Mini-Summit IV: Payment Reform Fourth National Pay for Performance Summit March 10, 2009

1. FROM VOLUME TO VALUE: Addressing the Key Challenges in Transforming Health Care Payment and Delivery Systems Mini-Summit IV: Payment ReformFourth National Pay for Performance SummitMarch 10, 2009

2. Building Consensus Across Regions Toward Implementation 2009 2007Summit 2008Summit SpecificPathwaystoReform What NewPayment Systems Should Look Like Solutions toBarriers toImplementingReforms www.nrhi.org/reports.html

3. Cost Person # Conditions Person The Health Care Cost Equation VARIABLES CONTRIBUTING TO THE COST OF CARE # Episodesof Care #/TypeServices # Processes Cost = x x x x Service Episode of Care Condition Process Prices ofProviders,Devices,Drugs? TreatmentProtocol,Type of Stent? CABG vs.Stent vs.Medical Mgmt? How manypeople have heartdisease? How manyheart attacks do theyhave? Cost of Treating Heart Disease

4. Cost # Episodesof Care #/Type Services Person = x x x x # Processes Cost # Conditions Condition Episode of Care Service Person Process Fee for Service SystemResult in Undesirable Effects… VARIABLES FOR WHICH THE PROVIDER IS AT RISKUNDER ALTERNATIVE PAYMENT SYSTEMS - FEE FOR SERVICE - No Limiton # ofServices Not AllServicesPaid For Not AllProcessesProvided

5. Cost # Episodesof Care #/Type Services Person = x x x x # Processes Cost # Conditions Condition Episode of Care Service Person Process …Which Payers Try to Solve ByLayering on Controls & Incentives VARIABLES FOR WHICH THE PROVIDER IS AT RISKUNDER ALTERNATIVE PAYMENT SYSTEMS - FEE FOR SERVICE - No Limiton # ofServices Not AllServicesPaid For Not AllProcessesProvided UtilizationReview Pay forPerfor-mance

6. Cost # Episodesof Care #/Type Services Person = x x x x # Processes Cost # Conditions Condition Episode of Care Service Person Process Traditional Capitation “Solves” the Problems of Fee for Service… VARIABLES FOR WHICH THE PROVIDER IS AT RISKUNDER ALTERNATIVE PAYMENT SYSTEMS - FEE FOR SERVICE - ServicesLimited byTotal $ AnyServiceIncluded Incentive For KeyProcesses ------------------------TRADITIONAL CAPITATION ----------------------

7. Cost # Episodesof Care #/Type Services Person = x x x x # Processes Cost # Conditions Condition Episode of Care Service Person Process PERFORMANCE RISK INSURANCE RISK …But Goes too Far in the Opposite Direction VARIABLES FOR WHICH THE PROVIDER IS AT RISKUNDER ALTERNATIVE PAYMENT SYSTEMS - FEE FOR SERVICE - ServicesLimited byTotal $ AnyServiceIncluded Incentive For KeyProcesses Provider At Risk for Sicker Patients ------------------------TRADITIONAL CAPITATION ----------------------

8. Cost # Episodesof Care #/Type Services Person = x x x x # Processes Cost # Conditions Condition Episode of Care Service Person Process PERFORMANCE RISK INSURANCE RISK Middle Ground #1:Episode of Care Payment VARIABLES FOR WHICH THE PROVIDER IS AT RISKUNDER ALTERNATIVE PAYMENT SYSTEMS - FEE FOR SERVICE - For Acute Conditions& Chronic Conditions: -- EPISODE OF CARE PAYMENT --

9. Cost # Episodesof Care #/Type Services Person = x x x x # Processes Cost # Conditions Condition Episode of Care Service Person Process PERFORMANCE RISK INSURANCE RISK Middle Ground #2:Condition-Adjusted Capitation VARIABLES FOR WHICH THE PROVIDER IS AT RISKUNDER ALTERNATIVE PAYMENT SYSTEMS - FEE FOR SERVICE - For Acute Conditions& Chronic Conditions: -- EPISODE OF CARE PAYMENT -- ------- CONDITION-ADJUSTED CAPITATION ----- OR RISK-ADJUSTED GLOBAL FEES For Comprehensive && Preventive Care:

