FROM VOLUME TO VALUE: Better Ways to Pay for Health Care, and How to Get There

FROM VOLUME TO VALUE: Better Ways to Pay for Health Care,

and How to Get There

Harold D. MillerExecutive Director

Center for Healthcare Quality and Payment Reformand

President and CEO Network for Regional Healthcare Improvement

What is an“Accountable Care Organization?”

A group of providers who are“accountable for the quality,

cost, and overall care” of patientsSection 3022, Patient Protection and Affordable Care Act

The Official Definition

A group of providers who can figure

out how to save moneyin health care

The Real Definition

How Will ACOs Generate All These Savings?

ACO(“the “Black Box”)

Financial Risk

PatientsLowerCosts

Organizational Structure

ACO(“the “Black Box”)

What’s In That Black Box Can’t Be Good For Consumers, Can It?

RATIONINGPatientsLowerCosts

Financial Risk

Organizational Structure

REDUCINGCOSTS WITHOUT

RATIONING

Focus Should Be On Improving Care to Reduce Costs

PatientsLowerCosts

Reducing Costs Without Rationing:Can It Be Done??

Reducing Costs Without Rationing:Prevention and Wellness

PreventableCondition

ContinuedHealth

HealthyConsumer

Reducing Costs Without Rationing:Avoiding Hospitalizations

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Reducing Costs Without Rationing:Efficient, Successful Treatment

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Efficient Successful Outcome

Complications,Infections,

Readmissions

High-CostSuccessfulOutcome

Reducing Costs Without Rationing:Is Also Quality Improvement!

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

Better Outcomes/Higher Quality

Current Payment Systems Reward Bad Outcomes, Not Better Health

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

High-CostSuccessfulOutcome$

Are There Better Ways to Pay for Health Care?

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

High-CostSuccessfulOutcome$ ?

“Episode Payments” to Reward Value Within Episodes

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

High-CostSuccessfulOutcomeEpisode

Payment$A Single Payment

For All Care Needed From All Providers in

the Episode, With a Warranty For

Complications

Yes, a Health Care ProviderCan Offer a Warranty

Geisinger Health System ProvenCareSM

– 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 Surgery• Cardiac Stents• Cataract Surgery• Total Hip Replacement• Bariatric Surgery• Perinatal Care• Low Back Pain• Treatment of Chronic Kidney Disease

Payment + Process Improvement = Better Outcomes, Lower Costs

What a Single Physician and Hospital Can Do

• In 1987, an orthopedic surgeon in Lansing, MI 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 surgery.

• Results:– Surgeon received over 80% more in payment than otherwise – Hospital received 13% more than otherwise, despite fewer

rehospitalizations– Health insurer paid 40% less than otherwise

• Method: – Reducing unnecessary auxiliary services such as radiography and

physical therapy– Reducing the length of stay in the hospital– Reducing complications and readmissions.

The Weakness of Episode Payment

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

High-CostSuccessfulOutcomeEpisode

Payment

How do you preventunnecessary episodes

of care?(e.g., preventable hospitalizations

for chronic disease, overuse of cardiac

surgery,back surgery, etc.)

Comprehensive Care PaymentsTo Avoid Episodes

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

A Single Payment

For All CareNeeded ForA Condition

$ ComprehensiveCare

Paymentor

“Global”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)

COMPREHENSIVE CARE PAYMENT

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

Example: BCBS MassachusettsAlternative 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 first-year results– Higher ambulatory care quality than non-AQC practices, better patient

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

Payment Reform Allows Pursuing a Different “Triple Aim”

• Better Care for Patients (Win)• Lower Costs for Purchasers/Payers (Win)• Equal or Better Margins for Providers (Win)

A Deeper Dive into Episode Payments and Implications

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

$EpisodePayment

Episode Payment =Bundling + Warranty

• Bundling: Making a single payment to two or more providers who are currently paid separately – e.g., services of both a hospital and a physician– e.g., both hospital and post-acute care services

• Warranty: Not charging/being paid more for costs of treating hospital-acquired infections, problems caused by errors, etc.

Current Episode-of-Care Initiatives

• Medicare Acute Care Episode (ACE) Demonstration– single amount for hospital & physician services for cardiac, orthopedic DRGs– combined payment lower than current Medicare payments– patients receive share of Medicare’s savings through lower copays– Bundled payment goes to a Physician-Hospital Organization which then divides

the payment between the hospital and the physicians– Congressional authorization allows CMS to waive restrictions on gain-sharing,

so hospitals can share internal savings with physicians– Physicians eligible to receive up to 25% more than current payment levels

• Prometheus PaymentTM

– covers full episode of care and all providers– estimates the appropriate payment amount based on historical costs and any

guidelines for evidence-based care– “virtual bundling”: no provider receives the money for another provider’s

services; each provider receives a share of the total episode payment in proportion to the services they’ve billed

– Pilot sites in Rockford, IL; Michigan; Minneapolis; Philadelphia; Utah

How Can Physicians, Hospitals, and Payers Benefit from Bundling?

