Impact on Health Reform on Device Development and Funding


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Presentation by Donald Rucker, MD, MBA

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Impact on Health Reform on Device Development and Funding

  1. 1. Impact of Healthcare Reform on Device Development and Funding Donald Rucker, MD, MBA COO, OSU IDEA Studio Associate Dean for Innovation
  2. 2. 2 US Healthcare Expenditures Source: Kaiser Family Foundation. Data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (Historical data from NHE summary including share of GDP, CY 1960-2008, file; Projected data from NHE Projections 2009-2019, Forecast summary and selected tables, file proj2009.pdf). $8,047 (2009) $2,814 (1990) Historical Projected In 2012, the U.S. spent $2.8 trillion on health care, or $8,915 per capita $13,387 (2019)
  3. 3. “Healthcare Reform” ARRA HITECH Act 2009 Patient Protection and Affordable Care Act (PPACA) Health Care and Education Reconciliation Act of 2010
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  6. 6. Affordable Care Act  ACA is driving major changes in how people purchase health insurance though much of the dynamic still to play out  Federal government already controls ~50% of healthcare spending  Medical equipment manufacturer environment rarely a specific consideration
  7. 7. 7 Hope: Achieve “Triple Aim” for US Healthcare with payment reform a) Better care for individuals b) Better health for populations c) Lower growth in Medicare Parts A and B expenditures
  8. 8. One slide review of US payment system 8  Federal government  Medicare Part A - hospitals – bundled DRG’s  Medicare Part B – outpatients – fee for service (FFS) via CPT codes  Medicare Part C – Medicare Advantage – HMO  Medicare Part D – drug spending  Medicaid – mix of FFS and capitation  Private insurers  FFS off of Medicare rates / codes  HMO’s like Kaiser  Other  VA, DOD, HIS, corrections
  9. 9. 9 Q: What does this mean for device manufacturers? A: Need to understand provider reimbursement
  10. 10. The drive toward “accountable care” Demographic/ Population Changes Management of Chronic Disease Technology & IT Infrastructure Healthcare Quality Initiatives Bundled/ Episodic Reimbursement Payor Reform Appropriate Utilization
  11. 11. Origin of the Accountable Care Organization  Term came from a discussion between Elliot Fisher of Dartmouth and Glenn Hackbarth of MedPAC at a 2006 meeting  Extended hospital medical staff that could act as a virtual organization  Fisher ES, Staiger DO, Bynum JPW, et al. “Creating Accountable Care Organizations: The Extended Hospital Medical Staff”. Health Affairs, 26(1) w44-w57, 2007.
  12. 12. 12 Two Models for ACO Risk Sharing Same eligibility requirements and quality performance standards for both  Regular fee-for-service payment for physicians and hospitals  ACO shares in savings with Medicare  No penalty for losses in Years 1,2, 3 Track 1: One-sided Model  Regular fee-for-service payment for physicians and hospital  ACO shares in savings and losses with Medicare in all 3 years  Greater opportunity for rewards Track 2: Two-sided Model
  13. 13. Provider Participation  Eligible providers who can form an ACO under this program:  ACO professionals in group practice arrangements.  Networks of individual practices of ACO professionals.  Partnerships or joint venture arrangements between hospitals and ACO professionals.  Hospitals employing ACO professionals.  Such other groups of providers of services and suppliers as the Secretary determines appropriate.  Primary care physicians may choose to participate (limited to 1 ACO annually)  Specialists and hospitals could participate in more than 1 ACO
  14. 14. 14 Medicare Beneficiary Participation  A preliminary prospective beneficiary assignment to ACOs • Beneficiaries identified quarterly • Two Step Assignment process • Beneficiaries who have received at least one primary care from a primary care physician • Beneficiaries who have not rec’d any primary care services from a primary care physician but have rec’d primary care services rendered by any other ACO professional  ACO providers must notify patients they are in an ACO  Medicare fee-for-service beneficiaries may continue to receive care from any Medicare provider they choose. However, if their primary care physician is in an ACO, they will be included in the ACO or will have to find another non-ACO primary care doctor.  ACO must notify the beneficiary that the beneficiary’s claims data may be shared with other providers in the ACO to coordinate care. Providers must give beneficiaries the opportunity to opt-out of the data sharing arrangements.
  15. 15. Moral hazard: Quality Measures as counterbalance  How well your doctors communicate  Readmissions (risk-adjusted)  % Physicians meeting Stage 1 HITECH Meaningful Use Requirements  % Primary Care Physicians using Clinical Decision Support  Health Care Acquired Conditions Composite  Mammography screening  Colorectal cancer screening  Diabetes: Hemoglobin A1c  Cardiac function testing
  16. 16. 18 Early results of this model • 360 Medicare ACO’s as of 12.23.2013 • Cover 5.3 million Medicare Beneficiaries (roughly 10%) • Most are physician led and have under 10,000 beneficiaries • Pioneer ACO’s - as of July 2013 • 18 of 32 achieved some savings • 13 of these saved enough to get a payment • 14 of 32 spent more than expected • 2 of these spent enough to get a penalty • 7 shifted to regular ACO program • 2 dropped out totally • Private ACO’s – too early to tell • Mass BCBS Alternative Quality Contract >> 2-3% savings • Kaiser consistent savings for 60 years
