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Financing LTSS:Health Care Reform Issues

Mark McClellan, MD, PhDDirector, Engelberg Center for Health Care Reform

Senior Fellow, Economic StudiesLeonard D. Schaeffer Chair in Health Policy Studies

Brookings Institution

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Topics

• Budget and Health Care Fundamentals

• Health Care Reform Options: Traditional Cost Control vs Financial Alignment

• Connecting LTSS Support to Health Care Reform

3Source: 2011 CBO Long-Term Budget Outlook

Spending on health care driving federal deficits

0

5

10

15

20

25

30

19

70

19

74

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78

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82

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86

19

90

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94

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98

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02

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06

20

10

20

14

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18

20

22

20

26

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30

20

34

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38

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42

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46

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50

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54

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58

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62

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66

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70

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74

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78

20

82

20

86

% o

f G

DP

Fiscal Year

CBO Long-Term Federal Spending Projections as a Percentage of GDP, Extended Baseline Scenario, 1970-2087

Medicare, Medicaid, CHIP, and Exchange Subsidies Outlays

Social Security Outlays

Other Noninterest Outlays

Source: Congressional Budget Office, June 2011 and June 2012 Long-Term Budget Outlook.

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Unprecedented slowdown in Medicare spending growth required under current law

Growth and Projected Growth in Per Capita Medicare Spending in Excess of Economic Growth*

Period Excess Rate of Spending Growth (% points)

1975-2007 2.4

1980-2007 2.2

1985-2007 1.4

1990-2007 1.6

2012-2021 -0.4

2020-2021 0.8

*Data are from the CBO Long-Term Budget Outlook 2011. Excess rate of spending growth measures the amount by which health spending per person exceeds GDP per capita, with adjustment for demographic factors such as the aging of the population.

Never achieved before

• Assumes physician payment reductions (SGR) and slowdowns in payment growth in ACA remain in effect

• If current law is maintained, the Independent Payment Advisory Board may not be important

• Doesn’t include recent savings proposals

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Medicare Reform Options:“Traditional” Payment Reductions Don’t Help LTSS• Reduce payments in traditional Medicare

– Part B and Part D drugs– SNFs, home health, and other providers

• Subsidy Reductions– Across the board (eligibility age increase, higher share of B/D

premiums)– Income-related (not that much money)

• Medigap and Copay Reforms

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Addressing Health Care Cost Challenges

• Traditional Approach (Balanced Budget Act of 1997, “scored" $716B health care savings in Affordable Care Act)• Squeeze payment rates - lower margin per service• Leads to reduction in costs per service but also cost shifting,

increased volume, increased intensity, quality and access issues

• Continued tightening of Part B/Medicaid drug pricing, specialty service reimbursement

• Continued obstacles to coverage of valuable but poorly-reimbursed services

• Alternative Approach: Reform care with aligned financing• Identify ways to reduce overall costs while improving outcomes• Reform financing to support care reforms – with accountability

for better results, lower costs• Delivery reform + supporting financial reform

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Opportunities for real health care reform

Prevention

Management of chronic diseases and care coordination to prevent complications and avoidable costs

Management of advanced disease to achieve better patient experience

Personalized medicine: patient-focused support, based on targeting treatments to the individual patients for whom they work best – not traditional health care delivery

… Not easy to achieve real reforms in health care delivery

…. Policy changes can help improve care – and LTSS

Changes in health care delivery to improve health and lower costs:

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Infrastructure: Better Electronic Data, Measures of Quality and Cost, Evidence

Provider Payment Reform

Benefit Reform

Insurance Choice Reform

“Bending the Curve” While Improving Value

Full-text available at: http://www.brookings.edu/health

Includes:• Additional context• Specific sub-

recommendations• Breakdown of legislative vs.

regulatory actions

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Measurement of quality and cost enables support for valuable reforms in health care delivery: pay more for measurably better care, lower costs

Shared savings, shared risk, and redirection of payments to accountable care

ACA encourages Medicare to adopt a range of accountable care reforms – following private-sector initiatives

Reform payments based on value: accountable care

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ACO implementation accelerating across the country

{Not exhaustive}

ACO implementation is now accelerating across the country

*More than 350 self-identified ACOs*

Private Sector

= Beacon Communities= PGP Transition, MHCQ

Public Sector

= Pioneer

= MSSP

= Private Sector ACO’s

= *195 new ACOs participating in the MSSP

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Moving forward: alignment across payment reforms

