Global Budgets for Hospitals - PowerPoint Presentation

1. Global Budgets for HospitalsStephen B. Kemble, MDChair, PNHP Policy Committee PNHP-New HampshireJanuary 26, 2022

2. DisclosureNo financial conflicts of interest to disclose.I receive no money whatsoever for any of my involvement in health care reform and health policy activities.

3. What is the cause of high cost of U.S. health care?

4. Over-utilization is not the problemU.S. doctor visits and hospital days per capita are among the lowest among industrialized countries.OECD dataInadequate access to appropriate care driving costly complications is a far greater problem than unnecessary care due to FFS.Excessive administrative cost driving much higher prices is biggest cost driver.Papanicolas, Woskie, Jha. Health Care Spending in the United States and Other High-Income Countries. JAMA 03-13-18Exorbitant drug prices is 2nd biggest cost driver

5. Physician Billing Costs – US vs Canada

6. Hospital Billing and Admin Cost – Multiple Payers vs Global Budgets

7. Healthcare Administrative Costs – US vs Canada

8. Growth of Physicians and Administrators

9. CMS is locked onto a false rationale:To control cost, we must “move away from FFS” with its ”volume” incentives and replace it with ”value-based payment” – shifting insurance risk onto providers of care, paying them up front via capitation and bundled payments, with opportunity to keep more $ by delivering less care.We can eliminate “fragmentation” and improve quality by organizing doctors and hospitals into “Accountable Care Organizations” that can accept insurance risk.Or have large insurance plans and hospital chains paid via capitation buy up physician practices and “integrate” them.

10. Physician and Hospital MotivationDo doctors and hospitals need financial incentives to want to deliver high quality care?Were they not motivated to do so prior to pay-for-performance and “value-based payment”?Do insurance companies know better how to manage care than doctors and hospitals?What about all the time consuming and unnecessary administrative obstacles to quality care and care coordination?Detailed documentation and coding required for payment, andMultiple plans with different networks, different payment policies and fees, different claims denial policies, different formularies, different prior authorization policies, etc.

11. Budget goals: Reduce admin cost? or financial incentives and risk-shifting?CMS thinks of “global budgets” as part of “value-based payment” and shifting insurance risk onto doctors and hospitals, and they are not paying attention to administrative cost.They rely on financial incentives and risk shifting to induce hospitals to restrict care and finance moving more care to less expensive settingsPay-for-quality incentivesEventual goal is capitation and full risk contracting with systems of doctors and hospitals, not minimizing administrative costs.

12. Capitation vs BudgetsCapitation conveys insurance risk – fixed payment per person with obligation to cover specified services over specified period of timeOpportunity to keep unspent earnings (profit) and risk of loss if more spent than capitated paymentIncentive to restrict care, “cherry pick” and ”lemon drop” Requires risk adjustment (with increased administrative cost) to supposedly counter incentive to “cherry pick” and ”lemon drop.”Risk adjustment leads to gaming of diagnoses and documentation to beat risk adjustment formulas.Global operating budgets do not convey risk –Based on cost of operations, not opportunity for profit or lossCan be adjusted with changing circumstancesNo retained earnings – surplus goes to next year’s operating budget, losses covered by supplemental appropriations

13. Global Budgets - Definitions“Global Budgets” can mean different things:Fixed pre-payment for a period of time (preferred)Based on cost of operations, not financial incentivesNot intended as opportunity for profit or losse.g. Fire Dept., Police Dept., Schools, etc.Capitation – fixed pre-payment per person/memberShifts insurance risk onto providers of careOpportunity for profit or lossRequires defined “members” and risk adjustmentIncentive to restrict care to keep more of capitated budgetPrice adjustment – Adjust prices in accordance with volume to maintain a fixed total budget Taiwan, some Canadian provinces, Germany ambulatory sector

14. Global Budgeting of Hospitals in Canada and ScotlandCanada and Scotland pay hospitals global operating budgets (fixed pre-payment per year)Separate grants for capital needs such as new buildings and expensive new equipment Eliminates hospital billing and collection costsHospital Admin Costs in 2014:U.S.: 25.3% and risingCanada: 12.42%Scotland: 11.59%“A Comparison Of Hospital Administrative Costs In Eight Nations: US Costs Exceed All Others By Far.” Health Affairs, Sept. 2014

15. Maryland’s evolution1970s: All-payer rate settingAll payers pay hospitals same rates for same servicesAll-payer rate setting stabilized hospital payment and eliminated cost-shifting among insurers, but cost Medicare more by imposing average rates. Minimal reduction in billing and insurance related costs.2010-13: Total Patient Revenue Budgeting (TPR)Price adjustment budgeting, adjusting FFS prices according to volume TPR budgeting gave incentive to reduce hospital care but required full FFS billing system reconciled to budget retroactively. Minimal admin savings.

16. Maryland’s Evolution2014-17: Global Budget Revenue (GBR) Required all payers to contribute to hospital budgetsApplied to hospitals onlyGBR slowed hospital spending somewhat, but Maryland was still among the most expensive states for Medicare hospital payment (partly due to all-payer rate setting).2018-23: Total Cost of Care (TCOC) BudgetingApplies to both hospital and non-hospital spendingCapitation via attributed members based on where they seek carePayment adjusted according to hospital quality metricsTCOC relies on many adjustments to hospital budgets - complex risk shifting, capitation, P4P incentives → high admin cost. Net effect on cost yet to be determined.

