Innovations in Reducing Cost and Improving Quality of

Health Care

Tom Williams, Executive Director Integrated Healthcare Association (IHA)

2010 Health Care Forecast ConferenceIrvine, CA

February 26, 2010

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The Big Picture: U.S Performance vs. 20 Industrialized Nations

Source:NGM Blog Central,“The Cost of Care,”December 18, 2009,Graphic by Oliver Uberti, National Geographic

Topics

• An Overview and Framework

• IHA Initiatives/Innovations

• Forecasts

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A Framework for Health Improvement

Goal Strategy Tactics

Performance Measurement

Measure and report quality, safety, and cost efficiency

Continuous quality improvement (CQI)

Internal reporting for CQI

Public reporting

Harmonize measures across payers

Performance Payment

Incent/reward performance and value instead of volume

Reform payment to incent value (quality, safety and cost efficiency)

Pay for performance

Medical home

Episode payment

Partial and global capitation

Performance based contracts

High- Performance Organization

Coordinate & integrate better care delivery

Integrate physicians and hospitals

Widespread EMR adoption

Health information exchange (HIE)

Accountable care organizations (ACO’s)

HIT stimulus

State, regional HIE

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Value Based Payment Hierarchy

Value

Global Capitation

Full Episode Payment

Partial Episode Payment

Partial Capitation:

Full Professional

Primary Care

FFS & Medical Home Fees

Pay for Performance

Case Rates (e.g. DRGs)

FFS

Volume

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A Framework for Health Improvement

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Small MDPractice &UnlimitedHospital

Primary MD Group Practice

Multi-Specialty MD Group Practice

Hospital System

Integrated Delivery System

Global Capitation

Full Episode Payment

Partial Episode Payment

Full Professional Capitation

Primary Care Capitation

FFS & Medical Home Fees

Pay for Performance

Case Rates (e.g. DRGs)

FFS

Integration

Value

Health Im

prove

ment

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, The Commonwealth Fund, August 2008

MarketLeverage

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Health Care Spending: Massachusetts

Health Care Spending: Massachusetts

Special Commission: “Payment Reform Commission Unanimously Supports Move to Global Payment System to Improve Patient Care and Contain Health Care Costs”

RAND Study: Four most promising options to reduce costs: (1) bundled episode payment, (2) hospital all-payer rate setting, (3) rate regulation for academic medical centers, and (4) eliminate payment for adverse events.

Attorney General’s Office: Price variations not correlated to the quality of care, population served, payer mix, or payment method (e.g. FFS vs. capitation). Price correlated with market leverage of

hospital or physician organizations.

Recommendations:(1) Track, publish Total Medical Expenditures for all

providers(2) Promote uniform quality measurement and reporting(3) Promote standardized units of payment and administrative processes.

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Healthcare Spending: California

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February 25, 2010, Health Affairs

“Unchecked Provider Clout in California Foreshadows Challenges to Health Reform”

“Health Affairs Article Cites Provider Market Power to Negotiate higher private insurer payment rates as, the Elephant in the Room of the National Health Reform debate. “

Robert A. Berenson, Paul B. Ginsberg, and Nicole Kemper, “Unchecked Provider Clout In California Foreshadows Challenges To Health Reform,” Health Affairs 29, No 4 (2010)

IHA Initiatives and Innovations• Pay for Performance Program in California (2003 to present)

− 229 physician organizations / 35,000 physicians / 10.5 million members/patients

− 7 CA health plans participate in incentive payments and public reporting – Aetna, Blue Cross, Blue Shield, CIGNA, Health Net, PacifiCare, and Western Health Advantage.  Kaiser Permanente participates in public reporting only. 

− Total incentives paid by health plans to date equals $316 million− Includes measurement and reward for (1) quality, (2) patient

experience, (3) information technology and (4) appropriate resource use

• Efficiency Measurement (2006 to present)− Tested episodes of care for incentive payments (rejected)− Implemented Appropriate Resource Use measures− Developing Total Cost of Care measurement

• Episode of Care Payment Pilot (2009 to present)− Determine the feasibility of private-sector episode payments in the

context of complex multi-payer and provider delivery system. − Initially includes episode payments for total knee and hip replacement,

expanding to other episodes

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111111

Regional Variation in Clinical Performance

California Pay for Performance Results - 2008

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California Pay for Performance: A Tale of Two Regions (2008)

Bay Area Inland Empire

Clinical Composite 63% 77%Score

PCPs/100K Pop. 79 40

% Pop. Medi-Cal 13% 19%

Per Capita Income $ 46,015 $ 23,540

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Knee Replacement Procedure Episode GroupAverage Commercial Population Costs, by Type of Service1

