Economics of Health Care
2018 Cost Trends Hearing Day 1
Dr. Altman: Well, welcome to our sixth Cost Trend Hearings. And we are very thankful, Governor, that in your busy schedule you've found time to again, join us. What is this, your third opportunity for us to have an opportunity to listen. This is great.
Speaker 1: Fourth.
Dr. Altman: Fourth? Fourth. Time goes so by, I just lose track. So I won't take any time. We all know our great Governor and his experience in the healthcare field. And we look forward to your remarks. So, thank you again for joining us.
Norm Deschene: Do I need to push a button here?
Speaker 2: Is it green?
Norm Deschene: I think it's ... give it a shot. I can't ... okay, it's on. Well, first of all, thank you very much for giving me this opportunity to offer a statement today. I very much appreciate the work and the research that's done by this organization. I'm going to speak specifically to that toward the end of my remarks.
I thought I might start with some good news because there actually is some good news about healthcare in Massachusetts. And I think we sometimes get lost in all of the other conversations we have. Massachusetts, as many of you may know, according to America's Health Rankings 28th Annual Report is the healthiest state in the nation. The report called out Massachusetts' lower percentage of uninsured individuals, our low obesity rates and our high vaccination rates among other things. We have the highest number of individuals with healthcare insurance at around 98%. And the Health Connector has the lowest average marketplace premiums in the country.
Speaker 3: Wow.
Norm Deschene: In 2017, healthcare expenditures grew at 1.6%, which was well below the 3.6% benchmark. And family premiums in Massachusetts as a percent of median family income are the fourth lowest in the country. The only ones that are lower are Minnesota, Maryland, and North Dakota. And if you think about employee healthcare costs as a percent of median household income, our rate of 7.3% is significantly below the US average of 10.1%.
That's the good news, okay. The challenges start with the fact that we continue to be among the most expensive states in the country for healthcare. Commercial healthcare coverage for businesses, especially small and midsize companies, continues to become more expensive each year and consumers continue to pay more even when they have coverage. While pharmacy cost growth rate has tempered slightly, it's still escalating beyond the state's benchmark. And of course, we continue to battle a brutal opioid epidemic and we must address many of the systemic barriers that exist in our behavioral healthcare system.
I'm going to start by talking a little bit about MassHealth that's been quite a journey for our administration over the past few years. When we first came into office, we prioritized managing MassHealth's unsustainable year over year double digit growth rate immediately primarily because it has a huge impact on the rest of the state's budget and especially on the Health and Human Service budget generally. And we're proud that overall MassHealth spending was actually pretty flat in 2017. However, there are a series of additional structural reforms going forward that are going to be needed to sustain that momentum beyond implementing alternative payment models, such as our ACO plan. The MassHealth caseload fell about 2% in calendar year 2017 due primarily to improvements in the HIX system, the combined Connector MassHealth eligibility system, as well as establishing a series of strong program integrity and internal controls. I think many people know that there were some real issues with MassHealth and HIX and the Connector when we took office in 2015, and it took a while to actually put a series of fixes in to deal with and address those. And while overall healthcare spending at MassHealth did decline very slightly, spending per member increased during that period driven by increases in prescription drug costs as well as inpatient and outpatient hospital utilization.
In Massachusetts, medicated drug spending has doubled from one billion dollars to two billion dollars in five years, driven primarily by high priced drugs, some over a million dollars a year per member. 30 drugs account for $600 million or 30% of our total pharmacy spend at this point. These high cost drugs have no competition in the marketplace, making it virtually impossible for any state's Medicaid program to negotiate a reasonable price. That's why MassHealth, as well as a handful of similar programs in other states, are leading efforts to reduce drug spending while maintaining patient access and protection.
At this point, we've maximized what we consider to be sort of all available strategies under our current statutes. While utilizing the levers we have, we've also ensured access to important medications for serious issues like Hep C. Since coming into office, we've eliminated all restrictions while driving down net costs of Hep C therapy. Not only were we one of the first states to do so, it's also a lesson in how competition in the marketplace can, in fact, improve drug pricing. Our administration's committed to pursuing drug purchasing reform at the Federal and state levels, and we're actively reviewing the work of other states as we develop proposals that will roll out in the near future regarding direct negotiation with manufacturers and could include price hearings and formulary restrictions in certain circumstances, while ensuring strong consumer protections.
I think I have been pretty clear that we were disappointed in CMS's rejection of our innovative Medicaid Drug Waver, which we believe, of course, was perfectly legal and actually resembled in many ways similar reforms that have been pursued in other states. And we get the fact that states need a real partnership with the Federal Government when it comes to our Medicaid and MassHealth program generally, especially if we want to curb excess drug pricing in the marketplace, even beyond the MassHealth program. Now, one of the major elements of our MassHealth reform strategy was to implement a significant restructuring of the way we pay for services. And in March, MassHealth launched 17 accountable care organizations and two managed care organizations that covered about 1.2 million members. ACOs and their community partners are now screening members for issues such as housing and food, in addition to addressing the needs of members with disabilities, significant behavioral health needs, substance use, or co-occurring disorders.
The goal here is to reduce unnecessary trips to the hospital, which in many cases represent disappointing healthcare cost totals overall, but also represent a misallocation of scarce healthcare resources, and in some cases, simply the wrong approach to providing services to people who are dealing with complex conditions. With respect to the Health Connector, I'm very proud of the work that we've done to turn around the Connector over the past few years and that Massachusetts has the highest insurance coverage in the nation. More than 266,000 individuals have healthcare coverage through the Connector, and another 80,000 have dental insurance.
Today, we're ready to launch open enrollment on November 1st with a functional and steady Connector, a very different picture than we had a few years ago. With reasonable premium increases in place for 2019, the Health Connector is prepared for a stable experience for its existing and potential new members. We made a number of improvements since 2015, the average speed to answer a call is under three minutes in 2018 compared to a high of over 25 minutes in February of 2015. Customer satisfaction is consistently over 70% compared to a low of 34% in February of 2015. In early 2015, there was a backlog of over 900 urgent cases. In September of '18, that number was 23. In the last year, we've reshaped the Health Connector's small business platform to allow small business owners to offer their employees an array of affordable coverage options by shopping through the Connector for business platform. The Heath Connector's open enrollment starts November 1, and like last year, it extends beyond the Federal deadline to January 23.
With respect to healthcare transparency, and I see Ray Campbell here, earlier this year the Center for Health Information and Analysis launched a healthcare transparency website called CompareCare that offers information to help Massachusetts residents and others, policy makers, pretty much everybody who's interested in these issues, be more aware of the costs of healthcare generally and site specific care delivery pricing. The site allows users to see the full amount medical providers were paid by both the insurer and the patient for nearly 300 procedures, including common procedures like X-rays, MRIs, office visits, and blood tests. It also links to individual health plan websites where consumers can find more information about their expected out of pocket costs as well.
And building on this success, this summer CHIA released a procedure price dataset containing an unprecedented amount of publicly available price data. Both tools are game changers in setting up and changing the way we've positioned these issues historically in Massachusetts and can over time make us a leader in healthcare price transparency. With respect to women's health, which has been a topic of some discussion both here, but especially nationally, our administration fully supports women's access to reproductive healthcare and family planning services. Last year, I signed bipartisan legislation that protected women's access to contraception coverage here in the Commonwealth, health insurance are now required to offer at least one form of FDA approved birth control, and the law protected Massachusetts residents in the future from any changes to the same provision in the Affordable Care Act. And this summer, I sent a letter to Health and Human Services Secretary, Alex Azar, opposing proposed changes to Title 10 funding. As you know, Title 10 funds have been critical to providing our residents with a broad range of healthcare services, including physical exams, counseling, and reproductive cancer screenings.
Through my Health and Human Services Secretariat, nearly $12 million over a five year period was awarded to increase access to long acting reversible contraception. And in July, I joined members of the legislature to sign another bipartisan law repealing some of the state's archaic provisions to make clear that here in Massachusetts, we will not compromise on a woman's right to her own decisions.
With respect to behavioral health, since day one we've been focused on addressing the opioid crisis. Overall in 2017, there was a 4% decrease in opioid related overdose deaths from 2016, the first year in which that number went down in a decade. We've also seen a 30% decline in opioid prescribing since launching the state's prescription monitoring program, MassPAT. We are now faced with a new challenge, and that's Fentanyl, which currently represents nearly 90% of overdose deaths and is present in far more places than just heroin. It's an issue with respect to cocaine, it's an issue with respect to methamphetamines. It is, for all intents and purposes, the most dangerous element of street drugs here in the Commonwealth and in other places. And it requires significant attention, not just from the healthcare world, but from others.
The Federal Government, along with state and local law enforcement have taken a hard line approach to targeting the Fentanyl supply. There is so much work to do on this issue. And we will continue to focus on ways that we can stem the amount of Fentanyl in Massachusetts and in New England in the coming months and continue to increase access to treatment for individuals to recover. As we know, substance use goes hand in hand in many cases with other co-occurring behavioral health issues, and our administration's committed almost two billion dollars in behavioral healthcare investments over the next five years through the Medicaid Waver and additional funds for treatment services provided by the Departments of Mental Health, Public Health were reimbursed by MassHealth.
The FY19 budget included the largest increase of the Department of Mental Health to date for improved community based services for adults with serious mental illness. And I want to give a tip of the hat to the legislature for their collaborative work on that initiative. And since 2015, we've significantly increased our behavioral health treatment capacity. We've increase the number of adult substance use treatment beds by 21%, increased the number of adult geriatric psychiatric beds by 10%, increased the number of adolescent and child psychiatric beds by 24%. We have almost four times as many office based opioid treatment sites today as we did in 2015. We have added three opioid urgent care centers. And we have certified 175 sober homes, which represent over 2,000 beds since 2015. We still have a lot of work to do on this and a long way to go to achieve parity for behavioral health similar to the physical healthcare situation here in Massachusetts and elsewhere.
Last week I said that I was planning to vote no on question one in many respects because of the work of the Health Policy Commission on this issue. You raised a series of initiatives that made a real lasting impression with me, a couple of which I simply didn't know. The first was that the nurse to patient ratio here in the Commonwealth of Mass is actually higher than it is in the state of California. The second is the really significant difference between the California law and the ballot question in terms of the prescriptive nature of each and the timeframe for actually complying with and implementing the law. Third, the analysis indicates a cost to the healthcare system generally of somewhere between 667 million and 950 million. And that was done on what I would describe as a reasonably conservative set of assumptions.
And finally, that the pressures associated with implementing this, both on the timeframe and the nature of the restrictive components of the law would put many community hospitals, some nursing homes, some rehab hospitals, and some psychiatric facilities in jeopardy if the law were to pass. Many of those community hospitals and other providers are critical care providers in their communities and in their surrounding areas. And their loss from the healthcare system generally would have very adverse effects on care delivery and access to services. And for those reasons, I chose to come out and say that I play to vote no on question one.
While ultimately the legislature was unable to come to a consensus on a final healthcare bill this past session, and believe me, there's a tremendous amount of time, effort, energy, conversation, discussion, and reams and reams and reams of trees that were sacrificed to that whole effort by everybody, the need to address the growing cost of healthcare, and especially the impact on the state budget and on our residents remains. And going forward I hope we'll have an opportunity to work with all of you and with on the legislature get to continue to make progress here in Massachusetts on affordability, access, and transparency. And again, I thank you for the opportunity to present to you today and look forward to the results of your hearings. Thank you.
Dr. Altman: Thank you so much, Governor. I know you have a very busy schedule and won't have time for questions. So, I just want to convey again our thanks for that comprehensive view of mostly good things happening in this state. And I think we all share your enthusiasm about it getting better. So, thank you again for coming.
Norm Deschene: Thank you, appreciate it.
Dr. Altman: David.
David Seltz: All right, good morning everyone. Thank you, Governor. And welcome to the sixth annual Healthcare Cost Trends Hearings held by the Health Policy Commission. I'm David Seltz. I'm the Executive Director of the Health Policy Commission. And on behalf of our esteemed board of Commissioners and the HPC staff, we are so pleased by the tremendous excitement, engagement, and dare I say palpable anticipation for this year's hearings. We have a rockstar slate of speakers, leaders, and witnesses all assembled here to wrestle with some of the most pressing and timely topics impacting the future of healthcare delivery and payment in Massachusetts. It's great to see so many familiar faces here today. I see you, Kathy [Kio 00: 17: 18]. As well as inviting so many new faces to the discussion. We're all about the data here, and so I was especially happy to note that nearly two thirds of our invited expert speakers and panelists are participating in the Cost Trends Hearings for the first time this year. We welcome you and thank you for your commitments and for your courage.
We'd also like to particularly recognize our partners from the legislature and our sister agencies who are with us here today. I did see Vice Chair Roy from the healthcare financing as well as staff from Senate healthcare financing, and a number of Senate and House officers. Former Speaker Finneran, I did see earlier this morning as well. I will be sure to recognize others as I get my notes, but thank you for being here. Also, for our sister agencies, I'm joined here by my colleagues in the Attorney General's Office and the Center for Health Information and Analysis. But I also note there Roberto Herman from the Group Insurance Commission is here as well as staff from the Health Connector and the Department of Public Health and many other agencies. Thank you for being here as well.
Finally, I want to welcome the hundreds and perhaps thousands of you who are joining by online live streaming this morning. It is a reflection of the personal and professional significance of healthcare policy to so many, not just in Massachusetts, but really across the country and across the world that we have grown the audience for this event every single year. I think it's also because this event is a uniquely Massachusetts event. No other state in the country holds such a prestigious and well-attended public event focused on the issues of healthcare cost, quality, and access. This annual event is representative in so many ways of our highest ideals for public discourse and is reflective of our state's history of policy leadership in healthcare that aims to improve healthcare for everyone without party politics that seek to divide us, but together as a true Commonwealth of Massachusetts.
This forum is designed to provide an informed wide ranging discussion, which is data driven and based on the best economic evidence and expert presentations. Here we can disagree without being disagreeable. And we may not always agree on the how, but there is wide and deep shared consensus on the what: a more affordable, innovative, and effective healthcare system that delivers better care and better health at a lower cost for everyone across the Commonwealth. Over the next two days, we look forward to engaging with all of you on the progress we've made so far, and to identify practical, actionable, tactical policy solutions necessary to meet this vision for the next six years and beyond.
As I mentioned, I want to talk just a few logistic. As I mentioned, these hearings are being live streamed from our website. Following the hearing, the entire video will be posted to YouTube for posterity. If you haven't already ... I should also note, for those of you who are online, all of the presentations from today are posted online so that you can follow along with the discussion. If you haven't already, please grab a program book. These are good for both two days, so please bring that back with you tomorrow. We are all about reducing unnecessary administrative waste that does not provide value.
We also sincerely welcome testimony from the public. If you would like to provide testimony, please register ahead at the welcome table out front with any HPC staff and we'll begin public testimony roughly around 2: 30 today. Finally, the Wi-Fi information is located on the back of the program books, and we encourage you to engage with us online with the hashtag CTH18. If you have any questions during these two day hearings, please do not hesitate to reach out to any HPC staff.
I would now like to turn it back over to the Chair of the HPC's board, Doctor Stuart Altman. As many of you die hard followers of us may have noticed, about halfway through the year, we slightly changed the schedule from a Monday Tuesday hearing to a Tuesday Wednesday hearing. And this change was due to the fact that our esteemed Chairman, Stuart Altman, yesterday received one of the most prestigious national awards and recognitions in healthcare, the Gustav O. Lienhard Award from the National Academy of Medicine, which recognizes outstanding achievement in improving healthcare services in the United States. So, please join me in congratulating Stuart, a towering force in healthcare.
Dr. Altman: Thank you, David.
David Seltz: Stuart, I would not this is not billed as a lifetime achievement award, which is good news because we have a lot of work left to do here. So, with that, I will turn it back over to you, Mr. Chairman. And an opportunity for all of the board members to introduce themselves.
Dr. Altman: Well, thank you, David. And thank you for that nice statement. You know, The Academy and the Robert Wood Johnson Foundation which supported that are really ... they make a tremendous contribution to our healthcare system, so I did feel honored to accept it. But as you said, we have a lot of work to do. And I'm really particularly proud, and I told the group yesterday, to be part of this organization.
So, we are again involved in some really pressing issues. And so let me take this opportunity to turn to my fellow commissioners and see if there is any statements anybody wants to give before we move on. Anybody want to say hello? Okay, I think everybody knows everyone, so we can move on, David. So, why don't you make the introductions?
David Seltz: Great. So, to kick us off for the two days hearings, we've invited Executive Director of the Center for Health Information and Analysis, Ray Campbell, as well as Research Director for the Health Policy Commission, Doctor David Auerbach, to provide an opening presentation on the state of healthcare and some of our trends here in Massachusetts. Commissioners, many of you did hear a presentation from Executive Director Campbell on the CHIA report last month at a board meeting. We've invited him here back again today to go through some of the highlights of that really important work to level set us for the day, which will be supplemented by Doctor David Auerbach, and then open up for questions and dialogue and discussion among board members. So, with that, Ray, happy to turn it over to you. And would say, great congratulations to you and the team for an incredible report and for everything you do at CHIA. We couldn't do our work without the work that you do, so thank you.
Ray Campbell: Thank you so much, David. It's a pleasure. There wouldn't be any point in doing the work we do if it wasn't for you, so we really appreciate having the opportunity to work together as we do, and other agencies as well, The Attorney General's Office and others, Executive Office of Health and Human Services. But CHIA really exists to provide that data foundation for the policy discussions that you are all about to engage in, and so I will quickly go through a high level summary of CHIA's annual report. As David mentioned, most of you have heard this before, and I'm happy to drill down in more detail with any questions people have.
