[Senate Hearing 112-876]
[From the U.S. Government Publishing Office]
S. Hrg. 112-876
IMPROVING QUALITY, LOWERING COSTS: THE ROLE OF HEALTH CARE DELIVERY
SYSTEM REFORM
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HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING THE ROLE OF HEALTH CARE DELIVERY SYSTEM REFORM, FOCUSING ON
IMPROVING QUALITY AND LOWERING COSTS
__________
NOVEMBER 10, 2011
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
Available via the World Wide Web: http://www.gpo.gov/fdsys/
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland MICHAEL B. ENZI, Wyoming
JEFF BINGAMAN, New Mexico LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington RICHARD BURR, North Carolina
BERNARD SANDERS (I), Vermont JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, JR., Pennsylvania RAND PAUL, Kentucky
KAY R. HAGAN, North Carolina ORRIN G. HATCH, Utah
JEFF MERKLEY, Oregon JOHN McCAIN, Arizona
AL FRANKEN, Minnesota PAT ROBERTS, Kansas
MICHAEL F. BENNET, Colorado LISA MURKOWSKI, Alaska
SHELDON WHITEHOUSE, Rhode Island MARK KIRK, Illinois
RICHARD BLUMENTHAL, Connecticut
Daniel E. Smith, Staff Director
Pamela Smith, Deputy Staff Director
Frank Macchiarola, Republican Staff Director and Chief Counsel
(ii)
C O N T E N T S
__________
STATEMENTS
THURSDAY, NOVEMBER 10, 2011
Page
Committee Members
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island, opening statement...................................... 1
Kirk, Hon. Mark, a U.S. Senator from the State of Illinois....... 3
Franken, Hon. Al., a U.S. Senator from the State of Minnesota.... 57
Witness--Panel I
Blum, Jonathan, Deputy Administrator and Director of the Center
for Medicare, Centers for Medicare and Medicaid Services,
Washington, DC................................................. 5
Prepared statement........................................... 7
Witnesses--Panel II
Koller, Christopher F., Commissioner, Office of the Health
Insurance Commissioner, Providence, RI......................... 18
Prepared statement........................................... 20
Kaplan, Gary, M.D., FACP, FACMPE, FACPE, Chairman and CEO,
Virginia Mason Medical Center, Seattle, WA..................... 24
Prepared statement........................................... 26
Poulsen, Greg, Senior Vice President and Chief Strategy Officer,
Intermountain Healthcare, Salt Lake City, UT................... 33
Prepared statement........................................... 35
Fendrick, A. Mark, M.D., Professor, Department of Internal
Medicine and Department of Health Management and Policy,
University of Michigan, and Co-Director, University of Michigan
Center for Value-Based Insurance Design, Ann Arbor, MI......... 50
Prepared statement........................................... 52
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Senator Murray............................................... 66
Response by Jonathan Blum to questions of:
Senator Whitehouse....................................... 67
Senator Enzi............................................. 70
Senator Roberts.......................................... 72
Response to questions of the HELP Committee by:
Gary S. Kaplan, M.D., FACP, FACMPE, FACPE................ 73
Greg Poulsen............................................. 75
A. Mark Fendrick, M.D.................................... 75
(iii)
IMPROVING QUALITY, LOWERING COSTS: THE ROLE OF HEALTH CARE DELIVERY
SYSTEM REFORM
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THURSDAY, NOVEMBER 10, 2011
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 1:30 p.m. in Room
SD-430, Dirksen Senate Office Building, Hon. Sheldon White-
house, presiding.
Present: Senators Whitehouse, Kirk, Bingaman, and Franken.
Opening Statement of Senator Whitehouse
Senator Whitehouse. I will apologize to everybody for what
is going to be a somewhat uncoordinated hearing. It is perhaps
ironic that in a hearing that is going to focus so much on
improved coordination of care, we are going to have a hearing
that is uncoordinated, but there are a whole array of votes
that are beginning as early as 1:45, and so we will need to
work through that. I think what we will probably try to do is
to get through Mr. Blum's testimony first, and then depart for
the votes, and then reconvene shortly after the series of
votes. So let me thank everybody for being here.
Delivery system reform is sort of a passion of mine, and I
think of some other of my colleagues as well. It may not get
much public attention, but it is the way to lower costs and
improve quality in our health care system. I have seen it in
action dating back to the founding of the Rhode Island Quality
Institute years ago to develop innovative health care processes
in Rhode Island.
Chairman Harkin has been a champion of prevention and
primary care. Senator Mikulski has been a forceful advocate for
quality improvement. She took the lead on the quality title of
the Affordable Care Act, and so the HELP committee has been
engaged in this for a while, as has the Finance committee under
the leadership of Chairman Baucus. His Ready to Launch program,
well before the health care bill, helped position us into the
payment reform mode that the health care bill so much reflects.
The hearing today is going to focus on the Affordable Care
Act's delivery system reform provisions, and the opportunities
and challenges that we face in restructuring the delivery of
care. We will hear about real life examples from those who are
already realizing the potential of delivery system reform to
transform our health care system. It is now one of the world's
least efficient, most complicated, and most frustrating systems
for patients and providers, but it does not have to be. It can
be the envy of the world.
There is broad bipartisan agreement that the key driver of
the national debt and deficit is health care. This year,
Congressman Ryan said, ``If you want to be honest with the
fiscal problem and the debt, it really is a health care
problem.'' I may not agree much with Congressman Ryan, but on
that, we do agree.
And the facts bear it out, whether you are insured by
Medicare or Medicaid, the VA or TRICARE, United or Blue Cross,
in the last decade, you have seen costs across all insurers go
through the roof.
Secretary Gates recently said in reference to the defense
budget, ``We're being eaten alive by health care.'' That ought
to be a pretty strong signal that the problem is system-wide
and that we need to act urgently to implement reforms to drive
quality, value, and efficiency in our health care system. If we
don't, the alternatives are bleak.
Gail Wilensky, who oversaw Medicare and Medicaid under
President George H. W. Bush, said this April, ``If we don't
redesign what we are doing, we can't just cut unit
reimbursement and think we are somehow going to get a better
system.'' Indeed, we will be left with painful decisions about
limiting benefits, or shifting costs on to families, or on to
States, or on to the private sector.
The reforms we need fall into five key areas: prevention
and primary care, improving and measuring quality, payment
reform, administrative simplification, and health information
technology.
I look forward to hearing from Mr. Blum, our first witness,
about CMS's progress implementing the delivery system portions
of the Affordable Care Act, and other initiatives that CMS is
undertaking to improve our health care delivery system.
The President's Council of Economic Advisors estimated that
over $700 billion a year can be saved out of our health care
system without compromising health outcomes. Indeed, I would
say probably improving health outcomes.
The Institute of Medicine put this number at $765 billion a
year. The New England Health Care Institute reported that it
was $850 billion a year, and the Lewin Group and former Bush
secretary, Paul O'Neill, have estimated the savings at $1
trillion a year.
When you look at the drastic variations, and cost, and
quality that we see today in our health care system, a chart on
that is in the testimony of one of our witnesses, we have to
drive the high-cost, low-performing States toward the States
with high performance and lower costs.
Thankfully, we are not alone in this fight. There is a
veritable movement out there of doctors, hospitals, insurers,
employers, even some States who have taken it upon themselves
to experiment in ways to improve the quality, safety, and
effectiveness of care. To pioneer new delivery systems that
encourage providers to coordinate care, and to test safety
practices to determine how caregivers can reduce adverse events
and errors.
The witnesses on the second panel fall into this category.
I am proud of them and I look forward to hearing more about the
work that they have accomplished.
The urgent nature of our debt and deficit, the pressure
that our rising health care costs create should impel us toward
the promise that health care delivery system reform holds to
deliver the savings we need and to do so in the most humane way
by improving the quality of care.
I hope this hearing will further this purpose and I look
forward to continuing this conversation with my colleagues.
Senator Kirk.
Statement of Senator Kirk
Senator Kirk. I thank the chairman for having this hearing,
and it is very important, especially given what we are seeing
now in the news.
Health care is driving the deficit and debt debate in the
Congress, and we are seeing a collapse of European socialism
before our eyes, as there is a run on the Greek bond, a run on
the Italian bond, and now apparently the French bond is under
siege.
Prime Minister Margaret Thatcher reportedly once said that,
``Socialists eventually run out of other people's money.'' And
people are demonstrating now in Athens to somehow get
foreigners to lend them more money so they don't need to reform
their State.
We have seen the Greek State go from 300,000 employees to
700,000 employees in just one generation. It is utterly
unsustainable, and it is collapsing because no one will lend
them more money.
In this space, we have seen now the United States' credit
rating collapsing, so we have had one of three triple-A credit
ratings collapse. It is likely the other two will be under
siege, especially if the dire reports of the super committee
prove true. I think if we don't pass the Budget Control Act
legislation, then it is likely that Moody's and Fitch will also
pull the triple-A credit rating of the United States. Much of
that will not be because of patients or doctors, but because
Congress, which has steadily expanded eligibility for various
programs without an expanding economy or tax base to pay for
it.
I am particularly worried because we want to provide health
care, and we want to provide health care for the low-income
Americans, but what we are seeing now in Europe is that health
care for Europeans is going to collapse because the State
cannot borrow any more money to pay for it. We should avoid
having overly expensive programs that would especially promise
seniors benefits, and then not be able to borrow money from
China to pay for it.
Now I am very happy for our lead witness here. I will just
note the real Ranking Member of this committee, Senator Enzi, 8
months ago asked Secretary Sebelius questions, for the record
on this, and he has been told or the staff tells me now, it
took you guys 8 months to get back to him, which I think
probably you can do a better job than that.
The Center for Medicare and Medicaid Services spent $800
billion in 2010. The Medicaid expansion to the new health care
law has increased spending by roughly $100 billion a year
through 2019. Obviously, this is completely unsustainable and
this is partially to fuel Medicare fraud which, according to
the Administration, is running at $60 billion a year. That is
the equivalent of a trip to Mars and back three times a year in
wasted money by the CMS system.
I am particularly concerned about your philosophy of pay
and chase, which cannot be explained in Peoria or anywhere else
in America for how you handle reimbursement under the system.
I note here that the cost drivers are partially patients
who have five or more chronic conditions a year and are seeing
14 different physicians on average. There does seem to be room
for coordination, but the Government is totally incapable of
doing that in any rational fashion. I would say that
competition is able to do that. The Government is only capable
of either spending money wildly, which is what Europe is
underway and/or rationing care, which is--I used to live in
Britain and I saw a rationed health care system--fairly
shocking.
Most Americans visit that country as tourists and obviously
you don't get on a plane for a European holiday unless you are
healthy. But I was completely shocked at what I saw on the--
especially the condition of Government health care and
Government hospitals in that country. Especially taking a
hospital like St. Bartholomew, I believe its name was, the
oldest public hospital in Europe, 800 years old, but after the
Government took it over, it took only 40 years to ruin that
hospital and then bankrupt it under the NHS system.
I am particularly worried that Chairman Enzi highlighted
HHS' claim on the Partnership for Patients, a new health care
quality and safety initiative could, and this is your guy's
quote, ``Would potentially save $35 billion across the health
care system including $10 billion in Medicare savings over the
next 3 years.'' I have no way of backing that up. HHS has not
conducted any actuarial estimate prior to releasing the savings
estimate. No official estimate was prepared until Senator Hatch
and Senator Enzi sent a letter in May to the Chief Actuary.
At the Centers for Medicare and Medicaid Services, Mr.
Richard Foster was requested to do this, and he responded to
Senator Enzi in September saying, ``No cost estimate is
currently feasible,'' and that's your own guy who said that.
Given these uncertainties, it does not appear that the
Administration now can claim that this voluntary incentive
program will achieve its goal of $10 billion in health care
savings over the next 3 years, or $50 billion in savings over
the next 10. And that's on top of the Ponzi scheme of the CLASS
Act, which was intended to make the bill look like it was
budget neutral, but everybody kind of got the joke of what was
happening. And finally that effort collapsed, thankfully, when
the Administration realized that they could no longer put up
the charade that was going on there.
I am particularly interested also in the view of the
witnesses here, but I will say that overall there appears to be
a cloud over American health care and that cloud is: who is
going to be the president next year? It is increasingly likely
that we have no idea who is going to be the president, but I
would say if it is Mitt Romney, then all of this collapses, and
it probably collapses by next August when the Act is repealed.
If it is President Obama, on the other hand, we will have to
suffer under this legislation, and go the European route until
our creditors pull the plug.
And so to me it seems that we have a very uncertain
situation. I feel for you now because given that we have
hundreds and hundreds of pages which, as a House member I can
report, no one read, now trying to be implemented. Now, the No.
1 subject of the Presidential contest, of which no one knows
how it will turn out, as a health care provider and most
importantly as a patient, no one knows where this is going. And
all of this uncertainty is hurting one-seventh of the economy,
and all created not by the patient, not by doctors, but by this
committee and this Congress. And with that, I have said enough.
Back to you, Mr. Chairman.
Senator Whitehouse. I think we still have some time for the
witness anyway, and I would be delighted to get to Mr. Blum's
testimony.
He is the deputy administrator and director for CMS, the
Center for Medicare and Medicaid Services, and is responsible
for overseeing the payment of Medicare fee for service
providers, and privately administered Medicare health plans,
and the Medicare prescription drug program.
He formerly served here in the Senate as an advisor to
Senate Finance Committee members, and its current chairman,
Senator Baucus. He has been a Medicare program analyst at the
White House Office of Management and Budget, and was the vice
president at Avalere Health overseeing its Medicaid and long-
term care practice.
He has a Master's degree from the Kennedy School of
Government, and a B.A. from the University of Pennsylvania. Mr.
Blum, we are looking forward to your testimony.
STATEMENT OF JONATHAN BLUM, DEPUTY ADMINISTRATOR AND DIRECTOR
OF THE CENTER FOR MEDICARE, CENTERS FOR MEDICARE AND MEDICAID
SERVICES, WASHINGTON, DC
Mr. Blum. Great. Chairman Whitehouse, Senator Kirk, thank
you for the opportunity to talk about our work today to
implement the Affordable Care Act to reduce Medicare costs and
to change the delivery of care.
The Medicare program faces many challenges. I think what
was raised during the opening statements highlight those
challenges. But by and large, most Medicare beneficiaries
receive care through the traditional fee for service program.
The traditional fee for service program varies wildly by
quality across the country, varies wildly by cost across the
country. And I believe that our greatest challenge is to bring
more consistency to how fee for service benefits are provided
throughout the country.
More than a quarter of Medicare beneficiaries receive care
through capitated health plans, Medicare Advantage plans. For
the past several years, those plans have been paying more than
the same services for traditional fee for service. And without
great confidence, that Medicare beneficiary in capitated plans
receive greater value for greater subsidies that were provided.
We understand we have many challenges to address these
concerns, but the Affordable Care Act has provided the Medicare
program with many new tools to address those challenges.
During my 5 minutes, I want to talk about some of the work
to date, but also our priorities for the next 12 months.
In the past couple of weeks, CMS has put out some
statistics that tell me that the program is moving in the right
direction. We announced Part A, Part B, the MA, the Part D
premiums for 2012. Across the board, Part A, the MA premiums,
the Part D premiums are virtually flat for 2012, on average,
relative to today. The Part B premium is growing much more
slowly than previously projected, which tells us that we are
seeing signs of lower spending growth and overall cost
containment going on throughout the program.
We have millions of Medicare beneficiaries who are
accessing preventive benefits at no charge to them. And also
more than 2.2 million Medicare beneficiaries are saving
dramatically out-of-pocket costs on their Part D drugs, brand
name drugs provided during the so-called donut hole. This tells
us that we are having more prevention, more compliance, focus
on wellness. And the past couple of weeks have shown us very
promising signs of a reformed Medicare program.
The Affordable Care Act has given us new tools, new
programs to implement, and I am pleased to report on their
progress to date.
Last month, CMS put out its final rule for the ACO, the
Accountable Care Organization program, and we are very
confident that this program will provide many new opportunities
for health care providers, hospitals, physicians to come
together to better coordinate care through the traditional fee
for service program.
CMS responded to more than 1,300 comments that came in to
CMS, all giving us very strong suggestions about how to improve
the ACO program and CMS put out final rules last month. CMS
will begin to be taking in applications from ACO potential
organizations starting January 1. The ACO program will allow
organizations to share in savings for those that can
demonstrate that quality has been improved, and overall costs
Part A--Part B costs have been lowered that those organizations
will be able to share in the savings.
Earlier this year, CMS put out the final rules and the
final program guidelines for the Hospital Value-Based
Purchasing program. Starting in 2013, CMS will fundamentally
change how it pays for inpatient hospital care to provide
budget-neutral payment incentives for hospitals that improve
their clinical performance and their overall patient's care
experience. This is a new way to pay for hospital care, and we
are fulfilling the goal to shift our payment rates from purely
paying for volume to paying for value and the overall clinical
care experiences that Medicare beneficiaries experience
starting in 2013.
We have also changed fundamentally how we will pay for
private capitated health plans starting in 2012. Using CMS's
five-star quality rating system, those plans that have higher
performance--four-star, five-star--for example, will receive
higher reimbursements that can, in turn, provide better benefit
levels. That quality star rating system takes into a whole host
of different measures, quality of care measures, patient's
care, and care satisfaction measures. We are already seeing
more beneficiaries gravitate to higher quality plans that give
us a positive sign for progress.
The Center for Innovation has been in operation for more
than 12 months. They have put out a very strong policy agenda
this year. Their focus has been in several areas. First, to
complement the overall ACO program, the Innovation Center will
announce later this year the final pioneer ACOs. These are
organizations that can take on greater risk and be accountable
for greater quality results than today's ACO program.
The Innovation Center has put out a call for response in
four bundled payment models that will incorporate both the
acute care, the physician care, the post-acute care to a single
episode of payment to create much more stronger incentives for
care to be coordinated, for care to be managed during an entire
episode of hospital care. We have seen already a tremendous
response from hospital and other organizations that wish to
participate with that bundled payment model.
[The prepared statement of Mr. Blum follows:]
Prepared Statement of Jonathan Blum
Chairman Harkin, Senator Whitehouse, Ranking Member Enzi, and
distinguished committee members, thank you for inviting me to discuss
the Centers for Medicare & Medicaid Services' (CMS) initiatives to
improve our Nation's health care delivery system.
In the 18 months since the Affordable Care Act became law, CMS has
continued to strengthen the Medicare and Medicaid programs for the
millions of Americans who rely on them, while implementing reforms that
will ensure that we spend taxpayers' money wisely, improve health care
quality, and control health care cost growth. Over the past year and a
half, CMS has unveiled a series of rules and initiatives that will
change the way Medicare pays hospitals, doctors, and other health care
providers, to ensure that they are providing the kinds of high-quality
care beneficiaries expect and deserve, at a cost our Nation can afford.
These changes will provide Americans with better health care by
rewarding what works--such as improved care coordination--while also
giving Medicare the tools to control costs over the long run--such as
changing the way we pay doctors and other providers to reward
efficient, quality care. We hope the entire health care system will
adopt these new delivery system reform initiatives.
We have made major progress in strengthening Medicare over the last
18 months while implementing the Affordable Care Act. At a time when
other health care costs are rising faster than inflation, Medicare
costs are stable. Following the implementation of the Affordable Care
Act, growth in Medicare per capita spending has declined significantly.
Overall, Medicare Part D, Medicare Advantage (MA), and Medicare Part A
premiums will remain virtually the same for 2012 as in 2011, even as
beneficiaries enjoy new benefits, and Medicare Part B premiums in 2012
will be lower than previously projected. Meanwhile, on November 4,
2011, CMS announced that so far this year, 22.6 million beneficiaries
in fee-for-service Medicare have used preventive services that are now
provided at no cost to them, including the new free Annual Wellness
Visit.\1\ Additionally, more than 22 million beneficiaries have saved
in total over $1.2 billion (an average of $550 per person) on their
prescription drugs, thanks to a 50 percent discount on their covered
brand name prescription drugs in the donut hole.\2\ For 2010, nearly 4
million seniors who reached the prescription drug donut hole received a
$250 rebate check to help them afford the cost of their prescription
drugs.\3\ Thanks to these benefits and the reforms in the law, a senior
enrolled in the fee-for-service Medicare program could save more than
$3,500 over the next 10 years.\4\
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\1\ http://www.cms.gov/apps/media/press/
release.asp?Counter=4158&intNumPerPage=10&
checkDate=&checkKey=&srchType=1&numDays=3500&sr.
\2\ http://www.cms.gov/apps/media/press/
release.asp?Counter=4158&intNumPerPage=10&
checkDate=&checkKey=&srchType=1&numDays=3500&sr.
\3\ http://www.hhs.gov/news/press/2011pres/03/20110322a.html.
\4\ http://www.hhs.gov/news/press/2011pres/03/20110322a.html.
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With the new provisions in the Affordable Care Act, CMS has the
opportunity to work with both the public and private sectors to make
real advancements in the Nation's health care delivery system to
improve the quality of life and quality of care for our beneficiaries
and other Americans. With over 100 million people enrolled in Medicare,
Medicaid, and the Children's Health Insurance Program (CHIP), CMS has
an important role to play in improving the delivery of health care in
our Nation.
our current delivery system is fragmented and expensive
Our Nation has top-notch doctors and other health care providers,
and leads the world in health care technology and cutting edge
treatments. Yet the system in which these talented people work falls
short far too often. Our delivery system is fragmented, leaving
patients in the care of multiple doctors, each sometimes unaware of how
the other is treating the patient. Medical errors can occur as a
patient moves from one care setting to another, or is prescribed
different medications that interact. For too long, our current system
focused on caring for the sick, doing little to keep people healthy in
the first place. As a result, our health care system is expensive and
does not necessarily produce the best health care results. It is one of
CMS' top priorities to lead the transformation of the delivery of care,
so that all our beneficiaries receive high-quality care that is
coordinated among their doctors and specialists, and which also avoids
errors and saves money.
In order to achieve this goal, CMS has already established
initiatives that encourage health care providers to deliver high-
quality, coordinated care at lower costs. CMS is transforming from a
passive payer of services into an active purchaser of high-quality,
affordable care through these newly established initiatives. Since the
passage of the Affordable Care Act, CMS has already rolled out many
reforms that promote improved care, such as the Medicare Shared Savings
Program, Hospital Value-Based Purchasing (VBP), and the strengthened
Medicare Advantage 5-Star Rating program. Now that we have moved
forward with these reforms, we expect further care improvements and
cost savings over the next several years as these programs are
implemented fully. Building on this work, CMS is focusing on the next
set of priorities for reforming our care delivery system. Those
priorities include new ways of rewarding efficiency and improving
beneficiary care, investing in patient safety and care coordination,
and improving the quality and lowering the cost of care for the
millions of Americans enrolled in Medicare, Medicaid, and CHIP.
success at cms: rewarding quality and coordinating care
Thanks to the Affordable Care Act, Medicare beneficiaries will
enjoy better quality of care and a more innovative care delivery system
designed to improve their health outcomes and reduce costs. Below are a
few examples of the delivery system reforms we have initiated since the
passage of the Affordable Care Act.
Investing in Quality Care
Hospital payments account for the largest share of Medicare
spending, and Medicare is the largest single payer for hospital
services. Earlier this year, CMS established the new Hospital Value-
Based Purchasing (VBP) Program, which will change how CMS pays
hospitals for inpatient acute care. This program, which ties payment to
value, is expected to foster higher-quality care for all hospital
patients across our country's health system.
In fiscal year 2013, CMS will implement the new budget-neutral,
value-based incentive payments. These payments will reward hospitals
based on their overall performance on a set of quality measures that
are linked to clinical processes of care and patients' experiences of
care. National bodies of experts, including the National Quality Forum,
have endorsed these measures, and CMS will post the hospitals' scores
related to those measures on the Hospital Compare Web site.\5\ The
program aims to help patients receive higher-quality care and see
better outcomes.
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\5\ www.hospitalcompare.hhs.gov.
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Under the program, CMS will score hospitals based on their
performance on each measure relative to other hospitals, as well as on
how a hospital's performance on each measure has improved over time.
CMS will use the higher of a hospital's improvement and achievement
score on each measure to determine a total performance score, which
will then be translated into an incentive payment. In addition to
rewarding excellence, hospitals will be given an incentive for
continuous improvement of care delivery. In the future, CMS plans to
add new measures that focus on improved patient outcomes and prevention
of hospital-acquired conditions. CMS may replace measures that reach
very high compliance scores, continuing to raise the bar and spur
quality improvements. This redirection of funds will provide a strong
incentive for quality improvement, which we expect will result in
significant savings for Medicare, taxpayers, and enrollees over time.
Promoting Coordinated Care to Improve Care and Create Savings
CMS has established initiatives to ensure that Medicare patients
get the right care, in the right place, at the right time. A key part
of CMS' work in this area is a multi-part initiative built around
Accountable Care Organizations (ACOs), which bring together doctors,
hospitals and other health care providers to better coordinate care for
patients. ACOs are an innovative service delivery model being used by
CMS and in the private sector and communities across the country. If
ACOs improve quality of care and lower costs, health care providers, as
well as Medicare, can share in the savings. Those savings will help to
shift payment incentives toward rewarding quality and value rather than
volume of care. Provider participation in ACOs is purely voluntary, and
beneficiaries will continue to have all their same benefits, including
their ability to see any Medicare provider.
CMS released the Medicare Shared Savings Program final rule (CMS-
1345-F) on October 20, 2011. Under this program, providers who
voluntarily form an ACO and meet quality standards based upon patients'
outcomes and care coordination, as well as other measures, may share in
the savings they achieve for the Medicare program. ACOs that commit to
share in savings and losses for the duration of the agreement may
receive a higher share of any generated savings.
The publication of this rule followed months of soliciting feedback
and receiving comments from stakeholders across the country.
Stakeholder groups have generally responded favorably to the newly
published rule. For example, the American Medical Association (AMA)
stated that they are pleased that ``the final rule on Medicare ACOs
includes many of the important changes recommended by the AMA to allow
all interested physicians to lead and participate in these new models
of care.'' \6\ The American Medical Group Association (AMGA) said that
``AMGA is very pleased that CMS listened and responded with noteworthy
changes. AMGA believes ACOs have the potential to improve quality of
care while bending the cost curve.'' \7\ The National Association of
Public Hospitals and Health Systems said that the rule ``will allow
hospitals and other providers to more easily participate in the
program, and should add to the success of this initiative and future
innovations in health care delivery system reform.'' \8\
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\6\ http://www.ama-assn.org/ama/pub/news/news/final-aco-rule.page.
\7\ http://www.amga.org/AboutAMGA/News/article_news.asp?k=534.
\8\ http://www.naph.org/Main-Menu-Category/Newsroom/2011-Press-
Releases/NAPH-Supports-Final-ACO-Rule-Changes.aspx.
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In addition, CMS is using its new authorities through the Center
for Medicare and Medicaid Innovation (the Innovation Center) to test
alternative payment models and prepare organizations to provide
accountable care. These initiatives include:
The Pioneer ACO Model, which is designed for health care
organizations and providers with experience in coordinating care for
patients across settings. The model will allow these provider groups to
move more rapidly to a population-based payment model on a track
consistent with, but separate from, the Medicare Shared Savings
Program. The model is designed to work in coordination with private
payers, multiplying the effectiveness of the program and aligning
provider incentives. This has the potential to improve quality and
health outcomes for patients across the ACO, and achieve cost savings
for Medicare and patients.
The Advance Payment ACO Model, which will provide
additional support to rural and physician-based ACOs who want to
participate in the Medicare Shared Savings Program, but lack the
startup resources to build the necessary infrastructure, such as new
staff or information technology systems. The advance payments would be
recovered from any future shared savings which ACO earns through
performance.
The Accelerated Development Learning Sessions, which are
available for providers interested in learning more about the steps
necessary to become an ACO. The Innovation Center is holding these
convenient and free sessions in a variety of cities, with some sessions
available online. To date, the Innovation Center has hosted two
sessions: 67 organizations attended the first session held in
Minneapolis in June 2011 and 39 attended the second session in San
Francisco in September 2011. The Innovation Center will be hosting a
third and final session on November 17 and 18, 2011 at CMS Headquarters
in Baltimore.
Together, these initiatives provide a broad range of options and
support that reflect the varying needs of providers embarking on
delivery system reforms.
