WIN-WIN-WIN APPROACHES TO ACCOUNTABLE CARE

WIN-WIN-WIN APPROACHES TO ACCOUNTABLE CARE How Providers, Hospitals, Employers, and Patients Can All Benefit from Healthcare Payment and Delivery Reform Harold D. Miller President and CEO Center for Healthcare Quality and Payment Reform www.chqpr.org

In Another Country, Passage of Landmark Legislation ACA Affordable Car Act Goal: Every citizen should have affordable transportation Method for Achieving the Goal: Give all citizens insurance that would cover the cost of new automobiles and repairs when needed 2

How to Control Spending on Cars If Insurance Is Paying? 3

To Control Spending, Payers Set Separate Fees for Each Car Part HCPCS Codes (Hierarchical Car Parts Compensation System) 4

Auto Workers Were Paid Based On How Many Parts They Installed HCPCS Codes (Hierarchical Car Parts Compensation System) AMA Automobile Manufacturing Association CPT System (Car Parts Tokens) 5

The Result for Drivers? Cars had many unnecessary parts Cars were readmitted to the factory 20% of the time to correct malfunctions This occurred despite requirements for accreditation of factories by the Joint Commission on Auto Creation and certification of auto workers by the National Committee on Quality Autos 6

Spending on Cars Grew Rapidly 7

What to Do? 8

What to Do? Cut Fees for Parts & Assembly Cut Fees for Parts & Assembly More Parts Were Used $ Factories Merged to Resist Fee Cuts $ $ 9

What to Do? Pay for Bundles Instead of Parts Driving Related Groups (DRGs) 10

Cost Per Bundle Declined, But More Expensive Bundles Used Small Engines Bigger Engines Really Big Engines Consumers were given bundles they didn t need 11

What to Do? Consumer-Directed Car Payment Consumer Share of Car Price $1,000 Copayment 10% Coinsurance w/$2,000 OOP Max $5,000 Deductible 12

Since Total Price Didn t Matter, Consumers Chose Expensive Cars Consumer Share of Car Price Price $18,000 Price $320,000 $1,000 Copayment $1,000 $1,000 10% Coinsurance w/$2,000 OOP Max $2,000 $2,000 $5,000 Deductible $5,000 $5,000 13

High Cost-Sharing Also Applied to Preventive Maintenance Consumer Share of Car Maintenance Cost Sharing High Deductible Preventive Maintenance Co-payment Full Cost 14

Resulting in Deferred Maintenance & Expensive Repairs Consumer Share of Car Maintenance Preventive Maintenance Deferred Maintenance Cost Sharing Co-payment Co-insurance High Deductible Full Cost No More Than Out-of-Pocket Limit 15

What to Do? Shared Savings Programs STEP 1 Continue Paying Factories & Workers Based on Parts STEP 2 Compare Cost of Parts and Award Shared Savings # of Parts x Cost of Parts < # of Parts x Cost of Parts + 0-50% of Difference in Cost of Parts Compared to Other Cars If Minimum Savings Threshold and Quality Targets Were Met RESULT Some factories reduced parts but not enough to get shared savings Some factories spent more to meet quality targets than they received in shared savings Some factories left out parts where there were no quality measures Most factories and workers lost money and went back to business as usual 16

Was There a Better Way?

Pay for Complete Cars With Warranties, Not Parts & Repairs 18

Have People Pay the Last Dollar, Not the First Dollar for Cost-Share Consumer Share of Car Price Price $18,000 Price $320,000 $1,000 Copayment: $1,000 $1,000 10% Coinsurance w/$2,000 OOP Max: $2,000 $2,000 $5,000 Deductible: $5,000 $5,000 Highest-Value: $1,000 $303,000 19

Design Cost Sharing to Encourage Preventive Maintenance Consumer Share of Maintenance Value-Based Cost Sharing High Deductible Preventive Maintenance Deferred Maintenance No or Low Copay Co-insurance 20

Pay for What Consumers Need: Transportation, Not (Just) Cars $ Allow the flexibility to deliver services that best meet the individual s needs with accountability for controlling costs 21

In the U.S., A Historic Legislative Success ACA Affordable Care Act Goal: Every citizen should have affordable healthcare Method for Achieving the Goal: Give all citizens insurance that would cover the cost of healthcare services when needed 22

How to Control Spending on Care When Insurance Is Paying? 23

How to Control Spending on Care When Insurance Is Paying? Pay for Parts? 24

How to Control Spending on Care When Insurance Is Paying? Pay for Parts? Pay for Outcomes? 25

Diabetes: A Quarter-Trillion Dollar Problem Patient with Diabetes $176 Billion in Healthcare Spending $69 Billion in Reduced Productivity $245 Billion Total Cost Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Source: Economic Costs of Diabetes in the U.S. in 2012, Diabetes Care (Volume 36) April 2013 26

What s America s Strategy for Reducing Cost, Improving Quality? Patient with Diabetes? $176 Billion in Healthcare Spending $69 Billion in Reduced Productivity $245 Billion Total Cost Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 27

Patient with Diabetes Occasional 15 Minute Visits With Overworked PCPs to Order Meds PCP 15 Minute Office Visit $73/visit Medications $176 Billion in Healthcare Spending $69 Billion in Reduced Productivity $245 Billion Total Cost Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 28

Patient with Diabetes With Limited Time & Resources, Is It Surprising Quality is Low? PCP 15 Minute Office Visit $73/visit Medications Quality Metrics Blood Sugar Cholesterol Blood Pressure Tobacco Use Aspirin Use Eye Exams Kidney Exams D5 <40% Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Source: Average D5 Composite Measures in Cincinnati and Minnesota Quality of Life Low Cost of Care Productivity 29

Patient with Diabetes PCP 15 Minute Office Visit $73/visit Medications Why Don t PCPs Do a Better Job? Quality Metrics Blood Sugar Cholesterol Blood Pressure Tobacco Use Aspirin Use Eye Exams Kidney Exams D5 <40% Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Source: Average D5 Composite Measures in Cincinnati and Minnesota Quality of Life Low Cost of Care Productivity 30

Patient with Diabetes More Time With Patients = Lower Revenues to PCP Practice PCP 15 Minute Office Visit Longer Office Visit Medications 20 minutes per patient @ $73 Level 3 E&M= 25% Less Revenue 25 minutes per patient @ $108 Level 4 E&M= 11% Less Revenue Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 31

Patient with Diabetes Proactive Outreach to Patients PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Medications to Improve Quality? $0 Payment Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 32

Patient with Diabetes Group Visits to Deliver Care PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Medications at Lower Cost? $0 Payment Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 33

Patient with Diabetes Hire a Nurse/Diabetes Educator to Help Patients Manage Health? PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Medications $0 Payment Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 34

Patient with Diabetes Call an Endocrinologist to Help PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Medications With Complex Patients? $0 Payment Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 35

Patient with Diabetes No Payment for Coordination of PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP PCPs and Specialists $0 Payment $0 Payment Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Medications Quality of Life Low Cost of Care Productivity 36

Patient with Diabetes Payers Do Pay for Office Visits PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications with Endocrinologists. $108-166 Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 37

Patient with Diabetes Long Waits Due to Many Visits for Issues That Needed Only a Call PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications $108-166 3-9 Month Wait for Visit Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 38

