Accountable Care Through Physician Leadership

CREATINGWIN-WIN-WIN APPROACHES

TO ACCOUNTABLE CARETHROUGH PHYSICIAN LEADERSHIP

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

www.CHQPR.org

2© 2009-2014 Center for Healthcare Quality and Payment Reform www.CHQPR.org

A Short Quiz


A Short Quiz

QUESTION #1:In which U.S. industries

are the key employees told that at the end of the year, they can expect to receive

a 25% pay cutregardless of how well

they’ve performed?


A Short Quiz


are the key employees told that at the end of the year, they can expect to receive

a 25% pay cutregardless of how well

they’ve performed?

ANSWER:Health Care


Medicare SGR Is a Big Problem, But So Is Lack of Annual Updates

PhysicianPractice Costs

PhysicianPaymentIncreases

If SGR CutIs Made

23% EffectiveReduction


A Short Quiz


are businessesonly able to sell

their products and servicesthrough an intermediary who demands large discounts andincreases prices by 18-25%?


A Short Quiz


are businessesonly able to sell

their products and servicesthrough an intermediary who demands large discounts andincreases prices by 18-25%?

ANSWER:Health Care


A Short Quiz


can one set of employeesonly get a raise if other

employees take a pay cut,even when the business is

performing well?


A Short Quiz


can one set of employeesonly get a raise if other

employees take a pay cut,even when the business is

performing well?

ANSWER:Health Care


The SGR Also Pits PhysiciansAgainst Each Other

PCP Fees

SpecialtyFees

PCP Fees

SpecialtyFees

Physician Payments Capped by the Sustainable Growth Rate


A Short Quiz

QUESTION #4:In which U.S. industries does government policyfavor large businessesover small businesses?


A Short Quiz

QUESTION #4:In which U.S. industries does government policyfavor large businessesover small businesses?

ANSWER:Health Care


Unlike Physicians, Hospitals Have Received Pay Increases

Physicians

Hospitals

Inflation


A Short Quiz

QUESTION #5:Who is to blame forthe way physicians

are paid andmicromanaged?


A Short Quiz

QUESTION #5:Who is to blame forthe way physicians

are paid andmicromanaged?

ANSWER:Physicians


The Blame Rests With Physicians

• Physicians haven’t defined solutions to control healthcare costs without rationing

• Physicians are seen as the drivers of higher costs

• Physicians haven’t defined payment models that will support lower-cost, higher-quality care and maintain financial viability for physician practices

• Physicians aren’t organized to manage and deliver high-value population health care to purchasers and patients


Three Paths to the Future: Which Door Will Physicians Choose?

TODAY

FUTURE #1

FUTURE #2

FUTURE #3


What Purchasers & Patients Want:High-Quality Care at Lower Cost

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

Savings

TODAY TOMORROW



HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

Savings

TODAY TOMORROW

Where Will The Savings Come From?



HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

Savings

TODAY TOMORROW

Where Will The Savings Come From?

It Depends on Who’s the Last in LineIn Getting Paid


Door #1: Continuation of the Status Quo

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

TraditionalInsuranceCompany/

TPA

Savings

TODAY TOMORROW


Who’s First in Line? Health Plans

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

Health PlanAdmin Cost

& Profit


TPA

Savings

TODAY TOMORROW


Who’s Last in Line?Physicians

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA

Savings

TODAY TOMORROW


Where Will Savings Come From?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA

Savings

TODAY TOMORROW


Will Health Plans VoluntarilyReduce Their Fees/Profits?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA

Health PlanAdm/Profit

HospitalPayments

PhysicianPayments

Savings


Will Health Plans VoluntarilyReduce Their Fees/Profits?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA


HospitalPayments

PhysicianPayments

Savings

Not Likely


Can Health Plans Cut Payments to the Big Hospital in Town?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA


HospitalPayments

PhysicianPayments


& Profit

HospitalPayments

PhysicianPayments

Savings


Can Health Plans Cut Payments to the Big Hospital in Town?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA


HospitalPayments

PhysicianPayments


& Profit

HospitalPayments

PhysicianPayments

Savings

Not Likely


Or Will Payers Continue Cutting(or Not Increasing) Doctor Pay?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA


HospitalPayments

PhysicianPayments


& Profit

HospitalPayments

PhysicianPayments


& Profit

HospitalPayments

PhysicianPayments

Savings


Not Just Lower Fees, But Interference in Physician Decisions

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HospitalPayments

PhysicianPayments


TPA


& Profit

HospitalPayments

PhysicianPayments

Savings

• Lower Fees(“Discounts”)

• Prior Authorization

• Step Therapy

• Utilization Review

• Disease Mgt Vendors


Will Employment by Hospitals Protect Physicians?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HealthSystem

Payments

PhysicianSalaries


TPA

SavingsHealth PlanAdmin Cost

& Profit

HospitalPayments

PhysicianPayments


TPA


When Health Systems Get Less, Where Will They Make the Cuts?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HealthSystem

Payments

PhysicianSalaries


TPA

Savings


& Profit

HealthSystem

Payments

PhysicianSalaries


& Profit

HospitalPayments

PhysicianPayments


TPA


Health Systems Want to Ensure They Don’t Get Cut by Payers…

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost


& Profit

HealthSystem

Payments

PhysicianSalaries


TPA

Savings


& Profit

HealthSystem

Payments

PhysicianSalaries


& Profit

HospitalPayments

PhysicianPayments


TPA


HealthSystem w/InsuranceCompany

Door #2: Hospital-Owned Health Plans

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments

Savings

Health PlanAdmin/Prof.



If Hospitals Are Now First In Line,Where Will Savings Come From?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments

Savings




Maybe Health Plan Expenses Can Be Reduced…

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments

Savings


HospitalPayments

PhysicianPayments




…But Hospital Will Still Need the Health Plan to Watch the Docs

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments

Savings


HospitalPayments

PhysicianPayments




So Physicians Will Likely Still Be Subject to Cuts and Interference

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments

Savings


HospitalPayments

PhysicianPayments


HospitalPayments

PhysicianPayments



What’s Behind Door #3?

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

Savings


Physician-Led Health

Plans &Contracting

Physician Leadership toControl Both Cost & Quality

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments


& Profit

Savings



Plans &Contracting

Physicians Can Watch Themselves, They Don’t Need Health Plans…

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments


& Profit

HospitalPayments

PhysicianPayments


Savings



Plans &Contracting

Better Care of Patients Will Reduce Avoidable Hospitalizations…

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments


& Profit

HospitalPayments

PhysicianPayments


Savings

HospitalPayments

PhysicianPayments


Savings



Plans &Contracting

…Allowing Better Pay for Doctors AND More Savings for Purchasers

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments


& Profit

HospitalPayments

PhysicianPayments


Savings

HospitalPayments

PhysicianPayments


Savings

HospitalPayments

PhysicianPayments


Savings



Plans &Contracting

Door #3 = A Physician-Led Healthcare Future

HighCostsand

WeakQuality

HighQuality

Careat

LowerCost

HospitalPayments

PhysicianPayments


& Profit

Savings

HospitalPayments

PhysicianPayments


• Significant savingsfor purchasers and patients

• Better pay for physicians

• Less spending on health planoverhead

• Less interference in physician-patient relationship

• Less spending on avoidableexpensive, risky procedures

• Better health and quality of life for patients


High Quality Health PlansRun By Physician Groups


If Physicians Choose Door #3,What Must They Do to Succeed?