Improving Transparency to Empower Beneficiaries
Medicare Advantage
Enrollment in the Medicare Advantage (MA) program continues to
grow. In 2012, MA plans project that MA enrollment will increase by 10
percent.\9\ CMS is focused on strengthening and improving MA so that
its plans provide good value to beneficiaries and the program remains
robust. CMS has streamlined plan offerings so that beneficiaries have
choices among plans that are meaningfully different from one another.
In addition to improvements to the 5-star plan quality rating system,
the Affordable Care Act allows CMS to deny a plan's bid should the
total cost to beneficiaries, including premiums and out-of-pocket
costs, increase more than 10 percent from the prior year.
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\9\ http://www.hhs.gov/news/press/2011pres/09/20110915a.html.
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The results show that when CMS strengthens our oversight and
management of MA plans, seniors and people living with disabilities
will have clearer plan choices offering better benefits. In 2012, MA
premiums are, on average, 4 percent lower than in 2011 and 11 percent
lower than in 2010.\10\ As part of CMS' national strategy for
implementing quality improvement in health care, CMS is also working to
create new incentives for all MA plans to improve the care they offer
to Medicare beneficiaries. For the first time in 2012, CMS will reward
those MA plans with higher quality scores, based on its 5-Star rating
system. CMS is also allowing 5-Star MA and Part D plans to continuously
market and enroll beneficiaries throughout the year.
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\10\ http://www.hhs.gov/news/press/2011pres/09/20110915a.html.
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Our goal is for plans to improve their quality scores over the next
several years and to encourage more beneficiaries to enroll in high-
quality plans. In 2011, we have seen a 5 percent increase in enrollment
among Medicare Advantage plans with a four- or five-star rating.\11\
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\11\ http://www.healthcare.gov/news/factsheets/2011/02/
Medicare02102011a.html.
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Physician Quality
As part of CMS' broader strategy to encourage health care providers
to adopt practices that can improve patient care, CMS is continuing to
strengthen the Physician Quality Reporting System by rewarding
physicians for reporting quality measurement data. The final physician
fee schedule rule for 2012 (CMS-1524-FC) updates a number of physician
incentive programs including the Physician Quality Reporting System,
the e-Prescribing Incentive Program, and the Electronic Health Records
Incentive Program.
Freeing Doctors to Focus on Patients, Not Paperwork
CMS and the Department of Health and Human Services (HHS) have also
started work to help doctors begin using Electronic Health Records
(EHRs) through the EHR Incentive Program. EHRs help providers
communicate with each other about a patient's care. EHRs make it easier
for physicians, hospitals, and others to assess a patient's medical
status and make sure that care is appropriate. They can help doctors
avoid redundant paperwork and ensure patients get the correct tests and
medications. HHS also issued administrative simplification rules (CMS-
0032-IFC) to improve the use of electronic standards to help eliminate
inefficient manual processes.
We estimate that these changes will save providers and health plans
$12 billion over the next 10 years.\12\ More important, greater use of
EHRs will free providers to spend more time with their patients. An
April 2010 study in Health Affairs found that simplifying
administrative systems could save 4 hours of professional time per
physician and 5 hours of support staff time every week.\13\ This
commonsense streamlining means fewer phone calls between physicians and
health plans, lower postage and paperwork costs, and fewer denied
claims. Overall, adoption of EHRs means physicians can cut through the
red tape and spend more time and resources administering quality care
to their patients.
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\12\ http://www.gpo.gov/fdsys/pkg/FR-2011-07-08/pdf/2011-16834.pdf.
\13\ Blanchfield, Bonnie, James Heffernan, Bradford Osgood, et. al.
``Saving Billions of Dollars--And Physicians' Time--By Streamlining
Billing Practices.'' Health Affairs. April 29, 2010. http://
content.healthaffairs.org/content/early/2010/04/29/
hlthaff.2009.0075.full.
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next steps: investing in innovation, improving care, and saving money
CMS has already made tremendous progress toward achieving the
Affordable Care Act's goals of lowering Medicare costs and improving
care--and we are doing even more. With the established foundation
detailed above, CMS is moving forward to employ other new tools made
available by the Affordable Care Act to reform our Nation's health care
delivery system. The programs and initiatives described below will
bring us closer to the goal we all share--a high-quality, affordable,
patient-
centered health care delivery system that effectively prevents or
treats illness without waste or duplication.
Investing in Innovation to Deliver Quality Care
The key to building a sustainable health care system in our country
will come from innovations and improvements in how we deliver health
care. CMS has started this work by changing our hospital payment
systems and Medicare Advantage programs to reward quality care and
coordination, instead of simply paying providers for offering more
services. We also recognize that there is a great richness of
innovation occurring in local communities and through multiple efforts
underway to provide care for people, often at a lower cost.
In section 3021 of the Affordable Care Act, Congress created the
Innovation Center to test innovative payment and service delivery
models to reduce program expenditures, while preserving or enhancing
the quality of care for those entitled to Medicare and Medicaid. The
health reform law gives the Innovation Center flexibility in selecting
and testing innovative payment and service delivery models, enables it
to work with Medicare, Medicaid, and CHIP programs to better serve
beneficiaries and reduce costs, and provides $10 billion in direct
funding for activities initiated in fiscal years 2011 through 2019 to
support this mission. The Affordable Care Act also allows the Secretary
of HHS to expand, through rulemaking, the scope and duration of models
proven effective after evaluation, including implementation on a
nationwide basis. In order to expand a model, the Secretary must
determine that the model improves the quality of patient care without
increasing spending or reduces spending without reducing the quality of
care, and the CMS Actuary must certify that expanding the program will
lower costs (or at least not increase costs). The following sections
describe, in more detail, the Innovation Center's initiatives.
Bundling Payments to Promote Efficient, Quality Care
Medicare currently makes separate payments to providers for each
service related to an illness or course of treatment, often leading to
fragmented care with minimal coordination across providers and health
care settings. Under the Innovation Center's Bundled Payments for Care
Improvement initiative, CMS will test various models to link payments
for multiple services that patients receive during an episode of care.
For example, instead of a surgical procedure and followup care
generating multiple claims from multiple providers, the entire team
will be compensated with a ``bundled'' payment that provides incentives
to deliver health care services more efficiently while maintaining or
improving quality of care. Research has shown that bundled payments can
encourage providers to collaborate to improve the patient's experience
of care during a stay in an acute care hospital and during post-
discharge recovery.
Bundling payment for services that patients receive across a single
episode of care, such as heart bypass surgery or a hip replacement, is
one way to encourage doctors, hospitals, and other health care
providers to work together to better coordinate care for patients, both
when they are in the hospital and after they are discharged. On August
25, 2011, CMS invited providers through a Federal Register notice (CMS-
5504-N) to apply to test and develop four different models of bundling
payments. Depending on the particular model, providers have flexibility
in selecting conditions to include, developing the health care delivery
structure, and determining how to allocate payments among participating
providers. Because of the potential for reducing the cost of care
through improvement, health care providers will be able to streamline
and improve their coordination to provide savings to the Medicare Trust
Funds. By giving providers the flexibility to determine which model of
bundled payments works best for them, we believe it will be easier for
health care providers of different sizes to participate in this
initiative, thus encouraging more providers to test and develop
innovative models to coordinate care and produce savings.
Preventing Costly Conditions and Complications
CMS launched the Partnership for Patients: Better Care, Lower
Costs, a new public-private partnership, to improve the quality,
safety, and affordability of health care for all Americans. More than
6,200 organizations, including over 2,800 hospitals, have joined the
initiative. Partnership for Patients brings together leaders of major
hospitals, employers, physicians, nurses, and patient advocates, along
with State and Federal Governments, in a shared effort to make hospital
care safer, more reliable, and less costly.
The two goals of this new partnership are to:
Keep patients from getting injured or sicker. By the end
of 2013, preventable hospital-acquired conditions would decrease by 40
percent compared to 2010. Achieving this goal would mean approximately
1.8 million fewer injuries to patients with more than 60,000 lives
saved over 3 years.
Help patients heal without complication. By the end of
2013, preventable complications during a transition from one care
setting to another would decrease so that hospital re-admissions would
be reduced by 20 percent compared to 2010. Achieving this goal would
mean more than 1.6 million patients would recover from illness without
suffering a preventable complication requiring re-hospitalization
within 30 days of discharge.
It is our belief that achieving these goals will save lives and
prevent injuries to millions of Americans. They have the potential to
save up to $35 billion across the health care system, including up to
$10 billion in Medicare savings, over the next 3 years. Over the next
10 years, this partnership could reduce Medicare costs by about $50
billion and generate billions in Medicaid savings.\14\ These
improvements will help put our Nation on the path toward a more
sustainable health care system.
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\14\ http://www.healthcare.gov/compare/partnership-for-patients/
index.html.
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Improving the Front Lines of Care
In recent months, CMS has launched several new initiatives that
seek to partner with our colleagues on the front lines of health care
delivery. Through investments in primary care and medical homes, and
seeking direct feedback from clinicians in the field, we will move our
health care system into the 21st century. The Innovation Center's
current initiatives include:
The Comprehensive Primary Care (CPC) Initiative, which
fosters collaboration between public and private health care payers to
strengthen primary care. The CPC initiative will test two models
simultaneously--a service delivery model and a payment model--to see
how primary care practices coordinate care for their patients.
The federally Qualified Health Center (FQHC) Advanced
Primary Care Practice Demonstration, which is operated by the
Innovation Center in partnership with the Health Resources and Services
Administration to test the effectiveness of teams of doctors and other
health professionals working in community health centers to coordinate
and improve care for up to 195,000 Medicare patients. Five hundred
FQHCs in 44 States are participating in the demonstration, which will
operate between November 2011 and October 2014.
The Innovation Advisors Initiative, which is currently
accepting applications for up to 200 health professionals to undertake
intensive efforts to expand their health systems skills and knowledge,
apply what they learn in their organizations and areas, and work with
CMS to test new models of care delivery in their own organizations and
communities. Developing these innovation leaders expands the reach of
the Innovation Center and has the potential to improve patient care and
reduce costs.
Expanding and Promoting Partnerships to Improve Care for Medicare-
Medicaid
Enrollees
A top priority for CMS is improving the quality and lowering the
cost of care for the 9 million Americans enrolled in both Medicare and
Medicaid (known as ``dual eligibles'' or Medicare-Medicaid enrollees).
The Affordable Care Act created the new Federal Coordinated Health Care
Office, referred to as the Medicare-Medicaid Coordination Office, to
more effectively integrate benefits between the two programs and to
improve the coordination between the Federal Government and States for
Medicare-Medicaid enrollees. Through our work and with our State
partners, our efforts are advancing access to seamless, coordinated
care programs for Medicare-Medicaid enrollees.
Beneficiaries who are dually enrolled in Medicare and Medicaid are
typically low-income seniors and people with disabilities. Although
most have complex care needs, too often their care is fragmented,
resulting in poor health outcomes and increased costs. These
beneficiaries, their families, and their caregivers would be better
served by improved coordination that ensures their complex care needs
are met through seamless, person-centered approaches. To that end, the
CMS Medicare-Medicaid Coordination Office has advanced new initiatives
designed to align the two programs' rules and policies and develop and
test demonstrations across the country.
Most recently, the Medicare-Medicaid Coordination Office announced
a new opportunity for States to participate in demonstration projects
designed to improve the quality of care for Medicare-Medicaid
enrollees. These approaches provide States the opportunity to share in
reduced costs that result from improved quality. CMS is pleased to
report that 37 States and the District of Columbia have indicated
interest in exploring ways to implement these demonstrations in their
States. Across the country, States are proposing new ways to better
serve their Medicare-Medicaid enrollees. These initiatives vary
regionally and in their approach, ranging from using health homes that
provide total care management to expanding existing programs to meet
all of an individual's needs by incorporating behavioral health and
long-term supports and services, as well as making current coordinated
care models available to new populations. Over the next several months,
CMS will work with States to identify the most appropriate proposals
for implementation that are most likely to reduce costs while improving
quality of care for vulnerable beneficiaries.
looking forward
In a year and a half since the passage of the Affordable Care Act,
CMS has made major progress in implementing its delivery system
reforms. This effort is part of the Administration's commitment to
making the health care system better for millions of Americans. Before
the Affordable Care Act, we included investments in health information
technology, prevention, and research in the Recovery Act to lay the
foundation for this type of system. And since enactment, we have
proposed additional ideas as part of the President's Plan for Economic
Growth and Deficit Reduction. By strengthening our programs and making
sure we are spending taxpayer dollars wisely, we are ushering in a new
day for American health care consumers. We will continue to build on
these reforms in the years to come.
The many new services, initiatives, and reforms I have highlighted
are important and immediate steps to improve the coordination and
affordability of health care for all Americans. CMS has a
responsibility to improve access, quality, and efficiency of care for
all our beneficiaries, while protecting the fiscal integrity of our
programs in the long term. We are committed to working with our
partners in the private sector, States, and beneficiaries to improve
care coordination, increase patient safety, offer beneficiaries more
information and more control over their care, and achieve better
outcomes at a lower cost. As we tackle care fragmentation, we are
moving toward better-aligned incentives for higher-quality, integrated
care. These efforts to improve the quality of care will provide real
improvements for CMS' beneficiaries and all Americans.
Senator Whitehouse. Since your time has expired----
Mr. Blum. I'm sorry.
Senator Whitehouse. Let's cut to questions----
Mr. Blum. Sure.
Senator Whitehouse. If you don't mind. This is one of my
favorite exhibits about our Medicare system and I think it
applies more generally to our health care system, it is the
relative state-by-state ranking on quality and cost metrics.
And it shows, first of all, enormous variation State by State,
but also a distinct link between the lower cost States and
higher quality; i.e., an inverse relationship between cost and
quality.
And when you have that broad of a discrepancy, it strikes
me that there is a lot of room to have, let's say, Texas and
Louisiana, which are highest cost and lowest quality move more
toward Hawaii and New Hampshire which are at the other end of
the--I don't think anybody thinks that Hawaii and New Hampshire
are bad health care systems or that they are, frankly,
significantly different than Texas or Louisiana. Yet, something
is going on there that creates really massive cost
discrepancies that the public pays for, not only with dollars,
but also in the quality of care that they receive and with
their lives.
You are familiar with this?
Mr. Blum. Yes.
Senator Whitehouse. This is the Medicare piece of
information?
Mr. Blum. Correct.
Senator Whitehouse. Does Medicaid track the same way, to
your knowledge?
Mr. Blum. I believe that we see similar variation with
States in cost on a per capita basis. Be careful to make the
same comparisons to the chart you are showing. That is a fee
for service chart and our benefits are consistent throughout
the country in a fee for service Medicare context. States have
flexibility to provide benefits, but there is variation in
State spending by State Medicaid programs.
Senator Whitehouse. So since Medicare is a standard
program, by and large, with the Medicare Advantage program kind
of set aside within it, how do you pursue--and let me add
another caveat. So often health care reform at the delivery
system level is a community effort.
Mr. Blum. Correct.
Senator Whitehouse. It is the doctors getting together with
the hospitals, getting together with the insurance companies,
getting together with the business community saying, ``We've
got to do something different there,'' and getting to work on
that.
So how is it that you can use Medicare to try to get a
State to step up? What are the ways that you can bring
attention to Louisiana, Texas, California, Florida, New Jersey,
Oklahoma, Mississippi, some of the real high cost low-
performers when what you have to offer is a standard national
benefit?
Mr. Blum. I think you need to look at each State, and the
particular reasons why it is on the chart relative to where it
is to the chart you presented. And I think an important
consideration to keep in mind is while there is variation
between States, there is as much variation within States.
Meaning even in the low-cost States that you present, that you
can see tremendous variation in use and spending by physicians,
by hospitals. Even in the most efficient delivery systems,
there is still variation within the care that is provided.
I think, first and foremost is that we need to tie payment
to the quality, not by State, not by hospital, by the
individual service that is being provided given both the
variation between States, but also the variation within States.
Some of the spending difference that you present is due to
fraud, and we need to have very strong strategies in some of
the high-cost spending States that are driven by fraud and
abuse. A lot of the very----
Senator Whitehouse. Fraud varies dramatically by region as
well, does it not?
Mr. Blum. Absolutely. A lot of the spending variation comes
not from hospital care/physician care, but in post-acute care
services: home health, durable medical equipment, skilled
nursing facility stays need to have strategies that just don't
focus on the hospital care/physician care, but all the care
that follows the patient once he or she leaves the hospital.
But no one strategy, no one intervention will address that. We
need to think of a wide variety and a wide mix, and----
Senator Whitehouse. And is the affordable care
organizations the primary vehicle for correlating from the
national program down to the individual patient?
Mr. Blum. The Accountable Care Organization program that we
are implementing that Congress authorized is but one strategy.
We need to look at payment reform. We need to make sure that
payment is tied to the value, not the volume of services. We
need to have very strong fraud and abuse controls.
But I agree. For too long, the Medicare program has had a
pay-and-chase mentality. That has changed within CMS. We are
now being much more sophisticated and smart to how we think
about data to stop fraud before it happens.
Senator Whitehouse. And too, my time is wrapped up, but
just to Senator Kirk's observation earlier that in the last
round, it took 8 months for questions for the record from
Senators to get a response from CMS. We have had a discussion
about this with your staff, and we have been informed that we
will have as quick turnaround as your administrative process
permits. I know it has to be cleared through OMB and things
like that, but that we won't see those kind of delays for two
FRs for this hearing. Is that a correct understanding?
Mr. Blum. We will do our best to be as responsive as
possible, and I will make sure that we are very responsive to
the questions that come to us.
Senator Whitehouse. I appreciate that.
Senator Kirk.
Senator Kirk. Thank you. I just have three questions real
quick. Will the CMS Office of the Actuary certify the estimates
of expected savings from one of the new delivery system
demonstrations?
Mr. Blum. Sorry, for which one? I am sorry, Senator.
Senator Kirk. Let me repeat. Will your Office of Actuary
certify the estimates of expected savings for one of the new
delivery system demonstrations?
Mr. Blum. What the law requires the Office of the Actuary
is that before any delivery reform can be expanded nationwide,
a bundled payment, an ACO pilot test that the Actuary has to
certify that it is budget neutral. To expand demonstrations are
decisioned by the Secretary, but in order to take a pilot and
expand it, the Office of the Actuary has to certify that it is
at least budget neutral.
Senator Kirk. So that is a yes.
Mr. Blum. I think it depends on kind of the situation. That
it depends on whether or not----
Senator Kirk. Let me go through it again, now that you have
given us the long wash. Will the CMS Office of the Actuary
certify the estimates of expected savings in one of the
delivery system methodologies?
Mr. Blum. I think the answer--I think the issue that you
are probably going to is the Partnership for Patients where the
Administration made estimates for what could be possible if
certain outcomes are achieved. We have very high goals that can
reduce preventable hospital re-admission----
Senator Kirk. I am kind of going for a yes or no here.
Mr. Blum. I think it depends. It depends.
Senator Kirk. So you won't back up your estimates with an
actuary?
Mr. Blum. What our actuaries have said in correspondence to
Senator Enzi is if we can achieve dramatic reductions in----
Senator Kirk. I am actually asking not what you think you
can do. I am asking: are you going to direct the actuary to do
this or not?
Mr. Blum. The actuary is independent. They don't serve
from----
Senator Kirk. Are you going to ask them to do it?
Mr. Blum. What we have shared with the Actuary's Office----
Senator Kirk. It is kind of a yes or no. You kind of want
me to think maybe you are going to go with yes. Be a good
answer, I'd recommend.
Mr. Blum. What the current baseline that the actuaries
produce don't include the savings that you cite. But they are
not being double counted, but they are illustrations to what is
possible.
Senator Kirk. So we really shouldn't trust what you say
because you are not willing to back it up or even ask the
actuary to do this.
Mr. Blum. What I am saying is that if we can achieve a----
Senator Kirk. I mean, we are talking about tens of billions
of dollars here. You already waste $60 billion a year,
according to your own estimate. So if you are going to make a
big change like Partnership for Patients, don't you think
because the Government is already out of money, you might want
to check with an actuary and report back to the Congress?
Mr. Blum. I think what we're saying is that we have----
Senator Kirk. Wouldn't it be kind of malpractice if you
didn't?
Mr. Blum. I don't agree with that statement, Senator.
Senator Kirk. So you don't think you need to check with an
actuary on this?
Mr. Blum. The Office of the Actuary produces----
Senator Kirk. No, I am not talking about the Office, I am
talking about you, personally, Mr. Blum. Are you going to write
a letter to the actuary saying, ``I just got grilled in the
Senate and perhaps we need to know how much this thing costs
according to you,''?
Mr. Blum. I stand by the estimates that are in our
testimony and----
Senator Kirk. No, but you didn't make the estimates. I
mean, the actuary is saying to us, ``I don't have a back up for
this.''
Mr. Blum. What I think the actuary----
Senator Kirk. Which means we shouldn't believe what you
say, and you are not even willing to send a letter to the
actuary asking for them to back you up.
Mr. Blum. What I am saying is----
Senator Kirk. The correct answer is, ``Senator, yes. I am
willing to send a letter to the actuary asking for this.''
Mr. Blum. I am willing to consult with our actuary's office
regarding the estimates in the testimony, but I stand behind
the----
Senator Kirk. Will you share the letter that you send to
them asking for the back up so that we can see that you have
requested an actuary estimate of the Partnership for Patients?
Mr. Blum. I am now committed to sending a letter, but I----
Senator Kirk. How about yes or no? Will you commit to this
committee that you will get the actuary to look at your savings
estimates for the Partnership for Patients?
Mr. Blum. We have shared our estimates with the Actuary's
Office. What they have told us----
Senator Kirk. But you will not even do that. You are
talking about tens of billions of dollars of a government that
doesn't have enough money, and you are not willing to do that.
Mr. Blum. I think what we are saying is that there are
tremendous potential savings to be had if we can achieve----
Senator Kirk. But you are not willing to have an actuary
back it up.
Mr. Blum. I think what the actuaries have said is that if
we can achieve that outcome----
Senator Kirk. I can read you what the actuary told Senator
Enzi, which is why I am hoping you are going to use this
opportunity, now the fourth opportunity I have given you to
say, ``Yes, Senator. I am going to go back and I am going to
check with the actuary and ask him for a formal estimate of the
savings that I have claimed but they won't back up.''
Mr. Blum. I will consult with the Actuary's Office and----
Senator Kirk. Look. So you will send a letter to the
actuary asking for an estimate and you will share that with the
committee because tens of billions of dollars of taxpayer money
depends on this.
Mr. Blum. Senator, with all due respect, I cannot commit to
sending a letter----
Senator Kirk. No. Not that you cannot, that you will not
commit.
Mr. Blum. OK.
Senator Kirk. That's kind of sad. Mr. Chairman, over to
you.
Senator Whitehouse. We have 3 minutes left on the vote, so
the hearing will stand in recess, subject to the call of the
chair.
Thank you, Mr. Blum, for your testimony.
[Recessed.]
Senator Whitehouse [resuming the chair]. All right. The
hearing will come back to order, after that unfortunate delay.
I apologize to all of the witnesses, if we could take our
seats. So welcome, Senator Franken, to the continued
proceedings. Please, if the witnesses could take their seats.
Thank you all for being here. This is really unfortunate
about the timing here, but I appreciate so much the work that
you all have done.
We are going to begin with Chris Koller, who is Rhode
Island's Health Insurance Commissioner. It is a somewhat unique
role, but Chris has done an exemplary job in it, and the office
is now nationally recognized for its rate review process and
its efforts, through that rate review process, to promote
delivery system transformation.
The office is also the State's co-lead in planning for our
health insurance exchange, which is an important piece of work.
He is an adjunct professor of community health in the program
in public health at Brown University.
He is a member of the Institute of Medicine's committee on
essential health benefits. He serves in numerous national and
State health policy advisory capacities. And prior to his
current position, was the CEO of our neighborhood health plan
in Rhode Island, and I welcome him.
Mr. Koller, please proceed with your testimony.
STATEMENT OF CHRISTOPHER F. KOLLER, COMMISSIONER, OFFICE OF THE
HEALTH INSURANCE COMMISSIONER, PROVIDENCE, RI
Mr. Koller. Thank you very much, and thank you, members of
the committee.
I appreciate the opportunity to address you on this
important topic. I want to take the opportunity to particularly
thank Senator Whitehouse for his lead on this area, and also
acknowledge the work of Senator Reed, who was a former member
of this committee. We are privileged to have them as our
servants.
I want to cover three topics today regarding delivery
system reform, the role of the health insurance commissioner,
what work we are doing, and what some of our lessons have been.
The office was established by law in 2004. It focuses
specifically on commercial health insurance and it was
established, in part, in recognition of the fundamentally
different nature of health insurance from other types of
insurance. I am the only health insurance commissioner in the
country and I would call to note particularly the basis for our
work is a couple of different statutory charges that we have.
In addition to guarding the solvency of insurers and
protecting the interests of consumers, my office is charged
with ensuring the fair treatment of providers and seeing the
health care system as a whole in directing insurers toward the
policies that improve affordability. That has led us to use our
capacities under rate review in very comprehensive ways to
focus on delivery system reform.
Specifically, our rate review system is comprehensive, it
covers both small and large group products. It looks at rate
factors, the underlying cost drivers, not just product prices,
and it is simultaneous for all carriers, public and
transparent. So we can get a picture of what really the system
costs are in Rhode Island and what is driving them. For
instance, what hospital price increases are, and what might be
the reasons why, in our case, hospital price increases are
going up at 7 or 8 percent while inpatient utilization is only
at a point.
So given this, we identified three facts coming out of
this. That medical care costs are about 85 percent typical
insurance premiums. That insurance, like Medicare, is looking
at 8 to 10 percent annually, so the cost pressures are not
unique to Medicare. We've talked about that before.
And then insurers have limited tools to change those trends
given the prevailing fee for service system, provide us with
market powers who resist insurance changes, fragmented
providers, and patients who have no incentives to choose better
performing systems of care.
With the help of my advisory council, a statutorily charged
group of employers and providers, we developed four standards,
or actions, that must be taken by commercial insurers in Rhode
Island as a condition of receiving rates. These affordability
standards represent the chance to take the theory of delivery
system reform and put it into practice.
So these four affordability standards in Rhode Island
consist of--No. 1, health insurers must increase the portion of
their medical expenses going to primary care by 1 percentage a
point for the next 5 years.
Primary care is the only part of our medical care system
where the more we have, the lower our costs, and the better our
community's health. This is two-thirds of Dr. Berwick's triple
aim. But nationally, we only spend about 7 percent of our
medical care on primary care. So why is that? The answer has to
do with how Medicare sets rates and who has economic power in
private contract negotiations.
In Rhode Island, we set about to change these forces by
telling insurers they have to invest in primary care on behalf
of the community.
Three years later into this experiment, we are seeing the
results. Money is being spent on things like establishing
patient center medical homes, and primary care doctors in Rhode
Island are happier and better able to recruit, and to come here
and work. We want to make Rhode Island the best place for
primary care in the country.
Our second affordability standard deals with health insurer
support for the all-payer patient center medical home project.
These are well publicized attempts to define what constitutes
high-quality primary care capable of coordinating care for our
most chronically ill patients.
This is hard work, but it can be done. And it must come
from insurer payments, and it must be coordinated to pay for
the same things. Providers do not like being jerked around in
different directions by conflicting demands and different
carriers.
So our all-payer initiative is 6 years old. It touches
70,000 patients and we have documented significant improvements
in the quality of care provided, improved utilization, and a
cadre of primary care leaders. Only possible because all of our
insurers are asking the same thing of our primary care
providers.
The third standard has to deal with health plan investment,
and health information technology, building on the significant
Federal investments that have been made in general and in Rhode
Island in particular, health plans are required to support that
with their own money so that they are not freeloading on
Medicare's investment.
And then the fourth and final affordability standard
addresses hospital payment reform. We have not significant
hospital payment reform in this State for various reasons, and
we use the authority of the office to dictate six different
conditions which must be included in hospital contracts with
health plans.
Specifically, we limit the rates of increase such as
health--that hospitals can get from health insurers. We demand
quality incentives to allow them to earn additional money. We
require efficiency-based units of service, such as diagnosis-
related groups or any of the proposed Medicare innovations. And
we ask for standards related to administrative simplicity to
transfers of care, and to public transparency of the
information.
