REDESIGNING HEALTH CARE FROM THE BOTTOM UP INSTEAD OF FROM THE TOP DOWN Better Care at Lower Costs Through Patient-Centered Payment

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1 REDESIGNING HEALTH CARE FROM THE BOTTOM UP INSTEAD OF FROM THE TOP DOWN Better Care at Lower Costs Through Patient-Centered Payment Harold D. Miller President and CEO Center for Healthcare Quality and Payment Reform

2 There is one thing (and maybe only one thing) we have in common in America today We re all spending too much on healthcare

3 Healthcare Spending is the Biggest Driver of Federal Deficits Medicare 94% Increase ($1 Trillion) Social Security 85% Increase ($770 Billion) Source: CBO Other Mandatory Discretionary Spending 25% Increase ($400 Billion) 3

4 Increasing Share of State Budgets Goes to Medicaid Spending 1/6 of All State Funds Are Now Used for Medicaid Source: NASBO 4

5 U.S. Premiums Increased 73% More Than Inflation Since 2002 Family Premiums $6,164 Higher Than Inflation Source: Medical Expenditure Panel Survey & Bureau of Labor Statistics 5

6 Why Are Jobs Growing But Wages Stagnant? 6

7 Spending on Higher Premiums Reduces $ for Take-Home Pay Premiums Worker Pay Inflation Source: Medical Expenditure Panel Survey & Bureau of Labor Statistics 7

8 Family Premiums Now Equal to One-Third of Worker Pay Source: Medical Expenditure Panel Survey & Bureau of Labor Statistics 8

9 What s Causing the Increase in U.S. Insurance Premiums? 29% Increase in Spending Source: CMS National Health Expenditures $240 Billion 9

10 Biggest Causes are Hospitals & Insurance Administration/Profit Insurance Admin. Other Services Drugs Physician & Clinical Services Source: CMS National Health Expenditures Hospitals Insurance Other Drugs Phys/Clin. Hospitals 10

11 Half of Growth in Private Spending Has Been for Hospital Services Insurance Admin 30% Increase 12% of Total Other Svcs 24% Increase 11% of Total Drugs 20% Increase 10% of Total Physician & Clinical Services 19% Increase 18% of Total Hospital Svcs 41% Increase 49% of Total Source: CMS National Health Expenditures 11

12 Similar Pattern for Total Spending; >1/3 of Growth Due to Hospitals Insurance Admin 51% Increase 12% of Total Other Svcs 22% Increase 10% of Total Drugs 28% Increase 10% of Total Physician & Clinical Services 27% Increase 20% of Total Hospital Svcs 33% Increase 37% of Total Source: CMS National Health Expenditures 12

13 Hospitals Are Biggest Contributor to Growth for Two Decades Hospitals +163% Physicians/ Clinical +83% Prescription Drugs Insurance Administration +96% +123% Source: CMS National Health Expenditures 13

14 Insurance Administration is #2 Hospitals +163% Physicians/ Clinical +83% Prescription Drugs Insurance Administration +96% +123% Source: CMS National Health Expenditures 14

15 As Much Private Insurance $ Goes to Insurer Admin as to Drugs Hospitals Physicians/ Clinical Prescription Drugs Insurance Administration Source: CMS National Health Expenditures 15

16 Spending is Increasing Rapidly in Single Payer Countries, Too 16

17 How Do You Control the Growth in Healthcare Spending? $ TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TIME 17

18 Payer Strategy #1: Cut Provider Fees for Services $ SAVINGS Cut Provider Fees TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING BY PAYERS 18

19 Payer Strategy #2: Shift Costs to Patients $ SAVINGS TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING BY PAYERS Higher Cost-Share & Deductibles 19

20 Payer Strategy #3: Delay or Deny Care to Patients $ SAVINGS TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING TOTAL HEALTH CARE SPENDING BY PAYERS Lack of Needed Care 20

21 Results of Typical Strategies Patients don t get the care they need and costs increase in the future Small physician practices and hospitals are forced out of business Health insurance premiums continue to rise and access to insurance coverage decreases 21

22 Results of Typical Strategies Patients don t get the care they need and costs increase in the future Small physician practices and hospitals are forced out of business Health insurance premiums continue to rise and access to insurance coverage decreases IS THERE A BETTER WAY? 22

23 The Right Focus: Spending That is Unnecessary or Avoidable $ AVOIDABLE SPENDING AVOIDABLE SPENDING AVOIDABLE SPENDING AVOIDABLE SPENDING NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING TIME 23

24 Avoidable Spending Occurs In All Aspects of Healthcare $ SURGERY Unnecessary surgery Use of unnecessarily-expensive implants Infections and complications of surgery Overuse of inpatient rehabilitation AVOIDABLE SPENDING NECESSARY SPENDING CANCER TREATMENT Use of unnecessarily-expensive drugs ER visits/hospital stays for dehydration and avoidable complications Fruitless treatment at end of life CHRONIC DISEASE ER visits for exacerbations Hospital admissions and readmissions Amputations, blindness MATERNITY CARE Unnecessary C-Sections Early elective deliveries Underuse of birth centers Complications of delivery 24

25 Most of the Avoidable Spending is in Hospitals $ SURGERY Unnecessary surgery Use of unnecessarily-expensive implants Infections and complications of surgery Overuse of inpatient rehabilitation AVOIDABLE SPENDING NECESSARY SPENDING CANCER TREATMENT Use of unnecessarily-expensive drugs ER visits/hospital stays for dehydration and avoidable complications Fruitless treatment at end of life CHRONIC DISEASE ER visits for exacerbations Hospital admissions and readmissions Amputations, blindness MATERNITY CARE Unnecessary C-Sections Early elective deliveries Underuse of birth centers Complications of delivery 25

26 Institute of Medicine Estimate: 30% of Spending is Avoidable 26

27 25% of Avoidable Spending is Excess Administrative Costs 27

28 The Right Goal: Less Avoidable $, $ AVOIDABLE SPENDING AVOIDABLE SPENDING AVOIDABLE SPENDING AVOIDABLE SPENDING NECESSARY SPENDING TIME 28

29 The Right Goal: Less Avoidable $, More Necessary $ $ AVOIDABLE SPENDING AVOIDABLE SPENDING AVOIDABLE SPENDING AVOIDABLE SPENDING NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING TIME 29

30 Win-Win for Patients & Payers $ AVOIDABLE SPENDING SAVINGS AVOIDABLE SPENDING SAVINGS AVOIDABLE SPENDING SAVINGS AVOIDABLE SPENDING Lower Spending for Payers NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING Better Care for Patients TIME 30

31 Barriers in the Payment System Create a Win-Lose for Providers $ AVOIDABLE SPENDING NECESSARY SPENDING BARRIERS IN THE CURRENT PAYMENT SYSTEM SAVINGS AVOIDABLE SPENDING NECESSARY SPENDING 31

32 Barrier #1: No $ or Inadequate $ for High-Value Services $ AVOIDABLE SPENDING NECESSARY SPENDING UNPAID SERVICES No Payment or Inadequate Payment for: Services delivered outside of face-to-face visits with clinicians, e.g., phone calls, s, etc. Services delivered by non-clinicians, e.g., nurses, community health workers, etc. Communication between physicians to ensure accurate diagnosis & coordinate care Non-medical services, e.g., transportation Palliative care for patients at end of life 32

33 Barrier #2: Avoidable Spending Is Revenue for Providers $ AVOIDABLE SPENDING MARGIN NECESSARY SPENDING PROVIDER REVENUE COST OF SERVICE DELIVERY 33

34 And When Avoidable Services Aren t Delivered $ AVOIDABLE SPENDING MARGIN AVOIDABLE SPENDING NECESSARY SPENDING PROVIDER REVENUE COST OF SERVICE DELIVERY NECESSARY SPENDING 34

35 Providers Revenue Will Decrease $ AVOIDABLE SPENDING MARGIN AVOIDABLE SPENDING NECESSARY SPENDING PROVIDER REVENUE COST OF SERVICE DELIVERY NECESSARY SPENDING PROVIDER REVENUE 35

36 But Fixed Costs Don t Vanish $ AVOIDABLE SPENDING MARGIN Many Fixed Costs of Services Remain When Volume Decreases Leases & staff in physician practice Costs of hospital emergency room and other standby services AVOIDABLE SPENDING NECESSARY SPENDING PROVIDER REVENUE COST OF SERVICE DELIVERY NECESSARY SPENDING COST PROVIDER OF REVENUE SERVICE DELIVERY 36

37 But Fixed Costs Don t Vanish and New Costs May Be Added $ AVOIDABLE SPENDING MARGIN Many Fixed Costs of Services Remain When Volume Decreases And New Costs May Be Incurred, Costs of nurse care managers Costs of unpaid physician services Costs of collecting quality data AVOIDABLE SPENDING COST OF NEW SVCS NECESSARY SPENDING PROVIDER REVENUE COST OF SERVICE DELIVERY NECESSARY SPENDING COST PROVIDER OF REVENUE SERVICE DELIVERY 37

38 Leaving Providers With Losses (or Bigger Losses Than Today) $ Many Fixed Costs of Services Remain When Volume Decreases And New Costs May Be Incurred, Potentially Causing Financial Losses AVOIDABLE SPENDING MARGIN AVOIDABLE SPENDING LOSS COST OF NEW SVCS NECESSARY SPENDING PROVIDER REVENUE COST OF SERVICE DELIVERY NECESSARY SPENDING PROVIDER REVENUE COST OF SERVICE DELIVERY 38

39 A Payment Change isn t Reform Unless It Removes the Barriers BARRIER #1 BARRIER #2 39

40 So Why Haven t We Fixed This??

41

42 In Healthcare, Payers Are From Mars, Providers Are From Venus

43 Provider Approach: Pay Us More $ PROVIDER SOLUTION: AVOIDABLE SPENDING NEWLY PAID SERVICES NECESSARY SPENDING NECESSARY SPENDING UNPAID SERVICES 43

44 Provider Approach: Pay Us More and Trust Us on Savings $ PROVIDER SOLUTION: AVOIDABLE SPENDING NECESSARY SPENDING SAVINGS AVOIDABLE SPENDING NEWLY PAID SERVICES NECESSARY SPENDING Provider to Payer: Paying for the services saved money in a demonstration project, so you can safely assume that you will also save money if you pay all providers to deliver the services for all patients UNPAID SERVICES 44

45 Payer Concern: No Accountability to Reduce Avoidable Spending $ PROVIDER SOLUTION: PAYER FEAR: AVOIDABLE SPENDING SAVINGS AVOIDABLE SPENDING NEWLY PAID SERVICES AVOIDABLE SPENDING NEWLY PAID SERVICES NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING UNPAID SERVICES 45

46 Example: Accreditation Programs Hospitals and physician practices want to be paid more if they are certified as delivering care the right way by an accrediting agency 46

47 Does Accreditation Assure High-Value Care? Thanks to Joint Commission hospital accreditation, there are no longer any infections or patient safety problems in hospitals 47

