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  • 1. Cost Containment and the Patient Protection and Affordable Care Act Innovation, Business & Law Colloquium:Innovation, Business & Law Colloquium: Health Care Reform ActHealth Care Reform Act David Orentlicher, MD, JDDavid Orentlicher, MD, JD Visiting Professor of LawVisiting Professor of Law University of Iowa College of LawUniversity of Iowa College of Law September 23, 2010September 23, 2010
  • 2. On one handOn one hand  The legislation “puts into placeThe legislation “puts into place virtually every cost-control reformvirtually every cost-control reform proposed by physicians, economists,proposed by physicians, economists, and health policy experts.”and health policy experts.”  Orszag & Emanuel (2010)Orszag & Emanuel (2010)
  • 3. On the other handOn the other hand  "The job of figuring how to cover"The job of figuring how to cover uninsured people used up all theuninsured people used up all the political oxygen that was available.political oxygen that was available. They didn't have the energy for costs."They didn't have the energy for costs."  Alan Sager, quoted by McClatchy-Tribune NewsAlan Sager, quoted by McClatchy-Tribune News Service, April 1, 2010Service, April 1, 2010
  • 4. Cost containmentCost containment  Outline of today’s classOutline of today’s class  The cost problemThe cost problem  Is PPACA the solution?Is PPACA the solution?  If not, how else might we containIf not, how else might we contain costs?costs?  What constraints does the law place onWhat constraints does the law place on cost containment strategies?cost containment strategies?
  • 5. Cost containmentCost containment  Outline of today’s classOutline of today’s class  The cost problemThe cost problem  Is PPACA the solution?Is PPACA the solution?  If not, how else might we containIf not, how else might we contain costs?costs?  What constraints does the law placeWhat constraints does the law place on cost containment strategies?on cost containment strategies?
  • 6. The highest spending countryThe highest spending country  Health care spending in economically-Health care spending in economically- advanced democraciesadvanced democracies USUS $7,290/capita$7,290/capita 16% of GDP16% of GDP SwitzerlandSwitzerland 61% of US61% of US 67% of US67% of US CanadaCanada 53% of US53% of US 63% of US63% of US GermanyGermany 49% of US49% of US 65% of US65% of US JapanJapan 35% of US35% of US 51% of US51% of US New ZealandNew Zealand 34% of US34% of US 57% of US57% of US  OECDOECD Health Data 2009 (2007 data except 2006Health Data 2009 (2007 data except 2006 for Japan)for Japan)
  • 7. Total expenditure on health perTotal expenditure on health per capita (US$ PPP)capita (US$ PPP) OECD, 2006
  • 8. Total expenditure as % GDPTotal expenditure as % GDP OECD, 2006
  • 9. The cost problemThe cost problem What do we get for our money?What do we get for our money?
  • 10. Inadequate return on our health care $Inadequate return on our health care $  US health system is less efficient than systems in:US health system is less efficient than systems in:  Spain, France, Germany, Austria, ItalySpain, France, Germany, Austria, Italy  UK, Denmark, NorwayUK, Denmark, Norway  Japan, China, AustraliaJapan, China, Australia  Canada, Mexico, Colombia, VenezuelaCanada, Mexico, Colombia, Venezuela  Evans, et al. 2001Evans, et al. 2001  US patients treated in higher-cost communitiesUS patients treated in higher-cost communities have similar outcomes to US patients in lower-costhave similar outcomes to US patients in lower-cost communitiescommunities  Gawande 2009Gawande 2009
  • 11. Infant mortality per 1,000 birthsInfant mortality per 1,000 births OECD, 2006
  • 12. Total preventable years of life lostTotal preventable years of life lost per 100,000 pop.per 100,000 pop. OECD, 2006
  • 13. Quality of careQuality of care  Breast cancer, 5-year survival rateBreast cancer, 5-year survival rate  US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%,US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%, UK -77.9%UK -77.9%  Colon cancer, 5-year survival rateColon cancer, 5-year survival rate  Japan-67.3%, US-65.5%, Canada-60.7%, France-57.1%,Japan-67.3%, US-65.5%, Canada-60.7%, France-57.1%, UK-50.7%UK-50.7%  Asthma hospitalization rate (per 100,000 pop.)Asthma hospitalization rate (per 100,000 pop.)  US-120, UK-75, Japan-58, France-43, Canada-18US-120, UK-75, Japan-58, France-43, Canada-18  Diabetes hospitalization rate (per 100,000 pop.)Diabetes hospitalization rate (per 100,000 pop.)  US-57, UK-32, Canada-23, Germany-14, Italy-11US-57, UK-32, Canada-23, Germany-14, Italy-11
  • 14. Inadequate return on our health care $Inadequate return on our health care $ Not because we’re less healthyNot because we’re less healthy
  • 15. % of pop. daily tobacco smokers% of pop. daily tobacco smokers OECD, 2006
  • 16. Alcohol consumption (liters per capita)Alcohol consumption (liters per capita) OECD, 2006
  • 17. % of pop. 65 years or older% of pop. 65 years or older OECD, 2006
  • 18. % of pop. 19 years or younger% of pop. 19 years or younger OECD, 2006
  • 19. Obesity rates
  • 20. Overall effect of health statusOverall effect of health status  Americans overall are less healthy, but this isAmericans overall are less healthy, but this is only a small part of our higher health care costsonly a small part of our higher health care costs  McKinsey & CompanyMcKinsey & Company studystudy found that “diseasefound that “disease burden” addsburden” adds $25 billion$25 billion in health care costs forin health care costs for treatment of disease (out of $2.5 trillion in healthtreatment of disease (out of $2.5 trillion in health care spending)care spending)
  • 21. Why are costs higher in the US?Why are costs higher in the US?
