Cost Containment and the Patient Protection and Affordable Care Act FIU LAW REVIEW SYMPOSIUM November 12, 2010 David Orentlicher, MD, JD Visiting Professor.

Cost Containment and the Patient Protection and

Affordable Care ActFIU LAW REVIEW SYMPOSIUMFIU LAW REVIEW SYMPOSIUM

November 12, 2010November 12, 2010

David Orentlicher, MD, JDDavid Orentlicher, MD, JDVisiting Professor of LawVisiting Professor of Law

University of Iowa College of LawUniversity of Iowa College of LawSamuel R. Rosen ProfessorSamuel R. Rosen Professor

Indiana University School of Law-IndianapolisIndiana University School of Law-Indianapolis

On one handOn one hand

The legislation “puts into place The legislation “puts into place virtually every cost-control reform virtually every cost-control reform proposed by physicians, economists, proposed by physicians, economists, and health policy experts.”and health policy experts.” Orszag & Emanuel, NEJM (2010)Orszag & Emanuel, NEJM (2010)

On the other handOn the other hand

"The job of figuring how to cover "The job of figuring how to cover uninsured people used up all the uninsured people used up all the political oxygen that was available. political oxygen that was available. They didn't have the energy for They didn't have the energy for costs." costs." Alan Sager, quoted by McClatchy-Alan Sager, quoted by McClatchy-

Tribune News Service, April 1, 2010Tribune News Service, April 1, 2010

Cost containmentCost containment

Outline of today’s presentationOutline of today’s presentation The cost problemThe cost problem Is PPACA the solution?Is PPACA the solution?

Cost containmentCost containment

Outline of today’s presentationOutline of today’s presentation The cost problemThe cost problem Is PPACA the solution?Is PPACA the solution?

The highest spending The highest spending countrycountry

Health care spending in economically-Health care spending in economically-advanced democraciesadvanced democraciesUSUS $7,290/capita $7,290/capita 16% of GDP 16% of GDP

SwitzerlandSwitzerland 61% of US 61% of US 67% of US 67% of US

CanadaCanada 53% of US 53% of US 63% of US 63% of US

GermanyGermany 49% of US 49% of US 65% of US 65% of US

JapanJapan 35% of US 35% of US 51% of US 51% of US

New ZealandNew Zealand 34% of US 34% of US 57% of US 57% of US OECD Health Data 2009 (2007 data except OECD Health Data 2009 (2007 data except

2006 for Japan)2006 for Japan)

The cost problemThe cost problem

What do we get for our What do we get for our money?money?

Infant mortality per 1,000 Infant mortality per 1,000 birthsbirths

OECD, 2006

Quality of careQuality of care Breast cancer, 5-year survival rateBreast cancer, 5-year survival rate

US-90.5%, Canada-87.1%, Japan-86.1%, France-US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%, UK -77.9%82.8%, UK -77.9%

Colon cancer, 5-year survival rateColon cancer, 5-year survival rate Japan-67.3%, US-65.5%, Canada-60.7%, France-Japan-67.3%, US-65.5%, Canada-60.7%, France-

57.1%, UK-50.7%57.1%, UK-50.7% Asthma hospitalization rate (per 100,000 pop.)Asthma hospitalization rate (per 100,000 pop.)

US-120, UK-75, Japan-58, France-43, Canada-18US-120, UK-75, Japan-58, France-43, Canada-18 Diabetes hospitalization rate (per 100,000 Diabetes hospitalization rate (per 100,000

pop.)pop.) US-57, UK-32, Canada-23, Germany-14, Italy-11US-57, UK-32, Canada-23, Germany-14, Italy-11

Mark Pearson, OECD, U.S. Senate Testimony (2009)Mark Pearson, OECD, U.S. Senate Testimony (2009)

Inadequate return on our Inadequate return on our health care $health care $

US health system is less efficient than US health system is less efficient than systems in:systems in: Spain, France, Germany, Austria, ItalySpain, France, Germany, Austria, Italy UK, Denmark, NorwayUK, Denmark, Norway Japan, China, AustraliaJapan, China, Australia Canada, Mexico, Colombia, VenezuelaCanada, Mexico, Colombia, Venezuela

Evans, et al., 323 BMJ 307 (2001)Evans, et al., 323 BMJ 307 (2001)

