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Restructure Medicare & Medicaid: Economic Factors—Possible Solutions 1) Cost-Sharing * Cost-sharing can help control demand for a portion of healthcare by creating incentives for consumers to shop for most cost-effective treatments (although those benefits would be somewhat mitigated by the skew in health spending toward high users). * Once again, a Math Problem: Consider a routine physician office visit in which a provider suggests and / or patient requests various tests, procedures, etc. Patient #1 covered by a plan with a $20 co-pay (i.e., a flat fee regardless of the level or intensity of care performed during the visit) Patient #2 covered by a plan with a 10% co-insurance for in-network care (i.e., responsible for 10% of the aggregate billed charges) Clearly, patient #2 will become more sensitive to necessity and cost of care beyond a level of $200 of total healthcare services Note that deductibles drive similar dynamic as a co-pay: once the deductible is met, the member has little or no “skin in the game” * Only 14-18% of employer-sponsored health insurance plans use pro-rata cost sharing (i.e. co-insurance in example #2 above). Most (77%) insurance plans only use a co-pay (in example #1), which gives consumers little incentive to shop the most cost-effective treatment path. KP Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009 www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 307 Restructure Medicare & Medicaid: Economic Factors—Possible Solutions 2) Reimbursement Reform Reimbursement reform could help shift drivers of payment from quantity of care to quality of care. The following list provides a few options to consider. * Bundled Payments: Providers get a fixed budget to treat an episode of care (i.e. a broken hip). Exceeding the budget means providers absorb additional costs; staying under it lets provider benefit from savings. Examples: PROMETHEUS Payment System’, Medicare Acute Care Episode Demonstration? * Global payment system® (i.e., capitation): Providers are paid up-front to provide care that their patient receives over a period, incentivizing them to manage costs and quality. This global payment is adjusted periodically to reward accessible and high-quality care. * Pay for performance*: Reimbursement for care providers varies, based on various quality and efficiency measures such as discharge rate and readmission rate. * Accountable Care Organizations (ACOs): Provider groups accept responsibility for the cost and quality of care for a specific population of patients® The recently enacted Patient Protection and Affordable Care Act includes regulations supporting the creation of Accountable Care Organizations Other models often discussed to improve coordination / efficiency and reduce costs : 1) integrated delivery systems; 2) multispecialty group practices; 3) physician-hospital organizations; 4) independent practice associations; 5) virtual physician organizations Source: 1) Cutting Healthcare Costs by Putting Doctors on a Budget, Time 1) Adopted in Rockford, iL in Jan 2010 2) Medicare Demonstration Project Overviews, www.cms.gov/demoprojects 3) Recommendations of the Special Commission on the Healthcare Payment, Commonwealth of Massachusetts 4) Pay for Performance incentive Programs in Healthcare , Geoffrey Baker 5) How the Center for Medicare & Medicaid Innovation Should Test Accountable Care KP Organizations, Stephen Shortell, Lawrence P. Casalino and Elliott S. Fisher for Health Affairs, July 2010 (@ EB) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 308 HOUSE_OVERSIGHT_020995