Welcome to Implications of Policy, Finance and Business on Population Health. This is Lecture c, this lecture will cover the innovations occurring at the state level and among employers. The objectives for this lecture of implications of policy, finance, and business on population health are to discuss and interpret the key financial drivers in the US healthcare system and their implications. Discuss key state innovations and employer responses to the key financial drivers and federal policies. One of the unique features of the American political structure is the freedom of individual states to implement innovative domestic policies, like healthcare. As we discussed in the history of value based payment in 2006, Massachusetts implemented individual health insurance mandates. And a health insurance exchange that has resulted in health insurance coverage for 96.3% of Massachusetts residence. More recently, Maryland applied for an received approval from the Centers for Medicare and Medicaid services, CMS. In January 2014 for a five year global hospital budget demonstration project through 2018. Maryland is unique among the 50 states in that it had previously obtained a waiver from CMS for an all payer system. An all payer system is one in which all payers, Medicare, Medicaid, and private insurers all pay the same rate for hospital based service. In the other 49 states, these different payers all pay different rates. Typically, Medicaid pays the lowest, Medicare next lowest, and the private insurers pay the highest rates, which are negotiated separately based on the negotiating power of the payer. As a result there are myriad of rates at the state level. And the net effect is private insurance usually cross subsidizes Medicaid and Medicare rates. In Maryland, all the payers pay the same rate for all hospital services so that there are no cross subsidies. The novel aspect of this new program is that there is a global budget for hospital revenue. So that hospital revenues are capped in any given year regardless of volume. If hospitals provide less or more services than last year, they still are paid the same global amount. All the stakeholders, the state, CMS, employers and hospitals have agreed to an annual ceiling of 3.58% growth in hospital revenues, plus the growth in the states populations. In return, Maryland guaranteed to CMS savings of a minimum of $330 million on all Maryland Medicare recipients over the course of the waiver. Regardless of whether they live in Maryland or quote, snowbird, unquote, to Florida. The reason that CMS wanted the savings is that they had been paying higher rates in Maryland than in any other state. Because they were not being cross subsidized by the private insurers. From the point of view of the state, the net effect of this provision is that it places all Maryland Medicare recipient into a giant virtual ACO with a global target. Because under the prior waiver Maryland hospitals were paid strictly fee for service FFS at a regulated rate. There was an incentive to maintain volume as a result historically the rates of remissions, and hospital required conditions were significantly higher in Maryland than in other states. To address these issues, the waiver includes reducing the rate of Medicare readmissions to the national average. And reducing hospital acquired conditions by 30% over 5 years, which will greatly contribute to the achievement of the $330 million in savings promised to CMS. Under a global budget, the incentives are to reduce volume. And the waiver puts into place monitoring and reporting measures to ensure that the hospitals are delivering the most appropriate care. There are measurements for patient experience of care, for improvement of population health, and for monitoring other health expenditures during the waiver. This extensive evaluation process by CMS will occur throughout the 5 years of the demonstration project. Maryland and CMS just published the results of the first year under the waiver in the November 12, 2015 issue of the New England Journal of Medicine. Hospital costs actually only went up 1.47% versus 3.5%. Medicare has already saved $116 million out of the $330 million promised, and hospital acquired conditions have dropped by 26.3%. Based on the promise of this model, CMS announced on September 16th 2015 that other states are interested in implementing this model. What gave the policymakers in Maryland and CMS confidence that this global budget system might work was the experience in rural Maryland. There were pilot demonstrations of the global hospital budget models in rural Maryland that took place over several years before the state wide waiver was granted in 2014. We have two examples of the innovative ways that hospitals in rural Maryland reacted to the incentives to provide value instead of volume under a global budget model. One was at the Carrol Hospital in Westminster, Maryland. The reallocated moneys from there global budget to train police officers to triage behavior health issues with the appropriate behavioral health provider. Instead of first sending them unnecessarily to the emergency room at Carrol Hospital. Historically, if Carroll Hospital spends money to train these police officers, they would not only be reimbursed for the training, but they would also loose the revenue from the emergency room. A quote loose loose unquote proposition. Now under the global budget, they had the monies to invest in training and not be penalized if they reduced unnecessary Admissions. This is a great example of aligning the incentives to reward value and provide appropriate care in the most appropriate setting. The second example is at the Meritus Medical Center located in Hagerstown, Maryland. The hospital historically had identified pediatric asthma as a significant medical problem in Hagerstown, as it is in many communities. Children from Hagerstown would routinely show up in the emergency room with severe acute asthma attacks. And not infrequently would require hospitalization. With global budgeting and the guarantee of revenue independent of volume, they found it in their financial interest to fund a school-based clinic staffed by a nurse practitioner. The nurse not only educated asthmatic children in how to remain asthma free. But also can intervene earlier in a child's asthmatic attack to avoid unnecessary trips to the And admissions for acute asthma. As you all know it is much better for the child and the parents to keep children out of the And hospital. This is another great example of realigning the incentives to deliver the triple aim. Better care, lower costs, and better patient experience. There are also innovations occurring in other states beyond global budgeting. These innovations are funded through the state innovation models program, which is funded with a billion dollars from the Affordable Care Act. It is administered by the CMS Innovations Center that was mentioned earlier. The purpose of the program is to facilitate innovative approaches to the provision and reimbursement of healthcare at the state level, to support the triple aim. It is meant to build upon the freedom to innovate at the local level, built into our system of state government. Total funding for round one in 2012 was $300 million. Six states, including