Medicare, the Aging of the Population, and

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Medicare, the Aging of the Population, and Pay
for Performance Reimbursement

• University of Virginia School of Medicine
• Psychiatry Grand Rounds
• November 13, 2007
• Rick Mayes
• Associate Professor of Public Policy

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OVERVIEW

• This presentation examines
• the definition and objectives of
  pay-for-performance
• the economic epidemiological origins of and
  momentum behind this new reimbursement system
• and some of the potentially positive and negative
  implications for hospitals and physicians

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Background Demographic Trends
Source Medicare Board of Trustees, 2003.
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Background Actuarial Trends
Source Medicare Board of Trustees, 2003, 2004,
2005, 2006.
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Medicares new 700 billion Rx Drug Benefit
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TOTAL (65) 30 million 77 million
                                                
                   U.S. Population
Age group 2000 2030 2030
45-54 37 million 43 million 43 million
55-64 24 million 42 million 42 million
65-74 18 million 36 million DOUBLES
75-84 12 million 27 million DOUBLES
85 4 million 19 million QUADRUPLES
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INSTITUTIONAL COSTS of the Elderly
- About 70 of nursing home residents are
supported, at least in part, by Medicaid (NOT
Medicare!). - More than 90 of assisted living
facilities are privately funded. - Avg. cost of
a private room in nursing home in U.S.
74,095/yr, or 203 a day. - Avg. cost of a
semi-private room in nursing home in U.S.
64,240/yr or 176 a day. - Avg. cost of a
semi-private room in nursing home in NYC
112,420/yr or 308 a day. - Avg. cost of
assisted living facility 34,860/yr or
2,905/month. - Avg. hourly rate for Home Health
Aide provided by a home care agency 19/hr
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Currently, there are roughly 7,600 certified
geriatricians -- doctors who specialize in caring
for the elderly. However, an additional 14,000
are needed to adequately care for the elderly
population. 2 By 2030, the nation will need
36,000 trained geriatricians. 1,2 Geriatricians
make up less than 1 of the 700,000 physicians in
country1
Currently, there are roughly 7,600 certified
geriatricians -- doctors who specialize in caring
for the elderly. However, an additional 14,000
are needed to adequately care for the elderly
population. 2 By 2030, the nation will need
36,000 trained geriatricians. 1,2 Geriatricians
make up less than 1 of the 700,000 physicians in
country1
Currently, there are roughly 7,600 certified
geriatricians -- doctors who specialize in caring
for the elderly. However, an additional 14,000
are needed to adequately care for the elderly
population. 2 By 2030, the nation will need
36,000 trained geriatricians. 1,2 Geriatricians
make up less than 1 of the 700,000 physicians in
country1

• Currently, there are roughly 7,600 certified
  geriatricians -- doctors who specialize in caring
  for the elderly. However, an additional 14,000
  are needed to adequately care for the elderly
  population. 2
• By 2030, the nation will need 36,000 trained
  geriatricians. 1,2
• Geriatricians make up less than 1 of the 700,000
  physicians in country1

• Currently, there are roughly 7,600 certified
  geriatricians -- doctors who specialize in caring
  for the elderly. However, an additional 14,000
  are needed to adequately care for the elderly
  population.
• By 2030, the nation will need 36,000 trained
  geriatricians.
• Geriatricians make up less than 1 of the 700,000
  physicians in country
• Biggest problem with U.S. health care system in
  general, and Medicare in particular, is that it
  is biased toward individual acute care episodes.
  Thus, it is reactive (rather than
  proactivetrying to get and keep people healthy)
  and wasteful 2/3rds of all Medicare spending per
  beneficiary occurs in last 6 months of life.
• Also, there is a massive lack of coordination in
  care the avg. Medicare beneficiary sees 5
  physicians (who rarely communicate with each
  other) and fills 23 prescriptions per year!