Patient with Diabetes And the Extra Copay May Deter the Patient From Making the Visit PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications $108-166 3-9 Month Wait for Visit Extra Patient Copay Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 39

Patient with Diabetes If Patients Can t Afford Meds, All the Rest May Be in Vain PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay High Cost-Share Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 40

Patient with Diabetes We Don t Pay for All the Right Parts, And We Pay A Lot for the Repairs PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay Lower Payment $0 Payment $0 Payment $0 Payment $0 Payment $0 Payment High Cost-Share HIGH PAYMENT Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 41

Patient with Diabetes So Is It Any Surprise that Quality is Poor and Spending is High? PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay Quality Metrics Blood Sugar Cholesterol Blood Pressure Tobacco Use Aspirin Use Eye Exams Kidney Exams D5 <40% Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 42

Patient with Diabetes What Are Medicare and Private Health Plans Doing to Fix This? PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 43

Patient with Diabetes Strategy 1: Force PCPs to Buy an EHR PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay Requiring EHRs Increases expenses for PCP practice Takes time away from office visits with patients PCP EHR and endocrinologist EHR may not be able to exchange data even if HIPAA barriers can be overcome Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 44

Patient with Diabetes Strategy 2: Bonuses/Penalties for Quality PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay $ P4P/VBP Quality Metrics Blood Sugar Cholesterol Blood Pressure Tobacco Use Aspirin Use Eye Exams Kidney Exams No additional resources to address the barriers preventing higher quality Unintended consequences of over-focus on metrics Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Hospitalizations & Death Due to Overtreatment Quality of Life Low Cost of Care Productivity 45

More Admits/Deaths Today Due to Low Blood Sugar Than High Hypoglycemia 1 Yr Mortality: 19.9% 30 Day Readmits: 16.3% Hyperglycemia 1 Yr Mortality: 17.1% 30 Day Readmits: 15.3% Source: National Trends in US Hospital Admissions for Hyperglycemia and Hypoglycemia Among Medicare Beneficiaries, 1999 to 2011 JAMA Internal Medicine May 17, 2014 46

Patient with Diabetes PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay Strategy 3: Shared Savings Shared Savings $ $ No additional upfront resources to address the barriers preventing higher quality care Puts physicians at risk for services and costs they cannot control Non-Diabetes Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 47

Patient with Diabetes Strategy 4: Patient-Centered Medical Home PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay High Copay (Small) Monthly Payment Per Patient PCMH/ PMPM Monthly payment may be to small or inflexible to overcome service barriers No support for specialists Quality improvement or shared savings requirements may be unreasonable given size of monthly payment Bad Outcomes & High Spending Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 48

Patient with Diabetes A Better Way: Condition-Based Payment PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay CONDITION-BASED PAYMENT Diabetes-Related Costs Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 49

Patient with Diabetes Flexibility to Deliver Care Without Restrictions of FFS PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay CONDITION-BASED PAYMENT FLEXIBILITY ABOUT WHICH SERVICES TO DELIVER TO HELP PATIENTS STAY WELL Diabetes-Related Costs Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 50

Patient with Diabetes Accountability to Ensure Outcomes and Costs Improve PCP 15 Minute Office Visit Longer Office Visit Phone Call or Email Group Visit Nurse or Diabetes Educator Call to Specialist Endocrinologist Call w/ PCP 30-45 Min. Office Visit Medications Low Copay CONDITION-BASED PAYMENT FLEXIBILITY ABOUT WHICH SERVICES TO DELIVER TO HELP PATIENTS STAY WELL ACCOUNTABILITY FOR MANAGING AVOIDABLE COSTS RELATED TO DIABETES AND IMPROVING OUTCOMES Diabetes-Related Costs Amputations Kidney Failure Hospitalizations ER Visits Blindness Premature Death Inability to Work Low Productivity Quality of Life Low Cost of Care Productivity 51

Can We Afford to Pay More for High-Quality, Coordinated Care When We re Trying to Reduce Healthcare Spending?

Most of the Money Today is Going to Hospitals, Not Doctors Source: Economic Costs of Diabetes in the U.S. in 2012, Diabetes Care (Volume 36) April 2013 Hospital Admissions (43%) Physicians (9%) 53

Could We Afford to Spend 20% More on Better Care Management? Hospital Admits Physicians +20% 54

A Small Reduction in Expensive Complications Saves A Lot of $$$ Hospital Admits -6% Physicians +20% 55

20% More $ on Care Mgt + 6% Fewer Admits = Lower Total $ -1% Hospital Admits -6% Physicians +20% 56

Upfront Investment Is Needed, Targeted by Docs to Achieve Impact -1% Hospital Admits -6% Physicians +20% 57

Today: Reactive Care for Chronic Disease, Many Hospitalizations CURRENT $/Patient # Pts Total $ Physician Svcs PCP $600 500 $300,000 Hospitalizations Admissions $10,000 250 $2,500,000 Specialist $400 250 $100,000 Total Spending 500 $2,900,000 500 Moderately Severe Chronic Disease Patients PCP paid only for periodic office visits Patients do not take maintenance medications reliably 50% of patients are hospitalized each year for exacerbations Specialist only sees patient during hospital admissions 58

Is There a Better Way? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs?? PCP $600 500 $300,000?? Hospitalizations?? Admissions $10,000 250 $2,500,000?? Specialist $400 250 $100,000?? Total Spending 500 $2,900,000?? 59

Pay the PCP for Proactive Care Management CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Hospitalizations Admissions $10,000 250 $2,500,000 Specialist $400 250 $100,000 Total Spending 500 $2,900,000 60

Pay the Specialist to Co-Manage The Patient s Care CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% Hospitalizations Admissions $10,000 250 $2,500,000 Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 61

Provide Nursing Support For Patient Education & Care Mgt CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Hospitalizations Admissions $10,000 250 $2,500,000 Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 62

Can We Afford to Double Spending on Ambulatory Care? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Admissions $10,000 250 $2,500,000 Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 63

Yes, If It Succeeds In Reducing Hospitalizations CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Admissions $10,000 250 $2,500,000 $10,000 215 $2,150,000-14% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,830,000-2.5% 64

Improved Chronic Disease Mgt Can Potentially Generate Large Savings CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Admissions $10,000 250 $2,500,000 $10,000 150 $1,500,000-40% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,180,000-25% 65

But What About the Hospital? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Admissions $10,000 250 $2,500,000 $10,000 150 $1,500,000-40% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,180,000-25% 66

What Should Matter to Hospitals is Margin, Not Revenues (Volume) 67

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 $000 Hospital Costs Are Not Proportional to Utilization Cost & Revenue Changes With Fewer Patients 20% reduction in volume 7% reduction in cost $1,000 $980 $960 $940 $920 $900 $880 $860 $840 $820 $800 Costs. #Patients 68

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 $000 Reductions in Utilization Reduce Revenues More Than Costs Cost & Revenue Changes With Fewer Patients 20% reduction in volume 7% reduction in cost 20% reduction in revenue $1,000 $980 $960 $940 $920 $900 $880 $860 $840 $820 $800 Revenues Costs #Patients 69

