MMS State of the State Conference: Susan Dentzer - Rationalizing Health Spending and Getting Top Value in Health Care

Rationalizing Health Spending and Getting Top Value in Health Care: Challenges and Opportunities for Massachusetts and Beyond by Susan Dentzer Editor-in-Chief, Health Affairs The Massachusetts Medical Society State of the State Health Care Conference October 23, 2008

This presentation at a glance
Current growth rates in health spending imperil the Massachusetts reforms
Overall health spending projections and impact on Medicare, and the nation’s overall fiscal health
What are the key drivers of higher health spending, and where does “excess” cost growth come from?
Issues in “bending the curve” of cost growth -- including how we bend it without sacrificing what we want

Massachusetts’ Health Reforms: NewsHour with Jim Lehrer on PBS, April 28, 2008
SUSAN DENTZER: “Amid the mixed public verdict about the Massachusetts health reforms, dozens of questions remain…
“ How can the costs of covering hundreds of thousands of uninsured people be sustainable over time, especially when the underlying rate of growth of health care costs is not?”
LORI ABRAMS BERRY (CEO, Lynn Community Health Center): “We haven't tackled the cost problem in a serious way. And what it requires is much, much more work than insuring people.”

Massachusetts’ Health Reforms: NewsHour with Jim Lehrer on PBS, April 28, 2008
SUSAN DENTZER: “So back in the state legislature, Massachusetts Senate President Therese Murray has introduced a bill [passed and signed into law 8/10/08] that would broadly attack many elements of rapidly rising health costs.”
THERESE MURRAY (D), “Massachusetts Senate president: We have to figure out: Does everybody need the latest robot? Does everybody need the latest scan or laser? Why can't we have this done in one place and not replicate these kind of services all over the state?”

“ An Act to Promote Cost Containment, Transparency and Efficiency in the Delivery of Quality Health Care”
Requires development of quality improvement and cost containment goals and performance benchmarks
The promotion of electronic health records systems
Measures to increase the availability and accessibility of primary care and to improve the quality of chronic care
Dissemination of health care quality and cost data to consumers, providers and insurers
Requirements that pharmaceutical and medical device manufacturing companies to report to state Department of Public Health any payment or gift of more than $50 made to a healthcare professional.
Gifts to be publicly reported on the state's Web site
Measures to improve primary care delivery – e.g., retail clinics

National Trends

Copyright ©2008 by Project HOPE, all rights reserved. Sean Keehan, Andrea Sisko, Christopher Truffer, Sheila Smith, Cathy Cowan, John Poisal, M. Kent Clemens the National Health Expenditure Accounts Projections Team, Health Spending Projections Through 2017: The Baby-Boom Generation Is Coming To Medicare, Health Affairs, Vol 27, Issue 2, w145-155w

Pros and cons
Alfred E. Neuman’s famous equation of health care spending (as per Uwe Reinhardt)
$1 of health spending = $1 health income
Ergo, booming health spending means booming health economy, which is good

Pros and Cons
If we spend so much on health care, we have less to spend on everything else
Thought experiment: What would happen if real (inflation-adjusted) per capita health spending grew just one percentage point faster than real per capita GDP, versus if spending grew by 2 percentage points faster than real per capita GDP?
Both rates are above historical norms

Pros and Cons
Michael E. Chernew, Richard A. Hirth, and David M. Cutler Increased Spending On Health Care: How Much Can The United States Afford? Health Affairs, July/August 2003; 22(4): 15-25.
1% point gap: health care is “affordable” through 2075; 55% of real increase in per capita income goes to health care
2% point gap: health care affordable only through 2039; 124.2% of real increase in per capita income devoted to health care (e.g., impossible)
Michael E. Chernew, Department of Health Care Policy, Harvard Medical School

Copyright ©2003 by Project HOPE, all rights reserved. Michael E. Chernew, Richard A. Hirth, and David M. Cutler, Increased Spending On Health Care: How Much Can The United States Afford?, Health Affairs, Vol 22, Issue 4, 15-25

