Healthcare Transformation. February 18, 2014

Healthcare Transformation February 18, 2014

The Challenges

The global healthcare crisis Increasing technological possibilities Total healthcare cost growth has always surpassed GDP growth Increasing demand: Ageing of populations; lifestyle changes; public expectations Perfect Storm Fiscal Crisis 2

The U.S. has the highest healthcare expenditures per capita compared to other western countries U.S. spends two and half times the OECD* member country average *Orgazniation for Economic Cooperation and Development Source: http://www.citizenceo.com/federal-budget/americans-would-need-30k-each-to-payoff-the-national-debt. 3

Practical impact U.S. healthcare costs (federal spending) to be the primary driver of U.S. debt in the near future Source: http://www.citizenceo.com/federal-budget/americans-would-need-30k-each-to-payoff-the-national-debt. 4

Medicaid is a significant part of this challenge Total US Health Spending 100% 80% 12% 17% Other Public Medicaid 60% 20% Medicare 40% 20% 51% Private Health 0% Medicaid is unequaled among federal grant programs: more than 60 million children and adults rely on the program, and it s projected to grow to 80 million beneficiaries by 2020 if all states adopt the eligibility expansion in the ACA. (Rosenbaum 2013) Source: Kaiser Foundation 5

What do we get for the money spent? 6

Major opportunity: bending the cost curve through better outcomes The safety, patient centeredness, and effectiveness our healthcare systems delivery is suboptimal and this is particularly true of Medicaid: Care is too often too little, too much, or sometimes just wrong Too much wasted value in re-admissions, ER visits and admissions From the perspective of the patient, the care encountered appears highly fragmented. Coordination is increasing, but often limited and incomplete: Focus only on LTC, for example Often supplementary to provider s efforts not well integrated in them In a fascinating reversal of common sense economics, improving healthcare quality more often than not makes the delivery of healthcare less rather than more expensive. Cost Quality 7

Why do healthcare systems not deliver high value care efficiently? Because we pay providers to do so: We get exactly the results we have designed the system to achieve (Paul Batalden, The Dartmouth Institute for Health Policy and Clinical Practice) Producing high quality healthcare efficiently is not rewarded by higher revenues for providers. There are often substantial perverse incentives: We pay for individual activities, or for the existence of a building or an organization We pay whether things go right or wrong; we often actually pay extra when things go wrong We do not pay for the integration of all these individual activities, nor do we pay for the results that all this work delivers We pay for disjointed and non-coordinated inputs, not for integrated outcomes 8

Delivery system redesign Community and primary care Secondary and tertiary care Total scope of care Lifestyle interventions, prevention Medical and Health Homes, Care Coordination Optimizing gatekeeper function of primary care Restructuring acute and inpatient care supply side 9

The causal chain Financial and regulatory incentives drive a delivery system which realizes cost efficiency and quality outcomes: value 10

For Consideration. Six Steps to Reduce Spend and Improve Outcomes 1. Create population-based price and outcome transparency 2. Critically assess remaining FFS 3. Contract or otherwise stimulate MCOs to align current payment methodologies to incentivize positive health outcomes 4. Ensure the ability for current providers to reinvent themselves 5. Consider standardizing payment methodologies across multiple payers 6. Consider value-based benefit design 11

1. Create population-based price and outcome transparency Using existing data sources, create population based, regional heat maps of value delivered by the care delivery system Risk-adjusted 90 day stroke mortality (%) Percentage living at home 90 days after stroke per county 80% 75% 70% 65% 60% 55% 50% 45% 40% 15,000 $150,000 20,000 $250,000 25,000 $350,000 30,000 $450,000 35,000 $550,000 40,000 Average total costs (curative care and long term care) per stroke patient in the 1 year after stroke per county 12

2. Assess Remaining FFS - effects are amplified by existing silo s Double fragmentation GPs Physiotherapy care Pharmacies Drugs & Medical Devices Dietary care Dental care Home care Specialty X outpatient care Specialty Z inpatient care Specialty Y outpatient care Specialty Z inpatient care Rehabilitation Nursing home care Disabled care Mental care Patient-centered focus on overall Outcomes and Costs Payer s and Government s Organizational, Administrative and IT Architecture Payers selling plans Governments managing eligibility 13

