Ben Steffen October 25, 2012 Maryland Health Care Commission

1. Innovative Payment Designs: How Can I Benefit and Whatis the Role of the State? Ben Steffen October 25, 2012 Maryland Health Care Commission

2. Presentation Overview • The need to re-define value and incentives in health care • What are the approaches? • Existing Maryland initiatives • Opportunities to catalyze new and expanded efforts

3. Who We Are • MHCC is an independent commission that is administratively connected to DHMH • 15 Commissioners • 5 Centers • 62 Staff • Activities supported via contracts for actuarial services, health policy analysis, data collection, financial and quality reporting, audit, and technology assessment • Operating budget of $11.7 million

4. Need for New Incentives • Current payment models don’t work! • Reward the wrong things • Volume • Complexity • Limited ability to align payment with quality and outcomes • Promotes system fragmentation • Problems exacerbated by third-party payment • New initiatives start with defining desired system performance and then aligning payment and incentives with those goals

5. “Health care is a business issue, not a benefits issue.” • Health care costs add $1,525 to the price of every General Motors vehicle. • The company spent $4.6 billion on health care in 2007, more than the cost of steel. • Health care at General Motors puts the company at a $5 billion disadvantage against Toyota, which spends $1,400 less on health care per vehicle.

6. Number of Medicare Beneficiaries

7. Consumers are taking matters into their own hands The MMI measures the total cost of health care for a family of four insured by a PPO plan. The MMI in 2012 was $20,728, about 6.9% higher than in 2011.

8. Payment reform requires more than one method, you have dials, adjust them!!! “fee for health” “fee for outcome” “fee for process” “fee for belonging” “fee for service” “fee for satisfaction”

9. Overall design principles • Financial stability – insurance coverage is sustainable for patients and purchasers • Self-sustaining - payment mechanisms tied to costs and quality • Accountability – providers have financial and clinical accountability for communities they serve • Effectiveness – care is evidence based and outcomes driven • Ensuring Access – provides access to high quality care • Safety & transparency – patients have information on costs, quality, and safety of care • Smooth transitions – well coordinated across providers and care settings • Improved technology use - EHRs are used appropriately

10. Part of the winning formula is collaboration = payer + provider + patient • New payment models create performance incentives by adjusting payment amounts based on measured performance . • Additional payment tied to lower cost of care • Nonpayment/reduction in payment if linked to poor-quality care or low cos. • Protecting against unintended adverse consequences of cost containment -- new payment models can create unintended adverse consequences. • avoidance of some high-risk or high-cost patients by providers • new barriers to access, and • underuse of evidence-based services • Quality measurement approaches are usually incorporated into payment models to identify and prevent unintended consequences.

11. Let’s not forget the patient • Provider Behavior • Patient Behavior Quality and Outcomes Quality and Outcomes • Provider and patient incentive programs need to create a constructive feedback loop. • Appropriate incentives can produce: • Better Outcomes and Lower Cost • More Engagement in Care Process Improvement • Consistent Measures and Accurate Data

12. Innovative Programs in Maryland • Shared Savings Models that Actively Engage Physicians • Medical home shared savings • Accountable Care Organizations Models that Indirectly Engage Physicians -- Hospital Initiatives • Total Patient Revenue • Admission-Readmission Revenue • Performance-based reward HSCRC Payment adjustment for quality (QBR) and HSCRC Payment adjustment for hospital-acquired conditions (MHAC) • Process-based reward State EHR Incentive and Federal EHR Incentive Programs • Other promising programs – not yet being tested in Maryland • Bundled payments • Hospital-led ACOs

13. Shared savings design issues • Identify cost reduction opportunities • Develop model of care • Translate model into actionable processes and protocols • Set the predicted spending (target) level • Normative target • Each participant’s past performance • Determine who hold the risk • One-sided or two-sided model • Payment for improvement or payment for improvement + achievement • Align claims/billing operations at payers and providers

14. Shared savings design issues • How can programs work when providers are risk averse and payers want a positive ROI? • How large a program, should it be a pilot if so how to bring to scale? • What is appropriate patient pool for participants • What is appropriate patient pool • All patients • High cost users • Patients receiving a particular treatment • Manage impact of random variation on total cost of care • Challenge of attributing the gains when multiple incentives exist -- the conundrum of overlap.

