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Implementing Health Reform: CBO Projects Lower ACA Costs, Greater Coverage

April 15th, 2014
by Timothy Jost

On April 14, 2014, the non-partisan Congressional Budget Office, together with the staff of the Joint Committee on Taxation, released an updated estimate on the Effects of the Insurance Coverage Provisions of the Affordable Care Act. The CBO report brings good news for the ACA. The CBO projects now that the ACA’s coverage provisions will cost $5 billion less for this year than it projected just two months ago. Over the 2015 to 2024 period, CBO projects that the ACA will cost $104 billion less than it projected in February. At the same time, the CBO projects that the number of uninsured Americans will in fact decrease by an additional one million over the next decade, by 26 rather than 25 million, as it estimated in February.

The CBO report estimates that the net cost of the ACA’s coverage provisions will be $36 billion in 2014, $1,383 billion over the 2015 to 2024 period. This estimate consists of $1,839 billion for premium tax credits and cost-sharing reduction payments, Medicaid, CHIP, and small employer tax credits, offset by $456 billion in receipts from penalty payments, the excise tax on high-premium insurance plans, and the effects on tax revenues of projected changes in employer coverage. The CBO report does not include an estimate of the total reduction in the federal deficit attributable to the ACA, as the CBO has concluded that it is no longer possible to estimate the net effect of ACA changes on existing federal programs, but the most recent CBO estimate from 2012 projected that the ACA would reduce the federal deficit over the 2013 to 2022 period by $109 billion. Given projected further reductions in Medicare spending projected in a CBO budget report also released on April 14, it is reasonable to believe that the ACA’s impact on the budget may be even greater than earlier estimated.

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Three Better Bipartisan Health Policies To Pay For Repealing Medicare’s SGR

March 21st, 2014
by Robert Moffit

After months of House and Senate negotiations on legislation to replace the Medicare Sustainable Growth Rate (SGR) formula for updating Medicare physician payment, members of Congress are relieved to finally have an agreement. It is perfectly understandable that they, as well as professional medical organizations, want to act quickly. The danger is that even normally staid and stern budget hawks are prepared to move quickly to get this unworkable payment system permanently off the national agenda.

Of course, the Sustainable Growth Rate (SGR) should be repealed and replaced. Congressional leaders point out that since 2003, the routine cycle of emergency “doc fixes” have cost taxpayers $150 billion. The compromise legislation, which is barely better than the deplorable status quo, falls far short of what should be done.  In fact, the House bill (H.R. 4015), which passed the House of Representatives on March 14, and the Senate bill (S. 2000), which was reported out of the Finance Committee, would worsen the nation’s deficits.

It is not only critical for lawmakers to responsibly finance the $138 billion in new spending over the next 10 years that eliminating and replacing SGR will incur, but also do so without creating future budget deficits.

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A Lifetime Value-Based Proposal For Medicare Payment Reform

March 14th, 2014
by Zhou Yang

urrent Medicare reform policy proposals mainly focus on lowering annual cost or cost increase per capita, but they fail to recognize Medicare as a lifetime plan that covers each beneficiary from age 65 to death. I propose a Lifetime Value-Based Payment Plan (LVBPP) for Medicare reform. LVBPP aims to achieve efficient use of the government contribution to Medicare for each beneficiary from age 65 to death and features shared responsibility among beneficiaries, providers, and federal government.

LVBPP includes six major components to create incentives for chronic disease prevention and efficient use of medical care resources by promoting market-based competition on quality of care and innovations in medical technology and care delivery models. Preliminary results indicate that LVBPP could lead to better health in terms of longer longevity and lower disability rate, save up to $70 billion over 10 years, and save up to $164 billion for the federal government over the lifetime of the cohort of upcoming beneficiaries age 55 to 59, as of the 2010 census. (The bases for these savings estimates, as well as suggested values for the expenditure thresholds and copayment rates involved in LVBPP, are provided in the Simulation Appendix below.)

The challenge. There is wide consensus that chronic disease is the leading cause of mortality and rapidly increasing health care costs in the US. Lifestyle choices have been found to be a major factor behind the increasing prevalence of chronic disease. It is estimated that 60 percent of deaths and 70 percent of health care spending in the US are related to lifestyle choices. However, despite volumes of science-based clinical trial results demonstrating positive effects of behavioral change on patients’ long-term well-being, and continuous public media campaigns promoting lifestyle change, there is no sign of reduction in the prevalence rate of chronic disease in the US population.

