The Role of Payment Reform in Improving Health System Performance

1. The Role of Payment Reform in Improving Health System Performance Stuart Guterman Vice President, and Executive Director, Commission on a High Performance Health System The Commonwealth Fund Society of American Business Editors and Writers Business of Health Care Symposium New York, NY January 18, 2013

2. We have the most expensivehealth care system in the world

3. International Comparison of Spending on Health, 1980–2010 Average health spendingper capita ($US PPP) Total health spendingas a percentage of GDP Notes: PPP = purchasing power parity; GDP = gross domestic product. SOURCE: Commonwealth Fund, based on OECD Health Data 2012, available at http://stats.oecd.org/Index=aspx?DataSetCode=SHA.

4. Total National Health Expenditures (NHE) 2011–2021:Current Projection and Constant Proportion of GDP NHE in trillions 5.9% annual growth; 77% over 10 years $4.8T (19.6% of GDP) $4.4T (17.9% of GDP) 4.9% annual growth; 62% over 10 years $2.7T (17.9% of GDP) NHE currently projected, 2012-2021: $36.8T Total savings if NHE grows at same rate of GDP: $1.4T Source: Commonwealth Fund CMS, Office of the Actuary, National Health Statistics Group, National Health Expenditure Projections 2011-2021, available at http://www.cms.hhs.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.

5. Rising health spending puts pressure on thefederal budget—but also onstate and local budgets, businesses, and households

6. Federal Health and Total Spending as a Percentage of GDP, 2000-2087(Under CBO’s Extended Alternative Fiscal Scenario) Percentage of GDP NOTE: Figures for 2012-2087 are projections; CBO’s extended alternative fiscal scenario assumes that Medicare payment rates for physicians are maintained at the 2012 levels, the automatic spending reductions required by the Budget Control Act of 2011 do not take effect, and after 2022 several policies that would restrain spending growth do not take effect; most other federal spending is assumed to grow at the same rate as GDP after 2027. SOURCE: Congressional Budget Office, Supplemental Data for The 2012 Long-Term Budget Outlook (Washington, DC: Congressional Budget Office, June 2012), available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/43288-LTBOSuppTables_0.xls.

7. Medicare Spending per Enrollee Projected to Increase More Slowly Than Private Insurance Spending per Enrollee and GDP per Capita Annual rate of growth (percent) Note: GDP = gross domestic product. Source: CMS Office of the Actuary, National Health Expenditure Projections, 2011–2021, updated June 2012.

8. Projected U.S. National Health Expenditures (NHE) by Source, 2013–2023 NHE in $ billions % GDP: 17.9%18.7%20.5% Note: GDP = gross domestic product. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund.

9. Premiums Rising Faster Than Inflation and Wages Cumulative changes in insurance premiums and workers’ earnings, 1999–2012 Projected average family premium as a percentage of median family income, 2013–2021 Percent Percent 180% 172% 47% 38% Projected Sources: (left) Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits Annual Surveys, 1999–2012; (right) Commonwealth Fund estimates based on CPS ASEC 2001–12, Kaiser/HRET 2001–12, CMS OACT 2012–21.

10. The system’s performance doesn’t match thelevel or trend in spending

11. Rating of U.S. Health System’s Performance “On the whole, how successful is the U.S. health system in achieving high performance on the following domains?” Source: Commonwealth Fund/Modern Healthcare Health Care Opinion Leaders Survey, Aug.2011.

12. How the U.S. Health System Scores onDimensions of a High Performance Health System * * * Note: Includes indicator(s) not available in earlier years. Source: Commonwealth Fund Commission on a High Performance Health System. Why Not the Best? Results from the National Scorecard on U.S. Health System Performance, 2011 (New York: The Commonwealth Fund, October 2011)

13. 2010: 29 Million Adults Under Age 65 Underinsured, 81 Million Either Underinsured or Uninsured Uninsured during year 52 million (28%) Uninsured during year 45.5 million (26%) Insured, not underinsured 110.9 million (65%) Insured, not underinsured 102 million (56%) Underinsured* 29 million (16%) Underinsured* 15.6 million (9%) 2003 Adults 19–64 (172 million) 2010 Adults 19–64 (184 million) * Underinsured defined as insured all year but experienced one of the following: medical expenses equaled 10% or more of income; medical expenses equaled 5% or more of income if low income (<200% of poverty); or deductibles equaled 5% or more of income. Source: C. Schoen, M. Doty, R. Robertson, S. Collins, “Affordable Care Act Reforms Could Reduce the Number of Underinsured U.S. Adults by 70 Percent,” Health Affairs, Sept. 2011. Data: 2003 and 2010 Commonwealth Fund Biennial Health Insurance Surveys.