Just in terms of an overview, the focus of this report, CHIA produces lots of reports during the year, but this report is specifically focused on total healthcare expenditures. This is an effort to look at how much we spend on healthcare in Massachusetts and break it down according to a number of dimensions. And so, my presentation here today will talk about our total healthcare expenditures, and then we'll take different slices of it. And in particular, we'll focus on public insurance programs because of the impact that has on the state budget. We will also, of course, look at commercial insurance because of the impact that has on the business community in Massachusetts and all the people that get their insurance through employer sponsored insurance.
I won't go through everything on this slide. Everybody has a copy of the report. I encourage you to look at it. There's a wealth of information in there. One bit of context for this that I think is important about data and methodology. A lot of people assume that we do this with the All-Payer Claims Database, we don't. There are very few states that do this type, or are capable of doing this kind of high level analysis of spending in their state. Some states have come to us and asked if we could help them figure out how to do it with an All-Payer Claims Database. It's theoretically possible, but there's too many gaps and holes in it. It doesn't include non-claims based payments. It's got problems with self-insured data. There's various reasons why, and plus claims lag.
So, the data behind this report, CHIA uses its statutory data collection authority to go to the health plans in the spring and say based on your best estimate at this point. So, rather than us trying to estimate early, we ask the plans to estimate early. And so, in the spring, they give us their best estimate of the prior year's spending. That gives us about two months to work with our actuaries and produce the report, which comes out in September. So, this report is not based on the APCD. This is a separate supplemental data collection we do. It's higher level, but it's faster. And it's more comprehensive, but we have the luxury now of drilling down into any issues that are raised by this report using the All-Payer Claims Database.
I should point out, you'll see as I go through the slides, some of the issues that come up this year, or a lot of the issues, relate to affordability. And you can't get at that necessarily with either an All-Payer Claims Database or aggregate information. And there, CHIA's other data assets, like our statewide surveys, we do a statewide employer survey and a statewide household survey that helps us understand better why employers are making various decisions about the insurance they offer and why individuals are making the decisions they make about the coverages they choose. So, the point is that you want to be able to bring lots of different data assets to bear on these public policy questions, and that's what CHIA tries to do.
So, turning to the actual substance of the annual report, the top line number, total healthcare expenditures in 2017 were 61.1 billion. That represents $8,907 per person, and that is a 1.6% increase over the prior year, below the benchmark of 3.6%. If we want to look at the state's performance vis-a-vis the benchmarks since this process started in 2012, 2013, you see that in 2013, '14, and 2014, '15, the state was above the benchmark, and then for the last two years we've been below the benchmark. We can talk about that in more detail. I should mention that there were significant ACA implementation activities happening in 2014 and '15. And also there were some significant drug price increases in those years. Those trends seem to have moderated. And the Massachusetts experience seems to be consistent with national trends.
If you break down total healthcare spending in Massachusetts by the payer type, you see that the largest single component is commercial insurance at 22.8 billion. I'm trying to think. It doesn't show up that well on that particular version of the slide, but there was a 3.1% growth rate in total healthcare expenditures in the commercial market last year. MassHealth totaled 17.2 billion where there was a two tenths of a percent decline, which is due to excellent program integrity work as the Governor mentioned, although on a per member per month basis spending was up. But total spending down two tenths of a percent. And then Medicare at 17 billion, up 1.9%.
This is taking the expenditure and breaking it out, not by insurance type but by service category. There isn't enough time to go through all the interesting things on each of these slides, and as I said, the Commission has been briefed before, so we can circle back in more depth on anything that people want to zero in on. But what you see here, I think the highest level headlines are that growth was quite restrained in hospital inpatient at nine tenths of a percent. Physician services 1.2%. Other professional services 2%. And then some of the bottom categories. Growth was above the benchmark in hospital outpatient and pharmacy.
And it's probably a good jumping off point for me to say, CHIA puts the data out and really it's always judgment free because these numbers could mean something good or something bad's happening. And people need to bring their expertise, and the Commission needs to bring their expertise to analyze it. So, the higher than expected, or the increase in spending in hospital outpatient faster than hospital inpatient, that could represent a beneficial shift from more expensive inpatient settings to less expensive outpatient settings. But we would need to take a closer look at it to understand that, and that's something that the HPC is preparing to do. So, when I point out growth rates that are above or below the benchmark, that shouldn't be seen as a value judgment because there could be things driving that. Obviously the goal is to be below the benchmark, but in and of itself, you need to ask what it is that's causing that. So, as I said, hospital outpatient up by 4.8%, pharmacy up by 5%. I don't think we have a separate slide in here. The report has a breakout on rebates. If you factor in the impact of rebates, I think there were $2.2 billion worth of rebates paid in Massachusetts that bring the growth rate from 5% down to 4.1%.
Looking at the adoption of alternative payment methods, you see that they seem to have largely stalled in the commercial market, a slight nominal downtrend in the commercial market, a very small increase in the MassHealth MCO market. You do see a large increase in the MassHealth PCC plan, that's actually not the ACO roll out. That was a pilot program that occurred in 2017, but when we have the 2018 data next year you will see the rollout of the ACO program and you'll see a spike at least this large, if not larger, as that program comes online.
Breaking the or looking more closely at MassHealth, you see 17.2 billion, as I mentioned earlier there's a two-tenths of a percent decrease in terms of total expenditure and that was driven by a 2.4% decrease in member months, which was largely the result of program integrity efforts as the governor had mentioned. On a per member per month basis, I think spending was up 2.2% if I'm not mistaken.
Looking at the service category spending at MassHealth and it's, if we have time it's interesting to compare how commercial MassHealth and overall differs on a service category basis but you see that hospital inpatient growth was restrained at four-tenths of a percent, hospital outpatient also 1%. I'm sorry. [inaudible 00: 32: 45]. Pharmacy up 13%, so of the growth categories in MassHealth some of the smaller ones like other professional and non-claims are up but of the major categories pharmacy was the one that grew the fastest.
Wendy: Right. Is that pharmacy with or without rebates?
Ray Campbell: This would be growth. This would not out the impact [crosstalk 00:33:06]. Looking at Medicare which we dive into in less detail because there's less state policy interventions involved spending with $17 billion that was an increase of 1.9%. There was a 2.4% increase in beneficiaries in Medicare.
This slide takes a look at the adoption of Medicare Advantage vs. Medicare Fee-for-Service in Massachusetts. In other states, these ratios are almost reversed but in Massachusetts, you see a relatively low adoption rate for Medicare Advantage and restrain costs growth are expenditure growth across both programs.
Now, taking a look at commercial insurance, which is an area of particular interest as I said because of its impact on the economy, on businesses, on all the people to get their insurance through their employer, we see that spending total 22.8 billion, 3.1% increase from the prior year with a four-tenths of a percent increase in member months.
Breaking that down by service categories you see that it looks different than other parts of the market. In particular, although some of the same trends also emerge so that hospital outpatient spending is faster than hospital inpatient spending. Pharmacy spending in the commercial market was up 3.2% growth and physician services is also restrained. I think those are the major takeaways from the service category breakdown of the commercial insurance.
This is actually I think a very significant slide. This shows the adoption of high deductible health plans by market sector, and so, this is in the commercial market only but what you see is that overall 28.2% of the member months in the commercial market are in high deductible health plans using the federal definition of the IRS definition of high deductible health plans, so you see the two-year trend. In 2015, it was only 20.9% of the market, so if there'd been, if that had gone down for two years, you'd be looking at something that's more of a niche at 28.2% certainly if that growth continues it's becoming a major market segment and even if you're more than a quarter at this point.
I think that's a fairly significant development. I think the year-over-year increase was something like 19%, so continued strong growth of enrollment in high deductible health plans. You see in the, looking at the individual market sectors. Unsubsidized individuals 74% of the plans being sold in the unsubsidized individual market are high deductible health plans, but even in the Jumbo market 22% are high deductible health plans and large 34.3, so more than a third of the health plans being purchased in the large group market are high deductible health plans so-
Don: Ray, our cost estimates include the out-of-pocket costs that come from a high deductibility?
Ray Campbell: Yes. The total health care expenditure numbers we use our all spending health plans and members all in and our cost sharing numbers, which we're about to look at, take a look at the impact of what you see in the significant increase in member cost sharing is probably the impact of high deductible health plan growth. But, anyway, this is a slide I said, as I said we're pausing on because it shows that this is a, they're becoming a major factor in the market.
This next slide looks specifically at cost-sharing and once again there's lots of things to see here but I want to be respectful of time. You see that cost sharing is a direct relationship between the size of the purchaser, if you will, and the amount of member cost-sharing per member per month. Unsubsidized individuals it's $87 per member per month, whereas, at Jumbo groups, it's $47 per member per month. The size of that dark blue bar is how much each month the members are spending on out-of-pocket.
The growth rates, however, don't match that exact same trend. You see that the highest growth rate was in the mid-size group, 13%, and second highest growth rate was in the small group at 9.4% and that has to do with the mix of coverages that are being purchased.
If you look at this next slide, this also, there's an interplay, of course, between the types of coverage that people are choosing and their out-of-pocket cost and total expenditure. This slide looks at fully insured premiums and it breaks it out by market sectors. You see that as the governor mentioned earlier per member per month premiums for ConnectorCare are $299 for very good insurance, whereas in the Jumbo group market it's $525 per member per month so there is more coverage being purchased if you will.
In fact, that correspondence from the size of the purchaser group the premiums are higher the larger the group, which reflects the richness of the coverage rather than some lack of bargaining power, I would, I feel confident in saying, but you see that the increases in premiums are not completely, they're slanted against the smaller part of the market, but it's not a one-to-one correspondence. You see 6.1%, for instance, premium growth in the Jumbo group, 3.8% in the unsubsidized but small group still 6.9% for those people purchasing in that space, which there's a lot of the employers in this state, they're not seeing these small increases that we're talking about.
Then, lastly, this slide shows, brings together a number of the different things to show over a two-year period of the increase in member cost-sharing. That's the yellow line and it shows that his outpace, increase in fully insured premiums, the increases in total medical expenditures, increases in wages, and regional inflation. There is an issue with member cost-sharing continuing to outpace everything else that, all the other comparables. With that, that's the last slide and I'll end. If there's any questions, I'm happy to take them, or we can turn to David and take them all at the end, whatever people prefer.
Dr. Altman: Are there are any questions specifically at Ray? Yeah.
Don: Maybe this is going too deep right now, Ray, but these shift from inpatient to outpatient cost increases, is that, how much of that is due to acquisition and facility fees which outpatient care is being bought up by hospitals?
Ray Campbell: Isn't that exactly directly … I mean, we know the answer but that's just the sort of thing that the HPC, we've highlighted that there's an issue there, and then, now the follow-on task is to use different toolset. The all payer claims database, which can, is much more granular to look at that. I don't know if there's anything you can say about plans or status?
David Auerbach: It's hard to quantitatively answer that question right now but, and I won't be in this presentation but in our last year's cost report, for example, we do focus on that, on exactly that shift. We'd be able to give you more detail and point to that chapter but there is definitely a shift in the facility fees towards hospital outpatient departments for some services.
Speaker 4: [inaudible]
Rick: Ray, I have a question on slide where you show the cost sharing per member per month, which kind of looks modest to me given that in a previous slide you show the shifts to high deductible plans so you would think individuals are paying more per month and does this include, and so, does this include all cost sharing so deductibles, co-pays and does this include the employees share of the premium? Because I think in Massachusetts the employer/employees split is like 70/30 probably the average, does that include all of that because it looks fairly-
Ray Campbell: I would say not the share of the premium. I think it's out-of-pocket costs other than premium expenses but let me check on that and I can let you know after the break. But it would still be so at $87 per member per month. That's, I don’t know, almost $1000 per year per person so a family of 4 would mean, is my math right? Wouldn't that suggest that you've got almost $1000 of out-of-pocket cost for a family of 4 if you're paying $87 per person per month?
Rick: Okay. Yeah. I wasn't thinking of the family. Yeah.
Ray Campbell: It adds up. It adds up, and so, I think we present the numbers completely spread across all members but if you have an, maybe some families it is not that expensive even if they have a high deductible health plan but for others, it would be quite expensive.
Dr. Altman: Yeah, and you don't think this reflects their share of the premium, which is also pretty substantial given that a family plan is over $20,000 per year.
Ray Campbell: I feel quite confident the premium is not. This is only out-of-pocket cost post premium but I'll confirm that.
Dr. Altman: Anybody else want a question Ray now? First, I want to thank you. I mean as David pointed out without the kind of work that she has been doing, we would not be able to do our job and it is also fair to say that when I go around the country and I look at what's available in other states we should be proud of the work you're doing, so thank you again for joining us and-
Ray Campbell: Thank you.
Don: … we will … I hope you'll stick around because I suspect there will be more questions as the day progresses.
Ray Campbell: Absolutely.
Dr. Altman: Let me now turn to our own David Auerbach our Director of Research. Again, David, the work that you and your team have done over the year is truly incredible so, again, thank you for all you've done and I turn it over to you.
David Auerbach: Thank you, Stuart and thank you, Ray. I will be placing some of the findings that Ray talked about in a time trend context and in a national context as I have in past years.
Let's start with the overall spending trend over time in Massachusetts compared to the rest of the country. Once again, we are below that national trend. That last data point there is the 1.6% growth in total healthcare spending in Massachusetts and the little blue dot is not filled in because that's a preliminary number from CMS but we are likely to continue that trend of lower overall spending growth than the rest of the country.
Then, here focusing on just the commercial market. We, again, we're below national trends in spending and if you add up the total savings over the last four years given that lower growth that we have in our commercial market than the country overall that adds up to about $5-1/2 billion less that we have spent if we, versus if we had spent at that national trend. Okay.
Dr. Altman: I gave [inaudible] full credit for that.
David Auerbach: Absolutely. Where does that lower growth come from? We can break that down by category of spending and you can see here that it's over the four years this is our total growth by category; hospital, physician, and so on. Most of it is from the hospital area. Our total spending growth over the last four years combined in hospital inpatient and outpatient combined is about 11% compared to double that or 23% than the rest of the country.
We also have grown somewhat less fast in the physician and other professional service category and pharmacy spending is about the same, so in total, there's about eight percentage points lower growth that we've had over the four years, 2013 to 2017 than in the rest of the country in the commercial market. That's where that savings is coming from.
When we look at what is driving that spending growth that we did have, how much is price, how much is utilization? You can see this is reported by the top three payers in the Massachusetts market over the last three years and they're reporting that more than half of that growth is from price. You can see that on the left bars. This is average growth per year in unit prices versus utilization and other factors in spending for Blue Cross, Tufts, and Harvard Pilgrim.
Okay, so those are the overall spending trends. Now, we'll go to some of the utilization trends that we track over time. This is inpatient utilization. Hospital admissions, going back to 2001, we have been higher than the national average in hospital use over this entire period. You can see that the national trend is declining everywhere. Hospital use is dropping and it was dropping here too until about 2014, and then, we've been flat. We have held steady and not declined inpatient use, while the rest of the country has continued to go down.
This is part of the good-news/bad-news that is coming in. It's going to be alternating throughout the rest of this presentation as in the governor's presentation as well. Here's some good news in terms of post-acute care use, we've been tracking, we know that we have higher likelihood of a hospital discharge going to a [SNF] or a facility for post-acute care than the rest of the country but this dropped again in 2017 to about 18% likelihood of going to an institutional post-acute care.
You can see that the flip side of that is, has been going to more home health as the blue light in the middle, so there's a substitution that it appears from skilled nursing facilities to home health care after an inpatient discharge.
Speaker 5: Do you have a cost associated with that in reduction in cost or is that, do you have that number anywhere?
David Auerbach: Not off the top of my head but it's significant. A typical post-acute care [inaudible] in a skilled nursing facility is probably tens of thousands of dollars and going to home health care is several thousand dollars, so there does appear to be savings there and-
Dr. Altman: David, helped me out a little bit here in the earlier slide you indicated that some the biggest difference recently between our growth and the rest of the country has been in the hospital inpatient and outpatient yet when we look at the admission rate, not only are we above the US average but the gap has gotten wider because we flattened out where the rest of the country continues to fall.
David Auerbach: Yeah.
Dr. Altman: Explain that.
David Auerbach: Good question. David and I were talking about that earlier. How does that, how could that be?
Dr. Altman: How is that possible?
David Auerbach: Yeah. In terms of the spending growth, it is true that our hospital spending growth has been lowered but I think a lot of this is a story of levels and growth. We started out at just a higher amount of hospital use and we are probably coming closer to the national average but we're still high-
Dr. Altman: We're not … I mean, I don't-
David Auerbach: … but even that trend in the last few years, I agree, our utilization is not dropping.
Dr. Altman: [crosstalk] shifting or some-
David Auerbach: It's got to be that the hospital prices are not growing that much on average.
Dr. Altman: Right. Again, it deals with … It's just one of those tricky set of numbers that aren't … Yeah. Obviously, it … Yeah. It must be the prices though. Thank you.
David Auerbach: Yeah. If you look at hospital price growth even though it's relatively low, that's really masking big differences as we've shown in the community hospitals versus other hospitals and we won't get into that here but that's important data to look at.
Let's look at readmissions and the not-so-good news front. We've been tracking this for a while and [inaudible] data up to 2016 shows that our readmissions rate, you can see our readmissions rate for our Medicare population on top continue to tick up slightly while it went down a little bit than the rest of the country and that puts us now at the third highest out of all states, worse than New Jersey [crosstalk]
Speaker 6: Not going in the right direction.