US patients treated in higher-cost US patients treated in higher-cost communities have similar outcomes to communities have similar outcomes to US patients in lower-cost communitiesUS patients in lower-cost communities

Inadequate return on our Inadequate return on our health care $health care $

Not because we’re less healthyNot because we’re less healthy We’re less likely to smoke, we drink We’re less likely to smoke, we drink

less, and we’re younger than people in less, and we’re younger than people in other economically-developed countriesother economically-developed countries

We’re more obese and overall less We’re more obese and overall less healthy, but this is only a small part of healthy, but this is only a small part of our health care costsour health care costs McKinsey & Company McKinsey & Company studystudy found that found that

“disease burden” adds “disease burden” adds $25 billion$25 billion in in health care costs for treatment of disease health care costs for treatment of disease (out of $2.5 trillion in health care spending)(out of $2.5 trillion in health care spending)

Why are costs higher in the Why are costs higher in the US?US?

Higher prices in USHigher prices in US

Costs are higher in US in large part Costs are higher in US in large part because prices for health care services because prices for health care services are higherare higher On the buyer side, governments in single-On the buyer side, governments in single-

payer systems can bargain more effectively payer systems can bargain more effectively than can US insurance companies with than can US insurance companies with doctors, hospitals and pharmaceutical doctors, hospitals and pharmaceutical companiescompanies

On the seller side, hospital mergers have led On the seller side, hospital mergers have led to greater negotiating leverage with to greater negotiating leverage with insurers insurers

Peterson & Burton, Congressional Research Service (2007)Peterson & Burton, Congressional Research Service (2007)

Higher volume in US--greater use Higher volume in US--greater use of surgical procedures and of surgical procedures and expensive diagnostic testsexpensive diagnostic tests

More procedures to treat blocked coronary More procedures to treat blocked coronary arteries (2 x OECD avg.), more knee replacements arteries (2 x OECD avg.), more knee replacements (1.5 x OCED avg.), and more cesarean sections (1.5 x OCED avg.), and more cesarean sections (1.25 x OECD avg.)(1.25 x OECD avg.) Increase in outpatient surgery centers very Increase in outpatient surgery centers very

importantimportant More MRI exams (> 2 x OECD avg.) and more CT More MRI exams (> 2 x OECD avg.) and more CT

exams (> 2 x OECD avg.)exams (> 2 x OECD avg.) High ratio of specialists to primary care physiciansHigh ratio of specialists to primary care physicians

US patients more likely to be hospitalized for US patients more likely to be hospitalized for conditions preventable by good primary careconditions preventable by good primary careOECD Health Data (2009); Peterson & Burton (2007)OECD Health Data (2009); Peterson & Burton (2007)

Patient insensitivity to costsPatient insensitivity to costs

Insurance => Price-insensitive consumersInsurance => Price-insensitive consumers If treatment costs $100 and yields a “value” of If treatment costs $100 and yields a “value” of

$75, it shouldn’t be provided—but if the patient $75, it shouldn’t be provided—but if the patient only pays $25 and receives the $75 value, it will only pays $25 and receives the $75 value, it will be worth it to the patientbe worth it to the patient

Americans pay more total dollars out of pocket, Americans pay more total dollars out of pocket, but we generally pay a smaller percentage of but we generally pay a smaller percentage of our health care costs out of pocket (i.e., through our health care costs out of pocket (i.e., through deductibles and co-payments) (premium deductibles and co-payments) (premium payments are not included)payments are not included)

France-8%, US-13%, Germany-13%, Canada-15%, France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32% (Peterson & Burton Japan-17%, Switzerland-32% (Peterson & Burton 2007)2007)

Tax subsidies for insurance premiumsTax subsidies for insurance premiums

Physician incentives to over-Physician incentives to over-provide careprovide care

Fee-for-service reimbursement => Quality-Fee-for-service reimbursement => Quality-insensitive physicians and hospitalsinsensitive physicians and hospitals When physicians and hospitals are paid more to When physicians and hospitals are paid more to

do more, regardless of outcome, they’ll do moredo more, regardless of outcome, they’ll do more Especially when they lose money on higher quality care Especially when they lose money on higher quality care

(Urbina, NY Times, Jan. 11, 2006)(Urbina, NY Times, Jan. 11, 2006)

Example of clinic that switched from salary to Example of clinic that switched from salary to commission on fees generated; doctors commission on fees generated; doctors scheduled more appointments and ordered scheduled more appointments and ordered more blood tests and x-raysmore blood tests and x-rays

Hemenway, 322 NEJM 1059 1990Hemenway, 322 NEJM 1059 1990

Cost containmentCost containment

Outline of today’s presentationOutline of today’s presentation The cost problemThe cost problem Is PPACA the solution?Is PPACA the solution?

