The Case for an All-Payer System of Coordinated Prices for Medical Services

CLARENCE LAM: All right. I think we’re going to go ahead
and get started this afternoon. I’d like to welcome
everyone for coming, both all of you here in the
audience, and also those of you who are watching online. I’d like to thank all
of you for being here. And it’s great to see
such a great response from folks who are
here in the audience and also from those
who are online. And I think it’s really a
reflection of the importance of this issue. I’m Clarence Lam. I’m the chief resident of the
preventive medicine program here at Johns Hopkins Bloomberg
School of Public Health. And today we’ll be talking
about the all-payer system here in Maryland. And I think it’s really
an important issue for a lot of us, particularly
with increasing health care costs, and hospitals
being asked to do more to coordinate care and
play a central role in a lot of the provisions
of the Affordable Care Act. And with the exchanges
coming into play in 2014, there’s a lot going
on in the health space that there’s no one better to
have talked to than Mr. Robert Murray who’s the
former executive director of the Health Services
Costs Review Commission. So with that, I’d like
to welcome all of you. If you could please refrain
from asking questions during the presentation. Hold them with you towards the
end of the presentation, that would be great. For those of you who
are viewing it online, there should be a link
to the right of the page that you can click to
submit questions online, and we’ll be able to take
the questions that way. In the past, we’ve had
Dr. Miriam Alexander run the introduction to our
speaker, but she is ill today. So we appreciate Dr. Tom
Burke who’s able to be here. He is the Associate Dean
for Public health Practice and Training, also professor in
the Department of Health Policy and Management and former
Deputy Commissioner for Health in the State of New Jersey. We really do appreciate
his effort to be here. When things fall through
we know who to turn to. And we’re glad that oftentimes
when a speaker can’t come or someone can’t make
it you go down the list to find someone who can actually
come in and pinch hit for you. We decided to take the opposite
track and go up the list. So we’re glad that Dr.
Burke was able to come in, because we didn’t have much
farther up the list to go. And with that, let
me turn it over we’re turning it over to Dr. Burke. THOMAS BURKE:
Thank you Clarence. Clarence, if you
didn’t save my life when I got that
spider bite, I don’t know if I’d be here
today to do this. But it is a pleasure. And it’s nice to know
I was your first pick. Anyhow, what more timely
an issue than this. And I want to thank all
of you for being here on a challenging rainy day. And those of you
watching online, welcome as well to the annual
J. Douglas Colman Lecture. This lectureship was established
in 1974 in honor of Mr. Colman by his dear friend and the
President Emeritus of the Johns Hopkins Hospital
Dr. Russell Nelson who delivered the
very first lecture. Mr. Coleman’s two
daughters and later endowed this
lectureship so that it can continue to be present
for students, faculty, and all those who have an
interest in public health, to be inspired and informed
on the issues of the day. In 1939 Mr. Colman helped launch
the associated hospital service of Baltimore, the city’s first
nonprofit health service plan. That plan presented
a unique approach, combining insurance
and health care that promised health coverage
to clients and payment for services to providers. He charged $0.75 a
month for the plan. Not bad– just like
we pay right now– $9 a year. In time, this innovative
approach to health care became a great
success, eventually becoming a company that most
likely touched all of us, Blue Cross Blue
Shield of Maryland. From 1947 to 1951 Mr. Colman
was appointed lecturer at our school, then called the
School of Hygiene and Public Health. Some of us old geezers
still slip and called the School of Hygiene. But here he studied
epidemiology, and bio-stats, and public health
administration. The risk sciences
were not invented yet, or he would have
taken the risk course. That’s an inside joke. I teach that for
those of you online. From 1951 to 1957 he joined
the Johns Hopkins Hospital as vice-president
for development focusing his considerable talent
on the area of fundraising, and then rejoined the health
care plan movement eventually becoming president of
Blue Cross of New York. Mr. Colman was an active
proponent of voluntary health insurance and
played a major role in establishing and
expanding Blue Cross coverage for thousands of Americans. His enormous
accomplishments in helping to provide Maryland citizens
with affordable access to quality health care
and his contributions to the hospital
and the university is why he is honored here today. So I’m very happy
today on behalf of the general
preventive medicine residency and the
school to welcome you to our annual grand rounds and
to introduce today’s speaker. So Clarence said a little
bit about Robert Murray. And again, what
more timely issue. I heard Robert speaking a
little bit before I came up here and he’s saying,
boy, it’s going to be an interesting couple of years. It is going to be an
interesting couple of years. And what a fascinating year
as we watch the events, particularly related
to health care, but relating to the national
politics and the future. Robert Murray is the president
of Global Health Payment, a management consulting firm
specializing in the design and implementation of
pay-for-performance, episode based, bundled in
global payments for health care providers. In addition to his
consulting responsibility, he’s a writer and health
services researcher. And a very important lens he
has for today’s perspective is that he served for 17 years
as the Executive Director of the Maryland Health Services
Cost Review Commission, HSCRC, Maryland’s all-payer
hospital rate setting agency. Under Mr. Murray’s
leadership, the HSCRC initiated a number of very
innovative payment programs, including the nation’s first
severity adjusted DRG based payment system. You could read about the
other accomplishments on the brochure. He is currently assisting
representatives of Vermont– lots of action on
the state level now on the implementation
of health reform. And he’s assisting
Vermont in the development of an all payer
global budget payment structure for all the hospitals
and physicians in the state. He’s a frequent lecturer and
presenter internationally. He has worked as a
consultant for the World Bank on a number of assignments
related to health care reform initiatives around the
world, including the Russian Federation, Brazil, and India. And he received his master’s
in business administration, his bachelor’s and master of
arts in economics from Stanford University, not a bad place. So please join me in
welcoming Robert Murray. [APPLAUSE] ROBERT MURRAY: Thanks very much. And thanks for everybody
braving the weather to come out to see this
and people on the webcast. I’m not just going to
talk about the HSCRC. I wanted to try to set
up the topic a little bit and build a case for why we
need a comprehensive approach to payment reform
in this country. And then I will discuss– use the Maryland
experience as a bit of an example, a laboratory, for
how to get there potentially. But before I get
started I wanted to make just a little
statement, a disclaimer. I’m going to try to speak
somewhat candidly about a topic that I think is of
vital importance, not only to future patients
and the health care sector in general,
but also to just the overall social and economic
infrastructure of this country. Health care and
health care financing plays such a vital
role in our society. And certainly there
are millions of people who devote their lives to
producing the very best care they can for their patients. But unfortunately, we have
very, very profound problems in our health sector. So that if there’s any
hint of an indictment in my presentation
today, it’s really not directed or
meant to be directed to those who sincerely have the
best interest of their patients at heart. Instead it’s more directed
at the incentive structure in our country,
particularly as it relates to the financing of
health care, which I believe is really not structured
to be in the best interest of populations
that seek care, either now or in the future, and
ultimately pay for it. It’s a structure that certainly
can be quite exceptional. Right now we have such amazing
technological developments and the ability to
provide care, and I think we all know
it has problems, but it can be quite good. And I hope this lecture,
this presentation can at least illuminate
the ways in which we can steer our system to be
moving more in that direction. The other thing I
wanted to mention too is the first part
of this presentation borrows very heavily on work
that Dr. Uwe Reinhardt has done more recently in looking at
the issue of market failure and also potential
for implementation of a broader payment structure. So as we get into
the lecture I will try to emulate Dr.
