Major Forces Affecting Healthcare
11
Basics: Why Healthcare is Different, and
Complicated
Healthcare is different from most other industries because the
supplier of the product sets the demand for the product.
IE, the MD tells the patient that he/she needs a lab test, a MRI, a THA, etc.
So you don't have those simple independent demand and supply curves
that economists love so much.
It is if you went into McDonald's and the voice on the drive thru speaker
told you your order as opposed to you telling them.
12
Affordable
Care Act
("ACA" aka
"Obamacare")
Risk, Value
and
Transparency
Political Power
of Key Players
Baby Boomer
Demographics
Four Forces
of Flight
Forces
Affecting
Healthcare
(that I'm qualified to
speak to. Excludes
clinical aspects:
clinical advancements
in care, gene therapy,
shift to outpatient,
etc.)
13
Political Power = Unequal Playing Field
Pharmaceutical companies: Medicare is forbidden to
negotiate the price it pays for Rx
Medicare pays 40% more on average than the V.A. for the same Rx
We pay $450 wholesale per dose for Synvisc One, could buy it over
the counter from Canada for $150 retail.
Insurance companies got all they wanted out of the ACA
Plenty of $ to be made at 80% loss ratio
Hospitals:
Blocking specialty hospitals and slowing move to outpatient
surgical setting.
CON laws are antiquated and stifle innovation. In what Econ 101
model does restricting supply not raise cost?
MD's:
Fragmented and academic vs. private practice conflict = no real
effective voice at the table.
Descending Order of Power14
A quick digression: Pharmaceutical Companies
Drug Goes From $13.50 a Tablet to $750, Overnight
http://www.nytimes.com/2015/09/21/business/ahugeovernightincreaseinadrugspriceraises
protests.html?ref=business
The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a startup run by a former hedge
fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of
treatment for some patients to hundreds of thousands of dollars.
Cycloserine, a drug used to treat dangerous multidrugresistant tuberculosis, was just increased in price to
$10,800 for 30 pills from $500 after its acquisition by Rodelis Therapeutics. Scott Spencer, general manager of
Rodelis, said the company needed to invest to make sure the supply of the drug remained reliable. He said the
company provided the drug free to certain needy patients.
In August, two members of Congress investigating generic drug price increases wrote to Valeant
Pharmaceuticals after that company acquired two heart drugs, Isuprel and Nitropress, from Marathon
Pharmaceuticals and promptly raised their prices by 525 percent and 212 percent respectively
Pigs get fat, hogs get slaughtered?
"During his campaign for president, Donald Trump sounded a lot like Bernie Sanders on one
policy issue: He promised to implement sweeping government reform to lower drug prices and
called Big Pharma executives "disgusting" for profiting off lifesaving medication"
No, we just got fooled again:
News Item: President Trump's plan to lower prescription drug prices, a key issue during his 2016
election campaign, may end up being friendly to drug companies, according to a new report.
Politico reports that the Trump administration is struggling to make progress on an executive
order related to drug pricing and that the order will not allow the government to negotiate
drug prices or allow importing of cheaper drugs from other countries, both solutions Trump
proposed during his campaign. Analysts who follow politics for investment banks see the
struggles as signs that a broad shift in government policy towards drug pricing is not coming,
which would be good for the drug industry.
15
Political Power = Unequal Playing Field
Takeaway: The less political power, the more at risk
16
Key
1.inpatient prospective payment system (IPPS)
2.outpatient prospective payment system (OPPS)
3.ambulatory surgical center (ASC)
4.clinical laboratory fee schedule (CLFS)
5.Physicians (MPFS)
The Monster: the Baby Boomers
17
Baby Boomer Effect: Orthopedics
CMS has never been really able to control utilization in a
meaningful way.
1965 1985: cost plus reimbursement of hospitals meant that the
marginal revenue curve and marginal cost curve never crossed, the
incentive was to increase costs.
Politically they can't address the
Takeaway: Longterm unfunded obligations in Medicare and Social Security
alone reached nearly $49 trillion, adding to the national debt of $20.4 trillion, or
more than $160,000 for every person in the U.S.
18
ACA: Two big flaws
19
1. Penalty for failure to enroll in the plans was not high
enough to induce young healthy people to enroll to offset
the sick people brought into the ACA with elimination of
preexisting conditions and life time limits
1. High Deductible Plans combined with Health Savings
Accounts will lead to smart shoppers!
Lower premium would fund a health savings account (H.S.A. Plan)
H.S.A plan leads to price comparison and focus on preventative
care
So what if the young people didn't enroll?
20
DK answer: how many skinny Cosby Kids (healthy young people) does it
take to balance out Fat Albert (one sick person) on the teeter totter?
