Reducing The Growth In Healthcare Spending: Can Massachusetts Be A Model for The Nation

1. Reducing The Growth In Healthcare Spending: Can Massachusetts Be A Model for The Nation Stuart H. Altman Ph.D. Chaikin Professor of Health Policy Heller School for Social Policy and Management Brandeis University

2. Even Without Reform Healthcare Spending By Government Will Be A Major Force Demographics and The Growing Number of Low Income Are Key Reasons

3. Even With No Change In Coverage Government Will Dominate Institutional Payments

4. But This Will Only Put More Pressure On Private Insurance To Make Up Shortfalls In Government Payments

5. Private Insurance Payments Used To Pay For Lower Government Payments Hospital Payment-to-Cost Ratios Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

6. But Large Growth of Private Premiums Could Be Nearing It’s End Employers Are Requiring Workers To Absorb More of The Increases In Premiums---AND

7. Growth In Health Insurance Premiums and Workers Contribution Far Exceed Earnings and Inflation1999-2013

8. Options for Change • Let System Move Along It’s Current Course • Heading for 20% of GDP and $3.0 Trillion Spending Amount • Restructure Market-Based Payment System To Reward Lower Costs and/or Higher Value • Supply Side--- Pay Providers Global or Bundled Payments With Quality and Out Outcome Incentives • Demand Side--- Incent Consumers To Be Better Shoppers for Value Based Care • More Price and Value Transparency • High Deductible Plans • Limited Provider Networks • Introduce Government Price or Spending Regulation at Federal or State Level • All-Payer State Systems (Maryland, Vermont) • Oversight System (Massachusetts) • Restructure Delivery System (Oregon)

9. Although Current Spending Growth Is Low Most Reject Option 1 The U.S. Health System Seems To Be Approaching a “Brown Out”---Less Money Available for Healthcare Services

10. If Markets Are to Work! Need to Foster a “Value-Based” Delivery System

11. “Value-Based” Services Link Together Services That Improve Quality (Including Positive Outcomes) With Commensurate Costs

12. Major Efforts Directed Toward Option2 But Still Unclear Whether Supply or Demand Side Approaches Will Prevail

13. The Federal Reform Law and Some Private Plans Are Pushing The Supply Side Option Give Providers a Limited Budget and Let Them Decide How It Should Be Spent

14. Support Accountable Care Organizations and Bundled Payments • They Allow Providers to Decide What is Appropriate Care • They Reward Care That is Less Fragmented and Minimizes Duplicative and Wasteful Services • They Permit Care Providers To Pay for Services Not Traditionally Considered as Health Care Services

15. But Concerns About Supply Side Approach • Most ACO’s and Bundled Payments Use “Shared Savings” Approach and Not “Fixed Budgets” • Patients Have The Right to Opt Out of ACO’s • Both ACO’s and Bundled Payments are Voluntary • First Generation “Pioneer” ACO’s Have Thus Far Had Only Limited Success • The Need for Big Systems Which Have Used Their Market Power to Extract Higher Prices That Could Outweigh Efficiency Benefits

16. Reform of The System Must Avoid The Errors of The Past---

17. The Errors of The Past • Providers (Physicians and Hospitals) Were Required To Take More Financial Risk Than They Could Afford or Understand-- • Individuals Were FORCED Into Plans They Didn’t Chose and Didn’t Like-- • Quality of Care Measures Were Limited So Choice of Plan (By Employers) Was Based Primarily on Costs

18. The Errors of The Past • For Bundled Payments • The Medicare DRG Payment System Only Included Hospital Services • The Medicare DRG Bundled Payment System Only Covered Medicare Beneficiaries

19. ACO’s and Bundled Payments Designed To Avoid Problems of The 1990’s • Providers Required To Assume Limited Risk • ACO’s is a “Shared Savings System”. Each Groups Starts From Their Current Spending Levels and Downsides Risk Limited • Patients Will Not Be Locked Into a Delivery System They Don’t Trust • Patients Need to Sign Up With PCP But Can Change PCP or Network With No Penalty • Attaining or Exceeding “Quality Standards Provider Eligibility for Payment Depends on ” • Debate on What Quality Standards to Use Is Ongoing

