Is the health care cost curve permanently bent?firstillinoishfma.org/wp-content/uploads/Kaveh... ·...

Is the health care cost

curve permanently

bent?

Kaveh Safavi MD JD

Managing Director –

Global Health

2 Copyright © 2014 Accenture. All rights reserved.

“If something cannot go

on forever, it will stop.

- Herbert Stein

Former chairman of the Council of Economic Advisers,

Presidents Nixon and Ford

Copyright © 2014 Accenture. All rights reserved. 3

Healthcare Cost Trends and the Role of Technology

1. Is the trend real or just an

artifact of the recession?

2. Will the curve remain bent

for the long term?

3. What role does technology

play in the short and long run?

4. What are the implications

for long-term curve bending

for technology?

For public policy?


-5

0

5

10

15

20

1990 1993 1996 1999 2002 2005 2008 2011

NHE as percent of GDP Rate of NHE growth Rate of GDP growth

Rate of Healthcare Spending Growth at an All-Time Low

Source: Martin A B et al. Health Affairs January 2014

Recession:

July 1990 -

March 1991

Recession:

March 2001 -

Nov. 2001

Recession:

Dec. 2007 -

June 2009

Perc

en

t


1

2

3

4

5

6

2006 2007 2008 2009 2010 2011

Per Capita Per Enrollee

Health Spending Growth – Per Capita and Per Enrollee

Spending for the Insured Declined More than Average

Source: Ryu, AJ. et al. Health Affairs May 2013; Cutler, DM. Sanhi, NR. Health Affairs, May 2013

At this pace, public

sector spending will

be $770 B less than

projected by 2022

Gro

wth

Rate

(%

)


Recession Explains Only One-Third of Slow Down

Source: Cutler DM, Sahni RS, Health Affairs, May 2013

Slowing Health Expenditures

2013 • A recent study attributes the

cause of slowed spending; the

recession accounts for just

37%

• Changing payer mix and

Medicare payment reform

combine to account for 8%

• Select ‘Other’ factors include:

New technology

Patient cost sharing

Provider efficiency

Other

55%

Recession

37%

Recession

Medicare Payment Reform Other

Payer Mix Change


Factors Accounting For Growth In Per Capita National Health

Expenditures, 2004-2013.

Healthcare Spending Increases were

Primarily Price Related

Source: Hartman M et al. Health Affairs 2015

-1

0

1

2

3

4

5

6

2004-08 2009 2010 2011 2012 2013

Medical prices

Age and sex factors

Residual use andintensity

Perc

en

t

National Health Expenditures

Per capita spending

growth


U.S. hospital costs are 70% higher but utilization is 30% lower than other

developed countries

High U.S. Spending Is Not Due Primarily to Over Use of

Services

Source: Anderson, GF. Frogner , BK. Health Affairs, November 2008

Percent of GDP

Real Annual Avg Growth Rates (%) 1970-2005

Inpatient Spending per

Capita (U.S. $ PPP)

Inpatient Acute Care Days per

Capita

U.S. 15.3 4.4 $1526 0.7

OECD Median 9.1 4.1 (2.3-6.8) $904 1.0 (0.4-2.1)


Utilization Rates in US are not Necessarily Higher

Source: Topher, S. Annals of Internal Medicine October 2012

Services Utilization US France Non US

OECD

Higher

Cardiac Catheterization / 100,000 persons 357.8 NA 171.75

Hip Replacement / 100,000 persons >65 years 14.4 13.7 11.7

MRI Scan / 1000 persons 91.2 55.2 25

Lower

Hospital Discharge / 100,000 persons 13,086 26,251 16,234

Physicians Visit / capita 3.9 6.9 6.5

Pacemaker Insertions / 100,000 56.3 NA 61.4

Transurethral Prostatectomy / 100,000 men 43.4 186.7 114.15


Price of US Services are Considerably Higher

Source: Topher, S. Annals of Internal Medicine October 2012

Price of Services

(in US Dollars) US France Switzerland

Routine Office Visit 89 23 64

Cost per hospital stay 15,734 3,396 4,566

Hip replacement surgery

(hospital and physician) 38,017 11,353 17,521

Coronary Artery Bypass graft

(hospital and physician) 67,583 16,140 25,486

Average US generalist, income = 5x average US worker.

Average US specialist, income = 10x average US worker.

Average OECD generalist, income = 2x average OECD worker.

Average OECD specialist, income = 2.7x average OECD worker.


