introducing each panelist in the then go on. so i will start with one of the nation's most highly regarded economist. what distinguishes this model the brilliant on the theory and research of more than any other economist he understands how markets work . but he also said -- sits on the benefits committee where he learns firsthand why we're not the least efficient. is that fair to say? [laughter] he also serves on the panel of health advisers with the board of directors and vice chair of mudpack we have the good fortune to have him serve on the foundation and vice three board one of the pioneers of value based insurance design to evaluate medicare and private sector organizations please join me to welcome him to the panel. [applause] >> i am thrilled to be here they have done an incredible job it is great to see all of you here so i will talk broadly about benefit design because bob is going to talk about the budget i am not sure bob would have this but what did they have in common? if they exceeded income growth we were 2 percent faster and in the 90's that was a very good year or a least a very good decade it only exceeded income by 1.six percentage points so health care is growing much more quickly so one reason why it is great to be here today with ongoing national discussions of what to do in the health care sector so i will largely talk about a broad idea but to make an important distinction in many debates when people talk about the challenges we face they talk about national health expenditures. those challenges associated that the government is spending too much with the different solutions to how you try to address the total efficiency of america relative to what the government is spending. so i will make a? comment about medicare challenge. in 2015 so to take that for what it's worth the health care spending growth continued to exceed income growth by two percentage points which is roughly the average by 2352 via that 8 percent gdp. if we're able to reduce health care spending growth then medicare spending would be a little more than 6.5 if we were stunningly successful and the rose that the rate of gdp medicare would still rise to overall spending. because we have more medicare beneficiaries. so the policy solutions are different. there has been rising spending historically in the health care system so we are struggling with how to finance a growing portion of population on medicare should lead be surprising if we have more beneficiaries per worker they will have to pay more to finance those beneficiaries. it isn't rocket science mouth but looking at a growing population that is very different than how you deal with it otherwise it is unjust day medicare problem. with the state houses and medicaid spending growth crowds out other things that the state level. so to give you some rough numbers i don't want to go into broad fiscal policy. suggest with taxes alone to waive proportionately. and the historical rate is 2 percent faster. it would have to rise to the highest income group in the neighborhood of 70%. and it is true that the power of compounding if you go out far enough of those fiscal challenges are real to create enormous amounts of tension. but nevertheless to chair the benefits committee and what to do with our benefit package and when we look at the numbers we can see projections of spending growth to put pressure on wages and salaries so even if we often talk of federal or state spending it is a huge private sector issue to control spending growth. so i want to spend the rest of my time on just use that word loosely i will not have a big magic bullet at the end so that is what you came for wait for the other panel. so there are other solutions one is reform the other is consumer strategy's to engage consumers through insurance packages. it turns out one strategy of you may use is to pay less. and that the enormous amount where the assumed increase to physicians and no one that i know is thrilled about that strategy there is a huge amount of energy of alternative payment models. those are episode payments in the of population base payment model for those of to give you some idea, we had a system called sustainable growth rate. so we now have for rule that governs the way physicians are paid that is say pay for value component. but what is most important to understand is the scheduled fee increases that are e essentially flat in nominal terms. and so roughly speaking 2042 physician fees is the base level a little less than 10% in normal terms. so slowly over time there is a reduction of the real value in with those productivity adjustments. they are scheduled to go up less than the input prices. that would be a challenge for decades to come in the fee-for-service. so what we have been trying to do is build a different type of statement model with that delivery system can capture those deficiencies and by pulling those efficiencies out to allow those provider systems to share in those savings they can perform better financially over the next 20 or 30 years that is of very so the advantage of these models who said these flexible payment models allow them to change the way that are distorted so there is a lot of economic appeal. >> so i go through those payment models. in with that deficiency to share some of that with that pay for performance component. increasingly that data supply. and with those two succeed under that model. and often in those models with the moniker of value based payment where we reconcile for vengeance and value the word value is very overused. that takes the question what do we mean by value? that my personal view it as a little bit of the sugar to make the medicine go down to shift those responsibilities and accountabilities of quality care with those financial components and recall that value because it sounds much more appealing but that is not the standard pay for performance model. down to the delivery system. >> pavements have gotten a lot of attention. so in general the evidence is pretty clear that they save money. there are examples that are reported to save large amounts of money the be 5% there is a lot of concerns that there could be an increase of volume we're not sure. to take that as proof because the quality goes down thinking it would go up but there are several concerns of the episode base payment and one of those is that it works well for certain types of conditions. but the problem in this country dealing with complicated interrelated conditions better much harder to put into those episode models it is unclear how far you could go to capture the population in the episode based framework. that second concern of course is what i mentioned. so now to the population base payment model. this is the difference the basic idea the delivery system is a fixed fee overtime proposal to be clear they are all built on the fee-for-service that the of money is flowing in the way that the delivery system accepts the accountability. . . . . is because there is wide variation in the sector and in these models it turned out the organizations that accept the risk can save money by directing the price settings and providers. it seems clear that the results improved over time and it also seems the organizations do somewhat better. that is a generalization, s so m sure that there are some tremendous organizations but as a general rule it seems to be the case it helps if you are not a hospital. so, the other thing that is important to understand and i don't know why this is so hard to explain. if you save him by suspending you shared it and that is how sharing works and so if you look after a year you are never going to do as well but i'm understand the shared savings are the incentives to reduce the savings. if you could share you wouldn't have any savings. we have to worry about a system that is working in 2019 said to be clear i want it to work but i'm much more interested getting on a path where the health-care system will work in 25 and 30 and if we spend all of our time trying to get a big win the risk of abandoning a path that might get us somewhere successful in 2025. the savings that i might have the quality suggests. the reason why i think we should keep moving on this path is because it enables the delivery system to control their destiny and capture some of the efficiencies which is ultimately deficiencies which is ultimately where we are going to want to go. remember the details of the programs are different and the other thing that is important is execution matters. it's not that we put in how it gets implemented and they are giving this work and accomplish the task but ends up being important. it's still a house and will be able to put on some editions. comparing episodes both of them seemed to lower spending. if you save 10% on 5% of care you haven't seen that much money on the population basis. the other models are broad but the concern is not all geographic areas in the country are ready to support the population-based payment so for a while we will have a mix of these models moving on and it's almost the case of those the other ones tend to be focused on the organization and primary care provided you can take that as better or worse. should we continue? again i believe we should in part because the current law and i think it is going to be really challenging. when money gets tight and i hope i have convinced you it will come up providers ar about provg to want to control the money and the overarching theme behind a lot of these new payment models are mechanisms to allow them to provide and control the savings. if the goal is to mitigate risk. but sometimes we forget that part so we are balancing risk in a variety of ways. the goal is not to lower the premiums from it is relatively easy to have them go down if you make the patients pay more at the point of service. it is shifting from the premium to the point of service which that does not diminish risk. the other issue is not to tax the sick. the sick people pay. it's not to balance that by charging all of our employees that have wonderful things. our goal is not to charge the young families to support the healthcare. the reason why we have cost share is we are trying to improve the incentives. one is we want to reduce excess utilization and i don't have time to say but you probably know that there are wastes in the system we would like to have less. there is a huge variation of prices and we would like to be able to use the design to encourage. there's high copayments and cost insurance plans and essentially models that charge patients mo more. they try to target the purpose. that steers them to the providers to lower the prices and the networks three similar concept for the episode type of care like the hip or knee but all of the care are steering patients. the value-based insurance concept to a line. they would be frustrated if i didn't mention of a look at the care that we get with high-val high-value. there is a nuance to align the cost sharing with a value to encourage the high-value and care so the basic results from all of these design studies is thankfully to anti-communist. financial incentives matter. they shift the site of care. this movement associated with that and to give you some idea that is potentially large savings that a narrow amount of care and in the tiered model one study suggested a 5% savings by the population basis. how much emphasis have to put on encouraging the use of high-value services and how much of this is i that you put on the discouraging use of the services so how do you design it to depend on the financial implications of the plan. cost-sharing does influence the behavior. it's high-value care and low value pair in the same portions of a reduced to prevent servic services. they are not that good at discriminating and it's one of the motivations for the cost-sharing. the purpose for entrances to mitigate risk and to charge people about you are undoing that. they are not always the best decision makers in terms of the kind of care they should get. it is really easy to come up with dramatically compact solutions where people are going to have to choose among different providers and servic services. i'm a fan of quality measurement that it has become a big complex entity that creates costs throughout the system. if you spend time talking with anybody that has anything to doo it becauswith this there's a lof concern about it and i think it is a guiding principle we should do our best to try to keep the system simple to avoid this distraction we could create if we are not careful. if you came here today whatever cost you are doing after that if you are going hoping it's going to be a magic solution and if we just get rid of whatever we are doing now. we should be happy with small incremental improvements for the direction we think will promote value using both incentives to the delivery system payment reform and the patient benefit design. we have to figure out how to do that in a way that maintains the quality of care for folks because we have a healthcare system designed to meet people's healthcare needs. thank you very much. [applause] curtis barnett is the president ceo of arkansas blue cross blue shield a nonprofit mutual insurance company which is the largest health insurer in the state of arkansas. hello citizens and arkansas is the most vulnerable people and population and under his leadership blue cross and blue shield has a number of programs around opioid addiction, health literacy and food scarcity. for the state and federal governments they've had a remarkable amount of success in arkansas and it's served as a model for cms and other states. as you can here today, curtis is pretty passionate about building a better healthcare system and we are pleased to have him with us today. [applause] a considerable amount of time was in my home state studying the effects of the initiatives i'm going to be talking with you about this afternoon. when i joined blue cross and blue shield i worked with the primary care network that we made available to large employers located in the rural parts of the state these were communities with populations of small as 3,000 of its large as 20,000. they have clinics and sometimes more is tended to be fortune 500 companies with a plan in arkansas. the care for the employees and their family members directed to ththat primary care physicians d those physicians treated the patients as well as coordinated their care physicians were under financial risk and one of my main jobs was to work together on a regular basis with employer leadership and physician leadership to bring them together to manage those programs so we could go through extensive data analysis and you could imagine in 1993 these were mounds of data that we would work our way through. what we were tryinwe were tryint what primary care physicians were performing the best and biggest hospitals for them to refer care to and we were to manage those costs because we all had the interest in keeping those jobs and communities and we tried to work with the two objectives. one was the primary care physician and second was to identify and reward value. fast forward and we continue to work for those today. it is almost on a day in and day out basis. i would say over the 24 years, we have seen progress towards those objectives and especially in the last five or six years and a big part we have a partner involved in those and her the partner has been the public sector. i want to give you a look at what it looked like in the state of arkansas. i want to go over the initiatives that we pursued, talk about some of the support that has made it work and talk about how all of this work is influenced our approach to driving the health-care system towards value. it's not too different and those you see in other states. it is growing at a rate that is streaming those in the states and in the campus it tends to be relatively poor weak rank at or near the bottom of the key health measures whether obesity, type two diabetes, we tend to breabring towards the bottom, by parking ticket at the sectors have began to transform the system in the state of arkansas. this is the framework for how we've been going about that work. it's the payment improvement initiative and there are two main components the first is the model that we have had in place with our company getting back into it ties directly to the comprehensive primary care initiative sponsored by the federal government and we put this in place in 2012 and the state received a grant from cms. i think it's important to note that the initiative is not just a public-private collaboration. it is a multitier initiative. as you can see all of the major private payers in the state are involved in this program at some level and have been supported as well as the major employer groups who have the commitment towards value-based care and and have been partners on this as well. these are the objectives. a practice has to go through significant transformation for example, they must identify the top 10% priority patient have care plans and health records and range for 24/7 widseven wird access of care going forward. they help fund the transformation activities and in 2010 our company put a stake in the ground and we said if we are going to have a sustainable health-care system going forward, we've got to have a strong primary care infrastructure so we embarked upon what turned out to be a two-year pilot program to see if we could transform the practices into the patient centered medical home's in a system that we sought to achieve. we saw hospital readmission grades and emergency room visits and related costs go down as well and the appropriate use of the emergency room go up as well as the generic drug prescribing rates. we also came away with some significant valuable lessons learned and probably chief among those is the need for the alignment as we are pursuing these type of initiatives. this is the way they neede theyo occur so we understand very quickly that without much more volume bees are a one-off efforts and would have a very short shelf life and so you can also see we had other important lessons learned as well. when the opened up the opportunity for the markets to apply for the comprehensive primary care program, we took the lessons with other health care and political leaders in the state and the applications and seized that opportunity at that time. you can see from 2012 to 2016 we were one of seven markets that were selected and one of four that were statewide with 268 providers and private payers participatefive of the payerspas and medicaid. now we could offer the incentives necessary that would be sufficient enough for these primary care practices to make investments in infrastructure and changes in their clinical decision-making and operational process that were needed to transform their clinics. over the course of the time to code tha.code that we anticipatt is now the sole be experienced care and we sought reductions in hospital admission rates to 15%, we sought improvements and quality metrics and the information that was kept. then arkansas didn't have the results of the program so we came away feeling like it was a success. it would be a part of the program which was 2017 so we are part of that as well as the 14 regions around the country and you can see that we have a grown across the board we are up to the seven piers supporting the initiative and that is important as well. i want to talk about the episode of the care program. we work very closely with arkansas and medicaid to basically develop and implement the episode of care program. it was an important move in the right direction. there were thresholds to also establish which laid out the commendable, acceptable and unacceptable cost levels for each of those episodes. then we also provide regular reporting so they can look at the episodes across the entire spectrum of care not only of the health and quality measures but also the utilization an and cost associateassociated of those dit episodes. to date we have 22 episodes of care. each is free to decide which of the episodes they want to implement based upon the populations they serve. serve. we've implemented 14 episodes of care. this is an example of how the framing model works for the episode of care program and you can see that at the end of the performance period, the average cost per episode is calculated for each of the clinical leads into there are commendable levels acceptable. those who perform and meet the commendable level to qualify for the sharing and so those who perform above the level have to share the cost of the programs of the portion of the payment has been recouped as a result of that. we have seen the intended effects of the variation in quality. these are high-level results from a couple of the episodes we've had in place probably the longest for the state and then also the total and hip and knee replacement. if we were to do that assuming that the cost of the rolling year-over-year, i think that the cost reductions would have a greater impact. arkansas was one of the states selected for the grant and our state did receive a grant of $42 million to help fund the arkansas payment improvement initiative and the activities i've been talking about to develop those episodes and a patienthepatient centered medice process. it is indicative of how the public and private organizations should work together. we have been having an impact in our state, so i don't think i can overemphasize the importance of the data and communications with supporting these type of programs. when we implemented the programs and rolled them out we worked closely with organs will arkansd especially on the episodes program, and we held 21 public work group meetings around the state and received feedback from over 500 providers, patients and other stakeholders who helped shape how the new models would look and work. ongoing communication is critical as well. each of the payers have teams involved in this on a regular basis. we have weekly, monthly and quarterly meetings. it's not just appears that are getting together to work on the program. program. we're also including in many cases the arkansas hospital association, the arkansas medical society as well as practicing the physicians participating practices as well. and what we are doing in those sessions, we are sharing challenges, talking about program changes, and as much as anything we are talking about best practices. the data is absolutely critical to the success of the programs. we decided early on but if we were going to try to build whole new technology tools from scratch they would add a tremendous cost to this, so the cost made agreeable the information network very early on in this program so it was being used by 99% of those in arkansas and have a presence in the offices, so we were able to use that as a wa the way to push information and data to all this provider practices especially these provider practices especially all of the reporting. we think that was critical to keep them from having to log into multiple systems into multiple report formats to get them to feel more comfortable with the program. we provide a variety of dashboards to our participating practices as it is part of the initiatives. there's drawdown opportunities they can see exactly how they are performing and the potential areas of recruitment. one of the things we did early on also is established a dedicated resource center that providers can contact that we would also outreach to them to help them understand the reporting and how to use that information to help drive the practice improvement. i want to end my going back to my comments at the outset. i feel like we made very good progress on those objectives are talked about and that is to improve the care coordination to identify and reward value. we think a lot of that progress is the result of the collaboration between the public and private sectors. by having arkansas medicaid, by working with cms, we've been able to bring together a much bigger impact than we could have before. and arkansas blue cross, we are convinced we need to continue to move the market towards value-based payment. we think that is critical for having a sustainable health-care system going forward. and we also believe all the initiatives he worked o that wen that i spent the last few minutes talking about on the models we worked with providers on in the state on the health initiatives, we feel like all those different efforts have helped lay a foundation we can continue to pursue this going forward and we are working on those plans today. we also want to continue to collaborate with the public programs and i encourage public agencies whether it is state or federal level to continue to view the private payers as partners in innovation. we think that is absolutely critical as well. and finally, to leave you with another remark that is the have seen firsthand in our state that by working better together, by combining the patient volumes and combining different perspectives, by combining our different areas of expertise, by combining our resources that we can pursue common strategies that can be scaled to address common challenges. and we believe that by working better together we can have a much greater impact than any one company or agency can have working alone. thank you. [applause] curtis, thank you so much for your remarks and collaboration and leadership with the public sector, and we look forward to getting future updates on how you all are continuing to make progress. so, now it is my great pleasure to introduce dave anderson, president and ceo of western new york and blue shield of eastern new york. the insurer for this community-based nonprofits plan with 1 million numbers. dave is a forward thinker and executive to improve the health of new yorkers including community outreach campaign to address the opioid epidemic and unique home based program with behavioral and social support. as you will hear today, he's committed to strengthening the primary care to support the care that her population lower health costs and he's one of the led te development of the innovative new payment program to empower the providers with flexibility and resources to better manage the patient care so please join me in welcoming dave to the podium. [applause] good afternoon. it's a pleasure to be here. i've enjoyed the comments of our prior speakers and i think that sequencing is good. michael has more of a microlevel talking conceptually i think curtis's comments were specific to arkansas and those segments, so i want to spend a little time today talking about a very specific market-based value-based initiatives tha inie brought to the market called best practice. it's very regionalized and it's also focused on helping the shortage of primary care that we have in that area of western new york. i will give you some context around the population i will be talking about in the area. this is us headquartered in western new york. we operate at the headquarters in buffalo. western new york is an area that actually has some shrinkage in the population over the past decades, and its population is aging a little bit of. we will begin to roll out other processes implications as well. this is the region that we focused on. it's an eight county service area and as i mentioned it has static population trends. there's two major hospital systems in that area and controlling about 80% of patient care. they are very doctor centric, not patient centric, and as we have evolved into this area of health care, we have the need to flip that around. we said how can we begin to transform the systems to make it more patient centric and bring value-based contracting to the region. there was a very high degree or concentration of specialists also not that unusual when you have hospital driven communities and they were very much a late adopter to any form of reimbursement other than the fee-for-service. to realign the provider system both as michael and curtis talked about, and also we have a pretty critical shortage of primary care physicians in western new york, and you can see the numbers there are showing off the deficit and they are shrinking over time. not unusual in a number of communities around the country because they haven't been supported economically or in their practices in a way that makes primary care the preferred specialty if you will in the provider system. as i mentioned, we have an aging population and the result of the fee-for-service model caused primary care physicians to be reimbursed and income levels to be such that they have a general incentive to move towards specialties and a i hand a volume-based model difficult to measure quality scores in that environment, so we have moved forward towards best practice. this is primary care as we felt it should be. it's not perfect coming and we didn't want to go from a-z: one year. i don't think that would be possible but it is a good step in the right direction. first of all, they would be compensated accordingly and i wilwon't get into that in just a second. to have a pcp assignment doesn't have to be an hmo plan where it's chosen. we use a tool to attribute all of our members to certain pcp is such that they have a full panel. we focus on the total health which i think should become apparent in a minute, and i'm not just treating illnesses. become a source of referrals and we provide support and changed the provider supports model such that it has come pertinent data to share with specialists. the net result of the financial model is reward outcomes. we've already seen higher patient satisfaction scores and we are early. this program i will display in a second started on january 1, but we are already beginning to see primarily because of changes in referral patterns, we are beginning to see the costs decline. so, functionally, and i apologize for the glory of eco- granularity of some of this but it's important that you know what many of this contracting means. it is a terminology that we use a lot and to bring it down to a relationship between the old plan, the member and the provider is important to understand. we launched hour launched ours t county area january 1 and actually started the april before it began educating in the region for nine months prior to implementation. we now have a thousand participating and about 400,000 members attributed. one of the disadvantages although conceptually it is a te patient centered medical home arrangement, one of the downsides is they generally work on smaller populations. they are specifically abou abouy population that might be a segment on whatever they can provide care for. we wanted to transform the membership across the board so one of the things we've been able to do is we are including medicaid and medicare and the employer population whether it is self-funded or fully insured so it has a broad impact across the population. what we have done is created a combination of the fee-for-service, which we have been saying it's a bad thing, and i know we've been saying that all morning but there are aspects where the fee-for-service actually works and as well as a monthly payment we referre refer to as a care mt fee also because michael indicated we don't want to use this anymore so we refer to it as a care management fee, but i've put it back into the explanation on purpose because i think it is a -- it makes the point of the latest model in the way that most of us are. so, here is generally how it works. what's needed is to the 400,000 members, looked back over a two-year period of time and we have the claims data on a per member and per month basis we created a base rate and said the cost of the population is directly on the claims under the traditional model is a certain amount per member per month, that is the base rate. we then used a form of capitation adjustment which has historically been age and gender related. that's nothing new. then we used the risk tool to begin to predict what the cost will be based on the individual score, and we applied those factors for every one of those numbers, so for example, the primary care physician has 100 of the members he actually has a risk score that is different for every one of those 100 members based on whether they have chronic illness, based on their age. so they are all different. we then take that population and look to the providers. we use the scoring methodology and create ten guidelines and reports and apply those on a per patient basis. we could debate. this is not perfect however we find we use the risk scoring system as well and we foun fount the results of those analysis to be fairly similar. so we are comfortable with using the score was an adequate measure of quality and also, because the work on medicare advantage, like most plans, we are having to do the scoring methodology in code checking as well so that seemed to make sense. and we've had reasonable accuracy with that. then on the efficiency model, we used the risk scoring tool for that because it has a prospective measure and we combine those into that gets applied towards every one of the members risk scores. what that creates, it's the monthly service fee and what that creates is an actual monthly service fee to the primary care physician which is unique to every one of the patients that is attributed. and as i said, there are a number of things particularly on the preventive and wellness areas that we want to have happen and we continue to pay them on the fee-for-service. so, that is creating the reimbursement model for the primary care physician. we believe everybody wins. i won't read everything on the chart. but it's certainly available if you would like to have it. one of the things it does is create a baseline to know they had a certain income level that they attributed to the patients that they could count on and there are factors in the base level compensation that then allows the revenue every month it allows them to manage the baby think it is best and a good example is under the traditional model of the fee-for-service in order for them to receive any compensation for the consultation patient has to come into the office. it may not be necessary. that way if they want to use videoconferencing to communicate with a. they have access to the cost and quality data that they traditionally have not had into the cost data is imported in the process. most times we found that primary care physicians making the referrals with specialistreferre place or another. we are seeing a difference in the referral pattern against the population from the primary care to the specialists because that is wellness and health of the population improves for those that are attributed to that primary care doctor he begins to receive more money because of the way that the service fee is calculated and his reimbursements go up and he is rewarded health status of the population so he wants them to go the most effective and highest-quality environment they can. historically he didn't know where that was. remember they are dedicated and generally we find our members also choice is always important, they want to have a pcp that helps them glide through the system. the care isn't limited to the office visit as mentioned, it is up to the physician and patient to determine how the primary care would be administered and it's better coordinated. there'there is a greater focus n population health and as i mentioned one of the things we've seen that we underestimated the little that there is a change in referral patterns to the cost-effective specialty environments. switch a major step from the secret service. new york was very traditional. i arrived there about four and a half years ago. there was a cinch we know about was essentially no value-based contract in the market at all so it was a territory that would have landed a little bit and as i mentioned, we now have 90% and essentially all of the attributed population on the basis of the contract. we spend nine months educating in advance and a critical thing i heard curtis say the same thing that it is essential in these environments do you change the provider supports model. they need data in a different way in the different timing to make the decisions over with a tawhatthey've had in the past. we added about 25 provider service representatives to do nothing but administer the contracts with themselves. so, it comes as mentioned, 90% are working with us now. we believe what we were told that we buy cms that we were awarded the contract as one of the 14 finalists for the 2017 specifically because of the best practice program. i had hoped i would have a little runway in this process, but my largest competitor copied us almost already. i guess that's a way of saying we feel we've made some of the right decisions. then after one year we are not quite done with the year yet. what do we expect to see? we have a degree of cost transparency but also helping them make appropriate referrals to. we have a change in the referral patterns as well and a different level of provider engagement and our value-based literacy which they didn't know even two to three years ago. in the risk adjustment process as well as vibrating and what we are looking at is pretty aspirational and on an overall basis around 2% in 2017 we don't know that yet. this is a multiyear arrangement and we think that would be the arrangement and remember in the compounding environment. the 2% as dan the baseline continually is reset so that is best practice to the beginning of next year when we have a full one but that was helpful to give you some granularity. i appreciate it. [applause] thank you so much for that granular look at how these contracts work. it is impressive that you already have 90% of your physicians under contract with it. now we have the cofounder and president of the foundation for research on equal opportunity, a nonpartisan, nonprofit think tank that conducts original research on the impact of public policies on americans with incomes or wealth below the u.s. median, so it is a topical issue you are addressing in the new foundation. you will know him, he's a bleeding conservative change agent and has has advised three republican presidential candidates and influences and informs the policy debate in the role as opinion editor at forbes. he also has experience with medicine and finance as a former medical student and jobs early in his career at the capital and j.p. morgan. we are also honored to have as a member of the advisory board and senior advise . . tive advocate for the free market and the patient centered reforms to lower the cost of health services and prescription drugs and we are just delighted to have him here today. [applause] >> thanks, nancy. it's great to be with you all and share the stage with some really interesting presentations from some very impressive people. as nancy mentioned, i think the foundation focused on finding ways to achieve the goals and principles with both progressives and conservatives to say let's find solutions and reform ideas that can move the needle for the people that have the least economic opportunity in america today. i think all of you understand today the prescription drug price is one area where affordability and healthcare are particularly impactful to the communities because we all go to the pharmacy and pay those copayments when we pick up our prescription, so it's an area where of course it is not alone in terms of being a place where healthcare is expensive as we heard today but in particular, patients are exposed to those costs. we published a paper called the competition prescription and the point of the paper is to break through the logjam we had in the prescription drug pricing and the dynamic we have in the last several decades was for the democratic side there was a lot of concern about the prescription drug price advocacy of pric price controls and varis of price controls to regulate the problems and on the conservative side or republican side, well we don't like price control, so we are basically going to change the subject. and i think the argument here is to say actually the situation we have today where we have such high prices for prescription drugs isn't the result of a free market. the result of specific policy decisions that congress made that allowed the prices were incentivized the prices to go up. the solution to that problem is more competition. competition has been the biggest driver in reducing prices in the united states and the goals is to learn from success to address the failures. you all know the story of the fact that americans pay a lot more for prescription drugs than everybody else. so, per capita prescription drug spending in the united states is basically doubled the rest of the wealthy countries in $1,327 per person and i believe 2014 is where the data comes from. we are doing very well with the most far-sighted laws the constitution ever passed which did a lot to stimulate the growth in prescribing generic drugs. we are actuallyg. four times better inn terms of making sure that where1% there's a cheap generic alternative available, people have access and they are using clinical effectiveness as generics is as good as competitor. we are doing a great job actually as engineering and encouraging competition when a lot of drugs go off patent, the problem is that for the branded drugs, the prices are going up. you hear people say, well, pharmaceutical spend asking growing by x percent. at brinded drugs with 20 million on branded drugs and five o% but in 2012 and then spent $50 billion. so there is a real nominal decline in the dollar value. even though that prescription share is going up so generic prices are going down. that is the untold story in america us so where cheap generic drugs are available costs are declining the for those branded drugs costs are skyrocketing. >> because that list price is not what we received in revenue you have to account for those discounts that come out of that list price before it gets to the consumer. they do have a point but it is also overstated there is the list price so then there are the wholesalers and distributors they just buy drugs in bulk from the manufacturer to sell that to pharmacies. but about 16%. and then is the invoice price. so what pharmacy benefit managers to? bay gas rebates. to get maurer with those certain drugs with those cholesterol lowering drugs and then to stimulate more utilization of those drugs. and that is coming out of the pharmaceutical industry but it is a mixed bag. but that drives up the health insurance premiums of the cost to the consumer goes up so then the co pay so some pharmaceutical companies will say if it caused several hundred thousand dollars but for those that cannot afford that have any out-of-pocket cost. but that higher utilization means what? but it isn't the net price but the price for the consumer is higher levels higher premiums with that higher utilization. so let's get those other wealthy countries so what is it in those united states so the net price is $1,600. like the sticker price the real impact to consumers it is about 1150 so yes we should factor in the fact the price they pay is lower than the sticker price but even if you take that into account more than double so it is still a huge policy problem. so why are we in this situation? with the high prices to diverge but it we also know we don't have a free market. but why drug prices are so high. and insulated from competitive pressure so not only do we not pay for drugs directly we all the shop for the insurance ourselves with third-party payment third-party payment for the insurance so no wonder they are divorced. but they don't have the sense because they're so in directly exposed to those prices. so there are legal monopolies so on average they be active with they get through the approval process. so we want to reward innovation and mike obamacare and medicaid in different ways all basically mandate that drugs be covered so basically every drug has to be covered by medicare so space that they have to be paid for by that taxpayer regardless of what that is so that is a problem who gets cancer? that is health insurance for old people for medicare so that is why they have high prices so with the pre-elderly individual there is more of leverage that they can use to fight that off. and not reimburse for this. this is where though leverage is the lowest and this is more than the cms regulation that for every therapeutic class there has to be one brand of drug reimbursed from participating in the changes. but that there isn't a level playing field in those situations where they fight against each other. but they compete with one another and fragmented. so the end result is they have more leverage to say if you're not going to reimburse for this drug then you don't pay for this life-saving drug because they are insulated from all of these pricings but also the of fact it has gone up considerably over the last couple of decades and as they try to recoup their costs it is important to say in with the cost of innovation so there is almost no correlation between the cost of developing a specific drug and the of price that it charges if you have a monopoly situation or developing the drug you don't have a lot of leverage to charge a lower price for:market power is drive the new lot of prices. you might have a drug for disease affecting 4,000 turgeon 300,000 per year but the cost of developing that drug is quite well because it is basically directly correlated to the clinical trials. but that cost a bargain deal of of r&d alone but the diabetes drug cannot charge high prices. so bad is market power. so whenever you hear somebody say the high cost of innovation and roll your eyes. >> so to highlight this to create artificial monopolies. that is just like the drug given the news but because of that artificial monopoly it was no longer a monopoly. the way fda regulations created monopolies and there should be more competition. and as many of you know there is the difference of fda regulations between small molecule's like aspirin or cholesterol or of the tort verses antibodies are proteins with that dna revolution but those larger proteins have to be much more carefully manufactured better not so easy to replicate and as a result they have been much tougher with much higher regulatory barriers for generic competition. so to have much longer runways. >> lecter is that intellectual and cultural bias that we have to have innovative drugs not a the me too drugs under similar and profile and structure guess what that means? if they are competing for that group of patients then prices go down. we have a bias against me too drugs because it is an innovative but economically it is important to encourage the development of me too drugs that means lower prices for every american. so let's focus on these three areas in particular but first i will talk about one of these ideas. this is an example. and basically to stimulate r&d for diseases with to do thousand patients in the united states and because they were relatively small so without molecule has no ability if you develop that for a disease that is relatively rare we will give you seven years of monopoly and exclusivity as if you had a patent. so congress really over shot that can result is we can develop a drug with that particular mutation was seven years. and then we steady a different mutation and a different cancer with another seven years then another seven years. with no patented and around several decades. said manufacturers take advantage of that opportunity with that intent of the designers of the lot. as orphan drug czar taking over pharmaceuticals so those rare diseases or one-quarter of all spending in the united states. for those that or try to treat a very rare disease i'm not saying that isn't important but also alzheimer's or high blood pressure that creates that incentive from those big dizzies populations because there's so much more than economic incentive. so where public policy has created to change it. so talk about the fact of the seven year monopoly that the fda started for there is a drug before they actually existed in because they predated the fda on the market legally for many years so we don't want that we will try to get those unapproved drugs off the market and encourage manufacturers to do connect -- clinical trials and give them a monopoly for a period of time. but if they do get the monopoly then they jack up the price. so then to do make sure they have been around with a regulatory and safety profile. but they did not think that had with that exploited pricing so that is one area of the fda has not thought it had about cost but another area that they have to talk about in the current roll is the issue of generic drugs with a specialized delivery technology associated with that. so epi-pen has been around 100 years but the injector has the patent. so what stymie competition is if you want to be a generic manufacturer of these epi-pen you have to prove to the fda that the exact physical kinetics the way it enters the body is this a bit you cannot do that without without their proprietary ejector. and that we have the same critical for the patient that means that can get treated. so there are themes the fda can do to redress that but has long argued that congress helped create a new pathway so there was delivery technology to create a new pathway with those injectors. even if not physically equivalent. and that famous example is one of the reasons why the fda was created in the first place. because of leprosy to cause birth defects and pregnant women. so the drug has been around for a long time and to discover that in multiple myeloma of. and to do clinical trials and then the real monopoly the fda said because of this you have to have a risk-management strategy to develop that pathway so nobody could create a patent around that. and to create more and more that they could patent to block competition and with that intellectual property in so the last one want to focus on is the bio-similars that have the accelerated as a result of a provision within the aca that tried to create a measure that gets in a more standardized pathway that so if you have that office and drugs like aspirin doing a clinical trial you get five years of the exclusivity but for reasons that have nothing to do with economics but everything to do with politics and the lobbying that is 12 years there is no reason 12 years for biologics or five years for small molecules' so there should be the opportunity is to have that legal monopoly but if not innovative there should be thou harmonization and another key area with the uptake of the generic drug with walgreen's to substitute. that the pharmacist can substitute without asking permission. so that is one of the key elements leading to that higher uptake. but the bpci is not as strong so you have to create barriers before you can get that bio-similars prescriptions so competition has been inhibited at the state and local level. so we have alluded to these ideas so how you can increase competition some of the things i have not highlighted yet but i encourage you to think about is a the me too drugs that isn't the fda policy but the fast track designation if it is truly innovative the fda will give you more accelerated review time but we could easily have something similar with a fast track with one or two drugs that we need more because of her public health problem but another thing to do think about is to emulate the success of medicare party and to part eight and a party with three different parts of medicare the pay for prescription drugs. hospital based, and administered in the drug -- the doctor's office or the retail druggists. so with those cost savings to be leveraged throughout those other medicare section day and to think about to creating a safe harbor to jointly negotiate in that particular state so instead of having the some level playing field will there is that monopoly maybe they could jointly negotiate if one does not cover it reverses the other one. and one advantage is the incentive for consolidation which is a big problem we have been dealing with that at the end of the day to make sure we have a more competitive system is every american's as possible have the health insurance plan that covers them what that aca has in the free market conservatives want to accelerate the more people that choose their insurance that will do the most touse incentivize drugs with the utilization of the low-cost option. sova to have a of a copy of this paper if you are watching on mine down mining -- download from our web site. thanks for your time. [applause] >> that was terrific you covered a lot of ground all of us are learning some new things so at this time i want to open up for questions so please complete your card so we will take this opportunity to have major players on those dates exchanges with open enrollment coming up next week so what you are expecting there has been a tremendous amount of uncertainty would you like to go first of what you are expecting?. >> so this has been issued we have ben watching for quite some time so we do that through feedback through retail stores throughout the state with the individual market on a regular basis also brokers that our critical and to have the idea with the open enrollment period all of the confusion we are expecting as we go toward that. and what has surprised us a little bit is when all this confusion goes over into other customers like the senior market is. if they are not going to be funded and then to go through the your own in a moment period so we're spending a lot of time with resources especially the senior market for what that means to them. >> first of all,. >> and fortunately it is on a fairly stable basis but however with the instability that has occurred so people calling in because there is not that clearer delineation of those cost sharing reductions in they don't so they feel their own coverage but the members feel they have done their part in now they don't know and they don't know what's going to happen to that coverage it had zero that will be change going forward and that will cause the numbers to draw back out. >> that is very interesting but we will get back on point said to start with a question from u.s. news and world report what does the future hold for value base pay reforms if that is for cost control?. >> so the challenge with those discussions haven't just centered on this aspect. so my expectation is there will be a version of those alternative payment models figuring out how to make them work perfectly there is a lot of work going on in that area because those alternatives are challenging in a variety of ways so i suspect certainly with the private sector increasingly the private sector continued to lead that they both developed different models in different markets there is a demand from the delivery system to maintain this momentum. >> of big part of the reason we don't have that value based health care model is 70 years of federal policy creating incentives. the way we have of value based model because consumers directly benefit if they deliver higher value and lower cost. that is not necessarily true with health care. so when we talk about value it is important that patients should determine what is valuable. and then to control the of health care dollars. >>. >> candida a great job with the payment models it is here to state to take hold in the marketplace in that expectation is we will continue to move down that path especially with our responsibility for health care services in that is the critical way to get there. >> the breadth say that they are now relatively new but in a lot of markets but the definition of value to health care consumers and we will be challenged that the model changes with the of. >> and it is right up the alley with those patmos as with the drug prices. why not seeing any movement? ims skeptic on that but basically you have a of branded drugs that the patent is about to expire but nobody knows when because there are three or four patterns that matters of the generic tries to invalidate some of those because it goes through the course nobody knows when it will expire. we don't know. so what often happens in those cases the branded innovator and the competitors several in exchange for us to go first with an exclusivity to have the exclusive compared of -- competitor we will on june 2025 instead. so some have criticized their branded companies are redeeming the system water than they should be. the data is accurate but with both sides that are averaging now. in so then to say both sides have win and have listed it is the settlement. in then the other market but this is and gaming the system but then to be anti-competitive these are the legitimate sediments. but that is more read hearing -- red herring. >> so here is the question so often times clinical measures name so how do day impact how they assess the quality of care to use the of the checks for pay for performance with those underlying measures of quality and how the science gets better the mature exchange?. >> sova first part is there is a system that works differently but overall so they may get vetted. and then the enormous number of others into a range of contracts. it with administrative cost so we have a process that is not ideal but important that we maintain a version of the process. and never be in a situation where that quality metrics and then as timely as you would like so to gather the data to become overwhelming. so how do we take that framework to have that approach? that is the challenge for those other areas with other types of quality measures. but i would discourage you with the best scientific evidence. as soon as we can. it with that quality measurement system that could be updating all the measures. >> we have so many questions >> i want to emphasize that there has been a debate on how quality should be measured in 30 or 40 years. and with that methodology and