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Reforming Provider Payment: Reforming Provider Payment: Essential Building Block for Health Essential Building Block for Health

ReformReform

Stuart GutermanAssistant Vice President

Director, Program on Medicare’s FutureThe Commonwealth Fund

Alliance for Health Reform Briefing onPayment ReformWashington, DCMarch 20, 2009

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Path To High Performance: Key Strategies for Achieving Access for All, Better Health Care and

Outcomes, and Slower Cost Growth• Affordable coverage for all: access and foundation for

payment and system reforms– Insurance exchange: choice of private and new public plan– Market reforms, affordability, and shared responsibility

• Align incentives: payment reform to enhance value– Accessible patient-centered primary care

– Move from fee-for-service to more “bundled” payment, with accountability

– Align price signals with efficient care and value

• Aim high to improve quality and health outcomes– Invest in infrastructure: information systems– Promote health and disease prevention

• Accountable, patient-centered, coordinated care

• Leadership and collaboration

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Trend in the Number of Uninsured, 2009–2020 Under Current Law and Path Proposal

48.9 50.3 51.8 53.3 54.7 56.0 57.2 58.3 59.2 60.2 61.1

48.0

19.7

6.3 4.0 4.1 4.1 4.1 4.1 4.2 4.2 4.2 4.2

48.0

0

20

40

60

80

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current law

Path proposal

Millions

Note: Assumes insurance exchange opens in 2010 and take up by uninsured occurs over two years. Remaining uninsured are mainly non-tax-filers.Data: Estimates by The Lewin Group for The Commonwealth Fund.Source: The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way , Feb. 2009.

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Potential Gain in Population HealthIf the U.S. Reaches Benchmarks

• 37 million more adults and 10 million more children with accessible primary care

• 68 million more adults receiving recommended preventive care

• 70,000 fewer children admitted to hospitals for asthma

• 250,000 fewer admissions to hospitals for complications of diabetes

• 600,000 fewer elderly hospitalized or re-admitted for preventable conditions

• 100,000 fewer deaths before age 75 from conditions amendable to health care

• 180,000 more physicians using electronic medical records and information networks linking teams

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Total National Health Expenditures (NHE), 2009–2020

Current Projection and Alternative Scenarios

5.2

4.6

2.6

4.2

$1

$2

$3

$4

$5

$6

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current projection (6.7% annual growth)

Path proposals (5.5% annual growth)

Constant (2009) proportion of GDP (4.7% annual growth)

NHE in trillions

Cumulative reduction in NHE through 2020: $3 trillion

Note: GDP = Gross Domestic Product.Data: Estimates by The Lewin Group for The Commonwealth Fund.Source: The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way , Feb. 2009.

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Interrelation of Organization and PaymentInterrelation of Organization and Payment

Integrated system capitation

Global DRG fee: hospital, post- acute, and physician inpatient

Global DRG fee: hospital only

Global ambulatory care fees

Global primary care fees

Blended FFS and medical home fees

FFS and DRGs

Conti

nuum

of

Paym

ent

Bu

ndlin

g

Small MD practice; unrelated hospitals

Hospital system

Integrated

delivery system

Contin

uum

of P

4P D

esig

n

Outcome measures; large % of total payment

Preventive care; management of chronic conditions measures; small % of total payment

Care coordination

and intermediate outcome measures; moderate % of total payment

Less Feasible

More Feasible

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 (New York: The Commonwealth Fund, Aug. 2008).

Primary care MD group practice

Multi-specialty MD group practice

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Net Impact of Path Payment Reforms on CumulativeNet Impact of Path Payment Reforms on CumulativeNational Health Expenditures Compared withNational Health Expenditures Compared with Current Projection, 2010–2020 (in billions) Current Projection, 2010–2020 (in billions)

Data: Estimates by The Lewin Group for The Commonwealth Fund.Source: The Lewin Group, The Path to a High Performance U.S. Health System: Technical Documentation (Washington, D.C.: The Lewin Group, 2009).

