Moving Beyond P4P: New Payment Systems to Accelerate Value-Driven Health Care Harold D. Miller Strategic Initiatives Consultant Pittsburgh Regional Health Initiative February 29, 2008

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 2 NRHI: The Network for Regional Health Improvement NRHI formed in 2006 to help facilitate health care quality improvement at the regional level, with support from the Robert Wood Johnson Foundation Founding members: –Institute for Clinical Systems Improvement –Massachusetts Health Quality Partners –Minnesota Community Measurement –Pacific Business Group on Health –Pittsburgh Regional Health Initiative –Wisconsin Collaborative for Healthcare Quality

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 3 Common Concerns of NRHI Members About Payment Systems and P4P Payment Systems Impede Quality Improvement –Providers may not be paid at all if they do the right thing –Providers may lose money by reducing errors, infections P4P Initiatives Don’t Solve the Basic Problems –Amounts of bonuses and penalties too small to offset rewards/penalties in the underlying payment system –Focus on documenting processes, rather than achieving outcomes, in P4P deters innovation and adds administrative burden on providers –Limitation to measurable processes with standards may divert attention from other processes or outcomes

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 4 NRHI Summit: “Creating Payment Systems to Accelerate Value-Driven Health Care” (3/29/07) Nearly 100 attendees from all across the country Intensive 4 hour work sessions Key payment reform issues identified for resolution Sponsors: Commonwealth Fund Jewish Healthcare Fdn California HealthCare Fdn Robert Wood Johnson Fdn

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 5 What the Payment Summit Tackled Four Groups of Patients/Conditions: –Care of Major Acute Episodes (heart attack, cancer, trauma, etc.) –Care of Stable Chronic Conditions (diabetes, CHF, COPD, etc.) –Care of Unstable Chronic Conditions (multiple diseases, end-of-life) –Preventive Care/Minor Acute Episodes (immunizations, minor wounds, etc.) Five Categories of Issues: –What method of payment should be used to compensate providers? –Should payments for multiple providers be “bundled” together? –How should the actual level of payment be determined? –What performance standards should be set, and should there be performance incentives? –Should there be incentives for patients regarding choice of providers and participation in care?

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 6 What the Payment Summit Tackled Four Groups of Patients/Conditions: –Care of Major Acute Episodes (heart attack, cancer, trauma, etc.) –Care of Stable Chronic Conditions (diabetes, CHF, COPD, etc.) –Care of Unstable Chronic Conditions (multiple diseases, end-of-life) –Preventive Care/Minor Acute Episodes (immunizations, minor wounds, etc.) Five Categories of Issues: –What method of payment should be used to compensate providers? –Should payments for multiple providers be “bundled” together? –How should the actual level of payment be determined? –What performance standards should be set, and should there be performance incentives? –Should there be incentives for patients regarding choice of providers and participation in care?

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 7 What are the Choices for Payment Methods? Fee for Service (FFS) Episode of Care Payment (ECP) Multi-Provider Bundled Episode of Care Payment Condition- Specific Capitation Full Capitation CONTINUUM OF HEALTHCARE PAYMENT METHODS Per Diem Risk: Patient OvertreatmentRisk: Patient Undertreatment

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 8 What Are the Tradeoffs in Alternative Payment Methods? Cost Patient = Cost Process x # Processes Service # Services Episode of Care xx # Episodes of Care Condition x # Conditions Patient VARIABLES CONTRIBUTING TO THE COST OF CARE

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 9 What Are the Tradeoffs in Alternative Payment Methods? Cost Patient = Cost Process x # Processes Service # Services Episode of Care xx # Episodes of Care Condition x # Conditions Patient - FEE FOR SERVICE - -- EPISODE OF CARE PAYMENT CONDITION-SPECIFIC CAPITATION FULL CAPITATION VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 10 What Are the Tradeoffs in Alternative Payment Methods? Cost Patient = Cost Process x # Processes Service # Services Episode of Care xx # Episodes of Care Condition x # Conditions Patient - FEE FOR SERVICE - -- EPISODE OF CARE PAYMENT CONDITION-SPECIFIC CAPITATION FULL CAPITATION VARIABLES FOR WHICH THE PROVIDER IS AT RISK UNDER ALTERNATIVE PAYMENT SYSTEMS INSURANCE RISK TECHNICAL RISK

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 11 Recommended Approach for Paying for Major Acute Care, Part 1 Basic Method of Payment –a single “Episode-of-Care Payment” should be made to cover all of a provider’s services associated with an episode of care for a patient –the amount should be adjusted for the diagnosis, complexity, and risk of the patient –the amount should be prospectively defined, but with a retrospective adjustment based on performance –each provider (hospitals, physicians, home health care agencies, etc.) involved should be paid on this basis –all costs (facilities, professional services, drugs, medical devices, etc.) should be covered by the payment

