Presentation by Paul B. Ginsburg, Ph.D. at the Detroit Regional Chamber 2010 Health Care Forum

1. Provider Payment Reform Paul B. Ginsburg, Ph.D. Presentation to 2010 HealthCare Leaders Forum, Detroit, MI, April 27, 2010

3. Emphasis on volume

4. Procedures over management

5. Coordination has no value

6. Providers responding to these incentives

7. Response often involves increasing capacity

8. Capacity further increases use of those servicesEspecially physician-owned capacity We Get What We Pay For

10. Paying on the basis of units of service that are more reflective of what consumers seeking from delivery system

11. Solutions rather than servicesEpisodes of care Management of chronic disease Meeting medical needs Two Distinct Aspects to Reforming Payment

13. Magnitude reduced by CMS revamp of DRG methods

14. Distortions remain for per diem and discounted charges approachesPattern of Payment Structure Deviating from Cost Structure

16. Physician work component

17. Technical (facility) component

18. Distortions not intended by payersPattern of Payment Structure Deviating from Cost Structure cont.

20. Physicians invest in facilities

21. Single specialty group mergers to reach scale needed for equipment-intensive services

22. McAllen, Texas

23. Physicians shifting to more lucrative specialties

24. Leading to primary care shortagesVigorous Provider Response to Inadvertent Payment Incentives

26. Third party payment changes calculus of patient convenience

27. Self-referral incentives apply to more services

28. Not just physician professional time

29. Incentives likely more powerful when services highly profitable

30. Extra incentives when average costs much higher than marginal cost (major equipment)Capacity Leads to Higher Rates of Service Use

33. Sufficient clout with many providersPolicies to Reduce Pricing Distortions

37. Second generation DRG system

38. More accurate calculation of relative payment rates

39. Long overdue update of practice expense relative values in Medicare RVS implemented 1/1/10

40. Impact already visiblePolicy Change in Relative Payment Structure Well Underway

42. 10 percent increase in payment rates for primary care services

45. Cardiology campaign to block 2010 revisions to physician fee schedule

46. Industry support leads to unlevel playing field among physician specialtiesGovernance Risks

48. Some compatible with others

49. Some ready for broad implementation

51. Others need further development and testing

52. How to pursue this more deliberatively and rapidlyBroader Units of Payment

54. Pay for coordination and patient education

57. Innovation is inclusion of multiple providers

59. Medicare ACE demonstration for selected orthopedic and cardiovascular episodesPromising Approaches under Development cont.

62. Apply grouper across a specialty

63. Evaluate all claims costs

64. Rewards limited to lower patient copaymentPromising Approaches under Development cont.

67. Incentives based on spending per enrollee

68. Shared savings models--Capitation “lite”

69. Focus on real organizations with contracts rather than creations from analysis of claims data

70. But enrollee attribution to ACO based on analysis of past or current claims dataPromising Approaches under Development cont.

72. Clear preference for bundled payment due to stronger incentives

73. But not always feasibleAccuracy of risk adjustment Provider agreements to share risk Provider capacity to take risk Consumer willingness to accept physician referral Payment Methods for Bundled Approaches

75. FFS basis of bundled payment rates

76. Shared savings cannot succeed without reformed relative payments in FFSExisting distortions in FFS may be stronger than shared savings incentives Payment Methods for Bundled Approaches cont.

78. Contract with ACOs

81. Large hospital systems with captive health plans well positioned, e.g. Geisinger

82. Dominant Blue plans also well positionedApproach to Development and Piloting cont.

85. Even large deductibles provide little incentive when they are exceededRole of Insurance Benefit Structure cont.

87. More confidence in ability to choose efficient prices

89. Reference price is the low-cost adequate quality provider

90. “Cadillac” tax will eventually motivate such benefit structuresRole of Insurance Benefit Structure cont.

92. Provider investments unlikely when only a minority of patients affected by reformed system

93. Facing distinct incentives for different patients dilutes provider incentives from reformed payment structureCoordination of Payers

95. Medicaid programs and private payers follow Medicare lead

96. States specify payment systems and seek waivers to include Medicare Coordination of Payers cont.

100. Medicare invites private insurers to work with it on pilots

101. Allow more experimentation before settling on a reformed payment systemCoordination of Payers cont.

103. Payment reform increases incentive for vertical integrationEvidence of hospitals negotiating higher rates for physicians Market Issues

105. Distinct problem of private payer market power

106. Especially in hospital care

107. Two basic strategies

108. Patient incentives to choose less expensive providers

109. All-payer rate regulation

110. Neither a part of health care reformPrivate Payers

112. Medicare well positioned to lead

113. But Medicare’s potential to lead needs shoring up

114. Insulation from Congressional and White House intervention in payment decisions

115. Reliable resources to perform technical functions

116. Limitations in private payer market power will need to be addressedConcluding Thoughts