Why Value? An Overview of Healthcare Financing€¦ · Portugal. New Zealand Australia. Finland....

February 13, 2020

Why Value?An Overview of Healthcare Financing

DAVID MUHLESTEIN , PHD JD

CHIEF RESEARCH OFFICER

@DAVIDMUHLESTEIN

[email protected]

©2020 LEAVITT PARTNERS 2

Learning Objectives

Topics To Cover

1

3

4

Key Challenges

Current Efforts

Barriers and Opportunities

Need for Value

2


Three Facets of Healthcare

See also Reinhardt, Uwe, “Priced Out” 2019

Clinical Care Financing Administrative Structure

The Need for Value


Insurance Coverage

16.7%18.2%

11.0%

8%

10%

12%

14%

16%

18%

20%

Uninsured Rate Among the Nonelderly Population1972-2018

Source: CDC, “Long-term Trends in Health Insurance Coverage: Estimates From the National Health Interview Survey, 1968–2018” https://www.cdc.gov/nchs/data/nhis/health_insurance/TrendHealthInsurance1968_2018.pdf


6Healthcare Spending by Country

Total Spend

0

2

4

6

8

10

12

14

16

18Tu

rkey

Russ

ia

Mex

ico

Luxe

mbo

urg

Latv

ia

Pola

nd

Lith

uani

a

Esto

nia

Slov

akia

Czec

h Re

publ

ic

Isra

el

S. K

orea

Hung

ary

Irela

nd

Cost

a Ri

ca

Chile

Icel

and

Gree

ce

Slov

enia

Italy

Spai

n

Port

ugal

New

Zea

land

Aust

ralia

Finl

and

Grea

t Brit

ain

Belg

ium

Denm

ark

Net

herla

nds

Aust

ria

Nor

way

Cana

da

Japa

n

Swed

en

Germ

any

Fran

ce

Switz

erla

nd USA

Perc

ent o

f 201

6 GD

P

0

2

4

6

8

10

12

14

16

18Tu

rkey

Russ

ia

Mex

ico

Luxe

mbo

urg

Latv

ia

Pola

nd

Lith

uani

a

Esto

nia

Slov

akia

Czec

h Re

publ

ic

Isra

el

S. K

orea

Hung

ary

Irela

nd

Cost

a Ri

ca

Chile

Icel

and

Gree

ce

Slov

enia

Italy

Spai

n

Port

ugal

New

Zea

land

Aust

ralia

Finl

and

Grea

t Brit

ain

Belg

ium

Denm

ark

Net

herla

nds

Aust

ria

Nor

way

Cana

da

Japa

n

Swed

en

Germ

any

Fran

ce

Switz

erla

nd USA

Perc

ent o

f 201

6 GD

P

Government & Compulsory Spend

Source: OECD (2019), Health spending (indicator). doi: 10.1787/8643de7e-en


Continued Growth of Medical Care

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1950s 1960s 1970s 1980s 1990s 2000s 2010s

Average Difference Between Medical Inflation and Total Inflation

Average: 1.7%

Source: St. Louis Reserve, “Inflation in the healthcare industry vs. general CPI”


National Health Expenditures8

$3.6T

2%

31%

0%

5%

10%

15%

20%

25%

30%

35%

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

1960

1970

1980

1990

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Perc

ent o

f Fed

eral

Spe

ndin

g

Spen

ding

in $

Billi

ons

Total Spend Percent of Federal SpendingSource: Leavitt Partners Analysis of Federal Health Expenditures and Gov’t Spending


Projected Federal Budget

Federal Spending, 2000-2048

Source: CBO 2019 Long-Term Budget Projections

18%31%

13%

22%23%

22%

47%

26%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% o

f Fed

eral

Spe

ndin

g

Other Spending

Social Security

Net Interest

Health Care

Actual Projected


-5.3%

-8.8%

-16.8%

-24.3%

-30%

-25%

-20%

-15%

-10%

-5%

0%1-Year 2-Year 5-Year 10-Year

Projected Relative Reduction in Federal SpendingExcluding Healthcare, Social Security and Interest


Healthcare’s Impact on Income

$4,550

$2,900

$5,050

$1,450

$13,050

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Family of Four with Employer-Based Insurance, $100k Income

Employer Contribution to Insurance

Employer Contribution to Medicarepayroll

Taxes that Fund Health Programs

Out of Pocket Spending

Health Insurance

$27,000

Source: Kaiser Family Foundation. Household Health Spending Calculator, Peterson-Kaiser Health System Tracker

Key Challenges to Change


Volume of Care

17.0

4.0

1.6

02468

1012141618

Doctor Visits Per Year

Source: OECD Health Data 2018.Based on most recent year’s reported data for each country


Impact of Pricing: Procedures14

Notes: US refers to the commercial average. Source: International Federation of Health Plans, 2015 Comparative Price Report.