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 $000 Causing Negative Margins for Hospitals Cost & Revenue Changes With Fewer Patients Payers Will Be Underpaying For Care If Admissions, Readmissions, Etc. Are Reduced $1,000 $980 $960 $940 $920 $900 $880 $860 $840 $820 $800 Revenues Costs #Patients 70

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 $000 But Spending Can Be Reduced Without Bankrupting Hospitals Cost & Revenue Changes With Fewer Patients Payers Can $1,000 Still Save $ $980 Without Causing $960 Negative Margins $940 for Hospital $920 $900 $880 Revenues $860 Costs $840 $820 $800 #Patients 71

How Can 40% Fewer Admissions Be a Win for the Hospital? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Admissions $10,000 250 $2,500,000 $10,000 150 $1,500,000-40% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,180,000-25% 72

Analyze the Hospital s Cost Structure CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total $10,000 250 $2,500,000 Specialist (Inpt) $400 250 $100,000 Total Spending 500 $2,900,000 73

What Happens to Hospital Finances When Admissions Go Down? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total $10,000 250 $2,500,000 150 Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 74

Continue to Cover the Fixed Costs CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 Hosp. Margin $300 3% $75,000 Total $10,000 250 $2,500,000 150 Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 75

Save on Variable Costs With Fewer Patients CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $3,700 $555,000-40% Hosp. Margin $300 3% $75,000 Total $10,000 250 $2,500,000 150 Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 76

Increase the Hospital s Contribution Margin CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $10,000 250 $2,500,000 150 Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 77

Hospital Gets Less Total Revenue, But is Better Off Financially CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $10,000 250 $2,500,000 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 78

And the Payer Still Spends Less CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $10,000 250 $2,500,000 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,817,500-3% 79

Win-Win-Win: Better Care, Higher Physician Pay, Lower Spending CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Providers Win Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hospital Wins Payer Wins $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $10,000 250 $2,500,000 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,817,500-3% 80

What Payment Model Supports This Win-Win-Win Approach? CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $10,000 250 $2,500,000 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,817,500-3% 81

You Don t Want to Try and Renegotiate Individual Fees CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $10,000 250 $2,500,000 $14,250 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending 500 $2,900,000 500 $2,817,500-3% 82

Look at What is Being Spent Today in Total on the Patient s Condition CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total 250 $2,500,000 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending $5,800 500 $2,900,000 500 $2,817,500-3% 83

Tell the Payer You ll Do It For Less Than They re Spending Today CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total 250 $2,500,000 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500-3% 84

Use That Budget to Pay Doctors & Hospitals What They Really Need CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 500 $450,000 +50% Specialist 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $2,500,000 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500-3% 85

Condition-Based Payment Puts the Providers in Charge of Care & Pmt CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 500 $450,000 +50% Specialist 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 $680,000 127% Hospitalizations Hospital Fixed $6,000 60% $1,500,000 $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $2,500,000 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500-3% 86

Shared Savings Doesn t Solve the Problems with FFS No actual change in payment to the physicians No funding for the nurse No payment for phone calls instead of office visits No flexibility to proactive outreach instead of reactive care Arbitrary share of savings may not be sufficient to cover higher costs of care or losses from FFS revenue <50% of savings is not adequate if >50% of costs are fixed 87

Condition-Based Payment Allows A Win-Win-Win Solution CURRENT FUTURE $/Patient # Pts Total $ $/Pt # Pts Total $ Chg Physician Svcs PCP $600 500 $300,000 $900 500 $450,000 +50% Specialist $300 500 $150,000 +50% RN Care Mgr $80,000 Total $300,000 500 $680,000 127% Providers Win Hospitalizations Hospital Fixed $6,000 60% $1,500,000 Hospital Wins Payer Wins $1,500,000-0% Hosp. Variable $3,700 37% $925,000 $555,000-40% Hosp. Margin $300 3% $75,000 $82,500 +10% Total $10,000 250 $2,500,000 150 $2,137,500-15% Specialist (Inpt) $400 250 $100,000 $0 Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500-3% 88

What About Proceduralists?

Example: Reducing Avoidable Procedures TODAY $/Patient # Pts Total $ Physician Svcs Evaluations $100 300 $30,000 Procedures $600 200 $120,000 Subtotal $150,000 Hospital Pmt $7,000 200 $1,400,000 Total Pmt/Cost $1,550,000 Optional Procedure for a Condition Physician evaluates all patients Physician performs procedure on 2/3 of evaluated patients Up to 10% of procedures may be avoidable through patient choice or alternative treatment 90

Under FFS, Fewer Procedures=> Losses for Physicians and Hospitals TODAY w/ UTILIZATION CTRL $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $100 300 $30,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $138,000-8% Hospital Pmt $7,000 200 $1,400,000 $7,000 180 $1,260,000-10% Total Pmt/Cost $1,550,000 $1,398,000-10% 91

Is There a Better Way? TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000??? Procedures $600 200 $120,000??? Subtotal $150,000???? Hospital Pmt $7,000 200 $1,400,000??? Total Pmt/Cost $1,550,000??? 92

Pay Physicians to Manage Patient Care, Not to Do Procedures TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt $7,000 200 $1,400,000 $7,000 180 $1,260,000-10% Total Pmt/Cost $1,550,000 $1,413,000-9% Better Payment for Condition Management Physician paid adequately to engage in shared decision making process with patients and given the decision support tools to ensure quality 93

Physicians Could Be Paid More While Still Reducing Total $ TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt $7,000 200 $1,400,000 $7,000 180 $1,260,000-10% Total Pmt/Cost $1,550,000 $1,413,000-9% 94

What About the Hospital? TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt $7,000 200 $1,400,000 $7,000 180 $1,260,000-10% Total Pmt/Cost $1,550,000 $1,413,000-9% 95

To Create a Win for the Hospital, Determine the Cost Structure TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 Variable Costs $3,150 45% $630,000 Margin $350 5% $70,000 Subtotal $7,000 200 $1,400,000 180 Total Pmt/Cost $1,550,000 96

Preserve Revenues Needed for Fixed Costs TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 $700,000-0% Variable Costs $3,150 45% $630,000 Margin $350 5% $70,000 Subtotal $7,000 200 $1,400,000 180 Total Pmt/Cost $1,550,000 97

Save on Variable Costs With Fewer Procedures TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 $700,000-0% Variable Costs $3,150 45% $630,000 $567,000-10% Margin $350 5% $70,000 Subtotal $7,000 200 $1,400,000 180 Total Pmt/Cost $1,550,000 98

Improve Contribution Margin TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 $700,000-0% Variable Costs $3,150 45% $630,000 $567,000-10% Margin $350 5% $70,000 $71,400 +2% Subtotal $7,000 200 $1,400,000 180 Total Pmt/Cost $1,550,000 99

And The Payer Still Saves Money TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 $700,000-0% Variable Costs $3,150 45% $630,000 $567,000-10% Margin $350 5% $70,000 $71,400 +2% Subtotal $7,000 200 $1,400,000 180 $1,338,400-4% Total Pmt/Cost $1,550,000 $1,491,400-4% 100

