Welcome to Implications of Policy, Finance, and Business on Population Health. The four lectures in this unit provide an overview of the key financial and regulatory drivers of the U.S. health care system. Highlight innovations at the state employer and health system levels, and outline important future challenges facing population health and IT from the financial and business perspectives. This is Lecture a. The objective for this lecture of Implications of Policy, Finance and Business on Population Health is to discuss and interpret the key financial drivers of the U.S. health care system and their implications. This slide highlights the enormous amount of waste in the health care system, and is taken from an article by Don Berwick in the April 2012 issue of Jama. In the lower right corner of the slide, the estimates of waste from this study range from a low of 21% to a high of 47%, which is in line with other studies that have examined waste in the U.S. health care system. This waste generally falls into three sources, behavior, clinical and operational. The behavioral category might include things like obesity, smoking, non-adherence to prescriptions and alcohol abuse. These are areas that are more under consumer control, and would be spread among the two categories of waste on this slide. Failures of care delivery and failures of care coordination. The clinical category would be spread in this slide among failures of care delivery, failures of care coordination and overtreatment. They would include things such as defensive medicine, preventable hospital admissions, medical errors, unnecessary treatment variation, hospital acquired infections and overprescription of antibiotics, etc. The operational category would encompass, on this slide, the categories of administrative complexity, pricing failures and fraud and abuse. This category could include continued use of paper forms, redundant claims processing and ineffective implementation and use of IT. Given that the U.S. spent $3 trillion in 2014 on health care, reduction of waste could translate into potential savings of anywhere from $600 billion, to $1.5 trillion in the U.S. health care system today. In 2014, $3 trillion was spent on health care. These percentages are drawn from the National Health Expenditure Fact Sheet that is published by the centers for Medicare and Medicaid services, CMS. Although the totals are slightly different, the percentages are still relevant. Households accounted for 28% of the spending, which includes their share of health insurance premiums and out of pocket costs for things that are uncovered by insurance. Such as complimentary and alternative medicine, copays, cosmetic surgery, over the counter medications, etc. The federal government accounted for 28%, which includes Medicare, the federal share of Medicaid, care in the Veterans Health Administration and Department of Defense and biomedical research. Private business accounted for 20%, and is predominately made up of employer contributions to health insurance plans for their employees. The states accounted for 17%, which is predominantly their share of Medicaid and the costs of running local public health agencies. Other private expenditures of 7% include expenses for administering the health plans and private biomedical research. As you might surmise from this slide, there is financial tension between our roles. As consumers and patients, we would like more health care and better access. As U.S. taxpayers and employers, we would like to pay lower taxes and premiums. Similarly, the federal government would like to provide more health services to its voters, but does not like to enact more taxes, which are always unpopular. Thinking back to the previous slide you can see that if we are able to find ways of reducing waste, then we as consumers and taxpayers, can have it both ways. Better and more health care at lower cost with no increase in taxes. The predominant model of reimbursement for health care services within the U.S. is fee for service. Simply put, the more you do, the more money you make. Because of the reward for volume, it has been the case that if we made a mistake in the delivery of care as providers which resulted in more morbidity for the patient, e.g. requiring a second procedure, repeating a test, or a longer stay in the hospital we would be actually paid more. Can you think of any other industry like that? Don't we, as consumers, expect our service provider to deliver as promised. And if a mistake is made, expect the service provider to make good on the promise, and not charge extra to correct the problem? Many health economists and industry experts cite the economic reward for volume, instead of value, as one of the main drivers of increased costs in health care in the U.S.. This slide illustrates the alignment and misalignment of incentives inherent in the different reimbursement models. Policy makers have theorized that if they could change the reimbursement model they could reduce the incentives to produce more volume of care and instead focus on the value. On the y-axis is the level of financial risk born by an entity. And then on the x-axis are the different models of the reimbursement. The higher you go on the y-axis, the more financial risk one bears. On the x-axis, one moves from a cost reimbursement model to FFS, which includes cost plus some margin to per diem, in which a hospital is paid a fixed amount of money per patient day in a bed, but is paid more if the patient stays more days. To a bundled payment per episode, such as a CABG, a hip replacement, or the birth of a baby, where there is a fixed price for hospital and physician services. To, finally, on the right side, capitation. Where there is a fixed amount of money, per person per year. Usually expressed as a per member per month PMPM payment. When that person joins a health plan or HMO. The patient or employer pays a fixed amount of money to the health plan, who in turns pays the delivery system a fixed amount per month for care. And in return, the health plan and/or delivery system agrees to provide all the care that the patient requires during the period of time that they are a member. As you can see, the risk for the costs of care shift from the patient to the provider, as we move to some of the alternative payment models, along the x-axis. The theory then is that if you are the provider, and the financial risks shift to you, then you become much more motivated to eliminate some of the waste that we identified. This is in fact, what has happened among HMOs like Kaiser Permanente. The Triple Aim, improve health, enhance patient experience and reduce costs was developed by Dr. Don Berwick when he was the CEO of the Institute for Health Care Improvement, IHI, in Boston. And popularized by Dr. Berwick when he was head of CMS. As mentioned at the beginning of this lecture, he estimated that between 27% and 47% of health expenditures are wasted. Historically, many people had felt that one could not improve the quality or the experience of health care without increasing costs. Because of the insights Dr. Berwick gained from his quality improvement work at IHI in identifying healthcare waste. He felt we could achieve the Triple Aim in the U.S. by changing the reimbursement models, as we mentioned in the previous slide, coupled with better measurement. As we look at the definition more closely, one of the key terms is improving health, not delivering more health care. In other words, by focusing on the outcomes and not the process of care. Another key is defining the target population whose health you want to improve so that you can make the appropriate proactive investments to ensure they get the most appropriate care, including prevention. Enhancing the patient experience means, not only improving the quality and coordination of the care that patients receive, but also providing more convenient and broader access. Making sure care is reliably delivered when needed. Finally, the Triple Aim calls for reduction, or at least flattening of the rate of increase, of health care costs per person in the U.S., primarily by eliminating the waste we identified at the beginning of this lecture. This concludes Lecture a of Implications of Policy, Finance and Business on Population Health. We've discussed some of the key financial drivers in the U.S. health care system to set the stage for our later lectures on the initiatives at the federal, state and delivery system levels to align the incentives and deliver better health, better patient experience, and better costs. The investments in population health IT, measurement and education are key enablers to achieving the Triple Aim.