Yes, we have moved massively into managed care (with capitated payments)... Source: 2012 Actuarial Report on the Financial Look for Medicaid. 14

Payments should be aligned to produce positive outcomes.but most patients are still in a FFS provider environment Many Managed Care Organizations (MCO) still follow a provider or functional focus rather than a population or patient centered focus Many providers below MCO are still using FFS with coordination on top (but frequently not truly integrated in provider focus) More often than not, incentives remain perverse for providers especially so for the dual eligible population No incentives for hospitals or professionals to reduce avoidable admissions or ER visits Often too low payments to really deliver pro-active & continuous ambulatory care required No incentives for hospitals to optimize post-acute transition Major cost-shifting incentives (SNF/hospital/residential care) 15

3. Pay for value: Two leading approaches, which are fully complimentary 1 Population based All individuals living in a circumscribed area Sometimes limited to insurance type (i.e., Medicare ACO, Medicaid medical home) 2 Case-based Subpopulations : All patients included with a given diagnosis (e.g., diabetes, arthrosis of the hip) or condition (e.g., high cardiovascular risk, frail elderly) 16

Case based payment for value: Bundling chronic care Primary Care Hospital (in-and outpatient) Home care/nursing homes Diagnosis/indication Quality outcomes Diabetic care For continuous care: Product is one year of care Boundaries redrawn & outcomes measured More risk to provider, boundary crossing requires innovative contracting mechanisms (multiple providers often involved, requiring subcontracting, etc.) This is what most patients look for or need This is the level at which quality is delivered and is meaningfully measurable Here the incentives are aligned: Reduce complications; reduce exacerbations; keep patients healthy 17

Case based payment for value: Bundling elective care Primary Care Hospital (in-and outpatient) Home care/nursing homes Diagnosis/indication Quality outcomes Hip replacement, CABG, etc. 90 days Surgery Boundaries redrawn & outcomes measured More risk to provider, boundary crossing requires innovative contracting mechanisms (multiple providers often involved, requiring subcontracting, etc.) This is what most patients look for or need This is the level at which quality is delivered and is meaningfully measurable Same principles also possible for cancer care, maternity care, etc. 18

Population-based payment for value Episodes are meaningless in the case of preventive and population-focused primary care Often there is no clear diagnosis Individual products would create an administrative nightmare (with a predictable explosion in volume) Contracting outcomes is possible here as well: e.g., % of patients admitted in LTC facility, or emergency department visits, and patient reported Acute trauma experience care measures Acute cardiovascular care Maternity care (pregnancy & delivery) Basic medical/ behavioral care & gatekeeper function Specialized behavioral health care Chronic care Oncological care Primary care Multimorbidity/frail elderly care Care for people with a handicap Elective care Secondary care Tertiary care 19

Contract or otherwise stimulate MCOs to align current payment methodologies incentivize positive health outcomes Trendlines State Medicaid Expenditures Without payment reform MCO with FFS & provider silo s True delivery system focused payment reform 20

4. Ensure the ability for current providers to reinvent themselves Currently, too little paid for value-added care and too much revenues for care that does not add value Payment reform should allow Total revenues of provider X providers to recreate themselves Value-reducing care (Avoidable re-admissions, complications, unwarranted ER visits etc.) Margin Value-neutral care (Reactive care for preventable conditions etc.) Value-added, pro-active care 21

4. Ensure the ability for current providers to reinvent themselves (continued) Currently, too little paid for value-added care and too much revenues for care that does not add value Payment reform should allow Total revenues of provider X providers to recreate themselves Value-neutral care (Reactive care for preventable conditions etc.) Margin Value-added, pro-active care 22

5. Consider standardizing payment methodologies across multiple payers Total Payment Universe in State Medicaid Other QHPs on Exchanges Medicare State s employees Plans 23

6. Consider value-based benefit design Rewarding choosing for high value provider patients opting for low value providers pay co-pay or co-insurance... Rewarding health behaviors Value Matrix 24

Foundations of Healthcare Transformation Improved Operational Efficiency, Cost Optimization and Patient Outcomes Prevention Programs and Life Sciences Patient Engagement Provider Transitions to New Service Delivery Models Payers Incentivize Change through Payment Reform Performance Analytics Data Services Technology Enablement Target Operating Model Transformation Regulatory Changes 25