I.e., Win-Win-Win for Physician, Hospital, and Payer TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 Procedures $600 200 $120,000 $600 180 $108,000 Subtotal $150,000 $153,000 +2% Hospital Pmt Physician Wins Hospital Wins Payer Wins Fixed Costs $3,500 50% $700,000 $700,000-0% Variable Costs $3,150 45% $630,000 $567,000-10% Margin $350 5% $70,000 $71,400 +2% Subtotal $7,000 200 $1,400,000 180 $1,338,400-4% Total Pmt/Cost $1,550,000 $1,491,400-4% 101

Pay Based on the Patient s Condition, Not on the Procedure TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 Procedures $600 200 $120,000 Subtotal $150,000 Hospital Pmt Fixed Costs $3,500 50% $700,000 Variable Costs $3,150 45% $630,000 Margin $350 5% $70,000 Subtotal $7,000 200 $1,400,000 Total Pmt/Cost $5,167 300 $1,550,000 102

Plan to Offer Care of the Condition at a Lower Cost Per Patient TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 Procedures $600 200 $120,000 Subtotal $150,000 Hospital Pmt Fixed Costs $3,500 50% $700,000 Variable Costs $3,150 45% $630,000 Margin $350 5% $70,000 Subtotal $7,000 200 $1,400,000 Total Pmt/Cost $5,167 300 $1,550,000 $4,971 300 $1,491,400-4% 103

Use the Payment as a Budget to Redesign Care TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 Procedures $600 200 $120,000 Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 Variable Costs $3,150 45% $630,000 Margin $350 5% $70,000 Subtotal $7,000 200 $1,400,000 $1,338,400-4% Total Pmt/Cost $5,167 300 $1,550,000 $4,971 300 $1,491,400-4% 104

And Let the Health System Decide How It Should Be Paid TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 +50% Procedures $600 200 $120,000 $600 180 $108,000-10% Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 $700,000-0% Variable Costs $3,150 45% $630,000 $567,000-10% Margin $350 5% $70,000 $71,400 +2% Subtotal $7,000 200 $1,400,000 $1,338,400-4% Total Pmt/Cost $5,167 300 $1,550,000 $4,971 300 $1,491,400-4% 105

Would Shared Savings Achieve the Same Thing? 106

Same Example As Before Year 0 Physician Svcs Evaluations $30,000 Procedures $120,000 Subtotal $150,000 Hospital Pmt Procedures $1,400,000 Subtotal $1,400,000 # Patients $/Patient 300 $100 200 $600 200 $7,000 Optional Procedure for a Condition Physician evaluates all patients Physician performs procedure on 2/3 of evaluated patients Up to 10% of procedures may be avoidable through patient choice or alternative treatment Total Pmt/Cost $1,550,000 Savings 107

Year 1: Physicians & Hospitals Both Lose With Fewer Procedures) Year 0 Year 1 Chg Physician Svcs Evaluations $30,000 $30,000 Procedures $120,000 $108,000 $0 Subtotal $150,000 $138,000-8% Hospital Pmt Procedures $1,400,000 $1,260,000 Reduce Procs by 10% Year 1: Lower Revenue for Docs & Hospital Subtotal $1,400,000 $1,260,000-10% Total Pmt/Cost $1,550,000 $1,398,000-10% Savings $152,000 108

Physician Svcs Year 2: Losses Are Lower If Shared Savings Are Paid (No) Year 0 Year 1 Chg Year 2 Chg Evaluations $30,000 $30,000 $30,000 Procedures $120,000 $108,000 $108,000 Shared Savings $0 $12,000 Subtotal $150,000 $138,000-8% $150,000 0% Hospital Pmt Procedures $1,400,000 $1,260,000 $1,260,000 Shared Savings $64,000 Subtotal $1,400,000 $1,260,000-10% $1,324,000-5% Total Pmt/Cost $1,550,000 $1,398,000-10% $1,474,000-5% Savings $152,000 $76,000 Reduce Procs by 10% Year 1: Lower Revenue for Docs & Hospital Year 2: Shared Savings Offsets Some Losses 109

But Physicians and Hospitals Still Have Net 2-Year Losses Year 0 Year 1 Chg Year 2 Chg Cumulative Physician Svcs Evaluations $30,000 $30,000 $30,000 Procedures $120,000 $108,000 $108,000 Shared Savings $0 $12,000 Subtotal $150,000 $138,000-8% $150,000 0% -$12,000-4% Hospital Pmt Procedures $1,400,000 $1,260,000 $1,260,000 Shared Savings $64,000 Subtotal $1,400,000 $1,260,000-10% $1,324,000-5% -$216,000-8% Total Pmt/Cost $1,550,000 $1,398,000-10% $1,474,000-5% $228,000 Savings $152,000 $76,000-7% 110

It s Even Worse Than That There is no shared savings payment at all if a minimum total savings level is not reached If there is a shared savings payment, it s reduced if quality thresholds aren t met, even if the quality measures have nothing to do with where savings occurred The shared savings payment ends at the end of the 3-year contract period, even if utilization remains lower, and the payer keeps 100% of the savings in future years 111

Condition-Based Payment Defines The Right Way to Share Savings TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Physician Svcs Evaluations $100 300 $30,000 $150 300 $45,000 +50% Procedures $600 200 $120,000 $600 180 $108,000-10% Subtotal $150,000 $153,000 +2% Hospital Pmt Fixed Costs $3,500 50% $700,000 $700,000-0% Variable Costs $3,150 45% $630,000 $567,000-10% Margin $350 5% $70,000 $71,400 +2% Subtotal $7,000 200 $1,400,000 $1,338,400-4% Total Pmt/Cost $5,167 300 $1,550,000 $4,971 300 $1,491,400-4% 112

Savings from Shifting to Lower Cost Procedures and Settings Maternity Care Vaginal delivery instead of C-Section Term delivery instead of early elective delivery Delivery in birth center instead of hospital Back Pain Less radical surgery Physical therapy instead of surgery Chest Pain History and exam before imaging Lower cost imaging Non-invasive imaging instead of invasive imaging Medical management instead of invasive treatment 113

Higher Condition-Based Payment For Higher-Acuity Patients TODAY TOMORROW $/Patient # Pts Total $ $/Patient # Pts Total $ Chg Higher-Acuity Evaluations $100 150 $15,000 150 $741 Procedures $600 135 $81,000 122 +16% Fixed Costs $472,500 $472,500 0% Variable Costs $3,150 135 $425,250 $382,725-10% Hosp. Margin $47,250 $48,668 +3% Total Payment $6,940 150 $1,041,000 $6,767 150 $1,014,975-3% Lower-Acuity Evaluations $100 150 $15,000 150 $455 Procedures $600 75 $45,000 68 $68,213 +14% Fixed Costs $262,500 $262,500-0% Variable Costs $3,150 75 $236,250 $212,625-10% Hosp. Margin $26,250 $27,038 +3% Total Payment $3,900 150 $585,000 $3,803 150 $570,375-3% 114

Opportunities for Reducing Spending Exist in Every Specialty Cardiology Orthopedic Surgery Psychiatry OB/GYN Opportunities to Improve Care and Reduce Cost Use less invasive and expensive procedures when appropriate Reduce infections and complications Use less expensive post-acute care following surgery Reduce ER visits and admissions for patients with depression and chronic disease Reduce use of elective C-sections Reduce early deliveries and use of NICU 115