  • 22. Higher prices in USHigher prices in US  Costs are higher in US in large part because pricesCosts are higher in US in large part because prices for health care services are higherfor health care services are higher  Single-payer systems can bargain more effectively withSingle-payer systems can bargain more effectively with doctors, hospitals and pharmaceutical companiesdoctors, hospitals and pharmaceutical companies  Can also have enforceable spending targets via “all-payerCan also have enforceable spending targets via “all-payer regulation” (Oberlander and White 2009)regulation” (Oberlander and White 2009)  Higher ratio of specialists to primary care physicians inHigher ratio of specialists to primary care physicians in USUS  Probably reflects high ratio of specialist pay to primary careProbably reflects high ratio of specialist pay to primary care pay (Vladeck 2010)pay (Vladeck 2010)  High costs of medical education also may be importantHigh costs of medical education also may be important (Peterson and Burton 2007)(Peterson and Burton 2007)
  • 23. Greater use of surgical procedures andGreater use of surgical procedures and expensive diagnostic testsexpensive diagnostic tests  More procedures to treat blocked coronary arteriesMore procedures to treat blocked coronary arteries (twice OECD avg.), more knee replacements (50%(twice OECD avg.), more knee replacements (50% above OCED avg.), and more cesarean sectionsabove OCED avg.), and more cesarean sections (25% above OECD avg.)(25% above OECD avg.)  Increase in outpatient surgery centers very importantIncrease in outpatient surgery centers very important  More MRI exams (more than twice OECD avg.) andMore MRI exams (more than twice OECD avg.) and more CT exams (more than twice OECD avg.)more CT exams (more than twice OECD avg.)  OECD Health Data 2009 and Peterson and Burton 2007OECD Health Data 2009 and Peterson and Burton 2007
  • 24. Structural contributors to high costsStructural contributors to high costs  Insurance => Price-insensitive consumersInsurance => Price-insensitive consumers  If treatment costs $100 and yields a “value” of $75, itIf treatment costs $100 and yields a “value” of $75, it shouldn’t be provided—but if the patient only pays $25shouldn’t be provided—but if the patient only pays $25 and receives the $75 value, it will be worth it to theand receives the $75 value, it will be worth it to the patientpatient  Americans pay more total dollars out of pocket, but weAmericans pay more total dollars out of pocket, but we generally pay a smaller percentage of our health caregenerally pay a smaller percentage of our health care costs out of pocket (i.e., through deductibles and co-costs out of pocket (i.e., through deductibles and co- payments) (premium payments are not included)payments) (premium payments are not included)  France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%,France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32% (Peterson and Burton 2007)Switzerland-32% (Peterson and Burton 2007)
  • 25. Structural contributors to high costsStructural contributors to high costs  Fee-for-service reimbursement => Quality-Fee-for-service reimbursement => Quality- insensitive physicians and hospitalsinsensitive physicians and hospitals  When physicians and hospitals are paid more to doWhen physicians and hospitals are paid more to do more, regardless of outcome, they’ll do moremore, regardless of outcome, they’ll do more  Especially when they lose money on higher quality care (UrbinaEspecially when they lose money on higher quality care (Urbina 2006)2006)  Example of clinic that switched from salary toExample of clinic that switched from salary to commission on fees generated and doctors scheduledcommission on fees generated and doctors scheduled more appointments and ordered more blood tests and x-more appointments and ordered more blood tests and x- rays (Hemenway 1990)rays (Hemenway 1990)
  • 26. Cost containmentCost containment  Outline of today’s classOutline of today’s class  The cost problemThe cost problem  Is PPACA the solution?Is PPACA the solution?  If not, how else might we contain costs?If not, how else might we contain costs?  What constraints does the law place on costWhat constraints does the law place on cost containment strategies?containment strategies?
