California’s Health Care Gamble: Can We Afford the Trend ... · U S Per 1 00 0 Po pula tio n 2 00 3 ... Real -Time Accumulators. Caiifornia Association of Physician Groups Management

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


The Driving Forces

NationalEmployer

SingleSource

PurchasingCalifornia

outnumbered 49:1

Path of LeastResistance

toDeductible

BenefitDesign


What’s the Big Deal?

HMO PPO

The Choice is NOT as simple asthe first-year’s savings


More Than A Product Name

HMO

Organized Care

Prepayment

PPODisaggregated

Care

Fee For ServicePayment

Over-layed CareProcesses

IncreasedServicesIncentive

Embedded CareProcesses

OutcomeIncentive

Efficiency

RewardEfficiencyPenalty


California HMO Premiums remainhighest-value health care purchase

721 792

981

851

2004 Average Family Premium

CA HMOUS HMOCA PPOUS PPO



California HMO Premiums remainhighest-value health care purchase

261 288

374

317

2004 Average Single Premium

CA HMOUS HMOCA PPOUS PPO



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


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


The Pressure Is On

New Technologies

Un-insurance

Gov’t Cost Shift

Hospital Unit Cost

BenefitMandate

s10+%

Pharmacy


Employer Response:The Means and the End

High DeductibleReduce BenefitsSavings Accounts

PPO DesignFFS Payment

Undermine DeliveryModel Performance

Common Wisdom

Chosen Path

Consequences


Inability to Manage Deductibles

HealthPlan

Hospital & RXClaims

MedicalGroup

ProfessionalClaims Simultaneous Transacting

Real-Time Accumulators


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


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


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


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


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


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


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


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


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


Seizing the Opportunity

Co-Insurance BasedBenefit Design

�

Physician Engagement inCost & Quality

�

Effectively LeveragedData & Info Technology

Financing &DeliveryModel

Financing &DeliveryModel

�� Product &BenefitDesign

Product &BenefitDesign


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

Documents

California’s Health Care Gamble: Can We Afford the Trend ... · U S Per 1 00 0 Po pula tio n 2 00 3 ... Real -Time Accumulators. Caiifornia Association of Physician Groups Management