TODAY

PHYSICIAN-LEDHEALTHCARE


A Physician’s Real Businessis More Than Their Salary…

Physician Salary


…And More Than Their Total Practice Costs..

Physician SalaryPractice Expenses


…It’s the Tests They Order, Even If Someone Else Does Them


Tests and Imaging


…It’s the Procedures They Do, And Where They Do Them


Outpatient Procedures

Inpatient Procedures

Tests and Imaging


…And the Unplanned Admissions of Their Patients…



Inpatient Proceduresand Admissions ofChronic Disease

Patients

Tests and Imaging


…The Post-Acute Care CostsAfter Hospital Stays…




Patients

Post-Acute Care

Tests and Imaging


…The Unplanned Readmissions and Repeat Procedures…




Patients

Post-Acute Care

Tests and Imaging

Readmissions


…And the Number and Types of Medications They Prescribe




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions


Most of the Money in HealthcareDoesn’t Go to Physicians

Physicians:16%


.. But Most Money Goes to Things That Physicians Can Influence

ThingsPhysiciansPrescribe,Control, orInfluence

84%

Physicians:16%


Medicare Payment Silos Pit Physicians Against Each Other

PCP Fees

SpecialtyFees

PCP Fees

SpecialtyFees

PhysicianFees

(Part B)


Physicians Should Benefit From Lowering Other Healthcare Costs

PCP Fees

SpecialtyFees

PCP Fees

DrugCosts

Hospital &Post-AcuteCare Costs

SpecialtyFeesPhysician

Fees(Part B)

TotalHealthcare

Costs(Parts A,B, and D)

DrugCosts

(Part D)

Hospital &Post-AcuteCare Costs

(Part A)

How Do You Repeal the SGRand Give Physicians Reasonable

Payment Increases?


10 Year Federal Budget Projections for Medicare

Physician Fees OnlyRepresent 12% of Projected Medicare Spending


SGR Repeal & MEI Update Increases Total Spending by 2.6%

SGR Repeal & MEI Update: $160 Billion


3% Savings in Non-Physician Spending Would Pay for Repeal

$160 Billion=3% of Non-PhysicianSpending


But Nobody in DC BelievesThat Physicians Can/Will Do It

CBO expects that physicians would generally choose to participate in the payment options that offer the largest payments for the services they provide…

CBO expects that most of the alternative payment models that would be adopted under this legislation would increase Medicare spending. CBO’s review of numerous Medicare demonstration projects found that very few succeeded in reducing Medicare spending.

CBO expects that the greater influence of providers within the design process specified in H.R. 2810 would lead to smaller savings than would arise from the development and adoption ofnew approaches through the [current] CMMI process.

Congressional Budget Office Cost Estimate for H.R. 2810 (September 13, 2013)


Only Physicians Can Reduce Costs w/o Rationing or Fee Cuts




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions



• Fewer unnecessary tests• Use of lower-cost tests• Use of lower cost testing facilities




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions



• Fewer unnecessary procedures• Use of lower-cost procedures• Reducing the cost of procedures• Use of lower-cost facilities• Fewer unnecessary tests• Use of lower-cost tests• Use of lower cost testing facilities




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions



• Fewer unnecessary procedures• Reducing the cost of procedures• More procedures in outpatient settings• Fewer ER visits for chronic disease• Fewer admissions for chronic disease• Z• Fewer unnecessary procedures• Use of lower-cost procedures• Reducing the cost of procedures• Use of lower-cost facilities• Fewer unnecessary tests• Use of lower-cost tests• Use of lower cost testing facilities




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions



• Less use of expensive inpatient rehab• More in-home services• Fewer unnecessary procedures• Reducing the cost of procedures• More procedures in outpatient settings• Fewer ER visits for chronic disease• Fewer admissions for chronic disease• Z• Fewer unnecessary procedures• Use of lower-cost procedures• Reducing the cost of procedures• Use of lower-cost facilities• Fewer unnecessary tests• Use of lower-cost tests• Use of lower cost testing facilities




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions



• Better post-discharge care management• Fewer complications from procedures• Less use of expensive inpatient rehab• More in-home services• Fewer unnecessary procedures• Reducing the cost of procedures• More procedures in outpatient settings• Fewer ER visits for chronic disease• Fewer admissions for chronic disease• Z• Fewer unnecessary procedures• Use of lower-cost procedures• Reducing the cost of procedures• Use of lower-cost facilities• Fewer unnecessary tests• Use of lower-cost tests• Use of lower cost testing facilities




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions



• Use of lower-cost medications• Avoiding unnecessary medications• Better post-discharge care management• Fewer complications from procedures• Less use of expensive inpatient rehab• More in-home services• Fewer unnecessary procedures• Reducing the cost of procedures• More procedures in outpatient settings• Fewer ER visits for chronic disease• Fewer admissions for chronic disease• Z• Fewer unnecessary procedures• Use of lower-cost procedures• Reducing the cost of procedures• Use of lower-cost facilities• Fewer unnecessary tests• Use of lower-cost tests• Use of lower cost testing facilities




Patients

Post-Acute Care

Medications

Tests and Imaging

Readmissions


How Big Are the Opportunities?


5-17% of Hospital AdmissionsAre Potentially Preventable

Source:AHRQHCUP


Millions of Preventable Events Harm Patients and Increase Costs

Medical Error# Errors (2008)

Cost Per Error Total U.S. Cost

Pressure Ulcers 374,964 $10,288 $3,857,629,632

Postoperative Infection 252,695 $14,548 $3,676,000,000

Complications of Implanted Device 60,380 $18,771 $1,133,392,980

Infection Following Injection 8,855 $78,083 $691,424,965

Pneumothorax 25,559 $24,132 $616,789,788

Central Venous Catheter Infection 7,062 $83,365 $588,723,630

Others 773,808 $11,640 $9,007,039,005

TOTAL 1,503,323 $13,019 $19,571,000,000

Source: The Economic Measurement of Medical Errors, Milliman and the Society of Actuaries, 2010

3 Adverse Events Every Minute


Many Ways to Reduce Tests & Procedures w/o Harming Patients


Fee-for-Service Payment is aBarrier to Success

Lack of Flexibility in FFS• No payment for phone

calls or emails with patients

• No payment to coordinate care among providers

• No payment for non-physician support services to help patients with self-management

• No flexibility to shift resources across silos(hospital <-> physician,post-acute <->hospital,SNF <-> home health, etc.)


