Chapter 6 Bending the Cost Curve Copyright 2015 Health Administration Press 1

After mastering this material, students will be able to  explain what the Triple Aim is,  identify ways to reduce cost per service,  use standard insurance terminology,  describe cost reduction strategies, and  identify narrow networks and ACOs. Copyright 2015 Health Administration Press 2

THE TRIPLE AIM Improved Health, Improved Experience of Care, Lower Cost Copyright 2015 Health Administration Press3

The Triple Aim  Three simultaneous goals – Improved experience of care – Improved population health – Reduced healthcare costs per person Copyright 2015 Health Administration Press4

Why does healthcare cost so much in the United States? Copyright 2015 Health Administration Press5

Annual Doctor Visits per Person Copyright 2015 Health Administration Press6

Hospital Discharge Rates per 100,000 People Copyright 2015 Health Administration Press7

Hospital Length of Stay Copyright 2015 Health Administration Press8

Public and Private Prices: Office Visits Copyright 2015 Health Administration Press9

Public and Private Prices: Surgical Fee for Hip Replacement Copyright 2015 Health Administration Press 10

CT Scans per 1,000 and Average Price Copyright 2015 Health Administration Press11

Prices in the United States vary a lot. Copyright 2015 Health Administration Press Prices for CT scans 12

Prices in the United States vary a lot. Copyright 2015 Health Administration Press Prices per hospital day 13

As a consumer, what’s your reaction? Copyright 2015 Health Administration Press Prices per hospital day 14

Increasing Interest in Transparency  Price – By employers – By insurers – By consumers  Health outcomes  Patient experience Copyright 2015 Health Administration Press15

What happens if your firm scores poorly on  price?  health outcomes?  patient experience? Copyright 2015 Health Administration Press16

COST AND COST REDUCTION Copyright 2015 Health Administration Press17

Costs depend on  the resources used – by the healthcare provider, and – by the consumer.  the prices paid for those resources – by the healthcare provider, and – by the consumer. Copyright 2015 Health Administration Press18

How do you reduce costs?  The resources used – by the healthcare provider, and – by the consumer  The prices paid for those resources – by the healthcare provider, and – by the consumer Copyright 2015 Health Administration Press19

How do you reduce costs  while improving the customer experience  and improving health?  You redesign care. Copyright 2015 Health Administration Press20

Redesigning Care  Eliminate steps in the care process – that do not add value for customers, and – that are not effective.  Modify steps in the care process – that add less value than they should, and – that are not as effective as they should be. Copyright 2015 Health Administration Press21

Why the lack of efficiency?  Fee-for-service pricing distorts value.  Improving efficiency is hard. – Providers have been able to raise prices instead. – The competition is not efficient either. Copyright 2015 Health Administration Press22

Improving Care for Diabetes  A diabetic checkup every 3–6 months to measure – weight and blood pressure, and – HbA1c  Annual check on – LDL, and – foot neuropathy Copyright 2015 Health Administration Press23

Share with Assessments PeriodUrbanSmall RuralIsolated HbA1cThis year69%77% Blood PressureLast visit90%95%93% LDLPast two years65%69%70% Copyright 2015 Health Administration Press24

Typical Visit for a Diabetic Patient  Nurse takes vital signs and escorts to room  Patient waits for doctor  Typical visit lasts 20 minutes  Mostly doctor responding to problems – Patients typically say little – May not understand what they are expected to do – Do not comply with recommendations well Copyright 2015 Health Administration Press25

How could this visit be improved?  Nurse takes vital signs and escorts to room  Patient waits for doctor  Typical visit lasts 20 minutes  Mostly doctor responding to problems – Patients typically say little – May not understand what they are expected to do – Do not comply with recommendations well Copyright 2015 Health Administration Press26

Your recommendations?  Would these make financial sense – for the doctor? – for the patient? – for society? Copyright 2015 Health Administration Press 27

INNOVATIONS Ways to Realize the Triple Aim Copyright 2015 Health Administration Press28

A number of innovations are being tested.  Bundled payments  ACOs and HMOs  Patient-centered medical homes  Narrow networks  High-deductible plans  Reference pricing Copyright 2015 Health Administration Press29

Bundled Payments  A single payment for an episode of care – Typically covers most services – Typically one provider “hires” all the others  How does this change incentives? – Other providers become cost centers. – It is more profitable to reduce resource use. Copyright 2015 Health Administration Press30

Results of ProvenCare CABG Bundled Payment Copyright 2015 Health Administration Press 31

Results of ProvenCare CABG Bundled Payment Copyright 2015 Health Administration Press32

