Emerging Payment Models In Response To Purchaser Needs Or What Happens When Folks Are Fed Up François de Brantes Executive Director Health Care Incentives Improvement Network

American “Exceptionalism” The US spends twice as much per person, and twice as much as a percent of total national product, than the next highest spending nation. If all health care costs were funded by tax dollars, the entire yearly tax collections would have to be used for this single purpose (see chart). And yet by all objective measures (infant mortality, population longevity, patient safety), the US ranks average among other nations. –Bottom Line: We spend twice as much and get the same quality as others  US Health care value is half that of the next big spender. 2

The Real Reason For Health Care Cost Increases: Price Inflation 3 State Employee Benefits Plan , HCI 3 Data Analysis

The Effect of Rising Costs on US Families Increases in premiums for employers and employees has far outpaced inflation. The added cost burden for employers has resulted in stagnating wages, diverting money that otherwise would have been given to employees to pay for premiums. In addition, families have had to bear higher out of pocket expenses, leading to total health care costs consuming about 20% of average household incomes 1. –Bottom Line: Rising health care costs have impoverished American families Increase in Total Premium, Employer and Employee Portions Kaiser Family Foundation 2013 Employer Health Benefits Survey

A Significant Number Of Plan Members Pay For All Care Out-Of-Pocket 5

If It’s Your Money, You Spend It Differently 6

Things That Make Employers and Employees Mad Knee replacements that cost $8,500 in Sweden (with warranty), cost Medicare $22,600 and private sector plans close to $26,000 – three times more than in Sweden. The variation in price for these procedures can be 50% or more, based on higher prices for implantable devices and facility costs. Simpler routine procedures such as screening colonoscopies can have a two-fold price difference in the same geographic area. –Bottom line: Why should an employer (or employee) pay $1.50 for something you can get for $1.00 ? 7 Average Costs Per Episode, By Provider Group, for a specific geographic area in the US, 2012 – Analysis by HCI3

Insourcing Medical Care Is One Response 8

Direct Contracting And Reference Pricing Is Another Response 9 20%+ price drop in participating hospitals Employer Bundled Payments e.g., Reference Pricing e.g., EmployerEpisode(s)Results Hips/knees Heart Spine Transplants 10%+ savings even with travel and “free” price for patients Heart Hips/knees 25-30% of employees agreed to participate in first year Heart 75% decrease in complications

The Medicare Bundled Payment for Care Improvement has hundreds of providers across the country participating. Many are post-acute care providers Our recent report 1 highlights statewide initiatives led by Governors and private sector payers This leads to a very different kind of competition than in the past – service line focused Direct (or Indirect) Contracting For Episodes Means Shifting Risk 10

Price Competition Works 11

A reference price is established for an episode of care (e.g. procedure or care of a condition) Employees who get care from providers whose total price is above the reference will pay the difference –Providers designated as being above the reference price are considered “out-of-network” Reference Pricing And Tiering Are Designed To Shift Risk To Employees 12

Reference Pricing Shifts Market Share 13

Innovating With Benefit Designs Can Accelerate Plan Member Engagement 14 When the need for the procedure is confirmed, he receives an allowance that covers the entire episode of care. He is given a list of providers who can perform the procedure, some with bundled fees. If the cost comes in under budget, the unspent funds are placed in his personal Health Savings Account. If the cost comes in over budget, the patient’s deductible and co-insurance kick in.

John’s Provider Choices: What Would You Do? 15

Efforts are more modest –Some ACO deals, usually focused on upside, but with some downside Few broad-scaled bundled payment initiatives More of the same in PCMH Tiering and/or specialty designations Employers Are Still Mostly Working Through Health Plans 16

Arkansas, Tennessee, Ohio and others are embarking on comprehensive bundled payment programs Vermont and Massachusetts have global capitation plans Oregon has instituted Coordinated Care Organizations A dozen or more states have instituted All-Payer Claims Databases to force through price and quality transparency States Are Taking A Leadership Role 17

Still a mixed bag, but the trend is clear Efforts led by states are proving they can succeed to transform provider mindsets Individual employers are pushing along health plans to accelerate change in payment Hospitals and physicians have a significant role to play to push through payment reform Conclusion 18