Fee-for-Service Payment is aBarrier to Success

Lack of Flexibility in FFS• No payment for phone

calls or emails with patients

• No payment to coordinate care among providers

• No payment for non-physician support services to help patients with self-management

• No flexibility to shift resources across silos(hospital <-> physician,post-acute <->hospital,SNF <-> home health, etc.)

Penalty for Quality/Efficiency• Lower revenues if

patients don’t make frequent office visits

• Lower revenues for performing fewer tests and procedures

• Lower revenues if infections and complications are prevented instead of treated

• No revenue at all ifpatients stay healthy


Most “Payment Reforms” Don’t Fix The Problems with FFS

FFS•No payment for services that will benefit patients

•Lower revenues from reducing avoidable costs

FFS

Shared SavingsShared Savings

FFS

P4P

FFS

PMPM


Fortunately, There Are Good Alternatives to Fee for Service

BUILDING BLOCKS HOW IT WORKS

Bundled Payment

Single payment to 2+ providers who are now paid separately (e.g., hospital+physician)




Bundled Payment


Warrantied Payment

Higher payment for quality care, no extra

payment for correcting preventable errors and

complications




Bundled Payment


Warrantied Payment



complications

Condition-Based

Payment

Payment based on the patient’s condition, rather than on the procedure used


Accountable Payment ModelsAllow Win-Win-Win Approaches


HOW PHYSICIANSAND HOSPITALS

CAN BENEFITHOW PAYERSCAN BENEFIT

Bundled Payment


Higher payment for physicians if they

reduce costs paid by hospitals

Physician and hospital offer a lower total price to Medicare or health

plan than today

Warrantied Payment



complications

Higher payment for physicians and

hospitals with low rates of infections and complications

Medicare or health plan no longer pays

more for high rates of infections or

complications

Condition-Based

Payment

Payment based on the patient’s condition, rather than on the procedure used

No loss of payment for physicians and

hospitals using fewer tests and procedures

Medicare or health plan no longer pays

more for unnecessary procedures


Example: Reducing Avoidable Procedures

TODAY

$/Patient # Pts Total $

Physician Svcs

Evaluations $150 300 $45,000

Procedures $850 200 $170,000

Subtotal $215,000

Hospital Pmt $11,000 200 $2,200,000

Total Pmt/Cost $2,415,000

Optional Procedurefor a Condition

• Physician evaluates allpatients

• Physician performsprocedure on 2/3 ofevaluated patients

• Up to 10% of proceduresmay be avoidablethrough patient choiceor alternative treatment


Most of the Money Today Is NOT Going to the Physician

TODAY


Physician Svcs

Evaluations $150 300 $45,000

Procedures $850 200 $170,000

Subtotal $215,000

Hospital Pmt $11,000 200 $2,200,000


Physician Payment is 9% of Total Spending


Typical Health Plan Approach:Prior Auth/Utilization Controls

TODAY w/ UTILIZATION CTRL

$/Patient # Pts Total $ $/Patient # Pts Total $ Chg

Physician Svcs

Evaluations $150 300 $45,000 $150 300 $45,000

Procedures $850 200 $170,000 $850 180 $153,000

Subtotal $215,000 $198,000

Hospital Pmt $11,000 200 $2,200,000 $11,000 180 $1,980,000

Total Pmt/Cost $2,415,000 $2,178,000 -10%


Under FFS, Payer Wins,Physicians and Hospitals Lose

TODAY w/ UTILIZATION CTRL


Physician Svcs

Evaluations $150 300 $45,000 $150 300 $45,000

Procedures $850 200 $170,000 $850 180 $153,000

Subtotal $215,000 $198,000 -8%

Hospital Pmt $11,000 200 $2,200,000 $11,000 180 $1,980,000 -10%

Total Pmt/Cost $2,415,000 $2,178,000 -10%


Is There a Better Way?

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 ? ? ?

Procedures $850 200 $170,000 ? ? ?

Subtotal $215,000 ?

? ? ?

Hospital Pmt $11,000 200 $2,200,000 ? ? ?

Total Pmt/Cost $2,415,000 ? ? ?


A Better Way:Pay Physicians Differently

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000

Hospital Pmt $11,000 200 $2,200,000 $11,000 180 $1,980,000

Total Pmt/Cost $2,415,000 $2,202,000

Better Payment for Condition Management• Physician paid adequately to engage in shared

decision making process with patients• Physician paid adequately for procedures without

needing to increase volume of procedures


Physicians Could Be Paid More While Still Reducing Total $

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt $11,000 200 $2,200,000 $11,000 180 $1,980,000 -10%

Total Pmt/Cost $2,415,000 $2,202,000 -9%


Do Hospitals Have to Lose In Order for Physicians To Win?

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt $11,000 200 $2,200,000 $11,000 180 $1,980,000 -10%

Total Pmt/Cost $2,415,000 $2,202,000 -9%

Physician Wins

Payer WinsHospital Loses


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


Hospital Costs Are Not Proportional to Utilization

$800$820$840$860$880$900$920$940$960$980$1,000

81828384858687888990919293949596979899100

$000

#Patients

Cost & Revenue Changes With Fewer Patients

.

Costs

20% reduction in volume

7% reduction in cost


Reductions in Utilization Reduce Revenues More Than Costs

$800$820$840$860$880$900$920$940$960$980$1,000

81828384858687888990919293949596979899100

$000

#Patients


Revenues

Costs

20% reduction in volume

7% reduction in cost

20% reduction in revenue


Causing Negative Marginsfor Hospitals

$800$820$840$860$880$900$920$940$960$980$1,000

81828384858687888990919293949596979899100

$000

#Patients


Revenues

Costs

Payers Will BeUnderpaying For

Care If Adverse Events,

Readmissions, Etc. Are Reduced


But Spending Can Be Reduced Without Bankrupting Hospitals

$800$820$840$860$880$900$920$940$960$980$1,000

81828384858687888990919293949596979899100

$000

#Patients


Revenues

Costs

Payers CanStill Save $Without CausingNegative Marginsfor Hospital


Adequacy of Payment Depends On Fixed/Variable Costs & Margins

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000

Variable Costs $3,300 30% $660,000

Margin $550 5% $110,000

Subtotal $11,000 200 $2,200,000



Now, if the Number of Procedures is Reduced…

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000

Variable Costs $3,300 30% $660,000

Margin $550 5% $110,000

Subtotal $11,000 200 $2,200,000 180



…Fixed Costs Will Remain the Same (in the Short Run)…

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000

Margin $550 5% $110,000

Subtotal $11,000 200 $2,200,000 180



…Variable Costs Will Go Down in Proportion to Procedures…

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $3,300 $594,000 -10%

Margin $550 5% $110,000

Subtotal $11,000 200 $2,200,000 180



…And Even With a Higher Margin for the Hospital…TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 180



…The Hospital Gets Less Total Revenue (But More Per Case)…

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%



…And The Payer Still Saves MoneyTODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $2,415,000 $2,359,000 -2%


I.e., Win-Win-Win for Physician, Hospital, and Payer

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $2,415,000 $2,359,000 -2%

Physician Wins

Payer WinsHospital Wins


What Payment Model Supports This Win-Win-Win Approach?

