redesigning health care from the bottom up … · redesigning health care from the bottom up...

REDESIGNING HEALTH CAREFROM THE BOTTOM UP

INSTEAD OF FROM THE TOP DOWN

Better Care at Lower Costs Through Patient-Centered Payment

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

www.CHQPR.org

There is one thing(and maybe only one thing)

we have in common in America today…

…We’re all spendingtoo much on healthcare

3© Center for Healthcare Quality and Payment Reform www.CHQPR.org

Healthcare Spending is the

Biggest Driver of Federal Deficits

Medicare

SocialSecurity

DiscretionarySpending

Other Mandatory

94% Increase($1 Trillion)

25% Increase($400 Billion)

85% Increase($770 Billion)

Source:

CBO


Increasing Share of State Budgets

Goes to Medicaid Spending

Source:

NASBO

1/6 of AllState Funds

Are NowUsed forMedicaid


U.S. Premiums Increased 73%

More Than Inflation Since 2002

FamilyPremiums

$6,164Higher Than

Inflation

Source:

Medical

Expenditure

Panel Survey &

Bureau of

Labor Statistics


Why Are Jobs Growing

But Wages Stagnant?


Spending on Higher Premiums

Reduces $ for Take-Home Pay

Source:

Medical

Expenditure

Panel Survey &

Bureau of

Labor Statistics

Premiums

Worker Pay

Inflation


Family Premiums Now Equal

to One-Third of Worker Pay

Source:

Medical

Expenditure

Panel Survey &

Bureau of

Labor Statistics


What’s Causing the Increase in

U.S. Insurance Premiums?

29%Increase

inSpending

$240BillionSource:

CMS National

Health

Expenditures


Biggest Causes are Hospitals

& Insurance Administration/Profit

Hospitals

Insurance

Phys/Clin.DrugsOther

Hospitals

Physician& ClinicalServices

Drugs

OtherServices

InsuranceAdmin.

Source:

CMS National

Health

Expenditures


Half of Growth in Private Spending

Has Been for Hospital Services

Hospital Svcs41% Increase 49% of Total

Physician &Clinical Services

19% Increase18% of Total

Drugs20% Increase 10% of Total

Other Svcs24% Increase 11% of Total

Insurance Admin30% Increase 12% of Total

Source:

CMS National

Health

Expenditures


Similar Pattern for Total Spending;

>1/3 of Growth Due to Hospitals

Hospital Svcs33% Increase 37% of Total

Physician &Clinical Services

27% Increase20% of Total

Drugs28% Increase 10% of Total

Other Svcs22% Increase 10% of Total

Insurance Admin51% Increase 12% of Total

Source:

CMS National

Health

Expenditures


Hospitals Are Biggest Contributor

to Growth for Two Decades

Source:

CMS National

Health

Expenditures

Hospitals

Physicians/Clinical

InsuranceAdministration

PrescriptionDrugs

+163%

+83%

+96%

+123%


Insurance Administration is #2

Source:

CMS National

Health

Expenditures

Hospitals

Physicians/Clinical


PrescriptionDrugs

+163%

+83%

+96%

+123%


As Much Private Insurance $ Goes

to Insurer Admin as to Drugs

Source:

CMS National

Health

Expenditures

Hospitals

Physicians/Clinical


PrescriptionDrugs


Spending is Increasing Rapidly

in “Single Payer” Countries, Too


How Do You Control the

Growth in Healthcare Spending?

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING

$

TIME


TOTALHEALTHCARE

SPENDINGBY

PAYERS

Payer Strategy #1:

Cut Provider Fees for Services

$Cut

Provider Fees

SAVINGS

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING


TOTALHEALTHCARE

SPENDINGBY

PAYERS

Payer Strategy #2:

Shift Costs to Patients

$ SAVINGS

HigherCost-Share &Deductibles

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING


TOTALHEALTHCARE

SPENDINGBY

PAYERS

Payer Strategy #3:

Delay or Deny Care to Patients

$ SAVINGS

Lack of Needed Care

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING

TOTALHEALTHCARE

SPENDING


Results of Typical Strategies

• Patients don’t get the care they need and costs increase in the future

• Small physician practices and hospitals are forced out of business

• Health insurance premiums continue to rise and access to insurance coverage decreases


Results of Typical Strategies

• Patients don’t get the care they need and costs increase in the future

• Small physician practices and hospitals are forced out of business

• Health insurance premiums continue to rise and access to insurance coverage decreases

IS THERE A BETTER WAY?


The Right Focus: Spending

That is Unnecessary or Avoidable

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

NECESSARYSPENDING

NECESSARYSPENDING

$

TIME


Avoidable Spending Occurs

In All Aspects of Healthcare

NECESSARYSPENDING

AVOIDABLESPENDING

$

CANCER TREATMENT• Use of unnecessarily-expensive drugs• ER visits/hospital stays for dehydration and avoidable complications

• Fruitless treatment at end of life

SURGERY• Unnecessary surgery• Use of unnecessarily-expensive implants• Infections and complications of surgery• Overuse of inpatient rehabilitation

CHRONIC DISEASE• ER visits for exacerbations• Hospital admissions and readmissions• Amputations, blindness

MATERNITY CARE• Unnecessary C-Sections• Early elective deliveries• Underuse of birth centers• Complications of delivery


Most of the Avoidable Spending

is in Hospitals

NECESSARYSPENDING

AVOIDABLESPENDING

$

CANCER TREATMENT• Use of unnecessarily-expensive drugs• ER visits/hospital stays for dehydration and avoidable complications

• Fruitless treatment at end of life

SURGERY• Unnecessary surgery• Use of unnecessarily-expensive implants• Infections and complications of surgery• Overuse of inpatient rehabilitation

CHRONIC DISEASE• ER visits for exacerbations• Hospital admissions and readmissions• Amputations, blindness

MATERNITY CARE• Unnecessary C-Sections• Early elective deliveries• Underuse of birth centers• Complications of delivery


Institute of Medicine Estimate:

30% of Spending is Avoidable


25% of Avoidable Spending

is Excess Administrative Costs


The Right Goal: Less Avoidable $,

NECESSARYSPENDING

AVOIDABLESPENDING

$

TIME

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING


The Right Goal: Less Avoidable $,

More Necessary $

NECESSARYSPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

NECESSARYSPENDING

NECESSARYSPENDING

$

TIME

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING


Win-Win for Patients & Payers

NECESSARYSPENDING

AVOIDABLESPENDING

NECESSARYSPENDING

NECESSARYSPENDING

NECESSARYSPENDING

$

TIME

SAVINGSSAVINGS SAVINGS

AVOIDABLESPENDING

AVOIDABLESPENDING

AVOIDABLESPENDING

BetterCarefor

Patients

LowerSpending

forPayers


Barriers in the Payment System

Create a Win-Lose for Providers

NECESSARYSPENDING

AVOIDABLESPENDING

$

BARRIERSIN THE

CURRENTPAYMENTSYSTEM NECESSARY

SPENDING

SAVINGS

AVOIDABLESPENDING


Barrier #1: No $ or Inadequate $

for High-Value Services

NECESSARYSPENDING

AVOIDABLESPENDING

UNPAIDSERVICES

$No Payment or

Inadequate Payment for:

• Services deliveredoutside of face-to-facevisits with clinicians, e.g.,phone calls, e-mails, etc.

• Services delivered bynon-clinicians, e.g., nurses, community healthworkers, etc.

• Communication betweenphysicians to ensure accuratediagnosis & coordinate care

• Non-medical services,e.g., transportation

• Palliative care for patientsat end of life


Barrier #2: Avoidable Spending

Is Revenue for Providers…

NECESSARYSPENDING

AVOIDABLESPENDING

$

PROVIDERREVENUE

COSTOF

SERVICEDELIVERY

MARGIN


…And When Avoidable Services

Aren’t Delivered…

NECESSARYSPENDING

AVOIDABLESPENDING

$

NECESSARYSPENDING

AVOIDABLESPENDING

COSTOF

SERVICEDELIVERY

MARGIN

PROVIDERREVENUE


…Providers’ Revenue

Will Decrease…

NECESSARYSPENDING

AVOIDABLESPENDING

$

NECESSARYSPENDING

AVOIDABLESPENDING

COSTOF

SERVICEDELIVERY

MARGIN

PROVIDERREVENUE

PROVIDERREVENUE


…But Fixed Costs Don’t Vanish

NECESSARYSPENDING

AVOIDABLESPENDING

$

NECESSARYSPENDING

AVOIDABLESPENDING

COSTOF

SERVICEDELIVERY

MARGIN

PROVIDERREVENUE COST

OFSERVICEDELIVERY

PROVIDERREVENUE

Many Fixed Costs of ServicesRemain When Volume Decreases• Leases & staff in physician practice• Costs of hospital emergency room

and other standby services


…But Fixed Costs Don’t Vanish

and New Costs May Be Added…

NECESSARYSPENDING

AVOIDABLESPENDING

$

NECESSARYSPENDING

AVOIDABLESPENDING

COSTOF

SERVICEDELIVERY

MARGIN

PROVIDERREVENUE COST

OFSERVICEDELIVERY

PROVIDERREVENUE

COST OFNEW SVCS

Many Fixed Costs of ServicesRemain When Volume DecreasesAnd New Costs May Be Incurred,• Costs of nurse care managers• Costs of unpaid physician services• Costs of collecting quality data


…Leaving Providers With Losses

(or Bigger Losses Than Today)

NECESSARYSPENDING

AVOIDABLESPENDING

$

NECESSARYSPENDING

AVOIDABLESPENDING

COSTOF

SERVICEDELIVERY

MARGIN

LOSS

PROVIDERREVENUE

PROVIDERREVENUE

Many Fixed Costs of ServicesRemain When Volume DecreasesAnd New Costs May Be Incurred,

Potentially Causing Financial Losses

COSTOF

SERVICEDELIVERY

COST OFNEW SVCS


A Payment Change isn’t Reform

Unless It Removes the BarriersBARRIER #1

BARRIER #2

So Why Haven’t We Fixed This??

