1 The Long-Term Financial Outlook for Healthcare and CMS Research Agenda: Searching for Magic Bullets Bill Saunders, Deputy Director Office of Research,

1

The Long-Term Financial Outlook for Healthcare

and CMS’ Research Agenda:Searching for Magic Bullets

Bill Saunders, Deputy DirectorOffice of Research, Development, and Information

Centers for Medicare & Medicaid Services

February 24, 2006

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It’s Important to Be Clear About Objectives…

Today’s Objective The Context – today’s health financing trends and issues Overview of the CMS research program Suggested health financing solutions and related CMS research

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The Magic Bullet - A Philosopher’sStone for Health Financing?

“Health Care Purchase Coalitions were touted by some as a magic bullet …”

“…the preconceived idea that long term care insurance is the magic bullet…”

“The Magic Bullet: How to Achieve Universal Access to High Quality Long-Term Care”

“Searching for the Next Magic Bullet: Examining New Approaches” (June 2003, AcademyHealth conference roundtable)

“Plans for health service reform are no magic bullet fix…” (from Gr. Britain)

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Medicare provides health insurance to 42 million elderly and disabled beneficiaries. More than 43 million low-income persons are enrolled in Medicaid (6 million duals) and 6 million in SCHIP.

The Medicare program spent about $300 billion in 2004 – about 13 percent of the federal budget and about 2.6 percent of GDP.

The Medicaid and SCHIP programs spent about $274 billion – about $162 billion of that in federal dollars.

The Context

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CMS Programs Account for 1/3 of All U.S. Health Spending.

Private Insurance

34%

Other Public1

12% Other Private2

6%

Medicaid and SCHIP15%

Out-of-pocket15%

Medicare17%

1 Other public includes programs such as workers’ compensation, public health activity, Department of Defense, Department of Veterans Affairs, Indian Health Service, and State and local hospital subsidies and school health.2 Other private includes industrial in-plant, privately funded construction, and non-patient revenues, including philanthropy.

Note: Calendar Year 2000. Numbers shown may not sum due to rounding.

Source: CMS, Office of the Actuary, National Health Statistics Group.

Total 2003 National Health Spending = $1.7 Trillion

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Medicaid is the (Second?) Largest Category of State Expenditures …

11.517.1 20.3 19.6 21.4

23.921.4

21.3 22.2 21.7

12.811.5

10.7 11.3 10.85.5 5.1 3.5 2.2 2.23.0 3.5 3.7 3.7 3.56.4

9.4 8.9 8.9 8.2

36.832.1 31.6 32.1 32.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1988 1992 1996 2001 2003

Pe

rce

nt

of

Sta

te S

pe

nd

ing

All Other

Transportation

Corrections

Public Assistance

Higher Ed

Education

Medicaid

Source: National Association of State Budget Officers, 2003 State Expenditure Report.

Medicaid

7

0

5

10

15

20

25

1997

1999

2001

2003

2005

2007

2009

2011

2013

% o

f G

DP

NHE Medicare MC +MA

Overall Health Expenditures are Consuming an Increasing Share of GDP

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The Number of People Medicare Serves Will Nearly Double by 2030

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Long-range projection: Medicare Spending as a percent of GDP

And Long-Range Medicare Projections are for Continuing Growth

Source: Congressional Budget Office

Financial “train

wreck?”

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Role of Health Services Research

A microscope and a telescope. Looks backward and forward. Identifies problems, and develops and tests solutions. Translates findings into useful information for clinical,

management and policy decisions.

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The CMS Research Program

The CMS research program sponsors: Research studies to design, monitor and refine programs

and to foster innovations Development, implementation and evaluation of

demonstrations Program evaluations of various aspects of current CMS

programs The Medicare Current Beneficiary Survey Grant programs to foster capacity-building, or innovation

in State programs. Support for external health researchers who use CMS

data through the Research Data Assistance Center (ResDAC)

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Suggested “Magic Bullets” to Improve Health Care and Reduce Expenditures

Disease management for chronically ill beneficiaries Improving the quality of health care – e.g., pay for

performance systems Health information technology and electronic health

records

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1) DISEASE MANAGEMENT FOR HIGH COST BENEFICIARIES

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Most Medicare Costs in Any Year are Usedby a Small % of All Beneficiaries

