Reducing The Growth In Healthcare Reducing The Growth In Healthcare Spending: Spending: Can Massachusetts Be A Can Massachusetts Be A

Model for The NationModel for The Nation

Stuart H. Altman Ph.D.Stuart H. Altman Ph.D.Chaikin Professor of Health PolicyChaikin Professor of Health Policy

Heller School for Social Policy and ManagementHeller School for Social Policy and ManagementBrandeis UniversityBrandeis University

Even Without Reform Healthcare Even Without Reform Healthcare Spending By Government Will Be A Spending By Government Will Be A

Major ForceMajor Force

Demographics and The Growing Demographics and The Growing Number of Low Income Are Key Number of Low Income Are Key

ReasonsReasons

Even With No Change In Coverage Even With No Change In Coverage Government Will Dominate Institutional Government Will Dominate Institutional

PaymentsPayments

But This Will Only Put More But This Will Only Put More Pressure On Private Insurance Pressure On Private Insurance

To Make Up Shortfalls In To Make Up Shortfalls In Government PaymentsGovernment Payments

Private Insurance Payments Used To Pay For Lower Private Insurance Payments Used To Pay For Lower Government PaymentsGovernment Payments

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

92.0%

85.0%

138.0%130.0%

157.4%

60%

80%

100%

120%

140%

160%

180%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Medicare Medicaid(1) Private Payer

Hospital Payment-to-Cost RatiosHospital Payment-to-Cost Ratios

But Large Growth of Private But Large Growth of Private Premiums Could Be Nearing It’s Premiums Could Be Nearing It’s

EndEnd

Employers Are Requiring Workers To Employers Are Requiring Workers To Absorb More of The Increases In Absorb More of The Increases In

Premiums---Premiums---ANDAND

Growth In Health Insurance Premiums and Workers Growth In Health Insurance Premiums and Workers Contribution Far Exceed Earnings and InflationContribution Far Exceed Earnings and Inflation

1999-20131999-2013

Options for ChangeOptions for Change1.1. Let System Move Along It’s Current CourseLet System Move Along It’s Current Course

– Heading for 20% of GDP and $3.0 Trillion Spending Amount2.2. Restructure Restructure Market-Based Payment SystemMarket-Based Payment System To Reward Lower To Reward Lower

Costs and/or Higher ValueCosts and/or Higher Value– Supply Side--- Supply Side--- Pay Providers Global or Bundled Payments With Pay Providers Global or Bundled Payments With

Quality and Out Outcome IncentivesQuality and Out Outcome Incentives– Demand Side--- Incent Consumers To Be Better Shoppers for Incent Consumers To Be Better Shoppers for

Value Based CareValue Based Care• More Price and Value Transparency More Price and Value Transparency • High Deductible PlansHigh Deductible Plans• Limited Provider NetworksLimited Provider Networks

3.3. Introduce Government Price or Spending Regulation at Introduce Government Price or Spending Regulation at Federal or State LevelFederal or State Level– All-Payer State Systems (Maryland, Vermont)– Oversight System (Massachusetts)– Restructure Delivery System (Oregon)

Although Current Spending Growth Although Current Spending Growth Is Low Most Reject Option 1Is Low Most Reject Option 1

The U.S. Health System Seems To Be The U.S. Health System Seems To Be Approaching a “Brown Out”---Approaching a “Brown Out”---Less Less

Money Available for Healthcare Money Available for Healthcare ServicesServices

If Markets Are to Work!If Markets Are to Work!

Need to Foster a Need to Foster a “Value-“Value-Based” Based” Delivery SystemDelivery System

““Value-Based” Services Link Value-Based” Services Link Together Services That Improve Together Services That Improve

QualityQuality (Including Positive (Including Positive Outcomes) With Commensurate Outcomes) With Commensurate

Costs Costs

Major Efforts Directed Major Efforts Directed Toward Option2Toward Option2

But Still Unclear Whether Supply or But Still Unclear Whether Supply or Demand Side Approaches Will Demand Side Approaches Will

PrevailPrevail

The Federal Reform Law and The Federal Reform Law and Some Private Plans Are Pushing Some Private Plans Are Pushing

The Supply Side OptionThe Supply Side Option

Give Providers a Limited Budget Give Providers a Limited Budget and Let Them Decide How It and Let Them Decide How It

Should Be SpentShould Be Spent

Support Accountable Care Support Accountable Care Organizations and Bundled PaymentsOrganizations and Bundled Payments• They Allow Providers to Decide What is

Appropriate Care• They Reward Care That is Less Fragmented

and Minimizes Duplicative and Wasteful Services

• They Permit Care Providers To Pay for Services Not Traditionally Considered as Health Care Services