48 Accreditation High Quality 48

49 Does Accreditation Assure High-Value Care? Thanks to Joint Commission hospital accreditation, there are no longer any infections or patient safety problems in hospitals Thanks to the Certification Commission for Health Information Technology (CCHIT), every EHR works effectively to support good patient care 49

50 Does Accreditation Assure High-Value Care? Thanks to Joint Commission hospital accreditation, there are no longer any infections or patient safety problems in hospitals Thanks to the Certification Commission for Health Information Technology (CCHIT), every EHR works effectively to support good patient care Thanks to college accreditation organizations, every parent who sends their child to college knows they will get a good education and a good job after graduation 50

51 Does Accreditation Assure High-Value Care? Thanks to Joint Commission hospital accreditation, there are no longer any infections or patient safety problems in hospitals Thanks to the Certification Commission for Health Information Why Technology Do We Waste (CCHIT), Time every and EHR $ works effectively to support good patient care on Accreditation Programs Thanks to college That accreditation Don t Work? organizations, every parent who sends their child to college knows they will get a good education and a good job after graduation 51

52 In Healthcare, Payers Are From Mars, Providers Are From Venus

53 Payer Approach #1: Value-Based Pay for Performance $ PAYER SOLUTION: Value-Based P4P Hospitals & Physicians Have to Justify a Portion of What They Would Have Otherwise Received Based on Performance on Quality/Cost Measures FEE FOR SERVICE PAYMENTS FEE FOR SERVICE PAYMENTS UNPAID SERVICES UNPAID SERVICES 53

54 $ Incentives for Providers Don t Overcome the FFS Barriers FEE FOR SERVICE PAYMENTS PAYER SOLUTION: Value-Based P4P FEE FOR SERVICE PAYMENTS Small P4P bonuses may not be enough to pay for the added costs of improving quality P4P $ may not be enough to pay the costs of collecting and reporting the data Small P4P bonuses are less than the loss of fee-for-service revenue from lower utilization UNPAID SERVICES UNPAID SERVICES LOSS OF REVENUE 54

55 Despite Years of P4P, Quality Has NOT Improved Source: NCQA: The State of Health Care Quality

56 Despite Years of P4P, Quality Has NOT Improved Over One-Third of Diabetic Patients Aren t Receiving Adequate Care Source: NCQA: The State of Health Care Quality

57 Over-Emphasis on Narrow Quality Measures Can Harm Patients Hypoglycemia 1 Yr Mortality: 19.9% 30 Day Readmits: 16.3% Hyperglycemia 1 Yr Mortality: 17.1% 30 Day Readmits: 15.3% Source: National Trends in US Hospital Admissions for Hyperglycemia and Hypoglycemia Among Medicare Beneficiaries, 1999 to 2011 JAMA Internal Medicine May 17,

58 It s Not Just Diabetics, It s Everybody Over One-Third of All Patients With High Blood Pressure Aren t Receiving Adequate Care Source: NCQA: The State of Health Care Quality

59 It s Costing Everybody a Lot of Money With No Apparent Benefit 59

60 P4P Has Been Studied to Death & 60

61 P4P Has Been Studied to Death & It Doesn t Work 61

62 P4P Has Been Studied to Death & It Doesn t Work (But Isn t Dead) 62

63 Payer Approach #2: Save Us $$ $ YEAR 1 PAYER SOLUTION: AVOIDABLE SPENDING SAVINGS AVOIDABLE SPENDING NECESSARY SPENDING NECESSARY SPENDING UNPAID SERVICES UNPAID SERVICES LOSS OF REVENUE 63

64 $ Payer Approach #2: Save Us $$ & (Maybe) We ll Pay More Next Year PAYER SOLUTION: YEAR 1 YEAR 2 AVOIDABLE SPENDING SAVINGS AVOIDABLE SPENDING SAVINGS AVOIDABLE SPENDING Shared Svgs NECESSARY SPENDING NECESSARY SPENDING NECESSARY SPENDING UNPAID SERVICES UNPAID SERVICES LOSS OF REVENUE UNPAID SERVICES LOSS OF REVENUE 64

65 $ Provider Concern: Shared Savings is Too Little, Too Late PAYER SOLUTION: YEAR 1 YEAR 2 AVOIDABLE SPENDING NECESSARY SPENDING UNPAID SERVICES SAVINGS AVOIDABLE SPENDING NECESSARY SPENDING UNPAID SERVICES LOSS OF REVENUE How does hospital or physician cover upfront costs of additional services and loss of revenue? SAVINGS AVOIDABLE SPENDING Shared Svgs NECESSARY SPENDING UNPAID SERVICES LOSS OF REVENUE Shared savings, if received, may not cover costs & losses 65

66 Medicare s Shared Savings ACO Program Isn t Succeeding 2013 Results for Medicare Shared Savings ACOs 46% of ACOs (102/220) increased Medicare spending Only 24% (52/220) received shared savings payments After making shared savings payments, Medicare spent more than it saved Net loss to Medicare: $78 million 2014 Results for Medicare Shared Savings ACOs 45% of ACOs (152/333) increased Medicare spending Only 26% (86/333) received shared savings payments After making shared savings payments, Medicare spent more than it saved Net loss to Medicare: $50 million 2015 Results for Medicare Shared Savings ACOs 48% of ACOs (189/392) increased Medicare spending Only 30% (119/392) received shared savings payments After making shared savings payments, Medicare spent more than it saved Net loss to Medicare: $216 million 66

67 Private Shared Savings ACOs Have Also Been Floundering 67

68 Why Aren t ACOs Succeeding? PATIENTS Heart Disease ACO Cancer Back Pain Pregnancy Primary Care Cardiology Oncology Neurosurgery OB/GYN 68

69 No Change in the Way Physicians or Hospitals Are Paid MEDICARE/HEALTH PLAN PATIENTS Heart Disease Cancer Fee-for- Service Payment ACO Back Pain Pregnancy Primary Care Cardiology Oncology Neurosurgery OB/GYN 69

70 Providers Still Face All the Barriers in the Current Payment System MEDICARE/HEALTH PLAN PATIENTS Heart Disease Cancer Back Pain Pregnancy Fee-for- Service Payment Primary Care Cardiology ACO No payment for high-value services Inadequate revenues to cover costs when fewer services are delivered Oncology Neurosurgery OB/GYN 70

71 With Only the Potential for Receiving Future Shared Savings MEDICARE/HEALTH PLAN Shared Savings Payment Next Year??? PATIENTS Heart Disease Cancer Back Pain Pregnancy Fee-for- Service Payment Primary Care Cardiology ACO No payment for high-value services Inadequate revenues to cover costs when fewer services are delivered Oncology Neurosurgery OB/GYN 71

72 ACOs Try to Coordinate Care Without Fixing Payment Barriers MEDICARE/HEALTH PLAN Shared Savings Payment Next Year??? PATIENTS Heart Disease Cancer Back Pain Pregnancy Fee-for- Service Payment Primary Care Cardiology Expensive IT Systems ACO Care Coordinators No payment for high-value services Inadequate revenues to cover costs when fewer services are delivered Oncology Neurosurgery OB/GYN 72

73 Possibility of Future Bonuses Doesn t Overcome Current Barriers MEDICARE/HEALTH PLAN Shared Savings Payment??? PATIENTS Heart Disease Cancer Back Pain Pregnancy Fee-for- Service Payment Primary Care Cardiology Expensive IT Systems ACO Care Coordinators Part of Shared Savings?? No payment for high-value services Inadequate revenues to cover costs when fewer services are delivered Oncology Neurosurgery OB/GYN 73

74 What Do Medicare, Health Plans, and Big Systems Recommend? 74

75 #1: Keep Doing the Bad Value-Based Payment Models P4P Risk FFS FFS FFS 75

76 Or #2: Implement Population-Based Payment P4P Risk FFS FFS FFS Capitation/ Insurance Risk for Integrated Delivery Systems 76

77 Capitation Has Not Transformed Care Where It s Being Used Over One-Third of Diabetics in California Aren t Getting Adequate Care Health Insurance Premiums in California Are Higher Than The U.S. Average 77

78 Is a 50/50 Chance of Good Care the Best A Big System Can Do??? 78

79 After the ACO/IDN Gets Capitation, How It Will Pay Docs & Hospitals?? MEDICARE/HEALTH PLAN DOWNSIDE RISK Population-Based Payment AKA Capitation PATIENTS Heart Disease Cancer ACO/Integrated Delivery System Expensive IT Systems Care Coordinators Back Pain Pregnancy PMPM FFS FFS FFS FFS Primary Care Cardiology Oncology Neurosurgery OB/GYN 79

80 What About The Downsides of Integrated Delivery Systems? 80

81 And What About the Advantages of Small, Independent Practices? 81

82 Patients Don t See the Benefits of Big Systems and Capitation 82

83 And They re Voting (With Their Feet) For Other Options 83

84 This is NOT a Good Framework for Fixing Healthcare Payment P4P Risk FFS FFS FFS Capitation/ Insurance Risk for Integrated Delivery Systems 84

85 And Following It Will Likely Make Things Worse, Not Better P4P Risk FFS FFS FFS Capitation/ Insurance Risk for Integrated Delivery Systems 85

86 Value-Based Payment Is Being Designed the Wrong Way Today 86

87 Value-Based Payment Is Being Designed the Wrong Way Today TOP-DOWN PAYMENT REFORM Medicare and Health Plans Define Payment Systems 87

88 Value-Based Payment Is Being Designed the Wrong Way Today TOP-DOWN PAYMENT REFORM Medicare and Health Plans Define Payment Systems Physicians and Hospitals Have To Change Care to Align With Payment Systems 88

89 Value-Based Payment Is Being Designed the Wrong Way Today TOP-DOWN PAYMENT REFORM Medicare and Health Plans Define Payment Systems Physicians and Hospitals Have To Change Care to Align With Payment Systems Patients Get Worse Care and Providers Close/Consolidate 89

90 Is There a Better Way? TOP-DOWN PAYMENT REFORM Medicare and Health Plans Define Payment Systems Physicians and Hospitals Have To Change Care to Align With Payment Systems Patients Get Worse Care and Providers Close/Consolidate 90

91 Start By Identifying Ways to Improve Care & Reduce Costs TOP-DOWN PAYMENT REFORM BOTTOM-UP PAYMENT REFORM Medicare and Health Plans Define Payment Systems Physicians and Hospitals Have To Change Care to Align With Payment Systems Patients Get Worse Care and Providers Close/Consolidate Ask Physicians and Hospitals to Identify Ways to Improve Care for Patients and Eliminate Avoidable Costs 91

92 Pay Adequately & Expect Accountability for Outcomes TOP-DOWN PAYMENT REFORM BOTTOM-UP PAYMENT REFORM Medicare and Health Plans Define Payment Systems Physicians and Hospitals Have To Change Care to Align With Payment Systems Payers Provide Adequate Payment for Quality Care & Providers Take Accountability for Quality & Efficiency Patients Get Worse Care and Providers Close/Consolidate Ask Physicians and Hospitals to Identify Ways to Improve Care for Patients and Eliminate Avoidable Costs 92