So what if the young people didn't enroll?
21
Therese: "ahem, Cosby Kids, no longer politically correct"
DK answer: "Ok, prepare for graphs
Normal vs. PreACA Market
22

Imposing preexisting condition restrictions and life time limits, lopped off the right hand side of the
curve. So, costs were managed by excluding the people who needed it most from the market.
My buddy, and the cancer survivor at the town hall
ACA Theory vs. PreACA Market
23
Healthy young lowcost people are going to offset the high cost preexisting and lifetime limit people
and H.S.A.'s and other innovations will lower the overall height of the curve saving $$$!!
ACA Theory vs. Reality
24
Healthy young lowcost people are going to offset the high cost preexisting and lifetime limit people
and H.S.A.'s and other innovations will lower the overall height of the curve saving $$$!!
The Death Spiral
25
Take Away: some data shows the market stabilizing, but if Trump starves the
program by refusing to fund the subsidies, the ACA will collapse: see following
The Death Spiral
26
ACA: High Deductible/H.S.A Theory
27
High Deductible/H.S.A Reality:
28
29
As an employer:
My employer raised the deductible from $2,500 to $5,000 but lowered the
premium $200 per month, or $2,400
Dave was so proud:
Dave: "Dear Employees if you take that $2,400 in premium savings
and fund a H.S.A. plan, you get that H.S.A. $2,400 pretax, so you save
the taxes on $2,400. And if you don't spend the $ in the Health
Savings account, you can use it next year. I am a hero!!!"
Employees: "you raised my deductible!"
Dave: "but if you you take that $2,400 in premium savings and fund a
H.S.A. plan, you get that H.S.A. $2,400 pretax, so you save the taxes
on $2,400. See, here is the math
Employees: "you raised my deducible"
Reality: employees took the $200 per month premium savings and spent it
on other things.
As a provider:
Trying to get patients to pay their deductibles is like prying teeth
Dave's Experience
Take Away: Increased deductibles = hidden tax on providers, and employees have
very short term thinking when they have short term bills to pay
30
9/23/15 New York Times: Insurance Deductibles Outpacing Wage
Increases, Study Finds
http://www.nytimes.com/2015/09/23/business/healthinsurancedeductiblesoutpacing
wageincreasesstudyfinds.html?ref=todayspaper&_r=0
But the steady upward creep in health insurance deductibles has easily outpaced the
average increase in a worker's wages over the last five years, according to a
new analysis released on Tuesday by the Kaiser Family Foundation. Kaiser, a health policy
research group that conducts a yearly survey of employer health benefits, calculates that
deductibles have risen more than six times faster than workers' earnings since 2010
But asking employees to cover more of their medical bills through high deductibles
raises questions about whether some workers, especially those with expensive, chronic
conditions, are being discouraged from seeking the care they need.*
Some are making difficult choices about what care they can afford. About two years ago,
Beth Landrum, a 52yearold teacher, who is insured through her husband's job as an
engineer, saw the deductible on her family's plan increase to $3,300 a year. Ms.
Landrum decided to delay having the M.R.I. her doctor recommends she get every three
years. Ten years ago, she had a noncancerous brain tumor that required surgery and
radiation. "My doctor's really mad at me because I haven't had the M.R.I.," she said, but
she and her husband say they need to save toward the cost
(*Note to economists: people do not act rationally. Public Policy PHD's: please note
real world results vs. your perceptions.)
Rising Deductibles and Effect on Pt. Behavior
Take Away: If delayed care is more expensive care in the long run, then what effect
will this have on ACA savings projectons?
31
From the great Mike Royko
ACA Takeway
Risk, Value and Transparency: but First a
History Lesson
32
History of Reimbursement
Hospitals: 1965 to early 1980's:
Feds: we'll pay you "Cost Plus 5%" ("aren't we clever!")
Economist: "production expands until marginal cost = marginal revenue,
therefore if you set revenue as a function of cost, the marginal cost curve
and marginal revenue curve never cross and production expands
indefinitely"
Hospitals: "hey, the more I spend, the more $ the government gives me"
Result: An expansion of healthcare beds and costs beyond anyone's
wildest estimates
Hospitals: Mid 1980's 2010
Feds: DRG (episode of care) payment for inpatient care replaces (largely)
Cost Plus, with carve outs (I/P rehab, SNU, other)
Hospitals:
Good results: reduce length of stay, admits per 1,000 reduction
Not so good results: cut costs (nursing aids replace RN's), earlier discharge =
readmission issues, cost shifting: I/P rehab, SNF
33
History of Reimbursement
CMS to SNF's: "We are only going to pay at the higher rate if your
patients are getting lots of physical therapy."