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $2,415,000 $2,359,000 -2%


It’s Impractical to Renegotiate Fees for Individual Services

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $2,415,000 $2,359,000 -2%


Pay Based on the Patient’s Condition, Not on the Procedure

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $8,050 300 $2,415,000 $2,359,000 -2%


Plan to Offer Care of the Condition at a Lower Cost Per Patient

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $8,050 300 $2,415,000 $7,863 300 $2,359,000 -2%


Use the Payment as a Budget to Redesign Care…TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $8,050 300 $2,415,000 $7,863 300 $2,359,000 -2%


…And Let the Providers DecideHow They Should Be Paid

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 $11,872 180 $2,137,000 -3%

Total Pmt/Cost $8,050 300 $2,415,000 $7,863 300 $2,359,000 -2%


Would “Shared Savings” Achieve the Same Thing?


Same Example As Before…

Year 0

Physician Svcs

Evaluations $45,000

Procedures $170,000

Subtotal $215,000

Hospital Pmt

Procedures $2,200,000

Subtotal $2,200,000


Savings

# Patients $/Patient

300 $150

200 $850

200 $11,000

Optional Procedurefor a Condition

• Physician evaluates allpatients

• Physician performsprocedure on 2/3 ofevaluated patients

• Up to 10% of proceduresmay be avoidablethrough patient choiceor alternative treatment


Year 1: Physicians & Hospitals Both Lose With Fewer Procedures)

Year 0 Year 1 Chg

Physician Svcs

Evaluations $45,000 $45,000

Procedures $170,000 $153,000

$0

Subtotal $215,000 $198,000 -8%

Hospital Pmt

Procedures $2,200,000 $1,980,000

Subtotal $2,200,000 $1,980,000 -10%

Total Pmt/Cost $2,415,000 $2,178,000 -10%

Savings $237,000

ReduceProcs by 10%

Year 1:Lower

Revenuefor

Docs &Hospital


Year 2: Losses Are Lower If Shared Savings Are Paid…(No)Year 0 Year 1 Chg Year 2 Chg

Physician Svcs

Evaluations $45,000 $45,000 $45,000

Procedures $170,000 $153,000 $153,000

Shared Savings $0 $17,000

Subtotal $215,000 $198,000 -8% $215,000 -0%

Hospital Pmt

Procedures $2,200,000 $1,980,000 $1,980,000


Subtotal $2,200,000 $1,980,000 -10% $2,081,500 -6%

Total Pmt/Cost $2,415,000 $2,178,000 -10% $2,296,500 -5%

Savings $237,000 $118,500

ReduceProcs by 10%

Year 1:Lower

Revenuefor

Docs &Hospital

Year 2:SharedSavingsOffsetsSome

Losses


…But Physicians and Hospitals Still Have Net 2-Year Losses

Year 0 Year 1 Chg Year 2 Chg Cumulative

Physician Svcs

Evaluations $45,000 $45,000 $45,000

Procedures $170,000 $153,000 $153,000


Subtotal $215,000 $198,000 -8% $215,000 -0% -$17,000

-4%

Hospital Pmt

Procedures $2,200,000 $1,980,000 $1,980,000


Subtotal $2,200,000 $1,980,000 -10% $2,081,500 -5% -$338,500

-8%

Total Pmt/Cost $2,415,000 $2,178,000 -10% $2,296,500 -5% $355,500

Savings $237,000 $118,500 -7%


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


So Why Do Payers Like The Shared Savings Model So Much??

It’s easy for them to implement:• No changes in underlying fee for service payment and no

costs to change claims payment system• Additional payments only made if savings are achieved• The payer sets the rules as to how “savings” are calculated• Shared savings payments are made well after savings are

achieved, helping the payers’ cash flow• All of the savings goes back to the payer after the end of the

shared savings contract


“Shared Savings” Forces Hospitals To Consider Hiring Physicians

• Hospitals are not directly eligible for shared savings;all savings are attributed to primary care physicians

• Even if the hospital reduces readmissions, infections, complications, etc., it may receive no reward for doing so

• Reducing hospitalizations, ER visits, etc. will reduce the hospital’s revenues, but the hospital may receive no share of the savings to help it cover its stranded fixed costs

• Consequently, hospitals may feel compelled to own physician practices, either to capture a portion of the shared savings revenue, or to prevent there from being any savings!


It Hasn’t Been Working Too Well in Medicare So Far

• Of the 109 Track 1 (Upside Only) ACOs that started in 2012:– 57 (52%) Track 1 ACOs did not achieve savings in 2013– 25 (23%) Track 1 ACOs achieved savings, but not enough to receive

shared savings payments– 27 (25%) Track 1 ACOs received shared savings payments

• Of the 5 Track 2 (Downside Risk) ACOs that started in 2012:– 2 (33%) Track 2 ACOs received shared savings payments– 3 (67%) Track 2 ACOs had to repay a share of losses to CMS


Condition-Based Payment Putsthe Physicians in Control

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $200 300 $60,000

Procedures $850 200 $170,000 $900 180 $162,000

Subtotal $215,000 $222,000 +3%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000 -0%

Variable Costs $3,300 30% $660,000 $594,000 -10%

Margin $550 5% $110,000 $113,000 +3%

Subtotal $11,000 200 $2,200,000 180 $2,137,000 -3%

Total Pmt/Cost $8,050 300 $2,415,000 $7,863 300 $2,359,000 -2%


If The Physician Can Reduce the Hospital’s Costs Per Procedure….

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000

Procedures $850 200 $170,000

Subtotal $215,000

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000

Variable Costs $3,300 30% $660,000 $2,000 $360,000 -45%

Margin $550 5% $110,000

Subtotal $11,000 200 $2,200,000 180

Total Pmt/Cost $8,050 300 $2,415,000 $7,863 300 $2,359,000 -2%


Both the Hospital & Physician Can “Win” Even More Inside the Budget

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000

Procedures $850 200 $170,000

Subtotal $215,000

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000

Variable Costs $3,300 30% $660,000 $2,000 $360,000

Margin $550 5% $110,000 $139,000 +26%

Subtotal $11,000 200 $2,200,000 180 $1,929,000 -13%

Total Pmt/Cost $8,050 300 $2,415,000 $7,863 300 $2,359,000 -2%


Both the Hospital & Physician Can “Win” Even More Inside the Budget

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $300 300 $90,000

Procedures $850 200 $170,000 $1700 180 $340,000

Subtotal $215,000 $430,000 100%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000