93 So the Result is Better, More Affordable Patient Care TOP-DOWN PAYMENT REFORM Medicare and Health Plans Define Payment Systems BOTTOM-UP PAYMENT REFORM Patients Get Good Care at an Affordable Cost and Independent Providers Remain Financially Viable Physicians and Hospitals Have To Change Care to Align With Payment Systems Payers Provide Adequate Payment for Quality Care & Providers Take Accountability for Quality & Efficiency Patients Get Worse Care and Providers Close/Consolidate Ask Physicians and Hospitals to Identify Ways to Improve Care for Patients and Eliminate Avoidable Costs 93

94 What Happens When You Design Care Delivery and Payment From the Bottom Up Instead of From the Top Down?

95 Better Care at Lower Cost for Total Joint Replacement PHYSICIAN LEADER: Stephen J. Zabinski, MD Director, Division of Orthopaedic Surgery, Shore Medical Ctr 95

96 Better Care at Lower Cost for Total Joint Replacement PHYSICIAN LEADER: Stephen J. Zabinski, MD Director, Division of Orthopaedic Surgery, Shore Medical Ctr OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS Reduce surgical complications by reducing patient risk factors prior to surgery Obtain lower prices for implants from vendors Match implants to patient needs Return patients home as quickly as possible Use lower cost settings for surgery and rehabilitation 96

97 Better Care at Lower Cost for Total Joint Replacement PHYSICIAN LEADER: Stephen J. Zabinski, MD Director, Division of Orthopaedic Surgery, Shore Medical Ctr OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS Reduce surgical complications by reducing patient risk factors prior to surgery Obtain lower prices for implants from vendors Match implants to patient needs Return patients home as quickly as possible Use lower cost settings for surgery and rehabilitation BARRIERS IN THE CURRENT PAYMENT SYSTEM No payment for pre-operative patient risk reduction programs No payment for care coordination throughout surgical episode Separate payments to hospital and physician No data on costs of facilities 97

98 Better Care at Lower Cost for Total Joint Replacement PHYSICIAN LEADER: Stephen J. Zabinski, MD Director, Division of Orthopaedic Surgery, Shore Medical Ctr OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS Reduce surgical complications by reducing patient risk factors prior to surgery Obtain lower prices for implants from vendors Match implants to patient needs Return patients home as quickly as possible Use lower cost settings for surgery and rehabilitation BARRIERS IN THE CURRENT PAYMENT SYSTEM No payment for pre-operative patient risk reduction programs No payment for care coordination throughout surgical episode Separate payments to hospital and physician No data on costs of facilities RESULTS WITH ADEQUATE PAYMENT FOR BETTER CARE Average length of stay TKR: days THR: days Average device cost $6,301 $4,242 Discharges to home 34% 78% Readmission rate 3.2% 2.7% Total Episode Spending TKR: $25,365 $19,597 THR: $26,580 $20,636 98

99 Better Care at Lower Cost for Cancer PHYSICIAN LEADER: Barbara McAneny, MD CEO, New Mexico Cancer Center 99

100 Better Care at Lower Cost for Cancer PHYSICIAN LEADER: Barbara McAneny, MD CEO, New Mexico Cancer Center OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS 40-50% of patients receiving chemotherapy are hospitalized for complications of treatment 100

101 Better Care at Lower Cost for Cancer PHYSICIAN LEADER: Barbara McAneny, MD CEO, New Mexico Cancer Center OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS 40-50% of patients receiving chemotherapy are hospitalized for complications of treatment BARRIERS IN THE CURRENT PAYMENT SYSTEM No payment for triage services to enable rapid response to patient complications No payment for patient and family education about complications and how to respond Inadequate payment to reserve capacity for IV hydration of patients experiencing problems 101

102 Better Care at Lower Cost for Cancer PHYSICIAN LEADER: Barbara McAneny, MD CEO, New Mexico Cancer Center OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS 40-50% of patients receiving chemotherapy are hospitalized for complications of treatment BARRIERS IN THE CURRENT PAYMENT SYSTEM No payment for triage services to enable rapid response to patient complications No payment for patient and family education about complications and how to respond Inadequate payment to reserve capacity for IV hydration of patients experiencing problems RESULTS WITH ADEQUATE PAYMENT FOR BETTER CARE 36% fewer ED visits 43% fewer admissions 22% reduction in total cost of care ($4,784 over six months) 102

103 Better Care at Lower Cost for Crohn s Disease PHYSICIAN LEADER: Lawrence R. Kosinski, MD Managing Partner, Illinois Gastroenterology Group 103

104 Better Care at Lower Cost for Crohn s Disease PHYSICIAN LEADER: Lawrence R. Kosinski, MD Managing Partner, Illinois Gastroenterology Group OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS Health plan spends $11,000/year/patient on patients with Crohn s >50% of expenses are for hospital care, most due to complications <33% of patients seen by physician in 30 days prior to hospitalization 10% of expenses for biologics, many administered in hospitals 3.5% of spending goes to gastroenterologists 104

105 Better Care at Lower Cost for Crohn s Disease PHYSICIAN LEADER: Lawrence R. Kosinski, MD Managing Partner, Illinois Gastroenterology Group OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS Health plan spends $11,000/year/patient on patients with Crohn s >50% of expenses are for hospital care, most due to complications <33% of patients seen by physician in 30 days prior to hospitalization 10% of expenses for biologics, many administered in hospitals 3.5% of spending goes to gastroenterologists BARRIERS IN THE CURRENT PAYMENT SYSTEM No payment to support medical home services in gastroenterology practice: No payment for nurse care manager No payment for clinical decision support tools to ensure evidencebased care No payment for proactive telephone contact with patients 105

106 Better Care at Lower Cost for Crohn s Disease PHYSICIAN LEADER: Lawrence R. Kosinski, MD Managing Partner, Illinois Gastroenterology Group OPPORTUNITIES TO IMPROVE CARE AND LOWER COSTS Health plan spends $11,000/year/patient on patients with Crohn s >50% of expenses are for hospital care, most due to complications <33% of patients seen by physician in 30 days prior to hospitalization 10% of expenses for biologics, many administered in hospitals 3.5% of spending goes to gastroenterologists BARRIERS IN THE CURRENT PAYMENT SYSTEM No payment to support medical home services in gastroenterology practice: No payment for nurse care manager No payment for clinical decision support tools to ensure evidencebased care No payment for proactive telephone contact with patients RESULTS WITH ADEQUATE PAYMENT FOR BETTER CARE Hospitalization rate cut by more than 50% Total spending reduced by 10% even with higher payments to the physician practice Improved patient satisfaction due to fewer complications and lower out-of-pocket costs 106

107 How Do You Define a Physician-Focused Alternative Payment Model?

108 Step 1: Identify Opportunities to Reduce Related Spending $ Total Spending Relevant to the Physician s Services Physician Practice Revenue Fee-for-Service Payment (FFS) Avoidable Spending Payments to Other Providers for Related Services FFS Payments to Physician Practice OPPORTUNITIES TO REDUCE SPENDING THAT PHYSICIANS CAN CONTROL Reduce Avoidable Hospital Admissions Reduce Unnecessary Tests and Treatments Use Lower-Cost Tests and Treatments Deliver Services More Efficiently Use Lower-Cost Sites of Service Reduce Preventable Complications Prevent Serious Conditions From Occurring 108

109 $ Total Spending Relevant to the Physician s Services Step 2: Identify Barriers in Current Payments That Need to Be Fixed Fee-for-Service Payment (FFS) Avoidable Spending Payments to Other Providers for Related Services OPPORTUNITIES TO REDUCE SPENDING THAT PHYSICIANS CAN CONTROL Reduce Avoidable Hospital Admissions Reduce Unnecessary Tests and Treatments Use Lower-Cost Tests and Treatments Deliver Services More Efficiently Use Lower-Cost Sites of Service Reduce Preventable Complications Prevent Serious Conditions From Occurring Physician Practice Revenue FFS Payments to Physician Practice Unpaid Services BARRIERS IN CURRENT FFS SYSTEM No Payment for Many High-Value Services Insufficient Revenue to Cover Costs When Using Fewer or Lower-Cost Services 109

110 $ Total Spending Relevant to the Physician s Services Physician Practice Revenue Step 3: Design an APM That Removes the Payment Barriers Fee-for-Service Payment (FFS) Avoidable Spending Payments to Other Providers for Related Services FFS Payments to Physician Practice Unpaid Services Physician-Focused Alternative Payment Model Flexible, Adequate Payment for Physician s Services 110

111 $ Total Spending Relevant to the Physician s Services Physician Practice Revenue Step 4: Include Provisions to Assure Control of Cost & Quality Fee-for-Service Payment (FFS) Avoidable Spending Payments to Other Providers for Related Services FFS Payments to Physician Practice Unpaid Services Physician-Focused Alternative Payment Model Savings Avoidable Spending Payments to Other Providers for Related Services Flexible, Adequate Payment for Physician s Services Accountability for Controlling Avoidable Spending 111

112 The CMS Models Are NOT the Only Way to Define APMs CMS APM Models Primary Care Medical Home Episode Payment to Hospital Upside-Only Shared Savings Two-Sided Risk Shared Savings Full-Risk Capitation 112

113 There are More & Better Ways to Create Physician-Focused APMs APM #1: Payment for a High-Value Service APM #2: Condition-Based Payment for a Physician s Services APM #3: Multi-Physician Bundled Payment APM #4: Physician-Facility Procedure Bundle APM #5: Warrantied Payment for Physician Services APM #6: Episode Payment for a Procedure APM #7: Condition-Based Payment 113

114 There are More & Better Ways to Create Physician-Focused APMs Multiple Types of APMs Needed Because Physicians Deliver Different Types of Care to Different Patients APM #1: Payment for a High-Value Service APM #2: Condition-Based Payment for a Physician s Services APM #3: Multi-Physician Bundled Payment APM #4: Physician-Facility Procedure Bundle APM #5: Warrantied Payment for Physician Services APM #6: Episode Payment for a Procedure APM #7: Condition-Based Payment 114

115 Proceduralists Can Reduce Complications & Improve Efficiency Proceduralist Hospital High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending 115

116 Procedural Episode Payments Support Higher Quality/Lower Cost Procedural Episode Payment Proceduralist Hospital High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending 116

117 What if You Can Avoid the Procedure or Admission Altogether? Procedural Episode Payment Proceduralist Hospital $ High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending Medical Management 117

118 Specialists Managing a Condition Can Avoid Unnecessary Procedures Condition Specialist Procedural Episode Payment Proceduralist Hospital $ High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending Medical Management 118

119 Condition-Based Payment Supports Use of Highest-Value Treatment Condition- Based Payment Condition Specialist Procedural Episode Payment Proceduralist Hospital $ High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending Medical Management 119

120 Are We Making the Payment for the Correct Condition?? Condition- Based Payment Wrong Condition Procedural Episode Payment Proceduralist Hospital $ High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending??????? Medical Management $ Correct Condition Correct Treatment 120

