US Health Care Reform · Australia $1,794. Health Spending as Share of Economy 100% 20% CBO ... 50...

US Health Care ReformWeek Two:

Controlling Costs

Bill Scanlon

For

Osher Lifelong Learning Institute

October 2010

October 25, 2010 Health Care Reform Week Two OLLI

• Context

– Trends and International Comparison

• Private Market Experiences

• PPACA Changes to Medicare

• Options for the Future



Can’t Afford InsuranceGrowth in Health Insurance Premiums

versus Wages

2000 2009

20%

60%

100%

Per Capita Health Expenditures Per Capita Health Expenditures Per Capita Health Expenditures Per Capita Health Expenditures Per Capita Health Expenditures Per Capita Health Expenditures Per Capita Health Expenditures Per Capita Health Expenditures

Have Been Growing at 2 percentage points faster Have Been Growing at 2 percentage points faster Have Been Growing at 2 percentage points faster Have Been Growing at 2 percentage points faster Have Been Growing at 2 percentage points faster Have Been Growing at 2 percentage points faster Have Been Growing at 2 percentage points faster Have Been Growing at 2 percentage points faster

than GDPthan GDPthan GDPthan GDPthan GDPthan GDPthan GDPthan GDP

For 40 YearsFor 40 YearsFor 40 YearsFor 40 YearsFor 40 YearsFor 40 YearsFor 40 YearsFor 40 Years

(adjusted for inflation)(adjusted for inflation)

Per Capita Health Care Spending Per Capita Health Care Spending

and GDP in Selected Countriesand GDP in Selected Countries20022002--20032003

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0 10,000 20,000 30,000 40,000 50,000

per Capita GDP ($US PPP)

pe

r C

ap

ita

Ex

p o

n H

ea

lth

($U

S P

PP

)

The figure for Japan is 2002 estimate; the figures for Australia, Austria, China, Hungary, Ireland, Israel, Poland, Sweden and United Kingdom are of 2002; the figures for Canada, France, Iceland, Norway and Switzerland are 2003 estimates. The rest are of 2003. Source: OECD Health Data 2005 and WHO.

U.S.

CanadaNorway

Japan

Switzerland

Germany

Israel

KoreaChina

U.K.

Australia

$1,794

Health Spending as Share of Economy

100%

20%

CBOProjection

2008 2082

50 %


Health Spending as Share of Economy

100%

20%

Historical Trend

CBOProjection

2008 2082

50 %


October 5, 2010 Policy Analysis for the Real World--Health Debates

Why Is Healthcare Spending Why Is Healthcare Spending

Higher In U.S.Higher In U.S.

Do We Use More Services or Just Do We Use More Services or Just

Pay More for The Services We Pay More for The Services We

Use?Use?

Price versus VolumePrice versus Volume

InIn--Patient Acute Care BedsPatient Acute Care Beds

in Selected Countries 2005 in Selected Countries 2005

3.93.63.7

2.73.1

6.4

8.2

0

1

2

3

4

5

6

7

8

9

10

US France Australia UK Germany Japan OECD Av.

Per

1,0

00 p

op

ula

tio

n

Sources: OECD HEALTH DATA 2007

Hospital Discharge RateHospital Discharge Rate

in Selected Countries 2005in Selected Countries 2005

163158

201

245

121

88106

268

0

50

100

150

200

250

300

US UK Germany Australia France Japan Canada OECD Av.

Dis

ch

arg

es

pe

r 1

00

,00

0 P

op

Source: OECD HEALTH DATA 2007

Practicing Physicians in Practicing Physicians in

Selected Countries 2005Selected Countries 2005

3

2.0

2.3

3.4

2.42.7

3.4

2.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

US Germany Australia UK France Canada Japan OECD

Av.

