Health Care for Everyone: The AAFP Plan

The AAFP Board of Directors created a Task Force on health care for everyone in the United States in response to directions received from the 2005 Congress of Delegates.

This Board Report constitutes the board’s response to the direction given by the 2005 Congress.

In considering the challenges of the health care system, particularly in view of the aging of the population, it has become apparent that perpetuating a system of uncoordinated, fragmented care, emphasizing intervention rather than prevention and comprehensive management of health, will perpetuate the crisis of uncontrollable system costs, without concomitant improvements in quality. Increasing costs will result in fewer people being able to get the health care they need. Therefore, the focus of the work of the Task Force has been to create the necessary framework for major system change and to determine the overall cost for such an approach.

System Improvement

The key to change, we believe, is the patient-centered medical home, as embodied in the “Joint Principles of the Patient-Centered Medical Home” promulgated by the AAFP together with the American Academy of Pediatrics (AAP), the American College of Physicians (ACP), and the American Osteopathic Association (AOA) in February 2007. Everyone should have a patient-centered medical home: a well-trained personal physician (ideally a family physician) operating in a technologically sophisticated, quality driven, safety conscious, team-based, physician-directed practice and providing or coordinating all needed care.

For the proper functioning of such medical homes, several environmental conditions are needed and should be promoted vigorously, including these:

Goal

To provide health care to everyone in the United States through a system based on the patient-centered medical home.

Elements of the plan

Elements of the plan include:

Patient-centered medical home

The patient-centered medical home will be the basis of the system. Primary care practices will be recognized or designated as medical homes by an appropriate external entity. To be designated a medical home, a practice will need to meet criteria decided upon by the AAFP, the AAP, the ACP, and the AOA together with this entity. To be a medical home, for instance, a practice should be required to have an interoperable electronic health record by date certain.

Everyone will be required to select a medical home. If the individual does not select one, it will be assigned at the point the person enters the health care system. Individuals will periodically be permitted to change medical homes.

The individual will not be required to obtain care through the medical home, but incentives will encourage its use. Such incentives will include the absence of co-payments and deductibles for services provided by or through the medical home.

Services and payment strategies

Services and payment strategies include:

1. The individual will encounter no financial barriers to receiving any of the following services:

Services in this group will be paid for by care management fees, fee-for-service payment with no co-payment required, and, if necessary, pay-for-performance incentives based on nationally accepted, evidence-based performance measures.

2. The individual will share financial responsibility for the following:

Services in this group should be paid on a fee-for-service basis with co-payments and deductibles applied. When personal out of pocket spending for these health care services exceeds a certain threshold (for example, $5,000 per family per calendar year) catastrophic financial protection will be provided.

3. The individual will be solely responsible for paying for the following services:

Care management fees

A per-member-per-month payment will support the medical home infrastructure for each patient, while fee-for-service payments cover the cost of face-to-face care. The care management fee will cover non-face-to-face services such as referrals, prior authorizations, pharmacy/PBM contracts, and e-mail. The amount necessary to cover these costs will be part of various pilots to determine what is appropriate. The Lewin Group report used an amount of approximately $15 to model the impact of the patient centered medical home on health care costs.

Pay for performance

If pay for performance becomes part of the new system, it would have three phases, with the greatest rewards concentrated in the first (and easiest to qualify for) phase and progressive but smaller increases with each more demanding subsequent phase. For instance, the highest proportional payment would be for participation, reporting and/or use (e.g, for using an electronic health record). The next level of increase would be for demonstrating improvement, and the final level would pay for achieving targeted thresholds. This arrangement will reward a “culture of improvement” in a practice.

Cost Analysis for the Medicare Population

The cost to the Medicare program of the care management fee is estimated as shown in Table 1, based on Medicare trustees’ projection of the Part B enrollment for 2007 through 2015 and assuming a fee of $15 per beneficiary per month (i.e., $180 per beneficiary per year):

Thus the additional cost to Medicare for a medical home model will average $8 billion per year. These costs will be offset in part or in whole, however, by savings to other parts of Medicare (e.g., Parts A and D) resulting from implementation of the medical home concept. United States and international evidence about the importance of having a primary care physician suggests that implementation of the medical home concept under Medicare will result in reduced emergency department and hospital use, fewer tests, lower medication use, and smaller care-related costs both for acute care and for chronic care.

People who have a family doctor have better self-reported health and higher quality care than those who don’t. Chronic care models, particularly the one that underpins the academy’s policy as reflected in “Knowledge Bought Dearly,” predict a cost savings of $200 to $500 per patient per year. That would yield a savings to Medicare ranging from $80 billion to $200 billion between 2007 and 2014, as illustrated in Table 2:

Using an average savings of approximately $140 billion over this time period, the average decrease in cost to Medicare would be more than $15.5 billion per annum.

Cost analysis for all US residents under the plan excluding Medicare and TRICARE

The AAFP contracted with the Lewin Group for additional analysis of the proposed AAFP Plan for all people not included in Medicare and TRICARE. The following are key elements of the analysis, as outlined in the Lewin Group report to the Academy, estimating changes in health care spending if the AAFP plan were implemented.

