1. THE COMMONWEALTH FUND THE COMMONWEALTH FUND Reforming Provider Payment: Essential Building Block for Health Reform Stuart Guterman Assistant Vice President Director, Program on Medicare’s Future The Commonwealth Fund Alliance for Health Reform Briefing on Payment Reform Washington, DC March 20, 2009

2. THE COMMONWEALTH FUND 2 Path To High Performance: Key Strategies for Achieving Access for All, Better Health Care and Outcomes, and Slower Cost Growth Affordable coverage for all: access and foundation for payment and system reforms –Insurance exchange: choice of private and new public plan –Market reforms, affordability, and shared responsibility Align incentives: payment reform to enhance value –Accessible patient-centered primary care –Move from fee-for-service to more “bundled” payment, with accountability –Align price signals with efficient care and value Aim high to improve quality and health outcomes –Invest in infrastructure: information systems –Promote health and disease prevention Accountable, patient-centered, coordinated care Leadership and collaboration

3. THE COMMONWEALTH FUND 3 Trend in the Number of Uninsured, 2009–2020 Under Current Law and Path Proposal Millions Note: Assumes insurance exchange opens in 2010 and take up by uninsured occurs over two years. Remaining uninsured are mainly non-tax-filers. Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, Feb. 2009.

4. THE COMMONWEALTH FUND 4 Potential Gain in Population Health If the U.S. Reaches Benchmarks 37 million more adults and 10 million more children with accessible primary care 68 million more adults receiving recommended preventive care 70,000 fewer children admitted to hospitals for asthma 250,000 fewer admissions to hospitals for complications of diabetes 600,000 fewer elderly hospitalized or re-admitted for preventable conditions 100,000 fewer deaths before age 75 from conditions amendable to health care 180,000 more physicians using electronic medical records and information networks linking teams

5. THE COMMONWEALTH FUND 5 Total National Health Expenditures (NHE), 2009–2020 Current Projection and Alternative Scenarios NHE in trillions Cumulative reduction in NHE through 2020: $3 trillion Note: GDP = Gross Domestic Product. Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, Feb. 2009.

6. THE COMMONWEALTH FUND THE COMMONWEALTH FUND 6 Interrelation of Organization and Payment Integrated system capitation Global DRG fee: hospital, post- acute, and physician inpatient Global DRG fee: hospital only Global ambulatory care fees Global primary care fees Blended FFS and medical home fees FFS and DRGs Continuum of Payment Bundling Small MD practice; unrelated hospitals Hospital system Integrated delivery system Continuum of P4P Design Outcome measures; large % of total payment Preventive care; management of chronic conditions measures; small % of total payment Care coordination and intermediate outcome measures; moderate % of total payment Less Feasible More Feasible Source: A. Shih, K. Davis, S. Schoenbaum, A. Gauthier, R. Nuzum, and D. McCarthy, Organizing the U.S. Health Care Delivery System for High Performance (New York: The Commonwealth Fund, Aug. 2008). Primary care MD group practice Multi- specialty MD group practice

7. THE COMMONWEALTH FUND THE COMMONWEALTH FUND 7 Net Impact of Path Payment Reforms on Cumulative National Health Expenditures Compared with Current Projection, 2010–2020 (in billions) Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Lewin Group, The Path to a High Performance U.S. Health System: Technical Documentation (Washington, D.C.: The Lewin Group, 2009). Total NHE Private Employers State & Local Governments Househol ds Federal Budget Total Payment Reforms–$1,010–$170–$10–$82–$749 Enhanced payment for primary care –$71–$28–$2–$11–$30 Encouraged adoption of Medical Home model –$175–$25–$13–$36–$101 Bundled payment for acute care episodes –$301–$75–$4–$11–$211 Correcting price signals High cost area updates –$223–$64–$3–$29–$127 Prescription drugs–$76+$22+$12+$5–$115 Medicare Advantage–$165$0 –$165

8. THE COMMONWEALTH FUND THE COMMONWEALTH FUND 8 * Indexed to risk-adjusted 1 year survival rate (median = 0.70). ** Risk-adjusted spending on hospital and physician services using standardized national prices, indexed to median. Data: E. Fisher and D. Staiger, Dartmouth College analysis of data from a 20% national sample of Medicare beneficiaries. Quality and Cost of Care for Medicare Patients Hospitalized for Heart Attacks, Colon Cancer, and Hip Fracture, by Hospital Referral Regions, 2000–2002 Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 20068

9. THE COMMONWEALTH FUND THE COMMONWEALTH FUND 9 What Drives Variation in Spending? Average risk-adjusted standardized spending for chronic obstructive pulmonary disease episode Difference between high and average Type of serviceLowAverageHigh%$ Total episode63727871974823.81877 Initial hospital stay440844144406-0.2-8 Physician5475695761.27 Readmissions6711543255065.31007 Post-acute care466998178078.4782 Other28034743625.689 Source: G. Hackbarth, R. Reischauer, and A. Mutti. “Collective Accountability for Medical Care—Toward Bundled Medicare Payments” New England Journal of Medicine July 3, 2008 359(1):3-5.

10. THE COMMONWEALTH FUND THE COMMONWEALTH FUND 10 Total National Health Expenditure Growth for Hospitals and Physicians, Current Projections and With Policy Changes, 2009-2020 Hospital Expenditures (trillions)Physician Expenditures (trillions) Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Lewin Group, The Path to a High Performance U.S. Health System: Technical Documentation (Washington, D.C.: The Lewin Group, 2009). $0.8 $1.6 $1.4 $0.7 $1.3 $1.1

11. THE COMMONWEALTH FUND THE COMMONWEALTH FUND 11 Conclusions Emphasis on primary care can provide better access to needed care and more patient-centered care Bundled payment can encourage more coordinated care across providers and settings, and more accountability for outcomes and resource use The main objective of payment reform is to provide more organized, effective, and efficient health care delivery Payment reform built on a foundation of coverage for all and system reforms can be more effective These changes will be difficult—they affect how $42 trillion in projected cumulative spending will be allocated But we are not talking about shutting down the health care system—only reducing cumulative spending from $42 trillion to $39 trillion, with annual growth slowing from a projected 6.7% to 5.5% (compared with 4.7% for GDP)

12. THE COMMONWEALTH FUND THE COMMONWEALTH FUND 12 Acknowledgements Cathy Schoen, Sr. Vice President, Research & Evaluation Karen Davis, Ph.D., President Stephen Schoenbaum, M.D. Executive Vice President for Programs Kristof Stremikis, M.P.P Research Associate to the President