A year into this, in spite of the fact that my office got
sued for putting this forward, our ability to do it was upheld,
and we are seeing those payment reforms being implemented by
the insurers in their contracts with hospitals.
So what have we learned from this? I want to point to three
lessons that I think are important for anyone who is taking on
this work of delivery system reform.
Mr. Whitehouse. Mr. Koller, if you could summarize them
fairly quickly.
Mr. Koller. Sure. First is that delivery system reform must
make primary care infrastructure a priority. Second, this will
not happen without public oversight. And third, this must be
coordinated across payers. We simply have too many payers to
make this work across different providers.
The implications for Congress? I think we have to make
primary care a priority. We have to support Medicare payment
innovation. We have to support multitier alignment. And we have
to create incentives for patients to select high-value delivery
systems. I think we have those opportunities in the Affordable
Care Act. They bring good tools for the States to work with,
and we continue to do that work in Rhode Island. Thank you.
[The prepared statement of Mr. Koller follows:]
Prepared Statement of Christopher F. Koller
summary
the role of the office of the health insurance commissioner
The Office of the Health Insurance Commissioner was established by
law in 2004 in response to concerns about the behavior of Rhode Island
health insurers and in recognition of the fundamentally different
nature of health insurance from any other type of insurance.
Statutorily, the Office is responsible for guarding the solvency of
insurers, protecting the interests of consumers, assuring fair
treatment of providers, and improving the affordability, accessibility
and quality of the health care system.
current work on delivery system reform in ri
Delivery system reform is essential to slowing the rate of health
insurance premium increases. The Office's primary tool for this work
has been its annual rate review process, which has three components:
1. It is comprehensive and covers small group and large group
business for all carriers;
2. It examines rate factors rather than product prices; and
3. It is simultaneous for all carriers, public, and transparent.
However, rate review alone will not reduce the rate of increase in
commercial health insurance premiums. In order to address medical cost
trends in the delivery system, the Office's Health Insurance Advisory
Council identified four Affordability Standards--expectations for
health plan conduct as a condition of having rates approved. These
Standards are:
1. Increasing the portion of medical expenses going to primary care
by 1 percentage point a year for 5 years;
2. Health insurer support of RI's all-payer, patient-centered
medical home project;
3. Health plan investment in and support for health information
technology; and
4. Hospital payment reform as demonstrated through six conditions
to be included by insurers in their contracts with hospitals.
lessons learned and future direction
Two years since the implementation of these Affordability
Standards, health insurers are implementing these changes and delivery
system reform is happening in Rhode Island--primary care is being
revitalized, our IT infrastructure is being built and hospital
contracts are changing. There remain obstacles to overcome: health
insurance premiums continue to rise, evaluation and measurement efforts
are incomplete, and interagency coordination can be improved. To date,
the following lessons have been learned:
Delivery system reform must make primary care
infrastructure development its first priority;
Delivery system reform will not happen without public
oversight; and
Delivery system reform must be coordinated across payers.
In addition to the significant Federal investments being made in
information technology, Congress can take the following actions to
encourage further delivery system reform:
Make primary care a systematic priority--in loan
forgiveness and education, Medicare payments, health services research
and NIH funding, and HRSA budgets.
Support Medicare payment innovation in the ACA.
Support multi-payer alignment at the State and national
level.
Create incentives for patients to select high-value
delivery systems.
Despite the significant challenges that the U.S. multi-payer system
presents, the work being accomplished in Rhode Island demonstrates that
delivery system reform is necessary for lower rates of increase in our
premiums. And it is possible.
______
Members of the committee, thank you for the opportunity to address
you on this important topic. Thank you especially to Rhode Island's
Senate Delegation--Senators Reed and Whitehouse. Senator Reed, formerly
a member of this committee, is a strong advocate for preserving and
enhancing insurance coverage, and Senator Whitehouse has immersed
himself in the critical topic we are discussing today. Both are
committed public servants. Rhode Island is fortunate and privileged to
be represented by them.
In my address today, I want to cover three topics related to
medical care delivery system reform: the role of the Office of Health
Insurance Commissioner, our work on delivery system reform, and what
some of our lessons learned have been.
The Office of the Health Insurance Commissioner was established by
law in 2004 in response to concerns about the behavior of Rhode Island
health insurers, and a recognition of the fundamentally different
nature of health insurance from any other type of insurance. I have
occupied the position since it was first filled in 2005. I am the only
Health Insurance Commissioner in the country. Central to the Office are
its statutory duties, which form the legal basis for our work. In
addition to the customary insurance regulator responsibilities of
guarding the solvency of insurers and protecting the interests of
consumers are two broader and critical duties:
To assure fair treatment of providers; and
To see the Rhode Island's healthcare system as a whole and
to direct insurers toward policies which improve the affordability,
accessibility and quality of the system.
Although there is little statutory direction behind those stated
duties, our actions in payment reform are firmly grounded in these
standards.
The Office's primary tool for this work has been the annual review
of rates of commercial insurers in the State. There are three
components to that review:
It is comprehensive--covering small group and large group
business for all carriers--and prospective--rates must be approved
before being used.
It examines rate factors, not product prices. By rate
factors we mean the carriers' estimated inflation rates for price and
utilization for five medical service categories--hospital inpatient,
hospital outpatient, primary care, pharmacy and all other medical. In
addition, we look at their estimated administrative costs and projected
profits.
It is simultaneous for all carriers, public, and
transparent. As a result, we can both educate the public about what is
driving the increases in their health insurance premiums (documenting,
for instance, last year's attributed inpatient price increases of about
7 percent, while utilization was almost flat) and query carriers about
significant variations between them in inflation rates and
administrative costs.
Rate review forms the basis for our systemic delivery system reform
efforts. Specifically, after several years of this work, it became
apparent to the Office's Health Insurance Advisory Council, a
statutorily charged group of employers, consumers and providers who
advise the Office, that rate review alone would not reduce the rate of
increase in commercial health insurance premiums; that the true costs
were in the delivery system and insurers would need direction and
coordination in this work.
Specifically: transparent, comprehensive rate factor review
highlighted that:
Medical costs constitute about 85 percent of the typical
insurance premium.
Insurers were predicting medical cost increases of 8 to 10
percent annually, driven by increases in both price and utilization of
services; and
Insurers have limited tools to change those trends--given
the prevailing fee for service payment system, medical providers with
market power to resist insurer changes, fragmented providers who cannot
coordinate care well, and patients who have no incentives to choose
better performing systems of care.
Given these facts, the Advisory Council then worked to identify
four Affordability Standards--actions which must be taken by any
commercial insurer in Rhode Island as a condition of receiving rates.
In brief, these Standards consist of:
1. Health insurers must increase the portion of their medical
expenses going to primary care by 1 percentage point a year for 5
years.
Primary care is the only part of our medical care system where the
more we have, the lower our population costs and better a community's
health (two thirds of Dr. Berwick's triple aim). But nationally we only
spend about 7 percent of our medical expenses on it. Why is this? The
answer has to do with how Medicare sets rates and who has economic
power in private contract negotiations. We did not like that answer in
Rhode Island and so we have set about to change it by telling health
plans they must invest in primary care on behalf of the community. We
are seeing the results 2 years later--the money is being spent on
things like establishing
patient-centered medical homes and primary care docs in Rhode Island
are happier and better able to recruit peers to come here and work.
2. Standard No. 2 deals with health insurer support of our all-
payer,
patient-centered medical home project.
Patient-centered medical homes are a well-publicized attempt to
define what constitutes high-quality primary care, capable of
coordinating the care of our most expensive chronically ill patients.
They work, but take money and time to be built. The money must come
from insurer payments and must be coordinated to pay for the same
things--providers hate being jerked in different directions by the
conflicting demands of different carriers. Rhode Island's Chronic Care
Sustainability Initiative is 6 years old and touches 70,000 patients.
We have documented significant improvements in the quality of care
provided, have signs of improved utilization experience and built a
cadre of primary care leaders.
3. The third affordability standard coordinates health plan
investment in and support for health information technology.
Under the leadership of the Rhode Island Quality Institute and
Senator Whitehouse, Rhode Island has used Federal ARRA money to make
significant investments in Electronic Health Records adoption, a Health
Information Exchange and--as a Beacon community--implementation of this
work to improve the quality of care delivered. This Affordability
Standard makes sure that your initial Federal investments in Rhode
Island are matched and followed up by private insurer money as well, so
we sustain this critical work.
4. The final Affordability Standard addressed hospital payment
reform.
Work by my Office has documented private insurer payment variations
of 100 percent to different hospitals for the same services. This
difference appears to be driven only by hospital size and negotiating
power. In addition, there is a marked gap between the theory of
hospital payment reform and the practice in Rhode Island--with most
payments occurring on a fee for service basis with little or no quality
incentives. Given insurer inability or unwillingness to implement
hospital payment reform, OHIC set forth six conditions which must be
included in future health plan contracts with hospitals. These included
limiting price increases to Medicare CPI, installing quality
incentives, and facilitating efficiency-based payments such as
Diagnosis Related Groups. One year in, and it appears insurers and
hospitals are adopting these standards, and a recent court ruling
upheld the Office's ability to change health plan contract terms with
hospitals.
This is just a brief summary of the Office's attempts to promote
delivery system reform. And we make no claims of success, yet. Our
premiums still continue to climb. Our evaluation and measurement
efforts are incomplete. Our interagency coordination could be better.
But I would offer these lessons from our work to date.
1. Delivery system reform must make primary care infrastructure
development its first priority.
Every high performing health system in the world has a fundamental
commitment to primary care and puts their money in this direction. The
United States does not. Delivery system reform of course must extend
beyond this, but at the core of integrated, accountable delivery
systems must be primary care.
Primary care is also the link or ``hinge'' to public health and the
personal behaviors, which constitute a far greater driver of community
health and community costs than the medical delivery system.
2. Delivery System Reform will not happen without public oversight.
Commercial insurance rate review is a good start for this oversight
but is not sufficient. We have to make it in the economic interests of
providers to change behaviors. In Rhode Island, I had to survive a
court suit to nullify a contract term between a market-dominant
hospital and a local insurer, which would have explicitly shifted all
self-determined losses for Medicaid and Medicare back to the insurer
and commercial rate payers. This term was only possible because of the
hospital's market dominance.
We must change the rules of success for providers, while respecting
how difficult it is for large institutions to change. This is not
merely about government price controls, but using government authority
to promote new provider payment methods--such as bundled payments and
carefully monitored capitation--that change the success rules and
encourage providers to coordinate high-quality care together, not just
produce more volume alone.
3. Delivery system reform efforts must be coordinated across
payers.
An iron law of commerce is that behavior follows reimbursement. But
in Rhode Island and elsewhere, commercial health insurance only
constitutes 20 percent of the population and money in the system--
Medicaid and Medicare--are worth 50 percent, self-insured are worth 20
percent and the uninsured another 10 percent. As a result, in almost
all instances, no payer by itself has enough economic influence to
change provider behavior and promote delivery system reform and such
efforts must be coordinated across payers. This is hard work, and
involves changing contracting culture and providing antitrust
protection. It also means coordinating with Medicare--no easy task. In
Rhode Island, we are proud that our all-payer medical home effort has
been selected by CMS to participate in the Medicare Advanced Primary
Care Practice (MAPCP) demonstration project, and encourage expansion of
this work. We are also looking for ways to coordinate commercial
hospital contracting with the upcoming Medicare payment changes.
Finally, based on these lessons, what are some actions Congress
could take to encourage further delivery system reform? I offer four
areas, all of which build on the significant Federal investments being
made in information technology:
1. Make primary care a systematic priority--in loan forgiveness and
education, in Medicare payments, in health services research and NIH
funding, in HRSA budgets. Our budgets are our values statements and the
Federal Government does not value primary care.
2. Support Medicare payment innovation. Although not directly in
this committee's jurisdiction, Medicare is a powerful force in delivery
system reform. The ACA has numerous payment innovations and sets up
structures for more. IPAB must be protected and the Center for Medicare
and Medicaid Innovation encouraged, funded and allowed to put forth
projects with long payoff estimates.
3. Support multipayer alignment.
CMS must be directed to coordinate its efforts better
across Medicaid and Medicare.
More directly in this committee's responsibilities,
States should be encouraged to expand rate review efforts to align
commercial insurers with public payers. Finally, almost 30 percent of
RI's population is enrolled in self-insured plans, which can exempt
themselves from all-payer efforts. The ERISA pre-emption clause is a
major barrier to delivery system reform.
4. Create incentives for patients to select high-value delivery
systems. Because the costs of health insurance are subsidized by
employers and the Government, individuals do not pay the full costs of
wide provider choice, and undervalue the efficiencies and effectiveness
of integrated delivery systems. Developing and standardizing
effectiveness measures using resources such as the new Patient-Centered
Outcome Research Institute, equalizing tax policies for health
benefits, promoting individual purchase on exchanges, and designing
Medicaid, Medicare and FEHBP benefits that promote price sensitivity
will all create these incentives.
Since we pay for technical procedures and specialists, we should
not be surprised that we get a lot of volume and specialty care, and
less value than other countries. The U.S. multipayer system makes it
hard to change, but our work in Rhode Island shows that it can be done.
Innovating States need the help of Congress in these efforts.
Thank you again for the chance to address the committee. I look
forward to answering your questions.
Senator Whitehouse. Thank you, Commissioner.
The next witness is Dr. Gary Kaplan, who has served as the
chairman and CEO of the Virginia Mason Health System since
2000. Virginia Mason is based in Seattle, WA, home State of our
fellow HELP Committee Senator, Patty Murray, who sends her
regards.
Virginia Mason is one of the first health systems to
transform health care using the principles of the Toyota
production system, and it is a recognized national leader in
reducing costs and increasing efficiency while improving the
patient experience.
Dr. Kaplan is a founding member of Health CEOs for Health
Reform, and he practices internal medicine at Virginia Mason.
He has been recognized nationally for his health care
leadership, receiving awards from the National Quality Forum
and the Joint Commission, as well as the medical group
Management Association of the American College of Medical
Practice Executives. We are delighted to have him here.
Please proceed, Dr. Kaplan.
STATEMENT OF GARY KAPLAN, M.D., FACP, FACMPE, FACPE, CHAIRMAN
AND CEO, VIRGINIA MASON MEDICAL CENTER, SEATTLE, WA
Dr. Kaplan. Thanks very much.
Good afternoon, Senator Whitehouse, Senator Franken, and
members of the committee. I want to thank you for the
opportunity to present the work of the Virginia Mason Health
System, and our efforts to transform health care delivery. I
hope this, my comments and our testimony, helps develop an
understanding of what is truly possible.
Founded in 1920, Virginia Mason combines a primary and
specialty care group practice of nearly 500 physicians with a
336-bed acute care hospital. We also operate eight clinics in
the Puget Sound region. In addition to my duties as chairman
and CEO, I continue to practice internal medicine, although
perhaps not as much as I used to.
I am a product of American medicine and I am very proud of
American health care. We produce some of the world's best
health care in spite of a fragmented financially unsustainable
health care system.
Although Virginia Mason has a longstanding reputation for
innovation and clinical excellence, but our journey to design a
better system of care actually began just over 10 years ago. It
was prompted by a simple question from our board. Community
leaders from companies like Microsoft, Starbucks, Boeing, they
asked us, ``Who is your customer?'' And of course, our
immediate response, just like everybody in health care was,
``Our patients.'' But upon further reflection and challenge by
our board, we realized that our systems were not designed for
the safety and convenience of our patients, but based on the
preferences of providers.
An example would be waiting rooms, where patients hurry up
to be on time, and then they wait for us. We build that into
our facilities. They have really been designed around us. So we
got very clear.
And as you can see in this first poster here, this is our
strategic plan. This was developed under the leadership of our
board of directors, and really is an iconic graphic depiction
of our plan. All of the elements of this plan support Virginia
Mason's patients, who are at the top of the pyramid. The last
decade has been about truly understanding what it means to put
our patients first.
Also in 2001, we realized that we would not transform
health care unless we challenged the deep assumptions held by
physicians in our organization. And so, we put our Physician
Compact together, codifying and aligning expectations, what
every physician had every right to expect from our physicians,
and what our physicians had every right to expect from our
organization.
Our cultural transformation had begun, but we knew we
needed a management method that supported high quality, safe
care at a sustainable cost. And in our quest, we looked at
other hospitals and institutions around the United States, and
we didn't find a management system that we believe would help
us execute on this plan.
Soon we discovered from our colleagues just down the street
at the Boeing company what they have been doing with the Toyota
production system over the past decade, taking the 737
construction from 22 days to 10 days. And in the process,
improving quality, creating a safer product, and reducing the
costs of production.
We adopted their methods and we adapted it to health care
in what we call the Virginia Mason Production System. By using
the tools and methods of this system, we have seen tremendous
benefits for our patients, our staff, and our organization.
Through this work, we have demonstrated that the path to higher
quality, safer care is the same path to lower costs.
Since adopting the Virginia Mason Production System, we
have saved millions of dollars in planned capital investment,
we have dramatically reduced inventory costs, staff walking to
some patient waiting, overtime labor costs.
We have also reduced professional liability costs in a
State with no tort reform, our liability premiums were reduced
by 56 percent, and our self-insured retention funds have been
reduced over the past 7 years by 70 percent.
Because of our management system, we were able to find and
fix problems before they translate into defects for our
patients. We have, what we call, the Patient Safety Alert
System, where every staff member is expected to be a safety
inspector and stop the line, just like they do at Toyota. If a
patient is at-risk, an investigation is launched immediately,
not retrospectively. Since beginning the program, we have had
over 20,000 PSAs, Patient Safety Alerts. I wish we had 30,000.
We are pleased that last year when, as a result of our
improvement efforts, the Leapfrog Group, which represents
employers across the country, named Virginia Mason as one of
the top two hospitals of the decade. What this shows here on
the X-axis is the quality score; on the vertical axis,
stewardship of resources or costs. We are the dot in the upper
right quadrant. That shows you that it is possible to improve
quality and be wise stewards of resources.
We know that we can make these improvements, but just doing
it on our own, we are going to sub-optimize in terms of our
national delivery system. We need to partner with other
organizations who are proud to join other organizations like
Intermountain in a high-value health care collaborative.
We believe that the market has a role to play in health
care reform, and in 2004, we started working with some of our
region's largest companies: Boeing, Starbucks, Costco, Alaska
Airlines. In the first year of our marketplace collaborative on
back pain, we saw 2,000 patients and purchasers saved $1.7
million just on back pain in little old Seattle.
As it turned out, the thought was we would lose money
because the MRIs we eliminated were where we made money on back
pain. But it turned out we increased throughput, it tripled in
the same time the costs to deliver care was reduced.
Right now, we are working with the Intel Corporation in
Portland, showing that these methods are transportable to other
markets.
We know that to reach the full potential of these types of
strategies requires realigning payment so that reimbursement is
determined by value, not volume. We support approaches such as
bundled payment, shared risk, capitated payment, and other pay
for value programs.
It is a commonly shared belief that the current self-health
care system is unsustainable, but we do believe that with the
passage of the Patient Protection Affordable Care Act, we can
finally turn our attention to a health care financing model
that rewards quality and stops rewarding quantity in a
fragmented system.
The law includes many provisions that will help us improve
care delivery. Perhaps the most exciting component of this is
the Center for Medicare and Medicaid innovation. Through our
experience with the Virginia Mason Production System, we have
demonstrated again that the path to better health and better
health care is the same path to reduce costs.
I would like to thank you both and other members of the
committee, and colleagues on the panel today for your role in
reforming America's health care delivery systems. Sound
legislation must support delivery system reform. That begins in
our organizations and in our communities. Millions of Americans
in our country are counting on us. They cannot wait any longer.
I will be happy to take questions and thank you.
[The prepared statement of Dr. Kaplan follows:]
Prepared Statement of Gary S. Kaplan, M.D., FACP, FACMPE, FACPE,
Chairman and CEO, Virginia Mason Health System
summary
about virginia mason*
Virginia Mason is a nonprofit health care organization founded in
Seattle, WA, in 1920. An integrated system, Virginia Mason combines a
primary and specialty care group practice of nearly 500 physicians with
a 336-bed acute-care hospital. We also operate clinics in eight
locations around the Puget Sound area.
---------------------------------------------------------------------------
* Health care is hungry for something truly new--less a fad than a
new way to be. We are staggering under the burden of too many defects,
too much cost, and too much variation in care, all described with
scientific rigor and social commitment a decade ago in the landmark
Institute of Medicine reports, To Err is Human (1999) and Crossing the
Quality Chasm (2001). Even one convincing example of a major health
care organization that crossed the chasm might be enough to give us
both the confidence and the template we need. Transformation, in that
regard isn't vague at all; it refers to results, unprecedented
performance in all important dimensions of care, at a cost we can
embrace as sustainable.
Virginia Mason Medical Center (VMMC) is not yet quite that beacon,
but it has a better shot at becoming one than almost any other large
health care organization in America today (Kenney, 2011, p. xii).--
Donald M. Berwick, M.D., MPP, Administrator of the Centers for Medicare
and Medicaid Services.
---------------------------------------------------------------------------
achieving results with the virginia mason production system
Virginia Mason's costs are among the lowest in our market. We
recognize skyrocketing cost escalation is a contributor to many of the
problems associated with our health care system. We have worked hard to
decrease our costs and, at the same time, increase the quality of care
we provide to our patients. Our management methodology is based on
principles of the Toyota Production System. We utilize the Virginia
Mason Production System (VMPS) to identify and eliminate wasteful
processes.
VMPS also provides a consistent approach for measuring performance
across the organization. Virginia Mason teams have achieved significant
organizational and departmental improvements since adopting VMPS:
Saved $11 million in planned capital investment by using
space more efficiently and freed an estimated 25,000 square feet of
space using better space design.
Reduced inventory costs by $2 million through supply chain
expense reduction and standardization efforts.
Reduced staff walking distance by 60 miles per day.
Reduced labor expense in overtime and temporary labor by
$500,000 in just 1 year.
Reduced professional liability insurance 56 percent from
2004 to 2010.
Reduced the time it takes to report lab test results to
the patient by more than 85 percent.
Reduced the time from when a patient first calls Virginia
Mason's Breast Clinic with a concern to receiving a diagnosis from 21
days to 3 days. Many patients receive their results on the same day.
Through our experience with the Virginia Mason Production System,
we have demonstrated that the path to higher quality care is the same
path to lower costs.
the patient protection and affordable care act
The health reform law includes many provisions that will
undoubtedly improve care delivery including an emphasis on primary
care, coordination and innovative models of care.
An example of our experience with higher quality and lower cost in
primary care is a pilot we began with Boeing in 2007. Virginia Mason
worked with Boeing to reduce health care costs for their employees with
the most expensive health conditions while improving their health
status. The new model, intensive primary care, included detailed
patient education, personal care plans, intensive and appropriate use
of case managers, 24/7 phone and email access to providers, and the use
of electronic medical records. Additionally, care was coordinated among
primary care providers, specialists and the hospital. In partnership
with Boeing, Virginia Mason reduced annual per capita claims by nearly
30 percent.
Virginia Mason's experience in delivery system improvement is a
model for health care reform across the Nation. The patients in our
communities deserve nothing less than high quality, safe care at an
affordable cost.
______
Good afternoon, Chairman Harkin, Ranking Member Enzi and members of
the committee. I want to thank you for this opportunity to present the
work of Virginia Mason Health System and our efforts to transform the
delivery of health care. I am Dr. Gary Kaplan, chairman and CEO of
Virginia Mason Health System in Seattle, WA.
Virginia Mason was founded in 1920. Our founders came from the
University of Virginia and the Mayo Clinic. Our organization is
patterned after the Mayo model, combining a primary and specialty care
group practice of nearly 500 physicians with a 336-bed acute-care
hospital. We also operate clinics in eight locations around the Puget
Sound area.
In addition to my duties as chairman and CEO, I continue to
practice internal medicine at Virginia Mason. I am a product of
American medicine and I am proud of American health care. We produce
some of the world's best health care in spite of a fragmented,
financially unsustainable health care system.
redesigning care delivery
Virginia Mason has a long-standing reputation for innovation and
clinical excellence, but our journey to design a better system of care
delivery began just over 10 years ago. Our cultural transformation was
prompted by a simple question from our Board, ``Who is your customer?''
Of course, our immediate response was ``It's the patient.'' However,
upon reflection we realized that our systems were not designed for the
safety and convenience of our patients but based on the preferences of
our providers and designed around us, the doctors, nurses, technicians,
managers and those of us working in health care. An example would be
waiting rooms where patients hurry to be on time and then wait for us!
In 2001, Virginia Mason leadership developed a new strategic plan,
accompanied by a graphic representation in the form of a pyramid. All
of the elements of the plan, as depicted in the pyramid, support
Virginia Mason's patients who are at the top of the pyramid, signifying
our intention to place our patients first in all we do.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Also in 2001, Virginia Mason physician leadership developed a
physician compact detailing the organization's responsibilities to
physicians and each physician's responsibility to the organization, to
each other and to their patients.
Our cultural transformation had begun but we knew we needed a
management method that supported high quality, safe care at a
sustainable cost. In our quest, we looked at what other hospitals were
doing--and we looked at the very best out there. Yet we didn't find
anything that we believed would truly transform health care.
When we were willing to look at companies outside of the health
care industry, we discovered that Boeing had adopted the Toyota
Production System as their management methodology. They shortened the
lead time to make a 737 from 22 days to 10 days and we soon found that
this methodology is applicable to just about any work that involves
complex processes and systems.
So we adapted it to what we call the Virginia Mason Production
System (VMPS). By using the tools and methods of VMPS, we've seen
tremendous benefits for our patients, our staff and our organization.
Patients benefit with greater safety, less delay in getting care, more
timely results and treatment, and more time with their care providers.
Our staff members benefit by having less rework and frustration, and
greater opportunities and more time to care for patients; which, by the
way, is the reason they chose health care as a profession in the first
place. Virginia Mason benefits by operating more efficiently, providing
higher quality and safer care, at a lower cost.
achieving results with the virginia mason production system
Today, Virginia Mason's costs are among the lowest in our market.
We recognize skyrocketing cost escalation is a contributor to many of
the problems associated with our health care system. We have worked
hard to decrease our costs and, at the same time, increase the quality
of care we provide to our patients. We utilize our management
methodology to identify and eliminate wasteful processes.
An example of waste is waiting. Waiting rooms by design are places
patients, who are on time, go to wait for providers who are running
behind schedule. Not only do patients wait in the waiting room, they
wait in the exam room, they wait for test results, they wait for
diagnosis and treatment, and they even wait to receive their bill. All
of that after an initial wait to see the doctor after their appointment
has been scheduled.
VMPS also provides a consistent approach for measuring performance
across the organization. Virginia Mason teams have achieved significant
organizational and departmental improvements since adopting VMPS:
Saved $11 million in planned capital investment by using
space more efficiently and freed an estimated 25,000-square feet of
space using better space design.
Reduced inventory costs by $2 million through supply chain
expense reduction and standardization efforts.
Reduced staff walking distance by 60 miles per day.
Reduced labor expense in overtime and temporary labor by
$500,000 in just 1 year.
Reduced professional liability insurance 56 percent from
2004 to 2010.
Reduced the time it takes to report lab test results to
the patient by more than 85 percent.
Improved medication distribution from physician order to
availability for administration from 2.5 hours to 10 minutes, and
reduced incomplete inpatient medication orders from 20 to 40 percent to
less than 0.2 percent; both were achieved through process improvement
and computer physician order entry (CPOE) implementation.
Reduced the time from when a patient first calls Virginia
Mason's Breast Clinic with a concern to receiving a diagnosis from 21
days to 3 days. Many patients receive their results on the same day.
receiving external recognition
Our efforts to provide higher quality, safer care at a lower cost
have not gone unnoticed. Late last year, we were named one of two Top
Hospitals of the Decade by the Leapfrog Group. The Leapfrog Group is a
coalition of large employers who came together more than 10 years ago
with the goal of influencing the quality and cost of health care. Today
the Leapfrog Group produces the most respected indicator of efficiency
and effectiveness in hospital care.
Efficiency is a Leapfrog measure that combines scores for quality
and resource use. Leapfrog's 2010 data base contained 1,184 hospitals
from 45 States. We know that better quality also means higher
efficiency. Proving that rapid access to reliable systems delivering
evidence-based care is less costly for all concerned.
