Explosive growth in auto production 1913-15 300,000 cars annually = 1/3 of the worlds production Recruited employees from immigrants and the South Large new plant on outskirts of town Highland Park – first major assembly line
Big Three Approach to Health Care – 1980-90s Predictable costs without labor strifePredictable costs without labor strife HMO prepayment attractive for:HMO prepayment attractive for: Population-based prevention Population-based prevention Community-based premium Community-based premium Little cost to employees Little cost to employees Arms length relationship with health care, except in the workplaceArms length relationship with health care, except in the workplace This strategy, fueled by managed competition paradigm, worked wellfor a while
199920002001E 2002E 2003E2004E2005E2006E Annual premium increases Source: Salomon Smith Barney Research estimates based on data from CMS, Milliman USA, AAHP, KPMG. Premium Roller Coaster MD I/P Rx HMO Premium vs. HMO Cost Increases 1988 - 2006
USA Health Expenditures Annual Percentage Growth Source: Health Affairs 2006
Big Three Pays $1000 More for Health Care per Vehicle Reasons: Rich post-retirement benefits for aging workforceRich post-retirement benefits for aging workforce Workers retire well before age 65Workers retire well before age 65 First $ coverage for most hourly workersFirst $ coverage for most hourly workers No national policy on limiting technology or drugsNo national policy on limiting technology or drugs
Big Threes Challenges Reflect Those of the Nation Big Three could not predict or control: improved life expectancyimproved life expectancy technology and pharmacy proliferationtechnology and pharmacy proliferation American health care consumerismAmerican health care consumerism Big Three should have predicted effects of: the baby boomer workforcethe baby boomer workforce life time health care benefitslife time health care benefits rich pharmacy benefitsrich pharmacy benefits These very same issues are hitting Medicare!
UAW 2007 Negotiations Ron Gettelfinger (UAW):Ron Gettelfinger (UAW): No Deal, No Chrysler No Deal, No Chrysler Tom Lasorda (Chrysler):Tom Lasorda (Chrysler): No Deal, No Jobs, No UAW !!
The 2007 UAW Contract: The Great Escape !! UAW examined books of auto companies (especially GM) –Without concessions, bankruptcy was certain, jeopardizing pensions and contracts (e.g. Delphi, Northwest Airlines) Rank and File would not strike over health caretoo much at risk –Poor credibility: this workforce has paid little in health care cost ( 30%) –Pensions and jobs are too important
2007 Contract: UAW Assumes Legacy Retiree Costs Big Three Pay into VEBA for future actuarial costsBig Three Pay into VEBA for future actuarial costs –Long-term liability comes off their books –UAW becomes huge benefits company for at least 30 years RisksRisks –Did the actuaries get it right? –Assumes 9% annual return; 5% inflation –Will Medicare benefits be reduced ?
Near Death Concessions UAW retirees:UAW retirees: –$10-21 monthly premiums –$150-300 deductibles and higher co-pays –UAW workers putting $2000 increases into retiree fund (essentially deferred benefits) White Collar workers:White Collar workers: –33% increase in deductibles –Health Savings Accounts (poorly understood) –Retiree benefits frozen forever Sources: Detroit Free Press, USA Today 12/15/05
Health Care in Detroit --Population aging and shrinking --Population aging and shrinking Young, healthy workers leaving the region and increasing community-based risk poolYoung, healthy workers leaving the region and increasing community-based risk pool –Most Detroit city hospitals have closed –With job loss, Medicare and Medicaid assuming major roles as payers –50% of Detroit City population uninsured or underinsured
Detroit Region Hospital Systems Local SystemsLocal Systems –Henry Ford (7 hospitals) –University of Michigan (1) –Beaumont Hospital (3) –Detroit Medical Center (7) –Oakwood (5) National SystemsNational Systems –St. Johns (Ascension) (5) –Trinity (2)
Profile of HFHS 93 y.o. hospital-based health system with:93 y.o. hospital-based health system with: –7 hospitals - flagship (HFH) in downtown Detroit –Health Alliance Plan - 500,000 HMO members –Employed physician practice (HFMG) - 1100 physicians
