BME 301

Lecture Five

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The BME301 Experiment

Review of Lecture 4

Who pays to solve problems in healthcare? United States: Single payer system Canada: Multi-payer system Developing world

Angola India

The need for health care reform

Overview of Lecture 5

How have health care costs changed over time?

What drives increases in health care costs?

Health Care Reform – Back to Oregon

Centers for Medicare & Medicaid Services

HOW have costs changed in the US over time?

Centers for Medicare & Medicaid Services

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1960 1970 1980 1985 19901995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20052006 2007 2008 2009 2010

Calendar Year

Bill

ion

s

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

GD

P S

har

e

NHE Projected NHE GDP Share Projected GDP Share

Table 1.1National Health Expenditures and Their

Share of Gross Domestic Product (GDP), 1960-2010

Source: CMS, Office of the Actuary, National Health Statistics Group.

Actual Projected

National health spending growth is projected to significantly increase as ashare of GDP over the next decade.

Centers for Medicare & Medicaid Services

Table 1.2National Health Expenditures Per Capita, 1986-2010

Calendar Year

Source: CMS, Office of the Actuary, National Health Statistics Group.

$2,477

$3,183

$3,698

$4,177

$5,039

$6,926

$8,228

$1,872

$5,757

$9,216

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

ActualProjected

National health spending per capita is projected to increase rapidly over the next decade.

Centers for Medicare & Medicaid Services

Table 1.12Number of People Employed in Health Care, 1985-2001

Note: Not seasonally adjusted.

Source: Bureau of Labor Statistics, data extracted from web site at data.bls.gov/labjava/outside.jsp?survey=ee. Trends and Indicators in the Changing Health Care Marketplace, 2002 – Chartbook.

Number of people employed in health is growing.

6.3

7.88.2

8.58.8 9 9.2

9.5 9.7 9.9 10 10.1 10.3

0

2

4

6

8

10

12

1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

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plo

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Health Services Employment as a % of Non-Farm Private Sector Employment

7.8% 8.6% 9.1% 9.4% 9.5% 9.5% 9.4% 9.5% 9.4% 9.3% 9.2% 9.1% 9.3%

Centers for Medicare & Medicaid Services

HOW have costs changed in the US over time?

UP, UP, UP (1/7th of the economy)

IN ABSOLUTE AMOUNT

AS A SHARE OF GDP

MORE PEOPLE WORK IN HEALTHCARE

Centers for Medicare & Medicaid Services

WHY have costs gone up so much?

Centers for Medicare & Medicaid Services

Table 2.13Hospital Profit Margins for All Payers and Medicare, 1997-1999

Source: CMS, Office of the Actuary. Medicare cost report data.

For both rural and urban hospitals, overall and Medicare inpatient hospital profit margins have declined.

5.9 5.9 6.2

1616.9

9.6

4.2 4.2 4.4

14.4

15.6

6.2

3.7 3.54.4

12.1

13.3

4

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All Hospitals Urban Rural All Hospitals Urban Rural

1997 1998 1999

Total Margins Medicare Inpatient Margins

Centers for Medicare & Medicaid Services

Table 1.15Physician Income Compared to All Workers, Selected Years

Notes: Median Full-Time Worker Income reflects median weekly earnings of full-time workers multiplied by 52.

Source: 1998 Median Physician Net Income from Modern Healthcare, “Follow the Money, AMA’s Long-Delayed Annual Report Offers Unsettling News on Physicians’ Incomes” (January 1, 2001), p. 12.

Wage & salary information for full-time workers from U.S. Census Bureau, Statistical Abstract of the United States, 1995-2000, Census web site at www.census.gov/prod/www/statistical-abstract-us.html.

1985 and 1996 physician salary data from Kaiser Family Foundation analysis of data published by the American Medical Association, Physician Marketplace Statistics, and U.S. Census Bureau, Statistical Abstract of the United States as shown in Trends and Indicators in the Changing Health Care Marketplace Chartbook, Kaiser Family Foundation (August 1998), Exhibit 6.10, p.65.

Trends and Indicators in the Changing Health Care Marketplace, 2002 – Chartbook.

Physician income continues to be much higher than that of all full-time workers.

$94,000

$166,000$160,000

$17,836$25,480 $27,196

$0

$30,000

$60,000

$90,000

$120,000

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1985 1996 1998

Median Physician Net Income

Median Full-Time Worker Income

Centers for Medicare & Medicaid Services

Table 3.6Number of Medicare Beneficiaries, 1970-2030

25.531.0 34.1

38.6

52.2

68.2

20.4

8.6

8.7

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Calendar Year

Disabled & ESRD

Elderly

* Numbers may not sum due to rounding.

Source: CMS, Office of the Actuary.

The number of people Medicare serves will nearly double by 2030.

20.4

28.4*

34.3

39.6*

45.9

61.0*

76.8

Med

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Centers for Medicare & Medicaid Services

Table 3.7Medicare Beneficiaries as a Share of the U.S. Population, 1970-2030

The U.S. population will age rapidly through 2030, when 22 percent of the populationwill be eligible for Medicare.

Source: Social Security Administration, Office of the Actuary.

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9.5%

13.1%13.9%

15.0%

18.5%

22.0%

10.89.5

11.9 12.012.6

15.8

19.5

1.31.2 1.9

2.4

2.7

2.4

Centers for Medicare & Medicaid Services

Rates of Technology Use

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MRIs CTs CABG Dialysis

CanadaGermanyJapanUKUS

Centers for Medicare & Medicaid Services

WHY have costs gone up so much?

NOT hospital costs or physician incomes

Aging population

Use of technology

What Drives Increases Costs?