50

4

15

24

5

18

5

43

25

11

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Persons $

% o

f Tota

l M

edic

are

Concentration of Medicare Expenditures Among Beneficiaries, 2001

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Characteristics of Medicare High Cost Beneficiaries (2000)

Of the 5% of beneficiaries with the highest expenditures: 36% were 80+ years of age (compared to 24% of other

beneficiaries) 24% died during the year (compared to 4%) 94% had a hospital stay (compared to 16%) 36% had a Medicare SNF stay (compared to 3%) 34% are Medicare/Medicaid dual eligible (compared to

19%) 24% were disabled in 4 – 6 ADLs (compared to 6%) 28% reported 5+ chronic conditions (compared to 12%)

Source: CMS, ORDI: Analysis of 2000 Medicare Current Beneficiary Survey Cost and Use file

16

22

15 16 1511

20

14

710

13

66

0

10

20

30

40

50

60

70

80

90

100

0 1 2 3 4 5+

Annual Medicare Spending Per Beneficiary

Pe

rce

nt

of

Be

ne

fic

iari

es

/ P

erc

en

t o

f S

pe

nd

ing

Percent of Beneficiaries Percent of Spending

Medicare Spending for Beneficiaries with Chronic Conditions

The 20 percent of beneficiaries with 5+ chronic conditions incur 66 percent of Medicare spending

Source: Partnership for Solutions

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But: Challenges to Cost-Effective Chronic Care Management

Predictive Sensitivity: Can we accurately identify in advance which beneficiaries will be high-cost in the future?

Effectiveness: Can a care management program reduce beneficiaries’ health costs? Will the cost of disease management be less than the savings?

Regression to the Mean: Are high-cost beneficiaries in one year also high-cost in subsequent years?

Mortality: If many of the high-cost beneficiaries die during the year, can disease management reduce these beneficiaries costs?

Health Outcomes: Will health outcomes and health status be maintained or improved?

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Can Disease Management Achieve Reductions in Health Costs…

Source: Joyce et al, Health Affairs, Sept 05

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…When Many Persons Only Have High Costs in a Single Year?

0

20

40

60

80

100

120

1996 1997 1998 1999

% o

f B

enefici

aries

Top 25% Bottom 75% Deceased on 1/1/98 Not in FFS

History of Medicare Beneficiaries in the Top 25% in 1997

Source: CBO, “High Cost Medicare Beneficiaries, 2005

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CMS Is Testing Disease Management In Multiple Initiatives

CMS is aggressively implementing demonstrations and pilots testing various disease management approaches to improve patient outcomes and reduce expenditures.

Many of these demonstration sites are required to assume financial risks for reducing Medicare costs.

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Disease Management Demonstrationsand Pilot Programs

Balanced Budget Act (BBA) Coordinated Care Demonstrations - operational

Benefits Improvement and Protection Act (BIPA) Disease Management for the Chronically Ill – operational

Care Management for High Cost Beneficiaries – physician-centered model; early stages

ESRD Disease Management Demonstration – recently started

Medicare Health Support pilot program (Medicare Modernization Act) –population-based model; began fall 2006

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2) Pay-for-Performance Incentives for Improved Quality and Efficiency

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Why Pay for Performance?

Rising costs driving focus toward quality, value

Current system rewards quantity, not quality Private sector initiatives Public sector interest

– Congress– States

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Payment Incentives for Quality(Pay for Performance)

Physician Group Practice (PGP) Demonstration (BBA) – large physician practices; operating since April 2005

Demonstration of Payment Incentives for Hospital Quality (Premier) – hospitals; operating for more than one year

Medicare Care Management Performance Demonstration (MMA s. 649 – small / moderate size physician practices; in development

Health Quality Demonstration (MMA s. 646) – site solicitation issued fall 2005 (physician groups, integrated delivery systems, regional consortia)

Nursing home, home health demonstrations being planned

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Composite Quality Scores in the Premier Hospital P4P Demo Improved in the First year

From 87 percent to 91 percent for patients with acute myocardial infarction (heart attack).

From 65 to 74 percent for patients with heart failure. From 69 percent to 79 percent for patients with

pneumonia. From 85 percent to 90 percent for patients with

coronary artery bypass graft. From 85 percent to 90 percent for patients with hip

and knee replacement.

