1. THE COMMONWEALTH FUND Developing Innovative Payment Approaches: Finding the Path to High Performance Stuart Guterman Assistant Vice President and Director, Program on Payment System Reform Alliance for Health Reform Hill Briefing Pathways to Payment Innovation in a Post-Health Reform Era Washington, DC May 10, 2010

2. THE COMMONWEALTH FUND “The country needs, and unless I mistake its temper, the country demands, bold, persistent experimentation. It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.” Franklin D. Roosevelt, 1932

3. THE COMMONWEALTH FUND Problems with the Current Payment System and Goals of Reform Problems: –Fragmented care –Lack of coordination –Variable quality –High and rapidly-growing costs Goals: –Create incentives for providers to take broader accountability for patient care, outcomes, and resource use –Provide rewards for improved care coordination among providers –Slow growth in health spending –Put in place an infrastructure to support providers in improving quality and efficiency

4. THE COMMONWEALTH FUND The Relationship Between Payment Methods and Organizational Models Fee-for- Service Global Case Rates Global Payment Continuum of Payment Bundling Continuum of Organization Small practices; unrelated hospitals Independent Practice Associations; Physician Hospital Organizations Fully integrated delivery system Continuum of Rewards for High Performance Outcome measures; large % of total payment Simple process and structure measures; small % of total payment Blended FFS/Care Management fee Care coordination and intermediate outcome measures; moderate % of total payment More Feasible Source: Adapted from A. Shih, K. Davis, S. Schoenbaum, A. Gauthier, R. Nuzum, and D. McCarthy, Organizing the U.S. Health Care Delivery System for High Performance, The Commonwealth Fund, August 2008. Less Feasible

5. THE COMMONWEALTH FUND Implications for Payment and System Reform There is an array of organizational models in the health care system, and corresponding arrays of payment approaches and approaches to rewarding high performance We aren’t starting from a single point on the continuum of organization, and we won’t end up at one point—even high-performing, integrated systems can be very different from each other There is no single ‘right’ way for care to be organized or to pay for care But the results we demand from our health system should be consistent everywhere, and we have a right to expect that those demands will be met everywhere

6. THE COMMONWEALTH FUND Payment Innovation in Health Reform Legislation Medical home: Expansion of current Medicare demonstration, new Medicare pilots, Medicaid initiatives ACO: Broad responsibility for quality and cost of patient care, rewards for quality, shared savings Bundled payments: Medicare pilots for hospital and post-acute care, Medicaid initiatives Medicare Advantage: Rates based on plan performance Center for Medicare and Medicaid Innovation

7. THE COMMONWEALTH FUND Center for Medicare and Medicaid Innovation Beginning in 2011, Center in CMS to test innovative payment and service delivery models to reduce program expenditures under Medicare, Medicaid, and CHIP while preserving or enhancing the quality of care; current demonstration authority expanded Models to be selected based on evidence that they address a defined population for which there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures Emphasis on care coordination, patient-centeredness Could increase spending initially, but over time must improve quality without increasing spending, reduce spending without reducing quality, or both Evaluation should include quality of care, including patient-level outcomes, and changes in spending; could consider cross-program impact Secretary could expand duration and scope if model reduces spending without reducing quality

8. THE COMMONWEALTH FUND Key Considerations for Successful Pilots Multi-payer involvement ‘Ground-up’ as well as ‘top-down’ development Array of potential models Flexibility in design and implementation Try vs. test/trust but verify Establish infrastructure to support success Work with MedPAC, MACPAC/feed into IPAB deliberations

9. THE COMMONWEALTH FUND Improving the Process Transparency Site selection and approval Evaluation Translating pilots into policy Resource availability

10. THE COMMONWEALTH FUND “At this point, we can’t afford any illusions: the system won’t fix itself, and there’s no piece of legislation that will have all the answers, either. The task will require dedicated and talented people in government agencies and in communities who recognize that the country’s future depends on their sidestepping the ideological battles, encouraging local change, and following the results. But if we’re willing to accept an arduous, messy, and continuous process we can come to grips with a problem even of this immensity. We’ve done it before.” Atul Gawande, 2010

11. THE COMMONWEALTH FUND Thank You! For more information, please visit: www.commonwealthfund.org Heather Drake, Program Associate Payment System Reform hd@cmwf.org