Reinhardt with my German. That’s more like a
Eastern European version. But if I start to channel
Uwe please let me know. So trying to move on here. Here we go. Topics to cover today. Finally, I guess I wanted to
address the fact that there’s been good news recently about
health care costs, that they seem to be coming down. So I want to ask the question
have we finally addressed this health care juggernaut. And then take stock, take
a look at fundamentals and also long term trends
to answer that question. A look at the history
of growth in the US. Comparisons to other
developed countries. And really try to figure
out why we’re different. We’ll focus on the primary
drivers of cost growth, which I believe are the market
failures that persist and haven’t been addressed,
particularly in the United States, and focus
on what I think are very profound implications
of not addressing health care costs. As I said, my role
here today is to make the case for a coordinated,
comprehensive payment system and spotlight Maryland as
a case study or an example. I’ll talk also about what
I see are the glaring weaknesses of payment systems,
and a way of potentially how we can reinvent rate
setting models. So 2009-2010 lowest cost
growth in 51 years– have we broken the back of
the health care cost monster? We had this headline
from CMS most recently, health care costs only grew
at 3.9% these last two years, the lowest rate of growth is in
the 51 years of tracking health national expenditures. We had Karen Davis from
the Commonwealth Fund with this quote. “The tectonic plates underlying
the health care system are beginning to shift in
anticipation of new incentives under health care reform.” we’ve heard this type
of statement before. And certainly there’s
a lot of optimism that maybe there is indeed
something fundamentally different here. The Wall Street Journal had this
editorial recently, “The Myth of Runaway Health Spending.” it was a revelation
for me that I’ve been living a myth
the last 40 years. So this fellow, J.D. Klein,
indicates that the moderation has been driven by
cumulative improvements in medical care, insurers,
marketplace disciplines, as well as consumers who we
are finally now getting more involved in managing
our health care, which is a positive development. You see this graph over here. But I think what
we need to do is really examine the key trends
over time, give us a better picture. And actually the
longer term trend looks rather ominous for me. This is a chart that
came from a blog from Uwe Reinhardt’s New
York Times blog, Economix. And you can see that things,
although they perhaps have flattened out the last
couple of years very slightly, they’re headed quite
ominously upward. We do see that consumers
are spending more or not. Medical bankruptcies are up. There is a great deal of cost
sharing, cost shifting that is going on to the consumer. So at the lower end
of health care, maybe that’s helpful in trying to
make consumers more prudent purchasers. But it’s really
hard to shop when you’re sitting in the
back of an ambulance going to an emergency
room, trying to figure out what service, what ER
that you want to go to that’s most cost effective. We also see that the increasing
role of Medicare and Medicaid over time is such
that by 2020 we expect that those
public programs are going to be funding about 50%
of total health expenditures. And there is this
dynamic of we don’t want to raise taxes to fund
health care more broadly. So what do we do? We have an implicit tax through
higher prices in hospitals and physicians on
the private sector, which continually
drive up prices for commercial insurance. So that’s the general overview. In terms of longer
term structures, the real question is, is this
excess cost of national health expenditure over the
growth of GDP increases year to year going to
moderate over time. And here’s another
chart from Uwe’s blog which shows on the blue
line, which is the percentage growth of national health
expenditures over GDP relative to the growth of
GDP, which is the red line. And we see that indeed the
national health expenditure line appears to be declining,
that blue trend line. But GDP is also declining. So the real question is
have we really reined in this growth of health care. We’re still growing
a GDP plus about 2%. And it begs the
question, when are we going to get down to GDP
growth or GDP plus 1/2% or 1%. And then there’s
this other chart which came in an article
that was done by Drew Altman a couple of years ago back
in 2003, which he labeled the sad history of health reform
in one chart, which focused on the success growth of GDP
plus 2% for national health expenditures. You can see that the line
is relatively flat, though trending down a little bit. And so it’s tempting
based on two years to say, OK, we finally
turned the corner. But if you look at
this longer term trend, and what we’ve
witnessed back 40 years, we find the case of what
Drew Altman observed, which is that no approach so
far our nation has tried has had a lasting impact. We had the enactment of
Medicare, Medicaid 65. And it had an impact of
wage and price controls in the ’70s, had an impact
on the voluntary effort of providers in
response to the Carter proposal for an all-payer
system nationally in 1976. And then implementation
of the DRG system nationally had an impact. Managed care in the
mid-90s had an impact and then it bounced back up. So it really begs
the question, have we broken the back of health
care inflation nationally. Uwe think it’s too soon
to break out the champagne and celebrate. And I think its worthwhile also
to take a look at our footprint relative to other nations. We can take solace in the fact
that health care costs are eventually going to moderate. We’re not going to
get up to 100% of GDP. And we have seen
this gradual decline. It may be that the
marginal utility of health care to US consumers
is declining and explaining that decline. But were still
dramatically above the rest of industrialized nations. You can see the US and that
chart are on the right really shows that demographics
doesn’t change it. We are about 12% of the
population over age 65. And we’re about double
nations that are 15%, 18%, 20% of their population over age 65. So it’s not demographics. And we just take a much larger
bite out of the GDP cache than any other nation. You can see Germany,
Italy, and Japan out there to the right with about 20%
of their populace over 65. So it’s not demographics. We know it’s also
not better value. We’ve seen quality
statistics who show that we overall don’t
provide better health care called quality. So why are we so
much more expensive. Well my theory– it’s back
to massive market failure in the health care
sector, and things like the nature of the good. It’s our health, is
something we value, moral hazard, the
presence of insurance, which causes us to use more
complexity, the difficulty in shopping, unless you’ve
gone to medical school and understand all of
these medical issues, nonstandard products,
asymmetric information, and the general
dominance of providers that are things that
really prevent us from being able to have a
functional competitive market. And that produces
things like supply induced demand, suboptimal
market structures, non-priced competition,
and three things I want to focus in on today,
which is irrational pricing, our pluralistic and
highly fragmented, highly complex payment system, and
the basic lack of purchasing power, which we have here,
which is in stark contrast to every other industrialized
nation which is fortified the buy side, the market
power of purchasers, and as a result have
lower health care costs. So again, looking at
these three issues– these are, I think,
the fundamentals that I want to try to step
through and emphasize. First, dysfunctional pricing– I think we all
know the importance of the pricing mechanism
in competitive markets. It’s the means by which you
get millions of decisions between consumers
and producers that help determine the proper
allocation of resources. It serves that signaling
process that signals preferences of consumers and
sets an equilibrium price for the market,
allocates supply and demand. It’s that invisible hand
which the market remains dynamic and efficient, also
requires certain conditions to be functional. And those conditions,
I maintain, do not exist in the
health care market. So by contrast, in
health care market we have what’s been described
as this Byzantine melange of different bases, different
prices across the board. And that’s Uwe’s observation. More recently, since
2006, we’ve started to get a better picture of
health care pricing nationally. And data from California,
New Jersey, New Hampshire, and Massachusetts show that
prices are all over the map. In fact, there’s a
famous quote from the CEO of the University of California
Medical Center at Davis who said there is no method
to their pricing madness. And even administrators
will admit to that. We have basically a fragmented
system with no relationship to underlying costs. It sends the wrong signals. And doesn’t encourage
efficient effective outcomes or allocation of resources. And it’s definitely not
consistent with what you would expect as a competitive result. So what are the implications? Well, there isn’t really
transparency in terms of pricing. That’s one implication to this. But when we do actually have
the data to see pricing, it’s exactly as I
mentioned, multiple prices for the same service
for each provider. And there are huge
variations of pricing for similar services
across a given region and within smaller areas. And these incentives
drive behavior. When you have skewed
incentives, they motivate activities
that lead to higher costs, and misallocation, as
I said, over and under supply, in general just a
lack of incentives directed at producing that