Strengths of U.S. health care: a sampling
Innovation and access to new
treatments and technologies
Prestigious world class
academic medical centers
Higher cancer survival rates than rest of world
Convenience

Health Care: We’re Getting Value
Analysis of increased spending on MI care, 1984-98
Nearly half of cost increases (45 percent) result from people getting more intensive technologies over time; increased prices account for 33 percent.
Life expectancy for the average person with a heart attack was just under five years in 1984 but had risen to six years by 1998.
David Cutler, Harvard (top); Mark McClellan, Brookings Source: David M. Cutler and Mark McClellan Is Technological Change In Medicine Worth It? Health Affairs , September/October 2001; 20(5): 11-29.

Health Care: We’re Getting Value
Authors valued the health benefit of this additional year of life at $100,000.
Subtracting “value” (what we would pay for an extra year of life) from costs, the net benefit is about $60,000
Equals $7 gain for every $1 spent.
Source: David M. Cutler and Mark McClellan, Is Technological Change In Medicine Worth It? Health Affairs , September/October 2001; 20(5): 11-29.
David Cutler, Harvard (top); Mark McClellan, Brookings

We don’t pay for goods and services with “value,” but with dollars: See It’s a Wonderful Life
Classic dialogue (actors Jimmy Stewart, Henry Travers)
George Bailey (Stewart): “You don't happen to have eight thousand bucks on you?”
Clarence Oddbody, Angel Second Class (Travers): “Oh, no, no. We don't use money in heaven.”
George Bailey: “Comes in pretty handy down here, bub.”

The Value Equation? U.S. versus the rest of the Organization of Economic Cooperation and Development Countries*
U.S. has highest per capita expenditure on health care (50% greater than Luxembourg or Switzerland)
U.S. per capita spending grew from
$5,800 to $6,800 --17% -- in the 3 years from 2003 to 2006
The US spends ~$650 billion more annually on health care than peer OECD countries after adjusting for higher national income (wealth)
*the world’s 30 largest industrialized countries
Source: McKinsey Global Institute; OECD

Roughly 44 percent of financing is through public programs (federal, state, local)
Roughly 56 percent is private (out of pocket plus premiums for private health coverage)
In absolute dollars, public financing of health care in US = 5.8% of GDP; median for OECD countries is 5.9% of GDP
One interpretation: as share of GDP we have at least as big a publicly financed health sector as other industrialized countries; we just have a far bigger private sector component in addition
US public sources spent $2,051 per person in 2000, making the US one of the top four spenders worldwide in terms of public coverage and ahead of United Kingdom’s $1,429
Source: Gerald P. Anderson, Uwe E. Reinhardt, Peter S. Hussey and Varduhi Petrosyan, “It’s the Prices, Stupid: Why the United States Is So Different From Other Countries.” Health Affairs , vol. 22, no. 3, pp. 89-105.
U.S. health spending: Public vs. private

Backdrop of Fiscal Concerns: The Nation’s Implied Promises about Medicare
Present value of promised benefits as of 2006
Social Security: $6.4 trillion
Medicare Part A (hospital insurance): $11.3 trillion
Medicare Part B (doctors and outpatient): $13.1 trillion
Medicare Part D (prescription drugs): $7.9 trillion
Total Medicare: $32.3 trillion (omitting Part C, Medicare Advantage plans)
Total Medicare and Social Security: $38.7 trillion
Source: Government Accountability Office, 2007

“ Excess” U.S. Spending on Health Care: Where Does It Go?
Outpatient care accounts for 65% of the spending above expected
Growth is fueled by rising demand, technological innovation coupled with higher reimbursement, insurance benefit design, and physician self referral
Hospital outpatient care was the fastest growing component of overall outpatient spending from 2003 to 2006
Compound annual growth rate: 9.3%
*Source: McKinsey Global Institute Analysis, 2008

Hospital inpatient spending grew 6 percent annually between 2003 and 2006
75 percent of the increase was hospital prices

