Controlling Health Care Spending Growth While Maintaining or Improving the Quality of Care

1. Controlling Health Care Spending Growth While Maintaining or Improving the Quality of Care Michael Chernew May 14, 2013

2. Definitional issues matter • Spending at the population level (e.g. national or firm) Spending = Price * Quantity • Total spending or government spending • Total spending is the most comprehensive measure • Government spending causes most alarm • Taxes

3. Data

4. Federal Spending on Health as % of GDP: Medicaid, CHIP, and Exchange Subsidies Medicare Source: Congressional Budget Office. The 2012 Long-Term Budget Outlook. http://cbo.gov/sites/default/files/cbofiles/attachments/LTBO_One-Col_2.pdf

5. Our Debt is Unsustainable: Source: Congressional Budget Office. The 2012 Long-Term Budget Outlook. http://cbo.gov/sites/default/files/cbofiles/attachments/LTBO_One-Col_2.pdf

6. Consequences of Higher Taxes • If finance higher health care spending by taxes: • Marginal tax rates of high income earners could rise to 70% by 2060 • GDP declines(relative to trend) by 11%. • Magnitudes depend on the exact assumptions about tax policy Source: Baicker and Skinner: 2011: Assumes health care spending growth consistent with 2010 CBO long run forecast

7. Health Care Spending Pressures Wages

8. Concepts and Evidence

9. Slowing spending growth Spending High spending, rapid growth Low spending, rapid growth Low spending, slow growth Time

10. Level vs. Growth

11. Long run spending drivers • Medical technology • New knowledge (and associated stuff) • Less important factors • Deteriorating health/ obesity • Prices • Aging • Rising incomes • More generous coverage (static effects) • Inefficiency • Inappropriate use • Liability

12. What will slow spending growth • Payment • Consumer strategies (benefit design) • Organization of medical practice • Wellness

13. Payment Reform

14. Payment Reform • Pay less • Reductions in payment to providers • Reductions in payment to plans • Bundle payments: aggregate payment across services and providers • Episode bundles • Patient bundles (global payment)

15. Will payment reform work

16. Impact of Capitation • Physicians in highly capitated environments spent 3.86% less than salaried physicians both in terms of total spending and costs per episode. a • VA Clinics with capitated payment had 4-16% less utilization in most outpatient services and 16% lower total expenditures per patient than VA clinics with salaried payment. b • Countries that reimburse physicians by capitation had 17-21% lower health expenditures than those that reimbursed by fee for service. c a Landon et al. 2011. “The Relationship between Physician Compensation Strategies and the Intensity of Care Delivered to Medicare Beneficiaries.” Health Research and Educational Trust. 46(6): 1863-1882. b Liu et al. 2007. “The Impact of Contract Primary Care on Health Care Expenditures and Quality of Care.” Medical Care Research and Review. 65(3): 300-314. c Gerdtham et al. 1998. “The determinants of health expenditure in the OECD countries: a pooled data analysis.” Developments in Health Economics and Public Policy 1998:113-34.

17. Alternative Quality Contract

18. Basics • Launched in 2009 • Contract between plan and provider organization • Providers join, not enrollees • Provider groups must have at least 5000 BCBSMA patients • HMO/ POS patients only • Patients must designate a primary care physician (regardless if they are in AQC) • PCP must authorize referrals (regardless if they are in AQC)

19. Three Pillars of AQC • Global payment • Pay for performance • Technical support

20. AQC Global Payment • Covers all services • Inpatient • Outpatient • Drugs • Includes costs regardless of who delivers care • Inside and outside of AQC • Contract covers 5 years • Base payment • Growth rate • Rates set through negotiation • Maintain (or increase) base payment • Lower trend to projected CPI rate

21. History • 7 groups joined in 2009 • Very diverse • Some had some prior risk with AQC • Some large integrated groups • Some diffuse IPA models • Different relationship with hospitals • 4 more joined in 2010

23. AQC Quality Process Measures .

24. Payment Reform Summary • Can slow spending • Providers capture efficiencies • Payers only capture savings if they lower payment rates • Quality could be a concern • Couple with pay for performance • Measures are imperfect

25. Benefit Design

26. Benefit Design Options • Higher co-premiums/ premium support • Higher copays, co-insurance or deductibles • Reference pricing • Tiered networks • Value Based Insurance Design (VBID) • Align copays with value

27. Will Benefit Design Changes Work • Can clearly solve the public spending problem • Simply shift spending to patients • Will reduce utilization • HIE participants in the large-cost sharing plan (95% coinsurance) plan used 25-30% fewer services than those in the free-care plana aJ.P. Newhouse and the Insurance Experiment Group. Free for All? Lessons from the RAND Health Experiment. Cambridge, MA. Harvard University Press: 1993

28. Benefit Design Concerns • Reductions in appropriate use same as for inappropriate use (Sui et al. 1986) • Copays reduce use of preventive services • Copays reduce use of ‘valuable’ pharmaceuticals • How much risk do we transfer? • How does this affect disparities?

29. Value-Based Insurance Design • VBID: Align copays with value • The value of any service depends on who it is delivered to. • Any VBID program will not be perfect. Sources: Fendrick et al. 2001. A Benefit-Based Copay for Prescription Drugs: Patient Contribution Based on Total Benefits, Not Drug Acquisition Cost. American Journal of Managed Care. 7(9):861-867 Chernew et al. 2007. Value-Based insurance Design. Health Affairs. 26(2):w195-w203. Chernew et al. 2008. Impant of Decreasing Copayments on Medication Adherence Within a Disease Management Environment. Health Affairs. 27(1): 103-112.

30. VBID Variations • Targeting • Simple VBID: Target a service • Blood pressure medication for everybody • More complex VBID: Target services only for selected patient groups • Blood pressure medications for patients with diabetes • Copay lowering only or “aligning”? • Target increase vs across the board increase

31. Defining Value Cost Saving Cost Effective Not Cost Effective $0 $100,000* Cost effectiveness ratio ($/Quality adjusted life year)  Always relative to next best alternative * This should be higher ($250,000), but decline as overall spending rises

32. Impact of VBID on Adherence Increase in Adherence Drug Class SOURCE: Chernew ME, Health Affairs. Impact of Decreasing Copayments on Medication Adherence Within a Disease Management Program. January 2008.

33. Financing • Offsets • Lower costs due to fewer adverse events • do not fully offset employer spending • Payer spends more • may offset total costs • Approximately break even from societal perspective • Productivity gain • Increase costs for other services • Specifically low value services

34. Summary of cost containment • Bundled payments could work • Broad enough programs • Strict enough update rules • Politically sustainable • Cost sharing strategies could work (particularly at reducing payer spending) • May transfer a lot of risk (or just shift premium cost) • Exacerbate disparities • VBID may mitigate some concerns • Other strategies may be good, but small impact

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