Provider payment reform


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Presentation by Paul B. Ginsburg, Ph.D. at the Detroit Regional Chamber 2010 Health Care Forum

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Provider payment reform

  1. 1. Provider Payment Reform<br />Paul B. Ginsburg, Ph.D.<br />Presentation to 2010 HealthCare Leaders Forum, Detroit, MI, April 27, 2010<br />
  2. 2. <ul><li>Payers sending inadvertent signals to providers about types of care that are valued the most
  3. 3. Emphasis on volume
  4. 4. Procedures over management
  5. 5. Coordination has no value
  6. 6. Providers responding to these incentives
  7. 7. Response often involves increasing capacity
  8. 8. Capacity further increases use of those services</li></ul>Especially physician-owned capacity<br />We Get What We Pay For<br />
  9. 9. <ul><li>Getting relative payments for different services to better reflect relative costs
  10. 10. Paying on the basis of units of service that are more reflective of what consumers seeking from delivery system
  11. 11. Solutions rather than services</li></ul>Episodes of care<br />Management of chronic disease<br />Meeting medical needs<br />Two Distinct Aspects to Reforming Payment<br />
  12. 12. <ul><li>Surgical DRGs more profitable than medical DRGs
  13. 13. Magnitude reduced by CMS revamp of DRG methods
  14. 14. Distortions remain for per diem and discounted charges approaches</li></ul>Pattern of Payment Structure Deviating from Cost Structure<br />
  15. 15. <ul><li>Physician procedures involving new technology more profitable than evaluation and management services
  16. 16. Physician work component
  17. 17. Technical (facility) component
  18. 18. Distortions not intended by payers</li></ul>Pattern of Payment Structure Deviating from Cost Structure cont.<br />
  19. 19. <ul><li>Hospitals pursue service line strategies
  20. 20. Physicians invest in facilities
  21. 21. Single specialty group mergers to reach scale needed for equipment-intensive services
  22. 22. McAllen, Texas
  23. 23. Physicians shifting to more lucrative specialties
  24. 24. Leading to primary care shortages</li></ul>Vigorous Provider Response to Inadvertent Payment Incentives<br />
  25. 25. <ul><li>Greater patient convenience
  26. 26. Third party payment changes calculus of patient convenience
  27. 27. Self-referral incentives apply to more services
  28. 28. Not just physician professional time
  29. 29. Incentives likely more powerful when services highly profitable
  30. 30. Extra incentives when average costs much higher than marginal cost (major equipment)</li></ul>Capacity Leads to Higher Rates of Service Use<br />
  31. 31. <ul><li>Medicare best positioned to lead in this area
  32. 32. Credibility with providers</li></ul>Engagement of provider leadership in its work<br /><ul><li>Value of RUC
  33. 33. Sufficient clout with many providers</li></ul>Policies to Reduce Pricing Distortions<br />
  34. 34. <ul><li>Private payers increasingly following Medicare payment structures
  35. 35. Extensive use of Medicare RVS</li></ul>But need to deviate to accommodate provider market power<br /><ul><li>Trend toward adoption of Medicare outpatient methods</li></ul>Policies to Reduce Pricing Distortions cont.<br />
  36. 36. <ul><li>Phase-in of revamp of Medicare inpatient prospective payment mostly complete
  37. 37. Second generation DRG system
  38. 38. More accurate calculation of relative payment rates
  39. 39. Long overdue update of practice expense relative values in Medicare RVS implemented 1/1/10
  40. 40. Impact already visible</li></ul>Policy Change in Relative Payment Structure Well Underway<br />
  41. 41. <ul><li>Policies in health reform legislation (PPACA)
  42. 42. 10 percent increase in payment rates for primary care services
  43. 43. Mandate to thoroughly update physician work values</li></ul>Identify and adjust mis-valued codes<br /><ul><li>Revised assumptions on capacity utilization rates and larger reductions for multiple procedures</li></ul>Policy Change in Relative Payment Structure Well Underway cont.<br />
  44. 44. <ul><li>Increasing tendency for Congressional intervention in Medicare details
  45. 45. Cardiology campaign to block 2010 revisions to physician fee schedule
  46. 46. Industry support leads to unlevel playing field among physician specialties</li></ul>Governance Risks<br />
  47. 47. <ul><li>Wide range of approaches possible
  48. 48. Some compatible with others
  49. 49. Some ready for broad implementation
  50. 50. Penalties for avoidable hospital readmissions in PPACA</li></ul>Reduced inpatient infections<br />Better transitions to community care<br /><ul><li>Bundling post-acute care
  51. 51. Others need further development and testing
  52. 52. How to pursue this more deliberatively and rapidly</li></ul>Broader Units of Payment<br />
  53. 53. <ul><li>Patient centered medical homes
  54. 54. Pay for coordination and patient education
  55. 55. Numerous initiatives by private insurers</li></ul>BCBS of Michigan pays higher rates for qualifying practices<br />Massachusetts General Hospital experiment<br /><ul><li>Medicare demonstration supplements FFS with partial capitation</li></ul>Promising Approaches under Development<br />
  56. 56. <ul><li>Bundled payment per episode
  57. 57. Innovation is inclusion of multiple providers
  58. 58. Episode grouper to assign services to episodes</li></ul>Transparency of public grouper important for physician acceptance<br /><ul><li>Private plan contracting with hospitals and physician in select specialties for select episodes
  59. 59. Medicare ACE demonstration for selected orthopedic and cardiovascular episodes</li></ul>Promising Approaches under Development cont.<br />
  60. 60. <ul><li>Can this work for management of chronic disease?</li></ul>How effectively can groupers adjust for severity and multiple conditions?<br /><ul><li>Debate on appropriateness for discretionary procedures</li></ul>Does episode-based payment increase incentive to recommend procedures?<br />Promising Approaches under Development cont.<br />