ALOS=3.9 Days

Knee Replacement Surgery

Pre-Window Post-Window

90 Days 14 Days 42 Days 90 Days 180 Days

Pre-Surgery$1790.7% of Total

Pre-Surgery I$2731,0% of Total

Inpatient Stay

$21,855

82.3% Tot

Recovery

$2,720

10.2% of Tot

Follow Up I

$1,019

3.8% of Tot

Follow Up II

$519

2.0% of Tot

Total Cost $26,565

$10

$20

$30

Tota

l A

llow

ed

Cost

s (0

00)

{

1) Source: Ingenix Claims Data- 602 complete episodes

Forecast 1: Pay for Performance Will Evolve into Performance

Based Contracting

Pay for Performance

• Emphasis on quality

• Smaller incentives (2 - 5%)

• On “top” of base payments

• “Have’s” advantaged

• Applicable to any method of payment (e.g. FFS, episode, capitation)

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Performance Based Contracting

• Emphasis on value

• More substantial bonuses (10%)

• Integral to base payments

• Helps level playing field

• Applicable to any method of payment (e.g. FFS, episode, capitation)

BCBS Massachusetts – Alternative Quality Contract (AQC)

15Presentation by Christopher Collins, Blue Cross Blue Shield of Mass., Hospital Payment Reform Summit, 9/17/09, Washington, DC

California - Performance Based Contract Framework

Basecapitation

Quality Adjusted Efficiency IncentiveInflation

UM Bonus

P4P Bonus

Basecapitation

1% quality P4P bonus plus 2% utilization gain sharing bonus

10% Quality Adjusted Efficiency gain sharing potential

Year 1 Year 2 Year 3 Year 4 Year 5

Efficiency

Quality

Forecast 2: Health Cost Curve Will Bend Under Its Own Weight

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• U.S. health costs as a percent of GDP is growing steadily

• Federal health costs as a percentage of total public expenditures is growing exponentially

Federal Outlays for Health Programs (Billions)

Fiscal Year

Total Health Outlays

Employer Tax Credit for

Health Benefits

Total Health Outlays &

Employer Tax Credit Combined

Total Federal Outlays

Health Outlays as %

of Total Outlays

1970 13.9 Data Not Available 13.9 195.6 7.1%

1980 65.5 9.6 75.1 590.9 12.7%

1990 180.3 51.0 231.3 1253.1 18.5%

2000 389.0 76.5 465.5 1789.2 26.0%

2005 614.2 118.4 732.6 2472.2 29.6%

2010 estimate

940.1 185.3 1125.4 3591.1 31.3%

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1970

2010

31.3%

7.1%Health Outlays as % of Total Federal Outlays

Sources: http://www.usgovernmentspending.com; http://www.gpoaccess.com; and http://fraser.stlouisfed.org

Federal Expenditures for Health Programs

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U.S. Health Expenditures

(Billions)

U.S. Health Expenditures

% of Total

U.S. Health Expenditures

% of GDP

Sources: http://www.usgovernmentspending.com; http://www.gpoaccess.com; and http://fraser.stlouisfed.org

Integrated Healthcare Association

For more information: www.iha.org (510) 208-1740

2020

High Performance Organizations More highly integrated delivery systems yield better

care process, outcomes, and capability to assume risk/reward for value and more market leverage.

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Small MDPractice &UnlimitedHospital

Primary MD Group Practice

Multi-Specialty MD Group Practice

Hospital System

Integrated Delivery System

Health Im

provement

Integration

MarketLeverage

BCBS Massachusetts – Alternative Quality Contract (AQC)

22Presentation by Christopher Collins, Blue Cross Blue Shield of Mass., Hospital Payment Reform Summit, 9/17/09, Washington, DC

Payment for Performance and Value

Payment – Current Methods(1) Reward Volume(2) Penalize prevention, error/complication reductions, and unnecessary care

The Menu of Payment OptionsFee-for-service: rewards volume of services, not appropriateness or coordination of careGlobal capitation: shifts insurance risk to providers, creates incentive for risk selectionPay-for-performance: to date primarily framed as quality bonus and hence does not move enough money or address cost of careBundled payments: the latest idea

Case rates or global DRG payments for major acute episodesEpisode payments for major chronic conditions

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Performance Measurement“You cannot improve what you cannot measure”

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QualityEfficiency (Cost)

Clinical Patient Experiences Utilizatio

nCosts

Process Outcomes

Measures + - + + + -

Data Availability + - + + + +

Summary

Good Measure

sAnd

Data

Poor Measuresand Data

Good Measuresand Data

Good Measure

s and Data

Poor Measures/ Good Data

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“And that’s why bridges are falling...”

Source: Flickr: Dani Bora, Photographer