Cost Containment and the Patient Protection and Affordable Care Act FIU LAW REVIEW SYMPOSIUM November 12, 2010 David Orentlicher, MD, JD Visiting Professor of Law University of Iowa College of Law Samuel R. Rosen Professor Indiana University School of Law-Indianapolis

On one hand The legislation “puts into place virtually every cost-control reform proposed by physicians, economists, and health policy experts.” The legislation “puts into place virtually every cost-control reform proposed by physicians, economists, and health policy experts.” Orszag & Emanuel, NEJM (2010) Orszag & Emanuel, NEJM (2010) Orszag & Emanuel Orszag & Emanuel

On the other hand "The job of figuring how to cover uninsured people used up all the political oxygen that was available. They didn't have the energy for costs." "The job of figuring how to cover uninsured people used up all the political oxygen that was available. They didn't have the energy for costs." Alan Sager, quoted by McClatchy-Tribune News Service, April 1, 2010 Alan Sager, quoted by McClatchy-Tribune News Service, April 1, 2010

Cost containment Outline of today’s presentation Outline of today’s presentation The cost problem The cost problem Is PPACA the solution? Is PPACA the solution?

Cost containment Outline of today’s presentation Outline of today’s presentation The cost problem The cost problem Is PPACA the solution? Is PPACA the solution?

The highest spending country Health care spending in economically- advanced democracies Health care spending in economically- advanced democracies US $7,290/capita 16% of GDP Switzerland 61% of US 67% of US Canada 53% of US 63% of US Germany 49% of US 65% of US Japan 35% of US 51% of US New Zealand 34% of US 57% of US OECD Health Data 2009 (2007 data except 2006 for Japan) OECD Health Data 2009 (2007 data except 2006 for Japan) OECD

The cost problem What do we get for our money?

Infant mortality per 1,000 births OECD, 2006

Quality of care Breast cancer, 5-year survival rate Breast cancer, 5-year survival rate US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%, UK -77.9% US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%, UK -77.9% Colon cancer, 5-year survival rate Colon cancer, 5-year survival rate Japan-67.3%, US-65.5%, Canada-60.7%, France-57.1%, UK-50.7% Japan-67.3%, US-65.5%, Canada-60.7%, France-57.1%, UK-50.7% Asthma hospitalization rate (per 100,000 pop.) Asthma hospitalization rate (per 100,000 pop.) US-120, UK-75, Japan-58, France-43, Canada-18 US-120, UK-75, Japan-58, France-43, Canada-18 Diabetes hospitalization rate (per 100,000 pop.) Diabetes hospitalization rate (per 100,000 pop.) US-57, UK-32, Canada-23, Germany-14, Italy-11 US-57, UK-32, Canada-23, Germany-14, Italy-11 Mark Pearson, OECD, U.S. Senate Testimony (2009) Mark Pearson, OECD, U.S. Senate Testimony (2009)

Inadequate return on our health care $ US health system is less efficient than systems in: US health system is less efficient than systems in: Spain, France, Germany, Austria, Italy Spain, France, Germany, Austria, Italy UK, Denmark, Norway UK, Denmark, Norway Japan, China, Australia Japan, China, Australia Canada, Mexico, Colombia, Venezuela Canada, Mexico, Colombia, Venezuela Evans, et al., 323 BMJ 307 (2001) Evans, et al., 323 BMJ 307 (2001) US patients treated in higher-cost communities have similar outcomes to US patients in lower- cost communities US patients treated in higher-cost communities have similar outcomes to US patients in lower- cost communities

Inadequate return on our health care $ Not because we’re less healthy Not because we’re less healthy We’re less likely to smoke, we drink less, and we’re younger than people in other economically- developed countries We’re less likely to smoke, we drink less, and we’re younger than people in other economically- developed countries We’re more obese and overall less healthy, but this is only a small part of our health care costs We’re more obese and overall less healthy, but this is only a small part of our health care costs McKinsey & Company study found that “disease burden” adds $25 billion in health care costs for treatment of disease (out of $2.5 trillion in health care spending) McKinsey & Company study found that “disease burden” adds $25 billion in health care costs for treatment of disease (out of $2.5 trillion in health care spending)study$25 billionstudy$25 billion

Why are costs higher in the US?