As this fall 2010 diagram illustrates, Virginia Mason ranks among
the top 1 percent of all hospitals measured for both quality and
efficiency, according to the Leapfrog Hospital Recognition Program.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
applying production system principles to facility design
Another example of our success with adopting production system
principles to health care is our new Emergency Department at our
downtown Seattle location, which opened for the first time last week.
People typically come to emergency rooms because they are acutely
ill. Making them wait just makes them sicker. We used the Virginia
Mason Production System to design the ideal process and flows so we can
efficiently move our patients from arrival to assessment, treatment and
either discharge or admission to the hospital. Then, using a 3P process
(Production Preparation Process), we brought together the construction
team, the architects, our doctors and nurses, paramedics and most
importantly our patients, to design the ideal physical facility to
support that flow. This inclusive process revealed that a large waiting
room is unnecessary.
A key to the efficiency of the new ED is the addition of what
Virginia Mason calls the PACE unit--which stands for Patient
Accelerated Care Environment. In most EDs, patients who are not acutely
ill, but cannot be immediately discharged or admitted, are cared for in
the ED as ``observation'' patients.
At Virginia Mason, those patients are moved to the adjacent PACE
unit, where they receive individualized care to efficiently move them
toward either discharge or inpatient admission. This not only provides
better care for the patient, but removes the bottleneck from the ED and
makes those resources available for more acutely ill patients who might
otherwise be forced to wait.
As you may know, hospitals all over the country are spending
millions of dollars to build huge emergency departments to cope with
the rising demand for care--instead of putting resources into figuring
out how to deliver the care that people need more efficiently.
Through the application of production system principles and the
broad participation from all of those involved in patient care, we
built a unique facility. We rethought everything--from how to eliminate
waiting to the way people, information and supplies move through the
building. I genuinely believe the care we provide in this emergency
department will be a model for the entire Nation.
partnering to deliver greater value
We know that we can make many improvements on our own, but to
transform our Nation's health care delivery system, we need to partner
with like-minded organizations.
We are working with health care organizations that share our vision
of a value-driven system. In December 2010, Cleveland Clinic,
Dartmouth-Hitchcock, Denver Health, Intermountain Healthcare, Mayo
Clinic, and The Dartmouth Institute for Health Policy and Clinical
Practice announced the formation of the High Value Healthcare
Collaborative (HVHC) with the goal of improving care, lowering costs
and sharing best practices nationally. On June 1, eight major health
systems, including Virginia Mason, joined the Collaborative.
The medical groups will share data on outcomes and clinical
protocols for selected conditions and treatments to arrive at optimal
care models, which can then be implemented by many other health care
systems. The Collaborative aims to see these best practices replicated
across the country.
Currently, the HVHC is working together in nine areas that have
wide variation in rates, costs and outcomes. These are total knee
replacement, diabetes, asthma, hip surgery, heart failure, perinatal
care, depression, spine surgery and weight loss surgery. In the future,
the HVHC will expand their focus to additional high variation, high-
cost conditions affecting diverse populations. The HVHC will determine
best practices for delivering care for these conditions and will
rapidly disseminate actionable recommendations to providers and health
systems across the United States (Adams & Kimbell, 2011). We are
hopeful that this work will ultimately be used by the Centers for
Medicare and Medicaid Services to set Medicare payment rates.
collaborating with the marketplace
We also believe that the market has a place in driving health care
reform. In 2004, we began working with some of our region's largest
employers. Through that collaboration, we improved patient satisfaction
and provided care more quickly and cost-effectively, all while
realizing ever-better medical outcomes. We started working with
employer and health plan representatives forming Marketplace
Collaboratives to identify and align our interests, with the goal of
reducing variation in quality and access.
We began by identifying the highest cost conditions; we developed
quality measures, relied on evidence-based care and utilized VMPS. The
collaborative developed five product specifications essentially
defining quality from the customer/employer perspective:
Same-day access;
100 percent patient satisfaction;
Evidence-based care;
Absence management; and
Affordable price for purchasers and providers--
reimbursement must be aligned with value.
In the first year of the back pain collaborative, we saw 2,000
patients and purchasers save $1.7 million. The time needed to complete
care for back pain was reduced by 67 percent. Course of care went from
66 days to 12 days. We were very close to same-day access and increased
available patient appointments from 500 to 2,000. Importantly, patient
satisfaction was 98 percent.
We utilized evidence-based care, which we learned through this
process, hadn't always been the case. Ninety-six percent of Virginia
Mason patients required no work loss (beyond the time needed to receive
care); of those who did miss work they lost 4.3 work days, compared to
9 work days lost for care delivered by other local providers.
We committed to doing the right thing, even though in the short
term we would likely lose money. As it turned out, the margin to
Virginia Mason increased because throughput quadrupled at the same time
the cost to deliver care was reduced.
We also have value streams, in our marketplace collaborative work
with employers, for breast nodules, headache, upper respiratory
infection, screening and prevention, and shoulders, knees and hips.
Payment for value, not volume, would accelerate this work across the
country, allowing patients to receive better care, faster and more
affordably.
Working with Intel, we have expanded Marketplace Collaboratives
into the Portland, OR area. Intel is collaborating with a payor and
providers in Portland to use clinical value streams developed at
Virginia Mason. Intel's success is similar to ours and demonstrates
that this methodology is portable and transferrable.
To reach the full potential of these types of strategies requires
realigning payment so that reimbursement is determined by value not
volume. Approaches such as bundled payment, shared risk, capitated
payment and other pay-for-value programs are necessary in order to
promote widespread, value-driven care innovations.
patient protection and affordable care act
In March 2010, the Patient Protection and Affordable Care Act,
which was passed by Congress and signed by President Obama, became law.
In addition to much-needed insurance industry reform, it incorporates
incentives for delivery system reform. We can finally turn our
attention from a health care financing model that rewards quantity in a
fragmented system to one that encourages quality in a coordinated
approach. The health reform law includes many provisions that will
undoubtedly improve care delivery.
emphasizing primary care
As a practicing physician, I've known for more than three decades
that to shift the paradigm from a system that treats illness to one
that promotes health requires a sharp focus on primary care.
Thankfully, the Patient Protection and Affordable Care Act requires
incentive payments for primary care providers and reallocation of
unused residency positions to primary care programs.
An example of our experience with higher quality and lower cost in
primary care is a pilot we began with Boeing in 2007. Virginia Mason
worked with Boeing to reduce health care costs for their employees with
the most expensive health conditions while improving their health
status. The new model, intensive primary care, included detailed
patient education, personal care plans, intensive and appropriate use
of case managers, 24/7 phone and email access to providers, and the use
of electronic medical records. Additionally, care was coordinated among
primary care providers, specialists and the hospital. In partnership
with Boeing, Virginia Mason reduced annual per capita claims by nearly
30 percent.
The success of the Boeing project led to the implementation of the
Virginia Mason's Intensive Primary Care program at all of our primary
care sites. To appropriately align incentives, contractual arrangements
for this expanded program include a per member/per month stipend, a
mechanism for shared savings and payment for achievement of quality
metrics.
ensuring better coordination
Multi-specialty group practices and integrated delivery systems
provide many of the attributes necessary for accountable patient care.
Unfortunately fewer than 20 percent of physicians practice in groups
with 11 or more doctors. As a result, fragmented care leads to
unnecessary tests and treatments, emergency department over-utilization
and alarmingly high hospital re-admission rates (Washington Post, 2010,
p. 142).
The health reform law will encourage care coordination in a
framework not unlike an integrated delivery system. Accountable Care
Organizations will be rewarded for keeping patients healthy and out of
both emergency rooms and hospitals. Patients will benefit from
additional services such as intensive education, monitoring and
medication management. A bundled fee per patient will translate into
shared savings for Medicare and for providers.
My colleagues and I at Virginia Mason are pleased with the recently
released ACO regulations and we are continuing to explore pursuit of an
ACO designation for our organization.
promoting innovative models of care
Perhaps the most promising component in the health reform law is
the Center for Medicare and Medicaid Innovation (CMMI) with its mission
of better health care, better health and reduced cost.
Through our experience with the Virginia Mason Production System,
we have demonstrated that the path to better health and better health
care is the same path to reduced costs. As you might imagine, we are in
conversation with CMMI regarding potential pilot projects.
In conclusion, I'd like to thank each of the committee members and
my colleagues on the panel today for your role in reforming America's
health care delivery system. Sound legislation must support delivery
system reform that begins in each of our organizations, because our
patients and communities are counting on us and can wait no longer.
I am happy to answer any questions.
Resources Cited
Adams, C.R. & Kimbell, D. (2011). Retrieved Nov. 5, 2011 from http://
www.dartmouth-hitchcock.org/news/newsdetail/59724/. Dartmouth-
Hitchcock; The Dartmouth Institute for Health Policy and Clinical
Practice.
Kenney, C. (2011). Transforming Health Care: Virginia Mason Medical
Center's Pursuit of the Perfect Patient Experience. New York, NY:
Productivity Press, Taylor & Francis Group.
The Staff at the Washington Post (2010). Landmark: The Inside Story of
America's New Health-Care Law and What it Means for Us All.
Philadelphia, PA: Public Affairs Press.
Senator Whitehouse. Thank you, Dr. Kaplan. We will continue
with the witnesses first, and then we will do questions
selectively at the end.
Our next witness, Greg Poulsen, is the senior vice
president for Intermountain Healthcare, which is based in Salt
Lake City, UT, Senator Hatch's home State. He joined
Intermountain Healthcare in 1982, and in his current position,
he shares responsibility for the operational and strategic
issues of the organization. He has had direct responsibility
for strategic planning, research and development, and marketing
and policy for over 20 years.
He is a Commissioner for the Commonwealth Fund in
Washington, DC, focused on defining a high-performance health
system for the United States. He has been a consultant and
provided counsel on health policy development in other
countries as well, and we are pleased to have him with us.
Mr. Poulsen.
STATEMENT OF GREG POULSEN, SENIOR VICE PRESIDENT AND CHIEF
STRATEGY OFFICER, INTERMOUNTAIN HEALTH-
CARE, SALT LAKE CITY, UT
Mr. Poulsen. Thank you very much for the opportunity to be
with you.
As you mentioned, Intermountain Healthcare is based in Salt
Lake City. We have roughly 3,200 physicians, 23 hospitals, and
are the largest insurer in the State.
I think we have become particularly well-known nationally
and internationally for identifying best clinical practices,
and then applying them consistently in much the same way that
Virginia Mason has.
Dr. John Wennberg at Dartmouth summarized the results about
a year and a half ago by saying, ``Intermountain is the best
model in the country of how you can actually change health care
for the better.''
If the Nation could reduce health care spending for acute
and chronic illness by more than 40 percent if it practiced
like Intermountain. However, we know that there remains much
room for improvement at our organization and at others. The
closer we look, the more we find areas where improvement can
and must be made.
I know that other leading organizations see it the same way
we do; we just heard about that. The primary challenge for us,
and the main reason more organizations don't adopt high-value
models discussed in this hearing is the underlying fee for
service payment system, which predominates, of course, in the
United States.
Intermountain and other organizations have shown that
improving quality is compatible with lowering costs. And
indeed, high-quality care is generally less expensive than
substandard care. Unfortunately, such high-quality, low-cost
care generally leads to lower revenues and lower incomes for
providers. To put it bluntly, the current payment system
rewards disorganized, inefficient, and often unnecessary care.
Experience demonstrates that effective, coordinated
clinical practice can improve outcomes dramatically while
reducing costs significantly. Let me give you a couple of
examples.
One relates to patients coming to emergency rooms with
sepsis, which is a deadly whole body medical condition
generally associated with blood infections. By applying a
carefully organized series of best practices every time,
consistency here is the key, Intermountain's mortality rates
have plunged to nearly 10-times lower than the national
average, from roughly about 40 percent to about 5 percent.
Because of much more rapid recoveries and fewer complications,
costs were much lower as well in both national norms and our
previous experience.
The reward? The revenue loss of more than $10 million per
year to Intermountain hospitals and physicians, so a reward of
a penalty, and if you will, for that kind of improvement.
Similar results can occur with management of chronic diseases.
At Intermountain and other places, we have developed a
coordinated, evidenced-based approach to managing patients with
diabetes, for example, and have applied it across our entire
system. The results are much better health, many fewer
complications, and much lower cost. Indeed, what we have seen
is a dramatic reduction in amputations, lower ER visits, lower
rates of heart disease and other hospital treatments, and
roughly a reduction of $5 million per year; again, a loss of
revenue.
Sepsis care and diabetic care are just two examples of
dramatic improvements that can be made to both costs and
quality simultaneously. At Intermountain, we have seen the same
dynamic play out in well over 100 other cases with services
ranging from managing glucose in cardiac surgery, to defining
the optimal time to induce labor for expectant mothers.
The magnitude of our health care value problem, and
opportunity, can be seen in the expense data from across the
country. Even after adjusting for differences in input costs
like labor and building expense, similar populations of
individuals with similar diseases cost Medicare substantially
more than twice as much in some locations than in others. Much
as you pointed out, Senator Whitehouse, on that graph you
showed at the first of the meeting.
We even see huge variation within relatively small
geographies like within Utah, or Washington, or Minnesota, or
New York, even within New York City. And this variation does
not correlate to quality of care. Indeed, the reverse is true.
Improving care value is hard work, and it takes time, and
it takes resources. We believe that it is unrealistic to expect
most providers to do these hard things when their reward is a
financial penalty. For this reason, we believe that health care
payments should move rapidly toward a payment mechanism that
rewards value rather than volume, as all of us here have said.
As the largest payer in the Nation by far, Medicare can
catalyze this change. We believe bold movement toward
comprehensive prepayment to provider groups has the potential
to yield dramatic improvements. Really, changing health care
delivery requires changing incentives.
We believe that changing from fee for service to prepayment
will be challenging, but the alternatives are much more
difficult, and will not yield nearly the beneficial long-term
results.
We have submitted a white paper that outlines five
principles that we believe would foster this type of change and
put health care, and Medicare, on a sustainable and affordable
trajectory. We hope you will find it useful.
Thank you for the opportunity to be with you.
[The prepared statement of Mr. Poulsen follows:]
Prepared Statement of Greg Poulsen
summary
Intermountain Healthcare is an integrated not-for-profit health
system based in Salt Lake City, UT. Intermountain operates 23 hospitals
in Utah and Idaho; more than 160 clinics; and an insurance plan,
SelectHealth, which covers approximately 500,000 lives in Utah.
Intermountain's Medical Group employs approximately 800 physicians, and
about 2,300 other physicians affiliate with Intermountain.
Intermountain has become well-known nationally and internationally
for identifying and consistently applying best clinical practices. Dr.
John E. Wennberg of Dartmouth summarized the results, saying,
``Intermountain is the best model in the country of how you can
actually change health care for the better.'' Dartmouth has estimated
that if healthcare were practiced nationally in the way it is provided
at Intermountain, ``the Nation could reduce healthcare spending for
acute and chronic illnesses by more than 40 percent.''
Intermountain's focus is on providing high-value healthcare. To
that end, we:
Have developed and structured physician-led clinical
programs so that medicine at Intermountain is practiced by
collaborative teams, and is based on the best available data.
Establish specific clinical improvement goals, with
accountability for accomplishing these goals reaching all the way to
Intermountain's governing board.
Have developed information technology that allows us to
track, compare, and improve outcomes--and eliminate inappropriate
variation.
View variation as an opportunity to improve, whether we
find it in our clinical outcomes, or our supply chain.
For example, by providing systematic, science-based treatment--
prompted by good clinical decision support--to patients coming to
Intermountain's emergency rooms with deadly blood infections (sepsis),
we achieved mortality rates that were about one-tenth of the national
average, with dramatic cost savings. The reward? A revenue loss of more
than $10 million per year to Intermountain physicians and hospitals.
We know there remains much room for improvement; when we accurately
measure our own performance, we consistently fall short. The primary
challenge, and the main reason that more organizations don't adopt the
high-value models discussed in this hearing, is the underlying fee-for-
service payment system that predominates in the United States. Put
bluntly, the current payment system rewards disorganized, inefficient
and often unnecessary care.
We believe that healthcare should move rapidly toward a payment
mechanism that rewards value rather than procedure volume. As the
largest payer in the Nation--by far--Medicare can catalyze this change.
We believe bold movement toward comprehensive prepayment to provider
groups has the potential to yield dramatic cost and quality benefits to
the Nation.
Intermountain has submitted a white paper to the committee that
discusses much more fully the key components that we believe could move
healthcare in the United States to sustainably higher value.
______
Intermountain Healthcare appreciates the opportunity to discuss
improving quality and lowering the costs of health care from the
delivery system perspective. My name is Greg Poulsen, and I am senior
vice president and chief strategy officer of Intermountain Healthcare
in Salt Lake City, UT. Intermountain operates 23 hospitals in Utah and
Idaho; more than 160 clinics; and an insurance plan, SelectHealth,
which covers approximately 500,000 lives in Utah. Intermountain's
Medical Group employs approximately 800 physicians, and about 2,300
other physicians affiliate with Intermountain.
Intermountain has become well-known nationally and internationally
for identifying best clinical practices and applying them consistently.
Dr. John E. Wennberg of Dartmouth summarized the results, saying,
``Intermountain is the best model in the country of how you can
actually change health care for the better.'' Dartmouth estimated that
if healthcare were practiced nationally in the way it is provided at
Intermountain, ``the Nation could reduce healthcare spending for acute
and chronic illnesses by more than 40 percent.''
Intermountain's focus is on providing high-value healthcare. To
that end, we:
Have developed and structured physician-led clinical
programs so that medicine at Intermountain is practiced by
collaborative teams, and is based on the best available data.
Establish specific clinical improvement goals, with
accountability for accomplishing these goals reaching all the way to
Intermountain's governing board.
Have developed information technology that allows us to
track, compare, and improve outcomes--and eliminate inappropriate
variation.
View variation as an opportunity to improve, whether we
find it in our clinical outcomes, or our supply chain.
However, we know there remains much room for improvement at
Intermountain; the closer we look, the more we find areas where we can
be better. The primary challenge for us, and the main reason that more
organizations don't adopt the high-value models discussed in this
hearing, is the underlying fee-for-service payment system that
predominates in the United States. Intermountain and other
organizations have shown that improving quality is compatible with
lowering costs--indeed, high-quality care is generally less expensive
than substandard care. Unfortunately, such high-quality, low-cost care
generally leads to lower revenues and lower incomes for providers. Put
bluntly, the current payment system rewards disorganized, inefficient
and often unnecessary care.
Experience at Intermountain and elsewhere demonstrates that
effective, coordinated clinical practice can improve outcomes
dramatically while reducing costs significantly. One example relates to
providing systematic, science-based treatment to patients coming to
emergency rooms with sepsis (which is a deadly whole-body medical
condition usually associated with blood infections). By applying a
carefully organized series of best practices EVERY TIME--consistency is
the key--Intermountain's mortality rates plunged to nearly one-tenth of
the national average (roughly 40 percent mortality nationally vs. under
5 percent at Intermountain), and because of more rapid recoveries and
fewer complications, costs were much lower than both national norms and
our previous experience. The reward? A revenue loss of more than $10
million per year to Intermountain physicians and hospitals as a direct
result of improving quality. This is a dramatic illustration of the
need to retool payment systems to incentivize value.
Similar results can occur with management of chronic diseases.
Intermountain has developed a coordinated, evidence-based approach to
managing patients with diabetes, and it is applied across our entire
system. The results are much better health, many fewer complications
like heart disease and amputations, and much lower cost; my friend, Dr.
Denis Cortese, who recently retired as the CEO of the Mayo Clinic, told
KARE TV in Minneapolis, ``If I were ever diagnosed with diabetes, I
would want to be treated by Intermountain Healthcare. They have the
best outcomes in the country--and the lowest costs.'' Again,
unfortunately, the current payment system penalizes this success: our
much lower rate of ER visits, amputations, heart disease and other
hospital treatments costs Intermountain providers roughly $5 million in
revenue per year.
Sepsis care and diabetic care are just two examples of the dramatic
improvement that can be made to both quality and cost. At
Intermountain, we have seen this same dynamic play out in well over 100
other case types across the spectrum of care, from the timing of
elective inductions of labor for pregnant women to the selection and
administration of the most effective antibiotics. Intermountain
develops these ``best-practice'' protocols for those procedures and
case types that we perform most often, that are the most expensive, or
that have the widest variation in their performance--and we do it both
through careful analysis of actual outcomes data available through our
electronic medical records and through review of the latest and best
scientific evidence. At Intermountain, our clinicians are not required
to follow the protocols absolutely. Actual practices may vary somewhat
because of patient preferences and values or because of clinicians'
best judgment. However, our clinicians have come to trust the data, and
they rely on the decision support protocols as a valuable tool in the
diagnosis and treatment of patients. And, it has been convincingly
demonstrated that overall, both outcomes and costs improve.
The magnitude of the problem caused by the perverse incentives in
the fee-for-service payment system--and the opportunity--can be seen in
the expense data from across the country; even after adjusting for
differences in input costs--like nursing salaries and building costs--
similar populations of individuals with similar diseases cost Medicare
much more than twice as much in some locations compared to other
locations in the country. We even see huge variation within relatively
small geographies (within Utah or Washington, for example). And this
variation does not correlate to quality of care--indeed the reverse is
frequently true. Generally speaking, people living in areas with low
quality of care cost CMS and other payers more than those in areas
where high-quality care is provided.
The perversity of our current payment system is also evident in the
fact that we now have huge regulatory requirements built to prevent
providers from succumbing to the enticements inherent in the fee-for-
service payment system. Fraud and abuse, anti-kickback, RAC audits, re-
admission tracking and many other regulatory instruments--which are
hugely expensive for both the Government and providers--exist primarily
to prevent providers from following the incentive to provide
unnecessary care.
Improving care value is hard work, and takes time and resources. We
believe that it is unrealistic to expect most providers to do these
hard things when their reward is a financial penalty. For this reason,
we believe that healthcare payment should move rapidly toward a payment
mechanism that rewards value rather than procedure volume. As the
largest payer in the Nation--by far--Medicare can catalyze this change.
We believe bold movement toward comprehensive prepayment to provider
groups has the potential to yield dramatic cost and quality benefits to
the Nation.
We suggest five principles to foster this change:
First, of course, is the development of a mechanism to pay
providers for meeting the health needs of individuals in the most
clinically and financially efficient way possible. Various permutations
of prepayment, coupled with effective quality and patient satisfaction
measures are, in our view, the most effective mechanism to do this.
Second, we believe that government should require
results--high quality at affordable cost--rather than requiring a given
organization structure. Intermountain is structured differently than
Virginia Mason, which is different than the Mayo Clinic, which is
different than Geisinger, which is different than the medical community
of Grand Junction Colorado, and so on. And yet, all of these have
achieved dramatically better quality at lower cost than the Nation at
large. It is often tempting to prescribe an approach--something that
worked somewhere else, but it is much more effective to define and
reward the desired outcome and unleash American creativity to achieve
it. The best model may not have been tried yet.
Third, we believe that people using the healthcare system
should have appropriate incentives to use the system wisely and to do
their part in maintaining their own health. Individuals should have
financial as well as literal skin in the game.
Fourth, the Federal Government generally, and CMS
specifically, have huge amounts of information that can help providers
of care to be more effective. One of Intermountain's keys to success
has been a very robust data base of information that helps us to see
what works and what doesn't. CMS could assist providers that lack our
data capabilities to achieve similar benefits.
Fifth, and finally, there should be a substantial reward
mechanism for providers making the major changes needed to provide
high-value care. Specifically, organizations and localities that are
currently high-cost should be given very strong incentives to do the
hard work necessary to change paradigms from volume-based care to
value-based care. This means less incentive and reward for
organizations like Virginia Mason and Intermountain, but then, we don't
have to make as many hard changes. We believe that the benefits of
giving substantial incentives to higher cost places to make the needed
but difficult changes will provide dividends to the Nation for decades
to come.
We are including in this submittal a much more detailed white paper
outlining our thinking on the key components that we believe would move
healthcare in the United States to sustainably higher value. The
document speaks directly to Medicare, because it is the country's
largest payer for health services, because it is directly under the
purview of the Federal Government, and because it tends to set the
direction for commercial payers. The ideas could be adapted to Medicaid
and to commercial plans.
Thank you for the opportunity to present on this important topic
today. Questions may be directed to Intermountain's Director of Federal
Relations, Bill Barnes at [email protected] or at 801-442-3240.
______
Recommendations to Congress for Building Sustainable Medicare Value
Intermountain Healthcare
introduction
Projected expenditures in government healthcare programs are the
largest Federal deficit issue facing this country. The imbalance
between the number of people paying into Medicare versus recipients, as
well as the escalating cost of care for beneficiaries, is growing in
ways not predicted--or even imagined--by the creators of Medicare.
There is consensus that the Medicare spending trajectory is
unsustainable and, unless checked, will be the leading contributor to
the deficit in the future. Real deficit reduction is virtually
impossible in the absence of healthcare improvement. It will require
brave leaders to take on this divisive but critical issue.
many proposed solutions have major challenges
Many less-than-ideal, insufficient, or politically unattractive
alternatives to balancing the Medicare books have been proposed from
all directions. The easiest option at the present is to ``kick the can
down the road'' once more, opting to leave this issue out of the
discussion entirely for the time being, but this would leave an ever-
growing problem for the next generation of American citizens and
leaders. We firmly hope that the necessity to finally address this
problem substantively will be acknowledged.
Of course, taxes could be raised to cover the predicted gap.
However, a modest change in Medicare payroll taxes would have little
impact. Eliminating the Medicare shortfall would require that the
Medicare tax be raised several fold, and this would be disastrous
economically, politically, and from a fairness perspective.
Additionally, if healthcare costs continue to grow at their current
rate, a tax increase today might only serve as another temporary
solution. If either ignoring the issue or raising revenue to
unprecedented levels is not palatable, the only alternative is to
reduce the Medicare cost trajectory.
Medicare spending could be reduced through reducing benefits,
rationing services based on patient criteria, or queuing patients.
While each of these options is used in other countries, they would
currently be politically challenging to implement here. Opponents to
these options, including most Americans, will respond that
beneficiaries and their physicians, not the Federal Government, should
be making medical (often ``life or death'') decisions for seniors. So,
while we believe that evidence should impact how care is provided (and
the Federal Government may well play a role in disseminating this
evidence), we believe that more dramatic intrusions into care practice
are likely to be very controversial. Spending could also be reduced by
increasing the Medicare eligibility age to 67 or 70. Medicare benefits
could be means-tested or tiered, with those who have higher incomes
being made responsible for a larger percentage of their healthcare
costs. All of these alternatives would likely result in public outcry,
as Medicare was not initially constructed to be a safety-net program
and those who have paid into it would feel they were not receiving what
they have paid for.\1\
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\1\ Actually, the average person pays far less into Medicare than
s/he will receive (which is at the heart of the current problem). This
is in large measure due to increases in both longevity and healthcare
costs that were never anticipated by the creators of Medicare.
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The most straightforward approach to reducing Medicare spending is
to force across-the-board cuts to providers, such as the 2 percent
reductions required if the Joint Select Committee and Congress cannot
reach another solution. Although simple to impose and seemingly
compatible with the need to reduce the overall cost of Medicare, this
alternative would likely result in a cascade of negative consequences.
Some providers that currently serve large Medicare patient populations
and are unable to reduce their costs may be unable to survive on
decreased margins and would eventually cease to exist. Other providers
that have mixed practices may discontinue providing services to
Medicare beneficiaries, resulting in access issues for America's most
vulnerable seniors (we have already seen this in some parts of the
country). Additionally, this may lead some providers to simply shift
costs to other payer categories, increasing commercial insurance
premiums at a time of economic vulnerability.
And perversely, the Nation's most efficient, value-oriented
providers would be disproportionately impacted by these cuts, since
they simply have less ``fat'' to cut. Furthermore, since one way to be
successful in a world of reduced per-use payments is to increase
utilization of profitable but questionable services, some providers may
simply attempt to ``make it up on volume,'' which would make a major
problem worse. Any system, good or bad, will ultimately produce exactly
the results it incentivizes. A payment system that continues to pay
providers on a per-use basis, albeit at a reduced rate, is likely to
result in an increase of per-person utilization in order to spread
significant fixed costs over a larger pool. For this reason, we do not
believe these cuts will necessarily result in meaningful deficit
reduction in the intermediate and long term.
a better opportunity
Intermountain believes there is another option, an alternative with
a significant upside for the Nation. This option addresses cost by
improving clinical quality and avoiding waste. Implementation of this
option can begin as early as 2013 through relatively simple changes to
the current CMS payment model.
