Public. The big picture of healthcare financing: A Pathology Perspective on Practice Threats

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1 A Pathology Perspective on Practice Threats Stephen Black Schaffer, MD, FASCP Associate Chief of Pathology, MGH Vice Chair for Payment Policy and Regulatory Affairs of Economic Affairs Committee, CAP Note: opinions are not necessarily those of the American Society for Clinical Pathology or the College of American Pathologists. Can we afford to pay it? What are the costs objects in US healthcare? For hospitals, from the 50s through the 70s (till 1983), these were ʺcost plusʺ service charges For physicians, from the 50s through the 80s (till 1992), these were ʺusual and customaryʺ service fees Why have these changed? Payers seeking to control (reduce) healthcare costs Diagnosis Related Groups (DRGs) => shifted hospital cost object => cost plus => prospective payment => encouraging efficiency. Physician services required corresponding tool => control (reduce) payments. Why? ʺUsual & customaryʺ payment inequalities => selective vulnerability to reductions => impeding cost control => poor cognitive & rich procedural => local patient access & global public relations problems. Resource Based Relative Value Scale (RBRVS) => level physician payment playing field => enable physician service payment control (reduction). Public #3 #1 A B+D A»B #2 1

2 120% 100% 80% 60% 40% 20% Cumulative Annual Increase in Average Family Premium Private 0% Source: Agency for Healthcare Research & Quality Medical Expenditure Panel Survey Massachusetts U.S. RVUs & $$ the Conversion Factor! Sustainable Growth Rate (SGR) for 2010 So, doctors get paid for RVUs How much are those, in dollars? To convert RVUs to dollars we need a Conversion Factor (CF) of Dollars/RVU RVUs X CF = Dollars CFs are updated annually based upon a ʺSustainable Growth Rateʺ calculation Apple pie and motherhood warning: Whatʹs not to like about the phrase: ʺsustainable growthʺ? Factor 1: Increase in Fees Factor 2: Increase in Enrollment Factor 3: Increase in 10-year moving average Real Per Capita GDP Factor 4: Increase due to changes in Law or Regulations Total Sustainable Growth Rate 2010 MPFS Final Rule => 5.1% 6.2% -7.0% If everything were zero-based, and in budgetary equilibrium, this would be it Step 1 of the process Quarterly Medicare Physician Fee Schedule Payments Cumulative Medicare Physician Fee Schedule Payments $25 $1,000 $24 $23 $22 $21 $-7.6 Billion $900 $800 $700.8 Billion $-71.8 Billion $20 $600 $19 $18 $17 $16 $15 $14 $13 $12 2Q1996 3Q1996 4Q1996 1Q1997 2Q1997 3Q1997 4Q1997 1Q1998 2Q1998 3Q1998 4Q1998 1Q1999 2Q1999 3Q1999 4Q1999 1Q2000 2Q2000 3Q2000 4Q2000 1Q2001 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002 1Q2003 2Q2003 3Q2003 4Q2003 1Q2004 2Q2004 3Q2004 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 $500 $400 $300 $200 2Q1996 3Q1996 4Q1996 1Q1997 2Q1997 3Q1997 4Q1997 1Q1998 2Q1998 3Q1998 4Q1998 1Q1999 2Q1999 3Q1999 4Q1999 1Q2000 2Q2000 3Q2000 4Q2000 1Q2001 2Q2001 3Q2001 4Q2001 1Q2002 2Q2002 3Q2002 4Q2002 1Q2003 2Q2003 3Q2003 4Q2003 1Q2004 2Q2004 3Q2004 4Q2004 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 Quarter Allowable Actual Quarter Allowable Actual 2

3 Calculation of Physician Fee Schedule Update Adjustment Factor (UAF) Overrides? What overrides? $-7.6 $ x (1-7.0%) = -30.9% +0.0% +0.5% If everything were accounting, and not political, then this would be it, for the year 2010, at least CY 10 CF update required by law to be as if scheduled updates for CY 07, 08 and 09 had not been overridden by legislative changes 21.3% Step 2 of the process 21.3 percent But +1.1% 10/30/09 Medicare Program Physician Fee Schedule Payment Policies for CY 2010 In the CY 2010 PFS proposed rule, [CMS] noted the Act provides clear discretion to determine what items and services should be included in the definition of physicians services for purposes of determining allowed expenditures and the SGR. As the statute affords clear discretion to revise the definition of physicians services, [CMS] proposed to remove physician administered drugs from the definition of physicians services for purposes of computing the SGR and levels of allowed expenditures and actual expenditures in all future years. Furthermore, given the past effect of spending growth for physician administered drugs on future PFS updates, in order to effectuate fully the policy decision to remove drugs from the definition of physicians services, [CMS] also indicated it was reasonable to remove drugs from the calculation of allowed and actual expenditures for all prior years. Medicare Physician Fee Schedule Payments (LESS DRUGS) PHYSICIANS So ORGANIZATION $90 $80 $70 $60 $50 $40 $30 $20 $ Annual Allowed Annual Actual $-1.2 Billion Medicare Physician Fee Schedule Payments (LESS DRUGS) $1,000 $900 $800 $700 $90.5 Billion $-19.4 Billion Sustainable Growth Rate (SGR) for 2010 (LESS DRUGS) $600 $500 $400 $300 $200 Factor 1: Increase in Fees Factor 2: Increase in Enrollment Factor 3: Increase in 10-year moving average Real Per Capita GDP Factor 4: Increase due to changes in Law or Regulations Total Sustainable Growth Rate Cumulative Allowed Cumulative Actual 3