Managed Care Initially slowed growth of costs

Slower adoption of technology HMOs reduced hospital cost growth

through controls and limitations on care

“Drive through” deliveries Consumer backlash Less tightly managed care

PPOs POS plans

What Drives Increases Costs?

Administrative Costs US spends 25-30% of health care

budget on administrative overhead 27% of US health care workers do

“mostly paperwork” Canada spends only 10-15%

What Drives Increases Costs?

Technology New technology can increase/reduce

health care costs From 2001-2002, new technology was

responsible for 22% of increase Growth in radiology

$175,000 x-ray machines replaced with CT machines (>$1M)

Increased utilization of technology increases costs

4X more PTCAs in pts aged 65-74 from 1990-1998

Direct marketing of high-tech procedures http://www.ew1.org/index.aspx?CORE_ElementID=ew1_Overview

What Drives Increases Costs?

Technology Cost reductions through increased

outpatient procedures Chemotherapy

Low cost cure for Alzheimer’s disease could reduce nursing home costs

What Drives Increases Costs?

Aging Population “Baby boomers” will strain health

care system Felt most in 2011-2030 Greatest single demand country

has ever faced for long term care Elderly account for much of health

care spending 40% of short term hospital stays 25% of prescription drug use 58% of all health expenditures

What Drives Increases Costs?

Prescription Drugs Fastest growing category of health

spending Some reasons:

Direct marketing of drugs to the general population (increased costs, increased usage)

Drug company profits

Back to Oregon How did Oregon state respond to the

rise in health care costs? Coby Howard’s death: widespread media

coverage John Kitzhaber

Former ER physician State senator Governor of Oregon Oregon cannot afford to pay for every medical

service for every person Oregon could expand insurance to cover all IF

it was willing to ration care

http://www.morris-verdin.co.uk/

Oregon-map.gif

Health Care Reform in Oregon

1989 – Goal of Universal Coverage At that time only 42% of low-income

Americans were covered by Medicaid Bill passed:

Mandated private employers provide insurance for employees (never received federal waiver necessary for implementation)

Expanded Medicaid to provide coverage for all people in state below federal poverty line

Would expand Medicaid coverage by rationing care

Health Care Reform in Oregon

How were services ranked? Appointed Health Services Commission List of 709 condition/treatment pairs First try at ranking

1600 health services Ranked according to cost-effectiveness

Resulted in counter-intuitive ranking Negative public reaction

BenefitDurationofdBenefitNetExpecte

tmentCostofTreatingpriorityra

Results of First Ranking

Treatment Benefit

Duration

Cost Ranking

Tooth Capping .08 4 years $38 371

Ectopic Pregnancy

.71 48 years

$4,000

371

Splints for TMJ .16 5 years $98 376

Appendectomy .97 48 years

$5700 377

Some life saving procedures ranked below minor interventions!!

Health Care Reform in Oregon

Back to the drawing board Divided 709 condition/treatment pairs into

17 categories Ranked categories according to net benefit

1 – Treatment of acute life-threatening conditions where treatment prevents imminent death with a full recovery and return to previous health state

14 – Repeated treatment of nonfatal chronic conditions with improvement in quality of well-being with short term benefit

Assigned condition/treatments to categories and ranked within category

Health Care Reform in Oregon

How were services rationed? Each session legislature would decide

how much $$ to allocate to OHP. Draw line –

Cover all services above the line Cover no services below the line

Where do they draw the line?

Oregon Health Plan, 1999Rank Diagnosis Treatment

570 Contact dermatitis and atopic dermatitis Medical therapy

571 Symptomatic urticaria Medical therapy

572 Internal derangement of knee Repair/Medical therapy

573 Dysfunction of nasolacrimal system Medical/surgical treatment

574 Venereal warts, excluding cervical condylomata

Medical therapy

575 Chronic anal fissure Medical therapy

576 Dental services (eg broken appliances) Complex prosthetics

577 Impulse disorders Medical/psychotherapy

578 Sexual dysfunction Medical/surgical therapy

579 Sexual dysfunction Psychotherapy

Did it Work?

No widespread rationing Number of services excluded is small

and their medical value is marginal Benefit package is now more generous

than state’s old Medicaid system Coverage for transplants is now more

generous

Did it Work?

Line is rather fuzzy Plan pays for all diagnostic visits even if

Rx is not covered Physicians use this as a loophole

Has not produced significant savings During first 5 years of operation, saved

2% compared to what would have been spent on old program

Did it Work? Coverage was significantly expanded

600,000 previously uninsured were covered State’s uninsured rate dropped from:

17% (1992) 11% (1997)

Number of uninsured children dropped from 21% to 8%

Reduced # of ER visits Reduced # of low birth-weight infants

How did they pay for this? Not from savings from rationing Raising revenues through cigarette tax Moving Medicaid recipients into managed care

plans

Political Paradox of Rationing

The more public the decisions about priority setting and rationing,

The harder it is to ration services to control costs.

Oregon Today Oregon economy is weak Oregon Senate Special Committee on OHP

People qualified for plan would be ranked 1st: Poor pregnant women, children under 6 in families

with incomes less than twice federal poverty level 2nd: Adults at 50% of federal poverty line 3rd: Adults at 50-75% of federal poverty line 4th: Adults at 75-100% of federal poverty line 5th: Medically needy (limited income, high medical

expenses) Those highest on list would be first to get services Those at the bottom of the list would be first cut http://www.npr.org/news/specials/medicaid/index.html

Summary of Lecture 5

How have health care costs changed over time?

What drives increases in health care costs?

Health care reform – back to Oregon

Assignments Due Next Time

http://www.carolinashealthcare.org/insidesystem/insurance/definitions.cfm

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