To understand the opportunity, it is important to recognize the
massive variation in the way healthcare is provided within the United
States--with per-capita cost differences of more than two-to-one among
States for both Medicare beneficiaries and the rest of the
population.\2\ Additionally, for decades, research conducted by the
Dartmouth Institute for Health Policy and many others has highlighted
even greater variation in utilization and cost of healthcare services
among smaller geographic regions within the United States.\3\ Even
after adjusting for age, sex, ethnicity, and local price variation,
there is more than a threefold difference in cost per beneficiary.\4\
Interestingly, the quality of medical care does not increase with the
higher costs of healthcare. As shown in the following graph, States
with higher costs of healthcare tend to have lower quality of care.
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\2\ Health Expenditure Data, Health Expenditures by State of
Residence, Centers for Medicare and Medicaid Services, Office of the
Actuary, National Health Statistics Group.
\3\ Jonathan Skinner, Elliott Fisher, and John E. Wennberg, ``The
Efficiency of Medicare'' in David Wise (ed.) Analyses in the Economics
of Aging. Chicago: University of Chicago Press and NBER, 2005: 129-57.
\4\ Jonathan Skinner, et al., A New Series of Medicare Expenditure
Measures by Hospital Referral Region: 2003-8, 21 June 2011. The
Dartmouth Institute for Health Policy & Clinical Practice, http://
www.dartmouthatlas.org/downloads/reports/PA_Spending_Report_0611.pdf.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Those areas with higher quality yet lower costs have accomplished
this through providing care with greater effectiveness and consistency.
A good example is the Dartmouth study of care provided at the end of
life; the overtreatment associated with fragmented care (unfortunately
all too common in the United States) results in much higher costs and
poorer outcomes for patients.\5\
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\5\ John Wennberg, et al., Tracking the Care of Patients with
Severe Chronic Illness; The Dartmouth Atlas of Healthcare 2008.
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Collectively, this enormous variation in virtually every type of
care provided in the United States, and the overutilization it
represents, has significant cost and quality implications--and provides
an enormous opportunity for improvement in both cost and quality. For
example, based on the most recent Medicare data available (2008), the
average spending on the over-65 Medicare population was just over
$9,000 per person (priced-adjusted by geography). If we could simply
move the highest-cost States down to this national average, the country
would save $17 billion annually (and $209 billion over 10 years) \6\;
if overall spending approached the performance levels demonstrated by
the most cost-effective States ($7,000 per person), savings would be
$94 billion per year and $1.13 trillion over 10 years. Of even greater
note, if performance approached that demonstrated by high-performing
organizations, including Intermountain Healthcare, savings would be
$160 billion per year, with 10-year savings of $1.9 trillion.\7\
Furthermore, because these savings are modeled on organizations
performing in the current environment of perverse incentives (providers
largely being paid for volume, rather than value), we believe the
opportunity estimated here is likely conservative.
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\6\ Based on price-adjusted Medicare spending per person, with a 4
percent growth in the aged population.
\7\ John Wennberg, et al., An Agenda for Change: Improving Quality
and Curbing Health Care Spending (Lebanon N.H.: Dartmouth Institute for
Health Policy and Clinical Practice, 17 Dec. 2008).
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We call our proposed solution Shared Accountability. Shared
Accountability requires partnerships and collaboration among all the
important healthcare players: physicians, hospitals, other healthcare
providers, and--critically--patients themselves. At the heart of the
Shared Accountability concept is the alignment of incentives around the
health of beneficiaries, rather than payment for the services they use.
Shared Accountability payment models should move toward prepaid,
outcomes-based arrangements as quickly as possible.
We believe this solution can be practically realized, because
history has repeatedly shown that healthcare providers are highly
adaptable (e.g., the implementation of DRGs in 1983, the managed care
revolution in the late 1980's, responses to even the possibility of
reform in the first Clinton administration, alignment around EMR
``meaningful use'' requirements, etc.). The healthcare industry has
great capacity to learn and evolve rapidly when incentivized to do so.
Additionally, while many components of the Patient Protection and
Accountable Care Act stirred controversy in the provider community,
there was widespread concurrence across the country supporting the
concept of ``accountable care.'' Many healthcare providers throughout
the United States now agree that changes in the delivery system are
inevitable and necessary; the status quo is no longer a viable option.
We need to change the regulatory and payment system to incentivize our
intended outcomes (lower per-person expenditures and higher quality of
care), something that across-the-board reductions in per-use payments
will not accomplish. Only by fundamentally changing the system can we
truly solve the Medicare deficit problem for future generations of
Americans.
Shared Accountability: Key Principles
Through practical experience, Intermountain and other organizations
have discovered and demonstrated a number of key principles that can
deliver high-quality healthcare at the lowest appropriate cost. We
believe that if Medicare and Medicaid programs align incentives in such
a way as to be consistent with these principles, organizations across
the country would be able to move healthcare in the United States to a
much more effective paradigm.
1. Medicare (and other payers) should move from paying providers
for volume to paying for what Americans really want: healthy
beneficiaries. We suggest that the Federal Government should move to
full prepaid, outcomes-based arrangements for Medicare beneficiaries as
rapidly as possible.
The old cliche that ``you get what you pay for'' has proven true in
healthcare, but not in a beneficial way. For decades, American health
providers have been paid for the volume of care they provide to their
patients. It is not surprising, therefore, that studies have shown
substantial overutilization in many areas and that more intensive (and
remunerative) procedures are frequently chosen over less intensive, but
equally effective, alternatives. In our experience, this impact is
often subliminal: many providers don't even recognize the incentive
directly, but the very culture of care is impacted by it. We frequently
adopted the mentality of ``it probably won't hurt; we might as well try
it.''
If the fundamental Medicare payment mechanism were rebuilt around
value--quality and cost measured at the beneficiary level--the
beneficial impact would be enormous. And because Medicare, which is by
far the largest healthcare purchaser in the country, tends to establish
the payment mechanisms that others adopt, we can reasonably expect that
these benefits would accrue to the rest of the population as well.
These general concepts have been proposed by both Democrats and
Republicans, and there is much agreement that greater accountability,
especially in the payment mechanism, is essential to making fundamental
improvement in the way care is delivered. It makes sense from both a
free-market and a social-conscience perspective. In spite of this,
there has been little progress in this area. Currently, Medicare Part C
is the only full prepayment arrangement for managing the totality of
health for Medicare beneficiaries, and less than a quarter of Medicare
beneficiaries are enrolled in this program. Additionally, because
Medicare Advantage is designed primarily as an insurance program, most
plans are not highly integrated with healthcare providers; so while the
insurer is paid in a way that discourages unnecessary utilization among
their beneficiaries, delivery systems and providers are still generally
paid on per-use arrangements with few value-oriented incentives.
We believe this situation should be fundamentally changed.
Accountability for Medicare beneficiaries should move toward prepayment
in a deliberate but expeditious fashion. The following principles
discuss some of the key components of such a course.
Congressional Action: Congress should make it clear that the
current Medicare payment trajectory will be significantly reduced and
that providers will become accountable for the total cost of care for
the population they serve. Prepayment for the care of ``traditional''
Medicare beneficiaries should be made available to willing provider
organizations beginning in 2013.
2. The best results come about when healthcare providers behave in
an organized, collaborative fashion. Whenever possible, make use of
existing healthcare infrastructure and relationships, while encouraging
growth in beneficial relationships over time.
Repeated studies and analyses have shown that organized care
delivery systems can be much more effective in providing high-quality,
efficient care than the more common fragmented amalgam of healthcare
providers. The logic behind this is clear: A system can reduce
duplication, coordinate the services of different specialties, provide
the most effective diagnostics at the most effective time, and reduce
the likelihood of conflicting treatments. It is also more able to
identify and eliminate quality and cost problems and to take effective
action to fix them. Systematic, coordinated care is more consistent,
more efficient, and more attractive to patients.
But while the benefits of systematic care are widely recognized,
the question of how to move from our current fragmented approach to a
coordinated system is still hotly debated. Some advocate moving
entirely to organized systems with employed, salaried providers, while
others advocate approaches that use independent practitioners. The
collective experience of many high-value organizations suggests that if
correct incentives are provided (as discussed above), many different
organizational approaches have the potential to achieve dramatically
improved performance. In a widely hailed article, well-known physician-
teacher-author Atul Gawande pointed out sterling performance in
coordinated care by two diametrically different organizational
approaches: first, the Mayo Clinic, an organization with more than a
century of history, a deep culture, and a very cohesive corporate
structure, and, second, the medical community in Grand Junction, CO,
which is constituted largely of independent physicians and an
independent hospital that got together to create a virtually integrated
system with a common electronic medical record, changed the payment
structure, and put a coordinated focus on value improvement.\8\
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\8\ Atul Gawande, ``The Cost Conundrum,'' The New Yorker (1 June
2009).
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High-value organizations across the Nation have come from markedly
different communities, history, and culture, and yet have achieved
national recognition for both quality and cost-effectiveness. We are
convinced that many other existing and potential organizational types
can also achieve great improvements in value. Therefore, we believe
that any ``reform'' program that is rigidly prescriptive about
organizational structure will miss an opportunity to make effective use
of organizations that already exist, many of which have the potential
to significantly improve healthcare value if appropriately
incentivized. Furthermore, American ingenuity may develop beneficial
structures and approaches that have not yet been envisioned. An
inflexible design would push many willing and engaged participants out
of the race before they even get to the starting line. What matters
most is that existing or future healthcare organizations, regardless of
their configuration, be rewarded for delivering on the promise of
improved quality and reduced costs.
Regulations must make it safe and feasible for physicians and other
providers to work together in ways that improve value to the community
through the provision of optimal care. They must be able to share
information, coordinate incentives for quality and efficiency, and
receive payment collectively from Medicare and other payers. Many of
today's regulations are designed to protect purchasers (the Federal
Government in particular) from inappropriate utilization; for instance,
extensive regulation is designed to prevent kickbacks from facilities
to physicians for providing (potentially unnecessary) care at their
institutions. Under a prepayment approach, however, this whole problem
simply evaporates, since unnecessary utilization results in financial
harm to the providers rather than to the payer (CMS in this case).
Similarly, regulations should monitor competition among systems
providing care, not among the individual providers within a system.
Again, if CMS (and potentially others) prepay for all of an
individual's care, then the costs of the individual components become
the concern and accountability of the coordinated system itself. Only
at the system level can care be coordinated in a way that maximizes
value to the purchasers and, ultimately, to the community.
Congressional Action: For organizations that accept prepayment,
provide relief from the regulations that are designed to prevent
overutilization. If an organization accepts prepayment, overutilization
harms the organization rather than CMS, rendering the regulations
unnecessary (since the organization will be motivated to police
itself). Relief from these regulations would save a great deal of money
for both providers and the Government and would be an attractive
inducement to participate in prepayment.
3. Flexibility should be allowed for organizations to develop new
models of care that are not constrained by the walls of a hospital or
clinic.
Government healthcare programs have, understandably, tended to
regulate existing structures. The unintended consequence has been to
entrench those structures, which often hinders trial and adoption of
new and innovative care models. Historically, payment structures have
reinforced traditional silos of care (e.g., physician care, inpatient
care, outpatient acute care, hospice care, homecare, etc.), an approach
that ultimately works against the patient's best interest. If
organizations take on prepaid, outcomes-based arrangements with
Medicare, they should be given the freedom to coordinate care in the
way that best meets the needs of the beneficiaries they serve. For
instance, innovative home-based and community-based models for advanced
illness management and end-of-life care, including those that
incorporate telemedicine and significant care management resources
(which under current payment mechanisms are not compensated costs), are
frequently just what the patient and family desire. Participating
organizations should be given the flexibility to care for patients in
the settings and with the approaches that best meet their individual
patients' needs.
Congressional Action: Legislation should direct CMS to allow
organizations that accept prepayment and accountability for the health
of Medicare beneficiaries to deliver care outside of traditional silos.
Legislation should also direct CMS to view results (cost, quality, and
service) as the key performance metrics, and process measures should be
used only when an outcome measure (result) is unavailable or inadequate
in a given area.
4. The patient-provider relationship should be seen as a healthcare
partnership. Both parties must be given the tools and incentives to
work together to efficiently maintain and improve beneficiary health.
If either providers or Medicare beneficiaries feel they are being
forced into a new Medicare program, even if evidence has shown such a
program will improve quality and reduce costs, there will inevitably be
backlash from the outset. Willingness to engage in a partnership and
active participation of both parties will be critical. In our
experience with innovative care models, we have seen that the majority
of both patients and providers are agreeable to participation in
something new when they are given the choice to do so, when the
incentives (financial and otherwise) are aligned, and when they have
the knowledge, skills, and tools they need to be successful. All three
of these elements will be critical in building a viable program.
Both providers and Medicare beneficiaries will need to initially be
given the option to participate in the new model. Traditional Medicare
should still be an alternative for both providers and seniors, but the
premiums and benefits to beneficiaries and the per-use payments to
providers in the traditional program should reflect the fact that it
will be a less-efficient paradigm than the new model. If no alternative
model is offered, premium, benefit, and provider payment changes are
inevitable as a means to rein in the Federal debt; this new model
provides an option to avoid those across-the-board changes.
All Medicare beneficiaries opting for the new model will need to
select a Shared Accountability Organization from which they will
largely receive care, including a primary care provider or group of
providers who will coordinate their care. This active and explicit
selection process is necessary in order for Shared Accountability
Organizations to identify the patients for whom they are accountable.
This selection could be made easier for seniors if Medicare were to
provide personalized information to beneficiaries about which Shared
Accountability Organizations their existing providers participate in.
To make this selection requirement politically palatable and to
encourage competition among providers in an area, Medicare
beneficiaries should be allowed to change their selection periodically
if they are not pleased with the quality or service of the organization
they have selected.
All providers who opt for the new model will accept accountability
for each beneficiary's health and expense. It is not enough for
providers to just consent to participate in a Shared Accountability
Organization and continue to receive per-use payments for health
services provided. The governing and organizing body of the Shared
Accountability Organization will need to be required to build provider
payments that incentivize high-value care, including maintaining
beneficiary wellness and, when necessary, efficiently returning
Medicare patients to health. This is critically important for the
success of the program and to separate it from insurance-oriented
programs that have not had the ability to motivate effective health-
value improvement. So, while we don't believe the Federal Government
should specify the details of these arrangements or the organizational
structure, we believe it should be clear that individual providers and/
or provider organizations must have major participation in the quality
and expense incentives.
Similarly, while we believe individual organizations should be free
to implement as they see fit, we believe tools for both physicians and
beneficiaries that facilitate changing the conversations around care
decisions will be important for successful programs. Shared Decision-
Making is a good example. In Shared Decision-Making, patients are fully
informed of the true risks and benefits of alternative courses of care,
so they can play an active role in selecting the best treatment options
to meet their personal needs and values. (It is important to note that
Shared Decision-Making tools work best when provider incentives are
aligned around the health of beneficiaries, rather than the number and
type of healthcare services provided, which is why both elements in
concert need to be a part of the model.) Health literacy, price
transparency, and other similar tools for both beneficiaries and
providers will also likely be part of a comprehensive Shared
Accountability model.
Congressional Action: Beginning in 2014, Medicare beneficiaries
should be given an incentive to enroll with a prepaid organization.
This incentive should be small initially, but increase over the next 4
years (e.g., those opting out should pay increasingly higher premiums
over that time).
5. Accurate and timely data will need to be provided and used. Data
are necessary for both managing the health of beneficiaries across the
healthcare continuum and for holding Shared Accountability
Organizations responsible for beneficiary health.
There is currently a great need for improved sharing of data and
information in the healthcare industry. In order for this new program
to be successful, CMS will need to provide comprehensive data to those
providers agreeing to take on accountability for the totality of
beneficiary health. Without accurate information, it is very difficult
to identify whether best care is being provided, both from a quality
and an efficiency perspective. Timely feedback is also critical. Access
to the information must be reasonably rapid to impact care patterns.
Meaningful, complete, and timely data must be provided to individual
physicians and organizations that are willing to take on accountability
for patient care and outcomes. If patients are not willing to have
their data shared with their Shared Accountability Organization, it is
impractical for these Shared Accountability Organizations to be held
responsible for managing the healthcare costs and quality of these
beneficiaries.
Additionally, providers (physicians, hospitals, homecare agencies,
etc.) working in collaboration in a Shared Accountability Organization
will need to be able to share data with one another. Currently, there
are many barriers to data-sharing that need to be addressed before any
successful programs can be built. Providers will need to be given
license to share information with one another when the purpose is to
improve beneficiary health.
Quality and performance metrics will be necessary to ensure Shared
Accountability Organizations are not reducing healthcare costs at the
expense of long-term outcomes (one of the major criticisms of the
managed care movement of the 80s and 90s). Performance metrics should
be consistent with those of other programs and payers. We are seeing a
growing number of inconsistent (and sometimes incompatible) quality
metrics being created by different oversight and purchaser
organizations. Metrics need to be harmonized both in terms of what is
measured and how success is achieved. We believe the greatest
performance improvement will be achieved if a reasonable number of
metrics (those validated as both actionable and important to individual
and population health) are utilized across all government payers. The
number of metrics required must be operationally feasible, which means
a limited core measurement set. In order to motivate individuals and
organizations, it is generally best to set goals upfront. Achievement
thresholds, scientifically based on recent historical performance of
organizations across the country, should be utilized for determining
success within quality metrics. If goals are met, providers should
logically be able to expect that rewards will follow. The consequences
of achieving those goals should be clear.
Congressional Action: Congress should designate one entity to
develop a reasonable number of quality, service, and efficiency
measures to reflect value provided to beneficiaries. These measures
should be applied to all government programs (all forms of Medicare,
Medicaid, FEHBP, CHAMPUS, etc.). This would not only reduce duplication
and compliance costs but would also make improvement much more likely
than in the current hodgepodge of different and occasionally
conflicting measures.
6. A successful program will give all participants the opportunity
to succeed in the short-term, thereby cultivating trust and encouraging
provider and public participation and acceptance.
There has been an historical standoff between providers (and
geographic regions) that have had high historical per-beneficiary
medical expense and those that have had low medical expense. There is
more than a two-to-one variation between high-cost and low-cost
providers (and regions), and much energy has been wasted in attempting
to defend (or condemn) the performance of one by the other.
Spokespersons for the low-cost organizations have argued that they
deserve a bigger piece of the pie, while the high-cost organizations
argue for defending the status quo. Of course, this leads to stalemate
and, ultimately, continuation of traditional, unsustainable, cost
increases.
We believe there is an approach that allows for a positive outcome
for all participants who are willing (and able) to improve healthcare
value, both for those who have had historically high cost and those
with lower cost.
We suggest that a single, affordable, nationwide, average per-
beneficiary rate be defined (lower than the current average rate). That
national target rate would then be adjusted to reflect legitimate
differences in the underlying cost of providing care in different
regions and organizations (which CMS does today for geographic
variation in wages and teaching, for example). Of course, prepayment
amounts should appropriately reflect differences in underlying risk
factors for the specific beneficiaries in each organization. Thus, each
organization would have a specific target derived from the national
target adjusted to reflect specific differences associated with the
region, organization, and the beneficiaries they serve.
Then, over a period of years (5 to 7 seems reasonable), payment to
an organization would move from their current per-beneficiary total
payment to their organization's target. If an organization is able to
improve more rapidly than this ``glide slope,'' it can retain the
entire difference in any given year. Of course, high-cost organizations
and geographic regions have far more opportunity to improve than do
low-cost organizations, so they have far more opportunity to receive
major payments. On the other hand, they must work harder and make more
changes in order to achieve these, and if changes are not made, they
have a potential for significant downside. Low-cost providers, on the
other hand, have much less opportunity to achieve large savings but are
rewarded by not having to make as many difficult changes. (Appendix 1
has a step-by-step description of the recommended process.)
At the end of this period, the Federal Government would pay a
consistent rate across the Nation (with variation only for legitimate
input cost differences), which would be significantly lower than the
current trend. As discussed earlier, this new, lower rate (and lower
growth rate) could dramatically improve the Medicare unfunded shortfall
without the need for increased payroll taxes or cuts to benefits.
Congressional Action: Congress should designate an entity to
establish a reasonable nationwide per-beneficiary payment and to define
specific cost-adjustment and risk-adjustment mechanisms to reflect
legitimate differences among regions and organizations. Congress should
enact a program that designates movement from current total pay to this
target; the program should allow organizations that are able to
accelerate savings beyond this pathway to retain the additional
savings. (Savings to the Government will be defined by the targets.)
\9\
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\9\ See Appendix 1 for a more detailed description of the
recommended process.
7. A transitional period will be necessary.
Some organizations are ready to accept accountability for Medicare
beneficiaries today. However, some communities don't have any
organization that is remotely prepared to undertake such a challenge.
As we noted earlier, we believe that creating correct incentives will
unleash tremendous creativity and development activity that, if
supported by an appropriate regulatory environment, will lead to
surprisingly rapid development of Shared Accountability Organizations.
If these organizations are then allowed to keep a portion of the
savings they earn (as noted in the previous section) while on the path
to affordable care, we believe success is very likely. And for every
year during the transition, CMS will spend less than it otherwise would
have under the traditional system.
This transitional period also can provide the motivation for
providers to create the mechanisms necessary to accept shared
accountability. Payment in a geographic area would move toward the
target regardless of whether the providers in the area worked together
to improve value, and CMS would withhold funds (from the fee-for-
service payments to all providers) equivalent to this amount. For
example, if a 2 percent reduction in spending is required during a
year, then CMS would withhold 2 percent of all fee-for-service payments
to providers. At the end of the year, if the providers had reduced
unnecessary utilization by at least 2 percent, with resultant savings
for CMS of at least 2 percent, then the per-use payment withhold would
be returned. This would allow providers who reduce unnecessary
utilization to avoid a reduction in payment for the services actually
rendered. Of course, if utilization is not decreased by at least 2
percent, the withhold would be retained by CMS. In either case, CMS
saves at least 2 percent over what it would otherwise have spent,
either through reductions in utilization or reductions in per-use
payments.\10\
---------------------------------------------------------------------------
\10\ Appendix 2 suggests a legislative approach using the methods
discussed under this item that might be useful to achieve short-term
cost-saving while this more detailed plan is under discussion and
development.
---------------------------------------------------------------------------
Under this approach, providers are incentivized to reduce
unnecessary utilization--regardless of their level of formal
organization. However, this approach would motivate providers to work
together (and to create Shared Accountability Organizations of one form
or another) so that they would have much better control of their joint
performance. Either way, CMS is guaranteed to achieve targeted savings
and over time would move toward the target rate. Providers would either
have to make improvements in care patterns or simply be paid decreasing
amounts based on the old metric. In the short term, this approach would
also allow rapid congressional action that would be more strategic and
beneficial than simple across-the-board cuts to all Medicare providers
(but with the same beneficial impact on the Federal budget).
Congressional Action: For next year, implement a withhold of 2
percent of payments for all Medicare providers across the country. If
the providers in a given geographic region are able to reduce overall
utilization by at least 2 percent relative to target, the withhold
would be returned to the providers at the end of the year. If not, then
the withhold would be retained by the Government. For future years, a
targeted trajectory toward a national targeted per-beneficiary amount
would be defined; this amount would be paid to organizations willing
and able to accept prepayment. For those providers unwilling or unable
to accept prepayment, this trajectory would be used to define a
withhold percentage (which providers would receive if their utilization
achieves equivalent savings).
concluding thoughts
This is a pivotal moment in our Nation's history and for the path
we must build for a sustainable future. Many important items are up for
discussion and debate in the effort to reduce the deficit, but none is
more critical in size or scope than healthcare spending. We believe the
Nation needs a new approach that will incentivize spending in the right
places and for the right things, with a promise of significant savings
without harming beneficiaries for whom we have a mutual responsibility.
We hope these recommendations serve to launch a new dialog, an exchange
of ideas that is perhaps different from what has come before, and a
discussion in which there may be a winning option for the Federal
Government, Medicare beneficiaries, and the country as a whole.
Appendix 1: A Step-by-Step Description of the Transition Described
in Principles 6 & 7
For the sake of clarity, we will examine the transition looking at
two hypothetical, but representative communities: one is historically a
high-utilizing community while the other is a low-utilizing community.
Cost differences based on differences in input cost (e.g. wage
differences) are adjusted. Exhibit 1 shows these communities and their
cost to CMS on a per-beneficiary basis.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
1. Define a target level for an average, national, per-beneficiary
expense. This should be a level that would result in a sustainable
expense for the Federal Government into the future.
2. Define adjustment factors that would accurately reflect
legitimate differences in input costs of providing healthcare among
geographic regions (similar to the adjusters to DRGs today).
3. Define adjustment factors for medical risk (Johns Hopkins ACGs
are an example) to reflect differences in patient populations: illness,
age, etc.
4. For a geographic region or a Shared Accountability Organization,
apply the cost adjusters and the medical risk factors. This becomes the
target for that region or organization. See Figure 2.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
5. Over a defined period of time (we will use 2013 to 2017 as an
example), the per-beneficiary paid amount would move from the current
expense rate to the target. Figure 3 illustrates trajectories for both
high and low utilizing communities (or organizations).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
6. If the geographic region does not develop capabilities to accept
prepayment, then these targets would be applied to fee-for-service
payment (to bring spending into line with the national target). This
could be done using a withhold approach. If at the end of the year, the
providers had achieved savings in expenditures through utilization,
then some or all of the withhold (and, potentially, additional funds)
would be distributed (in the following year) to the providers. In this
way, CMS could be reasonably assured of meeting the target level, but
the providers could also have some control of their income by reducing
utilization (which, in our example, would bring utilization closer to
national norms).
7. This same example can be used to show how an organized provider
group would be incentivized (as opposed to a non-organized geographic
region as discussed in the previous step). An organized group could
simply be (pre)paid the identified amount to care for those
beneficiaries for whom they had accountability. If they are able to
reduce expenses below that level, they would retain all of the savings.
If they were able, through improvements in utilization (avoiding
overtreatment, helping patients manage chronic disease, improving
patient safety, reducing re-admissions, etc.), to achieve costs below
the defined rate, the providers would retain the entire difference.
This is a clear incentive to develop an organized mechanism to accept
accountability for care of Medicare beneficiaries and to create
mechanisms to provide care for those beneficiaries in an effective
manner. And, of course, the highest cost areas of the country have the
greatest opportunity to generate savings (and, therefore, make the most
money during the transition). Figure 4 (which applies to both
communities and organizations) shows the opportunity for providers in
high-utilizing areas. The shaded area shows potential opportunity, and
this opportunity amounts to tens of billions of dollars--which should
get the attention of providers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
8. CMS would use consistent quality and satisfaction metrics to
ensure that quality and efficiency were both being provided. These
metrics would be used to generate either bonuses or penalties.
9. While there are potentially billions of dollars available to
providers that work hard to manage ineffective or noncontributory
utilization and reduce unnecessary costs, the real saver is CMS (and
ultimately, the taxpayer). Figure 5 shows the savings as the shaded
areas, generated from both low and high utilizing areas and
organizations, compared to the historical trend. By simply moving
toward practice patterns already demonstrated by high-value localities
and organizations, savings to the Government can very realistically
approach $100 billion per year by 2017. Indeed, appropriately set
national targets would produce savings sufficient to place Medicare on
a sound actuarial basis. And shared accountability--with beneficial
incentives--could create a new (and sustainable) trend for the future.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
10. In our example, by 2017, all parts of the Nation would have a
consistent, fair, sustainable, and affordable rate for Medicare
beneficiaries. And as a byproduct, this more effective care delivery
would become the model for care provided to non-
Medicare consumers as well.
Appendix 2: A Short-Term Approach to Cost Reduction for Medicare
We recognize that the approach discussed in this paper will require
substantial analysis and discussion, and that creating both legislation
and subsequent regulation is likely to take some time. With this in
mind, we also suggest a short-term solution that could be rapidly
adopted and that incorporates some of the components discussed in this
paper.
If the target is a reduction in per-beneficiary expense, we believe
the concepts described in Principle 7 will be more effective than a
simple across-the-board cut in fee-for-service payment rates. The
enormous and unwarranted variation in treatment volumes in the United
States makes it clear that the most powerful way to create major cost
savings is through elimination of ineffective and unnecessary
utilization. Not only is overtreatment expensive; it is often risky to
patients and frequently leads to poor medical outcomes.
