Transforming Healthcare in Massachusetts Incentive Programs and Payment Reform

Robert Mandel, MD, MBAVice President, Health Care ServicesBlue Cross Blue Shield of MassachusettsOctober 2008

Blue Cross Blue Shield of Massachusetts is an Independent Licensee of the Blue Cross and Blue Shield Association

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The Challenge

• The current payment system has created unintended consequences

—Payment system rewards volume and intensity

• It will be a challenge for employers to continue their role in the insurance system if we can't change these dynamics

• Providers who can demonstrate high quality, manage services efficiently, and demonstrate improved patient health will have a competitive advantage

• The health care industry is facing a crisis of increasing costs along with significant issues related to quality and safety of care

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Transformation Vision: 2016

A health care system that provides safe, timely, effective, affordable, patient-centered care for

everyone in Massachusetts.

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Levers of Change

Legislative & Regulatory

Finance & Payment

Information Technology

Public Engagement

Governance

Quality & Safety Measurement

OrganizationalReadiness

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Redefining the Payment Model Through Measures and Incentives

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Leading Thinkers Support a New Provider Payment Model

The Solution:Payment systems that reward both the quality and efficiency of care.

- Karen Davis, President, The Commonwealth Fund (March 2007)

The Problem:The fee-for-service system rewards overuse and duplication of services . . . without rewarding prevention of avoidable hospitalizations, control of chronic conditions, or care coordination.

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Evolution of Performance-based Incentives

First Generation• Cost-based

Measures• 5% Incentive

Next Generation• Decision Support,

Technology, & Outcomes-based Measures

• 15-25% Incentive

Third Generation• HEDIS/Rx/

Satisfaction• 15% Incentive

Second Generation• HEDIS Measures• 15% Incentive

Process Outcomes

Claims-based HEDIS Clinical Outcomes

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Pay-for-Performance Goals

• Collaborate with our Providers to improve systems and processes that prevent medical errors and improve quality of care

• Support our Providers with data that assists them in providing more effective and efficient care

• Increase the amount of provider reimbursement that is linked to incentives (Quality/Safety, Efficiency, Technology Adoption, Reporting/Transparency)

• Evolve the payment methodology over time so that providers are paid differently for providing safe, effective, and efficient care

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Pay-for-Performance Programs An Integrated Approach

Ancillary Incentive Program

– Skilled Nursing Facility

Behavioral Health Fee Differential

– Outcomes ProgramParticipation

Hospital Performance Incentive Program– Hospital Quality– E-Technology

Primary Care PhysicianIncentive Program

Specialist Performance Incentive Programs

– Group-based– Specialty-based

Improved Improved healthcare healthcare

quality, access,quality, access, affordability, and affordability, and

outcomesoutcomes

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Network Provider Participation in Incentive-Based Reimbursement Programs

35%

45%

55%

65%

75%

85%

95%

2005 2006 2007 2008

GoalPCPSCPHospital

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Incentive Programs’ Results

• Paid out over $27 Million in incentive payments to qualifying PCPs for their results in 2007, totaling over $151 Million since 2000

• Payments range from $35,000 to $2.6 million per hospital in 2006* for those HPIP hospitals achieving performance goals; a total of $17.6 Million

• Groups received a total payout of $15.9 million for 2007 performance; an average payout per group of $758,000

• Payout for initial year of SNF incentive program was $900,000

• Results not yet available for Behavioral Health incentive programs.

All 2007 amounts include projected appeals. * Most recent available data

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Performance Over Time on PCPIP Measures

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006

Mam Pap LDL Diab Neph Diab Eye ExamHbA1c Well Baby Well Teen Asthma (comb)

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Performance Pays: Higher Quality, Lower Costs Premier Quality Demonstration Project

