The 2010 Affordable Care Act and the Future of Provider Payment in the U.S.: New Urgency, New Ground Rules

1. The 2010 Affordable Care Act and the Future of Provider Payment in the U.S.: New Urgency, New Ground Rules Meredith B. Rosenthal, Ph.D. Associate Professor of Health Economics and Policy February 5, 2010

2. 2010 Patient Protection and Affordable Care Act: A watershed moment in U.S. health policy

3. 32 million fewer uninsured by 2019 Source: Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended. Centers for Medicare and Medicaid Services, Office of the Actuary, April 22, 2010.

4. New urgency: Medicaid expansions will strain public coffers Source: FY 2008 State Expenditure Report, National Conference of State Budget Officers, Washington DC, 2009.

5. New urgency: affordability of individual insurance is critical

6. New urgency: influx of demand may cause access problems as in Massachusetts Source: Long SK and Masi PB, Access and Affordability: An Update on Health Reform in Massachusetts, Fall 2008. Health Affairs May 2009.

7. Important New Ground Rules for Payment Reform in 2010 • Independent Payment Advisory Board • Center for Medicare and Medicaid Innovation

8. Spectrum of Provider Payment: Reform Trajectory Moving Towards Global Payment

9. What We Know About Provider Payment That Should Inform Current Policy • Providers respond to incentives at the margin • One size does not fit all • Organizational capabilities need to be aligned with payment policy • Provider and patient incentives should fit together

10. Providers Respond to Incentives at the Margin Source: Rosenthal MB. Risk Sharing and the Supply of Mental Health Services. Journal of Health Economics, 2000 Nov; 19(6):1047-65.

11. One Size Does Not Fit All Source: Rosenthal et al., From Concept to Practice: Early Experience with Pay for Performance, JAMA, 2005.

12. Organizational capabilities need to be aligned with payment policy • Moving towards global payment requires contracting with organizations of greater scope • Experience in California suggests that these organizations transmit incentives through non-financial means Source: Rosenthal et al., Transmission of financial incentives to physicians by intermediary organizations in California, Health Affairs, 2002.

13. Provider and patient incentives should fit together Source: Rosenthal et al., Impact of Financial Incentives for Prenatal Care on Birth Outcomes and Spending, HSR, 2009.

14. Ongoing Natural Experiments That Will Yield Additional Insights • Medicare rule precluding severity adjustment for preventable complications • Patient-centered Medical Home pilots • Prometheus Payment case rate pilots

15. Medicare rule precluding severity adjustment for preventable complications Source: Medicare program: changes to the hospital inpatient prospective payment systems and fiscal year 2008 rates. Fed Regist 2007;72:47379-428.

16. Patient-centered Medical Home Pilots

17. Prometheus Payment case rate pilots

18. What We Need to Learn to Implement Payment Policy That Works • Where to use pay for performance and how much weight to give it • Where to use episode-based payment and how to address appropriateness of episodes • How to structure global payment to optimize tradeoffs among efficiency, selection, and risk aversion • How to use incentives and information to engage patients in ways that complement new payment models

19. Will this work? • Coverage reform looks easy compared to provider payment • Affordable Care Act provides some traction • Critical to success: • Tailored approach • Remove the status quo as an option • Align patient incentives