Bending the Cost Curve September / October Issue Release September 9, 2009 Bending the Cost Curve September 9, 2009 Susan Dentzer Editor-in-Chief Health Affairs.
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Bending the Cost Curve September / October Issue Release September 9, 2009 Bending the Cost Curve September 9, 2009 Susan Dentzer Editor-in-Chief Health Affairs Bending the Cost Curve September 9, 2009 Health Affairs gratefully acknowledges the generosity of the following organizations for support of this issue: Bending the Cost Curve September 9, 2009 Ronald A. Williams Chairman and CEO Aetna Inc. Bending the Cost Curve September 9, 2009 Increased Spending On Health Care: Long-Term Implications For The Nation Michael Chernew Richard Hirth David Cutler Bending the Cost Curve September 9, 2009 Health spending growth over time almost consistently exceeds income growth Andrea Sisko, Christopher Truffer, Sheila Smith, Sean Keehan, Jonathan Cylus, John A. Poisal, M. Kent Clemens, and Joseph Lizonitz, Health Spending Projections Through 2018: Recession Effects Add Uncertainty To The Outlook, Health Affairs, Vol 28, Issue 2, w346-357w Copyright ©2009 by Project HOPE, all rights reserved. Bending the Cost Curve September 9, 2009 What will happen if the gap between health spending and income growth doesn’t shrink? Bending the Cost Curve September 9, 2009 Caution • The numbers you are about to see: – Are not a forecast of what will happen – Are intended to illustrate the ramifications of health care spending growth IF past trends continue – (PLEASE NOTE THE “IF”) Bending the Cost Curve September 9, 2009 Basic idea • Every year (almost) we get richer – Some of the money goes to health care, some goes to other goods and services 1948 2005 Bending the Cost Curve September 9, 2009 As we spend more, spending growth has bigger consequences 2% of 1960 health care spending 2% of current health care spending Bending the Cost Curve September 9, 2009 Burden of health care (2007 – 2020) Health care (31%) All else 1% excess health care spending growth Health care (44%) All else 2% excess health care spending growth Bending the Cost Curve September 9, 2009 Burden of health care (2050-2083) Health care (63%) All else 1% excess health care spending growth 2% excess health care spending growth Bending the Cost Curve September 9, 2009 Per-Capita Spending on Non-health Goods and Services, In 2000 Dollars, Assuming Different Gaps Between Real Per Capita GDP and Health Care Cost Growth, 2007-2083 Dollars (2000) 100000 90000 No Gap 80000 70000 60000 One percentage-point gap 50000 40000 Two percentage-point gap 30000 20000 Source: Authors’ tabulations 10000 0 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 Bending the Cost Curve September 9, 2009 Spending on Non-health Goods and Services, Assuming Different Gaps Between Real Per Capita GDP and Health Care Cost Growth, 2007-2083 Dollars (2000) 100000 90000 No Gap 80000 70000 60000 One percentage-point gap 50000 40000 Two percentage-point gap 30000 20000 10000 0 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 Bending the Cost Curve September 9, 2009 Implications • Burden of financing health care will grow dramatically --This is a much bigger issue than ‘how do we finance health reform’ • Health care spending will eventually have to slow – Regardless of whether we have health reform – Our mission must be how to slow spending and preserve value • Equity consequences are enormous Bending the Cost Curve September 9, 2009 Is Health Care Spending Excessive? If So, What Can We Do About It? Henry J. Aaron, Brookings Institution Paul B. Ginsburg, Center for Studying Health System Change Bending the Cost Curve September 9, 2009 Is Health Care Spending Excessive? Yes! If So, What Can We Do About It? A lot. Its complicated. It will take time. Done right, it will enhance health. Done wrong, it could damage health Bending the Cost Curve September 9, 2009 Recognized Facts The United States spends more per capita on health care than do other developed nations Prices for many forms of care are higher in the United States than in other developed nations Low- or no-benefit activities (administration, defensive medicine, duplicative procedures) are costly, but probably have not added materially to the rate of growth of spending Projected increases in public health care spending are the major source of projected budget deficits Despite high spending and prices, the benefits from increased care spending vastly exceed the increased cost Bending the Cost Curve September 9, 2009 Why is spending …so high? growing