Higher prices in US Costs are higher in US in large part because prices for health care services are higher Costs are higher in US in large part because prices for health care services are higher On the buyer side, governments in single-payer systems can bargain more effectively than can US insurance companies with doctors, hospitals and pharmaceutical companies On the buyer side, governments in single-payer systems can bargain more effectively than can US insurance companies with doctors, hospitals and pharmaceutical companies On the seller side, hospital mergers have led to greater negotiating leverage with insurers On the seller side, hospital mergers have led to greater negotiating leverage with insurers Peterson & Burton, Congressional Research Service (2007)

Higher volume in US--greater use of surgical procedures and expensive diagnostic tests More procedures to treat blocked coronary arteries (2 x OECD avg.), more knee replacements (1.5 x OCED avg.), and more cesarean sections (1.25 x OECD avg.) More procedures to treat blocked coronary arteries (2 x OECD avg.), more knee replacements (1.5 x OCED avg.), and more cesarean sections (1.25 x OECD avg.) Increase in outpatient surgery centers very important Increase in outpatient surgery centers very important More MRI exams (> 2 x OECD avg.) and more CT exams (> 2 x OECD avg.) More MRI exams (> 2 x OECD avg.) and more CT exams (> 2 x OECD avg.) High ratio of specialists to primary care physicians High ratio of specialists to primary care physicians US patients more likely to be hospitalized for conditions preventable by good primary care US patients more likely to be hospitalized for conditions preventable by good primary care OECD Health Data (2009); Peterson & Burton (2007)

Patient insensitivity to costs Insurance => Price-insensitive consumers Insurance => Price-insensitive consumers If treatment costs $100 and yields a “value” of $75, it shouldn’t be provided—but if the patient only pays $25 and receives the $75 value, it will be worth it to the patient If treatment costs $100 and yields a “value” of $75, it shouldn’t be provided—but if the patient only pays $25 and receives the $75 value, it will be worth it to the patient Americans pay more total dollars out of pocket, but we generally pay a smaller percentage of our health care costs out of pocket (i.e., through deductibles and co-payments) (premium payments are not included) Americans pay more total dollars out of pocket, but we generally pay a smaller percentage of our health care costs out of pocket (i.e., through deductibles and co-payments) (premium payments are not included) France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32% (Peterson & Burton 2007) France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32% (Peterson & Burton 2007) Tax subsidies for insurance premiums Tax subsidies for insurance premiums

Physician incentives to over-provide care Fee-for-service reimbursement => Quality- insensitive physicians and hospitals Fee-for-service reimbursement => Quality- insensitive physicians and hospitals When physicians and hospitals are paid more to do more, regardless of outcome, they’ll do more When physicians and hospitals are paid more to do more, regardless of outcome, they’ll do more Especially when they lose money on higher quality care (Urbina, NY Times, Jan. 11, 2006) Especially when they lose money on higher quality care (Urbina, NY Times, Jan. 11, 2006) Example of clinic that switched from salary to commission on fees generated; doctors scheduled more appointments and ordered more blood tests and x-rays Example of clinic that switched from salary to commission on fees generated; doctors scheduled more appointments and ordered more blood tests and x-rays Hemenway, 322 NEJM Hemenway, 322 NEJM

Cost containment Outline of today’s presentation Outline of today’s presentation The cost problem The cost problem Is PPACA the solution? Is PPACA the solution?