Profile of HFMG –2 million outpatient visits –650,000 patients (150,000 capitated) –24 satellite locations in 30 mile radius –700 GME trainees –$57 million in research - 4 NIH program projects –Major affiliation with Wayne State School of Medicine
Detroits Unhealthy Environment Public Funding Is Precarious State: less tax base, more Medicaid Medicare: ? Cuts to GME, prof. fees City of Detroit: financial/moral crisis Employer Funding Is Shrinking Layoffs, benefits reduction Layoffs, benefits reduction
Detroit Environment (cont.) Malpractice Is a Runaway Cost –Michigan tort reform helps –Physicians move to deep pocket hospitals/systems Quality Is an Unfunded Mandate –Pressures from JCAHO, CMS, Insurance companies –Pay for Performance for hospital (and physicians)
Detroit Environment (cont.) Technology Arms Race Eroding Physician Compensation –Flat reimbursement, higher overhead –Need technical fees from hospital Competition to Recruit Physicians
HFHS Strategies Consumerism to Balance Loss of CapitationConsumerism to Balance Loss of Capitation Quality as DifferentiatorQuality as Differentiator Re-Engineer Systems to SurviveRe-Engineer Systems to Survive –Payment/Risk Issues –Pay for Performance –Primary Care Re-design
Access To Appointments - Percent of ProvidersAccess To Appointments - Percent of Providers W i t h T i m e t o T h i r d A v a i l a b l e A p p o i n t m e n t 1 4 D a y Access To Appointments - Percent of ProvidersAccess To Appointments - Percent of Providers Better Appointment Access
Quality and Safety in Detroit Pushed very hard by auto companiesPushed very hard by auto companies Save Lives, Save Dollars Save Lives, Save Dollars Pioneering Achievements:Pioneering Achievements: –Standardized MI treatment –Reduced ICU and surgical infections –Electronic Prescribing –HEDIS measures –Chronic Disease Management
ICU Blood Stream Infections – Detroit Leads the Nation !
Network ER Use Rate vs. Percentage ER Zero Dollar Co-pay (bubble size denotes network size)
Heart Failure Readmission Rates far above average
Primary Care Practice in Trouble Non-Revenue Patient DemandsNon-Revenue Patient Demands phone calls, results, forms, social services Higher Co-pays = Fewer Office VisitsHigher Co-pays = Fewer Office Visits Flat (or Worse) ReimbursementFlat (or Worse) Reimbursement Insurance Company IssuesInsurance Company Issues –Quality, P4P –Pre-Authorization –Shifting Patient Benefits
Current Payment System is Killing Primary Care Practice Driving factorsDriving factors –Hospital DRGS designed for immediate problem, resulting in touch and go admissions –Most chronic patients rebound back to hospital Consequences:Consequences: –Sick patients land with primary care physician who has no financial support –Typical PCP sees 25 patients daily, interacts with 75 others –Quality mandates ALONE = 20 hrs/week
Primary Care Redesign Issues Patient Consumer DemandsPatient Consumer Demands Solution: E-visits, results, messages /Flex Hours Higher Co-pays/Chronic CareHigher Co-pays/Chronic Care Problem: how to provide care beyond the office ? Flat (or Worse) ReimbursementFlat (or Worse) Reimbursement Solution: Tap into hospital revenue by employment Insurance Company ChallengesInsurance Company Challenges Solution for Quality, P4P: EMR and registries Problems: Pre-AuthorizationPre-Authorization Shifting Patient BenefitsShifting Patient Benefits
Return on Investment – Diabetes Self- Management Education Activity from 10/1/2005 – 9/30/2007 DSME HFMG: All diabetes pts. Total costs PMPM HAP Comm. Total costs PMPM HAP Sr. Plus Combined Savings: $179 PMPM $ 736 $1,004$1,740 $ 780 $1,139$1,919 IPD Days/1000 HAP Comm. IPD Days/1000 HAP Sr. Plus Admits/1000 HAP Commercial Admits/1000 HAP Sr. Plus ED Visits/1000 HAP Comm. ED Visits/1000 HAP Sr. Plus OPD visits/1000 HAP Comm. OPD Visits/1000 HAP Sr. Plus 880 940 94014226238624423,18331,5601,0641,92321438045045017,02224,542
Good News Story: E-Prescribing ChallengeGM to Henry FordChallenge: GM to Henry Ford: Thou shall reduce medication errors by electronic prescribing for ambulatory patients ! Issues:Issues: –How would this innovation help patients? –Cost of IT investment ? –Would it disrupt the practice?
