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The Business of Health Care: A Persistent Search for Value. Presentation to Health Management Conference International Foundation of Employee Benefit Plans August 8, 2005 Merton D. Finkler, Ph.D Lawrence University. Overview of Presentation. Introduction: Business Models and Markets - PowerPoint PPT Presentation
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The Business of Health Care:A Persistent Search for ValuePresentation to Health Management Conference
International Foundation of Employee Benefit Plans
August 8, 2005
Merton D. Finkler, Ph.DLawrence University
Overview of Presentation
Introduction: Business Models and Markets Health Care Spending Growth: Character and
Distribution Key Contracts and Risk Sharing Decisions
Recent Marketplace History Choices for Purchasers The Search for Value
Business Model Components Objectives
Mission – Where value will be added Benchmarks – Performance comparisons to be made Ethics - Appropriate Behavior
How will objectives be achieved? Core Competencies Target Sources of Revenue Choosing an Efficient Cost Structure
Implementation strategies Short Term and Long Term Options To Overcome Barriers and Rent-Seeking Opposition
Three Challenging Questions:Three Affirmative Responses Is the Term “U.S. Health Care System”
an Oxymoron? Are There Toyotas in Health Care? Does “Moneyball” Apply to Health
Care?
Is the Term “U.S. Health Care System” an Oxymoron? J. D. Kleinke (2001) thinks so.
“Health care in America combines the tortured, politicized complexity of the U.S. tax code with a cacophony of intractable political, cultural, and religious debates about personal rights and responsibilities.”
Central reality: “the primary producers and consumers of medical care are uniquely, stubbornly self-serving as they chew through vast sums of other people’s money.”
Are There Toyotas in Health Care?Yes, But They Aren’t Easily Replicated Toyotas symbolize both high quality and good value. Molly Coye (HA 2001) notes that “Toyotas” will not
exist in health care until the payment structure is changed to reward production of “Toyotas”.
“Industrial strength quality in health care” requires both an example of such quality and business incentives to yield it.
Localized examples exist: LA, SF, Seattle, MPLS-SP Comprehensive, integrated, cost-effective care is not
easily transferable across markets, the way cars are.
Does “Moneyball” Apply to Health Care? Yes, If Buyers Desire Cost-Effective Care Michael Lewis (2003) argues that baseball
GMs can field winning teams by using measurement and predictive modeling to determine which players to sign with a limited budget.
Measurement and predictive modeling are also essential to determine which health care components and practitioners can be combined to yield the best health outcomes given limited budgets.
Key Players: Wide Variation in Scope, Degree of Integration, & Geographic Context Health plans – wide array of benefits and variation in
provider network scope Physicians – solo practice, single specialty groups,
multi-specialty groups, groups linked with hospitals, core of integrated healthcare
Hospitals – individual and system members; various ownership structures
Pharmaceuticals – similar to manufacturers In contrast w/ other components, no local barriers exist Not address, for the most part
Degree of Integration of Providers Varies Greatly Across Markets Full integration: Hospitals, MDs, and Insurance in one
package: Kaiser Permanente has all 3 components available locally and a common incentive structure
Partial integration: Physician/Hospital alliances Detroit, Henry Ford System Twin Cities, Allina and Health Partners Milwaukee, Aurora Healthcare St. Louis, Washington University.
Non integrated. Most common, insurers contract with all health care providers – especially where Blue Cross/Blue Shield, Wellpoint, United Healthcare, and Aetna play a major role.