PPACA and cost control Many different provisions designed to contain costs (remember Orszag & Emanuel quote) Many different provisions designed to contain costs (remember Orszag & Emanuel quote)Orszag & Emanuel quoteOrszag & Emanuel quote Serious question whether all of the provisions really address the cost problem Serious question whether all of the provisions really address the cost problem PPACA doesn’t take on the major drivers of higher costs other than to some extent through demonstration projects and Medicare reimbursement reductions PPACA doesn’t take on the major drivers of higher costs other than to some extent through demonstration projects and Medicare reimbursement reductions

Addressing the major drivers of costs High prices High prices Single-payer or all-payer negotiations Single-payer or all-payer negotiations Oberlander & White, 361 NEJM 1131 (2009) Oberlander & White, 361 NEJM 1131 (2009) Health savings accounts? Health savings accounts? High volume High volume Replace fee-for-service with salary and/or capitation (also addresses problem of high prices) Replace fee-for-service with salary and/or capitation (also addresses problem of high prices) Rebalance specialist/primary care reimbursement ratio Rebalance specialist/primary care reimbursement ratio Limits on hospital beds, surgical suites, MRI scanners and other facilities Limits on hospital beds, surgical suites, MRI scanners and other facilities Orentlicher, 19 Annals Health L. 449 (2010) Orentlicher, 19 Annals Health L. 449 (2010)

How will PPACA reduce prices? Permanent reductions in Medicare reimbursement rates for hospitals, nursing homes and other facilities ( § 3401) - $196 billion in savings through 2019 Permanent reductions in Medicare reimbursement rates for hospitals, nursing homes and other facilities ( § 3401) - $196 billion in savings through 2019 Will Medicare reductions lead facilities to shift costs to private insurers? Will Medicare reductions lead facilities to shift costs to private insurers? Independent Medicare Advisory Board ( § 3403) Independent Medicare Advisory Board ( § 3403) Will develop proposals to keep Medicare spending within statutory targets, and proposals will automatically take effect unless Congress adopts substitute provisions (cannot ration health care, raise costs to recipients, restrict benefits or modify eligibility criteria) Will develop proposals to keep Medicare spending within statutory targets, and proposals will automatically take effect unless Congress adopts substitute provisions (cannot ration health care, raise costs to recipients, restrict benefits or modify eligibility criteria) Also will provide Congress with recommendations for slowing the growth of health care spending in the private sector. Also will provide Congress with recommendations for slowing the growth of health care spending in the private sector.

How will PPACA reduce volume? Patient-Centered Outcomes Research Institute ( § 6301) Patient-Centered Outcomes Research Institute ( § 6301) Created to promote “comparative-effectiveness research” Created to promote “comparative-effectiveness research” May not recommend coverage changes or other policies based on its analyses, but Medicare and Medicaid may consider the Institute’s analyses in determining coverage policies May not recommend coverage changes or other policies based on its analyses, but Medicare and Medicaid may consider the Institute’s analyses in determining coverage policies May not use a “dollars-per-quality adjusted life year... as a threshold” nor may HHS employ such a measure as a threshold for coverage. May not use a “dollars-per-quality adjusted life year... as a threshold” nor may HHS employ such a measure as a threshold for coverage.quality adjusted life year quality adjusted life year

Potential impact of PCORI Comparative-effectiveness and cost-effectiveness decisions are controversial Comparative-effectiveness and cost-effectiveness decisions are controversial Mammography screening guidelines in 2009 Mammography screening guidelines in 2009 US Preventive Services Task Force recommended that routine screening begin at age 50 instead of age 40 US Preventive Services Task Force recommended that routine screening begin at age 50 instead of age 40 Oregon Health Care Plan Oregon Health Care Plan Ended up with fairly generous “basic” coverage Ended up with fairly generous “basic” coverage National Institute for Health and Clinical Excellence loses its authority to deny coverage for treatments based on costs after a decade of operation National Institute for Health and Clinical Excellence loses its authority to deny coverage for treatments based on costs after a decade of operation The “tragic choices” problem The “tragic choices” problem It’s difficult to make life-and-death decisions openly It’s difficult to make life-and-death decisions openly