David Auerbach: Yeah.
Speaker 6: [inaudible] do you want to give your speech now?
David Auerbach: Yeah. Not in the right direction.
Speaker 6: Yeah. [crosstalk]
David Auerbach: Only in New York [inaudible]
Wendy: Thank you. I'll postpone it till a little bit later.
David Auerbach: Sure.
Wendy: If we're not tied with New Jersey anymore I would be happy except we got worse. Now, New Jersey is better than we are.
David Auerbach: That's correct.
Wendy: Okay. That's the beginning of my speech.
David Auerbach: There we are.
Speaker 6: The preamble?
Wendy: Yeah.
David Auerbach: Okay. In a positive trend, we have also been tracking-
Speaker 6: [inaudible]
David Auerbach: … of our hospital discharges that can be served at a community hospital, what percent actually are? These lower acuity hospital services and for five years in a row that had been getting worse as in more and more of these discharges had been served at teaching hospitals but for the first time in 2017 that trend turned around and community hospitals did serve a higher share of community appropriate discharges, slightly ticked up to 57.9%.
Dr. Altman: Well, that's good.
David Auerbach: That's good. Okay, so now I'll add a little more on what Ray was showing about alternative payment models. As Ray noted overall the trends in 2017 are pretty flat. Commercial, the use of alternative payment models tick down from 42 to 41%. In Medicare, they're relatively flat. In MassHealth, they went up as Ray showed but it's important here to note that as Ray was saying, in 2018, we expect a big change in MassHealth and here we're showing a not final number but it is projected that about 75% or more of the MassHealth population will be in an ACO in 2018 and that will bring the overall share of the entire market in ACOs up to about 47, 48% and that's important to keep in mind.
A lot of providers will tell you that until most of their members are in a global budget kind of payment model, it doesn't really make sense for them to reduce the necessary utilization. They're still losing that fee-for-service revenue and it can hurt their bottom line, so it's important to, again, really drive these numbers over more than half for a given provider organization.
I have a little more detail on the commercial market, which we saw was flat overall. That is masking some interesting trends going on. This is showing, again, for the top three payers in the commercial market, their APM use among their PPO populations in the blue and their HMO populations in the orange, and you can see some movement in Blue Cross, they increase their use of APMs in the PPO population up to 31%.
I will note that these are mostly upside only contracts so not as the risk isn't as large as in the HMO, is in a downside risk contract, but that did increase and that was offset within BCBS by a reduction in among their HMO population using APMs. I think that was largely due to UMass dropping out of an APM contract, so Blue Cross overall was relatively flat, and so, were the other payers and that's accounting for why the overall trend line was flat. I'm not even showing the some of the national payers here, United and Aetna, which have very little use of APMs.
Now, the last section of the talk, I'm going to shift to some trends and affordability. First, let's start by looking at premiums, which we've talked about a little bit. This graph is showing Massachusetts premiums for single coverage compared to the national average and Massachusetts is in the orange and here I'm dividing out small employers versus large employers and we see something that we saw in some of the [inaudible] numbers as well, that those small employer premiums are increasing and they've started to diverge from the large employers, which is interesting.
They're now the second highest in the country for those small groups, and that's the hashed orange line on the top. Our large employer premiums are about 10th largest in the country and they're coming a little bit closer to the national average. There's a difference there and we're going to look a little more at that in customers report this year and you can contrast all of those employer-based premiums with the Connector premiums as we know, and as the governor said second lowest in the country or first lowest depending on what measure you use and there's just a huge difference there between those premiums that small employers are paying and what people are paying in the Connector.
Partly accounted for by difference in generosity but not entirely, not even most of it. There's an opportunity there that's not being used as much as it could. Another interesting fact about the small employer market, which could be relevant is that we have a very high rate of small employers that offer coverage in this state. It's about 53% and the rest of the country it's about 30%. We'll explore that again and that could be partly related to why those small employer premiums are so high.
Speaker 7: David, any guess what this would look like for family coverage?
David Auerbach: Yeah. We have the same thing and we just showed single because it's a little more comparable but it's the same trends. It's the same trends.
Wendy: David, the other impressive thing about this chart is that everything is going up. If you go back to 2016/2017 looking at the data for 2018, any thoughts on what's driving those increases across the board and across the country?
David Auerbach: Well, if you're looking at the 2018 exchange market that is partly due to the cost-sharing reductions, which were stopped. The Trump administration, the insurers are not being paid back for reducing cost sharing and that, so some of that resulted in premium spikes but beyond that, the fact that premiums are just going up year after a year it's following the commercial trend that we keep showing. It does continue to go up and that's really for all the reasons that we've talked about everywhere is that commercial trend, and just for a fact way to keep in mind, the average family premium in the employer market is about, when you add in the cost sharing is about $23,000 in 2017, so it's a large amount of money. It's a new car.
Okay. I'll focus a little bit here on those deductibles that again, Ray, was showing. It's important to know for context that deductibles in Massachusetts are lower than the national average. They are even higher in the rest of the country. Here the orange line is showing the average deductible for plans that have one and not all plans have a deductible but for those that do, you can see the big increase we've had in our deductibles in 2016 and 2017 and they're now, the average deductible is above the definition of a high deductible plan by the IRS, and we are getting closer to that national average.
Dr. Altman: We should recognize that these are high deductibles are on a lower total premium so as a percentage it can even be higher.
David Auerbach: Yeah. It's remarkable that deductibles are growing and premiums are growing at the same time because those should offset each other. Yeah. I think here's an answer to a question I think you asked Wendy at a committee meeting. Does that growth in cost-sharing, do those higher deductibles actually translate to lower growth in our commercial market because people are avoiding care or delaying care? Which you would do if you have a higher out-of-pocket burden.
The answer is only a little bit. It looks like that may have lowered our commercial trend by about 0.2 percentage points, so the answer is a little bit.
Wendy: Thank you.
David Auerbach: Finally, I want to focus a bit more on affordability overall. Well, it is true as the governor noted that if you take our average premiums over our average income in the state, we look pretty good, but it's important to note that this picture looks different where you are where you're living on the income scale and what we're showing here is four bins of people based on [inaudible] Health Interview Survey.
The three to the right are showing different income breakdowns for people who are getting employer-based insurance, and then, on the left is someone getting insurance through the Connector, and you can see at the different levels of income relative to poverty. In that second to the left bar, you are the worst off. These are folks between 139 and 299% of the poverty level with employer-based insurance, even though their income is low they are still paying over 20,000 a year for family premiums, over 6000 a year for single premiums.
You can see that when you add up those premiums plus their out-of-pocket spending, which is over $2000 and the portion of their taxes that go to support health care programs that is about a third of their total income going to healthcare and I'll note those folks some of them are eligible for premium assistance through MassHealth, which can pay part of that employee contribution, not very many people take advantage of that but that can, they were still, this group would face the highest burden of health care spending.
You can see that reflected in the pie charts below. Those are showing, of that group, what percent have ongoing medical debt that they are trying to pay off, and you can see those numbers are proportional. About 30% of that worst off group is paying off medical debt at this point in time and you can see for the higher income groups it's about 16%, and for those folks that are in the Connector about 1 in 6. The numbers are remarkably proportional and you can see the effect of that burden of health care costs.
Dr. Altman: This is a very telling chart. Thank you, David. Yeah, David.
David: Thanks to you both. I have a question to maybe for either of you. When we have looked at the data on particular payers and providers, one of the things that jumps out is that the risk scores of people in Massachusetts are going up quite rapidly, so the health status adjustment in terms of the expected spending is going up a lot, and so, it makes it difficult to compare across the different providers that way, unless you think those are accurate and as we dive into it we're not sure they're totally accurate on a year-to-year basis.
I guess the question for Ray is to what extent are the aggregate numbers in the state affected by changes in the risk status? Then, for both of you, do we think though that is there an issue with our risk status measures that's making it look like growth is less rapid than it actually is and should we be worried about, not worried, but should we be taking that into account somehow as we look at these numbers?
Ray Campbell: From [inaudible] perspective, when we measured total health care expenditures it's the, we look at the total amount that is paid, without regard to risk. It's gross spending, just the pure economic concept. Then, when we look at total medical expenditure and that's the amount paid that insurers pay doctors but it's a subset of total healthcare expenditures. We look at that both in gross, and then, risk-adjusted terms.
When we report, for instance, organizations confidentially to the HPC for exceeding the benchmark, that is risk-adjusted, it's a conversation around how good those risk adjustment tools are but we do use risk adjustment and looking at growth in total medical expenditure of individual medical groups to drive our references to the HPC but our measurement of total healthcare expenditure is just gross. It doesn't look at, it doesn't adjust for things like risk.
Right. There's an argument maybe that is the population is getting older, for instance, that you could look at our total healthcare expenditure increases as being more subdued than they appear at face value possibly if there is a risk to your population underlying it.
Dr. Altman: Any other? Well, again, and I want to thank both of you. This was phenomenal and I know we will be working closely with you, Ray, and, of course, David's right in our backyard so, thank you again.
Ray Campbell: Thank you.
Dr. Altman: Well, Mr. Speaker, I see that you're here and I really appreciate it. While you're coming up, I can't help but introduce Representative Sanchez. If there's somebody who has come to these hearings faithfully over the six years, I think you win the prize and it's a pleasure to see you again. Mr. Speaker. Again, I want to tell you how pleased we are that you've again joined us. You have been a true champion with respect to health care in the Commonwealth. Particularly, focusing on high health care costs and helping to improve and make us such a high quality access. And I particularly want to make clear about the special efforts you've been recently talking about with respect to making our community hospitals stronger, and addressing the opioid. So again, thank you for coming and I hope that you have some staff here that can stay around and maybe a few little nuggets will come up these two days which will help you in future legislation. So again, thank you for coming. It's a pleasure to have you.
Speaker 8: Thank you, Mr. Chairman. And yes, we will have some folks sitting here to listen. Especially as we begin the new legislative session. First of all I want to thank, as you have just done, chairman Sanchez for his [inaudible] work even before he was on the chair of Ways and Means serving as the chair of the Healthcare Policy Committee. He has been a valuable partner with me, in terms of teaching me the ins and outs of the healthcare system, and I sincerely want to thank him for his years of work.
I also want to thank vice chairman of the Healthcare Policy Committee, vice chairman Roy, who is here also, Jeff Roy, for his work filling in at a very difficult time with the death of chair [inaudible 01:03:25]. We found that he was a very quick study on these issues and I just thought he did an unbelievable job under very difficult circumstances.
I want to thank the Health Policy Commission for hosting this annual hearing that gives us the opportunity to reflect on our progress toward a better healthcare system for the Commonwealth. Every year, this summit, I believe, yields fruitful dialogue and meaningful contemplation about our values and our goals. For those of us in the legislature, it helps us guide our healthcare reform priorities, in this year, certainly gives us direction, especially as we are progressing to a new legislative session.
While we look to the work ahead, we should recognize the real progress that we already have made. For the second consecutive year, CHIA reports have shown that we are below the cost growth benchmark. Slowly but surely we are stemming the growth of healthcare spending in the Commonwealth. We can unequivocally say that chapter 224 has and continues to be effective in addressing cost containment. We have maintained our reputation as the epicenter of healthcare innovation and excellence. We also are recognized nationally for our willingness to take risks and to refine. And that is why we need to keep on pushing forward.
Everyone in this room knows that the legislature tried to take the next step in the healthcare reform last session. Unfortunately, we were unsuccessful. No one is more disappointed than am my.
The late chairman [inaudible] crafted a strong foundation for that bill and majority leader Mariano, vice chairman Roy and chairman Sanchez worked hard to get it across the finish line. I am deeply grateful again for their tremendous efforts.
And because of that work, the valued input from the healthcare community, and our commitment to the people of the Commonwealth, we will not give up. This coming legislative session, the house will try again.
Despite our success at slowing spending growth, we know that patients are still foregoing care due to cost. Our community hospitals and our health centers are still struggling to survive, as our payment systems have not caught up with the shifts in how we provide care. The health insurers are still finding it difficult to balance the increasing costs of care while protecting patients from premiums that make up a greater portion of their incomes. And businesses are still making tough decisions to ensure that they are providing adequate coverage to their employees as healthcare becomes a larger part of their bottom line.
For the sake of our Commonwealth, we will focus on these issues and resume our work with commitment and with vigor.
With the close of the former legislative session in July, the house reflected on its efforts. We are still committed to addressing the same issues including pharmaceutical spending, which CHIA reports once again is a significant driver in healthcare spending.
We're also looking at telemedicine, out of network billing, transparency, and of course provider price variation. But we also know that the input from the advocates and the stakeholders is key to our success. We have heard from a broad range and you will hear from a broad range of voices, many of whom are in this room. I want you to know that we value your input and commitment to the healthcare system in this Commonwealth. That feedback is heard. We look forward to working with you to improve upon our proposals.
We also acknowledge, by the way, I think that there are areas worthy examination that we did not address, particularly MassHealth. MassHealth constitutes approximately 40 percent of our state budget, a proportion which has grown steadily in recent years. While this program is arguably one of, if not the most important safety net program that we have in Massachusetts, we need to be responsible in how we spend those dollars.
As CHIA reported, MassHealth did experience a slight decrease in total healthcare expenditures from 2016 to 2017. And the redesign of the program, which was launched in March, has been relatively smooth. It is still too early to see if this restructuring will lead to lower healthcare spending, but anecdotally I'd have to say it does seem promising. We have heard from stakeholders that we need to maintain stability and allow participants to execute on their commitments. We do not want to [upend] these efforts and we are committed to the most vulnerable amongst us who benefit from this program. But we have heard the calls to take a good look at the program and consider how we can bring down costs while protecting its integrity.
When we consider health reform efforts, we often use a lens that is biased towards the adult healthcare system. And while often policies that benefit adults trickle down to children, there are unique needs and considerations of the pediatric healthcare system that are frequently ignored.
It's time to give this segment of the system its due, as early intervention is key. This includes starting a statewide dialogue with all pediatric providers to hear the diverse perspectives of those providers across Massachusetts. We need to think about our data collection efforts, to ensure that we are getting an accurate picture of the pediatric healthcare system.
As the importance of supportive and robust behavioral health services becomes more apparent than ever, we need to consider how we can access those services. This means finding ways to integrate mental health supports and services in our schools and in our communities, and not limiting them to the health care settings alone, so that children and families can access them at all stages.
The House has champion funding in the last two budgets for early childhood mental health consultation services and through our safe and supportive schools line item. That program creates an infrastructure to facilitate the coordination of school and community based resources, including stronger integration with social services, youth development, and mental health programming.
But we can't stop there. For both adults and children, healthcare services should expand beyond hospital walls. It's a missed opportunity if we don't take advantage of early efforts to support our youngest and most vulnerable children. This is not just an access issue, but also is essential if we are serious about addressing social determinants of health such as housing, education and employment. Factors outside of the traditional healthcare setting that we know contribute to one's overall health and wellbeing.
As policy makers, I must tell you that we are grateful for your partnership, your expertise, and your willingness to engage with us on these important issues. To sustain these efforts, we need to maintain consistent communication with each other and strengthen our existing avenues for collaboration. As we kick off the next two days, let us be open about where we have succeeded and where we need to continue to work.
Let us not forget the reason we are all here. Namely, the patient. We are here to ensure that every single resident of this Commonwealth is able to access a high quality in affordable health care system. We in the House looked forward to being a part of that conversation now in working with you as we start the next legislative session to keep pushing the needle forward. Thank you very much and thank you for having me.
Dr. Altman: Thank you. You can be assured that we will gladly be working with your staffs and the other members of the House. Because what you're about is key to our activity. And I have faith this year you're going to make it-
Speaker 8: I think so. I think so. I'm confident of that. If the Red Sox could do it, so can we.
Dr. Altman: There you go. All right. Thank you again.
Speaker 8: Maybe I shouldn't put it that way, I don't know. We'll see what happens the next couple of days, but it's just one game. Right. Thank you very much.
Dr. Altman: All right. Thank you so much.
Speaker 8: I appreciate it. Thank you very much.
Dr. Altman: All right. We're very fortunate to have a [true] guest speaker and I'm going to turn the microphone over to my fellow commissioner, Professor Cutler, to introduce our renowned first primary speaker, good to see you.
Dr. Ashish Jha: Good to see you.
David: Thank you, Mr. Chairman. It is a great pleasure for me to introduce our keynote speaker today, Dr Ashish Jha who's one of my colleagues at Harvard. Ashish is the [inaudible] professor of global health at Harvard School of Public Health. He's also a senior associate dean at the school, and he's the director of the Harvard Global Health Initiative.
One of the reasons why I love getting to hear from Ashish is that his work spans the scale from the very localized, that is interactions between physicians and patients and what they do well and what they don't do well, up to the global, which is how do you rank different health systems and how do you compare across systems and understand which ones are working more effectively and which ones are less effective. And so it's very rare that we can have all of that.
As a commission, I think those sort of dovetail with some of the issues that we have to address from the small, keeping Wendy's blood pressure low every year when she sees the trends on readmission rates in Massachusetts compared to New Jersey, to the big, which is how do we think about the performance of Massachusetts healthcare as a whole? How do we judge its successes, how do we judge where it needs improvement and what should we do to improve it?
So I know that Ashish going to talk to all of those, be prepared to answer and help us think through all of them, and so I am just delighted that he is here and thank you so much.
