understanding accountable care organizations

Understanding Accountable Care Organizations

Timothy J. Fisher, MD, MS, FACOGJuly 10, 2014

How My Brain Works

VALUE=

QUALITY/COST

TRANSFORMING MATERNITY CAREHow Payment Reform Can Help

Improve Quality and Lower Costs

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

www.CHQPR.org

Big Opportunity for Commercial Payers & Medicaid is Maternity

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000

Osteoarthritis and other non-traumatic joint …Back problems

Infectious diseasesMental disorders

PneumoniaOther CNS disorders

COPD, asthmaKidney Disease

Other endocrine, nutritional & immune …Hypertension

Gallbladder, pancreatic, and liver diseaseDiabetes mellitus

Other circulatory conditions arteries, veins, …Trauma-related disorders

CancerHeart conditions

Normal birth/live born

U.S. Expenditures on Hospital Inpatient Stays, Age 0-65, 2006 (Millions)

Medical Expenditure Panel Survey, 2006

Can We Reduce Maternity Care Costs Without Rationing?

PregnantWoman

Reducing Costs Without Rationing:Better Pregnancy Management

ComplicatedPregnancy

UncomplicatedPregnancy

PregnantWoman

Reducing Costs Without Rationing:Better Choices About Delivery

ComplicatedPregnancy

UncomplicatedPregnancy

PregnantWoman

Term Vaginal Delivery

Pre-Term,C-Section

Reducing Costs Without Rationing:Better Management of Delivery

ComplicatedPregnancy

UncomplicatedPregnancy

PregnantWoman

Term Vaginal Delivery

Pre-Term,C-Section

Efficient Successful

Delivery

MaternalComplications,Readmissions

High-CostSuccessful

Delivery

Infants with Low Birth Weight, Injuries, Etc.

Better for Moms and BabiesAs Well as Payers

Better Outcomes/Lower Cost

ComplicatedPregnancy

UncomplicatedPregnancy

PregnantWoman

Term Vaginal Delivery

Pre-Term,C-Section

Efficient Successful

Delivery

MaternalComplications,Readmissions

High-CostSuccessful

Delivery

Infants with Low Birth Weight, Injuries, Etc.

Current Payment Systems Reward Bad Outcomes

$

ComplicatedPregnancy

UncomplicatedPregnancy

PregnantWoman

Term Vaginal Delivery

Pre-Term,C-Section

Efficient Successful

Delivery

MaternalComplications,Readmissions

High-CostSuccessful

Delivery

Infants with Low Birth Weight, Injuries, Etc.

How Payment Systems ImpedeBetter Maternity Care

Goals for High-Value Maternity Care

Barriers Created byCurrent Payment Systems

Achieve Good Birth Outcomes

•No financial penalty for poor outcomes, and no reward for good outcomes;

•More/higher payments to physicians and hospitals when adverse events occur;

•Same payment to physicians regardless of quality of prenatal care provided

How Payment Systems ImpedeBetter Maternity Care

Goals for High-Value Maternity Care

Barriers Created byCurrent Payment Systems

Achieve Good Birth Outcomes

•No financial penalty for poor outcomes, and no reward for good outcomes;

•More/higher payments to physicians and hospitals when adverse events occur;

•Same payment to physicians regardless of quality of prenatal care provided

Avoid Use of Expensive/ Undesirable Procedures

•Higher payment/higher margins for hospitals for C-sections

How Payment Systems ImpedeBetter Maternity Care

Goals for High-Value Maternity Care

Barriers Created byCurrent Payment Systems

Achieve Good Birth Outcomes

•No financial penalty for poor outcomes, and no reward for good outcomes;

•More/higher payments to physicians and hospitals when adverse events occur;

•Same payment to physicians regardless of quality of prenatal care provided

Avoid Use of Expensive/ Undesirable Procedures

•Higher physician payment/higher hospital margins for C-sections

Reduce Costs of Deliveryand Post-Partum Care

•No reward for physicians to help hospitals reduce costs or to use lower-cost settings such as birth centers;

•No incentive for mothers to choose lower-cost/higher-value providers

Accountable Payment ModelsProvide Flexibility + Accountability

BUILDING BLOCKS HOW IT WORKS

Bundled Payment

Single payment to 2+ providers who are now paid separately (e.g., hospital+physician)

Warrantied Payment

Higher payment for quality care, no extra payment for avoiding

complications

Condition-Based

Payment

Payment based on the patient’s condition, rather than on the procedure used

Accountable Payment ModelsAllow Win-Win-Win Approaches

BUILDING BLOCKS HOW IT WORKS

HOW PHYSICIANSAND HOSPITALS

CAN BENEFITHOW PAYERSCAN BENEFIT

Bundled Payment

Single payment to 2+ providers who are now paid separately (e.g., hospital+physician)

Higher payment for physicians if they

reduce costs paid by hospitals

Physician and hospital offer a lower total price to Medicaid or health

plan than today

Warrantied Payment

Higher payment for quality care, no extra payment for avoiding

complications

Higher payment for physicians and

hospitals with low rates of

complications

Medicaid or health plan no longer pays

more for high rates of complications

Condition-Based

Payment

Payment based on the patient’s condition, rather than on the procedure used

No loss of payment for physicians and

hospitals using fewer tests and procedures

Medicaid or health plan no longer pays

more for unnecessary procedures

Improving Payment for Maternity Care: Part 1

Goals for High-Value Maternity Care

Barriers Created byCurrent Payment Systems

Achieve Good Birth Outcomes

•No financial penalty for poor outcomes, and no reward for good outcomes;

•More/higher payments to physicians and hospitals when adverse events occur;

•Same payment to physicians regardless of quality of prenatal care provided

Avoid Use of Expensive/ Undesirable Procedures

•Higher physician payment/higher hospital margins for C-sections

Reduce Costs of Deliveryand Post-Partum Care

•No reward for physicians to help hospitals reduce costs or to use lower-cost settings such as birth centers;

•No incentive for mothers to choose lower-cost/higher-value providers

Normal Pregnancy, Term Delivery, No Complications

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

C-Sectionin Hospital

Today: Higher Payment for C-Sections, Regardless of Need

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

C-Sectionin Hospital

HEALTHPLAN

Lower Payment

Higher Payment

Condition-Based PaymentEncourages Lower-Cost Care

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

C-Sectionin Hospital

Condition-Specific Payment

HEALTHPLANSingle

Payment

Payment Would Vary Basedon Patient Conditions/Needs

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

C-Sectionin Hospital

Delivery w/o Complications

HEALTHPLAN

LowerPayment

Term Deliveryw/ CCs

VaginalDelivery

in Hospital

C-Sectionin Hospital

Delivery with Complications

HigherPayment

Condition-Based Payment AlsoEncourages Lower-Cost Locations

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

C-Sectionin Hospital

Condition-Specific Payment

HEALTHPLANSingle

Payment

VaginalDelivery in

Birth Center

Improving Payment for Maternity Care: Part 2

Goals for High-Value Maternity Care

Barriers Created byCurrent Payment Systems

Achieve Good Birth Outcomes

•No financial penalty for poor outcomes, and no reward for good outcomes;

•More/higher payments to physicians and hospitals when adverse events occur;

•Same payment to physicians regardless of quality of prenatal care provided

Avoid Use of Expensive/ Undesirable Procedures

•Higher payment/higher margins for hospitals for C-sections

Reduce Costs of Deliveryand Post-Partum Care

•No reward for physicians to help hospitals reduce costs or to use lower-cost settings such as birth centers;

•No incentive for mothers to choose lower-cost/higher-value providers

Accountable Payment ModelsAllow Win-Win-Win Approaches

BUILDING BLOCKS HOW IT WORKS

HOW PHYSICIANSAND HOSPITALS

CAN BENEFITHOW PAYERSCAN BENEFIT

Bundled Payment

Single payment to 2+ providers who are now paid separately (e.g., hospital+physician)

Higher payment for physicians if they

reduce costs paid by hospitals

Physician and hospital offer a lower total price to Medicare or health

plan than today

Warrantied Payment

Higher payment for quality care, no extra payment for avoiding

complications

Higher payment for physicians and

hospitals with low rates of

complications

Medicaid or health plan no longer pays

more for high rates of complications

Condition-Based

Payment

Payment based on the patient’s condition, rather than on the procedure used

No loss of payment for physicians and

hospitals using fewer tests and procedures

Medicare or health plan no longer pays

more for unnecessary procedures

Yes, a Health Care ProviderCan Offer a Warranty

Geisinger Health System ProvenCareSM

– A single payment for an ENTIRE 90 day period including:• ALL related pre-admission care• ALL inpatient physician and hospital services• ALL related post-acute care• ALL care for any related complications or readmissions

– Types of conditions/treatments currently offered:• Cardiac Bypass Surgery• Cardiac Stents• Cataract Surgery• Total Hip Replacement• Bariatric Surgery• Perinatal Care• Low Back Pain• Treatment of Chronic Kidney Disease

Major Improvements in Outcomes, and Quickly

• 103 discrete evidence-based elements of care are incorporated, measured and tracked for compliance

• Redesign, from the ground up, all aspects of provider workflow– Drive fundamental efficiency improvements– Increase patient safety and process reliability– Reduce/eliminate documentation redundancy– Streamline patient education and cut costs

• Seek observable reductions in C-section rates and premature births

• Enhance management of comorbid conditions• Improve fetal/child health and wellness

Geisinger Perinatal ProvenCare

Results of Geisinger Perinatal ProvenCare

• 26% Reduction in Cesarean Sections• 68% Reduction in Birth Trauma• 23% Reduction in NICU Use

Berry SA, et al, “ProvenCare Perinatal: A Model for Delivering Evidence/Guideline-Based Care for Perinatal Populations,” Joint Commission Journal on Quality and Safety, May 2011

A Warranty is Not an Outcome Guarantee

• Offering a warranty on care does not imply that you are guaranteeing a cure or a good outcome

• It merely means that you are agreeing to correct avoidable problems at no (additional) charge

• Most warranties are “limited warranties,” in the sense that they agree to pay to correct some problems, but not all

Prices for Warranted Care Will Likely Be Higher

• Q: “Why should we pay more to get good-quality care??”• A: In most industries, warrantied products cost more, but

they’re desirable because TOTAL spending on the product (repairs & replacement) is lower than without the warranty

Prices for Warranted Care May Be Higher, But Spending Lower

• Q: “Why should we pay more to get good-quality care??”• A: In most industries, warrantied products cost more, but

they’re desirable because TOTAL spending on the product (repairs & replacement) is lower than without the warranty

• In healthcare, a procedure with a warranty would need to have a higher payment rate than the equivalent non-warrantied procedure, but the higher price would be offset by fewer costs of complications, outlier payments, and readmissions

Example: $6,000 Cost of Delivery

Cost of Delivery$6,000

Actual Average Payment is Higher Due to NICU Use

Cost of Delivery

Cost and Rate ofNICU Use

AverageTotal Cost

$6,000 $20,000 8% $7,600

How Much Should be Charged for Delivery With a Warranty?

Cost of Delivery

Cost and Rate ofNICU Use

AverageTotal Cost

Price Charged

$6,000 $20,000 8% $7,600 ?

Starting Point for Warranty Price:Actual Current Average Payment

Cost of Delivery

Cost and Rate ofNICU Use

AverageTotal Cost

Price Charged

Change in Net

Revenue$6,000 $20,000 8% $7,600 $7,600 $0

Limited Warranty Gives Financial Incentive to Improve Quality

Cost of Delivery

Cost and Rate ofNICU Use

AverageTotal Cost

Price Charged

Change in Net

Revenue$6,000 $20,000 8% $7,600 $7,600 $0

$6,000 $20,000 7% $7,400 $7,600 $200

ReducingAdverseEvents…

…ImprovesThe Bottom

Line

...ReducesCosts...

Higher-Quality Provider Can Charge Less, Attract More Patients

Cost of Delivery

Cost and Rate ofNICU Use

AverageTotal Cost

Price Charged

Change in Net

Revenue$6,000 $20,000 8% $7,600 $7,600 $0

$6,000 $20,000 7% $7,400 $7,600 $200

$6,000 $20,000 7% $7,400 $7,500 $100

EnablesLowerPrices

A Virtuous Cycle of QualityImprovement & Cost Reduction

Cost of Delivery

Cost and Rate ofNICU Use

AverageTotal Cost

Price Charged

Change in Net

Revenue$6,000 $20,000 8% $7,600 $7,600 $0

$6,000 $20,000 7% $7,400 $7,600 $200

$6,000 $20,000 7% $7,400 $7,500 $100

$6,000 $20,000 6% $7,200 $7,500 $300

ReducingAdverseEvents…

…ImprovesThe Bottom

Line

...ReducesCosts...

Win-Win-Win for Patients, Payers, and Providers

Cost of Delivery

Cost and Rate ofNICU Use

AverageTotal Cost

Price Charged

Change in Net

Revenue$6,000 $20,000 8% $7,600 $7,600 $0

$6,000 $20,000 7% $7,400 $7,600 $200

$6,000 $20,000 7% $7,400 $7,500 $100

$6,000 $20,000 6% $7,200 $7,500 $300

$6,000 $20,000 6% $7,200 $7,400 $200

$6,000 $20,000 5% $7,000 $7,400 $400

Quality is Better......Spending is Lower...

...Providers More Profitable

To Make It Work:Shared, Trusted Data for Pricing

• Physician/Hospital needs to know their current rates of utilization and how many are preventable to know whether the warranty price will cover its costs of delivering care

• Purchaser/Payer needs to know its current rates of utilization to know whether the warranty price is a better deal than they have today

• Both sets of data have to match in order for both providers and payers to agree!

Many Potential Opportunities for Warranties in Maternity Care

• Maternal injuries, infections, complications• Birth injuries, infections, complications• Neonatal problems (e.g., respiratory distress

syndrome) after induced birth• Readmissions (both maternal and infant)

Many Variations of Payment Reform

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

No Complications

C-Sectionin Hospital

Complications

No Complications

Complications

OB/CNM $

Hospital $$

OB/CNM $

Hospital $$$

Bundled Payments

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

No Complications

C-Sectionin Hospital

Complications

No Complications

Complications

OB/CNM $

Hospital $$

OB/CNM $

Hospital $$$

Bundled Payment

Bundled Payment

Payments with Warranties

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

No Complications

C-Sectionin Hospital

Complications

No Complications

Complications

OB/CNM $

Hospital $$

OB/CNM $

Hospital $$$

Bundled Payment with Warranty

Bundled Payment with Warranty

Condition-Based Payment

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

No Complications

C-Sectionin Hospital

Complications

No Complications

Complications

OB/CNM $

Hospital $$

OB/CNM $

Hospital $$$

Condition-Based Bundled Payment with Warranty

Authorizing/Enabling Use ofAlternative Delivery Sites

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

No Complications

C-Sectionin Hospital

Complications

Deliveryin

Birth Center

OB/CNM $

Birth Ctr $

OB/CNM $

Hospital $$

OB/CNM $

Hospital $$$

No Complications

Complications

No Complications

Complications

Condition-Based Bundled Payment with Warranty

Moving Upstream to Broader Range of Conditions

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

No Complications

Pre-Term Elective

InductionC-Sectionin Hospital

Complications

Deliveryin

Birth Center

OB/CNM $

Birth Ctr $

OB/CNM $

Hospital $$

OB/CNM $

Hospital $$$

No Complications

Complications

No Complications

Complications

Broader Condition-Based Bundled Payment with Warranty

A Maternity Care ACO

NormalPregnancy

Term Delivery

w/ No CCs

VaginalDelivery

in Hospital

No Complications

Pre-Term Elective

InductionC-Sectionin Hospital

Complications

Deliveryin

Birth Center

OB/CNM $

Birth Ctr $

Bundled Condition-Based Payment with Warranty

OB/CNM $

Hospital $$

OB/CNM $

Hospital $$$

No Complications

Complications

High-RiskPregnancy

No Complications

Complications

Payment rates would still be adjusted based on maternal risk factors at the beginning of pregnancy and unpreventable factors that occur during pregnancy, but not for

preventable complications or discretionary choice of delivery timing, method, or site

Four Things Needed For Win-Win-Win Solutions

1. Defining the Change in Care Delivery– How can the physician, hospital, or other provider change the way

care is delivered to reduce costs without harming patients?

Four Things Needed For Win-Win-Win Solutions

1. Defining the Change in Care Delivery– How can the physician, hospital, or other provider change the way

care is delivered to reduce costs without harming patients?

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?– How much variation in costs and savings is likely?

Four Things Needed For Win-Win-Win Solutions

1. Defining the Change in Care Delivery– How can the physician, hospital, or other provider change the way

care is delivered to reduce costs without harming patients?

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?– How much variation in costs and savings is likely?

3. Designing a Payment Model To Support Change– Flexibility to change the way care is delivered– Accountability for costs and quality related to care– Adequate payment to cover lowest-achievable costs– Protection for the provider from insurance risk

Four Things Needed For Win-Win-Win Solutions

1. Defining the Change in Care Delivery– How can the physician, hospital, or other provider change the way

care is delivered to reduce costs without harming patients?

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?– How much variation in costs and savings is likely?

3. Designing a Payment Model To Support Change– Flexibility to change the way care is delivered– Accountability for costs and quality related to care– Adequate payment to cover lowest-achievable costs– Protection for the provider from insurance risk

4. Compensating Providers Appropriately– Changing payment to the provider organization

(physician practice/group/IPA/health system) does not automatically change compensation to physicians or hospitals

Lack of Effective Incentives for Value-Based Choice by Patients

• Copays, Co-insurance, and High Deductibles do little to encourage patients to be cost-conscious in choosing among high-cost providers and services

Where Will You HaveYour Baby Delivered?

Consumer Shareof Delivery Cost

Price #1$5,000

Price #2$6,000

Price #3$7,000

$1,000 Copayment: $1,000 $1,000 $1,00010% Coinsurance

w/$2,000 OOP Max:$2,000 $2,000 $2,000

$5,000 Deductible: $5,000 $5,000 $5,000

Where Will You HaveYour Baby Delivered?

Consumer Shareof Delivery Cost

Price #1$5,000

Price #2$6,000

Price #3$7,000

$1,000 Copayment: $1,000 $1,000 $1,00010% Coinsurance

w/$2,000 OOP Max:$2,000 $2,000 $2,000

$5,000 Deductible: $5,000 $5,000 $5,000Highest-Value: $0 $1,000 $2,000

Lack of Effective Incentives for Value-Based Choice by Patients

• Copays, Co-insurance, and High Deductibles do little to encourage patients to be cost-conscious in choosing among high-cost providers and services

• Copays, Co-insurance, and High Deductibles can discourage patients from getting preventive treatments they need– If we want mothers to get adequate prenatal care, why do

we make them pay in order to get it?– What if mothers need medications to improve pregnancy

outcomes, but can’t afford them?

Moving to Higher-Quality, More Affordable Maternity Care

• There is no one-size-fits-all solution to healthcare transformation; each region will need to actually make it happen in its own unique environment. The best federal policy will support regional innovation.

• Payment reform is necessary, but not sufficient. Delivery system reform, lean redesign of care processes, changes in benefit design, and effective quality measurement are also essential. Everything needs to focus on delivering the best outcomes for patients at the lowest cost to the purchasers.

• All stakeholders need to come together with shared data in a neutral forum to look for win-win-win solutions and then implement them successfully.

Learn More About Win-Win-WinPayment and Delivery Reform

Center for Healthcare Quality and Payment Reformwww.PaymentReform.org

Acknowledgement and Thanks:

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

Miller.Harold@CHQPR.org(412) 803-3650

www.CHQPR.orgwww.PaymentReform.org