Sustainable U.S. Health Spending: Cost Control with Improved Value?

1. Sustainable U.S. Health Spending:Cost Control with Improved Value? Altarum Center for Value in Health CareWith funding from the Robert Wood Johnson Foundation

2. Continental Breakfast and Welcome • Katherine Hempstead • Senior Adviser to the Executive VP, Robert Wood Johnson Foundation

4. Health Care Spending, Government Budgets & Value • Len Nichols – Moderator & EnvoyPresident & CEOAlliance of Community Health Plans • Michael Chernew • Leonard Schaeffer Professor of Health Care Policy, Harvard Medical School • Marc Goldwein • Sr. Vice President and Sr. Policy Director, Committee for a Responsible Federal Budget

5. Health Care Spending, Government Budgets & Value • Len Nichols • President & CEO, Alliance of Community Health Plans, Moderator & Envoy • Michael Chernew • Leonard Schaeffer Professor of Health Care PolicyHarvard Medical School • Marc Goldwein • Sr. Vice President and Sr. Policy Director, Committee for a Responsible Federal Budget

6. Value Based Payment Michael Chernew

7. 1970s 1980s 1990s 2000s Health spending exceeds income growth by: 2.4% 3.4% 2.6% 1.5%  2010 – 2015: Excess = 0.5

8. Forecasted Medicare Spending

10. Value Based Care • Value Based Insurance Design • Incentives to patients • MA Waiver • ACA 2713 • HSA rules • Value Based Networks • Incentives to patients • Narrow networks • Tiered networks • Reference pricing • Other steerage • Value Based Payment • Incentives to providers • ACOs • Episode Based Payment

11. Why Do We Call It “Value Based”

12. Value Based Payment

13. Payment Need not Rise with Value

14. Why?

15. What We Know • ACOs save modest amounts (<10%) • Physician orgs do better • Commercial ACOs perform better • Post acute big source of $ • Care coordination not the source • ACOs improve quality • EBP saves modest amounts of money • Effects vary by episode • Episode expansion not a huge problem • EBP does not likely harm quality

16. Alternative Quality Contract Reduced Spending 2009 AQC Cohort 2010 AQC Cohort 2011 AQC Cohort 2012 AQC Cohort Source: Song, Zirui, et al. "Changes in health care spending and quality 4 years into global payment." New England Journal of Medicine 371.18 (2014): 1704-1714.

17. EBP Savings by Episode (2013-2016) Department of Health Care Policy

18. Episodes vs Population Based Payment • Both lower spending • Episodes are narrower (harder to get PMPM savings) • Not all areas can support population based payment • Episodes engage specialists better

19. Where are we going? • More risk • Better program design • Integrated ACOs and EBP • With each other • With benefit design • Savings through lower benchmark trend • ‘Appropriability’ is crucial

20. Everything is Relative • We want • We have • We can build

21. Execution Matters

22. Health Care Spending, Government Budgets & Value • Len Nichols • President & CEO, Alliance of Community Health Plans, Moderator & Envoy • Michael Chernew • Leonard Schaeffer Professor of Health Care Policy, Harvard Medical School • Marc Goldwein • Sr. Vice President and Sr. Policy Director, Committee for a Responsible Federal Budget

23. Unsustainable Health Costs, Unsustainable Debt Marc Goldwein July 2019

24. The U.S. Fiscal Outlook Is Unsustainable

25. President Trump Entered Office With High Debt Percent of GDP Truman 106% Trump 77% Projected Obama Eisenhower Clinton JFK Bush Bush Reagan Johnson Nixon Carter Ford Sources: Congressional Budget Office, Office of Management and Budget

26. And Debt is Growing Rapidly Over the Long-Term Source: CBO June 2019 Long Term Budget Outlook.

27. Especially Over the Very Long-Term Percent of GDP Current Law Estimate Source: Congressional Budget Office, CRFB interpolations for 2039-2047 AFS.

28. Rising Debt Will Reduce Income Per Person Per-Person Income (Real GNP Per-Capita) in 2049 [Debt % of GDP] Source: Congressional Budget Office June 2019 Long Term Budget Outlook

29. …And Will Have Other Adverse Consequences • “Slowing Income “Crowding Out” of private sector investment • Higher Interest Rates on loans for households and businesses • Higher Government Interest Payments displacing other government priorities and investments • Generational Unfairness with younger and future generations paying the price of today’s consumption. • Reduced Fiscal Space for the government to react to wars, recessions, or other national needs and emergencies • Insolvent Entitlement Programs such as Social Security and Medicare will ultimately face abrupt cuts • Risk of Eventual Fiscal Crisis if changes are not made

30. What Does This Have to Do With Health Care?

31. Health Care is a Major Part of the Budget Billions Source (left): Congressional Budget Office May 2019 Baseline Source (right): Joint Committee on Taxation

32. Rising Medicare and Medicaid Costs Drive Deficits Percent of GDP Source: Congressional Budget Office June 2019 Long Term Budget Outlook

33. The Very Long-Run Outlook Looks Really Scary Percent of GDP HISTORIC PROJECTED HISTORIC PROJECTED Source: CBO (Historic), CBO June 2019 Long-Term Budget Outlook (‘19-’49), CRFB Calculations based on CBO June 2018 Long-Term Budget Outlook

34. Unsustainable Health Spending, Unsustainable Debt Percent of Taxable Payroll Scheduled Costs HI Exhaustion: 2026 Benefit Cut: 11% HISTORIC PROJECTED HISTORIC PROJECTED Source: 2019 Medicare Trustees Report

35. What’s Causing the Spending Growth? Source: CBO June 2019 Long-Term Budget Outlook

36. The Problem is Economy-Wide Health Expenditures as Percent of GDP Source: Organization for Economic Cooperation and Development Note: Data from 2013

37. The Problem is Economy-Wide Source: CMS Actuary, April 2019

38. The Path to Sustainability

39. Fixing Health Care Costs is Key to Fixing the Debt

40. So What Do We Do? • Improve Incentives to deliver higher-value care more efficiently • Providers (bundled payments, ACOs, value-based payment, tort reform) • Patients (cost sharing reform, managed care, supplement plan restrictions) • Employers (limits to tax preference, incentives for low cost care) • Drug companies (weaken monopoly power, promote generics) • Reduce Prices paid to providers, insurers, and for drugs • Promote Competition to reduce cost of insurance plans, medical equipment, prescription drugs and biologics, etc • Rethink Who Pays and Who is Subsidized, and how much • Expect Less Care and Slower Technological Advancement • Accept Rising Costs, financed with higher taxes, more borrowing, and/or lower non-health spending • (A little bit of) All of the Above

41. What’s in the President’s Budget? Source: CRFB calculations based on OMB estimates *These policies would reduce out-of-pocket costs for some seniors – especially those with high catastrophic costs and who purchase generic drugs – while increasing them modestly for others

42. Medicare for All: Solution or Distraction? Cost to Federal Government in Trillions of Dollars Over Ten Years (Windows Vary) Note: Ten-Year window is 2017-2026 for all estimates except Blahous, which is 2019-2028, and Center for Health and Economy, which is 2020-2029.

43. Health Care Spending, Government Budgets & Value • Discussion

44. Please stand by, the meeting will resume momentarily

45. Discussion

46. Meeting Adjourned

47. Please stand by, the meeting will begin momentarily