Fee-for-Service Creates Barriers to Redesigning Care Cardiology Orthopedic Surgery Psychiatry OB/GYN Opportunities to Improve Care and Reduce Cost Use less invasive and expensive procedures when appropriate Reduce infections and complications Use less expensive post-acute care following surgery Reduce ER visits and admissions for patients with depression and chronic disease Reduce use of elective C-sections Reduce early deliveries and use of NICU Barriers in Current Payment System Payment is based on which procedure is used, not the outcome for the patient No flexibility to increase inpatient services to reduce complications & post-acute care No payment for phone consults with PCPs No payment for RN care managers Similar/lower payment for vaginal deliveries 116

There Are Win-Win-Win Solutions Through Better Payment Systems Cardiology Orthopedic Surgery Psychiatry Opportunities to Improve Care and Reduce Cost Use less invasive and expensive procedures when appropriate Reduce infections and complications Use less expensive post-acute care following surgery Reduce ER visits and admissions for patients with depression and chronic disease Barriers in Current Payment System Payment is based on which procedure is used, not the outcome for the patient No flexibility to increase inpatient services to reduce complications & post-acute care No payment for phone consults with PCPs No payment for RN care managers Solutions via Accountable Payment Models Condition-based payment covering CABG, PCI, or medication management Episode payment for hospital and post-acute care costs with warranty Joint conditionbased payment to PCP and psychiatrist OB/GYN Reduce use of elective C-sections Reduce early deliveries and use of NICU Similar/lower payment for vaginal deliveries Condition-based payment for total cost of delivery in low-risk pregnancy 117

Examples from Other Specialties Neurology Gastroenterology Oncology Radiology Opportunities to Improve Care and Reduce Cost Avoid unnecessary hospitalizations for epilepsy patients Reduce strokes and heart attacks after TIA Reduce unnecessary colonoscopies and colon cancer Reduce ER/admits for inflammatory bowel d. Reduce ER visits and admissions for dehydration Reduce anti-emetic drug costs Reduce use of high-cost imaging Improve diagnostic speed & accuracy Barriers in Current Payment System No flexibility to spend more on preventive care No payment to coordinate w/ cardio No flexibility to focus extra resources on highest-risk patients No flexibility to spend more on care mgt No flexibility to spend more on preventive care Payment based on office visits, not outcomes Low payment for reading images & penalty for 2x Inability to change inapprop. orders Solutions via Accountable Payment Models Condition-based payment for epilepsy Episode or conditionbased payment for TIA Population-based payment for colon cancer screening Condition-based pmt for IBD Condition-based payment including non-oncolytic Rx and ED/hospital utilization Global payment for imaging costs Partnership in condition-based payments 118

You Can t Fix Fee-for-Service With Small Add-On Payments P4P PMPM Shared Savings Shared Savings FFS No payment for services that will benefit patients Lower revenues from reducing avoidable costs FFS FFS FFS 119

What Takes the Time/Expertise of an Oncology Practice? New Patient 6 Months of Treatment Post-Tx Follow-Up 120

What Generates Revenues for an Oncology Practice? New Patient 6 Months of Treatment Post-Tx Follow-Up 121

Mismatch Between Revenues and Patient Care in Oncology New Patient 6 Months of Treatment Post-Tx Follow-Up 122

Condition-Based Payment Developed by Oncologists New Patient Payment Tx Month Pmt Tx Month Pmt Tx Month Pmt Tx Month Pmt Tx Month Pmt Tx Month Pmt Higher Payments For More Complex Pts Non-Tx Mo. $ Non-Tx Mo. $ Non-Tx Mo. $ New Patient 6 Months of Treatment Post-Tx Follow-Up 123

How Does All of This Fit Into ACOs? 124

Starting With The Patients.. PATIENTS Heart Disease Diabetes Back Pain Pregnancy 125

Each Patient Should Choose & Use a Primary Care Practice PATIENTS Heart Disease Diabetes Back Pain Pregnancy Primary Care Practice 126

Which Takes Accountability for What PCPs Can Control/Influence MEDICARE/HEALTH PLAN PATIENTS Heart Disease Diabetes Back Pain Pregnancy Accountable Medical Home Primary Care Practice Accountability for: Avoidable ER Visits Avoidable Hospitalizations Unnecessary Tests Unnecessary Referrals 127

With a Medical Neighborhood to Consult With on Complex Cases MEDICARE/HEALTH PLAN PATIENTS Heart Disease Diabetes Back Pain Pregnancy Accountable Medical Home Primary Care Practice Endocrinology, Neurology, Psychiatry Accountable Medical Neighborhood Accountability for: Unnecessary Tests Unnecessary Referrals Co-Managed Outcomes 128

..And Specialists Accountable for the Conditions They Manage PATIENTS Heart Disease Diabetes Back Pain Pregnancy Accountable Medical Home MEDICARE/HEALTH PLAN Primary Care Practice Endocrinology, Neurology, Psychiatry Accountable Medical Neighborhood Accountability for: Unnecessary Tests Unnecessary Procedures Infections, Complications Cardiology Group Orthopedic Group OB/GYN Group Heart Episode/ Condition Pmt Back Episode/ Condition Pmt Pregnancy Management Pmt 129

That s Building the ACO from the Bottom Up PATIENTS Heart Disease Diabetes Back Pain Pregnancy Accountable Medical Home MEDICARE/HEALTH PLAN Primary Care Practice Endocrinology, Neurology, Psychiatry Accountable Medical Neighborhood Accountable Payment Models Cardiology Group Orthopedic Group OB/GYN Group ACO Heart Episode/ Condition Pmt Back Episode/ Condition Pmt Pregnancy Management Pmt 130

Shared Savings ACOs Can t Truly Change Care Delivery or Payment Fee-for-Service Payment PATIENTS Diabetes Heart Disease Back Pain Pregnancy Primary Care MEDICARE/HEALTH PLAN Endocrine Neurology Psychiatry Cardiology Expensive IT Systems ACO Orthopedics Shared Savings Payment Shared Savings Bonus Nurse Care Managers OB/GYN 131

A True ACO Can Take a Global Payment And Make It Work PATIENTS Heart Disease Diabetes Back Pain Pregnancy MEDICARE, MEDICAID, or EMPLOYER Accountable Medical Home Primary Care Practice Endocrinology, Neurology, Psychiatry ACO Accountable Medical Neighborhood Risk-Adjusted Global Payment Cardiology Group Orthopedic Group OB/GYN Group Heart Episode/ Condition Pmt Back Episode/ Condition Pmt Pregnancy Management Pmt 132

You Don t Need a Big Health System to Manage Global Payment Independent PCPs & Specialists Managing Global Payments Northwest Physicians Network (NPN) in Tacoma, WA is an IPA with 109 PCPs and 345 specialists in 165 practices (average size: 2.4 MDs/practice). NPN accepts full or partial risk capitation contracts, operates its own Medicare Advantage plan, and does third party administration for self-insured businesses. www.npnwa.net North Texas Specialty Physicians, a 600 physician multi-specialty IPA in Fort Worth, set up its own Medicare Advantage PPO plan and uses revenues from the health plan and capitation contracts to pay its PCPs 250% of Medicare rates and provides high quality, coordinated care to patients. www.ntsp.com Joint Contracting by MDs & Hospitals for Global Payments The Mount Auburn Cambridge IPA (MACIPA) and Mount Auburn Hospital jointly contract with three major Boston-area health plans for full-risk capitation. The IPA is independent of the hospital; they coordinate care with each other without any formal legal structure. www.macipa.com 133