higher value care, which is efficient care, and effective
care, high quality care. And it contributes,
also, this variation to what Uwe’s calls a very
splintered system for health care financing. So taking a look at this system,
it’s a pluralistic system. There’s nothing wrong
with that inherently. I think it’s something
that we can deal with. But it does augment
that fragmentation. We’ve got Medicare, Medicare
Advantage, the Tri-Care FEHBP, which is the federal employee
benefit program, Indian Health Service. We’ve got Medicaid
fee-for-service, MCOs, each state having
basically its own system. And then we’ve got over 2,000
private insurance companies, which all individually
have their own systems, their own claims processing and
adjudication for the most part, as well as their own tenancy
to negotiate individually with providers. We’ve got the hospital
and the provider sector, which I have labeled as
a bunch of H’s down here. And it all mounts up to this
highly fragmented and complex system, which contributes to
these high administrative costs that we have. And then what we also have
is that fragmentation creates these various silos
around providers that isolates providers,
and penalizes them for trying to coordinate
care, to reach out outside the hospital to long
term care or to physicians and coordinate care actively
within an integrated delivery system, which for the
most part doesn’t exist. So we have this hugely
complicated, fragmented system. “Money flows from
households to providers through a vast network
of uncoordinated pipes and capillaries.” That’s a quote from Gerry
Anderson’s famous piece in 2003 about hospital pricing,
health care pricing in the United States. And in this figure, also
from one of Uwe’s articles, it shows this fragmented flow
through the various pumping stations that we
have from households finally to the ultimate
providers of care. And not all of this
money flows to providers. We get legions of
non-clinical enterprises, that are so-called value
chain within healthcare. This is from Michael Porter
and [? Teesburger’s ?] book published in 2006. Also, shown in Uwe’s
most recent article, you have the clinical and
the related enterprises at the bottom. But then you have
this top box, which tends to suck off a lot
of resources and funding with adding relatively little
value to the overall equation. And most industrialized
nations do you not have this type of extremely
complicated structure. And basically what we’ve created
is what Henry Aaron called, and I want to read this quote. He says, “I look at the
US health care system and see this administrative
monstrosity, a truly bizarre melange of thousands of payers
with payment systems that differ for no socially
beneficial reason, as well as a staggeringly complex
public system with mind boggling administrative prices
and other rules expressing distinctions that can only
be regarded as weird.” And I would concur. So we have this enormously
complicated overall financing system. It creates waste and excess of
$100 to $180 billion a year. I’ve seen various
estimates of the that. But 2003 saw a study that showed
that on a per capita basis we’re six times the average of
other industrialized nations, and certainly just in
a tremendous amount of administrative complexity. I’ve been to Johns
Hopkins Hospital. I’ve seen the legions
of people that they hire to cut through
the paperwork that have been created by largely
the private sector, that add relatively little
benefit overall. And it also contributes to this
highly splintered structure that really results in
what I would characterize as extraordinarily weak demand,
the weak buy side, which I want to focus on now. And US policy over
the last 35 years has generally supported
this fragmentation. It hasn’t done
anything fundamentally to address this and this issue
of weak purchasing power. As I said, that’s
the one thing that differentiates us
most dramatically from other
industrialized nations. In large part, this
dynamic is, I would argue, responsible for this excess
cost growth that we’ve seen, that the GDP plus to 2%
to 2 1/2 over 40 years. And our system is structured
to reward not value, but rather consolidation, and
generating market power on the part
of providers so that they can navigate through
this incredibly complex system. And we’re witnessing, in
the last 10 to 15 years, increased consolidation
of market power over time, and evidence that it’s
just making things worse. So here’s a chart from the
American Hospital Association that shows at
least for hospitals the percentage of
payments hospitals receive is as a
proportion of their costs. And it fluctuates up and down. It’s very tempting to say that
there’s a correlation here, as public payments go up, then
private payments can come down, and vice-a-versa. There may be some
relationship there. But I would argue
that it is primarily a function of market power and
the consolidation of market power in the provider industry. In that, and as Paul Ginsberg
has said, the growing market power to negotiate
higher payment rates from private
insurers, it’s the new elephant in the room. And you can see it in
this chart here where now the private sector is
being charged 134% of cost, Medicare and Medicaid
are heading south. And there is this debate
between whether it’s cost shifting or
price discrimination. I won’t bore you with
those gory details. Whatever it is, it
requires market power to generate this dynamic. And the implication
of this is it is an outright abuse of
power to increase prices to the private sector. On other evidence
of consolidation, and this dynamic that’s really
behind this to a large extent, is the backlash to managed
care from the ’90s, and the preference of
consumers and employer sponsored health
plans to have choice, and to have the broadest
networks possible. But there is growing
empirical evidence too. I’ve seen recent articles
in Health Affairs from Glen Melnick and Jamie
Robinson that document this correlations theory. It’s consistent with
the theory on monopolies and consolidation, that when
you get this type of dynamic, prices tend to go up. Paul Ginsberg and
also Bob Berenson have published some articles and
we’ll be publishing some soon. And it’s basically
a zero sum game that encourages the
abuse of market power, price discrimination, and
so-called cost shifting. Now one of the implications of
this dynamic that MedPAC most recently observed is
about controlling cost is that they’ve looked at
cohorts of hospitals that are under broad pressure
from dominant private payers, and also Medicare and Medicaid,
that keep a lid on prices by definition,
because of the market structure in those areas. And lo and behold,
those facilities tend to control their costs
very well, in that they have Medicare margins. And this is very consistent
with the evidence from Maryland when I was at the Health
Services Costs Review Commission. We would see almost
a precise correlation of the amount of
money that we had given rates each and every
year, and the amount of money that hospitals would
spend on their costs that one, when things
were tight they held costs down, when
things were loose, they spent rather freely. So there is an implication
to holding down prices in terms of promoting
higher levels of efficiency. There are other
more subtle factors that are tilting the
advantage towards providers, things like must have hospitals
and specialized services that undermine the negotiating
dynamic between private payers and providers,
geographic isolation, hospitals in isolated
areas basically can have their way in
negotiations, the ability to negotiate a single contract
for constituent facilities across broad regions like
the Phoenix area or Southern California, and also most
favored nations contracts or clauses, where you’ll
get certain payers like Blue Cross of Michigan
who have gone and said to the health system, we’ll
pay you what you want here, but you have to agree to charge
more to all of our competitors, so that Blue Cross has
a competitive dynamic. That’s been challenged in court. But that’s the
type of negotiation that goes on these days. ACOs and increased employment
of physicians by hospitals is not helping the dynamic. It tends to cause those
entities to muscle up. And basically private payers
are just acquiescing, just wanting to be slightly
better in competition but otherwise passing premiums
on to the private sector. And there are strong
incentives for providers to keep this buy side
fractured and weak. And it is a result
of the fact that they are rewarded for this. And so what we’ve done
basically is we’ve created, I think, an engine for
reallocating income. And certainly, in many respects,
as I said at the beginning, we are the best in the world. And there are legions
of professionals who seek to improve the quality
of their patients’ lives. But they’re caught up in this
ceaseless struggle over money, and the fragmented
set of incentives in this fundamental power
imbalance that exists. And again, another
representation of our system in a
quote from Bruce Vladik and Tom Rice in a
piece they did in 2009, that “We’ve created a massive
engine for the redistribution of resources from households,
taxpayers, and employers to those organizations
who provide care.” And that’s the way the
system is structured. So implications–
week buy side leads to price increases in
the private sector. And indeed, the
evidence internationally shows we are way high
when it comes to prices. If you don’t believe me,
just talk to Gerry Anderson. Other implication is
the delivery system. It’s a reflection of
our payments system. We have a fragmented
payment system, so we will have a fragmented,
disconnected, disjointed delivery system. Providers fight any credible
attempt to control costs. And payers too fight
attempts to control costs. As we see in the Accountable
Care Act discussion leading up to 2010 with the