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Definition Objectives of p4p

• p4p is basically a new form of
  reimbursementdeveloped by insurers and
  employersthat attempts to differentiate among
  doctors and hospitals in order to financially
  reward those that
• (1.) provide better quality care
• - fewer complications, quicker recovery times
• - more successful or better patient outcomes,
  etc.
• and those providers that
• (2.) do so with greater efficiency
• - lower costs
• In short, p4p is an emerging payment model that
  tries to link the quality of care to the level of
  payment for healthcare services.

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Economic Incentives and Modern Life

• Public Policy 101 Incentives structure modern
  life as we know it.
• - Australian prison ships in the early 1900s
• - April 15, 1987 and the disappearance of
• of 3-4 million American children
• - frequent flyer miles (loyalty programs)
• - professors salaries vs. pop quizzes/tests/paper
  s

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Origins of and Momentum behind Pay for
Performance

• Institute of Medicine reports
• - To Err is Human (1999)
• - Crossing the Quality Chasm (2001)
• (2) John Wennberg Small-Area Large-Variation
  studies
• - tonsillectomy rates (1977)
• - Cesarean section rates (1996)
• - variation in Medicare spending/per
  beneficiary

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Medicare Spending per Capita, According to
Hospital Referral Region, 2003
Orszag P and Ellis P. N Engl J Med
20073571793-1795
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Source Elliot S. Fisher, Dartmouth Atlas (2005)
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Average Number of Days in Hospital During
Medicare Beneficiaries Last 6 Months of Life
Source Dartmouth Atlas of Virginia
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Number of Acute Care Hospital Beds/per 1,000
Residents
Source Dartmouth Atlas of Virginia
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Number of Hospital Discharges of Medicare
Beneficiaries for all Medical Conditions
(DRGs)/per 1,000 residents
Source Dartmouth Atlas of Virginia
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Average number of physician visits per patient
during last six months of life who received most
of their care in one of 77 best US hospitals
Source John Wennberg (2005)
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• Researchers and Insurers Conclusions
• (1.) Physician practice styles vary considerably,
  especially regarding diagnoses for which
  treatment decisions are not driven by consensus
  on appropriate care and it is not possible to
  obtain evidence-based guidelines from reading
  journals or consulting textbooks.
• (2.) In medicine, supply generally creates its
  own demand
• (e.g., of hospital beds/per capita,
  technology available, of specialists/per
  capita).

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Rates of Surgery for Back Pain/per 1,000 Medicare
Enrollees
Source Dartmouth Atlas of Virginia
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Rates of four orthopedic procedures among
Medicare enrollees in 306 Hospital Referral
Regions
Source John Wennberg (2005)
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Association between cardiologists and the
average of visits to cardiologists among
Medicare enrollees
Source John Wennberg (2005)
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Interview w/Tom Scully, former CMS Administrator

• Mayes Others Ive interviewed have said that
  hospitals will cry, cry, cry about their
  finances and level of Medicare reimbursement,
  but that sometimes you have take it with a grain
  of salt.
• Scully Oh, theyre doing great!  Ill tell you,
  go find me a hospital that hasnt built a giant
  new bed-tower in the last few years.  Theyve
  actually slowed down, because the government has
  phased out Medicare capital (reimbursement) We
  used to pay for capital in Medicare it was a DRG
  add-on for capital expenditures.  Well, if youre
  getting 40 percent of your revenues from Medicare
  and you want to build a new building and Medicare
  will pay for 40 percent of it, right?  Then why
  not? 
• So what you were getting all through the 1980s
  was a massive building spree up into the
  early 1990s and even through the 90s, because it
  was a 10-year phase out of the DRG add-on for
  capital.  If you wanted to build a new hospital
  wing in 1990even if you didnt have any patients
  for itif you budgeted 100 million, Medicare
  would write you a check for 40 million!  So what
  do you get?  You got a hell of a lot of big new
  hospital wings, need them or not. This is one of
  the reasons weve had such massive over-capacity
  
• Youd have to be an idiot not to put up a new
  building every couple of years, because Medicare
  paid for such a big part of it.  That is slowing
  down now and youre starting to see the demand
  catch up on capacity in a lot of markets.
• Roemers Law A hospital bed built is a
  hospital bed filled. (behavior is unconscious)