Therefore, we suggest that a target rate for per-beneficiary
spending be set in each geographic region (based on historical
expenditures in that region). Rather than simply lowering the fee-for-
service payment rate across the board, we instead propose that CMS
withhold a fixed percentage of total fee-for-service payments to
physicians, hospitals, and other Medicare providers.
Suppose that in 2012 the initial withhold rate is 2 percent. If the
providers in the region keep overall utilization at least 2 percent
under the target rate, then the withhold money is returned. If the
target utilization is not met, CMS keeps the withhold money and returns
it to the Treasury. In either case, CMS saves at least 2 percent over
what would otherwise have been spent. This proposal can therefore be
scored by CBO without tenuous assumptions about behavioral responses to
financial incentives. Indeed, there could be even greater savings (and
shared saving with providers or consumers) if the region kept
utilization further below the 2 percent target saving. With a little
additional complexity, this same approach could be applied to specific
institutions that care for large numbers of Medicare patients (rather
than just to geographic regions).
The key benefit to this approach is that it begins to incentivize
providers of care to work together to reduce unnecessary utilization.
This could effectively prepare them for the next step suggested in this
paper: joining together to accept accountability for the health (and
associated quality and cost) of a group of beneficiaries.
Useful Resources
Baicker, Katherine and Amitabh, Chandra. ``Medicare Spending, the
Physician Workforce, and the Quality of Health Care Received by
Medicare Beneficiaries.'' Health Affairs (April 2004): 184-97.
Cutler, David M. Your Money or Your Life: Strong Medicine for America's
Health Care System. New York: Oxford University Press, 2004.
Enthoven, Alain C. ``Shattuck Lecture: Cutting Cost Without Cutting the
Quality of Care.'' New England Journal of Medicine 298:22 (1 Jun
1978): 1229-38.
Fisher, Elliott S., David Wennberg, Therese Stukel, Daniel Gottlieb,
F.L. Lucas, and Etoile L. Pinder. ``The Implications of Regional
Variations in Medicare Spending. Part 2: Health Outcomes and
Satisfaction With Care.'' Annals of Internal Medicine 138:4 (18 Feb
2003): 288-99.
Fuchs, Victor R. ``More Variation in Use of Care, More Flat-of-the-
Curve Medicine.'' Health Affairs (7 Oct 2004): Web Exclusive.
Goodman, D., A. Esty, E. Fisher, and C. Chang. Trends and Variation in
End-of-Life Care for Medicare Beneficiaries with Severe Chronic
Illness. A Report of the Dartmouth Atlas Project. Lebanon, N.H.:
Dartmouth Institute for Health Policy and Clinical Practice, 12 Apr
2011.
Hirth, Richard A., Michael E. Chernew, Edward Miller, A. Mark Fendrick,
and William G. Weissert. ``Willingness to Pay for a Quality-
Adjusted Life Year: In Search of a Standard.'' Medical Decision
Making 20:3 (2000): 332-42.
Jencks, Stephen F., Edwin D. Huff, and Timothy Cuerdon. ``Change in the
Quality of Care Delivered to Medicare Beneficiaries, 1998-1999 to
2000-2001.'' JAMA 289:3 (15 Jan 2003): 305-12.
Stukel, Therese A., F. Lee Lucas, and David E. Wennberg. ``Long-term
Outcomes of Regional Variations in Intensity of Invasive vs.
Medical Management of Medicare Patients with Acute Myocardial
Infarction.'' JAMA 293:11 (16 Mar 2005): 1329-37.
Wennberg, J., S. Brownlee, E. Fisher, J. Skinner, and J. Weinstein. An
Agenda for Change: Improving Quality and Curbing Health Care
Spending. A Dartmouth Atlas White Paper. Lebanon, N.H.: Dartmouth
Institute for Health Policy and Clinical Practice, 17 Dec 2008.
Senator Whitehouse. Thank you so much, Mr. Poulsen.
Our final witness is Dr. Mark Fendrick, professor in the
Department of Internal Medicine and Health Management Policy at
the University of Michigan. He is one of three University of
Michigan faculty that developed and named the concept ``value-
based insurance design,'' and co-founded the University of
Michigan Center for Value-Based Insurance Design.
He currently co-directs the Value-Based Insurance Design
Center, which advocates for the development, implementation,
evaluation of innovative health benefit plans. We are delighted
to have him here.
Thank you, Dr. Fendrick.
STATEMENT OF A. MARK FENDRICK, PROFESSOR, M.D., DEPARTMENT OF
INTERNAL MEDICINE AND DEPARTMENT OF HEALTH MANAGEMENT AND
POLICY, UNIVERSITY OF MICHIGAN, AND CO-DIRECTOR, UNIVERSITY OF
MICHIGAN CENTER FOR VALUE-BASED INSURANCE DESIGN, ANN ARBOR, MI
Dr. Fendrick. Good afternoon and thank you, Senator
Whitehouse. Good afternoon and thank you, Chairman Whitehouse,
Senator Franken, and other members of the committee.
I am addressing you today not as a representative of the
University of Michigan, but as a primary care physician, a
medical educator, and a public health professional. I applaud
you for holding this hearing because health care quality
improvement and cost containment are among the most pressing
issues for our national well-being and economic security.
While there is little disagreement over the fact that there
is enough money in the U.S. health care system, research shows
that if we spent our medical dollars more frequently on
services for which there is clear benefit for improving health,
we could enhance quality and contain costs.
Thus, instead of the focus on how much we spend, I suggest
we shift our attention to how well we spend our health care
dollars.
Moving from this volume-driven to value-based system that
the other panelists talked about requires a change in how we
pay for care, but it also requires a change in how we engage
consumers to seek care. All of these earlier testimonies
focused on the critical importance of reforming care delivery
and payment policies. Far less attention, however, has been
directed at how we can alter patient behavior. Today I propose
that clinically nuanced patient incentives are essential for us
to bend the health care cost curve.
Now most of us know that the most common approach to
directly impact consumer behavior is cost shifting requiring
all of us to pay more in the form of increased premiums, and
also increased cost sharing at the point of service. Yet in
every health plan across America, these cost sharing increases
have been implemented in a one-size-fits-all way in that our
patients are charged the same amount for every doctor visit,
every diagnostic test, and every prescription drug.
Does it make sense to you, Mr. Chairman, that my patients
pay the same out-of-pocket to see a cardiologist after a heart
attack as to see a dermatologist for mild acne I could barely
see. They pay the same co-payment for a drug that could save a
life from cancer or heart disease as a drug that will make
toenail fungus go away or my hair grow back.
As Americans are required to pay more and more to see all
their clinicians and to fill all their prescription drugs, they
use less, significantly less essential care. Realizing that
this lack of clinical nuance was available in all the health
plans, the private sector began to implement a concept our team
developed known as Value-Based Insurance Design or V-BID.
The central premise of V-BID is to reduce financial
barriers to essential, high-value medical services. These are
the services that I beg my patients to do such as recommended
immunizations, preventive screenings, and critical treatments
for chronic conditions that drive the vast majority of our
health care spending. It must be stated clearly, though, that
V-BID programs never determine what is covered and what is not.
If we are serious about controlling costs and improving
health, we must change the incentives for consumers as well as
for the providers that we've heard very much about today.
As a physician practicing in a medical home, I find it
incomprehensible to realize that my patient's insurance plan
does not offer easy access for those exact same services for
which I am benchmarked. Does it make sense that I personally am
offered a financial bonus to get my patient's diabetes under
control when her benefit design makes it prohibitively
expensive to fill her insulin prescription or afford the co-
payment for her eye exam?
Momentum for the V-BID concept is rapidly growing in the
private sector. Hundreds of self-insured employers, public
organizations, unions, and insurance plans have designed and
implemented V-BID programs. The Federal Government should not
erect barriers to the adoption of V-BID. And maybe more
importantly, it should encourage the expansion of V-BID
principles into both public and private programs.
They could do this by avoiding rigid requirements for
essential health benefit plans. By maintaining flexibility and
benefit designs with respect to State health exchanges,
revising Medicare's one-size-fits-all cost sharing, and
allowing innovation such as variable copayments in strained
Medicaid programs. Details for these specific recommendations
are provided in my written testimony.
I will close by saying as a practicing clinician, I believe
that the goal of our health care system is to produce health,
not save money.
I strongly concur that health care cost containment is
absolutely critical to our Nation's fiscal health. Importantly,
the cost containment initiatives being considered by this panel
should not produce reductions in quality of care.
That said, the use of these clinically nuanced incentives
to encourage both providers and patients is an important step
toward a more effective and efficient health system. This
common sense, feasible approach will ultimately produce more
health at any level health expenditure; 10 percent more the
same, or 10 percent less. I believe this is an opportunity that
we can't afford to miss.
Thank you, Mr. Chairman, and I will take questions from the
panel as well.
[The prepared statement of Dr. Fendrick follows:]
Prepared Statement of A. Mark Fendrick, M.D.
summary
Research shows that if America spent its health care dollars on
services with solid evidence of clinical benefit, we could
simultaneously enhance quality and reduce costs. Thus, instead of
focusing on how much we spend on health care, we should consider how we
allocate our scarce health care dollars in order to maximize the amount
of health produced for the money spent. While the critical importance
of payment reform is well-described, far less attention has been
directed to how we can alter patient behavior to bring about a more
effective and efficient delivery system.&
The most common approach to directly impact consumer behavior is
cost shifting: requiring beneficiaries to pay more in the form of
premiums and increased cost-sharing for clinician visits, diagnostic
tests and prescription drugs. To date, patient cost-sharing has been
implemented in a ``one-size-fits-all'' way, in that patients are
charged the same amount for every doctor visit, diagnostic test, and
prescription drug. However, increases in patient cost-sharing lead to
decreases in the use of both non-essential and essential care. Peer-
reviewed studies show that when patients are asked to pay more for
high-value screenings, clinician visits and potentially life-saving
drugs, they buy significantly less.
Realizing the lack of clinical nuance in available health plans,
the private sector has driven the adoption of Value-Based Insurance
Design, or V-BID, that simultaneously addresses quality improvement and
cost containment--the two critical goals of health care reform. The
central premise of V-BID is to reduce financial barriers to essential,
high-value health services. A V-BID approach to benefit plans
recognizes that different health services have different levels of
clinical value. By reducing barriers to high-value treatments and
discouraging low-value treatments, these plans result in better health
at any level of health care expenditure. Studies show that when patient
barriers are reduced, compliance goes up, and, depending on the
intervention or service, total costs go down. If we are serious about
``bending the cost curve'' and improving health outcomes, we must
change the incentives for consumers as well as those for providers. Any
effort to control costs should include clinically nuanced, not price-
driven, strategies such as V-BID.&
V-BID is being widely implemented by health plans and employers;
however, Federal Government programs are lagging far behind. The
Federal Government should not erect barriers to the adoption of V-BID
in the private market, and it should consider ways to expand V-BID in
public programs. In particular, the Government should avoid rigid
essential health benefit requirements that might have the unintended
effect of prohibiting value-based principles. It should maintain
flexibility and limit mandates in benefit designs with respect to State
health exchanges. V-BID should be applied more broadly to include
secondary prevention; allowing high-value secondary prevention services
to be made available without patient cost-sharing would address the
high costs of managing chronic disease--and could significantly impact
aggregate medical spend. Finally, we should fix Medicare's ``one-size-
fits-all'' cost-sharing that dates back to the 1960's and encourage the
use of V-BID principles in Medicaid plans.
The goal of health reform should be to improve Americans' health
and address rising costs. Approaches such as V-BID, that allow patient
co-payments to vary based on whether an intervention is high-value or
low-value, can help meet this goal. This is an opportunity we cannot
miss.
______
Good afternoon and thank you, Chairman Harkin, Ranking Member Enzi,
and members of the committee. I am Mark Fendrick, Professor of Internal
Medicine and Health Management & Policy at the University of Michigan.
I am addressing you today, not as a representative of the University,
but as a practicing primary care physician, a medical educator, and a
public health professional. I have devoted much of the past two decades
to studying the clinical and economic impact of health care innovation,
and founded the University's Center for Value-Based Insurance Design in
2005 to develop, implement and evaluate innovative health insurance
designs to ensure efficient expenditure of health care dollars and
maximize benefits of care.
Mr. Chairman, I applaud you for holding this hearing on ``Improving
Quality, Lowering Costs: The Role of Health Care Delivery System
Reform'' because quality improvement and health care cost containment
are among the most pressing issues for our national well-being and
economic security. We are well aware that the United States spends far
more per capita on health care than any other country, yet lags behind
other nations, that spend substantially less, on key health quality
metrics. However, research shows that if we spent our health care
dollars wisely on services for which there is clear evidence for
improving clinical outcomes, we could simultaneously enhance quality
and reduce the amount we spend. Thus, instead of the unwavering focus
on how much we spend--I suggest we shift our attention to how we spend
our increasingly scarce health care dollars in order to maximize the
amount of health produced for the dollar spent.
from a volume-driven to value-based system
Moving from a volume-driven to value-based system requires a change
in both how we pay for care (supply side initiatives) and how we engage
consumers to seek care (demand side initiatives). Other testimonies
today and at earlier committee hearings have focused on the critical
importance of reforming care delivery and payment policies. Far less
attention has been directed to how we can alter patient behavior to
bring about a more effective and efficient delivery system. While you
have heard about the potential of Accountable Care Organizations,
Patient-Centered Medical Homes, bundled payments, and other initiatives
to influence providers, today I propose that similarly aligned patient
incentives are essential for each of these programs to accomplish their
objectives and for us to really ``bend the cost curve'' for health
care.
Over the past few decades, payers have implemented multiple
managerial tools to constrain health care cost growth. The most common
approach to directly impact consumer behavior is cost shifting:
requiring beneficiaries to pay more in the form of increased premiums
and increased cost-sharing for clinician visits, diagnostic tests and
prescription drugs. In nearly every health plan across America, cost-
sharing has been implemented in a ``one-size-fits-all'' way, in that
patients are charged the same amount for every doctor visit, diagnostic
test, and prescription drug [within a specified formulary tier]. Cost-
sharing increases are similarly passed on without any regard to
clinical nuance. Does it make sense to you, Mr. Chairman, that my
patients pay the same co-payment to see a cardiologist after a heart
attack as a dermatologist for mild acne, or the same co-payment for a
drug that could save a life from cancer or heart disease as a drug that
would make toenail fungus go away or hair grow back? In the typical $5
generic drug tier available to most Americans, there are drugs so
valuable I have often reached into my own pocket to help patients fill
these prescriptions; while for the same price there are also drugs of
such dubious safety and efficacy, I honestly would not give them to my
dog. This ``one-size-fits-all'' system lacks any clinical nuance, and
frankly, to me, makes no sense. Such an approach fails to acknowledge
the well-documented differences in clinical value among medical
interventions.
As Americans are required to pay more to visit their clinicians and
fill their prescriptions, a growing body of evidence demonstrates that
increases in patient cost-sharing lead to decreases in the use of both
non-essential and essential care. Peer-reviewed studies reveal that
when patients are asked to pay more for high-value cancer screenings,
clinician visits and potentially life-saving drugs, they buy
significantly less. A noteworthy example is a New England Journal of
Medicine study that examined the effects of increases in copayments for
doctor visits in Medicare Advantage plans.\1\ As expected, individuals
who were charged more to see their physician went less often; however,
these patients were hospitalized more frequently and their total
medical costs increased. This seemingly counterintuitive effect simply
demonstrates that the age-old aphorism, ``penny-wise and pound-
foolish,'' applies to health care.
---------------------------------------------------------------------------
\1\ Trivedi, A. N Engl J Med. 2010 Jan 28;362(4):320-8.
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value-based insurance design [v-bid]
Realizing the lack of clinical nuance in available health plans,
more than a decade ago the private sector began to implement a concept
our team developed known as Value-Based Insurance Design, or V-BID,
that simultaneously addresses quality improvement and cost
containment--the two critical goals of health care reform. The central
premise of V-BID is to reduce financial barriers to essential, high-
value health services. These are the services I beg my patients to do,
such as recommended immunizations, preventive screenings, and critical
medications and treatments for individuals with chronic disease such as
asthma, diabetes and mental illness.
A V-BID approach to benefit plans recognizes that different health
services have different levels of value. It's common sense--by reducing
barriers to high-value treatments (through lower costs to patients) and
discouraging low-value treatments (through higher costs to patients),
these plans result in better health at any level of health care
expenditure. Studies show that when patient barriers are reduced,
compliance goes up, and, depending on the intervention or service,
total costs go down.
To date, most V-BID programs have focused on lowering patient costs
for high-value services. For example, these programs make drugs and
services for chronic conditions such as diabetes, asthma and heart
disease that drive the vast majority of our health care spending, less
expensive and more accessible. Though less common, some V-BID programs
designed to discourage use of low-value services, such as unnecessary
imaging and procedures, have also been implemented. It must be stated
clearly that V-BID programs never determine what is covered and what is
not. Instead of having all branded drugs cost $30 out-of-pocket for the
patient, a
V-BID formulary would, for example, provide certain high-value drugs
such as statins for high cholesterol or insulin for diabetes for $10,
with other drugs for $50. This clinically nuanced reallocation of
services is a necessary component in order to move from a volume-driven
to value-based system.
improving quality and bending the cost curve
Let me be clear, Mr. Chairman, I am not asserting that Value-Based
Insurance Design is the solution to all of our health care system's
problems. But, if we are serious about ``bending the health care cost
curve'' and improving health outcomes, we must change the incentives
for consumers as well as those for providers. Any effort to control
costs should include clinically nuanced, not price-driven, strategies
such as V-BID.
Your committee is currently examining many exciting, some unproven,
supply side health reform initiatives such as bundled payments, pay for
performance, Patient-Centered Medical Homes, and ACOs. If these
initiatives provide incentives to clinicians to recommend the right
care, it is of equal importance that incentives for the patients are
aligned with these goals as well. As a physician practicing in a
medical home, it is incomprehensible to realize that my patient's
insurance plan does not offer easy access for those exact services for
which I am benchmarked. Does it make sense that I am offered a
financial bonus to get my patient's diabetes under control when the
benefit design makes it prohibitively expensive to fill their insulin
prescription or provide the co-payment for their eye examination?
I'm pleased to tell you that the intuitiveness of the V-BID concept
is driving momentum at a rapid pace in the private sector, and we are
truly at a ``tipping point'' in its adoption. Hundreds of private self-
insured employers, public organizations, non-profits, and insurance
plans have designed and tested value-based programs. Just a few recent
examples include the Connecticut State Employees' Health Enhancement
Program, UnitedHealth Group's Diabetes Health Plan, and Blue Shield of
California's ``Blue Groove'' Plan, each of which provide incentives for
individuals with chronic diseases to seek the right care at the right
time, by the right provider.
But, despite recent advances in the Federal Employee Health
Benefits Programs, and the requirement that private plans provide
selected primary preventive services with no patient cost-sharing in
Section 2713 of the Patient Protection and Affordable Care Act [PPACA],
Federal Government programs are lagging far behind. The Federal
Government should not erect barriers to the adoption of V-BID in the
private market, and it should consider ways to expand V-BID among
public programs.
Provided below are some potential policy approaches:
1. Avoid Rigid Essential Health Benefit Requirements: As stated
above, there is substantial movement in the private market toward
greater adoption of
V-BID. Setting uniform requirements for co-pays and deductibles can
have the unintended effect of prohibiting value-based principles. The
potential result of strict cost-sharing requirements without clinical
nuance would be underuse of high-value services and overuse of low-
value services. Additionally, as the Institute of Medicine (IOM) argued
in its recent report, the essential health benefit package should
evolve to promote more value over time.
2. Maintain Flexibility and Limit Mandates in Benefit Designs with
Respect to State Health Exchanges: Value-based designs generally raise
the actuarial value of a plan, even though they may reduce health
spending in the long run, because they lower the up-front cost and
therefore lead to increased use of high-value services. Under PPACA,
plans in each tier--platinum, gold, silver and bronze--have
corresponding limits in actuarial value. Consequently, States and the
Federal Government should take care when mandating specific benefits
and services for plans. Too many prescribed benefits will exclude
value-based designs, especially for the bronze and silver plans, which
will be sold to the very low-income populations who have the potential
to benefit most from V-BID.
3. Expand Secondary Prevention: While the removal of patient cost-
sharing for preventive services is commendable, the V-BID premise of
reduced patient cost-sharing for high-value, evidence-based care has
important implications beyond preventive services as mandated in
section 2713. The definition of preventive services in PPACA is narrow,
focusing on primary prevention. Evidence-based services for those with
identified chronic diseases, such as eye examinations for those with
diabetes, behavioral therapy for individuals with depression, and long-
acting inhalers for asthma sufferers, offer as much or more value than
those preventive services identified in section 2713. These services,
often referred to as ``secondary prevention,'' are typically the
foundation of quality improvement programs, such as pay for
performance, disease management and health plan accreditation. Allowing
high-value secondary prevention services that would be made available
without patient cost-sharing, similar to those primary prevention
services selected in Section 2713, would be an important extension of
the health enhancing and cost containment goals of health reform.
4. Fixing Medicare's ``One-Size-Fits-All'' Cost-Sharing: The
Medicare ``one-size-fits-all'' approach to copayments dates back to its
inception in the 1960s. The Medicare Payment Advisory Commission
(MedPAC) has repeatedly advocated the use of V-BID as a long-run
measure for improving quality and lowering spending. For example, in
its 2010 Report to Congress, MedPAC wrote that V-BID could be used to
tailor Part D cost-sharing requirements to individuals' clinical needs.
Additionally, Senators Stabenow and Hutchison introduced a bipartisan
bill, S. 1040, ``Seniors' Medication co-payment Reduction Act of 2009''
to allow a demonstration of V-BID within Medicare Advantage plans. The
Federal Government should remove the barriers to enable the
implementation of this innovative approach.
5. Encouraging Innovation in Medicaid: Finally, within Medicaid we
see States, under pressure to cut Medicaid spending, raising copayments
on an extremely cost-sensitive population without any regard to
clinical nuance. Research demonstrates that these co-payment increases
will cause some patients with chronic conditions to forgo care and end
up in an emergency room or hospital, which could result in higher
overall spending.
conclusion
It is my hope that as you consider changes to the delivery system,
you will take the common-sense step of allowing co-payments to vary
based on whether an intervention is high-value or low-value. As a
practicing clinician, I believe that the goal of our health care system
is to produce health, not to save money. That said, I strongly concur
that health care cost containment is absolutely critical for our
Nation's fiscal health. The goal of health reform should be to improve
Americans' health and address rising costs by utilizing strategies that
produce a more effective and efficient health system. Value-Based
Insurance Design is one step toward reaching that promise. The use of
clinically nuanced incentives (and disincentives) to encourage or
discourage patient and provider behavior will ultimately produce more
health at any level of health expenditure. This is an opportunity that
we cannot miss.
Thank you.
Senator Whitehouse. Thank you very much. I am really
delighted that you all are here. We sometimes seem to be
blundering through a cloud of mixed information here in
Washington, and we are looking at the health care system as a
real priority.
Admiral Mullen, who is the Head of the Joint Chiefs of
Staff has said that our national debt is the No. 1 threat to
our national security. And if you look at what the reason is
for our national debt and deficit, whether you are looking at
Congressman Ryan or President Obama, they agree that, at its
heart, it is health care.
Solving this is a very short jump to recognize that solving
the health care dilemma is vitally important to America's
national security. Through this cloud of information and
misinformation, your organizations are showing the way, showing
they can actually, practically be accomplished. And that what
Dr. Kaplan described as, ``The path to better health and long-
term health care is the path to lowered cost,'' is the secret.
We seem to have missed it. There is an awful lot of
politics around this issue, as you may have noticed in
Washington. But beneath all of that, there are some really
practical solutions that you all are bringing to life. So it
means a lot to me that you are here.
Dr. Kaplan, in your testimony you used the phrase
``cultural transformation,'' about what happened at Virginia
Mason, and I can appreciate that. One of the ways that you make
cultural transformation happen is with extraordinary leadership
and clearly you have shown that.
But in order to sustain cultural transformation, it helps
to have something that has been mentioned a lot in this
hearing, which is incentives. The incentives have to be aligned
and pointing in the direction that you want to proceed,
otherwise it is just going to be a lot more difficult.
We do our best here to try to figure out ways to realign
those incentives, one of the problems that we face is that from
your side, you face innumerable payers. The incentive signal
gets confused by what private insurance companies, government
programs, and other entities that are compensating you for
care, or how they are sending those signals.
Out of that complex cloud of payer confusion, the sort of
Babel of the payers, what are some of the simplest and clearest
ways that you think we, in Congress, could have an effect? Dr.
Kaplan first, then Mr. Poulsen.
Dr. Kaplan. I think that the history of health care payment
suggests that Medicare really does set the tone. It does more
than set the tone, so that I believe it is, as Mr. Poulsen has
suggested, that we do need to move much more expeditiously to
modify a payment system in the public sector.
I think that Medicare and our State governments who have
similar economic challenges have an opportunity to, in a
substantive way, modify payment. And we will see the commercial
private sector move as well.
But I think there is even a bigger issue and that has to do
with transparency. We don't have transparency in this country.
We don't actually--in health care. No other industry, as I see
it, actually has the kind of veil or a camouflage between the
buyer and seller of services that health care has today.
So I believe that if we had transparency, the potential of
the kind of All Care Act, as I see it, is one of the last
chances of a market-based system that could actually lead to a
market whether it was Medicare and Medicare Advantage as part
of Medicare, or the commercial sector. That we would actually
be able to understand what we are buying, what we are paying
for it.
Employers in this country are becoming increasingly
noncompetitive in global economy because of, just like the
Federal Government, line item health care costs. They don't
even know today that their health plans are paying some
providers more for certain services than others, actually for
the same service with perhaps even inferior quality.
I think we need to use the power of the public sector,
while also, whether it is mandates or whether it is some other
vehicle to create more transparency. That it actually allows
there to be an understanding between the buyer and seller of
services, people paying the bills, government, employers, and
individuals increasingly understanding how much skin in the
game they have, what they are paying, and what they are
getting. And I think that will then drive a better alignment of
incentives.
Senator Whitehouse. And do you agree with Commissioner
Koller that having 6 or 7 cents out of every health care dollar
being spent on primary care is a sign of something gone wrong?
And that we need to raise the proportion of the health care
dollar that is spent on primary care, so that it is lower than,
say, insurance company overhead, which is higher than 6 or 7
cents out of every health care dollar right now?
Dr. Kaplan. Absolutely. I think that we need to take a look
at what we are really spending our money on in this country,
and where we are getting the benefit or not. And I think
primary care is one of those areas that has been undervalued
historically in the fee for service RVU-driven relative value
unit-driven, procedurally driven, old economy of health care,
which happens to be alive and well today.
We need to flip that paradigm because that is where
tremendous value accrues prevention, partnering with
communities, schools, churches, and senior centers. That all
happens as an extension of, what many call, an accountable
medical home. And I think we need to help support those, and
then we can rationally use what is wonderful specialty care and
procedural care system in our country. But primary care is
disproportionately disadvantaged today.
Senator Whitehouse. My time in this round has expired. I
will turn to Senator Franken, but we will continue the
discussion. Thank you.
Senator Franken.
Statement of Senator Franken
Senator Franken. Thank you, Mr. Chairman. My State of
Minnesota has been a national leader in providing high quality,
low-cost care, yet receives extremely low Medicare
reimbursements. The average reimbursement for Texas, for
example, is about 50 percent more than in Minnesota per
Medicare patient, but we have better outcomes.
This isn't about pitting Minnesota against Texas, but it is
about incentivizing States to do the right things--the things
that Minnesota has been doing and the right things that many
hospitals have been doing.
So the Affordable Care Act applied the Value Index to
Physicians and Clinics only, but not hospitals. And it seems to
me that that approach hurts hospitals that are providing high
care, high-value care because it reduces their payments.
Does anybody here have an opinion on that, Dr. Kaplan, Mr.
Poulsen especially? Should hospitals be included in the value
index?
Mr. Poulsen. I would be happy to address that. Maybe
slightly indirectly and suggesting we think that the answer
ultimately should yield similar costs across the country in all
communities for care of Medicare patients.
