Improving Geographies and Adjusters for High-Value Care

1. Committee on Geographic Variation in Health Spending and Promotion of High-Value CareInstitute of Medicine Testimony of Larry deGhetaldi, M.D. Sutter Health’s Palo Alto Medical Foundation & the California Medical Association January 17, 2011

2. CMS Mission Statement To ensure effective, up-to-date health care coverage and to promote quality care for beneficiaries • CMS' Vision • To achieve a transformed and modernized health care system. • CMS will accomplish our mission by continuing to transform and modernize America's health care system. • CMS' Strategic Action Plan Objectives • Skilled, Committed, and Highly-Motivated Workforce • Accurate and Predictable Payments • High-Value Health Care • Confident, Informed Consumers • Collaborative Partnerships

3. Summary • Getting the Geographies Right • Getting the Risk/Cost Adjusters Right • Start with Existing Anchor System Models • Reward Clinical Innovation • Reward Sustained Efficiency

4. The Geographies of Dartmouth & CMS HRRs typically resemble and overlap with MSAs HSAs are sub-county units built around dominant hospitals

5. 1. Getting Geographies Right • Converge Physician and Hospital Geographies • Aligns cost & risk inputs • Decreases payment errors • Size of Geographic Units • Accountability is lost if the geography is too large • Use MSA’s for cost inputs • Use Dartmouth’s H.S.A.’s for: • Global payments (ACO’s and MA payments) • Value-added features currently in development

6. The Broken Physician Localities • Physician Payment Localities est. 1966 • No updates since 1996 • GAO (2007): • “Geographic Areas Used to Adjust Physician Payments for Variation in Practice Costs Should be Revised.” • “More than half of the current physician payment localities had counties within them with a large payment difference of 5 or more percent between GAO’s measure of physicians’ costs and Medicare’s geographic adjustment for an area.” • Recommends that CMS revise payment localities using a uniform approach and update the localities on a periodic basis.

7. Why Are These Maps Different? Congruency Will Improve Payment Accuracy (Physicians)

8. Why Are These Maps Different? Input Costs Should Apply to Measured Geographic Units Hospitals: • 12 Distinct MSA’s • High cost DC suburban counties accurately paid Physicians: • One ‘statewide’ physician payment • Up to 20% underpayments in suburban DC counties • Small section of VA included in the DC locality

9. Right Sized Geography for Risk Adjustment – Los Angeles Problem • One-third of CA population • FFS Consumption & MA rates >> No CA (SF=$896; LA = $1020; Dade =$1426) • Diverse population needs risk adjuster at more granular geographic layer • Commercial rates at or below RBRVS • Total per capita Medicare exp >> Rest of CA • The “parabolic” relationship

10. The Los Angeles Problem The ‘parabolic’ relationship between income and expenditures within the Commercial population. Commercial Population Average Expenditure Commercial Poverty also increases expenditures for Medicare beneficiaries

11. The Los Angeles Problem Immigrant Status Also Affects Expenditures and May Contribute Independently to Income

12. Cost & Risk Adjuster • Cost Adjuster: • Set to a national benchmark of 1.0 • Hospital Wage Index is necessary for costs • Physician GPCIs are necessary cost adjusters • Use MSA’s as the Geography • Risk Adjuster: • Set to a national benchmark of 1.0 • CMS data for risk used at the beneficiary level • Apply at a sub-county level reflective of community (H.S.A.) risk • Should capture health, poverty, and immigrant status

13. 2. Getting the Cost/Risk Adjusters Right • Step One = Measure total Expenditures • Step Two = Remove IME, GME and DSH payments • Step Three = Adjust for Risk (most granular level available, typically the H.S.A.) • Step Four = Adjust for Costs (using MSA cost inputs for hospitals and physicians) • Step Five = Factor in Historical Consumption Inflation (Reward sustained efficiency over time)

14. What are Risk/Cost Adjusters?

15. Why Include Risk/Cost Adjusters? Some variations in Medicare expenditures are reasonable: • Impact of age, disability status, race/ethnicity, poverty, deferred health care, immigrant status • Higher prevalence of dual eligibles • Variations in physician practice expenses (GPCIs) • Variations in hospital core expenses (wage index) • GME & DSH expenditures vary by county/H.S.A.