14. Underinsured and Uninsured Adults at High Risk of Going Without Needed Care and of Financial Stress Percent of adults (ages 19–64) * Did not fill prescription; skipped recommended medical test, treatment, or follow-up; had a medical problem but did not visit doctor; or did not get needed specialist care because of costs. ** Had problems paying medical bills; changed way of life to pay medical bills; or contacted by a collection agency for inability to pay medical bills or medical debt. Source: C. Schoen, M. Doty, R. Robertson, S. Collins, “Affordable Care Act Reforms Could Reduce the Number of Underinsured U.S. Adults by 70 Percent,” Health Affairs, Sept. 2011. Data: 2003 and 2010 Commonwealth Fund Biennial Health Insurance Surveys.

15. Mortality Amenable to Health Care Deaths per 100,000 population* * Countries’ age-standardized death rates before age 75; including ischemic heart disease, diabetes, stroke, and bacterial infections. Source: Commonwealth Fund Commission on a High Performance Health System. Why Not the Best? Results from the National Scorecard on U.S. Health System Performance, 2011 (New York: The Commonwealth Fund, October 2011)

16. Quality and Costs of Care for Medicare Patients Hospitalized for Heart Attacks, Hip Fractures, or Colon Cancer,by Hospital Referral Regions, 2004 Quality of Care* (1-Year Survival Index, Median=70%) * Indexed to risk-adjusted 1-year survival rate (median=0.70). ** Risk-adjusted spending on hospital and physician services using standardized national prices. Data: E. Fisher, J. Sutherland, and D. Radley, Dartmouth Medical School analysis of data from a 20% national sample of Medicare beneficiaries. Source: The Commonwealth Fund Commission on a High Performance Health System, Why Not the Best? Results from the National Scorecard on U.S. Health System Performance, 2008, (New York: The Commonwealth Fund, July 2008).

17. What Drives Variation in Spending? SOURCE: G. Hackbarth, R. Reischauer, and A. Mutti, "Collective Accountability for Medical Care—Toward Bundled Medicare Payments,"New England Journal of Medicine July 3, 2008 359(1):3–5. Source: G. Hackbarth, R. Reischauer, and A. Mutti. “Collective Accountability for Medical Care—Toward Bundled Medicare Payments” New England Journal of Medicine July 3, 2008 359(1):3-5.

18. Receipt of Recommended Screening andPreventive Care for Adults Percent of adults age 18+ who received all recommended screening and preventive care within a specific time frame given their age and sex* U.S. Average U.S. Variation 2008 * Recommended care includes at least six key screening and preventive services: blood pressure, cholesterol, Pap, mammogram, fecal occult blood test or sigmoidoscopy/colonoscopy, and flu shot. Source: Commonwealth Fund Commission on a High Performance Health System. Why Not the Best? Results from the National Scorecard on U.S. Health System Performance, 2011 (New York: The Commonwealth Fund, October 2011) 18

19. Access Problems: More Than Two of Three AdultsHave Difficulty Getting Timely Access to Their Doctor Percent reporting that it is very difficult/difficult: Getting an appointment with a doctor the same or next day when sick, without going to the emergency room Getting advice from your doctor by phone during regular office hours Getting care on nights, weekends, or holidays without going to the emergency room Any of the above Source: K. Stremikis, C. Schoen, and A.-K. Fryer, A Call for Change: The 2011 Commonwealth Fund Survey of Public Views of the U.S. Health System (New York: The Commonwealth Fund, April 2011).