20. ACO’s and Bundled Payments Designed To Avoid Problems of The 1990’s • The Medicare Bundle Will Include Physicians Services and Post Hospital Care In Addition to Hospital Services (It does Not Include Pre-Hospital Care) • Medicare is Encouraging (But Not Requiring) Non-Medicare Patients to Be Included in Future Bundled Payment Systems

21. Many Employers and Private Health Plans Supporting Demand Side Approaches Fastest Growing Private Insurance Are High Deductible and Preferred Provider (PPO) Plans That Use Fee-for-Service Payments

22. Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2012 NOTE: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is likely attributable to incorporating more recent Census Bureau estimates of the number of state and local government workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005 Kaiser/HRET Survey of Employer-Sponsored Health Benefits for additional information. SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2012; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.

23. Demand Side Approach Push Consumers and Payers To Find Lower Cost Providers Penalize Providers That Voluntarily Cut Use of Expensive Services

24. But Confusion About The Different Incentives Could Lead to Total Shutdown By Providers To Lower Costs

25. Need to Develop a Common Approach Although Many Use PPO Insurance and Fee-for-Service Payment--- Offer Bonuses For Providers That Spend Less Than Target

26. States Can Help Private Insurance Expand The Use of The “PPO Attribution Global Payment System” The Massachusetts Story

27. Healthcare In Massachusetts Highest In U.S. Quality of Care and Access Also Better In Massachusetts But Systems Need To Become More Efficient

28. Massachusetts Continues To Spend a Greater Proportion of State Income on Healthcare In Comparison To U.S. Personal health care expenditures* relative to size of economy Percent of respective economy† MA (CMS NHE) US MA (estimated)‡ 15.2% 12.2% *Personal health care expenditures (PHC) are a subset of national health expenditures. PHC excludes administration and the net cost of private insurance, public health activity, and investment in research, structures and equipment. † Measured as gross domestic product (GDP) for the US and gross state product (GSP) for Massachusetts ‡ CMS state-level personal health care expenditure data have only been published through 2009. 2010-2012 MA figures were estimated based on 2009-2012 growth rates provided by CMS for Medicare, ANF budget information statements for MassHealth, CHIA, and pre-filed testimony from commercial payers. Source: Centers for Medicare and Medicaid Services; ANF; CHIA; pre-filed testimony from commercial payers for 2013 annual cost trends hearing; HPC analysis

29. Massachusetts Legislature Passes Compromise Cost Containment Legislation(August of 2012) Stops Short of Regulating Payments

30. Chapter 224: Cost Control & Payment Reform Health Workforce Support Health Planning Administrative Simplification Alternative Payment Models New State Oversight Bodies Review Provider Price Variation Health IT Requirements Medicaid Payment Reform Transparency & Reporting Requirements Annual Spending Targets Infrastructure Support ACO Certification & Oversight Brandeis University

31. Spending & Delivery Reform Oversight Community Hospital Improvement Fund Executive Director and Staff Payment Reform Fund Center for Healthcare Information and Analysis Health Policy Commission* (11-member board) * In EOHS but not subject to EOHS control. Exempt from state civil service requirements and pay scales.

32. The Role of The Health Policy Commission • Help Providers of Care Find Ways to Lower Costs Through Efficiencies • Help Payers Change The Way They Pay To Promote Value-Based Care • Help Consumers and Patients Know What The Need and What Insurance and Care Costs • Assure That Any Restructuring or Consolidation of Healthcare Market Helps The Public

33. Commission Is Committed To Working With Health Plans and Providers To Develop Payment Systems That Reward Value

34. But---Commission Is Not a Regulatory Body--- Ultimate Responsibility Still Within Private Sector! Brandeis University

35. Reaching The Goal of The Law---Keep Future Growth In Line With State Growth In Income

36. Massachusetts Statewide Heath Care Spending Targets (All Payer) Billions 5.9%/yr 3.1%/yr 3.6%/yr 6.2%/yr Source: Author’s calculation based on historical state spending estimates and projected national health spending growth from the CMS Office of the Actuary and targets set forth in Chapter 224. Brandeis University

37. HPC is Like The Health Systems Mother--- We Keep Reminding The System to Eat It’s Vegetables

38. If System Doesn’t Listen To It’s Mother---? What Could Be Next!!!