so fast? Demand Institutional Factors Insurance Tax System Income Growth Litigation Pricing and pay levels Patent system Supply Research Fee for Service Number of Providers Provider mix Organization of delivery system Equipment and procedures Drugs Comparative effectiveness Bending the Cost Curve September 9, 2009 Conclusions “The case that the United States spends more than is optimal on health care is overwhelming.” but “To lower spending without lowering net welfare, it is necessary to organize the delivery of care to promote efficient cooperation among the many providers and practitioners involved in delivering modern treatment, to conduct costly research over many years to identify which procedures are effective at reasonable cost, to develop protocols that enable providers to identify in advance patients in whom expected benefits of treatment are lower than costs, to design incentives that encourage providers to act on those protocols, and to educate patients on why such protocols should be sustained. …It is also necessary to provide research support to maintain the flow of beneficial innovations.” Bending the Cost Curve September 9, 2009 Why Does Health Spending Outpace Economic Growth? The Roles of Income, Insurance, and Technology Sheila Smith Joseph P. Newhouse Mark Freeland Bending the Cost Curve September 9, 2009 Background • Well known that US spends more on medical care per person than other countries • Many policies narrow this gap without changing the steady-state growth rate, but “sustainability” implies reducing that rate • I and others have argued new technology is the main driver of health cost growth • We look anew at why costs have increased as a share of GDP in all OECD countries Bending the Cost Curve September 9, 2009 Health Spending Has Grown Faster than GDP, Especially in the US G-7 omitting Germany and Italy* Annual pct pt excess over GDP Growth 3.5 3.2 3.0 2.8 2.5 2.0 1.5 1.0 Annual % Health $ Growth - % GDP Growth, 1970-2007 1.3 0.9 Avg excl US is 1.5 pct pts 0.7 0.5 0.0 Can Fra Jap UK US Since 2003 the gap between the US vs Can, Fr, UK has grown. Bending the Cost Curve September 9, 2009 We Use New Methods and New Data to Update Earlier Estimates • Our main methods point: Changing medical technology, growth in income, and growth in insurance coverage all interact to cause higher health care spending • New data: earlier studies used data through 1990, our study uses data from 1960-2007 • We estimate the proportion of growth in spending that can be attributed to various causes Bending the Cost Curve September 9, 2009 Our Results: The Factors Driving US Spending Growth, 1960-2007 • Growth in income: 29-43% • Changing medical technology: 27-48%, of which 27 percentage points is an interaction between technology and income • Demographics (mainly aging): 7% • Increased insurance coverage: 11% – We were unable to estimate interactions of technology and income with insurance Bending the Cost Curve September 9, 2009 Conclusions (Looking Backward) • Medical spending growth (the “curve”) was driven by underlying factors that interacted – Countries with growing incomes wanted to spend a disproportionate amount on health care – Physicians, hospitals, pharma, and device companies found a market for new technology that improved outcomes (and some that didn’t) – Life expectancy, quality of life improved in all developed countries (mostly low-tech) Bending the Cost Curve September 9, 2009 Speculations (Looking Forward) • Health care in 2007 was over 10% of GDP in 7 countries (Austria, Belgium, Canada, France, Germany, Switzerland, and the US) • Continued growth above GDP will raise opportunity costs; →greater efforts to slow – Insurance, both public and private, is likely to be less permissive on reimbursement – Reducing low value care, boosting patient compliance can at least buy time (a free snack) Bending the Cost Curve September 9, 2009 “Why Americans Can’t (or Won’t) Talk Honestly About Health Care Spending” Bruce C. Vladeck and Thomas Rice Bending the Cost Curve Bending the Cost Curve September 9, 2009 September 9, 2009 The American Health System is Riddled with Inefficiency, Variable Quality, Waste, and Abuse All of these problems must be energetically addressed, but they are tangentially related, at most, to the problem of health care spending. Bending the Cost Curve Bending the Cost Curve September 9, 2009 September 9, 2009 It’s the Prices, Stupid! Americans use substantially fewer physician visits, hospital days, and prescription drugs than citizens of countries which cover everyone at 12-13% of