Dr. Ashish Jha: Thank you, David and Mr. Chairman, [inaudible] vice chairman, madam secretary, and- all members of the commission. Thank you for having me here. It is in fact an honor and a pleasure to be here. And I have some slides and I'm what I'm hoping to do ... You've already heard this morning from individuals who laid out very carefully where we are as a Commonwealth. And I want to take a step back and I want to cover two main areas in my remarks. And then obviously take questions.
One is I want to provide some international context for the American healthcare system. And then I want to shift to talking about more national policy trends. Where I see the evidence of what's working, what's not within the United States. And of course both of those have implications for how we think about improving value of healthcare in Massachusetts. But that part I'm hoping might be more of a discussion. So my goal is to start global, get to the US, and then have a discussion about how we should think about those things at a local level.
So, I don't know if the slides are going to go up on the screen.
David: You just advance through them.
Dr. Ashish Jha: Oh, I advance it. Great. Look at that. Thank you.
So I already laid out what my agenda is, so let's go ahead and get started.
I want to start off with a slide that everybody has seen a version of at some point in their lives and probably almost every other day, which is how America spends so much more on healthcare than any other country. This is from 2016 and almost all the data I'm going to show on the international comparisons comes from an organization called the OECD, the Organization for Economic Cooperation and Development. It's a multilateral organization, member countries, and really pulls together evidence and data from mostly high income countries. So it's really the best data we have for international comparisons.
This is data from 2016 comparing the United States to 10 other high income countries. And these are not randomly chosen high income countries. These are among the highest income, most advanced nations in the world, including the UK, Germany, Sweden, France, Netherlands, Switzerland, Denmark, Canada, Japan, and Australia.
And the thing to remark about this slide is if I did not have the American data, you would see a lot of variation in spending across countries. These are all countries that spend a lot on healthcare compared to other countries in the world. It's just that we're such incredible outliers that the eye goes immediately to the US number, but there's actually quite a bit of variation among countries. No other country has a health system that looks exactly like any other country. And that's worth understanding. That Switzerland looks very different from France, which looks very different from Germany, which looks different from the UK. All right.
So if that's us as the outliers, the question of course is why? Why are we such big outliers on healthcare spending? And there are lots of hypotheses and over the years I've heard lots of them. We published a paper about six months ago that actually tried to look at the data to see if we can answer some of these well heeled ideas about why American healthcare is so an unusually expensive.
One hypothesis that I've heard many times, in fact I have even said it in public without having data is ... Which is a little embarrassing, but I may not be the only person who's ever committed that sin. But I've often said that the problem of American healthcare is that we have too many specialists and not enough primary care, certainly compared to other high income countries. And so this study really tried to look at is that true? And here's what the data looks like. If we look at primary care physicians as a percentage of all physicians. And what you see is that the average across these 11 countries, US and 10 other high income countries, there's about 43 percent primary care. And we're right there. And if I looked at the median, it'd be closer to 45, but the bottom line is that it turns out, and this has been the biggest surprise of the work that we've done, at least the biggest surprise to me, is that our primary care specialty mix, while being a bit on the low side, certainly compared to France and Switzerland and Canada, is not an incredible outlier.
And this is a data point that we spent quite a bit of time verifying because to be perfectly honest, I didn't believe it. I thought we had this wrong.
Dr. Altman: And we know that when hypotheses against data, we go for our hypotheses.
Dr. Ashish Jha: Yeah. And this one it took some convincing, but actually, I have come to believe that these data may actually be right. The next couple of minutes I want to talk about another hypothesis, and it really gets set up with this, the only equation I have for the day. Which is, if you think about total spending, it's really made up of two things. Quantity and price. How much healthcare services are you utilizing and then how much are you paying for each, or some combination thereof.
I would argue that the narrative around our culture of overuse has meant that we focus a lot on quantity. We focus a lot on the hypothesis that we spend so much more than others because we use so much more healthcare. And so we wanted to test that and I want to show you some data around that.
One part of the over-utilization theory has been that we as Americans are quick to go to the doctor. That the moment somebody gets a cold or a has back pain or something, we're off seeing the doctor. We've over medicalized things. And so we looked initially at just doctor visits in the population. And what we find across these 11 countries is that on average people are going to the doctor about six and a half times a year. Whereas for us it's only four. And so we're actually on the low end of how many doctor visits we have per year, across at least these countries.
And some countries like Japan and Germany, people are seeing their doctor a lot, almost once a month in Japan. So countries are different. Again, you can see a lot of variation around these nations. No one country looks like the other. But we're not an outlier in terms of using a lot of doctor services.
So then the hypothesis has been, well maybe we used too little doctor services. Maybe that's the problem. That we're not getting enough prevention and not getting enough primary care and that means we're spending way too much time in the hospital, that our hospitalization rates are really high and we're spending a lot of days in the hospital and so we're spending it in the wrong places.
And so when we look at hospital discharges per population, here's what we find. We find that the mean across these countries is about 149. Germany's really the outlier with a lot of hospitalizations per population. And we're actually a little below average. And then when you throw in the fact that our lengths of stay tend to be much shorter than other countries, we just spend a lot fewer days in the hospital than our friends in these other high income countries. And that's another surprise because I think we've often seen us as outliers on hospital use.
So moving beyond doctor visits and hospital use, there's also been ... Physicians often bring up defensive medicine. We often talk about the culture of over-testing, which are real. And I am going to come back to talking about how to think about utilization in all of this. But we've certainly had a narrative that we use too many tests and procedures. And here there's some data to support that hypothesis. So let's look at that.
If we look at MRIs per population, I could show you CAT scans, I can show you other things that look about the same. Here's the mean across these countries. And here's us. About 25, 30 percent higher. I will say Germany again outdoes us on MRIs, it may be because a lot of the MRI machines are made in Germany, I'm not sure, but they use a lot of MRIs. But again, we're higher than average, but I would say not some crazy outlier.
If you look at knee replacement rates in the population, what we see is we are really outliers here. The mean is 163. Here's us. This in my mind is really driven a lot by the fact that our population is so much more obese. We have a lot more osteoarthritis and therefore probably need to have more knee replacements.
Hip replacements, which is another one I expected for us to be really high. Turns out we're actually a little below average across these countries. And again, Switzerland and Germany being on the high end. And then the last but not least, coronary angioplasty has gotten a lot of attention as an area where there's potentially a lot of overuse. And we see that sure enough, we're a little bit on the high side. Again, I'm not sure what's happening in Germany. It's a lovely place, but they use a lot of healthcare. We're high, but we're about the same as the Netherlands, a touch higher than France. We're not some crazy outlier, but we are a bit on the high side.
So if the question is, are healthcare spending woes in the US driven primarily by utilization? I would argue that no, it doesn't seem like higher US costs are primarily about utilization. It may be a part of the story, but it seems to me that it might be a minor part of the story.
We have fewer hospitalizations and doctor visits. Tests and procedures are a mixed bag. We do more of some things and less of others. And the way I think about it is on bottom line is we're above average on some below average on others. And on average we're pretty average. On utilization.
So moving along, if it's not utilization, what is it? Let's talk about administrative costs. And this is a place where actually professor Cutler has both written and testified quite elegantly about some of the challenges facing our country.
There are lots of ways of measuring administrative costs. The OECD has a pretty narrow definition. And even if we just use that definition, the OECD finds that the mean spending on governance administration for essentially payment programs is about three percent, and we're really unusual at eight percent.
And this is not just a public or private issue. Netherlands and Switzerland are both pretty private systems with a large role for private insurers and they have figured out how to lower administrative costs or have lower administrative costs that are half ours. So it is possible to have an efficient administrative system with private payers. We just haven't figured out how to do that.
So if we're back to total spending, is quantity times price. Let's talk about price. So prices are an issue. And again, when we get into international comparisons, question is, prices of what? We of course focus on pharmaceuticals and appropriately because we know total spending per capita on pharmaceuticals are a lot higher in the US, almost twice as high as the average across these other countries. We don't use more pharmaceuticals than other countries. Our utilization rates are about average, a little higher on some things, a little below on others. But our prices for pharmaceuticals are much, much higher.
But given that pharmaceuticals only make up about 15, 17 percent of healthcare spending, that can't be the whole story. And so if it's not the whole story, what else is it? And it's worth looking at some of the other prices. So here's generalist physician salaries. And our generalists get paid a bunch more than generalist physicians in other countries. This shows up with specialist physician salaries. And here the differences are much more dramatic actually.
And the one thing I will remark is that specialists come in all sort of different sizes and shapes and flavors. And there are a pediatric infectious disease doctors who don't get paid more than generalists at all. And then there are orthopedists and neurosurgeons who get paid quite a bit more. And in the very large salaries we see among certain specialties in the US, you almost never see in other countries. It's very rare for people to be making six, eight hundred thousand, a million dollars as a physician in other countries. But we have a lot more of that. So it's not just the average specialist physician salary is higher here. But t turns out that the high end of specialties are particularly high compared to other countries.
This is not just about physicians. We see this with nursing salaries as well, our nurses get paid about 50 percent more than the average in these other very high income countries.
And then if we move on, and now I'm going to show you some data from International Federation of Health Plans and I will wrap up this part of the talk in about 30 seconds. If you just look at individual tests and procedures, and I could, we have a lot of data on a lot of them, and I'm just going to show you two. If you look at CAT scans, for instance, what you see is we're much more expensive. Our CAT scans are much more expensive. We're not using nicer CAT scans. I don't actually, don't understand how Spain manages to do it for $85. It makes me want to get on a plane and go to Spain. But probably for other reasons. But cat scans are much more expensive here than in even other very expensive countries like Switzerland.
Appendectomy, which is not discretionary most of the time. If you need it and you're paying for it privately, we're paying dramatically higher prices than New Zealand and Switzerland and Australia. Again, these are not cheap countries. Switzerland, if anybody has been, is an extraordinarily expensive country, yet appendectomies are almost 70 percent cheaper in Switzerland than they are in the United States.
So if we just sum up what makes US healthcare so expensive, I think hypotheses unlikely to explain the big differences are primary care specialty mix, over-utilization. Again, those are real issues, but I think it seems to be primarily driven by administrative costs and high prices.
Let me make one last point because it'll be an important segue into the next part of this talk. Which is even if you're not using more healthcare services than the other countries, if we're paying a lot more for them, I still believe we have over-utilization. There's no doubt about it. It just turns out I think other countries have over-utilization too. And because we pay high prices, we can still save a lot of money by reducing over-utilization. Every effort to look at over-utilization across countries has found very remarkable amounts of over-utilization and other countries as well.
And the key point on that is if we're going to look for explanations of over-utilization, we shouldn't look for uniquely American explanations. Because, the Dutch, the Germans, the French, the Swiss also seem to have a lot of over-utilization.
Let me now shift just for about five, seven minutes on the domestic policy scene. And I'm going to talk about what we largely focus on as a country and of course it's primarily our focus has been driven by CMS, by Medicare, which is our national health policy driver among other things. And CMS prices are fixed so they tend to think of it more about quantity. And so this is where CMS has put a lot of its energy, thinking about how do we reduce quantity of healthcare services.
And if most, I think, leading health policy scholars argue that a lot of the causes of our system dysfunction in the US are driven more by things like fragmentation, how we pay for care, lack of incentives, many of the things that we've been talking about this morning, inadequate transparency, inadequate competition, sorry, inadequate patient skin in the game to the extent, again, different people of course hold different levels of belief on these kinds of theories.
But let's talk about what has been happening at the national policy scene. And I'm going to call it all ACA. Some of what I'm describing came through the High Tech Act, some of what I'm describing came through other policy. But if you look broadly at what the US government has been doing over the last decade, our policy approaches have been, we're going to change for how we pay for things. We've talked about that already this morning. Hospital readmission reduction program, value based purchasing. We're gonna try to hold providers accountable, patient centered medical homes or primary care redesign, however you want to discuss that, accountable care organizations. And then a lot of work through CMMI on innovation.
What I want to do is just spend five minutes going through the data on where we are on these things. I'm sorry, my clicker is not ... Oh, and investments, investments in health IT. And I do want to make sure we talk about that.
So has it worked in terms of improving quality and lowering costs? I want to just cover a few areas. This is data on value based payments, VBP, for hospitals. And basically the bottom line, just to cut to it, is I think pay for performance programs over and over and over again have failed to live up to expectations. I think there is overwhelming evidence that most pay for performance programs do nothing to improve patient outcomes. A friend and colleague Bob Berenson at the Urban Institute often says, "Pay for performance is an idea whose time has passed." I think pay for performance, if we want to continue using that as a policy tool is fine, but I think we should keep our expectations low in terms of what it's going to do for us. In terms of either improving quality or lowering costs.
If we talk about hospital readmission reduction program, this has been somewhat controversial. And I have been a bit outspoken about its efforts. At a national level we've seen readmission rates fall by about two and half to three percentage points. There is at least some evidence that about two thirds of that may be due to coding. This is again, controversial. That's from data that came out about a year ago. Medicare Payment Advisory Commission recently came out saying they did not think it was due to coding. At least some amount of controversy on this.
There is some very weak evidence, and it is in fact very weak, that the readmission policy program may have made mortality rates worse. And again, I can point to four studies too that point in one direction, two that point another. But it's a concern if it has, that's of course a problem. And the impact of the readmission program has been, I would say, controversial.
We've had a bunch of efforts around primary care redesign, and I promise I will finish on a positive note of what I think has been working. The primary care redesign, there's been a bunch of efforts nationally to pay primary care offices more to do care management. The biggest one is the one that targeted 502 primary care practices in seven regions. And unfortunately, the latest evaluation suggests that after four years, there really has been no change in overall spending growth, and really modest impacts on quality.
So as a generalist physician, I believe deeply in primary care. And I believe that we have to do better at primary care. But I think we have not figured out the magic formula for how to improve primary care in a way that leads to better care and lower costs.
Two more points, one is on electronic health records. This is a bit of a difficult graph for people to follow, but let me just try to walk people through it. I think this is the first piece of good news, and then I'll show you some more in a second. I think we now have evidence that long-standing use of electronic health records is starting to make a difference. That just putting electronic health records in hospitals is not a magic bullet that immediately care gets better. But the more intensive the EHR is, and more it's used over time, we start seeing declines in mortality.
So some of the national declines we've seen in mortality in hospitals, I think is because of the big EHR investment that we've made. This just splits hospitals into three buckets, kind of low, medium and high intensity users. And what we find is medium intensity, nothing changes. Low intensity, mortality rates actually go up a little bit. And high intensity users, we've seen a real change in mortality rates.
Massachusetts was early to this, as all of you know, and through the technology commission and others, we have been leaders on electronic health record use. And I think the evidence is now coming in reasonably strongly that it's making a difference and saving lives. And that is a good thing.
Bundle payments have been a little bit mixed. For medical conditions like heart failure, and heart attack we don't see much of an impact on quality or spending. But the surgical bundles are in my mind, in my reading of the evidence, quite positive. Associated with decreases in spending, and small improvements in quality. Some studies suggest you can save up to 20% by bundles. I think that's probably more aggressive than I would, I wouldn't bank on that. But even 5, 10% savings on bundles is quite extraordinary. And so I think bundle payments should be part of any effort that we do on payment reform.
Actually I can just skip through this slide. And let me finish up with ACOs. The number of ACOs in the country have continued to grow. The 2018 estimate I have up here is probably an underestimate. This is the last set of data the CMS has put out but about 25% of Medicare beneficiaries are now in an ACO. That's quite a remarkable growth in five years.
And there has been some controversy, and some people like to point out that maybe the savings haven't been that great. I actually think the best evidence on this has been generated by one of our colleagues at Harvard, Michael McWilliams. And his studies over and over again consistently find 2 to 5% savings by cohort. And what I mean by cohort is if you look at the data, and say, "When did organizations become ACOs?" The longer you've been in the bigger the savings. And the 2012 cohort is saving about 5% a year compared to controls. That's a real substantial savings from the ACO program.
The impact on quality is more mixed. I think there have been a few positive changes in patient experience. Not big effect on patient outcomes. But hey, if we can save 5% and improve patient experience, and certainly not harm outcomes, I will call that a win any day of the week. And I'm optimistic that over time there will be benefits on outcomes too, but we just haven't seen it yet in the data.
Last point on this, is all of the savings of ACOs have been in physician-led ACOs. Hospital-based ACOs have not saved any money at all. And so physician-led ACOs have very clean incentives, which is keep people out of the hospital. Hospital-led ACOs have more complex incentives, because they've got to fill the beds, but they also want to try to save money, and they haven't figured out how to do that. So, that's where the data are that all the savings are in physician-led ACOs.
So in terms of a summary of where we have been, I think we've had lots of activity. Some of it is making a real difference. And again, as I said, I think a lot of it has been Medicare-led which is why we don't see a big focus on prices.
And last slide, and I'll stop here. I think we're going to see nationally a lot more push towards price transparency. I think payment reform that's been set off by the ACA continues with more bundle payments, ACOs and competition. I think we're going to see more growth of Medicare Advantage and more engagement from consumers. And I would like for us to see more effort on prices.
And what I was going to say, what this means for Massachusetts, maybe I'll just stop there. I've covered a lot of ground. But I will just say, I do believe that payment reform and payment reform efforts are important, they're a mixed bag. I believe that given the dominant role of prices in explaining the difference between us and other countries, I think it is unfortunate that we have not had more policy attention at a national level. I would argue that Massachusetts again, has been a leader on this because we have been thinking about prices, and have been talking about prices for some time.
So that's a lot of ground. Thank you for the time to cover all of that, Mr. Chairman ...