  • 27. PPACA and cost controlPPACA and cost control  Many different provisions designed to containMany different provisions designed to contain costscosts  Serious question whether they really address theSerious question whether they really address the cost problem—PPACA doesn’t take on thecost problem—PPACA doesn’t take on the major drivers of higher costs other than to somemajor drivers of higher costs other than to some extent through demonstration projectsextent through demonstration projects
  • 28. Permanent reductions in MedicarePermanent reductions in Medicare reimbursement ratesreimbursement rates ((§§ 3401)3401)  Applies to hospitals, nursing homes and other facilitiesApplies to hospitals, nursing homes and other facilities  Every year, payment rates are adjusted to reflectEvery year, payment rates are adjusted to reflect increases in the operating costs of health care facilitiesincreases in the operating costs of health care facilities  The increases have been calculated from a “marketThe increases have been calculated from a “market basket” of goods and services that the facilities purchasebasket” of goods and services that the facilities purchase (with reductions for failure to file quality data and other(with reductions for failure to file quality data and other “technical” adjustments)“technical” adjustments)  Under PPACA, a productivity adjustment will beUnder PPACA, a productivity adjustment will be made based on economy-wide productivity gainsmade based on economy-wide productivity gains (which are greater than in health care)—there also(which are greater than in health care)—there also will be a ten-year further reduction in the updatewill be a ten-year further reduction in the update percentage (0.10 to 0.75 percent per year)percentage (0.10 to 0.75 percent per year)  Estimated savings = $196 billionEstimated savings = $196 billion
  • 29. Permanent reductions in MedicarePermanent reductions in Medicare reimbursement ratesreimbursement rates ((§§ 3401)3401)  Note that PPACA provisions reflect a mix ofNote that PPACA provisions reflect a mix of policy and politics—see the annual reductions inpolicy and politics—see the annual reductions in update percentages:update percentages: 20102010 0.25%0.25% 20152015 0.20%0.20% 20112011 0.25%0.25% 20162016 0.20%0.20% 20122012 0.10%0.10% 20172017 0.75%0.75% 20132013 0.10%0.10% 20182018 0.75%0.75% 20142014 0.30%0.30% 20192019 0.75%0.75%  After 2019, IMAB recommendations due to kick inAfter 2019, IMAB recommendations due to kick in
  • 30. Reduction in payment rates forReduction in payment rates for Medicare Advantage program (Medicare Advantage program (§§ 3201)3201)  Medicare Advantage is an option for MedicareMedicare Advantage is an option for Medicare recipients to enroll in a private health care planrecipients to enroll in a private health care plan rather than choosing traditional, fee-for-servicerather than choosing traditional, fee-for-service Medicare (Part C of Medicare)Medicare (Part C of Medicare)  While the idea was to provide a more-efficient,While the idea was to provide a more-efficient, lower-cost option, Medicare Advantage plans havelower-cost option, Medicare Advantage plans have turned out to be more expensive (up to 150% ofturned out to be more expensive (up to 150% of traditional Medicare)traditional Medicare)  The low-hanging fruit of cost savingsThe low-hanging fruit of cost savings  Estimated savings = $135 billionEstimated savings = $135 billion
  • 31. Part B Medicare premium calculation forPart B Medicare premium calculation for high-income recipients (high-income recipients (§ 3402§ 3402))  Part B of Medicare covers physician fees, laboratoryPart B of Medicare covers physician fees, laboratory fees and other outpatient servicesfees and other outpatient services  Most Medicare recipients pay 25 percent of the PartMost Medicare recipients pay 25 percent of the Part B premium; currently, higher income recipients payB premium; currently, higher income recipients pay between 35 and 80 percent of the Part B premium.between 35 and 80 percent of the Part B premium.  PPACA freezes the income thresholds for higher-PPACA freezes the income thresholds for higher- income premiums at 2010 levels for ten yearsincome premiums at 2010 levels for ten years before resuming annual adjustments for inflation.before resuming annual adjustments for inflation.  Estimated savings = $25 billionEstimated savings = $25 billion
  • 32. Reduction in disproportionate shareReduction in disproportionate share hospital (DSH) payments (hospital (DSH) payments (§ 3133§ 3133 ))  DSH payments are made to hospitals that treat aDSH payments are made to hospitals that treat a disproportionate share of low-income patientsdisproportionate share of low-income patients  Originally introduced to compensate hospitalsOriginally introduced to compensate hospitals for higher costs of treating low-income patients;for higher costs of treating low-income patients; now justified as a way to maintain access to carenow justified as a way to maintain access to care for low-income patientsfor low-income patients  Estimated savings = $22 billionEstimated savings = $22 billion
  • 33. Independent Medicare Advisory BoardIndependent Medicare Advisory Board (IMAB) ((IMAB) (§ 3403)§ 3403)  IMAB will develop proposals to keep MedicareIMAB will develop proposals to keep Medicare spending within statutory targets, and proposalsspending within statutory targets, and proposals will automatically take effect unless Congresswill automatically take effect unless Congress adopts substitute provisionsadopts substitute provisions  Proposals may not ration health care, raise costs toProposals may not ration health care, raise costs to recipients, restrict benefits or modify eligibility criteriarecipients, restrict benefits or modify eligibility criteria  IMAB also will provide Congress withIMAB also will provide Congress with recommendations for slowing the growth of healthrecommendations for slowing the growth of health care spending in the private sector.care spending in the private sector.  Estimated savings = $16 billion by 2020, moreEstimated savings = $16 billion by 2020, more substantial after that (assuming it works)substantial after that (assuming it works)
  • 34. Independent Medicare Advisory BoardIndependent Medicare Advisory Board (IMAB) ((IMAB) (§§ 3403)3403)  Concerns about IMABConcerns about IMAB  Will IMAB focus on short-term fixes rather than long-Will IMAB focus on short-term fixes rather than long- term changes that really can “bend the cost curve?”term changes that really can “bend the cost curve?”  Will Congress bypass the IMAB process and authorizeWill Congress bypass the IMAB process and authorize increases in funding through independent legislation?increases in funding through independent legislation?  Are the limitations on the kinds of proposals thatAre the limitations on the kinds of proposals that IMAB can develop too restrictive?IMAB can develop too restrictive?  Will cuts in reimbursement reduce patient access toWill cuts in reimbursement reduce patient access to physicians?physicians?