Prevention Improved Operational Efficiency, Cost Optimization and Patient Outcomes Prevention Programs and Life Sciences Patient Engagement Provider Transitions to New Service Delivery Models Payers Incentivize Change through Payment Reform Performance Analytics Decrease Demand for Costly Healthcare Services Leverage advances in life sciences Target human services programs to avoid costly medical treatments later in an individuals life Develop individualized wellness program s Bend the demand curve for costly medical treatments Improving the human condition to mitigate the adverse effects of health determinants 26

Patient Engagement Improved Operational Efficiency, Cost Optimization and Patient Outcomes Prevention Programs and Life Sciences Patient Engagement Provider Transitions to New Service Delivery Models Payers Incentivize Change through Payment Reform Performance Analytics Patient Engagement Patients engaged in their own care An expectation of information availability in healthcare Patients will seek information that allows them to participate in not only their healthcare decisions, but also in their own wellness Participation may manifest itself in many ways: Changed personal behavior that is more consistent with ongoing wellness Greater out of cycle contact and interaction with practitioners using technologies such as messaging and mobile applications In home use of wireless devices to monitor the wellness and, in some cases, the recovery of patients Resulting in fewer costly hospital recovery stays Patient retention and review of the information in their own EHR or PHR, seeking to recognize patterns of improvement or wellness decline, etc. 27

Provider Transition Improved Operational Efficiency, Cost Optimization and Patient Outcomes Prevention Programs and Life Sciences Patient Engagement Provider Transitions to New Service Delivery Models Payers Incentivize Change through Payment Reform Performance Analytics Provider Transitions to New Service Delivery Models Providers will begin to embrace patient involvement and interaction outside of the normal treatment cycles Industry moves more toward integrated care that promotes provider accountability Not just for more positive results when treatment is required, but for maintaining patient wellness Preventing the demand for costly treatments proactively Begin to see affiliations of hospitals, providers and those providing specialized support services Effective information exchange across the entirety of the patient engagement 28

Payment Reform Improved Operational Efficiency, Cost Optimization and Patient Outcomes Prevention Programs and Life Sciences Patient Engagement Provider Transitions to New Service Delivery Models Payers Incentivize Change through Payment Reform Performance Analytics Payers Incentivize Change through Payment Reform Payers will begin to incentivize accountability for wellness Thus decreasing the demand for costly services once a condition has exacerbated to the point that it requires treatment This may come in the form of payment models based on: Capitation Bundled services Some other form that would support the accountability of the provider Some thoughts are also being given to the patient sharing some of the risk in this new accountability model since, after all, a provider can only develop a wellness strategy for an individual, the individual then needs to participate in the strategy execution. Patients may share in the benefit of this model such as in the form of reduced insurance premiums or co-pays for those patients that are willing and effective participants in maintaining their own wellness 29

Performance Analytics Improved Operational Efficiency, Cost Optimization and Patient Outcomes Prevention Programs and Life Sciences Patient Engagement Provider Transitions to New Service Delivery Models Payers Incentivize Change through Payment Reform Performance Analytics Data Analytics Implemented as a continuous improvement program and opportunity to analyze data for trends Greater comparative effectiveness data Performance ratings of hospitals and providers Correlation between dollars spent and patient outcomes Identification of redundant or unnecessary treatments or services to facilitate cost optimization decisions. Enhanced ability to make more data based decisions As access to more and more data is realized the opportunity for discovery due to data overlays increases Constant identification of patterns that would allow for consideration of process improvements, cost optimizations and more effective treatments that might benefit populations in general or specific demographics that may be most at risk. 30

Foundations of Healthcare Transformation Improved Operational Efficiency, Cost Optimization and Patient Outcomes Prevention Programs and Life Sciences Patient Engagement Provider Transitions to New Service Delivery Models Payers Incentivize Change through Payment Reform Performance Analytics Data Services Technology Enablement Target Operating Model Transformation Regulatory Changes 31

Thank you John Teeter KPMG Global Center of Excellence for Health jteeter@kpmg.com 410-279-8395 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International Cooperative ("KPMG International").