Four Things Needed For Win-Win-Win Solutions 134

Four Things Needed For Win-Win-Win Solutions 1. Defining the Change in Care Delivery How can care be redesigned to improve quality and reduce costs? 135

How to Find Savings Opportunities? Ask Physicians I have zero control over utilization or studies ordered. I don t get paid for calling a referring doctor and telling him/her the imaging test is worthless. Radiologist in Maine Patients often need to be in extended care to receive antibiotics because Medicare doesn t pay for home IV therapy. Patient stays in the hospital for 3 days to justify a nursing home/rehab stay. Orthopedist at AMA HOD Meeting I strongly suspect overutilization of abdominal CT scans in the ER and in the hospital; CT scans lead to further CT scans to follow up lung and adrenal nodules. The hospital focuses on length of stay, but never looks at appropriateness of radiologic studies. Internist at AMA HOD Meeting I do many unnecessary colonoscopies on young men. Give every PCP an anuscope to allow diagnosis of bleeding hemorrhoids in the office. Gastroenterologist in Maine 136

Opportunities Vary (Significantly) By Region Bad Backs in Grand Rapids? Bad Hearts in Detroit? Michigan 137

A Critical Element is Shared, Trusted Data Healthcare Providers need to know the current utilization and costs for their patients and the likely impact of care changes to know whether the payment amount will cover the costs of delivering redesigned care to the patients Purchasers/Payers needs to know the current utilization and costs to know whether the proposed payment amount is a better deal than they have today Both sets of data have to match in order for providers and payers to agree on the new approach! 139

Four Things Needed For Win-Win-Win Solutions 1. Defining the Change in Care Delivery How can care be redesigned to improve quality and reduce costs? 2. Analyzing Expected Costs and Savings What will there be less of, and how much does that save? What will there be more of, and how much does that cost? Will the savings offset the costs on average? 3. Designing a Payment System That Supports Change Flexibility to change the way care is delivered Accountability for costs and quality/outcomes related to care Adequate payment to cover lowest-achievable costs Protection for the provider from insurance risk 140

Healthcare Spending Accountability Must Be Focused on What Each Provider Can Influence Spending the Physician Cannot Control e.g., PCPs can t reduce surgical site infections e.g., surgeons can t prevent diabetic foot ulcers e.g., oncologists can t prevent cancer Spending the Physician Can Control or Influence e.g., PCPs can help diabetics avoid amputations e.g., surgeons can reduce surgical site infections e.g., oncologists can reduce complications from drug toxicity 141

Designing Win-Win Approaches Requires Collaboration & Trust Hospitals Physicians Post-Acute Purchasers WIN-LOSE WIN-LOSE WIN-WIN 143

One Payer Changing Is Not Enough Payer Better Payment & Benefits Payer Current Payment & Benefits Provider Current Payment & Benefits Payer Patient Patient Patient Provider is only compensated for changed practices for the subset of patients covered by participating payers 144

All Payers Need to Change to Enable Providers to Transform Payer Better Payment & Benefits Payer Better Payment & Benefits Provider Better Payment & Benefits Payer Patient Patient Patient 145

Payers Need to Truly Align to Allow Focus on Better Care Payer Better Payment System A Payer Better Payment System B Provider Better Payment System C Payer Patient Patient Patient Even if every payer s system is better than it was, if they re all different, providers will spend too much time and money on administration rather than care improvement 146

State/Medicare Multi-Payer Primary Care Demonstration Medicare Private Payer Private Payer Medicaid PMPM PMPM PMPM PMPM Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice 147

Michigan Multi-Payer Primary Care Demonstration Medicare Medicaid BCBSM Priority Health Other Payers PMPM PMPM Higher E&M + G-Codes PMPM + G-Codes $0 Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice 148

Differences in Payment and in the Definitions of Payments Medicare Medicaid BCBSM Priority Health Other Payers PMPM PMPM Higher E&M + G-Codes PMPM + G-Codes $0 Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice MiPCT Care Management Billing Collaborative Problem: MiPCT participating practices are underutilizing the available billing codes for care management services. Further, the descriptions and requirements for care management codes differ among payers. 149

Help for PCPs Comes With Increased Administrative Burden Medicare Medicaid PMPM This is Collaboration? PMPM BCBSM Higher E&M + G-Codes Priority Health PMPM + G-Codes Other Payers $0 Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice Primary Care Practice MiPCT Care Management Billing Collaborative Problem: MiPCT participating practices are underutilizing the available billing codes for care management services. Further, the descriptions and requirements for care management codes differ among payers. 150

A Neutral Facilitator is Needed to Achieve a Common Approach PAYER A Payment Definition 1 PAYER B Payment Definition 1 PAYER C Payment Definition 1 Neutral Facilitator (ideally with trusted data analytics) PROVIDER A Payment Definition 1 PROVIDER B Payment Definition 1 PROVIDER C Payment Definition 1 151

Example of Multi-Stakeholder Approach to Payment Reform Alliance for Health Michigan Institute for Clinical Systems Improvement Employers Unions West Michigan Payment Design Workgroup Primary Care Physicians Specialists Health Plans 152

Current Payment for Primary Care CURRENT PAYMENT PRIMARY CARE Tests & Procedures for Preventive Services Office Visits for Preventive Services Payer Payer Payer Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues 153

Current Non-Payment for Primary Care CURRENT PAYMENT PRIMARY CARE Tests & Procedures for Preventive Services Office Visits for Preventive Services Payer Payer Payer NO PAYMENT NO PAYMENT Outreach Calls for Preventive Services Proactive Care Mgt for Chronic Disease Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues 154

What Is Not Paid For Is Exactly What s Needed to Improve Quality CURRENT PAYMENT PRIMARY CARE Tests & Procedures for Preventive Services Payer Payer Payer NO PAYMENT NO PAYMENT Office Visits for Preventive Services Outreach Calls for Preventive Services Proactive Care Mgt for Chronic Disease Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues Preventive Care Quality Chronic Disease Mgt Quality 155

A Better Approach: Flexible Payment Instead of E&M Payment PRIMARY CARE Tests & Procedures for Preventive Services PROPOSED PAYMENT Office Visits for Preventive Services Outreach Calls for Preventive Services Proactive Care Mgt for Chronic Disease Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues Monthly Core Primary Care Services Payment Payer Payer Payer 156

SIZE OF MONTHLY PER-PATIENT PAYMENT High Payment for Small # of Patients Size of Monthly Payment Should Differ Based on Patient Health Small Payment for Large # of Patients No Chronic Disease and No Major Risk Factors Larger Payment for Subset of Patients Needing More Proactive Care One Chronic Disease or Major Risk Factors Still Larger Payment for Subset of Patients Needing Even More Proactive Care Two Chronic Diseases or One Chronic Dis. and Major Risk Factors PATIENT HEALTH ISSUES Complex and High-Risk Patients 157

