Organization of Health Care

1. Organization of Health Care Presentation to ITTP Class January 7, 2004 John E. Billi, M.D. Professor, Internal Medicine and Medical Education Associate Dean, Clinical Affairs Associate Vice President, Medical Affairs jbilli@umich.edu

2. Organization of Health Care • Who are the players and what are their interests? • Who are the patients? • How is care funded? • Who employs the doctors? • Who owns the facilities? • Who is at financial risk? • Who is accountable for quality and cost effectiveness of care?

3. Ten Issues Will Shape the Future of Health Care • The economy • Medical science • Education in the health professions, shortages • Technology, innovation and communication • Population shifts – baby boomers and the elderly • Consumerism, choice and information • Organization and financing of health care • The shrinking world - globalization • The environment • Accountability Source: Adapted from W. Peck, M.D., Washington Univ.

4. Organization of Health Care:The Players Insurers [$] Employers $$$ Physician Offices Physicians M.D.s & D.Os PAs Nurses Hospitals Nursing Homes, SNFs NPs, Pharmacists RNs, LPNs, MAs, Aides Patient & Family Dentists Podiatrists Ambulatory Surgery Centers Optometrists Social Workers TBI Unit Other Allied Health Professionals Chiropractors Urgent Care Center Home Care Individuals $ Government $$$ Source: Marilynn Rosenthal, Ph.D.

5. New Roles for Health Professionals • Nursing shortage • Medical Assistants • Mid-level providers • Nurse Practitioners, Midwives, Anesthetists • Physician Assistants • Optometrists, Psychologists • Technicians: surgery, radiology… • Care managers • Home care providers • Complementary / ”integrated” medicine providers

6. Health Care Expenditures (Year 2001) • $1.4 trillion • 14.1% of Gross Domestic Product (GDP) • $5,035 per capita = $420/month (or PMPM) • Hospital spending accounts for largestshare (32%) • Drugs $ are fastest-growing category (14%) • Spending growth in health carecontinues tooutpace growth of GDP Source: http://www.cms.hhs.gov/statistics Highlights---National Health Expenditures 2001

7. National Health Expenditures as a Share of Gross Domestic Product (GDP) Rapid growth in the health spending share of GDP stabilized beginning in 1993. Period of accelerated growth Period of stabilization Percent of GDP Calendar Years Source: CMS, Office of the Actuary, National Health Statistics Group.

8. The Nation’s Health Dollar, CY 2001 Medicare, Medicaid, and SCHIP* account for one-third of national health spending. CMS Programs 33% Total National Health Spending = $1.4Trillion 1 Other public includes programs such as workers’ compensation, public health activity, Department of Defense, Department of Veterans Affairs, Indian Health Service, and State and local hospital subsidies and school health. 2 Other private includes industrial in-plant, privately funded construction, and non-patient revenues, including philanthropy. * SCHIP = Children’s Health Insurance Program (MI CHILD, in Michigan) Note: Numbers shown may not sum due to rounding. Source: CMS, Office of the Actuary, National Health Statistics Group.

9. Health Care Expenditures(Year 2001) Source: CMS, Office of the Actuary, National Health Statistics Group

10. National Health Expenditures -Accelerating Growth • Health care spending increased 8.7 percent in 2001 • Accelerating growth factors: • rising health sector wages • increased Medicare spending • increasing insurance premiums • more technology, more costly drugs • consumer demand for less restrictive insurance plans Source: http://www.cms.gov.stats

11. Accelerating Growth: Implications • Public/private initiatives to slow pace of spending growth • Trade-offs between health care and competing priorities • Consumers asked to contribute more towards coverage • Choice of plans, providers and benefits may be narrowed Source: http://cms.hhs.gov/statistics

12. The Coming Train Wreck... • Aging, growing population • Dramatic advances in clinical capabilities • Information technology requirements • 43 million uninsured • Unbounded patient demands vs. Taxpayer, employer, individual willingness to pay