public plan option, is private payers were against
that, because they feared having price discrimination
or cost shifting taking place when the public plan had
leverage to lower prices, they were going
to be cost shifted against, and as a result, fought
that cost containment effort. And instead it’s easier to
talk about fads or amorphous ways of trying to address or
control volumes or address cost, and in little
ability to address these real culprits of health
care expenditures, which as I said, are high prices,
high administrative costs, and weak purchasing power. So it boils down to
these three things– it’s the prices stupid. That was the title of
Jerry Anderson’s article. Both the irrationality of
pricing and also the level– and you can see here another
chart from McKinsey Global Institute. This is 1996 but
it just shows how prices explain a big portion
of the difference between us and other industrialized
nations– complexity, administrative costs, and
also lack of purchasing power. And it just really
strikes me as we’re the highest nation on earth
in terms of health care costs, and the only nation that doesn’t
have some sort of government involvement to try to
bolster the purchasing side of the equation. Social and economic
implications– I think they’re
quite significant. And we talk a lot about
our budget problem and our entitlement spending. It’s all health care. This quote from Professor
Binder from Princeton, “We don’t have a
spending problem. We have an overall humongous
health spending problem.” That’s what’s behind
the budget deficit. Peter Orszag, the
former director of the Office of
Management and Budget says that if we’re not
able to control this, there are going to be long
term fiscal imbalances, and really our
standing in the world depends on our ability to
control health care costs. Other prominent economists
have also raised concern. Joe Newhouse recently raised
the specter of us getting up to 80-90% of debt to GDP. Since we don’t want to raise
taxes, we can’t borrow. Otherwise we risk getting
into a downward spiral like we see taking place
in Europe these days. And basically the
structural deficit is on an unsustainable path. And then from a
social standpoint I would argue that
we’re heading down the path of creating a
two tiered health delivery system in this context, that
as the federal government cuts spending to try to
reign in the budget, we will see higher prices
to the private sector. And increasingly it will
lead to a diminishment of access of public sector, the
beneficiaries, both Medicare and Medicaid. And then there’s a
question about what about the middle class. It can’t afford the
private insurance, not eligible for the public. What’s going to happen? And in fact, I
think it’s already happening in California. This is a chart that just
shows Medi-Cal, their Medicaid program and Medicare
expenditures gradually going down over
time, and costs being shifted or price discrimination
to the private sector. And that directly
hits the middle class and employed folks. Other important observations–
I’ve already made this. It fragments the payment,
fragments the delivery system. But we do have the ability
to change payment and move from this largely fee
for service system to a much more
value driven system. And I’ll try to
focus on how I think Maryland is attempting
to do that now in other states like Vermont. So it needs to be comprehensive. Slowing public spending is not
the answer for overall system transformation. These gimmicks like
increasing the eligibility age or just cutting Medicare and
Medicaid just will shift costs. And the experimentation that
exists now, while meritorious, really are not going to
be comprehensive enough to rein in costs. So what we need is a
comprehensive payment system. There has been
recent interest and I think people are
finally realizing that there needs to be some
type of overall approach to addressing high prices
and the cost of care. Joe White, Jonathan Oberlander,
Ginsburg and Reinhardt had an interesting back
and forth in Health Affairs on a blog, Vladeck and Rice,
Joe Newhouse surprisingly came out with this
statement that he said that all payer
rate setting may be the only feasible
alternative to control costs. And then finally
Uwe with a couple of articles which
I think have been quite eloquent in
articulating these issues. What is an all payer system? Well under an all
payer system, you get a public body like my former
agency, the Health Services Costs Review
Commission or it could be a quasi public-private body. It would have the
legal authority to establish prices, both
a ceiling and a floor paid by both public and private
payers to all providers. It requires a common
unit of payments. You need to either payment per
unit like relative value units, or per day, or per case,
or broader episodes of care embodying both admission
discharge or even global budgets. It would mandate then a price
for a given service at a given provider, and these prices
wouldn’t vary, as they do now, across the board for all the
multiple plans that exist. And previously, we had
as many as 27 states that had some form of rate setting. Only four had all payer systems. That was Massachusetts,
New York, New Jersey, and then lastly Maryland. West Virginia,
interestingly enough, sets rates for the
private sector. And in a combination of Medicare
setting rates, Medicaid setting rates, it’s a quasi all-payer
system that can be coordinated, and has been quite effective. All-payer systems
have also been, as I mentioned, successfully
implemented internationally, particularly in Germany, Japan,
France, and the Netherlands, and many other OECD countries. Maryland is the last remaining
in the United States. . So talk a little bit about the
Maryland rate setting system– first it’s not an
American model. And when I go internationally
to present about Maryland, most people need to
hear this, because they don’t think very highly of the
American model of financing. Its the only state to
address the rapid growth and cost through
this type of system. And its based on the
premise that people respond to financial incentives. And these incentives
should be structured then to encourage
meeting the policy goals that you’ve established,
not such a radical concept. Our legislature
here believes also that these incentive
should be consistent, so that the people
responding can understand the signals
that are being sent, and then respond to them. And the principal
goals that this system was designed to structure
incentives around to meet are cost containment, equity in
payment and treating patients, access to care, transparency
and accountability, financial stability,
and lastly quality. Again, not too terribly
radical concepts here. It’s also predicated on
that original premise that I talked about
earlier, which is that health care markets
suffer from massive market failure. And rate setting
should be structured to set prices the way a
hypothetically competitive functional market
would set prices, that is, relate prices
to underlying costs, and reflect variations relative
of resource use over time, and try to get the prices
right or at least move them closer to what a
competitive market would produce. And this really is– it’s not rocket science. It can be done. But it stands in stark
contrast to that picture that I tried to paint in
the rest the United States. But you need an
institutional platform. So the legislature here set
up a central and independent government
commission, the HSCRC. It had broad powers of
data collection and payment design and implementation. There was an emphasis
on comprehensive design, as I said, applying to
all, heavy use of data and financial incentives,
and also this creed of avoiding excessive
market intrusion. Minimal market intrusion or
macro regulatory approach is a very important. Development of attainable
predictable benchmarks and targets and goals and
also take a long term view. Health care is important. It’s important not to disrupt
the industry year to year, but rather look to the long term
and gradually steer the course to where you want to go. Commission characteristics–
politically and legally independent. That’s vitally important. Politics plays a huge
role in this situation when you have market power. Governance– we have seven
commissioners that volunteer, professional staff of only 31. We regulate through a
formula based rate setting, not detailed accounting
based rate setting. So we can do it with 31 people. And broad powers of data
collection for all acute care hospitals, jurisdiction
over all the acute care facilities– $13 billion. No authority over part
B, which is a gap. It’s something that makes
rate setting rather truncated. Other characteristics–
everything is public. There’s an emphasis on
cooperative rule-making. In fact, we get
payers and hospitals in a room each and
every year, and try to negotiate payment
increases as best we can. So there’s an element of
negotiation that takes place. And we focus on
constraining costs, but not on limiting
management decision making autonomy, which
is also characteristic of a competitive market. A competitive market sets
an overall cost constraint, a revenue constraint,
but otherwise gives managers
tremendous flexibility to innovate and make decisions
to respond to those incentives. And we were similarly
structured in that way. And there’s
flexibility over time, and responsiveness
to industry changes, and also needs of
participants as well as to accommodate market
based innovations. It’s all made possible
by this waiver from Medicare that brings
Medicare into the mix, and makes the system all-payer. Guiding principles–
again, market failure. Legislature also articulated
some sound principles in our legislation
for setting prices, that they should be
prospective, known in advance, set at the beginning
of the year, the prices should