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New Health Policy Brief: Geographic Variation In Medicare Spending

March 6th, 2014
by Tracy Gnadinger

A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation describes geographic variation in Medicare spending. Data from the Centers for Medicare and Medicaid Services (CMS) show that in 2012 Medicare spent an average of $9,503 nationally per beneficiary, ranging from $15,957 in Miami, Florida, to $6,569 in Grand Junction, Colorado.

This brief looks at the factors that may be driving these variations, including the amount Medicare pays for services, the health status of beneficiaries, the types of services provided to a region’s population, and whether the local spending patterns are consistent with the spending on patients with private insurance.

As policy makers continue to find ways to improve quality in health care and eliminate unnecessary spending, a better understanding of geographic variation in Medicare spending has the potential to help achieve the so-called Triple Aim: better health, better health care, and lower costs.

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Financial Orphan Therapies Looking For Adoption

March 6th, 2014

There exist scientifically promising treatments not being tested further because of insufficient financial incentives. Many of these therapies involve off-label uses of drugs approved by the Food and Drug Administration that are readily available and often inexpensive. Pharmaceutical companies—largely responsible for clinical drug development—cannot justify investing in such clinical trials because they cannot recoup the costs of these studies.  However, without prospective data demonstrating efficacy, such treatments will never be adopted as standard of care.

In an era of increasing health care costs and the need for effective therapies in many diseases, it is essential that society finds ways to adopt these “financial orphans.” We propose several potential solutions for the non-profit sector, pharmaceutical companies, health insurers, patient driven research and others to accomplish this goal.

Drug Development Today

Under today’s drug development model, the vast majority of clinical trials are sponsored by pharmaceutical companies, and the process is lengthy, expensive, and, some have argued, inefficient. The cost of developing a new FDA approved drug is estimated to exceed $1.2 billion, the average time from lead to market is typically over 10 years, and only 1 in 10 drugs entering a phase I study is finally approved. Thus pharmaceutical companies, seeking to recoup this investment, conduct a return on investment (ROI) calculation with attention to both scientific and financial considerations such as the chances of success and whether the therapy will be sufficiently profitable to justify the high cost of clinical development.

These considerations sometimes lead to inefficient outcomes from society’s perspective in which promising and potentially transformative therapies are not pursued because of improperly designed financial incentives. We call such therapies “financial orphans.”

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Assessing A CMS Proposal To Improve Competition Among Medicare Part D Drug Plans

March 4th, 2014
by Jack Hoadley

In one provision of its January Notice of Proposed Rulemaking (NPRM), for Medicare Part D and Medicare Advantage, CMS proposed that it will accept no more than two stand-alone prescription drug plan (PDP) bids from each Part D plan sponsor, starting in coverage year 2016. The agency stated two reasons for this proposal. First, it would reduce beneficiary confusion in the Part D market by both lowering the number of choices that they face and ensuring that differences between competing options are clear and meaningful to them. Second, it would address the impact of one source of favorable selection that leads to higher costs for the government and the taxpayer. This note looks at evidence from Part D to help understand the context for this proposal.

Reducing the Number of Plan Offerings

The competitive market design of Part D requires that plan enrollees regularly evaluate their options. Our recent study shows that most Part D enrollees have not changed their plan selection from one year to the next, and seven of ten enrollees in stand-alone PDPs did not switch plans over a five-year period. Both the current CMS guidance and the new CMS proposal stem from the principle that available PDPs offered by a given plan sponsor should have “meaningful differences” to help ensure that beneficiaries are presented with a clear and understandable array of choices. The Part D program in 2014 offers the average beneficiary a choice of about 35 PDPs and 20 Medicare Advantage drug plans.

Currently, a plan sponsor may offer up to one plan with the basic Part D benefit as described in statute (or actuarially equivalent to the basic benefit) and two enhanced plans. If two enhanced plans are offered, a sponsor may enhance the benefit through lowering the deductible, cost sharing, or both. The second plan must add substantial coverage in the coverage gap (“doughnut hole”). Current CMS guidance further encourages plan sponsors to eliminate plans attracting few enrollees. Nevertheless, 330 of the 1,169 PDPs in 2014 have fewer than 1,000 enrollees (239 of them with fewer than 500 enrollees) – the level at which CMS encourages sponsors to consolidate smaller plans with another of the sponsor’s plan options.