Geographic Orientation Health Plans – local, regional, and national
1990s managed care – many local and regional players; post 2000, consolidated nationals rise
Consumer directed – national players Physician Groups – mostly local, some regional
Multiple and single specialty local groups National PPMC movement rose and fell in the 1990s Special case: travel to Mayo or Cleveland Clinics
Hospitals – mostly local and regional Local and regional systems are commonplace
Many have a religious orientation Tertiary component in regional systems
National chains influence diminished in last 10 years
Health Care Expenditures: A Few Recent Facts HC$ = (price/service) x (services/person) x (people served) 1990 – 2001 growth accounting breakdown
33% - general inflation 22% - medical price rises above inflation rate 16% - population/ demographic change 29% - intensity of service
Growth in inflation-adjusted HC$ per person driven by new technology and services per person Average - 3.6% per year since 1960 but not smooth
Not Unique to the US (1960 -2002) US HC$ growth = GDP growth + 2.7% Other G6 countries HC$ growth = GDP growth + 2.0%
Growth in the Cost of Health Care
The 80 – 20 Rule is not far off
10% of people70% of cost
10% of the Population Accounts for 69% of Health Care Expenses
Which Cost of Healthcare Matters? It Depends Whom You Ask. Premium only (insurance component) Payments to the health care sector
Third party payments Out of pocket expenses Forgone tax revenues
(estimated at $188 B per year by Lewin) Total Burden of Illness
Direct outlays for medical care Foregone output – absenteeism and
presenteeism
Health Premium Increases and Per Capita Health Cost Growth 1999-2003
Health Insurance Premium Increases vs. CPI and Wage Growth 1988-2004
Wage Share of Labor Compensation Has Declined Steadily Since 1968
Labor bears the burden of increased health care expenditures.
The Burden of Illness for Those with Chronic Disease – The Largest Opportunity
Working age pop. with chronic disease generates expenses 3 x non-chronic pop.
Those w/ chronic conditions account for 17% of population but 83% of health care $
Burden of illness includes both outlays for medical services and lost productivity
Ave. impairment 2 to 11 days / 30 workdays Total burden – over $1 trillion per year Sources: CDC and R. Kessler (Harvard)
The Burden of Unhealthy Workers Varies Greatly Across Employers
2 4 © 2 0 0 0
S u m o f m e d i a n 1 9 9 8 H P M c o s t s a c r o s s p r o g r a m s w a s$ 9 , 9 9 2 p e r e l i g i b l e e m p l o y e e
B e s t p r a c t i c e ( 2 5 t h p e r c e n t i l e ) – 2 6 % H P M c o s t s a v i n g s
W o r k e r s ’ C o m p
$ 3 1 03 %
G r o u p H e a l t h$ 4 , 6 6 6
4 7 %
N o n -O c c u p a t i o n
D i s a b i l i t y$ 5 1 3
5 %
T u r n o v e r$ 3 , 6 9 3
3 7 %U n s c h e d u l e d
A b s e n c e$ 8 1 0
8 %
T h e M E D S T A T G r o u p
It’s All About Contracts and Risk Sharing Decisions Labor/Management Contract: Firm manages health benefits or
shifts burden to employees Company/Health Plan Contracts: Health plan defines benefit
plan design/scope as well as provider network breadth
Provider/Health Plan Contracts: Prepaid (capitation or salary) or Fee-for-Service Fee schedules, discounts, and payment tiers are commonplace
RX/HealthPlan: tiers (typically 3), formularies, & discounts Few plans relate to value or benefit of intervention Variety of incentives for rebates and substitution
Direct Contract: Skip health plan but not risk bearing
Good Contracts Make Good Relationships You get what you pay for :
More choice of provider, costs more If procedures are rewarded, pay twice for errors
1/3 of Medicare expenditures are wastefully spent Louisiana ranks first in Medicare $, last in quality
Improved outcomes (pay for performance) Short term incentives differ from long term ones Coverage of primary and secondary prevention Payment related to place of service and access
ambulatory versus inpatient coverage ER coverage vs. clinic (timely access? 24/7)
What Role does Market Competition Play? It Depends on how Choices are Structured How frequently are choices made? Are long
term partnerships developed? How many health plans are offered?
How much do provider networks overlap? What incentives exist in the payment structure?
Are insurance brokers or benefit consultants used? How are they paid?
Is direct contracting with providers a constructive option? Who does the risk-bearing?