121 Diagnostic Error is a Fundamental Quality Issue Underlying All Others 121

122 The Diagnostician Ensures the Right Condition is Being Treated Condition- Based Payment Condition Specialist Procedural Episode Payment Proceduralist Hospital $ High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending Diagnostician Medical Management $ Correct Condition Correct Treatment 122

123 Condition-Based Payment Also Needed to Support Good Diagnosis Condition- Based Payment (Symptoms) Condition- Based Payment (Diagnosis) Procedural Episode Payment Proceduralist Hospital High Spending on Complications & Post-Acute Care $ Condition Specialist $ Low Complication & PAC Spending Diagnostician Medical Management $ Correct Condition Correct Treatment 123

124 Gastroenterologists Play All These Roles & Need Appropriate APMs Procedural Episode Payment Gastroenterologist Hospital High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending 124

125 Gastroenterologists Play All These Roles & Need Appropriate APMs Condition- Based Payment (Diagnosis) Gastroenterologist Procedural Episode Payment Gastroenterologist Hospital $ High Spending on Complications & Post-Acute Care $ Low Complication & PAC Spending Medical Management 125

126 Gastroenterologists Play All These Roles & Need Appropriate APMs Condition- Based Payment (Symptoms) Condition- Based Payment (Diagnosis) Procedural Episode Payment Gastroenterologist Hospital High Spending on Complications & Post-Acute Care $ Gastroenterologist $ Low Complication & PAC Spending Gastroenterologist Medical Management $ Correct Condition Correct Treatment 126

127 How Would You Design APMs for Gastroenterology? 127

128 Types of Patient Needs Addressed Identify the Types of Patient Needs That Physicians Address Colon Cancer Screening Upper GI Bleeding (NVUGIB) Inflammatory Bowel Disease Other Conditions & Procedures 128

129 Step 1: Identify the Opportunities to Improve Care & Reduce Cost Types of Patient Needs Addressed Colon Cancer Screening Opportunities to Improve Care and Reduce Cost Deliver colonoscopy in lowest-cost way Improve adenoma detection rate Avoid complications in colonoscopy Focus on highest-risk patients Upper GI Bleeding (NVUGIB) Inflammatory Bowel Disease Other Conditions & Procedures 129

130 Step 2: Identify the Barriers in the Current Payment System Types of Patient Needs Addressed Colon Cancer Screening Upper GI Bleeding (NVUGIB) Opportunities to Improve Care and Reduce Cost Deliver colonoscopy in lowest-cost way Improve adenoma detection rate Avoid complications in colonoscopy Focus on highest-risk patients Barriers in Current Payment System All providers paid separately No payment for outreach to high-risk patients Higher payment for repeat & unnecessary procedures Inflammatory Bowel Disease Other Conditions & Procedures 130

131 Step 3: Design Solutions to Overcome the Barriers Types of Patient Needs Addressed Opportunities to Improve Care and Reduce Cost Barriers in Current Payment System Solutions via Alternative Payment Models Colon Cancer Screening Deliver colonoscopy in lowest-cost way Improve adenoma detection rate Avoid complications in colonoscopy Focus on highest-risk patients All providers paid separately No payment for outreach to high-risk patients Higher payment for repeat & unnecessary procedures Bundled payment for colonoscopy Warrantied payment for colonoscopy Population-based payment for cancer screening Upper GI Bleeding (NVUGIB) Inflammatory Bowel Disease Other Conditions & Procedures 131

132 Opportunities, Barriers, and Solutions Will Differ by Condition Types of Patient Needs Addressed Opportunities to Improve Care and Reduce Cost Barriers in Current Payment System Solutions via Alternative Payment Models Colon Cancer Screening Deliver colonoscopy in lowest-cost way Improve adenoma detection rate Avoid complications in colonoscopy Focus on highest-risk patients All providers paid separately No payment for outreach to high-risk patients Higher payment for repeat & unnecessary procedures Bundled payment for colonoscopy Warrantied payment for colonoscopy Population-based payment for cancer screening Upper GI Bleeding (NVUGIB) Reduce ED visits and hospitalizations due to bleeds Use lowest-cost, effective intervention Avoid complications No payment for care management Financial penalty for using lower-cost procedures Bundled/warrantied payment for acute conditions Condition-based payment for chronic conditions Inflammatory Bowel Disease Other Conditions & Procedures 132

133 Different Payment Models for Different GI Conditions Types of Patient Needs Addressed Opportunities to Improve Care and Reduce Cost Barriers in Current Payment System Solutions via Alternative Payment Models Colon Cancer Screening Deliver colonoscopy in lowest-cost way Improve adenoma detection rate Avoid complications in colonoscopy Focus on highest-risk patients All providers paid separately No payment for outreach to high-risk patients Higher payment for repeat & unnecessary procedures Bundled payment for colonoscopy Warrantied payment for colonoscopy Population-based payment for cancer screening Upper GI Bleeding (NVUGIB) Reduce ED visits and hospitalizations due to bleeds Use lowest-cost, effective intervention Avoid complications No payment for care management Financial penalty for using lower-cost procedures Bundled/warrantied payment for acute conditions Condition-based payment for chronic conditions Inflammatory Bowel Disease Other Conditions & Procedures Reduce ED visits & hospitalizations Reduce drug costs Reduce absences from work No payment for care management or proactive outreach No flexibility for nonface-to-face visits Add-on payment for care management support Condition-based payment for IBD 133

134 Not Every Condition Needs an Alternative Payment Model Types of Patient Needs Addressed Opportunities to Improve Care and Reduce Cost Barriers in Current Payment System Solutions via Alternative Payment Models Colon Cancer Screening Deliver colonoscopy in lowest-cost way Improve adenoma detection rate Avoid complications in colonoscopy Focus on highest-risk patients All providers paid separately No payment for outreach to high-risk patients Higher payment for repeat & unnecessary procedures Bundled payment for colonoscopy Warrantied payment for colonoscopy Population-based payment for cancer screening Upper GI Bleeding (NVUGIB) Reduce ED visits and hospitalizations due to bleeds Use lowest-cost, effective intervention Avoid complications No payment for care management Financial penalty for using lower-cost procedures Bundled/warrantied payment for acute conditions Condition-based payment for chronic conditions Inflammatory Bowel Disease Other Conditions & Procedures Reduce ED visits & hospitalizations Reduce drug costs Reduce absences from work No payment for care management or proactive outreach No flexibility for nonface-to-face visits Add-on payment for care management support Condition-based payment for IBD FFS 134

135 Building Blocks of Good APMs 135

136 Building Blocks of Good APMs BUILDING BLOCKS Bundled Payment HOW IT WORKS Single payment to ALL providers involved in delivering ALL of the care the patient needs 136

137 Building Blocks of Good APMs BUILDING BLOCKS Bundled Payment Warrantied Payment HOW IT WORKS Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications 137

138 Building Blocks of Good APMs BUILDING BLOCKS Bundled Payment Warrantied Payment Condition-Based Payment HOW IT WORKS Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used 138

139 Building Blocks of Good APMs BUILDING BLOCKS Bundled Payment Warrantied Payment Condition-Based Payment Performance Guarantee HOW IT WORKS Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used Payment only made if quality standards are met and pre-defined outcomes are achieved 139

140 Win-Win-Wins Are Possible With Good Alternative Payment Models BUILDING BLOCKS HOW IT WORKS WIN-WIN-WIN APPROACH Bundled Payment Warrantied Payment Condition-Based Payment Performance Guarantee Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used Payment only made if quality standards are met and pre-defined outcomes are achieved Patients get better quality care Payers spend less for care Providers do better financially for delivering high-quality care 140

141 Win-Win-Win Results Through Bundled Payment BUILDING BLOCKS HOW IT WORKS WIN-WIN-WIN APPROACH Bundled Payment Warrantied Payment Condition-Based Payment Performance Guarantee Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used Payment only made if quality standards are met and pre-defined outcomes are achieved Patients get better quality care Payers spend less for care Providers do better financially for delivering high-quality care 141

142 The Way We Pay for Healthcare Fee for Service 14,000 Individual fees 142

143 We Don t Buy Any Other Products Fee for Service or Services This Way 14,000 Individual fees 143

144 What Would Happen If We Paid for Cars the Way We Pay for Care? Cars would get many unnecessary parts 144

145 What Customers in Other Industries Get Fee for Service Bundled Payments 14,000 Individual fees 145

146 What Patients Want and Should Get in Healthcare Fee for Service Bundled Payments 14,000 Individual fees Colonoscopy (All Services) Knee Surgery (All Services) Heart Surgery (All Services) IBD Management (All Services) 146

147 Today: All Participants in a Colonoscopy Are Paid Separately COST TYPE TODAY Gastroenterologist $

148 Today: All Participants in a Colonoscopy Are Paid Separately COST TYPE TODAY Gastroenterologist $220 Anesthesiologist $

149 Today: All Participants in a Colonoscopy Are Paid Separately COST TYPE TODAY Gastroenterologist $220 Anesthesiologist $230 Hospital Cost $760 Hosp. Margin (5%) $ 40 Total Hospital Pmt $

150 Today: All Participants in a Colonoscopy Are Paid Separately COST TYPE TODAY Gastroenterologist $220 Anesthesiologist $230 Hospital Cost $760 Hosp. Margin (5%) $ 40 Total Hospital Pmt $800 Total Cost to Payer $1,

151 Most of the Money Is Not Going to the Gastroenterologist COST TYPE TODAY Gastroenterologist $220 Gastroenterologist receives only 18% of total spending Anesthesiologist $230 Hospital Cost $760 Hosp. Margin (5%) $ 40 Total Hospital Pmt $800 Total Cost to Payer $1,

152 What if the Gastroenterologist Doesn t Use an Anesthesiologist? COST TYPE TODAY CHANGE Gastroenterologist $220 Anesthesiologist $230 ($230) Hospital Cost $760 Hosp. Margin (5%) $ 40 Total Hospital Pmt $800 Total Cost to Payer $1,

153 All of the Savings Would Go to the Payer COST TYPE TODAY CHANGE SPLIT NEW % CHG Gastroenterologist $220 $0 $220 +0% Anesthesiologist $230 ($230) $0-100% Hospital Cost $760 $760 Hosp. Margin (5%) $ 40 $ 40 +0% Total Hospital Pmt $800 $800-0% Total Cost to Payer $1,250 ($230) $1,020-18% 153

154 What if Physician Could Help Reduce the Hospital s Costs? COST TYPE TODAY CHANGE SPLIT NEW % CHG Gastroenterologist $220 $0 $220 +0% Anesthesiologist $230 ($230) $0-100% Hospital Cost $760 ($76) $684-10% Hosp. Margin (5%) $ 40 Total Hospital Pmt $800 Total Cost to Payer $1,

155 All of the Savings Would Go to the Hospital COST TYPE TODAY CHANGE SPLIT NEW % CHG Gastroenterologist $220 $0 $220 +0% Anesthesiologist $230 ($230) $0-100% Hospital Cost $760 ($76) $684-10% Hosp. Margin (5%) $ 40 $76 $ % Total Hospital Pmt $800 $800-0% Total Cost to Payer $1,250 ($230) $1,020-18% 155