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The Payment Reform Landscape: Pay-For-Performance

March 4th, 2014
by Suzanne Delbanco

Editor’s note: This is the second post in a Health Affairs Blog series by Catalyst for Payment Reform Executive Director Suzanne Delbanco. Over the coming months, Delbanco will examine how different methods of payment reform are being employed and how well they’re working. The first post in the series provided an overview of payment reform; this post examines pay-for-performance.

One of our core beliefs at Catalyst for Payment Reform (CPR) is that we need to move away from fee-for-service, toward new models that pay for care based on value, not volume. And while our National Scorecard on Payment Reform shows these new payment models are spreading, we still don’t know if they are really delivering the value we hope for — higher-quality care at more affordable prices. So we decided to make 2014 a year “all about the evidence,” taking an in-depth look at different payment reform models and assessing whether they are proving to enhance value. We’re delighted Health Affairs Blog is our partner in this journey. This month we examine pay-for-performance.

What is pay-for-performance? Is it widespread?

A pay-for-performance (P4P) model provides what are typically financial incentives to providers to improve the quality of the care they deliver and/or reduce costs. In CPR’s terminology, pay-for-performance is an “upside only” method of payment reform. The model gives health care providers the chance for a financial upside – such as a bonus — but no added financial risk, or downside. Our 2013 National Scorecard on Payment Reform demonstrated that almost 11 percent of commercial payments are value-oriented; approximately 1.6 percent of commercial payments are fee-for-service with pay-for-performance.

Despite the small portion of dollars flowing through pay-for-performance programs, we know it is a relatively popular model of payment reform. According to a 2010 report issued by the National Conference on State Legislatures (NCSL), an estimated 85 percent of state Medicaid programs were expected to operate some type of pay-for-performance program by 2011. Provisions in the Affordable Care Act expand the amount of pay-for-performance in Medicare as well.

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Arkansas Governor Beebe Talks Private Option At Health Affairs/Kaiser Health News Newsmaker Breakfast

February 24th, 2014
by Chris Fleming

Those who have watched the debate in Washington over the increasing use of Senate filibusters will likely have considerable sympathy for Arkansas Governor Mike Beebe (D), the guest at today’s Health Affairs/Kaiser Health News Newsmaker Breakfast. At least the majority party in the Senate can break a filibuster with 60 out of 100 votes. In […]

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To Pay For Medicare SGR Repeal, Build On Bipartisan Health Care Policy

February 20th, 2014

Something unexpected is happening in Washington. As most eyes track partisan battles over immigration and the Affordable Care Act, key Congressional committees have been quietly advancing truly bipartisan legislation to strengthen Medicare.

Since 2002, an outdated Medicare cost control called the Sustainable Growth Rate (SGR) has repeatedly threatened drastic Medicare provider cuts. After a decade of temporary fixes, SGR repeal appears within reach. A bipartisan, bicameral agreement by key Congressional leaders announced on February 6, 2014 goes a step further by pairing repeal with bipartisan reforms that pay physicians for the quality and value of care they deliver, not the number of tests and procedures they order.

When one of every three health care dollars is wasted on care that does not improve patients’ health, transitioning away from volume-based reimbursement would be momentous. Few policy changes are more fundamental to containing health care costs and protecting the solvency of Medicare.

The challenge in Congress has shifted from getting a bipartisan agreement on new cost controls to paying for the repeal of the old one. The Congressional Budget Office (CBO) estimates the cost of the Senate version of the bipartisan repeal bill at $149 billion over 10 years.

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Paying For A Permanent, Or Semi-Permanent, Medicare Physician Payment Fix

February 14th, 2014
by Mark McClellan

Editor’s note: In addition to Mark McClellan (photo and linked bio above), this post is authored by Keith Fontenot, Alice Rivlin, and Erica Socker. Fontenot is a visiting scholar at the Engelberg Center for Health Care Reform at the Brookings Institution; he served as Associate Director for Health Programs at the Office of Management and Budget, and his three-decade government career included work at OMB, the Centers for Medicare and Medicaid Services, the Congressional Budget Office, and the Social Security Administration. Rivlin is a senior fellow in the Economic Studies Program at Brookings, a visiting professor at the Public Policy Institute of Georgetown University, and the director of the Engelberg Center; she was founding director of CBO, served as OMB director, and was Federal Reserve Vice Chair. Socker is a research associate at Engelberg.