What’s Happening in Massachusetts? Hospital utilization of chronically ill Medicare beneficiaries, last 6 months of life
Total Medicare reimbursements per enrollee, last 6 months of life (adjusted), 2001-2005
$29,541 per beneficiary , sixth highest state rate (only NJ, DC, CA, NY and MD are higher)
Hospital days per decedent, last six months of life, 2001-2005: 11.57 days, 23 rd highest state rate
For comparison, 9.64 days per decedent in Maine, 8.77 days in Vermont, 9.39 days in New Hampshire, 11.62 in Connecticut
Source: Dartmouth Atlas of Health Care, www.dartmouthatlas.org

“ Excess” U.S. Spending on Health Care: Where Does It Go? Prescription Drugs
U.S. pays far more for branded pharmaceuticals, less for generics than other OECD
U.S. consumers pay for higher pharma marketing
expenditures in U.S.

U.S. spends $91 billion more annually than would be expected on health administration and insurance
$34 billion annually on administration and marketing of private health insurance
Largely attributable to existence of private insurance system, which is intrinsically more expensive
With respect to public insurance administration, 20% of increase over last 3 years has come in spending to administer Medicare Part D

The Value Equation? U.S. versus the rest of the Organization of Economic Cooperation and Development Countries*
U.S. has lower life expectancy and higher infant mortality
Leaving aside social determinants of health, we know U.S. health care isn’t “fixing” the situation
*the world’s 30 largest industrialized countries
Source: McKinsey Global Institute; OECD

What are the key drivers of long-term increases in health spending?
The Synthesis Project, Center for Studying Health System Change (funded by Robert Wood Johnson Foundation)
Paul Ginsburg, director, right
www.hschange.org and www.rwjf.org

What is Driving the Growth in Health Care Spending?
Advancing technology
Accounts for between one-third and two-thirds of growth in health spending
Technology drives spending through both substitution and expansion
Much technology beneficial
Some doesn’t provide sufficient value or is applied too broadly

Example: Imaging
Between 1997 and 2004, the number of MRI scanners in Massachusetts tripled to 145
Roughly equal to total MRI scanners in Canada
From 1998 to 2002, the number of patient MRI scans in the state increased by 80 percent, to almost 500,000 a year.
Nationally, more than 7,000 sites offering MRI, performing more than 26 million scans annually
Each additional MRI scanner associated with 733 additional MRI procedures among Medicare beneficiaries, 1995-2004
Source: Liz Kowalczyk, Boston Globe, September 28, 2004; Health Affairs (forthcoming); IMV Medical Information

What is Driving the Growth in Health Care Spending?
Health Status
Increasing rates of obesity a major drier of health spending
Explains approximately 12 percent of growth of health spending in recent years (Congressional Budget Office)
Will continue as driver until obesity trend reversed
Source; The Synthesis Project; Congressional Budget Office

What is driving the growth in health spending ?
Productivity in the health care sector is in all likelihood increasing at a low rate
There is little competition on the basis of price
Benefit structures offer little reward for choosing low-cost providers
Fee-for-service payment penalizes rather than rewards re-engineering care to increase efficiency
Source: The Synthesis Project
Real health care: It’s not like on “House”

What is Not Driving Health Spending to a Substantial Degree
Not demographics; “aging” of population at present roughly stable
This will change in future
Not medical malpractice – neither a large factor in health care costs or a major driver of spending growth
Source: The Synthesis Project

What is to be done?

Minimize unnecessary variations in supply-sensitive health care: The Dartmouth Institute Agenda

Variations in Chronic Disease Care
2006 edition of the Dartmouth Atlas of Health Care
Analysis of records of 4.7 million Medicare enrollees from 2000-2003
Enrollees had at least one of 12 chronic illnesses
Atlas examined care and cost in last 6 months of life

Inexplicably wide range in care and cost
Average number of days spent in hospital, chronically ill Medicare beneficiaries, last 6 months of life
10.1 at Stanford University Hospital
12.9 at Mayo Clinic (St. Mary’s Hospital, Rochester MN)
16.5 at Massachusetts General Hospital
23.9 at New York Presbyterian, NYC (right)

Physician visits in last 6 months of life
New York University Medical Center: 76.2 visits
Robert Wood Johnson University Hospital, NJ (right): 57.7
University of Kentucky hospital: 18.6 visits

