Innovations in Reducing Cost and Improving Quality of Health Care

1. Tom Williams, Executive Director Integrated Healthcare Association (IHA) Innovations in Reducing Cost and Improving Quality of Health Care 2010 Health Care Forecast Conference Irvine, CA February 26, 2010

2. Source: NGM Blog Central, “The Cost of Care,” December 18, 2009, Graphic by Oliver Uberti, National Geographic The Big Picture: U.S Performance vs. 20 Industrialized Nations

3. Topics • An Overview and Framework • IHA Initiatives/Innovations • Forecasts

4. A Framework for Health Improvement

5. 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

6. A Framework for Health Improvement Value 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 Market Leverage Health Improvement Integration Small MD Practice & Unlimited Hospital Primary MD Group Practice Multi-Specialty MD Group Practice Hospital System Integrated Delivery System 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

7. Health Care Spending: Massachusetts

8. 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.

9. Healthcare Spending: California February 25, 2010, Health Affairs “Unchecked Provider Clout inCaliforniaForeshadows 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)

10. 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

11. Regional Variation in Clinical PerformanceCalifornia Pay for Performance Results - 2008 11 11 11

12. 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

13. Knee Replacement Procedure Episode GroupAverage Commercial Population Costs, by Type of Service1 Recovery $2,720 10.2% of Tot Inpatient Stay $21,855 82.3% Tot Follow Up I $1,019 3.8% of Tot Follow Up II $519 2.0% of Tot Pre-Surgery I $273 1,0% of Total Pre-Surgery $179 0.7% of Total $30 Total Cost $26,565 $20 Total Allowed Costs (000) $10 { 90 Days 14 Days 42 Days 90 Days 180 Days ALOS=3.9 Days Pre-Window Post-Window Knee Replacement Surgery 1) Source: Ingenix Claims Data- 602 complete episodes

14. 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) • 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)

15. BCBS Massachusetts – Alternative Quality Contract (AQC) Presentation by Christopher Collins, Blue Cross Blue Shield of Mass., Hospital Payment Reform Summit, 9/17/09, Washington, DC

16. 10% Quality Adjusted Efficiency gain sharing potential 1% quality P4P bonus plus 2% utilization gain sharing bonus Quality Adjusted Efficiency Incentive UM Bonus P4P Bonus Inflation Basecapitation Basecapitation Year 1 Year 2 Year 3 Year 4 Year 5 California - Performance Based Contract Framework Efficiency Quality

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

18. Federal Outlays for Health Programs (Billions) 2010 1970 Health Outlays as % of Total Federal Outlays 7.1% 31.3% Sources: http://www.usgovernmentspending.com; http://www.gpoaccess.com; and http://fraser.stlouisfed.org

19. Federal Expenditures for Health Programs 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

20. Integrated Healthcare Association For more information: www.iha.org (510) 208-1740 20

21. 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. Market Leverage Health Improvement Integration Small MD Practice & Unlimited Hospital Primary MD Group Practice Multi-Specialty MD Group Practice Hospital System Integrated Delivery System

22. BCBS Massachusetts – Alternative Quality Contract (AQC) Presentation by Christopher Collins, Blue Cross Blue Shield of Mass., Hospital Payment Reform Summit, 9/17/09, Washington, DC

23. Payment for Performance and Value Payment – Current Methods (1) Reward Volume (2) Penalize prevention, error/complication reductions, and unnecessary care The Menu of Payment Options Fee-for-service: rewards volume of services, not appropriateness or coordination of care Global capitation: shifts insurance risk to providers, creates incentive for risk selection Pay-for-performance: to date primarily framed as quality bonus and hence does not move enough money or address cost of care Bundled payments: the latest idea Case rates or global DRG payments for major acute episodes Episode payments for major chronic conditions

24. Performance Measurement “You cannot improve what you cannot measure”

25. “And that’s why bridges are falling...” Bridge Collapses in Minneapolis, MN. Bridge Collapses in Minneapolis, MN. A busy bridge carrying four-lane state highway — Route 35W across the Mississippi River — collapsed in Minneapolis during rush hour on Wednesday, sending cars and trucks plunging to the water. A busy bridge carrying four-lane state highway — Route 35W across the Mississippi River — collapsed in Minneapolis during rush hour on Wednesday, sending cars and trucks plunging to the water. View Dani Bora's map View Dani Bora's map Taken in a place with no name (See more photos here) Taken in a place with no name (See more photos here) Source: Flickr: Dani Bora, Photographer