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In Short…

Medicare is increasing focus on quality Widespread support for P4P, expansion

seems likely Early results show some promise for

improved quality outcomes using P4P

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BUT, Beneficiaries’ Lifetime Medicare Costs are

Relatively Stable Despite Differences in Lifespan

Health Expenditures Per Person From Age 65 till Death

0

100

200

300

400

70 80 90 100

Age at Death

Ave

. Exp

endi

ture

s ($

000) Other

Medicare

Source: Spillman and Lubitz, NEJM, 2000

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So: Will Improved Quality / Health Reduce

Medicare Costs?

Health Expenditures Per Person From Age 65 till Death

0

100

200

300

400

70 80 90 100

Age at Death

Ave

. Exp

endi

ture

s ($

000) Other

Medicare

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Even If Less Disability Means Costs per Beneficiary are Reduced…

Source: Goldman et al, Health Affairs, 2005

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If There Are More Beneficiaries Receiving Care, The Net Medicare Savings May Be Small

Source: Goldman et al, Health Affairs, 2005

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Unless …

Health Expenditures Per Person From Age 65 till Death

0

100

200

300

400

70 80 90 100

Age at Death

Ave

. Exp

endi

ture

s ($

000) Other

Medicare

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3) Adopting Health Information Technology and Electronic Medical

Records

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Goals of HIT

It is believed that broad adoption of electronic medical records can lead to:

Reductions in health care costs Reduced medical errors Improved health

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Possible Savings Have Been Estimated to be as High as $371 billion over 15 years

Source: Hillestad, Health Affairs, Sept/Oct 2005

Projected possible productivity savings

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BUT…

EMR systems are complex—may lead to new types of errors

Implementation will require substantial resources IT investment does not always lead to quick

productivity growth Even if HIT produces improved quality, will total

health expenditures decrease? (Consistent with previous discussion.)

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CMS Initiatives to Encourage Use of HIT

DOQ-IT--a coordinated approach to facilitating the adoption of HIT in the physician office setting; expanded to all Quality Improvement Organization (QIOs).

Medicare Care Management Performance Demonstration – P4P model to encourage small physician practices to use HIT to report quality measures and improve quality (in development)

Medicare Healthcare Quality Demonstration – encourages system wide reform within a community to use existing Medicare payments more effectively (site solicitation has been issued).

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Conclusions

The long-term implications for growth in Medicare and Medicaid expenditures, as well as total health costs, are cause for serious concern.

Many innovative solutions have been proposed. Given the complexities of the U.S. health systems,

the potential of these ideas to achieve savings is uncertain.

CMS is proceeding actively to develop and test new approaches intended to improve health quality and reduce future costs.

Continued development of new ideas is critical.

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Long Term Planning is Crucial

“If we knew what it was we were doing, it would not be called research, would it?”

Albert Einstein

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For More Information

Medicare Demonstrations:http://www.cms.hhs.gov/DemoProjectsEvalRpts/

CMS Chart books and Chart Series:http://www.cms.hhs.gov/TheChartSeries/

Research reports and results:http://www.cms.hhs.gov/Reports/

Medicare and Medicaid statistics:http://www.cms.hhs.gov/home/rsds.asp

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SUMMARIES

OF CMS

MEDICARE

DEMONSTRATIONS AND PILOTS

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Coordinated Care Demonstration

Mandated by Balanced Budget Act (BBA). Testing whether coordinated care programs can improve

medical treatment plans, reduce hospital admissions, and promote desirable outcomes among Medicare beneficiaries with complex chronic conditions.

15 demonstration sites began April 2002. Sites included commercial DM vendors, academic medical centers and other provider based programs that provide case management and disease management services.

To date, sites have enrolled 10,000 Medicare beneficiaries in the intervention and control groups .

Payment is based on a care coordination fee per member per month (PMPM). The applicant is not at risk for any of the Medicare program payments and does not share in any program savings.

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BIPA Disease Management Demonstration

Mandated by Benefits Improvement and Protection Act (BIPA). Testing the the impact on costs and health outcomes of offering

DM services and prescription drug coverage to beneficiaries with advanced-stage congestive heart failure, diabetes, or coronary heart disease.

