Healthcare Cost Workgroup Update Payment Reform Subcommittee February

Healthcare Cost Workgroup Update Payment Reform Subcommittee February 17, 2015 This work is made possible with funding from the Maine State Innovation Model Initiative

Healthcare Cost Workgroup • Objective: identify actionable strategies to reduce healthcare costs while preserving quality • Meeting monthly since April; group next meets on March 17 • 30 -40 participants at each meeting; open to all • Balanced participation; participating organizations include: – BIW, Bates College, Maine Municipal Association, University of Maine, Maine Education Association Benefits Trust, State Employee Health Commission, Catholic Charities, Norway Savings, Maine. Care, Consumers for Affordable Health Care – Central Maine Medical, Eastern Maine Health, Maine. Health, Mercy Hospital, Maine. General, Mayo, Franklin Memorial, St. Mary’s, St. Joseph, Redington Fairview, Martin’s Point, Sacopee Valley Health Center, Mid Coast Health, Maine Primary Care Association, Maine Network for Health, Spurwink, Sweetser, Tri-County Mental Health, Insight Health, Maine Medical Association, Maine Hospital Association – Aetna, Anthem, Cigna, Harvard Pilgrim, Maine Community Health Options, Maine Association of Health Plans 2

Savings Opportunities Identified • At initial meeting, participants discussed potential savings opportunities, including those identified by 2012 cost workgroup as well as additional recommendations from the current workgroup • General support for all options, but group voted to focus early attention on: – Price – Delivery system infrastructure – Consumer engagement • Participants reviewed a range of price options, including transparency, reference pricing, narrow networks, bundled payments, voluntary growth caps for risk-based contracts, and rate setting • Group identified priorities: – Voluntary grow caps for risk-based contracts – Transparency 3

Voluntary Growth Caps for Riskbased Contracts • Under a voluntary growth cap, negotiations take place in the context of an upper boundary on year-to-year growth; specifically, parties to risk-based contracts agree to voluntarily limit annual riskadjusted per member per month growth to no more than an agreed -upon cap • Each ACO arrangement’s specific growth rate under a voluntary cap continues to be established through ACO contract negotiations • Coupling risk-based contracts with voluntary growth caps means that efficiencies gained through population-based budgets are not lost through negotiated annual price increases • Over time, such voluntary caps should improve affordability 4

Developing a Recommendation: Workgroup Deliberations • Two main areas of focus for the group’s work on voluntary growth caps: – What rate of growth to use for the voluntary growth cap – Implementation framework • Despite different perspectives, roles, and concerns among stakeholders, participants worked to craft compromise recommendation 5

Setting Voluntary Growth Cap • The workgroup reviewed several indices, including: – – Consumer Price Index (CPI)-All Urban: less food and energy CPI-All Urban: medical care Maine GDP Inpatient PPS Hospital Market Basket • Participants favored an inflation-based index (CPI), which is based on consumer spending and is more stable than some other indices • Some participants supported CPI-All Urban: less food and energy, which is the most commonly used measure of general inflation in the economy; others preferred CPI-All Urban: medical care • Consensus compromise: voluntary growth cap set at CPI-All Urban: medical care in year 1, and by year 5, cap gradually declines to CPIAll Urban: less food and energy plus 25% of the difference between the two indices 6

Index Options 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1. 8% 2. 2% 2. 5% 2. 3% 1. 7% 1. 0% 1. 7% 2. 1% 1. 8% CPI-All Urban: medical care 4. 4% 4. 2% 4. 0% 4. 4% 3. 7% 3. 2% 3. 4% 3. 0% 3. 7% 2. 5% Maine GDP (nominal) Inpatient PPS Hospital Market Basket 6. 6% 2. 8% 4. 2% 2. 6% 1. 6% 0. 3% 2. 3% 0. 6% 2. 9% 4. 0% 3. 8% 3. 6% 4. 0% 2. 1% 2. 3% 2. 7% 2. 1% 1. 9% CPI-All Urban: less food and energy 10, 0% 9, 0% CPI -All Urban: less food and energy 8, 0% 7, 0% CPI-All Urban: medical care 6, 0% 5, 0% Maine GDP (nominal) 4, 0% Inpatient PPS Hospital Market Basket 3, 0% 2, 0% 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 20 04 0, 0%

Growth Cap Recommendation 4, 5% CPI-All Urban: medical care 4, 0% 3, 5% 3, 0% CPI-All Urban: less food and energy 2, 5% 2, 0% 1, 5% Recommendation: Trend from CPI: medical care to CPI: less food & energy plus 25% of difference 1, 0% 0, 5% 20 20 19 20 18 20 17 20 16 20 15 20 14 20 13 20 20 12 0, 0% 8 Note: CPI forecasts from Moody Analytics, provided by Maine State Economist Amanda Rector, 12/18/14. Forecasts updated monthly.

Implementation Framework • Multi-stakeholder contributions are a key part of implementation framework: – keeping annual growth at or below the voluntary cap will require contributions from all parties, including providers, employers, and payers; and all participants pledge to do their part to support this collective effort and help achieve the voluntary growth cap targets • Letter of commitment includes the types of activities that different stakeholders can undertake to help keep spending within the voluntary caps, such as wellness programs, benefit design changes, redesigned care processes, and timely sharing of data • Workgroup is committed to developing stakeholder strategies over next six months, and has tasked a multi-stakeholder subcommittee with developing specific and actionable recommendations for the workgroup’s review 9

Implementation Framework (cont. ) • Employers, providers, and plans participating in risk-based contracts will be asked to voluntarily limit annual risk-adjusted per member per month growth to no more than the agreed-upon cap • Each ACO arrangement’s specific growth rate will be established through contract negotiations • The voluntary cap will apply to performance periods beginning on or after July 1, 2016 • A “safety valve” will be available to modify growth caps if significant unanticipated events are likely to result in unexpected or unreasonable windfalls or losses to ACOs or purchasers/plans 10