be related to costs, and also set around where
long term marginal costs is. That’s the way a competitive
market would work. Prices should be consistent,
equitably established. It neutralizes market power. And pricing mechanism should
apply to all purchasers, as I said, and emphasize
also that the level and the structure of
pricing are important. The level being
controlling price, the price level over time, but
the structure is important too. There’s a difference
in the incentives between fee-for-service
or per case, per episode, or global payment. The latter being more desirable
in terms of cost containment incentives. The benefits of
uniform pricing as you get better allocation
of resources, more stability,
predictability for management, less administrative costs
here, because hospitals aren’t dealing with
2,000 different insurance companies and different pricing
schemes for each of them. You also have a much fairer
sharing of hospital costs. It’s a much more
equitable system, less variation over time, less
variation in profitability as well. We tend to have cut off
the lows and the highs and provide support for
safety net hospitals, no antitrust concerns
with regard to pricing, and a basic coherent
framework over time to adjust and change
the system over time. And in fact, we’ve
done pretty well. On a cost basis
we’ve done very well. These are data from ’76 to 2009. We are 25% above the
US in cost per case, the beginning of that period. And we’re more than 3%
below, I think, in 2010 now. Cumulatively we’ve estimated
we’ve saved the state about $45 billion dollars relative
to had the state grown at the US rate of growth
over that period of time. So you can see this cost curve. I think we’ve
indeed bent it down, Maryland being the
lower pink line there. And had the US had Maryland’s
lower rate of growth, it would have resulted
in over $2 trillion of savings over that span, which
is, I think, fairly impressive. The only caveat to this is
it’s per case, because we are focused on the unit rate. The negative associate of it
is, when you control per unit, providers tend to do more units. And that’s indeed what
happened in Maryland, which I will discuss in a few minutes. Just comparing Maryland to the
US, and the fragmented system, fragmentation
dilutes incentives. And you get these
unpredictable systems. So you can compare the US on the
left hand side versus Maryland, and the so-called cost
shifting or what I really think is price discrimination
that takes place nationally. And Maryland’s system
provides just a much more coherent platform. And then illustrate
this more graphically in terms of markups
of hospital charges, what they actually post as
their prices, not what’s paid. But prices follow in
underneath this red line. The markup of
charges over cost– Maryland has the lowest
markups of any state in the US. It’s about 20%, whereas
markups nationally are up in excess of 200%
over cost over time. We prevent that price
discrimination, cost shifting, and as a result it forces
hospitals to constrain and manage their costs. We also have less price
variation over time. This data came from
the hospital HCUP program, which collects a
discharge data from each state. And it shows Maryland as a
far less variation over time, or in one year I should say. Well coming back to this
overall picture for the US– because I do think that you’re
going to hear more about this nationally. There are going to be a
number of papers and articles that will come out
proposing finally for a comprehensive and
coordinated system of payment, probably not at the
national level, more likely at the state level. Vermont is already
moving in this direction. Here are the reasons why I
think it’s inevitable that we’ll move this way eventually. One, it gets us down the
road towards more simple administrative costs. It improves transparency
and accountability. Those two things are related. It also provides for equitable
treatment of patients and equitable financing
of health care, so that you’re finally sharing
all costs more equitably across both public
and private payers. It can rationalize
prices, or at least get them closer to what a
competitive market might produce. We have a good record of cost
containment both in Maryland and in the other
states that implemented all-payer systems for a number
of years and internationally. The history is quite
strong in that regard. And nothing else, quite frankly,
will work as comprehensively or as quickly. And I’ll show you
some evidence of that. It can also be structured as
Maryland has been structured to be flexible, and not rigid
as many governmental systems are to preserve that dynamism
in the marketplace itself. And then be a platform for
other types of innovations, including innovations
on the quality side. Administrative
simplicity– it will reduce that complexity of
multiple payment systems and multiple prices over time. It won’t take out all of
the administrative waste, but it will get us on that path
towards a much simpler system. In fact, Vermont
is experimenting with what they call the single
pipe system, where they would preserve both private payers–
they have a Blue Cross plan there and several other
private payers, as well as Medicare and Medicaid, but
have all the claims adjudicated and processed through
a single pipe, a single processor to
try to create uniformity and standardization, which
they estimate ultimately could save the
system as much as 7%. And then there is this
increased transparency that comes with a common
claim form and common data across all payers,
where you can monitor patterns of excessive costs and
care patterns, identify fraud– and again Vermont, Dr.
[? Shaw ?] from Harvard quantified potential
savings in terms of reduce fraud and abuse of 5%. An example of that,
things we’ve already done in Maryland at
least analytically, is identify so-called reference
pricing of the best combination of physicians and hospitals. So here’s an example
of a scatterplot of combined physician-hospital
costs per case, percentage of adverse events,
quality on the vertical scale. And you can identify the average
of all of this cloud of data, and then also the
best performer. And that’s the reference price. Why aren’t we using this guy
more would be my question? Why our benefit
package is designed to encourage use of these
more efficient and effective providers more? Well this is the
type of information that a transparent
system can provide. There’s also patient level data
to identify inappropriate use and fraud and look at physician
performance and profiling. And this is data that we pulled
from our own database looking at individual physicians
providing stent procedures. And the size of the
bubble corresponds to the number of
stents that they provide, and also the rates
at which they provide them. That you can see
there are a number of physicians that are well
above the 75th percentile with several physicians
doing huge volume. This guy may not even
know he’s such an outlier. This type of information can be
vitally important to the health system over time. I also mentioned equity. It allows for fair
treatment of patients. There’s concern about
diminished access over time for
public beneficiaries in an all-payer system. Providers have the
same incentive, whether you’re Medicaid,
Medicare, private sector, uninsured. There’s a mechanism
for financing your care effectively, and equitably,
and also potentially financing uncompensated care. In Maryland we funded
over a $1 billion of uncompensated care
per year and spread it across the rates of all payers. So generally it’s a much
more equitable system. You also get a much more
stable financial situation for providers, in that you’ve
got prospective prices. They know what the price is. They can budget and
manage more effectively. And they’re protected against
uncompensated care or payer makes shifts during
the course of the year. And as a result, the bond rating
agencies, Moody’s, Fitch, S&P, consistently gave
Maryland hospitals credits in their evaluations. And we tended to have
the highest proportion of investment grade
rated hospitals in the nation of any state,
because of this predictability. We are a tick below the US
in terms of profitability. But they put a lot of emphasis
on this financial stability. And I mentioned also, the narrow
band of financial performance– MedPac did a study
on us that shows that we had a much narrower band
than most any other state, 46 states and District of
Columbia, where we basically cut off the highs
and cut off the lows, and support the
safety net facilities. And as I said, a really
good track record over time of controlling
payment levels– we need to look
at payment levels, because they are
excessively high. History shows that
we’ve done well, all-payer systems
have done well. The literature
strongly supports this. And what it does basically
is all-payer systems restore that oligopsony
purchasing power to the marketplace. It puts all payers
in the same boat, and it eliminates that
hesitancy or resistance to any cost containment
measure of another payer, as we saw during the discussion
of the Accountable Care Act. And the principal focus
of all of this, of course, is to control costs. But there are other
health care policy goals that can be met as well. And lastly, I think this is
the most compelling thing is nothing else works. This came out from the
Congressional Budget Office, 2002 in January, which showed
that most of the Medicare demonstrations haven’t had much
success, little or no effect on hospital admissions. Only one of the
four demonstrations yielded significant savings. That was the
bundled payment demo back in the ’90s
for a cardiac care. Other demonstrations resulted
in little or no savings, and they also made
the observation that ACOs with little risk, just
layering on these tools on top of fee for service was a
