Strategies for Getting Greater Value in Healthcare

1. Strategies for Getting Greater Value in Healthcare

2. State of U.S. Healthcare

3. Projected 2024 U.S. healthcare spending = $5.46 trillion, 19.6% GDP Healthcare Costs & the Economy 3

4. Up, Up and Away: U.S. Healthcare Spending Projections Centers for Medicare and Medicaid Services 4

5. U.S. Healthcare System: High Costs, Mediocre Results We spend far more on healthcare than other countries. 5

6. U.S. Healthcare System: High Costs, Mediocre Results We don’t live as long as people in many other countries. 6

7. U.S. ranks lastin efficiency U.S. ranks low on safe and coordinated care and patient access to primary care However, the U.S. ranks best on: Provision and receipt of preventive and patient-centered care. Rapid access to specialists. What Do We Get For All This Spending? 7

8. Employers paid 58% of employees’ healthcare costs in 2014. A typical family of four has $23,215 in medical costs each year Employer pays $13,520 Employee pays $9,695 ($5,908 in payroll deductions and $3,787 in out-of-pocket costs.) Employers Foot the Bill 8

9. There is no single driver responsible for the nation’s high and rising healthcare costs. There is no single strategy to meet this challenge. What Is Driving Healthcare Costs? 9

10. Fee-for-service reimbursement Fragmentation in care delivery Administrative burden Population aging, rising rates of chronic disease and co-morbidities Advances in medical technology Lack of transparency about cost, quality Tax treatment of health insurance What Is Driving Healthcare Costs? • Insurance benefit design • Cultural biases influencing care utilization • Healthcare market consolidation • High unit prices of medical services • The health care legal and regulatory environment • Structure and supply of the health professional workforce 10

11. U.S. Healthcare Spending by Number of Chronic Conditions in 2010 Chronic Disease Drives Healthcare Spending 11

12. There is a radical difference in potentially avoidable hospitalization rates across the country Quality Varies Widely 12

13. Price Varies Widely 13

14. Price for service in the U.S. can vary as much as 600% Price Varies Widely 14

15. Price Varies Widely: Massachusetts Hospitals 15

16. Payment Reform 16

17. Most healthcare services are paid for with a fee-for-service model. Pay regardless of quality, outcomes Pay for every test and procedure regardless of necessity Doesn’t pay for some important aspects of care – like coordination Fee for Service: Paying for Volume, Not Value 17

18. To pay for the care we want, including better prevention, care coordination and disease management To not pay for care we don’t want (wasteful/harmful care) To incentivize and reward providers for delivering high-quality, efficient care To remove financial barriers to improving the deliver of healthcare The Objectives of Payment Reform 18

19. Payment that reflects provider performance, especially the quality and safety of care that providers deliver; Payment methods that are designed to spur efficiency and reduce unnecessary spending; If a payment method only addresses efficiency, it is not considered value-oriented; it must include a quality component. The Elements of Value-based Payment Reforms 19

20. Payment Framework Fee For Service Bundled Payment Global Payment BASE PAYMENT MODELS Charges Fee Schedule Per Diem DRG Episode Case Rate Partial Capitation Full Capitation Increasing Accountability, Risk, Provider Collaboration, Resistance, and Complexity PERFORMANCE-BASED PAYMENT OR PAYMENT DESIGNED TO CUT WASTE (financial upside & downside depends on quality, efficiency, cost, etc.) Chart: Catalyst for Payment Reform 20

21. The Payment Reform Continuum Chart: Catalyst for Payment Reform 21

22. Pay-for-Performance/Bonus Payments A pay-for-performance model provides performance incentives to providers for increasing quality of care and/or reducing costs Incentives paid on top of fee-for-service payments Payment Reform Strategies 22

23. Pay-for-Performance/Bonus Payments for Quality/Efficiency Example: Bridges to Excellence (BTE) recognizes physician practices that meet performance benchmarks Participating physicians earn both peer recognition and bonuses from participating health plans. Payment Reform Strategies 23

24. Payments Not Tied to Individual Services or Visits Providers get incentives not tied to fee-for-service payments, such as a payment for care coordination given to patient-centered medical homes Payment Reform Strategies 24

25. Payments Not Tied to Individual Services or Visits Example: Payment and shared savings for care coordination and case management in a patient-centered medical home. CareFirst Blue Cross Blue Shield annual medical cost increase dropped to 2 percent for 1 million members in its medical home program Payment Reform Strategies 25

26. Bundled Payment A single payment to providers or healthcare facilities (or jointly to both) for all services to treat a given condition or to provide a given treatment Also known as “episode-based payment” Providers assume financial risk for the cost of services for a particular treatment or condition Payment Reform Strategies 26

27. Bundled Payment Example: Surgery Center of Oklahoma Flat-fee, all-inclusive pricing for dozens of procedures Quotes prices on its web site Payment Reform Strategies 27

28. Shared Savings/Shared Risk Models Shared savings Providers paid to provide care for a defined population Providers are incentivized to reduce unnecessary spending because they share savings with payers Shared risk Contracts go one step farther: Providers not only share savings, but accept financial liability if they do not meet targets Payment Reform Strategies 28

29. Shared Risk Example: Blue Shield of California, Hill Physicians and Dignity Health formed ACO to serve CalPERS ACO reduced Blue Shield premiums for CalPERS beneficiaries by $59 million, or $480 per member per year, over 3 years Payment Reform Strategies Accountable Care Organization Source: The Commonwealth Fund’s Case Studies of Accountable Care Systems 29

