Reforming Provider Payment: Essential Building Block for Health Reform

1. Reforming Provider Payment: Essential Building Block for Health Reform Stuart Guterman Assistant Vice President Director, Program on Medicare’s Future The Commonwealth Fund Alliance for Health Reform Briefing on Payment Reform Washington, DC March 20, 2009

2. Path To High Performance: Key Strategies for Achieving Access for All, Better Health Care and Outcomes, and Slower Cost Growth • Affordable coverage for all: access and foundation for payment and system reforms • Insurance exchange: choice of private and new public plan • Market reforms, affordability, and shared responsibility • Align incentives: payment reform to enhance value • Accessible patient-centered primary care • Move from fee-for-service to more “bundled” payment, with accountability • Align price signals with efficient care and value • Aim high to improve quality and health outcomes • Invest in infrastructure: information systems • Promote health and disease prevention • Accountable, patient-centered, coordinated care • Leadership and collaboration

3. Trend in the Number of Uninsured, 2009–2020 Under Current Law and Path Proposal Millions Note: Assumes insurance exchange opens in 2010 and take up by uninsured occurs over two years. Remaining uninsured are mainly non-tax-filers. Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, Feb. 2009.

4. Potential Gain in Population HealthIf the U.S. Reaches Benchmarks • 37 million more adults and 10 million more children with accessible primary care • 68 million more adults receiving recommended preventive care • 70,000 fewer children admitted to hospitals for asthma • 250,000 fewer admissions to hospitals for complications of diabetes • 600,000 fewer elderly hospitalized or re-admitted for preventable conditions • 100,000 fewer deaths before age 75 from conditions amendable to health care • 180,000 more physicians using electronic medical records and information networks linking teams

5. Total National Health Expenditures (NHE), 2009–2020Current Projection and Alternative Scenarios NHE in trillions Cumulative reduction in NHE through 2020: $3 trillion Note: GDP = Gross Domestic Product. Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, Feb. 2009.

6. Interrelation of Organization and Payment Integrated system capitation Global DRG fee: hospital, post- acute, and physician inpatient Global DRG fee: hospital only Global ambulatory care fees Global primary care fees Blended FFS and medical home fees FFS and DRGs Outcome measures; large % of total payment Less Feasible Care coordination and intermediate outcome measures; moderate % of total payment Continuum of P4P Design Continuum of Payment Bundling More Feasible Preventive care; management of chronic conditions measures; small % of total payment Small MD practice; unrelated hospitals Primary care MD group practice Multi-specialty MD group practice Hospital system Integrated delivery system Source: A. Shih, K. Davis, S. Schoenbaum, A. Gauthier, R. Nuzum, and D. McCarthy, Organizing the U.S. Health Care Delivery System for High Performance (New York: The Commonwealth Fund, Aug. 2008).

7. Net Impact of Path Payment Reforms on CumulativeNational Health Expenditures Compared with Current Projection, 2010–2020 (in billions) Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Lewin Group, The Path to a High Performance U.S. Health System: Technical Documentation(Washington, D.C.: The Lewin Group, 2009).

8. Quality and Cost of Care for Medicare Patients Hospitalized for Heart Attacks, Colon Cancer, and Hip Fracture, by Hospital Referral Regions,2000–2002 * Indexed to risk-adjusted 1 year survival rate (median = 0.70). ** Risk-adjusted spending on hospital and physician services using standardized national prices, indexed to median. Data: E. Fisher and D. Staiger, Dartmouth College analysis of data from a 20% national sample of Medicare beneficiaries. Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 8

9. 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.

10. Total National Health Expenditure Growth for Hospitals and Physicians, Current Projections and With Policy Changes, 2009-2020 Hospital Expenditures (trillions) Physician Expenditures (trillions) $1.6 $1.4 $1.3 $1.1 $0.8 $0.7 Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Lewin Group, The Path to a High Performance U.S. Health System: Technical Documentation (Washington, D.C.: The Lewin Group, 2009).

11. Conclusions • Emphasis on primary care can provide better access to needed care and more patient-centered care • Bundled payment can encourage more coordinated care across providers and settings, and more accountability for outcomes and resource use • The main objective of payment reform is to provide more organized, effective, and efficient health care delivery • Payment reform built on a foundation of coverage for all and system reforms can be more effective • These changes will be difficult—they affect how $42 trillion in projected cumulative spending will be allocated • But we are not talking about shutting down the health care system—only reducing cumulative spending from $42 trillion to $39 trillion, with annual growth slowing from a projected 6.7% to 5.5% (compared with 4.7% for GDP)

12. Acknowledgements Cathy Schoen, Sr. Vice President, Research & Evaluation Karen Davis, Ph.D., President Stephen Schoenbaum, M.D. Executive Vice President for Programs Kristof Stremikis, M.P.P Research Associate to the President