somewhat pointless exercise. By contrast, instead of
looking at these marginal ways of trying to etch away at
the cost system, the narrowly focused and inconsistent
initiatives, both the Rand Corporation
and the Urban Institute recently came out with
an array of estimates of what types of initiatives has
the most potential for savings. And lo and behold,
all-payer rate setting was by far and away
the most effective. They projected over the next
10 years cost savings of 5.9% or $1.3 trillion. And that’s supported
by the evidence that we see of where costs
are now for hospitals relative to most efficient
hospitals in the United States, which are about 9% to
11% below the US average. If we can gradually
get there, you can generate savings
of this magnitude. An all-payer systems
graphically– taking a look at that
fragmented structure that I showed before,
basically what it does is it provides this
consistent platform to try to rationalize this
otherwise chaotic stream of funding to hospitals. And that’s what we try
to do here in Maryland. However, this is price fixing. I mean, we agree. But we think it’s better
than the alternative. And there’s a famous
quote from Tom Scully who was the former administrator of
Medicare and Medicaid Services, and this also came from his
Uwe’s blog, where he described himself as a dumb price fixer. Perhaps so– one would
be hard put, however, to defend the current
bizarre private sector price system that produces data such
as those shown in the tables that Uwe’s presented to
prices all over the map. Dumber might be a
more appropriate word for what’s going on nationally. And actually given a choice,
I’d rather be dumb, particularly given that type of dynamic. So I mentioned before
that there were weaknesses to rate settings. So I want to kind
of wrap up with how we might look to reinvent
a rate setting structure. Paul Ginsberg has
hypothesized that an all-payer consistent
incentive type approach might actually provide an
amplification of some of these bundled payment and
global payment initiatives that are being pursued on a
very narrow basis by CMS. And I agree with that. In fact, that I think is what
we’re trying to do in Maryland. One weakness of rate setting– I mentioned early on, when
you constrain unit prices or per cases, providers
tend to do more cases. And that’s, in
fact, what we saw. There’s also evidence
that there may be a diminishment of quality
in rate setting states, although the literature
is somewhat mixed. Recently we’ve seen that we’ve
had high central line infection rates, high sepsis rates,
high readmission rates. So we want to use our
data and our metrics to try to tackle that. And we’ve started to do that–
and I’ll show you in a minute– to try to build incentives for
higher value, both efficiency and quality. And then there’s this issue of
aligning hospital and physician incentives. And I have some ideas
and thoughts there. And then there’s the
political arena, which despite our independence always
was looming in the background, and will continue
to be problematic, needs to be addressed. So incentives to
do more volumes. As I said, we saw
this in Maryland. You’ve seen this with
the physician fee schedule in Medicare and the
sustainable growth rate, where fees get ratcheted
down, physicians tend to do more volumes. And it’s this
never ending cycle. And it’s interesting, because
we have had volume adjustments in our payment system. Medicare hasn’t. And I think that was
a crucial mistake in the design of the IPPS. And then unfortunately, we gave
up on our volume adjustments in 2001. And volumes took off. And I could show you
evidence of this. This just shows from almost
the day that we took the volume adjustments out, meaning we were
only rewarding hospitals that only provided $0.85 on the
dollar for increases in volume, trying to match up the price
with their marginal costs, or long marginal cost. In fact, a 15% fixed cost
adjustment isn’t high enough. I think it should be
significantly higher to actually rein in this
incentive to generate money on the margin. But hospitals responded
to that incentives, and volumes took off, and that
undermined our cost containment in the state. So moving forward the focus
from a policy perspective are in these areas– keep the level tight. Change the structure
of payment to embody more beneficial incentives to
control costs over time, i.e. expanded bundles, episode
based payment, and finally global or capitated payment. Increased quality
measurement and apply more stronger incentives
to performance on quality– we finally have outcome
measures, process measures, experience of care that give
us some semblance of idea of quality. And then finally try to align
incentives across hospitals and physicians. And as I said, that
all-payer system really provides
a unique platform to be able to do some of this. Talk a little bit about the
characteristics of episode based payment. It involves transfer of risk
from insurers to providers. So you have to be careful there. It moves along that spectrum,
that horizontal for fee for service, to per
case, to bundled episode, and then also capitation. And moving in that
direction is positive. It ultimately is
providing population based rate setting, which is
what Vermont is attempting to do, establishing expenditures
for a given population, and having hospitals be
accountable for that. In Maryland, there were about
four or five different things that we tried in the
process of trying now. We moved the payment from
per case out to per episode, including admission and
all cause re-admissions. We negotiated 10 global
budgets for rural facilities. I’ll talk about
that in a minute. We developed a system for
capitating suburban hospitals in more densely
overlapping service areas. There are course case
rate arrangements that we’ve had for a number
of years, include both the physicians and hospitals. And then looking at other ways
of aligning these incentives across providers. And then lastly, commensurate
with all this, trying to increase the incentives
for quality, because clearly under these bundled payment
structures, their incentive to potentially skimp on
quality, reduce service, we want to make
sure hospitals are accountable for both their
efficiency and their outcomes. I’ll step through these
quickly– readmission, admission. We were approached by
three hospitals in 2010, and developed an intra-hospital
readmission structure that basically most
of the hospitals are under currently,
where they are at risk for all their re-admissions. Its about 9% of system revenue. We provided seed funding
to try to help them with infrastructure,
and then also to develop a dashboard of monitoring
utilization and quality measures along the line. So basically previously you had
this very desegregated system where a hospital got
paid for every admission and every readmission. And the incentive
was to do more. Under the new structure,
we put a box around it, and said now you’re at
risk for the entire episode going out based on your old
profile from the previous year. And hospitals are able
to cut re-admissions, get to keep savings associated with
that, and if they exceed this, then they’re basically capped
at their previous year profile. I mentioned global budgets
for rural hospitals. We call them Total
Patient Revenue or TPR. We negotiated 10 of
these arrangements. They’re relatively
easy to structure, because there is an implicit
matching of a population, because it’s isolated area
to an expenditure base, the hospital expenditure bases. So it’s hospitals like
Washington County, or Western, Maryland, or on the
Eastern Shore where there isn’t much overlap. They’re dominant in their areas. And they are basically
oriented towards treating that population. So we established a global
budget, a cap for them based on history, and
then hold them to that. Link into various quality
metrics over time. And then get them
to treat the needs of that particular community. And that’s truly much more
population based rate setting. It gives you a
potential for a platform to do gain sharing
with physicians. These are three year
voluntary arrangements. But we’re hoping that
it will continue. And it was a substantial
portion of revenue, about 10%, or about $1.4 billion. So global payment at
the highest level– cap the hospital. Basically that’s
the structure there. Now the idea behind
this was move toward regional
expenditure limits, so that if you
could cap hospitals in different parts
of the state, you can set regional budgets
for each of these areas, and then try gradually over time
to bring that cost trajectory down closer to GDP growth. But bring them in at
historical levels, give them time to
adapt and change, broaden the incentives
to include post-acute and physician, and
then control things on a more regional basis as a
function of what GDP growth is. Now TPR is not
applicable to hospitals in urban areas,
or suburban areas, because you can shed patients,
and do well under your cap on that type of structure. So you have to have more precise
definitions of populations attributed to expenditures. The ACO model
attributes patients to individual providers. We can do it on a
service area basis through a method we call
Population Based Rate Setting, or PBR. Most of you know that as
Pabst Blue Ribbon, which is what we were
drinking at the time when we created this system. But it is something
that can actually relate the two fairly distinctly
for areas like Montgomery County or even north
Baltimore, a group of providers on a regional basis. The target hospital would be
at risk for their patients, as well as all hospital
expenditures in that region, and the system could be
implemented or monitored through the HSCRC. And then the ultimate
iteration of this would be actually, if we had
the data across all-payers at the claims
level, to attribute patients on an all-payer basis
