Impact of Healthcare Reform on Device Development and Funding

Donald Rucker, MD, MBA COO, OSU IDEA Studio Associate Dean for Innovation

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US Healthcare Expenditures

Source: Kaiser Family Foundation. Data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (Historical data from NHE summary including share of GDP, CY 1960-2008, file nhegdp08.zip; Projected data from NHE Projections 2009-2019, Forecast summary and selected tables, file proj2009.pdf).

$8,047

(2009)

$2,814

(1990)

Historical Projected

In 2012, the U.S. spent $2.8 trillion on health care,

or $8,915 per capita

$13,387

(2019)

“Healthcare Reform”

ARRA HITECH Act 2009

Patient Protection and Affordable Care Act

(PPACA)

Health Care and Education Reconciliation Act

of 2010

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Affordable Care Act

ACA is driving major changes in how people purchase health insurance though much of the dynamic still to play out

Federal government already controls ~50% of healthcare spending

Medical equipment manufacturer environment rarely a specific consideration

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Hope: Achieve “Triple Aim” for US Healthcare

with payment reform

a) Better care for individuals

b) Better health for populations

c) Lower growth in Medicare

Parts A and B expenditures

One slide review of US payment system

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Federal government

Medicare Part A - hospitals – bundled DRG’s

Medicare Part B – outpatients – fee for service (FFS) via CPT codes

Medicare Part C – Medicare Advantage – HMO

Medicare Part D – drug spending

Medicaid – mix of FFS and capitation

Private insurers

FFS off of Medicare rates / codes

HMO’s like Kaiser

Other

VA, DOD, HIS, corrections

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Q: What does this mean for device manufacturers?

A: Need to understand provider reimbursement

The drive toward “accountable care”

Demographic/ Population Changes

Management of Chronic Disease

Technology & IT Infrastructure

Healthcare Quality Initiatives

Bundled/ Episodic Reimbursement

Payor Reform

Appropriate Utilization

Origin of the Accountable Care Organization

Term came from a discussion between Elliot Fisher of Dartmouth and Glenn Hackbarth of MedPAC at a 2006 meeting

Extended hospital medical staff that could act as a virtual organization

Fisher ES, Staiger DO, Bynum JPW, et al. “Creating Accountable Care Organizations: The Extended Hospital Medical Staff”. Health Affairs, 26(1) w44-w57, 2007.

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Two Models for ACO Risk Sharing

Same eligibility requirements and quality performance standards for both

Regular fee-for-service payment

for physicians and hospitals

ACO shares in savings with Medicare

No penalty for losses in Years 1,2, 3

Track 1: One-sided Model

Regular fee-for-service payment

for physicians and hospital

ACO shares in savings and losses

with Medicare in all 3 years

Greater opportunity for rewards

Track 2: Two-sided Model

Provider Participation

Eligible providers who can form an ACO under this program: ACO professionals in group practice arrangements.

Networks of individual practices of ACO professionals.

Partnerships or joint venture arrangements between hospitals and ACO professionals.

Hospitals employing ACO professionals.

Such other groups of providers of services and suppliers as the Secretary determines appropriate.

Primary care physicians may choose to participate (limited to 1 ACO annually) Specialists and hospitals could participate in more than 1 ACO

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Medicare Beneficiary Participation

A preliminary prospective beneficiary assignment to ACOs

• Beneficiaries identified quarterly

• Two Step Assignment process

• Beneficiaries who have received at least one primary care from a primary care physician

• Beneficiaries who have not rec’d any primary care services from a primary care physician but have rec’d primary care services rendered by any other ACO professional

ACO providers must notify patients they are in an ACO

Medicare fee-for-service beneficiaries may continue to receive care from any Medicare provider they choose. However, if their primary care physician is in an ACO, they will be included in the ACO or will have to find another non-ACO primary care doctor.

ACO must notify the beneficiary that the beneficiary’s claims data may be shared with other providers in the ACO to coordinate care. Providers must give beneficiaries the opportunity to opt-out of the data sharing arrangements.

Moral hazard: Quality Measures as counterbalance

How well your doctors communicate

Readmissions (risk-adjusted)

% Physicians meeting Stage 1 HITECH Meaningful Use

Requirements

% Primary Care Physicians using Clinical Decision

Support

Health Care Acquired Conditions Composite

Mammography screening

Colorectal cancer screening

Diabetes: Hemoglobin A1c

Cardiac function testing

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Early results of this model

• 360 Medicare ACO’s as of 12.23.2013

• Cover 5.3 million Medicare Beneficiaries (roughly 10%)

• Most are physician led and have under 10,000 beneficiaries

• Pioneer ACO’s - as of July 2013

• 18 of 32 achieved some savings

• 13 of these saved enough to get a payment

• 14 of 32 spent more than expected

• 2 of these spent enough to get a penalty

• 7 shifted to regular ACO program

• 2 dropped out totally

• Private ACO’s – too early to tell

• Mass BCBS Alternative Quality Contract >> 2-3% savings

• Kaiser consistent savings for 60 years

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The Great Risk Shift Toward Accountable Care

Source: Health Care Advisory Board interviews and analysis.