30. Non-Payment Policies Providers do not get paid for performing services that are deemed harmful or do not contribute positively to the care process Payment Reform Strategies 30

31. Non-Payment Policies Example: South Carolina Medicaid and Blue Cross Blue Shield of South Carolina teamed up to stop paying for early elective deliveries Policy realized substantial savings Payment Reform Strategies 31

32. Full Capitation/Global Payment Health plan pays a fixed dollar payment to providers for the care that members receive in a given time period, such as a month Payment adjusted for performance and severity of illness of the patient population Payment Reform Strategies 32

33. Pairing Benefit Design & Payment Reform 33

34. Benefit design and payment reform are equally important Benefit design is taking on broader meaning Some promising payment reforms are slow to be adopted – benefit design could make a difference If doctors and patients work together, in the same direction, outcomes and the value are more likely to improve Why Discuss Pairings of Benefit Designs and Payment Reform? 34

35. Cost sharing Co-insurance, co-pays, deductibles Financial incentives around lifestyle choices and use of services Consumer-directed healthcare Value-based insurance design Financial incentives around choice of provider Reference pricing Centers of excellence Narrow networks Policies Prior authorization Required referrals to specialists Transparency Price and quality Benefit Designs in Play Today • Benefit design features fall into the following five domains: 35

36. Reference Pricing establishes a standard price for a drug, procedure, service or bundle of services, and generally requires that health plan members pay any allowed charges beyond this amount. What is Reference Pricing? $20K $15K $10K REFERENCE PRICE $5K Consumers seeking care from providers above the reference price may be subject to additional out-of-pocket financial liability Frequency and Cost of Services Performed Price Variation Identical Service Consumers seeking care from providers at or below the reference price are typically responsible for normal or no cost-sharing $0 Catalyst for Payment Reform 36

37. CalPERs sets a reference price of $30,000 for hip/knee replacement surgery. Members who seek care at a higher price provider pay the difference above the reference price. In the first nine months: Number of enrollees who chose a designated high-value hospital increased from 50% to 64% Average price fell from $42,000 to $27,000 40 hospitals cut prices Effective Pairing: Reference Pricing & Bundled Payment 37

38. Plans with narrow networks of providers limit the doctors and hospitals their enrollees can use. Go to doctor A or hospital A, and the plan will pay all or most of the bill Go to doctor B or hospital B, and the enrollee may have to pay all or most of the bill herself What is a Narrow Network? x A B 38

39. Intel has a direct contract with Presbyterian Health System (PHS) Employees who select the PHS option must use a narrow network of PHS providers Intel pays PHS directly to manage quality and cost PHS shares in both savings and risk Effective Pairing: Narrow Network & Shared Savings (and Risk) 39

40. Specially trained, multidisciplinary teams coordinate closely with primary care teams to meet the needs of patients with multiple chronic conditions or advanced illness. *Issue Brief, Caring for High-Need, High-Cost Patients: What Makes for a Successful Care Management Program? The Commonwealth Fund, August 2014. What is Case Management for High-Cost Employees? 40

41. Blue Cross Blue Shield of North Carolina created program to identify patients who frequently use emergency rooms Identifying and educating identify high ER users eliminated 1,300 inappropriate ER visits in a year Case management pairs well with shared risk. Incents providers to work in cross-disciplinary teams to ensure the needs of complex patients are being met outside the hospital. Effective Pairing: Case Management & Shared Risk 41

42. Price Transparency 42

43. Transparency is important to: Create educated healthcare consumers Create accountability for price and quality variation among providers Enable purchasers to judge value Price and Quality Transparency 43

44. Defining Price Transparency The National Association of Health Underwriters defines price transparency as “empowering the healthcare consumer with the cost and quality information necessary to make an educated and informed choice on a particular service, treatment, procedure or appliance before they make a buying decision.” 44

45. Employers are asking employees to get engaged, educated and empowered Empowered employees can help drive better quality and efficiency Unwarranted price variation needs to be exposed to help identify high-value providers. Employers’ Need for Price Transparency 45

46. States Are Not Filling the Void… 2015 Report Card on State Price Transparency Laws 1-A2-Bs2-Cs45-Fs 46

47. The private sector is stepping up with information about price and in some cases quality. Health plans Independent vendors: Castlight Health, Change Healthcare, Fair Health, Guroo, Healthcare Bluebook, Zest Health Private Price Tools on the Rise 47

48. Many health plans restrict data use by self-funded purchasers Some plans do not allow purchasers to give price data to other third party vendors They argue that price information is proprietary and confidential Plans making significant investments in more sophisticated and proprietary transparency tools worry that providing data to other vendors supports competing products The Data Sharing “Spat” 48

49. Employers Using Price, Quality Information for Reference Pricing $20K $15K $10K REFERENCE PRICE $5K Consumers seeking care from providers above the reference price may be subject to additional out-of-pocket financial liability Frequency and Cost of Services Performed Price Variation Identical Service Consumers seeking care from providers at or below the reference price are typically responsible for normal or no cost-sharing $0 Catalyst for Payment Reform 49

50. What Employers Can Do About It Tips to Encourage Employee Use of Plan Cost Tools • Incentivize employees • Email campaign • Follow up promotion strategy • Engage spouses and dependents • Engage influencers and stakeholders • Use testimonials • Highlight health plan tools in existing benefits communications • Incorporate tools in new hire onboarding 50