Payment Policy

HC4HR: Sharing the Savings From Health Reform

Paul Testa — Tue, 21 Jul 2009 15:18:00 -0400

We've been running a series of posts on the Health CEOs for Health Reform, highlighting innovative models of integrated care, health IT, comparative effectiveness, and clinical excellence.

Today, we examine a collaboration being developed between payers, providers, and health plans in California to share in the savings of higher quality, lower cost care. Tomorrow, we'll wrap-up the series by looking at how these real-world experiences can be translated into practical policies for health reform.

In the video below, Wade Rose of Catholic Healthcare West and Mike Johnson of Blue Shield of California describe a pilot project being developed with the Hill Physicians Group and the California Public Employees Retirement System (CalPERs).

It's an experiment in shared savings. Beginning in 2010, Catholic Healthcare West, Blue Shield of California and the Hill Physicians Group have agreed to hold health care costs for CalPERs members living in the Sacramento area at or below their 2009 levels. They will do this while maintaining their commitments to quality care and patient satisfaction. If they deliver quality care in 2010 at rates less than their 2009 levels, the organizations will share in the savings. If costs rise above their 2009 levels, each organization will share the responsibility for a part of that burden.

The project is an encouraging example of how we can realign incentives within our system toward a more integrated model of care. Currently the interest of insurers, hospitals, doctors, and employers are often at odds. One group's savings is another group's loss. Under a model of shared savings, stakeholders have a reason to work together to deliver high value health care. Already there are more than 100 different initiatives being developed to improve quality and reduce costs. They're looking at ways to:

Improve coordination of care following patient discharge from hospitals to reduce complications and readmissions
Expand patient participation in disease management and complex case management programs
Promote palliative care
Increase the use of generic drugs
Minimize physician practice variation

What makes this project even more relevant is the nature of its participants. Blue Shield of California has more than 3.4 million members in California. CalPERs, which provides benefits to 1.6 million state, school and local public employees, retirees and their families, is Blue Shield's biggest customer and the second biggest purchaser of health care in the state. Catholic Healthcare West is the largest private health care system in the state and Hill Physicians Medical Group is one of the nation's largest independent physician associations. (For more on Hill Physicians, check out the work of our colleague, Tom Emswiler, here and here, who's studied the group extensively as part of a project between the New America Foundation and the Commonwealth Fund).

These are not tiny players. As Wade Rose noted in his presentation, Catholic Healthcare West represents the way most health care is currently delivered in the U.S. As Rose says, "We are the reason there needs to be health care reform."

The outcomes from this project, therefore, are not exceptions to the rule, but rather proof that real change can happen within our existing system. Already, this past June, CalPERs reported the lowest increase in overall premiums in 14 years -- and that's before the project is fully off the ground. If they can do it in California, we can do it as a nation.

HC4HR: Health CEOs Visit the White House

Health Policy — Thu, 25 Jun 2009 16:58:00 -0400

After sharing their stories with Congress at our recent event, the Health CEOs for Health Reform traveled down Pennsylvania Avenue to the White House to spread the word about the achievability of health system reform.

Dr. Gary Kaplan, Chairman and CEO of Virginia Mason Medical Center, and Lloyd Dean, President and CEO of Catholic Healthcare West, were part of a select group of provider and clinician leaders invited to meet with top health care aides to the president, Nancy-Ann DeParle and Valerie Jarrett.

Kaplan and Dean report that health care leaders called for system change and a move away from fee-for-service medicine that rewards providers for tests and treatments regardless of quality. (Check out recommendations from Health CEOs for Health Reform for more information). They also reiterated that for system change to truly be efficient and effective it must be coupled with coverage for all, which reminds us once again that health care cost, coverage, and quality problems are inextricably linked.

This meeting was one part of a full day of health care for Administration leaders. The president also welcomed a bipartisan group of governors and held a primetime town hall meeting featured on ABC.

HC4HR: Making Quality Health Care Affordable for All

Paul Testa — Wed, 17 Jun 2009 19:55:00 -0400

With the debate over how to credibly finance health reform taking center stage, Health CEOs for Health Reform released Realigning U.S. Health Care Incentives to Better Serve Patients and Taxpayers at an event on Capitol Hill last Friday.