Dr. Altman: This was great. Thank you so much. So let me turn, let's Don, and I'll go back and forth.
Don: Thanks, wonderful, wonderful work. I want to dig deeper into the readmissions issue. I know you've been quite vocal about this recently. The commission and some of the goal setting around cost reduction has leaned on readmission reduction. We are at high stake. Can you tell us more about your cautions here, and what you think would be wisest for us?
Dr. Ashish Jha: Sure, thank you Don. So readmissions, in my mind from a clinical point of view, are a little bit funny. And what I mean by that is, so clearly some chunk of readmissions are appropriate. I think focusing on basically hospitalizations after discharge has some advantages. It pushes us to thinking about post-discharge planning, good transitions and hand-offs. But I think the measure is got a lot of challenges in terms of risk, in terms of social risk, clinical risk. And I often take a step back and say, "What are we trying to achieve on this?" And I believe what we're trying to achieve, is that when somebody gets hospitalized, we don't want to stop thinking about them the moment they walk out the door. We want to think about what happens to them in the days, and weeks, and months to come.
And in that light, I would like us to move towards a more comprehensive approach that, well bundles certainly begin to get us there. So I want to look at 30, or 45, or 60 days, and look at total cost of care in that time period. And if readmissions are a part of that, fine. But to me, that's not the most important focus.
Acute events set off a cascade of clinical and financial challenges, and I want us to be more comprehensive. And my fear is that focusing very narrowly on readmissions, which is hard to measure well, well it's easy to measure, it's hard to measure well because it's hard to get risk adjustment right and it's hard to get social risk adjustment right. We find ourselves creating policies that are well intentioned but aren't getting us there.
So I think the concept is right. And I'd like us to just think more broadly about that. And if we're going to hold people accountable, let's hold them accountable for the wellbeing, the functional status, the mortality, the infections, the costs, over 30, 45, 60 days.
Don: Thank you, can you just clarify a little more what you're noticing about readmission mortality relationships? Because that's a bit alarming.
Dr. Ashish Jha: Yeah, it's been controversial. And Harlan Krumholz, who created the measure, if he were sitting here would have a different interpretation, and you ought to know that. I'm looking across a broad range of studies, and some studies suggest that there is an inverse relationship. That as readmission rates fall, mortality rates go up.
Other studies don't find that. To me the most puzzling is that often using the same data, and what looks like same techniques and methods, people are getting different results. And I think the academic community is trying to sort that out. And my sense, based on other data that I know is in the pipeline, is that we'll have a clearer understanding over let's say the next 6 to 12 months.
But of course, if it's true, it's very concerning. Because that is not a trade-off that anybody wants to make. And so, my general advice has been, "Fine, we're down this path. But let's pay very close attention to this. And if this signal of mortality goes up in any way, we really have to rethink this approach." And again, my general take is, "Let's think a bit more broadly about this. Let's make mortality a part of how we judge hospitals. Let's make readmissions, but let's look at the total cost of care because that's what we care about."
Dr. Altman: Yeah, David?
David: So thank you, Ashish. I have two questions for you. I'm quite interested in your answers to both. The first one is on the price side. And I want to particularly focus on the institutions, hospitals, and skilled nursing facilities, and so on. The prices are clearly much higher in the US than elsewhere. On the other hand, their profit rates are basically zero, close to zero, 2%, 4%. So if you cut their prices by a lot ... So the money is going somewhere. The higher prices are going somewhere is the point.
Dr. Ashish Jha: Yep.
David: And so the question is, if you cut their prices 10%, 15%, what would give? Something would have to give.
Dr. Ashish Jha: Yep.
David: So what in your guess would give? And would that be valuable?
Dr. Ashish Jha: Yep.
David: That's my first question to you. Let me let you answer that and then if I may, I'd like to ask him a second question.
Dr. Ashish Jha: Sure, so right. So if you look at a place like Germany, or France, or the UK, Switzerland who's a very expensive country. They're able to have hospitalizations for pneumonia, or heart attacks, and do it a lower prices. So what's different? Their physician salaries are lower. Their nursing salaries are lower. Their staffing salaries are lower. The MRI reimbursement rates are lower.
And so they clearly are able to manage it. The bottom line is that we end up at 0, or 2% profit because most of our systems are non-profit and we find ways of spending money, if we're going to have a margin because we're not returning it to shareholders.
I believe that if you were to do something dramatic, now I don't actually in any way advocate a 10 or 15% price cut because I think the transition period would be very, very costly to people, to individuals, to people's lives, doctors, nurses. But over time, you'd see lower salaries for physicians. You might see lower salaries for orthopedists, and maybe even generalists, and nurses.
And that has its own costs down the road. So I think we have to understand in lots of countries, primary care physicians are middle class. Not in the United States where they tend to be among the wealthier. So I think that's how the prices flow through the system.
David: My own take on it would be, I agree with that. And I think we should also couple what we do on the prices with what we do on the administrative cost side.
Dr. Ashish Jha: Absolutely.
David: So that we can say, "Let's try and take 10, 15% out of the administrative cost side, so that we can then pay less."
Dr. Ashish Jha: I think that's absolutely right.
David: Can I ask you my second question, if I may?
Dr. Altman: You want to hold it, and see if we get other people in? And then we'll get back to you?
David: Okay, fair enough.
Dr. Altman: Wendy?
Wendy: Thanks.
Dr. Altman: We want to get everybody in.
Wendy: Well that's helpful because I'm really going to tag on to David's question. If you went back to the What's Next slide, which I think is one or two back, I thought one of the really fascinating things that you said during the presentation was that over-utilization is indeed driving cost in the aggregate. But it's because of the prices. So if we could decrease over-utilization and because of the high prices on that over-utilization, we generally decrease the cost. What was interesting to me on your next What's Next slide, What Should the Commission Think About Doing? Was that over-utilization, or decreasing inappropriate utilization does not appear on the list.
So I just wondered if you could talk a little bit, particularly from the commission's perspective in Massachusetts, what we might do there?
Dr. Ashish Jha: Yeah, so I do believe we need to tackle over-utilization, and I didn't call it out in that way, but I talked about payment reform like ACOs. ACOs, the primary way we think ACOs save money is by reducing over-utilization. We just change the incentives so now we share some of those savings with providers, and then providers figure out what stuff is less useful.
So I absolutely believe over-utilization is a problem. It's a problem for our country, it's a problem for Massachusetts. As I said, I think it's just not a uniquely American problem. And that's important from a national policy point of view because we often look to uniquely American explanations like, it's our culture. Well I don't think our culture explains over-utilization in Germany.
But that said, over-utilization is a problem. And I think payment reform efforts like ACOs, like bundle payments are starting to bear fruit in reducing utilization. So I'm a big believer in continuing those, experimenting with new ones, letting evidence guide us, really doubling down on those efforts. But also thinking a lot about how do we encourage more physician-led ACOs? Because that's where the evidence suggests the big benefits are.
Wendy: Great.
Dr. Ashish Jha: And that's complicated because of course, there are a lot of hospital-led ACOs in our community. And maybe those will over time end up saving us money, we just don't see that in the evidence.
Dr. Altman: Other questions or comments anybody?
Chris: Stuart, I have one. Ashish, if we cram down prices somehow, is there a cost in a decrease in innovation?
Dr. Ashish Jha: Yeah, sure.
Chris: I think the device industry, pharma would say, Western Europe isn't generating innovation anymore. Can you comment about that?
Dr. Ashish Jha: Sure. So let me make, if it's okay, let me make two quick points. One, and I will very much talk about innovation because it's a critical issue. One is if you ask ... Actually the question, how do other countries even lower prices? Most of them just do it through administrative price setting. I mean in Japan there's a body that just sets prices. And if you want more, you can ask for whatever you want, but you'll get what they give you, and you'll like it. So there is a very strong price setter. And in general, and I'm not an economist and I'm very sort of nervous to say this in front of economists who are in front of me, but my sense is that there are two ways of setting prices. There's a strong price setter, an administrative, usually government body. Or you have highly competitive markets.
About two thirds of healthcare markets in the United States by Federal Trade Commission standards are non-competitive. And so we have uncompetitive markets, we have a relatively weak price setter that we have politically set up as a weak price setter. And so we have figured out how to do the worst of both worlds. And you can imagine different people on the political spectrum will have different views about which way we should move, and that is beyond my area of expertise. But I would say that we have kind of gotten that sweet spot of not getting neither of it right.
On innovation, and actually it goes even beyond, look, cutting prices will have implications. I think anybody who believes that we can cut pharma prices by 50% or device prices by 50% and have no impact on innovation, that's hard for me to believe. But let me make a couple of specific points. There are certain types of pharma prices which are completely about market manipulation when generics become a monopoly and then somebody raises a price by 1000%. There's no innovation happening there. That's just market capture, and using regulatory approaches to keep competition out. Those need a very different set of solutions than when we get a new CAR-T solution for a very rare type of Leukemia that costs $500,000. I think they need different policy solutions.
And even if you go beyond pharma and devices, and you got into cutting prices for doctors. It's complicated, right? Because if you're a graduating college student, and you're trying to decide do you want to be a physician? You're not trying to decide whether you're going to be a doctor in America or you're going to be a doctor in Germany. You're trying to decide whether you're going to be a doctor in America or a lawyer in America.
And so how we compensate physicians is influenced by how we pay professionals in general in our society. And if we have a dramatic reduction in our physician salaries, or our nurses salaries, we're just going to get a different group of people going into medicine and nursing. And that will have implications. So I think all of this stuff should be done thoughtfully, but certainly we need, I believe, more competition and in certain specific areas, more tight price management because again, we've kind of figured out how to do it badly on both ends.
Dr. Altman: David, you want to ask your second question?
David: Thank you Mr. Chairman. I want to ask you about the interaction between bundle payment models and ACO models. So we've had a little bit of debate in Massachusetts as to how they interact. So as you know, many of our biggest payers pay on a global, or ACO-type payment. And we have spoken with them about whether we would encourage them to, underneath that adopt bundle payment strategies for particularly acute illnesses. And they have so far resisted on the grounds that they think the global payment is just simpler, and they're worried about creating more episodes, and so on.
So I'm wondering what advice you would give us, that is should we say, "Yeah, they're kind of right. Let's play things out." Or do you say, "No, actually I would encourage the state to be more aggressive. And to say that you really should be implementing those even while you have, even inside of these ACO contracts."
Dr. Ashish Jha: Yeah, it's a fantastic question David. And I wish I could give you a really strong evidence-based answer, where I could show you how these things play out. As you are aware, we don't know exactly what that interaction looks like. And there's a lot of controversy around that, there's often controversy when we don't have evidence, because then people just have very strongly held beliefs. I believe, and this is really a belief, that certainly for surgical bundles it focuses organizations in a very specific area. And so while there may be global payments which kind of lead to general efforts to let's say, prevent hospitalizations, I think, my personal belief, and I wish that I had strong data to back this, that adding on surgical bundles on top of that probably would be a good thing because it will push organizations in a very specific, but very expensive area to do something different.
Dr. Ashish Jha: And again, it could be that empirical evidence ends up proving me wrong, but my best guess based on the data that is out there, is that will drive further savings. And probably improve quality at the same time.
Dr. Altman: Marty?
Chris: Thank you, in your answer to the question about readmission rates, you talked about social risk adjustment which begs the question what about social determinants of health? In particular social service spending, particularly as we look at other countries. Thoughts about the impact that social services have on both price and quality actually?
Dr. Ashish Jha: Yeah, so actually a couple of slides I had were on international comparisons in that, and I ended up taking them out because this was already getting to be long. What we know, and we've done a lot of work on this, is that countries that spend more on healthcare services also are countries that spend more on social services. Interestingly they kind of tend to track together, because wealthier countries spend more on both.
There has been this belief that if we spend a lot more on social services, we'll save a lot of money on healthcare. And I have struggled to find the evidence behind that. I'd like to believe it because that would be wonderful. But where I think the evidence is a big clearer, is if we spend more on social services and they're spent efficiently and wisely, we can make real impact on patient outcomes, and health outcomes. And at the end of the day, spending is important. Improving the health of our population is like the thing. That's what we should be focused on, right? So, I am a believer in more thoughtful, targeted social spending. But we shouldn't think that it's going to somehow magically pay for itself by dramatically reducing healthcare costs.
Just to come back to the readmissions thing, there is overwhelming evidence that if you are a patient who's discharged from Newton-Wellesley Hospital with the exact same clinical care, and the same discharge plan, your chances of being readmitted are going to be lower than if you're discharged from Boston Medical Center. And this is, you know, I live close to Newton-Wellesley Hospital, it's a lovely hospital. It's not about them. It's about their patient population. It's just a little different. And it turns out that if you're sending somebody to a homeless shelter with diabetes, hypertension and coronary heart disease, their chances of bouncing back to the hospital are higher than if you're sending them to their home in Wellesley.
And we have to deal with that, and take that into account and be thoughtful about that. Because otherwise we end up saying Boston Medical Center is a terrible place, and Newton-Wellesley Hospital is terrific, and none of us believe that that's right. So this is why this stuff is very important. And I finally, on the national level, we're making progress on this. We finally have gotten the readmissions policy to take this issue into account. But this is why I think, kind of moving towards a broader approach of 30, 45, 60 day bundle and then doing social risk adjustment, looking at total cost of care, total health outcomes, I think is a better approach for our country.
Dr. Altman: So let me play out one of my little pet hypotheses.
Dr. Ashish Jha: Please sir.
Dr. Altman: An opportunity for us. So much of the discussion about cost containment here is what I would call bottom-up. Either we're trying to put markets together, and work better, or regulating prices. Or we're focusing on specific areas that are maybe inefficient. The problem is though, as long as there's money flowing in, and you've got a health system that's capable of any number of things, savings on A tend to move into B, and what looks like efficiency turns out to not lower spending. And I think you've laid out. So my question to you is when you look at these other countries, to what extent are they spending less because they're spending less? And that is, to what extent are they either implicitly or explicitly putting budgets on how much they're willing to spend on healthcare? And then either letting the system adjust to it, but basically saying, this is all you get. Does that play in any way, because we're focusing on all these little pieces, and it adds up to an interesting set of six. So I'm curious what you think about that.
Dr. Ashish Jha: Yeah, no it's a great question Stu. And as you know, that is absolutely an important strategy that a lot of countries use. And I like your point of both explicit or implicit. Because sometimes it's explicit like, "Here's our budget for healthcare this year." And then you have competing forces trying to sort out who gets those dollars, but there is not an endless supply. And sometimes it's a bit more implicit like, we're not going to call it that but essentially people understand. Because the history of health policy has been one of we squeezed inpatient spending and we saw this increase in post-acute care. And that history, sort of the balloon example that people often use, analogy that people use is pretty rampant.
I believe, and the two states, I think maybe there are more, but the two states that have really pushed towards these efforts are Massachusetts and Maryland. Maryland focused more on hospitals, us a bit more globally. Not a bit more globally, more globally. And I think these are really important experiments to try. And the question of course for us is how much? Now the data I saw earlier today is very heartening, in terms of how we're doing compared to national trends. But of course the questions are they going to be sustainable? And then to what extent do we really have teeth behind that budget? In the years, let's hope not, but let's say there are years where we start exceeding our target, what are the policy levers we have to really drive it down? Because without some sort of an overall pressure, you squeeze on one area, the history here is, you get growth in another area.
Dr. Altman: So just to follow-up, and then I'll see if anybody else wants it, as you look at the United States today, given the growing importance of government at the federal level and we heard here it's 40% of the state budget is in Medicaid. Is it in fact beginning to play out where government is playing with a budget, implicitly and explicitly, and we have, you know I tell my friend Rick and the business community that you're the great ATM machine in the healthcare system. And the question is they're running out of money too. So the question is whether we are inching our way towards some form of a made up budget, where in fact we're saying, "I'm sorry healthcare system. There's just not more money. And you're going to have to figure out how to deal with it."
Dr. Ashish Jha: Yeah.
Dr. Altman: Does that make any sense to you?
Dr. Ashish Jha: It does. I think the question is what's the mechanism by which, let's say a state government does that? Again I think the Massachusetts experiment on a budget, the global budget is the most innovative of any out there. But it's an experiment. I see this playing out as slightly differently. Which is I see, and again it's the old Yogi Berra-ism, "It's very hard to make predictions, especially about the future." It's hard to know where all of this goes, but I'll try. I think what we're going to see is in a lot of states we're just going to get to price regulation. That's going to be much more broad, we're just going say, one of the ways we're going to deal with uncompetitive markets is we're just going to regulate prices for everything. This is what everybody will get for an MRI. This is what everybody will get for a CAT Scan, or a doctor visit.
That is not without cost, that approach. But I see a bunch of states experimenting with that over the next three to five years because when you have uncompetitive markets you have two choices. You can figure out how to make them competitive again, or you can regulate them like utilities. And I think that approach essentially, because if you don't think it's going to create a whole ballooning of a lot more utilization, essentially starts getting you to a budget. But it's going to be those implicit approaches. But again, I'm not an economist. Not my area of expertise, I may be completely wrong on that.
Dr. Altman: You do a lot better job in economics then I would do in medicine.
Ron: Stuart, can I follow-up?
Dr. Altman: Yes, Ron?
Ron: Thank you. As someone who's not employed in the healthcare industry, I sort of found it difficult understanding What's Next, other than regulating pricing which sort of seems to be a direction we may be going in. Here's what I heard. We've got people employed, physicians, that are making far more than folks in other countries. And if we impact that and try to reduce that, we may end up with people who may want to become an attorney in the future, become physicians. So you say it'd be a different mix of people moving into the business.