20. Potential Waste and Inefficiency: More Than Half of AdultsExperience Wasteful and Poorly Organized Care Percent reporting in past two years: Doctors ordered a testthat had already been done Time spent on paperwork related to medical bills and health insurance a problem Health care system poorly organized Any of the above Source: K. Stremikis, C. Schoen, and A.-K. Fryer, A Call for Change: The 2011 Commonwealth Fund Survey of Public Views of the U.S. Health System (New York: The Commonwealth Fund, April 2011).

21. Poor Coordination of Care Is Common,Especially if Multiple Doctors Are Involved Source: K. Stremikis, C. Schoen, and A.-K. Fryer, A Call for Change: The Commonwealth Fund 2011 Survey of Public Views of the U.S. Health System (New York: The Commonwealth Fund, April 2011).

22. So what’s the problem with our system?And how do we fix it?

23. A Majority of Americans Say the Health Care SystemNeeds Fundamental Change or Complete Rebuilding Note: Subgroups may not sum to total due to rounding. Source: K. Stremikis, C. Schoen, and A.-K. Fryer, A Call for Change: The 2011 Commonwealth Fund Survey of Public Views of the U.S. Health System (New York: The Commonwealth Fund, April 2011).

24. Support for More Accessible, Coordinated,and Well-Informed Care Note: Subgroups may not sum to total due to rounding. Source: K. Stremikis, C. Schoen, and A.-K. Fryer, A Call for Change: The Commonwealth Fund 2011 Survey of Public Views of the U.S. Health System (New York: The Commonwealth Fund, April 2011).

25. Support for Doctors Working inTeams and Groups to Improve Patient Care Percent reporting it is very important/important for improving patient care 86 65 Note: Subgroups may not sum to total because of rounding. Source: K. Stremikis, C. Schoen, and A.-K. Fryer, A Call for Change: The 2011 Commonwealth Fund Survey of Public Views of the U.S. Health System (New York: The Commonwealth Fund, April 2011).

26. The impact of health reform

27. System Improvement Provisions in the Affordable Care Act of 2010 Note: ACO = accountable care organization; PCP = primary care physician; AHRQ = Agency for Healthcare Research and Quality. HHS = Department of Health and Human Services Source: Commonwealth Fund analysis.

28. Uninsured Nonelderly Under Baseline and the Affordable Care Act in 2022, by State Baseline Affordable Care Act NH VT NH WA ME VT WA ME MT ND MT ND MN OR MN NY MA WI NY OR SD ID MA WI ID MI SD RI WY MI RI PA WY NJ CT IA PA NJ CT IA NE OH DE NE OH IN NV IL DE WV MD IN NV IL UT VA MD CO DC WV UT VA MO KY KS CO CA DC MO KS KY CA NC NC TN TN SC OK AR AZ OK SC NM AZ AR GA NM AL MS GA AL MS LA TX LA TX FL FL 4%–<10% 20%–<25% AK AK HI HI 10%–<15% 25%–<30% 15%–<20% 30%–<35% 10% of nonelderly uninsured 22% of nonelderly uninsured Note: Baseline scenario is if the Affordable Care Act had not been enacted in 2010; Affordable Care Act is full implementation of the law; Romney plan includes full repeal of the Affordable Care Act and replacement with state block grants for the Medicaid program and equalization of the tax treatment of individually purchased health plans and employer plans. Source: S.R. Collins, S. Guterman, R. Nuzum, M.A. Zezza, T. Garber, and J. Smith. Health Care in the 2012 Presidential Election: How the Obama and Romney Plans Stack Up (New York: The Commonwealth Fund, October 2012).

29. The Affordable Care Act and Vulnerable Populations “How effective do you feel the Affordable Care Act will be in addressing the following issues for vulnerable populations?” Source: Commonwealth Fund/Modern Healthcare Health Care Opinion Leaders Survey, Aug. 2011.

30. Impact of Health Reform on National Health Expenditures NHE in trillions 6.3% annual growth $4.6 $4.3 5.7% annual growth $2.5 Total savings = $1.0 Trillion Notes: * Estimate of pre-reform national health spending when corrected to reflect underutilization of services by previously uninsured. Source: D. M. Cutler, K. Davis, and K. Stremikis, The Impact of Health Reform on Health System Spending, (Washington and New York: Center for American Progress and The Commonwealth Fund, May 2010).

