improving us healthcare through payment incentives denis a. cortese director, asu healthcare...
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Improving US Healthcare Through Payment Incentives
Denis A. CorteseDirector, ASU Healthcare Delivery and Policy Program
Robert K. SmoldtAssociate Director, ASU Healthcare Delivery and Policy
Program
Washington, D.C.January 17, 2011 1
Objective for US Healthcare:
– Better Health– Better Care Delivery– Lower Cost
• Value = Patient Outcomes + Safety + Service/Cost over time
2
Two Key Points on Cost:
• 20% of Population = 80% of cost
• Total Cost = Price per unit of service x Use RateUse Rate
3
Use rate is the key
• "… utilization - not local price differences - drives Medicare regional payment variation…" *
• “Most of this variation (Medicare spending) was not due to differences in the price of care in different parts of the country, but rather to differences in the volume…." **
• There is a two fold difference between the MSA with greatest service use (Miami, FL) and the MSA with the least service use (Lacrosse, WI).” (After adjusting for regional prices, added payments for GME, IME, etc., demographics and beneficiary health statues)***
*"Prices Don't Drive Regional Medicare Spending Variations” Gottlieb, Zhou, Song, Gillman Andrews, Skinner and Sutherland ; Health Affairs, March 2010, vol 29. no 3, pp 537 -543** "Tracking the Care of Patients with Severe Chronic Illnesses” Wennberg, Fisher, Goodman, and Skinner; The Dartmouth Atlas of Health Care 2008*** MedPac Report to Congress, January 2011, “Regional variation in Medicare services use.” 4
The Medicare Price Control CycleExhibit 1: The Medicare Price Control Cycle
Cost too high
Reduce payment rateto providers
Providers
See more patients per day
Order more tests, images
Costs go up anyway
5
Reduce line item payment rate to providers
Annual Rates of Increase in Physician Fees and Expenditures/Fee-for-
Service Beneficiary
3.4
-0.7
7.4 7.4
-2
0
2
4
6
8
3.4
-0.7
7.4 7.4
-2
0
2
4
6
8
Fees
SGR-relatedexpenditures/fee-for-servicebeneficiary
Fees
SGR-relatedexpenditures/fee-for-servicebeneficiary
Annual percent change
Annual percent change
1997-20011997-2001 2001-20052001-2005
Source: Letter to Glenn M. Hackbarth, Chair, Medicare Payment Advisory Commission, from Herb B. Kuhn, Director, Center for Medicare Management, Centers for Medicare and Medicaid Services, dated April 7, 2006.Available at: http://www.commonwealthfund.org/usr_doc/Guterman_McareMDpayment_testimony_942.pdf
Annual Rates of Increase in Physician Fees and Expenditures/Fee-for-
Service Beneficiary
3.4
-0.7
7.4 7.4
-2
0
2
4
6
8
3.4
-0.7
7.4 7.4
-2
0
2
4
6
8
Fees
SGR-relatedexpenditures/fee-for-servicebeneficiary
Fees
SGR-relatedexpenditures/fee-for-servicebeneficiary
Annual percent change
Annual percent change
1997-20011997-2001 2001-20052001-2005
Source: Letter to Glenn M. Hackbarth, Chair, Medicare Payment Advisory Commission, from Herb B. Kuhn, Director, Center for Medicare Management, Centers for Medicare and Medicaid Services, dated April 7, 2006.Available at: http://www.commonwealthfund.org/usr_doc/Guterman_McareMDpayment_testimony_942.pdf
6
Where to start given the two key points:
– Expensive Patients – (those hospitalized)– Expanded DRG lump sum payments (to encourage
judicious use rates)• Expanded DRGs = Present DRG + longer time than
hospitalization + include physician services– Announce plan, give providers two years to self
organize– Start with Medicare's most expensive DRG and go
DRG by DRG– Providers define outcomes
7
Third Key Point – How to set the payment amount
– Not formulas– Reality based pricing concept (Dr. Hal Luft*)
• Cost of resources used by medical centers getting best risk adjusted outcomes + 3%
* Luft, H., “Total Cure,” Harvard University Press, 2008, Pages 94-95 8
9
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0 10 20 30 40 50 60
Hypothetical Example of EDRG payment amount based on concepts suggested by Dr. Hal Luft*
Cost for EDRG “x” ($000s)
Outcomes for EDRG “x”
Proposed pricing point
Proposed pricing point
*Luft, H., “Total Care,” Harvard University Press. 2008
Experience of teaching hospitals for EDRGx
Median Cost all teaching hospitals
Top 1/3 of hospitals on outcomes
Median cost of top 1/3 of hospitals on outcomes