In Healthcare,

Payers Are From Mars,

Providers Are From Venus


Provider Approach: Pay Us More…

NECESSARYSPENDING

AVOIDABLESPENDING

UNPAIDSERVICES

NECESSARYSPENDING

NEWLY PAIDSERVICES

$

PROVIDERSOLUTION:


Provider Approach: Pay Us More…

…and “Trust Us” on Savings

NECESSARYSPENDING

AVOIDABLESPENDING

UNPAIDSERVICES

NECESSARYSPENDING

NEWLY PAIDSERVICES

SAVINGS

$

PROVIDERSOLUTION:

Provider to Payer:“Paying for the services

saved money in a demonstration project,

so you can safely assume that you will

also save money if you pay all providers to deliver the services

for all patients”

AVOIDABLESPENDING


NECESSARYSPENDING

AVOIDABLESPENDING

NEWLY PAIDSERVICES

Payer Concern: No Accountability

to Reduce Avoidable Spending

NECESSARYSPENDING

AVOIDABLESPENDING

UNPAIDSERVICES

NECESSARYSPENDING

NEWLY PAIDSERVICES

SAVINGS

$

PROVIDERSOLUTION:

PAYER FEAR:

AVOIDABLESPENDING


Example: Accreditation Programs

• Hospitals and physician practices want to be paid more if they are certified as delivering care the right way by an accrediting agency


Does Accreditation

Assure High-Value Care?

• Thanks to Joint Commission hospital accreditation, there are no longer any infections or patient safety problems in hospitals


Accreditation ≠ High Quality


Does Accreditation



• Thanks to the Certification Commission for Health Information Technology (CCHIT), every EHR works effectively to support good patient care


Does Accreditation




• Thanks to college accreditation organizations, every parent who sends their child to college knows they will get a good education and a good job after graduation


Does Accreditation




• Thanks to college accreditation organizations, every parent who sends their child to college knows they will get a good education and a good job after graduation

Why Do We Waste Time and $

on Accreditation Programs

That Don’t Work?

In Healthcare,

Payers Are From Mars,

Providers Are From Venus


Payer Approach #1:

“Value-Based” Pay for Performance

FEE FOR

SERVICEPAYMENTS

UNPAIDSERVICES

Value-Based P4P

UNPAIDSERVICES

$

PAYER SOLUTION:

FEEFOR

SERVICEPAYMENTS

Hospitals & PhysiciansHave to Justify a Portionof What They WouldHave Otherwise ReceivedBased on Performanceon Quality/Cost Measures


“Incentives” for Providers

Don’t Overcome the FFS Barriers

FEE FOR

SERVICEPAYMENTS

UNPAIDSERVICES

UNPAIDSERVICES

$

PAYER SOLUTION:

FEEFOR

SERVICEPAYMENTS

LOSS OFREVENUE

• Small P4P bonuses may not be enough to pay for the added costs of improving quality

• P4P $ may not be enough to pay the costs of collecting and reporting the data

• Small P4P bonuses are less than the loss of fee-for-service revenuefrom lower utilization

Value-Based P4P


Despite Years of P4P,

Quality Has NOT Improved

Source:

NCQA:

The State of

Health Care Quality

2015


Despite Years of P4P,

Quality Has NOT Improved

Source:

NCQA:

The State of

Health Care Quality

2015

Over One-Thirdof Diabetic Patients

Aren’t ReceivingAdequate Care


Over-Emphasis on Narrow Quality

Measures Can Harm Patients

Hypoglycemia

1 Yr Mortality: 19.9%

30 Day Readmits: 16.3%

Hyperglycemia

1 Yr Mortality: 17.1%

30 Day Readmits: 15.3%

Source: National Trends in US Hospital Admissions for Hyperglycemia and HypoglycemiaAmong Medicare Beneficiaries, 1999 to 2011 JAMA Internal Medicine May 17, 2014


It’s Not Just Diabetics,

It’s Everybody

Source:

NCQA:

The State of

Health Care Quality

2015

Over One-Thirdof All Patients With

High Blood PressureAren’t ReceivingAdequate Care


It’s Costing Everybody a Lot of

Money With No Apparent Benefit


P4P Has Been Studied to Death

&…



& It Doesn’t Work…



& It Doesn’t Work (But Isn’t Dead)


Payer Approach #2: Save Us $$…

NECESSARYSPENDING

AVOIDABLESPENDING

UNPAIDSERVICES

NECESSARYSPENDING

SAVINGS

UNPAIDSERVICES

$

PAYER SOLUTION:

YEAR 1

AVOIDABLESPENDING

LOSS OFREVENUE


NECESSARYSPENDING

Shared Svgs

Payer Approach #2: Save Us $$ &

(Maybe) We’ll Pay More Next Year

NECESSARYSPENDING

AVOIDABLESPENDING

UNPAIDSERVICES

NECESSARYSPENDING

SAVINGS

UNPAIDSERVICES

UNPAIDSERVICES

SAVINGS

AVOIDABLESPENDING

$

PAYER SOLUTION:

YEAR 1 YEAR 2

AVOIDABLESPENDING

LOSS OFREVENUE

LOSS OFREVENUE


NECESSARYSPENDING

Provider Concern: Shared

Savings is Too Little, Too Late

NECESSARYSPENDING

AVOIDABLESPENDING

UNPAIDSERVICES

NECESSARYSPENDING

SAVINGS

UNPAIDSERVICES

UNPAIDSERVICES

SAVINGS

AVOIDABLESPENDING

Sharedsavings,

ifreceived,may not

covercosts &losses

$

PAYER SOLUTION:

YEAR 1 YEAR 2

Howdoes

hospitalor

physiciancover

upfrontcosts of

additionalservicesand loss

of revenue?

AVOIDABLESPENDING

LOSS OFREVENUE

LOSS OFREVENUE

Shared Svgs


Medicare’s Shared Savings ACO

Program Isn’t Succeeding2013 Results for Medicare Shared Savings ACOs• 46% of ACOs (102/220) increased Medicare spending

• Only 24% (52/220) received shared savings payments

• After making shared savings payments, Medicare spent more than it saved

• Net loss to Medicare: $78 million

2014 Results for Medicare Shared Savings ACOs• 45% of ACOs (152/333) increased Medicare spending




2015 Results for Medicare Shared Savings ACOs• 48% of ACOs (189/392) increased Medicare spending





Private Shared Savings ACOs

Have Also Been Floundering


Primary

CareNeurosurgery OB/GYN

Why Aren’t ACOs Succeeding?

Cardiology

Heart

Disease

Cancer

Back Pain

PATIENTS

Pregnancy

Oncology

ACO


MEDICARE/HEALTH PLAN

Primary


No Change in the Way

Physicians or Hospitals Are Paid

Cardiology

Heart

Disease

Cancer

Back Pain

PATIENTS

Pregnancy

Oncology

Fee-for-Service

Payment

ACO



Primary


Providers Still Face All the Barriers

in the Current Payment System…

Cardiology

Heart

Disease

Cancer

Back Pain

PATIENTS

Pregnancy

Oncology

• No payment for high-value services• Inadequate revenues to cover costs when

fewer services are delivered

Fee-for-Service

Payment

ACO



Primary


…With Only the Potential for

Receiving Future “Shared Savings”

Cardiology

Heart

Disease

Cancer

Back Pain

PATIENTS

Pregnancy

Oncology



Fee-for-Service

Payment

ACO

Shared SavingsPayment Next Year???



Primary

Care

ACO

Neurosurgery OB/GYN

ACOs Try to “Coordinate Care”

Without Fixing Payment Barriers

Expensive IT Systems

Cardiology

CareCoordinatorsHeart

Disease

Cancer

Back Pain

PATIENTS

Pregnancy

Oncology



Fee-for-Service

Payment

Shared SavingsPayment Next Year???



Primary

Care

ACO

Neurosurgery OB/GYN

Possibility of Future Bonuses

Doesn’t Overcome Current Barriers


Cardiology

CareCoordinators

Shared SavingsPayment???

Part of Shared Savings??

Heart

Disease

Cancer

Back Pain

PATIENTS

Pregnancy

Oncology



Fee-for-Service

Payment


What Do Medicare, Health Plans,

and Big Systems Recommend?


#1: Keep Doing the Bad

Value-Based Payment Models…

FFS FFS

P4P

FFS

“Risk”


…Or #2: Implement

“Population-Based Payment”

Capitation/InsuranceRisk for

IntegratedDeliverySystems

FFS FFS

P4P

FFS

“Risk”


Capitation Has Not Transformed

Care Where It’s Being Used

Over One-Third

of Diabeticsin California

Aren’t GettingAdequate Care

HealthInsurancePremiums

inCalifornia

AreHigherThan

The U.S.Average


Is a 50/50 Chance of Good Care

the Best A Big System Can Do???



Primary

Care

ACO/Integrated Delivery System

Neurosurgery OB/GYN

After the ACO/IDN Gets Capitation,

How It Will Pay Docs & Hospitals??


Cardiology

CareCoordinators

Heart

Disease

Cancer

Back Pain

PATIENTS

Pregnancy

Oncology

“Population-Based Payment”AKA Capitation“DOWNSIDE RISK”

FFSFFSFFSFFSPMPM


What About The Downsides of

Integrated Delivery Systems?


And What About the Advantages

of Small, Independent Practices?


Patients Don’t See the Benefits of

Big Systems and Capitation…


…And They’re Voting (With Their

Feet) For Other Options


This is NOT a Good “Framework”

for Fixing Healthcare Payment…



FFS FFS

P4P

FFS

“Risk”


…And Following It Will Likely

Make Things Worse, Not Better



FFS FFS

P4P

FFS

“Risk”


Value-Based Payment Is Being

Designed the Wrong Way Today




Medicare andHealth Plans

DefinePayment Systems

TOP-DOWN PAYMENT REFORM






Physicians and HospitalsHave To Change Care

to Align WithPayment Systems



Patients Get Worse Careand

Providers Close/Consolidate











Is There a Better Way?