13. Health Care Paradigm Shift Physicians Solo Practice Hospitals Free-standing, community Insurance Indemnity Purchasers Passive Group Practice or Employed Privatized Networks & Integrated Delivery Systems Performance- based Models(more choice, PPOs) ManagedCare “Prudent Purchaser” as Proactive Partner (cost shifts, drop insurance)

14. Health Care Paradigm Shift Physicians Solo Practice Hospitals Free-standing, community Insurance Indemnity Purchasers Passive Group Practice or Employed Privatized Networks & Integrated Delivery Systems Performance- based Models(more choice, PPOs) ManagedCare “Prudent Purchaser” as Proactive Partner (cost shifts, drop insurance)

15. Traditional: Self-employed Solo practice Single specialty groups Fee-for-service reimbursement for care of individual patients Open access to any doctor Autonomy Managed Care Era: Employed (then privatized) Group practice Multi-specialty groups Capitated for care ofa population (shared $ risk) Primary care physician gatekeeper (wax and wane) Accountability Physician Roles

16. Physician Payment Models • Traditional: fee-for-service “Do more - make more” • Capitation: fixed payment per member per month (pmpm) “Do less - make more” • Future: fee-for-benefit & performance-based contracting “Do the right thing”

17. Evolution of Physician Organizations • Early structure: • Group Practice • single specialty • multispecialty • Managed care contracting organizations: • IPA - Independent Practice Associations • Physician Organizations (POs) • Physician Hospital Organizations (PHOs) • Recent developments: • Second Generation Physician Organizations • Physicians within Integrated Delivery Systems

18. What should Physician Organizations do? • Traditional roles: • Contract negotiations with HMOs • Negotiations with hospitals • Support office operations, billing… • Emerging roles - Assist physicians to: • Improve efficiency • Improve quality of care • Tools • Physician profiling (quality and appropriateness) • Evidence-based practice guidelines • Disease management programs

19. Traditional Care • Episodic, uncoordinated • Focused on the acutely ill • Patient initiated • Patient education is sporadic • Communication among clinicians is sporadic • Information scattered on paper • Process of care is variable • Clinicians’ opinions drive decisions • Expensive

20. “Crossing the Quality Chasm” Health care should be: • Safe • Effective • Patient-centered • Timely • Efficient • Equitable - not vary due to gender, ethnicity, geography, socioeconomic status Source: Crossing the Quality Chasm: ANew Health System for the 21st Century, Institute of Medicine, National Academy of Sciences, 2000.

21. Professional Values - Enduring • Altruism • patients’ interests come first • Commitment to self-improvement • master and incorporate new knowledge • contribute to the knowledge base of the discipline • Peer review • collective sense of responsibility and accountability among medical professionals for the conduct of colleagues Source: D Blumenthal, Health Affairs, Spring (I) 1994

22. Health Care Paradigm Shift Physicians Solo Practice Hospitals Free-standing, community Insurance Indemnity Purchasers Passive Group Practice or Employed Privatized Networks & Integrated Delivery Systems Performance- based Models(more choice, PPOs) ManagedCare “Prudent Purchaser” as Proactive Partner (cost shifts, drop insurance)

23. Traditional: Community hospitals Not-for-profit Independent Teaching hospitals Specialized hospitals Psychiatric Children’s VA and other government facilities Managed Care Era : Hospital systems Horizontal integration Vertical integration For-profit chains (Tenet) PHOs Specialized: Heart, Hernia... Integrated Delivery Systems Academic health systems VA “regional networks” Hospitals and Health Systems

24. New Care Settings • Urgent care sites • Ambulatory surgical centers (+ MD investors) • Mobile imaging (MRI, mammography…) • Psychiatric partial hospitalization & intensive outpatient programs • Home care All less costly, but shift care out of hospital e.g., Deep Venous Thrombosis as an outpatient - Drug costs higher - Total costs lower

25. Major Trends in Hospitals 1990s & 2000s Acquisitions & Mergers Downsizing & Closures Integration Managed Care Clinical Redesign Malpractice Risk ----Increased Volume & Complexity Source: Adapted from R. Lichtenstein