10. There Is Broad Agreement AboutWhat the Goal Should Be TODAY IDEAL Value-DrivenCoordinated Care Volume-DrivenFragmented Care Fee for Service Severity-AdjustedEpisode-Based orComprehensivePayment Payment System

11. We Can’t Get There All At Once:Transitional Systems Needed • Build on existingbilling & payment systems • Enable providersto develop new methods of working together& managing care • Achieve savings for payers without bankrupting providers TODAY TRANSITION IDEAL Value-DrivenCoordinated Care Volume-DrivenFragmented Care Fee for Service Severity-AdjustedEpisode-Based orComprehensivePayment Enhanced FFSwith OutcomeIncentives Payment System

12. Example: Changing the Payment Structure for Medical Homes

13. Changing The Payment Structure: Long-Run Goal “Severity-AdjustedComprehensiveFees”or“Episode-BasedPayment”

14. Changing the Payment Structure:Transitional Steps

15. Who Should Be Eligible for Medical Home Payments? • Current Approach: Require MD Practices to Meet NCQA Standards for Medical Homes • Insufficient evidence to demonstrate that primary care practices meeting NCQA standards will deliver better value than those which do not • Recommended Approach: Focus Should Be on Outcomes • e.g., reducing preventable hospitalizations, improving patient satisfaction • Resist unnecessary barriers to entry, particular for smaller practices • Use NCQA standards as guidance to providers on how to organize • Research/Demonstrations Needed Before Standards Set • Some pilot projects requiring NCQA standards would be desirable • But pilot projects with different standards and outcome-driven requirements are needed to determine what actually makes a difference

16. Example: Payment ForMajor Acute Care

17. Recommended System:Bundled Payment to All Providers

18. Transitioning to Bundled Payment • Create Case Rates for All Providers: Pay non-surgeon physicians in hospitals on a case rate basis for patients in major DRGs. • Expect Warranties from Each Provider: Establish financial rewards for hospitals and physicians that reduce hospital readmissions (or penalties for those that do not). Give preference to providers that provide warranties on their care. • Increase Use of Gain-Sharing Between Providers: Remove restrictions on gain-sharing between hospitals and physicians for efforts to improve efficiencies in hospital care. • Create “Virtual” Bundling Among Providers: Provide rewards and/or penalties to all providers involved in an episode of care, based on the total cost of the episode relative to regional or national averages. • Bundle Case Rates for Providers into True Episode Payments: • Bundle hospital and surgeon payments for surgical procedures • Bundle hospital and post-acute care payments for major DRGs

19. Current Systems Don’t Encourage Use of Lower Cost Providers Assume All Providers Have Equivalent Quality Price/Cost ofService TotalProviderPrice/Cost Difference in Price Difference in Price Total Provider Price/Cost TotalProviderPrice/Cost Highest-ValueProviders Consumer-SelectedProvider Lowest-ValueProviders

20. Current Systems Insulate Consumers from Price Differences Price/Cost ofService Total Price InsuranceShare Consumer Share 2 Difference in Price Total Price Difference in Price InsuranceShare Consumer Share 2 Total Price InsuranceShare Consumer Share Consumer Share Co-Pay orCo-Insurance Consumer Share Highest-ValueProvider Consumer-SelectedProvider Lowest-ValueProvider

21. Solution: Have Consumers Pay All or Part of the “Last Dollar” Price/Cost ofService Total Price Consumer Share 2 Share ofDifferencein CostFrom HighestValue Provider Total Price Difference in Price Consumer Share 2 Total Price InsuranceShare InsuranceShare InsuranceShare Consumer Share 1 Consumer Share 1 Co-Pay orCo-Insurance Consumer Share 1 Highest-ValueProvider Consumer-SelectedProvider Lowest-ValueProvider