PPACA and cost controlPPACA and cost control

Many different provisions designed to Many different provisions designed to contain costs (remember Orszag & contain costs (remember Orszag & Emanuel quote)Emanuel quote)

Serious question whether all of the Serious question whether all of the provisions really address the cost provisions really address the cost problemproblem PPACA doesn’t take on the major drivers of PPACA doesn’t take on the major drivers of

higher costs other than to some extent higher costs other than to some extent through demonstration projects and through demonstration projects and Medicare reimbursement reductionsMedicare reimbursement reductions

Addressing the major drivers Addressing the major drivers of costsof costs

High pricesHigh prices Single-payer or all-payer negotiationsSingle-payer or all-payer negotiations

Oberlander & White, 361 NEJM 1131 (2009)Oberlander & White, 361 NEJM 1131 (2009) Health savings accounts?Health savings accounts?

High volumeHigh volume Replace fee-for-service with salary and/or Replace fee-for-service with salary and/or

capitation (also addresses problem of high capitation (also addresses problem of high prices)prices)

Rebalance specialist/primary care Rebalance specialist/primary care reimbursement ratioreimbursement ratio

Limits on hospital beds, surgical suites, MRI Limits on hospital beds, surgical suites, MRI scanners and other facilitiesscanners and other facilities Orentlicher, 19 Annals Health L. 449 (2010)Orentlicher, 19 Annals Health L. 449 (2010)

How will PPACA reduce How will PPACA reduce prices?prices?

Permanent reductions in Medicare reimbursement Permanent reductions in Medicare reimbursement rates for hospitals, nursing homes and other rates for hospitals, nursing homes and other facilities (facilities (§ § 3401) - $196 billion in savings through 3401) - $196 billion in savings through 20192019 Will Medicare reductions lead facilities to shift costs to Will Medicare reductions lead facilities to shift costs to

private insurers?private insurers? Independent Medicare Advisory Board (Independent Medicare Advisory Board (§ § 3403)3403)

Will develop proposals to keep Medicare spending within Will develop proposals to keep Medicare spending within statutory targets, and proposals will automatically take effect statutory targets, and proposals will automatically take effect unless Congress adopts substitute provisions (cannot ration unless Congress adopts substitute provisions (cannot ration health care, raise costs to recipients, restrict benefits or health care, raise costs to recipients, restrict benefits or modify eligibility criteria)modify eligibility criteria)

Also will provide Congress with recommendations for slowing Also will provide Congress with recommendations for slowing the growth of health care spending in the private sector.the growth of health care spending in the private sector.

How will PPACA reduce How will PPACA reduce volume?volume?

Patient-Centered Outcomes Research Patient-Centered Outcomes Research Institute (Institute (§ § 6301)6301) Created to promote “comparative-Created to promote “comparative-

effectiveness research”effectiveness research” May not recommend coverage changes or May not recommend coverage changes or

other policies based on its analyses, but other policies based on its analyses, but Medicare and Medicaid may consider the Medicare and Medicaid may consider the Institute’s analyses in determining coverage Institute’s analyses in determining coverage policiespolicies

May not use a “dollars-per-quality adjusted May not use a “dollars-per-quality adjusted life year . . . as a threshold” nor may HHS life year . . . as a threshold” nor may HHS employ such a measure as a threshold for employ such a measure as a threshold for coverage.coverage.

