1. Medicare Prescription Drugs Improvement and Modernization Act of 2003:
What Do Employers Think?
Robert S. Galvin, MD
Medicare Prescription Drug Congress
February 26, 2004

2. What The Bill Isn’t
Perfect

3. What The Bill Is “The Triumph Of Experience Over Hope”
Apologies to Samuel Johnson
Government Can Act on Health Care
Employers Included in Dialogue
Favors Competitive / Market Approach But With Safety Net
Pushes Transparency / Quality Agenda
Encourages Consumerism Creates Possibility of New Solutions

4. “Please Keep Employers Engaged in ’04”
The Devil (And The Angel) Is In The Details
Details of ‘Actuarial Equivalency’
FASB Guidance
HSA Design
Rules for PBMs and Health Plans
Policy Community:
“Please Keep Employers Engaged in ’04”

5. Employer Options Drop Retiree Coverage: Government Safety Net
Take Employer Subsidy
Coordinate With Medicare As Primary

6. Wall Street Journal
December 4, 2004

7. Cost = Price x Use Why Is No One Talking About the “U” Word? Price
Use / Mix ’ ’
’01 5 9 ’
’03 5 8

8. Why Is No One Talking About the “Q” Word?
Use = Price Sensitivity x Compliance x Quality
(Appropriateness)
Sigma = 2.75
Defect = 11%
Risk Days
Days Where Necessary Therapy Was Lacking
<1%
Days Where Unneeded Therapy Was Provided
11%
Therapy Dispensed
84,000,000

9. What Kind of Risk? Over Utilization Under Utilization Misuse 56.1%
Overuse
Duration
Duplication
Drug-Drug
Drug-Disease
56.1%
42.6%
1.2%

10. Quality Saves Money ’03: $10MM Saved
Source of Savings
(Approx) by Defect
7 Month Results
Conflicts Tracked: 81,423
Changes Made : ,864
Change Rate: %
Cum Reported Savings : $7.4MM
Duration %
Drug Disease 25%
Overuse %
Drug Interaction 5%
Duplicate Therapy 5%
’03: $10MM Saved
’04: Send Letter to Physician and Patient

11. A Market Approach to Costs
“Employers believe that consumer pressure is a powerful, underutilized lever for improving quality and efficiency. They believe that higher quality and lower cost will result if consumers spend more of their own money for services they believe are high quality, and if providers respond by improving their performance. For this strategy to succeed, consumers will have to be activated to seek more efficient, higher quality care and physicians will have to be rewarded for delivering it.”
Sounding Board
NEJM, September 19, 2002
Transparency
Incentives and Rewards
Focus on Quality and Efficiency

12. What Policies Will Accelerate Us Getting To The Right Lower Quadrant?
Efficiency and Quality Create Value
Hospital B
Hospital A
Hospital C
Hospital E
Hospital D
Hospital F
Hospital G
What Policies Will Accelerate Us Getting To The Right Lower Quadrant?

13. National Centers of Excellence: An Example
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United Resource Network
$85,886
$191,591
$273,701
$90,604
$15,101 $0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Average Case
Charges
Average
Case
Payment
Less:
Effective Care
Savings
Less: COE
Discount
Advantage
URN
Per Case
“Traditional Health Plan
Experience”
“Centers of Excellence Effect”