The Lewin Group estimated that health spending for the above population (approximately 238.7 million people) will be about $945 billion under current law in 2007. If the AAFP plan were implemented to cover those previously uninsured and underinsured in a way that provided everyone with a patient centered medical home, provider payments were increased to commercial rates, and coverage improved based on the AAFP Plan benefits, projected health spending in 2007 would be $992.6 billion. This is a total net increase in spending for health services of $47.5 billion. However, without implementation of the medical home model, this amount is estimated to total $1,037,400,000,000 – or $44.8 billion higher.

Estimated impact of medical home model

The Lewin group estimated that medical home model would reduce health spending by about $15.63 per person per month, averaging savings across all enrollees. This is a savings of about four percent nationwide. A previous Lewin study showed that increased use of primary care physicians is met with reduced hospitalizations and reduced spending for physician specialist services, largely because primary care physicians typically have lower charges than subspecialist physicians and typically use fewer expensive diagnostic services.³

The Lewin Group estimates that for the US population covered excluding Medicare and TRICARE, “the total net reduction in health spending resulting from the shift to primary care could be about $44.8 billion nationally (i.e., if all people enrolled in the program use a primary care physician as their usual source of care).”⁴ This served as a proxy for the medical home in determining the potential savings in moving to that model.

Financial summary of AAFP plan

In summary, the AAFP Plan to achieve “Health Care for Everyone” would retain about 149 million people now covered under various private employer plans, 9 million with other private insurance, 35 million current Medicaid beneficiaries, and add 47 million who currently have no health care insurance -- a total of approximately 239 million people, in addition to the 36 million covered by Medicare. While covering everyone in the US, the AAFP Plan would provide improved quality for everyone, improved benefits for those previously under-insured, and improved payment rates, particularly in the Medicaid program, at an additional cost of $47.5 billion per year according to the Lewin Group estimate for all except Medicare and TRICARE. At the same time, converting Medicare to a system based on the patient centered medical home would decrease costs in that program by approximately $15.5 billion while improving the health and health care of Medicare beneficiaries. When the Medicare savings is subtracted from the Lewin estimate, the total increase in health spending would be $32 billion. While the Lewin Group analysis did not extend to TRICARE, further savings and improvements in care could likely be realized in those systems with the adoption of the primary-care-based patient centered medical home model. Further, the experience of the North Carolina Medicaid program, which is based on a primary care medical home with impressive cost reductions, would indicate it is possible that additional savings could be realized in the Medicaid program, even while bringing Medicaid physician payments equal to commercial payment rates.

Conclusion

The United States currently spends $2.3 trillion per year on health care. The dollars are provided by a variety of sources including employers, insurance companies, government, and individuals. The task force considered a variety of payment systems, including government only, private sector only, government/private sector mix, and single payer.

Ultimately, the task force concluded that the type of payment system did not matter. What did matter was that the new system have primary care as its foundation and the patient centered medical home as its basic building block. Health care provided and coordinated by primary care physicians has been shown again and again to provide a higher quality of care, better outcomes, better provision of preventive services, improved patient satisfaction, all at significantly lower costs.

These tenets of reform have been shared and vetted with several key audiences, including the American College of Osteopathic Family Physicians, the AAFP Public Advisory Board, students and residents. Through the AAFP’s work with key employers such as IBM and through the Patient Centered Primary Care Collaborative, the concept of the patient-centered medical home has been embraced and is being advocated extensively in both the public and private sectors. It has further been supported as important to achieving health care coverage for all by the National Coalition on Health Care. The AAFP Board has concluded that a health care system in which everyone participates, with a patient-centered medical home as central to the system, would result in a healthier population and more rational health care spending.

The Board recommends that the AAFP Congress of Delegates adopt as policy the AAFP Plan “Health Care for Everyone” in lieu of the 2002 policy on Health Care Coverage for All.^5,6

The 2007 Congress of Delegates adopted this new AAFP Plan.

(2007)

RESOLVED, That the AAFP lead the nation out of this crisis by developing a comprehensive health care plan for the administration, financing, and organization of a new US healthcare system that provides coverage for all by the 2007 Congress of Delegates for approval, and be it further

RESOLVED, That the AAFP use the best scientific and economic evidence available to develop a comprehensive health care plan for the administration, financing, and organization of a new US health care system that provides coverage for all for approval by the 2007 Congress of Delegates.

The second resolution considered by the Congress, Resolution No. 505 from the Washington Chapter, reads in part as follows:

RESOLVED, That the AAFP review, reissue and advocate for its October 2001 Plan for Assuring Health Care Coverage for All.

Further, the Congress of Delegates considered a recommendation contained in the address of the President calling for the Academy to move its efforts as outlined in the board report on Health Care Coverage for All from a focus on network building and discussion to a pro-active approach to address the dysfunction and inequities of the US health care system.

After hearing considerable testimony about the issue, the Congress of Delegates adopted the recommendation of the President, referred Resolution No. 504 to the Board and adopted Resolution No. 505. In subsequent deliberations, the Board of Directors created a new Board-level Task Force on Health Care Coverage for All to examine issues in the health care system impacting access to care and health care coverage.

