Projecting Community-Wide Costs and Benefits of Pursuing Perfection in Whatcom County, WA

1. System Dynamics: Projecting the Community-Wide Costs and Benefits of “Pursuing Perfection” in Whatcom County, WA Jack Homer & Gary Hirsch Independent Consultants to PeaceHealth American Hospital Association Washington, DC May 9, 2003

2. Sea Mar Community Health Centers SEA MAR Clinica de la comunidad St. Joseph Hospital/ PeaceHealth P2 in Whatcom County • Individual patient goals, values and needs are the central focus. • Across the entire community build safety, timeliness, effectiveness, efficiency, and equality into the health care system. • Support each patient and their care team with: • A shared care plan • A shared medication list • Access to clinical information at all times • Idealized design of clinical office practice (IDCOP), including group visits and telephone and e-mail consults • Evidence-based guidelines • A clinical care specialist when needed • Promote cost-effective screening, preventive education, and risk management

4. Sea Mar Community Health Centers SEA MAR Clinica de la comunidad St. Joseph Hospital/ PeaceHealth Achieving the Vision • Initial disease focus: Diabetes and Heart Failure • Initial community participants: A few medical groups, the hospital, and one insurer • Two years of funding by RWJF • Networking with other like minded communities in the US and Europe: Pursuing Perfection partners

5. Reasons for Projecting Program Impacts • Resource Planning • Fixed costs to program and providers • Other Financial Needs and Concerns • Winners and losers: redistribution schemes • Critical Success Factors • What is critical and what is not? • Set Expectations • Anticipate pain that precedes gain: prevent frustrations • Recognize when adjustments are needed and when not

6. System Dynamics: Modeling Indirect Impacts, Too

7. Program Adoption Pre-Program Quality of Care At-Risk Popn Demographics Disease Dynamics - Incidence - Progression - Complications - Deaths Program Personnel & IS Costs Healthcare Utilization Patient Disability Total Costs to Program, Payors, Providers, Patients, & Employers Framework for Projecting Program Impacts for a Single Chronic Illness

8. Type 2 Diabetes Progression & Care 6-7% of the adult population is diabetic, including 17% of the elderly. 35-40% of diabetics are undiagnosed Stage 1. Of the diagnosed, about 50% are Stage 1, 30% Stage 2, 20% Stage 3, and about 40% have their blood sugar under control.

9. Heart Failure (HF) Progression & Care 3% of the adult population has HF, including 16% of the elderly. 50-55% of HF is asymptomatic (Stage B). Only 20% of asymptomatic HF is diagnosed. Of those with symptomatic HF (Stages C and D), 15-20% have been hospitalized within the past year, with an annualized death rate of 30-35%.

10. Data Sources • State Office of Fiscal Management • Population projections • National Center for Health Statistics (CDC) • Disease prevalence • Group Health Cooperative • Disease prevalence and stage distribution • Healthcare utilization and costs • St. Joseph Hospital and Local Physician Practices • Healthcare utilization and costs • Medical Literature and Clinician Estimates • Disease prevalence and stage distribution • Healthcare utilization and costs • Disability days and costs • Benefits and costs of ideal versus usual care

11. Program Infrastructure Costs 2001-21 (in Year 2001 dollars per year) Displayed values are for 2008. $42K Diabetes Screening Clinical Info Systems $438K $793K Personnel (Admin, Process/OD, CCS’s)

12. Screen/prev.ed Disease mgmt. Risk mgmt. Disease mgmt. Program Benefit Assumptions

13. Deaths from Diabetes & HF 2001-21 Disease-related deaths per year Status Quo 361 With Program 247 Displayed values are for 2008.

14. Disability Days from Diabetes & HF 2001-21 Disease-related disability weekdays per year Status Quo 219 thou With Program 166 thou Displayed values are for 2008.