Variable Costs $3,300 30% $660,000 $2,000 $360,000

Margin $550 5% $110,000 $139,000 +26%

Subtotal $11,000 200 $2,200,000 180 $1,929,000 -13%

Total Pmt/Cost $8,050 300 $2,415,000 $7,863 300 $2,359,000 -2%


Or Reduce The Price to Reduce Healthcare Spending

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $189 300 $56,700

Procedures $850 200 $170,000 $1,190 180 $214,200

Subtotal $215,000 $270,900 +26%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000

Variable Costs $3,300 30% $660,000 $2,000 $360,000

Margin $550 5% $110,000 $139,000 +26%

Subtotal $11,000 200 $2,200,000 180 $1,929,000 -13%

Total Pmt/Cost $8,050 300 $2,415,000 $7,455 300 $2,199,900 -9%


$2,200 Variation in Average Cost of

Drug-Eluting Stents in CA Hospitals

Source: Coronary Angioplasty with Drug Eluting Stents: Device Costs, HospitalCosts, and Insurance Payments, Emma L. Dolan and James C. Robinson Berkeley Center for Health Technology, September 2010


$8,000 Variation in Avg Costs of Joint Implants Across CA Hospitals

Source: Implantable Medical Devices for Hip Replacement Surgery: Economic Implications for California Hospitals, Emma L. Dolan and James C. Robinson , Berkeley Center for Health Technology, May 2010


$16,000 Variation in Avg Costs of Defibrillators Across CA Hospitals

Source: Pacemaker and Implantable Cardioverter-Defibrillator Implant Procedures in California Hospitals, James C. Robinson and Emma L. Dolan, Berkeley Center for Health Technology, 2010


Not Just Devices: Other Savings Opportunities From Bundling

• Better scheduling of scarce resources (e.g., surgery suites) to reduce both underutilization & overtime

• Coordination among multiple physicians and departments to avoid duplication and conflicts in scheduling

• Standardization of equipment and supplies to facilitate bulk purchasing

• Less wastage of expensive supplies• Reduced length of stay• Etc.


Condition-Based Payment Putsthe Physicians in Control

TODAY TOMORROW


Physician Svcs

Evaluations $150 300 $45,000 $189 300 $56,700

Procedures $850 200 $170,000 $1,190 180 $214,200

Subtotal $215,000 $270,900 +26%

Hospital Pmt

Fixed Costs $7,150 65% $1,430,000 $1,430,000

Variable Costs $3,300 30% $660,000 $2,000 $360,000

Margin $550 5% $110,000 $139,000 +26%

Subtotal $11,000 200 $2,200,000 180 $1,929,000 -13%

Total Pmt/Cost $8,050 300 $2,415,000 $7,455 300 $2,199,900 -9%


Steps toSuccessful Payment Reform

1. Defining the Change in Care Delivery– How can the physician, hospital, or other provider change the way

care is delivered to reduce costs without harming patients?


Best Way to Find Savings Opportunities? Ask Physicians

“I have zero control over utilization or studies ordered.

I don’t get paid for calling a referring doctor and

telling him/her the imaging test is worthless.”

Radiologist in Maine

“I do many unnecessarycolonoscopies on young men. Give every PCP an anuscopeto allow diagnosis of bleeding

hemorrhoids in the office.”Gastroenterologist in Maine

“I strongly suspect overutilizationof abdominal CT scans in the ERand in the hospital; CT scans lead

to further CT scans to follow uplung and adrenal nodules. The

hospital focuses on length of stay,but never looks at appropriateness

of radiologic studies.”Internist at AMA HOD Meeting

“Patients often need to be inextended care to receive antibioticsbecause Medicare doesn’t pay for

home IV therapy. Patient stays in the hospital for 3 days to justify

a nursing home/rehab stay.”Orthopedist at AMA HOD Meeting





2. Analyzing Expected Costs and Savings– What will there be less of, and how much does that save?– What will there be more of, and how much does that cost?– Will the savings offset the costs on average?– How much variation in costs and savings is likely?


A Critical Element isShared, Trusted Data

• Physician/Hospital need to know the current utilization and costs for their patients to know whether the new payment model will cover the costs of delivering effective care to the patients

• Purchaser/Payer needs to know the current utilization and costs to know whether the new payment model is a better deal than they have today

• Both sets of data have to match in order for providers and payers to agree on the new approach!






3. Designing a Payment Model That Supports Change– Flexibility to change the way care is delivered– Accountability for costs and quality/outcomes related to care– Adequate payment to cover lowest-achievable costs– Protection for the provider from insurance risk


Opportunities and SolutionsVary By Specialty

Psychiatry

OB/GYN

OrthopedicSurgery

Opportunitiesto Improve Care

and Reduce Cost

Barriers inCurrent

Payment System

Solutions viaAccountable

Payment Models

• Reduce infectionsand complications

• Use less expensivepost-acute carefollowing surgery

• Reduce ER visitsand admissions forpatients withdepression andchronic disease

• Reduce use ofelective C-sections

• Reduce earlydeliveries and use of NICU

• Similar/lower payment forvaginal deliveries

• Condition-basedpaymentfor total cost ofdelivery in low-riskpregnancy

• Episode paymentfor hospital andpost-acute carecosts withwarranty

• No flexibility toincrease inpatientservices to reducecomplications &post-acute care

• Joint condition-based payment to PCP andpsychiatrist

• No payment forphone consults with PCPs

• No payment forRN care managers

Cardiology

• Use less invasiveand expensiveprocedures when appropriate

• Condition-basedpayment coveringCABG, PCI, or medicationmanagement

• Payment is basedon which procedure is used,not the outcomefor the patient


Examples from Other Specialties

Oncology

Radiology

Gastroenterology

Opportunitiesto Improve Care

and Reduce Cost

Barriers inCurrent

Payment System

Solutions viaAccountable

Payment Models

• Reduce unnecessarycolonoscopies andcolon cancer

• Reduce ER/admits forinflammatory bowel d.

• Reduce ER visitsand admissions fordehydration

• Reduce anti-emeticdrug costs

• Reduce use of high-cost imaging

• Improve diagnosticspeed & accuracy

• Low payment forreading images &penalty for 2x

• Inability to changeinapprop. orders

• Global paymentfor imaging costs

• Partnership in condition-basedpayments

• Population-basedpayment for coloncancer screening

• Condition-based pmtfor IBD

• No flexibility to focusextra resources onhighest-risk patients

• No flexibility to spendmore on care mgt

• Condition-basedpayment includingnon-oncolytic Rxand ED/hospitalutilization

• No flexibility tospend more onpreventive care

• Payment based onoffice visits, notoutcomes

Neurology

• Avoid unnecessaryhospitalizations forepilepsy patients

• Reduce strokes andheart attacks after TIA

• Condition-basedpayment for epilepsy

• Episode or condition-based payment forTIA

• No flexibility tospend more onpreventive care

• No payment tocoordinate w/ cardio






3. Designing a Payment Model That Supports Change– Flexibility to change the way care is delivered– Accountability for costs and quality/outcomes related to care– Adequate payment to cover lowest-achievable costs– Protection for the provider from insurance risk

4. Compensating Physicians Appropriately– Changing payment to the provider organization

(physician practice/group/IPA/health system) does not automatically change compensation to physicians


How Does This All Fit Into ACOs?