Example: Reducing Cost of Implantable Defibrillators

COST TYPE TODAY

Physician Fee $ 1,200

Device Cost $20,000

Other Hospital Cost $ 9,100

Hosp. Margin (3%) $ 900

Total Hospital Pmt $30,000

Total Cost to Payer $31,200

Physicians Could Help Hospitals Reduce Cost of Medical Devices

COST TYPE TODAY CHANGE

Physician Fee $ 1,200

Device Cost $20,000 -10% ($2,000)

Hosp. Margin $ 900

Total Cost to Payer $31,200

Today: All Savings Goes to the Hospital, No Reward for Physician

COST TYPE TODAY CHANGE SPLIT

Physician Fee $ 1,200 + 0%

Device Cost $20,000 -10% ($2,000)

Hosp. Margin $ 900 +222% ($2000)

Total Cost to Payer $31,200 -0%

Bundling Allows Savings Split Among Docs, Hospital, Payers

COST TYPE TODAY CHANGE SPLIT

Physician Fee $ 1,200 + 50% ($600)

Device Cost $20,000 -10% ($2,000)

Hosp. Margin $ 900 +50% ($450)

Total Cost to Payer $31,200 - 2.3% ($950)

So Defibrillator Implantation is Cheaper But More Profitable

COST TYPE TODAY CHANGE SPLIT NEW

Physician Fee $ 1,200 + 50% ($600) $ 1,800

Device Cost $20,000 -10% ($2,000) $18,000

Other Hospital Cost $ 9,100 $ 9,100

Hosp. Margin $ 900 +50% ($450) $ 1,350

Total Hospital Pmt $30,000 $28,450

Total Cost to Payer $31,200 - 2.3% ($950) $30,250

Win-Win-Win

Won’t Bundling Encourage More Procedures?

Bundling Can Provide a Path to Reducing Overutilization

COST TYPE TODAY 200 Cases

Physician Fee $ 1,200 $240,000

Device Cost $20,000

Hosp. Margin $ 900 $180,000

Total Cost to Payer $31,200 $6,240,000

What If There is Evidence of Overutilization?

COST TYPE TODAY 200 Cases

Physician Fee $ 1,200 $240,000

Device Cost $20,000

Hosp. Margin $ 900 $180,000

Total Cost to Payer $31,200 $6,240,000

Assume a study findsthat 20% of procedures

are unnecessary orcan be avoided throughmedical management

Appropriateness Guidelines Alone Can Hurt Hospitals & Physicians

COST TYPE TODAY 200 Cases TODAY 160 Cases Chg

Physician Fee $ 1,200 $240,000 $ 1,200 $192,000 -20%

Device Cost $20,000 $20,000

Hosp. Margin $ 900 $180,000 $ 900 $144,000 -20%

Total Cost to Payer $31,200 $6,240,000 $31,200 $4,992,000 -20%

Bundling + Guidelines Can Avoid Harming Providers While Saving $

COST TYPE TODAY 200 Cases NEW 160 Cases Chg

Physician Fee $ 1,200 $240,000 $ 1,800 $288,000 +20%

Device Cost $20,000 $18,000

Hosp. Margin $ 900 $180,000 $ 1,350 $216,000 +20%

Total Cost to Payer $31,200 $6,240,000 $30,250 $4,840,000 -22%

Bundling Can Also Allow Benefits From Changes in Settings

Under Today’s Separate Facility and Physician Fees…

Physician Fee

Hospital DRG

INPATIENT

…Savings From Shifts to Lower Cost Settings All Accrue to Payer

Physician Fee

Hospital DRG

INPATIENT OUTPATIENT

Physician Fee

Outpatient APC

Payer Savings

…Savings From Shifts to Lower Cost Settings All Accrue to Payer

Physician Fee

Hospital DRG

INPATIENT OUTPATIENT OFFICE

Physician Fee

Outpatient APC

Physician Fee

Practice Exp.

Payer Savings Payer Savings

But if the Physician Is Accepting a Bundled Payment…

Physician Fee

Hospital DRG

Physician Fee

Outpatient APC

Physician Fee

Practice Exp.

