1. Single-Payer Systems and Pay-for-Performance Reimbursement March 14, 2007 Richmond Academy of Medicine & MCV Rick Mayes, Ph.D. Associate Professor of Public Policy

2. 2 Life’s Unavoidable Tradeoffs Individuals, families, organizations, companies, states, nations constantly strike balances between: Security and Freedom Egalitarianism and Individualism Every health care system has its strengths & weaknesses (“problems”).

3. 3 Life’s Unavoidable Tradeoffs

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5. 5 Alternative Model?

6. 6 America’s “Accidental” Health Care System

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8. 8 Source: OECD Data 2007

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10. 10 Why is the U.S. so Different from Other Countries?

11. 11 Why is the U.S. so Different from Other Countries? “It’s primarily because of higher PRICES (less efficiency).”

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13. 13 Consumer-Directed Health Care & Health Savings Accounts

14. 14 Term used to describe the paradoxical fact that insurance can change behavior of the person insured. example: employer-provided “donut” insurance or auto insurance avg. annual amount spent on medical care (by uninsured person) = $934 avg. annual amount spent on medical care (by insured person) = $2,347 Conclusion I: co-pays, deductibles, utilization reviews make patients use health care more “efficiently” (frugally, wisely, sparingly, etc.) Conclusion II: instead of expanding group health insurance, reduce it The “Moral Hazard” Argument Against Expanding Health Insurance Coverage

15. 15 The “Moral Hazard” Argument Against Expanding Health Insurance Coverage Fallacy I: Moral-hazard argument only makes sense if we consume health care in the same way we consume donuts, car repairs or consumer goods. Fallacy II: Having to pay for your own care does not automatically make ALL of your health care consumption more “efficient.” How could it? example: wife’s appt. with dermatologist Reality: cost-sharing is a very BLUNT instrument example: RAND Corporation’s “Health Insurance Experiment” (1971-86) BOTTOM-LINE: health insurance is moving in the “actuarial” direction and away from the “social insurance” model w/enormous consequences to come…

16. 16 Definition & Objectives of “p4p” “p4p” is basically a new form of reimbursement—developed by insurers and employers—that attempts to differentiate among doctors and hospitals in order to financially reward those that: (1.) provide better quality care - fewer complications, quicker recovery times - more successful or better patient outcomes, etc. and those providers that (2.) do so with greater efficiency - lower costs In short, “p4p” is an emerging payment model that tries to link the quality of care to the level of payment for healthcare services.

17. 17 Origins of and Momentum behind “Pay for Performance” (1) Institute of Medicine reports: - To Err is Human (1999) - Crossing the Quality Chasm (2001) (2) John Wennberg & “Small-Area Large-Variation” studies: - tonsillectomy rates (1977) - Cesarean section rates (1996) - variation in Medicare spending/per beneficiary

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20. 20 Source: Dartmouth Atlas of Virginia Average Number of Days in Hospital During Medicare Beneficiaries’ Last 6 Months of Life

21. 21 Number of Acute Care Hospital Beds/per 1,000 Residents Source: Dartmouth Atlas of Virginia

22. 22 Number of Hospital Discharges of Medicare Beneficiaries for all Medical Conditions (DRGs)/per 1,000 residents Source: Dartmouth Atlas of Virginia

23. 23 Average number of physician visits per patient during last six months of life who received most of their care in one of 77 “best” US hospitals Source: John Wennberg (2005)

24. 24 Origins of and Momentum behind Pay for Performance Researchers’ and Insurers’ Conclusions : (1.) Physician practice styles vary considerably, especially regarding diagnoses for which treatment decisions are not driven by consensus on appropriate care and it is not possible to obtain evidence-based guidelines from reading journals or consulting textbooks. e.g., back surgery rates (the #/per 1,000 Medicare beneficiaries ): - 7/per 1,000 in Naples, FL - 2/per 1,000 in Hanover, NH - 4.5/per 1,000 national average (2.) In medicine, supply generally creates its own demand (e.g., # of hospital beds/per capita, technology available, # of specialists/per capita).