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy


Each Patient Should Choose & Use a Primary Care Practice…

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy

Primary Care Practice


MEDICARE/HEALTH PLAN

…Which Takes Accountability for What PCPs Can Control/Influence

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy


AccountableMedical

Home Accountability for:• Avoidable ER Visits•Avoidable Hospitalizations•Unnecessary Tests•Unnecessary Referrals



…With a Medical Neighborhoodto Consult With on Complex Cases

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy


AccountableMedical

Home

Endocrinology,Neurology,Psychiatry

AccountableMedicalNeighborhood

Accountability for:•Unnecessary Tests•Unnecessary Referrals•Co-Managed Outcomes



..And Specialists Accountable for the Conditions They Manage

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy


Neurosurg.Group

OB/GYNGroup

CardiologyGroup

Heart Episode/Condition Pmt

Back Episode/Condition Pmt

PregnancyManagement Pmt

AccountableMedical

Home



Accountability for:•Unnecessary Tests•Unnecessary Procedures• Infections, Complications



That’s Building the ACOfrom the Bottom Up

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy


Neurosurg.Group

OB/GYNGroup

CardiologyGroup




AccountableMedical

Home



ACO

Accountable PaymentModels



Shared SavingsPayment

Primary Care

ACO

Orthopedics OB/GYNCardiology

Most ACOs Today Aren’t Truly Reinventing Care or Payment

Fee-for-ServicePayment

Expensive IT Systems

Psych.,Neuro

Nurse Care Managers

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy

Shared SavingsBonus



A True ACO Can Take a Global Payment And Make It Work

Heart Disease

Diabetes

Back Pain

PATIENTS

Pregnancy


ACO

Neurosurg.Group

OB/GYNGroup

CardiologyGroup




AccountableMedical

Home


Risk-AdjustedGlobal Payment



Payment Levels Adjusted Based on Patient Conditions

Providers Lose Money On Unusually

Expensive Cases

Limits on Total RiskProviders Accept forUnpredictable Events

Providers Are Paid Regardless of the

Quality of Care

Bonuses/PenaltiesBased on Quality

Measurement

Provider Makes More Money If

Patients Stay Well

Provider Makes More Money If

Patients Stay Well

Flexibility to DeliverHighest-Value

Services

Flexibility to DeliverHighest-Value

Services

No Additional Revenuefor Taking Sicker

Patients

CAPITATION (WORST VERSIONS)

RISK-ADJUSTEDGLOBAL PMT

Isn’t This Capitation?No – It’s Different


Example: BCBS MAAlternative Quality Contract

• Single payment for all costs of care for a population of patients– Adjusted up/down annually based on severity of patient conditions– Initial payment set based on past expenditures, not arbitrary estimates– Provides flexibility to pay for new/different services– Bonus paid for high quality care

• Five-year contract – Savings for payer achieved by controlling increases in costs– Allows provider to reap returns on investment in preventive care,

infrastructure• Broad participation

– 14 physician groups/health systems participating with over 400,000 patients, including one primary care IPA with 72 physicians

• Positive two year results– Higher ambulatory care quality than non-AQC practices, better patient

outcomes, lower readmission rates and ER utilization, lower costshttp://www.bluecrossma.com/visitor/about-us/making-quality-health-care-affordable.html

http://www.bluecrossma.com/visitor/about-us/making-quality-health-care-affordable.html


Barrier: Gaining Support from a Critical Mass of Payers

Health Plan

Provider

Health Plan Health Plan

Patient Patient Patient

Provider is only compensated for changed practices for the subset of patients covered by participating payers

Better Payment

System

CurrentPaymentSystem Current

PaymentSystem


For Most Employees, the Employer is the Insurer, Not a Health Plan

Source: Employer

Health Benefits

2012 Annual Survey. The

Kaiser Family

Foundation and Health Research

and Educational

Trust


For Self-Funded Employers, TheHealth Plan is Just a Pass Through

Self-Funded

PurchasersProviders

ASOHealth Plan(No Risk)

Provider Claims

Purchaser Payment


Little Incentive for Health Plans to Support Payment Reforms

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)

Self-Funded

PurchasersProviders

ASOHealth Plan(No Risk)

Provider Claims

Purchaser Payment


A Better Approach: Purchaser/Provider Partnerships

Self-Funded

Purchasers

ProvidersWilling to ManageCosts

Better Payment and Benefit Structure

Lower Cost, Higher Quality Care

Provider “wins” if:

• Patients stay healthy and need less care

• Purchaser pays provider adequately tomanage care efficiently

Purchasers and Patients “win” if:

• Providers reduce purchasers’ costs

• Patients stay healthy and have lower cost-sharing


Health Plan Implements Changes Purchasers/Providers Agree On

Self-Funded

Purchasers

ProvidersWilling toManageCosts

ASOHealth Plan(No Risk) Implementation

Better Payment and Benefit Structure

Lower Cost, Higher Quality Care

How Many Patients Do You Need to (Successfully)

Manage Total Risk?


Companies With <1,000 Workers Take Total Healthcare Cost Risk

Sources: Employer

Health Benefits

2012 Annual Survey. The

Kaiser Family

Foundation and Health Research

and Educational

Trust;State-Level Trends in Employer-Sponsored

Health Insurance, April 2013. State Health Access Data Assistance Center and

Robert Wood

Johnson Foundation

Fewer employeesthan typicalphysician

practice panel size


The Keys to Managing Risk

• How Do Small Employers Manage Self-Insurance Risk?– They know who their employees are and can estimate spending– They start with what they spent last year and try to control growth– They have reserves to cover year-to-year variation– They purchase stop-loss insurance to cover unusually expensive cases


The Keys to Managing Risk

• How Do Small Employers Manage Self-Insurance Risk?– They know who their employees are and can estimate spending– They start with what they spent last year and try to control growth– They have reserves to cover year-to-year variation– They purchase stop-loss insurance to cover unusually expensive cases

• How Would Physician Practices & Hospitals Manage Risk?– They need to know who their patients are in order to project spending– They need to start with last year’s payments and control growth– They need some reserves to cover year-to-year variation– They need to purchase stop-loss insurance to cover unusually

expensive cases


What’s the Patient’s Role and Accountability?

ProviderPatient

Payment System

Ability and Incentives to:

• Keep patients well• Avoid unneeded

services• Deliver services

efficiently• Coordinate

services with other providers


Benefit Design Changes AreAlso Critical to Success

ProviderPatient

Payment System

Benefit Design

Ability and Incentives to:

• Keep patients well• Avoid unneeded

services• Deliver services

efficiently• Coordinate

services with other providers

Ability andIncentives to:• Improve health• Take prescribed

medications• Allow a provider to

coordinate care• Choose the highest-value providers and

services


Barriers In CurrentBenefit Designs

• Co-pays, co-insurance, and high deductibles discourage or prevent patients from using primary care, preventive treatments, and chronic disease maintenance medications


Example: No Coordination ofPharmacy & Medical Benefits

Hospital Costs

PhysicianCosts

OtherServices

Medical Benefits

DrugCosts

Pharmacy Benefits

Single-minded focus onreducing costs here...