  • 35. Patient-Centered OutcomesPatient-Centered Outcomes Research Institute (Research Institute (§§ 6301)6301)  Created to promote comparative-effectivenessCreated to promote comparative-effectiveness research (CER)research (CER)  Research that evaluates and compares the patient healthResearch that evaluates and compares the patient health outcomes and benefits of two or more medicaloutcomes and benefits of two or more medical treatments or servicestreatments or services  Responsibilities includeResponsibilities include  Setting priorities for CER and funding CER studiesSetting priorities for CER and funding CER studies  Analyzing data from CER studies and reportingAnalyzing data from CER studies and reporting to theto the public on the significance of the study resultspublic on the significance of the study results
  • 36. Patient-Centered OutcomesPatient-Centered Outcomes Research Institute (Research Institute (§§ 6301)6301)  The Institute may not recommend coverageThe Institute may not recommend coverage changes or other policies based on its analyses, butchanges or other policies based on its analyses, but  Medicare and Medicaid may consider theMedicare and Medicaid may consider the Institute’s analyses in determining coverageInstitute’s analyses in determining coverage policies as long as:policies as long as:  No denial of coverage “solely on the basis of” CERNo denial of coverage “solely on the basis of” CER  Coverage decisions do not treat the lives of elderly,Coverage decisions do not treat the lives of elderly, disabled or terminally ill individuals as having lowerdisabled or terminally ill individuals as having lower valuevalue
  • 37. Can the CER institute become our NICE?Can the CER institute become our NICE?  NICE evaluates the cost-effectiveness of medicalNICE evaluates the cost-effectiveness of medical therapies and approves those that are sufficientlytherapies and approves those that are sufficiently cost-effective for Britain’s National Health Servicecost-effective for Britain’s National Health Service  Treatments are cost-effective if they provide 1Treatments are cost-effective if they provide 1 QALYQALY for no more than £20,000 (now $31,250)for no more than £20,000 (now $31,250)  Sometime, NICE approves treatments up to £30,000Sometime, NICE approves treatments up to £30,000 ($46,900) per QALY($46,900) per QALY  Rarely, NICE approves treatments beyond £30,000 perRarely, NICE approves treatments beyond £30,000 per QALYQALY  NICE has approval authority, while the CERNICE has approval authority, while the CER institute can only issue reportsinstitute can only issue reports
  • 38. What’s a “good” buy?What’s a “good” buy? “Expensive” more than $100,000/QALY “Reasonable” $50,000/QALY (UK upper limit ~ $47,000) “Very Efficient” less than $25,000/QALY Most writers use $50-100,000 as upper limit of good value, but public preferences suggest upper limit over $200,000. Hirth RA, et al., Medical Decision Making. 2000;20:332-342
  • 39. Some sample QALYs (2002 dollars)Some sample QALYs (2002 dollars) Harvard Public Health Review (Fall 2004)Harvard Public Health Review (Fall 2004)  < $0 (If the cost per QALY is less than zero, the intervention actually saves< $0 (If the cost per QALY is less than zero, the intervention actually saves money)money) Flu vaccine for the elderlyFlu vaccine for the elderly  Under $10,000Under $10,000 Beta-blocker drugs post-heart attack in high-risk patientsBeta-blocker drugs post-heart attack in high-risk patients  $10,000 to $20,000$10,000 to $20,000 Combination antiretroviral therapy for certain patients infected with the AIDS virusCombination antiretroviral therapy for certain patients infected with the AIDS virus  $15,000 to $20,000$15,000 to $20,000 Colonoscopy every five to 10 years for women age 50 and upColonoscopy every five to 10 years for women age 50 and up  $20,000 to $50,000$20,000 to $50,000 Antihypertensive medications in adults age 35-64 with high blood pressure but noAntihypertensive medications in adults age 35-64 with high blood pressure but no coronary heart diseasecoronary heart disease Lung transplant in UK (Anyanwu AC et al.Lung transplant in UK (Anyanwu AC et al. J Thorac Cardiovasc Surg 2002;123:411-420)  $50,000-$100,000$50,000-$100,000 Dialysis for patients with end-stage kidney diseaseDialysis for patients with end-stage kidney disease Antibiotic prophylaxis during dental procedures for persons at moderate to high riskAntibiotic prophylaxis during dental procedures for persons at moderate to high risk of bacterial endocarditis ($88,000) (of bacterial endocarditis ($88,000) (Med Decis Making. 2005;25(3):308-20)Med Decis Making. 2005;25(3):308-20)  Over $500,000Over $500,000 CT and MRI scans for kids with headache and an intermediate risk of brain tumorCT and MRI scans for kids with headache and an intermediate risk of brain tumor
  • 40. Condition/Treatment Cost per QALY Treatment for Erectile Dysfunction $6,400/QALY *Physician Counseling for Smoking $7,200/QALY Total Hip Replacement $9,900/QALY *Outreach for Flu and Pneumonia $13,000/QALY Treatment of Major Depression $20,000/QALY Gastric Bypass Surgery $20,000/QALY Treatment for Osteoporosis $38,000/QALY *Screening For Colon Cancer $40,000/QALY Implantable Cardioverter Defibrillator $75,000/QALY Lung-Volume Reduction Surgery $98,000/QALY Tight Control of Diabetes $154,000/QALY *Treating Elevated Cholesterol ( + 1 risk factor) $200,000/QALY Resuscitation After Cardiac Arrest $270,000/QALY Left Ventricular Assist Device $900,000/QALY COST/QALY: Selected Medicare services
  • 41. Cost of treatment for metastatic colon cancer (Schrag D. NEJM. 2004;351:317-319)