The Lewin Group

May 22, 2007

Ms. Rosemary Sweeny
American Academy of Family Physicians (AAFP)
2021 Massachusetts Avenue, NW
Washington DC 20036

Dear Rosemary;

The purpose of this letter is to present estimates of the cost of providing health care nationally under the “Health Care for Everyone” proposal now under consideration by the American Academy of Family Physicians (AAFP). The goal of the plan is to provide all Americans with health coverage through a “Medical Home” model that emphasizes primary and preventive care services.

In his analysis, we estimated the cost of providing services under the medical home model to all Americans, except those now covered under Medicare or TRICARE (military dependents and retires). Because details on cost-sharing and financing are not yet available, we focus on estimating the total cost of services provided for this population, including any savings resulting from the medical home model.

1. Medical Home

Under the medical home model, every citizen would either choose a medical home or be assigned to one. The use of the medical home would be voluntary, but there would be strict cost sharing requirements for specialty services provided without a referral from their medical home provider. People may choose their medical home from practices that successfully meet a series of requirements that would qualify that practice as a medical home.

The program is designed to improve the quality of care through prevention and the delivery of timely primary care by primary care physicians. The reliance upon primary care providers would also reduce use of physician specialists who typically use more costly medical tests and procedures. Primary care can also improve quality and reduce medical errors by coordinating the care received by patients with multiple health conditions.

2. Covered Services

The program divides care into three categories of services, each with their own levels of co-payment.

3. Affected Population

For purposes of this analysis, we assume that all legal U.S. residents not enrolled in Medicare or TRICARE would be enrolled in the program, which includes about 238.7 million people. We assume that services for all affected people would be paid at levels comparable to private insurance levels, which implies a significant increase in payments for those now covered under Medicaid. Figure 1 shows the changes in sources of coverage under the program.

4. Impact on National Health Spending

We estimate that health spending for the affected population will be about $945.1 billion under current law in 2007. Under the “Health Care for Everyone” proposal, health spending for this population would increase by about $47.5 billion in 2007 (Figure 2). This includes increased utilization for previously uninsured and under-insured people of about $54 billion. However, we estimate that the medical home model would reduce spending by $45 billion through the increased use of primary care.

Provider payments would also increase due to reduced uncompensated care and improvements in reimbursement levels for people now covered under Medicaid. Based upon the available research, we assume that providers will pass back to insurers about 40 percent of the increase in payment rates in the form of reduced cost-shifting. The net effect of the program would be an increase in health spending of 47.5 billion.

5. Health Spending Cost Per-Member Per-Month (PMPM)

We estimate that spending for the affected population under current law would be about $945 billion in 2007, which is equal to about $329.68 per-member-per-month (PMPM). Under the plan, provider payments would increase by $16.57 PMPM to $346.25 due to increased utilization and provider payments as described above. Figure 3 shows the base spending level and changes in spending under the plan for each type of service. The table does not include the impact on spending for the medical home model, which is discussed below.

6. Estimated Impact of Medical Home Model

As shown in figure 3, the Medical Home model would reduce health spending by about $15.63 PMPM. We estimated the impact of the medical home model using estimates from a prior Lewin Group study on the future of family medicine. The study showed that increased use of primary care physicians is met with reduced hospitalizations and reduced spending for physician specialist services. This is largely because primary care physicians typically have lower charges than specialist physicians and typically use fewer expensive diagnostic services.

These data imply that if all patients were to adopt a primary care physician as their primary source of care,
average total health care spending would decline by about $16 per person per month (i.e., savings average across all enrollees). This is a savings of about four percent nationwide (Figure 4). This increase in demand for primary care services could be accommodated by the increased capacity of family physicians under the medical home model.

Shifting to primary care physicians as the primary sources of care would actually increase spending for primary/preventive care services by about $6.48 PMPM, reflecting increased utilization of services provided by these physicians. However, physician specialist costs would decline by about $4.24 PMPM and hospital costs would decline by an additional $17.61 PMPM, which includes physician services while in the hospital.

There also would be small savings for other services as well. Based upon these data, we estimate that the total net reduction in health spending resulting from the shift to primary care could be about $44.8 billion nationally (i.e., if all people enrolled in the program use a primary care physician as their usual source of care).

7. Total Health Spending by Service Category

The Health Care for Everyone plan would establish two categories of services. The first would include primary and preventive care, which would not be subject to any patient cost sharing requirements. These services include: primary care; prenatal care; well-child care; communicable disease treatment; immunizations; evidence based preventive services; and hospice services. We estimate that primary and preventive care services would account for about $47 of PMPM benefits under the plan (Figure 5).

All other service will require patient cost sharing through co-payments and/or deductibles. However the cost sharing levels have not yet been specified for the program. These remaining services would account for $315 per-member-per-month.

Next Steps

The financial impacts of the AAFP proposal on stakeholder groups can be developed once the financing provisions of the proposal are developed. If you have any questions, please call me at 703/269-5610.

Sincerely,

John Sheils
Senior Vice President