US National Health Care Expenditures, By Year as % of GDP

Non-Clinical Sources of “Waste” Exceed Clinical Sources

Source: Berwick, D. M. et al. JAMA April 11, 2012

17.5

18.0

18.5

19.0

19.5

20.0

20.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

“Business as usual” national

health care expenditures

Failures of care delivery

Failures of care coordination

Overtreatment

Administrative complexity

Pricing failures

Fraud and abuse

Growth in national health

care expenditures matches

GDP growth


US rate of healthcare expense change tracks with OECD average and has

been declining for a decade

Healthcare Cost Trends Decelerating Globally

Total Healthcare Expense, % Change

US compared to OECD Average

Source: OECD.org

-10

0

10

20

2001 2003 2005 2007 2009 2011

US OECD Average

Perc

en

t

2011

OECD 0.5%

US 1.8%

10 Year Trend Range

S. Korea 9.3%

OECD/US 4.0%

Portugal 1.4%


Conceptual Rate of Cost Increases: Low vs. High Innovation

Without Innovation, the Unit Cost of Care will Grow

Faster than US GDP Due to Its Reliance on Expert Labor

Real

Annual

Cost

Increase

Low Innovation

Sector

High Innovation Sector

US Average

Productivity

without labor

Personal service

labor cost

Consumption

Source: Baumol WJ, The Cost Disease, Yale Univ. Press 2012

Years

Productivity ≠

Efficiency


• Top 20% >12%

• Bottom 20% <(-4.0)%

• Revenue $854 higher

• Expenses $316 lower

• Occupancy

• Case mix

• Area wage

• Size

• Payer mix

Top-Performing Hospitals Collect More and Spend Less

Per Discharge

Based on operating income by quintile for U.S. hospitals between 2006 and 2008

Source: Thomson Reuters ACTION O-I Comparative Database

Operating Income

Financial Advantage

No Impact


Expense Advantage per Discharge for Highest Income Hospitals

(2006 – 2008)

Top Performers Spend More on Drugs and Supplies

Cost per discharge for highest vs. lowest quintile hospital by operating income adjusted for each mix and area wage

Source: Thomson Reuters ACTION O-I Comparative Database;

Supplies ($68)

Drugs ($18)

Spend More Spend Less

Labor ($278) Interest ($121)

Bad Debt ($102)


Labor Expense Advantage is Not from Salaries or

Staffing Levels

Highest Income Lowest Income

Salary and benefit per FTE

$66,719 $62,627

Staff hours per patient per day

20.89 20.35

Based on operating income by quintile for U.S. hospitals between 2006 and 2008



Average Length-of-Stay by Operating Income Quintile (2006 – 2008)

Labor Advantage Due to 10% Shorter Length-of-Stay

3.25

3.30

3.35

3.40

3.45

3.50

3.55

3.60

3.65

3.70

3.75

3.80

Lowest Low Average High Highest

CM

I A

dj.

Avg

. LO

S

Performance based on operating income quintiles



Technology Will Lower Unit Labor Costs and Increase Benefits of Care

Our View

1. Healthcare cost long-term trend is dependent on labor costs

2. Sustaining long-term reductions in the cost of producing a unit of care will

rely more on productivity gains rather than efficiency

3. Labor-oriented productivity strategies will require using lower skilled labor

where possible, shifting work to customers or replacing labor with

technology

4. Communication and information technologies can have a role in all three

strategies either as an enabler or end application

5. The same technologies can be used to raise the benefits of care through

personalization, transparency, self service and other mechanisms

18


“In your own words, how would you define “value” in healthcare?

Please be specific.” (unaided response)

For Most Patients “Value” is Neither Outcomes nor Cost

Physicians

Patients

Neither Cost or Outcome

Cost

Outcome

Not Sure

Cost & Outcome

Cost

Cost & Outcome

Outcome

Neither Cost or Outcome

Not Sure

10 20 30 40

Source: Quintiles, The New Health Report 2011


Getting your money’s worth…

What About Better?

(total)

Cost

(relative)

Benefit f(x)

(absolute)

Benefit

(price paid)

Cost

Value constructs as proposed by Ron Adner “The Wide Lens” in

OR

Buyer’s view Seller’s view


Advanced Telehealth Benefits the Already Served,

Not Just the Underserved

• As good as face-to-face care

• One patient, many doctors

• Patient group visits

• Physician collaboration

• Enhanced patient experience

(augmented reality)

• Some segments

prefer virtual

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=CkyJhHifVVmvDM&tbnid=Y4S2RzfBTfCu8M:&ved=0CAUQjRw&url=http://mobihealthnews.com/22215/five-reasons-virtual-doctor-visits-might-be-better-than-in-person-ones/&ei=6JM1U9u0BLKksQTp_4Bw&bvm=bv.63808443,d.dmQ&psig=AFQjCNFYH-MVwqSsgy4W56LQFMq3_MJA0w&ust=1396106544160457


Social Software Will Deliver Healthcare While

Increasing Self Care and Self Service

Source: www.bigwhitewall.com; Wicks, P. et al. Nature biotechnology May 2011

• Business-class social

networks

• Self-service platform

• Community created content

• Gaming


http://www.bigwhitewall.com/


Curve had been dented not permanently bent yet

• The curve has been changed by more than just the recession

• The baseline will be permanently reset due to unit price compression,

administrative simplification, increase patient cost-sharing and

reduction in unexplained variation in practice patterns

• The long trend line for growth will exceed GDP subject to two “X”

factors – medical technology and labor costs

• Without changing productivity the long term curve will return to GDP

“plus”

• The key policy problem is long-term public spending not overall

healthcare spending

• Digital Technology holds promise to radically impact medical costs and

utilization


“That it will ever come into

general use, notwithstanding

its value, is extremely doubtful

because its beneficial application

requires much time and gives a

good bit of trouble, both to the

patient and to the practitioner

because its hue and character

are foreign and opposed to all

our habits and associations.”

- The London Times 1834

Laennec Stethoscope


“The future ain’t what

it used to be.”

- Yogi Berra


Kaveh Safavi, MD JD

+1 312 693 1541

[email protected]

@drkavehsafavi

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