15. Healthcare Spending for Diabetes & HF 2001-21 In constant Year 2001 dollars per year Status Quo $86.3M With Program $86.0M Displayed values are for 2008. Includes payments by insurers and patients for: Physicians, Hospital, Ancillary services, Hospice, Home care, Skilled nursing facility, Exercise rehab, Drugs, and Implanted devices.

16. Overall Program Costs & Benefits 2003-08 Cumulative (in Year 2001 dollars) Disability losses: Based on literature, assume employed person (typically under 65) costs employers an average of $120 per disability day and costs society another $116; while an unemployed person costs society an average of $74 per disability day.

17. Critical Success Factors (based on model sensitivity testing) • Disease management quickly starts improving health outcomes, but does not by itself reduce total spending (healthcare plus program infrastructure) below status quo • Preventive measures (screening, preventive ed, risk management) generate increasing savings over time, and make it possible to reduce total spending below status quo • Total spending reduction will not be achieved if program benefits are at low end of spectrum; e.g., for reason of lax program execution • Clinical care specialists must be sufficient to meet referral demand, else program cost-effectiveness is compromised • Comprehensive drug coverage for the elderly would improve health outcomes further, and further boost program cost-effectiveness • Savings can still be achieved, though more modestly, even if less than 100% of community’s MD’s participate in program

18. Program Financial Impacts 2003-08: Winners and Losers (in Year 2001 dollars)

19. Financial Needs and Concerns • Program personnel: Ongoing requirement of up to $1 million/year • Diabetes screening and prevention education: relatively inexpensive • Clinical information systems: about $1,500 per physician per year • Practice redesign (IDCOP): some MD costs during phase-in period • Hospital loss of income relative to status quo exceeds $2 million per year by 2007; concern about internally-subsidized programs (e.g., mental and behavioral health services) • Increase in patient self-payments (primarily drugs) of about $150 per diabetic and $600 per HF patient, assuming no improvement in drug coverage for the elderly

20. Payment Mechanism Experiment: Using Capitation to Smooth Impact on Hospital • Problem: Success at controlling diabetes reduces hospital income, possibly jeopardizing subsidized programs (mental health, substance abuse…) • Examine alternative Medicare payment scheme for hospital • No fee for service • Risk-adjusted capitation payments for patients at different stages covering all inpatient and outpatient care • Stage 1 diabetic = $2,500 per pt per yr • Stage 2 diabetic = $5,000 per pt per yr • Stage 3 diabetic = $12,500 per pt per yr • Can hospital be made whole without requiring increased Medicare payments?

21. Risk-Adjusted Capitation Maintains Hospital Income at Status Quo Level In constant Year 2001 dollars per year Status Quo Program with Capitation Program with FFS

22. Medicare Pays Only What It Would Have Paid Under Status Quo In constant Year 2001 dollars per year Status Quo Program with Capitation Program with FFS

23. Rx Drug Coverage Experiment: Full Coverage for Medicare Patients • Problem: Many seniors, esp. those lacking Rx drug coverage, may be unable or unwilling to pay additional for drugs to achieve control • Test: Increase fraction of Medicare patients with drug coverage from 41% to 100%, and assume minimal co-pay affordable by all • Will increased pharmacy costs pay off sufficiently in terms of improved health and reduced urgent care?

24. Full Coverage Increases Drug Costs for Medicare Patients by $1 Million per Year In constant Year 2001 dollars per year Program plus Full Medicare Coverage Program with Current Coverage Status Quo

25. But By Helping More Medicare Patients Get Their Diabetes Under Control... Program plus Full Medicare Drug Coverage Program with Current Coverage Status Quo

26. Improved Drug Coverage Helps to Further Reduce Deaths... Status Quo Program with Current Coverage Program plus Full Medicare Drug Coverage

27. And Further Reduces Disability Costs... In constant Year 2001 dollars per year Status Quo Program with Current Coverage Program plus Full Medicare Drug Coverage

28. And Actually Reduces Medicare Payments by $1 Million per Year on Net, Because of Fewer Disease Complications In constant Year 2001 dollars per year Status Quo Program with Current Coverage Program plus Full Medicare Drug Coverage