$1,786 $2,003

$3,814

$6,040 $6,199

$8,099

$15,930

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

Cost of Appendectomy, 2015

$14,579 $18,501

$24,059 $28,888

$32,480 $34,224

$78,318

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

Cost of Bypass Surgery, 2015


Impact of Pricing: Drugs15

Notes: US refers to the commercial average. Source: International Federation of Health Plans, 2015 Comparative Price Report.

$48

$101 $102

$126

$292

$-

$50

$100

$150

$200

$250

$300

$350

South Africa Spain Switzerland UnitedKingdom

United States

Cost of Xarelto, 2015Xarelto is used to prevent blood clots

$552

$822

$1,253 $1,362

$2,669

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

South Africa Switzerland Spain UnitedKingdom

United States

Cost of Humira, 2015Humira is used to treat rheumatoid arthritis


$59

$11,671

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Primary Care Visit Hospitalization(Hospital Component)

Average Medicare Payments, 2017

Pricing Drives Incentives

Source: Leavitt Partners Analysis of Medicare Claims Data


Healthcare and Jobs

Source: Leavitt Partners Analysis of BLS Quarterly Census of Employment and Wages“Healthcare” is the NAICS segment that Includes healthcare and social assistance employment for government and private employers

-47%

-13%

11%30%

46%

-60%

-40%

-20%

0%

20%

40%

60%

Manufacturing Retail trade Educational Services Accommodation andfood services

Health care and socialassistance

Change in Industry Employment, 1990-2018


Healthcare’s Role in the Economy

Source: Leavitt Partners Analysis of BLS Quarterly Census of Employment and Wages“Health care” is the NAICS segment that Includes healthcare and social assistance employment for government and private employers

Value-Based Efforts


The Theory of Healthcare Reform

Pay Providers Differently for Care

Providers Change Their Behavior

Better Outcomes

Better Experience

Lower Costs

Payment Reform Delivery Reform Triple Aim


ACO GrowthN

umber of Lives Covered (M

illions)

44 Million Lives

Source: Leavitt Partners and Torch Insight

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

45000000

50000000

0

200

400

600

800

1000

1200

ACO

s

ACOs and Total Covered Lives


Source: Leavitt Partners Center for Accountable Care Intelligence

Hospitals in ACOs Over Time

22


ACO Results - Experience

21%

59%52%

78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1 2 3 4 5 6

ACO Performance by Years of Experience

Received Bonus Generated Savings

Leavitt Partners Analysis of 2018 Medicare Shared Savings Program Results.


MSSP Quality and Savings

-15%

-10%

-5%

0%

5%

10%

15%

70% 80% 90% 100%

Savi

ngs R

elat

ive

to B

ench

mar

k

Composite Quality

Quality and Savings

Leavitt Partners Analysis of 2018 Medicare Shared Savings Program Results.


Massachusetts Alternative Quality Contract

See Song, et. Al., “Health Care Spending, Utilization, and Quality 8 Years into Global Payment”, NEJM July 2019, Table 2Net savings calculated as adjusted average savings less incentive payments

-7.5%

0.7%

2.2%

0.5%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

First Half Second Half

Net Savings

2009 & 2010 Cohorts 2011 & 2012 Cohorts


Most Recent Medicare ACO Program Results

$73 $115 $135

$1,559

$- $200 $400 $600 $800

$1,000 $1,200 $1,400 $1,600 $1,800

MSSP Pioneer Next Gen ComprehensiveESRD Care

Savings Per BeneficiaryMost Recent Year Available

Challenges and Opportunities


Framework To Managing a Population28

Create Intervention

Opportunities

Identify Population Needs

Partner Appropriately


Challenges to Success in ACO Arrangements

Difficulty finding willing provider partners

29

Inadequate clinical integration

Accounting or financial tracking

Misaligned quality requirements

Cultural compatibility with value

Lack of technology to support value-based care

Lack of interest or misalignment of payers or purchasers to engage

Difficulty securing reserves necessary for risk


Revising the Business Model30

Capacity-Focused ApproachBusiness model:1. Identify the best-paid services2. Build capacity for those services3. Fill that capacity

Needs-Based ApproachBusiness model:1. Identify patients’ needs2. Build low-priced services to fulfill

needs3. Prevent high-cost

care

Smart on Value

www.leavittpartners.com801-538-5082

Offices in Salt Lake City, Chicago, and Washington, D.C.

@LeavittPartners

Why Value? An Overview of Healthcare Financing€¦ · Portugal. New Zealand Australia. Finland....

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