Physician Fee

Hospital Cost

BundledPayment

…The Physician Can Be Paid More But Still Charge Less to the Payer

Physician Fee

Hospital DRG

Physician Fee

Outpatient APC

Physician Fee

Practice Exp.

Physician Fee

Hospital Cost

Physician Fee

Outpatient Cost

Physician Fee

Office Costs

BundledPayment

How Can Physicians, Hospitals,& Payers Benefit from Warranties?

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

Prices for Warrantied Care May Be Higher, But Spending Lower

• 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

• In healthcare, a DRG with a warranty would need to have a higher payment rate than the equivalent non-warrantied DRG, but the higher price would be offset by fewer DRGs w/ complications, outlier payments, and readmissions

Example: $10,000 Procedure

Cost of Procedure

$10,000

Actual Average Payment for Procedure is Higher than $10,000

Cost of Procedure

AddedCost of

InfectionRate of

InfectionsAverage

Total Cost

$10,000 $20,000 5% $11,000

Starting Point for Warranty Price:Actual Current Average Payment

Cost of Procedure

AddedCost of

InfectionRate of

InfectionsAverage

Total CostPrice

Charged

Change in Net

Revenue

$10,000 $20,000 5% $11,000 $11,000 $0

Limited Warranty Gives Financial Incentive to Improve Quality

Cost of Procedure

AddedCost of

InfectionRate of

InfectionsAverage

Total CostPrice

Charged

Change in Net

Revenue

$10,000 $20,000 5% $11,000 $11,000 $0

$10,000 $20,000 4% $10,800 $11,000 $200

ReducingAdverseEvents…

…ImprovesThe Bottom

...ReducesCosts...

Higher-Quality Provider Can Charge Less, Attract More Patients

Cost of Procedure

AddedCost of

InfectionRate of

InfectionsAverage

Total CostPrice

Charged

Change in Net

Revenue

$10,000 $20,000 5% $11,000 $11,000 $0

$10,000 $20,000 4% $10,800 $11,000 $200

$10,000 $20,000 4% $10,800 $10,800 $0

EnablesLowerPrices

A Virtuous Cycle of QualityImprovement & Cost Reduction

Cost of Procedure

AddedCost of

InfectionRate of

InfectionsAverage

Total CostPrice

Charged

Change in Net

Revenue

$10,000 $20,000 5% $11,000 $11,000 $0

$10,000 $20,000 4% $10,800 $11,000 $200

$10,000 $20,000 4% $10,800 $10,800 $0

$10,000 $20,000 3% $10,600 $10,800 $200

ReducingAdverseEvents…

…ImprovesThe Bottom

...ReducesCosts...

Win-Win-Win for Patients, Payers, and Providers

Cost of Procedure

AddedCost of

InfectionRate of

InfectionsAverage

Total CostPrice

Charged

Change in Net

Revenue

$10,000 $20,000 5% $11,000 $11,000 $0

$10,000 $20,000 4% $10,800 $11,000 $200

$10,000 $20,000 4% $10,800 $10,800 $0

$10,000 $20,000 3% $10,600 $10,800 $200

$10,000 $20,000 3% $10,600 $10,600 $0

$10,000 $20,000 0% $10,000 $10,600 $600

Quality is Better......Cost is Lower...

...Providers More Profitable

In Contrast, Non-Payment Alone Creates Financial Losses

Cost of Procedure

AddedCost of

InfectionRate of

InfectionsAverage

Total CostAmount

Change in Net

Revenue

$10,000 $20,000 5% $11,000 $11,000 $0

$10,000 $20,000 5% $11,000 $10,000 -$1,000

$10,000 $20,000 3% $10,600 $10,000 -$600

$10,000 $20,000 0% $10,000 $10,000 $0

Non-Payment

forInfections

Causes Losses While

Improving

Is P4P Easier Than a Warranty?

Payer-Driven P4P Provider-Driven WarrantyPayer defines what level of

performance is acceptable to determine bonus or penalty

Physiciansdefine feasible level of performance

and have incentive to do betterPayer defines which cases

will be include/excludedPhysicians have incentive to

improve on all potential casesP4P bonus/penalty may not

offset loss in revenues/margin from fewer admissions, visits, procedures

Physicians set price of successful care to adequately cover costs with

fewer admissions/visitsP4P bonus/penalty may not cover costs of extra services needed to

improve performance

Physicians set price of successful treatment to cover costs of additional

services neededPayer must spend more to incent

greater performance improvements beyond the minimum level

Physicians have incentive to improve as much as possible to

reduce costs and to reduce prices in order to attract more patients

Payer decides which providers (hospital, physicians, post-acute

care) to reward/penalize

Hospital, physicians, and other providers decide themselves how to

divide accountability

Not Just Better Acute Care,But Reducing the Need for It

ContinuedHealth

HealthyConsumer

NoHospitalization

Acute Care Episode

Readmissions

Significant Reduction in Rate of Hospitalizations Possible

Examples:• 40% reduction in hospital admissions, 41% reduction in ER visits for

exacerbations of COPD using in-home & phone patient education by nurses or respiratory therapists