But Concerns About Supply Side But Concerns About Supply Side ApproachApproach

• Most ACO’s and Bundled Payments Use “Shared Savings” Approach and Not “Fixed Budgets”

• Patients Have The Right to Opt Out of ACO’s• Both ACO’s and Bundled Payments are Voluntary• First Generation “Pioneer” ACO’s Have Thus Far Had

Only Limited Success• The Need for Big Systems Which Have Used Their

Market Power to Extract Higher Prices That Could Outweigh Efficiency Benefits

Reform of The System Must Reform of The System Must Avoid The Errors of The Past---Avoid The Errors of The Past---

The Errors of The PastThe Errors of The Past• Providers (Physicians and Hospitals) Were Providers (Physicians and Hospitals) Were

Required To Take More Financial Risk Than Required To Take More Financial Risk Than They Could Afford or Understand--They Could Afford or Understand--

• Individuals Were FORCED Into Plans They Individuals Were FORCED Into Plans They Didn’t Chose and Didn’t Like--Didn’t Chose and Didn’t Like--

• Quality of Care Measures Were Limited So Quality of Care Measures Were Limited So Choice of Plan (Choice of Plan (By EmployersBy Employers) Was Based ) Was Based Primarily on CostsPrimarily on Costs

The Errors of The PastThe Errors of The Past

• For Bundled Payments– The Medicare DRG Payment System Only

Included Hospital Services– The Medicare DRG Bundled Payment

System Only Covered Medicare Beneficiaries

ACO’s and Bundled Payments Designed ACO’s and Bundled Payments Designed To Avoid Problems of The 1990’sTo Avoid Problems of The 1990’s

• Providers Required To Assume Limited RiskProviders Required To Assume Limited Risk– ACO’s is a “Shared Savings System”. Each Groups Starts ACO’s is a “Shared Savings System”. Each Groups Starts

From Their Current Spending Levels and Downsides Risk From Their Current Spending Levels and Downsides Risk LimitedLimited

• Patients Will Not Be Locked Into a Delivery System They Patients Will Not Be Locked Into a Delivery System They Don’t TrustDon’t Trust– Patients Need to Sign Up With PCP But Can Change PCP Patients Need to Sign Up With PCP But Can Change PCP

or Network With No Penalty or Network With No Penalty • Attaining or Exceeding “Quality Standards Provider Attaining or Exceeding “Quality Standards Provider

Eligibility for Payment Depends on ”Eligibility for Payment Depends on ”– Debate on What Quality Standards to Use Is Ongoing Debate on What Quality Standards to Use Is Ongoing

ACO’s and Bundled Payments ACO’s and Bundled Payments Designed To Avoid Problems of The Designed To Avoid Problems of The

1990’s1990’s

• The Medicare Bundle Will Include Physicians Services and Post Hospital Care In Addition to Hospital Services (It does Not Include Pre-Hospital Care)

• Medicare is Encouraging (But Not Requiring) Non-Medicare Patients to Be Included in Future Bundled Payment Systems

Many Employers and Private Many Employers and Private Health Plans Supporting Health Plans Supporting

Demand Side ApproachesDemand Side ApproachesFastest Growing Private Insurance Are Fastest Growing Private Insurance Are High Deductible and Preferred Provider High Deductible and Preferred Provider

(PPO) Plans That Use Fee-for-Service (PPO) Plans That Use Fee-for-Service PaymentsPayments

<1%

1%

1%

1%

2%

3%

3%

3%

5%

5%

4%

7%

8%

10%

27%

46%

73%

16%

17%

19%

20%

20%

21%

20%

21%

25%

24%

27%

24%

29%

28%

31%

21%

16%

56%

55%

58%

60%

58%

57%

60%

61%

55%

54%

52%

46%

42%

39%

28%

26%

11%

9%

10%

8%

10%

12%

13%

13%

15%

15%

17%

18%

23%

21%

24%

14%

7%

19%

17%

13%

8%

8%

5%

4%

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1996

1993

1988

Conventional HMO PPO POS HDHP/SO

NOTE: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is likely attributable to incorporating more recent Census Bureau estimates of the number of state and local government workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005 Kaiser/HRET Survey of Employer-Sponsored Health Benefits for additional information.

SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2012; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988.

