FROM VOLUME TO VALUE: Better Ways to Pay for Health Care, and How to Get There

1. FROM VOLUME TO VALUE: Better Ways to Pay for Health Care, and How to Get There Harold D. MillerExecutive Director Center for Healthcare Quality and Payment Reformand President and CEO Network for Regional Healthcare Improvement

2. What is an“Accountable Care Organization?”

3. The Official Definition What is an“Accountable Care Organization?” A group of providers who are“accountable for the quality, cost, and overall care” of patients Section 3022, Patient Protection and Affordable Care Act

4. The Real Definition What is an“Accountable Care Organization?” A group of providers who can figureout how to save moneyin health care

5. How Will ACOs Generate All These Savings? Financial Risk ACO(“the “Black Box”) Patients LowerCosts Organizational Structure

6. What’s In That Black Box Can’t Be Good For Consumers, Can It? Financial Risk ACO(“the “Black Box”) RATIONING Patients LowerCosts Organizational Structure

7. Focus Should Be On Improving Care to Reduce Costs REDUCINGCOSTS WITHOUTRATIONING Patients LowerCosts

8. Reducing Costs Without Rationing:Can It Be Done??

9. Reducing Costs Without Rationing:Prevention and Wellness HealthyConsumer ContinuedHealth PreventableCondition

10. Reducing Costs Without Rationing:Avoiding Hospitalizations HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Acute Care Episode

11. Reducing Costs Without Rationing:Efficient, Successful Treatment HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode High-CostSuccessfulOutcome Complications, Infections,Readmissions

12. Reducing Costs Without Rationing:Is Also Quality Improvement! Better Outcomes/Higher Quality HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode High-CostSuccessfulOutcome Complications, Infections,Readmissions

13. Current Payment Systems Reward Bad Outcomes, Not Better Health HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode $ High-CostSuccessfulOutcome Complications, Infections,Readmissions

14. Are There Better Ways to Pay for Health Care? HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode ? $ High-CostSuccessfulOutcome Complications, Infections,Readmissions

15. “Episode Payments” to Reward Value Within Episodes HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode $ High-CostSuccessfulOutcome EpisodePayment Complications, Infections,Readmissions A Single Payment For All Care Needed From All Providers inthe Episode, With a Warranty ForComplications

16. Yes, a Health Care ProviderCan Offer a Warranty Geisinger Health System ProvenCareSM • A single payment for an ENTIRE 90 day period including: • ALL related pre-admission care • ALL inpatient physician and hospital services • ALL related post-acute care • ALL care for any related complications or readmissions • Types of conditions/treatments currently offered: • Cardiac Bypass Surgery • Cardiac Stents • Cataract Surgery • Total Hip Replacement • Bariatric Surgery • Perinatal Care • Low Back Pain • Treatment of Chronic Kidney Disease

17. Payment + Process Improvement = Better Outcomes, Lower Costs

18. What a Single Physician and Hospital Can Do • In 1987, an orthopedic surgeon in Lansing, MI and the local hospital, Ingham Medical Center, offered: • a fixed total price for surgical services for shoulder and knee problems • a warranty for any subsequent services needed for a two-year period, including repeat visits, imaging, rehospitalization and additional surgery. • Results: • Surgeon received over 80% more in payment than otherwise • Hospital received 13% more than otherwise, despite fewer rehospitalizations • Health insurer paid 40% less than otherwise • Method: • Reducing unnecessary auxiliary services such as radiography and physical therapy • Reducing the length of stay in the hospital • Reducing complications and readmissions.

19. The Weakness of Episode Payment HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode How do you preventunnecessary episodes of care? (e.g., preventable hospitalizationsfor chronic disease, overuse of cardiac surgery, back surgery, etc.) High-CostSuccessfulOutcome EpisodePayment Complications, Infections,Readmissions

20. Comprehensive Care PaymentsTo Avoid Episodes HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode $ High-CostSuccessfulOutcome ComprehensiveCarePayment or “Global”Payment Complications, Infections,Readmissions A Single Payment For All Care Needed For A Condition

21. Isn’t This Capitation?No – It’s Different COMPREHENSIVE CARE PAYMENT CAPITATION (WORST VERSIONS) Payment Levels Adjusted Based on Patient Conditions No Additional Revenuefor Taking SickerPatients Limits on Total RiskProviders Accept forUnpredictable Events Providers Lose Money On Unusually Expensive Cases Bonuses/PenaltiesBased on QualityMeasurement Providers Are Paid Regardless of the Quality of Care Provider Makes More Money If Patients Stay Well Provider Makes More Money If Patients Stay Well Flexibility to DeliverHighest-Value Services Flexibility to DeliverHighest-ValueServices

22. Example: BCBS MassachusettsAlternative Quality Contract • Single payment for all costs of care for a population of patients • Adjusted up/down annually based on severity of patient conditions • Initial payment set based on past expenditures, not arbitrary estimates • Provides flexibility to pay for new/different services • Bonus paid for high quality care • Five-year contract • Savings for payer achieved by controlling increases in costs • Allows provider to reap returns on investment in preventive care, infrastructure • Broad participation • 14 physician groups/health systems participating with over 400,000 patients, including one primary care IPA with 72 physicians • Positive first-year results • Higher ambulatory care quality than non-AQC practices, better patient outcomes, lower readmission rates and ER utilization http://www.bluecrossma.com/visitor/about-us/making-quality-health-care-affordable.html

