1. © Mark McClellan. All rights reserved. No part of this presentation may be reproduced or transmitted in any form or by any means without permission in writing. Financing LTSS: Health Care Reform Issues Mark McClellan, MD, PhD Director, Engelberg Center for Health Care Reform Senior Fellow, Economic Studies Leonard D. Schaeffer Chair in Health Policy Studies Brookings Institution

2. 2 Topics Budget and Health Care Fundamentals Health Care Reform Options: Traditional Cost Control vs Financial Alignment Connecting LTSS Support to Health Care Reform

3. 3 Source: 2011 CBO Long-Term Budget Outlook Spending on health care driving federal deficits

4. 4 Unprecedented slowdown in Medicare spending growth required under current law Growth and Projected Growth in Per Capita Medicare Spending in Excess of Economic Growth* PeriodExcess Rate of Spending Growth (% points) 1975-20072.4 1980-20072.2 1985-20071.4 1990-20071.6 2012-2021-0.4 2020-20210.8 *Data are from the CBO Long-Term Budget Outlook 2011. Excess rate of spending growth measures the amount by which health spending per person exceeds GDP per capita, with adjustment for demographic factors such as the aging of the population. Never achieved before Assumes physician payment reductions (SGR) and slowdowns in payment growth in ACA remain in effect If current law is maintained, the Independent Payment Advisory Board may not be important Doesn’t include recent savings proposals

5. 5 Medicare Reform Options: “Traditional” Payment Reductions Don’t Help LTSS Reduce payments in traditional Medicare –Part B and Part D drugs –SNFs, home health, and other providers Subsidy Reductions –Across the board (eligibility age increase, higher share of B/D premiums) –Income-related (not that much money) Medigap and Copay Reforms

6. 6 Addressing Health Care Cost Challenges Traditional Approach (Balanced Budget Act of 1997, “scored" $716B health care savings in Affordable Care Act) Squeeze payment rates - lower margin per service Leads to reduction in costs per service but also cost shifting, increased volume, increased intensity, quality and access issues Continued tightening of Part B/Medicaid drug pricing, specialty service reimbursement Continued obstacles to coverage of valuable but poorly- reimbursed services Alternative Approach: Reform care with aligned financing Identify ways to reduce overall costs while improving outcomes Reform financing to support care reforms – with accountability for better results, lower costs Delivery reform + supporting financial reform

7. 7 Opportunities for real health care reform  Prevention  Management of chronic diseases and care coordination to prevent complications and avoidable costs  Management of advanced disease to achieve better patient experience  Personalized medicine: patient-focused support, based on targeting treatments to the individual patients for whom they work best – not traditional health care delivery … Not easy to achieve real reforms in health care delivery …. Policy changes can help improve care – and LTSS Changes in health care delivery to improve health and lower costs:

8. 8  Infrastructure: Better Electronic Data, Measures of Quality and Cost, Evidence  Provider Payment Reform  Benefit Reform  Insurance Choice Reform “Bending the Curve” While Improving Value Full-text available at: http://www.brookings.edu/health Includes: Additional context Specific sub- recommendations Breakdown of legislative vs. regulatory actions

9. 9  Measurement of quality and cost enables support for valuable reforms in health care delivery: pay more for measurably better care, lower costs  Shared savings, shared risk, and redirection of payments to accountable care  ACA encourages Medicare to adopt a range of accountable care reforms – following private-sector initiatives Reform payments based on value: accountable care

10. 10 ACO implementation accelerating across the country {Not exhaustive} ACO implementation is now accelerating across the country *More than 350 self- identified ACOs* Private Sector = Beacon Communities = PGP Transition, MHCQ Public Sector = Pioneer = MSSP = Private Sector ACO’s = *195 new ACOs participating in the MSSP