22. Encouraging Use of Higher-Value Providers and Services • Small Number of Tiers: Tier providers into a small number of tiers based on cost and quality (for easier consumer choice) • Significant Consumer Share for Higher Cost: Charge consumers a significant share of the difference in cost of providers in lower-value tiers; Charge consumers more for using lower-value services • Consumer Education: Educate consumers how to use information

23. A Key Challenge: Gaining Support from a Critical Mass of Payers Payer Payer Payer CurrentPaymentSystem Better Payment System Current PaymentSystem Provider Patient Patient Patient Provider is only compensated for changed practices for the subset of patients covered by participating payers

24. Regional Collaboratives Needed to Support Payment Reform • Alignment of Payment Structures • Due to anti-trust restrictions, there is a need for a neutral body to provide a mechanism for developing a payment structure acceptable to multiple payers • Quality and Cost Reporting • Methodologies for quality measurement should be consistent across payers and ideally consistent across the country for national payers • Community/Patient Education • Educate the community about the urgent need for change • Involve consumers in planning payment changes in meaningful ways

25. Transitional Payment Systems Important and Feasible TODAY TRANSITION IDEAL Value-DrivenCoordinated Care Volume-DrivenFragmented Care Fee for Service Severity-AdjustedEpisode-Based orComprehensivePayment Enhanced FFSwith OutcomeIncentives Payment System

26. Transition for Delivery SystemAs Well As Payment: Co-Evolution DeliverySystem IDEAL Value-DrivenCoordinated Care Co-Evolution ofOrganization & Payment “Supported”AccountableCare Systems TRANSITION TODAY Volume-DrivenFragmented Care PaymentSystem Fee for Service Severity-AdjustedEpisode-Based orComprehensivePayment Enhanced FFSwith OutcomeIncentives

27. Payment Reform Without Delivery Reform May Not Be Successful DeliverySystem IDEAL Value-DrivenCoordinated Care “Supported”AccountableCare Systems TODAY Failure Due to Lack of OrganizationalCapacity to Manage Value-Driven Payment Volume-DrivenFragmented Care PaymentSystem Fee for Service Severity-AdjustedEpisode-Based orComprehensivePayment Enhanced FFSwith OutcomeIncentives

28. Encouraging Providers to Support Changes • Hospitals and Specialty Providers • Provide technical assistance in eliminating waste and increasing efficiency, to reduce costs as well as revenues • Payers should reduce administrative burdens on providers (e.g., inconsistent reporting requirements) • Payers and providers should collaboratively plan for the transition (make changes with providers, not to them) • Small Physician Practices • Provide technical assistance in managing care and finances under new payment models • Provide help in forming organizational structures to facilitate quality improvement, share resources, and accept accountability for outcomes/costs

29. Coordinated Regional Approachto Payment & Delivery Reform Consumer/CommunityEducation Employee Supportfor Purchaser Action Consumer Responseto Value Data &Support for Changes EngagementofPurchasers Quality Reporting RegionalHealthcareCollaborative Purchaser Demandfor Payer Change Cost/Price Reporting Alignment ofMultiplePayers Provider Submissionof Quality/Price Data TechnicalAssistanceto Providers Provider Structure &Care Redesign in Response toPayment Incentives Provider Action toImprove Value

30. It’s Not Just a Theory – It’s Being Done PAYMENT MODELS EXAMPLES CHALLENGES Tiering of Providers Patient Choice Health Care(Ann Robinow) Risk-AdjustedGlobal Fees Value Incentives for Consumers DIAMONDInitiative(Gary Oftedahl) Aligning Multiple Payers Transitional Medical HomePayment InvolvingSmall & LargeProviders PROMETHEUSPayment(François de Brantes) Episode-Based Payment (Acute & Chronic) Building onExisting FFS System

31. For More Information: Harold D. MillerPresident & CEO, Network for Regional Healthcare ImprovementandExecutive Director, Center for Healthcare Quality and Payment ReformMiller.Harold@GMail.com (412) 803-3650 www.NRHI.org www.CHQPR.org