156 Today: No Reward for Physician For Lowering Costs COST TYPE TODAY CHANGE SPLIT NEW % CHG Gastroenterologist $220 $0 $220 +0% Anesthesiologist $230 ($230) $0-100% Hospital Cost $760 ($76) $684-10% Hosp. Margin (5%) $ 40 $76 $ % Total Hospital Pmt $800 $800-0% Total Cost to Payer $1,250 ($230) $1,020-18% 156

157 A Value-Based Modifier Isn t a Fair Share COST TYPE TODAY CHANGE SPLIT NEW % CHG Gastroenterologist $220 $4 $224 +2% Anesthesiologist $230 ($230) $0-100% Hospital Cost $760 ($76) $684-10% Hosp. Margin (5%) $ 40 $76 $ % Total Hospital Pmt $800 $800-0% Total Cost to Payer $1,250 ($226) $1,024-18% 157

158 Bundling Eliminates Boundaries in Payments for the Procedure COST TYPE TODAY Gastroenterologist $220 Anesthesiologist $230 Hospital Cost $760 Hosp. Margin (5%) $ 40 Bundled Payment $1,

159 Bundling Allows Savings Split Among Doc, Hospital, Payer COST TYPE TODAY CHANGE SPLIT Gastroenterologist $220 $110 Anesthesiologist $230 ($230) Hospital Cost $760 ($76) Hosp. Margin (5%) $ 40 $71 Bundled Payment $1,250 ($125) 159

160 So Price of Procedure is Lower But More Profitable (Win-Win) COST TYPE TODAY CHANGE SPLIT NEW % CHG Gastroenterologist $220 $110 $ % Anesthesiologist $230 ($230) $0 Hospital Cost $760 ($76) $684 Hosp. Margin (5%) $ 40 $71 $ % Bundled Payment $1,250 ($125) $1,125-10% 160

161 If Gastroenterologist Manages the Bundled Payment COST TYPE TODAY Gastroenterologist $220 Anesthesiologist $230 Hospital/ASC Fee $800 Bundled Payment $1,

162 Gastroenterologist Can Redesign Care and Choose Location COST TYPE TODAY CHANGE Gastroenterologist $220 Anesthesiologist $230 ($230) Hospital/ASC Fee $800 ($300) Bundled Payment $1,

163 Lower-Cost Approach = Better GI Payment, Lower Payer Cost COST TYPE TODAY CHANGE SPLIT NEW % CHG Gastroenterologist $220 $220 $ % Anesthesiologist $230 ($230) $0 Hospital/ASC Fee $800 ($300) $500 Bundled Payment $1,250 ($310) $940-25% 163

164 Win-Win-Win Results Through Warrantied Payment BUILDING BLOCKS HOW IT WORKS WIN-WIN-WIN APPROACH Bundled Payment Warrantied Payment Condition-Based Payment Performance Guarantee Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used Payment only made if quality standards are met and pre-defined outcomes are achieved Patients get better quality care Payers spend less for care Providers do better financially for delivering high-quality care 164

165 In Healthcare, Customers Pay More for Errors & Complications Fee for Service 165

166 In Other Industries, Providers Give Warranties Fee for Service Warrantied Products 166

167 Yes, a Health Care Provider Can Offer a Warranty Geisinger Health System ProvenCare SM A single payment for an ENTIRE 90 day period including: ALL related pre-admission care ALL inpatient physician and hospital services ALL related post-acute care ALL care for any related complications or readmissions Types of conditions/treatments currently offered: Cardiac Bypass Procedure Cardiac Stents Cataract Procedure Total Hip Replacement Bariatric Procedure Perinatal Care Low Back Pain Treatment of Chronic Kidney Disease 167

168 Payment + Process Improvement = Better Outcomes, Lower Costs 168

169 Warranties Can Be Offered By Individual Docs & Small Hospitals In 1987, an orthopedic surgeon in Lansing, Michigan and the local hospital, Ingham Medical Center, offered: a fixed total price for surgical services for shoulder and knee problems a warranty for any subsequent services needed for a two-year period, including repeat visits, imaging, rehospitalization and additional Procedure Results: Health insurer paid 40% less than otherwise Surgeon received over 80% more in payment than otherwise Hospital received 13% more than otherwise, despite fewer rehospitalizations Method: Reducing unnecessary auxiliary services such as radiography and physical therapy Reducing the length of stay in the hospital Reducing complications and readmissions. Johnson LL, Becker RL. An alternative health-care reimbursement system application of arthroscopy and financial warranty: results of a two-year pilot study. Arthroscopy Aug;10(4):

170 A Warranty Does Not Guarantee There Wil Be No Complications Offering a warranty on care does not imply that you are guaranteeing there will be no errors or complications It merely means that you are agreeing to correct those problems at no (additional) charge Most warranties are limited warranties, in the sense that they agree to pay to correct some problems, but not all 170

171 Prices for Warrantied Care Will Likely Be Higher Q: Why should we pay more to get good-quality care?? A: In most industries, warrantied products cost more, but they re desirable because TOTAL spending on the product (repairs & replacement) is lower than without the warranty 171

172 Potential Warranties in Gastroenterology Repeat colonoscopies for poor bowel preparation Infections from improperly cleaned equipment Colon perforations Complications of anesthesia 172

173 Potential Warranties in Gastroenterology Repeat colonoscopies for poor bowel preparation Infections from improperly cleaned equipment Colon perforations Complications of anesthesia 173

174 Colonoscopy Bundled Payment Example: Colonoscopy with Repeat Rate $1,250 10% 10% Repeat Rate 174

175 Colonoscopy Bundled Payment On Average, the Payer is Paying $1,375/Patient, Not $1,250 Repeat Rate Average Current Payment $1,250 10% $1,

176 Colonoscopy Bundled Payment Gastroenterologist Receives a Small Portion of the Total $ Repeat Rate Average Current Payment Cost Except Gastro Fee Physician Fee $1,250 10% $1,375 $1,133 $

177 Colonoscopy Bundled Payment Repeat Rate What Happens If Quality is Improved? Average Current Payment Cost Except Gastro Fee Physician Fee $1,250 10% $1,375 $1,133 $242 $1,250 8% $1,250 6% $1,250 5% 177

178 Colonoscopy Bundled Payment Repeat Rate Spending and Costs Average Current Payment Will Decrease Cost Except Gastro Fee Payer Change Physician Fee $1,250 10% $1,375 $1,133 $242 $1,250 8% $1,350 $1, % $1,250 6% $1,325 $1, % $1,250 5% $1,313 $1, % 178

179 Physician Fees Will Also Decrease With Fewer Procedures Colonoscopy Bundled Payment Repeat Rate Average Current Payment Cost Except Gastro Fee Payer Change Physician Fee $1,250 10% $1,375 $1,133 $242 Provider Change $1,250 8% $1,350 $1, % $ % $1,250 6% $1,325 $1, % $ % $1,250 5% $1,313 $1, % $ % 179

180 Result is a Win-Lose Scenario: Better Quality = Physician Loss Colonoscopy Bundled Payment Repeat Rate Average Current Payment Cost Except Gastro Fee Payer Change Physician Fee $1,250 10% $1,375 $1,133 $242 Provider Change $1,250 8% $1,350 $1, % $ % $1,250 6% $1,325 $1, % $ % $1,250 5% $1,313 $1, % $ % Better Quality = Win for Payer Loss for Physician + 180

181 Result is a Win-Lose Scenario: Better Quality = Physician Loss Colonoscopy Bundled Payment Repeat Rate Average Current Payment Cost Except Gastro Fee Payer Change Physician Fee $1,250 10% $1,375 $1,133 $242 Provider Change IS THERE A $1,250 8% $1,350 $1, % $ % $1,250 6% $1,325 $1, % $ % BETTER WAY? $1,250 5% $1,313 $1, % $ % Better Quality = Win for Payer Loss for Physician + 181

182 What If You Didn t Charge for Repeat Colonoscopies? Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375? 182

183 Warrantied Price Would be Higher Than Current Price Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,

184 Gastronenterologist Receives Same Fee if Quality Stays Same Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $

185 Invest in Improving Quality (Better Bowel Prep Support) Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 +$20 Invest in Quality 185

186 Fewer Repeat Procedures Reduces Total Costs Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1112+$20 Improve Quality Invest in Quality and Other Costs Decrease 186

187 Warrantied Payment Doesn t Decrease With Fewer Repeats Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1,375 $1112+$20 Improve Quality No Loss of Revenue Invest in Quality and Other Costs Decrease 187

188 Warrantied Payment Preserves the Physician s Margin Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1,375 $1112+$20 $243 +0% Improve Quality No Loss of Revenue Invest in Quality and Other Costs Decrease Preserve Margin 188

189 Improving Quality Further Increases Physician Margin Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1,375 $1112+$20 $243 +0% 7% $1,375 $1102+$20 $253 +5% Better Quality Reduces Cost Better Margin 189

190 Virtuous Cycle of Quality Improvement + Cost Reduction Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1,375 $1112+$20 $243 +0% 7% $1,375 $1102+$20 $253 +5% 6% $1,375 $1092+$25 $258 +7% Better Quality Reduces Cost Better Margin 190

191 Price Can Be Reduced Without Harming Margins Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1,375 $1112+$20 $243 +0% 7% $1,375 $1102+$20 $253 +5% 6% $1,375 $1092+$25 $258 +7% 6% $1,365 $1092+$25 $248 +3% Allows Lower Prices Still Better Margin 191

192 Quality & Financial Incentives Are Now (Finally) Aligned Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1,375 $1112+$20 $243 +0% 7% $1,375 $1102+$20 $253 +5% 6% $1,375 $1092+$25 $258 +7% 6% $1,365 $1092+$25 $248 +3% 5% $1,360 $1082+$25 $254 +5% Better Quality Allows Lower Prices Improves Margins 192

193 Win-Win-Win Through Appropriate Payment & Pricing Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin $1,250 10% $1,375 $1,133 $242 Change $1,250 10% $1,375 $1,375 $1,133 $242 8% $1,375 $1112+$20 $243 +0% 7% $1,375 $1102+$20 $253 +5% 6% $1,375 $1092+$25 $258 +7% 6% $1,365 $1092+$25 $248 +3% 5% $1,360 $1082+$25 $254 +5% Quality is Better......Spending is Lower......Providers Are More Profitable 193

194 How a Warrantied Payment Supports Competition on Quality Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin Change 5% $1,360 $1082+$25 $254 +5% 194

195 What If Other Gastroenterologists Have Higher Repeat Rates? Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin Change 5% $1,360 $1082+$25 $254 +5% LOWER-QUALITY COMPETITOR $1,250 15% $1,438 $1,184 $

196 A Low Quality Competitor Has to Charge the Patient 6% More Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin 5% $1,360 $1082+$25 $254 +6% LOWER-QUALITY COMPETITOR 15% $1,439 $1,185 $254 Change +0% 196