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 12 Bundling of Payments For Multiple Providers –a single payment should be defined that covers the services provided by ALL of the following: the hospital and its staff the physicians involved in the care post-acute care providers (home health, rehab, etc.) Recommended Approach for Paying for Major Acute Care, Part 2

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 13 Allocation of Bundled Payments Among Multiple Providers –LONG RUN: groups of providers need to define a single accountable payee for receiving and allocating the episode-of-care payment among themselves –SHORT RUN: where no such arrangement has been defined, payers should allocate the payment among providers based on a standard allocation determined when the payment level is established –INCENTIVES should be created to encourage groups of providers to create joint arrangements for receiving and allocating payments among themselves Recommended Approach for Paying for Major Acute Care, Part 3

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 14 Restrictions on How Profits/Losses Are Divided –Providers should be free to work out their own arrangements as to how any profits/losses incurred on a bundled payment should be divided NOTE: this may require modifications to Stark law Recommended Approach for Paying for Major Acute Care, Part 4

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 15 Determination of the Base Payment Level –for each combination of diagnosis and patient complexity/severity, a national, state, or regional collaborative (with representation from payers and providers) should determine a recommended payment level based on a study to estimate the cost of delivering good quality care for that type of patient –providers should propose their actual price for the episode of care in negotiations with payers –recommended base payment levels should vary from region-to-region based on cost-of-living differences, but other cost differences (e.g., efficiencies) should be captured by providers in their proposed prices Recommended Approach for Paying for Major Acute Care, Part 5

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 16 Adjustments in Payment for Providers with Special Characteristics (e.g., Teaching Hospitals) –Base payment levels for episodes of care should not be adjusted for special characteristics –Separate payments should be made to providers to cover these costs Recommended Approach for Paying for Major Acute Care, Part 6

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 17 Payment Adjustments for Outlier Cases –some adjustment should be made for cases where the level of services (not costs) required for quality care significantly exceeds typical levels –the adjustment needs to reflect whether improved outcomes are being achieved for higher levels of services Payment for Preventable Adverse Events –no payment to providers for additional care needed to address preventable events or the complications resulting from such events NOTE: this is much broader than Medicare’s new policy Recommended Approach for Paying for Major Acute Care, Part 7

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 18 Level of Service/Performance Required to Receive the Base Payment Level –processes considered mandatory (based on evidence) for patients in a particular diagnosis/severity category should be defined by payers or a collaborative –providers should only be paid if those mandatory processes are delivered, unless there is clear documentation that the processes are contra-indicated for the patient or if the patient is participating in a formal clinical trial of alternative processes Recommended Approach for Paying for Major Acute Care, Part 8

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 19 Financial Incentives Beyond Base Payment Level –financial incentives should be provided for those aspects of care for which the payment system provides inadequate incentives or undesirable disincentives –e.g., high rates of utilization of services relative to norms Recommended Approach for Paying for Major Acute Care, Part 9

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 20 Encouraging Patients to Choose High Quality/Low Cost Providers –patients should be given financial incentives/disincentives by payers (e.g., different co-pays or co-insurance amounts) for using providers with different levels of quality and/or cost Recommended Approach for Paying for Major Acute Care, Part 10

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 21 Encouraging/Assisting Patients to Adhere to Care Processes That Affect Outcomes or Costs –payers should provide financial incentives to providers; –and payers and providers should provide financial incentives to patients –to encourage patient adherence with care processes Encouraging Providers to Discuss Treatment Options With Patients –payers should provide financial incentives to providers based on the level of patient involvement in care planning Recommended Approach for Paying for Major Acute Care, Part 11

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 22 Single payment for episode of care covering: –all services, medications, devices –all providers (hospital, physicians, post-acute care) Defined by providers, starting from recommended amt. Allocated among providers by: –providers themselves if possible –payers if necessary Adjustments in payment for: –performance on outcomes –service outliers, if outcome-beneficial No payment: –if mandatory processes are not covered –for additional costs associated with preventable adverse events Financial incentives to patients: –to select high-value providers and services –to adhere to care processes affecting outcomes Summary of Approach for Paying for Major Acute Care

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 23 How the Proposed Approach Improves on the Current System Physicians no longer paid more for longer hospital stays, more procedures, or adverse events Hospitals have incentive to prevent adverse events, prevent readmissions, and use the right combination of in-patient and post-acute care Physicians and hospitals have incentive to cooperate in optimizing care quality and cost Providers have the funding flexibility to use the best combination of facilities and services for max. value Patients have an incentive to choose the facility and services that provide the best value (quality + cost)

