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- 2. Chapter Objectives • Understandthe scope and magnitude of U.S. healthcare spending in relationship with other developed countries. • Review evolution of the U.S. healthcare financing system, trends, and initiatives of the ACA of 2010 and the MACRA of 2015. • Review ongoing efforts to link costs with quality of care. • Understand the related roles of government and the private sector in financing health care and roles of respective sector stakeholders.
- 3. Major Themes (1of 2) • Origins of U.S. healthcare financing systems • Employer-based health insurance remains the predominant source of health insurance for working Americans. • Payment for health services as a mosaic of government and private sources • While more than 21 million Americans gained health insurance due to the ACA and Medicaid expansion, millions remain uninsured • Effects of managed care on costs, quality, and access to health care; implications of financial risk-sharing
- 4. Major Themes (2of 2) • Population-based, value-driven (not volume- driven) payment • Ongoing of cost control efforts linked with quality • Reasons for continued cost increases, waste, fraud, and abuse • Market reforms through consolidations and mergers accommodate new payment systems and quality requirements • Financing experimentation through the ACA, MACRA
- 5. Overview • ACA Immediateeffects, e.g., health insurance regulations; full effects of policy changes unfold over many years – ACA did not change fundamental public/private financing mechanisms of U.S. healthcare • Most Americans’ health coverage provided by employers’ private insurance • Uninsured numbers increased 40+ million until 2011; immediate decrease by 1 million, due to ACA allowing children on parents’ coverage until age 26
- 6. Healthcare Expenditures in Perspective(1 of 2) • National healthcare expenditures reported yearly by National Center for Health Statistics (2014: $3 trillion+; $ 9,523/capita; 17.5% GDP; Top personal: Hospital ($971.8 billion), physicians + clinical services ($603.7 billion) prescription drugs ($297.7 billion) • Top 2011 payment sources: Private health insurance ($991 billion); Medicare ($618.7 billion); Medicaid ($495.8 billion); all public sources = 43% of total payments (see Figures and Tables)
- 7. Healthcare Expenditures in Perspective(2 of 2) • Expenditure growth rate outstrips general inflation by large margins—unsustainable • Among 12 other developed nations, U.S. has largest percentage of national economy devoted to health, but lower life expectancy and health outcomes – U.S. GDP is 50% higher than next largest spender, twice that of the U.K. and five times France’s per capita costs; others use more health services, more technology at lower costs – U.S. spends far less on social services
- 8. Waste, Fraud, Abuse •“Waste” = 30–40% total U.S. health care spending: $476–$992 billion/year • Causes: – Failures in care delivery – Failures in care coordination – Overtreatment – Administrative complexity – Overpricing • Fraud, abuse = $75–250 billion/year – FBI, DOJ, OIG, states’ prevention/prosecution
- 9. Drivers of HealthcareExpenditures • Aging population: Longevity = hospital care, drugs; unrestricted high cost interventions • Medical technology: Diagnostic, treatment equipment, and pharmaceuticals; specialties • Un- and under-insured • Fee-for-service reimbursement creates incentives for high volume • Labor intensity
- 10. Blue Cross, BlueShield, and Commercial Health Insurance (1 of 3) • Insurance payments began in 1930s with BC hospital coverage – Antithetical to “insurance” to guard against unlikely events, health insurance pays for both routine and unexpected events – Blue Shield for physician payment followed in 1940s • Coverage paid whatever was billed; prevailed 1930s–1980s until introduction of prospective payment (DRGs) and managed care
- 11. Blue Cross, BlueShield, and Commercial Health Insurance (2 of 3) • “Blues” put hospital and physician care within all working Americans’ reach w/o financial worry • Silenced lobbying for “universal coverage” • Elective hospital admissions skyrocketed
- 12. Blue Cross, BlueShield, and Commercial Health Insurance (3 of 3) • Community-rated insurance: Premiums set for defined groups w/o regard to age, gender, occupation, or health status • Experience-rated insurance: Premiums based on historical patterns of service use • Commercial insurers (for-profit) entered market in late 1940s; experience-rated competitive premiums
- 13. Transformation of Health Insurance:Managed Care (1 of 5) • Managed Care (MCOs) – Cost increases, quality concerns → Nixon administration enacted Health Maintenance Organization Act (HMO) Act of 1973 with loans, grants – Combined insurance and health care delivery organizations; focus on cost containment and quality; emphases on primary care and prevention