The detailed recommendations emphasize a need to refocus health care delivery on the patient and move away from fee-for-service medicine. Most notably, Health CEOs for Health Reform recommend that providers be held accountable to reasonable cost and quality standards at a specified date, guaranteeing that health reform will slow the rate of Medicare cost growth. Health CEOs for Health Reform make clear that significant savings and a more sustainable health system are eminently feasible. We have to look no further than our own backyards to prove it is possible.

The event also featured remarks from the Director of the White House Office of Health Reform, Nancy-Ann DeParle, who commended the group for it's courage and innovation tackling these issues. Below are some highlights from the event. Complete video coverage of the event is also available.

QUALITY: Better Health Guaranteed, Or Your Money Back!

Meredith Hughes — Thu, 23 Apr 2009 17:59:00 -0400

Some pharmaceuticals companies have negotiated a new payment plan with insurers based on a pretty exciting claim: our products work, and we'll suffer the economic consequences if they don't. Several companies, including Merck and Proctor & Gamble, are linking their charges to whether the patient gets better, reports the New York Times. Basically payment becomes about quality, not quantity, which is what we'd like to see for the health care system as a whole.

The makers of the osteoporosis drug Actonel agreed to help insurer Health Alliance pay for the care if a patient suffers a nonspinal fracture despite taking the bone-protecting drug properly. It's win-win—the insurer can save money, and the drugmakers are less likely to lose market share to generic versions of Foxomax, another osteoporosis drug.

Cigna and Merck made a similar deal, with Merck promising to reimburse Cigna on certain diabetes medications if patients comply with their recommended doses. Though it seems like a pretty easy task to just take the medicine your doctor prescribes, failure to comply with treatment is more about cost than anything else, so the health plans are going to have to push for compliance programs (which are good for patients). The high price of drug co-pays makes it difficult for patients to fill every prescription on time, especially during troubling economic times. This leads to poor health outcomes, and costs insurers and health providers more in the long-run, because patients with worsening conditions require more expensive care. Offering this program for diabetes management is an especially wise investment, as chronic care is an extremely costly aspect of our health care system. Merck has even gone so far as to offer discounts for patients with better blood sugar control, whether the improvement comes from the use of Merck's diabetes drugs, or other medications.

With some patients and health care providers turning to generic drugs to lower costs and increase compliance, Merck and Proctor & Gamble are displaying a significant show of confidence in their products. "We're willing to put our money where our mouth is," Dan Hecht, general manager of pharmaceutical business of Procter & Gamble, which sells Actonel, told the New York Times.

For all those of us supporting evidence-based practice and payment reform based on quality of care delivered and positive outcomes, this is an important step. Building a sustainable system of health care delivery is going to require payment reform that promotes value, wellness, and prevention. And who doesn't like a money back guarantee?

QUALITY: Isn't it Nice to Get What You Pay For

Paul Testa — Tue, 21 Oct 2008 21:55:00 -0400

In health care, sometimes it actually pays money to save money—at least if you're one of the participating practices in Medicare's Physician Group Practice Demonstration.

The program is designed to reward physician groups by coordinating care to improve patient outcomes, while reducing overall costs—particularly for those with chronic conditions like heart disease and diabetes. Physician groups that are able to generate savings of more than 2 percent compared to what it would cost Medicare to pay for the treatment of similar patients on average, are eligible to receive performance bonuses. The payments are based on a group's improved cost efficiency (the savings generated) and its performance on 32 evidence-based quality measures. Since the groups share in the savings of improved care, CMS claims, they have an incentive to invest in things like care management and health IT.

So far, the results are encouraging. Marshfield Clinic—one of 10 physician groups participating in the demonstration—was featured in today's Milwaukee Journal Sentinel. The physician group saved Medicare more than $25 million in the first two years of the demonstration and received close to $10 million in performance bonuses—which it claims will be reinvested in programs to improve patient care.

Theodore Praxel, the medical director of quality improvement and care management for Marshfield Clinic, praised the clinic's system of electronic medical records, Cattails, for reducing unnecessary treatments and improving the coordination of care. But, he emphasized that electronic medical records alone were not enough. Some of Marshfield's other innovations include a 24-hour nursing line to help reduce unnecessary visits to the ER and a care management program for patients with congestive heart failure.