  17. 17. 19 The Great Risk Shift Toward Accountable Care Source: Health Care Advisory Board interviews and analysis. Building Accountability through Experiments in Payment Pay-for- Performance Hospital-Physician Bundling Episodic Bundling Capitation/Shared-Savings Models Degree of Shared Risk Care Continuum
  18. 18. 20 Bundled Payments Drive Delivery System Integration Fee-for-Service Environment Bundled Payment Environment Individual Payments Reinforce Siloed Care Delivery Lump Sum Payments Drive Integration through Shared Accountability Hospital Services Post-Acute Services Physician Services Payer Hospital Services Post-Acute Services Physician Services Source: Health Care Advisory Board interviews and analysis. Payer
  19. 19. How to make sense of the word soup?
  20. 20. 22 MGH's Inpatient Adjusted Cost per Patient N Engl J Med 2012; 366:2147-2149
  21. 21. What happened in 1965?  We know from the first day of Economics 101 that in the entire history of mankind there have been only two ways to allocate scarce resources  PRICE  QUEUES (lines, rationing, access controls, subsidies) EVERYTHING in reform has to boil down to some mix of buying healthcare through competitive market prices or government rationing / subsidies.
  22. 22. Government is the buyer  Today, most of US healthcare is bought by the federal government  Since 1965 Medicare has been the de facto healthcare policy for both the federal government and private payers  Historically what to buy not an issue  Medicare Law – Title XVIII - All services must be certified as medically necessary or must be a defined benefit preventative service  Medicare set “fixed” prices  Numbers of hospitals, doctors constrained
  23. 23. How could CMS shop?  You know how consumers shop!  Price  Quality  Value (function of price and quality)  How could CMS shop?  Price - all fixed at the same level  Quality  Value - tough to calculate without price information
  24. 24. CMS Shopping for Healthcare - 2014  Key to understanding healthcare reform  A search for value – trying to be a consumer  Outcomes are very hard to measure  Comparative Effectiveness – not that successful  Quality as a proxy for value and hopefully outcomes  PQRI  RHQDAPU  PPACA – Hospital Value Based Purchasing  Meaningful Use  Accountable Care Organizations  Lots of Quality Measures – Few tied directly to clinical outcomes
  25. 25. Where do Quality Measures Come From?  Ideally, from medical science  Evidence Based Medicine  AHRQ – Effective Healthcare Program  Comparative Effectiveness in ARRA Law  Patient Centered Outcomes Research Institute – PPACA  Reality = the process is part clinical evidence and part politics  Increasing role with “SGR” fix just reported out of Congressional committee
  26. 26. If quality measures aren’t enough, can we go back to price?
  27. 27. Today’s Medicare prices (DRG‘s, CPT codes)  PRICE is the fundamental economic language for informing rational decisions for BOTH consumers and producers  How does Medicare “speak” PRICE  Medicare sets prices – some too high, some too low  Medicare tries to work around mis-pricing by cross-subsidization  Many provisions in PPACA are attempts to redress cost errors  “Medical home”, “utilization rate”, physician owned hospitals
  28. 28. Can price / efficiency information sneak back in?  A form of market-based prices of healthcare services can occur privately  HMO’s, capitation and Accountable Care Organizations are ways to purchase and provide an efficient mix of healthcare services, at least, within an organization  PBM’s force price in with “tiered payments”  Employers force price in by increasing co-pays  Price transparency – laws, Castlight
  29. 29. “But my device is already market priced…” 32  Your device is likely priced at the current market rate  BUT the services of clinicians who decide to use your device are not  SO YOU have to figure out, over time, how do the “ordering” clinician’s incentives to order your device change  Challenging transition period for providers as caught between contradictory payment models
  30. 30. Side note: Sunshine Law 33  Sen. Grassley’s effort to provide transparency  Drug & device manufacturers and suppliers have to report all “transfers of value” to physicians and hospitals over $10 ($100 per year)  Track: since August 1, 2013  Report: March 41, 2014  Public Website: September 30, 2104
  31. 31. Upcoming?  SGR (Sustainable Growth Rate) Fix  >> Value-Based Purchasing reporting consolidated  Challenges for device manufacturer’s  Federal perceptions on use and value  Co-pays  Cuts until access clearly imperiled  Wonderful opportunities  New focus on value and automation and business practices  Many inefficiencies to arbitrage  More spending on devices, less on labor
  32. 32. Conclusions 1. 2010 Healthcare reform legislation includes thousands of provisions and we don’t know how they will ultimately play out 2. Healthcare payment based on individual quality measures is limited 3. Most likely next step to reduce expenditures will be bundled payments which force delivery systems, not Medicare, to make the hard choices of how to deliver care and what care to deliver 4. Device manufacturers, more than ever, need to sell the efficiency and outcomes-based value of their products. Providers will be much more likely to listen.