- 14. Transformation of Health Insurance:Managed Care (2 of 5) • Financial risk sharing – Providers: Capitation pays pre-set, per- member-per-month amount whether or not services are used; physicians spending lesser amounts retain profits, exceeding amounts incurs penalty – Consumers: Co-payments by visit; deductibles require pre-determined out-of- pocket expenditures before insurance coverage begins; encourage consumer cost- consciousness
- 15. Transformation of Health Insurance:Managed Care (3 of 5) – Staff model: Employed physicians in HMO- owned facilities – Independent practice association: Independent physicians contracted to provide services • MCO payment population-based: – Pre-payment for groups, encourage cost- conscious care – Actuarially determines projected service use for age, gender, occupation, other factors to estimate expected costs and set premiums
- 16. Transformation of Health Insurance:Managed Care (4 of 5) • Hybrid MCO Plans, for example: – Preferred Provider Organizations (PPOs) formed by physicians and hospitals to serve private payers and self-insured organizations: guarantee volume of business to hospitals and physicians in return for fee discounts; in 2015, 56% of covered employees in large firms; 41% of workers in small firms – Point of Service Plans (POS) allow members to use providers outside networks at increased co-pays and deductibles
- 17. Transformation of Health Insurance:Managed Care (5 of 5) • Early 1990s: Average annual healthcare cost growth declined; after initial decline, cost growth surged as markets consolidated • Staff model fell to virtual non-existence • Research analysis: MCOs did not change clinical practice, reduce costs, improve quality; more changes needed: information systems, appropriate incentives, revised clinical processes • Late 1990s “backlash”: Laws in all states to protect rights of consumers and providers against MCO restrictions
- 18. High-Deductible Health Plans •Response to managed care “backlash” to allow more employee choice of health insurance plans – Entice employees with lower premiums in exchange for out-of-pocket expenses before insurance pays – Today, 2nd most common type of employer plans— 24% of U.S. workers select this option – Since 2009, the percent of employees covered by HDHPs has tripled – IRS governs plan parameters and “portability” between employers
- 19. Managed Care Today •More than 75% of employees covered by employer health insurance (111 million) are enrolled in managed care plans • 2016: 31% of 57 million Americans covered by Medicare are enrolled in Medicare Advantage managed care (17+ million) • 2014: 77% of Medicaid beneficiaries (55.2 million) are enrolled in managed care
- 20. Managed Care Quality(1 of 3) • National Committee for Quality Assurance (NCQA): Independent, not-for-profit organization funded by accreditation services fees; accredits health plans serving 136+ million Americans on voluntary basis • NCQA services: Accreditation for MCOs, PPOs, MBHCOs, new health plans, disease management programs, PCMHs, etc. • HEDIS
- 21. Managed Care Quality(2 of 3) Healthcare Effectiveness Data and Information Set (HEDIS) • NCQA, MCOs, employer partnership: Created a standardized method for MCOs to collect, analyze, and report performance allowing comparisons among MCO plans – Criteria: Effectiveness of care; access/availability of care; satisfaction with care; health plan business stability; service use and cost; informed health care choices – CMS requires all Medicare MCOs to publicly report HEDIS data; many state Medicaid programs require same
- 22. Managed Care Quality(3 of 3) • Evidence-based clinical practice guidelines and disease management programs (DMPs) monitor costs and quality to avoid exacerbations, ED use, hospitalizations – Disease management program: System of coordinated health care interventions and communication for high-risk patients identified from claims data: patient education, proactive patient outreach, feedback to providers; research results currently yield questionable DMP effectiveness
- 23. Private Health InsuranceCost Trends • 2005–2015, annual employer-sponsored health insurance premiums increased 5% – 2015: Major employee health insurance costs substantial with deductible plans – Employees with deductible plans increased from 55% in 2006 to 81% in 2015 – Since 2010, deductibles (out-of pocket payments before insurance pays) increased by 67% • Benefit “buy-downs” control rising premiums • Wellness programs to avert illness
- 24. Self-Funded Insurance Programs •Large employers collect premiums and pool funds into accounts to pay medical claims instead of using a commercial carrier – Actuarial firms set premium rates; third-party firms (TPAs) administer benefits, pay claims, collect utilization data; TPAs may provide case management for high-cost illnesses – Employer advantages: Avoid commercial carrier administrative charges, premium taxes; accrue interest on cash reserves