Clearly, there are going to need to be adjustments for
differences of input costs. It simply costs more to hire
nurses, and build buildings, and maintain property and
equipment in Manhattan than it does in Salt Lake City.
That said, the kind of discrepancies that you have
discussed, we think, are best eliminated in the most effective
way possible. We think that an effective way to do that over
time is to reward the providers, all the providers, doctors and
hospitals, for moving in the direction of most effective and
efficient care. That is a slightly roundabout answer to the
question, but that would clearly be our perspective.
Dr. Kaplan. I would agree. I think that on the one hand we
are saying we want physicians and hospitals to work together
seamlessly. I want our patients to get all the care they need
and only the care they need. I want it to be given in the right
venue. And when you create an uneven playing field between the
physicians and their hospital partners, who should be their
partners or colleagues, I think that it creates artificial
barriers to accomplishing just what we are trying to do.
I also think that it is important that we recognize that
we, the providers--I am a physician and representing a
hospital, a medical center--we have a big role to play. We have
to do our part. We have to be willing to challenge our old
assumptions, take out waste, change the way we think about our
work, and redesign it, as I tried to describe, around patients,
not around us.
But to do so in an environment that has these barriers and
these disincentives, and unevenness through the forces, it is
hard not to think about how we are going to change our mindsets
and the paradigms in our culture, the cultures and our
institutions. And then to have the payment environment and
regulatory environment conspiring against us instead of trying
to facilitate that, I think it makes it ever more difficult.
Senator Franken. You are talking about the culture in a
hospital where people are working together, right. And you have
mentioned medical homes and how they work. I know that, for
example--and Mayo is used maybe too often as an example from
Minnesota because other hospitals in Minnesota do a very good
job as well--but one thing Mayo does is its doctors are
salaried.
Dr. Kaplan. Correct.
Senator Franken. So they don't receive any benefit for
ordering more procedures. It is health care and not sick care,
is sort of the cliche, but it really is. I think I am running
out of time, so I will go back to the Chairman, and we will
continue this, I guess.
Senator Whitehouse. Absolutely. Chris, one of the things
that Dr. Kaplan mentioned in his remarks just a moment ago
about transparency was the different payments that are made to
different providers for the actual same service. You have
looked into that in Rhode Island. Could you let us know what
you found?
Mr. Koller. As we were trying to understand why we are
looking at 8 to 10 percent increases that do not make my
stakeholders, the employers who are buying health insurance,
very happy, we were struck by the significant increase that
health plans were requesting in payments for hospitals. Price
increases of 7 to 8 percent, outpatient price increases of
something less than that, but high utilization increases. And
we also heard from hospitals who said, ``We're not getting
enough money.''
So we used our power as the regulator to collect
information from the insurers, actual claims information about
what health plans get paid, and then we indexed it to Medicare
because Medicare makes adjustments for teaching. They make
adjustments for severity. They make adjustments for charity
care.
We found for inpatient medical surgical services, a subset,
that there were some hospitals that were being paid by
commercial insurers 80 percent of what Medicare would pay them.
There were other hospitals that were being paid 160 percent of
what Medicare would pay them.
The only differences that we could attribute to that was
their negotiating power, which leads us to believe--to Dr.
Kaplan's remarks about transparency--that to a certain extent,
transparency should extend to pricing, particularly for those
hospitals which have market power. The costs rise to the level
of revenues that are capturable.
And it is on the basis of that, that we tried to intervene
in classical, public tradition where there are price controls
in place, a price authority in place. That was the basis for
our contracting standards.
Mr. Whitehouse. It is one of the strange things about the
health care system that for most products, the customer
actually brings the price with them. And the price is not found
at the point of sale. If I go into a grocery store, then beans
cost whatever they cost a pound, and they cost that much, and
there is a sign that says, ``$1.99 a pound,'' and that is what
it costs, and it does not matter who you are.
When I show up in the health care system, what it cost me
to have a particular procedure, has a lot to do with what kind
of insurance I have and that the pricing is very disconnected
depending on who you are.
Mr. Koller. We are inconsistent in our public policy. While
on Medicare, we have a very deliberate public setting, rate
setting policy with specific factors that we have agreed to.
For the other half of the market, for the 50 percent that is
private pay, we have a completely opaque system that rewards
market dominance.
Mr. Whitehouse. Dr. Kaplan.
Dr. Kaplan. I just want to say that an unintended
consequence of the Accountable Care Act and the movement to
promote coordinated care has led to, as I am sure you know, a
consolidation, a serious, a significant, what I would call
serious, consolidation in many, many markets across the
country.
Consolidation happens for different reasons. It may happen,
as I believe it does in Intermountain, to create better
coordinated, lower cost, higher value care opportunities for
communities that otherwise would not have them.
But in many communities and Seattle, frankly, is no
exception, Boston is much well-known for this, consolidation is
occurring to create even greater market power. And I think
there have been several studies done recently which document
this, and just as Mr. Koller references, that spread is
enormous.
What that does to a hospital that is focused on execution,
and on patient experience, and on lowering costs and delivering
better value, is it creates an uneven playing field. Now, we
are getting paid less, so we have to manage things in a very
different way from the neighbor down the street who is part of
a 26-hospital system.
That is a dangerous, unintended consequence of the
Accountable Care Act, not legislated, but just market behavior,
and I think we need to be vigilant as a society around this.
Mr. Whitehouse. Commissioner Koller talked about the
employers of Rhode Island as being his constituents. And Dr.
Kaplan, you described some of the ways in which Virginia Mason
has reached out to significant employers in your area. And I
know, Mr. Poulsen, from our discussions that you try to engage
with the business community in this area.
It has been a bit frustrating to find a really good model
for business engagement on this issue. We have talked to our
chambers of commerce in Rhode Island over and over again, and
they sort of generally get it, but they have a lot going on.
And to focus on this is sometimes more than they can bear.
The Leapfrog Program is very helpful. Bruce Bradley from
the Leapfrog Program, you may remember, is a former Rhode
Islander. We are very proud of him. But it is built on really
big employers who have really big market share and can dictate
behavior. And if you don't come from that environment, the
Leapfrog model begins to slip in terms of its relevance.
For those of us who really are believers in the potential
of reform in our health care system to deliver better quality
care, that lowers the cost of the system, and better
coordinated care that serves people better, what is the best
that you can think of for advice for how to get the business
community involved in a helpful way and direct into that path?
Mr. Poulsen.
Mr. Poulsen. I think we believe that, again, incentives are
at the heart of what has historically been wrong with the
current health care system. So we would encourage businesses to
become active in getting it right.
As Dr. Kaplan said, Medicare certainly can lead the way.
They are bigger than all of the commercial purchasers put
together in most communities. So they can be a catalyst in
doing this.
Employers and employer groups, we believe, can take the
appropriate following step which is to encourage or demand that
they purchase in the same way. Which is, they purchase health
through their individual employees and their families rather
than purchasing MRIs, and surgeries, and visits. If they will
do that, then you've got something that is truly comparable.
One of the reasons that the current system is opaque is
because there are thousands and thousands and thousands of
items that nobody really understands outside of the medical
community that are put together into an episode of care. And to
try and tease that out is more difficult than trying to tease
out the very detailed bill if you get your transmission
replaced. And figure out, ``Gee, did they really do that? Is
that really necessary? Was that helpful? Could I have gotten it
less somewhere else?''
But all understand when we are feeling well, when we are
healthy, when we are treated with respect, when we have good
outcomes, and to be able to make a comparison at that level is
vastly easier. And therefore, vastly less likely that people
will abuse the system and play games.
Senator Whitehouse. Dr. Kaplan, then Dr. Fendrick, then Mr.
Koller.
Dr. Kaplan. I think that employers in this community need
to ask the right questions, and I think they have been isolated
in some ways, again, from the marketplace, whether it is
through their health plans who would prefer they don't talk to
the providers. Or whether it is through the brokers, and
intermediaries that see their role as packaging things in, all
tied up with a nice bow, and giving it to the employer and
says, ``Your aggregate rate of increase this year will be 8 or
12 percent.''
Employers have to ask some questions: what am I getting?
What am I paying for? And what are you paying the provider
community?
As we sit down at the table, I mean, it sounds very, almost
naive but it is about having a simple conversation. When you
can actually engage with a CEO or employee benefits vice
president, you come to understand how they see quality, what
they really want for their workforce.
In our marketplace, collaborative work was recently
published in ``Health Affairs'' in September of this year. The
employer community itself gave us five product specifications:
same day access, evidence-based medicine, 100 percent patient
satisfaction, rapid return to full function, and affordability.
Senator Whitehouse. The article will be placed into the
record of this proceeding by unanimous consent.
[The online version of this article may be found at http://
content.healthaffairs.org/content/30/9/1680.full.html].
Dr. Kaplan. I just want to say they do have within their
means, they have under-leveraged their power in the
marketplace. And I think today, they are beginning to feel the
pain enough so they are willing to take a look.
And a company like Microsoft, 5 years, 10 years ago it was,
``I want to manage my health care costs, but I am
competing with Cisco, and Dell, and Google, and I will
educate my employees, but I am going to give them 100
percent coverage everywhere.''
Today they are saying,
``We need to rethink how we manage our health care
expenditures and whether we really want to give 100
percent open access to every single physician, every
single hospital regardless of how much it costs.''
We need to encourage them to be thinking differently.
Senator Whitehouse. Dr. Fendrick.
Dr. Fendrick. I think the reason why employers have been
driving the value-based both supply and demand side systems is
they finally realized that unlike any other sector, their
business where they look at what they get for what they spend,
for health care, they have historically looked at only what
they spend. And they don't think that way when they buy real
estate, or when they buy cars, or when they buy computers. And
this idea of the product they should be buying, which is
health, as opposed to just that number what they spend is
really driving this transformation, at least on the demand
side.
Because of this narrow focus on health care costs alone,
payers never really knew what the true value of the investment
in health was to their firm. And now that we are starting to
see these champion employers like Pitney Bowes, and Safeway,
and Boeing, and Dell that understand that a healthier workforce
doesn't just reduce the amount of patients who go to the
hospital emergency room. But they are on disability less. They
are on absenteeism less. And, in fact, they provide these
nonmedical benefits like retention and morale, which are really
hard for academics like myself to measure.
So the more the firms are starting to include these
benefits, they are starting to realize the true value of their
health care investments. And given that, if things go as
planned, by 2014, many of these firms have to make a decision
to stay in or stay out. Most of them don't have the information
to make an informed decision on the value of their medical
spend. And thankfully, I think, the impetus by this committee
and the national debate is bringing this discussion to the
forefront.
And the more we broaden the benefits in terms of what we
get financially in health, in terms of the fiscal
responsibility part, it will drive the value proposition that
you described faster and higher.
Senator Whitehouse. Thank you, doctor. Mr. Koller.
Mr. Koller. Yes, I would like to maybe get your question
around how the Federal Government could address this. A couple
points, one, the number of people who are getting their health
insurance through their employers is decreasing. It is a steady
decline. It is somewhere down south of 60 now, between 55 and
60 percent, and that number is not going back up. Once we have
figured out--once the new players figure out how to operate
without offering health insurance, they will continue to do so.
From a financial standpoint, we need that remaining money
to make this system work. So it is very important for us to
retain that money in the system.
In our work around developing a health insurance exchange
in Rhode Island, we have gone and asked small businesses,
``What do you want from an exchange? '' And the answer is very
clear for them, and it is actually consistent with what has
been discussed here. They want employee choice. Because it
turns out that if you give employees the choice, they will
accept less choice of provider for more comprehensive benefits.
That works for a high-value delivery system. It works for
Intermountain Healthcare. It works for Virginia Mason teamed
with a couple of other folks. And if you give that choice to
employees, they will make it because it is their money that
they are bringing with that.
So I think that the work around the design of the health
insurance exchange will promote competition for high value. Any
sort of individual purchase, employee purchase will make these
guys more successful, which is exactly what we need.
But there are barriers to that sort of employee choice.
They exist deep within the recesses of IRS rulings around tax
benefits, and taxation and benefits. And understanding what
those barriers are so that we can make more people want them,
because that is what we need, will be very important.
Senator Whitehouse. One quick question, you talked about
your Medicare Advanced Primary Care Practice initiative, and
the problem you had going into it, to use your words,
``Providers hate being jerked in different directions by the
conflicting demands of different carriers.'' And what you were
able to do with the Medicare Advanced Primary Care Practice was
to get all the different payers together on the same payment
model, so that everybody was being dragged in the same
direction. And Medicare agreed to do that itself, did it not?
Mr. Koller. That is right.
Senator Whitehouse. How easy was it to get them to come in
and participate?
Mr. Koller. A heck of a lot easier post-Affordable Care
Act. I think that Medicare has gotten a direction clearly from
statute around the importance of, one, innovation. And two,
innovation not just on their terms, but on collaborating with
local States.
Medicare, for all of its strength, is only 40 percent of
the local market. Our common goal here is delivery system
change. So what we had done specifically was to get a group of
commercial payers together, implement changes for the patients
at our medical home, and then take advantage of Medicare
actually changing its rules.
This was a real shift for Medicare. They came and said,
``We will adopt to what's being done in the community, rather
than the community adopting to what we are saying.'' You talk
about a cultural shift, that is very significant.
I think Medicare, frankly, needs to learn how to do more of
that. They are working hard, but I think direction from
Congress in general and the appropriate committee becomes very
important, because the all payer alignment is critical.
Senator Whitehouse. Good, because part of why we are here
today is to help send those messages. And one of the messages
that I want to send is that I very much hope that the
Administration will take a look at the delivery system reform
elements in the Affordable Care Act, take a look at the
implementation of them, the innovation center, the various ways
in which they are moving forward. And come as quickly as they
can to a target of savings that they are willing to point
everybody at.
I have said over and over again that I think if President
Kennedy had said we were going to bend the curve of space
exploration, we never would have gotten to the moon. It was
because he put a hard target out there that the whole Federal
Government swung toward that target. So every chance I get, I
urge the Administration to do that, and I will continue to
communicate with Administrator Blum about that.
I know he got a hard time today for the difference between
what an actuary can compute and what an administration goal is.
But goal setting in every activity, whether it is a corporate
activity or a family activity, setting clear goals is how you
make yourself accountable for progress. I think that we need to
set a lot clearer goals that bring this together.
I take from this hearing three strong messages. No. 1, is
that incentives are critical, that the fee-for-service program
sends all the wrong ones, and that we need to figure out the
way to get off of that as quickly as possible.
No. 2, that Medicare has a significant role in driving that
behavior, just because of its size and scope, and because its
billing system is the basis off of which a lot of other payors
catch a free ride. So if you change that, they have to change
as well as, I guess, payment reform. It boxes above its weight
in payment reform because it is the baseline for so many other
payers.
And finally that there really, really is true significant
potential here for better care to be delivered at a lower cost
by coordinating it better and providing the right incentives.
I sometimes bemoan how much I feel we are on the wrong
track around here in our discussion of health care, which seems
to be often more directed toward political benefit than to the
realities of health care.
I had a meeting with George Halvorson back in September. He
is the CEO of Kaiser Permanente, which is one of the biggest
health care systems in the country. Like I said, he is the CEO.
This is not somebody whose opinion one should take lightly. And
in our conversation he said this, and I had it transcribed
because he was introducing me, and so we have a record of it.
``There are people right now who want to cut
benefits, and ration care, and have that be the avenue
to cost reduction in this country and that's wrong.
It's so wrong, it's almost criminal.''
It's an inept way of thinking about health care. And I will
continue to call on it, I think it is really important.
People like me, we can stand in Congress, and talk, and
fight to pass laws all day long. Regulators can do what
regulators can do. But it is Virginia Mason, it is
Intermountain, it is Gundersen Lutheran, and Geisinger, and
Kaiser, and Mayo, and all of these organizations that are
actually moving on this that are the force that is really going
to be convincing to people ultimately here in Washington.
So I thank you very much for the time and the trouble you
took to come here. The value of your testimony is considerable.
The value of what you have accomplished is even more so. And I
hope that you don't mind if I continue to try to work you in
every way possible to see to it that the message that you and
other CEOs, and managers of health systems have your
experience.
The money you saved in addition to the lives you have saved
from your sepsis changes. The money you saved as well as the
lives you have saved from your diabetes treatment changes. The
way you have worked with employers to bring their costs down.
That is a message that is, frankly, not being heard in this
town anywhere near enough. And if I can continue to drag you
into hearings, and into forums, and to try and get you in front
of the Administration, and to do whatever it takes to convince
people that this is really a productive path to be going down,
I want to do it. And if you have ideas for me, to help me do
that, I would like to do that as well.
It is 4 o'clock, and I want to let everybody get to their
planes and on their way. So the hearing will stay open for
purposes of any further comment or exhibits that anybody wants
to add to the record for an additional week.
The live hearing is now adjourned.
[Additional material follows.]
Prepared Statement of Senator Murray
I first want to thank both Senators Harkin and Whitehouse
for holding and chairing for this hearing on how we can reform
our health care delivery system.
As I have said before, this is such an important issue--
particularly now as we continue to implement the Affordable
Care Act law passed this past year. We all know that health
care costs play a substantial role in the greater discussion of
our national debt and deficit. Fortunately, this landmark
legislation contained a variety of provisions specifically
intended to improve the quality and delivery of care while at
the same time working to bend the cost curve. One of these
provisions was the establishment of the Innovation Center at
the Centers for Medicare and Medicaid Services, an agency
tasked with researching, developing, testing, and expanding
innovative payment and delivery arrangements in order to see
how we can begin to reward quality not quantity of care in our
health care system.
We have already begun to see industry step up to the
challenge. In my home State of Washington, the Virginia Mason
Health System has been working hard to develop an innovative
delivery system that tackles both the cost and quality of
health care for its patients. I want to especially thank Dr.
Gary Kaplan, chairman and CEO of Virginia Mason Health System,
for his appearance today on the panel.&
Founded in 1920, Virginia Mason serves as an example for
hospitals across the country on how to develop systems of
delivery that work to decrease costs and eliminate waste, while
simultaneously maintaining high-quality care and patient
safety. Through their Virginia Mason Production System (VMPS)
management system, modeled after the Toyota Production System,
they have achieved significant cost savings. For example,
Virginia Mason has saved $11 million in capital investment by
using their space more efficiently and reduced their inventory
costs by $2 million through reductions in supply chain expenses
and other standardization efforts. At the same time they have
worked to reduce costs, Virginia Mason has seen an increase in
the quality of care for their patients. They have reported an
85 percent reduction in the time it takes to report lab
results, a decrease in the length of the course of overall care
from 66 days to 12 days, and patient satisfaction increase to
98 percent. Virginia Mason also saw a reduction in the
diagnosis time for patients at their Breast Clinic from 21 days
after their initial call to just 3 days. In fact, Virginia
Mason found that many of these Breast Clinic patients receive
their results on the very same day of that initial call to the
center.
I want to thank you again, Senators Whitehouse and Harkin
for holding this hearing as well as Dr. Kaplan and Virginia
Mason Health System for their continued leadership in this
field. We need to continue to discuss ways we can reform the
way in which we deliver health care so that we can reduce
overall costs not only to the government and individuals, but
also how to streamline and improve care. I look forward to
working with my colleagues on the HELP Committee on this issue.
Response by Jonathan Blum to Questions of Senator Whitehouse,
Senator Enzi, and Senator Roberts
questions of senator whitehouse
Question 1. What was the process for drafting the final rule of
section 3022 of the Affordable Care Act (the Medicare Shared Savings
Program for Accountable Care Organizations)? How was input from
relevant health care stakeholders sought prior to making the draft rule
public?
Answer 1. This Administration and CMS have been committed to a
transparent process for implementing the Affordable Care Act that
includes feedback from a wide range of stakeholders. We engaged the
public and solicited comment and ideas on the Medicare Shared Savings
Program regulation for more than a year. On October 5, 2010, we held a
Workshop on Issues Related to ACOs that was co-hosted by the Federal
Trade Commission and the Department of Health and Human Services'
Office of Inspector General. The workshop solicited public comments on
the legal issues raised by various ACO models being considered by
health care providers. On November 17, 2010, we published a Request for
Information in the Federal Register to obtain comment on specific ACO
issues, including beneficiary attribution and the special needs of
small practices. Information from both of these activities was used to
prepare the Shared Savings Program proposed rule.
Published in the Federal Register on April 7, 2011, the proposed
rule allowed for a 60-day public comment period. During that time we
held a series of open-door forums and listening sessions to help the
public understand what CMS proposed to do and to ensure that the public
understood how to participate in the formal comment process.&
We received over 1,300 comments on the proposed rule and we took
all of these comments into consideration in drafting the final rule.
Commenters were very helpful in suggesting ways to improve the Shared
Savings Program policies, and we have revised many of our policies as a
result of those comments. For example, in the proposed rule, ACOs could
choose from two ``tracks,'' each of which has at least 1 year of two-
sided risk (the ACO would share in some portion of any savings but also
be at risk for a portion of any spending over the target). We received
comments that some ACOs were not ready to accept two-sided risk. In the
final rule, ACOs may still choose from two tracks for their first
agreement period; however, the first track does not include two-sided
risk. This change encourages participation in the program for ACOs at
different levels of readiness.
In the proposed rule, we explained our plan to assess the quality
of each ACO using 65 quality measures in 5 domains. Commenters urged us
to focus on the most important quality measures and to reduce the
number of quality measures. In the final rule, we streamlined the
quality measurement to 33 measures in 4 domains to reduce the reporting
burden and focus on the important measures.
In the proposed rule, entities eligible to form ACOs independently
were limited to the four groups specified by the statute as well as
certain critical access hospitals. Commenters urged us to find a way to
allow federally qualified health centers and rural health clinics to
have a more significant role in ACOs, due to the importance of these
providers in providing access to care in underserved areas. In the
final rule, we were able to expand the entities eligible to form an ACO
independently beyond the four groups specified in the statute and
certain critical access hospitals to include federally qualified health
centers and rural health clinics. We anticipate that this change will
increase the participation in the Shared Savings Program. These are
just a few of the changes we made to the final rule in response to
public comment. We have greatly appreciated the robust engagement of
the stakeholder community in the development of the Shared Savings
Program, and we believe that engagement is reflected in the provisions
of the final rule.
Question 2. I have long advocated for the Administration to set a
cost-savings goal and timeline for the delivery system reform
provisions of the Affordable Care Act. Having specific, accountable
goals will spur bureaucratic and regulatory efforts to implement, or
even expand upon, the ACA's delivery system reforms. Does the
Administration have a cost-savings goal, patient outcomes target, or
timeline for the implementation of the ACA's delivery system reforms?
If not, would the Administration consider setting such goals?
Answer 2. The Administration is committed to reducing costs and
improving care in our Nation's health care system. This goal will not
be reached all at once or with one single solution. Instead, agencies
across the Administration are working to achieve this goal. CMS, with
over 100 million people enrolled in our programs, is working to change
the current incentives in Medicare, Medicaid and the Children's Health
Insurance Program. For example, we are introducing bundled payments so
that provider payments are based on quality, not quantity. We are also
launching new initiatives using Accountable Care Organizations and
targeted initiatives for Medicare-Medicaid beneficiaries to encourage
more coordinated care. Other partners within HHS are focused on
prevention, outreach, and performing cutting-edge
research.
Achieving delivery system reform requires multiple, simultaneous
innovations because the current system is a complex arrangement that
delivers a wide range of health care services over many types of
settings. Therefore, CMS has not established one goal or target for all
of these diverse initiatives. Nevertheless, we are committed to
ambitious goals that will revolutionize how health care is delivered in
this country where we are able to identify and quantify such goals. For
example, CMS set aggressive goals for the Partnership for Patients
initiative: a 40 percent reduction in preventable hospital-acquired
conditions and a 20 percent reduction in unnecessary re-admissions to
hospitals by the end of 2013.&
Question 3. Your written testimony noted that following the
implementation of the ACA, growth in Medicare per capita spending has
declined significantly and Medicare Part D, Medicare Advantage, and
Medicare Part A premiums will remain nearly the same for 2012 as 2011.
Can this stabilization in cost growth be attributed, in any part, to
the Centers for Medicare and Medicaid Services' (CMS) implementation of
the ACA's delivery system reforms?
Answer 3. While the reasons behind any change in Medicare cost
growth can be complex, it is important to note that overall Medicare
cost growth dropped from 7.9 to 4.5 percent between 2009 and 2010; this
slow-down occurred at the same time that many seniors with Medicare
received cheaper prescription drugs. Many of the expected benefits and
savings of delivery system reforms included in the Affordable Care Act
have not yet been fully considered in this analysis. We expect that
many of these reforms, including Accountable Care Organizations,
bundled payment programs, and demonstrations launched by the Innovation
Center, will save money for the health care system in the coming years.
Question 4. Is CMS undertaking an analysis of the effect of the
ACA's delivery systems reform provisions on health care cost growth?
How is the agency evaluating the effect of delivery system reform
initiatives when they are implemented (aside from pilots and
demonstrations where evaluation is required by statute)? And against
what goals or benchmarks?
Answer 4. The Independent Office of the Actuary in CMS annually
produces projections for health care spending for multiple categories
of National Health Expenditures, including private health insurance,
Medicare, and Medicaid. These National Health Expenditures projections
would capture any changes in health care cost growth that result from
delivery system reforms.
We agree that establishing benchmarks to gauge our progress toward
improving the health care delivery system are crucial. Each component
of delivery system reform has different goals, targets, and benchmarks
to measure success based on the aims of each specific initiative. For
example, the Partnership for Patients Initiative is seeking to achieve
two goals: reducing preventable hospital-acquired conditions by 40
percent and reducing hospital re-admissions by 20 percent between 2010
and 2013. These goals are associated with specific cost reduction
estimates. Further, CMS plans to measure quality across 4 domains in
the Medicare Shared Savings program with 33 quality measures spanning
Patient/Caregiver Experience, Care Coordination/Patient Safety,
Preventative Health, and At Risk Population. CMS expects ACOs to
generate estimated savings of up to $940 million over the first 3
performance years as they put in place the infrastructure and redesign
processes to focus on coordinating care for populations proactively.
Question 5. What are the Administration's priorities for ACA
delivery system reform that have not yet been fully implemented?
Answer 5. The Center for Medicare and Medicaid Innovation
(Innovation Center) is beginning to test a variety of different payment
and service delivery models to improve health care quality and lower
cost. In addition to Accountable Care Organization models, on August
23, 2011, the Innovation Center invited providers to apply to test and
develop four different models on bundled payments. Depending on the
model selected, providers have flexibility in the Bundled Payments for
Care Improvement initiative in selecting conditions to bundle,
developing the health care delivery structure, and determining how to
allocate payments among participating providers. The Bundled Payments
initiative is a key delivery system reform centered on improving
quality and efficient care delivery, while reducing costs and
increasing care coordination. The Innovation Center has also launched a
Comprehensive Primary Care initiative, which is a new multi-payer
initiative fostering collaboration between public and private health
care payers to strengthen primary care. The CPC will test a
comprehensive primary care model for service delivery as well as a
payment model that includes a monthly care management fee paid to the
selected primary care practices on behalf of their fee-for-service
Medicare beneficiaries.
In the last year alone, the Innovation Center has implemented a
number of initiatives and models, including those described above as
well as the Partnership for Patients, the State Demonstrations to
Integrate Care for Dual Eligible Individuals, the Innovation Advisors
Program, Federally Qualified Health Centers Advanced Primary Care
demonstration, and the CMS Health Care Innovation Challenge. Naturally,
as we learn from these early models and demonstrations, we will
determine what other areas of research and innovation may be necessary
to achieve the further reforms in our health care system.
Question 6. At the hearing, several of the witnesses on the second
panel recommend that CMS better coordinate its payment reform efforts
across Medicare and Medicaid. Is CMS taking steps to align payment
structures between Medicare and Medicaid? If so, what reforms have been
undertaken to this end?
Answer 6. CMS is committed to better coordinating care for
individuals eligible for both Medicare and Medicaid. Better alignment
of the administrative, regulatory, statutory, and financing aspects of
Medicare and Medicaid promises to improve the quality and cost of care
for this complex population.
On May 11, 2011, the Medicare-Medicaid Coordination Office launched
the Alignment Initiative, an effort to more effectively integrate
benefits under the Medicare and Medicaid programs. The Alignment
Initiative is not simply an effort to catalogue the differences between
Medicare and Medicaid, nor is it an effort to make the two programs
identical. Rather, it is an effort to advance beneficiaries'
understanding of, interaction with, and access to seamless, high-
quality care that is as effective and efficient as possible.