Also the system is designed today where, even in Medicare, we're cutting benefits, eliminating supplemental plans, you mentioned that more people are moving into Medicare Advantage, that's another issue. We have 28% of residents in Massachusetts who are on high deductible plans. And there's less competition, and prices continue to rise. So other than, as Stuart mentioned, placing limits on pricing, what are the other options?
Dr. Ashish Jha: So let me add a bit more nuance to a point that I made, and I am chagrined that I didn't. Look, I think I was responding to the idea of let's say a dramatic price cut across the board. I think that would be harmful. But there are a lot of problems with relative prices that we could deal with. Medicare could deal with. So a 20 minute visit with an orthopedist is reimbursed at a substantially higher rate than a 20 minute visit with a primary care physician. Whether that's right or not is something we can debate. How we get there is through a very complex policy mechanism that we have set up in Washington.
But my point is that, and I don't know, again I don't mean to pick on orthopedists, I have a lot of my good friends who are orthopedists, and I'm sure they feel I'm under-compensated. But the point is that there are specialties, there are places where we could probably cut prices. People would get paid less. And I don't think they would all become attorneys. So I think there are opportunities on the price front. I am sure I would not begin with primary care physicians, because I think even though they get paid more than other primary care physicians in other countries, they get paid a lot less than specialists here. And I think we need a more engaged and optimistic primary care workforce, so again, that's now where I would begin. But there are places even within the prices of our providers where we could get real savings if we just changed the relative prices of certain types of physicians versus others.
I do believe that the mix of things that we have tried on payment reform, some of it has been a failure. I think pay for performance has just not worked. But some of it is promising, ACO's and certain types of bundle payments. I wanna see more of that, I wanna see more experimenting, and I wanna see us be more aggressive. We as a country.
I think the data on competition is pretty clear, competitive markets lead to higher quality and lower costs. And so I think whatever states and federal governments can do to enforce our competition laws and make sure we have highly competitive markets, that's gonna be a win for consumers, 'cause with more competition, it's true in every other industry as well, right? More competition leads to better outcomes and lower cost. And that data is pretty clear on the healthcare side.
So I'm optimistic about the set of tools we have. Maybe the biggest point I wanna make is I don't think that we should think that we wanna be like any other country per se. One of my heroes was a great health economist, passed away just about a year ago, was a Princeton economist named Ude [Reinhart 02:05:26]. Who was visionary and legendary and a total lefty, believed in single pair systems. But when Bernie Sanders talked about single pair, or Denmark, he said, and I like this line. And this was not about a broad criticism of single pair, but this was a really important point.
He said, "Look I will take the Danish healthcare system. But you've also gotta give me the Danish political system. And it would surely help if you gave me the Danish people." And his point was, that healthcare systems can't be divorced from political systems. And they certainly can't be divorced from the hopes and aspirations of the people they serve. And so, I believe that any solution we come up with is gonna be a uniquely American solution. And given the diversity of America, a solution for Massachusetts is probably different than the solution for Mississippi.
But that's okay. Like that's what we've always done. And it doesn't mean we can't learn from Denmark. We can and should, but we probably can't wholesale adopt Denmark. Because as great of a country as it is, we're not Denmark. We're Massachusetts, that's how I see it.
Speaker 9: Thanks for the presentation. Lots of good information. Just picking up on, I think you said it now twice about competition being an important piece to increase quality and drive down cost. As you probably know there's a debate raging here in Massachusetts around a merger of major healthcare system, [inaudible] forming. And one of the arguments that they've made is that we'll be a competition to another major market player. And the analysis here at HPC was that it would increase cost, and I'm wondering what your thoughts are about that merger and how it could answer some of the concerns that you're just raising around competition in the market?
Dr. Ashish Jha: Yeah, without seeming unresponsive, I don't know enough about the details. And I just as an honest, I don't know. So I haven't looked specifically at that merger, and so if it's okay, I'm not gonna comment on that merger. But I do think the evidence is very clear that when you have more people competing, and competition looks like there are lots of different ways of thinking about competition. Including the ability of insurers to walk away from certain providers whose prices are too high.
And so I don't honestly know whether this new merger will allow some insurers to be able to walk away from another major market player if that price is too high, and have an alternative. Or if it just creates more consolidation in the market place. Again, these are really important issues, I don't mean to discount them. But they're very technical issues that there's a lot of expertise, and I just haven't examined it. But I think the evidence nationally, and internationally, is competition is good for consumers. At least a better care at lower cost. I'm not trying to be unresponsive, I just don't know.
Speaker 10: I wanna thank you very much. This was really a phenomenal presentation. Thank you for coming, and we look forward to working with you in the near future. So thank you again.
Dr. Ashish Jha: Thank you.
Speaker 10: All right.
I think we deserve a break, but I always hesitate to do a break 'cause I need to get you back. So how about a 10 minute break and then come back please. Thank you.
Okay, can I ask people to take their seats. Thank you.
David.
David Seltz: All right. Well welcome back, we're moving on to the witness panel portion of today's cost tends hearings. I'm delighted to have our first panel here with us today, titled, meeting the healthcare cost growth benchmark, top trends in care delivery and payment reform. And as is our tradition, this kickoff panel touches on a number of the different topics that we've already heard from today from our expert speakers and presentations.
As well as other main topics and timely topics that are facing our delivery system. And so we have an excellent panel here with us today to talk about things such as some of the barriers to meeting our healthcare cost growth benchmark, the strategies that different organizations are pursuing, different policy recommendations that organizations may have for the commission, the uptake in alternative pain and methodologies. As well as the impact of all of this on the people who pay for the cost of healthcare. Our employers and our consumers in Massachusetts.
So with that I'm gonna turn it over to Commissioner Lord, who is going to help kickoff this panel and I think we are gonna ask for each of the panelists to please provide just a brief one minute introduction of themselves and their organizations. And then we'll kick it off with Commissioner Lord's first question. So Michael Carson, why don't we start with you.
Michael Carson: Good morning. Michael Carson, pleasure to be here. First time around, so looking forward to many years to come in working together in serving Massachusetts and driving healthcare as efficiently as possible in our marketplace. First I'd like to quickly say I realize just have a minute here, and express thanks and appreciation and quite frankly admiration for the type of involvement that exists in Massachusetts. I've spent a career managing payroll organizations as well as provider organizations across the country serving commercial, Medicaid, Medicare, long-term care populations, dual eligible populations from both the health insurance side as well as the provider side. That have given me a perspective into innovations and in how it works in different states. And I'm happy to see the level of engagement that exists here.
I joined Harvard Pilgrim, again, a staple in the healthcare market plays here in Massachusetts, just two years ago. We've enjoyed great interest and great results in serving the Massachusetts market. Harvard Pilgrim is a leader, I find, in being committed to its members, committed to its communities, being innovative and a value based and outcomes based contracting element, as well as member engagement and driving the appropriate provider integration in ensuring appropriate access for its members. And I'll leave it at that.
Norm Deschene: Good morning, my name is Norm Deschene, I'm the CEO of Wellforce. And for the last four and a half or five years Wellforce has been driving innovation in how and where care gets delivered, focusing on delivering care locally as close to home as possible, and moving care from more expensive settings to less expensive settings. We have to continue, I believe, to demand cost savings and innovations from payers and providers in order to get real savings for consumers. As I said, we're committed to making sure we deliver care in the right setting at the right cost. And we've been growing access to complex care locally by tapping into the distributed academic commitment from Tufts Medical Center to our community hospitals.
Our population health models are not focused on bricks and mortar, nor are they focused on hospital licenses. We've been moving more ambulatory care off of hospital licenses, something that I know that was touched on this morning. And it's a commitment that we've made to our community. All of the focus of making sure we focus on the overall healthcare needs of the populations we serve, granting and working towards more access across the communities.
Mark Keroack: Good morning, I'm Mark Keroack, president and CEO of Baystate Health. Baystate is an integrated delivery system based in Springfield, it's committed to a population health model of care. Today 75% of the patients of our primary care providers are in alternative payment arrangements. And 50% of system revenues are linked to patients assigned to us under a global budget to maintain sustainable operating margins for our system over the next five years we have to grow our lives and risk contracts, minimize out migration to hire cost health systems and move to well managed utilization benchmarks. To achieve these goals, we've implemented, or in the process of implementing, a number of care innovations across the continuum to manage cost while maintaining quality and safety.
The most exciting of these are occurring in our Medicaid ACO where we're beginning to address the social determinates of health. These innovations are not without their headwinds however. Our greatest challenges in making this transition include the prospect of mandated nursing staff ratios, the persistence of fee for service inceptives even within ACO arrangements, infrastructure and regulatory costs, and regional disparities and supplemental Medicaid reimbursement. Despite these headwinds, Baystate Health remains committed to a population health strategy based on managing risk to deliver high quality care at an affordable cost. Thank you.
Speaker 11: I think this is Don.
David Segal: Good morning, my name's David Segal. I am president and CEO of Neighborhood Health Plan. We'll get to Always Health Partners in a minute. We are part of Partners Healthcare. I appreciate the invitation to be here to talk about how we can do better in the commonwealth driving trend to better places. And I welcome the opportunity to talk about that in more detail. What I wanted to focus on in my opening remarks is to get from our point of view, the heart of the matter, so I wanted to put out something that for us I believe when looking at the charts we had the highest risk adjusted trend of any health plan out there. And I wanna address that right away up front.
I wanna start with our premiums are in the group market remain competitive if you check the CHIA data. That said, we also recognize that we are on the high end of the trend, and I wanted to express what those drivers are. The biggest, first and foremost, is our history as Medicaid plan. Even for our commercial business, we were paying providers at fundamentally Medicaid rates. And as the mix of our business has changed, providers have said to us, the more commercial business you have now we would appreciate if you would pay us at commercial rates.
In being respectful of that, that's exactly what we are doing. That is the biggest single driver of the trend that you saw on a risk adjusted basis. And we wanted to put that out there right away. The other thing that we've experienced was related to the individual market in 2017. When the federal government, the timeline on the reinsurance program ceased, it ran out, and when the state of Massachusetts went from its own home grown risk adjustment methodology to the federal methodology, that made up half of our premium increase in the individual market in 2017.
That led to, based on some constraints that the commonwealth had at that point, they then changed their premium smoothing methodology because of constraints they were under. And as a result of that, the net cost to the consumer grew at a disproportionate rate. We lost membership, and as a result our risk selection got more acute. And that was the other contributor to our trend. And those are the two biggest drivers of what led us to where we are today. And I wanna address that head on and put it out there.
Now I wanna talk one minute about Always Health Partners. It reflects our vision of trying to create something with partners and with our Merrimack Valley ACO partners, small "p" on that one. That is different, unique. Puts the patients/consumer first. Eliminates barriers and delivers something at an affordable price. As a health plan you do not get a lot of business. All other things being equal, if your premiums are not competitive in the long run. And that is precisely our goal. It's around premiums, patient experience and good outcomes. And that is the goal of Always Health Partners. Thank you all very much, and I look forward to your questions.
Speaker 11: Great.
Liora Stone: Good morning, thank you for having me. My name is Liora Stone, I am president of Precision Engineering in Uxbridge, Massachusetts. We're a contract manufacturer specializing in customer sheet metal fabrication. We make components for all the products that we use every day. We do things from metal components for elevators, fire suppression systems, security systems, trains, jets, airplanes. We even make parts for our military fighters. Medical device as well.
We're located in central Massachusetts, we have about 36 employees. And we're about a $6 million company. Today I hope to give you guys a flavor of what small employers are facing and how we wanna be part of the solution, but it's really difficult for us to do that.
One of the things that we have to remember that especially for smaller employers, and for all employers, healthcare and the costs related to it do not sit in a vacuum for us. We all run very tight margins. Earlier you were talking about 2-4% net profit margins, that's accurate. Sometimes it's less. So it's really tough to balance cost increases of about 10% every year on average. And whether the premium increases 10%, or the premium is only 2-5%, but you're increasing deductibles or increasing co-pays, it averages out to about 10%.
Yesterday I went on the mass.gov website and it said that 86% of all Massachusetts firms are 19 or less people. We have 36 and we're still small. So if you go up to like maybe 100 employees, probably over 90% of all Massachusetts firms are small companies. We don't have the resources. We don't have the administrative power. We don't have the financial resources. I am the person who deals with the healthcare in my facility. I also run the company. I also see all the customers. And yesterday spent two hours on the phone with a global company explaining to them why I had to increase their prices. And one of the things he said to me was, I really don't care about the rate of inflation, just talk to me about the 50% raw material increase cost that you had this year.
So the other part of it that I wanna touch on as well is that according to the CHIA and the HPC reports themselves, small employers actually pay a higher proportion of their premiums and member costs than relative to their revenue, than larger employers. Yet, they're the very ones who have the least amount of negotiating power, and the least amount of ability to absorb these costs. So maybe in discussion we can get some solutions going. Because really, we would like to be a part of the solution, not part of the problem. Thank you.
Rick: Great. I want to thank all of the panelists for being here today. We're very fortunate to have the views of the employer community, the health plan community, provider community. So I think we'll really have an interesting discussion. I'm going to ask you all one two-part question. And then we're going to open it up to the other commissioners, because we really want to have a dialogue among all of us, and among all of you. So, my question is, as you know, one of the main responsibilities that we have is monitoring the rate of growth of healthcare spending, particularly against the benchmark that we have here in Massachusetts. I'd like each of you to answer this two-part question but in three to four minutes. What's your most important cost containment strategy that you've implemented? And, what do you see as the biggest challenge going forward to meeting our cost growth benchmark? And maybe I'll start with Leora as the employer representative.
Liora Stone: So it's hard to contain costs when you don't know what's driving the costs. When you're under 100 employees, you get absolutely no trend data from insurance companies. And due to HIPAA, I can't ask. So I may organically find out that a majority of my employees have high blood pressure problems because they're not able to pass their DOT physicals. But that's just up in the air.
So, it's really hard to contain costs when you don't know what's driving the costs. Having said that, our insurers ... and no matter what insurance company we've used, they've all been very good in offering wellness initiatives. They'll have fitness reimbursement programs, although those fitness reimbursement programs are only good if you actually go to a fitness center. If you exercise at home, you don't get anything.
But they have smoking cessation programs. They have other kinds of initiatives to drive down costs. Even we try to tell our employees about telemedicine. And we try to tell our employees about the different ways that they could get their prescriptions, 90 day prescriptions through not the local pharmacy, but a mail order pharmacy, things like that.
So those are the ways that we're actually reducing costs. But I don't have a formal wellness program in the building, it's more organic and it's more informal.
Rick: Great, thanks Leora. David?
David Segal: I think what we're trying to focus on are two things. How do we engage consumers more in their healthcare? And how do we provide products to employers and consumers that will make sense and be simple to understand so that we don't come up with products that actuarily actuaries might think are a good idea, and a consumer can't understand? So a couple of things that we've done, and I would say that these are beginnings of what we're trying to do with our new brand and with partners and with our Medicaid ACO partners in the Merrimack Valley.
The first thing in the commercial space is we created an easy tier, what we call Easy Tier is the name of the product, that is a very simple product that puts a low co-pay on going to a community hospital and a higher co-pay going to a tertiary hospital, with the goal that you should really try the community hospital first. That's your first place to go. From a small group business, 33 percent of our new business sales have purchased this product. And what we'd like to see over the long run, and this is where we can leverage our parent organization partners, is to make that a little more sophisticated so that indeed if there's a reason you need to go to the tertiary hospital because it's really a quaternary, or a high-end tertiary service, there is [inaudible] for that.
There's a lot of work to do to get coding and all that stuff right so you don't confuse yourself and the customer. What are the five things that we have criteria versus not? But that's our vision and that's where we would like to go with that product. Neighborhood Care Circle is another program that sends multidisciplinary teams out into the community to support a lot of members, and this is both Medicaid and commercial, believe it or not. This is not unique to just Medicaid populations. Who are experiencing a range of medical, psychological, and social health challenges. These are folks who are usually not connected to any PCP or primary behavioral health provider and we're trying to go out, find them, and get the connected so that we can avoid emergency room more than anything else. And to one of the prior speakers, get them in a place where they can focus on their healthcare, just not being able to get through the next day.
Here For You is a member support system for those suffering with serious and persistent mental illness. We provide care coordination and community mental health centers, where most of these patients receive a bulk of their care. It's resulted in about a three percent reduction in in-patient events from this kind of thing. Our Neighborhood Care Circle represented by the way two percent of our population and about eight percent net reduction in PMPM costs. So it's been highly effective.
And the last thing, and these are examples, are Care Complement. Which is we waive out of pocket costs for a lot of chronic conditions. And what we're trying to do is create incentives to opioids and other pain treatments by giving the first six visits for chiropractors for free, and encouraging other kinds of non-opioid treatments so that people can have a chance to try something else before they go to the pain management route that involves. All these things are first steps. I don't want to present them as these are the final solutions that we feel we solved. But what they are are beginnings of the things we're trying to do that are out of the box a little different, challenging conventions, and working to drive population health through those kinds of mechanisms.
Rick: Great, thanks David. I actually have some questions about the take up rate of your tiered product because that hasn't been happening in the market. But why don't we have everybody speak and then we can ask you questions in more detail. So Mark.