J. Bourbeau, M. Julien, et al, “Reduction of Hospital Utilization in Patients with Chronic Obstructive Pulmonary Disease: A Disease-Specific Self-Management Intervention,” Archives of Internal Medicine 163(5), 2003

• 66% reduction in hospitalizations for CHF patients using home-based telemonitoring

M.E. Cordisco, A. Benjaminovitz, et al, “Use of Telemonitoring to Decrease the Rate of Hospitalization in Patients With Severe Congestive Heart Failure,” American Journal of Cardiology 84(7), 1999

• 27% reduction in hospital admissions, 21% reduction in ER visits through self-management education

M.A. Gadoury, K. Schwartzman, et al, “Self-Management Reduces Both Short- and Long-Term Hospitalisation in COPD,” European Respiratory Journal 26(5), 2005

ERVisits

Lab Work/Imaging

HospitalStay

Health Insurance Plan

PhysicianPractice

We Don’t Pay for the Things That Will Prevent OverutilizationCURRENT PAYMENT SYSTEMS

Avoidable

OfficeVisits

NurseCare Mgr

PhoneCalls

No payment for

services that can prevent utilization...

...No penalty or reward for

high utilizationelsewhere

ERVisits

Lab Work/Imaging

HospitalStay

PhysicianPractice/

Global Payment Can Solve That,But It’s a Big Jump from FFS

FULL COMP. CARE/GLOBAL PAYMENT

Avoidable Avoidable

Avoidable

Flexibility and accountabilityfor a condition-adjusted budget

covering all services

$Condition-

AdjustedPer PersonPayment Office

Visits

NurseCare Mgr

PhoneCalls

ERVisits

Lab Work/Imaging

HospitalStay

PhysicianPractice

What Might a Transitional Payment System Look Like?

CURRENT PAYMENT SYSTEMS

Avoidable

OfficeVisits

NurseCare Mgr

PhoneCalls

ERVisits

Lab Work/Imaging

HospitalStay

PhysicianPractice

Typical Medical Home “Solution”:Pay More for Physician Services(TYPICAL) MEDICAL HOME PROGRAM

Avoidable

$Higher payment for primary care...

RN Care Mgr

PhoneCalls

MonthlyCare MgtPayment

OfficeVisits

ERVisits

Lab Work/Imaging

HospitalStay

PhysicianPractice

Weakness: More $ for Physicians, But Any Savings Elsewhere?

(TYPICAL) MEDICAL HOME PROGRAM

Avoidable

$Higher payment for primary care...

...But no commitment

to reduceutilizationelsewhere

RN Care Mgr

PhoneCalls

OfficeVisits

ERVisits

Lab Work/Imaging

HospitalStay

PhysicianPractice

Is Shared Savings the Answer?

SHARED SAVINGS MODEL

Avoidable Avoidable

Avoidable$Portion of savings from reducedspending in other areas...

...Returnedto physician

practice aftersavings

determined...

...but no upfront $for better care

OfficeVisits

NurseCare Mgr

PhoneCalls

Weaknesses of “Shared Savings”

• Provides no upfront money to enable physician practices to hire nurse care managers, install IT, etc.; additional funds, if any, come years after the care changes are made

• Requires TOTAL costs to go down in order for the physician practice to receive ANY increase in payment, even if the practice can’t control all costs

• Gives more rewards to the poor performers who improve than the providers who’ve done well all along

• The underlying fee for service incentives continue; losing less (via shared savings) is still losing compared to FFS

• I.e., it’s not really true payment reform

PhysicianPractice

Better Approach: Simulate Flexibility/Incentives of Global PmtCARE MGT PAYMENT + UTILIZATION P4P

ERVisits

Lab Work/Imaging

HospitalStay

Avoidable Avoidable

Avoidable

P4P Bonus/PenaltyBased on Utilization

OfficeVisits

RN Care Mgr

PhoneCalls

More $for PCP

Targets forReduction

In Utilization

Example: Washington State Medical Home Pilot Program

• Payers will pay the Primary Care Practice an upfront PMPM Care Management Payment for all patients ($2.50 first year, $2.00 future years)