Earlier this year, the GAO released a report also recognizing the potential of the program to save money through the coordination of care. But as Medicare Update noted, the report questioned the project's wider application. The participating practices were all relatively large with over 200 doctors, while only one percent of physician practices in the U.S. have more than 150 doctors. Large practices, the GAO notes, have some inherent advantages over small firms—like access to capital and existing electronic medical record systems—which make the large upfront costs of such programs possible (Marshfield spent more $2.9 on new or expanded programs during the first year of the project).

Still, you can accomplish a great deal in health reform just by getting the incentives right. Programs like Medicare's Physician Group Practice Demonstration prove it's possible to improve outcomes while reducing costs. The key is finding ways to pay for value, not volume in health care and sharing the savings of more effective and effecient care with all parties: payers, providers, and patients.

IN THE STATES: P4P More than OK for Duncan, OK

Paul Testa — Thu, 09 Oct 2008 15:10:00 -0400

We wouldn't expect Duncan, Oklahoma—the birthplace of Halliburton and Ron Howard—to be a bastion of pay-for-performance, which is why an article in Saturday's Tulsa World, caught our attention.

Four years ago, Duncan was in a bind, unable to control the rising costs of providing health care to city workers. Enter, Jeff Greene, CEO of MedEncentives with a program to improve health care and reduce costs by aligning the incentives between patients and doctors.

The web-based program—which a self-insurer like the City of Duncan paid to add on to its traditional insurance plan—is essentially pay-for-performance with a twist. Doctors receive as much as a 20 percent increase in their standard fees for confirming that they followed a set of evidence-based standards of care (or giving a justification for deviating from such program). Doctors are given the opportunity to prescribe "information therapy" for their patients which provides them with materials online to better manage their conditions and understand their treatments. Patients who complete this information therapy can then receive a reduction in co-pays. Both patient and doctor declare their compliance with the program, and each are asked verify the other's declaration. This creates another incentive for each to modify their behavior as neither side wants the other to think their not living up to their end of the bargain.

The results? Duncan's been able to limit cost increases to a manageable range of between 5 and 10 percent over the last four years and MedEncentives estimates that after the first year the program produced a return on investment of more than 900 percent.

A year ago, The Health Care Blog's Matthew Holt interviewed Greene about his program. It's a long conversation, (podcast here), but the take-home point for us was getting the incentives right so that all parties involved can share in the savings of payment reform. It's an important principle going forward and it's encouraging to see individuals in the private sector experimenting with ways to make it a reality.

REFORM: How "Bundling" Can Save Us a Bundle

Guy Clifton M.D. — Fri, 20 Jun 2008 15:41:00 -0400

As promised, more on MedPAC. This post focuses on the Medicare Payment Advisory Commission's ideas on changing the way we pay doctors and hospitals.

As a physician, I'm impressed by the June 2008 MedPAC report because it's truly a comprehensive rethinking of how to reform health care finance and delivery in the United States. Prior MedPAC reports have recommended measures to improve quality such as paying doctors and hospitals for performance, usually with a few percent bonus for good results; correcting imbalances in the fee-for-service payment system; or reporting the rates at which doctors and hospitals use certain services. Those pay-for-performance programs have improved the quality of care in many hospitals. But they certainly have not reduced the cost of care, which as numerous researchers have shown varies wildly among individual hospitals, individual doctors, and U.S. regions.

This report recognizes the central fact of reforming the delivery of medical care: It can't be done as long as doctors and hospitals are paid through the traditional fee-for-service system. Because in that system, doctors and hospitals are basically paid by the piece. The higher the volume of services provided, the greater the revenues. If fees are cut, doctors increase their volume to make up for the lost revenues.

Medicare pays hospitals by Diagnostic Related Groups (DRGs). Hospitals are paid more for patients who have complications at discharge, even if those complications are hospital-acquired. In a significant change, Medicare is now refusing to pay for some preventable hospital-acquired complications or errors, known as "never events." But if a patient has multiple complications, as is common, the hospital is still paid more for them. (Incidentally, the Boston Globe reported this week that Massachusetts' state health programs aren't going to pay for certain preventable conditions identified by the National Quality Forum. According to the Globe, it's the first state to take such a step.)