- 25. Government as aSource of Payment: A System in Name Only • Early focus: Government employees, special populations, e.g., Native Americans • Now: Medicare, Medicaid, 9 DHHS divisions include health professional development, military and veterans’ health services, research. Reimbursement mosaic: vendors/purchaser relationships, e.g., Medicare, Medicaid
- 26. Medicare (1 of3) • 1965: Title XVIII of Social Security Act • All Americans ≥ 65 yrs. entitled to health insurance benefits; today, 57 million covered; “universal coverage” for elderly; covers others with certain health conditions • Financed by payroll taxes • Conceded hospital accreditation to private sector- “Joint Commission” • Hospital payments by local Blue Cross intermediaries
- 27. Medicare (2 of3) • Part A (1965): Mandatory; hospital coverage, limited-time skilled nursing care, post- hospitalization home healthcare; funded by payroll taxes; no cost for most • Part B (1965): Voluntary; physician services; outpatient hospital; end-state renal disease; outpatient diagnostic tests, medical equipment/supplies, certain home health services; funded by beneficiary premiums matched with federal revenues
- 28. Medicare (3 of3) • Part C (1997): Voluntary: managed care options through “Medicare Advantage”; beneficiaries may pay premium • Part D (2003): Voluntary; prescription drug coverage (2003); beneficiaries pay premium; significant gaps to be closed by ACA
- 29. Medicare Cost Containmentand Quality: Brief History (1 of 2) • Costs rose rapidly; early amendments added costs; later amendments sought to control cost growth • 1976 study: > 10% cost increase due to service use by older Americans; almost 66% due to hospital payroll, non-payroll, and profits
- 30. Medicare Cost Containmentand Quality: Brief History (2 of 2) • Hospital reimbursement cost-based, retrospective; fueled utilization, hospital expansions, technology; no incentives for efficiency • By 1967, healthcare expenditures rising at double the prior rate of growth; by 1972, federal health expenditures had risen six-fold over the 1965 level
- 31. Medicare Cost Containmentand Quality: 1965–1985 (1 of 5) • Legislative, regulatory attempts to slow cost growth, improve quality. For example: – 1966 Comprehensive Health Planning Act – 1972 Professional Standards Review Organizations – 1974 Health Planning and Resources Development state certificates-of-need requirements – 1984 Professional Review Organizations, now Quality Improvement Organizations (QIOs)
- 32. Medicare Cost Containmentand Quality: 1965–1985(2 of 5) • 1980 Federal Budget Reconciliation Act sought reduction in hospital lengths of stays through expanded home care – Failed to reduce hospital stays; fueled explosive home care expenses and provider fraud/abuse • 1983: Medicare prospective payment system (PPS) radically altered hospital reimbursement from retrospective to prospective basis with Diagnosis-related Groups (DRGs)
- 33. Medicare Cost Containmentand Quality: 1965–1985 (3 of 5) • DRGs: Base pre-payments on treating specific diagnoses rather than discreet units of service; grouped 10,000+ ICD codes into 500+ patient categories for similar conditions and expected resource use; DRGs include factors such as hospital teaching status and wage levels in specific geographic locations • Incentive: Treatment cost lower than DRG, hospitals retain excess as profit; treatment cost higher than DRG, hospitals absorb excess as loss
- 34. Medicare Cost Containmentand Quality: 1965–1985 (4 of 5) DRGs (cont’d) • Excluded teaching hospitals’ direct medical education costs, outpatient expenses, and capital expenditures • By 1993, DRGs adopted by 21 state Medicaid plans and 2/3 of Blue Cross/Blue Shield plans • Initial concerns regarding effects on readmission rates, mortality proved unfounded; DRGs reduced lengths of stay and mortality rates, slowed cost growth
- 35. Medicare Cost Containmentand Quality: 1965–1985 (5 of 5) • Emergency Medical Treatment and Labor Act (EMTALA) of 1986: To prevent hospitals from inappropriately transferring potentially high-cost and unprofitable DRG cases to other hospitals; imposed stiff penalties and risk of Medicare de- certification • DRGs financially benefited hospitals and many posted surpluses
- 36. Medicare Cost Containmentand Quality: 1986–2006 (1 of 4) • Medicare physician fee-for-service charges un- regulated; significant MD charge increases legislative actions: 1984—Temporary freeze on MD payments ineffective as MDs increased patient visits to compensate for price reductions • 1992: Resource-based Relative Value Scale (RBRVS) for equitable reimbursement across specialties, services, geographic regions; discourage overuse of expensive services – RBRVS continues with AMA and national medical society input