Commonwealth Fund’s “Bending the Curve” report, Dec. 2007
A package of initiatives could slow U.S. health spending growth by $1.5 trillion over 10 years, through such measures as
Promoting health information technology: $88 billion
Comparative effectiveness research: $368 billion
.
Patient shared decision-making: $9 billion
Source: C. Schoen, S. Guterman, A. Shih, J. Lau, S. Kasimow, A. Gauthier, and K. Davis, Bending the Curve: Options for Achieving Savings and Improving Value in U.S. Health Spending, The Commonwealth Fund, December 2007. www.cmwf.org Commonwealth Fund President Karen Davis

Commonwealth Fund Recommendations
Promoting Health and Disease Prevention:
reducing tobacco use - $191 billion
reducing obesity - $283 billion
positive incentives for health - $19 billion
creating positive incentives for health
Realigning Incentives to Encourage Quality and Efficiency
Hospital pay-for-performance - $34 billion
Episode of care payment - $229 billion
Strengthening Primary Care and Care Coordination - $194 billion
Limit federal tax exemptions for employer premium contributions - $131 billion

Commonwealth Fund Recommendations
Correct Price Signals in Health Care
Reset “benchmark” rates for Medicare Advantage Plans - $50 billion
Negotiate Prescription Drug prices under Medicare - $43 billion
All-payer provider payment methods and rates - $122 billion
Limit payment updates in high-cost areas: $158 billion

The Solutions? It’s partly the payment system, dummy!
Fee-for-service system “increasingly viewed as an obstacle to achieving effective, coordinated and efficient care”*
One solution: Base payment in whole or part on total care of patient across an acute episode of illness or period of time
Endorsed by Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, Payment and Performance Improvement Programs
*Source: Karen Davis, “Paying for Care Episodes and Care Coordination,” NEJM vol. 356:1166-1168, March 15, 2007

RAND Health’s Advice to State
Substantial infrastructure investments may be needed to rationalize care and curb excess spending
E.g., HIT; electronic health record/personal health record platforms and data analysis
Revised payment methodologies
Elizabeth McGlynn, PhD RAND Corp.

Synthesis Project Recommendations
Better target medical technology to patients likely to obtain high value
Effectiveness research
Provider payment reform
Consumer incentives to use most efficient providers
Reduce obesity, improve wellness
Improve efficiency through provider payment reform
Source: Synthesis Project report posted at www.hschange.org

Price Transparency
Increasing feature of “medical tourism” destinations
E.g., Bumrungrad Hospital, Bangkok, Thailand
One of Thailand’s leading hospitals and has a range of services available for overseas patients
Already certified by some US insurers to provide care and be reimbursed (e.g., Aetna)
Web site allows price comparisons ( www.bumrungrad.com )
E.g., “package price” for CABG = $14,470

Americans and Chronic Illness
Chronic disease is the #1 cause of death and disability in the US
More Americans suffer from chronic illness than voted in the last Presidential election
Expenditures on chronic illness account for 75% of total US health spending
About 2/3 of the rise in spending over the past 20 years is linked to rising prevalence of chronic disease
Source: Partnership to Fight Chronic Disease, Policy Platform, September 2007

The Solutions?
Chronic Care Model
Includes:
organizational support
clinical information services and disease registries
team-based care
case management
regular follow-up
For patient: decision support, self-management support, community resources

The Solutions?
The “Patient-Centered Medical Home”*
Based on ongoing personal relationship with physician who provides and coordinates continuous and comprehensive health care through team of health care professionals
Care is coordinated across health care system (hospitals, home health agencies, nursing homes, consultants etc.
* Source: American Academy of Pediatrics, American Academy of Family Physicians, American Osteopathic Association, American College of Physicians joint statement of principles, February 2007

The Patient-Centered Medical Home
Evidence-based medicine and clinical decision-support tools
Physician accountability for continuous quality improvement through voluntary performance measurement
Information technology supports optimal patient care, enhanced communication
Open scheduling, expanded hours

How Geisinger Does It
Source: Ronald A. Paulus, Karen Davis, and Glenn D. Steele Continuous Innovation In Health Care: Implications Of The Geisinger Experience. Health Affairs , September/October 2008; 27(5): 1235-1245.