Result:
In an August 16 article, the Wall Street
Journal published an analysis it conducted showing
that the use of the ultrahigh category of
rehabilitative therapy under Medicare's
reimbursement system for skilled nursing facilities
increased sharply from 2002 to 2013.
Although the article acknowledges that many
patients do require this level of care, it also
demonstrates how some nursing homes
inappropriately use the ultrahigh category to
maximize reimbursement from Medicare, without
considering the needs of the patients or the clinical
judgment of the therapists
See more at: http://www.aota.org/Publications
News/AOTANews/2015/AOTAAPTAASHARepond
WSJArticleTherapyUtilizationNursing
Homes.aspx#sthash.oB8w4m5E.dpuf
34
For MD's: CMS Just Cuts the Rate
RVU Conversion Rate:
35
Historical Reimbursement: Takeaway
Like antibiotic resistant bacteria, providers have mostly
countered every effort by CMS to manage cost and
utilization.
Enter: Risk, Value and Transparency..
36
Orthopedic Bundled Payment
Hinsdale Ortho starting a BP program July 1
"Anchor admit" is hospital DRG = fixed price = limited rist
So, all good for implant costs as they are not on our radar screen since it
doesn't affect the DRG p
All the savings is in SNF, Readmits, and inpatient rehab
37
Orthopedic Bundled Payment
Hinsdale Ortho starting a BP program July 1
"Anchor admit" is hospital DRG = fixed price = limited rist
So, all good for implant costs as they are not on our radar screen since it
doesn't affect the DRG p
All the savings is in SNF, Readmits, and inpatient rehab
38
Accountable care =toothless tiger
Insurance companies will basically outsource the insurance risk to
providers
I leave
39
Episodic Risk: Bundled Payments
Hinsdale Ortho starting a BP program July 1, 2015
"Anchor admit" is hospital DRG = fixed price = limited risk
All the savings are in SNF, Readmits, and inpatient rehab, readmission
Benchmark relative cost per episode of care: THA
40
HOASC Results
29%
3%
68%
Overall SNF/IRF Admissions:
Current
SNF
IRF
HH or Home
43%
14%
43%
Overall SNF/IRF Admissions:
2014 CMS
SNF
IRF
HH or Home
SNF Performance
12.91
37.5
0
10
20
30
40
CURRENT
2014 CMS DATA
Total SNF Length of Stay (all facilities)
10.24
15.15
8.79
0
0
5
10
15
20
PREFERRED
NON PREFERRED
Preferred vs. Non Preferred Performance
Less Fx/Trauma
All Cases
SNF Selection:
For those patients who admit to SNF:
39% Non Preferred Providers (n=24)
61% Preferred Providers (n=37)
LOS is down significantly, but data is
early (small N) and comparison is against
a year's average in 2014
*4 cases of fx/trauma to outside providers with data unavailable on LOS
Preferred providers are managing to
the expectations set forth
43
Bundled Payments..
44
Next Horizon for Providers: Modifiable Risk Factors
45
Next Horizon for Providers: Modifiable Risk Factors
46
Next Horizon for Providers: Modifiable Risk Factors
47
Could such a high risk screen have avoided these costly cases?
Collectively, the overwhelming outliers for all MD's are related to cognition or
psychosis. There are several pts with cardiac surgeries and at least 3 who required gallbladder
removal surgeries.
Real life cases:
Total Episode Cost: $146,445. Patient with history of Myasthenia Gravis, who had a flare
up following surgery. Resulted in 2 readmissions, ICU admission, IRF, SNF, HH, and
significant OP Medicare Part B medical costs.
Total Episode Cost: $79,717. Patient had no orthopedic complications from the THA
surgery, but postop required 3 readmissions for a cardiac stent placement,
pancreas/gallbladder disorders, and gallbladder infection/removal.
Total Episode Cost: $67,134. Preop, patient had abnormal EKG, but was still cleared for
surgery by PCP. (No documentation of stress test, chest xray was negative). Had an
acute STEMI with cardiac catheterization POD 1. Required significant inpatient/ICU costs
followed by IRF.
Total Episode Cost: $51,438. Elective TKA with history of psychosis had 3 readmissions
related to depression and psychosis following surgery. No orthopedic complications of
the TKA, but all additional costs related to depression and drug abuse.
Multiple examples of patients with episode costs >$50,000 directly related to dementia
or cognitive status deficits, requiring prolonged SNF stays due to increased fall risk or
inability to safely return home or to memory care units.
Next, Next Horizon on Value Based Reimbursement
As we (my group) think about commercial bundle applications,
we are looking at these concepts and how they might come into
play.