• Practice agrees to reduce rate of non-urgent ER visits and ambulatory care-sensitive hospital admissions by amounts which will generate savings for payers at least equal to the Care Management Payment (targets are practice specific)

• If a practice reduces ER visits and hospitalizations by more than the target amount, the payer shares 50% of the net savings (gross savings minus the PMPM) with the practice

• If a practice fails to meet its ER/hospitalization targets, thepractice pays a penalty via a reduction in its FFS conversion factor equivalent to up to 50% of Care Management Payment

Not Just PCPs, But The Medical Neighborhood, Too

Primary CareMedical Home

(Non-Primary Care)

Specialists

PATIENT

FFS Payment Based on Volume,

Procedures, & Office Visits

Resources &Incentives for

More CoordinatedCare

Pay Both PCPs & Specialists for Outcomes & Coordination

Primary CareMedical Home

(Non-Primary Care)

Specialists

PATIENT

Resources &Incentives for

More CoordinatedCare

Payment for Consultation w/ PCP;

Outcomes-BasedPayment

Today: Underpaid PCPs, Underused Specialists, High Costs

Per VisitVisits/

Yr Per Pt TotalPCP $100 6 $600 $300,000

Per Month Mo/Yr Per Pt Total

Drugs $400 10 $4,000 $2,000,000

Per StayStays/

Yr Per Pt TotalHospital $10,000 1 $10,000 $5,000,000

Per VisitVisits/

Yr Per Pt TotalSpecialist $100 4 $400 $200,000

Total $7,500,000

Uncoordinated Management Today500 Moderate/Severe Chronic Disease Patients

Today: Underpaid PCPs, Underused Specialists, High Costs

Per VisitVisits/

Drugs $400 10 $4,000 $2,000,000

Per StayStays/

Per VisitVisits/

Total $7,500,000

Uncoordinated Management Today500 Moderate/Severe Chronic Disease Patients

6.7% of the moneygoes to the physicians

Pay PCPs & Specialists to Provide More Coordinated, Proactive Care

Per VisitVisits/

Drugs $400 10 $4,000 $2,000,000

Per StayStays/

Per VisitVisits/

Total $7,500,000

Uncoordinated Management TodayPer Pt Total Change

PCP $1,000 $500,000 67%Specialist $1,000 $500,000 150%

Per Month

Mo Filled Per Pt Total

Drugs 400 12 $4,800 $2,400,000 20%

Per StayStays/

Yr Per Case TotalHospital $10,000 0.75 $7,500 $3,750,000 -25%

Total $7,150,000 -5%

Coordinated Management Tomorrow500 Moderate/Severe Chronic Disease Patients

Pay for Patient Care, Not Visits

Higher Medication Expenses,But Lower Hospital Costs

Per VisitVisits/

Drugs $400 10 $4,000 $2,000,000

Per StayStays/

Per VisitVisits/

Total $7,500,000

PCP $1,000 $500,000 67%Specialist $1,000 $500,000 150%

Per Month

Drugs 400 12 $4,800 $2,400,000 20%

Per StayStays/

Total $7,150,000 -5%

Pay for Patient Care, Not Visits Better OutcomesBetter Medication Compliance

Win-Win-Win Through PCP/Specialist Coordinated Mgt

Per VisitVisits/

Drugs $400 10 $4,000 $2,000,000

Per StayStays/

Per VisitVisits/

Total $7,500,000

PCP $1,000 $500,000 67%Specialist $1,000 $500,000 150%

Per Month

Drugs 400 12 $4,800 $2,400,000 20%

Per StayStays/

Total $7,150,000 -5%

Fewer HospitalizationsMore Revenue for Docs Lower Total Costs

Minnesota’s DIAMOND Initiative

• Goal: improve outcomes for patients with depression• Convened all payers in Minnesota (except for

Medicare) to agree on common payment changes for PCPs & specialists

• Payment changes:– Support for a care manager in the primary care practice– Psychiatrists paid to consult with PCP on how to manage

patient’s care comprehensively, rather than patient having to see psychiatrist separately

• Result: Dramatic improvement in remission ratehttp://www.icsi.org/health_care_redesign_/diamond_35953/

PhysicianPractice

Phase 2: More ACO-ness:Partial Global Payment

PARTIAL GLOBAL PMT (Professional Svcs)