Medical Homes for Primary Care

• Supports care coord, prevention, chronic disease mgmt, and other key primary-care activities

• Rewards reductions in primary care-related cost trends

Payment Bundling for Specialty/Intensive Care and Postacute

Care• “Specialty home” or

episode payments for specialty services

• Combine payments across providers/ settings to promote coordination

Accountable Care (System-wide)• Reimburses population-level improvements in

quality and overall per-capita costs• Encourages coordination across the continuum of

care• Can reinforce/ support “piecewise” accountable-

care reforms

• Common core performance measures across reforms and a rapid but feasible pathway for improving measures and the underlying outcomes of care

• Timely and consistent methods for sharing underlying data with providers to improve performance

• Evolve and integrate rapid evaluation methods based on common measures

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Review of current-law Medicaid reform for dual-eligible beneficiaries

CMS has outlined 3-year demos for states to test coordinated delivery and payment models for duals

1. Capitated Integration Model: three-way contract between state, CMS and health plan – Plan would receive blended

prospective payment to provide a comprehensive set of services

– Allows passive enrollment with opt-out available on month-to-month basis

2. FFS Integrated Model: states would be responsible for duals’ care coordination in return states would be eligible for retrospective performance payment if quality and cost targets are met

State proposals for launch in 2013 (3) or 2014 (16)

E.g. Massachusetts proposal:• Fully-integrates the delivery and financing of

Medicare and Medicaid services for dual-eligibles ages 21-64

• Uses combined Medicare and Medicaid funding to contract with Integrated Care Organizations (ICOs)–ICOs receive blended prospective

payments to provide integrated, comprehensive care for duals under are 65

• ICOs will contract with providers functioning as PCHMs and arrange for all covered hospital, specialty and LTSS

• Enrollment will be voluntary and facilitated by neutral enrollment brokers

• Eligible members will have wide choice of ICOs and ability to change plans or opt out at any time

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Reform benefits for greater value

Medicare Part D Experience

• Broad range of benefit design and coverage options allowed (subject to minimum standards for “actuarial equivalence”)

• Comparative cost and quality information available

• Fixed subsidies based on income and health status: strong incentives for beneficiaries to choose lower-cost plans that met their needs

• Steps to address adverse selection: subsidies; risk adjustment; reinsurance; risk corridors; late enrollment penalties

• Around 40% lower costs than projected• Beneficiaries chose “tiered” benefits

that enabled much more savings based on their drug choices, not traditional Medicare insurance design

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Reform benefits for greater value

Medicare Part D “Exchange” Experience

• Broad range of benefit design and coverage options allowed (subject to minimum standards for “actuarial equivalence”)

• Comparative cost and quality information available

• Fixed subsidies based on income and health status: strong incentives for beneficiaries to choose lower-cost plans that met their needs

• Steps to address adverse selection: subsidies; risk adjustment; reinsurance; risk corridors; late enrollment penalties

• 45% lower costs than projected• Beneficiaries chose “tiered” benefits

that enabled much more savings based on their drug choices, not traditional Medicare insurance design

Implications for Health Care Reform

• More attention to steps to address adverse selection, especially without strong mandate

• Expect more comprehensive application of benefit tiers, and more changes in behavior

• Opportunities to align payment and benefit reform

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Medicare Reform Options: Defined Contributions?

• Key issues:• Support/defined contribution level: based on average plan cost?

low-cost plan? Traditional Medicare?• Indexing: with health care costs? GDP? Inflation?

• Similar approaches in other programs?• ACA exchange subsidies: defined contributions based on second

least-expensive plan• Medicaid capitated contracts?

• Supporting steps• Meaningful price transparency: comparable information on

premiums, total out-of-pocket payments for common services• Comparable quality measures matched to price measures• Flexibility with minimum standards in benefit design• Addressing adverse selection

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Implications for LTSS Financing Reform

• Movement in health care financing away from FFS and toward person-level payments tied to quality likely to be helpful for LTSS financial support, diminishing pressures to reduce LTSS rates and shift costs

• Need relevant performance measures for LTSS impact (e.g.,patient functional outcomes, caregiver experience measures)

• Risk adjustment, other steps to address adverse selection (diminishes LTSS insurance market problems)

• LTSS Financing Ideas Can Align with Health Care Reform• Needs-based LTSS payments (i.e., risk-adjusted perdiem

payments as in CLASS) or personal savings could complement reformed health care financing and delivery

• Better LTSS performance measures could improve competition and reduce costs in providing LTSS