Mark Keroack: Thank you Rick. Well the centerpiece of our strategy has been trying to get patients into global risk arrangements, with both upside and downside risk. And assuming that you actually have the data you need to manage that creates a whole host of secondary tactics. So for example, we know that in our Medicare and commercial book of business, our admission rates per thousand are at or near where they need to be for medical and surgical admissions. However, our ED utilization and high-end imaging is not. Our length of stay in sniffs is at benchmark, but our referral rate to sniffs is not. So it allows us to target specific cost reduction strategies in areas where we seem to be out of step with others.
The strategies involved, not only the way we organize our primary care practices with embedded behavioral health and embedded pharmacy, our care management strategies both in and out of the hospital, but even within the hospital certain programs like bundled payments, or an acute care for the elderly. A unit where we focus on discharges to home with very strong social supports. So really the centerpiece is trying to get them into an arrangement where we're responsible for their full cost and we've got the information we need to manage.
The major challenge to doing this is that even though the system as a whole might be globally budgeted, the individual actors within the system are still incented on a fee for service basis. So a private doctor still needs to manage the cash flow of his or her practice, and still has to bill for RB used. And that creates perverse incentives. I know this is the case because within our Medicaid ACO, the rules are somewhat different. We employ all the doctors and all of the folks coming to our inner city clinics are insured by our health plan, so our doctors don't need to have a face to face encounter to generate cash flow. The cash is over at the health plan as premium revenue. And it's unleashed a lot of very creative approaches to care, team based care, telephonic care, et cetera.
Mark Keroack: So the fee for service incentives within the ACO framework create a significant head wind. When they're eliminated it really allows the providers to be very creative. Also the regulations involved in most of the ACO is having to do with adequacy of reserves and various regulatory frameworks in terms of who you can and can't deal with. So that's really where we're coming from.
Rick: Great, thanks Mark. Norman, before you begin, let me just congratulate you on your upcoming retirement that you announced last week.
Norm Deschene: Thank you.
Mark Keroack: You too Rick.
Norm Deschene: Yeah, right. Same back to you.
Rick: I followed you.
Norm Deschene: I didn't realize I was gonna create a cascading effect. Thank you Rick. Well, I think I'm gonna echo some of the things that Mark just said, relative to our greatest successes being in those areas where we've taken global risk, and where we've focused on moving patients to the most appropriate setting, the highest value setting. We spent an awful lot of time trying to look at all of our resources within our system and tried to organize them in a way that we are able to direct patients to the right setting at the right cost. And what that means is we've created a variety of alternatives to hospitalization or to re-admission. We've engaged our home care company and a number of strategies.
We're using telehealth, and again other strategies that have been focused on moving care to the most appropriate setting. And it's working because our case mix index of our community hospitals has gone up because it's a direct reflection of the fact that we're able to keep more acute care locally at a lower price point. And concurrently, the case mix index of our academic medical center has gone up, which again tells me that we're seeing, and we're only keeping those true tertiary and quaternary cases at a more expensive setting.
So I think that's a critical element to our ability to effect overall costs in the system. Our challenge, I've got a couple of challenges. One is that the market, the insurance market, has not moved in the right direction for those organizations that embrace global healthcare, global risk. We're seeing, and it's highlighted in the AG's report that you'll hear about later today, that we're seeing more movement away from risk based contracts and more towards fee for service. And as long as we have that dynamic going on in the state, I think it's gonna continue to challenge us to control our costs.
The second is behavioral health. And the lack of integration of behavioral health into the acute care system continues to be one of the greatest challenges. We look at a patient as a patient or as a consumer or as an individual, and as long as we have a system that's bifurcated and treats those patients differently, insures those patients differently, and controls those patients differently, it's very difficult to treat the entire patients. And so I would urge, although we have a parody law, I still see significant disparities in how we treat behavioral health patients and acute care patients.
Rick: Great thank you Normal. Michael?
Michael Carson: Thank you. Some great input already that you've received. Clearly, and how the program will see medical cost management as a core foundational responsibility of ours. We are the fiduciary holders and folks responsible for our clients and our members, so we take this very seriously. To the point to where we strive to be best in class medical cost management, analytics focused as well as execution focused.
If you think of some of the percentages, and you've heard some of them already today, 40 plus percent of medical costs are occurring on an in-patient basis for acute care, 25 percent plus on pharmacy or drug spend, 10 percent of the population often driving 70 to 80 percent of the medical cost. It is not difficult to understand that we need to direct our medical cost management initiatives to very targeted places.
At Harvard program, there are dozens of medical cost management initiatives. They're constantly being executed on a calendar year basis, as well as long range planning standpoint. The three that I'd highlight as sort of top focus items, and not at all to infer that the others don't get the appropriate attention, preventable, unnecessary ER utilization and admissions and re-admissions. You've heard of that already today from previous speakers. Primary focus on how the program's standpoint is.
The appropriate risk stratification of its membership to understand when we engage people, the right place, right care, right time notion, as well as understanding where within the system, whether that's certain facilities, certain PCP's, are we seeing an out lie on performance in terms of ER utilization, admissions or re-admissions that could be prevented. So preventing unnecessary ER and hospital class are at the very top of our list.
Next I would say is value based contracting, and outcomes based contracting, both on the medical costs side as well as the pharmacy cost side. Harvard program is very much diligent in executing risk contracts, value based contracts, to us. Getting a contract done is just the beginning of the story. It's really about the execution. So once you have those contracts in place, how do you partner with your provider partners to engage members, engage patients appropriately? Follow them through their life cycle, through their journey, and ensure a continuity of care that is provided, that allows for the provider's success and engagement, as well as the PR and the member satisfaction, along with that.
Thirdly I would say something we call payment integrity. And this may be that the dirty section of medical cost management, however their intense audit controls that are put in place to ensure that claims that are submitted are appropriate reviewed and audited for errors, and for inappropriate care that is billed. That is an important aspect. It is, as I said, there are dozens of medical cost management initiatives, many have to do with wellness, many have to do with preventive services, many have to do with contracting. But we also have to watch the back door. And we have to ensure that coding is done correctly, and that we're paying for care appropriately as it gets submitted.
In terms of the biggest challenge, I would echo some of the feedback you've gotten in that a healthcare system is fragmented. Financial incentives are not always aligned. As much as we work at it, there is still much work to do to ensure that the collaboration of the entire healthcare system improves so we can pull unnecessary costs out of the system. You've heard about the balloon analogy earlier. It's very easy for us to press on one side, and the cost going up on another. So that's our biggest challenge that we continue to tackle.
Rick: Great. Well thank you all for your opening comments. And I just have one follow up question. And anybody, I would open it up to any of you. Several of you talked about delivering the right care in the right place, and we saw a slide earlier, I think it was in Ray's presentation, that we really haven't made a dent in moving community appropriate care away from academic medical centers and into community settings, even though we all have talked a lot about that for the last five or six years.
And I'm wondering why you think we haven't. And are there things that we should be doing to make that happen? I'll open it up, ask any of you to comment on that.
Norm Deschene: I'll start because I'll invite you to come to Lowell and see our numbers. Because we have been able to move those cases and keep those cases local with a little intervention by having some expertise provided by our academic medical partner. I think it's, for us, what you'll see in Lowell for example in this coming year, we are aggressively working between the hospital and our related physicians, in reducing what we've got an initiative called vis-a-vis, that's volume to value. And the goal is to reduce our hospital admissions in total by 10 percent.
This is antithetical to most of the measures, as a matter of fact just this week, there's an article listing the largest hospitals. And they're listed by gross revenue. So if we're successful, we're going to go down on that list. Something my board might not be agreeable to in the past days, but now we see it as a major challenge and a key to our success. But also a key to that success is that we have a healthcare system that's predicated by pricing, that's predicated upon competition, that's predicated upon aligning the incentives as I said here.
Rick: Great thanks Norman. Mark?
Mark Keroack: Yeah, well we have not been as successful as Norm. It's something that's very vexing to me since so many of our patients are in risk contracts. I'll let you know what we've tried. All of our four hospitals have a single hospital medicine group that covers all four. They deal with the same protocols. Each one of our hospitals and community hospitals come to do a week of training in our ICU so they'll be able to take care of sicker patients in a community setting.
We've put the same quality platform in terms of committee oversight in all four. But still to this date, either patients or ambulances will drive by a community hospital for care that could be delivered there, in order to go to Springfield where things are overcrowded and things are under occupied in our community hospitals. I think the next thing we're gonna be doing is an exercise in branding to try to convince the general public that the quality is gonna be the same regardless of which door of the base state system you open.
But it's not something that we have yet solved, but we're working hard on it.
Rick: Thank you Mark. Leora?
Liora Stone: From an employer standpoint, and by the way I'm also a registered nurse and a former emergency room nurse, so I understand the cost of visits. And so I often will talk to my people about seeking care in the urgent care centers. And that's really my point. Having more availability of options. In Central Mass it's starting to happen, and in fact Milford Regional Medical Center has even opened up an urgent care center very close to us. And so if we have an injury or an illness we'll send them there first.
But for years, I've been interested in trying to start a program where a nurse practitioner or some kind of healthcare provider comes to visit our company, kind of like what large companies do right? Where they have in house medical care for their employees. We can't do that as a small business, and again most of us are small businesses. But if there were incentives for us to pull together, or ways that we could pull together, or if you could make it cost effective for us, I don't know what that answer is. But if healthcare providers come into the workplace setting, they can identify some issues even before they start.
Rick: Okay interesting ideas. Anyone else want to comment on that? Michael, then David.
Michael Carson: It's a great challenge, but also a great opportunity I feel, that through risk relationships, done correctly, executed correctly, they're a significant opportunity. And as I said before, there are still some elements of mis-alignment from a financial incentive perspective. So a risk relationship with a stand alone medical group, the incentives are closer aligned and potentially not distorted through a hospital owned medical group.
Those are just facts. Doesn't mean it's impossible. It just means it requires additional intent, and agreement, on what is the final objective that we are trying to strive for? Because a medical group may not be an apt partner to keep care at the community level if that group is also trying to address revenue goals, revenue objectives from the hospital perspective. Again, not an impossible task, it just is a tougher task.
And I would say that as a payer what we need to do, and having been on the provider side, transparency in data management and sharing so that we can identify opportunity cost or lost opportunity, direct care to lower cost settings is key. Often times what I see is that the data is not shared appropriately, or there's not enough collaboration between payer and provider to understand the missed opportunities that existed in the system.
Rick: Great. Thanks Michael. David?
David Segal: So I'm kind of building on what Michael just said. We have a lot of work to do. We have two full risk arrangements, for us. Those are very large relative to our overall size. One to Michael's point is a multi-specialty group practice, and the other one you might imagine is a hospital based system that you may have heard of. The hospital based system is a full risk contract. It's not trend risk, it's percent of premium. So there's a real incentive there for performance to get it right. And to Michael's point, if you just do a risk contract and say good luck provider, have at it, you may not get results that you're really looking for.
The opportunity we have is that we can share information with them fairly quickly about what's happening outside their system. And even in some cases within the system, to let them know where the performance is good, and where their performance is not good and what's driving it. And so I will give you a transparent example. When we last looked at it, we found that there was an uptick. One of the things we were trying to do in this arrangement is take the member, patient, out of the middle. And we eliminated all the authorizations that we were required of partners, so that the physicians could do what physicians do without the health plan getting in the way of it.
And the deal was we will provide information. That gets out of sync. So there's opportunities for us to share with them where they could be doing things outside of the traditional in patient settings in the AMC's and outside of even, not the inpatient versus outpatient, but where do you do your radiology? So we've begun to tackle that. There's still a long way to go, but that's the kind of transparency we're trying to create with partners in terms of driving people to the right place at the right time, and in conjunction with benefits and product, employer benefit designs that encourage that as well.
Rick: Great thanks David. I think Linda you have a follow up?
Wendy: I did, thanks. David in your opening comments, I understood you to say that one of the things you were doing was to engage consumers. And are structuring a co-pay system that will provide them with an incentive to go to a community hospital, or a lower cost side of care. So just in response to Rick's question, I wonder if you would talk a little bit more about how you've structured that, how it works with the delivery systems, and what could we learn that might be generalizable across other health plan and delivery systems?
David Segal: It's in its early stages, so I would be remiss if I said we have firm conclusions of what's happened just yet. But the principle of it is very straight forward. It's a community hospital is a better place for somebody to start and create the incentive to go there, rather than create an incentive to go, or not have any dis-incentive to go to an AMC first. So the community hospital co-pay is a lot less than the AMC's. And it's somewhat of a blunt instrument coming out of the gate, and we expect we will refine that over time. But it's the right set of incentives. And just to be transparent, there is no distinction as to which community hospitals are in.
All community hospitals are community hospitals, and all AMC's are treated the exact same way.
Wendy: And roughly what percent of your covered lives are in this program?
David Segal: In our commercial business I'd say about 20 percent. But since I'm under oath, I want to check that out.
Wendy: Close enough for a commissioner.
Rick: Great. So some of my fellow commissioners have questions. I'm gonna open it up to David then over to Don.
David: Thank you. I have a question that I think is most applicable to the two provider CEO's, although I'd welcome the insurers speaking as well. So Ray Campbell this morning showed us the CHIA data that show that medical cost increases in Massachusetts are low, lower than the nation, but they're still above zero. And that price is about, in commercial plans, price is increasing about one to two percent a year. It's about zero in public payers. And utilization is going up about one percent a year.
So let's say we're not gonna arbitrarily lower prices. So we're just, I mean we might, but let's say we're not going to do that. Then the way that we're gonna save money is by lowering utilization. So given all the things you've described, all the various things you've described, why can't you lower utilization? Why is utilization still going up a half a percent, one percent year? And should we conclude that all these things are basically just failures and we're not, we don't know how to do it?
Mark Keroack: So if you use the singular you rather than the plural you, I don't know why the other hospitals in Massachusetts aren't lowering utilization. If you're to look at our utilization statistics and were to break it down, we're pretty much at minimum benchmarks when you look at medical and surgical admits per thousand. And we think that that's probably, we could maybe go a little lower, but not a lot. We're way off in terms of emergency room utilization and rates of referral to skilled nursing facilities. And those are two that we're attacking and have made some headway through embedding internal medicine doctors in our emergency room, having outpatient protocols for certain common diseases like deep vein thrombosis and atrial fibrillation.
We've entered into an agreement with a mobile urgent care van called Dispatch Health, which essentially is gonna be delivering urgent and even emergent care in the home. We've opened a drop in visits in our primary care practices. And so we're trying in a targeted way to hit those areas of utilization where we stick out. Our cost per, our total medical expense per capita of our physician network, I believe is the lowest in the CHIA database. And yet we don't really feel that great about it because we're kind of average compared to the rest of the country and we think we still have areas we can cut down.
So we believe we are reducing utilization in a targeted way. We're kind of where we want to be in some areas, not so much in others. And we do feel we still have room to move.
David: But your total spending is still well above what it was say five years ago?
Mark Keroack: I wouldn't say well above. It's maybe gone up one percent per year for the last five years.
David: And could it go down in the next five years?
Mark Keroack: I think that's a tough one with all of the new technologies and new drugs coming on board. We really, I'm more of an advocate of trying to bend the cost curve rather than to think we can actually get a reduction. But some areas of waste have been eliminated.
Norm Deschene: I agree. I think there's been a large amount of restructuring. In essence, I think the things we've done to improve the efficiency within our system have helped to minimize and maybe mask some of the cost increases that we've had to deal with, whether it was on the labor side, or on the technology, or pharmaceutical side.
David: What would we, as a state, have to do to not go up by 1% a year, but to go down by 1% a year?
Norm Deschene: Well, I think it goes back to the things that as she spoke about before, to increase true competition. You know that I've been very vocal about the latest mega merger that's been proposed, and my concern about it driving cost and prices up. And even what's been reported in the globes, there's been an acquiescence to actually allow some price increases for that proposed new system. The challenge there is that there's price disparities amongst all of the providers, that true competition won't exist if there are two large mega systems absorbing what could be the bulk of the allowed rate increases, and then what's left for everyone else? And I think eventually, that it's a zero sum game where those smaller systems, those small organizations will continue to find themselves challenged to be able to compete.
I think pricing, we've spoken ad nauseam at this group, and the legislature about pricing disparity. I know that there's been an awful lot of discussion about it, but the truth of the matter is there's still some large systems who's prices are significantly higher than others, and use that to compete for resources, for personnel, materials, technology with the community hospitals we've just been talking about, and that puts more pressure their need to raise their costs to be competitive. I've always been pretty proud of the fact that we've had very low cost organizations as reported annually by CHIA and others. But the challenge of doing that, it's a double edged sword. Mike can stand up here and say, "We're low cost," but the challenge is I don't have a lot of money to be able to compete with the real environment, where there are a couple of large systems using that market clout to drive prices up.
David: So some of what you're doing is you're talking about the prices. So Michael and David, what do you need to do so that your premiums can be lower five years from now than they are now? [crosstalk] Not going at a slow rate, but actually lower. What do we need to do as a state?
Michael Carson: Absolutely. What comes to mind is that it's important to understand utilization, and what's driving that 1% utilization. But furthermore, we need to look at total medical expense, of course, right? 'Cause level of care is important. So we may see utilization increase, but is it now done at the right place, at the right level of care, that actually brings cost down and helps contribute to 0% price of cost level? So it's important that we keep our focus on total medical expense rather than just utilization.
Underneath the covers, though, utilization becomes important. And what payers, providers, other members of the healthcare system have to wrap their arms around is that there are new health issues that develop, new patients, new members are experiencing health issues. So we may be curbing utilization for those who have been engaged in the healthcare system, but new health issues are developing. Folks are newly enrolling in health insurance, so perhaps newly experiencing healthcare system, and need help navigating the system. Perhaps they're switching to a new PCP, new relationships need to be fostered. So it's an ever evolving dynamic that we have to understand, how members, how patients engage with the healthcare system, and find the right balance between new, and those that are already in care management.