Start By Identifying Ways to

Improve Care & Reduce Costs…






BOTTOM-UPPAYMENT REFORM

Ask Physicians and Hospitalsto Identify Ways to

Improve Care for Patients and Eliminate Avoidable Costs




…Pay Adequately & Expect

Accountability for Outcomes…









Payers Provide Adequate Payment for Quality Care &

Providers Take Accountabilityfor Quality & Efficiency




…So the Result is Better,

More Affordable Patient Care









Patients Get Good Careat an Affordable Cost and

Independent Providers Remain Financially Viable

Payers Provide Adequate Payment for Quality Care &

Providers Take Accountabilityfor Quality & Efficiency

What Happens When You Design Care Delivery

and Payment From the Bottom Up

Instead of From the Top Down?


Better Care at Lower Cost for

Total Joint ReplacementPHYSICIAN LEADER: Stephen J. Zabinski, MD

Director, Division of Orthopaedic Surgery, Shore Medical Ctr



Total Joint Replacement

OPPORTUNITIESTO IMPROVE CARE AND LOWER COSTS

• Reduce surgical complications by reducing patient risk factors prior to surgery

• Obtain lower prices for implants from vendors

• Match implants to patient needs

• Return patients home as quickly as possible

• Use lower cost settings for surgery and rehabilitation

PHYSICIAN LEADER: Stephen J. Zabinski, MDDirector, Division of Orthopaedic Surgery, Shore Medical Ctr





BARRIERS IN THE CURRENT

PAYMENT SYSTEM






• No payment for pre-operative patient risk reduction programs

• No payment for care coordination throughout surgical episode

• Separate payments to hospital and physician

• No data on costs of facilities







PAYMENT SYSTEM

RESULTS WITHADEQUATE PAYMENTFOR BETTER CARE






• No payment for pre-operative patient risk reduction programs

• No payment for care coordination throughout surgical episode

• Separate payments to hospital and physician

• No data on costs of facilities

• Average length of stayTKR: 3.3 1.8 daysTHR: 2.9 1.6 days

• Average device cost$6,301 $4,242

• Discharges to home34% 78%

• Readmission rate3.2% 2.7%

• Total Episode SpendingTKR: $25,365 $19,597THR: $26,580 $20,636




CancerPHYSICIAN LEADER: Barbara McAneny, MD

CEO, New Mexico Cancer Center



Cancer


• 40-50% of patients receiving chemotherapyare hospitalized for complications of treatment

PHYSICIAN LEADER: Barbara McAneny, MDCEO, New Mexico Cancer Center



Cancer



PAYMENT SYSTEM


• No payment for triage services to enable rapid response to patient complications

• No payment for patient and family education about complications and how to respond

• Inadequate payment to reserve capacity for IV hydration of patientsexperiencing problems




Cancer



PAYMENT SYSTEM



• No payment for triage services to enable rapid response to patient complications

• No payment for patient and family education about complications and how to respond

• Inadequate payment to reserve capacity for IV hydration of patientsexperiencing problems

• 36% fewer ED visits

• 43% fewer admissions

• 22% reduction in total cost of care ($4,784 over six months)




Crohn’s DiseasePHYSICIAN LEADER: Lawrence R. Kosinski, MD

Managing Partner, Illinois Gastroenterology Group



Crohn’s Disease


• Health plan spends $11,000/year/patienton patients with Crohn’s

• >50% of expenses arefor hospital care, mostdue to complications

• <33% of patients seen by physician in 30 days prior to hospitalization

• 10% of expenses for biologics, many administered in hospitals

• 3.5% of spending goes to gastroenterologists

PHYSICIAN LEADER: Lawrence R. Kosinski, MDManaging Partner, Illinois Gastroenterology Group



Crohn’s Disease



PAYMENT SYSTEM






• No payment to support“medical home” services in gastroenterology practice:

No payment for nurse care manager

No payment for clinical decision support tools to ensure evidence-based care

No payment for proactive telephone contact with patients




Crohn’s Disease



PAYMENT SYSTEM







• No payment to support“medical home” services in gastroenterology practice:

No payment for nurse care manager

No payment for clinical decision support tools to ensure evidence-based care

No payment for proactive telephone contact with patients

• Hospitalization rate cut by more than 50%

• Total spending reduced by 10% even with higher payments to the physician practice

• Improved patient satisfaction due to fewer complications and lower out-of-pocket costs


www.SonarMD.com

How Do You Define

a Physician-Focused

Alternative Payment Model?


FFSPayments to

PhysicianPractice

OPPORTUNITIES TO REDUCE SPENDING

THAT PHYSICIANS CAN CONTROL

• Reduce Avoidable Hospital Admissions

• Reduce Unnecessary Tests and Treatments

• Use Lower-Cost Tests and Treatments

• Deliver Services More Efficiently

• Use Lower-Cost Sites of Service

• Reduce Preventable Complications

• Prevent Serious Conditions From Occurring

$

PhysicianPracticeRevenue

Avoidable Spending

Payments toOther

Providersfor

RelatedServices

Step 1: Identify Opportunities to

Reduce Related SpendingFee-for-ServicePayment (FFS)

TotalSpendingRelevant

to thePhysician’s

Services


Unpaid Services

FFSPayments to

PhysicianPractice

BARRIERS IN CURRENT FFS SYSTEM• No Payment for Many High-Value Services

• Insufficient Revenue to Cover Costs WhenUsing Fewer or Lower-Cost Services

$


Avoidable Spending

Payments toOther

Providersfor

RelatedServices

Step 2: Identify Barriers in Current

Payments That Need to Be FixedFee-for-ServicePayment (FFS)


to thePhysician’s

Services

OPPORTUNITIES TO REDUCE SPENDING

THAT PHYSICIANS CAN CONTROL

• Reduce Avoidable Hospital Admissions

• Reduce Unnecessary Tests and Treatments

• Use Lower-Cost Tests and Treatments

• Deliver Services More Efficiently

• Use Lower-Cost Sites of Service

• Reduce Preventable Complications

• Prevent Serious Conditions From Occurring


Fee-for-ServicePayment (FFS)

Physician-FocusedAlternative

Payment Model

Flexible,Adequate

Payment forPhysician’s

Services

$


Step 3: Design an APM That

Removes the Payment Barriers

Unpaid Services

FFSPayments to

PhysicianPractice

Avoidable Spending

Payments toOther

Providersfor

RelatedServices


to thePhysician’s

Services


Fee-for-ServicePayment (FFS)

Physician-FocusedAlternative

Payment Model

Savings

Flexible,Adequate

Payment forPhysician’s

Services

AvoidableSpending

Payments toOther

Providersfor

RelatedServices

Accountabilityfor

ControllingAvoidableSpending

$


Step 4: Include Provisions to

Assure Control of Cost & Quality

Unpaid Services

FFSPayments to

PhysicianPractice

Avoidable Spending

Payments toOther

Providersfor

RelatedServices


to thePhysician’s

Services


The CMS Models Are NOT

the Only Way to Define APMs

Primary Care Medical Home

Episode Payment to Hospital

Upside-Only Shared Savings

“Two-Sided Risk” Shared Savings

Full-Risk Capitation

CMS

APM

Models


There are More & Better Ways to

Create Physician-Focused APMs

APM #1: Payment for a High-Value Service

APM #2: Condition-Based Payment for a Physician’s Services

APM #3: Multi-Physician Bundled Payment

APM #4: Physician-Facility Procedure Bundle

APM #5: Warrantied Payment for Physician Services

APM #6: Episode Payment for a Procedure

APM #7: Condition-Based Payment

www.PaymentReform.org


There are More & Better Ways to

Create Physician-Focused APMs

APM #1: Payment for a High-Value Service

APM #2: Condition-Based Payment for a Physician’s Services

APM #3: Multi-Physician Bundled Payment

APM #4: Physician-Facility Procedure Bundle

APM #5: Warrantied Payment for Physician Services

APM #6: Episode Payment for a Procedure

APM #7: Condition-Based Payment

www.PaymentReform.orgMultipleTypes

ofAPMs

NeededBecause

PhysiciansDeliver

DifferentTypes

of Careto

Different Patients


Proceduralists Can Reduce

Complications & Improve Efficiency

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending

$Hospital

Proceduralist


Procedural Episode Payments

Support Higher Quality/Lower Cost

$Hospital

ProceduralEpisodePayment

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending

Proceduralist


What if You Can Avoid the

Procedure or Admission Altogether?

$

Medical

Management

Hospital

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending

Proceduralist


$


Specialists Managing a Condition

Can Avoid Unnecessary Procedures

$

Condition

Specialist

Medical

Management

Hospital

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending

Proceduralist


$


Condition-Based Payment Supports

Use of Highest-Value Treatment

$

Condition

Specialist

Medical

Management

Hospital

Condition-Based

PaymentHigh Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending$


Proceduralist


Are We Making the Payment

for the Correct Condition??

$

Wrong

Condition

Medical

Management???????

Correct

Condition

Correct

Treatment

Hospital

Condition-Based


Complications &

Post-Acute Care

Low Complication

& PAC Spending$

$

Proceduralist



Diagnostic Error is a Fundamental

Quality Issue Underlying All Others


The Diagnostician Ensures the

Right Condition is Being Treated

$

Condition

Specialist

Medical

ManagementDiagnostician

Correct

Condition

Correct

Treatment

Hospital

Condition-Based


Complications &

Post-Acute Care

Low Complication

& PAC Spending$

$

Proceduralist



“Condition-Based” Payment Also

Needed to Support Good Diagnosis

Correct

Condition

Correct

Treatment

Condition-Based

Payment(Symptoms)

$

$

Condition

Specialist

Medical

Management

Hospital

Condition-Based

Payment(Diagnosis)

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending$

Proceduralist


Diagnostician


Gastroenterologists Play All These

Roles & Need Appropriate APMs

$Hospital

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending

Gastroenterologist





$

Gastroenterologist

Medical

Management

Hospital

Condition-Based

Payment(Diagnosis)

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending$

Gastroenterologist





Correct

Condition

Correct

Treatment

Condition-Based

Payment(Symptoms)

$

$

Gastroenterologist

Medical

Management

Hospital

Condition-Based

Payment(Diagnosis)

High Spending on

Complications &

Post-Acute Care

Low Complication

& PAC Spending$

Gastroenterologist


Gastroenterologist


How Would You Design APMs for

Gastroenterology?