...often results in higherspending on hospitalizations

• High copays for brand-nameswhen no generic exists

• Doughnut holes & deductibles

Principal treatment for mostchronic diseases involves regular use

of maintenance medication


Barriers In CurrentBenefit Designs

• Co-pays, co-insurance, and high deductibles discourage or prevent patients from using primary care, preventive treatments, and chronic disease maintenance medications

• Co-pays, co-insurance, and high deductibles provide little or no incentive for patients to choose the highest-value providers for expensive services


Airfare Choices from Boston to Cleveland

Boston Cleveland

?

USAirways1-StopCoach$622

UnitedNon-Stop

Coach$1,107

UnitedNon-Stop

First Class$1,355

Airfares for July 6-7, 2011 as of 6/26/11


What If We Paid for Travel the Way We Pay for Healthcare?

Boston Cleveland

?

Consumer Shareof Travel Cost


UnitedNon-Stop

Coach$1,107

UnitedNon-Stop

First Class$1,355



Flat Copayments:First Class Fare Wins

Boston Cleveland

?



UnitedNon-Stop

Coach$1,107

UnitedNon-Stop

First Class$1,355

$100 Copayment: $100 $100 $100



Coinsurance:First Class Fare Probably Wins

Boston Cleveland

?



UnitedNon-Stop

Coach$1,107

UnitedNon-Stop

First Class$1,355

$100 Copayment: $100 $100 $100

10% Coinsurance: $62 $111 $136



High Deductible:First Class Fare Wins

Boston Cleveland

?



UnitedNon-Stop

Coach$1,107

UnitedNon-Stop

First Class$1,355

$100 Copayment: $100 $100 $100

10% Coinsurance: $62 $111 $136

$500 Deductible: $500 $500 $500



Price Difference:Lowest Coach Fare Wins

Boston Cleveland

?



UnitedNon-Stop

Coach$1,107

UnitedNon-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



Where Will You Get Your Knee Replaced?

Consumer Shareof Surgery Cost

Price #1$20,000

Price #2$25,000

Price #3$30,000

Knee JointReplacement




Price #1$20,000

Price #2$25,000

Price #3$30,000

$1,000 Copayment: $1,000 $1,000 $1,000

10% Coinsurancew/$2,000 OOP Max:

$2,000 $2,000 $2,000

$5,000 Deductible: $5,000 $5,000 $5,000





Price #1$20,000

Price #2$25,000

Price #3$30,000

$1,000 Copayment: $1,000 $1,000 $1,000

10% Coinsurancew/$2,000 OOP Max:

$2,000 $2,000 $2,000

$5,000 Deductible: $5,000 $5,000 $5,000

Highest-Value: $0 $5,000 $10,000



Which Health System or ACO Will You Choose?

Total Annual CostPer Patient/Member

Health System/ACO #1$6,000



Consumer Share $0 $2,000 $4,000


What Would Happen If Consumers Had Choice & Considered Value?

• Minnesota Patient Choice– started by the Buyers Health Care Action Group (BHCAG)

in the 1990s– “care systems” bid on risk-adjusted (total) cost of patient

care (i.e., risk-adjusted global payment)– care systems are divided into cost/quality tiers based on

their relative bids– consumers pay the difference in the bid price to select a

care system in a higher cost tier

• Results– Many consumers switched to lower cost providers– High cost providers reduced their costs to retain/attract

patients

This All Sounds Really Hard

Can’t We Just Keep DoingWhat We’re Doing Today

Until We Retire?

This All Sounds Really Hard


The Opportunities to Reduce Costs Without Rationing Are Widely Known

Helping Patients with ChronicDisease Stay Out of Hospital

Reducing Hospital Readmissions

Reducing Overutilization ofOutpatient Services

Shifting Preference-SensitiveCare to Lower-Cost Options

Reducing the Cost of Expensive Inpatient Care


The Question is: How Will Purchasers Get The Savings?






PURCHASER

?


The Payer-Driven Approachto Achieving Savings






PURCHASER

Physician P4P

HighDeductibles

NarrowNetworks

PriorAuthorization

Tiering onCost

ReadmissionPenalty

Managed Fee-for-Service


The Provider-Driven Approachto Achieving Savings






PURCHASER

CoordinatedCare/

AccountableCare

Organization

Global Pmt/Budget


Very Different Models…






PURCHASER

CoordinatedCare/

AccountableCare

Organization

Physician P4P

HighDeductibles

NarrowNetworks

PriorAuthorization

Tiering onCost

ReadmissionPenalty

Managed Fee-for-Service Global Pmt/Budget


…And Very Different Impactson Physicians and Hospitals

PURCHASERManaged Fee-for-Service

1. Payer defines how care should be redesigned

2. Payer obtains all savingsfrom lower utilization

3. Payer decides how muchsavings to share withprovider

1. Provider determines how care should be redesigned

2. Provider and Purchaser or Payer agree onadequate price for providercare and amount of savings for payer

3. Providers get to keep any additional savings and todetermine how to divide it

Global Pmt/Budget


Opportunities From Completely Redesigning Payment & Delivery

• Better Payment for Physicians and Hospitals– No threats of major fee cuts– No health plan/benefit manager utilization review– Physicians and hospitals paid based on quality, not volume

• Truly High Quality, Patient-Centric Care– Coordinated care by multiple physicians– Care mgt from providers, not health plans or disease mgt co’s– Flexibility for telephone, internet, & home visits if patients need them

• Greater Patient Engagement– Zero or low copayments for essential medications and services– Higher cost-sharing for unnecessary tests and services– Incentives for patient wellness and adherence

• Less Spending on Administrative Costs– Less spending for health plan administrative costs and profits– Less spending by providers on payer-imposed administrative costs

• Lower Government Spending and Smaller Deficits• Better Health for Citizens and More Affordable Insurance


Learn More About Win-Win-WinPayment and Delivery Reform

Center for Healthcare Quality and Payment Reformwww.PaymentReform.org

http://www.paymentreform.org/

For More Information:

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

[email protected]

(412) 803-3650

www.CHQPR.org

www.PaymentReform.org

APPENDIX

What About Primary Care and Non-Proceduralists?