  • 42. Examining the cost and cost-effectiveness of adding bevacizumab (Avastin) to chemo in metastatic colon cancer  Randomized trial compared chemotherapy aloneRandomized trial compared chemotherapy alone vs. chemotherapy + bevacizumabvs. chemotherapy + bevacizumab  Bevacizumab regimen prolonged medianBevacizumab regimen prolonged median survival from 15.6 to 20.3 months (p<0.001)survival from 15.6 to 20.3 months (p<0.001)  Cost of extra 4.7 months?Cost of extra 4.7 months?  $101,500 (assuming $5,000 per month for$101,500 (assuming $5,000 per month for bevacizumab)bevacizumab)  $259,149 per year of life gained (not quality adjusted)$259,149 per year of life gained (not quality adjusted)  NICE decided not to recommend for NHS coverageNICE decided not to recommend for NHS coverage
  • 43.  Randomized trial compared chemotherapy aloneRandomized trial compared chemotherapy alone vs. chemotherapy + bevacizumabvs. chemotherapy + bevacizumab  Bevacizumab regimen prolonged median survivalBevacizumab regimen prolonged median survival from 10.2 to 12.5 months (p=0.007)from 10.2 to 12.5 months (p=0.007)  Cost of extra 2.3 months?Cost of extra 2.3 months?  $66,270-$80,343$66,270-$80,343  $345,762 per year of life gained (assuming $66,270$345,762 per year of life gained (assuming $66,270 cost)cost)  Grusenmeyer PA, Gralla RJ. J. Clin. Oncology.Grusenmeyer PA, Gralla RJ. J. Clin. Oncology. 2006;24(18S):6057.2006;24(18S):6057. Examining the cost and cost-effectiveness of adding bevacizumab (Avastin) to chemo in advanced non-small cell lung cancer
  • 44. Can the CER institute become our NICE?Can the CER institute become our NICE?  Cost-effectiveness decisions are controversialCost-effectiveness decisions are controversial  Prohibited under PPACA from being used as sole basisProhibited under PPACA from being used as sole basis for denying coverage in federal programs (for denying coverage in federal programs (§§6301)6301)  Oregon Health Care PlanOregon Health Care Plan  Ended up with fairly generous “basic” coverageEnded up with fairly generous “basic” coverage  Mammography screening guidelines in 2009 (evenMammography screening guidelines in 2009 (even though cost wasn’t a factor)though cost wasn’t a factor)  US Preventive Services Task Force recommended thatUS Preventive Services Task Force recommended that routine screening begin at age 50 instead of age 40routine screening begin at age 50 instead of age 40  The “tragic choices” problem (Orentlicher 2010)The “tragic choices” problem (Orentlicher 2010)  It’s difficult to make life-and-death decisions openlyIt’s difficult to make life-and-death decisions openly
  • 45. PPACA demonstration projectsPPACA demonstration projects  Bundled payments for hospital care and for theBundled payments for hospital care and for the month following discharge (capitation lite) (month following discharge (capitation lite) (§2704§2704 and §3023)and §3023)  Capitation payments instead of fee-for-serviceCapitation payments instead of fee-for-service reimbursement (reimbursement (§§2705)2705)  Incentives for doctors and hospitals to formIncentives for doctors and hospitals to form accountable care organizations (financial rewardsaccountable care organizations (financial rewards for higher quality and/or lower cost care) (for higher quality and/or lower cost care) (§§27062706 andand §§3022)3022)  Will integrated systems exploit market power toWill integrated systems exploit market power to maintain revenues rather than to introduce efficienciesmaintain revenues rather than to introduce efficiencies and reduce costs?and reduce costs?
  • 46. Quality-adjusted payments under PPACAQuality-adjusted payments under PPACA  Incentive payments to hospitals that meet specifiedIncentive payments to hospitals that meet specified performance standards (§3001)performance standards (§3001)  Adjustments to physician reimbursement based on qualityAdjustments to physician reimbursement based on quality and cost of care provided (§3001)and cost of care provided (§3001)  Expansion of reports to physicians that indicate how theirExpansion of reports to physicians that indicate how their use of resources in patient care compares to use by otheruse of resources in patient care compares to use by other physicians (§3003)physicians (§3003)  Lower payments to hospitals with high numbers of patientsLower payments to hospitals with high numbers of patients who become sicker because of their hospital care (§3008)who become sicker because of their hospital care (§3008)  Lower payments to hospitals that have excessive numbers ofLower payments to hospitals that have excessive numbers of patients readmitted to the hospital after discharge (§3025)patients readmitted to the hospital after discharge (§3025)
  • 47. Quality-adjusted paymentsQuality-adjusted payments  Pay for performance so far has a mixed trackPay for performance so far has a mixed track recordrecord  It’s difficult to assess quality of care—did a patientIt’s difficult to assess quality of care—did a patient do well because of or despite the doctor’sdo well because of or despite the doctor’s intervention?intervention?  Often, process-based measures are used, but thoseOften, process-based measures are used, but those need continual updatingneed continual updating  Impact has been modest to dateImpact has been modest to date
  • 48. Tax on high-cost health plans (Tax on high-cost health plans (§§9001)9001)  Starts in 2018Starts in 2018  Imposes a 40 percent tax to the extent that theImposes a 40 percent tax to the extent that the value of coverage exceeds a threshold amountvalue of coverage exceeds a threshold amount  The threshold starts at $10,200 for individuals andThe threshold starts at $10,200 for individuals and $27,500 for families (which is about double the$27,500 for families (which is about double the average cost for health care coverage)average cost for health care coverage)  The threshold amount is adjusted upward forThe threshold amount is adjusted upward for health care cost inflation and higher costs of thehealth care cost inflation and higher costs of the individual’s risk poolindividual’s risk pool  Estimated revenues = $32 billion in 2018 and 2019Estimated revenues = $32 billion in 2018 and 2019