The first step in the Alignment Initiative was to identify
opportunities to align potentially conflicting Medicare and Medicaid
requirements. The Medicare-Medicaid Coordination Office compiled a list
of opportunities for legislative and regulatory alignment, grouping
ideas into the following broad categories: care coordination, fee-for-
service benefits, prescription drugs, cost-sharing, enrollment, and
appeals. This list was published in the Federal Register on May 16,
2011, and the public comment period closed on July 11, 2011, bringing
in over 100 responses from beneficiaries, advocates, professional
health associations, plans, and States. In addition, CMS conducted
local listening sessions, which were attended by over 500 stakeholders.
The Medicare-Medicaid Coordination Office has also partnered with
the Innovation Center on initiatives designed to improve care for
people eligible for Medicare and Medicaid, awarding contracts of up to
$1 million each to 15 States to design person-centered approaches to
coordinate care across primary, acute, behavioral health, and long-term
supports and services for Medicare-Medicaid enrollees. CMS provided
information to States about the ``State Demonstrations to Integrate
Care for Dual Eligible Individuals'' via an Informational Bulletin
(http://www.cms.gov
/CMCSBulletins/downloads/12-10-2010-Federal-Coordinated-Health-Care-
Office
.pdf) and contracts were awarded in April 2011. This initiative was
designed to improve care and lower costs for Medicare-Medicaid
beneficiaries and identify delivery system and payment integration
models that can be rapidly tested and, upon successful demonstration,
replicated in other States.
CMS is also taking steps to test models to align payment structures
between Medicare and Medicaid. In July 2011, the Medicare-Medicaid
Coordination Office, in cooperation with the Innovation Center, advised
States of a separate initiative that offers them the opportunity to
test models to align financing between the Medicare and Medicaid
programs while preserving or enhancing the quality of care furnished to
Medicare-Medicaid enrollees (https://www.cms.gov/smdl/downloads/
Financial_Models_Supporting_Integrated_Care_SMD.pdf). The purpose of
the Financial Alignment Initiative is to develop, test, and validate
fully integrated delivery system and care coordination models that can
be replicated in other States. The Medicare-Medicaid Coordination
office identified a capitated model and managed fee-for-service (FFS)
model as the choices for States interested and committed itself to
providing technical assistance to States that meet the minimum
standards for participation. Interested States were required to submit
a Letter of Intent to participate by October 1, 2011, and 38 States and
the District of Columbia expressed interest.
questions of senator enzi
Question 1. What are the metrics CMS will use to evaluate new
delivery system reform models, such as the Bundled Payments for Care
Initiative? Specifically, how will you measure savings and quality
improvements?
Answer 1. We agree that establishing benchmarks to gauge our
progress toward improving the health care delivery system is crucial.
Each component of delivery system reform will have different goals,
targets and benchmarks to measure success based on the aims of each
specific initiative.
For example, in the Bundled Payments for Care Improvement
Initiative, CMS is allowing applicants to propose the quality measures
by which their care will be tracked, though all applicants will be
required to report current Hospital Inpatient Quality (IQr) measures at
a minimum. CMS will ultimately establish a standardized set of measures
that will be aligned to the greatest extent possible with measures in
other CMS programs. Three of the models being tested under this
initiative would involve a retrospective bundled payment arrangement,
in which a target price for a defined episode of care is set based on
applying a discount to total costs for a similar episode of care as
determined by historical data. Each delivery system reform initiative
will have unique metrics based on the characteristics of the model or
initiative being tested.
Question 2. How does CMS plan to expand implementation of
coordinated care models that have demonstrated success at integrating
care and lowering costs for the Medicare program? Does CMS have a
national strategy to scale up successful models?
Answer 2. CMS is committed to expanding successful models, and has
a team of staff who can do outreach and spread information on new
ideas. For example, CMS recently hosted several Advanced Development
Learning Sessions to provide stakeholder organizations with knowledge
about what it takes to become an Accountable Care Organization. These
events were open to all interested provider organizations and the
information is still available on the Innovation Center Web site.
Similar learning opportunities will be available for each initiative
the Innovation Center announces, and are an important component in CMS'
efforts to educate stakeholders and spread successful delivery system
models.
Question 3. Mr. Blum, in the final accountable care organization
(ACO) rule, CMS chose to exclude indirect medical education and
disproportionate share hospital payments from the calculation of a
provider's expenditures. However, it included additional payments made
to rural providers in this calculation, which sets a higher bar for
eligible providers who might want to participate or join an ACO in
certain areas. Why did CMS elect to exclude some payments, but not
others? Won't this make it more difficult to form ACOs in rural areas?
Answer 3. In both the proposed and final rules, we considered
whether to include or exclude a number of different payments from the
ACOs benchmark and performance year expenditures. We proposed not to
make any adjustments to either the benchmark or expenditure
calculations; however, we were persuaded by commenters who suggested
that not adjusting for Indirect Medical Education (IME) and
Disproportionate Share Hospital (DSH) payments had the potential to
create an incentive for ACOs to avoid appropriate referrals to
particular hospitals or providers, for example teaching hospitals. We
were concerned that this could deter the provision of care in the most
appropriate setting. Therefore, our final rule adjusts ACO benchmark
and performance expenditures for IME and DSH payments. Unlike IME and
DSH adjustments, however, we do not believe other payments that are
included in Part A and B expenditures (such as geographic payment
adjustments or other incentive payments) would result in a significant
incentive to steer patients away from particular hospitals or providers
since ACOs will be compared to their own historical expenditure
benchmark that is updated by a national factor. Since each ACO is
compared to its own historical expenditure benchmark, we do not believe
including such payments will make it more difficult for ACOs to form in
rural areas or deter participation of rural providers in ACOs.
Furthermore, we announced our advance payment initiative that will
provide the opportunity for organizations such as rural-and/or
physician-only ACOs with limited revenue and access to capital to
receive a portion of their anticipated shared savings up front as a way
to encourage the development of ACOs with the infrastructure and
expertise to improve and deliver high-quality care while slowing the
growth in health care spending. &
Question 4. Mr. Blum, does CMS have plans to extend the nationwide
Medicare Advantage star demonstration program after 2014? How many
other demonstration programs have CMS implemented that were started on
a nationwide basis?
Answer 4. The Quality Bonus Payment (QBP) demonstration builds on
the bonus payments authorized in the Affordable Care Act by providing
stronger incentives for plans to improve their performance thereby
accelerating quality improvements. This demonstration will begin in
2012 and will run for 3 years through 2014. Beginning in 2015, the
current law provisions for computing QBP will be in effect.
CMS initiated several demonstrations on a national basis since the
passage of the Medicare Modernization Act of 2003. These include
demonstrations to enhance the Part D program as well as Medical Savings
Account (MSA) products.
Question 5. Expatriate plans provide a valuable service to
Americans living and working overseas. Often expatriate plans have a
much greater administrative burden for the insurance company because
there is the need for translation services as well as making overseas
claims and setting up overseas networks. It would serve to logic then,
that these plans be exempted from the Minimum Loss Ratio (MLR)
requirement.
While most expatriate plans have received a short-term MLR waiver,
they have not received a permanent exemption. Several companies have
contacted the Centers for Medicare and Medicaid asking them to
permanently extend the MLR waiver. Without an extension many of these
companies have said they will have to move their expatriate plans
overseas, which, according to news reports, would result in over 1,100
U.S. jobs lost.
This is not the time for the Federal Government to force
regulations on businesses that result in lost jobs for Americans. What
are the Centers for Medicare and Medicaid planning to do to ensure that
those jobs remain in the United States? Will CMS provide for a
permanent expatriate plan MLR exemption? If not, please elaborate.
Answer 5. CMS does not have the statutory authority to exempt
certain types of plans from the MLR standard. The statute, however,
does allow CMS to take into account the special circumstances of
smaller plans, different types of plans, and newer plans. In the
interim final rule with comment period, CMS used this authority to
implement a multiplier of 2.0 to the MLR numerator for expatriate
policies; this adjustment acknowledges the higher administrative costs
and volatility of experience in these plans when compared to typical
insurance plans, as expatriate plans cover care in all parts of the
world in a wide variety of health care systems.
CMS believes that a multiplier of 2.0 is appropriate to ensure that
issuers remain in the expatriate market. CMS also believes that the MLR
requirements continue to allow U.S. issuers to offer expatriate
policies to U.S. employers that want to provide their employees who are
working abroad and their dependents with comprehensive health insurance
that meets the unique needs of expatriates and provides benefits that
are at a minimum comparable to the coverage of their U.S.-based
employees.
Question 6. Recent media reports have revealed that parents and
other individuals who serve as caregivers for disabled individuals and
receive Medicaid subsidies to provide care to these family members are
classified as ``public employees'' by certain State agencies. This
classification results in the State, in conjunction with the Service
Employees International Union (SEIU), deducting a portion of the
monthly Medicaid subsidy provided to these families as ``union dues.''
Is CMS aware of this practice? How many States operate this type or
similar arrangements? Please describe CMS' current oversight plan for
State Medicaid agencies to ensure that Federal dollars are being spent
appropriately on health care services and supports.
Answer 6. CMS takes our Medicaid oversight responsibilities
seriously, and works to ensure that Federal dollars are spent
appropriately through our oversight and approval of State Medicaid
plans, waivers, estimated and actual State expenditures, and other
State actions.&
The 1915(c) Home and Community Based Services (HCBS) waiver program
allows for a State to make payment to ``legally responsible'' relatives
(spouses, parents or legal guardians of minors) under specific
circumstances per the terms of the State's waiver application; however,
this is an individual decision of each State. Federal Medicaid law and
regulations impose certain restrictions or conditions that must be met
for States to allow legally responsible relatives to be paid
caregivers, which CMS enforces through the State Medicaid plan
amendment and HCBS waiver approval processes.
CMS does not keep statistics or otherwise become involved in issues
related to the unionization of home care or other health care workers.&
Question 7. How is the Administration planning to communicate
actions the Secretary will take to establish and operate a Federal
Exchange within States that do not create State exchanges? Is the
Administration planning to initiate a rulemaking or issue guidance
pertaining to the Secretary establishing a Federal exchange? If so,
when does the Administration anticipate publishing a proposed rule or
guidance?
Answer 7. When CMS operates an Exchange in a State that does not
establish its own, the same regulations apply as for State-based
Exchanges. The comment period on the Exchange proposed rules closed
October 31, 2011. CMS is currently reviewing the comments received and
is working toward finalizing the rules in the near future. We
understand that States and issuers are anxious for information and we
are diligently working to provide guidance and certainty to accommodate
these concerns; we plan to release additional guidance on various
topics over the next several months.
Question 8. From what accounts has the Secretary funded the
$52,294,545 contract with Booz Allen Hamilton for ``Implementation
Support'' and the $55,744,081 contract with CGI Federal for the
``Federal Exchange? '' What is the anticipated value of the contract
that the Administration is considering for the ``data services hub''
and from what account will that contract be funded?&
Answer 8. The $55,744,081 million CGI Federal contract to build and
support the information technology systems for the Federally
Facilitated Exchange (FFE), and the tasks on the Booz Allen Hamilton
contract for implementation support related to the FFE, were obligated
from the Health Insurance Reform Implementation Fund and HHS General
Departmental Management as the Booz Allen Hamilton contract supports
other CMS initiatives in addition to the Exchanges. Approximately $30
million is also obligated from these funds for the pending award for
the data services hub contract.
Question 9. Please provide a detailed accounting (e.g.,
expenditures by date, payee, purpose, etc.) of how the Administration
has spent the $1 billion appropriated to the Health Insurance Reform
Implementation Fund created in section 1005 of Public Law 111-152. Do
any funds remain in this account?
Answer 9. We recognize that the committee is interested in
understanding these figures and will provide them to the committee
under separate cover.
questions of senator roberts
Question 1. We have been made aware that there have been over
200,000 comments in response to the preventive regulations, these are
the two regulations issued by HHS, Treasury, and Labor implementing
section 2713 of the Public Health Service Act (one was issued last
summer and one was issued in early August). Does the Administration
plan to respond to these comments and if so when?
Answer 1. Given the large volume of comments received, all three
agencies are still working to review and understand them. When issued,
the final rules will respond to the comments received.
Question 2. Both preventive regulations were implemented through an
interim final rule (IFR) process. Does the Administration plan to
finalize these IFRs and if so what is the timeline for doing so?
Answer 2. The Administration is working to meet the effective dates
that are in the Affordable Care Act. The Administration continues to
address comments received on IFRs and will finalize rules as
appropriate.
Question 3. Does the Administration plan to finalize any of the
interim final rules that were put forth to implement the Patient
Protection and Affordable Care Act and if so what is the timeline for
doing so?
Answer 3. Because of the timing of statutory deadlines, in some
cases we issued interim final rules requesting public comment for 60
days. We have read the public comments that have been submitted and,
where appropriate, we adopted the comments in sub-regulatory guidance.
The Administration continues to address comments received on IFRs and
will finalize rules as appropriate. We also note that recent agency
rulemaking has utilized proposed rules, solicited comments, and
finalized rules.
Attachment
Health Reform Implementation Fund--Obligations and Outlays as of
September 30, 2011
------------------------------------------------------------------------
Fiscal year 2011 Through September 30, 2011
------------------------------------------------------------------------
Organization Obligations Outlays
------------------------------------------------------------------------
Internal Revenue Service................ $188,861,953 $112,093,091
Office of Personnel Management.......... $1,855,701 $435,770
Department of Labor..................... $1,640,450 $1,640,450
Department of Health and Human Services. $242,617,622 $116,469,245
-------------------------------
Total Health Reform Implementation $434,975,726 $230,638,556
Fund.................................
------------------------------------------------------------------------
Response by Gary S. Kaplan, M.D., FACP, FACMPE, FACPE to Questions
of the HELP Committee
Question 1. Do you believe that a fee-for-service system is a
sustainable model for delivering [financing] health care?
Answer 1. A health care financing system based predominantly on a
fee-for-service model is unsustainable. Three years ago, I was one of
several chief executives of prominent health care organizations
interviewed for a Washington Post article about the problems with our
country's health care system. The story's headline summed up the CEOs'
opinions: ``U.S. Not Getting What We Pay For.'' Sadly, 3 years later,
Americans are still paying for a lot of things that aren't necessary
when it comes to health care. In fact, of the $2.6 trillion spent on
health care in the United States, nearly half of it is waste that adds
no value for patients and sometimes even causes harm.
The current health care system is fraught with waste. A fundamental
problem with the system is how providers of health care are paid. Under
the current fee-for-service model, there are few incentives to keep
people out of doctors' offices and hospitals. From the health care
provider's perspective, the more you do, the more money you make. More
tests lead to more procedures, which can lead to mistakes,
complications, misdiagnoses and the use of unproven therapies.
Those picking up the skyrocketing tab include the Centers for
Medicare and Medicaid Services (CMS), along with commercial payors and
employers. Sadly, our patients pay the highest price as the recipients
of substandard care.
Although the fee-for-service model contributes to the ills of our
current system, there may be limited small community or service-
specific subsets in which it is appropriate.
I hope and anticipate we will get to the point where the U.S.
health care system pays providers to rely on the very best evidence, to
deliver the right care at the right time, and only the care that is
required to improve health.
Question 2. How can we shift Federal health care delivery systems
from systems that are based on volume to systems based on value? How
can we realign incentives for care?
Answer 2. The shift from volume to value starts with payment
reform. At Virginia Mason Medical Center, we're demonstrating now that
health care organizations can provide the highest quality care to
patients at the lowest cost. In our American culture, this is
counterintuitive. We're conditioned to believe that to get the best
quality you have to pay top dollar. That's not the case in health care.
In their Health Affairs article, ``Medicare Spending, The Physician
Workforce, and Beneficiaries' Quality of Care,'' Katherine Baicker and
Amitabh Chandra report:
``The quality of care received by Medicare beneficiaries
varies across areas . . . States with higher Medicare spending
have lower-quality care. This negative relationship may be
driven by the use of intensive, costly care that crowds out the
use of more effective care'' (2004, W5-185).
Our country can't afford health care costs to continue escalating
at current rates. Inevitably, advances in medicine and clinical
technology contribute to the costs of care, but these increases in cost
can be offset significantly by eliminating variation, including
unnecessary and excessive testing, as well as treatments that lead to
no benefit.
As Virginia Mason's experience demonstrates, higher quality care is
associated with lower costs. In December 2011, Virginia Mason was named
a Top Hospital by The Leapfrog Group for our accomplishments in the
areas of patient safety and efficiency. Virginia Mason joined the
University of Maryland Medical Center-Baltimore as the only two
hospitals to receive Top Hospital distinction every year since the
recognition program's inception in 2006. For 2011, Virginia Mason is 1
of 52 hospitals in the country to meet Leapfrog criteria for highest
performing urban hospitals.
With approximately 1 percent of America's hospitals meeting
Leapfrog's quality and resource use criteria, there is work to be done.
An important first step is moving from a fee-for-service payment
structure to evidence-based care financed by bundled payment, shared
savings or provider risk-bearing approaches that require provider
accountability for patient outcomes.
The Physician Quality Reporting System, which was established in
the 2006 Tax Relief and Health Care Act, was a move toward payment for
value. This initiative benefits patients because it provides financial
incentives to those providers who achieve the highest quality results.
Further, the rollout of the Patient Protection and Affordable Care
Act will include innovative payment approaches, such as bundled
payments in preventive services, surgical episodes of care and chronic
disease management. Additionally, delivery model innovations, such as
Accountable Care Organizations, will promote hospital/physician
integration and coordinated patient care across the continuum. Similar
models, including shared risk and shared savings, would support better
care and ultimately better population health. Further, multi-payor
demonstration projects that don't allow cost shifting from CMS to
commercial payors hold promise for realigning incentives for care.
As a clinician, I know that my patients are vitally important and
often underutilized members of their own care teams. Shared
decisionmaking tools offer patients resources for a thorough
understanding of treatment options. Additionally, patients who have the
information to make informed decisions about their care are more likely
to choose less care.
David E. Wennberg, M.D., MPH; Amy Marr, Ph.D.; Lance Lang, M.D.;
Stephen O'Malley, MSc; and George Bennett, Ph.D., in their article,
``Randomized Trial of a Telephone Care-Management Strategy,'' in the
New England Journal of Medicine, stated: ``Provider-based studies of
preference-sensitive care have consistently shown that decision-making
support results in fewer interventions than usual support'' (2010). Not
only is honoring patient preference the most respectful approach to
patient care, it may well be less expensive.
Shifting the delivery system focus from volume to value will
require financial incentives, such as strict adherence to quality
standards, as a condition of payment. It will also require delivery
system reforms and patient engagement.
Additionally, by using efficient, integrated providers as models to
set the rates for reasonable cost and quality standards, we all can
benefit from the experience of those organizations demonstrating that
higher quality care at a lower cost should be the expectation. Finally
and most importantly, we must listen to our patients and provide all
the care they need and only the care they need.
Resources
Baicker, K. & Chandra, A. (2004). Medicare Spending, The Physician
Workforce and Beneficiaries' Quality of Care. Health Affairs. doi:
10.1377/hlthaff.w4.184.
Centers for Medicare and Medicaid Services. Overview, Physician Quality
Reporting System. CMS.gov. Retrieved December 12, 2011, from
https://www.cms.gov/PQRS/.
Connelly, C. (2008). U.S. ``Not Getting What We Pay For.'' The
Washington Post. Retrieved Dec. 12, 2011, from http://
www.washingtonpost.com/wp-dyn/content/article/2008/11/29/
AR2008112902182.html.
Wennberg, D.E., Marr, A., Lang, L., O'Malley, S. & Bennett, G. (2010).
A randomized trial of a telephone care-management strategy. New
England Journal of Medicine. Retrieved Dec. 12, 2011, from http://
www.nejm.org/doi/full/10.1056/NEJMsa0902321#t=articleDiscussion. N
Engl J Med 2010; 363:1245-55.
______
Intermountain Healthcare,
Salt Lake City, UT 84111-1486,
December 5, 2011.
Hon. Tom Harkin,
U.S. Senate,
731 Hart Building,
Washington, DC 20510.
Dear Senator Harkin: Thank you for the opportunity to have Greg
Poulsen, lntermountain Healthcare's senior vice president and chief
strategy officer, testify before the Health, Education, Labor, and
Pensions Committee at the November 10, 2011 hearing entitled
``Improving Quality, Lowering Costs: The Role of Health Care Delivery
System.'' We applaud the committee for tackling this critical issue and
we look forward to further discussions with the committee about how
best to transform the delivery system to incentivize high-value health
care.
Below are Greg Paulsen's responses to the questions posed
subsequent to the hearing.
Response to Questions of the HELP Committee by Greg Poulsen
Question 1. Do you believe that a fee-for-service system is a
sustainable model for delivering health care?
Answer 1. No, the fee-for-service payment mechanism is at the heart
of the problem, and any meaningful solution must reduce and ultimately
eliminate fee-for-service in order to remove the inherent perverse
incentives.
Question 2. How can we shift Federal health care delivery systems
from systems that are based on volume to systems based on value? How
can we realign incentives for care?
Answer 2. lntermountain Healthcare believes that additional pre-
payment mechanisms should be made available as rapidly as possible.
Medicare Advantage exists today, but is insurance-centric rather than
provider-centric, and generally yields a fee-for-service payment to
providers. Providers and beneficiaries should be encouraged to move to
pre-payment with a combination of incentives (to develop care
management capabilities and to accept prepayment) and penalties (lower
fee-for-service payment rates). We spell this out in greater detail in
the white paper entitled ``Recommendations to Congress for Building
Sustainable Medicare Value'' that we submitted with our written
testimony.
Question 3. Mr. Poulsen, can you discuss in more detail the
recommendations lntermountain would make to Congress for constructing a
sustainable health care delivery system? How can we best pay for a
system that delivers high-quality, low-cost outcomes?
Answer 3. lntermountain's white paper, referenced above, gives
greater detail on this as well. The principles for ``shared
accountability'' discuss in greater detail the way we think such an
approach could be implemented. Ultimately, risk-adjusted per-
beneficiary prepayment is the mechanism we believe would be most
effective. And if we use this mechanism to rationalize regional
differences in Medicare spending (as described in Appendix 1 on page
16), the savings could place Medicare on a solvent and sustainable
footing for decades to come.
Question 4. Mr. Poulsen, will Intermountain apply to be an
accountable care organization?
Answer 4. lntermountain is not planning to apply to be an
accountable care organization at this time. There are significant
structural barriers in the current ACO regulations that we view as
highly problematic. lntermountain is concerned about issues of
governance and compliance, and we have communicated these concerns to
CMS. However, our greatest concern is in the area of attributing
beneficiaries to ACOs. We believe that a small minority will be
extremely unhappy with being attributed (without the opportunity to opt
out, except by changing physicians--to one that doesn't participate in
ACOs). We have learned by sad experience that a small subset of
outspoken people can do incalculable damage--in this case, both to the
Government program, but also to the provider involved. lntermountain
believes that participation must be voluntary, and that beneficiaries
should be able to opt out (albeit, as we noted before, at a higher
cost).
We believe, based on our experience, that the potential exists for
outspoken hostility disproportionate to the number of people with
negative feelings. For these reasons, lntermountain Healthcare does not
plan to apply to be an ACO at this time.
Please let us know if you have any additional questions and please
know that lntermountain stands ready to assist the HELP Committee as it
continues this vital work.
Sincerely,
Bill Barnes,
Director, Federal Government Relations.
______
Responses by A. Mark Fendrick, M.D. to Questions of the HELP Committee
Question 1. Do you believe that a fee-for-service system is a
sustainable model for delivering health care?
Answer 1. As we aim to create an efficient and effective system
with a goal of optimizing health, I strongly believe that a fee-for-
service system is not a sustainable model due to its lack of clinical
nuance in the volume-based incentives it provides to clinicians. The
current payment model is designed to encourage overuse of both high-
and low-value services. While I believe alternative payment mechanisms
need be explored, it is essential that we include patient engagement
programs whose goals are clinically aligned with payment reform
initiatives. While new payment models are being implemented and tested,
we should reform the existing fee-for-service system to include
programs that provide incentives for providers--through quality
bonuses, and patients--through value-based insurance design (V-BID) to
increase the use of medical services for which there is strong
evidence. For example, Medicare Advantage plans could easily replicate
clinically nuanced incentive programs administered by private insurers
that demonstrate improved clinical outcomes and lower disease-specific
costs. Reforms to make Federal health spending more effective and
efficient must not wait for dramatic changes in the payment system.
Intuitive and feasible consumer engagement concepts such as V-BID that
are proven successful should be included in future payment reform
efforts.
Question 2. How can we shift Federal health care delivery systems
from systems that are based on volume to systems based on value? How
can we realign incentives for care?
Answer 2. Moving from a volume-driven to value-based system
requires a change in both how we pay for care (supply side initiatives)
and how we engage consumers to seek care (demand side initiatives). The
well-documented differences in clinical value among medical
interventions must be acknowledged. Thus, the incorporation of clinical
nuance into supply and demand side reform initiatives is critical. To
encourage providers to increase the use of high-value interventions
requires a payment methodology that explicitly identifies specific
services and quality metrics for which clinicians can be rewarded for
their use. Consumer engagement activities, including shared
decisionmaking programs and clinically nuanced benefit [V-BID] plans
must be developed that encourage patients to use high-value services
more often, and discourage those services that are harmful or
unnecessary.
Question 3. Dr. Fendrick, does a value-based insurance system
penalize or disadvantage patients or beneficiaries in any way? Why
don't more organizations adopt this system?
Answer 3. In public and private health plans across America,
patient cost-sharing is implemented in a ``one-size-fits-all'' way, in
that patients are charged the same amount for every doctor visit,
diagnostic test, and prescription drug. As Americans are required to
pay more to visit their clinicians and fill their prescriptions, a
growing body of evidence demonstrates that increases in patient cost-
sharing leads to decreases in the use of both non-essential and
essential care. The resultant decreased use of potentially life-saving
interventions leads to worse health outcomes and increased total costs
in certain circumstances. This clinical and financial effect is
amplified in chronic conditions that fuel a majority of medical
expenditures.
Instead of the status quo where plans implement indiscriminate
cost-sharing increases without clinical nuance, V-BID programs remove
patient barriers to high-value services to mitigate decreased use
secondary to patient out-of-pocket costs. Nearly all V-BID programs
implemented to date reduce co-payments for certain preventive services
and evidence-based treatments for chronic conditions (e.g., heart
disease, depression, diabetes, asthma, etc.) For example, the
University of Michigan and UnitedHealth Care implemented a V-BID
program for individuals with diabetes; General Electric is among
several organizations that offers free tobacco cessation services, and
provides bonuses to employees for quitting smoking. Consumer response
has been overwhelmingly positive, including those who are not using
subsidized services.
The ultimate goal of V-BID is to ensure that beneficiaries get more
of the care they need, and less of the care they don't. It must be
noted that V-BID programs never determine what treatments are covered
and those that are not--they simply provide a clinically nuanced
approach to patient cost-sharing for services already offered by a
health plan. A properly designed V-BID program will always include an
appeals process and provide safe harbors for individuals with special
circumstances. V-BID has received broad support from health care
stakeholders from across the advocacy spectrum, including labor,
employers, patient advocates, clinician groups, insurance plans, and
policymakers on both sides of the aisle. We do not believe such a broad
coalition would be possible if V-BID were in some way disadvantaging
patients.
The interest in V-BID is growing rapidly as employers and insurers
develop
V-BID plans and published research confirms its clinical and economic
merits. The prestigious New England Journal of Medicine recently
published a trial demonstrating a V-BID program for patients with a
history of heart attacks improved outcomes at no increased cost to the
insurer. An accompanying editorial recommended that private plans
should quickly adopt V-BIDs. Aetna, Blue Shield of California, and
SeeChange Health have followed suit and announced new V-BID products.
Additionally, the Governor of Connecticut and labor leaders recently
agreed to adopt a health plan for State employees based on V-BID
principles. While the private market has taken the lead, we believe
that public programs should join the private sector to encourage V-BID
and other innovations that will result in healthier Americans and a
more efficient delivery system. We would look forward to opportunities
to explore these possibilities with you, as outlined in my earlier
testimony.
[Whereupon, at 4:03 p.m., the hearing was adjourned.]