15. Models

16. Patient-Centered Medical Home • Maryland Multi-Payer Program • 52 participating practices must operate as medical homes (NCQA + quality reporting) • 5 largest commercial carriers (excluding Kaiser) • Medicaid • Practices can earn enhanced payment • Support from Maryland Learning Collaborative • CareFirst • 3,600 primary care providers • Quality measures • Enhanced reimbursement and outcome incentives

17. Howare rewards to be delivered? Fee-For-Service Primary care practices will continue to be reimbursed under their existing fee-for-service payment arrangements with health plans. + Fixed Transformation Payment Recognizes need for investment – upfront costs in transforming. CareFirst elevated fee schedule and MHCC transformation payment + Incentive Payment (Shared Savings) Primary care practices receive a share of any savings generated by improved patient outcomes. Practices must meet quality thresholds in addition to generating savings. Payer or convener (generates savings).

18. How will savings be achieved? } Savings Opportunity Total Cost of Care Total Cost of Care • In the medical home, primary care services and pharmacy utilization will likely increase. • Better patient management and outcomes will reduce ER visits and hospitalizations, producing net savings. • A portion of the expected savings are used to fund fixed payments to the medical home. • The medical home also receives a share of actual savings (incentive payment).

19. Shared Savings Calculation • Practices’ target budget for 2011 was their 2010 costs inflated by peer group trend • Only patients attributed to the practice in both years are included in the calculations • Trend is established by parallel 2010-2011 cost analysis for non-MMPP practices • Practices will receive payments on savings over the fixed payments they already received

20. Accountable Care Initiatives • Clinically integrated organizations with a formal infrastructure • Participation voluntary • Participation rules differ for Primary Care providers and specialists • 5 CMS-approved accountable care organizations with services areas in Maryland (as of July 1, 2012). • Some private payers are looking at ACOs, none have programs established in Maryland. • Maryland passed legislation in 2010 to allow hospitals to form clinically integrated organizations (CIO).

21. Howwillrewards be delivered? Fee-For-Service Primary care and specialists reimbursed under their existing fee-for-service payment arrangements with Medicare and possibly health plans. + ACO developed infrastructure provided to assist practices in delivering high quality care + Incentive Payment (Shared Savings) ACO and Medicare share savings, if any. ACO primary care practices receive a share of any savings generated by improved patient outcomes. Practices must meet quality thresholds in addition to generating savings. Payer or convener (generates savings).

22. How will savings be achieved? Pre-ACO With ACO } Savings Opportunity Total Cost of Care Total Cost of Care • Improve care coordination for chronically ill • Decrease hospitalization • Decrease readmission • Decrease avoidable ER use • Educate patient on how to manage care

23. Shared Savings Calculation • Benchmark is set as a composite average based on cost over past 3 year period. • Expected cost = benchmark adjusted by allowed cost drivers (age and increased risk + underlying medical inflation). • Actual costs must exceed expected costs. • Difference of expected versus actual is shared between ACO and Medicare. • Providers receive share savings based on agreement with the ACO • Caveats • One sided model, no down side risk, maximum share to ACO is 50% • ACO must achieve a minimum savings threshold of a percent reduction in costs • Savings capped at 7.5% • Migrate to two-sided model (risk in year 3)

24. Hospital Global Budgets • Total Patient Revenue for Hospital Payment • Hospital manages a global budget based on historic reimbursement levels • Incentives to link with primary care and specialists to manage care outside the hospital • Admission-Readmission Revenue (ARR) Hospital Payment Constraint Program • Places hospital at risk for cost of readmissions • Provide incentives that can be used to understand the processes that influence the risk of readmission • Redesign the discharge transition to reduce readmission rates