The other piece that we have to continue, and we all focus on it, is there's continuous innovation in terms of technology, in terms of research, in terms of drugs that are being introduced in the market place, that are very viable and we have to find ways to adopt them appropriately with the appropriate outcomes based contracting, but also the right application, clinical and behavioral criteria, and evidence that can support those. But that needs to be top of mind, that we continue to attack those areas of cost as well.
David: I didn't hear an answer though, to how your premiums will be lower five years from now than they are now, or what we need to do that would be lower five years from now than they are now.
Michael Carson: Got it. So again, it's the focus on a total medical expense, and it's changing the relativity of medical expense to cost. And we do that through coordinating and orchestrating a better entirety of the healthcare ecosystems, so that again, when we squeeze on that one side of the bubble, that we're not allowing the other side to go the way it does today. So it requires value based contracting, it requires all the medical cost management initiatives that we spoke of earlier, and we are seeing trends in avoiding increased utilization and increased cost as we move forward. There is a cost of living, there is an economic cost that healthcare systems have to absorb as well.
Rick: I'll tell you what, maybe I'll get back to you, but I know Don and Chris have both ... and Ron. So let me turn it over to Don.
Don: Thanks, Rick. I'm gonna cheat and ask two questions that sound like one question. Is that okay?
Rick: I'll let you this time.
Don: Okay. So, my mind is still on the morning presentations by CHIA and our staff. On the one hand we can celebrate 1.6% increase, and it looks like we've tipped the curve a little bit and making progress. We have Miss Stone here, but also I'm thinking about the patients. So here's a story we heard. So if you're at 300% of poverty, which means you're lower middle class I suppose, you're spending 32% of your income on health care, one way or another, and you have a 29% chance of being in debt, having significant debt. Even at 400%, the numbers are still high. So I don't feel very reassured.
I wanna know who's got my back here, who's actually gonna change this, much as David was asking you. And I'm not really hearing answers yet, so I wanna ask you to play a bit of a game if this isn't stupid. I've got a special question for you, Mr. Carson, and then for the rest of you. For you, I saw one number that makes me very upset with is 8% of our costs are going on administrative waste, and then all we see in the country is 3%, that's a lot of money on the table. Is there any way that you insurers, you, Blue Cross, tops could get in a room, lock yourselves up there for a while, and come out and get those costs down to 4% instead of 8%? What would it take to make you simplify the administrative costs, and who else has to be in that room? I see no reason why we should be wasting that money if it isn't helping anybody.
For the rest of you, what can you say to this 400% of poverty citizen in front of you ... about sort of what you're gonna do. Question I have, is I'm an individual, I'll play, tell me what you want me to do. Now you want me to go to a community hospital, not partners, I got that. What else are you asking me to do that actually might put money back in my pocket without hurting me, and how should I vote? We're in election season, what should I be hearing from representatives or senators running for office in this commonwealth, and their platforms that you say, "Vote for that person, 'cause he's really gonna get you out of this mess." I'm spending $23,000 a year on a family policy, I wanna stop that. Can you help out? Would that kind of focus for a minute?
Rick: Was that really just two questions, Don?
Michael Carson: Yeah. Great. I'll try my best to address the question that you directed to me, sir. Clearly, variation within a healthcare system, and the fragmentation of our healthcare system effects all of us on the administrative cost perspective. You could ask that question to a provider prognostication, and they'd tell you, "We had contracts with five different payers, and five different utilization management requirements, authorization requirements, systems that we go get authorizations on and that drives complexity, that drives cost." Similarly for a health plan, the variation in the healthcare system drives the health insurance organization to have to be able to be nimble and operate with those various components of a fragmented health care system.
So, are there ways to change that? You know, we could discuss, as was brought up earlier, Maryland executes some regulated pricing on hospital fees, those kinds of elements would reduce some of the negotiation components, would reduce some of the administration components within a health insurance organization. It is a competitive marketplace, so health insurance will deploy service excellence, quality excellence, member engagement components that can differentiate itself in the market place that drive cost. But I would really point at the fragmentation and the variation from provider to provider, system to system that mandates a structure, and a flexibility within a health insurance organization that creates some of that cost.
However, that said, we've talked about medical cost, benchmarks, and similarly we think about administrative cost benchmarks. So as a health insurer, we have to constantly strive to get to that lowest possible number. For our program itself, there's several where we're faring well against benchmark from a medical cost perspective, and several that we're not. There were several areas where we're extremely competitive from an administrative cost standpoint, and several that we're not. So we're constantly evaluating how to bring that administrative cost level down because quite frankly, the health insurance business isn't a high margin business. We're talking, especially in this environment, a 0.5% to 1% margin business, that's a successful year. So it moves us to take administrative costs out of the system, and I think it does, based on drive in, understanding the variation, trying to address that to some degree, and creating a more level playing field from a competitive standpoint.
David Segal: Can I take a shot at that question? Can I answer your question, if that's okay with you.
David: Speak into the mic.
David Segal: Yeah. So I'd like to take a shot at that one as well. I think the answer to your question is yes, there are ways that we should explore, and must explore reducing administrative costs. One of the things that are administrative but don't add intrinsic value between one health plan or another, or between one provider and another, and those should be targets of things that we should look at and say, "How can we collaborate to eliminate things that are unique, or differences without any real distinctions?" So for instance, we've gotten feedback as an industry from the division of insurance, and from the attorney general, and from others, Secretary Sudders office, that provider directories don't work well.
So mass association to health plans, and Blue Cross, have come together and said, "You know what? That's probably right," and we need to figure out a way to get rid of that nonsense because it's differences that don't add any intrinsic value to any one, it actually creates more work for the health plan, more work for the provider, and dissonance and uncertainty for the member who's trying to figure out, "Is this provider in the network or not?" So I think those are things we can do.
The thing that I think is important as you identify those, are to your question exactly, Don, who are the other constituents that need to be in the room with you? So in this example of the provider directory, we need the providers in the room with us, solving the problem because we can only keep a directory up to date to the extent that providers are telling us what's changed in their system. That's a collaboration that has to happen. It's not our fault, it's not their fault, it's a collaboration that has to happen in order to get it done.
The thing I think we need to be very careful about, and this is a dialogue that has to happen, as where are the things that administratively either lead to innovation, and would translate into controlling total medical expense? And I would prefer not to get into a debate about what those things are 'cause we probably don't have time, but some of those things are around payment methodologies, and how you approach it in different ways. And I think we need to assess, do they add value, and if they do, is it worth the administrative costs to do them? So I think the answer is yes, but you can't throw the baby out with the bath water when you do it because we still run a let's control TME business, on top of being administrative as well.
Mark Keroack: So you asked what would I say to this person whose costs are breaking their backs, and what could we do to possibly even lower expense, and how would I ask them to vote? Let me give you three things, mindful of the fact that it's very hard to craft health policy as a provider organization, I've got many scars from having tried. Number one, I would double down on ACO like models, population health models they convey full risk including sub cap rates for the individual provider, so that their interests are aligned. It creates tremendous alignment in terms of affordability, up and down the organization, that's number one.
With respect to the whole pricing thing, I'd submit to this group that the overall price point is less important than how people experience the price. And let me give you an example, let's take total joints which are roughly the price of a car, if I told you you had a right to a car and I was gonna cover the first ... you were responsible for the first $2,000 and after that, you could do whatever you wanted, there's no reason you wouldn't buy a Mercedes. On the other hand, if I said, I'll give you $20,000 toward the price of a car, you might buy a Hyundai. So the whole issue of reference pricing is something that I think oughta be strongly considered. CalPERS has actually done this, in California, their California pension plan. And it's caused providers to lower prices down to that reference level in the sort of stereotypical way. So that would be a fairly radical approach to pricing that wouldn't necessarily do the sort of chipping away that I've seen in some of the legislation.
The third thing of how they should vote, and pardon the unpaid political advertisement, they should vote no on question one 'cause that's gonna add another billion dollars to the healthcare system.
Rick: That's a surprise from you, Mark, thank you.
David: So let me turn it over to Chris, and then Ron.
Chris: One thing that really seems clear, that the alternative payment models are just nibbling, they're just nibbling at risk. We've heard testimony, we've heard from [inaudible] we're heard from all of you the words global, caps, sub caps, it seems that you've gotta get more aggressive from a health plan standpoint, from a provider standpoint moving to real risk kind of tracks. That kind of leads to the question that David got me thinking about, panel. I think everybody in the room extols the virtues of community hospitals. What stands in the way of the health plans, I think that's everybody except Norm and Miss Stone, offering narrow networks to really significant narrow networks to Miss Stone's companies, and every other commercial purchaser that cannot just push people, of all incomes, to community hospitals, but help solve the riddle? What stands in the way, why can't that happen more quickly?
Rick: And Chris, could I just ask Leorna come in on would that kind of product we have attracted to you in their own network product?
Liora Stone: Can I just address both questions from Mr. Bierwerk and from Chris as well? One of the solutions might be, and I'm certainly not an expert on this, but can we do something like in New England Compact, where a lot of my global clients, they have a central payables and receivables that you know, xerox and UTC and whatever, we send all the invoices to there, and they deal with it. And so the company is reducing their administrative costs that way. That's an option.
Now when we're talking about compacts, right? Also one of my issues is I work, my company is on the border of Rhode Island and Massachusetts, so some of the insurers won't insure me because they'll say, "Well we don't insure into Rhode Island," but my boys live there, so I have to kind of figure out the neighborhood plans, or the geographic plans, not Neighborhood Health Plan. I mean, geographic plans don't always work for us. You know, one of the ... as a nurse and as a manufacturer, one of the things that I never hear talked about is tort reform, and that is kind of like the elephant in the room. It adds unseen costs that were never discussed. As a medical provider, you're doing extra procedures because you're covering you license. I'm not gonna go to school for 12 years, and then lose my license over something that seems trivial so I'm gonna do these extra costs, nobody talks about it, but it happens.
And the other this is for manufacturers, especially if you're a medical device manufacturer, it's built into the cost of insurance. If I can get sued because somebody hurt themselves, and maybe my device might get drawn into that lawsuit, it's gonna cost me more to make the product, I'm going to now charge more to the hospital, and the hospital's gonna charge more to the insurer. It's a big circle.
Rick: Thanks. Any of the health plans wanna comment on Chris's question about why can't you design a narrow network product that will be lower cost?
David Segal: I think narrow network products have been designed, they often can be lower, and would look to Michael to his two cents, but often many employers don't wanna purchase them. They prefer tiered networks over limited networks, or narrow networks. That doesn't mean that we can't keep the experiments going. I have a good friend who's thought that we should be able to come up with micro networks that you know, you look at a employer and you're able to piece together the unique network for that employer. It's an experiment worth contemplating. We haven't done it, we haven't seen in our experience, broad interest from the employer community to do that.
David: So back to Miss Stone, at the right price, is a narrow network appealing to you in your company?
Liora Stone: Yes. Actually, and we looked at narrowed networks quite a bit, and actually the last one we looked at our local hospital wasn't included in the network. The closest hospital to us where I'd send my patients was not in the network.
Michael Carson: Great question. And having spent so much time in the Medicare business, narrow network devolvement is a key strategy to ensure- Medicare Advantage, of course, key strategy to provide the appropriate access at the right price for Medicare Advantage members. And have a program where we offer narrow network products as well as tiered network products, so the cost share is appropriate. As has been brought up, often times those products are offered side by side, so you may have a full network access product offered to the employer group, as well as a tiered network product offered on the side, and then selection. I can't quote percentages on how often one is selected or the other, however as David pointed out, choice and access are key. And the previous speaker talked about we can't just adopt- and I was born and raised in Germany, so I have a little bit of familiarity with European healthcare systems, we can't just adopt the Danish healthcare system and assume that it's gonna work, because we don't have the Danish political environment, we don't have the Danish consumerism.
So choice, quite frankly, even though there is a price differential, if I don't see that particular hospital or that particular medical group in my network often, and again I can't quote percentages, they will go for the higher priced one because they just want that access. Concerned about when they need that care, they wanna have access to it. So what we explore now is the tiered product component, so how can we make a product more affordable, so get the premium rates down, by having a narrow network, but have the tiering component part of it so that your cost share is beneficial to you, reduce out of pocket cost for utilization of community health assets, and you have a higher cost share for when you need to access a higher cost facility. That seems, to me, that offered side by side to somebody that just wants all in in everything and is willing to pay for, seems to be a viable alternative for us to pursue.
And we found great success there. And just one more point, I think you made a comment about value based or APM models not working. We are seeing that medical trend, under value based contracts, being three percentage points better than none. So done right, I do believe wholeheartedly in value based relationships. Again, it goes way beyond the contract initiation, it has to be the collaboration that follows the contracting that really makes that work.
Rick: So let me turn it over to Ron, probably for the last question unfortunately, 'cause I'm looking at the time. So, Ron.
Ron: Thank you. I'd like to get back to a small employer type issue, as a fellow small employer, I need to offer multiple plans. I'm not self insured, we don't have enough employees to be self insured. And the work force is made up of millennials, no I'm not one of them. And what's interesting is, when you look at the choices they have from PPOs to high deductibles, they all choose the high price plan. Now, we're paying 70% of that, and I believe one of the reasons why is they really don't have a way to truly compare the various plans based upon conditions they have, if they have any, and what those costs will be on an annual basis. And what the potential benefits could be, for example, a high deductible in the HSA with the company contributions would be great. If the payers could provide us with that type of detail, I think that would have an impact on our costs.
Michael Carson: Done.
Norm Deschene: Yeah.
Ron: Do you already have that?
Michael Carson: We have it. So first, I'm not a millennial either, I do have one at home somewhere. So, you know, I think member education is key, and we have to be able to provide tools, and quite frankly this goes back to the administrative cost component of it, right? So we don't wanna be commoditized, and we don't just process claims and contract networks, there's an actual value that a health plan can offer to its population, can offer to its clients.
One of them is we've rolled out a tool called My Health Math, where your employees can go onto this tool, plug in all of their relevant information, what types of health concerns they have or anticipate, and it helps them, for their specific need, select the best plan offering that's on the table. So let's say you come to me with a healthcare program, there are three plan offerings. This tool allows them to go through a process of online questions, as well as a face to face interview with a qualified personnel staff to determine which plan is best for them based on particular needs that they have.
Ron: Is that available across the board?
Michael Carson: That's something unique to Harvard Pilgrim in terms of offering My Health Math. And what it allows, what we're seeing, actually, with that very successful rollout this year, that it does equip members to select that HSA plan, because now they understand how it really works. I'll be honest with you, I run a health insurance company, I'm not sure I understand how half of it works when I select a plan. So it is really helpful, and that's our responsibility to provide that education, provide those tools, to get a better informed consumer.
David Segal: I don't think we have a tool that sounds as sophisticated as that, but we do have a tool that addresses that.
Liora Stone: Can I just make a comment? I have a colleague that just went through open enrollment, they have 80 employees in their company. So they have to abide by the Affordable Care Act affordability rules. First of all, they only have about 35% utilization because of the high cost of healthcare. Of those people, most of them are in the higher cost plan. Because they're under 100 employees, they're only offered two tiers, just like us, but they have to comply with affordability. This year, they had to look at reducing the higher plan that most people like and want in order to meet the gap between the affordable plan, and the plan that most people want. And at the end of all the negotiation, they still had a 10.2% increase, which was a $50,000 increase to their premiums.
Speaker 12: Okay.
Rick: Yeah. And one more question, Secretary Suddos.
Speaker 13: Quickly, to you, have you looked at the connector small business platform, which is for employees of 50 or less?
Liora Stone: Yeah, you know, every year we work with a broker, and we look at a number of different options, and [crosstalk]
Speaker 13: Up until last year, brokers weren't interested in them.
Liora Stone: In the connector, right.
Speaker 13: Right.
Liora Stone: And I have, actually, in the past years looked at the connector and years ago it just didn't work for our population [crosstalk]
Speaker 13: I understand that, but since last year-
Liora Stone: I have not looked at it this year.
Speaker 13: Right, since last year it's completely changed, you can do vertical or horizontal, so I would just encourage you to.
Liora Stone: I haven't looked at it yet, and I was going to because we're actually gonna be going into open enrollment in February, March.
Speaker 13: I would just encourage you to look at it as a potential option.
Liora Stone: Yeah, one of the things that I wonder about is the impli- Again, it's something that I need to look at, but there's also the issue of people on these subsidized plans and were getting taxed through this EMAC supplement tax because of this ... they're getting on these connector plans. But you're talking about me with a connector program?
Speaker 13: As an employer. As a small business employer with 50 or less, and last year, the connector dealt with the disincentive to the broker community, so that it's all within their portfolios. I was just ... as a tier to connect a board, there you go.
Liora Stone: Thank you very much, Secretary. Thank you.
Rick: Secretary Sudders chairs the connector board, and she knows all about this. Thanks for making it more business friendly. So, I think we wanna wrap the panel up and I wanna thank all the panelists, so Michael, Norm, Mark, David, Leora, thanks for your time, your expertise. I'm sure there were a lot more questions, but I really appreciate you coming in.
Don: I, too, wanna give my thanks. And so we're looking forward, next year, to your coming back and showing us how prices are going down, because I think we heard some good ideas. Alright, so we're now gonna have a lunch break. We're shooting to be back here by 1:15 PM. Please be back, we got a very active afternoon set up, so we're adjourned.