Generally includes payments for all of the providers
and the care settings that may be required, but does
not include services that are unrelated. Essentially
provides a “warranty.”
 Example: hip replacement surgery bundle
– Include: the surgery, pre and post-operative appointments,
rehabilitation and the treatment of any complications
associated with the procedure.
27
Examples of Bundled Payment
Success:
PCMH
FFS
P4P
TCOC
Bundles
CMS Acute Care Episode (ACE) Project at Baptist Health*
 Implemented bundles of physician and hospital services
related to 28 cardiac and nine orthopedic services.
– saved more than $2,000 per case
– saved a total of $4.3 million
Medicare Heart Bypass Center Project
 Medicare offered participating hospitals a single price for
all inpatient services related to heart bypass surgery.
– Over the first 27 months of the demonstration program, project
saved more than $17 million at four participating hospitals.
– From 1990-1993, the total cost per case fell in three out of the four
hospitals
* The Health Industry Forum. “Episode Payment: Private Innovation and Opportunities for Medicare” Conference Report,
Brandeis University, May 17, 2011, Washington, DC, available at
http://healthforum.brandeis.edu/meetings/materials/2011-17-may/Final%20cr5-17-11.pdf.
28
Employers Exploring Bundled
Payments
PCMH
FFS
P4P
TCOC
Bundles
 Employers are now beginning to experiment with bundled
payment arrangements
 Example: Employers’ Coalition on Health (ECOH) in
Rockford, IL*
– In 2011 ECOH began a three-stage “glide path” towards the
implementation of their bundled payment program
– While no results are available, they anticipate seeing significant
savings over time for their employer members.
* Burns ME, Bailit MH. And Painter M. “Bundled Payment Across the U.S. Today: Status of Implementations and
Operational Findings” Health Care Incentives Improvement Institute, Newtown, CT, May 2012.
29
Bundled Payments in MN
PCMH
FFS
P4P
TCOC
Bundles
 While 2008 state legislation tried to advance bundled
payments (“baskets of care”), there was not much traction
among providers and payers.
– Services within 7 baskets were identified by multi-stakeholder
committees.
– Progress stalled when it came to the question about how to
implement.
 MNBTE systems of excellence project exploring bundled
payment initially for spine surgery
 We were unable to identify any active bundled payment
activity in Minnesota, although…
– providers have brought proposals to payers to do so
– some Minnesota providers may have applied to participate in the
forthcoming Medicare bundled payment demonstration.
30
Pros/Cons of Bundled
Payments
PCMH
FFS
P4P
TCOC
Bundles
 Pros:
– provide a strong incentive to reduce costs – including both volume
and price
– provide an incentive to improve quality and reduce costly
complications associated with the procedures
– strong evidence of success at reducing costs in the Medicare
population
 Cons:
– impact limited to specific procedures/ treatment of specific
conditions
– does not provide an incentive to reduce the volume of procedures
(only the costs associated with each procedure)
– administratively challenging to administer
31
What is Total Cost of Care
(TCOC) Payment?
PCMH
FFS
P4P
TCOC
Bundles
 Sometimes called “global payment”, “populationbased payment” or “capitation.”
 Under TCOC payment a provider entity agrees to
accept responsibility for the health care for a group of
patients in exchange for a set amount of money.
 Goal: align the financial incentives of the providers
with the interests of the patients and the payers so
that everyone wins if patients are healthy and costs
are held down.
32
Two Types of TCOC Payment
Arrangements
PCMH
FFS
P4P
TCOC
Bundles
 Shared savings (“upside-only”):
– If the provider effectively manages cost and
performs well on quality of care targets, then the
provider may keep a portion of the savings
generated.
 Shared risk (“two-sided”):
– Exactly the same as above on the upside.
– However, if the provider delivers inefficient, highcost care, it will be held responsible for a portion
of the additional costs incurred.
– There are usually caps to limit downside
exposure. Also, stop loss or reinsurance
requirements protect providers.
33
Aligning Incentives Around Value
P4P
Historical
Contract
TCOC
PCMH
FFS
Bundles
Aligned Incentive Contract
Quality
Total Cost of Care
$TBD based on performance to cost of care target
Provider At Risk
Savings are shared
Quality
Fee for
Service
Guaranteed
Increase
Year 1
Provider At Risk
$ pool based on outcomes improvement
Fee for Service
Guaranteed
Increase
Annual increase is ceiling for cost of care target
Year 1
Year 2
Year 3
Eppel J. “The Role of Payment Reform in the Transformation of the HealthCare System” BCBSMN, November 29, 2012.
How does TCOC contracting
work?
PCMH
FFS
P4P
TCOC
Bundles
 Two methods of administration: a) health plan pays
PMPM budget monthly, or b) plan pays FFS and then
reconcile against a budget target after the contract year
has ended and claims have been paid.
– If PMPM method, self-funded employers see savings in lower
PMPM rate and/or end-of-year settlement
– If FFS method, self-funded employers see savings in lower
claims spend, but may need to share some in end of year
settlement
 If provider takes downside risk and exceeds budget, will
owe that amount back through withhold or reduction in
future payments.
