Payment Reform and Physician Realignment: The Road Ahead

1. Collin-Fannin County Medical Society May 24, 2011 Payment Reform and Physician Realignment:The Road Ahead

2. Annual Increase in per Capita Health Spending vs. Increase in Consumer Price Index

3. National Health Expenditures per Capita Healthcare spending in 2010 was $2.6 trillion, over17% of GDP. Per capita spending has increased 70% over the past decade.

5. Distribution of Healthcare Expenses for the U.S. Population • The Five Most Costly Medical Conditions • end of life • heart disease • pulmonary disease • mental disorder • cancer

6. Mean Healthcare Expenditure per Person by Spending Group - 2008

7. Mandated Medicare Payment Reductions 2012 - 2019 SGR - $380 Billion • Cut payments for physician services under the Sustainable Growth Rate Formula. Scheduled 27% reduction in 20013. ACA - $500Billion • reduce physician and hospital payments based on private, non-farm business productivity growth. • reduce disproportionate share hospital (DSH) payments • reduce Medicare Advantage payments • eliminate Medicare Improvement Fund Current law mandates almost $900 billion in cuts to provider payments over the next 8 years. 7

8. Simulated Comparison of Relative Medicare, Medicaid and Private Health Insurance Prices Under Current Law 8 Source: Office of the Actuary, Centers for Medicare and Medicaid Services

9. What are the Alternatives? • Congress allows the mandated cuts to take effect, and by 2019 over 20% of US hospitals have negative operating margins and a large percentage of physicians have dropped out of Medicare. • Congress allows the cuts to take effect and implements “all-payer” rate-setting to prevent the gap between Medicare and commercial payers from becoming too wide. • Congress serially acts to delay and postpone mandated cuts in the name of preserving Medicare which, coupled with the projected $875 billion cost of expanded coverage, causes healthcare inflation and pressures on the federal budget to accelerate. • Congress acts to fundamentally change how healthcare is paid for, e.g., bundled and global payments. 9

10. United States Income Statement FY 2012 FY2012 Revenue $2.47 Trillion FY2012 Expenses $3.80 Trillion Net Interest $225B Discretionary Non-Defense $450B Social Security $773B Other $226B 6% Corporate Income Tax $237B 9% 12% 20% Individual Income Tax $1,165B 10% 47% Medicare + Federal Medicaid $733B 23% 19% 34% Security + Defense $868B Social Insurance Tax $841B 20% Unemployment Insurance + Other Entitlements $746B

11. How Healthcare is Currently Purchased 11

12. How Physician Payments are Determined

13. Payment Reform Alternatives Pay for performance bonuses for quality penalties for inefficiency Fee-for- service Capitation Areawide budgets Episode based payments Pay for performance bonuses for quality

14. Current Payment Reform Initiatives Major CMS payment reform initiatives currently under way include: • Medicare Shared Savings Program (MSSP) • Pioneer Accountable Care Organization (ACO) Model • Value Based Purchasing Initiative • Bundled Payments Initiative The market is moving away from utilization based reimbursement. The momentum of change is now mandating effective clinical integration, regardless of participation in any of these current CMS programs. 14

15. Candidates for Episode Based Payment Any medical condition that meets the following criteria would be a potential candidate: • has a high cost per event • is subject to wide variation in treatment • requires services that are currently not adequately reimbursed, e.g., case management, provision of patient care outside an office setting, etc. • has clear beginning and end points that could readily be documented by clinicians • has generally agreed upon clinical practice guidelines

16. Episode Based Payment Options

17. Current Practice Pre-Admission Hospitalization Post-Acute Care Readmission PCP PCP PCP PCP PHYSICIANS Surgeon Surgeon Surgeon Surgeon Other Specialist Other Specialist DEVICES/EQUIPMENT Imaging Imaging Imaging Imaging Implants, etc DRUGS Drugs Drugs Drugs Drugs Home Care NON-MDSTAFF HospitalStaff HospitalStaff PCP Care Mgr Rehab Facility Hospital Hospital FACILITY DRG DRG Long-Term Care