Good News Story: E-Prescribing ProcessProcess HFMG physicians led pilot sites : designed and continuously refined the process HFMG physicians led pilot sites : designed and continuously refined the process Value PropositionValue Proposition –Patients: safety, efficiency, no hassles –Physicians: refills easy, med inventory, no time savings –Office staff: freed up 0.5 FTE in phone calls
Good News Story: E-Prescribing Widespread Acceptance in SE Michigan:Widespread Acceptance in SE Michigan: Since 2005, $1M investment for 6.2M prescriptions to date; 2500 physicians participating –Electronic alerts common: Formulary in 40%Formulary in 40% Drug interactions 33%Drug interactions 33% CMS Jumps on the Bandwagon !CMS Jumps on the Bandwagon ! –Incentive proposed for participating docs –Penalty for non-participation in 2011?
Detroit Issues = National Issues Systems of CareDoctors and Hospitals must be aligned with common:Systems of CareDoctors and Hospitals must be aligned with common: –Information systems –Financial incentives –Quality/cost agendas Primary Care Morale at Crisis LevelsPrimary Care Morale at Crisis Levels –will be melt down w/out redesign –chronic care needs system approach Technology Proliferation UncheckedTechnology Proliferation Unchecked
Who will rescue the Federal Government from its Legacy Costs? Baby Boomer Tsunami will flood Medicare for the next 30 yearsBaby Boomer Tsunami will flood Medicare for the next 30 years By 2030, Medicare expenditures will double (to $600B) under every reasonable scenarioBy 2030, Medicare expenditures will double (to $600B) under every reasonable scenario –Driven by demographics, chronic diseases and technology proliferation Like the Big Three, The Federal Government has an unsustainable entitlementLike the Big Three, The Federal Government has an unsustainable entitlement Source: Health Affairs 24: Supp. 2 ; 2005
Where Did Autos Fail to Control Costs? Little Consumer Skin in the Gamefirst $ coverageLittle Consumer Skin in the Gamefirst $ coverage No curb on technology except CONNo curb on technology except CON Costly new therapies and preventionCostly new therapies and prevention Failure to manage care to improve efficiencyFailure to manage care to improve efficiency Retirees beat the actuarial curve prevention works!!Retirees beat the actuarial curve prevention works!!
Same Liabilities for Medicare Entitlement for lifeEntitlement for life No policy on new therapies or technology; no pharmacy contractingNo policy on new therapies or technology; no pharmacy contracting No systems of care to improve quality safety, efficiencyNo systems of care to improve quality safety, efficiency –Payment system dysfunctional –No electronic connectivity –Average practice size is 1.5 physicians!
Henry Fords Medicare Experience: Profitable (so far) 20,000 full risk capitated patients Emphasis on continuity of care:Emphasis on continuity of care: –Team medicine practice with prevention, chronic disease mgt –Focus on inpt/outpt. continuum Cost ContainmentCost Containment –Opportunities to reduce re-work –Unknowns: new meds, technology, mandates, consumerism
CMS Group Practice Demonstration Project CMS Group Practice Demonstration ProjectMethod –10 large groups capitated 2005-2007 –All had EMRs, hospital alignment –Bonus paid for exceeding 2% cost savings Results –Only 2 groups received a bonus because of infrastructure investments !
Health Cares Closed Box Health $$ Employee Company Govt Health Providers