ERVisits

Lab Work/Imaging

HospitalStay

Avoidable Avoidable

Avoidable

Condition-Adjusted

Per PersonPayment

covering all professional services

OfficeVisits

NurseCare Mgr

PhoneCalls

$ $P4P Bonus/PenaltyBased on Utilization

ERVisits

Lab Work/Imaging

HospitalStay

PhysicianPractice/

And Then Transition to a FullGlobal Payment System

FULL COMP. CARE/GLOBAL PAYMENT

Avoidable Avoidable

Avoidable

$Condition-

Visits

NurseCare Mgr

PhoneCalls

P4P Bonus/PenaltyBased on Quality

Transitioning to Accountable Care Payment

PhysicianPractice

CARE MGT PAYMENT + UTILIZATION P4P

ERVisits

Lab Work/Imaging

HospitalStay

Avoidable Avoidable

Avoidable

P4P Bonus/PenaltyBased on Utilization

OfficeVisits

RN Care Mgr

PhoneCalls

More $for PCP

Targets forReduction

In Utilization

PhysicianPractice

PARTIAL GLOBAL PMT (Professional Svcs)

ERVisits

Lab Work/Imaging

HospitalStay

Avoidable Avoidable

Avoidable

Condition-Adjusted

Per PersonPayment

covering all professional services

OfficeVisits

NurseCare Mgr

PhoneCalls

$ $P4P Bonus/PenaltyBased on Utilization

ERVisits

Lab Work/Imaging

HospitalStay

PhysicianPractice/

FULL COMP. CARE/GLOBAL PMT + QUALITY P4P

Avoidable Avoidable

Avoidable

$Condition-

Visits

NurseCare Mgr

PhoneCalls

P4P Bonus/PenaltyBased on Quality

How Does All This Fit Into Accountable Care Organizations??

Heart Disease

Back Pain

Pregnancy

PATIENTS

PrimaryCare

Practice

Orthopedic Group

OB/GYNGroup

CardiologyGroup

If Physician Practices Want to Manage a Patient Population...

MEDICARE/HEALTH PLAN

Heart Disease

Back Pain

Pregnancy

PATIENTS

PrimaryCare

Practice

Orthopedic Group

OB/GYNGroup

CardiologyGroup Heart

Episode Pmt

BackEpisode Pmt

PregnancyEpisode Pmt

CareMgt Pmt

...Should They Hope Payers Will Make the Right Payment Changes?

MEDICARE/HEALTH PLAN

Condition-Adjusted Comprehensive Care(Global) Payment

Heart Disease

Back Pain

Pregnancy

PATIENTS

PrimaryCare

Practice

Orthopedic Group

OB/GYNGroup

CardiologyGroup Heart

Episode Pmt

BackEpisode Pmt

PregnancyEpisode Pmt

CareMgt Pmt

Or Take a Single Payment & Work Out Internal Pmts Themselves?

Challenge: Giving Physicians the Skills to Take Accountable Pmts

PhysicianPractice ? Patient

UnneededTesting

InpatientEpisodes

Resources/Capabilities Neededfor Docs to Take Accountable Pmts

Patient

UnneededTesting

InpatientEpisodes

Physician w/ time for diagnosis,treatment planning, and followup

Resources for patient educ. & self-mgt support (e.g., RN care mgr)

Method for targeting high-riskpatients (e.g., predictive modeling)

Capability for tracking patient care and ensuring followup (e.g., registry)

Coordinated relationships with other specialists and hospitals

Data and analytics to measure and monitor utilization and quality

PhysicianPractice

Capabilities Exist Today, But Don’t Coordinate w/ Physicians

Coordinated relationships withother specialists and hospitals

PhysicianPractice

HealthPlanorDiseaseMgtVendor

Patient

UnneededTesting

InpatientEpisodes

Medical Home Initiatives Expand Practice Capacity, But Not Enough

Patient-CenteredMedicalHome

HealthPlan

Patient

UnneededTesting

InpatientEpisodes

Global Payment RequiresROI Analysis & Targeting

• Return on Investment (ROI; Cost-Effectiveness)– Cost of intervention

vs.– Savings from reduced utilization

• Timeframe for Return– Short-term: readmission, ER reduction, complex patients– Long-term: prevention, early-stage chronic disease patients

• Targeting Services/Patient Segmentation– Focusing additional services on high-utilization patients

vs.– Providing services to all patients as a general “benefit”

Goal: Give Docs the Capacityto Deliver “Accountable Care”

PhysicianPractice+Partners=ACO

Patient

UnneededTesting

InpatientEpisodes

Can Small Physician Practices Manage Accountable Payments?

• Infrastructure/Services– Small physician practices may not have enough patients to justify staff

or other services to coordinate care, particularly for patients with complex illnesses (e.g., nurse care managers, patient registries, etc.)