  • 49. Concerns about the “Cadillac” taxConcerns about the “Cadillac” tax  High costs of high-cost health plans may reflectHigh costs of high-cost health plans may reflect health status of the workforce and health care costshealth status of the workforce and health care costs of the community rather than the richness of theof the community rather than the richness of the benefitsbenefits  Gabel, et al. 2010Gabel, et al. 2010  Reducing tax subsidies for health care insuranceReducing tax subsidies for health care insurance may have a regressive effect (i.e., the higher taxesmay have a regressive effect (i.e., the higher taxes may represent a higher percentage of income formay represent a higher percentage of income for lower-income persons)lower-income persons)  Himmelstein & Woolhandler 2009; Gabel, et al. 2010Himmelstein & Woolhandler 2009; Gabel, et al. 2010
  • 50. The bottom line under PPACAThe bottom line under PPACA  Between 2009 and 2019, health care spending isBetween 2009 and 2019, health care spending is projected to increase 0.2% as a result of PPACAprojected to increase 0.2% as a result of PPACA  But—But—  Health care coverage is projected to increase by 32.5Health care coverage is projected to increase by 32.5 millionmillion  After the big increase in spending in 2014 for the newlyAfter the big increase in spending in 2014 for the newly insured, health care spending is projected to grow byinsured, health care spending is projected to grow by 6.7% rather than 6.8% between 2015 and 20196.7% rather than 6.8% between 2015 and 2019  Sisko, et al. 2010Sisko, et al. 2010  Of course, these are projections that may or may notOf course, these are projections that may or may not come to fruitioncome to fruition
  • 51. Cost containmentCost containment  Outline of today’s classOutline of today’s class  The cost problemThe cost problem  Is PPACA the solution?Is PPACA the solution?  If not, how else might we contain costs?If not, how else might we contain costs?  What constraints does the law place on costWhat constraints does the law place on cost containment strategies?containment strategies?
  • 52. Cost containment strategiesCost containment strategies  If main drivers of high costs are physicianIf main drivers of high costs are physician incentives to provide excessive care and patientincentives to provide excessive care and patient incentives to demand excessive care, we shouldincentives to demand excessive care, we should employ policy changes to remove these incentivesemploy policy changes to remove these incentives  Changes in physician incentivesChanges in physician incentives  Salary or capitation for physicians (combined withSalary or capitation for physicians (combined with quality measures to avoid under-provision of care)—quality measures to avoid under-provision of care)— could increase physician pay and still lower overall costscould increase physician pay and still lower overall costs  Capitation would address problem of too many prescriptionsCapitation would address problem of too many prescriptions for expensive drugs—CER institute important here toofor expensive drugs—CER institute important here too  Limits on hospital beds, surgical suites, MRI scannersLimits on hospital beds, surgical suites, MRI scanners and other facilitiesand other facilities
  • 53. Financial incentives for patients?Financial incentives for patients?  If people are not sufficiently sensitive to costsIf people are not sufficiently sensitive to costs because of insurance, should we use health savingsbecause of insurance, should we use health savings accounts or other mechanisms to give patientsaccounts or other mechanisms to give patients more skin in the game?more skin in the game?  Raising out-of-pocket costs reduces patient demandRaising out-of-pocket costs reduces patient demand for care, butfor care, but  Patients do not always distinguish between necessaryPatients do not always distinguish between necessary and unnecessary careand unnecessary care  Caps on out-of-pocket costs prevent patient sensitivityCaps on out-of-pocket costs prevent patient sensitivity to costs of high-cost services (e.g., heart surgery, cancerto costs of high-cost services (e.g., heart surgery, cancer chemotherapy)chemotherapy)  Buntin et al. 2006Buntin et al. 2006
  • 54. VA Reengineering StrategyVA Reengineering Strategy  Define and set practice standards that have beenDefine and set practice standards that have been shown to result in better patient outcomesshown to result in better patient outcomes (including elimination of wasteful hospital and(including elimination of wasteful hospital and pharmacy spending)pharmacy spending)  Monitor performance and measure outcomes (withMonitor performance and measure outcomes (with both internal and external oversight)both internal and external oversight)  Reward good performance and manage under-Reward good performance and manage under- performanceperformance  Optimize use of technology (electronic records,Optimize use of technology (electronic records, reminders)reminders)  Promote patient safety initiatives to reduce medicalPromote patient safety initiatives to reduce medical errorerror
  • 55. Cost containmentCost containment  Outline of today’s classOutline of today’s class  The cost problemThe cost problem  Is PPACA the solution?Is PPACA the solution?  If not, how else might we contain costs?If not, how else might we contain costs?  What constraints does the law place onWhat constraints does the law place on cost containment strategies?cost containment strategies?
