The Healthcare Pivot

Transcription

1 The Healthcare Pivot April, 2017 Kevin A. Schulman, MD, MBA Professor of Medicine Gregory Mario and Jeremy Mario Professor of Business Administration ( ) Visiting Scholar, Harvard Business School Faculty Associate Director Duke Clinical Research Institute Kevin Schulman, Duke University, 2017

2 Repeal and Replace Meets Health Economics! Source:

3 Repeal and Replace

4 Repeal and Replace

5 CBO Analysis of Republican Health Plan NYT, CBO Analysis: Republication Health Plan Will Save Money but Drive Up the Number of Uninsured, 3/14/2017.

6 Health Economics 101 National Health Expenditures By Source, 2005 and 2015 (in millions, USD) Out- of- Pocket $[VAL UE] 2005 Out-of- Pocket $[VALUE] 2015 Privat e $[VAL UE] Public $[VAL UE] Private $[VALUE] Public $[VALUE] Total: $1,904,501,000 Total: $3,050,825,000

7 Adverse Selection: Mandates Higher risk = more likely to buy insurance Premium reflects population costs Low Risk Population Cost Per Person $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Percentage of Pool 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% High Risk Population Cost Per Person $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 Percentage of Pool 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Premium $1,000 $1,900 $2,800 $3,700 $4,600 $5,500 $6,400 $7,300 $8,200 $9,100 $10,000

8 Interstate Insurance Load -Marketing -Administration -Risk Premium\Underwriting (15-20%) Medical Loss Ratio -Hospitals -Physicians -Pharmaceuticals -Diagnostic tests -Prescriptions -Medical Devices (80-85%) Amendment X The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

9 High-Deductible Health Plans After controlling for inflation and demographic changes, the researchers found that the deductible reduced overall employee health care spending by about 13 percent annually, and that some of the services consumers elected to forgo were "likely of high value in terms of health and potential to avoid future costs."

10 The Washington Outlook

11 Budget Proposals

12 Federal Budget Projections

13 Federal Budget Projections

14 November 8, 2016 If the ACA goes away, the individual and small group markets could collapse or at least go back to ex-ante (underwriting, high-risk pools). Ryan has wanted to move Medicare to a defined contribution plan for a long time. This would open a lot of opportunity for Medicare Advantage plans. If CMMI goes away, so do ACO s. MACRA is separate bipartisan legislation, and may or may not be impacted. Medicaid block grants (over 33% cuts; state deficit spending)? Infrastructure Spending, Tax Cuts, and Health Spending?

15

16 $72,165

17 $18,142 Abelson R. NYT. Sept. 15, B2

18 Cost, Quality, Access 250% 200% Health Insurance Premiums Workers' Contribution to Premiums 212% 150% Wages and Benefits 131% 191% 100% 127% 50% 0% 54% 72% 38% 17% 43% 13% 28% Access An Expanding Longevity Gap SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), ; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, (April to April);

19 Health Care Costs

20 Sustainability

21 Medicare Spending Warraich and Schulman. Health Care Tax Inversions Robbing Peter and Paul. NEJM. 2016

22 Specialty Pharmaceuticals Adapted From: Hirsch, Bradford R., Suresh Balu, and Kevin A. Schulman. "The Impact Of Specialty Pharmaceuticals As Drivers Of Health Care Costs." Health Affairs33.10 (2014):

23 Medicaid Financing Medicaid, 25.8% State spending: $188,748,747,540 Federal spending: $287,160,927,450 Total US Spending on Medicaid: $475,909,674,990 June 2, 2016 State Expenditure Report, NASBO, 2015

24 The Medicare ACO Concept

25 Sound Bites on Costs 1993 Reform: Hospitals are bad; have doctors and insurance companies work to negotiate costs with hospitals

26 Group Practice Demonstration Iglehart (2011); NEJM; Vol 364; No 3; pp

27 Sound Bites on Costs 1993 Reform: Hospitals are bad; have doctors and insurance companies work to negotiate costs with hospitals 2009 Reform: Insurance companies are bad : have doctors and hospitals work together to negotiate costs with insurance companies

28 Accountable Care Organizations: A Incremental Model of Change McClellan M, McKethan AN, Lewis JL, et al. A national strategy to put accountable care into practice. Health Aff (Millwood). 2010;29:

29 Baseline Spending (Quarter) $2456 ACO Results Year 1 of the Pioneer ACO program was associated with modest reductions in Medicare spending. McWilliams. NEJM 2015 The first full year of MSSP contracts was associated with early reductions in Medicare spending among 2012 entrants but not among 2013 entrants. Savings were greater in independent primary care groups than in hospital-integrated groups. McWilliams. NEJM 2016 In the first 2 years of the Pioneer ACO Model, beneficiaries aligned with Pioneer ACOs, as compared with general Medicare FFS beneficiaries, exhibited smaller increases in total Medicare expenditures Nyweide JAMA 2015

30 ACO Quality Results

31 ACO Perspective JAMA. 2011;305(6): ; JAMA (7).

32 Why Are Our Costs So High? Complexity Drives Overhead Costs Mission complexity Facility complexity Process complexity Management complexity Business process complexity (third-party payment) New: Market Leverage Duke Hospital Clayton M. Christensen, The Innovator's Prescription: A Disruptive Solution for Health Care, 2008

33 Market Power Physician Salary, Physician Satisfaction? Robinson, Total Expenditures per Patient in Hospital-Owned and Physician Owned-Organizations in California. JAMA, 2014.

34 Distribution of Health Plan Enrollment for Covered Workers, by Plan Type % 16% 11% % 21% 26% 7% % 31% 28% 14% % 28% 39% 24% % 29% 42% 21% % 4% 24% 27% 46% 52% 23% 18% Conventional % 5% 24% 25% 54% 55% 17% 15% HMO % 3% 21% 20% 61% 60% 15% 13% 4% PPO % 2% 21% 20% 57% 58% 13% 12% 5% 8% POS % 1% 20% 19% 60% 58% 8% 10% 8% 13% HDHP/SO % 1% 1% <1% 17% 16% 14% 13% 55% 56% 57% 58% 10% 9% 9% 8% 17% 19% 20% 20% % 14% 52% 10% 24% SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, ; KPMG Survey of Employer- Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.

35 Narrow Networks

36 Partners Anti-Trust Case

37 Payment: Volume to Value

38 Movement to Value Our goal is to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by Perhaps even more important, our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of Burwell S. NEJM 2015: 372: Duke Challenge: Optimize (right-size) the fee-for-service enterprise over time while supporting the development of a population health business model, all in the face of significant market uncertainty over timing and trajectory

39 A Pivot Variabilize legacy costs of fee-for-service system Develop new infrastructure for population health Synch the expectations of the two plans! Fee-for Service Goal: Kentucky (365 admissions/1000) Population Health Goal: Washington (238 admissions/1000) Hospital Discharges per 1,000 Medicare Enrollees, CMS 2012

40 Economics of Population Health Management Break-Even Analysis $12,436 PMPY Disease Management Cost DM % Hospital 5% 12% 10% 24% 15% 37% Balu S. Forthcoming

41 Transformation Cost The investment required to transform the fixed infrastructure and management systems of an optimized fee-for-service delivery system into an optimized capitated delivery system dwarf the financial incentives of ACOs / bundled payments Poku M, et al. Forthcoming; Maniya et al. Forthcoming

42 Readiness for Change Finance Operations Poku M. et al. Journal of Healthcare Finance. Forthcoming; Harvard Business Review. December 14, 2016.

43 ACO Perspective JAMA. 2011;305(6): ; JAMA (7).

44 Predicting the Future

45 Predicting the Future

46 Predicting the Future

47 How Do We Transform the Health Care System?

48 Business Architecture A business model/business architecture is a fixed characteristic of an organization that is resilient and resistant to incremental change Richman, Barak D., Mitchell, Will and Schulman, Kevin A.,2013 Organizational Innovation in Health Care. HMPI, 1(3): 36-44

49 Organizational Structure Source: Dossary, K

50 Innovation Architecture Innovation Agenda Production Engine The Other Side of Innovation: Solving the Execution Challenge. Harvard Business Review. Govindarajan and Trimble.

51 Google Alphabet: Structure

52 Emerging Care Models AJMC-06_15-Sinsky_45-48.pdf;

53 Centralization and Decentralization

54 Business Model Innovation What if 50% of health care was delivered via mhealth technology by 2025?

55 Business Model Innovation We predict that by 2018, our virtual visits will outnumber the inperson ones. Robert M. Pearl, MD The Permanente Medical Group

56 Discussion