Total NHE

Private Employers

State & Local Governments

Households

Federal Budget

  Total Payment Reforms –$1,010 –$170 –$10 –$82 –$749

Enhanced payment for primary care

–$71 –$28 –$2 –$11 –$30

Encouraged adoption of Medical Home model

–$175 –$25 –$13 –$36 –$101

Bundled payment for acute care episodes

–$301 –$75 –$4 –$11 –$211

Correcting price signals

• High cost area updates

–$223 –$64 –$3 –$29 –$127

• Prescription drugs –$76 +$22 +$12 +$5 –$115

• Medicare Advantage –$165 $0 $0 $0 –$165

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0.75

1.00

1.25

0.75 1.00 1.25

Relative Resource Use**(M edian Re lative Resource Use = $25,994)

Qu

ali

ty o

f C

are

* (1

Ye

ar

Su

rviv

al

Ind

ex

, M

ed

ian

= 7

0%

)

* Indexed to risk-adjusted 1 year survival rate (median = 0.70).** Risk-adjusted spending on hospital and physician services using standardized national prices, indexed to median.Data: E. Fisher and D. Staiger, Dartmouth College analysis of data from a 20% national sample of Medicare beneficiaries.

Quality and Cost of Care for Medicare Patients Quality and Cost of Care for Medicare Patients Hospitalized for Heart Attacks, Colon Cancer, and Hospitalized for Heart Attacks, Colon Cancer, and

Hip Fracture, by Hospital Referral Regions,Hip Fracture, by Hospital Referral Regions,2000–20022000–2002

Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 8

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What Drives Variation in Spending?What Drives Variation in Spending?

Average risk-adjusted standardized spending for chronic obstructive pulmonary disease episode

Difference between high and average

Type of service Low Average High % $

Total episode 6372 7871 9748 23.8 1877

Initial hospital stay 4408 4414 4406 -0.2 -8

Physician 547 569 576 1.2 7

Readmissions 671 1543 2550 65.3 1007

Post-acute care 466 998 1780 78.4 782

Other 280 347 436 25.6 89

Source: G. Hackbarth, R. Reischauer, and A. Mutti. “Collective Accountability for Medical Care—Toward Bundled Medicare Payments” New England Journal of Medicine July 3, 2008 359(1):3-5.

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$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current ProjectionPath Policy

Total National Health Expenditure Growth for Total National Health Expenditure Growth for Hospitals and Physicians, Current Projections and Hospitals and Physicians, Current Projections and

With Policy Changes, 2009-2020With Policy Changes, 2009-2020

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current Projection

Path Policy

Hospital Expenditures (trillions) Physician Expenditures (trillions)

Data: Estimates by The Lewin Group for The Commonwealth Fund.Source: The Lewin Group, The Path to a High Performance U.S. Health System: Technical Documentation (Washington, D.C.: The Lewin Group, 2009).

$0.8

$1.6

$1.4

$0.7

$1.3

$1.1

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ConclusionsConclusions

• Emphasis on primary care can provide better access to needed care and more patient-centered care

• Bundled payment can encourage more coordinated care across providers and settings, and more accountability for outcomes and resource use

• The main objective of payment reform is to provide more organized, effective, and efficient health care delivery

• Payment reform built on a foundation of coverage for all and system reforms can be more effective

• These changes will be difficult—they affect how $42 trillion in projected cumulative spending will be allocated

• But we are not talking about shutting down the health care system—only reducing cumulative spending from $42 trillion to $39 trillion, with annual growth slowing from a projected 6.7% to 5.5% (compared with 4.7% for GDP)

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AcknowledgementsAcknowledgements

Cathy Schoen,Sr. Vice President, Research & Evaluation

Karen Davis, Ph.D.,President

Stephen Schoenbaum, M.D.Executive Vice President for Programs

Kristof Stremikis, M.P.PResearch Associateto the President