23. Payment Reform Allows Pursuing a Different “Triple Aim” • Better Care for Patients (Win) • Lower Costs for Purchasers/Payers (Win) • Equal or Better Margins for Providers (Win)

24. A Deeper Dive into Episode Payments and Implications HealthyConsumer ContinuedHealth PreventableCondition NoHospitalization Efficient Successful Outcome Acute Care Episode $ High-CostSuccessfulOutcome EpisodePayment Complications, Infections,Readmissions

25. Episode Payment =Bundling + Warranty • Bundling: Making a single payment to two or more providers who are currently paid separately • e.g., services of both a hospital and a physician • e.g., both hospital and post-acute care services • Warranty: Not charging/being paid more for costs of treating hospital-acquired infections, problems caused by errors, etc.

26. Current Episode-of-Care Initiatives • Medicare Acute Care Episode (ACE) Demonstration • single amount for hospital & physician services for cardiac, orthopedic DRGs • combined payment lower than current Medicare payments • patients receive share of Medicare’s savings through lower copays • Bundled payment goes to a Physician-Hospital Organization which then divides the payment between the hospital and the physicians • Congressional authorization allows CMS to waive restrictions on gain-sharing, so hospitals can share internal savings with physicians • Physicians eligible to receive up to 25% more than current payment levels • Prometheus PaymentTM • covers full episode of care and all providers • estimates the appropriate payment amount based on historical costs and any guidelines for evidence-based care • “virtual bundling”: no provider receives the money for another provider’s services; each provider receives a share of the total episode payment in proportion to the services they’ve billed • Pilot sites in Rockford, IL; Michigan; Minneapolis; Philadelphia; Utah

27. How Can Physicians, Hospitals, and Payers Benefit from Bundling?

28. Example: Reducing Cost of Implantable Defibrillators

29. Physicians Could Help Hospitals Reduce Cost of Medical Devices

30. Today: All Savings Goes to the Hospital, No Reward for Physician

31. Bundling Allows Savings Split Among Docs, Hospital, Payers

32. So Defibrillator Implantation is Cheaper But More Profitable Win-Win-Win

33. Won’t Bundling Encourage More Procedures?

34. Bundling Can Provide a Path to Reducing Overutilization

35. What If There is Evidence of Overutilization? Assume a study findsthat 20% of proceduresare unnecessary orcan be avoided throughmedical management

36. Appropriateness Guidelines Alone Can Hurt Hospitals & Physicians

37. Bundling + Guidelines Can Avoid Harming Providers While Saving $

38. Bundling Can Also Allow Benefits From Changes in Settings

39. Under Today’s Separate Facility and Physician Fees… INPATIENT Hospital DRG Payer Physician Fee

40. …Savings From Shifts to Lower Cost Settings All Accrue to Payer INPATIENT OUTPATIENT Hospital DRG Payer Savings Outpatient APC Payer Physician Fee Physician Fee

41. …Savings From Shifts to Lower Cost Settings All Accrue to Payer INPATIENT OUTPATIENT OFFICE Hospital DRG Payer Savings Payer Savings Outpatient APC Practice Exp. Payer Physician Fee Physician Fee Physician Fee

42. But if the Physician Is Accepting a Bundled Payment… INPATIENT OUTPATIENT OFFICE Hospital DRG Payer Savings Payer Savings Outpatient APC Practice Exp. Payer Physician Fee Physician Fee Physician Fee BundledPayment Hospital Cost Payer Physician Fee

43. …The Physician Can Be Paid More But Still Charge Less to the Payer INPATIENT OUTPATIENT OFFICE Hospital DRG Payer Savings Payer Savings Outpatient APC Practice Exp. Payer Physician Fee Physician Fee Physician Fee BundledPayment Hospital Cost Payer Savings Payer Savings Outpatient Cost Office Costs Payer Physician Fee Physician Fee Physician Fee

44. How Can Physicians, Hospitals,& Payers Benefit from Warranties?

45. Prices for Warrantied Care Will Likely Be Higher

46. Prices for Warrantied Care Will Likely Be Higher • Q: “Why should we pay more to get good-quality care??” • A: In most industries, warrantied products cost more, but they’re desirable because TOTAL spending on the product (repairs & replacement) is lower than without the warranty

47. Prices for Warrantied Care May Be Higher, But Spending Lower • Q: “Why should we pay more to get good-quality care??” • A: In most industries, warrantied products cost more, but they’re desirable because TOTAL spending on the product (repairs & replacement) is lower than without the warranty • In healthcare, a DRG with a warranty would need to have a higher payment rate than the equivalent non-warrantied DRG, but the higher price would be offset by fewer DRGs w/ complications, outlier payments, and readmissions

48. Example: $10,000 Procedure

49. Actual Average Payment for Procedure is Higher than $10,000

50. Starting Point for Warranty Price:Actual Current Average Payment