  • 56. Legal constraints on costLegal constraints on cost containment strategiescontainment strategies  Legal constraints may exist when physicians makeLegal constraints may exist when physicians make decisions on the basis of costs on a case-by-casedecisions on the basis of costs on a case-by-case basis (as with the closure of ICU beds in the Singerbasis (as with the closure of ICU beds in the Singer study) and take the patient’s poor prognosis intostudy) and take the patient’s poor prognosis into account—the disparate treatment problemaccount—the disparate treatment problem  University HospitalUniversity Hospital,, GlanzGlanz,, Baby KBaby K, and, and CauseyCausey  Legal constraints also may exist when costLegal constraints also may exist when cost containment policies are adopted that have acontainment policies are adopted that have a greater effect on persons who are sicker—thegreater effect on persons who are sicker—the disparate impact problemdisparate impact problem  AlexanderAlexander
  • 57. Protection for the disabled againstProtection for the disabled against discrimination--disparate treatmentdiscrimination--disparate treatment  InIn University HospitalUniversity Hospital , doctors and parents decided, doctors and parents decided against surgery for a newborn thought to have aagainst surgery for a newborn thought to have a severe and permanent neurologic disabilitysevere and permanent neurologic disability  The US argued that this involved discrimination on theThe US argued that this involved discrimination on the basis of disability (in violation ofbasis of disability (in violation of §§504 of the504 of the Rehabilitation Act)—other children with normalRehabilitation Act)—other children with normal neurologic development would have received the surgeryneurologic development would have received the surgery  But what’s the relevant comparison? You have to treatBut what’s the relevant comparison? You have to treat similarsimilar people similarly, but you don’t have to treatpeople similarly, but you don’t have to treat differentdifferent people similarly. In other words, was the withholding ofpeople similarly. In other words, was the withholding of surgery based on relevant or irrelevant differencessurgery based on relevant or irrelevant differences between Baby Jane Doe and other infants?between Baby Jane Doe and other infants?
  • 58. Protection for the disabled againstProtection for the disabled against discrimination--disparate treatmentdiscrimination--disparate treatment  TheThe University HospitalUniversity Hospital court rejected thecourt rejected the §504§504 claim on three grounds:claim on three grounds:  Congress did not intendCongress did not intend §§504 to apply to medical504 to apply to medical treatment decisions (pp.136-137 of HCLE excerpt)treatment decisions (pp.136-137 of HCLE excerpt)  The problem that was being treated was related toThe problem that was being treated was related to the disabling condition—the disability gave rise tothe disabling condition—the disability gave rise to the need for treatment—thus, the disability was notthe need for treatment—thus, the disability was not an irrelevant factor (pp.135-136 of HCLE excerpt)an irrelevant factor (pp.135-136 of HCLE excerpt)  The hospital was willing to perform the surgery if theThe hospital was willing to perform the surgery if the parents agreed (p.137 of HCLE excerpt)parents agreed (p.137 of HCLE excerpt)
  • 59. Protection for the disabled againstProtection for the disabled against discrimination--disparate treatmentdiscrimination--disparate treatment  GlanzGlanz took a different--and more sensible--approachtook a different--and more sensible--approach to theto the §§504 question than did504 question than did University Hospital.University Hospital.  InIn GlanzGlanz, a doctor refused to perform ear surgery on a, a doctor refused to perform ear surgery on a patient because of an HIV infection, which was thepatient because of an HIV infection, which was the patient’s disabling condition.patient’s disabling condition.  According to the doctor, the disability compromised theAccording to the doctor, the disability compromised the patient’s ability to benefit from treatment—the HIVpatient’s ability to benefit from treatment—the HIV infection raised the patient’s risk of infection from theinfection raised the patient’s risk of infection from the surgerysurgery  According to the court, ability to benefit fromAccording to the court, ability to benefit from treatment was a relevant consideration—leaving thetreatment was a relevant consideration—leaving the question open as to how much of a considerationquestion open as to how much of a consideration
  • 60. Protection for the disabled againstProtection for the disabled against discrimination--disparate treatmentdiscrimination--disparate treatment  Baby KBaby K andand CauseyCausey illustrate concerns thatillustrate concerns that discriminatory treatment decisions may arise underdiscriminatory treatment decisions may arise under the guise of “futility” claims by doctors or hospitalsthe guise of “futility” claims by doctors or hospitals  In a futility case, the doctor or hospital argues thatIn a futility case, the doctor or hospital argues that there is insufficient benefit from treatment for thethere is insufficient benefit from treatment for the patient (medicine has nothing to offer)patient (medicine has nothing to offer)  But in many cases, the real concern is the costs ofBut in many cases, the real concern is the costs of carecare
  • 61. Protection for the disabled againstProtection for the disabled against discrimination--disparate treatmentdiscrimination--disparate treatment  InIn Baby KBaby K, a hospital did not want to ventilate an, a hospital did not want to ventilate an anencephalic child (but it was willing to provideanencephalic child (but it was willing to provide artificial nutrition and hydration to the child)artificial nutrition and hydration to the child)  The court invoked EMTALA which requires stabilizingThe court invoked EMTALA which requires stabilizing treatment in all emergenciestreatment in all emergencies  The court observed that the hospital would haveThe court observed that the hospital would have ventilated other children with similar breathingventilated other children with similar breathing difficultiesdifficulties  Note the contrast withNote the contrast with University HospitalUniversity Hospital—Baby K’s—Baby K’s breathing difficulties were related to her anencephaly just asbreathing difficulties were related to her anencephaly just as Baby Jane Doe’s need for surgery was related to her disabilityBaby Jane Doe’s need for surgery was related to her disability