18. Episode Based PaymentHospital “Warranty” Pre-Admission Hospitalization Post-Acute Care Readmission PCP PCP PCP PCP PHYSICIANS Surgeon Surgeon Surgeon Surgeon Other Specialist Other Specialist DEVICES/EQUIPMENT Imaging Imaging Imaging Imaging Implants, etc DRUGS Drugs Drugs Drugs Drugs Home Care NON-MDSTAFF HospitalStaff HospitalStaff PCP Care Mgr Rehab Facility Hospital Hospital FACILITY DRG Long-Term Care DRG

19. Episode Based PaymentAll Inpatient Services Pre-Admission Hospitalization Post-Acute Care Readmission PCP PCP PCP PCP PHYSICIANS Surgeon Surgeon Surgeon Surgeon Other Specialist Other Specialist DEVICES/EQUIPMENT Imaging Imaging Imaging Imaging Implants, etc DRUGS Drugs Drugs Drugs Drugs Home Care NON-MDSTAFF HospitalStaff HospitalStaff PCP Care Mgr Rehab Facility Hospital Hospital FACILITY DRG Long-Term Care DRG

20. Full Episode Based Payment Pre-Admission Hospitalization Post-Acute Care Readmission PCP PCP PCP PCP PHYSICIANS Surgeon Surgeon Surgeon Surgeon Other Specialist Other Specialist DEVICES/EQUIPMENT Imaging Imaging Imaging Imaging Implants, etc DRUGS Drugs Drugs Drugs Drugs Home Care NON-MDSTAFF HospitalStaff HospitalStaff PCP Care Mgr Rehab Facility Hospital Hospital FACILITY DRG Long-Term Care DRG

21. The Patient-Centered Medical Home • Personal physician - each patient has an ongoing relationship with a personal physician trained to provide first contact, continuous and comprehensive care. • Physician directed medical practice – the personal physician leads a team of individuals at the practice level who collectively take responsibility for the ongoing care of patients. • Whole person orientation – the personal physician is responsible for providing for all the patient’s health care needs or taking responsibility for appropriately arranging care with other qualified professionals. This includes care for all stages of life; acute care; chronic care; preventive services; and end of life care. • Care is coordinated and/or integrated across all elements of the complex health care system (e.g., subspecialty care, hospitals, home health agencies, nursing homes) and the patient’s community (e.g., family, public and private community-based services).

22. Well child visits Acute illness visits Immunizations Emergency room care Hospitalizations Screening and identification Telephone triage The Care Triad Primary Care Medical Home Acute Illness Management Preventive Care Services Chronic Condition Management Identification and monitoring (registry) Care plans and care coordination CCM office visits Co-management with specialists Other (patient education, advocacy, outreach)

23. Treatment of Stage III Colorectal Cancer

24. Key Implementation Issues New types of organizations will need to be established to receive and distribute bundled payments and to determine: • How evidence-based standards of appropriate care will be determined. • How adherence to clinical guidelines will be monitored and enforced. • How the performance of individual service providers will be monitored and evaluated. • How clinical outcomes data will collected and reported. • What new billing and collections systems will be needed. • What new information technology capabilities will be required. 24

25. Trend of Payment Reform P4P Episode Based Payments Global Capitation Value Based Purchasing Fee for Service Level of financial risk borne by payer Level of financial risk borne by provider

26. Physician-Hospital Alignment Low Degree of Alignment High Leadership Financial Operations Clinical Services

27. Trend of Physician Realignment Physician – Physician Integration Physician – Hospital System Integration

28. Everybody On the Bus … but Who’s Driving? Hospitals and Clinics PCPs Specialists Nurses Imaging Pharmaceuticals Rehab Home Health Social Workers 28

29. This presentation can be downloaded from the Collin-Fannin County Medical Society webpage under the Events/Announcements tab.To stay current on these issues, visit:http://healthaffairs.org/http://healthaffairs.org/blog/http://hschange.org/