Identify the Types of Patient

Needs That Physicians Address

InflammatoryBowel

Disease

Upper GIBleeding(NVUGIB)

Types ofPatient Needs

Addressed

ColonCancer

Screening

Other Conditions& Procedures


Step 1: Identify the Opportunities

to Improve Care & Reduce Cost

InflammatoryBowel

Disease



Addressed

Opportunitiesto Improve Care

and Reduce Cost

ColonCancer

Screening

• Deliver colonoscopyin lowest-cost way

• Improve adenoma detection rate

• Avoid complicationsin colonoscopy

• Focus on highest-riskpatients



Step 2: Identify the Barriers in

the Current Payment System

InflammatoryBowel

Disease



Addressed


and Reduce Cost

Barriers inCurrent

Payment System

ColonCancer

Screening





• All providers paidseparately

• No payment for outreach to high-risk patients

• Higher payment forrepeat & unnecessaryprocedures



Step 3: Design Solutions to

Overcome the Barriers

InflammatoryBowel

Disease



Addressed


and Reduce Cost

Barriers inCurrent

Payment System

Solutions viaAlternative

Payment Models

ColonCancer

Screening





• Bundled payment forcolonoscopy

• Warrantied paymentfor colonoscopy

• Population-basedpayment for cancer screening






Opportunities, Barriers, and

Solutions Will Differ by Condition

InflammatoryBowel

Disease



Addressed


and Reduce Cost

Barriers inCurrent

Payment System


Payment Models

• Reduce ED visitsand hospitalizationsdue to bleeds

• Use lowest-cost,effective intervention

• Avoid complications

• Bundled/warrantiedpayment foracute conditions

• Condition-based payment for chronicconditions

• No payment forcare management

• Financial penalty forusing lower-costprocedures

ColonCancer

Screening













Different Payment Models for

Different GI Conditions

InflammatoryBowel

Disease



Addressed


and Reduce Cost

Barriers inCurrent

Payment System


Payment Models




• Reduce ED visits &hospitalizations

• Reduce drug costs• Reduce absences

from work

• No payment forcare managementor proactive outreach

• No flexibility for non-face-to-face visits

• Add-on payment forcare managementsupport

• Condition-basedpayment for IBD





ColonCancer

Screening













Not Every Condition Needs

an Alternative Payment Model

InflammatoryBowel

Disease



Addressed


and Reduce Cost

Barriers inCurrent

Payment System


Payment Models




• Reduce ED visits &hospitalizations

• Reduce drug costs• Reduce absences

from work

• No payment forcare managementor proactive outreach

• No flexibility for non-face-to-face visits

• Add-on payment forcare managementsupport

• Condition-basedpayment for IBD





ColonCancer

Screening











Other Conditions& Procedures • FFS


Building Blocks of

Good APMs


Building Blocks of

Good APMs

BUILDING BLOCKS HOW IT WORKS

Bundled Payment

Single payment to ALL providers involved in

delivering ALL of the care

the patient needs


Building Blocks of

Good APMs


Bundled Payment



the patient needs

Warrantied Payment

Higher payment for quality care,

no extra payment for correcting preventable

errors and complications


Building Blocks of

Good APMs


Bundled Payment



the patient needs

Warrantied Payment




Condition-Based Payment

Payment based on the patient’s condition,

rather than on the procedure used


Building Blocks of

Good APMs


Bundled Payment



the patient needs

Warrantied Payment







PerformanceGuarantee

Payment only made if quality standards

are met and pre-defined outcomes

are achieved


Win-Win-Wins Are Possible With

Good Alternative Payment Models

BUILDING BLOCKS HOW IT WORKS WIN-WIN-WIN APPROACH

Bundled Payment



the patient needs• Patients get better quality

care

• Payers spend less for care

• Providers do better financially for delivering high-quality care

Warrantied Payment










are achieved


Win-Win-Win Results Through

Bundled Payment


Bundled Payment




care



Warrantied Payment










are achieved


The Way We Pay for Healthcare

Fee for Service

14,000Individual

fees


We Don’t Buy Any Other Products

or Services This WayFee for Service

14,000Individual

fees


What Would Happen If We Paid for

Cars the Way We Pay for Care?

Cars would get many unnecessary parts


What Customers in

Other Industries GetFee for Service

14,000Individual

fees

Bundled Payments


What Patients Want and

Should Get in HealthcareFee for Service Bundled Payments

• Colonoscopy (All Services)

• Knee Surgery (All Services)

• Heart Surgery (All Services)

• IBD Management (All Services)

14,000Individual

fees


Today: All Participants in a

Colonoscopy Are Paid Separately

COST TYPE TODAY

Gastroenterologist $220




COST TYPE TODAY


Anesthesiologist $230




COST TYPE TODAY



Hospital Cost $760

Hosp. Margin (5%) $ 40

Total Hospital Pmt $800




COST TYPE TODAY



Hospital Cost $760



Total Cost to Payer $1,250


Most of the Money Is Not Going to

the Gastroenterologist

COST TYPE TODAY



Hospital Cost $760




Gastroenterologist receives only 18% of total spending


What if the Gastroenterologist

Doesn’t Use an Anesthesiologist?

COST TYPE TODAY CHANGE


Anesthesiologist $230 ($230)

Hospital Cost $760





All of the Savings

Would Go to the Payer

COST TYPE TODAY CHANGE SPLIT NEW % CHG

Gastroenterologist $220 $0 $220 +0%

Anesthesiologist $230 ($230) $0 -100%

Hospital Cost $760 $760

Hosp. Margin (5%) $ 40 $ 40 +0%

Total Hospital Pmt $800 $800 -0%

Total Cost to Payer $1,250 ($230) $1,020 -18%


What if Physician Could Help

Reduce the Hospital’s Costs?




Hospital Cost $760 ($76) $684 -10%





All of the Savings

Would Go to the Hospital




Hospital Cost $760 ($76) $684 -10%

Hosp. Margin (5%) $ 40 $76 $116 +190%




Today: No Reward for Physician

For Lowering Costs




Hospital Cost $760 ($76) $684 -10%

Hosp. Margin (5%) $ 40 $76 $116 +190%




A “Value-Based Modifier”

Isn’t a Fair Share




Hospital Cost $760 ($76) $684 -10%

Hosp. Margin (5%) $ 40 $76 $116 +190%




Bundling Eliminates Boundaries in

Payments for the Procedure

COST TYPE TODAY



Hospital Cost $760


Bundled Payment $1,250


Bundling Allows Savings Split

Among Doc, Hospital, Payer

COST TYPE TODAY CHANGE SPLIT

Gastroenterologist $220 $110


Hospital Cost $760 ($76)

Hosp. Margin (5%) $ 40 $71

Bundled Payment $1,250 ($125)


So Price of Procedure is Lower

But More Profitable (Win-Win)



Anesthesiologist $230 ($230) $0

Hospital Cost $760 ($76) $684

Hosp. Margin (5%) $ 40 $71 $111 +178%

Bundled Payment $1,250 ($125) $1,125 -10%


If Gastroenterologist Manages

the Bundled Payment…

COST TYPE TODAY



Hospital/ASC Fee $800



Gastroenterologist Can Redesign

Care and Choose Location

COST TYPE TODAY CHANGE



Hospital/ASC Fee $800 ($300)



Lower-Cost Approach = Better GI

Payment, Lower Payer Cost



Anesthesiologist $230 ($230) $0

Hospital/ASC Fee $800 ($300) $500

Bundled Payment $1,250 ($310) $940 -25%



Warrantied Payment


Bundled Payment




care



Warrantied Payment










are achieved


In Healthcare, Customers Pay

More for Errors & Complications

Fee for Service


In Other Industries, Providers

Give Warranties

Fee for Service Warrantied Products


Yes, a Health Care Provider

Can Offer a WarrantyGeisinger Health System ProvenCare

SM

– 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 Procedure

• Cardiac Stents

• Cataract Procedure

• Total Hip Replacement

• Bariatric Procedure

• Perinatal Care

• Low Back Pain

• Treatment of Chronic Kidney Disease


Payment + Process Improvement =

Better Outcomes, Lower Costs


Warranties Can Be Offered By

Individual Docs & Small Hospitals• In 1987, an orthopedic surgeon in Lansing, Michigan and the

local hospital, Ingham Medical Center, offered:– a fixed total price for surgical services for shoulder and knee problems– a warranty for any subsequent services needed for a two-year period,

including repeat visits, imaging, rehospitalization and additional Procedure

• Results:– Health insurer paid 40% less than otherwise– Surgeon received over 80% more in payment than otherwise – Hospital received 13% more than otherwise, despite fewer

rehospitalizations

• Method: – Reducing unnecessary auxiliary services such as radiography and

physical therapy– Reducing the length of stay in the hospital– Reducing complications and readmissions.