Distribution of Health Plan Enrollment for Covered Workers, by Plan Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988-2012Type, 1988-2012

Demand Side Approach Push Demand Side Approach Push Consumers and Payers To Find Consumers and Payers To Find

Lower Cost ProvidersLower Cost Providers

Penalize Providers That Voluntarily Penalize Providers That Voluntarily Cut Use of Expensive ServicesCut Use of Expensive Services

But Confusion About The But Confusion About The Different Incentives Could Lead Different Incentives Could Lead to Total Shutdown By Providers to Total Shutdown By Providers

To Lower CostsTo Lower Costs

Need to Develop a Common Need to Develop a Common ApproachApproach

Although Many Use PPO Insurance and Fee-for-Service Payment--- Offer Bonuses

For Providers That Spend Less Than Target

States Can Help Private States Can Help Private Insurance Expand The Use of Insurance Expand The Use of The The “PPO Attribution Global “PPO Attribution Global

Payment SystemPayment System”

The Massachusetts The Massachusetts StoryStory

Healthcare In Massachusetts Healthcare In Massachusetts Highest In U.S.Highest In U.S.

Quality of Care and Access Also Quality of Care and Access Also Better In Massachusetts But Systems Better In Massachusetts But Systems

Need To Become More Efficient Need To Become More Efficient

Massachusetts Continues To Spend a Greater Proportion of State Income on Healthcare In Comparison To U.S.

Source: Centers for Medicare and Medicaid Services; ANF; CHIA; pre-filed testimony from commercial payers for 2013 annual cost trends hearing; HPC analysis

16.8%

15.1%

11.7%

15.8%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

15.2%

12.2%

MA (estimated)‡

US

MA (CMS NHE)

Personal health care expenditures* relative to size of economyPercent of respective economy†

* Personal health care expenditures (PHC) are a subset of national health expenditures. PHC excludes administration and the net cost of private insurance, public health activity, and investment in research, structures and equipment.

† Measured as gross domestic product (GDP) for the US and gross state product (GSP) for Massachusetts‡ CMS state-level personal health care expenditure data have only been published through 2009. 2010-2012 MA figures were estimated based on 2009-2012 growth rates

provided by CMS for Medicare, ANF budget information statements for MassHealth, CHIA, and pre-filed testimony from commercial payers.

Massachusetts Legislature Passes Massachusetts Legislature Passes Compromise Cost Containment Compromise Cost Containment

LegislationLegislation(August of 2012)(August of 2012)

Stops Short of Stops Short of Regulating PaymentsRegulating Payments

29

Brandeis University 30

Chapter 224: Cost Control & Payment Reform

Alternative Payment Models

Transparency & Reporting

Requirements

Annual Spending Targets

Review Provider Price Variation

New State New State OversightOversight

BodiesBodies

ACO Certification & Oversight

Health Workforce

Support

Health Planning

Administrative Simplification

Health IT Requirements

Infrastructure Support

Medicaid Payment Reform

Spending & Delivery Reform OversightSpending & Delivery Reform Oversight

Executive Director and

Staff

Health Policy Commission*(11-member board)

Center for Healthcare Information and Analysis

Payment Payment Reform FundReform Fund

Community Community Hospital Hospital

Improvement Improvement FundFund

* In EOHS but not subject to EOHS control. Exempt from state civil service requirements and pay scales.

The Role of The Health Policy The Role of The Health Policy CommissionCommission

• Help Providers of Care Find Ways to Lower Costs Through Efficiencies

• Help Payers Change The Way They Pay To Promote Value-Based Care

• Help Consumers and Patients Know What The Need and What Insurance and Care Costs

• Assure That Any Restructuring or Consolidation of Healthcare Market Helps The Public

Commission Is Committed To Commission Is Committed To Working With Health Plans and Working With Health Plans and Providers To Develop Payment Providers To Develop Payment

Systems That Reward Value Systems That Reward Value

But---Commission Is Not a But---Commission Is Not a Regulatory Body---Regulatory Body---

Ultimate Responsibility Ultimate Responsibility Still Within Private Sector!Still Within Private Sector!

Brandeis University 34

Reaching The Goal of The Reaching The Goal of The Law-Law----- Keep Future Growth In Keep Future Growth In

Line With State Growth In IncoLine With State Growth In Income me

Massachusetts Statewide Heath Care Massachusetts Statewide Heath Care Spending Targets (All Payer)Spending Targets (All Payer)

Brandeis University

6.2%/yr6.2%/yr

5.9%/yr

3.6%/yr3.6%/yr

3.1%/yr3.1%/yr

Billions

Source: Author’s calculation based on historical state spending estimates and projected national health spending growth from the CMS Office of the Actuary and targets set forth in Chapter 224.

HPC is Like The Health Systems HPC is Like The Health Systems Mother---Mother---

We Keep Reminding The System to Eat It’s Vegetables

What Could Be Next!!! What Could Be Next!!! 38

If System Doesn’t Listen To It’s If System Doesn’t Listen To It’s Mother---? Mother---?