GDP. And many of those countries use fee-for-service in much, if not all, of the health care market •It’s now how you pay, but how much. Bending the Cost Curve Bending the Cost Curve September 9, 2009 September 9, 2009 It’s All About Market Power In the US, we exacerbate the fundamental imbalance between sellers and buyers in the health care market by insisting on the fragmentation of buyers’ market power •That’s what the fight about the public plan is all about •Shifting responsibility to atomized consumers (“consumer choice” plans, high deductibles, etc.) makes matters even worse Bending the Cost Curve Bending the Cost Curve September 9, 2009 September 9, 2009 Why We Won’t Talk About the Real Problems The major cause of the difference in per capita spending between the US and other affluent countries is the size of the “rents” commanded by suppliers of health care goods and services (and their consultants). But in order to reduce health care spending, we can either reduce the quantity of health care goods and services we supply to people (and more than 50 million Americans are already seriously undersupplied), or reduce payments to rent-holders. Guess what we talk about? Bending the Cost Curve September 9, 2009 Medicare Governance and Provider Payment Policy Hoangmai H. Pham, M.D., M.P.H. Paul B. Ginsburg, Ph.D. James Verdier, J.D. Bending the Cost Curve September 9, 2009 The problem… Current provider payment policy is vulnerable to political micromanagement by Congress and the White House Often favors special interests rather than beneficiaries and taxpayers Not data driven or economically sound Not transparent CMS is inadequately funded to implement policy Bending the Cost Curve September 9, 2009 Reform debate drives pressure for change Who will develop, pilot, refine new payment methods? Too detailed for Congressional action Need consistency over time and programs Requires more resources and political insulation than CMS has currently Congress has committed to future action to control costs, but how? Losers (some providers) are more vocal than winners (beneficiaries and taxpayers) Bending the Cost Curve September 9, 2009 What we learn from other agencies • Broad policy directions from White House and Congress • Sole agency heads generate more cohesive policies than boards • Boards allow greater transparency and broader representation • Distinguished leadership raises bar for interference • Long, odd-year terms insulate from election politics, but a President should be able to pick an agency head Bending the Cost Curve September 9, 2009 Two possible solutions… Medicare Policy Board (more similar to President’s IMAC than Sen. Rockefeller’s “MedPAC on steroids”) Accountable to the President and Congress for adherence to broad policy goals Political independence to craft detailed policies High prestige, full-time directors with staggered terms Broad representation Resources, staff to support data-driven decisions Coordinated with CMS and DHHS Bending the Cost Curve September 9, 2009 Two possible solutions… A more independent CMS and MedPAC review New agency outside of DHHS or elevate to Cabinet level department MedPAC remains in legislative branch but “scores” all Medicare legislation (impact on access, quality, costs) Predictable, increased funding for CMS Bending the Cost Curve September 9, 2009 From Volume to Value: Better Ways to Pay for Health Care Providers would be better able to reduce costs and improve quality under Episode-of-Care and Comprehensive Care Payment systems Harold D. Miller President & CEO, Network for Regional Healthcare Improvement and Executive Director, Center for Healthcare Quality and Payment Reform Bending the Cost Curve September 9, 2009 Healthcare Costs Can Be Reduced Without Rationing Healthy Consumer Continued Health Preventable Condition No Hospitalization Acute Care Episode Efficient, Successful Outcome High-Cost Successful Outcome Complications, Infections, Readmissions Bending the Cost Curve September 9, 2009 Current Payment Systems Penalize Quality and Reward Volume Healthy Consumer Continued Health Preventable Condition $ No Hospitalization Acute Care Episode Fee-for-Service Payment Pays More for Bad Outcomes and Less When People Stay Healthy Efficient, Successful Outcome High-Cost Successful Outcome Complications, Infections, Readmissions Bending the Cost Curve September 9, 2009 Episode-of-Care Payment to Improve Efficiency and Outcomes in Acute Care Healthy Consumer Continued Health Preventable Condition Episode-of-Care Payment A Single Payment For All Care Needed From All