Johnson LL, Becker RL. An alternative health-care reimbursement system—application of arthroscopy

and financial warranty: results of a two-year pilot study. Arthroscopy. 1994 Aug;10(4):462–70


A Warranty Does Not Guarantee

There Wil Be No Complications

• Offering a warranty on care does not imply that you are

guaranteeing there will be no errors or complications

• It merely means that you are agreeing to correct those

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 Warrantied 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


Potential Warranties in

Gastroenterology

• Repeat colonoscopies for poor bowel preparation

• Infections from improperly cleaned equipment

• Colon perforations

• Complications of anesthesia


Example: Colonoscopy with

10% Repeat RateColonoscopy

Bundled

Payment

Repeat

Rate

$1,250 10%


On Average, the Payer is Paying

$1,375/Patient, Not $1,250Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

$1,250 10% $1,375


Gastroenterologist Receives a

Small Portion of the Total $Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Cost

Except

Gastro Fee

Physician

Fee

$1,250 10% $1,375 $1,133 $242


What Happens If

Quality is Improved?Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Cost

Except

Gastro Fee

Physician

Fee

$1,250 10% $1,375 $1,133 $242

$1,250 8%

$1,250 6%

$1,250 5%


Spending and Costs

Will DecreaseColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Cost

Except

Gastro FeePayer

Change

Physician

Fee

$1,250 10% $1,375 $1,133 $242

$1,250 8% $1,350 $1,112 -1.8%

$1,250 6% $1,325 $1,092 -3.6%

$1,250 5% $1,313 $1,082 -4.5%


Physician Fees Will Also

Decrease With Fewer ProceduresColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Cost

Except

Gastro FeePayer

Change

Physician

FeeProvider

Change

$1,250 10% $1,375 $1,133 $242

$1,250 8% $1,350 $1,112 -1.8% $238 -1.7%

$1,250 6% $1,325 $1,092 -3.6% $233 -3.7%

$1,250 5% $1,313 $1,082 -4.5% $231 -4.5%


Result is a Win-Lose Scenario:

Better Quality = Physician LossColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Cost

Except

Gastro FeePayer

Change

Physician

FeeProvider

Change

$1,250 10% $1,375 $1,133 $242

$1,250 8% $1,350 $1,112 -1.8% $238 -1.7%

$1,250 6% $1,325 $1,092 -3.6% $233 -3.7%

$1,250 5% $1,313 $1,082 -4.5% $231 -4.5%

Better Quality = Win for Payer Loss for Physician+


Result is a Win-Lose Scenario:

Better Quality = Physician LossColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Cost

Except

Gastro FeePayer

Change

Physician

FeeProvider

Change

$1,250 10% $1,375 $1,133 $242

$1,250 8% $1,350 $1,112 -1.8% $238 -1.7%

$1,250 6% $1,325 $1,092 -3.6% $233 -3.7%

$1,250 5% $1,313 $1,082 -4.5% $231 -4.5%

Better Quality = Win for Payer Loss for Physician+

IS THERE A

BETTER WAY?


What If You Didn’t Charge for

Repeat Colonoscopies?Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 ?


Warrantied Price Would be

Higher Than Current PriceColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375


Gastronenterologist Receives

Same Fee if Quality Stays SameColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242


Invest in Improving Quality

(Better Bowel Prep Support)…Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

+$20

Invest in

Quality


…Fewer Repeat Procedures

Reduces Total Costs…Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1112+$20

Improve

Quality Invest inQuality

andOtherCosts

Decrease


…Warrantied Payment Doesn’t

Decrease With Fewer Repeats…Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1,375 $1112+$20

Improve

Quality Invest inQuality

andOtherCosts

Decrease

No Loss of

Revenue


…Warrantied Payment Preserves

the Physician’s MarginColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1,375 $1112+$20 $243 +0%

Improve

Quality

Preserve

MarginInvest inQuality

andOtherCosts

Decrease

No Loss of

Revenue


Improving Quality Further

Increases Physician MarginColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1,375 $1112+$20 $243 +0%

7% $1,375 $1102+$20 $253 +5%

Better

Quality

Better

MarginReduces

Cost


Virtuous Cycle of Quality

Improvement + Cost ReductionColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1,375 $1112+$20 $243 +0%

7% $1,375 $1102+$20 $253 +5%

6% $1,375 $1092+$25 $258 +7%

Better

Quality

Better

MarginReduces

Cost


Price Can Be Reduced

Without Harming MarginsColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1,375 $1112+$20 $243 +0%

7% $1,375 $1102+$20 $253 +5%

6% $1,375 $1092+$25 $258 +7%

6% $1,365 $1092+$25 $248 +3%

Still Better

Margin

Allows

Lower Prices


Quality & Financial Incentives

Are Now (Finally) AlignedColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1,375 $1112+$20 $243 +0%

7% $1,375 $1102+$20 $253 +5%

6% $1,375 $1092+$25 $258 +7%

6% $1,365 $1092+$25 $248 +3%

5% $1,360 $1082+$25 $254 +5%

Better

Quality

Improves

Margins

Allows

Lower Prices


Win-Win-Win Through

Appropriate Payment & PricingColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

$1,250 10% $1,375 $1,133 $242

$1,250 10% $1,375 $1,375 $1,133 $242

8% $1,375 $1112+$20 $243 +0%

7% $1,375 $1102+$20 $253 +5%

6% $1,375 $1092+$25 $258 +7%

6% $1,365 $1092+$25 $248 +3%

5% $1,360 $1082+$25 $254 +5%

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

...Providers Are More Profitable


How a Warrantied Payment

Supports Competition on QualityColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

5% $1,360 $1082+$25 $254 +5%


What If Other Gastroenterologists

Have Higher Repeat Rates?Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

5% $1,360 $1082+$25 $254 +5%

LOWER-QUALITY COMPETITOR

$1,250 15% $1,438 $1,184 $254


A Low Quality Competitor Has to

Charge the Patient 6% More…Colonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

5% $1,360 $1082+$25 $254


15% $1,439 $1,185 $254

+6%+0%


…Or Match the Price and Pay the

Gastroenterologist 31% LessColonoscopy

Bundled

Payment

Repeat

Rate

Average

Current

Payment

Price

With

Warranty

Cost

Except

Gastro Fee

Physician

Margin Change

5% $1,360 $1082+$25 $254 +5%


15% $1,439 $1,185 $254

15% $1,360 $1,185 $175 -31%

+0%





Bundled Payment




care



Warrantied Payment










are achieved


Today: Reactive Care for Chronic

Disease, Many HospitalizationsCURRENT

$/Patient # Pts Total $

Physician Svcs

PCP $600 500 $300,000

Hospitalizations

Admissions $10,000 250 $2,500,000

Specialist $400 250 $100,000

Total Spending 500 $2,900,000

500 ModeratelySevere Chronic

Disease Patients• PCP paid only for

periodic office visits(6 visits @ $100/visit)

• Patients do not takemaintenance medicationsreliably

• 50% of patients are hospitalized each yearfor exacerbations

• Specialist only sees patient duringhospital admissions


Is There a Better Way?

CURRENT FUTURE

$/Patient # Pts Total $ $/Pt # Pts Total $ Chg

Physician Svcs ? ?

PCP $600 500 $300,000 ? ?

Hospitalizations ? ?

Admissions $10,000 250 $2,500,000 ? ?

Specialist $400 250 $100,000 ? ?

Total Spending 500 $2,900,000 ? ?


Pay the PCP for

Proactive Care ManagementCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Hospitalizations

Admissions $10,000 250 $2,500,000

Specialist $400 250 $100,000


• Pay PCP $75 per patient per month instead of $100 per visit


Pay the Specialist to Co-Manage

The Patient’s CareCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

Hospitalizations

Admissions $10,000 250 $2,500,000

Specialist (Inpt) $400 250 $100,000 $0



• Pay specialist $25 per patient per month instead of $100 per hospital day


Provide Non-Physician Resources

to Support PatientsCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Hospitalizations

Admissions $10,000 250 $2,500,000

Specialist (Inpt) $400 250 $100,000 $0




• Pay the primary care practice enough to hire a nurse care manager


Can We Afford a 127% Increase in

Spending on Ambulatory Care?CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Admissions $10,000 250 $2,500,000

Specialist (Inpt) $400 250 $100,000 $0




• Pay the primary care practice enough to hire a nurse care manager


Yes, If It Succeeds In

Reducing HospitalizationsCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Admissions $10,000 250 $2,500,000 $10,000 215 $2,150,000 -14%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,830,000 -2.5%


Improved Chronic Disease Mgt Can

Potentially Generate Large SavingsCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Admissions $10,000 250 $2,500,000 $10,000 150 $1,500,000 -40%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,180,000 -25%


Do Wins for Patients, Docs & Payers

Require Losses for Hospitals?CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Admissions $10,000 250 $2,500,000 $10,000 150 $1,500,000 -40%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,180,000 -25%


What Should Matter to Hospitals is

Margin, Not Revenues (Volume)


Hospital Costs Are Not

Proportional to Utilization

$800$820$840$860$880$900$920$940$960$980$1,000

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00

#Patients

Cost & Revenue Changes With Fewer Patients

.

Costs

20% reduction in volume

7% reduction

in cost


Reductions in Utilization Reduce

Revenues More Than Costs

$800$820$840$860$880$900$920$940$960$980$1,000

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#Patients


Revenues

Costs

20% reduction in volume

7% reduction

in cost

20% reduction

in revenue


Causing Negative Margins

for Hospitals

$800$820$840$860$880$900$920$940$960$980$1,000

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#Patients


Revenues

Costs

Payers Will Be

Underpaying For

Care If

Admissions,

Readmissions, Etc.