A Better Benefit Design For Patients BENEFIT DESIGN Patient enrolls as a member of the primary care practice, but has no restrictions on other care Patient has no copays for visits related to either preventive care or chronic disease care from this practice Patient only pays cost-sharing for acute issues PRIMARY CARE Tests & Procedures for Preventive Services Office Visits for Preventive Services Outreach Calls for Preventive Services Proactive Care Mgt for Chronic Disease Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues Monthly Core Primary Care Services Payment PROPOSED PAYMENT Payer Payer Payer 158

Better Payment for the Medical Neighborhood (Specialists) SPECIALIST PMT Payments for telephone calls & emails for PCP consults with specialists they work with Sharing of the monthly core payment if the specialist is co-managing the patient with the PCP Transfer of monthly payment to specialist for some patients PRIMARY CARE Tests & Procedures for Preventive Services Office Visits for Preventive Services Outreach Calls for Preventive Services Proactive Care Mgt for Chronic Disease Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues Monthly Core Primary Care Services Payment PROPOSED PAYMENT Payer Payer Payer 159

Accountability for Spending and Quality That PCPs Can Control ACCOUNTABILITY Monthly payment would be adjusted up or down based on quality and avoidable utilization Quality of preventive care Quality of chronic disease care Avoidable ER utilization High-tech imaging Specialty referrals PRIMARY CARE Tests & Procedures for Preventive Services Office Visits for Preventive Services Outreach Calls for Preventive Services Proactive Care Mgt for Chronic Disease Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues Monthly Core Primary Care Services Payment PROPOSED PAYMENT Payer Payer Payer 160

This is Different Than Current PCMH Programs Current PCMH Model NEW MODEL P4P/Shared Savings PMPM for Care Management Tests & Procedures for Preventive Services Office Visits for Preventive Services Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues Tests & Procedures for Acute Issues Office Visits for Acute Issues Tests & Procedures for Chronic Disease Mgt Tests & Procedures for Preventive Services Performance Adjustment Core Primary Care Services Payment 161

It s Also Different from Traditional PCP Capitation Programs Current PCMH Model NEW MODEL PCP Capitation P4P/Shared Savings PMPM for Care Management Tests & Procedures for Preventive Services Office Visits for Preventive Services Office Visits for Chronic Disease Issues Tests & Procedures for Chronic Disease Mgt Office Visits for Acute Issues Tests & Procedures for Acute Issues Tests & Procedures for Acute Issues Office Visits for Acute Issues Tests & Procedures for Chronic Disease Mgt Tests & Procedures for Preventive Services Performance Adjustment Core Primary Care Services Payment P4P Primary Care Capitation 162

It s Better Than Current PCMH or Capitation Current PCMH Model P4P/Shared Savings Most practice revenue still comes from office visits Fewer office PMPM for Care Management Tests & Procedures for Preventive visits = lower Services revenue, even Office Visits for Preventive with PMPM Services Patient Office Visits still for Chronic discouraged Disease Issues Tests from& Procedures office visits for Chronic by copays Disease Mgt Patients Office Visits must forbe attributed Acute Issues based Tests on & claims Procedures for Acute Issues NEW MODEL (PARTIAL CAPITATION) Tests PCP & Procedures for Acute practice Issues receives predictable, Office Visits for flexible Acute Issues payment Tests for & patient Procedures mgt for Chronic Disease Mgt Tests Higher & Procedures payment for Preventive for patients Services with greater needs Employer only pays more if patient needs or Performance Adjustment receives more Core Primary Care Services servicespayment Patient enrolls only for prev. & chronic care PCP Capitation P4P No incentive for PCP practice to see patient for acute needs Payment is the same for patients with high needs as low needs Primary Care Employer Capitation is paying even if patient needs few services Patients must enroll for all services 163

All Stakeholders Worked Together To Develop a Win-Win Solution NEW MODEL Tests & Procedures for Acute Issues Office Visits for Acute Issues Tests & Procedures for Chronic Disease Mgt Tests & Procedures for Preventive Services Performance Adjustment Core Primary Care Services Payment Employers Unions Alliance for Health Michigan Institute for Clinical Systems Improvement West Michigan Payment Design Workgroup Health Plans Primary Care Physicians Specialists 164

Will Payers Implement It? NEW MODEL Tests & Procedures for Acute Issues Office Visits for Acute Issues Tests & Procedures for Chronic Disease Mgt Tests & Procedures for Preventive Services Performance Adjustment Core Primary Care Services Payment Employers Unions Alliance for Health Michigan Institute for Clinical Systems Improvement West Michigan Payment Design Workgroup? Health Plans? Primary Care Physicians Specialists 165

What s the Patient s Role and Accountability? Patient Payment System Provider Ability and Incentives to: Keep patients well Avoid unneeded services Deliver services efficiently Coordinate services with other providers 166

Benefit Design Changes Are Also Critical to Success Ability and Incentives to: Improve health Take prescribed medications Allow a provider to coordinate care Choose the highest-value providers and services Benefit Design Patient Payment System Provider Ability and Incentives to: Keep patients well Avoid unneeded services Deliver services efficiently Coordinate services with other providers 167

Example: No Coordination of Pharmacy & Medical Benefits Single-minded focus on reducing costs here......often results in higher spending on hospitalizations Pharmacy Benefits Medical Benefits Drug Costs Hospital Costs Physician Costs High copays for brand-names when no generic exists Doughnut holes & deductibles Principal treatment for most chronic diseases involves regular use of maintenance medication Other Services 169

Barriers In Current Benefit Designs Co-pays, co-insurance, and high deductibles discourage or prevent patients from using primary care, preventive treatments, and chronic disease maintenance medications Co-pays, co-insurance, and high deductibles provide little or no incentive for patients to choose the highest-value providers for expensive services 170

Airfare Choices from Boston to Cleveland Boston? Cleveland USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 Airfares for July 6-7, 2011 as of 6/26/11 171

What If We Paid for Travel the Way We Pay for Healthcare? Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 Airfares for July 6-7, 2011 as of 6/26/11 172

Flat Copayments: First Class Fare Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 Airfares for July 6-7, 2011 as of 6/26/11 173

Coinsurance: First Class Fare Probably Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 10% Coinsurance: $62 $111 $136 Airfares for July 6-7, 2011 as of 6/26/11 174

High Deductible: First Class Fare Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 10% Coinsurance: $62 $111 $136 $500 Deductible: $500 $500 $500 Airfares for July 6-7, 2011 as of 6/26/11 175

Price Difference: Lowest Coach Fare Wins Boston? Cleveland Consumer Share of Travel Cost USAirways 1-Stop Coach $622 United Non-Stop Coach $1,107 United Non-Stop First Class $1,355 $100 Copayment: $100 $100 $100 10% Coinsurance: $62 $111 $136 $500 Deductible: $500 $500 $500 Lowest Coach Fare: $0 $485 $733 Airfares for July 6-7, 2011 as of 6/26/11 176

Where Will You Get Your Knee Replaced? Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,000 177

Where Will You Get Your Knee Replaced? Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,000 $1,000 Copayment: $1,000 $1,000 $1,000 10% Coinsurance $2,000 $2,000 $2,000 w/$2,000 OOP Max: $5,000 Deductible: $5,000 $5,000 $5,000 178