 Plan and provider decide upon quality targets which are
used to adjust payments.
35
Quality Improvement:
BCBSMN TCOC measures
PCMH
FFS
P4P
TCOC
Bundles
CHRONIC ILLNESS
• Optimal diabetic care (composite measure)
• Optimal vascular care (composite measure)
• Hypertension control
PREVENTION &
WELLNESS
•
•
•
•
PATIENT CARE
INTEGRATION
• Depression remission rate
SAFETY
• Reduction of elective deliveries < 39 weeks
• Reduction in elective c-sections
• Hospital-associated deep vein thrombosis/
pulmonary embolus
• Pulmonary embolism for knee and hip replacement
UTILIZATION
• Potentially preventable events: admissions, readmissions,
complications
• Low back pain (MRI, CT, X-ray utilization)
• Advanced care directives
Breast cancer screening
Colorectal cancer screening
Body mass index (measurement and referral)
Tobacco cessation (measurement and referral)
Eppel J. “The Role of Payment Reform in the Transformation of the HealthCare System” BCBSMN, November 29, 2012.
36
Example of Employer Success
with TCOC: CalPERS
PCMH
FFS
P4P
TCOC
Bundles
 In 2010, the California Public Employees’ Retirement
System (CalPERS) launched a TCOC pilot program in
collaboration with Blue Shield of California and Catholic
Healthcare West & Hill Physicians Group (CHW/Hill).
– Blue Shield agreed to pay CHW/Hill a set amount to provide
care to 41,500 CalPERS employees and dependents.
 Impressive results:
– by the end of the first year, the pilot had exceeded all
expectations—saving more than $20 million in costs
(preventing a rate hike).
– over the first three years of the project, CalPERS has seen $32
million in aggregate savings.
– meaningful reduction in utilization
• 15% reduction in inpatient readmissions
• 15% reduction in inpatient days,
• 13% reduction in surgeries.
37
Example of Private Employer
Action with TCOC Payment
PCMH
FFS
P4P
TCOC
Bundles
 Intel has worked directly with the Presbyterian Health
System in Albuquerque to create the “Connected
Care” program, a narrow network benefit that offers
care through a Patient-Centered Medical Home
model.
 Starting in January 2013, in exchange for caring for
10,000 of Intel’s employees and their families,
Presbyterian agreed to put a certain percentage of its
revenue at risk.
 If Presbyterian performs well, it receives the at-risk
amount back. If Presbyterian performs even better, it
will receive additional performance payments.*
* Telephone interview with James Dickey, Intel Corporation, December 7, 2012.
38
Intel Corporation and Payment Reform
“It’s time for the employer
market to step up.”
James Dickey
Intel Corporation
39
TCOC Payment in Minnesota
PCMH
FFS
P4P
TCOC
Bundles
 BHCAG’s ChoicePlus was an early TCOC payment
model in Minnesota in the 1990s.
 Within the commercial market, health plans report
between 1/3 and 2/3 of covered lives or spending
associated with Total Cost of Care contracts, with
higher percentages in the Twin Cities region than
elsewhere in the state.
 Medicare ACO pilots in place and MN DHS testing too.
 Most Total Cost of Care contracting arrangements
appear to be “upside-only” for provider organizations,
although there are also shared risk arrangements.
 Has it had an impact on trend?
– It’s hard to know, since the economic downturn has had such
a dramatic impact on care-seeking behavior.
40
TCOC Payment in Minnesota
PCMH
FFS
P4P
TCOC
Bundles
 Some have expressed concern that too many MN
TCOC arrangements are upside only and that the
underlying FFS is still the primary economic driver for
providers.
– “True payment reform cannot be achieved by adding new
layers of bonuses and penalties on top of what is still fundamentally a fee-for-service payment system.”*
 Some have also expressed concern that market
consolidation could temper the impact of TCOC
contracting – large providers agree to TCOC but
demand high budgets and large annual increases.
* Miller HD. “Ten Barriers to Payment Reform and How to Overcome Them” Center for Healthcare Quality
and payment Reform”, December 2012.
41
Pros/Cons of TCOC Payment
PCMH
FFS
P4P
TCOC
Bundles
 Pros:
– financially incentivizes providers to improve quality, keep
patients healthy, reduce volume of care and keep costs
down
– systems approach to payment reform that can remove the
inflationary effects of FFS
 Cons:
– TCOC will only succeed if providers can change the delivery
of care and better coordinate care. This is not easy.
– TCOC payment requires that individual provider pay
incentives are also adjusted and aligned. This is essential.
– shared savings may not create the required “burning
platform” for real change in care delivery
– providers must avoid excessive risk assumption
42
In Conclusion
 The current fee-for-service payment system
incentivizes high-cost, low quality care.
 Payment reform means paying for care in ways that
incentivize improvements in quality and reductions in
cost.
 Payment reform is not an end. It is a means to
spark fundamental changes in health care system
function.
43
In Your Words
“The only way employers
will have any influence is if
they come together. We
shouldn’t just sit back and
pay whatever they tell us
to pay.”
Minnesota employer
44
Follow-up Questions
Michael Bailit
mbailit@bailit-health.com
www.bailit-health.com
45