Payment Reform

1. Payment Reform DAVID W. PLOCHER Blue Cross and Blue Shield of Minnesota January 18, 2007

2. Contents • Payment by Episode Background • Prometheus • According to Francois DeBrantes • According to original Oxford Project • Alternatives

3. What are we trying to solve? • Fee for service reimbursement rewards • Overutilization • Waiting until patient is sicker • Production of complications And only pays for inputs to care vs. outputs (value, outcome, etc.) However, little or no appetite for returning to full risk capitation.

4. The Global Surgical Fee Pre-op work up Surgery Post-op visits 90 days Professional fees only Payment by Episode Background

5. Heart Transplant Include transportation, donor costs, lodging Package Pricing Centers of Excellence professional and facility fees combined Hospitalization A. Pre op work up Hospitalization B. CABG Post discharge visits 90 days At risk for early readmission Hospitalization Pre Tx work up Includes 100 days post discharge C. Allogeneic Bone Marrow Tx All related services

6. Payment by Episode Acute MI followed by stent January December • Contract for fees covering all providers and all sites of care applicable to condition. • Does this longitudinal case rate reward value?

7. PROMETHEUS Adapted from Francois DeBrantes • PROMETHEUS attempts to address the shortcomings of fee for service and capitation methodologies by utilizing: • Evidence based guidelines • Clinical integration around the care of the whole patient that is awarded via a comprehensive scorecard that includes: • Measures of clinical process and outcomes • Patient experience with the care received • In many instances includes cost efficiency • A design that accommodates the performance and allocation of case rates across a wide range of physician specialties, hospitals and other providers, and the many ways in which they provide care

8. Crossing The Quality Chasm • Purchasers should examine current payment methods to remove barriers that currently impede quality improvement. Payment methods need to create stronger incentives for quality enhancement, and should include: • Fair payment for good clinical management for the types of patients that are seen • An opportunity for providers to share in the benefits of quality improvement • Include the opportunity for consumers and purchasers to recognize quality differences • Align financial incentives with the implementation of care processes based on best practices and the achievement of better patient outcomes • Reduce fragmentation of care

9. Answers To The Chasm Challenge • Implement New Methods That Correctly Reimburse Upfront • It starts with Evidence-based Case Rates (ECRs) that are adjusted to reflect patient severity. High performers can make more than 100% of the ECR – doing well while doing right. Low performers will make less. • Promote Clinical integration & Accountability and Reward Better Quality • 10% to 20% of the payment is deposited in a performance contingency fund and tied to provider performance on process and outcomes of care, patient experience of care, and cost-efficiency. Providers are encouraged to be clinically integrated, with 30% of their score dependent on the performance of providers they refer to. • Promotes Transparency • ECRs provide real and complete price transparency for consumers and providers. In addition, the scorecard provides full transparency on quality.

10. Defining Evidenced Based Case Rates • An Evidence-based Case Rate (ECR) is a global fee that encompasses all the appropriate level of services needed to care for a patient’s condition. Appropriate is defined as: • Consistent with evidence-based guidelines, where they exist in the peer reviewed literature and are suitable for this purpose • Consistent with expert consensus on what constitutes good care in the absence of peer reviewed evidence-based guidelines • Consistent with total cost of care incurred when patients are cared for by “good” providers • A patient can have multiple ECRs if the conditions are unrelated clinically, and all ECRs have specific rules on what triggers them, breaks them, bounds them.

11. Example of an Evidence-based Case Rate Severity adjustment Operating Margin Normal expected variation in cost for any patient getting care consistent with CPGs* Principal Consultant $2,000.00 Total cost for units of service that should be delivered as per CPGs Facility Rx *Clinical practice guidelines (evidence based or expert consensus)

12. But what are you really up against?

14. The Provider Scorecard • Providers are graded on a curve with a mean of B+. Today the average score is a C • To get any of the Performance Fund, at least the minimum score needs to be achieved • The formula encourages constant improvement from the treating physician and others • All undistributed Quality Funds are allocated to the Top Quartile quality performers, while all unearned Efficiency Funds are returned to the payer

15. How is Prometheus Value-Based Payment? • ECR budgets reflect costs of providing evidence-based (high-value) care • Providers are financially rewarded for achieving high levels of process and outcome measures • Providers who achieve results at lower costs do better. Cost avoidance alone is not rewarded • ECRs and the scorecard give payers new, more sophisticated tools for capturing provider “output”

16. PROMETHEUS – Pilot Projects • Preventive services already recommended to primary care physicians • Diabetes • Depression • Myocardial infarction • Mitral valve regurgitation • Hip and Knee replacements • Colon cancer • Lung cancer • Breast Cancer

17. Oxford Health PlanPerformance - Based Incentive Model circa 1998 DAVID W. PLOCHER

18. Definition • A fixed case payment for a defined episode of illness. • Including all services required by an individual during an episode of illness regardless of the provider or site of care. • Teams of providers will be paid a fixed amount for the total care of the patient over a predetermined period of time. • Severity adjusted

19. Goal • An integrated case management / case payment methodology designed to: • Empower the specialist physician as the clinical decision maker & integrator of care delivery • Decrease administrative complexity associated with traditional payment methods • Focus on the patient as the ultimate consumer of services • Reward cost effective utilization • Reward exemplary performance on quality measures

20. Advisory Panels in each specialty assist in the development of: Case specific education materials Disease and medical management guidelines They will also: Identify atrisk populations Devise intervention strategies to avoid or mitigate disease onset Initial focus will be on: CAD/PTCA/CABG/Severe Coronary Syndrome Cataract Prostate Cancer Total Hip Replacement Total Knee Replacement Implementation Strategy

21. Financial Arrangements • Prime contractor can be: • Individual • Medical group • Hospital, system • Corporation • Each group will receive a negotiated global case rate as payment in full for the defined case episode • The global rate will be distributed in partial payments throughout the duration of the case • Timing of payments will be based on the delivery of certain “milestones” services or may be time based However, PHO usually hosted

22. Health Plan (Oxford) Codes/Info Payment Physician Hospital Organization*or Managed Service Organization (Columbia - Cornell Care) Payment Payment Codes/Info Codes/Info Hospital Clinic 12/05/06 *Prometheus Engine Flow of Information and Funds

23. How much labor or expense is required? • Health Plan • Several new FTEs • Training • Further analytics and system support • PHO • Several new FTEs • Training • Large consulting engagements • actuarial (unit price benchmarks) • clinical integration • Further analytics and system support

24. Alternatives (Partial List) Fixed Prices • By Episode • Payment by existing episodes (MEG or ETG) • Capitation of chronic disease • Contact capitation • By Component • New DRG classification (warranty) • Payment by APC/APG Variable Prices • Demand matching – consumer oriented reflection of value received from a service

25. THANK YOU!