25. HSCRC – Quality Initiatives Quality initiatives provide incentives for hospitals to establish processes that lead to desirable outcomes and reduce the incidence of undesirable outcomes. Relatively small $$s are at risk. • Payment for Quality -- Quality Based Reimbursement • Funding for rewards for hospitals performing the best, and penalties for poor performers on inpatient care. • Maximum amount of penalties/rewards is 0.5% of the total revenue of the hospital, translating to a total amount at risk of $7.1 million for 2012. • Reward based on performance on CMS quality measures, appropriateness of care measures and patient experience of care measures. • Payment Adjustment for Hospital-Acquired Conditions • 49 hospital acquired conditions (MHACs) were included in the program and these complications were present in approximately 53,000 of the State’s total 800,000 inpatient cases. • Provide financial incentives to reduce complication rates. Encourage development data analysis tool that enables systematic approach to reducing complications. • Maximum scaled amount was 1% of the hospital inpatient revenue, which resulted in a total of $13.3 million at risk.

26. What is Bundled Payment? • A single payment to a provider, or a group of providers, for multiple health care services associated with a defined episode of care. • Procedure - Knee replacement surgery: Bundle covers all services and providers with defined start and end points, e.g., beginning with pre-op assessment, to surgery, through 30 days post-discharge rehab. • Chronic condition - Asthma: All condition-related services in a certain period of time (e.g., twelve months) – “disease-specific capitation.” • Designed to improve outcomes and control costs by spurring coordination, minimizing unnecessary duplication, setting quality benchmarks and sharing savings.

27. Bundled Payments Identified as Most Promising Cost Savings • RAND Study: Bundled payments represent the greatest promise for cost savings among 12 strategies analyzed. Upper end cost savings estimate: 5.9%. • Congressional Budget Office Report: Of 10 payment cost savings approaches piloted by Medicare (1991-2010), bundled payments was the only one to show cost savings because it is not tied to fee-for-service.1 • Bundled payments offer an opportunity to participate in a meaningful payment. • Some worry that bundled payment will further the efficient delivery of unneeded care. Care measures try to limit delivery of inappropriate care. 1 Lessons from Medicare’s Demonstration Projects on Value-Based Payment, Lyle Nelson, Congressional Budget Office, January 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/WP2012-02_Nelson_Medicare_VBP_Demonstrations.pdf

28. Issues to Resolve • Define episode – what’s in? what’s out? • Price the bundle of services • Plan the gain-sharing – largely thought of shared savings systems

29. Candidates for Bundling • Procedures • Total knee replacement • Hip replacement • Low back surgery • Heart bypass surgery • Chronic conditions • Asthma • Coronary artery disease • Recent pilots have shown difficulty in construction of chronic care episodes

30. Just how effective are these initiatives? • 22 practice sites in the State PCMH program generated savings -- .8 million in last six months of 2011. Costs were about 8% below estimates for these practices. • 30 hospitals participate in HSCRC ARR program and 10 participate in TPR • About 2/3 of practice panels in the CareFirst PCMH program generated savings, costs were 4.2% lower than projection. • Hospitals paid about $7.5 million in QBR rewards and about $13 million in MHAC savings. About .5 % and 1% of total inpatient revenue. • ACOs are not yet in operation.

31. State Government as Catalyst

32. State Government as Catalyst for Change Purchaser Regulator Data Provider Convener

33. State Government as Catalyst for Change Purchaser Regulator Data Provider Convener • Public employees • Medicaid • Health Insurance Exchange

34. State Government as Catalyst for Change Purchaser Regulator Data Provider Convener • Regulations on provider payment • Regulations on consumer incentives • Hospital rate-setting

35. State Government as Catalyst Purchaser Regulator Data Provider Convener • Multi-payer claims database and other information sources • Cost is a trailing indicator – we need leading indicators • Need to understand what works and what doesn’t

36. State Government as Catalyst for Change Purchaser Regulator Data Provider Convener • Consistent messages increase signal strength • Dissemination of health care best practices to scale up quickly.

37. Questions?