Where Will You Get Your Knee Replaced? Knee Joint Replacement Consumer Share of Surgery Cost Price #1 $20,000 Price #2 $25,000 Price #3 $30,000 $1,000 Copayment: $1,000 $1,000 $1,000 10% Coinsurance w/$2,000 OOP Max: $2,000 $2,000 $2,000 $5,000 Deductible: $5,000 $5,000 $5,000 Highest-Value: $0 $5,000 $10,000 179

Current Transparency Efforts Are Focused on Procedure Price Payment for Procedure Provider 1: $25,000 dded Provider 2: $23,000-8% 180

Payment for Procedure Provider 1: What Hidden Costs Accompany the Lower Price? Payment and Rate of Complications $25,000 $30,000 2% Provider 2: $23,000 $30,000 10% -8% 181

Payment for Procedure Provider 1: Total Spending May Be Higher With the Lower Price Provider Payment and Rate of Complications Average Total Payment $25,000 $30,000 2% $25,600 Provider 2: $23,000 $30,000 10% $26,000-8% +2% Provider 2 has a lower starting price, but is more expensive when lower quality is factored in 182

Bundled/Warrantied Pmts Allow Comparing Apples to Apples Payment for Procedure Provider 1: Provider 2: Payment and Rate of Complications Bundled/ Episode Payment 2% $25,600 10% $26,000 +2% Bundled prices show that Provider 1 is the higher-value provider 183

Why Is It So Much Cheaper to Fly to Pittsburgh Than Cleveland? Boston? Cleveland Non-Stop Coach Fare: $1,107 Boston? Pittsburgh Non-Stop Coach Fare: $188 Airfares for July 6-7, 2011 as of 6/26/11 184

Is It The Shorter Distance? 551 Air Miles Boston Cleveland Non-Stop Coach Fare: $1,107? Boston? Pittsburgh 483 Air Miles Non-Stop Coach Fare: $188 Airfares for July 6-7, 2011 as of 6/26/11 185

Or Greater Competition? NON- COMPETITIVE MARKET Boston Choice: United Non-Stop: $1,107 (No other non-stop choice)? Cleveland COMPETITIVE MARKET Airfares for July 6-7, 2011 as of 6/26/11 Boston? Pittsburgh Choice #1: Delta Non-Stop: $188 Choice #2: JetBlue Non-Stop: $188 Choice #3: USAirways Non-Stop: $238 186

Which Is More Likely to Generate True Price Competition? MD MD MD ONE BIG ACO DO MD DO DO MD DO MD DO MD DO MD DO MD DO DO MD DO MD DO MD DO DO MD DO MD DO MD DO MD HOSPITAL HOSPITAL VS HOSPITAL MD Hospital ACO HOSPITAL HOSPITAL MD MD MD Physician Group ACO DO MD DO DO MD DO MD DO MD DO DO MD DO MD DO MD DO MD IPA ACO DO MD DO DO MD DO MD DO MD DO 187

What Do Michigan Communities Need for Higher Value Care? 188

Better Payment Systems and Benefit Designs from All Payers Engagement of Purchasers Alignment of Multiple Payers Value-Driven Payment /Benefits Benefit Design Payment System Design 189

Dramatically Better Care Delivery Supported by Better Payment Engagement of Purchasers Alignment of Multiple Payers Value-Driven Payment /Benefits Benefit Design Payment System Design Value-Driven Delivery Systems Technical Assistance to Providers Design & Delivery of Care Provider Organization/ Coordination 190

Educated and Engaged Consumer Education/ Engagement Consumers Education Materials Consumer Education/ Engagement Engagement of Purchasers Alignment of Multiple Payers Value-Driven Payment /Benefits Benefit Design Payment System Design Value-Driven Delivery Systems Technical Assistance to Providers Design & Delivery of Care Provider Organization/ Coordination 191

Data and Analysis Available to Consumer Education/ Engagement Everyone Education Materials Consumer Education/ Engagement Data and Analytics Data Collection & Analysis Public Reporting Engagement of Purchasers Alignment of Multiple Payers Value-Driven Payment /Benefits Benefit Design Payment System Design Value-Driven Delivery Systems Technical Assistance to Providers Design & Delivery of Care Provider Organization/ Coordination 192

And a Mechanism for Bringing All the Pieces Together Consumer Education/ Engagement Education Materials Consumer Education/ Engagement Data and Analytics Data Collection & Analysis Public Reporting Regional Health Improvement Collaborative Engagement of Purchasers Alignment of Multiple Payers Value-Driven Payment /Benefits Benefit Design Payment System Design Value-Driven Delivery Systems Technical Assistance to Providers Design & Delivery of Care Provider Organization/ Coordination 193

All Stakeholders Must Be Involved for Win-Win-Win Solutions Physicians and Other Providers Hospitals and Post-Acute Care Regional Health Improvement Collaborative Purchasers and Payers Patients and Families 194

Learn More About Win-Win-Win Payment and Delivery Reform Center for Healthcare Quality and Payment Reform www.paymentreform.org 195

For More Information: Harold D. Miller President and CEO Center for Healthcare Quality and Payment Reform Miller.Harold@GMail.com (412) 803-3650 www.chqpr.org www.paymentreform.org

APPENDIX

For Most Employees, the Employer is the Insurer, Not a Health Plan Source: Employer Health Benefits 2012 Annual Survey. The Kaiser Family Foundation and Health Research and Educational Trust 198

Companies With <1,000 Workers Take Total Healthcare Cost Risk Sources: Employer Health Benefits 2012 Annual Survey. The Kaiser Family Foundation and Health Research and Educational Trust; State-Level Trends in Employer- Sponsored Health Insurance, April 2013. State Health Access Data Assistance Center and Robert Wood Johnson Foundation 199

For Self-Funded Employers, The Health Plan is Just a Pass Through Purchaser Payment Self- Funded Purchasers ASO Health Plan (No Risk) Provider Claims Providers 200

Little Incentive for Health Plans to Support True Payment Reforms Purchaser Payment Self- Funded Purchasers ASO Health Plan (No Risk) Provider Claims Providers True Payment Reform Means: Health plan incurs the costs of implementing new payment models Purchaser gains all the savings from reduced utilization and spending (because all claims are passed through) 201

What We Need Are Purchaser-Provider Partnerships Self- Funded Purchasers Better Payment and Benefit Structure Lower Cost, Higher Quality Care Providers Purchasers and Patients win if: Provider keeps employees healthy Provider delivers high-quality care at low prices Provider wins if: Patients stay healthy and need less care Purchaser pays adequately for high-quality care to those who need it 202

Purchasers and Physicians Have Common Interests, But Don t Know It We ve started talking directly to physicians, and we ve discovered that what they want to sell is what we want to buy Cheryl DeMars CEO, The Alliance (Employer Coalition in Wisconsin) 203

Health Plan Implements Changes Purchasers/Providers Agree On Health Plans Implementation Self- Funded Purchasers Better Payment and Benefit Structure Lower Cost, Higher Quality Care Providers 204

National Companies Are Moving in This Direction Self- Funded Purchasers Better Payment and Benefit Structure Lower Cost, Higher Quality Care Providers Purchasers and Patients win if: Provider keeps employees healthy Provider delivers high-quality care at low prices Provider wins if: Patients stay healthy and need less care Purchaser pays adequately for high-quality care to those who need it 205