Bipartisanship has reappeared in health care reform. The three major committees with jurisdiction over Medicare policy have come together around a bipartisan, bicameral framework to change the way the Medicare program pays physicians. The reforms move Medicare’s reimbursement of physicians away from fee-for-service, which pays doctors based on the number and intensity of services they provide, toward paying them for producing better care, keeping patients healthy, and lowering overall costs.  We’ve described these reforms in Medicare’s sustainable growth rate (SGR) payment system previously.

But one critical obstacle to enactment remains: Congress must come up with a way to pay for the legislation, which will likely cost around $130 billion to as much as $170 billion. The vast majority of this additional spending would be needed to offset the scheduled payment cuts under the existing SGR formula, which reduces physician payment rates automatically when physician-related Medicare spending exceeds the growth rate of the economy. While the SGR system had a laudable cost-control goal, relying on across-the-board payment cuts has not worked out as planned in practice. Congress has passed short-term patches to delay the cuts in every year since 2002, and the gap between actual Medicare spending and the SGR target spending is now so large that a 24 percent cut in physician payment rates would be required when the latest patch runs out. That deadline is looming again on April 1, so progress on “pay-fors” is needed soon to avoid another patch.

Here, we describe the key costs in the physician payment reform legislation. We then describe ways to pay for these costs that could provide an effective policy and political path forward.  From a policy standpoint, our proposals share the goal of the legislation to promote better care and avoid payment rate cuts. It would be ironic to fund the physician payment reforms intended to move away from fee-for-service payments for physicians simply by cutting payment rates for other health care providers in Medicare.

From a political standpoint, our proposals reinforce the bipartisan goal of better care in Medicare, and they are based on proposals that have had some bipartisan support in the past. Even so, $130 to $170 billion is a big hurdle. Consequently, we also outline a “semi-permanent” physician payment fix as an alternative to yet another short-term SGR patch if bipartisan agreement on how to pay for the costs of the permanent legislation is not possible.

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A Senate GOP Health Reform Proposal: The Burr-Coburn-Hatch Plan

February 12th, 2014
by James Capretta and Joseph Antos

Republican Senators Richard Burr, Tom Coburn, and Orrin Hatch recently released a blueprint for repealing and replacing Obamacare, called the Patient Choice, Affordability, Responsibility, and Empowerment Act, or the Patient CARE Act (PCA). The plan is getting significant attention from supporters and critics alike (including the editorial page of the New York Times) because both sides recognize that it is a serious effort to address the problems in U.S. health care in a manner that is strikingly different from Obamacare. The debate over the merits (or perceived drawbacks) of the PCA proposal was given further impetus by an assessment of its coverage and cost implications from the Center for Health and Economy (H&E), a new think tank headed by former Congressional Budget Office Director Doug Holtz-Eakin (and with a board including several other academics, including Uwe Reinhardt of Princeton University) and devoted to providing independent analytical assessments of major public policy initiatives.

In this short post, we describe the major provisions of the PCA, as we understand them from the descriptive material and conversations with the authors’ staffs. We also offer our views on how to think about the budgetary and coverage implications of the PCA proposal in the context of the estimates produced by H&E.

Major Provisions of the Patient CARE Act (PCA)

Repeal of Obamacare. The starting point for the PCA is repeal of Obamacare in its entirety, with the exception of the law’s Medicare provisions. We do not take the retention of the Medicare provisions from Obamacare as an endorsement of them by the authors. That would be inconsistent with the public record. For instance, Senator Coburn has proposed sweeping reforms of Medicare that differ substantially from the Obamacare Medicare provisions. The retention of the Obamacare Medicare provisions would seem instead to be an acknowledgement that it will be difficult enough politically to enact a sensible reform of the insurance market for the under age-65 population without also having to pass in the same legislation a comprehensive reform of Medicare. A reworking of Medicare is badly needed, of course, but it can be addressed on a separate legislative track from an Obamacare replacement plan.

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The Payment Reform Landscape: Overview

February 6th, 2014
by Suzanne Delbanco

Editor’s note: This is the first post in a Health Affairs Blog series by Catalyst for Payment Reform Executive Director Suzanne Delbanco. Over the coming months, Delbanco will examine how different methods of payment reform are being employed and how well they’re working. This post provides an overview of payment reform; the next post will examine pay for performance.