  • 62. Protection for the disabled againstProtection for the disabled against discrimination--disparate treatmentdiscrimination--disparate treatment  InIn CauseyCausey, a hospital withdrew dialysis and, a hospital withdrew dialysis and ventilation from a comatose woman with a 1-5%ventilation from a comatose woman with a 1-5% chance of regaining consciousness and a lifechance of regaining consciousness and a life expectancy of up to two years.expectancy of up to two years.  The court rejected the concept of futility on the groundThe court rejected the concept of futility on the ground that it entails non-medical, value judgmentsthat it entails non-medical, value judgments  Rather, the court held that doctors can withholdRather, the court held that doctors can withhold treatment when it is not part of the medical profession’streatment when it is not part of the medical profession’s standard of care (p.632 of HCLE excerpt)standard of care (p.632 of HCLE excerpt)  Note the contrast with theNote the contrast with the Baby KBaby K court, which rejected acourt, which rejected a defense based on the professional standard of caredefense based on the professional standard of care
  • 63. Protection for the disabled againstProtection for the disabled against discrimination--disparate treatmentdiscrimination--disparate treatment  Putting all of the cases together, we end up withPutting all of the cases together, we end up with a majority of courts deferring to medicala majority of courts deferring to medical judgment, especially if there is evidence that thejudgment, especially if there is evidence that the decision is based on the patient’s diminisheddecision is based on the patient’s diminished ability to benefit from treatment (ability to benefit from treatment (GlanzGlanz))  Also, courts are more deferential when hospitalsAlso, courts are more deferential when hospitals implement decisions and are then sued rather thanimplement decisions and are then sued rather than asking the court to approve the denial of care inasking the court to approve the denial of care in advanceadvance
  • 64. Protection for the disabled againstProtection for the disabled against discrimination--disparate impactdiscrimination--disparate impact  AlexanderAlexander gave a green light to across-the-boardgave a green light to across-the-board coverage restrictions that have a disparate impactcoverage restrictions that have a disparate impact on persons with disabilitieson persons with disabilities  InIn Alexander,Alexander, Tennessee capped hospitalization forTennessee capped hospitalization for Medicaid recipients at 14 days per yearMedicaid recipients at 14 days per year  Disparate impact because only 7.8% of non-disabledDisparate impact because only 7.8% of non-disabled persons who were hospitalized needed more than 14persons who were hospitalized needed more than 14 days, while 27.4% of disabled persons who weredays, while 27.4% of disabled persons who were hospitalized needed more than 14 dayshospitalized needed more than 14 days  Plaintiffs argued that the disparate impact wasPlaintiffs argued that the disparate impact was gratuitous—only ten states imposed such limitsgratuitous—only ten states imposed such limits
  • 65. Protection for the disabled againstProtection for the disabled against discrimination--disparate impactdiscrimination--disparate impact  The Supreme Court held (in a unanimous decisionThe Supreme Court held (in a unanimous decision authored by Justice Thurgood Marshall) thatauthored by Justice Thurgood Marshall) that  §§504 protects against some instances of disparate impact504 protects against some instances of disparate impact discriminationdiscrimination  Persons with disabilities must be provided “meaningfulPersons with disabilities must be provided “meaningful access” to the services offeredaccess” to the services offered  Tennessee’s durational limit provides meaningful access—Tennessee’s durational limit provides meaningful access— 14 days of hospitalization is sufficient for 95% of disabled14 days of hospitalization is sufficient for 95% of disabled recipients of Medicaidrecipients of Medicaid  Court greatly concerned with administrative burden andCourt greatly concerned with administrative burden and feasibility of requiring Medicaid to avoid disparate impactsfeasibility of requiring Medicaid to avoid disparate impacts
  • 66. Protection for the disabled againstProtection for the disabled against discrimination--disparate impactdiscrimination--disparate impact  AfterAfter AlexanderAlexander, it’s difficult to imagine successful, it’s difficult to imagine successful challenges to cost containment strategies on thechallenges to cost containment strategies on the basis of their disparate impactsbasis of their disparate impacts  Especially if meaningful access is interpreted withEspecially if meaningful access is interpreted with respect to health care generally rather than therespect to health care generally rather than the specific health care service (e.g., cancer chemotherapyspecific health care service (e.g., cancer chemotherapy if coverage for a very expensive drug is denied)if coverage for a very expensive drug is denied)
  • 67. Legal constraints on cost containmentLegal constraints on cost containment The case law indicates that political constraints areThe case law indicates that political constraints are much more important than legal constraintsmuch more important than legal constraints
  • 68. What is a QALY?What is a QALY? 0 1 Dead Perfect health Major stroke Recurrent stroke Studying for a law school exam
  • 69. OECDOECD  Organisation for Economic Co-operation andOrganisation for Economic Co-operation and Development (www.oecd.org). The 33 memberDevelopment (www.oecd.org). The 33 member countries include:countries include:  U.S., Canada, Mexico, ChileU.S., Canada, Mexico, Chile  Denmark, Norway, Sweden, FinlandDenmark, Norway, Sweden, Finland  U.K., France, Germany, Netherlands, SwitzerlandU.K., France, Germany, Netherlands, Switzerland  Portugal, Spain, Italy, Greece, Turkey, IsraelPortugal, Spain, Italy, Greece, Turkey, Israel  Hungary, Czech Republic, Slovak Republic, Slovenia,Hungary, Czech Republic, Slovak Republic, Slovenia, PolandPoland  Japan, KoreaJapan, Korea  Australia, New ZealandAustralia, New Zealand