26. Integrated Delivery Systems • Organized system of care • Integrates: • Providers (doctors, nurses, …) • Facilities (tertiary and community hospitals, clinics, home care) • (Health plan – HMO, PPO) • Full spectrum of services (primary to tertiary) • Geographic coverage • Economically viable scale (contracting clout) • Ultimate goals: improve quality, lower cost • Harder to do in reality than the “paper merger”

27. Accountability for Cost and Quality Integrated Health Systems should: • Promote clinical effectiveness research • Only use effective procedures, therapies, tests: Evidence-based Medicine • Develop and use clinical guidelines, clinical pathways • Follow principles of Continuous Quality Improvement (CQI) • Strive to improve patient safety • Report quality & safety data to stakeholdersSEE HAND-OUT PACKET FOR SAMPLE “REPORT CARD” Source: Adapted from R Lichtenstein

28. Evidence-Based Medicine • Systematic process to encourage all practitioners to apply the appropriate scientific evidence to individual clinical decisions. • Evidence is: • scientific studies and meta-analyses • published in peer-reviewed journals • with appropriate methods and populations • showing significant outcomes • Distilled into evidence-based practice guidelines

29. Practice Guidelines • Prospective agreement among clinicians for the management of typical cases • Synthesis of knowledge of diagnoses & therapy • Tool to improve appropriateness and efficiency • Documentation of excellent process of care • Evidence-basedSEE HAND-OUT PACKET FOR SAMPLEPRACTICE GUIDELINE

30. Continuous Quality ImprovementThe Approach to Better Healthcare A process for continuous improvement: - evidence based - consensus building - data driven Can be used to address: - overuse - underuse - misuse

31. Quality Concerns • Underuse • 60% of diabetic patients w/o HbAlc test in 1998 • Only 59% / 65% of GM women are receiving recommended screenings for cervical / breast cancer • Overuse • Cardiac surgery and hysterectomy rate in Flint MI 80% higher than Kaiser Permanente (a West Coast HMO) • catheterization rate in all major MI, OH, IN areas at least 160% higher than Kaiser • Misuse • 60% of cold / URI / bronchitis patients receive antibiotics Source: Bruce Bradley, General Motors

32. Health Care Paradigm Shift Physicians Solo Practice Hospitals Free-standing, community Insurance Indemnity Purchasers Passive Group Practice or Employed Networks & Integrated Delivery Systems ManagedCare Performance- based Contracting “Prudent Purchaser” as Proactive Partner

33. 2004 Megatrends • Medicare Drug Bill • Medicare HMOs and PPOs return - - - maybe • Health savings accounts • Uninsured rise

34. Health Insurance • Employment-based groups • Traditional Indemnity (e.g., Blue Cross/Blue Shield and for-profit ) • Managed care (HMOs, PPOs, POS, etc.) • Government-sponsored programs • Medicare (federal): elderly, disabled, ESRD • Medicaid (state/federal match): some of the poor, disabled • Individual coverage • Limited availability; high cost; excludespre-existing conditions • Uninsured – safety net programs

35. Sample Insurance Conditions • Deductible: amount that is paid by patient, before insurance begins paying anything (e.g., after patient pays $500 cumulative medical costs/yr, then insurance begins paying some of costs) • Co-pay/coinsurance: portion of charge that patient must pay for service (e.g., patient pays $10 copay for visit, or pays 20% coinsurance of physician charge) • Discount: % less than charges that MD or hospital agrees to accept from insurer (e.g., agree to accept 50% of charges as full payment, & not balance bill the patient for the remainder)

36. How Do Deductibles and Copays Work? The Medicare Drug Bill Starting 2006, Medicare beneficiary must pay: • Pay $35/month ($450/yr) $450 Premium • Pay first $250 $250 Deductible • Pay 25% of next $2000 $500 Coinsurance • Pay next $2850 $2850 “Donut Hole” • Pay 5% from there on Stop Loss • Discounts begin 2004 (~15%) Discounts Total cost to person w/ $5100/year drug cost = $4050 (79%) Total cost to person w/ $7500/year drug cost = $4170 (56%)SEE HAND-OUT PACKET FOR SUMMARY OF MEDICARE DRUG BILL

