Payment Reform:
From Principles to Action
April 22, 2010
Randy Fuller
Director, Thought Leadership
Healthcare Financial Management Association
Growing Uninsured Population
2
Exponential Growth in Expenditures
3
Looming Medicare Insolvency
Medicare Cost and Non-Interest Income by Source as a Percentage of GDP
Source: A Summary of the 2009 Annual Reports. Social Security and Medicare Boards of Trustees. http://www.ssa.gov/OACT/TRSUM/index.html
4
Premium Costs Put Coverage Out of
Reach For Many
Growth In Healthcare Insurance Costs Are Now Making Affordability Difficult for
Individuals and Small Businesses
Cumulative Changes in Health Insurance Premiums, Inflation, and
Workers’ Earnings, 1999-2008
140%
119%
120%
100%
80%
60%
34%
40%
20%
29%
0%
1999
2000
2001
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2008.
Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual
Inflation (April to April), 2000-2008; Bureau of Labor Statistics, Seasonally
Adjusted Data from the Current Employment Statistics Survey, 2000-2008 (April to
April).
2002
2003
2004
2005
2006
2007
2008
Health Insurance Premiums
Workers' Earnings
Overall Inflation
Cost Impact: Raising Cost Structure of
American Industry
“..performance of the U.S. health care system have put America’s
companies and workers at a significant competitive disadvantage in the
global marketplace.”
Business Roundtable March 2009
Business Roundtable: “New Study Shows Health Care Costs Put U.S. Workers at Significant Disadvantage Compared with Global Competitors”, March 2009
Cost Impact: Changing the Quality of
Care
Cost to Quality Comparisons –
Lower Value
Source: OECD Health Data 2009, OECD (http://www.oecd.org/health/healthdata).
8
Provider Business Models Under
Pressure
The External View
• Capital and equity markets essential to
healthcare provider operations and expansion
– Estimated $400 billion in tax exempt bonds
outstanding,
• funds capital equipment, facilities and working capital
– $94 billion capital in publicly traded healthcare
companies
– Debt and equity supported by cash flow of current
business models
• GM and Chrysler bankruptcies involved only $52
billion in debt and $1.9 billion in equity
The External View
• Rating agencies closely examining quality, efficiency and
management ability to plan and manage as keys to future
success
– “An important component of Moody’s credit assessment is the
effectiveness and credibility of governance and management.
Management teams build credibility with investors and market
participants with good disclosure practices and greater
transparency concerning board interaction with management,
competitive strategies, market challenges and opportunities.”
Moody’s Not-for-Profit Hospitals: Greater Disclosure and Transparency Will Likely Build Market
Confidence During Credit Crisis, May 2009
– “Hospitals that publicly provide coherent information on quality, cost
and patient satisfaction and use this information to create a
competitive advantage will likely gain market share over time and
be a contributing factor to a stronger bond rating.”
Moody’s Not-for-Profit Hospitals: Greater Disclosure and Transparency Will Likely Build Market
Confidence During Credit Crisis, May 2009
Simple Cost Cutting Won’t Be Enough
Lower US Hospital Admissions
and Shorter Stays Offset by
Higher Costs Per Bed Day
Higher Cost Per Bed Day
Partly Driven by Higher
Surgical Procedure Volume
Low Hospital
Occupancy Drives
10% Fewer Drugs
Higher Fixed Costs per US Spends Above-Expected
Consumed in US Than in
Bed Day
on Medical Devices, Especially
OECD Peer Countries
Implantable Cardiac and
High Staffing Ratios and
Orthopedic Devices
Drug Prices in US are
Salaries Drive Above50% Higher for
Expected Nursing Costs in US
Comparable Products,
Hospitals
US conducts more diagnostics
Average Price Gap is
per capita than other OECD
Nearly 120% Due to
countries and reimburses
Usage Patterns
more favorably
Care redesign across multiple stakeholders will be required to achieve
access, quality and cost goals.
Source: McKinsey Global Institute, “Accounting for the cost of US Healthcare: A New
Look at Why Americans spend more” December 2008
Know That the Platform Is Burning
• The effects of the
recession will
inevitably ease and the
course of reform will
ebb and flow, but
health care remains on
a burning platform
• Holding onto the
status quo is not an
option
HFMA Five Reform Principles
• Quality – reward quality, evidence-based care
• Alignment – align incentives among
stakeholders
• Fairness/Sustainability – recognize
appropriate costs for quality care
• Simplification – make processes simple,
standard, and transparent
• Societal Benefit – make benefits provided
explicit, and compensate for accordingly
The five reform principles support the
nation’s health goals.
From Volume to Value
HFMA’s 3rd Annual Thought Leadership Retreat
By 2015 the percentage of provider payments that will
be at risk based on performance (including
outcomes) will be:
1.
2.
3.
4.
Significant (> 25%)
Moderate (10 to 24%)
Small (< 10%)
None or very
insignificant
61%
• Currently an estimated 4% 5% of total patient revenues
are at risk based on quality
outcomes— enough to wipe out
margins
• Financial leaders expect
revenues at risk to reach
10% - 24% by 2015
29%
10%
0%
1
2
3
4
• Quality and efficiency
performance will likely
become a competitive
advantage with payers and
consumers
• Growing transparency on cost
and quality
Stakeholder Concerns
• Coming to agreement on outcome/quality
measures
• Cost and speed of transitioning to new system
• Fostering a sense of urgency to change
• Revenue shifts from one group of stakeholders
to another
• Defining and apportioning of societal benefits
• Behavioral changes in how consumers and
providers view and practice health care
Build Key Competencies to
Prepare for Payment Reform
• Build strong physician integration
• Develop ability to manage risk
• Build capability of costing and pricing new
bundles of services
• Demonstrate finance expertise in quality and
process improvement
Build Strong Physician Integration
We’ve Tried Integration Before..
