Robert S. Galvin, MDMedicare Prescription Drug CongressFebruary 26, 2004

Medicare Prescription Drugs

Improvement and Modernization

Act of 2003:

What Do Employers Think?

Medicare Prescription Drugs

Improvement and Modernization

Act of 2003:

What Do Employers Think?

2

What The Bill Isn’tWhat The Bill Isn’t

Perfect Perfect

3

What The Bill IsWhat The Bill Is“The Triumph Of Experience Over Hope”

Apologies to Samuel Johnson• Government Can Act on Health Care

• Employers Included in Dialogue

• Favors Competitive / Market Approach . . . But With Safety Net

• Pushes Transparency / Quality Agenda

• Encourages Consumerism . . . Creates Possibility of New Solutions

4

The Devil (And The Angel) Is In The DetailsThe Devil (And The Angel) Is In The Details

• Details of ‘Actuarial Equivalency’

• FASB Guidance

• HSA Design

• Rules for PBMs and Health Plans

5

Employer OptionsEmployer Options

• Drop Retiree Coverage: Government Safety Net

• Take Employer Subsidy

• Coordinate With Medicare As Primary

6

Cost = Price x UseCost = Price x Use

Why Is No One Talking About the “U” Word?Why Is No One Talking About the “U” Word?

Price Use

’99 5 10 8

’00 2 12 4

’01 5 6 3

’02 6 9 4

’03 5 4 4

Mix

7

Cost and Quality Must Be IntegratedCost and Quality Must Be Integrated

Paying More Means Using Less . . . Without Regard To Quality

More Gradual Change Avoids Quality Problems

8

Why Is No One Talking About the “Q” Word?Why Is No One Talking About the “Q” Word?

Use = Price Sensitivity x Compliance x Quality

(Appropriateness)

Use = Price Sensitivity x Compliance x Quality

(Appropriateness)

Risk DaysSigma = 2.75Defect = 11%

Days Where Necessary Therapy Was Lacking

118,206

Days Where Unneeded Therapy Was Provided

8,904,000

Therapy Dispoused84,000,000

9

Over Utilization• Overuse• Duration• Duplication

Misuse• Drug-Drug• Drug-Disease

Under Utilization

56.1% 42.6% 1.2%

What Kind of Risk?What Kind of Risk?

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Quality Saves MoneyQuality Saves Money

Conflicts Tracked: 81,423

Changes Made : 29,864 Change Rate: 37%

Duration 40%

Drug Disease 25%

Overuse 25%

Drug Interaction 5%

Duplicate Therapy 5%

Source of Savings (Approx) by Defect

’03: $10MM Saved

’04: Send Letter to Physician and Patient

Results

11

Wall Street JournalDecember 4, 2004

12

A Market Approach to CostsA Market Approach to Costs“Employers believe that consumer pressure is a powerful, underutilized

lever for improving quality and efficiency. They believe that higher quality and lower cost will result if consumers spend more of their own money for

services they believe are high quality, and if providers respond by improving their performance. For this strategy to succeed, consumers will

have to be activated to seek more efficient, higher quality care and physicians will have to be rewarded for delivering it.”

Sounding BoardNEJM, September 19, 2002

Transparency

Incentives and Rewards

Focus on Quality and Efficiency

13

What Policies Will Accelerate Us Getting To The Right Lower Quadrant?

Efficiency and Quality Create Value Efficiency and Quality Create Value

15 58

26

1083

611

-40%

-20%

0%

20%

40%

-150%-100%-50%0%50%100%150%

Effectiveness (Actual v. Expected Complications)

Effic

ienc

y (A

ctua

l v. E

xpec

ted

Cos

t)

Hospital B

Hospital A

Hospital G

Hospital E

Hospital F

Hospital D

Hospital C

14

National Centers of Excellence: An ExampleNational Centers of Excellence: An Example

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31

United Resource Network

$85,886$191,591

$273,701

$90,604$15,101

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Average CaseCharges

Average Case

Payment

Less: Effective Care

Savings

Less: COEDiscount

Advantage

URN Per Case

“Traditional Health Plan Experience”

“Centers of Excellence Effect”