The MedPAC report calls for something new. It recognizes that under the current system, hospitals have few financial incentives to reduce complications and shorten length of stay. MedPAC proposes "bundling" payments of doctors and hospitals for one episode of care. (The report acknowledges that the details of how to divvy up those payments are complex and will require some experimentation.) This arrangement will mean that efficient doctors will be worth more to a hospital than inefficient doctors; and it follows that efficient doctors, providing quality care, will be paid more. MedPAC recognizes the difficulty of pricing a bundled episode. For elective hospital admissions, such as non-emergency surgery, it will probably be straightforward because the patterns of response to surgery are usually predictable. For emergencies, however, the hospital course is less predictable. Quite a bit of work will be required to get the price points right, but all in all, this is a far-sighted report that gets straight to the issue of the perverse payment incentives in fee-for-service medicine and offers a pathway forward.

COST: We Made the Hospital Bed, So Lie In It

Tom Emswiler — Tue, 08 Apr 2008 16:06:00 -0400

I want to expand on Joanne's excellent and thorough post yesterday on the new Dartmouth Atlas Project report. One sentence in the AP/WaPo story especially caught my eye: the supply of beds in a locality is a key driver of how many days patients spend in the hospital. In other words, the more beds you have, the more patients you will admit. According to the Dartmouth report, this doesn't affect the fairly clearcut necessary hospital stays, an elderly patient with a hip fracture for instance. But, when the decision to hospitalize a patient is "more discretionary—as is the case for patients with heart failure and most other medical conditions—admission rates are strongly correlated with the local supply of hospital beds." Hmm.

Further:

The degree of variation is remarkable: during the five-year period 2001-05, on average, patients with chronic illnesses living in the region using the least supply-sensitive care spent about 6.1 days in hospitals during their last six months of life, while those living in the region using the most supply-sensitive services spent an average of 21.9 days as inpatients during the last six months of their lives.

That means one patient could spend over 3½ times as many days in the hospital as another patient with the same condition who lives in a community with fewer beds. The AP/WaPo story explains why this is bad:

Dr. Elliott Fisher, who led the study, said that more days in the hospital did not necessarily lead to better outcomes. Those patients were usually seen by more specialists, and they spent more time in the intensive care unit, but they did not live longer, on average.

"We know that hospitals are dangerous places if you don't need to be there," Fisher said, referring to the risk of infection or, for elderly patients, falls.

And the cherry on top: these hospitalizations cost Medicare (and thus taxpayers) more money and drive up the cost of health insurance for everyone else.

Now I'm not saying that any specific number of days in the hospital is right for someone in need of inpatient care. What I am saying is that if there is little variation for hip fracture patients, it's possible that there shouldn't be that level of variation for other medical conditions. And if what Dr. Fisher said is correct, we should try to reduce hospital days for patients.

Okay, so, let's just reduce the oversupply of hospital beds in those areas, and let's maybe take the rest of the afternoon off. Are the Nats playing today? But wait, Jane Sarasohn-Kahn has a thoughtful post today about Why It's Impossible to Close a Hospital. She says:

Always remember that one worker's income is another one's cost. For some communities, the hospital is the local monopsony providing the lion's share of meaningful employment.

The chart on the right from the AHA study illustrates that in many states, hospitals provide at least 1 in 10 jobs: this is true for Maine, North Dakota, Pennsylvania, and nearly 1 in 10 for Massachusetts, Michigan, Missouri, Ohio and West Virginia, among others.

The microeconomy of the hospital is thus a major contributor to the states' and nation's macroeconomy.

When there's talking of closing hospitals, there's no doubt why it's so tough to do so. Financing hospitals, appropriately, has implications well beyond "the bed" and the individual patient.

With closing hospitals off the table, we must look at reorganizing them. Dr. Guy Clifton posted recently how we could start:

The U.S. has been in the midst of a hospital building boom, but the evidence is that it has focused on high-margin operations such as back surgery, orthopedic surgery, and heart surgery and not on the kinds of services needed by patients with emergency medical conditions, which are less profitable for hospitals.

It all comes down to payment policy. Primary, preventative, emergency, and uncompensated care are currently undervalued by our health care system. Reimbursement for other high-margin procedures must be reduced so that we can increase payment to these four high-value areas of care.