Quality-adjusted payments under PPACA Incentive payments to hospitals that meet specified performance standards (§3001) Incentive payments to hospitals that meet specified performance standards (§3001) Adjustments to physician reimbursement based on quality and cost of care provided (§3001) Adjustments to physician reimbursement based on quality and cost of care provided (§3001) Expansion of reports to physicians that indicate how their use of resources in patient care compares to use by other physicians (§3003) Expansion of reports to physicians that indicate how their use of resources in patient care compares to use by other physicians (§3003) Lower payments to hospitals with high numbers of patients who become sicker because of their hospital care (§3008) Lower payments to hospitals with high numbers of patients who become sicker because of their hospital care (§3008) Lower payments to hospitals that have excessive numbers of patients readmitted to the hospital after discharge (§3025) Lower payments to hospitals that have excessive numbers of patients readmitted to the hospital after discharge (§3025)

Quality-adjusted payments Pay for performance so far has a mixed track record Pay for performance so far has a mixed track record It’s difficult to assess quality of care—did a patient do well because of—or despite—the doctor’s intervention? It’s difficult to assess quality of care—did a patient do well because of—or despite—the doctor’s intervention? Often, process-based measures are used, but those need continual updating Often, process-based measures are used, but those need continual updating Impact has been modest to date Impact has been modest to date

PPACA demonstration projects Bundled payments for hospital care and for the month following discharge (capitation lite) ( §2704 and §3023) Bundled payments for hospital care and for the month following discharge (capitation lite) ( §2704 and §3023) Capitation payments instead of fee-for-service reimbursement ( § 2705) Capitation payments instead of fee-for-service reimbursement ( § 2705) Incentives for doctors and hospitals to form accountable care organizations (financial rewards for higher quality and/or lower cost care) ( § 2706 and § 3022) Incentives for doctors and hospitals to form accountable care organizations (financial rewards for higher quality and/or lower cost care) ( § 2706 and § 3022) Will integrated systems exploit market power to maintain revenues rather than to introduce efficiencies and reduce costs? Will integrated systems exploit market power to maintain revenues rather than to introduce efficiencies and reduce costs?

The bottom line under PPACA Between 2009 and 2019, health care spending is projected to increase 0.2% as a result of PPACA Between 2009 and 2019, health care spending is projected to increase 0.2% as a result of PPACA But, health care coverage is projected to increase by 32.5 million But, health care coverage is projected to increase by 32.5 million After the big increase in spending in 2014 for the newly insured, health care spending is projected to grow by 6.7% rather than 6.8% between 2015 and 2019 (or 6.4% instead of 6.6% in 2019) After the big increase in spending in 2014 for the newly insured, health care spending is projected to grow by 6.7% rather than 6.8% between 2015 and 2019 (or 6.4% instead of 6.6% in 2019) Sisko, et al Sisko, et al (Of course, these are projections that may or may not come to fruition) (Of course, these are projections that may or may not come to fruition)

What is a QALY? What is a QALY? 01 Dead Perfect health Major stroke Recurrent stroke Studying for a law school exam

OECD Organisation for Economic Co-operation and Development ( The 33 member countries include: Organisation for Economic Co-operation and Development ( The 33 member countries include: U.S., Canada, Mexico, Chile U.S., Canada, Mexico, Chile Denmark, Norway, Sweden, Finland Denmark, Norway, Sweden, Finland U.K., France, Germany, Netherlands, Switzerland U.K., France, Germany, Netherlands, Switzerland Portugal, Spain, Italy, Greece, Turkey, Israel Portugal, Spain, Italy, Greece, Turkey, Israel Hungary, Czech Republic, Slovak Republic, Slovenia, Poland Hungary, Czech Republic, Slovak Republic, Slovenia, Poland Japan, Korea Japan, Korea Australia, New Zealand Australia, New Zealand