Health Plan Objectives and Tradeoffs
Market geographic scope and share Short run cash flow Long run profit Mission – varies with degree of integration
with health care provider Role of insurance cycle – bounce between
market share and profits as primary objective Before 1990 – alternate three years of loss
with three years of profit Since 1990 – now closer to six years
Health Care Provider (MDs and Hospitals) Objectives and Tradeoffs Target income or profit Desired effort level Reputation sought Market share desired Geographic influence sought Profit and other missions No margin, No mission yields “not only for
profit” business objective
Market Competition – Mid 1990sManaged Care’s Influence Peaks Strong cost containment incentives for
providers (but not for consumers) Narrow networks compete; reduced provider
market power results Competition among insurers – desire to
increase market share – constrains premia Optimism based on competing integrated
delivery systems and prepaid care (risks totally shifted to provider community)
Managed Care Unwinds 1997 - 2003
Health care inflation returns to double digits Financial incentives weaken for all Networks broaden in response to consumer
demand and tight labor markets Reversal of integration of delivery systems Specialists consolidate Hospitals consolidate Health plans consolidate Insurance profits rise to replenish coffers
Present Trends Increased patient cost sharing marketed as
consumer directed health care Initial coverage and large deductible Reduced dependent coverage
Tax incentives for high deductible policies Development of “pay for performance” schemes Tiered payment for providers and pharmaceuticals
(65% of workers - HRET Survey-2004) Improved information technology for health care
management & consumer purchasing – National Health Information Network Program (est. $200B)
Cost Containment: Purchaser Choices
Target/control specific health care components Seek increased efficiency of the delivery system
(supply management) Emphasize primary and secondary prevention Provide financial incentives for patients to reduce
their use of medical services (demand management) Implement administrative controls on the use of
services Increase bargaining power by joining purchasing
coalitions
Demographics Complicate Choices
Those aged 45 – 64 spend roughly twice the amount spent per person per year by those 18 - 44
Chronic Disease Prevalence Rises More than Proportionately with Age
Medical Expenditures Panel Survey 2001
Target Components: The Whack a Mole Response to Containing Costs Benefit redesign:
Target fastest growing component (e.g., ER , RX) Cost Accountant’s Revenge
If incentives slow the fastest growing component, a new fastest grower emerges
Substitution is inevitable & may be less efficient (i.e., more costly or less effective)
To avoid substitution, target total expenditures Beware direct and indirect long term consequences If total $ fixed, how are priorities set and resources
allocated?
Identify Efficient Use of Resources Identify and discourage high cost, low value services
– use evidence-based medicine (EBM) Decrease chance of expensive adverse events for
those with chronic illness – disease management Decrease the risk profile of population – primary
prevention Decrease bargaining power of healthcare providers –
anti-trust and purchasing coalitions Pay for good performance – compatible incentives All options require strong, committed leadership at
various levels since resources must be reallocated
Implement Primary and Secondary Prevention Strategies Screen enrollees to determine risk levels Offer incentives to sustain low risk Provide performance-based disease
management to contain moderate and high risk by reducing chance of adverse event
Educate enrollees to best manage chronic disease
Reduced Risk Means Reduced Cost
Dee Edington
Prevention Also Requires Sacrifice Payment comes before savings
Prevention not worthwhile w/ annual enrollment switching
Each program has a different payback period Serious wellness programs require 3-4 years
Each population faces a different set of risks Target prevalent risks in your population
Compliance (medical community and patient/consumers) requires both education and compatible incentives
Use Consumer Directed Health Care -Incentives for Patients to Economize Health Savings Accounts
Response to OPM disease Large deductible – low premium insurance Increased cost sharing – consumer’s decide Various amounts of information provided to
improve decision-making Tax subsidies with MMA 2003 High deductible plans offered by 10% of firms