Fed up with the status quo, large employers, other purchasers, and health plans have been on a steady march to change how we pay for health care, moving away from paying for care based on volume to paying for value. Some of our health plan colleagues have noted that this march has become an “arms race” to see who can achieve the greatest payment reforms most rapidly. In releasing the first-ever National Scorecard on Payment Reform last March, Catalyst for Payment Reform (CPR) started to measure this progress in the private sector, including the prevalence of specific payment methods. The Scorecard revealed what many of us already know—the vast majority of payment (89 percent) is still tied up in fee-for-service and other methods that are agnostic about the quality of care.

Within the 11 percent of payment meeting CPR’s definition of “value-oriented,” the Scorecard found that 43 percent of those payments give providers financial incentives by offering a potential bonus or added payment to support higher quality and more affordable care, such as fee-for-service with shared savings. The other 57 percent of payments put providers at financial risk for their performance if they do not meet certain quality and cost goals, such as bundled payment. A complete breakdown appears in the table below.

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Connected Health And America’s War On Error

February 5th, 2014
by Joseph Smith and Michael Johns

Editor’s note: For more on connected health, see Health Affairs‘ newly published February thematic issue on the subject. The issue was discussed at a Washington DC briefing this morning, keynoted by the new National Coordinator for Health Information Technology, Karen DeSalvo. The Office of the National Coordinator and West Health Institute are cosponsoring a conference tomorrow on developing an interoperable health care system.

recent analysis, the annual losses are worse than any other war in our nation’s history, including the Civil War, World War II and our War on Terror. It is an undeclared “war on error” within our healthcare delivery system. It is the most deadly war we have ever waged, with errors and resultant harm in hospitals contributing to the death of nearly 1,000 people each day in the U.S., potentially more than 400,000 a year.

As with any other war, there is an enormous economic burden. The U.S. spent approximately $2.8 trillion on health care in 2012, with about 30 percent of total health care expenditures attributed to hospital services. That’s just over $800 billion annually, making America’s war on error not only the deadliest, but also the most expensive.

Until now, this war has often been waged in hospitals, where small, poorly outfitted groups of combatants have used simple, unconventional means like prompts for hand washing, autographing surgical sites and implementing ‘no interruption zone’ for medicine preparation – with limited success. But now, new technologies like integrated sensor networks, fully integrated electronic medical records (EMRs), clinical-decision support systems and algorithm-based care, all embedded in smart and learning systems, may finally provide the tools needed to win the war.

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Medicare ACOs: Mixed Initial Results And Cautious Optimism

February 4th, 2014
by David Muhlestein

Editor’s note: For more from David Muhlestein on the accountable care organization landscape, see his recent post “Accountable Care Growth In 2014: A Look Ahead.”

Active followers of health policy have eagerly awaited the outcome of the early Medicare Accountable Care Organizations, which could indicate how the overall accountable care movement is progressing. On January 30, the Centers for Medicare and Medicaid Services released preliminary financial data for the first two rounds of the Medicare Shared Savings Program (MSSP) with mixed results. Of the 114 ACOs in the program, only 54 of the ACOs saved money and only 29 of those saved enough money to receive bonus payments. While the 54 ACOs that saved money accounted for a net savings of $128 million for Medicare, it’s uncertain if those savings were offset by any losses from the remaining organizations. Overall, the results were similar to last year’s Pioneer ACO results.

These preliminary results are interesting but are notably incomplete. There is still much to learn about how individual organizations did, what the overall effect was for the Shared Savings Program and how this will affect the program going forward. There are, though, some key takeaways that can be garnered from this release.

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Maryland’s Bold Experiment In Reversing Fee-For-Service Incentives

January 28th, 2014
by Robert Murray

Fee-for-service (FFS) medicine encourages inappropriate volume growth, but a new experiment in Maryland seeks to turn the incentives upside down. The state, in a Model approved this month by the Centers for Medicare and Medicaid Services (CMS), will transform its hospital rate-setting system from a focus on controlling per-case cost toward population health and the total cost of hospital care per capita.

As the nation’s only all-payer hospital payment system, Maryland affords CMS a unique opportunity to demonstrate that a hospital payment system with properly designed and broadly applicable incentives can generate significant efficiencies.

