THE COMMONWEALTH

Reforming Provider Payment: Essential Building Block for Health Reform

Stuart Guterman Assistant Vice President Director, Program on Medicare’s Future The Commonwealth Fund Alliance for Health Reform Briefing on Payment Reform Washington, DC March 20, 2009

• • • • •

Path To High Performance: Key Strategies for Achieving Access for All, Better Health Care and Outcomes, and Slower Cost Growth

Affordable coverage for all: access and foundation for payment and system reforms

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Insurance exchange: choice of private and new public plan Market reforms, affordability, and shared responsibility Align incentives: payment reform to enhance value

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Accessible patient-centered primary care Move from fee-for service to more “bundled” payment, with accountability

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Align price signals with efficient care and value Aim high to improve quality and health outcomes

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Invest in infrastructure: information systems Promote health and disease prevention Accountable, patient-centered, coordinated care Leadership and collaboration THE COMMONWEALTH FUND

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Trend in the Number of Uninsured, 2009–2020 Under Current Law and Path Proposal

Millions 80 Current law Path proposal 61.1

60 48.9

50.3

51.8

53.3

54.7

56.0

57.2

58.3

59.2

60.2

3

40 19.7

20 6.3

4.0

4.1

4.1

4.1

4.1

4.2

4.2

4.2

4.2

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Note: Assumes insurance exchange opens in 2010 and take up by uninsured occurs over two years. Remaining uninsured are mainly non-tax-filers.

Data: Estimates by The Lewin Group for The Commonwealth Fund.

Source:

The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way

, Feb. 2009.

THE COMMONWEALTH FUND

Potential Gain in Population Health If the U.S. Reaches Benchmarks

• • • • • • •

37 million more adults and 10 million more children with accessible primary care 68 million more adults receiving recommended preventive care 70,000 fewer children admitted to hospitals for asthma 250,000 fewer admissions to hospitals for complications of diabetes 600,000 fewer elderly hospitalized or re-admitted for preventable conditions 100,000 fewer deaths before age 75 from conditions amendable to health care 180,000 more physicians using electronic medical records and information networks linking teams THE COMMONWEALTH FUND

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Total National Health Expenditures (NHE), 2009–2020 Current Projection and Alternative Scenarios

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NHE in trillions $6 Current projection (6.7% annual growth) Path proposals (5.5% annual growth) $5 Constant (2009) proportion of GDP (4.7% annual growth) 5.2

4.6

$4 4.2

$3 $2 2.6

Cumulative reduction in NHE through 2020: $3 trillion

$1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 THE

Note: GDP = Gross Domestic Product.

COMMONWEALTH FUND

Data: Estimates by The Lewin Group for The Commonwealth Fund.

Source:

The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way

, Feb. 2009.

Interrelation of Organization and Payment Integrated system capitation Global DRG fee: hospital, post- acute, and physician inpatient Less Feasible Outcome measures; large % of total payment Global DRG fee: hospital only Global ambulatory care fees More Feasible Care coordination and intermediate outcome measures; moderate % of total payment Global primary care fees Blended FFS and medical home fees Preventive care; management of chronic conditions measures; small % of total payment FFS and DRGs Small MD practice; unrelated hospitals Primary care MD group practice Multi specialty MD group practice Hospital system Integrated delivery system

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, Aug. 2008).

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Net Impact of Path Payment Reforms on Cumulative National Health Expenditures Compared with Current Projection, 2010–2020 (in billions)

Total Payment Reforms Total NHE –$1,010 Private Employers –$170 State & Local Governments –$10 Househol ds –$82 Enhanced payment for primary care Encouraged adoption of Medical Home model Bundled payment for acute care episodes Correcting price signals • High cost area updates • Prescription drugs • Medicare Advantage –$71 –$175 –$301 –$223 –$76 –$165 –$28 –$25 –$75 –$64 +$22 $0 –$2 –$13 –$4 –$3 +$12 $0 –$11 –$36 –$11 –$29 +$5 Data: Estimates by The Lewin Group for The Commonwealth Fund.

Source: The Lewin Group,

The Path to a High Performance U.S. Health System: Technical Documentation

(Washington, D.C.: The Lewin Group, 2009).

$0 Federal Budget –$749 –$30 –$101 –$211 –$127 –$115 –$165

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Quality and Cost of Care for Medicare Patients Hospitalized for Heart Attacks, Colon Cancer, and Hip Fracture, by Hospital Referral Regions, 2000–2002

1.25

1.00

0.75

0.75

1.00

Relative Resource Use** (M edian Relative Resource Use = $25,994)

1.25

* Indexed to risk-adjusted 1 year survival rate (median = 0.70).

** Risk-adjusted spending on hospital and physician services using standardized national prices, indexed to median.

Data: E. Fisher and D. Staiger, Dartmouth College analysis of data from a 20% national sample of Medicare beneficiaries.

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Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 8

What Drives Variation in Spending?

Average risk-adjusted standardized spending for chronic obstructive pulmonary disease episode Difference between high and average % Type of service Total episode Initial hospital stay Physician Readmissions Post-acute care Other Low 6372 Average 7871 4408 547 671 4414 569 1543 466 280 998 347 High 9748 4406 576 2550 1780 436 23.8

-0.2

1.2

65.3

78.4

25.6

$ 1877 -8 7 1007 782 89 Source: G. Hackbarth, R. Reischauer, and A. Mutti. “Collective Accountability for Medical Care—Toward Bundled Medicare Payments”

New England Journal of Medicine

July 3, 2008 359(1):3-5.

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Total National Health Expenditure Growth for Hospitals and Physicians, Current Projections and With Policy Changes, 2009-2020 Hospital Expenditures (trillions) Physician Expenditures (trillions) $1.8

$1.6

$1.4

$1.2

$1.0

$0.8

$0.8

$0.6

Current Projection Path Policy $0.4

$0.2

$0.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $1.8

$1.6

$1.6

$1.4

$1.4

$1.2

$1.0

$0.8

$0.7

$0.6

$0.4

Current Projection Path Policy $0.2

$0.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $1.3

$1.1

Data: Estimates by The Lewin Group for The Commonwealth Fund.

Source: The Lewin Group,

The Path to a High Performance U.S. Health System: Technical Documentation

(Washington, D.C.: The Lewin Group, 2009).

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Conclusions

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Emphasis on primary care can provide better access to needed care and more patient-centered care Bundled payment can encourage more coordinated care across providers and settings, and more accountability for outcomes and resource use The main objective of payment reform is to provide more organized, effective, and efficient health care delivery Payment reform built on a foundation of coverage for all and system reforms can be more effective These changes will be difficult —they affect how $42 trillion in projected cumulative spending will be allocated But we are not talking about shutting down the health care system —only reducing cumulative spending from $42 trillion to $39 trillion, with annual growth slowing from a projected 6.7% to 5.5% (compared with 4.7% for GDP) COMMONWEALTH

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Acknowledgements

Karen Davis, Ph.D., President Cathy Schoen, Sr. Vice President, Research & Evaluation Stephen Schoenbaum, M.D.

Executive Vice President for Programs Kristof Stremikis, M.P.P

Research Associate to the President COMMONWEALTH

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