Are Reduced


But Spending Can Be Reduced

Without Bankrupting Hospitals

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#Patients


Revenues

Costs

Payers Can

Still Save $

Without Causing

Negative Margins

for Hospital


Where Does the

Hospital Payment Go?CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Admissions $10,000 250 $2,500,000 $10,000 150 $1,500,000 -40%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,180,000 -25%


Analyze the Hospital’s

Cost StructureCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000

Hosp. Variable $3,700 37% $925,000

Hosp. Margin $300 3% $75,000

Total $10,000 250 $2,500,000

Specialist (Inpt) $400 250 $100,000



What Happens to Hospital Finances

When Admissions Go Down?CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000

Hosp. Variable $3,700 37% $925,000

Hosp. Margin $300 3% $75,000

Total $10,000 250 $2,500,000 150

Specialist (Inpt) $400 250 $100,000 $0



Continue to Cover the Fixed Costs

CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000

Hosp. Margin $300 3% $75,000

Total $10,000 250 $2,500,000 150

Specialist (Inpt) $400 250 $100,000 $0



Save on Variable Costs

With Fewer PatientsCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $3,700 $555,000 -40%

Hosp. Margin $300 3% $75,000

Total $10,000 250 $2,500,000 150

Specialist (Inpt) $400 250 $100,000 $0



Increase the Hospital’s

Contribution MarginCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $10,000 250 $2,500,000 150

Specialist (Inpt) $400 250 $100,000 $0



Hospital Gets Less Total Revenue,

But is Better Off FinanciallyCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $10,000 250 $2,500,000 150 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0



And the Payer Still Spends Less

CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $10,000 250 $2,500,000 150 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,817,500 -3%


Win-Win-Win: Better Care, Higher

Physician Pay, Lower SpendingCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $10,000 250 $2,500,000 150 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,817,500 -3%

Physicians Win

Payer Wins

Hospital Wins


What Payment Model Supports This

Win-Win-Win Approach?CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $10,000 250 $2,500,000 150 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,817,500 -3%


You Don’t Want to Try and

Renegotiate Individual FeesCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $10,000 250 $2,500,000 $14,250 150 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,817,500 -3%


…What Assures The Payer That

There Will Be Fewer Admissions?CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 500 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $10,000 250 $2,500,000 $14,250 150 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending 500 $2,900,000 500 $2,817,500 -3%

?


Look at What is Being Spent Today

in Total on the Patient’s ConditionCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000

Specialist

RN Care Mgr

Total $300,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000

Hosp. Variable $3,700 37% $925,000

Hosp. Margin $300 3% $75,000

Total 250 $2,500,000


Total Spending $5,800 500 $2,900,000


Tell the Payer You’ll Do It For Less

Than They’re Spending TodayCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000

Specialist

RN Care Mgr

Total $300,000

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000

Hosp. Variable $3,700 37% $925,000

Hosp. Margin $300 3% $75,000

Total 250 $2,500,000


Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500 -3%


Use the Payment as a Budget to

Redesign Care…CURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 500 $450,000 +50%

Specialist 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $2,500,000 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500 -3%


…And Let Providers Decide

How They Should Be PaidCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $2,500,000 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500 -3%


Condition-Based Payment Puts the

Providers in Charge of Care & PmtCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 $900 500 $450,000 +50%

Specialist $300 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $2,500,000 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500 -3%


Would “Shared Savings”

Achieve the Same Thing?


Same Example As Before…

Year 0 Patients $

Primary Care

Visit Payments $300,000 500 $600

Net Revenue $300,000

Hospitalizations

Hospital Fixed $1,500,000

Hosp. Variable $925,000

Hosp. Revenue $2,500,000 250 $10,000

Hospital Margin $75,000

Specialist (Inpt) $100,000 250 $400

Total Spending $2,900,000

500 ModeratelySevere Chronic

Disease Patients• PCP paid only for

periodic office visits

• Patients do not takemaintenance medicationsreliably

• 50% of patients are hospitalized each yearfor exacerbations

• Specialist only sees patient duringhospital admissions


PCPs Hire RNs With No Payment,

Achieve 40% Reduction in AdmitsYear 0 Year 1 Chg

Primary Care

Visit Payments $300,000 $300,000 0%

RN Care Mgr ($80,000)

Net Revenue $300,000

Hospitalizations

Hospital Fixed $1,500,000

Hosp. Variable $925,000

Hosp. Revenue $2,500,000 $1,500,000 -40%

Hospital Margin $75,000

Specialist (Inpt) $100,000

Total Spending $2,900,000


PCPs, Hospitals, Specialists All

Lose Money, Payer Saves MoneyYear 0 Year 1 Chg

Primary Care

Visit Payments $300,000 $300,000 0%


Net Revenue $300,000 $220,000 -27%

Hospitalizations

Hospital Fixed $1,500,000 $1,500,000 -0%

Hosp. Variable $925,000 $555,000 -40%

Hosp. Revenue $2,500,000 $1,500,000 -40%

Hospital Margin $75,000 ($555,000)

Specialist (Inpt) $100,000 $60,000 -40%

Total Spending $2,900,000 $1,860,000 -36%

Payer Savings $1,040,000


No Shared Savings Payment

in Year 1Year 0 Year 1 Chg

Primary Care

Visit Payments $300,000 $300,000 0%


Shared Savings $0

Net Revenue $300,000 $220,000 -27%

Hospitalizations

Hospital Fixed $1,500,000 $1,500,000 -0%

Hosp. Variable $925,000 $555,000 -40%

Hosp. Revenue $2,500,000 $1,500,000 -40%

Shared Savings $0


Specialist (Inpt) $100,000 $60,000 -40%

Total Spending $2,900,000 $1,860,000 -36%

Payer Savings $1,040,000


Year 2: Physicians & Hospital

Continue to Lose MoneyYear 0 Year 1 Chg Year 2

Primary Care

Visit Payments $300,000 $300,000 0% $300,000

RN Care Mgr ($80,000) ($80,000)

Shared Savings $0

Net Revenue $300,000 $220,000 -27%

Hospitalizations

Hospital Fixed $1,500,000 $1,500,000 -0% $1,500,000

Hosp. Variable $925,000 $555,000 -40% $555,000

Hosp. Revenue $2,500,000 $1,500,000 -40% $1,500,000

Shared Savings $0


Specialist (Inpt) $100,000 $60,000 -40% $60,000

Total Spending $2,900,000 $1,860,000 -36% $2,380,000

Payer Savings $1,040,000 $540,000


Year 2: 50% Shared Savings

Payments to PCPs & HospitalsYear 0 Year 1 Chg Year 2

Primary Care

Visit Payments $300,000 $300,000 0% $300,000

RN Care Mgr ($80,000) ($80,000)

Shared Savings $0 $80,000

Net Revenue $300,000 $220,000 -27% $300,000

Hospitalizations

Hospital Fixed $1,500,000 $1,500,000 -0% $1,500,000

Hosp. Variable $925,000 $555,000 -40% $555,000

Hosp. Revenue $2,500,000 $1,500,000 -40% $1,500,000

Shared Savings $0


Specialist (Inpt) $100,000 $60,000 -40% $60,000

Total Spending $2,900,000 $1,860,000 -36% $2,380,000

Payer Savings $1,040,000 $540,000


Year 2: 50% Shared Savings

Payments to PCPs & HospitalsYear 0 Year 1 Chg Year 2

Primary Care

Visit Payments $300,000 $300,000 0% $300,000

RN Care Mgr ($80,000) ($80,000)


Net Revenue $300,000 $220,000 -27% $300,000

Hospitalizations

Hospital Fixed $1,500,000 $1,500,000 -0% $1,500,000

Hosp. Variable $925,000 $555,000 -40% $555,000

Hosp. Revenue $2,500,000 $1,500,000 -40% $1,500,000


Hospital Margin $75,000 ($555,000) ($115,000)

Specialist (Inpt) $100,000 $60,000 -40% $60,000

Total Spending $2,900,000 $1,860,000 -36% $2,380,000

Payer Savings $1,040,000 $540,000


PCP Costs Covered, Hospitals and

Specialists Still LosingYear 0 Year 1 Chg Year 2 Chg

Primary Care

Visit Payments $300,000 $300,000 0% $300,000

RN Care Mgr ($80,000) ($80,000)


Net Revenue $300,000 $220,000 -27% $300,000 0%

Hospitalizations

Hospital Fixed $1,500,000 $1,500,000 -0% $1,500,000

Hosp. Variable $925,000 $555,000 -40% $555,000

Hosp. Revenue $2,500,000 $1,500,000 -40% $1,500,000


Hospital Margin $75,000 ($555,000) ($115,000)

Specialist (Inpt) $100,000 $60,000 -40% $60,000 -40%

Total Spending $2,900,000 $1,860,000 -36% $2,380,000 -18%

Payer Savings $1,040,000 $540,000


All Physicians and Hospitals

Have Large Cumulative LossesYear 0 Year 1 Chg Year 2 Chg Cumulative

Primary Care

Visit Payments $300,000 $300,000 0% $300,000

RN Care Mgr ($80,000) ($80,000) ($160,000)

Shared Savings $0 $80,000 $80,000

Net Revenue $300,000 $220,000 -27% $300,000 0% ($80,000)

Hospitalizations

Hospital Fixed $1,500,000 $1,500,000 -0% $1,500,000

Hosp. Variable $925,000 $555,000 -40% $555,000

Hosp. Revenue $2,500,000 $1,500,000 -40% $1,500,000

Shared Savings $0 $440,000 $440,000

Hospital Margin $75,000 ($555,000) ($115,000) ($820,000)

Specialist (Inpt) $100,000 $60,000 -40% $60,000 -40% ($80,000)

Total Spending $2,900,000 $1,860,000 -36% $2,380,000 -18%

Payer Savings $1,040,000 $540,000 $1,560,000


It’s Even Worse Than That…

• There is no shared savings payment at all if a minimum total savings level is not reached

• If there is a shared savings payment, it’s reduced if quality thresholds aren’t met, even if the quality measures have nothing to do with where savings occurred

• The shared savings payment ends at the end of the 3-year contract period, even if utilization remains lower, and the payer keeps 100% of the savings in future years


