Improving Health System Performance: Aligning Incentives for Better Decision-Making

1. Improving Health System Performance:Aligning Incentives for Better Decision-Making Stuart Guterman Vice President, Payment and System Reform Executive Director, Commission on a High Performance Health System The Commonwealth Fund V-BID Center Symposium The State of Value-Based Insurance Design Ann Arbor, MI November 16, 2011

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

3. International Comparison of Spending on Health, 1980–2009 Total expenditures on healthas percent of GDP Average spending on healthper capita ($US PPP) SOURCE: Organization for Economic Cooperation and Development, OECD Health Data 2011 (June 2011).

4. Total National Health Expenditures (NHE) 2010–2020:Current Projection and Constant Proportion of GDP NHE in trillions 6.0% annual growth; 79% over 10 years $4.6 (19.8% of GDP) $4.1 (17.6% of GDP) 4.8% annual growth; 60% over 10 years $2.6T (17.6% of GDP) NHE currently projected, 2011-2020: $35.7T Total savings if NHE grows at same rate of GDP: $1.9T Source: Commonwealth Fund analysis of data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, National Health Expenditure Projections 2010-2020, September 2011.

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

6. Federal Spending on Medicare and Medicaid andTotal Federal Spending as a Percentage of GDP, 1962-2082 Percentage of GDP NOTE: Figures for 2007-2082 are projections; Total federal spending includes all federal non-interest spending. SOURCE: Congressional Budget Office. Budget Outlook, 2009.

7. Rising Cost of Care is a Shared Concern: Public and PrivateGrowth In Employer-Sponsored Insurance Spending per EnrolleeProjected to Exceed Medicare, 2010-2020 $ spending per enrollee Source: Commonwealth Fund analysis of data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, National Health Expenditure Projections 2010-2020, September 2011.

8. Premiums Rising Faster Than Inflation and Wages Cumulative Changes in Insurance Premiums and Workers’ Earnings, 2000–2009 Projected Average Family Premium as a Percentage of Median Family Income, 2008–2020 Percent Percent 108% 32% 24% Projected * 2008 and 2009 NHE projections. Data: Calculations based on M. Hartman et al., “National Health Spending in 2007,” Health Affairs, Jan./Feb. 2009; and A. Sisko et al., “Health Spending Projections through 2018,” Health Affairs, March/April 2009. Insurance premiums, workers’ earnings, and CPI from Henry J. Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits Annual Surveys, 2000–2009. Source: K. Davis, Why Health Reform Must Counter the Rising Costs of Health Insurance Premiums, (New York: The Commonwealth Fund, Aug. 2009).

9. How do we stack up in terms ofhealth system performance?

10. 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) 10

11. 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)

12. 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).

13. 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) 13

14. 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).

15. 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).

16. Policy Options

17. What Are the Choices? • Cut Eligibility and Benefits • Cover fewer people or fewer services, or pay for a smaller fraction of total spending for services (i.e., increased patient cost-sharing or premiums) • Restructure current patient out-of-pocket costs to shape better care choices (i.e., value-based insurance design) • Trim Payment Rates • Across the board cuts • Selective cuts of over-priced services • Use purchasing leverage to get lower prices; collaboration across payers under government auspices/oversight to save administrative costs, lower prices, and increase value • Ensure the Right Care • Reduce misuse, overuse, and underuse through payment and delivery system reforms, apply comparative-effectiveness research • Pay smarter: medical home; bundled payment for acute and post-acute episodes; global fee per person with quality bonuses` Source: K. Davis and S. Guterman, Achieving Medicare and Medicaid Savings: Cutting Eligibility and Benefits, Trimming Payments, or Ensuring the Right Care?, (New York: The Commonwealth Fund, July 2011).

18. Take-Away Messages

19. We Need to Spend Smarter • Projected national health spending, 2011-2020: $35.7 trillion (increase of 79%, from $2.6 trillion to $4.6 trillion, over 10 years) • National health spending, 2011-2020, if held to same proportion of GDP as in 2010: $33.8 trillion (increase of 60%, from $2.6 trillion to 4.1 trillion, over 10 years) • Overall score for U.S. health system: 64% (relative to achievable benchmarks, down from 67% in 2006 and 65% in 2008) • Lack of information hinders decision-making • Misaligned incentives—across payers, providers, and patients—send inaccurate signals about what services contribute most to better health and how those services can be most productively used