to individual institutions. And then their
expenditures would follow. And we could set caps
for Johns Hopkins, or Bayview, or some
of the city hospitals. The philosophy is unlike the ACO
structure which gloms together different entities that
have different incentives like hospitals and physicians– the hospital under
this structure assumes the underwriting risk. Physicians, under a primary
care or advanced medical home assume relatively
little risk, but they have similar incentives. And that’s the philosophy. So PBR, Population
Based Rate Setting would address most of the
other areas in the state. And again, trying
to get to that level of setting regional
expenditures. We also did something with
regard to quality of care. We tried to develop
outcome measures. I’ll step through this quickly. But again, that
emphasis on care– this shows our hospital
acquired infection and also complication structure,
which rewards facilities for lower rates of complication
and penalized those with high. So here’s infections
due to essential venous catheters, number of
hospital acquired infections, costs per episode, total cost. Here’s this structure that shows
the better performing hospitals are at the bottom. The worst performing
are at the top. And we reallocate revenue
from the top to the bottom. It’s revenue
neutral system wide. But we’re devoting
$20 million to this. And it gets people’s attention. Recent outcomes results– we
reduced hospital complications by 20% over two years. It’s about $105 million
and the cost savings we hope through reduce
re-admissions of between $100 and $200 million. So finally, we also need to
focus on this value equation. We’ve been talking a
lot about efficiency, quality is equally important. We’re measuring hospitals, both
on the efficiency scale, that’s the vertical, high
cost, low cost. And then we also measure
on the quality scale through a broader portfolio
of quality measures. Hopefully that’s the way
the commission is moving. And then have incentives to
try to push facilities down into that lower quadrant– very similar to a cost
effectiveness quadrant, although I think I have my
quadrants mixed up here. We’ll try to also address
misalignment of incentives, hospitals, and physicians,
which contributes this huge variation over time. There are these federal
laws, the anti-fraud and abuse laws
that really prevent cooperation between
hospitals and physicians. Maryland’s the perfect
platform to try to get waivers from those laws, Stark,
anti-kickback, civil monetary penalty. And you have structures
like the state and the Blue Cross primary care
advanced medical home model– so set up the same incentives
as the hospitals that are under these capitated models. So that has tremendous
potential to align incentives. So that’s what’s
happening in Maryland. That’s my case for
an all-payer system. In wrapping up, I’ll
talk a little bit about challenges for
the US and Maryland. First, we’ve got to break
the culture of volume. And then we’ve got to get this
payment system out of the way. You can do both by these
structures that I’ve mentioned. Open up these silos reward
hospitals and other providers for coordinating. It really involves
towards moving back to a system of
volume adjustments, but also capitated
payment models, which are better than the ACO
structures I would say, because it’s all-payer and it
doesn’t have these conflicting incentives. And we emphasized moving out
into the physician community and aligning the incentives
with the various models we have now, which will weed
out inefficient providers. We have more physicians
than we need. And that will be something that
will be needed to be addressed. So real and meaningful
cost containment also means avoiding
regulatory capture. The political side of
it is equally important. Every state has a hospital in
every legislative district. And there is tremendous
amount of political firepower that goes along
with market power. And local politicians see health
care as an economic engine to increase job growth
in the United States, when in fact, because
it sucks so much out of the rest of our
economy, it’s probably more that we get 1.2 jobs
lost for every job we add to the health
sector currently the way it’s structured. And that tremendous
political influence I think undermines the ability
of us to confront this overall comprehensive
problem with courage, because every dollar
of cost containment is one less dollar of
income to providers. And that’s a challenge
that’s going to be very difficult to overcome. So it’s vital that we make a
rate setting agency insulated politically,
independent and free from many any potential
conflict of interest. That’s what they’ve
done in Vermont. There’s one board, which
is a voluntary board. It reports only to the governor. And it is completely
isolated from the providers and also from the
politics up there. So I think they have a
tremendous advantage. So implications,
final thoughts– I don’t think we’ve broken
the back of health care costs. And US pricing is what
Churchill described Russia to be in 1939, “A riddle,
wrapped inside of a mystery, inside of an enigma.” That’s something that
we’ve got to break. The main culprit
is market power, the lack of market power. I mean, if you don’t believe
that, just look around. Look at Germany, Japan,
Netherlands, Taiwan, every other
industrialized country has bolstered the
purchasing side. And then it’s rationalizing
both the level, constraining prices over
time, and then expanding the structure of payment, which
are the keys to delivery system transformation. Payment reform has got
to be comprehensive. It can’t be just Medicaid,
Medicare cutting over time. That’s not going
to save anything as hopefully I’ve illustrated. And we need a solution
as soon as possible. There are large economic
and social consequences. And final, final thought– more capitated the better. Vermont and Maryland are
moving in that direction– much stronger incentives. Realistically there are only
a few states that will likely adopt this type of structure. I think there are only
some limited tolerance for government
intervention, although I’ve seen studies that show that
over time the public wariness of government intervention
on the health care side is declining. So one middle ground approach
to restore market power might be to legislate
maximum payment levels for private sector
in various states, just some multiple of Medicare. Make it 150% of Medicare. When large health
systems are charging two, three, four times what Medicare
is not charging, getting paid. So anything that can be done in
that regard that’s incremental, that can try to shift
this balance of power back to the purchasing
side, I would argue would be beneficial. And with that, I’ll
stop, and take questions. Thank you very much. [APPLAUSE] CLARENCE LAM: So if
you have questions, we’re going to try to use the
mic as soon as it comes on, so that way folks that
are on the webcast can hear the question as well. ROBERT MURRAY: I don’t see
anybody raising their hands, so I must have stunned everyone. AUDIENCE: I imagine some of the
greatest political resistance to an all-payer system
may be from those who would lose their income
from the efficiencies brought about by the
system, particularly in the administrative costs. I say this as a
health policy student who probably my salary might
contribute to that overhead. So could you speak to the early
’70s, Maryland’s experience with absorbing those
jobs in the economy? ROBERT MURRAY: In the early
’70s, absorbing those jobs in the economy– could you clarify
that a little bit? I’m not sure I fully
understand your question. AUDIENCE: So I imagine
that there were people, their salaries
would be classified as health care overhead. And then as you saw the
all-payer system introduced, you saw greater efficiency
as part of that system, and instead of some of the
higher costs in the system, you were down to like
3% or however many– ROBERT MURRAY: We got
down to about 11% in 1993. AUDIENCE: So where did those
people go in the economy? Where were those jobs? They didn’t become unemployed. How did Maryland absorb
them, because you don’t want a whole bunch of
people becoming unemployed. The legislators
won’t enact that. ROBERT MURRAY: Well, I don’t
know that it was identifiable. One of the things
about this structure is that it was
gradual over time. WE didn’t apart from
25% above to 11% below. It was gradual over the course
of that period, ’76 to ’93. And so I can’t
really fully answer your question, because I don’t
know where those people went. But over that period of time,
either through attrition or through retraining, they just
migrated out of the industry. The achievements that
Maryland made are significant, but they’re nowhere
near the magnitude of reducing health care waste
and expenditures of 20% to 30% that we need to. So it will be a much
more important question. What happens to all the
specialists that we don’t need? I don’t know. Perhaps they’re retrained
as primary care physicians. But there are a lot of
specialists out there we don’t need to be quite blunt. And so it will be an issue. Hopefully, we will be able
to encourage more people to go into primary care,
become nurse practitioners, physician assistants,
because that’s what we need. And that’s the
reallocation of resources that needs to take place. Yes? AUDIENCE: It seems
that the going thought is that bundling
payments would actually improve quality of
care, because people wouldn’t want re-admissions. You seem to be saying a
little bit ago in your talk that they would be trending
towards skimping on quality. Can you talk a little
bit about that more? ROBERT MURRAY: I think, in one
hand, you’re exactly right. When you expand the
breadth of payment, you have the potential now to
coordinate more and benefit from that, if you can take
waste out of the system. But the incentives