Since 1977, Maryland’s Health Services Cost Review Commission (HSCRC) has established the rates paid to Maryland acute-care hospitals by both public and private payers. For nearly four decades, Maryland has shown significantly lower per-case cost growth than the rest of the nation, while reimbursing hospitals for uncompensated care and preventing cost-shifting from public to private payers. The Maryland system has rested on FFS financial incentives, however, and has therefore encouraged hospitals to boost volumes while controlling unit costs.

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Maryland’s Triple Aim Roadmap

January 28th, 2014
by Carmela Coyle

In January, the State of Maryland and the Centers for Medicare and Medicaid Services (CMS) signed a historic agreement that, for the first time on a statewide level, provides the framework of a system that can deliver on the elusive Triple Aim of health care — reducing costs, enhancing quality and patient experience, and improving health.

The parameters of the agreement include principles upon which all stakeholders agree. The most important being that quality, not quantity, is what matters. The incentives are no longer to treat conditions, but to treat each person as a whole.

This agreement builds on Maryland’s legacy as a health care pioneer. More than 35 years ago, the state signed its first deal with the federal government to regulate hospital prices through a statewide commission — an “all-payer” system that helped control costs and ensured parity for those in need of care by ensuring that everyone pays the same price for the same service at the same hospital. Now, the state is once again forging a new way forward.

If it is successful, many believe that Maryland’s system could serve as a model for the nation. CMS will work closely with Maryland’s hospitals to ensure that the aggressive quality and financial metrics outlined in the agreement are met. The federal agency is doing so with the firm belief that there truly is a way to deliver better health care and reduce costs for all, and that Maryland’s plan may be the roadmap.

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Examination Of Health Information Technology’s Disappointing Impact Leads Health Affairs 2013 Top-Fifteen List

January 21st, 2014
by Chris Fleming

Years after promises of large gains from health information technology, evidence of the impact of health IT on efficiency and safety remain mixed, Arthur Kellermann and Spencer Jones report in the most-read Health Affairs article of 2013. Achieving health IT’s original promise will require standardized systems that are easier to use and more interoperable, and that provide patients with more control over their health information; providers must re-engineer care systems as well, Kellermann and Jones write. To celebrate the New Year, Health Affairs is making this piece and all the articles on the journal’s 2013 most-read list freely available to all readers for one week.

Second on the 2013 top-fifteen list is a report on 2011 health spending by analysts at the Centers for Medicare and Medicaid Services Office of the Actuary. Every year, Health Affairs publishes a retrospective analysis of National Health Expenditures by the CMS analysts, as well as their health spending projections for the coming decade. In the latest installment in this series, the analysts reported on 2012 health spending in our January 2014 issue and discussed their findings at a Washington DC briefing.

In the third most-read Health Affairs article of 2013, Linda Green and coauthors caution against projecting primary care physician shortages based on simple patient-physician ratios. They argue that increasingly popular strategies — such as the use of teams and nonphysicians, and better information technology and data-sharing — can potentially eliminate projected physician shortages.

The top fifteen articles for 2013 also include studies addressing the impact of states’ opting out of Medicaid expansion, the cost-shifting effects of some workplace wellness programs, and several other topics. The full list appears below. The list is based on online viewing statistics and covers all articles published in 2013.

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Value-Based Pay for Performance: Rewarding Affordability Alongside Quality

January 14th, 2014
by Jill Yegian and Dolores Yanagihara


Since 2001, the Integrated Healthcare Association has served as the convener and lead organization for California’s statewide Pay for Performance (P4P) program. Eight health plans and approximately 200 physician organizations (POs) participate in the program, which covers approximately 9 million Californians enrolled in commercial HMO and POS products. Seven of the plans – Aetna, Anthem Blue Cross, Blue Shield of California, Cigna Healthcare of California, Health Net, UnitedHealthcare, and Western Health Advantage — have paid out over $450 million in incentives through 2012 based on the results, which have shown a steady, incremental improvement in quality metrics over time. Kaiser Permanente physician organizations serving both Northern and Southern California participate in public reporting only.