11. 11 Moving forward: alignment across payment reforms Medical Homes for Primary Care Supports care coord, prevention, chronic disease mgmt, and other key primary- care activities Rewards reductions in primary care- related cost trends Payment Bundling for Specialty/Intensive Care and Postacute Care “Specialty home” or episode payments for specialty services Combine payments across providers/ settings to promote coordination Accountable Care (System-wide) Reimburses population-level improvements in quality and overall per-capita costs Encourages coordination across the continuum of care Can reinforce/ support “piecewise” accountable- care reforms Common core performance measures across reforms and a rapid but feasible pathway for improving measures and the underlying outcomes of care Timely and consistent methods for sharing underlying data with providers to improve performance Evolve and integrate rapid evaluation methods based on common measures

12. 12 Review of current-law Medicaid reform for dual- eligible beneficiaries CMS has outlined 3-year demos for states to test coordinated delivery and payment models for duals 1.Capitated Integration Model: three- way contract between state, CMS and health plan –Plan would receive blended prospective payment to provide a comprehensive set of services –Allows passive enrollment with opt- out available on month-to-month basis 2.FFS Integrated Model: states would be responsible for duals’ care coordination in return states would be eligible for retrospective performance payment if quality and cost targets are met State proposals for launch in 2013 (3) or 2014 (16) E.g. Massachusetts proposal: Fully-integrates the delivery and financing of Medicare and Medicaid services for dual- eligibles ages 21-64 Uses combined Medicare and Medicaid funding to contract with Integrated Care Organizations (ICOs) –ICOs receive blended prospective payments to provide integrated, comprehensive care for duals under are 65 ICOs will contract with providers functioning as PCHMs and arrange for all covered hospital, specialty and LTSS Enrollment will be voluntary and facilitated by neutral enrollment brokers Eligible members will have wide choice of ICOs and ability to change plans or opt out at any time

13. 13 Reform benefits for greater value Medicare Part D Experience Broad range of benefit design and coverage options allowed (subject to minimum standards for “actuarial equivalence”) Comparative cost and quality information available Fixed subsidies based on income and health status: strong incentives for beneficiaries to choose lower-cost plans that met their needs Steps to address adverse selection: subsidies; risk adjustment; reinsurance; risk corridors; late enrollment penalties Around 40% lower costs than projected Beneficiaries chose “tiered” benefits that enabled much more savings based on their drug choices, not traditional Medicare insurance design

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15. 15 Reform benefits for greater value Medicare Part D “Exchange” Experience Broad range of benefit design and coverage options allowed (subject to minimum standards for “actuarial equivalence”) Comparative cost and quality information available Fixed subsidies based on income and health status: strong incentives for beneficiaries to choose lower-cost plans that met their needs Steps to address adverse selection: subsidies; risk adjustment; reinsurance; risk corridors; late enrollment penalties 45% lower costs than projected Beneficiaries chose “tiered” benefits that enabled much more savings based on their drug choices, not traditional Medicare insurance design Implications for Health Care Reform More attention to steps to address adverse selection, especially without strong mandate Expect more comprehensive application of benefit tiers, and more changes in behavior Opportunities to align payment and benefit reform

16. 16 Medicare Reform Options: Defined Contributions? Key issues: Support/defined contribution level: based on average plan cost? low-cost plan? Traditional Medicare? Indexing: with health care costs? GDP? Inflation? Similar approaches in other programs? ACA exchange subsidies: defined contributions based on second least-expensive plan Medicaid capitated contracts? Supporting steps Meaningful price transparency: comparable information on premiums, total out-of-pocket payments for common services Comparable quality measures matched to price measures Flexibility with minimum standards in benefit design Addressing adverse selection

17. 17 Implications for LTSS Financing Reform Movement in health care financing away from FFS and toward person- level payments tied to quality likely to be helpful for LTSS financial support, diminishing pressures to reduce LTSS rates and shift costs Need relevant performance measures for LTSS impact (e.g.,patient functional outcomes, caregiver experience measures) Risk adjustment, other steps to address adverse selection (diminishes LTSS insurance market problems) LTSS Financing Ideas Can Align with Health Care Reform Needs-based LTSS payments (i.e., risk-adjusted perdiem payments as in CLASS) or personal savings could complement reformed health care financing and delivery Better LTSS performance measures could improve competition and reduce costs in providing LTSS