Medical Spending Control: The Massachusetts Setting David M. Cutler Department of Economics Harvard University July 16, 2012
The Setting 1. Successful coverage expansion, 2006 ▪ 98%+ coverage ▪ Costs about what was expected ▪ Overwhelming public support ▪ Enormous pride |
2. High and rising costs are a lingering issue Ratio of per capita medical spending: MA / US 1.4 1.3 1.2 1.1 1.0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 |
Spending has crowded out every part of the state budget . MASSACHUSETTS STATE BUDGET, FY2001 VS. FY2011 STATE SPENDING (BILLIONS OF DOLLARS) FY2001 FY2011 $16 +$5.1 B -$4.0 B $14 (+59%) (-20%) $12 $10 -15% $8 $6 -13% -11% $4 -23% -50% -33% -38% $2 $0 Health Care Coverage Public Mental Education Infrastructure/ Human Local Public (State Employees/GIC; Health Health Housing Services Aid Safety Medicaid/Health Reform) SOURCE: Massachusetts Budget and Policy Center Budget Browser. 4 |
3. A history of global payment efforts • 2009, Special Commission “The Special Commission recommends that global payments with adjustments to reward provision of accessible and high quality care become the predominant form of payment to providers in Massachusetts within a period of five years.” ▪ Blue Cross Blue Shield Alternative Quality Contract (2009) |
The AQC is having an effect Source: Song et al., Health Affairs , 2012 |
4. Best guess: 1/3 of medical spending is unnecessary Estimates of excessive spending in medical care Category Amount % of total Poor care delivery Unnecessary services $192 billion 7% Failures of care delivery $128 billion 5% Failures of care coordination $35 billion 1% $248 billion 9% Excessive prices $131 billion 5% Administrative costs $177 billion 7% Fraud and abuse Total $910 billion 34% Source: Berwick and Hackbarth, JAMA , 2012. |
The Prices Paid to Providers for Delivering the Same Services Vary Enormously HOSPITAL-SPECIFIC SEVERITY-ADJUSTED PRICE VARIATION FOR SELECTED PROCEDURES IN MASSACHUSETTS $27,342 Prices can vary $25,284 enormously, even for $23,599 common services unlikely to be affected $20,141 $19,059 $20,010 by patient sickness or HIP JOINT REPLACEMENT complexity. Prices at $14,309 the highest-paid $14,153 $11,889 PNEUMONIA KNEE providers can be more TREATMENT JOINT INTENSITY $9,225 REPLACEMENT MODULATED than 10 times as much $9,684 TREATMENT $8,466 DELIVERY as prices at the lowest- ACUTE $7,261 $6,185 (RADIATION MYOCARDIAL COMPUTED ONCOLOGY) $6,141 INFARCTION TOMOGRAPHY, paid providers. $5,524 $4,647 $3,457 PELVIS APPENDECTOMY $2,570 $3,430 MAMMOGRAM $1,797 $1,400 $509 VAGINAL $1,204 $695 $264 DELIVERY $339 $425 $316 $93 COLONOSCOPY NOTE: Includes only hospitals with at least 30 discharges. SOURCE: Massachusetts Division of Health Care Finance and Policy, “Massachusetts Health Care Cost Trends: Price Variation in Health Care Services,” May 2011. 8 |
Examples of cost savings Annual Projected Type of Specific cost national Provider care problem Intervention savings savings Kaiser Primary Wasted visits EHR $500 m $7 bn care Mayo clinic Primary Specialist Team --- --- care consultations approach Geisinger Acute CABG ProvenCare 5% of $400 m hospital Inter- Acute Pre-term Collaborative $50 m $4 b mountain births Virginia Acute Back surgery Collaborative $1.7 m $45 b Mason |
WHAT DOES ONE DO? |
The goal: slow down cost increases Approximate Benchmark magnitude Premiums 8.0% Forecast medical spending per capita 5.5% - 6.0% Forecast GSP per capita 4.0% Inflation rate 2.0% |
Medical spending with and without reform $160 Current $135 $110 $85 $60 2012 2014 2016 2018 2020 2022 2024 |
Medical spending with and without reform $160 Current $135 $110 With reform $85 $60 2012 2014 2016 2018 2020 2022 2024 |
Consensus in MA Perceived Statement accuracy About one-third of medical spending is not necessary A- We can squeeze out this waste in {5, 10, 15} years C A very important step in reducing waste is: Payment reform A ‘Smarter’ cost sharing for individuals B+ Administrative simplification B Rate regulation C Malpractice reform C |
Consensus in MA Perceived Statement accuracy About one-third of medical spending is not necessary A- We can squeeze out this waste in {5, 10, 15} years C A very important step in reducing waste is: A Payment reform ‘ Smarter’ cost sharing for individuals B+ Administrative simplification B C Rate regulation Malpractice reform C |
1. Invigorated demand side • Dissemination of price, quality information Require this in legislation • Tiering / sensitive cost sharing for more expensive care Already required in legislation and doing well. |
2. Supply side – payment reform • Move to bundled payments for all payers, with a residual FFS vs. the reverse now ▪ Either episode-based payments or global payment Require this in legislation; need Medicare waiver or Innovation Center demonstration |
Current Fee ‐ for ‐ Service Patient ‐ Centered Global Payment System Payment System The Problem The Solution Care is fragmented instead of Global payments made to a group of coordinated. Each provider is paid for providers for all care. Providers are not doing work in isolation, and no one is rewarded for delivering more care, but responsible for coordinating care. Quality for delivering the right care to meet can suffer, costs rise and there is little patient’s needs. accountability for either. $ $ $ $ $ Primary Care Hospital Specialist Home Health Hospital Specialist Primary Home Care Health |
Other components 3. Medical malpractice: less litigation 4. Administrative simplification ▪ Build on our efforts through NEHEN |
How long does it take to save one-third? Overall impact Prevention; Pat. engagement Process redesign Eliminating errors Administrative savings Changes within Change in site institutions of care Timeliness of action |
The goal: slow down cost increases Approximate Benchmark magnitude Premiums 8.0% Forecast medical spending per capita 5.5% - 6.0% Forecast GSP per capita 4.0% Inflation rate 2.0% GOAL: By 3 years Potential GSP (+/- .5%) After 13 years Potential GSP (maybe + 1%) |
The target • Legislation is likely to have a target growth rate. Board to monitor growth and determine explanations • What if the target is not met? Action plan required Possible changes to payment methodologies No sentiment for rate regulation |
Medical Spending With and Without Reform ($ billion) $160 $144 Current $135 Billions of dollars $114 $106 $110 With reform $93 $85 $80 $68 $76 $60 2012 2014 2016 2018 2020 2022 2024 The savings will be over $160 billion in the first 15 years. |
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