16. Risk and Cost Adjusters Applied (GAF= Geographic Adjustment Factor) CMA Derived Dartmouth CMS Data County Remove DSH et al Adjust for Risk Adjust for Cost Inputs Baselines should reflect cost AND risk variations and should incent favorable inflationary trends. Getting the Benchmarks Right

17. Without Cost Adjustment CA = 101% of U.S.

18. With Cost Adjustment CA= 90% of US

19. The Los Angeles Problem • The CMS County Risk Adjuster of 1.12 applied countywide : • Underpays low income/high risk communities (HSAs) • Overpays high income/low risk communities • ‘Flattens’ the parabolic curve in large, diverse populations • Could exacerbate health care disparities as it unintentionally redistributes Medicare payments away from at-risk populations, by reducing the desirability of serving Medicare beneficiaries in those areas • CMS has risk data calculated at the FFS beneficiary level which could be adapted to H.S.A. risk adjusters

20. 3. Start with Existing Anchor System Models • Northern California – Medical Group Innovators • Kaiser Permanente = the original disruptive innovator • Sutter Health’s Palo Alto Medical Foundation • And other multi-specialty medical groups integrated with hospitals • Southern California – IPA Innovators • IPAs at risk for total cost of care • Leveraging the Medicare Advantage program’s total risk opportunity for physician incentives • California • Physician Organizations adopting quality, service, and efficiency targets • Wide adoption of Pay for Performance by physicians • Advanced systems for managing chronic diseases • Advancing Physician-Hospital Organizations • Physicians Leading Transformation • High Hospital Wage Index – yet low hospital utilization

21. Success with Medicare Advantage Improves FFS Medicare Performance • 1,664 FFS Bed-Days versus 982 Bed-Days for MA is the CA “opportunity” • Los Angeles IPAs have MA Bed-Days in the 600s • Lower MA Bed-Days derive from coordinated physician-led care

22. 4. Rewarding Innovation & Transparency • Palo Alto Medical Foundation • 1,000+ physicians, multi-specialty medical group • 750,000 pts -30% capitated; 70% FFS • Three fully aligned hospitals; four partner hospitals • Physician led • Community Board populated by Silicon Valley Industry Leaders • A culture of Innovation & Excellence

23. Sutter Health’s PAMF Disruptive Innovations Underway • Group Practice since 1930; Non-profit since 1981 (Sutter Health Affiliate) • Research, Education and HealthCare Delivery Meld (Physician Led) • Early e HR and Patient Portal Adoption; eMessaging/eVisits Free to Pts. • Interoperable e HR with FQHC (Santa Cruz pilot); Specialty care for the safety net (Community Need) • Beyond Pt Centered Medical Home = primary care redesign (Primary Care Resurrection) • Physician Dashboards/Internal Transparency (Accountability) • External Quality/Service Transparency (Quality & Service Standards) • Shared Decision Making Modules (Patient Preference, not MD Preference) • Shared Medical Appointments (Enhancing Compliance) • Longitudinal Outcomes Analysis; partnering with hospitals (Value) • Research Institute Focus on: Healthcare Delivery Reforms • David Druker Innovation Center (established 2010) (Paul Tang, MD as lead) • Physician/Admin Pairings at all levels of the organization

24. Two Key Innovations Underway at PAMF • Clinical Variation Reduction • Physician driven – physician defined, specialty specific • Physician-defined Quality/Outcomes metrics • Measurable Savings to Payers and Patients • Palliative Care Ambulatory Medical Home • Leveraging current high performance on end of life expenditures • Patient & Family Centered in an ambulatory environment with dedicated Palliativists and care team Contrast:

25. How Can CMS Incent Innovation? • CA Private Sector paid for HIT & Quality Innovation • Provide Resources to Physician Groups to support Clinical Variation Reduction • Provide same to individual physicians based on physician specialty-defined clinical protocols • Provide payments for palliative, end-of-life medical home care

26. 5. Reward Sustained Efficiency

27. Medicare’s Geographies in CA Small homogeneous counties like Santa Cruz could be treated as a single HSA

28. Recommendations • Adopt MSAs for: • Hospital and Physician Cost inputs (hospital wage index & MD GPCIs) • Adopt H.S.A.s for: • Value Based incentives: efficiency, service, quality, innovation • Global Payment Targets • Medicare Advantage Rates • ACO Benchmarks • Abandon: • Current 89 Physician Fee Schedule Areas • County Based MA rates and move to H.S.A. cost & risk adjustments • Develop: • Risk Adjustment data at the H.S.A. level • Cost & Risk Adjusted targets for each H.S.A. • Quality and Service Metrics/targets at the H.S.A. level • Medicare Advantage and ACO targets should be applied using congruent geographies with similar incentives • Longitudinal incentive for inflation control • Incent Innovation: • Pay us (groups & solos) to innovate and we will

29. Summary • Geographies Need: • Update the Physician localities and make consistent with Hospital localities • Risk and cost adjusters at the level of the community (H.S.A.) which can be accountable to payers and patients • Risk & Cost Adjusters are Needed: • Accurate risk, cost and Value Metrics Actionable at the physician and medical group level • Actionable value metrics at both the physician and medical group level • Anchor System Models: • Exist due to market influences that should not be ignored • Should be early adopters • Incentivize Innovation: • Especially around data sharing leading to clinical variation reduction • And focused on improvements in end-of-life care • Inflation’s Impact Compounds • SF = 2.36% over 15 years • McAllen = 8.31%