Providers in the Episode, With a Warranty For Complications No Hospitalization Acute Care Episode Efficient, Successful Outcome High-Cost Successful Outcome Complications, Infections, Readmissions Bending the Cost Curve September 9, 2009 Comprehensive Care Payment to Help Prevent Episodes from Occurring Healthy Consumer Continued Health Preventable Condition No Hospitalization Acute Care Episode Comprehensive Care Payment A Single Payment For All Care Needed From All Providers During The Course of the Year; Payment Would be Higher for Sicker Patients Efficient, Successful Outcome High-Cost Successful Outcome Complications, Infections, Readmissions Bending the Cost Curve September 9, 2009 Which Payment System Is Best? It Depends on the Disease/Condition Inefficiency Cost Per Episode Underpayment Episode Payment Comprehensive Care Pmt. + Episode Payment Examples: Hip Fractures, Labor & Delivery Examples: Heart Disease, Back Pain Fee for Service Comprehensive Care Pmt. (or Year-Long Episodes) Examples: Immunizations, Simple Injuries Examples: COPD, Congestive Heart Failure Underuse Frequency of Episodes Overuse Bending the Cost Curve September 9, 2009 The Right Payment Level (Price) is as Important as the Right Method APPROACHES TO SETTING PRICES Regulation Maryland sets all-payer rates for hospital services Large Payer Dictation Congress/CMS establish the rates Medicare will pay Result varies depending on Small Payer Negotiation size of payer vs. provider Competition Providers set prices in order to attract more patients Bending the Cost Curve September 9, 2009 If We Bought Autos Like Healthcare, We’d All Be Driving a Lexus HYUNDAI SONATA LEXUS LS 460 5 yr/60,000m warranty 5 star crash rating 4 yr/50,000m warranty No crash rating MSRP: $22,450 MSRP: $63,825 $1,000 Copay: $1,000 $1,000 10% Coinsurance: $2,245 High Deductible: $10,000 Price Difference: $0 $6,383 $10,000 $41,375 Bending the Cost Curve September 9, 2009 Do Better Payment Systems Work? Comprehensive Care Payment – Minnesota Patient Choice • Providers bid on total risk-adjusted price to care for patients, and patients pay more if they select higher-cost care systems • Results: Patients select lower-cost providers/care systems; Providers reduce their costs Episode-of-Care Payment: 10-40% Savings/Episode – – – – Texas Heart Institute: 13% savings Michigan orthopedic surgeon: 40% savings Medicare Heart Bypass Demo: 10-37% savings PROMETHEUS Estimates: 10-24% savings Bending the Cost Curve September 9, 2009 Implementing New Payment Systems • Payment Reforms Are Necessary, But Not Sufficient: Providers Will Need to Restructure Care Delivery – Payment systems and care delivery processes will need to “co-evolve” over several years to reap the benefits of lower utilization without harming patients or providers • Medicare Needs to Follow as Well as Lead – Several states, regions, and payers are already implementing episode-of-care and comprehensive care payment systems, but providers can’t efficiently change the way they deliver care unless most or all payers, including Medicare, participate. – We can’t wait for more “Demonstrations;” Medicare needs the flexibility to participate in regionallydriven reforms now Bending the Cost Curve September 9, 2009 For More Information... www.PaymentReform.org Bending the Cost Curve September 9, 2009 Aligning Payment Incentives for a High Performance U.S. Health System Karen Davis President, The Commonwealth Fund [email protected] www.commonwealthfund.org Bending the Cost Curve September 9, 2009 We Can’t Continue on our Current Path: Growth in National Health Expenditures per Capita Average spending on health per capita ($US PPP) 8000 United States Canada France Germany Netherlands United Kingdom 7000 6000 5000 4000 3000 2000 1000 0 1980 1984 Data: OECD Health Data 2009 (July 2009) 1988 1992 1996 2000 2004 Bending the Cost Curve September 9, 2009 Promising Strategies for Payment Reform and Care Coordination 1. Patient-Centered Medical Home: Medical Home fee; global primary care fee 2. Multi-specialty physician group practice and accountable care organizations: global physician fee, Medicare group practice demonstration payment model, partial or full capitation 3. Hospital: global acute care case rate (discharge plus 30 days); global hospital case rate plus physician inpatient; global hospital case rate plus physician plus post-acute care 4. Integrated delivery system: global patient-level payment (capitation) Supported by: Rewards for high performance & shared savings Bending the Cost Curve September 9, 2009 Global patientlevel payment (capitation) Global hospital and post-acute care case rate Global hospital case rate Global physician fee Global primary care fee Less Feasible More Feasible FFS and DRGs Disconnected Primary care Multispecialty Hospital MD practices, MD group MD group systems hospitals practices practices Integrated delivery systems Continuum of Organization Source: A. Shih, K. Davis, S. Schoenbaum, A. Gauthier, R. Nuzum, and D. McCarthy, Organizing the U.S. Health Care Delivery System for High Performance, (New York: The Commonwealth Fund, August 2008). Rewards for High Performance and Shared Savings Continuum of Payment Bundling Organization and Payment Methods Health System Reform Proposals (effective 8-9-09) Bending the Cost Curve September 9, 2009 Senate HELP proposal 7/15/09 Path Senate Finance Committee policy options House of Representatives Tri-Committee 7/31/09 Increase Medicare PCP payments 5% Payments to patientcentered practices; savings to patients with designated medical home Accountable care organizations Share cost-savings w/ physicians Conduct pilot programs in Medicare, Medicaid; adopt if successful Slowing rate of Medicare payments in high cost areas Bundled payments Productivity improvement Rx and device savings Resetting Medicare Advantage rates Independent Payment Council Quality Measurement, Reporting, and Improvement Comparative effectiveness Health information technology Public Health and Prevention Health goals and priorities for performance improvement Payment reform Enhanced payment to primary care Medical home / coordinated care Increase Medicare and Medicaid PCP payments Grants to support medical home model Conduct pilot programs in Medicare, Medicaid; adopt if successful Conduct pilot programs in Medicare, Medicaid; adopt if successful ? Bending the Cost Curve September 9, 2009 Future Direction for Greater Care Coordination and Fundamental Payment Reform • Center on Delivery and Payment System Innovation • Rapid cycle multi-payment innovations in Medicare, Medicaid, other state payers, private payers • Harmonization of public and private payment in Medicare, public/co-op plan, private plans • Fundamental payment reform – accountable care organizations, medical homes, bundled hospital acute care, transitional care, and follow-on care • Independent Payment Commission • Establishment of Center on Medical Effectiveness and Health Care Decision-Making; link coverage and payment decisions to evidence-based findings • Medicare budget savings targeted on high cost areas, high cost providers, waste, and unsafe or ineffective care Bending the Cost Curve September 9, 2009 Thank You! Stephen C. Schoenbaum, M.D., Executive Vice President and Executive Director, Commission on a High Performance Health System, [email protected] Cathy Schoen, Senior Vice President for Research and Evaluation, [email protected] Sara Collins, Vice President, [email protected] For more information, please visit: www.commonwealthfund.org Stu Guterman, Assistant Vice President, [email protected] Rachel Nuzum, Senior Policy Director [email protected] Kristof Stremikis, Senior Research Associate, [email protected] Bending the Cost Curve September 9, 2009 OIG’s 5-Principle Health Care Integrity Strategy Lewis Morris Chief Counsel Office of Inspector General Department of Health and Human Services Bending the Cost Curve September 9, 2009 OIG’s Five Principle Strategy Enrollment Payment Compliance Oversight Response Bending the Cost Curve September 9, 2009 Principle 1: Enrollment • Scrutinize individuals and entities that want to participate as providers and suppliers prior to their enrollment in the programs. Bending the Cost Curve September 9, 2009 Principle 2: Payment • Establish payment methodologies that are reasonable and responsive to changes in the market. Bending the Cost Curve September 9, 2009 Principle 3: Compliance • Assist health care providers and suppliers in adopting practices that promote compliance with program requirements and quality/safety standards. Bending the Cost Curve September 9, 2009 Principle 4: Oversight • Vigilantly monitor programs for evidence of fraud, waste, and abuse. Bending the Cost Curve September 9, 2009 Principle 5: Response • Respond swiftly to detected frauds, impose sufficient punishment to deter others, and promptly remedy program vulnerabilities. Bending the Cost Curve September 9, 2009 John Rowe, MD Mailman School of Public Health, Columbia University Bending the Cost Curve September 9, 2009 Health Affairs gratefully acknowledges the generosity of the following organizations for support of this issue: