Why Health Care Will Change How Health Cares

Why Health Care Will Change How Health Care’s Cost Crisis And The Drive Toward A Health Care Market Will Change Everything January 2013 Brian Klepper Did health care think it could hold back market forces forever? Brian Klepper, Ph. D Page 1

Pithy Observations “How many businesses do you know that want to cut their revenue in half? That’s why the healthcare system won’t change the healthcare system. ” Rick Scott Governor of Florida Former CEO, Hospital Corporation of America (HCA) Quoted by Vinod Khosla at the Rock Health Innovation Summit in August (video here) “When an employer sits down with his health care relations – the broker, health plan, doctor, hospital, drug and device company – everyone in the room wants it to cost more except for him, and they’re all positioned to make that happen. ” Lynn Jennings CEO, We. Care TLC Onsite Clinics Orlando Brian Klepper, Ph. D Page 2

Business’ Perspective Oct 2012 Adecco Employee Benefits Survey • 55% of 501 Senior Execs Across Business Sectors Say Health Benefits Are Biggest Current Business Challenge. • Up from 35% in 2007. • Most reported lower profits in past year. Most expect no profit growth in coming year. • Small business leaders more optimistic than large • Respondents Were 75% Republicans • Most Believe Reform Law Will Raise Cost. Brian Klepper, Ph. D Page 3

Opportunity: Cost/Quality Performance Of Vegas Physicians Specialty Condition Low Average High Otitis media $46 $109 (+137%) $412 (+796%) Bronchitis $89 $150 (+69%) $771 (+766%) UTI $81 $140 (+73%) $778 (+860%) Angina $86 $297 (+245%) $743 (+764%) Angina $241 $611 (+154%) $1389 (+476%) Knee surg. $2, 727 $4, 473 (+64%) $9, 383 (+244%) FP IM Cardiology Orthopedics Source: Jerry Reeves MD, Culinary Fund Heatlh Plan, 2005 Brian Klepper, Ph. D Page 4

Opportunity: Hospitals’ Dilemma • Procedural Volumes Are Down Challenge: Maintain/Grow • $30 billion/year Medicare cuts Revenue & Margin for the next decade • Commercial Health Plans Will Squeeze Too Solution: Grow Market Share • Medicare’s Financial Penalties For Too Many Readmits Requirement: Prove Better Care at Lower Cost Brian Klepper, Ph. D Page 5

Opportunity: Advanced Images • Lafayette, IN • Clients Were Paying $1, 750 -$3, 200 for MRIs • 18 K Covered Lives • We. Care TLC Developed Volume. Based Contract @ $450/Each • More than 100 images/month • This is Doable in Many Areas: e. g. , Amb Surgery, Pain Mgmt • Question: Why Aren’t Health Plans Doing This? ! Brian Klepper, Ph. D Page 6

US Health Care’s Quality is Sketchy & Its Value Is Lowest In Industrialized World Brian Klepper, Ph. D Page 7

Avg Annual Health Insurance Premiums and Worker Contributions for Family Coverage, 2008 -2012 Brian Klepper, Ph. D Page 8

Growth in Health Insurance Premiums, Workers’ Contributions to Premiums, Inflation, and Workers’ Earnings, 1999 -2011 Premium has grown 4 x inflation for more than a decade. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999 -2011. Bureau of Labor Statistics, Consumer Price Index, U. S. City Average of Annual Inflation (April to April), 1999 -2011; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999 -2011 (April to April). Brian Klepper, Ph. D Page 9

5% Drop in Employer Coverage in 3 Years 11/11/11 – Gallup/Healthways Survey of 90, 000 American Adults Brian Klepper, Ph. D Page 10

Projected Annual Total Household Compensation & Compensation Net of Health insurance Premiums Brian Klepper, Ph. D Page 11

The Work Time-Price of Health Care Has Exploded Chris Conover on the Forbes Pharma/Healthcare Blog, 12/22/12 Brian Klepper, Ph. D Page 12

American Health Care Cost Is Absorbing Nearly ALL Economic Growth In the decade preceding 2009, 79% of all household income 79% growth was siphoned off by health care. Source: Auerbach DI and Kellermann AL, “A Decade of Health Care Cost Growth Has Wiped Out Real Income Gains for an Average U. S. Family, ” Health Affairs, 30: 9, 9/2011. Brian Klepper, Ph. D Page 13

Impact on Family Income If health care costs tracked general inflation over the past 15 years, average family income would have been $8, 410 (13. 9%) higher in 2010 than it was. ($68, 805 vs. 60, 395) Young and Devoe Family Medicine, Oct 2012 Brian Klepper, Ph. D Page 14

Health Care’s Growing Burden on Federal Budget Crowds Out Other Needs Source: White House Council of Economic Advisors Brian Klepper, Ph. D Page 15

Health Care Has Thrived During the Recession Source: Bureau of Labor Statistics, Cited 12/07/12 on Wash. Post Wonk. Blog Brian Klepper, Ph. D Page 16

HC Jobs Have Grown, but Productivity Declined Source: R. Kocher & N. Sahni, Rethinking Health Care Labor, NEJM, 10/19/11, Brian Klepper, Ph. D Page 17

US Health Care Unit Pricing Is Much Higher Source: International Federation of Health Plans, Cited in NYTimes, 1/22/12 Brian Klepper, Ph. D Page 18

And Lucrative Pricing Drives Higher Utilization Brian Klepper, Ph. D Page 19

And Lucrative Pricing Drives Higher Utilization Brian Klepper, Ph. D Page 20

Unnecessary/Inappropriate Care & Cost “Our research found that wasteful spending in the health system has been calculated at up to $1. 2 trillion of the $2. 2 trillion (54. 5%) spent in the United States. [R]edundant, inappropriate or unnecessary tests and procedures [were] identified as the biggest area of excess, followed by inefficient healthcare administration and the cost of care necessitated by conditions such as obesity, which can be considered preventable by lifestyle changes. ” The Price of Excess Pricewaterhouse. Coopers, 2008 Brian Klepper, Ph. D Page 21

Barriers To Health Care Quality/Value • Regulatory Capture • Fee-For-Service Reimbursement • Lack of Pricing/Quality/Safety Transparency • Compromise of Primary Care Brian Klepper, Ph. D Page 22

Regulatory Capture (Lobbying For The Special Interest) • In 2009 (during the reform proceedings), health care organizations spent $1. 2 billion to lobby Congress. * • 4, 525 lobbyists participated: 8 for every member of Congress. * In other words, policy is developed to favor the special rather than the public interest. *Sources: Open Secrets, The Center for Responsive Politics Eight Healthcare Lobbyists for Every Member of Congress, Fierce Healthcare, 2/25/10. Brian Klepper, Ph. D Page 23

AMA Relative Value Scale Update Committee (RUC) • 31 physicians - 26 specialists & 5 PCPs • CMS’ sole advisors on medical services valuation • Secret proceedings, sham survey methods, composition unrepresentative of physicians in market, financially conflicted • CMS has historically accepted 90% of recommendations • Commercial health plans typically follow Medicare’s payment lead Brian Klepper, Ph. D Page 24

Real World Impacts of RUC Influence 1. Over-values specialty services while under-valuing PC 2. Inhibits PC’s moderating influence and accountability function over specialty services. 3. Creates systemic incentives to perform more services, and more expensive services. (Specialists “practicing to the codes. ”) 4. Payment disparities between PC and specialties. Crisislevel PC shortage now. Brian Klepper, Ph. D Page 25

FFS Reimbursement Fee-For-Service fosters “Merchant Medicine. ” Every product/service produces a margin, creating incentives to provide more care and more expensive care, independent of quality. Brian Klepper, Ph. D Page 26

FFS Reimbursement - Procedural Volumes • Lucrative procedures encourage specialists To “practice to the codes. ” • Physicians who own advanced imaging order up to 6 x more than those who don’t • Stents are no more effective than “optimal drug therapy” and lifestyle changes, and they introduce significant risk/cost. Medicare spends $1. 6 billion annually on drug-eluting stents. • Endless examples. Brian Klepper, Ph. D Page 27

Cost/Quality Performance Transparency • Medicare physician data is locked. • Hospital procedure base fees are often unknown until billing. Recent Health Affairs California appendectomy study showed 3 day LOS pricing $1, 529 - $186, 955, a 122 x difference. • Health care markets don’t work except for the most aggressive commercial enterprises. • Providers/Vendors under little external pressure to improve. Brian Klepper, Ph. D Page 28

Increasing Primary Care Referrals To Specialists • Typical 2012 Established Primary Care Office Visit Duration = 7. 5 -12 Min. 30 Years Ago, It Was 20 -25 • PCPs Paid By Visit, So May Refer Time-consuming Problems • Most Specialists Profit From Procedures • Result: Huge Increases In Specialty Visits, Outpt Diagnostics, Procedures Brian Klepper, Ph. D Page 29

Primary Care - Specialty Payment Disparities Compare Primary Care Office Visit (99214) and Cataract Extraction with Intra-Ocular Lens Implant • 99214 – 25 Minutes and 3 Different Problems. Could be anything. Palette is all medical knowledge. Medicare pays $111. 36 • Cataract Extraction & Intra-Ocular Lens Implant – 15 minutes. Restores sight! 50 year old, low risk, repetitive procedure. Medicare pays $836. • Hourly rate of Ophthalmologist pay is 12. 5 x PCP pay. • PCP’s job is arguably more complex/challenging. Klepper & Kibbe, Rethinking the Value of Medical Services, Health Affairs Blog, 8/1/11. Brian Klepper, Ph. D Page 30

Winners & Losers • Winners • Nearly Everyone in the Health Industry (Except Primary Care) • Losers • Patients – Unnecessary Care and Risk of Harm • Purchasers (Employers, Taxpayers, Individuals) – Immense Unnecessary Cost • Primary Care Physicians Brian Klepper, Ph. D Page 31

Inescapable Conclusions 1. Health Care’s Excesses Threaten The Stability Of The Larger US Economy. 2. Policy Formulation Has Been “Captured” By The Health Care Industry, So The Greatest Promise For Change Lies In Market-based Reforms. Brian Klepper, Ph. D Page 32

Market. Based Approaches Brian Klepper, Ph. D Page 33

The Inflection Point Convergence: • Policy Paralysis • Overwhelming Cost • Excess Capacity Brian Klepper, Ph. D Attacking Waste Becomes A Powerful Market Opportunity Page 34

Market-Based Reforms Over the past 20 years, employers (& health plans) have: • Significantly increased co-pays for “steerage. ” • Introduced generic drugs and mail-order. • Introduced wellness, disease mgmt, lifestyle coaching programs • Introduced incentives • Renegotiated network discounts. • Given employees “more skin in the game. ” Brian Klepper, Ph. D Page 35

Market-Based Reforms But we mostly haven’t managed the care process, like businesses would. Brian Klepper, Ph. D Page 36

Market-Based Approaches That Work • • Collaborative Benefits Management Paying To Manage Process Empowering Primary Care Large Case Management Domestic Medical Destinations Analytics for Risk Identification Care Gap Analyses Brian Klepper, Ph. D Page 37

Market-Based Approaches That Work Large Case Mgmt. Brian Klepper, Ph. D Page 38

Market-Based Approaches That Work • Analytics of Provider Performance • Data Collaboratives • New Technologies (e. g. , Minimally Invasive Procedures, Genomics) • Incentives/Patient Engagement • Direct Volume-Based Purchasing • Rx Step Therapies • Lifestyle Management/Obesity Step Therapies Brian Klepper, Ph. D Page 39

The Development of Health Care Markets Market forces are influencing mainstream health care for the first time in decades. This means health care vendors will ultimately need to appeal to purchasers on the basis of cost, quality and safety performance. Brian Klepper, Ph. D Page 40

Employers Have Been Divided By Health Care • Employers haven’t meaningfully mobilized to date • Many employer organizations compromised by health care interest. • Many employers seem resigned or are fleeing • Little larger sense of enlightened self-interest Brian Klepper, Ph. D Page 41

Acting In All Our Interests • Health Care Organizations Comprise Almost 1/5 of the US Economy and 1/10 of US Jobs. • Only One Group is Larger, With the Influence to Overpower Health Care in Policy: The Non-Health Care Business Community Brian Klepper, Ph. D Page 42

What’s Needed To Offset Health Care’s Regulatory Capture A New Effort That Galvanizes/Mobilizes Non-Health Care Business’s Influence To Be A Counter-Weight To The Health Care Industry’s Policy Dominance. Brian Klepper, Ph. D Page 43

Brian R. Klepper, Ph. D is a health care analyst and commentator. He is Chief Development Officer for We. Care TLC, LLC, an onsite primary care clinic and medical management firm based in Longwood, FL, and Managing Principal of Healthcare Performance Inc. , a consulting practice based in Atlantic Beach, FL. An active author and speaker, Dr. Klepper has provided health care commentary to CBS Evening News, the Wall Street Journal, the New York Times, and the Washington Post. He has published articles on Kaiser Health News, Medscape, Healthleaders, The New England Journal of Medicine, Modern Healthcare, Business Insurance and newspapers nationally. Brian is a columnist on Business of Medicine and Primary Care for Medscape, the most-read medical site. He is an editor for The Doctor Weighs In, an online professional health care magazine, and a regular contributor to the Health Affairs Blog, Kevin MD, Health Care Policy and Marketplace Review, and other expert health care blogs. With his wife, he also maintains Elaine’s Journey, which details their struggle against primary peritoneal (ovarian) cancer. Brian serves on the American Academy of Family Physicians’ Primary Care Services Valuation Task Force, and is a reviewer for Health Affairs and The Journal of Ambulatory Care Management. He is an Advisor to the Lundberg Institute, the Patient-Centered Primary Care Collaborative, which advocates for medical homes, and the Center for Value Health Innovation, which helps business identify and implement approaches proven to improve quality while reducing cost. In January 2011, with David Kibbe MD, he began a campaign, Replace the RUC!, that focuses on the most important driver of inappropriate health care cost. That effort resulted in a lawsuit by six Augusta, GA primary care physicians against the US Centers for Medicare and Medicaid Services (CMS) over its longstanding inappropriate relationship with the AMA’s Relative Value Scale Update Committee (RUC). 904. 395. 5530 (o), 904. 343. 2921 (c), bklepper@gmail. com www. brianklepper. info Brian Klepper, Ph. D Page 44