17. Pennsylvania Rural Health ModelSeveral payers (Medicare, Medicaid, some commercial payers) pool funds to pay hospitals with global budgetsNot all payers participate, so hospitals must maintain billing and collections departments.Pay-for-performance incentives for hospitals to divert funds to non-hospital services:Improve access to non-hospital careReduce rural health disparitiesReduce deaths from substance abuse and improve care for opioid abuseCloser to fixed pre-payment form of budgeting, but incomplete (less reduction in admin cost) and mixed with P4P and incentives to subsidize non-hospital care

18. Vermont All-Payer ACO modelVery complex. Requires hospitals to track and submit FFS claims and reconcile them to capitated budget (mix of capitation/risk shifting and price adjustment forms of budgeting)Combines OneCare Vermont ACO with Medicaid 1115 waiver, with capitation via attributed membership and lots of P4P incentives:ACO scale targets (70% of all VT insured residents, 90% of Medicare beneficiaries)All-payer and Medicare Financial targetsHealth outcomes and quality of care targets

19. Vermont All-Payer ACO results so farNORC at U. of Chicago independent evaluation - August 2021In PY2 (2019), only 8 of the 15 hospitals in the OneCare provider network participated in all of the VTAPM’s ACO payer initiatives (Medicare, Medicaid, and commercial). Hospital administrators voiced frustration about the continued need to submit and track FFS claims for attributed Medicare beneficiaries with the AIPBP, which has posed a challenge for achieving the administrative efficiencies they had anticipated. Due to the reconciliation process, hospitals are reluctant to invest the AIPBP in population health initiatives because they expect CMS to recoup a portion of the funds in the settlement phase. There are no administrative savings at all in this arrangement. It is all incentives to reduce utilization.

20. Vermont All-Payer ACO results so farAlthough the All-Payer ACO did achieve some reductions in hospital utilization, non-ACO hospitals achieved even greater reductions, so the reductions may have been in spite of the ACO model, not because of it.Limited hospital and physician participation also limited interpretability of financial results, as there were shifts by patients from ACO to non ACO practices and some of the differences could well have been due to differences in the risk level of populations in each group.

21. So how can hospital budgets achieve cost-effectiveness?

22. Connecticut Medicaid – Replaced MCOs with PCCM in 2012Prior to 2012: Full-risk Medicaid Managed Care Organizations – Costs rose 45% 2008-2012.2012: Eliminated Managed Care Organizations, took back insurance risk and self-insured Medicaid, enhanced funding and support for primary care (ePCCM)Contracted necessary administration to Administrative Services Only (ASO) on non-risk basis, by former local managed care plan.2018: MD acceptance of Medicaid up, ER usage down 25% and hospital admissions and re-admissions down 6%.6 years later, per member Medicaid costs14% lower than in 2012: $706 pmpm in 2012 to $610 pmpm in 20182020: Medicaid admin costs now 2.8%, including ASO compared to 15-40% for Medicaid MCOs, 12.5% for CT commercial plans

23. Focus on reducing administrative costPool hospital funds from all payers in proportion to the hospital needs of each plan’s population and pay hospitals with global operating budgets based on cost of operations, not risk-shifting. Eliminates cost-shifting among plans and “chargemaster” gamesEliminates billing and collections, ~15% of a hospital’s budgetPay for capital expenditures with a separate fund allocated according to community need.Pay independent physicians with a simplified, standardized fee-for-service fee schedule, regulated by the state. Use collective negotiation to keep fee scale reasonable for all.Would cost less than 2% of the healthcare dollar to administer.

24. Eliminate fiscal intermediariesState pays providers of care directly, with no fiscal intermediariesState retains insurance risk and covers ups and downs of care costs year to year from reserve fundNecessary administration contracted to Administrative Services Only contractor(s) on non-risk basis:Claims processingCredentialingAdministrative support for care coordination programsQuality improvement program administrationCustomer serviceCommunity-based care coordination programs funded with non-risk global operating budgets

25. Care Coordination without full-risk health plans, HMOs, and ACOsFund Care Coordination services directly by state on non-risk basisCommunity-based services for high-risk and special needs patients (Medicaid 1915 waivers)Collaborative Care Model for Psychiatric Consultation to Primary Care. Could also be used for many other specialty consults.Quality Improvement based on professional motivation to improve patient care, not Pay-for-PerformanceExample of Connecticut Medicaid

26. Hospital Budgets with Multiple Payers: All-Payer plus Global BudgetsState would negotiate with all payers to each pay their share of hospital costs according to hospital needs of their covered populationsPooled hospital funds managed by statePay hospitals with global operating budgets based on cost of operations (not capitation, price adjustment, or per-service/fee-for-service) – Eliminates billing and collections costs (~15% of hospital budgets)Option for physician group practice to join nearby hospital with combined global operating budget; eliminates insurance functions (no closed panel membership or capitated per-member payment, no profit/retained earnings or risk of loss)Pay for capital expenditures separately according to community needs

27. All-Payer plus Global Budgets for Hospitals: GoalsMinimize hospital administrative costs Eliminate cost shifting and chargemaster gamesReduce opportunities for billing fraud and abuseProvide predictability and stability for hospital budgetsRescue rural and critical access hospitals

28. Questions?Contact Info:stephenbkemble@gmail.com(808) 497-6521