Patient Process Measure

Aver

age H

ospi

tal C

osts

$16,000

$14,000

$12,000

$14,493

$13,186

$14,172

Low0% - 50%

Medium51% - 99%

Hospital Costs for Hip Surgery Patients

High100%

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$14,000

$13,000

$12,000

$13,090

$12,388

$12,745

Patient Process Measure

Aver

age H

ospit

al Co

sts

Low0% - 50%

Medium51% - 99%

Hospital Costs for Knee Surgery Patients

High100%

$10,000

$9,000

$8,000

$9,978

$8,351

$8,655

Patient Process MeasureAv

erag

e Hos

pital

Costs

Low0% - 50%

Medium51% - 99%

Hospital Costs for Pneumonia Patients

High100%

$12,000

$10,000

$8,000

$10,113

$8,936

$9,702

Patient Process Measure

Aver

age H

ospit

al Co

sts

Low0% - 49%

Medium50% - 99%

Hospital Costs for AMI Medical Patients

High100%

$50,000

$40,000

$20,000

$41, 539

$30,061

$34, 895

Patient Process Measure

Aver

age H

ospit

al Co

sts

Low0% - 49%

Medium50% - 74%

Hospital Costs for Heart Bypass Surgery

High75% - 100%

$30,000

High100%

$18,948

$40,000

$30,000

$10,000

$30,385

$20,849

Patient Process Measure

Aver

age H

ospit

al Co

sts

Low0% - 49%

Medium50% - 99%

Hospital Costs for AMI Surgical Patients

$20,000

Performance Pays: Higher Quality, Lower Costs Premier Quality Demonstration Project

Patient Process Measure

Aver

age H

ospit

al Co

sts

$16,000

$14,000

$12,000

$14,493

$13,186

$14,172

Low0% - 50%

Medium51% - 99%

Hospital Costs for Hip Surgery Patients

High100%

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A New Approach – An Alternative Quality Contract

• Quality & Total Cost• Provider payments focus on

quality and total cost, decoupling volume and revenue

• Create opportunities for the implementation of alternate care delivery models (email, group visits, etc.) and other innovations

• Integration• Create a payment model

which rewards for managing integration of care delivery across the continuum

• Create a model for providers to clinically and financially center on the patient

•Performance Drivers• Tie performance payments to achieving goals of quality, safety, efficiency, and patient- centeredness

• Work with patients to encourage the appropriate use of services

• Plan Designs• Offer new plan designs that

drive volume to high quality providers

• Provide transparent reporting about performance

• Member Incentives• Create incentives that align

with the end state objectives of improved quality and healthy behavior

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Financial Structure of the Alternative Quality Contract

• Financial structure based on four components:• Global payment

• Based on total medical expenses

• Health status adjusted• Margin Retention

• Initial Global Payment includes inefficiencies

• Performance Incentive• Up to 10% of Total Medical

Expense• Inflation

• Set at general inflationYear 1 Year 2 Year 3 Year 4 Year 5

INITIAL GLOBAL PAYMENT

LEVEL

Expanded Margin Opportunity

Margin Expansion

Inflation

Performance

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Defining Performance Measures For The AQC

• Goal: Measures should collectively advance safe, affordable, effective, patient-centered care

• Principles for selecting measures:• Nationally accepted

• Sufficient variation among providers

• Sufficient data on provider being measured

• Measurement at level (individual, group, hospital, system) that can influence outcome

• Incentives based on established performance thresholds• Rewards for both absolute performance and for performance improvement

• Offers transparency to providers regarding performance priorities and expectations

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Performance Measure Set

• Clinical process measureso Acute MIo Heart Failure careo Pneumonia careo Surgical care

• Clinical outcomes measureso Hospital-acquired infectionso Complications after major surgery (AMI,

PE/DVT, Pneumonia)o Obstetric trauma

• Patient Care Experiences o Communication (MD, nursing staff)o Responsivenesso Discharge support/planning

Hospital Quality and SafetyHospital Quality and Safety Ambulatory Care QualityAmbulatory Care Quality• Clinical process measures

o Depressiono Diabeteso Cardiovascular Diseaseo Cancer Screeningo Pediatric: Appropriate Testing / Treatmento Pediatric: Well Child Visits

• Clinical outcomes measureso Diabetes (HbA1c in poor control, LDL-C

control, blood pressure control)o Hypertension (blood pressure control)o Cardiovascular Disease (blood pressure

control, LDL-C control)• Patient Care Experiences

o Quality of clinical interactionso Integration of careo Access to care

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Performance Achievement Model

Performance Payment Model

2.0%

3.0%

5.0%

9.0%

10.0%

0%

2%

4%

6%

8%

10%

1.0 2.0 3.0 4.0 5.0

Performance Score

% P

ayou

t• An aggregate performance score is calculated based on the provider’s hospital and

ambulatory quality to determine a percentage payout

Example: An aggregate score of 3.0 would yield a 5% payout, which if applied to a global payment of $200 PMPM would yield an additional $10 PMPM for the provider

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• Includes a significant upside potential based on a sophisticated set of measures that address patient safety, appropriateness of care and patient satisfaction

• Global Payment for total medical expenses including primary care, ancillary, behavioral health and pharmacy• Global payment not reset annually

• Providers can retain margins derived from reduction of inefficiencies

• Payment is based on actual regional cost that is health status adjusted to adequately consider relative patient morbidity

• Payment is adjusted annually in line with inflation

How Is this Different from Capitation?

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Questions?