(2004) - 27% of firms at least somewhat likely to offer by 2006 (HRET Survey)
Concerns about Consumer Directed Health Care (CDHC) Attractive to young & healthy thus potential
adverse selection if enrollees choose plans If one CDHC plan, tradeoffs worsen for those
w/ chronic disease until they reach deductible Focuses on 50% who spend 3% of total $ Money taken out of the general pool and
given to individuals (e.g., $500 per employee) Consumers don’t easily distinguish between
cost-effective and cost-ineffective services
Use Administrative Rules / Managed Care – “Divide and Contract” PPO, POS, and HMOs – Selectively contract
Deliver volume to a subset of providers in exchange for discounted price
Utilization controls of various sorts Various degrees of prevention offered Large number of structures – integrated or contracted Given variety, hard to generalize – read the fine print
HMOs often feature fixed payment to providers, limited choice of provider, and directed practice
Offered good coverage for prevention Kept $ growth low in the mid-1990s Wide variation in ability to deliver quality care
The Backlash Against Managed Care
Rejected by those who wanted more choice –if paid for by entire insurance pool (return to OPM)
Tight labor markets forced firms to weaken controls in order to attract and retain laborers
Increased purchaser bargaining power induced providers to consolidate Hospital systems evolved Physician group practice thrived – no longer a
cottage industry
Use Purchasing Coalitions to Increase Purchaser Bargaining Power Insurance load factor falls from 40% to 6% (10k covered lives) HIPCs – some state sanctioned
Problem: agreement on common benefit package & strategy Two key survivors:
Pacific Business Group on Health Patients’ Choice
Effects of ‘divide and contract’ Some providers lose (and rebel) Some players (providers and employers) drop out
Association Health Plans – Proposed current legislation Exemption from state mandates for cross state plans Problem: local delivery and variety of benefit preferences Potential administrative nightmare for medical practitioners
Other sessions focus on this topic
Seek Value – Quality/$ spentWide variation exists across markets NEJOM/Rand report indicates (2004)
Participants received only 55% of recommended care Both under-use and over-use are commonplace
IOM report on the Quality Chasm (2001) Between 44,000 and 98,000 die from mistakes in
hospitals Cost of preventable mistakes - up to $29B
MBGH report estimates the cost of poor quality as 30% of direct health care cost - $1,350 per person Indirect costs estimated at $350 per person
Ideally, reduce unnecessary hospital admissions Ambulatory Care Sensitive Conditions
Medicare Spending per Beneficiary vs. Quality of Care Ranking (2001)
CMS, Dartmouth College, and the Washington Post
Poor Care Coordination Leads to Unnecessary Hospitalizations
Johns Hopkins University, Partnership for Solutions
Value-Based Purchasing and Pay for Performance (P4P) Reward evidence-based “best practice”
–Caveat Emptor! Competing definitions (EBM) – See HA J/F 2005 –
guidelines or standards determination Process or outcome – which indicators are valid? Apples to apples requires risk adjustment “Your complications are my costs”
Numerous implementation barriers exist Funding required to construct IT infrastructure Key providers may not cooperate Employers may not back with appropriate incentives
Pay-for-Performance Demonstrations
Rewarding ResultsDemonstration Sites Unit of A/C Geographic
Region
BCBS of Michigan Hospitals Michigan
Blue Cross of California Individual MDs SF Bay Area
Bridges to Excellence Individual & Group MDs
Cincinnati, Louisville, Boston, Albany
Excellus/ Rochester IPA Individual MDs Rochester, NY
P4P - Integrated HC Association Group Practices California
Center for Health Care Strategies Individual & Group MDs California
Mass. Health Quality Partners Group Practices Massachusetts
Young et al., Overview of P4P, 2005
Four majors programs
Leapfrog – Targeted attempts to improve patient safety in the hospital (2000)
Medicare under Mark McClellan (MD, Ph.D)
Bridges to Excellence – a structured response to the Quality Chasm
Pennsylvania infection control initiative
The Leapfrog Initiative Purposes:
Consolidate purchaser voice Engage consumers and practitioners in QI –reduce preventable
hospital deaths Policy: Use EBM to identify 3 safety leaps
Computerized MD order entry (CPOE) ICU staffing with “MD intensivists” High volume hospital referrals
Implementation – incentive and reward toolkit Results:
Limited hospital participation so far Few purchasers make indicators part of P4P Business case for adaptation of 3 leaps not yet accepted Reward structure still modest Leapfrog has changed focus from employer to health plan
Leapfrog is catalyst, but employers must decide to take the “leap”
Medicare Variation in Cost and Quality Spending per beneficiary varies by a factor of 3 across counties,
even after adjusting for age, sex, practice costs, and case-mix Medicare spent more than twice as much per patient in Miami as in
Minneapolis yet risk adjusted quality better in MPLS
Quality of care, based on 24 measures established by CMS also shows significant variation
Dr. McClellan – strong advocate for P4P demonstrations Proposed 1 to 2% performance bonuses but will it withhold money from low
quality providers? Not likely, politics won’t allow it. Demonstration projects seek to change compensation system from one
based on services provided to one based on health outcomes
“Real markets have ‘losers.’ Without them, it is difficult to achieve much efficiency. In a political system,
losers, potential losers, and even those who fell that they might someday be losers, often seek redress from their elected officials.” – Cooper and Vladeck
Bridges to Excellence: Rewarding Quality Across the Healthcare System Seek STEEEP care – Safe, Timely, Effective,
Efficient, Equitable, and Patient-centered Care Group of stakeholders (including CMS, NCQA, large
firms, health insurers, PBGH, and Leapfrog) reached consensus on how incentives might be used to Reengineer care processes to reduce mistakes Reduce misuse, overuse, and under-use Increase accountability through release of comparative provider
performance data
Initial results for AMI, health failure, and pneumonia are encouraging
Pennsylvania Hospital Infection Reporting
Hospitals must report all infections to Pennsylvania Health Care Cost Containment Commission (PHC4) – starting in 2006
Vast under-reporting: Only 12,000 cases reported but 120,000 cases billed for
Estimated cost -$125M+ -Medicaid; $1B+ - private insurers (PA) Hospital responses:
Look at processes not outcomes Let providers fix it Don’t scare the public
PHC4 responses: “If you bill for it… you ought to be accountable for it.” Pittsburgh initiative – 84% reduction in infections from one
major source; 95% reduction in deaths from this source
Which Business Strategy for Employers? Health care – a component of the cost of
labor - manage it Health care – a consumer responsibility –
shift it Health and productivity management – treat it
as central to business mission Some combination
Suggested Guidelines for Purchasing Value Focus on the total burden of illness, not
component cost control
Develop and nurture long term coordination among patients, providers, and payers
Identify health risk factors and choose health programs and benefit designs to reduce them
Guidelines Continued Invest in the information (including evidence-
based guidelines) and communication infrastructure for prevention
Provide incentives for enrollees, providers, and payers to reward performance consistent with reduced risks and illness burdens
Choose persuasive leaders who seek value from health services & human capital
One Solution: Value + Choice Find value and support it. Make a fixed contribution to a flexible spending
account Provide at least 2 health plan options
A focused narrow network that encourages prevention and chronic disease management (Consistent with HPM focus)
Health savings account with high deductible and wide choice of health care provider
(Consistent with consumer responsibility approach)
Pacific Business Group on Health Begun in 1989 – 50 large purchasers with 3 million covered
lives Added CA legislated small employer purchasing pool (1999) Three targets
Value-Based Purchasing Quality Measurement and Improvement Consumer Engagement
Active participant in Consumer-Purchaser Disclosure Project –”sunlight is the best disinfectant” Existent report cards have flaws and limited use 2007 objective: publicly report, standardized comparative
information on providers www.healthscope.org – quality ratings for hospitals, medical
groups, and health plans
Business Health Care Action Group (BHCAG) and Patient Choice Components
Direct contracts with distinct, competing care systems Risk-adjusted provider bids to contracting authority Consumer incentives to make price and quality
conscious choices Result 1: In the Twin Cities, it is possible to use
competition to achieve pay for performance Result 2: Despite attempts to try elsewhere, Patient
Choice has been successfully transplanted to other MSAs (attempts in Boston, Des Moines, Denver, St. Louis, Portland, Milwaukee, and Sioux Falls SD)