Innovations in Reducing Cost and Improving Quality of Health Care Tom Williams, Executive Director Integrated Healthcare Association (IHA) 2010 Health Care Forecast Conference Irvine, CA February 26, 2010

2 The Big Picture: U.S Performance vs. 20 Industrialized Nations Source: NGM Blog Central, “The Cost of Care,” December 18, 2009, Graphic by Oliver Uberti, National Geographic

Topics An Overview and Framework IHA Initiatives/Innovations Forecasts 3

A Framework for Health Improvement GoalStrategyTactics Performance Measurement Measure and report quality, safety, and cost efficiency Continuous quality improvement (CQI) Internal reporting for CQI Public reporting Harmonize measures across payers Performance Payment Incent/reward performance and value instead of volume Reform payment to incent value (quality, safety and cost efficiency) Pay for performance Medical home Episode payment Partial and global capitation Performance based contracts High- Performance Organization Coordinate & integrate better care delivery Integrate physicians and hospitals Widespread EMR adoption Health information exchange (HIE) Accountable care organizations (ACO’s) HIT stimulus State, regional HIE 4

Value Based Payment Hierarchy Value Global Capitation Full Episode Payment Partial Episode Payment Partial Capitation: Full Professional Primary Care FFS & Medical Home Fees Pay for Performance Case Rates (e.g. DRGs) FFS Volume 5

A Framework for Health Improvement 6 Small MD Practice & Unlimited Hospital Primary MD Group Practice Multi-Specialty MD Group Practice Hospital System Integrated Delivery System Global Capitation Full Episode Payment Partial Episode Payment Full Professional Capitation Primary Care Capitation FFS & Medical Home Fees Pay for Performance Case Rates (e.g. DRGs) FFS Integration Value Health Improvement Source: A. Shih, K. Davis, S. Schoenbaum, A. Gauthier, R. Nuzum, and D. McCarthy, Organizing the U.S. Health Care Delivery System for High Performance, The Commonwealth Fund, August 2008 Market Leverage

7 Health Care Spending: Massachusetts

Special Commission:“Payment Reform Commission Unanimously Supports Move to Global Payment System to Improve Patient Care and Contain Health Care Costs” RAND Study:Four most promising options to reduce costs: (1) bundled episode payment, (2) hospital all-payer rate setting, (3) rate regulation for academic medical centers, and (4) eliminate payment for adverse events. Attorney General’s Office: Price variations not correlated to the quality of care, population served, payer mix, or payment method (e.g. FFS vs. capitation). Price correlated with market leverage of hospital or physician organizations. Recommendations: (1) Track, publish Total Medical Expenditures for all providers (2) Promote uniform quality measurement and reporting (3) Promote standardized units of payment and administrative processes. 8

Healthcare Spending: California 9 February 25, 2010, Health Affairs “Unchecked Provider Clout in California Foreshadows Challenges to Health Reform” “Health Affairs Article Cites Provider Market Power to Negotiate higher private insurer payment rates as, the Elephant in the Room of the National Health Reform debate. “ Robert A. Berenson, Paul B. Ginsberg, and Nicole Kemper, “Unchecked Provider Clout In California Foreshadows Challenges To Health Reform,” Health Affairs 29, No 4 (2010)

IHA Initiatives and Innovations Pay for Performance Program in California (2003 to present) −229 physician organizations / 35,000 physicians / 10.5 million members/patients −7 CA health plans participate in incentive payments and public reporting – Aetna, Blue Cross, Blue Shield, CIGNA, Health Net, PacifiCare, and Western Health Advantage. Kaiser Permanente participates in public reporting only. −Total incentives paid by health plans to date equals $316 million −Includes measurement and reward for (1) quality, (2) patient experience, (3) information technology and (4) appropriate resource use Efficiency Measurement (2006 to present) − Tested episodes of care for incentive payments (rejected) − Implemented Appropriate Resource Use measures − Developing Total Cost of Care measurement Episode of Care Payment Pilot (2009 to present) − Determine the feasibility of private-sector episode payments in the context of complex multi-payer and provider delivery system. − Initially includes episode payments for total knee and hip replacement, expanding to other episodes 10

11 Regional Variation in Clinical Performance California Pay for Performance Results

California Pay for Performance: A Tale of Two Regions (2008) Bay Area Inland Empire Clinical Composite 63% 77% Score PCPs/100K Pop % Pop. Medi-Cal 13% 19% Per Capita Income $ 46,015 $ 23,540 12

Knee Replacement Procedure Episode Group Average Commercial Population Costs, by Type of Service 1 ALOS=3.9 Days Knee Replacement Surgery Pre-Window Post-Window 90 Days 14 Days 42 Days 90 Days180 Days Pre-Surgery $ % of Total Pre-Surgery I $273 1,0% of Total Inpatient Stay $21, % Tot Recovery $2, % of Tot Follow Up I $1, % of Tot Follow Up II $ % of Tot Total Cost $26,565 $10 $20 $30 Total Allowed Costs (000) { 1) Source: Ingenix Claims Data- 602 complete episodes

Forecast 1: Pay for Performance Will Evolve into Performance Based Contracting Pay for Performance Emphasis on quality Smaller incentives (2 - 5%) On “top” of base payments “Have’s” advantaged Applicable to any method of payment (e.g. FFS, episode, capitation) 14 Performance Based Contracting Emphasis on value More substantial bonuses (10%) Integral to base payments Helps level playing field Applicable to any method of payment (e.g. FFS, episode, capitation)

BCBS Massachusetts – Alternative Quality Contract (AQC) 15 Presentation by Christopher Collins, Blue Cross Blue Shield of Mass., Hospital Payment Reform Summit, 9/17/09, Washington, DC

California - Performance Based Contract Framework Base capitation Quality Adjusted Efficiency Incentive Inflation UM Bonus P4P Bonus Base capitation 1% quality P4P bonus plus 2% utilization gain sharing bonus 10% Quality Adjusted Efficiency gain sharing potential Year 1Year 2Year 3Year 4Year 5 Efficiency Quality

Forecast 2: Health Cost Curve Will Bend Under Its Own Weight 17 U.S. health costs as a percent of GDP is growing steadily Federal health costs as a percentage of total public expenditures is growing exponentially

Federal Outlays for Health Programs (Billions) Fiscal YearTotal Health Outlays Employer Tax Credit for Health Benefits Total Health Outlays & Employer Tax Credit Combined Total Federal Outlays Health Outlays as % of Total Outlays Data Not Available % % % % % 2010 estimate % % 7.1% Health Outlays as % of Total Federal Outlays Sources: and

Federal Expenditures for Health Programs 19 U.S. Health Expenditures (Billions) U.S. Health Expenditures % of Total U.S. Health Expenditures % of GDP Sources: and

Integrated Healthcare Association For more information: (510)

High Performance Organizations More highly integrated delivery systems yield better care process, outcomes, and capability to assume risk/reward for value and more market leverage. 21 Small MD Practice & Unlimited Hospital Primary MD Group Practice Multi-Specialty MD Group Practice Hospital System Integrated Delivery System Health Improvement Integration Market Leverage

BCBS Massachusetts – Alternative Quality Contract (AQC) 22 Presentation by Christopher Collins, Blue Cross Blue Shield of Mass., Hospital Payment Reform Summit, 9/17/09, Washington, DC

Payment for Performance and Value Payment – Current Methods (1)Reward Volume (2)Penalize prevention, error/complication reductions, and unnecessary care The Menu of Payment Options Fee-for-service: rewards volume of services, not appropriateness or coordination of care Global capitation: shifts insurance risk to providers, creates incentive for risk selection Pay-for-performance: to date primarily framed as quality bonus and hence does not move enough money or address cost of care Bundled payments: the latest idea Case rates or global DRG payments for major acute episodes Episode payments for major chronic conditions 23

Performance Measurement “You cannot improve what you cannot measure” 24 Quality Efficiency (Cost) Clinical Patient Experiences UtilizationCosts ProcessOutcomes Measures Data Availability Summary Good Measures And Data Poor Measures and Data Good Measures and Data Good Measures and Data Poor Measures/ Good Data

25 “ And that’s why bridges are falling...” Bridge Collapses in Minneapolis, MN. View Dani Bora's map Taken in a place with no name (See more photos here)more photos here A busy bridge carrying four-lane state highway — Route 35W across the Mississippi River — collapsed in Minneapolis during rush hour on Wednesday, sending cars and trucks plunging to the water. Bridge Collapses in Minneapolis, MN. View Dani Bora's map Taken in a place with no name (See more photos here)more photos here A busy bridge carrying four-lane state highway — Route 35W across the Mississippi River — collapsed in Minneapolis during rush hour on Wednesday, sending cars and trucks plunging to the water. Source: Flickr: Dani Bora, Photographer