How could both be true? Copyright 2015 Health Administration Press33

ACOs and HMOs  Both combine insurance and care.  Both change incentives. – Reward providers for high-value services – Reward providers for being efficient – Minimize institutional care Copyright 2015 Health Administration Press34

ACOs are Medicare phenomena.  Traditional Medicare prohibits networks.  Elsewhere, networks are key. – HMOs – Medicare Advantage – Marketplace plans – Full-risk insurance plans Copyright 2015 Health Administration Press35

Accountable Care Organization (ACO)  Initiative is funded by the Affordable Care Act (ACA).  Reimbursement is based on – quality metrics, and – costs. Copyright 2015 Health Administration Press36

Pioneer ACOs  saved over $96 million,  earned $68 million,  increased the mean quality score by 19 percent, and  improved patient experience scores. Copyright 2015 Health Administration Press37

Shared Savings ACOs  saved over $652 million,  earned more than $300 million,  increased quality scores, and  increased patient experience scores. Copyright 2015 Health Administration Press38

Patient-Centered Medical Homes  A personal physician  A whole-person orientation  Coordinated care  Enhanced access – After hours – Improved communication – Same-day care Copyright 2015 Health Administration Press39

Full implementation of the PCMH  Higher quality scores  Better preventive services  Slightly lower medical costs for adults – Fewer ED visits – Lower hospitalization rates Copyright 2015 Health Administration Press40

Narrow Networks  Spending falls significantly. – Reduced spending on specialists – Reduced spending on ED visits – Reduced spending on hospitalization – Reduced prices per service  Primary care spending goes up.  There is no evidence of poorer quality. Copyright 2015 Health Administration Press41

High deductible plans reduce costs. Copyright 2015 Health Administration Press42

If you were an employer, which would you choose? Copyright 2015 Health Administration Press43

Prices are seldom available.  Prices are trade secrets. – For providers – For insurers  Why are prices trade secrets?  The link to patient costs is complex. – It depends on benefit design. – Prices often vary more than patient costs. Copyright 2015 Health Administration Press44

The effects of price transparency are not known.  Patients may – have trouble making comparisons, and – assume that higher prices mean higher quality. Copyright 2015 Health Administration Press45

What Anthem paid for joint replacement. Copyright 2015 Health Administration Press46

Patients tended to favor high priced hospitals. Copyright 2015 Health Administration Press47

High-deductible plans seek transparency.  Heath Care Cost Institute Founders – Aetna – Humana – United Healthcare  Joined in September – Assurant – NCQA – Harvard Pilgrim – Health Net – Kaiser Permanente – Partners Healthcare Copyright 2015 Health Administration Press48

Insurers are scrambling to let patients see price differences. Copyright 2014 Health Administration Press

Multiple Sources of Price Data  Aetna’s Member Payment EstimatorMember Payment Estimator   Castlight Castlight  Healthcare Blue Book Healthcare Blue Book  And more Copyright 2015 Health Administration Press50

Reference Pricing  Prices vary a lot. – Well-known providers have very high prices. – Some very good providers have low prices.  Patients often choose well-known providers. Copyright 2015 Health Administration Press51

What CalPERS paid for joint replacement. Copyright 2015 Health Administration Press52

In January 2011 CalPERS started reference pricing. Copyright 2015 Health Administration Press53

Why would a health system  participate in a bundled-payment trial?  start an ACO?  test any payment innovation? Copyright 2015 Health Administration Press54

CONCLUSIONS Copyright 2015 Health Administration Press55

US costs are high because of private sector prices.  A few people get stuck paying charges. – The uninsured – Some accident victims  Medicare prices are – somewhat higher than prices in other countries, and – usually much lower than private prices. Copyright 2015 Health Administration Press56

US costs are high because of private sector prices.  In most cases, utilization is not higher in the United States. – Imaging is a major exception. Copyright 2015 Health Administration Press57

Private prices are high in the United States.  Prices are high because – some providers have leverage, – most providers are not efficient, and – patients choose high-priced providers. Copyright 2015 Health Administration Press58

The Triple Aim  Three simultaneous goals – Improved experience of care – Improved population health – Reduced healthcare costs per person Copyright 2015 Health Administration Press59

Cost reduction requires  using fewer resources, and  paying less for those resources. Copyright 2015 Health Administration Press60

Multiple innovations are being tried in the United States.  Bundled payments  ACOs and HMOs  Patient-centered medical homes  Narrow networks  High-deductible plans  Reference pricing Copyright 2015 Health Administration Press61

Some innovations have spread already.  Bundled payments  ACOs and HMOs  Patient-centered medical homes  Narrow networks  High-deductible plans  Reference pricing Copyright 2015 Health Administration Press62