31. Payment and Delivery System Reforms Can Help Build a High Performance Health System

32. The Problem: Fragmented Health Care Delivery and Financing, Inconsistent Incentives That Often Punish Efforts to Provide Better Care • The Diagnosis: The U.S. health system has multiple co-morbidities, but one of the fundamental problems for patients is fragmentation of providers and fragmentation of care delivery • Poor care coordination and care transitions • Sub-optimal quality and efficiency • The Treatment: Policies that change the way health care is organized, delivered, and paid for, to elicit and reward better results • Foundation of patient-centered primary care • Coordination of care among multiple providers and care settings • Accountability for the total care of a patient • Payment reform • Optimal use of health information technology • Continuous quality and efficiency improvement

33. What Provider Delivery System and Payment Reforms are Being Tested/Implemented? • Accountable Care Organizations • Shared savings • Shared savings and shared risk • Global payment -- partial or full capitation • Patient-Centered Medical Homes • Blended fee for service, care management fee, bonuses for quality • Bundled payment for acute hospital episodes • Inpatient hospital care and inpatient physician services • Inpatient hospital care, inpatient physician services, post-acute care services • Value-Based Purchasing • Tools, infrastructure support • Enhanced care coordination/chronic disease management • Health information technology • Beacon communities; health information exchanges • Combination strategy in innovator communities

34. Accelerating system change

35. High Performance Health System Criteria for Developing Options to Stabilize Spending Growth

36. A Synergistic Strategy for Improving System Performance Notes: SGR = sustainable growth rate formula; GDP = gross domestic product. * Malpractice policy savings included with provider payment policies. ** Target policy was not scored.

37. Projected National Health Expenditures (NHE), 2013–2023: Potential Impact of Synergistic Strategy NHE in $ trillions Note: GDP = gross domestic product. Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023.

38. Impact of Synergistic Strategy on Projected Annual Hospital and Physician Spending, 2013–2023 Spending in $ billions • Projected growth of hospital spending, 2013–2023: • Baseline projection: 82% (6.2% annual) • Net of policy impact: 67% (5.3% annual) • Projected growth of physician spending, 2013–2023: • Baseline projection: 88% (6.5% annual) • Net of policy impact: 77% (5.9% annual) Source: Estimates by Actuarial Research Corporation for The Commonwealth Fund. Current baseline projection assumes that the cuts to Medicare physician fees under the sustainable growth rate (SGR) formula are repealed and basic physician fees are instead increased by 1% in 2013 and held constant from 2014 through 2023.

39. There Are Hopeful Signs: The Health System Already is Responding to the Challenge to Provide Better Care • Meaningful use of health IT – • physicians with Electronic Health Records doubled from 17 to 34 percent in last there years • half of all hospitals have registered for a Medicare or Medicaid EHR Incentive Payment; $2.5 billion in EHR incentive payments • 50,000 health IT-related jobs created since the enactment of the HITECH Act (BLS) • Hospitals/physicians are participating in care transformation collaboratives • 32 Pioneer ACOs – committed to moving faster toward accountability • Primary care and Medical homes – Comprehensive Primary Care Initiative; 41 state Medicaid programs supporting initiatives • Bundled payment – Acute Care Episode demonstration, CMS bundled payment initiative • Community-based Transitions Program – 7 communities in Arizona; Atlanta; Akron; Merrimack Valley (MA), Southern Maine, and Chicago selected as of January 2012; aims to improve post-hospital discharge care transitions and reduce hospital readmissions • Partnership for Patients -- 6,900 hospitals and organizations pledged their commitment to a national campaign to improve the safety and coordination of care

40. Thank You! David Blumenthal, M.D. President Chair, Commission on a High Performance Health System db@cmwf.org Cathy Schoen Senior Vice President, Research & Evaluation sxg@cmwf.org The Commonwealth Fund Commission on a High Performance Health System Sara Collins Vice President, Affordable Health insurance src@cmwf.org Melinda Abrams Vice President, Patient-Centered Coordinated Care mka@cmwf.org Mark Zezza Senior Program Officer, Payment & System Reform maz@cmwf.org For more information, please visit: www.commonwealthfund.org