QUALITY: Oops, We're Not Paying Again

Paul Testa — Thu, 03 Apr 2008 19:37:00 -0400

"Oops I did it again," may have made millions as a pop song, but for 11 preventable medical errors, it will no longer get you paid by the Indianapolis-based insurer, WellPoint, according to an article in today's Indianapolis Star.

WellPoint joins a growing number of public and private payers in efforts aimed at promoting quality, reducing errors, and controlling costs in our medical system. WellPoint's new policy adopts the steps taken by the Centers for Medicare and Medicaid Services last fall to no longer pay for preventable medical errors, injuries and infections that occur in hospitals.

Like CMS, WellPoint will make sure that neither it nor its patients pay for three so-called "never events"—surgical mistakes that should never happen under any circumstances. They are:

Surgery on the wrong body part
Surgery on the wrong patient
The wrong surgery performed on a patient.

Additionally the insurer will limit payments for the following events, all of which are highly preventable when evidenced-based guidelines are adhered to:

Object left in the body during surgery: Typically instruments, sponges, or towels.
Air embolism: Occurs when an intravenous line introduces oxygen into the bloodstream which can create potentially life-threatening blockages.
Blood incompatibility: Wrong blood type given to the patient.
Catheter-associated urinary tract infection: Account for 32 percent of health-care associated infections-largely a product of poor hygiene practices.
Decubitus: Bed sores which occur when a patient is not turned frequently enough (about every 2 hours)and cost Medicare on average $40,000 a patient.
Vascular catheter-associated infection: Like catheter-associated UTIs, a product of poor wound and catheter hygiene.
Mediastinitis: Infections inside the wound after coronary artery bypass graft (CABG) surgery.
Hospital-acquired injuries: Fractures, dislocations, intracranial injuries, crushing injuries and burns—preventable with proper supervision and care.

The CDC estimates that about 1.7 million infections are acquired each year in hospitals and other health-care facilities.That translates into roughly 99,000 deaths and $4.5 billion in extra costs. Preventing errors and injuries listed above represent the tip of the iceberg in terms of improving quality and reducing costs (CMS estimated the new payment policies would produce yearly savings in the millions).

But the approaches taken by CMS, WellPoint and others to such problems are both innovative and important: Doctors, nurses, and hospitals already should be doing the things that prevent these errors. Designing payment systems that reflects evidence-based standards of care can help ensure that they do. And paying for performance is something we can all sing "Gimme More" to.

QUALITY: Can What Works for Toyota Heal Hospitals?

Tom Emswiler — Tue, 18 Mar 2008 18:11:00 -0400

There's a great story out of the Seattle Post-Intelligencer this morning by Cherie Black on the innovation at Virginia Mason Medical Center in Seattle. Central to their work is the Toyota Production System, which seeks to eliminate wasted time and mistakes. It works with cars - what about health care?

Virginia Mason said benefits include an 85 percent reduction in how long patients wait to get lab results back, and $1 million savings on inventory costs.They've redesigned facilities to make patient and staff work flow more productive. The hospital reduced overtime and temporary labor expenses by $500,000 in one year and increased productivity by 93 percent. While direct cost savings aren't passed on to patients with the new system, less waiting, increased safety and more efficient care are.

(CEO Gary) Kaplan's vision is to have patients start their appointment in the parking garage with a smart card that triggers their entire appointment process. No more waiting rooms, just move directly from the garage to an examination room.

Total flow -- no waiting, no waste and it's all about the patient.

"We have more than enough resources in health care," Kaplan said. "We just need to stop wasting it and only do what's appropriate and value-added and we'd save billions."

Additionally, the Wall Street Journal's Vanessa Fuhrmans had a great article last year (subscription required) about how as the quality of care at Virginia Mason improved, their reimbursement worsened. As the piece states, they've begun to work with a limited number of employers on a reimbursement system that emphasizes high-quality care.

I first learned about Virginia Mason in fall 2006, when Kaplan testified before the Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare policy. I found his testimony so fascinating (his starts on page 120 of the transcript; see page 131 for a great story on flu shots) that it prompted me to read The Toyota Way by Jeffrey Liker to understand "lean manufacturing." Liker's book (along with Michael Lewis' Moneyball) changed the way I think about how the world works. In a nutshell: life is full of assumptions, and many of them are wrong.