definition of quality and that is not identical to the next person so what we need to do with contrasting process into put quality into that consideration and waiting for that to be perfect. but at the same time and waiting for a uniform definition in process to determine quality and a thing will get done. so how did the employers engage in this discussion?. >> so i talked earlier we have strong support that then to do the market is very important to us. so then the episode. in with that reimbursement that before we did that to create opportunities in the wind up there to explain these programs think that that feedback to bill then to move from the very beginning. and invariably that comes up in those conversations that is the opportunity to share and as he by these programs going forward. >> i will speak briefly what i know more broadly is there is a of a subset of tweeting large employers. with the range of innovative things and for most employers it is very hard to engage directly because it is between you and the delivery system. sova to focus on aspects of benefit design so there are some hopeful movement for word as they try to come together to push the system for word that by and large it is much more difficult for employers to engage in that obtainable movement than to adopt. >> i am often asked by a large employer we are the ones, they say, have the most to gain so why don't experts talk to us? and find out what we do to lower cost? he had been the biggest driver of health care the last 70 years because the issue of tax break makes workers in sensitive to the coverage they are consuming that has led to health care inflation so actually yes employers to have that incentive to keep the costs down but also not to make those workers mad because michael dell with is a lot with a try to tweak the benefits to make them more cost benefits and the faculty when nets. and and one thing i.m. excited about or intrigued by the last couple of weeks is the executive order and there is a piece of expanding the of flexibility of the health reimbursement account sort of like that age as say but that is interesting tool to put them in charge of those dollars spent on their behalf of depending on what statutory authority that allotted innovation that comes out of those moves. >> by a greed of the analysis but i want to point out about competition and health care and as an economist by a relatively free market economist and. competition but health care is not as serious in one of those key challenges is the component of health care that does not occur from those other consumer products we pool sick and old and younger and healthier people that involves a different risk profile some of that is systematic if they don't necessarily want to be pooled with each other one of the rules of the employer based system that it isn't risk-based and the reason it has been so challenging because if left on their own to have total autonomy, said they will do that. but then that leaves other people in a situation they may not have the same options. i don't have any great answers how to deal with that if there is too much or too little but if you do the analysis you cannot ever get close to the right to interview or not cognizant how the pool is held together or allowed to use separate. >> we have a question from the american medical association so to shift from treatment to prevention and so could the emphasis be achieved through a free market solution? what is the best approach. >> with all due respect prevention is very good for public health but we all have to die of something. if we're not going to die of cancer then we will died of alzheimer's or falling down the stairs released by. i think there'll always be some extensive care at the end of our lives. so prevention is important the don't live a lot of breaking new you will live longer and that is something we should try to achieve from the public health standpoint but should not be convinced that will reduce cost sometimes it can increase if everybody got a mammogram that cost money you spend a lot more money with some incremental benefit but the reason why they say only a certain age to make sure the right people get them so we don't massively inflate the cost so prevention is a good it has clinical and economic risk to take into account. >> we have said jay great panel. >> so to fitness trackers mfn of all this and prevention. but the issue is to snap your finger had everybody healthy until 105 then fall down the stairs and died that is better than now that most evidence suggest los prevention programs are cost-effective, and maybe at a high value but that is not the same as cost saving and when we promote prevention that his primary prevention that the most important type is secondary review find pepo with chronic conditions. and if there is a prevention that focuses only on their primary prevention it would be a better place if extended that prevention for the purposes of has or others like that. >>. >> from one of the federal agencies please address the challenges caring for patients from multiple payers so how did you coordinate them to do best practices with a large portion you're not the only payer?. >> we initially thought we would force the issue because we did not know if they would adapt on their own but as you saw from the report that i gave we're well over 90 percent so they are willingly adopting because they get better data that allows them to be more accurate and efficient at the point of service with they have been frustrated historically and if they show improvement in the quality and health scores of patients they can make more money so for those performing the reimbursements to what by 10 percent in 2017 and 20% next year that is a significant difference so for those that have evaluated the program, they have been very enthusiastic about adopting and one of the primary competitors is closed so it will be the standard in the region where it operates. >> certainly to face those challenges said arkansas by combining with medicaid. >> that as well be talked about earlier and that is different then. then to see something different. with the local care. and to solve problems with that particular market. in bed with those other leaders in the state. and that was a great opportunity to collaborate. >> and the comments? and i did not speak for them. so i m sure how that is working. and to go for reasons with the of recommendation. and that is sent to above-average. and over a long period of time. intuitive that extremely closely. and with that analysis behind the issues. and this is that the national organization. and with that business and as a result and with that scripps. so based on what we know about amazon strings the capabilities and with those licenses they applied for. so with that presentation that 60% discount. with those efficiencies. so now have that brick and mortar facilities and then i would not be surprised as a retail organization that is the another area so they can attack that the that is sent to dismiss that eventually but that is what drives that activity what we go publicly. and that is more about that internal market but others may have a different view. >> lets you think on the surface and they have been to do not do that but if you bring bad in the house and operate and that is essentially ending up in the same spot. and to control those services and adding that to the marketplace. than to start on that distribution side. to complete the transform that consumer model in every business that they touch. in with that distribution model and that consumer model is very good hint with those health care services and is my estimate they have intentions to change the models. >>. >> we should wrap it up and thank you for joining us today and also all of you who have done a great job helping out on this event. [applause] >> if there will be a video on our web site in about a week. with top nonfiction books and authors every weekend. television for serious readers. this weekend on the afterwards program we attend regularly publish policy and kitty terror reflects on her coverage of the trump campaign and the 2016 presidential election. also airing this weekend they weigh in on the reinvention of microsoft.

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