197 Or Match the Price and Pay the Gastroenterologist 31% Less Colonoscopy Bundled Payment Repeat Rate Average Current Payment Price With Warranty Cost Except Gastro Fee Physician Margin Change 5% $1,360 $1082+$25 $254 +5% +0% LOWER-QUALITY COMPETITOR 15% $1,439 $1,185 $254 15% $1,360 $1,185 $175-31% 197

198 Win-Win-Win Results Through Condition-Based Payment BUILDING BLOCKS HOW IT WORKS WIN-WIN-WIN APPROACH Bundled Payment Warrantied Payment Condition-Based Payment Performance Guarantee Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used Payment only made if quality standards are met and pre-defined outcomes are achieved Patients get better quality care Payers spend less for care Providers do better financially for delivering high-quality care 198

199 Today: Reactive Care for Chronic Disease, Many Hospitalizations CURRENT $/Patient # Pts Total $ Physician Svcs PCP $ $300,000 Hospitalizations Admissions $10, $2,500,000 Specialist $ $100,000 Total Spending 500 $2,900, Moderately Severe Chronic Disease Patients PCP paid only for periodic office visits (6 $100/visit) Patients do not take maintenance medications reliably 50% of patients are hospitalized each year for exacerbations Specialist only sees patient during hospital admissions 199

200 Is There a Better Way? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs?? PCP $ $300,000?? Hospitalizations?? Admissions $10, $2,500,000?? Specialist $ $100,000?? Total Spending 500 $2,900,000?? 200

201 Pay the PCP for Proactive Care Management CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Hospitalizations Admissions $10, $2,500,000 Specialist $ $100,000 Total Spending 500 $2,900,000 Pay PCP $75 per patient per month instead of $100 per visit 201

202 Pay the Specialist to Co-Manage The Patient s Care CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % Hospitalizations Admissions $10, $2,500,000 Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,000 Pay PCP $75 per patient per month instead of $100 per visit Pay specialist $25 per patient per month instead of $100 per hospital day 202

203 Provide Non-Physician Resources to Support Patients CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Hospitalizations Admissions $10, $2,500,000 Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,000 Pay PCP $75 per patient per month instead of $100 per visit Pay specialist $25 per patient per month instead of $100 per hospital day Pay the primary care practice enough to hire a nurse care manager 203

204 Can We Afford a 127% Increase in Spending on Ambulatory Care? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Admissions $10, $2,500,000 Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,000 Pay PCP $75 per patient per month instead of $100 per visit Pay specialist $25 per patient per month instead of $100 per hospital day Pay the primary care practice enough to hire a nurse care manager 204

205 Yes, If It Succeeds In Reducing Hospitalizations CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Admissions $10, $2,500,000 $10, $2,150,000-14% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,830, % 205

206 Improved Chronic Disease Mgt Can Potentially Generate Large Savings CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Admissions $10, $2,500,000 $10, $1,500,000-40% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,180,000-25% 206

207 Do Wins for Patients, Docs & Payers Require Losses for Hospitals? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Admissions $10, $2,500,000 $10, $1,500,000-40% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,180,000-25% 207

208 What Should Matter to Hospitals is Margin, Not Revenues (Volume) 208

209 $000 Hospital Costs Are Not Proportional to Utilization Cost & Revenue Changes With Fewer Patients 20% reduction in volume 7% reduction in cost $1,000 $980 $960 $940 $920 $900 $880 $860 $840 $820 $800 Costs. #Patients 209

210 $000 Reductions in Utilization Reduce Revenues More Than Costs Cost & Revenue Changes With Fewer Patients 20% reduction in volume 7% reduction in cost 20% reduction in revenue $1,000 $980 $960 $940 $920 $900 $880 $860 $840 $820 $800 Revenues Costs #Patients 210

211 $000 Causing Negative Margins for Hospitals Cost & Revenue Changes With Fewer Patients Payers Will Be Underpaying For Care If Admissions, Readmissions, Etc. Are Reduced $1,000 $980 $960 $940 $920 $900 $880 $860 $840 $820 $800 Revenues Costs #Patients 211

212 $000 But Spending Can Be Reduced Without Bankrupting Hospitals Cost & Revenue Changes With Fewer Patients Payers Can $1,000 Still Save $ $980 Without Causing $960 Negative Margins $940 for Hospital $920 $900 $880 Revenues $860 Costs $840 $820 $800 #Patients 212

213 Where Does the Hospital Payment Go? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Admissions $10, $2,500,000 $10, $1,500,000-40% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,180,000-25% 213

214 Analyze the Hospital s Cost Structure CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total $10, $2,500,000 Specialist (Inpt) $ $100,000 Total Spending 500 $2,900,

215 What Happens to Hospital Finances When Admissions Go Down? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total $10, $2,500, Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,

216 Continue to Cover the Fixed Costs CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total $10, $2,500, Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,

217 Save on Variable Costs With Fewer Patients CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $3,700 $555,000-40% Hosp. Margin $300 3% $75,000 Total $10, $2,500, Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,

218 Increase the Hospital s Contribution Margin CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $10, $2,500, Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,

219 Hospital Gets Less Total Revenue, But is Better Off Financially CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $10, $2,500, $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900,

220 And the Payer Still Spends Less CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $10, $2,500, $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,817,500-3% 220

221 Win-Win-Win: Better Care, Higher Physician Pay, Lower Spending CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Physicians Win Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hospital Wins Payer Wins $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $10, $2,500, $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,817,500-3% 221

222 What Payment Model Supports This Win-Win-Win Approach? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $10, $2,500, $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,817,500-3% 222

223 You Don t Want to Try and Renegotiate Individual Fees CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $10, $2,500,000 $14, $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,817,500-3% 223

224 What Assures The Payer That There Will Be Fewer Admissions? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300, $680, % Hospitalizations? Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $10, $2,500,000 $14, $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending 500 $2,900, $2,817,500-3% 224

225 Look at What is Being Spent Today in Total on the Patient s Condition CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 Specialist RN Care Mgr Total $300,000 Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total 250 $2,500,000 Specialist (Inpt) $ $100,000 Total Spending $5, $2,900,

226 Tell the Payer You ll Do It For Less Than They re Spending Today CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 Specialist RN Care Mgr Total $300,000 Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total 250 $2,500,000 Specialist (Inpt) $ $100,000 Total Spending $5, $2,900,000 $5, $2,817,500-3% 226

227 Use the Payment as a Budget to Redesign Care CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300, $450, % Specialist 500 $150, % RN Care Mgr $80,000 Total $300,000 $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $2,500,000 $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending $5, $2,900,000 $5, $2,817,500-3% 227

228 And Let Providers Decide How They Should Be Paid CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300,000 $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $2,500,000 $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending $5, $2,900,000 $5, $2,817,500-3% 228

229 Condition-Based Payment Puts the Providers in Charge of Care & Pmt CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300,000 $ $450, % Specialist $ $150, % RN Care Mgr $80,000 Total $300,000 $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $2,500,000 $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending $5, $2,900,000 $5, $2,817,500-3% 229

230 Would Shared Savings Achieve the Same Thing? 230

231 Same Example As Before Year 0 Patients $ Primary Care Visit Payments $300, $600 Net Revenue $300,000 Hospitalizations Hospital Fixed $1,500,000 Hosp. Variable $925,000 Hosp. Revenue $2,500, $10,000 Hospital Margin $75,000 Specialist (Inpt) $100, $ Moderately Severe Chronic Disease Patients PCP paid only for periodic office visits Patients do not take maintenance medications reliably 50% of patients are hospitalized each year for exacerbations Specialist only sees patient during hospital admissions Total Spending $2,900,

232 PCPs Hire RNs With No Payment, Achieve 40% Reduction in Admits Year 0 Year 1 Chg Primary Care Visit Payments $300,000 $300,000 0% RN Care Mgr ($80,000) Net Revenue $300,000 Hospitalizations Hospital Fixed $1,500,000 Hosp. Variable $925,000 Hosp. Revenue $2,500,000 $1,500,000-40% Hospital Margin $75,000 Specialist (Inpt) $100,000 Total Spending $2,900,

233 PCPs, Hospitals, Specialists All Lose Money, Payer Saves Money Year 0 Year 1 Chg Primary Care Visit Payments $300,000 $300,000 0% RN Care Mgr ($80,000) Net Revenue $300,000 $220,000-27% Hospitalizations Hospital Fixed $1,500,000 $1,500,000-0% Hosp. Variable $925,000 $555,000-40% Hosp. Revenue $2,500,000 $1,500,000-40% Hospital Margin $75,000 ($555,000) Specialist (Inpt) $100,000 $60,000-40% Total Spending $2,900,000 $1,860,000-36% Payer Savings $1,040,

234 No Shared Savings Payment in Year 1 Year 0 Year 1 Chg Primary Care Visit Payments $300,000 $300,000 0% RN Care Mgr ($80,000) Shared Savings $0 Net Revenue $300,000 $220,000-27% Hospitalizations Hospital Fixed $1,500,000 $1,500,000-0% Hosp. Variable $925,000 $555,000-40% Hosp. Revenue $2,500,000 $1,500,000-40% Shared Savings $0 Hospital Margin $75,000 ($555,000) Specialist (Inpt) $100,000 $60,000-40% Total Spending $2,900,000 $1,860,000-36% Payer Savings $1,040,

235 Year 2: Physicians & Hospital Continue to Lose Money Year 0 Year 1 Chg Year 2 Primary Care Visit Payments $300,000 $300,000 0% $300,000 RN Care Mgr ($80,000) ($80,000) Shared Savings $0 Net Revenue $300,000 $220,000-27% Hospitalizations Hospital Fixed $1,500,000 $1,500,000-0% $1,500,000 Hosp. Variable $925,000 $555,000-40% $555,000 Hosp. Revenue $2,500,000 $1,500,000-40% $1,500,000 Shared Savings $0 Hospital Margin $75,000 ($555,000) Specialist (Inpt) $100,000 $60,000-40% $60,000 Total Spending $2,900,000 $1,860,000-36% $2,380,000 Payer Savings $1,040,000 $540,

236 Year 2: 50% Shared Savings Payments to PCPs & Hospitals Year 0 Year 1 Chg Year 2 Primary Care Visit Payments $300,000 $300,000 0% $300,000 RN Care Mgr ($80,000) ($80,000) Shared Savings $0 $80,000 Net Revenue $300,000 $220,000-27% $300,000 Hospitalizations Hospital Fixed $1,500,000 $1,500,000-0% $1,500,000 Hosp. Variable $925,000 $555,000-40% $555,000 Hosp. Revenue $2,500,000 $1,500,000-40% $1,500,000 Shared Savings $0 Hospital Margin $75,000 ($555,000) Specialist (Inpt) $100,000 $60,000-40% $60,000 Total Spending $2,900,000 $1,860,000-36% $2,380,000 Payer Savings $1,040,000 $540,