Potential impact of PCORIPotential impact of PCORI Comparative-effectiveness and cost-effectiveness Comparative-effectiveness and cost-effectiveness

decisions are controversialdecisions are controversial Mammography screening guidelines in 2009Mammography screening guidelines in 2009

US Preventive Services Task Force recommended US Preventive Services Task Force recommended that routine screening begin at age 50 instead of that routine screening begin at age 50 instead of age 40age 40

Oregon Health Care PlanOregon Health Care Plan Ended up with fairly generous “basic” coverageEnded up with fairly generous “basic” coverage

National Institute for Health and Clinical National Institute for Health and Clinical Excellence loses its authority to deny coverage for Excellence loses its authority to deny coverage for treatments based on costs after a decade of treatments based on costs after a decade of operationoperation

The “tragic choices” problemThe “tragic choices” problem It’s difficult to make life-and-death decisions openlyIt’s difficult to make life-and-death decisions openly

Quality-adjusted payments Quality-adjusted payments under PPACAunder PPACA

Incentive payments to hospitals that meet Incentive payments to hospitals that meet specified performance standards (§3001)specified performance standards (§3001)

Adjustments to physician reimbursement based Adjustments to physician reimbursement based on quality and cost of care provided (§3001)on quality and cost of care provided (§3001)

Expansion of reports to physicians that indicate Expansion of reports to physicians that indicate how their use of resources in patient care how their use of resources in patient care compares to use by other physicians (§3003)compares to use by other physicians (§3003)

Lower payments to hospitals with high numbers Lower payments to hospitals with high numbers of patients who become sicker because of their of patients who become sicker because of their hospital care (§3008)hospital care (§3008)

Lower payments to hospitals that have Lower payments to hospitals that have excessive numbers of patients readmitted to the excessive numbers of patients readmitted to the hospital after discharge (§3025)hospital after discharge (§3025)

Quality-adjusted paymentsQuality-adjusted payments

Pay for performance so far has a Pay for performance so far has a mixed track recordmixed track record It’s difficult to assess quality of care—It’s difficult to assess quality of care—

did a patient do well because of—or did a patient do well because of—or despite—the doctor’s intervention?despite—the doctor’s intervention?

Often, process-based measures are Often, process-based measures are used, but those need continual used, but those need continual updatingupdating

Impact has been modest to dateImpact has been modest to date

PPACA demonstration projectsPPACA demonstration projects Bundled payments for hospital care Bundled payments for hospital care

and for the month following discharge and for the month following discharge (capitation lite) ((capitation lite) (§2704 and §3023)§2704 and §3023)

Capitation payments instead of fee-for-Capitation payments instead of fee-for-service reimbursement (service reimbursement (§§2705)2705)

Incentives for doctors and hospitals to Incentives for doctors and hospitals to form accountable care organizations form accountable care organizations (financial rewards for higher quality (financial rewards for higher quality and/or lower cost care) (and/or lower cost care) (§§2706 and 2706 and §§3022)3022) Will integrated systems exploit market Will integrated systems exploit market

power to maintain revenues rather than to power to maintain revenues rather than to introduce efficiencies and reduce costs?introduce efficiencies and reduce costs?

The bottom line under PPACAThe bottom line under PPACA

Between 2009 and 2019, health care Between 2009 and 2019, health care spending is projected to increase 0.2% spending is projected to increase 0.2% as a result of PPACAas a result of PPACA But, health care coverage is projected to But, health care coverage is projected to

increase by 32.5 millionincrease by 32.5 million After the big increase in spending in After the big increase in spending in

2014 for the newly insured, health care 2014 for the newly insured, health care spending is projected to grow by 6.7% spending is projected to grow by 6.7% rather than 6.8% between 2015 and rather than 6.8% between 2015 and 2019 (or 6.4% instead of 6.6% in 2019)2019 (or 6.4% instead of 6.6% in 2019)

Sisko, et al. 2010Sisko, et al. 2010 (Of course, these are projections that may or may (Of course, these are projections that may or may

not come to fruition)not come to fruition)

What is a QALY?What is a QALY?

0 1

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OECDOECD Organisation for Economic Co-operation Organisation for Economic Co-operation

and Development (www.oecd.org). The and Development (www.oecd.org). The 33 member countries include: 33 member countries include: U.S., Canada, Mexico, ChileU.S., Canada, Mexico, Chile Denmark, Norway, Sweden, FinlandDenmark, Norway, Sweden, Finland U.K., France, Germany, Netherlands, U.K., France, Germany, Netherlands,

SwitzerlandSwitzerland Portugal, Spain, Italy, Greece, Turkey, IsraelPortugal, Spain, Italy, Greece, Turkey, Israel

Hungary, Czech Republic, Slovak Republic, Hungary, Czech Republic, Slovak Republic, Slovenia, Poland Slovenia, Poland

Japan, KoreaJapan, Korea Australia, New ZealandAustralia, New Zealand