Anatomy
2.6 million in service area
43 of PA’s 67 counties (including Geisinger Health Plan)
Rural, aging, non-transient
Medical informatics (strategic commitment)
> 700 physicians
40 community practice sites; ~200 primary care physicians
Multiple specialty hospitals and ASCs
Tertiary/quaternary care medical centers and specialty hospitals
Hub & Spoke “Continuity of Care” design
Geisinger Health System

Targets for the Geisinger Transformation
Unjustified variation
Fragmentation of care-giving
Perverse payment incentives
Units of work
Outcome irrelevant
Patient as passive recipient of care, not active participant
Managing to Success

Transformation Initiatives*
Geisinger Medical Home (ProvenHealth Navigator)
Chronic Disease Care Optimization
Transitions of Care
ProvenCare SM for acute episodic care (the “warranty”)
*Achievable only through innovation

What is Needed (at the least):
Care model design capabilities
Dedicated innovation team
Financial incentive alignment

ProvenHealth Navigator
Partnership between clinical delivery and insurance organization
Includes components of chronic care management, Medical Home, and Patient-Centered Primary Care
Partnership between primary care physicians and GHP that
provides 360-degree, 24/7 continuum of care
“ Embedded” nurses
Assured easy phone access
Follow-up calls post-discharge and post-ED visit
Telephonic monitoring/case management
Group visits/educational services
Personalized tools (e.g., chronic disease report cards)

Admission Metrics -13.8% 232/1,000 269/1,000 Lewisburg -20% 291/1,000 365/1,000 Lewistown 0% 311/1,000 311/1,000 GHP MC Medicare Percent Reduction First Year of Pilot Jan-Oct. 2007 Baseline Pre-Program Jan – Oct. 2006

Readmission Metrics -48.0% 7.9% 15.2% Lewisburg (645 pts) -12.3% 17.8% 20.3% Lewistown (2,120 pts) -18.5% 15.9% 19.5% All Medical Home Sites -2.3% 16.6% 17.0% GHP MC Medicare GHS Sites 0% 16.5% 16.6% GHP Managed Care (MC) Medicare % Reduction First Year: Pilot 2006 Q4 – 2007 Q3 Readmission Rate Baseline: Pre-Program 2005 Q4 – 2006 Q3 Readmission Rate

“ Supply-chain” management
How Wal-Mart brought the U.S. the $4-a-month generic subscription
Recognized retail pharmacists on average reaped 80% margin on generic drugs
Priced monthly prescriptions at $4 to undercut $5/month health plan co-pays on generics
“ Gave margin back” to customers
Now many retailers offer them – Target, Safeway etc.
John Agwunobi, President, Health & Wellness Business Unit, Wal-Mart Stores Division. Former U.S. Assistant Secretary of Health, HHS

Conclusions
U.S. probably not likely to create “global budget” or overall ceiling on health spending
Ergo, question is: How do we get the health care we value and want and banish the part that is unnecessary or wasteful?
How do we improve Americans’ health while doing this?
Narrow efforts probably amount to “squeezing the balloon”

The Lessons?
No magic bullets; battle must be waged on multiple fronts
Substantial infrastructure investments may precede savings – e.g., HIT, comparative effectiveness research
Major systems changes needed – e.g., payment reform to encourage efficiency; performance-based payment; reexamining certificate-of-need?
Major delivery system changes probably needed; e.g., accountable health organizations?
Increasing wellness/fighting obesity may require more public health than conventional health care interventions

The Verdict on Reforming Health Care? “ Somebody has to do something, and it’s just incredibly pathetic that it has to be us.” --the late Jerry Garcia of the Grateful Dead

MMS State of the State Conference: Susan Dentzer - Rationalizing Health Spending and Getting Top Value in Health Care

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MMS State of the State Conference: Susan Dentzer - Rationalizing Health Spending and Getting Top Value in Health Care — Presentation Transcript