While the program is widely viewed as a success by its stakeholders and national observers, it became increasingly apparent that a major component of performance was missing: cost. Even as quality performance has improved over time, costs have continued to rise inexorably. Several years ago, P4P participants decided that the program should begin to measure cost and resource use, as well as quality, and we embarked on a challenging path to transition to “Value Based” Pay for Performance. In 2013, one participating health plan fully implemented the new program design; several others are poised to adopt in 2014.

At the core of the new program design is a global view of the cost of care. The price of health care is notoriously opaque, and varies based on who is paying for the care. Unit cost also falls short as a meaningful measure – cutting the cost of a service in half while utilization doubles does not generate savings. We are not alone in focusing on total cost of care – the Institute for Healthcare Improvement and the Institute of Medicine have both released recent reports aimed at measuring key aspects of the Triple Aim, including total cost of care. Health Partners, an integrated delivery system in Minnesota, received National Quality Forum endorsement for their total cost of care measure in January 2012.

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Cracking The Code On Health Care Costs: What The States Can Do

January 7th, 2014
by Raymond Scheppach and John Thomasian

State governments have a unique opportunity to transform the current health care system into one that provides higher-quality care at lower costs. The State Health Care Cost Containment Commission was created to identify how states might use their authorities and policy levers to guide this transformation. The members of the Commission, consisting of two former governors and high-level executives from major national health plans, all shared the same conviction: state governments were much more likely to succeed in lowering the growth rate of health care costs than any federal action in the next few decades. Moreover, the states are well positioned to accelerate the current trend toward integrated, coordinated care organizations that are held accountable for meeting cost management and quality goals.

The goal envisioned by the Commission is straightforward but ambitious: Replace the nation’s reliance on fragmented, fee-for-service care with comprehensive, coordinated care using payment models that hold organizations accountable for cost control and quality gains. Achieving this will take time. There is inertia in the current system and few incentives for changing it. However, the states are in a strong position to achieve meaningful reforms and create the needed incentives with the support of payers, providers, insurers, and consumers. As the nation’s “laboratories of democracy,” states can serve as a proving ground for new approaches that raise the efficiency and value of health care.

The Commission’s report, “Cracking The Code On Health Care Costs,” will be released tomorrow at the National Press Club.

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National Health Spending Growth Remains Low For Fourth Consecutive Year

January 6th, 2014
by Tracy Gnadinger

A new analysis from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS), released today in the January 2014 issue of Health Affairs, estimates that health care spending in the United States grew at a rate of 3.7 percent in 2012 to $2.8 trillion. That level of annual growth is similar to spending growth rates since 2009, which increased between 3.6 percent and 3.8 percent annually. This means that growth during all four years has occurred at the slowest rates ever recorded in the fifty-three-year history of the National Health Expenditure Accounts.

Total health care spending in 2012 grew more slowly than did the gross domestic product (GDP), which means that the share of the economy devoted to health care fell slightly from its 2011 level of 17.3 percent to 17.2 percent in 2012 (these shares reflect a large upward revision to the GDP in July 2013 that caused a corresponding downward revision to the health spending proportion of GDP). Faster growth among some services was partially offset by slower growth in other areas, said Anne B. Martin, an economist in the Office of the Actuary at CMS and lead author of the Health Affairs article.

“The low rates of national health spending growth and relative stability since 2009 primarily reflect the lagged impacts of the recent severe economic recession,” Martin said. “Additionally, 2012 was impacted by the mostly one-time effects of a large number of blockbuster prescription drugs losing patent protection and a Medicare payment reduction to skilled nursing facilities.”

Personal health care spending (health care goods and services), which accounted for 85 percent of total national health spending, increased by 3.9 percent in 2012, 0.4 percentage points faster than in 2011. This uptick in growth was influenced primarily by faster growth in hospital and physician and clinical services. Partially offsetting this acceleration was slower growth in spending for prescription drugs and nursing home care. Spending growth trends among health care payers varied as well in 2012. Medicaid and out-of-pocket spending grew faster in 2012 than in 2011, but growth in private health insurance and Medicare spending was slightly slower.

Although the Affordable Care Act  had a minimal impact on aggregate health spending through 2012, several provisions continued to affect certain subcomponents of national health expenditures, such as increased Medicaid rebates for prescription drugs, the Medicare drug coverage gap (“donut hole”) discount program, coverage for dependents under age twenty-six, and the minimum medical loss ratio provision (which requires insurers to spend a minimum percentage of premium revenue on medical claims and health care quality improvements).

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