Stuart H. Altman Chaikin Professor of Health Policy Brandeis - PDF document

Limiting Spending Growth: Who Will Control The Healthcare System? Stuart H. Altman Chaikin Professor of Health Policy Brandeis University The Two Handed Economist Will The System Be Dominated By Healthcare Providers (Supply Approach) or Payers and Patients (Demand Approach) 1

Many Provider Groups and Policy Analysts Encouraging “Supply ‐ Side” Approach To Lowering Spending Growth The Key is Moving Away From Fee ‐ for ‐ Service Payments Supply ‐ Side Approach Give Providers The Dominant Role: Lets Them (YOU) Decide How To Spend a Predetermined and Limited Budget 2

Accountable Care Organizations (ACOs) and Bundled Payments • Allow Providers to Decide What is Appropriate Care • Reward Care That is Less Fragmented and Minimizes Duplicative and Wasteful Services • Permit Care Providers To Pay for Services Not Traditionally Considered as Health Care Services Supply Side Approach Requires Either a Capitated (HMO) or “Faux” Capitated Payment System Medicare Pays Claims Using Fee ‐ for ‐ Service but Attributes All Monies Spent for ACO Patients 3

Concerns About Supply Side Approach • Most ACO’s and Bundled Payments Use “Shared Savings” Approach and Not “Fixed Budgets” • Patients Have The Right to Opt Out of ACO’s • Both ACO’s and Bundled Payments are Voluntary • First Generation “Pioneer” ACO’s Thus Far Had Only Limited Success • The Need for Big Systems BUT – Some of Big Systems Have Used Market Power to Extract Higher Prices That Outweigh Efficiency Benefits As an Alternative ‐‐‐ Many Employers and Private Health Plans Supporting Demand Side Approaches Incent Consumers and Payers To Find Lower Cost Providers 4

Fastest Growing Private Insurance Are High Deductible and Preferred Provider (PPO) Plans Most Such Plans Continue To Use Fee ‐ for ‐ Service Payment Systems Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988 ‐ 2012 Conventional HMO PPO POS HDHP/SO 1988 73% 16% 11% 1993 46% 21% 26% 7% 1996 27% 31% 28% 14% 1999 10% 28% 39% 24% 2000 8% 29% 42% 21% 2001 7% 24% 46% 23% 2002 4% 27% 52% 18% 2003 5% 24% 54% 17% 2004 5% 25% 55% 15% 2005 3% 21% 61% 15% 2006 3% 20% 60% 13% 4% 2007 3% 21% 57% 13% 5% 2008 20% 58% 12% 8% 2% 2009 20% 60% 10% 8% 1% 2010 19% 58% 8% 13% 1% 2011 1% 17% 55% 10% 17% 2012 <1% 16% 56% 9% 19% NOTE: Information was not obtained for POS plans in 1988. A portion of the change in plan type enrollment for 2005 is likely attributable to incorporating more recent Census Bureau estimates of the number of state and local government workers and removing federal workers from the weights. See the Survey Design and Methods section from the 2005 Kaiser/HRET Survey of Employer ‐ Sponsored Health Benefits for additional information. SOURCE: Kaiser/HRET Survey of Employer ‐ Sponsored Health Benefits, 1999 ‐ 2012; KPMG Survey of Employer ‐ Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988. 5

Techniques Used By Private Insurance To Lower Spending Growth • Require Patients To Buy High Deductible Health Plans • Increase Use of “Limited” or “Tiered” Networks Based on “Value ‐ Based Criteria • Linking Payments To Lower Priced Providers ‐‐‐ ”Reference Pricing” • Some Using Different Forms of Bundled or Global Payments Will States Play a Role In Promoting a More Efficient Delivery System? 6

Massachusetts First State To Pass Universal Coverage Legislation Commonwealth Has Long History of Expanding Coverage and Regulating Health Spending Brandeis University 13 Initial Reform Legislation Focused on Expanding Health Insurance Coverage Second Phase Focused On Slowing Healthcare Costs (Spending) 7

BUT ‐‐‐ Letting Private Market (Commercial Insurers and Individual Providers) Set Rates Have Lead to Significant Differences in Payment Amounts Serious Concern That Differences Not Always Justified? 15 Relative 2008 BCBSMA Hospital Payment Rates 16 Source: BCBSMA data submitted to the attorney general. Red = teaching hospitals. 8