• Quality/Cost Measurement– Small numbers of patients make measurement unreliable; physicians

may be inappropriately labeled low quality, high cost, or vice versa

DO MD DOMD

DO MD DO MD

DO MD DOMD

DO MD DO MD

MD DO MD DO

Better Patient

Outcomes & Lower Cost

Solution 1: Hospitals Acquire Physician Practices

DO MD DOMD

DO MD DO MD

DO MD DOMD

DO MD DO MD

Method for targeting high-riskpatients (e.g., predictive modeling

Coordinated relationships with specialists and hospitals

DO MD DO MD

Hospital Management

Better Patient

Outcomes & Lower CostDO MD DOMD

DO MD DO MD

DO MD DOMD

DO MD DO MD

MD DO MD DO

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!

Solution 2: Hospital-Physician Partnerships

Data and analytics to measure and monitor utilization and quality Hospital

Staff& IT(e.g.,via

Physician-Hospital

Better Patient

Outcomes & Lower CostDO MD DOMD

DO MD DO MD

DO MD DOMD

DO MD DO MD

MD DO MD DO

DO MD DOMD

DO MD DO MD

DO MD DOMD

DO MD DO MD

Solution 3: Use IPAs for Critical Mass

IndependentPractice Association

Better Patient

Outcomes & Lower Cost

DO MD DOMD

DO MD DO MD

DO MD DOMD

DO MD DO MD

MD DO MD DO

DO MD DOMD

DO MD DO MD

DO MD DOMD

DO MD DO MD

Examples of Small, Independent MD Practices With Global Pmt

• Small Primary Care Practices Managing Global Payments– Physician Health Partners (PHP) in Denver, CO is a management services

organization that supports four separate IPAs (median size: 3 MDs/practice). PHP accepts capitated risk-based contracts on behalf of the IPAs with both Medicare and commercial HMOs. www.phpmcs.com

• Independent PCPs & Specialists Managing Global Payments– Northwest Physicians Network (NPN) in Tacoma, WA is an IPA with 109 PCPs

and 345 specialists in 165 practices (average size: 2.4 MDs/practice). NPN accepts full or partial risk capitation contracts, operates its own Medicare Advantage plan, and does third party administration for self-insured businesses. www.npnwa.net

• Joint Contracting by MDs & Hospitals for Global Payments– The Mount Auburn Cambridge IPA (MACIPA) and Mount Auburn Hospital jointly

contract with three major Boston-area health plans for full-risk capitation. The IPA is independent of the hospital; they coordinate care with each other without any formal legal structure. www.macipa.com

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

Example: Important to Coordinate Pharmacy & Medical Benefits

Hospital Costs

PhysicianCosts

OtherServices

Medical Benefits (Parts A/B)

DrugCosts

Pharmacy Benefits (Part D)

Single-minded focus onreducing costs here...

...could result 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

Ensuring ThatLower Cost ≠ Lower Quality

• Concern: Giving healthcare providers more accountability for costs reduces the incentives for overuse, but raises concerns about whether patients will get too little care

Effective Quality Measurement and Reporting Needed

• Solution: Measure healthcare quality and include incentives for providers to maintain/improve quality as well as reduce costs

Federal Measurement of Quality?

• Undesirable: National data aggregation and reporting– E.g., PQRI/PQRS

Community-DrivenQuality Measurement

• Ideal: Develop quality measures with participationof physicians andhospitals, as agrowing number of regions do

Massachusetts Health Quality Partners

Wisconsin Collaborative for Healthcare Quality

Oregon Health Care Quality Corporation

“Measurement” vs. “Analysis”

• Measurement presumes we know what we’re looking for, that we know what’s desirable/achievable in all communities, and that we can legitimately rate/rank providers based on the measures– That’s a high standard, and it’s not surprising that we don’t

have adequate measures in many important areas, particularly outcome measures

• Analysis, particularly exploratory analysis, presumes only that we believe there are opportunities to improve value, and that more work will be needed to determine what is achievable and cost-effective

Example: Prometheus Analyses of Avoidable Complications

www.HCI3.org

Analysis of a Commercially-Insured Population

Majority of Opportunities for Savings Related to Cardiology

www.HCI3.org

Opportunities for Cardiology

Analysis of a Commercially-Insured Population

(Many) Other Issues

• Malpractice/Defensive Medicine– Reforms in malpractice law– Collaborative changes in physician practice,

so more conservative care is the standard of care across the entire community

• e.g., HealthTeamWorks/Colorado Clinical Guidelines Collaborative

• Hospital Restructuring– Significant reductions in admissions, readmissions, infections,

procedures will require multi-year phase-out of existing capital investments & new/different investments

• Workforce Training/Retraining– More PCPs, more nurses willing to make home visits, fewer

support staff for fewer procedures, etc.

