Pay for Performance in Health Care: Provider Perspective

1. Pay for Performance in Health Care:Provider Perspective Jeff Levin-Scherz, MD MBA FACP Assistant Professor Harvard School of Public Health jlevinscherz@gmail.com February 4, 2009 Slide 1

2. Summary: Provider Goals in Health Care Finance • Get paid for “value” delivered • Get paid enough to account for the opportunity cost of being a clinician! • Be held accountable for what providers control • Incentives aligned with patient needs • Minimize non-value-added work • Health plan does not perform medical management • Simple finances with prompt reliable payment • Full risk adjustment (at least theoretically) Slide 2

3. My Prescription to Lower Health Care Inflation Step One: Pay for bundles of services – not individual components Step Two: Isolate and eliminate variation Step Three: Enforce a high level of transparency for health care quality and value Step Four: Increase consumer responsibility for preference-sensitive care, and reengage government for supply-sensitive care Step Five: Pay more for better care, and pay less (or nothing) for worse care Step Six: Calorie restriction Step Seven: Yacht repo men! From Harvard School of Public Health HPM 235, Managing Health Care Costs, 12/08 Final Class Summary

4. Agenda Slide 4

5. Slide 5

6. Medical Inflation Persistently OutpacesOverall Inflation and Worker Earnings Source: KFF/HRET Survey of Employer Sponsored Health Benefits, 2007 www.kff.org/insurance/7672/upload/7693.pdf Slide 6

7. Underuse: U.S. Adults Receive Half of Recommended Care, and Quality Varies Significantly by Medical Condition Percent of recommended care received Source: E. McGlynn et al., "The Quality of Health Care Delivered to Adults in the United States,"The New England Journal of Medicine (June 26, 2003): 2635–2645.

8. Composite Diabetes Screening Measure Four Measures: HbAIC,LDL,Eye ExamRenal Screen

9. Quality Is Not Proportional To Cost Katherine Baicker and Amitabh Chandra Medicare Spending, The Physician Workforce, And Beneficiaries’ Quality Of Care Health Affairs Web Exclusive, April 7, 2004

10. “Boston’s health insurance spending increased by 92% over the past six years [while] all other operating spending excluding health insurance increased by 18%” Source: Boston Municipal Research Bureau, 11/06

12. Initially published in 1992 Slide 12

13. Fragmentation of Physician Practices In the US Source: http://www.gao.gov/new.items/d0865.pdf Slide 13

14. Slide 14

15. Levers • Overarching payment methodology • Claims administration • Prior Authorization • Restrictions on choice Slide 15

16. “There are many mechanisms for paying physicians; some are good and some are bad. The three worst are fee-for-service, capitation, and salary” James Robinson, PhDMilbank Quarterly, 2001 Slide 16

17. Prospect Theory PerceivedGains Losses Gains PerceivedLosses Correlation between perceived loss or gain and actual loss or gain Prospect Theory, Kahneman and Tversky, Econometria 1979

18. Behavioral Economics Principles • Losses valued more than gains • Certainty valued more than chance • Context matters • Percent difference valued more than than actual dollar value • Endowment Effect: We like what we already have • We are unrealistically optimistic • We prefer patterns and meaning over randomness • Memorable anecdote valued more than just numbers Slide 18

19. “There is nothing more difficult to carry out…than to initiate a new order of things. For the reformer has enemies in all whose who profit by the old order, and only lukewarm defenders in all those who would profit by the new order” MachiavelliThe Prince 1513 Quoted in Emmanuel, HealthCare, Guaranteed, 2008

20. PerceivedGains Gains Losses PerceivedLosses Loss Aversion: Fee For Service Vs. Capitation Incremental Cap Payment Incremental FFS Payment

21. PerceivedGains Losses Gains PerceivedLosses Loss Aversion: Fee For Service Vs. Capitation FFS Denial OR Capitation Resource Utilized

22. PerceivedGains Gains Losses PerceivedLosses Loss Aversion: Value-Added Tax vs. Payroll Deduction VAT Baggage fee vs. fuel surcharge?

23. Withhold vs Bonus • Scenario One: $90 initial payment with $5 bonus • Scenario Two: $100 payment with $10 withhold, half of which is returned

24. PerceivedGains Gains Losses PerceivedLosses Loss Aversion: Scenario 1Bonus vs. Withhold Bonus Payment + = This assumes that bonus is bundled into regular payment, which lowers its emotional impact

25. PerceivedGains Gains Losses PerceivedLosses Loss Aversion: Scenario 1 (version b)Bonus vs. Withhold + = Bonus Payment Bonus, if paid separately, more likely to look like a new small payment rather than an increment atop a large initial payment.