Success is likely to lie in addressing and finding solutions in the
following areas:
•
•
•
•
•
•
•
•
Clinical Leadership / Champion
Compensation / Incentives
Market awareness
Goal Setting
Data Sharing
Engagement / Cultural Blending
Technology
Process Improvement
Develop Risk Management Abilities
Develop Risk Management Abilities
• Assess the organization’s exposure to the multitude of
risks inherent in healthcare reform
⁻ Payment risk – will payers continue to pay for portfolio of services?
⁻ Execution risk – can the provider deliver care of high quality and efficiency?
⁻ Market risk – will breadth of reform disrupt flow of patients to the
organization?
• Develop comprehensive and realistic views on the
organization’s strengths and weaknesses
• Match the strengths and weaknesses against the risk
exposure and develop strategies to mitigate the risks
Develop Pricing Capabilities
• Move toward flexible pricing capabilities
• Gain an understanding of service costs
• Learn to reassemble costs in flexible packages that
represent payment bundles or episodes
• Be prepared to price services based on outcomes
• Work toward tracking costs and utilization patterns
across care settings and through longer periods
Demonstrate finance expertise in quality
and process improvement
• Exercise leadership in developing “dual goals” of
increasing quality and reducing cost in process
improvement
⁻ Help shape portfolio of projects aimed at raising quality and reducing cost
• Leverage finance strengths to aid in process
improvement and realize “dark green” dollar savings
⁻
⁻
⁻
⁻
Systematic approach to analysis
Longitudinal view
Focus on dependability of data
Sophistication in auditing
• Foster working relationship between finance and
quality staff through cross training
Concepts Being Tested
• HFMA identified nearly 75 public and private
demonstration projects across US
– Range from simple P4P bonuses to bundling to
payment
– Address specific health issues such as diabetes,
preventive care, cancer, cardiac conditions, asthma,
hypertension, pediatrics, orthopedics and
obstetrics/gynecology
• A survey of providers involved in projects finds
little in the way of major change
– Physician / Hospital integration most common
adaptation
Global Capitation Requires Provider Change
Source: “Global Capitation From Sharp Rees-Stealy’s Perspective”, March 10, 2010
Mount Auburn Hospital Success Story:
Collaborating with Physicians and Payers
Goal: Empower primary care physicians to take the
lead in providing high-quality, efficient care—and
share the financial rewards
Strategy: Negotiated five-year alternative quality
contract with Blues plan in which primary care
physicians receive and distribute the total per-patient
revenue from the insurer
Results: As the end of the first contract year
approaches, CEO expects a “win-win-win”—good for
hospital, physicians, and patients
Mount Auburn Hospital Success Story:
Collaborating with Physicians and Payers
“By allowing the primary care physicians to control the
dollars, and the physicians to be in charge of all the
utilization, it takes the hospitals out of the role of
cajoling the physicians to go along. . . This is almost
like starting again.”
Jeanette Clough
President and CEO
Mount Auburn Hospital
Spectrum Health Success Story:
Managing Clinical and Financial Risks
Goal: Achieve a clinical/financial win/win through
quality improvement initiatives that have a positive
effect on the bottom line
Strategy:
• Use dashboards with clinical and cost metrics for the
majority of high-volume surgical procedures and
medical conditions
• Take a collaborative approach to negotiating pay-forperformance contracts with payers
Spectrum Health Success Story:
Managing Clinical and Financial Risks
Results:
• Actively driving down complication and mortality rates in
high-volume conditions and procedures
• $23 million per year in revenue tied to pay-forperformance contracts with two managed care payers
• More than a dozen five-star quality ratings from
HealthGrades
• System is well positioned for the changing payment
landscape
New goal: Reduce readmissions by 30%
Spectrum Health Success Story:
Managing Clinical and Financial Risks
“Reductions in readmissions are
indicative of better quality, which
is what we are all about. But this
is going to cost us money
because we currently get paid for
these admissions, or at least the
vast majority of them.”
Joseph J. Fifer, FHFMA, CPA
Vice President, Finance,
Spectrum Health Hospital Group
“We hope to offset some of the
revenue reduction with a more
efficient model of care and
through higher quality and
reduced complications.”
John Byrnes, MD
Senior Vice President for System Quality
Spectrum Health Hospital Group
HealthPartners Success Story:
Making a Commitment to Quality
Goal: Improve outcomes for patients with diabetes
Strategy:
• Use evidence-based guidelines to develop quality
improvement programs for diabetes care
• Provide financial bonuses to physicians based on “The
D5,” or the number of patients receiving optimal care for
diabetes
HealthPartners Success Story:
Making a Commitment to Quality
HealthPartners Success Story:
Making a Commitment to Quality
Results:
The number of patients who received
optimal diabetes care increased 129%
over four years
Improved diabetes care prevented
–115 heart attacks
–925 cases of eye disease
–155 amputations
HealthPartners Health Plan is saving $15
million per year on diabetes-related costs
“Everyone is clear about what
the rules of the game are,
what the yardstick for success
looks like, and what care
optimally people should get.
We still have quite a ways to
go. But we are gaining
momentum.”
Andrea Walsh, Executive Vice
President, HealthPartners