237 Year 2: 50% Shared Savings Payments to PCPs & Hospitals Year 0 Year 1 Chg Year 2 Primary Care Visit Payments $300,000 $300,000 0% $300,000 RN Care Mgr ($80,000) ($80,000) Shared Savings $0 $80,000 Net Revenue $300,000 $220,000-27% $300,000 Hospitalizations Hospital Fixed $1,500,000 $1,500,000-0% $1,500,000 Hosp. Variable $925,000 $555,000-40% $555,000 Hosp. Revenue $2,500,000 $1,500,000-40% $1,500,000 Shared Savings $0 $440,000 Hospital Margin $75,000 ($555,000) ($115,000) Specialist (Inpt) $100,000 $60,000-40% $60,000 Total Spending $2,900,000 $1,860,000-36% $2,380,000 Payer Savings $1,040,000 $540,

238 PCP Costs Covered, Hospitals and Specialists Still Losing Year 0 Year 1 Chg Year 2 Chg Primary Care Visit Payments $300,000 $300,000 0% $300,000 RN Care Mgr ($80,000) ($80,000) Shared Savings $0 $80,000 Net Revenue $300,000 $220,000-27% $300,000 0% Hospitalizations Hospital Fixed $1,500,000 $1,500,000-0% $1,500,000 Hosp. Variable $925,000 $555,000-40% $555,000 Hosp. Revenue $2,500,000 $1,500,000-40% $1,500,000 Shared Savings $0 $440,000 Hospital Margin $75,000 ($555,000) ($115,000) Specialist (Inpt) $100,000 $60,000-40% $60,000-40% Total Spending $2,900,000 $1,860,000-36% $2,380,000-18% Payer Savings $1,040,000 $540,

239 All Physicians and Hospitals Have Large Cumulative Losses Year 0 Year 1 Chg Year 2 Chg Cumulative Primary Care Visit Payments $300,000 $300,000 0% $300,000 RN Care Mgr ($80,000) ($80,000) ($160,000) Shared Savings $0 $80,000 $80,000 Net Revenue $300,000 $220,000-27% $300,000 0% ($80,000) Hospitalizations Hospital Fixed $1,500,000 $1,500,000-0% $1,500,000 Hosp. Variable $925,000 $555,000-40% $555,000 Hosp. Revenue $2,500,000 $1,500,000-40% $1,500,000 Shared Savings $0 $440,000 $440,000 Hospital Margin $75,000 ($555,000) ($115,000) ($820,000) Specialist (Inpt) $100,000 $60,000-40% $60,000-40% ($80,000) Total Spending $2,900,000 $1,860,000-36% $2,380,000-18% Payer Savings $1,040,000 $540,000 $1,560,

240 It s Even Worse Than That There is no shared savings payment at all if a minimum total savings level is not reached If there is a shared savings payment, it s reduced if quality thresholds aren t met, even if the quality measures have nothing to do with where savings occurred The shared savings payment ends at the end of the 3-year contract period, even if utilization remains lower, and the payer keeps 100% of the savings in future years 240

241 Condition-Based Payment Allows True Win-Win-Win Solutions CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $ $300, $450, % Specialist 500 $150, % RN Care Mgr $80,000 Total $300,000 $680, % Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82, % Total $2,500,000 $2,137,500-15% Specialist (Inpt) $ $100,000 $0 Total Spending $5, $2,900,000 $5, $2,817,500-3% 241

242 If Patients Have Different Needs Physician Svcs PCP Specialist RN Care Mgr Total LOWER-NEED PATIENTS HIGHER-NEED PATIENTS $/Pt # Pts Total $ $/Pt # Pts Total $ Hospitalizations Hospital Fixed Hosp. Variable Hosp. Margin Total 50 20% % Total Spending Lower Rate of Admissions Higher Rate of Admissions 242

243 If Patients Have Different Needs Risk-Stratify Payments Per Patient PRIMARY CARE HOME SPECIALTY MED. HOME $/Pt # Pts Total $ $/Pt # Pts Total $ Physician Svcs PCP $ $137,500 $ $187,500 Specialist $ $12,500 $ $262,500 RN Care Mgr $20,000 $60,000 Total 250 $170, $510,000 Hospitalizations Hospital Fixed $500,000 $1,000,000 Hosp. Variable $3,700 $185,000 $3,700 $370,000 Hosp. Margin $30,000 $52,500 Total 50 $715, $1,422,500 Total Spending $3, $885,000 $7, $1,932,500 Lower Payment Per Patient Higher Payment Per Patient 243

244 Protections For Providers Against Taking Inappropriate Risk Risk Stratification: The payment rates would vary based on objective characteristics of the patient and treatment that would be expected to result in the need for more services or increase the risk of complications. Outlier Payment or Individual Stop Loss Insurance: The payment would be increased if spending on an individual patient exceeds a pre-defined threshold. An alternative would be for the provider to purchase individual stop loss insurance (sometimes referred to as reinsurance) and include the cost of the insurance in the payment bundle. Risk Corridors or Aggregate Stop Loss Insurance: The payment would be increased if spending on all patients exceeds a pre-defined percentage above the payments. An alternative would be for the provider to purchase aggregate stop loss insurance and include the cost of the insurance in the payment bundle. Adjustment for External Price Changes: The payment would be adjusted for changes in the prices of drugs or services from other providers that are beyond the control of the provider accepting the payment. Excluded Services: Services the provider does not deliver, or order, or otherwise have the ability to influence would not be included as part of accountability measures in the payment system. 244

245 Win-Win-Win Results Through Outcome-Based Payment BUILDING BLOCKS HOW IT WORKS WIN-WIN-WIN APPROACH Bundled Payment Warrantied Payment Condition-Based Payment Performance Guarantee Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used Payment only made if quality standards are met and pre-defined outcomes are achieved Patients get better quality care Payers spend less for care Providers do better financially for delivering high-quality care 245

246 Hypothetical Procedure Delivered by a Physician Practice FFS # of Patients 100 Payment $2,000 Revenue to Physician $200K 246

247 Assume 10% of Procedures Don t Meet Quality Standard FFS # of Patients 100 # Patients Met Quality Standard 90 # Did Not Meet Quality Standard 10 Payment $2,000 Revenue to Physician $200K 247

248 Patients/Payers Pay the Same If the Standard is Met or Not FFS # of Patients 100 # Patients Met Quality Standard 90 # Did Not Meet Quality Standard 10 Payment When Standard Met $2,000 Payment When Standard Not Met $2,000 Revenue to Physician $200K 248

249 What Happens if Quality Improves? FFS FFS # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard 10 1 Payment When Standard Met $2,000 $2,000 Payment When Standard Not Met $2,000 $2,000 Revenue to Physician $200K $200K % Change 0% 249

250 No Change in Physician Revenue Patients Still Pay for the Bad Care FFS FFS # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard 10 1 Payment When Standard Met $2,000 $2,000 Payment When Standard Not Met $2,000 $2,000 Patients Still Pay if They Receive Poor Care Revenue to Physician $200K $200K % Change 0% No Change in Physician Revenue 250

251 If Quality Declines, No Penalty to Physician, Patients Still Pay FFS FFS FFS # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard Payment When Standard Met $2,000 $2,000 $2,000 Payment When Standard Not Met $2,000 $2,000 $2,000 Revenue to Physician $200K $200K $200K % Change 0% 0% 251

252 P4P Creates Rewards/Penalties for Physician, But Not for Patients FFS FFS+ P4P FFS+ P4P # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard Payment When Standard Met $2,000 $2,100 +5% $1,900-5% Payment When Standard Not Met $2,000 $2,100 +5% $1,900-5% Revenue to Physician $200K $210K $190K % Change +5% -5% 252

253 What if Physicians Didn t Charge When Standards Weren t Met? FFS Pay for Quality # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard Payment When Standard Met $2,000 Payment When Standard Not Met $2,000 $0 Revenue to Physician $200K % Change 253

254 They d Need to Charge More for Good Quality Care FFS Pay for Quality # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard Payment When Standard Met $2,000 $2,222 Payment When Standard Not Met $2,000 $0 Revenue to Physician $200K $200K % Change 254

255 Now, Physician is Rewarded for Better Quality FFS Pay for Quality FFS+ P4P Pay for Quality # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard Payment When Standard Met $2,000 $2,222 $2,100 $2,222 Payment When Standard Not Met $2,000 $0 $2,100 $0 Revenue to Physician $200K $200K $210K $220K % Change +5% +10% 255

256 and Penalized for Poor Quality & Patient Doesn t Pay for Bad Care FFS Pay for Quality FFS+ P4P Pay for Quality FFS+ P4P Pay for Quality # of Patients # Patients Met Quality Standard # Did Not Meet Quality Standard Payment When Standard Met $2,000 $2,222 $2,100 $2,222 $1,900 $2,222 Payment When Standard Not Met $2,000 $0 $2,100 $0 $1,900 $0 Revenue to Physician $200K $200K $210K $220K $190K $178K % Change +5% +10% -5% -11% 256

257 4 Building Blocks of APMs Allow Patient-Centered Payment BUILDING BLOCKS HOW IT WORKS WIN-WIN-WIN APPROACH Bundled Payment Warrantied Payment Condition-Based Payment Performance Guarantee Single payment to ALL providers involved in delivering ALL of the care the patient needs Higher payment for quality care, no extra payment for correcting preventable errors and complications Payment based on the patient s condition, rather than on the procedure used Payment only made if quality standards are met and pre-defined outcomes are achieved Patients get better quality care Payers spend less for care Providers do better financially for delivering high-quality care 257

258 What Does a Patient-Centered Payment & Delivery System Look Like If All Physicians Were Participating?

259 Patient-Centered Care: Provide Preventive Services PATIENT Preventive Services Preventive Services Management 259

260 Patient-Centered Payment: Pay for Good Preventive Care PATIENT Preventive Services Preventive Services Management Bundled Pmt for Preventive Service Monthly Preventive Services Mgt Pmt 260

261 Patient-Centered Care: Accurately Diagnose Problems PATIENT Symptoms Diagnosis & Treatment Planning Preventive Services Preventive Services Management 261

262 Patient-Centered Payment: Pay to Support Good Diagnosis Diagnosis & Treatment Planning Episode Payment Diagnosis Coordination Payment + FFS PATIENT Symptoms Diagnosis & Treatment Planning Preventive Services Preventive Services Management 262

263 Patient-Centered Care: Treat Acute Conditions Effectively PATIENT Symptoms Diagnosis & Treatment Planning Acute Condition Treatment Preventive Services Preventive Services Management 263

264 Patient-Centered Payment: Support Essential Hospital Svcs Standby Capacity Payment PATIENT Symptoms Diagnosis & Treatment Planning Acute Condition Treatment Preventive Services Preventive Services Management 264

265 Patient-Centered Payment: Pay for Full Bundles of Treatment Standby Capacity Payment Acute Condition Episode Payment Acute Condition Coord. Treatment Payment +FFS PATIENT Symptoms Diagnosis & Treatment Planning Acute Condition Treatment Preventive Services Preventive Services Management 265

266 Patient-Centered Care: Effective Care of Chronic Disease PATIENT Symptoms Diagnosis & Treatment Planning Acute Condition Treatment Preventive Services Initial Treatment of Chronic Condition Continued Management of Chronic Condition Preventive Services Management 266