Today: Reactive Care for Chronic Disease, Many Hospitalizations

TODAY


Physician Svcs

PCP $600 500 $300,000

Specialist 0 $0

Hospitalizations

Hospital $10,000 250 $2,500,000

Specialist $400 250 $100,000

Total Pmt (Cost) $2,900,000

500 ModeratelySevere Chronic

Disease Patients• PCP paid only for

periodic office visits• Patients do not take

maintenance medicationsreliably

• 50% of patients are hospitalized each yearfor exacerbations

• Specialist only sees patient duringhospital admissions


Pay the PCP for Proactive Care Management

TODAY TOMORROW

$/Patient # Pts Total $ $/Pt # Pts Total $ Chg

Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist 0 $0

Hospitalizations

Hospital $10,000 250 $2,500,000

Specialist $400 250 $100,000



Pay the Specialist to Be a Responsive Medical Neighbor

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist 0 $0 $300 500 $150,000 +50%

$80,000

Hospitalizations

Hospital $10,000 250 $2,500,000

Specialist $400 250 $100,000 $0



Provide Adequate Resources to Support Patients

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist 0 $0 $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Hospital $10,000 250 $2,500,000

Specialist $400 250 $100,000



Can We Afford a 127% Increase in Spending on Ambulatory Care?

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist 0 $0 $300 500 $150,000 +50%

$80,000

Hospitalizations

Hospital $10,000 250 $2,500,000

Specialist $400 250 $100,000



Yes, If It Succeeds In Reducing Hospitalizations

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist 0 $0 $300 500 $150,000 +50%

$80,000

Hospitalizations

Hospital $10,000 250 $2,500,000 150 $1,500,000 -40%

Specialist $400 250 $100,000 $0

Total Pmt (Cost) $2,900,000 $2,180,000 -25%


But What About the Hospital?

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist 0 $0 $300 500 $150,000 +50%

$80,000

Hospitalizations

Hospital $10,000 250 $2,500,000 150 $1,500,000 -40%

Specialist $400 250 $100,000 $0

Total Pmt (Cost) $2,900,000 $2,180,000 -25%


Analyze the Hospital’s Cost Structure

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000

Hosp. Variable $3,700 37% $925,000

Hosp. Margin $300 3% $75,000

Specialist $400 250 $100,000 $0



Continue to Cover the Fixed Costs

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

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

Specialist $400 250 $100,000 $0



Save on Variable Costs With Fewer Patients

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $3,700 150 $555,000 -40%

Hosp. Margin $300 3% $75,000

Specialist $400 250 $100,000 $0



Increase the Hospital’s Contribution Margin

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $3,700 150 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Specialist $400 250 $100,000 $0



Payer Still Spends Less

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $3,700 150 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Specialist $400 250 $100,000 $0

Total Pmt (Cost) $2,900,000 $2,817,500 -3%


Win-Win-Win: Better Care, Higher Physician Pay, Lower Spending

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $3,700 150 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Specialist $400 250 $100,000 $0

Total Pmt (Cost) $2,900,000 $2,817,500 -3%

Physicians Win

Payer WinsHospital Wins


Use a Condition-Based Payment for the Patients to Support Care

TODAY TOMORROW


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $3,700 150 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Specialist $400 250 $100,000 $0

Total Pmt (Cost) $5,800 500 $2,900,000 $5,635 500 $2,817,500 -3%

APPENDIX


Instead of Having To Accept What Medicare and Health Plans Pay…

CMS

Physician Group,

IPA,or Health System

Commercial Health Plans

Medicaid MCOs

Self-InsuredEmployers

Individuals &Small Groups

Fully InsuredLarge Groups

State Medicaid

MedicareBeneficiaries

Medicare FFS

Medicaid FFS

MA Plans

Commercial FFS


What Could Happen If PhysiciansHad Their Own Health Plans?

CMS

Physician Group,



Medicaid MCOs




State Medicaid


MA Plans

Physician-Owned Health

Plan

?

?

?


Get Risk-Adjusted Payment from Medicare, Pay Physicians Better

CMS

Physician Group,



Medicaid MCOs




State Medicaid



Plan

Risk-AdjustedMedicare AdvantagePayment

BetterPhysicianPayment


Contract Directly with Self-Insured Employers, Pay Physicians Better

CMS

Physician Group,



Medicaid MCOs




State Medicaid



Plan



Risk-Adjusted Direct Contract


Use Exchanges for Small Group Business, Pay Physicians Better

CMS

Physician Group,



Medicaid MCOs




State Medicaid



Plan



InsuranceExchanges Risk-Adjusted

PremiumRevenue



Contract Directly With State for Medicaid, Pay Physicians Better

CMS

Physician Group,






State Medicaid



Plan



Risk-AdjustedPremiumRevenue


InsuranceExchanges

Risk-Adjusted Global Payment


Get Global Payment for Large Groups, Pay Physicians Better

CMS

Physician Group,



Plan




InsuranceExchanges

State Medicaid








Result: A “Single Payer System”Controlled by Physicians

CMS

Physician Group,



Plan




InsuranceExchanges

State Medicaid







ONE PAYER,MANY

CUSTOMERS

APPENDIX


To Set A Fair Price,Start With Existing Costs…

COST

TIME

Costsin

FFS

Costsin

FFS

Costsin

FFS


…Set a Payment Level That Is ≤ Expected Costs…

COST

TIME

Costsin

FFS

Costsin

FFS

Costsin

FFS

Bundledor

EpisodePayment

Level Exp.Costs

inFFS

$


…If All Goes Well, Costs Will Be Lower Than the Payment Level…

COST

TIME

Costsin

NewPmt

Costsin

FFS

Costsin

FFS

Costsin

FFS

Bundledor

EpisodePayment

Level


...And Both the Purchaser and Provider Will “Win”

COST

TIME

Costsin

NewPmt

$$$$$$

Bonus forProvider

SavingsFor Purchaser

Costsin

FFS

Costsin

FFS

Costsin

FFS

Bundledor

EpisodePayment

Level


What Everybody Fears: All Won’t Go Well (Costs Go Up)

COST

TIME

Costsin

NewPmt

Costsin

FFS

Costsin

FFS

Costsin

FFS

Bundledor

EpisodePayment

Level


Many Different Reasons Costs May Increase Beyond Payment

COST

TIME

Costsin

NewPmt

Costsin

FFS

Costsin

FFS

Costsin

FFS

ExcessCost

UnusuallyCostly Patient

Overutilizationof Services

New, High-CostTreatment

Many Avoidable Complications

Higher-SeverityPatients

Large RandomVariation

Failure to FollowGuidelines

Bundledor

EpisodePayment

Level


Providers Should NOT Be Expected To Take Insurance Risk

COST

TIME

Costsin

NewPmt

Costsin

FFS

Costsin

FFS

Costsin

FFS

ExcessCost








ProviderPerformanceRisk

InsuranceRisk

Bundledor

EpisodePayment

Level


Four Mechanisms for Separating Insurance and Performance Risk

COST

TIME

Costsin

NewPmt

Costsin

FFS

Costsin

FFS

Costsin

FFS

Bundledor

EpisodePayment

Level

ExcessCost






SeverityAdjustment



Outlier Pmt/Stop-Loss

Risk Exclusions

RiskCorridors

PerformanceRisk

(Provider’sResponsibility)

Accountable Care Through Physician Leadership

Health & Medicine

Transcript of Accountable Care Through Physician Leadership