  61. 61. <ul><li>High Performance Networks as early stage episode payment
  62. 62. Apply grouper across a specialty
  63. 63. Evaluate all claims costs
  64. 64. Rewards limited to lower patient copayment</li></ul>Promising Approaches under Development cont.<br />
  65. 65. <ul><li>Numerous problems with implementation to date</li></ul>Lack of transparency to physicians<br />Inadequate claims data to make assignments<br />Inconsistent results across payers<br /><ul><li>Collaboration among payers can increase success</li></ul>Like Integrated Healthcare Association approach to P4P<br />Promising Approaches under Development cont.<br />
  66. 66. <ul><li>Accountable Care Organizations
  67. 67. Incentives based on spending per enrollee
  68. 68. Shared savings models--Capitation “lite”
  69. 69. Focus on real organizations with contracts rather than creations from analysis of claims data
  70. 70. But enrollee attribution to ACO based on analysis of past or current claims data</li></ul>Promising Approaches under Development cont.<br />
  71. 71. <ul><li>True bundled payment versus shared savings
  72. 72. Clear preference for bundled payment due to stronger incentives
  73. 73. But not always feasible</li></ul>Accuracy of risk adjustment<br />Provider agreements to share risk<br />Provider capacity to take risk<br />Consumer willingness to accept physician referral<br />Payment Methods for Bundled Approaches<br />
  74. 74. <ul><li>Importance of reforms to relative payments under FFS
  75. 75. FFS basis of bundled payment rates
  76. 76. Shared savings cannot succeed without reformed relative payments in FFS</li></ul>Existing distortions in FFS may be stronger than shared savings incentives<br />Payment Methods for Bundled Approaches cont.<br />
  77. 77. <ul><li>PPACA gives extensive authority to HHS Secretary
  78. 78. Contract with ACOs
  79. 79. Pilots for bundled payments for episodes</li></ul>Authority to expand successful pilots and implement<br /><ul><li>Center for Medicare and Medicaid Innovation</li></ul>Opportunity to bring new talent/resources into CMS<br />Approach to Development and Piloting<br />
  80. 80. <ul><li>Extensive experimentation by private payers and providers
  81. 81. Large hospital systems with captive health plans well positioned, e.g. Geisinger
  82. 82. Dominant Blue plans also well positioned</li></ul>Approach to Development and Piloting cont.<br />
  83. 83. Role of Insurance Benefit Structure<br /><ul><li>Limits of purely supply side approach
  84. 84. Provider rewards limited to higher payment rates</li></ul>No opportunity for more patients<br /><ul><li>Risk of lack of political support for strong incentives</li></ul>“My favorite hospital is endangered”<br /><ul><li>Does not address issue of provider leverage against private plans</li></li></ul><li><ul><li>Current benefit structures have few rewards for choosing more efficient providers
  85. 85. Even large deductibles provide little incentive when they are exceeded</li></ul>Role of Insurance Benefit Structure cont.<br />
  86. 86. Role of Insurance Benefit Structure cont.<br /><ul><li>More meaningful payment units expand potential for using price incentives
  87. 87. More confidence in ability to choose efficient prices
  88. 88. Broader units can simplify incentives for consumers</li></ul>Higher copayment per day/stay for less efficient hospitals<br /><ul><li>Consumer needs to focus on only one number</li></li></ul><li><ul><li>Ultimate provider choice incentive is reference pricing
  89. 89. Reference price is the low-cost adequate quality provider
  90. 90. “Cadillac” tax will eventually motivate such benefit structures</li></ul>Role of Insurance Benefit Structure cont.<br />
  91. 91. <ul><li>Payer fragmentation a large barrier to payment reform
  92. 92. Provider investments unlikely when only a minority of patients affected by reformed system
  93. 93. Facing distinct incentives for different patients dilutes provider incentives from reformed payment structure</li></ul>Coordination of Payers<br />
  94. 94. <ul><li>Approaches to coordination
  95. 95. Medicaid programs and private payers follow Medicare lead
  96. 96. States specify payment systems and seek waivers to include Medicare </li></ul>Coordination of Payers cont.<br />
  97. 97. <ul><li>Challenges to approaches
  98. 98. Medicare as lead</li></ul>Potential slow pace<br />Limited potential to differentiate approach by market<br />Could make wrong decision<br /><ul><li>State specification</li></ul>Could make wrong decision<br />Coordination of Payers contd<br />
  99. 99. <ul><li>Reducing risks to success
  100. 100. Medicare invites private insurers to work with it on pilots
  101. 101. Allow more experimentation before settling on a reformed payment system</li></ul>Coordination of Payers cont.<br />
  102. 102. <ul><li>Will Medicare payment reforms increase provider leverage with private insurers?
  103. 103. Payment reform increases incentive for vertical integration</li></ul>Evidence of hospitals negotiating higher rates for physicians<br />Market Issues<br />
  104. 104. <ul><li>Potential for Medicare to work with private payers
  105. 105. Distinct problem of private payer market power
  106. 106. Especially in hospital care
  107. 107. Two basic strategies
  108. 108. Patient incentives to choose less expensive providers
  109. 109. All-payer rate regulation
  110. 110. Neither a part of health care reform</li></ul>Private Payers<br />
  111. 111. <ul><li>Payment reform may have greatest potential to “bend the trend” of medical spending
  112. 112. Medicare well positioned to lead
  113. 113. But Medicare’s potential to lead needs shoring up
  114. 114. Insulation from Congressional and White House intervention in payment decisions
  115. 115. Reliable resources to perform technical functions
  116. 116. Limitations in private payer market power will need to be addressed</li></ul>Concluding Thoughts<br />