3 demonstration sites: CorSolutions, Inc. (Louisiana), Diabetex Corporation (Texas); and The HeartPartners Group (California).

Enrollment began in early 2004 and up to 30,000 lives could be covered under the demonstration.

Sites receive a PMPM fee for their services and for the cost of all prescription drugs. The selected organizations must guarantee, either through reinsurance or other means, net savings to the Medicare program.

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End-Stage Renal Disease (ESRD) Disease

Management Demonstration

Will test disease management models to increase quality of care for ESRD patients, reduce costs, and provide ESRD beneficiaries the opportunity to join integrated care systems.

3 sites Began January 2006 A quality incentive payment is included in the

demonstration.

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Care Management for High Cost Beneficiaries Demonstration

First demonstration focused specifically on high-cost beneficiaries. Consists of six 3-year demonstration programs: Tests provider-based intensive care management to improve

quality and reduce costs. Supports collaboration among participants’ primary and specialist

providers to enhance communication of relevant clinical information, increase adherence to evidence-based care, reduce unnecessary hospital stays and emergency room visits, and avoid complications.

Tests a variety of models such as intensive case management, increased provider availability, structured chronic care programs, restructured physician practices, and expanded flexibility in care settings.

Each site must guarantee a net Medicare savings of 5 percent.

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Medicare Health Support

Section 721 of MMA authorized voluntary chronic care improvement pilot programs, to help participants adhere to their physicians’ plans of care and obtain the medical care they need to reduce their health risks.

8(?) health care organizations were chosen through a competitive selection process—some started operations in fall 2005.

Will focus on large fee-for-service populations that are severely impacted by chronic diseases.

The payment is based on a PMPM. Applicants will be at financial risk up to the amount of their DM fee if savings are not achieved.

Phase I of will serve approximately 160,000 Medicare beneficiaries with congestive heart failure and/or complex diabetes.

In Phase II, the Secretary may expand Phase I programs that have proven successful in improving outcomes and meeting Medicare spending targets.

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Physician Group Practice (PGP) Demonstration

Encourages coordination of Part A and Part B services, reward physicians for improving health outcomes, and promote efficiency through investment in administrative structure and process.

10 participating sites – large multi-specialty group practices.

Physician groups will continue to be paid on a fee-for-service basis. This demonstration will pay the physician groups a bonus from savings derived from improvements in the management of patient care and services.

Began operations April 2005.

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Demonstration of Payment Incentives for Hospital Quality (Premier)

Demonstration with Premier Inc. hospitals to improve the quality of inpatient care by giving financial incentives to hospitals for high quality and reporting quality data on the CMS web site.

Quality measures were selected for inpatients with several relevant clinical conditions: AMI, heart failure, pneumonia, and coronary artery bypass graft. The quality measures proposed for the demonstration have an extensive record of validation through research.

Hospitals with highest clinical quality performance (top 10% of hospitals for a given diagnosis) will receive a 2% bonus of their Medicare payments, while hospitals in the second decile will be paid a 1% bonus.

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Doctors Office Quality – IT(DOQ-IT)

Provides assistance to physician offices to facilitate their adoption of HIT, improve quality of care

Four state (CA, MA, AR, UT) pilot project underway (1000 physicians per state).

Comprehensive program aimed at assisting practitioners with practice redesign issues, pre-implementation guidelines, readiness assessment.

Ultimate goal will be to monitor and improve care using evidence-medicine based clinical measure.

Both collaborative and consultative approaches are used.

Principles are being adopted by all QIOs.

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Medicare Care Management Performance (MCMP) Demonstration

Authorized by MMA sec. 649 Focus on smaller offices, 1-10 Drs Provides incentives to primary care physician

practices for quality and IT Under development Scope: 4 states, hundreds of physician’s

offices, both urban and rural

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Healthcare Quality Demonstration

MMA s. 646 mandates 5-year demo to test major changes to improve quality of care while increasing efficiency across an entire health care system.

Sites will identify, develop, and test major and multi-faceted improvements to their local health care system.

Physician groups, integrated delivery systems, and regional health care consortia are eligible to apply.

Sites may propose changes to Medicare payment and benefit structure; must be budget neutral.

Encourages sites to adopt HIT to improve efficiency.