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Association between of hospital beds per 1,000
residents and discharges per 1,000 among
Medicare enrollees in 306 HRRs
Source John Wennberg (2005)
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• Hospital Compare - A quality tool for adults,
  including people with Medicare
• Percent of Heart Attack Patients Given Aspirin at
  Arrival
• AVERAGE FOR ALL REPORTING HOSPITALS IN THE UNITED
  STATES 93 
• AVERAGE FOR ALL REPORTING HOSPITALS IN THE STATE
  OF VIRGINIA 95 
• VIRGINIA COMMONWEALTH UNIVERSITY HEALTH SYSTEM
  (VCU/MCV) 99 
• UNIVERSITY OF VIRGINIA MEDICAL CENTER 99 
• Percent of Surgery Patients Who Received
  Preventative Antibiotic(s) One Hour Before
  Surgery
• AVERAGE FOR ALL REPORTING HOSPITALS IN THE UNITED
  STATES 78 
• AVERAGE FOR ALL REPORTING HOSPITALS IN THE STATE
  OF VIRGINIA 79 
• VIRGINIA COMMONWEALTH UNIVERSITY HEALTH SYSTEM
  (VCU/MCV) 87
• UNIVERSITY OF VIRGINIA MEDICAL CENTER 90 

www.hospitalcompare.hhs.gov -gt
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Momentum behind Pay for Performance

• Growing ability to measure quality and
  performanceand the subsequent discovery that
  they vary more than previously assumedis
  contributing to the popularity of p4p, because
  it would allow health plans and employers to do 3
  things
• (1) pay more to medical providers with the best
  scores/outcomes
• (2) encourage the majority of medical providers
  to improve
• (3) perhaps pay less to providers with poor
  scores/outcomes
• Question If publishing S.O.L. test scores and
  on-time arrival statistics is considered a good
  idea for encouraging behavioral change and
  improvements on the part of schools and airlines
  to improve their performance, the argument goes,
  how bad of an idea could it be for medical
  providers?

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Potential Negative Implications

• Depending on how p4p is structurally designed,
  it could be problematic (translation negative)
  for several reasons
• (1) Some waste that it targets is necessary
  defensive medicine.
• (2) It could encourage gaming on the part of
  medical providers.
• (3) Not all clinical practice guidelines (CPGs)
  are perfect, particularly
• for older Medicare beneficiaries with multiple
  chronic conditions
• and for some chronic conditionsspecific
  cancers, chronic lung disease,
• and heart failurethey hardly exist at all.
• (4) In Medicare, as in many private health plans,
  patients receive their care
• in an a la carte fashion, which makes it hard
  to assign responsibility for
• performance our outcomes to any one specific
  provider.

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Potential Positive Implications

• Fortunately, existing p4p plans tend to only
  pay more to the best providers.
• In addition
• (1) Providers that already meet a performance
  standard (e.g., an 80 childhood immunization
  rate, 100 administration of aspirin to patients
  who present with cardiac arrest) need only
  maintain their status quo for bonus payments.
• (2) The percentage of a physicians overall
  revenue at stake is rarely more than
• 5-10.
• (3) So far, p4p plans primarily target the
  underuse of preventive care, so
• spending generally increases after
  implementation.
• (4) Which can provide hospitals and physicians
  with additional capital to invest in electronic
  medical records and other practice improvements.

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Conclusion

• p4p is growing rapidly
• (2003) roughly 35 health plans covering
  approx. 40 million members
• (2006) roughly 80 health plans covering
  approx. 60 million members
• p4p can generally help to improve the quality
  of primary care, as well as the care of patients
  with chronic conditions
• Medicarethe 800-pound gorilla of American
  medicine
• - Its hard to convey how big this is going to
  be, but its going
• to be big, says Dr. Mark McClellan, former
  CMS Administrator.
• - 80 of beneficiaries have 1 chronic condition
  30 have 4 conditions
• (this second group drives almost 80 of
  Medicares total spending)

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