purely in that structure alone is to reduce use. And there’s always the potential
that it can be overdone. For instance, with
re-admissions, if there wasn’t some monitoring
or some quality of care measures that people
were held accountable for, people could
bounce back to the ER, they’re just bandaged
up, and sent home. And the hospital
benefits from that. Well, you don’t want
that type of outcome. So you have to monitor
and reward hospitals and health systems
for better outcomes along with that
to go hand in hand with this now new found
autonomy to coordinate. So it needs to be both. But you’re absolutely right. It now opens up the spectrum of
being able to coordinate care and that should lead
to better quality. AUDIENCE: So I’m
not sure I believe there would be much job loss. But there may be a reduction
in the growth of jobs in health care certainly. Do you anticipate any other
potentially deflationary effect? Could such a system,
which I think has many advantages,
for at least a period of a couple of years
have a negative impact on the overall Maryland economy? ROBERT MURRAY: I
think, to the extent that we rely on health care
sector for job growth, yeah, maybe it will be a bit. But I would tend
to agree with you. You won’t see large
scale taking folks out. It will moderate the rate
of growth of health care costs and employment. I just think it needs
to be done immediately, but gradually, because it’s
best to avoid large scale disruptions in the
health care industry. I think what you’ll see is a
consolidation of hospitals. We have more hospital capacity,
far more than what we need, and– like teaching
costs and research, and so on, those
need to be supported. But the academic structure
does not necessarily exemplify the best model
for overall efficiency, I don’t believe, the
way it’s configured now. So eventually things
will have to change. CLARENCE LAM: We have one
question that came in online. AUDIENCE: The
question from online is, I’m unclear
what you’re saying about the role of emerging
accountable care organizations in the cost control battle. Why do you view them as part
of the problem or solution? ROBERT MURRAY:
Well, I think what the big criticism
of the accountable care organizations–
maybe not big, but a criticism is that
in a structure where the incentives are directed
toward consolidation and increasing market
power, ACOs now provide additional incentives
for hospitals and physicians to, again, muscle up. And to the extent that
they have very limited risk on the side of the ACO
and still are operating largely under fee for service system
where every incentive is price up to the private sector, ACOs
just feed into that dynamic. And that’s a problem. Plus the incentive structure
for physicians and hospitals within the ACO are
disparate I would argue. Most of them, again,
will be still operating under fee for service. And it attempts to glom them
together under one governance structure, and just presume that
that governance structure is going to get them
to work together around a set of very
weak incentives in a very narrow area. And I don’t see that as
effective over the long term. The incentives are right. It needs to be comprehensive. It needs to be
all-payer and also recognize the different
tolerances of these groups for accepting underwriting risk. Physicians can’t accept
underwriting risk. So they’re forced to be
in with the hospital, and it just won’t work. In that’s my humble opinion. Yes? AUDIENCE: My question is
a little bit skeptical, just from a national
level, because you’ve mentioned many times about
how basically the way it’s set up, is there’s a
lot of people getting rich of the ease at which the money
can be contributed to health care practitioners– so my
question is in the next 10 years what’s your realistic
expectation of this, because the power dynamics
are so skewed politically and economically between the
people that are getting health care and the people
that are receive the benefits of the
system as it is? Yeah, ROBERT MURRAY: I think
that’s the real challenge. I believe that you’ll get a
few states, like Vermont maybe Washington state, Oregon,
Northeast, Northwest, that will move more in
this direction, and then have a great
deal of success for it. So you’ll see the
disparities there. Hopefully the federal
government gives these states enough flexibility to
move down this road. Ultimately the disparities
will get so huge, and the financial burden,
both the access issues will widen out, those
graphs that I mentioned, and we won’t control spending,
that the government will have to take over. And they will probably take over
in some sort of single payer. And maybe this doesn’t
happen for 10 years. But when we’re up above
80%, 90% of debt to GDP, they’ve got to do something. And I just maintain nothing
else will rein it in, except for a single payer, which
I think has its weaknesses, or something that’s
more comprehensive that gets at this market power. And as Peter Orzach
said, it is really the future of the country
to a large extent. I believe that. AUDIENCE: Do you think that 10
years is a reasonable timeline? ROBERT MURRAY: Well, you
could project it out. I mean, I think,
in 10 years time we will likely be up around
80%, 90% of debt to GDP. That’s assuming we
don’t raise taxes. But there are
negative implications to raising taxes too from
an economic standpoint. So I think the real key is
when business gets behind us. And eventually business
will have to support this, because then they will get
to a tipping point as well. And there may be
disruptions too. I mean people may just drop
insurance, the employers, and say, well, let the
exchanges pick it up. And so could happen
sooner, like 2015, 2016. There will be some cataclysmic
things that will happen. And it could accelerate
in that time frame. So I think it’s
less than 10 years. CLARENCE LAM: Let’s take
one or two more questions. AUDIENCE: A related question
So can you speak about how does HSCRC work with
CMS, because to me it seems like CMS should
have every incentive to work with you to contain
the cost of private insurance, otherwise they continue
to see our providers decline Medicaid and
Medicare patients. And also, if that’s true that
they should have incentives for working with you or
[INAUDIBLE] all-payers system, can they be a
political force to help other states to overcome the
hurdles, and pick up the model? ROBERT MURRAY: Well
I think generally they do have an interest
in working with states like Maryland and Vermont. And there is this Center
for Medicare and Medicaid Innovation that was set up
through the Accountable Care Act. They’ve got pioneer
ACOs, bundled payment, other primary care advanced
medical home models, things of that nature. So they’re experimenting
within that structure. They’re very, very interested
in multi-payer applications of these innovative payments. The problem is they need
to do it sooner, faster, and have more of an
emphasis on the multi-payer. So they’re interested
in working with Vermont, potentially have Medicare
participate in a payment model, make it like all-payer
like Maryland. But they haven’t quite changed
their mindset to think big. They’re still
thinking pretty small. And my worry is they’re
running out of time. Plus there is this
issue of data. They won’t even allow Medicare
data to be used broadly for these payment models. They are very restrictive in the
use of the data for Medicare, which is crazy. If they want to stimulate these
things on a multi-payer basis, you need Medicare data
into your structure, your all-payer
claims database to be able to model this out and
develop multi-payer strategies. So eventually, hopefully
it’ll get there. They’re held back
by Congress though. Congress is not necessarily
freeing up the purse strings or the flexibilities. So one more did you say? AUDIENCE: I was wondering,
if you mentioned already, what would you [INAUDIBLE]. ROBERT MURRAY: I don’t
have any empirical evidence to comment on the last one. I have read just general
literature about rate setting, whether it impedes or stimulates
innovation and technology diffusion. The general literature indicates
that rate setting states tended to impede
diffusion of technology. I don’t know– the
review of the literature I saw said about a 2/3 rate
of the rest of the country. So there is, for
better or worse, some sort of constraint
on technology diffusion and adoption that may have
both negative or positive connotations. As I mentioned, there’s
some concern about quality in rate setting states too. But at the same time,
technology diffusion also has a big cost driver– so back and forth there. In terms of competition,
I can tell you that there were some for-profit
hospitals in Maryland in the early ’70s, ’80s. They all left. And largely because
their strategy is to play the revenue game, to
try to maximize profitability as opposed to managing costs. Now I think they’re
doing both but. You know, it’s like buy up
hospitals in a certain area and then jack up prices– is the modus operandi there. I think they could do very well
in this environment for profit, more incentive to
actually reduce costs, and you’re under a target. So go to it. It’s just like most
other industries. So for whatever reason,
you’ve seen that type of light from regulation. And if they figured it
out, they should come back. But maybe they will when
things get tight elsewhere. Pretty good on the public side. Well, thank you for
sticking around. I know I’m probably
eating into your day here. And I wanted to mention
this is the Hal Cohen, who was the original founder of
the Health Services Cost Review Commission who passed
away unfortunately earlier this year. But thank you very much. And it’s really been an
honor to be here and be back in front of you. CLARENCE LAM: There’s a
reception out to your right.

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