4 Calculation of Physician Fee Schedule Update Adjustment Factor (LESS DRUGS) $-1.2 $-19.4 $90.5 $90.5 x (1-8.8%) = -8.8% Past political mischief having already been done, unless it is legislatively undone, the CY 10 CF update will still be -21.3%, but the cumulative deficit having been redefined down from $71.8 billion to $19.4 billion means that By excluding these drugs, far fewer negative UAFs are expected in future years. So much for the good news 11/19/09 House Passes SGR Fix H.R Accumulated SGR payment deficits forgiven. In % raise based on the Medicare Economic Index (inflation in physician practice costs). In 2011 and beyond growth = GDP plus 2% for E&M and preventive care services; growth = GDP plus 1% for all other physician services. 02/26/10 One Senator Fails to Consent One senator, Jim Bunning (R Ky.), a former major league baseball player retiring from the Senate this year, repeatedly objected to passing a bill that was not paid for. So, lacking unanimous consent, the Senate was not able to take any action. CMS instructed contractors to hold up the processing of claims with services from first 10 business days of March. And Too much (by 45% (+ drugs) per the SGR) Too much (by 10% ( drugs) per the SGR) 13% to intermediary costs + profits & provider revenue cycle activities $250 billion $1,900 billion $1,650 billion less equals 13 18% ($ billion) (Medicare medical loss ratio ~98%) The McKinsey Quarterly Web exclusive, June 2007 The McKinsey Quarterly Web exclusive, June

5 RAND Corporation 2009 Massachusetts Policy Brief Utilize bundled payment 10-year cumulative savings estimate -1% 0% 1% 2% 3% 4% 5% 6% Insitute reference pricing for academic medical centers Institute hospital all payer rate setting Eliminate payment for adverse hospital events Expand scope of practice for NPs and PAs Increase adoption of HIT Promote growth of retail clinics Create medical homes Decrease resource use at end of life Encourage value-based insurance design MASSACHUSETTS Increase GENERAL use of disease management RAND Health Policy Brief: Controlling Health Care Spending in Massachusetts, % margin differential RAND: Massachusetts Health Spending Age Group, 2010 <18 years, 11% RAND: Massachusetts Spending Targeted Chronic Conditions, years, 35% Other spending, 44% Six target conditions, age 65+, 35% *35%=12% 12%+14%=26% years, 54% The six chronic conditions most commonly targeted by disease management programs are asthma, chronic lung disease, heart disease, heart failure, depression and diabetes. The right thing to do, but evidence for increased cost Six target at least as strong conditions, age <65, as evidence for 21% *65%=14% cost savings. RAND Corporation 2009 Massachusetts Policy Brief Utilize bundled payment Insitute reference pricing for academic medical centers Institute hospital all payer rate setting Eliminate payment for adverse hospital events Expand scope of practice for NPs and PAs Increase adoption of HIT Promote growth of retail clinics Create medical homes Decrease resource use at end of life Encourage value-based insurance design MASSACHUSETTS Increase GENERAL use of disease management 10-year cumulative savings estimate -1% 0% 1% 2% 3% 4% 5% 6% All of these amount to 11% in compound cumulative savings. Add the 13% from healthcare operations, and this equals 24% in potential savings. The total of all 2009 national healthcare expenditures is projected at $2.5 trillion. If the full 24% savings were to be realized, this would amount to $600 billion savings. 19% of US residents are uninsured (17% legal residents + 2% illegal immigrants). To insure all uninsured US residents at present rates would cost $475 billion. 80% of potential savings would have to be realized to insure all US residents, without increasing projected healthcare expenditures. Please note that these savings do not include any projected application of: comparative effectiveness guidelines (whether considered as rationing or rationalization), or malpractice MEDICAL reform. SCHOOL Too much (by 45% (+ drugs) per the SGR) Too much (by 10% ( drugs) per the SGR) Yes, if 5