Condition-Based Payment Allows

True Win-Win-Win SolutionsCURRENT FUTURE


Physician Svcs

PCP $600 500 $300,000 500 $450,000 +50%

Specialist 500 $150,000 +50%

RN Care Mgr $80,000

Total $300,000 $680,000 127%

Hospitalizations

Hospital Fixed $6,000 60% $1,500,000 $1,500,000 -0%

Hosp. Variable $3,700 37% $925,000 $555,000 -40%

Hosp. Margin $300 3% $75,000 $82,500 +10%

Total $2,500,000 $2,137,500 -15%

Specialist (Inpt) $400 250 $100,000 $0

Total Spending $5,800 500 $2,900,000 $5,635 500 $2,817,500 -3%


If Patients Have Different Needs…

LOWER-NEED PATIENTS HIGHER-NEED PATIENTS

$/Pt # Pts Total $ $/Pt # Pts Total $

Physician Svcs

PCP

Specialist

RN Care Mgr

Total

Hospitalizations

Hospital Fixed

Hosp. Variable

Hosp. Margin

Total 50 20% 100 40%

Total Spending 250 250

Lower Rateof Admissions

Higher Rateof Admissions


If Patients Have Different Needs…

Risk-Stratify Payments Per PatientPRIMARY CARE HOME SPECIALTY MED. HOME

$/Pt # Pts Total $ $/Pt # Pts Total $

Physician Svcs

PCP $550 250 $137,500 $750 250 $187,500

Specialist $50 250 $12,500 $1050 250 $262,500

RN Care Mgr $20,000 $60,000

Total 250 $170,000 250 $510,000

Hospitalizations

Hospital Fixed $500,000 $1,000,000

Hosp. Variable $3,700 $185,000 $3,700 $370,000

Hosp. Margin $30,000 $52,500

Total 50 $715,000 100 $1,422,500

Total Spending $3,540 250 $885,000 $7,730 250 $1,932,500

Lower PaymentPer Patient

Higher PaymentPer Patient


Protections For Providers Against

Taking Inappropriate Risk• Risk Stratification: The payment rates would vary based on objective

characteristics of the patient and treatment that would be expected to result in the need for more services or increase the risk of complications.

• Outlier Payment or Individual Stop Loss Insurance: The payment would be increased if spending on an individual patient exceeds a pre-defined threshold. An alternative would be for the provider to purchase individual stop loss insurance (sometimes referred to as reinsurance) and include the cost of the insurance in the payment bundle.

• Risk Corridors or Aggregate Stop Loss Insurance: The payment would be increased if spending on all patients exceeds a pre-defined percentage above the payments. An alternative would be for the provider to purchase aggregate stop loss insurance and include the cost of the insurance in the payment bundle.

• Adjustment for External Price Changes: The payment would be adjusted for changes in the prices of drugs or services from other providers that are beyond the control of the provider accepting the payment.

• Excluded Services: Services the provider does not deliver, or order, or otherwise have the ability to influence would not be included as part of accountability measures in the payment system.



Outcome-Based Payment


Bundled Payment




care



Warrantied Payment










are achieved


Hypothetical Procedure Delivered

by a Physician Practice

FFS

# of Patients 100

Payment $2,000

Revenue to Physician $200K


Assume 10% of Procedures

Don’t Meet Quality Standard

FFS

# of Patients 100

# Patients Met Quality Standard 90

# Did Not MeetQuality Standard 10

Payment $2,000



Patients/Payers Pay the Same

If the Standard is Met or Not

FFS

# of Patients 100

# Patients Met Quality Standard 90

# Did Not MeetQuality Standard 10

Payment WhenStandard Met $2,000

Payment When Standard Not Met $2,000



What Happens if

Quality Improves?

FFS FFS

# of Patients 100 100

# Patients Met Quality Standard 90 99

# Did Not MeetQuality Standard 10 1

Payment WhenStandard Met $2,000 $2,000

Payment When Standard Not Met $2,000 $2,000

Revenue to Physician $200K $200K

% Change 0%


No Change in Physician Revenue

Patients Still Pay for the Bad Care

FFS FFS





Payment When Standard Not Met $2,000 $2,000


% Change 0%

No Change inPhysician Revenue

Patients Still Pay ifThey Receive Poor Care


If Quality Declines, No Penalty to

Physician, Patients Still Pay

FFS FFS FFS

# of Patients 100 100 100

# Patients Met Quality Standard 90 99 80

# Did Not MeetQuality Standard 10 1 20

Payment WhenStandard Met $2,000 $2,000 $2,000

Payment When Standard Not Met $2,000 $2,000 $2,000

Revenue to Physician $200K $200K $200K

% Change 0% 0%


P4P Creates Rewards/Penalties

for Physician, But Not for Patients

FFS

FFS+

P4P

FFS+

P4P

# of Patients 100 100 100

# Patients Met Quality Standard 90 99 80

# Did Not MeetQuality Standard 10 1 20

Payment WhenStandard Met $2,000 $2,100 +5% $1,900 -5%

Payment When Standard Not Met $2,000 $2,100 +5% $1,900 -5%

Revenue to Physician $200K $210K $190K

% Change +5% -5%


What if Physicians Didn’t Charge

When Standards Weren’t Met?

FFS

Pay for

Quality




Payment WhenStandard Met $2,000

Payment When Standard Not Met $2,000 $0


% Change


They’d Need to Charge More for

Good Quality Care

FFS

Pay for

Quality





Payment When Standard Not Met $2,000 $0


% Change


Now, Physician is Rewarded for

Better Quality…

FFS

Pay for

Quality

FFS+

P4P

Pay for

Quality

# of Patients 100 100 100 100

# Patients Met Quality Standard 90 90 99 99

# Did Not MeetQuality Standard 10 10 1 1

Payment WhenStandard Met $2,000 $2,222 $2,100 $2,222

Payment When Standard Not Met $2,000 $0 $2,100 $0

Revenue to Physician $200K $200K $210K $220K

% Change +5% +10%


…and Penalized for Poor Quality

& Patient Doesn’t Pay for Bad Care

FFS

Pay for

Quality

FFS+

P4P

Pay for

Quality

FFS+

P4P

Pay for

Quality

# of Patients 100 100 100 100 100 100

# Patients Met Quality Standard 90 90 99 99 80 80

# Did Not MeetQuality Standard 10 10 1 1 20 20

Payment WhenStandard Met $2,000 $2,222 $2,100 $2,222 $1,900 $2,222

Payment When Standard Not Met $2,000 $0 $2,100 $0 $1,900 $0

Revenue to Physician $200K $200K $210K $220K $190K $178K

% Change +5% +10% -5% -11%


4 Building Blocks of APMs Allow

Patient-Centered Payment


Bundled Payment




care



Warrantied Payment










are achieved

What Does a

Patient-Centered

Payment & Delivery System

Look Like If

All Physicians Were

Participating?


PATIENT

PreventiveServices

Management

PreventiveServices

Patient-Centered Care:

Provide Preventive Services


PATIENT

PreventiveServices

Management

PreventiveServices

BundledPmt for

Preventive Service

MonthlyPreventiveServicesMgt Pmt

Patient-Centered Payment:

Pay for Good Preventive Care


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning

Symptoms


Accurately Diagnose Problems


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning

Symptoms

Diagnosis & TreatmentPlanningEpisodePayment

DiagnosisCoordination

Payment + FFS


Pay to Support Good Diagnosis


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning

AcuteConditionTreatment

Symptoms


Treat Acute Conditions Effectively


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning


Symptoms

StandbyCapacityPayment


Support Essential Hospital Svcs…


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning


Symptoms

AcuteCondition

Coord.TreatmentPayment

+FFS

AcuteConditionEpisodePayment



Pay for Full Bundles of Treatment


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning


InitialTreatmentof ChronicCondition

ContinuedManagementof ChronicCondition

Symptoms


Effective Care of Chronic Disease


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning




Symptoms

Bundled Pmtfor Initial

Treatment ofChronic Cond.

Monthly Pmtfor Mgt of Chronic

Condition


Monthly Pmts for Condition Mgt


PATIENT

PreventiveServices

Management

PreventiveServices

Diagnosis&

TreatmentPlanning




Symptoms

BundledPmt for

Preventive Service

MonthlyPreventiveServicesMgt Pmt

Diagnosis & TreatmentPlanningEpisodePayment

AcuteCondition

Coord.TreatmentPayment

+FFS

AcuteConditionEpisodePayment


DiagnosisCoordination

Payment + FFS

Bundled Pmtfor Initial

Treatment ofChronic Cond.

Monthly Pmtfor Mgt of Chronic

Condition

Patient-Centered Payment to

Support Patient-Centered Care


For More Details on




Which Physician Would YOU

Want to Care for You?

• Physician A is paid Fee for ServiceShe makes less money if she keeps you healthy

• Physician B gets “Pay for Performance” She makes more money if she keeps her EHR up to date

• Physician C gets Shared Savings She makes more money if you get less treatment than needed

• Physician D gets a Population-Based PaymentShe gets paid whether she does anything for you or not

• Physician E is paid through Patient-Centered PaymentShe’s paid adequately to address your needs, andshe makes more money if your health condition(s) improve


Will Payers Implement

Better Payment Models?

HealthPlans

Alternative Payment Models

Higher Value Care:

• Better Quality

• Lower Spending

Physicians&

Hospitals


Most Health Plans Resist

True Payment Reforms

HealthPlans

“Value-Based Purchasing”

• FFS + P4P

• Shared Savings

• Narrow Network Discounts

Low Value Care:

• Poor Quality

• High Avoidable Spending

Physicians&

Hospitals


For Most Workers, Employers are

the Insurer, Not a Health Plan

Source:

Employer

Health

Benefits

2012 Annual

Survey.