37. How realistic are these drug costs?$5100/year = $425/month$7500/year = $625/month Monthly costs: Nexium $119 Pravachol $124 Zoloft $72 Fosamax $65 Clarinex $76 $456 Coreg $97 Celebrex $78 $631

38. How realistic are these drug costs?$5100/year = $425/month$7500/year = $625/month Monthly costs: Nexium $119 omeprazole OTC $15 Pravachol $124 lovastatin $68 Zoloft $72 fluoxetine $30 Fosamax $65 Fosamax $65 Clarinex $76loratidine OTC $10 $456 $188 Coreg $97 atenolol $5 Celebrex $78ibuprofen $3 $631 $196 https://ummcpharmweb.med.umich.edu/internal/ambulatory/umhs_fgp_prefdrugs.asp

39. Health Insurance Trends • Rising premium costs (slowed, now rising fast) • More temporary and part-time work (without health care coverage) • Growth of managed care---especially PPOs • Reduction in comprehensive coverage: Cost shifting and benefit limits -cap on pharmaceutical coverage, triple tier formularies; -higher copays, percent co-insurance, deductibles; -limits on number of services [PT, psych]; -more stringent authorization requirements Source: Adapted from Kuttner, NEJM1999;34:163-168

40. The Uninsured • Uninsured rising despite economic “recovery” • 43.3 million nonelderly Americans were without health insurance in 2002 (17.3% of U.S. population) • The number of nonelderly uninsured grew almost 10% between 2000 and 2002 • Low income families are at greatest risk of losing health care insurance Source: The Kaiser Commission on Medicaid and the Uninsured

41. Managed Care - What is it? “Means of providing health care services within a defined networkof health care providers responsible formanagingand providing quality, cost-effective health care”. • Source: Vogel, DE. The Physician and Managed Care. Chicago, AMA, 1993.

42. What are the goals of managed care? • Efficient screening and prevention programs • Efficient & accurate diagnosis • Efficient & effective treatment and management • High patient satisfaction

43. What do managed care plans expect from physicians? • Low cost • High quality • Patient-satisfying care Source: C Krause, Family Medicine, June 1995

44. Managed Care Competencies • Understanding of health care needs of populations • Clinical prevention • Management of health risks at home and work • Clinical decision-making in managed care(Including ethics of resource allocation) • Effective communication with panels of patients • Continuous quality improvement • Professional satisfaction • Team work and practice leadership • Practice management SOURCE: GT Moore, Report to COGME, 1993

45. ABCs of Managed Care • HMO - Health Maintenance Organization • Comprehensive benefit plan(including screening and preventive services) • Usually uses “gate-keeper” • Usually “capitated” or shared financial risk • Out-of-network services not covered • PPO - Preferred Provider Organization • Limited provider network, but no “gatekeeper” • Discounted fee-for-service • No (or low) risk sharing • Out-of-network coverage at lower benefit level

46. ABCs of Managed Care • POS - Point of Service Plan • Hybrid of HMO & PPO • Patient chooses how to use benefit options • Some coverage for out-of-network services • “Managed” Indemnity • “Managed care” tools used in a fee-for-service plan • Pre-certification of hospital stays • Disease management programs • Prior authorization of high cost procedures • Customized Health Savings Account (HSAs) • High deductible, $$ set aside, keep if don’t use • Most attractive to those without medical problems • Leaves the sicker families in the traditional plans • Access to doctor/hospital report cards (profiles)

47. HMO POS PPO Indemnity Managed CareSpectrum of Management High Provider Risk Low Provider Risk High Management Low Management

48. HMO Models • Staff Model - HMO employs physicians • Group Model - HMO contracts with a physician group practice • IPA and Network Models - HMO contracts multiple physician groups • Mixed Models

49. Funds Flow - Traditional Model people employers insurers doctorshospitals

50. Funds Flow - Capitation Physician Hospital Org. Model HMO1 PHO HMO2 Physician Organization Group Practice Hospital M.D. M.D. M.D. M.D. D.O. M.D.