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Dirigo Health Reform Financing Access Expansion Through Cost Containment Initiatives Peter Kraut

Dirigo Health Reform Financing Access Expansion Through Cost Containment Initiatives Peter Kraut Governor’s Office of Health Policy and Finance July 2008. Setting the Context. 2002 = lowest revenue to states since records kept.

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Dirigo Health Reform Financing Access Expansion Through Cost Containment Initiatives Peter Kraut

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  1. Dirigo Health Reform Financing Access Expansion Through Cost Containment Initiatives Peter Kraut Governor’s Office of Health Policy and Finance July 2008

  2. Setting the Context • 2002 = lowest revenue to states since records kept. • Goal: recognizing that the US spends twice what developed nations spend and doesn’t get better quality or outcomes… • …focus on more effective use of what is already in the system, and expand access without new state dollars.

  3. Dirigo Health Reform • Not just expansion of access. • System reform / focus on cost and quality necessary to make any access expansion sustainable. • Multiple initiatives to address all three.

  4. Overview of Enacted System Reform Initiatives • State Health Plan, Capital Investment Fund, strengthened Certificate of Need • Maine Quality Forum • Voluntary Hospital Targets • Increased Transparency • Small Group Medical Loss Ratio • Address hidden tax of bad debt & charity care by covering the uninsured • DirigoChoice insurance financed by re-channeling BDCC reductions & other system savings

  5. Original 2003 Proposal • Global budget for hospital system. • Negotiated, not regulated. • Hospitals determine among themselves how to most effectively allocate statewide budget. • Assessment on payers that cannot be passed through to consumers.

  6. Competing Proposal • Rather than systemic reform, expand access by • eliminating individual market guaranteed issue and community rating, while • implementing a High Risk Pool using similar funding mechanism (assessment on payers)

  7. 2003 Enacted Compromise • Voluntary Cost Increase and Operating Margin Limits • Savings Offset Payment (SOP) • Cannot be levied unless savings are demonstrated. • Cannot exceed 4% of claims. • Can be passed on to consumers. • Methodology to measure savings not spelled out in statute.

  8. The SOP in Practice: Controversy Over Methodology to Measure Savings • 2004 Proposal Rejected by Payors • Observe historical relationship between health care spending in Maine and US. • Project Maine spending in absence of Dirigo reform initiatives based on that relationship. • Savings = projected spending – actual spending.

  9. The SOP in Practice, cont. • 2005 Amendment to Statute Establishes Current Process • Dirigo Health Agency proposes “Aggregate Measurable Cost Savings” (AMCS) to Dirigo board. • Dirigo board proposes AMCS to Bureau of Insurance (BOI) through adjudicatory hearing process. • BOI determines final AMCS. • Dirigo board determines amount of SOP (as in 2003 statute, SOP cannot exceed AMCS or 4% of claims, whichever is lower).

  10. The SOP in Practice, cont. • AMCS hearings have been held in summer/ fall of 2005, 2006, 2007. • Five law firms representing private insurers and employers, bringing in nat’l consultants, vs DHA and small consumer advocacy group, with DHA spending approx. $1 mil / year on determining and defending savings.

  11. The SOP in Practice, cont. • After 2006 session, Governor convened Blue Ribbon Commission to recommend alternatives to SOP . • Commission recommends sin taxes (soda, beer/wine, snack, tobacco) • SOP replaced in 2008 session • Beer (3¢/ 12oz. can), soda (7¢/ 20oz. bottle), wine (6¢/bottle) tax to generate 32% of funding need. • 1.8% insurer tax to generate 60% (1.8% = less than the average of 1st three SOPs; don’t need to document savings; predictable [no fluctuation year to year]; less than 4% maximum SOP). • Money from Fund for Healthy Maine (tobacco settlement fund) to generate 8%). • 19% of this pooled funding goes to individual market reform beginning in SFY 2010 (reinsurance plan)

  12. The SOP in Practice, cont. • Because of people’s veto threat – referendum to be on November ballot – we had no choice but to proceed with SOP 4. Hearings will be this summer / fall.

  13. AMCS Amounts (mil)

  14. Financing Access Expansion By Creating & Re-channeling Health System Savings • The fact that our experience has been contentious does not mean this concept cannot or should not be done -- after all, experts say that up to 30% of medical service is unnecessary -- & we are still moving ahead with system reform for greater efficiency.

  15. Moving Ahead With System Reform For Greater Efficiency • New SHP from Advisory Council with new legislative representation • Additional refinements to CON/CIF • EMR pilot covering 40% of population • All-payer Patient Centered Medical Home Pilot • MQF leadership in Healthcare Associated Infection and Error Reporting Systems • More transparency; e.g., MHDO we-site with estimated price by provider, payer, service • New Public Health Infrastructure • Amended Hospital Cooperation Act • Detailed cost-driver / variation study modeled on Dartmouth Atlas using all-payer claims database to identify specific inefficiencies so that we can start working with stakeholders on levers to reduce the waste

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