Research VBID: not new, but applicable
https://en.wikipedia.org/wiki/ValueBased_Insurance_Design
Research Block Chain applications in healthcare: obvious
application in managing information needed to manage risk:
https://www.ted.com/talks/don_tapscott_how_the_blockchain_is_changing_mon
ey_and_business?utm_campaign=ios
share&utm_medium=social&source=email&utm_source=email
https://hbr.org/2017/03/thepotentialforblockchaintotransformelectronic
healthrecords
48
Risk TakeAways
Need to transition from a fee for service or "butts in beds" skillset
to a "management of risk" skillset (at an episode level and/or
population level)
Just a few years away
Health Plans provide actuarial, customer services, provider network, and
claims payment services
Providers in PHO/Clinical Integration structures take on the insurance risk
But, will a decentralized block chain care model fundamentally
alter healthcare in ways we can't imagine today?
49
Value
Employers/CMS: "What are we getting for our healthcare $'s?"
DK definition of Value = Outcomes dived by cost
However, since we still have a long way to go to define and measure
outcomes, we have quality measure surrogates:
Alphabet soup of "quality measures": MU2, MU3, PQRS, etc:
Pro: can't manage what you can't measure
Con's:
patient care may suffer as providers manage the measures instead of patient care
Out of step measures: From: http://healthaffairs.org/blog/2015/06/23/thecorequality
measurescollaborativearationaleandframeworkforpublicprivatequalitymeasurealignment/
"Today, however, these measures still focus on processes, such as whether a person with
diabetes had their hemoglobin A1c (a person's average blood sugar level over the past three
months) measured. Although process measures provide some insight into the provider's
provision of care, they do not answer the most important question: did the care result in an
optimal health outcome?
Instead of quantifying the percentage of people with diabetes who had their hemoglobin A1c
measured, the focus should be on the percentage of people with diabetes who effectively
control their disease and complications. In a health care ecosystem where patients are
responsible consumers, outcomes measures must provide needed transparency and serve as the
most effective tool for quality comparisons"
Crudeness of the data gathering: Foot and Ankle MD mortality rate example
50
Value
Employers and CMS:
What are we getting for our healthcare $?
51
Outcomes Linked to Patient Experience
52
Value TakeAways: Current measures may be flawed, but you
are being measured will continue to be so
Transparency
Alphabet soup of "quality measures": MU2, MU3, PQRS, etc:
TakeAway's:
At best: somewhat misguided attempt to enforce a once size fits all
chronic care management measures on all providers: what is relevant for
chronic diabetic care is not relevant for orthopedics.
Middle ground: more )(&*()%% government regulatory b/s
Cynical view: concerted attempt to impose a 5% to 7% price reduction in
the guise of impossible to meet "quality measures"
At worst: patient care may suffer as providers manage the measures
instead of patient care.
Bottom line = more downward pressure on reimbursement
53
Transparency: Price
Pew MD complication rates and dr. vargo mortality case study
Internet ratings
Outcomes. Registries
Accountable care vs. medicare advantage
54
Transparency: Price
Pew MD complication rates and dr. vargo mortality case study
Internet ratings
Outcomes. Registries
Accountable care vs. medicare advantage
55
Transparency: Price
Pew MD complication rates and dr. vargo mortality case study
Internet ratings
Outcomes. Registries
Accountable care vs. medicare advantage
56
Transparency: Price
Pew MD complication rates and dr. vargo mortality case study
Internet ratings
Outcomes. Registries
Accountable care vs. medicare advantage
57
Transparency: Regulatory Pt. Satisfaction
58
Aside: Angry lady story
Transparency: Internet Ratings
59
Transparency: Internet Ratings
60
Transparency: Internet Ratings
61
Transparency: Public Policy Groups
https://projects.propublica.org/surgeons/
Internet ratings
Outcomes. Registries
Accountable care vs. medicare advantage
62
Value, Transparency Takeaway's
If Value is a Outcomes divided by Cost then improving outcomes
or reducing costs will increase value.
Which do you think is easier?
Which do you think Payors care more about?
DK: if providers don't fight for outcomes over cost reduction,
than who will?
63
Questions..
64
Appendix
65
Something to subscribe to:
66
One Word: Blockchain
67
1
As we think about commercial bundle R
VBID: not new, but applicable
https://en.wikipedia.org/wiki/ValueBased_I
Research Block Chain applications in healthcare: obvious
application in managing information:
https://www.ted.com/talks/don_tapscott_how_the_blockchain_is_changing_mon
ey_and_business?utm_campaign=ios
share&utm_medium=social&source=email&utm_source=email
https://hbr.org/2017/03/thepotentialforblockchaintotransformelectronic
healthrecords
One word: "blockchain"