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 24 Similarities and Differences With Other Systems, Existing & Planned Medicare Hospital DRGs –are episode of care payments, adjusted for complexity –but only for a portion of the episode –and only for a single provider Prometheus Payment –covers full episode of care and all providers –deals with both integrated and non-integrated providers –but establishes the exact payment amount, rather than recommending it and allowing providers to self-price in negotiations with payers or to compete for consumers –and bases full payment on whether all processes used in establishing the payment amount are performed, rather than focusing on outcomes

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 25 Similarities and Differences with Other Systems, Existing and Planned Geisinger ProvenCare SM –currently for coronary artery bypass graft surgery; plans to expand to hip replacement, cataract surgery, angioplasty, erythropoietin –covers any follow-up care needed for avoidable complications within 90 days at no additional charge –assures 40 care process benchmarks are followed –provider-driven (though started with integrated payer) Minnesota Patient Choice (BHCAG) –providers bid on risk-adjusted (total) cost of patient care –patients incur differential costs based on the cost/quality tier of the provider they select

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 26 Summit Recommendations for Encouraging Implementation Pursue Demonstration/Pilot Projects –to learn about unintended consequences –focus on limited, specific conditions that are relatively homogeneous and where transparency exists –pursue at the regional level to get a range of demos, with national support Rapid Evaluation and Replication of Demos –method of information sharing on demonstrations already done and underway as well as completed/evaluated

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 27 The Challenges of Getting Cooperation and Critical Mass PurchaserPayerProviderPatient PAYMENT REFORM BENEFITS: COSTS/ RISKS: Better HealthLower Costs; Lower Worker Absences Lower Revenues; Upfront Investment in Improved Systems; Fairness of Measurement Costs of Reworking Systems; Benefits May Accrue to Other Payers BENEFITS AND COSTS ACCRUE TO DIFFERENT ENTITIES

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 28 Encouraging Implementation, Part 2 Provide incentives for providers to do tough demos –pay more for demonstrations –pay to offset higher administrative costs –get all payers involved –provide some assurance that this is the direction for the future, rather than merely tests of possible concepts Provide incentives to get payers to the table –competition among payers inhibits multi-payer demos –national payers don’t want local variations –employers/purchasers will need to push for change

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 29 A Lot of Important Details Required to Create Demonstrations What is included in an Episode of Care? –The work that Prometheus is doing can provide the foundation for this, but variations in the actual payment mechanism may be needed How can bundled payments be made to fragmented providers? –Elliott Fisher has proposed accountable care organizations based on hospitals and their referring MDs –Michigan Blue Cross/Blue Shield is encouraging small physician practices to join together through its Physician Group Incentive Program (which supports quality improvement initiatives and distributes incentive pmts)

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 30 Will Require Fundamental Changes in Payer Approach to Succeed Competitive pricing, not payer-defined pricing Patient choice based on value, instead of P4P –Payers will not save money if patients do not move to more efficient, higher quality providers giving incentive payments (i.e., paying more) to providers who are more efficient defeats the goal of increased efficiency –Administered pricing systems (i.e., the payer defines the payment) do not generally enable the provider to lower its price on specific services where efficiencies are possible –There is little incentive for providers to lower their costs and price if they can’t attract more patients, and most payers don’t provide (strong) incentives to patients to use lower-cost, higher value providers

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 31 Encouraging Competitive Pricing: Creating Better Information on Value Example: Pennsylvania Health Care Cost Containment Council Report on Cardiac Care (2005)

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 32 Encouraging Competitive Pricing: Creating Competitive Marketplaces Providers need ways to compete for consumers on value Some entrepreneurial efforts are emerging, e.g., Carol.com in Minneapolis/St. Paul that is providing a virtual “marketplace” for care choices with prices

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 33 Conclusions from the Summit Regarding Next Steps Fundamental changes in payment systems are highly desirable, if not essential, but very difficult Regional collaboratives of payers and providers, working in a national network, should take the lead Purchasers and clinicians, as well as payers, must be involved in payment system redesign Regional demonstrations are the most desirable way to move forward, if most payers participate Medicare/Medicaid participation is desirable, but not essential Demonstrations should be “budget neutral” Capacity of providers to manage and coordinate care also needs to be improved

© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative 34 Bottom Line: Payment Reform Necessary But Not Sufficient Payment Reform Provider Organization Quality Improvement Initiatives Cost & Quality Transparency

For More Information: Harold D. Miller Strategic Initiatives Consultant, Pittsburgh Regional Health Initiative and President, Future Strategies, LLC 320 Ft. Duquesne Boulevard, Suite 20-J Pittsburgh, PA (412)