25. 25 Rates of Surgery for Back Pain/per 1,000 Medicare Enrollees Source: Dartmouth Atlas of Virginia

26. 26 Rates of four orthopedic procedures among Medicare enrollees in 306 Hospital Referral Regions HipFractureKneeReplacementHipReplacementBackSurgery Standardized ratio (log scale) Source: John Wennberg (2005)

27. 27 Association between cardiologists and the average # of visits to cardiologists among Medicare enrollees Source: John Wennberg (2005)

28. 28 Interview w/Tom Scully, former CMS Administrator (2002) Mayes: Others I’ve interviewed have said that hospitals will cry, cry, cry [about their finances and level of Medicare reimbursement], but that sometimes you have take it with a grain of salt. Scully: Oh, they’re doing great! I’ll tell you, go find me a hospital that hasn’t built a giant new bed-tower in the last few years. They’ve actually slowed down, because the government has phased out Medicare capital (reimbursement)… We used to pay for capital in Medicare; it was a DRG add-on for capital expenditures. Well, if you’re getting 40 percent of your revenues from Medicare and you want to build a new building and Medicare will pay for 40 percent of it, right? Then why not? So what you were getting all through the 1980s was a massive building spree up into the early 1990s and even through the ‘90s, because it was a 10-year phase out [of the DRG add-on for capital]. If you wanted to build a new hospital wing in 1990—even if you didn’t have any patients for it—if you budgeted $100 million, Medicare would write you a check for $40 million! So what do you get? You got a hell of a lot of big new hospital wings, need them or not. This is one of the reasons we’ve had such massive over-capacity… You’d have to be an idiot not to put up a new building every couple of years, because Medicare paid for such a big part of it. That is slowing down now and you’re starting to see the demand catch up on capacity in a lot of markets. * Roemer’s Law: “A hospital bed built is a hospital bed filled.” (behavior is unconscious)

29. 29 Association between # of hospital beds per 1,000 residents and discharges per 1,000 among Medicare enrollees in 306 HRRs Source: John Wennberg (2005)

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34. 34 Hospital Compare - A quality tool for adults, including people with Medicare Percent of Heart Attack Patients Given Aspirin at Arrival AVERAGE FOR ALL REPORTING HOSPITALS IN THE UNITED STATES 91% AVERAGE FOR ALL REPORTING HOSPITALS IN THE STATE OF VIRGINIA 93% VIRGINIA COMMONWEALTH UNIVERSITY HEALTH SYSTEM (VCU/MCV)96% Percent of Heart Attack Patients Given Beta Blocker at Discharge AVERAGE FOR ALL REPORTING HOSPITALS IN THE UNITED STATES 85% AVERAGE FOR ALL REPORTING HOSPITALS IN THE STATE OF VIRGINIA 88% VIRGINIA COMMONWEALTH UNIVERSITY HEALTH SYSTEM (VCU/MCV)98% www.hospitalcompare.hhs.gov ->

35. 35 Momentum behind “Pay for Performance” Growing ability to measure “quality” and “performance”—and the subsequent discovery that they vary more than previously assumed—is contributing to the popularity of “p4p,” because it would allow health plans and employers to do 3 things: (1) pay more to medical providers with the best scores/outcomes (2) encourage the majority of medical providers to improve (3) perhaps pay less to providers with poor scores/outcomes Question : If publishing S.O.L. test scores and “on-time” arrival statistics is considered a good idea for encouraging behavioral change and improvements on the part of schools and airlines to improve their performance, the argument goes, how bad of an idea could it be for medical providers?

36. 36 Potential Negative Implications Depending on how “p4p” is structurally designed, it could be problematic (translation “negative”) for several reasons: (1) Some “waste” that it targets is necessary defensive medicine. (2) It could encourage “gaming” on the part of medical providers. (3) Not all clinical practice guidelines (CPGs) are perfect, particularly for older Medicare beneficiaries with multiple chronic conditions; and for some chronic conditions—specific cancers, chronic lung disease, and heart failure—they hardly exist at all. (4) In Medicare, as in many private health plans, patients receive their care in an a la carte fashion, which makes it hard to assign responsibility for performance our outcomes to any one specific provider.

37. 37 Potential Positive Implications Fortunately, existing “p4p” plans tend to only pay more to the best providers. In addition: (1) Providers that already meet a performance standard (e.g., an 80% childhood immunization rate, 100% administration of aspirin to patients who present with cardiac arrest) need only maintain their status quo for bonus payments. (2) The percentage of a physician’s overall revenue at stake is rarely more than 5%-10%. (3) So far, “p4p” plans primarily target the underuse of preventive care, so spending generally increases after implementation. (4) Which can provide hospitals and physicians with additional capital to invest in electronic medical records and other practice improvements.

38. 38 Conclusion “p4p” is growing rapidly (2003) – roughly 35 health plans covering approx. 40 million members (2006) – roughly 80 health plans covering approx. 60 million members “p4p” can generally help to improve the quality of primary care, as well as the care of patients with chronic conditions Medicare…the “800-pound” gorilla of American medicine - “It’s hard to convey how big this is going to be, but it’s going to be big,” says Dr. Mark McClellan, former CMS Administrator. - 80% of beneficiaries have 1 chronic condition; 30% have 4+ (this latter group drives almost 80% of Medicare’s total spending)

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