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California’s Health Care Gamble: CanWe Afford the Trend Toward PPO?
Donald CranePresident and Chief Executive Officer
August 23, 2005
Caiifornia Association of Physician Groups
The Market Share Shift Has Begun
54
52
50
25
30
29
36
21
16
17
12
542001
2002
2003
2004
HMOPPOPOSIdemnity
Source: California Health Care Foundation
Caiifornia Association of Physician Groups
The Driving Forces
NationalEmployer
SingleSource
PurchasingCalifornia
outnumbered 49:1
Path of LeastResistance
toDeductible
BenefitDesign
Caiifornia Association of Physician Groups
What’s the Big Deal?
HMO PPO
The Choice is NOT as simple asthe first-year’s savings
Caiifornia Association of Physician Groups
More Than A Product Name
HMO
Organized Care
Prepayment
PPODisaggregated
Care
Fee For ServicePayment
Over-layed CareProcesses
IncreasedServicesIncentive
Embedded CareProcesses
OutcomeIncentive
Efficiency
RewardEfficiencyPenalty
Caiifornia Association of Physician Groups
California HMO Premiums remainhighest-value health care purchase
721 792
981
851
2004 Average Family Premium
CA HMOUS HMOCA PPOUS PPO
Source: California Health Care Foundation
Caiifornia Association of Physician Groups
California HMO Premiums remainhighest-value health care purchase
261 288
374
317
2004 Average Single Premium
CA HMOUS HMOCA PPOUS PPO
Source: California Health Care Foundation
Caiifornia Association of Physician Groups
CA Results in Hospital Use Rates AreSuperior to National Rates
289
382
98120
531
683
ER Use/K Admit/K Days/K
CAUS
Per 1000Population
2003
Source: Kaiser Family Foundation
Caiifornia Association of Physician Groups
Hospital LOS Management is Material Driverof Results – Particular in Medical Admissions
3.94.3
3.7
5.5
4.5
5.6
All Admissions CHF Pnuemonia
OrganizedNon-Organized
Source: OSHPD Inpatient Discharge Databases 2003
2003
Caiifornia Association of Physician Groups
The Pressure Is On
New Technologies
Un-insurance
Gov’t Cost Shift
Hospital Unit Cost
BenefitMandate
s10+%
Pharmacy
Caiifornia Association of Physician Groups
Employer Response:The Means and the End
High DeductibleReduce BenefitsSavings Accounts
PPO DesignFFS Payment
Undermine DeliveryModel Performance
Common Wisdom
Chosen Path
Consequences
Caiifornia Association of Physician Groups
Inability to Manage Deductibles
HealthPlan
Hospital & RXClaims
MedicalGroup
ProfessionalClaims Simultaneous Transacting
Real-Time Accumulators
Caiifornia Association of Physician Groups
Management Principles At Work inOrganized Delivery Systems
ROI MentalityStrategic ResourceAllocation
Organized toOptimize the Whole
Data Driven
Staff Recruitmentand Teamwork
Incent ImprovementOrganizational → Individual
LeverageTechnology &
Volume
Copyright © 2005 CAPG
What Gets Lost in the Shift?
ROI MentalityStrategic ResourceAllocation
Organized toOptimize the Whole
Data Driven
Staff Recruitment
Incent ImprovementOrganizational → Individual
LeverageTechnology &
Volume
Copyright © 2005 CAPG
Optimizing Technology
Stan
d-A
lone
Off
ice
AutomationRecord Keeping/Transacting
Inte
grat
ed N
etw
ork
Leverage CommunicationsEMR → EHRRegistries
Clinical Team Communication
Administrative vs Cost and Quality Improvement
Copyright © 2005 CAPG
Pay for PerformanceSystemic Quality Improvement
112 MedicalGroups
�
40,000Physicians
First Year Results
$250 MillionTotal Avoidable Costs
15,000-26,000- Blood Pressure
6,900-17,000- Heart Disease
4,300-9,600- Diabetes
800-1000- Asthma
Avoidable DeathsDisease Management
18,000- Diabetes Testing
10,000- Childhood Immunizations
150,000- Cervical Cancer Screening
135,000- Breast Cancer Screening
Increase ofPrevention
Copyright © 2005 CAPG
Can’t the Plan do it?
Medical GroupsMedical Groups
Stand-AloneInpatient Services
Engages MemberBut Not Physician
Large NetworksDiffuse Volume
Hospitalist
DiseaseMgmt
Contracting
Integrated with allCare Delivery
Engages MembersAnd Physicians
Service-SpecificLeveraged Volume
Health PlansHealth Plans
Caiifornia Association of Physician Groups
Reality Not Threat: Cost Increases
50% of Members selected a Clinic that changed from PhysicianCapitation to Fee-For-Service on 1-1-2004
+47%+126%+612%-32%-4%% Change
$3,924,263$674,616$1,795,638$1,454,0093,1273/04 – 12/04
$2,675,248$298,491$252,180$2,124,5773,2603/03 – 12/03
MembersCovered
Total M.D.Capitation& Claims
OutpatientFFS
Claims*
PhysicianFFS
Claims
PhysicianCapitation
10-MonthExperience
Periods
* Includes diagnostic x-ray and lab outpatient surgery. Barney & Barney
Caiifornia Association of Physician Groups
The Incomplete Economics
• Deductible-based plans were the norm in the1980’s when trend topped 20% - what will bedifferent?
• The care requiring most management – andmost patient engagement – occurs AFTER thefirst $1000 is spent
• Physicians control up to 87% of healthspending. Current options only incentivizeincreased spending
Caiifornia Association of Physician Groups
Consequences: DisproportionalEffect
• Disproportionatelyaffects low wage-earning employees– resulting inunder-care
• Effects of under-care ultimatelycost the systemmore
16%
15%
17%
AllCA
23%Did not followmedical advice
20%Did not visit
doctor for knowncondition
24%Did not obtain a
preventive service
Income<25,000
Because ofCost…
2004*
*Source: California Health Care Foundation
Caiifornia Association of Physician Groups
Eventual Increase in EmployerTrend
10% Trend Increase
$2,200+10%
$2,300+15%
$2,000Benefit-$1,000$3,000
Year One
-$1,100-$1,000Deductible$3,300$3,300
Per PersonMedical Costs
Option BOption AYear Two
Employee Share or
Trend?
Barney & Barney
Caiifornia Association of Physician Groups
Can We Afford the Migration?
$8.5 Billion$8.5 BillionPer YearPer Year
14,000,000 Californians in
Commercial HMOs
X
$609 per year = $8,526,000,000
Per Person Per Month CA HMO Costs: $259.25
Per Person Per Month US PPO Costs: $310.00
Difference: $50.75/mo → $609/yr
Copyright © 2005 CAPG
Seizing the Opportunity
Co-Insurance BasedBenefit Design
�
Physician Engagement inCost & Quality
�
Effectively LeveragedData & Info Technology
Financing &DeliveryModel
Financing &DeliveryModel
�� Product &BenefitDesign
Product &BenefitDesign
Copyright © 2005 CAPG
Long Term Success RequiresAlignment on Direction
Co-insurance to engage in long-term care financing
Radical RX design
Incentives for• Achieving Disease Management
Goals• Healthy Lifestyles• Selecting of high-performing
provider• Avoidance of poor-performing
providers
Consumers ProvidersCost & QualityCost & Quality
IncentivesIncentives
Prepayment for overall costmanagement
Reward for total health carecost/outcome management
Incentives for• Prevention• Technology• Promotion of Healthy Lifestyles• Performance in Disease
Management• Demonstrated Improved
Outcomes
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