- 37. Medicare Cost Containmentand Quality: 1986–2006 (2 of 4) • PPS reforms, market competition, technology, consumerism drove delivery changes • National Health Security Act proposal gave focus to rising Medicare costs, service barriers, provider choice • BBA of 1997: Reduce Medicare spending; extend PPS to hospital outpatient services, home health, skilled nursing, inpatient rehab
- 38. Medicare Cost Containmentand Quality: 1986–2006 (3 of 4) • BBA: Slowed Medicare growth; enacted Medicare Part C managed care; established Medicare Payment Advisory Commission (MedPAC) to monitor Medicare status • BBA challenges: Subsequent legislation restored some budget cuts, increased payments to Part C managed care companies
- 39. Medicare Cost Containmentand Quality: 1986–2006 (4 of 4) • 2001: Medicare “Quality Initiative” and “Medicare Quality Monitoring System” to collect, analyze data on all Medicare fee-for-service beneficiaries • 2005: “Hospital Compare” website: conformity with evidence-based practice – 2006: Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) added to “Hospital Compare” to report patient perspectives
- 40. Medicare Cost Containmentand Quality: 2007–Present (1 of 5) • 2008: No Medicare payment for “Hospital Acquired Conditions” (HACs), e.g., catheter- related infections, foreign objects retained after surgery, falls, other traumas sustained during hospitalization – No payment for “never-events”: egregious, usually preventable errors resulting in death or significant disability, e.g., wrong-site surgery, contaminated drugs or devices • 2011: Partnership for Patients—demonstration to reduce HACs
- 41. Medicare Cost Containmentand Quality: 2007–Present (2 of 5) • 2013: Bundled Payments for Care Improvement (BPCI)—links payment to results from a complete episode of care resulting in hospitalization involving multiple providers – 2016: Mandated 800 hospitals’ participation in bundled Medicare payment for hip and knee replacements • 2012–2016: Comprehensive Primary Care Initiative (CPC)—supplemental payments for service coordination for seriously ill patients
- 42. Medicare Cost Containmentand Quality: 2007–Present (3 of 5) • 2017: Comprehensive Primary Care Plus: Five-year program using advanced primary care medical homes; Medicare payment and performance-based financial incentives • 2011–2014: FQHC Advanced Primary Care Practice Demonstration—increase quality, reduce costs for Medicare patients
- 43. Medicare Cost Containmentand Quality: 2007–Present (4 of 5) • Accountable Care Organizations (ACOs): Private sector experiments since 1998; reduce service fragmentation across providers; now 23+ million participants; legal entities with ≥ 5000 Medicare patients; provider financial incentives for positive patient outcomes, cost efficiency • Hospital Value-based Purchasing Program (VBP): Financial incentives encourage appropriate, efficient patient care
- 44. Medicare Cost Containmentand Quality: 2007–Present (5 of 5) • Readmissions Reduction Program: Improve quality and continuity of care post-hospitalization; financial penalties for readmission with targeted diagnoses within 30 days of discharge – 2016 analysis showed readmission reductions for both targeted and non-targeted diagnoses • Medicare Access and CHIP Reauthorization Act (MACRA): New “Quality Payment Program” (QPP) with physician performance incentives/disincentives: Merit-based and Alternative payment models: 50% of Medicare payments tied to APMs by 2018
- 45. Medicaid and theChildren’s Health Insurance Program (1 of 3) • Medicaid: 1965, SSA Title XIX amendment – Joint federal-state program; federal government matches state expenses based on federal medical assistance percentage (FMAP) adjusted annually on states’ average personal income – Primary source of medical coverage for low- income, disabled Americans – 2016: 72.4 million enrolled: low-income, disabled adults, children, older Americans – 19% of $2.6 trillion of personal healthcare expenses
- 46. Medicaid and theChildren’s Health Insurance Program (2 of 3) • Medicaid = 51 different programs (states + D.C.): federal government sets broad guidelines but states design, implement, administer programs – Recipients must meet financial eligibility criteria; many work at low wages; children consume 21% of spending; blind and disabled consume 44% of spending – Funded by federal matching $$ to states and state general funds; third largest U.S. payer for health insurance after private insurance and Medicare • Reimbursement directly to providers; no intermediaries
- 47. Medicaid and theChildren’s Health Insurance Program (3 of 3) • Medicaid coverage types: 1. Health insurance for low-income families w/children 2. Long-term care for older Americans 3. Supplemental coverage for low-income Americans for services not covered by Medicare, i.e., “dual-eligibles” • Core federal coverage requires basic medical services • States may add optional benefits or extend coverage to higher income groups