Massachusetts Establishes a State ‐ Wide Spending Growth Benchmark All Healthcare Spending In State Should Not Grow By More Than State Long ‐ term Growth in Income (3.6%) Massachusetts Statewide Heath Care Spending Targets (All Payer) Bil lio 5.9%/yr ns 3.1%/yr 3.6%/yr 6.2%/yr Source: Author’s calculation based on historical state spending estimates and projected national health spending growth from the CMS Office of the Actuary and targets set forth in Chapter 224. Brandeis University 9

“Health Policy Commission” Set Up To Monitor and Encourage Payers and Providers To Stay Within Spending Limits Health Policy Commission Oversight • Appropriateness of targets • Total spending relative to targets • Individual provider performance – Corrective action plans – Cost and market impact review – Penalize Providers Who Fail to Reform System – Refer Providers Who Use Market Power To Raise Rates to Attorney General Brandeis University 20 10

In Addition ‐‐‐ Commission Oversight (cont.) • Hold annual public hearings • Certify ACO and PCMH • Assist in review of risk ‐ based provider organizations • Establish patient protections and quality oversight Brandeis University 22 11

First Major Test of Commission Review Proposed Merger of Partners Health Care With South Shore and Hallmark Community Hospital Systems and Affiliated Physician Groups. Anti ‐ Trust Enforcement : How Important 12

Hospital mergers are on the rise again 25/37 Insurance markets have become more concentrated, too • More than 400 mergers between 1996 and 2009 • Consolidation taking place within and across geographic markets – More than half of metro areas have an insurer with 50+ percent commercial market share • But insurance exchanges may shake things up – Across the 34 states with federally ‐ facilitated exchanges, 33 new entrants 26/37 13

So what? Bigger could be better – Anti ‐ Trust Economist Believe ‐‐‐ Mergers of competing hospitals lead to higher prices and (likely) lower quality (Gaynor and Town 2012) • Consolidation may also raise price in outpatient settings – Physician services (e.g., Baker et al. 2013) – Dialysis (Cutler, Dafny and Ody 2014) – Insurance mergers also lead to higher premiums but providers may be paid less (Dafny, Duggan and Ramanarayanan 2012) 27/37 So what? Bigger could be better, continued • Some evidence that non ‐ horizontal integration raise prices as well – Independent hospitals acquired by systems outside their market raise price 14 ‐ 18% (Lewis and Pflum 2014) – Price and total spending increases in areas with increases in physician ‐ hospital financial integration (Bundorf et al 2014). 28/37 14

Courts have sided with federal antitrust enforcers in recent years FTC victories in past 6 years: • General ‐ acute care hospital mergers – Inova – Prince William (Virginia) – Rockford – OSF Healthcare (Illinois) – ProMedica – St. Luke’s (Ohio) – Capella ‐ Mercy (Arkansas) • General acute care ‐ specialty hospital mergers – Reading Health System – Surgical Institute of Reading • Physician mergers – St. Luke’s – Saltzer Medical (Idaho) 29/37 ACA Doesn’t Protect Hospitals Against Anti ‐ Trust Enforcement • “In a world that was not governed by the Clayton Act, the best result might be to approve the Acquisition and monitor its outcome to see if the predicted price increases actually occurred. In other words, the Acquisition could serve as a controlled experiment. But the Clayton Act is in full force , and it must be enforced. The Act does not give the Court discretion to set it aside to conduct a health care experiment.” ‐ St. Luke’s decision, Judge Winmill, 1/2014 30/37 15

Efficiency Savings Under ACO or Bundled Payments Can Be Achieved Without Legal Consolidation • Clinical integra � on → fi nancial integra � on • “We reject the proposition that an entity under single control, that is an entity formed through a merger, would be more likely to achieve the three ‐ part aim [of the Shared Savings Program].” ‐ Centers for Medicare and Medicaid Services, Final Rule,11/2011 • E.g., St. Luke’s VP of Payer Relations, formerly of Advocate Health, testified that independent physicians could be financially incentivized to meet specific quality metrics • The ACA does not exempt organizations or collaborations from antitrust laws 31/37 Should Anti ‐ Trust Regulators (Attorney Generals, FTC or U.S. Justice Department Use “Conduct or Behavioral Modification Degrees” 16

So ‐‐‐ What Happened In Massachusetts Partners HealthCare • Established in 1994 With Merger of Mass General and Brigham and Womens Hospitals • Expanded North and West With Purchase of Several Major Community Hospitals ‐‐‐ 13 Hospitals (60,000 Employees) • Controls the Largest Physician Organization in the State ‐‐‐ 6,000 physicians • Negotiated Among the highest Payment Rates in The State 17