26. PerceivedGains Gains Losses PerceivedLosses Loss Aversion:Scenario 2 Bonus vs. Withhold = -

27. Incentives: Lessons from Prospect Theory • Daniel Kahneman awarded Nobel Prize for Economics in 2002 • Explains what was previously considered economically irrational behavior • More perceived value ascribed to • Losses (compared to gains) • MDs dislike risk of a $100 loss more than they like potential for a $100 gain • Percent difference (than actual dollar value) • People will drive two miles to save $1 on gallon of milk, but not to save $1 on television set

28. Prospect Theory: Implications for P4P • Multiple smaller incentive pools create more “bang for buck” than single larger pool • Steep portion of curve -- Sum of two gains (or losses) have greater perceived value than single equivalent gain (or loss) • Threat of loss of withhold creates more unhappiness – but more action – than offer of a bonus • Sum of gain (e.g., $1,000) and smaller loss (e.g., $750) has less perceived value than total ($250)

29. Considerations for Contract Financing Considerations for P4P Arrangements • Provide adequate reimbursement to sustain the delivery system • Don’t overpay for overutilized procedures • Don’t underpay for underutilized procedures • Encourage providing the right care in the first place rather than only identifying and remedying “defective” care • Provide adequate incentives to increase primary care • Match provider incentives with patient benefits Slide 30

30. Treating a DiabeticCurrent Approach Registry ShowsDefect Phone Intervention Process Measures Achieved by 12/31 OV: Diabetes OV: Diabetes OV: Diabetes OV: Diabetes OV: Diabetes OV: Unrelated OV: Preventive OV: Unrelated Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Future Approach OV: Diabetes OV: Diabetes OV: Diabetes OV: Diabetes OV: Diabetes OV: Unrelated OV: Preventive OV: Unrelated All process and outcome measures addressed regularly. Patients have access to their own lab values and report card throughout the year. Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Slide 31

31. 1976 Ford Crown Victoria 1990 Toyota Camry Slide 32

32. Pay for Performance: Design Elements from the Provider Perspective • Payment Methodology • Fee for service vs. capitation • Exclusions from “global” budget • Annual “inflation” rate • Pay for Performance Methodology • Many measures vs. few measures • Process measures vs. outcome measures • Claims measures vs. EMR measures • Bonus vs. withhold Slide 33

33. $120 $100 $104 $94 $97 $100 $97 $90 $88 $91 $100 $80 $60 $40 $20 $0 Billed Billed Receipts Bill Costs Savings Appeal Pay Appeal Cost Adjud Costs Appeals Pay Case Study: Destruction of Value Note that billing process yields costs to payer of $97 and yield to providers of $91. This $6 provides no value to patients Numbers for illustrative purposes only Slide 34

34. Gardisil™ Case Study • Cost per vaccine $120/dose; $360/recipient • For 325,000 delivery system, there are about 8400 females ages 14-171. • Delivering this vaccine at a rate of 100% would cost over $3m in year one • Delivering this vaccine at a rate of 50% could increase the entire practice’s “bottom line” by 6% Numbers are illustrative only (1) Source: US Census Bureau demographic estimates, Massachusetts, 2008 Slide 35

35. EMR Data vs. Claims Data Slide 36

36. Slide 37

37. Jeff’s Provider Wish List • TO • Capitation for services often overutilized; fee for service for underutilized services • Plans and providers together create operational efficiencies • Instant adjudication • Health care delivery in provider network only • Reliable high quality • Engaged patients FROM • Mostly fee for service • Payers and Providers each make huge investments in promoting or denying payments • Long claims delays • Health care delivery at both health plan and provider network • Variable quality • Confused, disheartened patients Slide 38

38. Slide 39

39. Payer and Provider Point of View Slide 40

40. Summary: Provider Goals in Health Care Finance • Get paid for “value” delivered • Get paid enough to account for the opportunity cost of being a clinician! • Be held accountable for what providers control • Incentives aligned with patient needs • Minimize non-value-added work • Health plan does not perform medical management • Simple finances with prompt reliable payment • Full risk adjustment (at least theoretically) Slide 41

41. My Prescription to Lower Health Care Inflation Step One: Pay for bundles of services – not individual components Step Two: Isolate and eliminate variation Step Three: Enforce a high level of transparency for health care quality and value Step Four: Increase consumer responsibility for preference-sensitive care, and reengage government for supply-sensitive care Step Five: Pay more for better care, and pay less (or nothing) for worse care Step Six: Calorie restriction Step Seven: Yacht repo men! From Harvard School of Public Health HPM 235, Managing Health Care Costs, 12/08 Final Class Summary