Building Accountability through Experiments in Payment

Pay-for-

Performance

Hospital-Physician

Bundling

Episodic Bundling

Capitation/Shared-Savings Models

Degree of

Shared Risk

Care Continuum

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Bundled Payments Drive Delivery System Integration

Fee-for-Service Environment Bundled Payment Environment

Individual Payments

Reinforce Siloed Care Delivery

Lump Sum Payments Drive Integration

through Shared Accountability

Hospital

Services

Post-Acute

Services

Physician

Services

Payer

Hospital

Services

Post-Acute

Services

Physician

Services

Source: Health Care Advisory Board interviews and analysis.

Payer

How to make sense of the word soup?

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MGH's Inpatient Adjusted Cost per Patient

N Engl J Med 2012; 366:2147-2149

What happened in 1965?

We know from the first day of Economics 101 that in the entire history of mankind there have been only two ways to allocate scarce resources

PRICE

QUEUES (lines, rationing, access controls, subsidies)

EVERYTHING in reform has to boil down to some mix of buying healthcare through competitive market prices or government rationing / subsidies.

Government is the buyer

Today, most of US healthcare is bought by the federal government

Since 1965 Medicare has been the de facto healthcare policy for both the federal government and private payers

Historically what to buy not an issue

Medicare Law – Title XVIII - All services must be certified as medically necessary or must be a defined benefit preventative service

Medicare set “fixed” prices

Numbers of hospitals, doctors constrained

How could CMS shop?

You know how consumers shop! Price

Quality

Value (function of price and quality)

How could CMS shop?

Price - all fixed at the same level

Quality

Value - tough to calculate without price information

CMS Shopping for Healthcare - 2014

Key to understanding healthcare reform

A search for value – trying to be a consumer

Outcomes are very hard to measure

Comparative Effectiveness – not that successful

Quality as a proxy for value and hopefully outcomes PQRI RHQDAPU PPACA – Hospital Value Based Purchasing

Meaningful Use

Accountable Care Organizations

Lots of Quality Measures – Few tied directly to clinical outcomes

Where do Quality Measures Come From?

Ideally, from medical science

Evidence Based Medicine AHRQ – Effective Healthcare Program

Comparative Effectiveness in ARRA Law

Patient Centered Outcomes Research Institute – PPACA

Reality = the process is part clinical evidence and part politics

Increasing role with “SGR” fix just reported out of Congressional committee

If quality measures aren’t enough,

can we go back to price?

Today’s Medicare prices (DRG‘s, CPT codes)

PRICE is the fundamental economic language for informing

rational decisions for BOTH consumers and producers

How does Medicare “speak” PRICE

Medicare sets prices – some too high, some too low

Medicare tries to work around mis-pricing by cross-subsidization

Many provisions in PPACA are attempts to redress cost errors

“Medical home”, “utilization rate”, physician owned hospitals

Can price / efficiency information sneak back in?

A form of market-based prices of healthcare services can occur privately

HMO’s, capitation and Accountable Care Organizations are ways to purchase and provide an efficient mix of healthcare services, at least, within an organization

PBM’s force price in with “tiered payments”

Employers force price in by increasing co-pays

Price transparency – laws, Castlight

“But my device is already market priced…”

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Your device is likely priced at the current market rate

BUT the services of clinicians who decide to use your device are not

SO YOU have to figure out, over time, how do the “ordering” clinician’s incentives to order your device change

Challenging transition period for providers as caught between contradictory payment models

Side note: Sunshine Law

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Sen. Grassley’s effort to provide transparency

Drug & device manufacturers and suppliers have to report all “transfers of value” to physicians and hospitals over $10 ($100 per year)

Track: since August 1, 2013

Report: March 41, 2014

Public Website: September 30, 2104

Upcoming?

SGR (Sustainable Growth Rate) Fix >> Value-Based Purchasing reporting consolidated

Challenges for device manufacturer’s Federal perceptions on use and value Co-pays Cuts until access clearly imperiled

Wonderful opportunities New focus on value and automation and business

practices Many inefficiencies to arbitrage More spending on devices, less on labor

Conclusions

1. 2010 Healthcare reform legislation includes thousands of provisions and we don’t know how they will ultimately play out

2. Healthcare payment based on individual quality measures is limited

3. Most likely next step to reduce expenditures will be bundled payments which force delivery systems, not Medicare, to make the hard choices of how to deliver care and what care to deliver

4. Device manufacturers, more than ever, need to sell the efficiency and outcomes-based value of their products. Providers will be much more likely to listen.