• And Others

Payment Reform Is Necessary,But Not Sufficient

ReducingCosts

WithoutRationing

Value-DrivenDelivery Systems

PatientEducation &Engagement

Value-DrivenPayment Systems& Benefit Designs

Quality/CostAnalysis &Reporting

Many Specific Activities in Each Area...

Value-DrivenPayment & Benefits

Quality/Cost Analysis& Reporting

PublicReporting

Business Case

Analysis

Value-DrivenDeliverySystems

TechnicalAssistanceto Providers

Design &Delivery of

PatientEducation/Engagement

Value-BasedChoice

EducationMaterials

Engagementof

Purchasers

Alignment ofMultiplePayers

PaymentSystemDesign

BenefitDesign

ProviderOrganization/Coordination

Claims, Clinical &

Patient Data

Wellness &Adherence

ReducingCosts

WithoutRationing

...All of Which Need to Be Coordinated to Be Successful

PublicReporting

Business Case

Analysis

Design &Delivery of

Value-BasedChoice

Engagementof

Purchasers

PaymentSystemDesign

BenefitDesign

Claims, Clinical &

Patient Data

Wellness &Adherence

Do patients know which providers offer the

highest value care?

Will investmentsin new care

models createsavings > costs?

Will benefit designsgive patients the ability to

adhere to care plans?

Will paymentsupport better care?

Can providersaccept new

payment models?

EducationMaterials

How Can All These Functions Be Delivered in a Coordinated Way?

PublicReporting

Business Case

Analysis

Design &Delivery of

Value-BasedChoice

Engagementof

Purchasers

PaymentSystemDesign

BenefitDesign

Claims, Clinical &

Patient Data

Wellness &Adherence

EducationMaterials

The Role of Regional Health Improvement Collaboratives

PublicReporting

Business Case

Analysis

Design &Delivery of

Value-BasedChoice

Engagementof

Purchasers

PaymentSystemDesign

BenefitDesign

Claims, Clinical &

Patient Data

Wellness &Adherence

RegionalHealth

ImprovementCollaborative

EducationMaterials

...With Active Involvement of All Healthcare Stakeholders

RegionalHealth

Improve-ment

Collab.

HealthcareProviders

HealthcarePayers

HealthcareConsumers

HealthcarePurchasers

Leading Regional Health Improvement Collaboratives

–Albuquerque Coalition for Healthcare Quality–Aligning Forces for Quality – South Central PA–Alliance for Health–Better Health Greater Cleveland–California Cooperative Healthcare Reporting Initiative–California Quality Collaborative–Finger Lakes Health Systems Agency–Greater Detroit Area Health Council–Health Improvement Collaborative of Greater Cincinnati–Healthy Memphis Common Table– Institute for Clinical Systems Improvement– Integrated Healthcare Association– Iowa Healthcare Collaborative–Kansas City Quality Improvement Consortium–Louisiana Health Care Quality Forum–Maine Health Management Coalition–Massachusetts Health Quality Partners–Midwest Health Initiative–Minnesota Community Measurement–Minnesota Healthcare Value Exchange–Nevada Partnership for Value-Driven Healthcare (HealthInsight)–New York Quality Alliance–Oregon Health Care Quality Corporation–P2 Collaborative of Western New York–Pittsburgh Regional Health Initiative–Puget Sound Health Alliance–Quality Counts (Maine)–Quality Quest for Health of Illinois–Utah Partnership for Value-Driven Healthcare (HealthInsight)–Wisconsin Collaborative for Healthcare Quality–Wisconsin Healthcare Value Exchange

Network for RegionalHealthcare Improvement

www.NRHI.org

Moving to Accountable Care

• There is no one-size-fits-all solution to healthcare transformation; each region will need to actually make it happen in its own unique environment. The best federal policy will support regional innovation.

• Payment reform is necessary, but not sufficient. Delivery system reform, changes in benefit design, and effective quality measurement are also essential. Everything needs to focus on improving outcomes.

• Physicians need to take the lead by agreeing to take accountability for reducing costs without rationing, creating organizational structures that enable them to do so, and demanding the payment changes needed to support them.

For More Information on Payment and Delivery Reforms

www.PaymentReform.org

For More Information:

Harold D. MillerExecutive Director, Center for Healthcare Quality and Payment Reform

andPresident & CEO, Network for Regional Healthcare Improvement

Miller.Harold@GMail.com

(412) 803-3650

www.CHQPR.org

www.NRHI.org

www.PaymentReform.org

FROM VOLUME TO VALUE: Better Ways to Pay for Health Care, and How to Get There

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