The Kaiser

Family

Foundation

and Health

Research

and

Educational

Trust

60% of Workers Are Now in Self-Insured Plans


For Self-Funded Employers, The

Health Plan is Just a Pass Through

Self-Funded

Purchasers

ASOHealth Plan(No Risk)

Provider Claims

Purchaser Payment

Physicians&

Hospitals


Little Incentive for Health Plans to

Support Payment Reforms

True Payment Reform Means:• Health plan incurs the costs of

implementing new payment models• Purchaser gains all the savings from

reduced utilization and spending(because all claims are passed through)

Self-Funded

Purchasers

ASOHealth Plan(No Risk)

Provider Claims

Purchaser Payment

Physicians&

Hospitals


A Better Approach:

Purchaser/Provider Partnerships

Self-Funded

Purchasers

ProvidersWilling to Manage

Cost/Quality

Better Payment and Benefit Structure

Lower Cost, Higher Quality Care

Provider “wins” if:• Patients stay healthy

and need less care• Purchaser pays

provider adequately tomanage care effectively

Purchasers and Patients “win” if:

• Providers reduce purchasers’ costs

• Patients stay healthy and have lower cost-sharing


Purchasers (Not Plans) Can Pay

for Improved Worker Productivity

Self-Funded

Purchasers

ProvidersWilling to Manage

Cost/Quality

Better Payment and Benefit Structure

Lower Cost, Higher Quality Care

Provider “wins” if:• Patients stay healthy

and need less care• Purchaser pays

provider adequately tomanage care effectively and deliver services efficiently

Purchasers and Patients “win” if:

• Providers reduce purchasers’ costs

• Patients stay healthy and have lower cost-sharing

• Patients return to work faster

WORKERPRODUCTIVITY

EFFICIENCYOF SERVICES


Purchasers and Providers Have

Common Interests, But Don’t Know It

“We’ve started talking directly to physicians,

and we’ve discovered that

what they want to sell is what we want to buy…”

Cheryl DeMars

CEO, The Alliance(Employer Coalition in Wisconsin)


Purchasers Have

Total Risk Today

Self-FundedPurchasers,Medicare,Medicaid

TOTAL

COST OF

HEALTH CARE


The Goal Should Not Be

to Shift Total Risk to Providers


TOTAL

COST OF

HEALTH CARE

TOTAL

COST OF

HEALTH CARE

Physicians&

Hospitals


Providers Should be Accountable

for Costs They Can Control


INSURANCERISK

(Risk of Illness)

PERFORMANCERISK

(Cost/Illness)

Physicians&

Hospitals


Payment Requires Meeting Quality Process

Standards

Collect Data onOutcomes

Payment Requires Meeting Quality Process &

Outcome Standards

Set Initial Outcome Standards Basedon Current Levelsof Performance

Increase Outcome Standards Through

Provider Competition

Payment Requires Meeting Higher Process &

Outcome Standards

Initial Payment Amounts Based on

Estimated Costs of Quality Care

Analysis of Current Utilization and

Savings Opportunities

Payment Amounts Adjusted Based on

Provider Competition

Revised Payment Amounts Based on

Actual Costs of Quality Care

Analysis of Improved Utilization

andAssociated Costs

MULTI-YEAR TRANSITION PERIOD

PERFORMANCESTANDARDS

PAYMENTAMOUNTS

It Will Take Time To Get There


MULTI-YEAR TRANSITION PERIOD

TEAMSTRUCTURE

ANDACCOUNTABILITY

Modified Fee-for-Service +

Retrospective Reconciliation

Partial Teams

Accountability forCost & Quality

Under Control of Team Members

Prospective Payment

Full Teams

Accountability forAll Aspects of Cost & Quality

Related to Performance

Transition Period Needed for

Team Formation & Payment


Three Paths to the Future: Which

Will Gastroenterologists Choose?

PAYER-DESIGNED ALTERNATIVE

PAYMENT MODELS

MERIT-BASED INCENTIVEPAYMENT SYSTEM

(MIPS)

PHYSICIAN-FOCUSED,PATIENT-CENTEREDPAYMENT MODELS

MACRA

#1

#2

#3


If You Don’t Like Doors 1 & 2,

What Should You Do?



What Should You Do?

1. Listen to the PowerPoint presentations today, go back home, continue business as usual, and hope somebody else figures this out



What Should You Do?


2. Plan to retire before 2019



What Should You Do?


2. Plan to retire before 2019

3. Design/implement physician-led APMs– Look at your own patient population and identify

opportunities to reduce spending without harming patients

– Talk to the purchasers in your community about the opportunities to improve care and reduce spending and how to create a collaborative regional partnership to implement them

– Demand that health plans and Medicare implement good alternative payment models to enable you to deliver more affordable, high-quality care in your community

For More Information:

Harold D. MillerPresident and CEO

Center for Healthcare Quality and Payment Reform

[email protected]

(412) 803-3650

www.CHQPR.org


APPENDIX

How Do You

Control the Price of Care?

(Under Any Payment Model)


Traveling

from Boston to ClevelandBoston Cleveland

?


Airfare Choices

from Boston to ClevelandBoston Cleveland

?

USAirways

1-Stop

Coach

$622

United

Non-Stop

Coach

$1,107

United

Non-Stop

First Class

$1,355

Airfares for July 6-7, 2011 as of 6/26/11


What If We Paid for Travel

the Way We Pay for Healthcare?Boston Cleveland

?

Consumer Share

of Travel Cost

USAirways

1-Stop

Coach

$622

United

Non-Stop

Coach

$1,107

United

Non-Stop

First Class

$1,355



Flat Copayments:

First Class Fare WinsBoston Cleveland

?

Consumer Share

of Travel Cost

USAirways

1-Stop

Coach

$622

United

Non-Stop

Coach

$1,107

United

Non-Stop

First Class

$1,355

$100 Copayment: $100 $100 $100



Coinsurance:

First Class Fare Probably WinsBoston Cleveland

?

Consumer Share

of Travel Cost

USAirways

1-Stop

Coach

$622

United

Non-Stop

Coach

$1,107

United

Non-Stop

First Class

$1,355

$100 Copayment: $100 $100 $100

10% Coinsurance: $62 $111 $136



High Deductible:

First Class Fare WinsBoston Cleveland

?

Consumer Share

of Travel Cost

USAirways

1-Stop

Coach

$622

United

Non-Stop

Coach

$1,107

United

Non-Stop

First Class

$1,355

$100 Copayment: $100 $100 $100

10% Coinsurance: $62 $111 $136

$500 Deductible: $500 $500 $500



Price Difference:

Lowest Coach Fare WinsBoston Cleveland

?

Consumer Share

of Travel Cost

USAirways

1-Stop

Coach

$622

United

Non-Stop

Coach

$1,107

United

Non-Stop

First Class

$1,355

$100 Copayment: $100 $100 $100

10% Coinsurance: $62 $111 $136

$500 Deductible: $500 $500 $500

Lowest Coach Fare: $0 $485 $733



Where Will You Get

Your Knee Replaced?

Consumer Share

of Surgery CostPrice #1

$20,000

Price #2

$25,000

Price #3

$30,000

Knee Joint

Replacement


Where Will You Get

Your Knee Replaced?

Consumer Share


$20,000

Price #2

$25,000

Price #3

$30,000

$1,000 Copayment: $1,000 $1,000 $1,000

10% Coinsurance

w/$2,000 OOP Max:

$2,000 $2,000 $2,000

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

Knee Joint

Replacement


Where Will You Get

Your Knee Replaced?

Consumer Share


$20,000

Price #2

$25,000

Price #3

$30,000

$1,000 Copayment: $1,000 $1,000 $1,000

10% Coinsurance

w/$2,000 OOP Max:

$2,000 $2,000 $2,000

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

Highest-Value: $0 $5,000 $10,000

Knee Joint

Replacement


Will Transparency About Prices

Result in Better Choices?


Current Transparency Efforts

Are Focused on Procedure PricePayment

for

Procedure

dded

Provider 1:

$25,000

Provider 2:

$23,000

-8%


What Hidden Costs

Accompany the Lower Price?Payment

for

Procedure

Payment and Rate

of Complications

Provider 1:

$25,000 $30,000 2%

Provider 2:

$23,000 $30,000 10%

-8%


Total Spending May Be Higher

With the “Lower Price” ProviderPayment

for

Procedure

Payment and Rate of

Complications

Average

Total

Payment

Provider 1:

$25,000 $30,000 2% $25,600

Provider 2:

$23,000 $30,000 10% $26,000

-8% +2%

Provider 2 hasa lower starting price,but is more expensive

when lower qualityis factored in


Bundled/Warrantied Pmts Allow

Comparing Apples to ApplesPayment

for

Procedure

Payment and Rate of

Complications

Bundled/

Episode

Payment

Provider 1:

2% $25,600

Provider 2:

10% $26,000

+2%

Bundled pricesshow that

Provider 1 is thehigher-value

provider


Flying to Pittsburgh vs. Cleveland

Boston Cleveland

Boston Pittsburgh

Cleveland


Why Is It So Much Cheaper to Fly

to Pittsburgh Than Cleveland?Boston Cleveland

Boston Pittsburgh

One-Stop Coach Fare: $662

Non-Stop Coach Fare: $1,107

Non-Stop Coach Fare: $188



Is It The Shorter Distance?

Boston Cleveland

?

Boston Pittsburgh

?

Non-Stop Coach Fare: $188

551 Air Miles


483 Air Miles

One-Stop Coach Fare: $662

Non-Stop Coach Fare: $1,107


Or Greater Competition?

Boston Cleveland

?

Boston Pittsburgh

?

Choice: United Non-Stop: $1,107

(No other non-stop choice)

Choice #3: USAirways Non-Stop: $238

Choice #2: JetBlue Non-Stop: $188

Choice #1: Delta Non-Stop: $188

NON-

COMPETITIVE

MARKET

COMPETITIVE

MARKET



Choice & Competition

Encourages Efficiency

Consumer Share


$20,000

Price #2

$25,000

Price #3

$30,000

Highest-Value: $0 $5,000 $10,000

Knee Joint

Replacement


Loss of Choice & Competition

Will Lead to Higher Costs

Consumer Share


$20,000

Price #2

$25,000

Price #3

$30,000

Highest-Value: $0 $5,000 $10,000

Knee Joint

Replacement

redesigning health care from the bottom up … · redesigning health care from the bottom up...

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