- 48. Children’s Health Insurance Program •BBA of 1997: State Children’s Health Insurance Program (SCHIP) to enroll 10 million uninsured children – Renamed CHIP: Largest expansion of health insurance coverage since Medicaid in 1965 – Continuously funded: Reauthorized by ACA until 2015; MACRA reauthorized until 2017 – Enrollment at 2014 = 8.1 million children – 2016: 34.9 million children in Medicaid and CHIP combined
- 49. Medicaid Managed Care •Prior to 1990s, fee-for-service coverage – State use managed care for Medicaid under provider contracts – MCOs receive monthly capitated payments – 2016: ~ 2/3 Medicaid beneficiaries in private managed care plans in 39 states and D.C. • 2017: Federal “overhaul” to “modernize” Medicaid managed care: supports states’ delivery system reforms with Advanced Payment Models and increased program transparency and accountability
- 50. Medicaid Quality Initiatives •CMS Center for Medicaid and CHIP Services: Responsibility for quality initiatives; working partnerships with state programs – Voluntary quality monitoring and reporting programs with states – Core quality standards for children’s and adult care, including patient perspectives • Partnership for Medicaid: Non-partisan, nationwide coalition of physicians, other providers, stakeholders advocate standard Medicaid quality across all states
- 51. Medicaid Expansion Underthe ACA • 2012 Supreme Court decision made states’ participation in ACA Medicaid coverage expansion optional – 2016: 31 states and D.C. expanded coverage o ACA pays 100% of state expenses for newly eligible through 2016 and drops to 90% of state expenses by 2020 and future years o Medicaid expansion states’ expenses dropped significantly in 2015 due to federal funding • Corollary effects: Streamlined Medicaid enrollment processes, technology use, improved reporting systems
- 52. Disproportionate Share Hospital Payments(DSH) • Since 1996, federal law requires Medicaid payments to states (DSH) for hospitals serving large numbers of Medicaid, low-income, uninsured; critical support for hospitals serving neediest populations – Annual state DSH allotment limits total federal contribution per hospital to 100% of costs not covered by Medicaid; In 2015, $11.9 billion allotment – ACA initially reduced state allotments due to expectation of many more insured by 2014; now, reductions delayed to 2018
- 53. Individual Mandate andHealth Insurance Marketplaces (1 of 3) • ACA requires most Americans to have health insurance or pay a penalty: “individual mandate” and “shared responsibility” requirement includes: – Employer-provided health insurance – Medicaid – Personally purchased health insurance policies • Health Insurance Marketplaces (HIMs): Provide consumers with web-based, comparative information on health plan choices and prices
- 54. Individual Mandate andHealth Insurance Marketplaces (2 of 3) • State option to create HIM – If not, federal government established and operated; 2016: 13 states and D.C. operated HIMs; 34 states had federally-administered HIMs; 4 states operated HIMs w/federal assistance – Federal support for HIMs through 2015; subsequently self-sustaining – HIMs require accessibility to 10 “essential health benefits”
- 55. Individual Mandate andHealth Insurance Marketplaces (3 of 3) • HIM participation eligibility: American citizens and legal immigrants without employer coverage or for whom coverage is cost-prohibitive; acceptance guaranteed – Varying levels of federal financial assistance: advance and refundable premium tax credits and cost sharing based on personal income
- 56. The Employer Mandate •Began 2015: Businesses with ≥ 50 FTE employees must provide health insurance to at least 95% of full-time employees and dependents up to 26 yrs. of age or pay a fee – Non-compliance penalty fee (in general): $2,000 per full-time employee (in excess of 30 employees)
- 57. The ACA: InsuranceCoverage Progress and Costs (1 of 2) Coverage Progress • Prior to ACA enactment, 48.6 million Americans uninsured (15.7%) – By end of 2015, 11.2 million enrolled through HIMs; 10 million new Medicaid and CHIP enrollees; 27 million (10%) uninsured, an unprecedented level – CBO projects that approx. 10% of < 65-year- old population will remain uninsured in next decade
- 58. The ACA: InsuranceCoverage Progress and Costs (2 of 2) Costs • 2016: Approximate net: $110 billion • 2017–2026: Projected net: $1.4 trillion – Annual costs: $5,000 per HIM enrollee; $ 3,500 per Medicaid and CHIP enrollee • Net costs include: Subsidies for HIM enrollees, Medicaid and CHIP costs, tax credits for small employers and fees, penalties, tax revenues
- 59. Continuing Challenges and Innovations •Transforming financing system through payment reform and population health focus: – New payment methods – Departures from prior philosophies, values, politics that fueled profit-driven waste • Innovation by insuring millions; payment systems linking costs with quality (e.g., BPCIs, ACOs, MACRA)