Oregon, Vermont, Massachusetts, Arkansas, Minnesota and Maine received a total of $250 million for state wide multipayer delivery models. Including accountable care organizations, ACOs, and patient centered medical homes, PCMHs. The $50 million balance was distributed among 19 states for some pretesting or design for round two in 2014. Total funding for round two in 2014 was approximately $660 million. Of that amount $620 million was allocated to 11 states for implementation of the models, they had designed and tested in round one. The balance of $40 million was provided to 17 other states, 3 territories, and Washington, DC for some pre testing and design for future rounds of grants. The innovations contemplated in rounds one and two cover 61% of the US population. We can anticipate a steady stream of innovations coming out of these local experiments that should inform the evolution of the whole US system. Employer based benefits are a key feature of the American healthcare system. As you can see, it is a pretax federal subsidy, ie, a tax deductible expense. Monies that employers spend on healthcare can be deducted as a business expense, and do not count against taxable income for the organization. Its origins date back to World War II as an artifact of wage and price controls that were in place then. As you might imagine, there was a shortage of labor for the war effort that drove up wages. To ensure that there was not excessive inflation at home during the war, a strict limit was imposed on how much wages could increase. However, employers still had to compete for scarce labor. They lobbied to increase non wage benefits, like health insurance, so that they could be more competitive in the market for labor. Since health care was relatively inexpensive then, they were successful in convincing the Federal Government that the addition of this benefit would not cause undue wage inflation. They base their insurance on an existing FFS health insurance model popularized by the Blue Cross and Blue Shield plans. As you can see from this slide, the inflationary impact of this benefit turned out not to be trivial. If these commodities inflated at the same rate as healthcare costs from 1945 to 2009, a dozen eggs would cost $55, a gallon of milk $48 and a dozen oranges $134. Another way to look at it is that salaries between 1999 and 2009 went up 38% while healthcare costs went up 131%. Since wages and benefits are interchangeable financially from the employer perspective, the net effect is that health benefits costs crowd out wage increases to workers. As a result it is in the interest of employers and workers to reduce healthcare costs. Disease management was an industry response to meet employer demand to rein in the kinds of increases in health care expenses noted in the previous slide. These companies are principally private, for profit companies that arose to help employers better manage the population of patients with two or more chronic conditions. This population accounts for 86% of the healthcare spending. Another common rule of thumb is that 5% of any given population accounts for approximately 50% of the costs. The promise of disease management companies was that by focusing on this population, they could help employers moderate that rate of healthcare inflation. Because of this promise and the rapid rise in health care cost, 59% of large employers who offered health care coverage in 2008 had contracted with one or more disease management company to help manage these patients. Here are the classical elements of an employer based disease management program. The first is that it extracts and analyzes the health insurance claims of the employees to identify the population with the targeted diseases, conditions of the disease management program. Once identified, there is an assumption that commonly accepted evidence-based guidelines exist for the care of these diagnoses. Against which the disease management vendor can assess how well they are managed, and to improve their health and reduce costs. In order to help these patients, the disease management companies employ multidisciplinary teams to coordinate the care, as well as educate patients on self-management. These programs also include extensive monitoring and reporting systems to show return on investment in these program interventions to the employer. As you will see in the last lecture in the series, these elements form the foundation of provider innovations in population health. However, employer based disease management programs have had mixed results. And hence, the focus on provider based interventions. One problem is due to the private proprietary nature of the industry, which limits incentives to agree on common metrics and shared data. As a result, there are inconsistent measures across vendors and different criteria among the vendors to identify the target populations for a particular disease or condition. The net effect is great difficulty in comparing the performance of one program against another because of inconsistent population numerators and denominators. Another major issue is that patients generally, do not have just one chronic disease. They typically have several chronic diseases. For example, a diabetic very commonly will have heart disease and lipid problems. A patient with chronic obstructive pulmonary disease from smoking will commonly have heart disease and so on. Programs that target a single disease may select patient with more benign courses. And exclude patients who may be sicker, due to having multiple chronic problems. As a result, patients in these programs could be less expensive. Not due to better management, but rather due to the fact that the patient was fundamentally healthier at the outset. A situation which is commonly called positive selection bias. Also once a patient has multiple chronic diseases, there are no master guidelines that coordinate or trade off among the guidelines. So that a patient is confronted with multiple uncoordinated and sometimes conflicting guidelines to follow. A third major issue with disease management programs is the lack of coordination with primary care. Because these programs are stand alone, quote carve out unquote, programs sponsored by employers and employ their own care coordination teams outside of the provider delivery systems. There are challenges in sharing information and coordinating care with the patient's primary care physicians and specialists. It increases the chances that the patient will receive inconsistent and uncoordinated guidance. Finally, to its credit, the disease management industry has been evolving to meet the changing demands of the marketplace. One can see the evolution from the changes in the name of the lobbying or interest group for the industry. It has gone from the Disease Management Alliance to the Care Continuum Alliance and most recently, to the Population Health Alliance. However, the downside of this evolution is the lack of consistent population health numerators and denominators. To support creation of common metrics, to evaluate objectively the performance of these programs. This concludes Lecture c of Implications of Policy, Finance and Business on Population Health. In this lecture, we learned about state and employer initiatives in population health.