267 Patient-Centered Payment: Monthly Pmts for Condition Mgt PATIENT Symptoms Diagnosis & Treatment Planning Acute Condition Treatment Preventive Services Initial Treatment of Chronic Condition Continued Management of Chronic Condition Preventive Services Management Bundled Pmt for Initial Treatment of Chronic Cond. Monthly Pmt for Mgt of Chronic Condition 267

268 Patient-Centered Payment to Support Patient-Centered Care Diagnosis & Treatment Planning Episode Payment Diagnosis Coordination Payment + FFS Standby Capacity Payment Acute Condition Episode Payment Acute Condition Coord. Treatment Payment +FFS PATIENT Symptoms Diagnosis & Treatment Planning Acute Condition Treatment Preventive Services Bundled Pmt for Preventive Service Initial Treatment of Chronic Condition Continued Management of Chronic Condition Preventive Services Management Monthly Preventive Services Mgt Pmt Bundled Pmt for Initial Treatment of Chronic Cond. Monthly Pmt for Mgt of Chronic Condition 268

269 For More Details on Patient-Centered Payment: 269

270 Which Physician Would YOU Want to Care for You? Physician A is paid Fee for Service She makes less money if she keeps you healthy Physician B gets Pay for Performance She makes more money if she keeps her EHR up to date Physician C gets Shared Savings She makes more money if you get less treatment than needed Physician D gets a Population-Based Payment She gets paid whether she does anything for you or not Physician E is paid through Patient-Centered Payment She s paid adequately to address your needs, and she makes more money if your health condition(s) improve 270

271 Will Payers Implement Better Payment Models? Alternative Payment Models Health Plans Physicians & Hospitals Higher Value Care: Better Quality Lower Spending 271

272 Most Health Plans Resist True Payment Reforms Health Plans Value-Based Purchasing FFS + P4P Shared Savings Narrow Network Discounts Low Value Care: Poor Quality High Avoidable Spending Physicians & Hospitals 272

273 For Most Workers, Employers are the Insurer, Not a Health Plan Source: Employer Health Benefits 2012 Annual Survey. The Kaiser Family Foundation and Health Research and Educational Trust 60% of Workers Are Now in Self-Insured Plans 273

274 For Self-Funded Employers, The Health Plan is Just a Pass Through Purchaser Payment Self- Funded Purchasers ASO Health Plan (No Risk) Provider Claims Physicians & Hospitals 274

275 Little Incentive for Health Plans to Support Payment Reforms Purchaser Payment Self- Funded Purchasers ASO Health Plan (No Risk) Provider Claims Physicians & Hospitals True Payment Reform Means: Health plan incurs the costs of implementing new payment models Purchaser gains all the savings from reduced utilization and spending (because all claims are passed through) 275

276 A Better Approach: Purchaser/Provider Partnerships Self- Funded Purchasers Better Payment and Benefit Structure Lower Cost, Higher Quality Care Providers Willing to Manage Cost/Quality Purchasers and Patients win if: Providers reduce purchasers costs Patients stay healthy and have lower cost-sharing Provider wins if: Patients stay healthy and need less care Purchaser pays provider adequately to manage care effectively 276

277 Purchasers (Not Plans) Can Pay for Improved Worker Productivity WORKER PRODUCTIVITY Self- Funded Purchasers Better Payment and Benefit Structure Lower Cost, Higher Quality Care EFFICIENCY OF SERVICES Providers Willing to Manage Cost/Quality Purchasers and Patients win if: Providers reduce purchasers costs Patients stay healthy and have lower cost-sharing Patients return to work faster Provider wins if: Patients stay healthy and need less care Purchaser pays provider adequately to manage care effectively and deliver services efficiently 277

278 Purchasers and Providers Have Common Interests, But Don t Know It We ve started talking directly to physicians, and we ve discovered that what they want to sell is what we want to buy Cheryl DeMars CEO, The Alliance (Employer Coalition in Wisconsin) 278

279 Purchasers Have Total Risk Today TOTAL COST OF HEALTH CARE Self-Funded Purchasers, Medicare, Medicaid 279

280 The Goal Should Not Be to Shift Total Risk to Providers TOTAL COST OF HEALTH CARE Self-Funded Purchasers, Medicare, Medicaid TOTAL COST OF HEALTH CARE Physicians & Hospitals 280

281 Providers Should be Accountable for Costs They Can Control INSURANCE RISK (Risk of Illness) Self-Funded Purchasers, Medicare, Medicaid PERFORMANCE RISK (Cost/Illness) Physicians & Hospitals 281

282 It Will Take Time To Get There MULTI-YEAR TRANSITION PERIOD PERFORMANCE STANDARDS Payment Requires Meeting Quality Process Standards Collect Data on Outcomes Payment Requires Meeting Quality Process & Outcome Standards Set Initial Outcome Standards Based on Current Levels of Performance Payment Requires Meeting Higher Process & Outcome Standards Increase Outcome Standards Through Provider Competition PAYMENT AMOUNTS Initial Payment Amounts Based on Estimated Costs of Quality Care Analysis of Current Utilization and Savings Opportunities Revised Payment Amounts Based on Actual Costs of Quality Care Analysis of Improved Utilization and Associated Costs Payment Amounts Adjusted Based on Provider Competition 282

283 Transition Period Needed for Team Formation & Payment MULTI-YEAR TRANSITION PERIOD Modified Fee-for-Service + Retrospective Reconciliation Prospective Payment TEAM STRUCTURE AND ACCOUNTABILITY Partial Teams Full Teams Accountability for Cost & Quality Under Control of Team Members Accountability for All Aspects of Cost & Quality Related to Performance 283

284 Three Paths to the Future: Which Will Gastroenterologists Choose? #1 MERIT-BASED INCENTIVE PAYMENT SYSTEM (MIPS) MACRA #2 PAYER-DESIGNED ALTERNATIVE PAYMENT MODELS #3 PHYSICIAN-FOCUSED, PATIENT-CENTERED PAYMENT MODELS 284

285 If You Don t Like Doors 1 & 2, What Should You Do? 285

286 If You Don t Like Doors 1 & 2, What Should You Do? 1. Listen to the PowerPoint presentations today, go back home, continue business as usual, and hope somebody else figures this out 286

287 If You Don t Like Doors 1 & 2, What Should You Do? 1. Listen to the PowerPoint presentations today, go back home, continue business as usual, and hope somebody else figures this out 2. Plan to retire before

288 If You Don t Like Doors 1 & 2, What Should You Do? 1. Listen to the PowerPoint presentations today, go back home, continue business as usual, and hope somebody else figures this out 2. Plan to retire before Design/implement physician-led APMs Look at your own patient population and identify opportunities to reduce spending without harming patients Talk to the purchasers in your community about the opportunities to improve care and reduce spending and how to create a collaborative regional partnership to implement them Demand that health plans and Medicare implement good alternative payment models to enable you to deliver more affordable, high-quality care in your community 288

289 For More Information: Harold D. Miller President and CEO Center for Healthcare Quality and Payment Reform (412)

290 APPENDIX

291 How Do You Control the Price of Care? (Under Any Payment Model)

292 Traveling from Boston to Cleveland Boston? Cleveland 292

293 Airfare Choices from Boston to Cleveland Boston? Cleveland USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 Airfares for July 6-7, 2011 as of 6/26/11 293

294 What If We Paid for Travel the Way We Pay for Healthcare? Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 Airfares for July 6-7, 2011 as of 6/26/11 294

295 Flat Copayments: First Class Fare Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 Airfares for July 6-7, 2011 as of 6/26/11 295

296 Coinsurance: First Class Fare Probably Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 10% Coinsurance: $62 $111 $136 Airfares for July 6-7, 2011 as of 6/26/11 296

297 High Deductible: First Class Fare Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 10% Coinsurance: $62 $111 $136 $500 Deductible: $500 $500 $500 Airfares for July 6-7, 2011 as of 6/26/11 297

298 Price Difference: Lowest Coach Fare Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 10% Coinsurance: $62 $111 $136 $500 Deductible: $500 $500 $500 Lowest Coach Fare: $0 $485 $733 Airfares for July 6-7, 2011 as of 6/26/11 298

299 Where Will You Get Your Knee Replaced? Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,

300 Where Will You Get Your Knee Replaced? Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,000 $1,000 Copayment: $1,000 $1,000 $1,000 10% Coinsurance $2,000 $2,000 $2,000 w/$2,000 OOP Max: $5,000 Deductible: $5,000 $5,000 $5,

301 Where Will You Get Your Knee Replaced? Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,000 $1,000 Copayment: $1,000 $1,000 $1,000 10% Coinsurance w/$2,000 OOP Max: $2,000 $2,000 $2,000 $5,000 Deductible: $5,000 $5,000 $5,000 Highest-Value: $0 $5,000 $10,

302 Will Transparency About Prices Result in Better Choices? 302

303 Current Transparency Efforts Are Focused on Procedure Price Payment for Procedure Provider 1: $25,000 dded Provider 2: $23,000-8% 303

304 Payment for Procedure Provider 1: What Hidden Costs Accompany the Lower Price? Payment and Rate of Complications $25,000 $30,000 2% Provider 2: $23,000 $30,000 10% -8% 304

305 Payment for Procedure Provider 1: Total Spending May Be Higher With the Lower Price Provider Payment and Rate of Complications Average Total Payment $25,000 $30,000 2% $25,600 Provider 2: $23,000 $30,000 10% $26,000-8% +2% Provider 2 has a lower starting price, but is more expensive when lower quality is factored in 305

306 Bundled/Warrantied Pmts Allow Comparing Apples to Apples Payment for Procedure Provider 1: Provider 2: Payment and Rate of Complications Bundled/ Episode Payment 2% $25,600 10% $26,000 +2% Bundled prices show that Provider 1 is the higher-value provider 306

307 Flying to Pittsburgh vs. Cleveland Boston Cleveland Boston Pittsburgh Cleveland 307

308 Why Is It So Much Cheaper to Fly to Pittsburgh Than Cleveland? Boston Cleveland One-Stop Coach Fare: $662 Non-Stop Coach Fare: $1,107 Boston Pittsburgh Non-Stop Coach Fare: $188 Airfares for July 6-7, 2011 as of 6/26/11 308

309 Is It The Shorter Distance? 551 Air Miles Boston One-Stop Coach Fare: $662 Non-Stop Coach Fare: $1,107? Cleveland Boston? Pittsburgh 483 Air Miles Non-Stop Coach Fare: $188 Airfares for July 6-7, 2011 as of 6/26/11 309

310 Or Greater Competition? NON- COMPETITIVE MARKET Boston Choice: United Non-Stop: $1,107 (No other non-stop choice)? Cleveland COMPETITIVE MARKET Airfares for July 6-7, 2011 as of 6/26/11 Boston? Pittsburgh Choice #1: Delta Non-Stop: $188 Choice #2: JetBlue Non-Stop: $188 Choice #3: USAirways Non-Stop: $

311 Choice & Competition Encourages Efficiency Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,000 Highest-Value: $0 $5,000 $10,

312 Loss of Choice & Competition Will Lead to Higher Costs Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,000 Highest-Value: $0 $5,000 $10,