Ph

ysic

ian

s p

er

1,0

00 p

op

ula

tio

n


DoctorsDoctors’’ Consultations Per Consultations Per

Capita in Selected CountriesCapita in Selected Countries20052005

6.86.16.6

13.8

7

3.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

US

Ger

man

y

Japan

France

Aust

ralia

OEC

D A

v.

Nu

mb

er

of

Co

ns

ult

ati

on

s p

er

Ca

pit

a


What About The Availability of What About The Availability of

Expensive Medical Technology Expensive Medical Technology

and Procedures?and Procedures?

High Cost of Advancing Technology

“Traditional” Technology Standard Technology circa 2000

Current Technology

X-Ray Machine$175,000

Open Surgery Instrument Set

$10,000

Cardiac Balloon Catheter$500

Scalpel$20

CT Scanner$1 million

Laparoscopic Surgery Set

$15,000

Stent$2,300

Electrocautery$12,000

CT Functional Imaging w/PET

$2.3 million

Surgery Robot~$2 million

Treated Stent$5,000

Harmonic (ultrasonic) Scalpel$30,000

MRIs in Selected Countries MRIs in Selected Countries

20052005(Units per million persons)

9.8

40.1

4.15.47.1

6.0

26.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

US Australia Germany UK France OECD

Av.

Japan

Sources: OECD HEALTH DATA 2007

Coronary Revascularization Procedures, Coronary Revascularization Procedures,

in Selected Countries 2004in Selected Countries 2004


Coronary angioplasty

Coronary bypass

Patients Using Renal Dialysis Patients Using Renal Dialysis

Treatment in Selected Countries Treatment in Selected Countries 20052005

114.0

42.0

61.0

77.0

35.0 37.044.0

0

20

40

60

80

100

120

US Australia Canada Germany UK Mexico NZ

Patients With Dialysis

Pro

ce

du

res

Pe

r 1

00

,00

0

Po

pu

lati

on


Liver Transplant Procedures in Liver Transplant Procedures in

Selected Countries Selected Countries 20022002

1.8

0.8

1.2

0.9

1.2

0.9

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

US Australia Canada Germany UK Korea

Liver Transplant

Pro

ced

ure

per

100,0

00

Po

pu

lati

on


It’s The Prices, Stupid: Why The United States Is So Different From Other CountriesHigher health spending but lower use of health services adds up to much higher prices in the United States than in any other OECD country.

by Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey, and Varduhi Petrosyan, Health Affairs, Vol. 22. No 3, 2003.


Health Care Spending Growth

• Primary driver differs between private insurance and Medicare

• Private insurance--Prices more important

– Insurers have less ability to set prices

– Privately insured population is healthier

• Medicare—Use of services more important

– Program is a price setter

– Beneficiaries are less healthy


Variation in FEHBP Physician and Hospital Fees Across MSAs• Metropolitan areas with low fees

– Physician and hospital fees close to Medicare’s

• Metropolitan areas with highest fees

– Physician fees average nearly twice Medicare’s

– Hospital fees average nearly three and a half times Medicare’s


Hospital Consolidation

MSAs Meeting DOJ and FTC

Definition of Highly Concentrated

1990 2003

Percentage of MSAs

71% 88%

Number of Residents

56.2 million 122 million

Source: W. Vogt and R. Towns, “How has consolidation affected the price and quality of hospital care.” The Robert Wood Johnson Foundation: Research Synthesis No. 9, Feb 2006.

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Hospitals from Low to High Payments

HIGHER PRICES ARE NOT TIED TO INCREASED COMPLEXITY OF SERVICES

HIGHER PRICES ARE NOT TIED TO TEACHING

STATUS

24

INFORMATION FROM A MAJOR HEALTH PLAN: FOR ILLUSTRATIVE PURPOSES ONLY

How Much Hospital Charges Exceed Costs

25

“Premium Pricing” ExampleNorthern California

Sutter HealthOther Local Providers

Office Visit $349 $222

Normal Delivery $5,890 $2,052

MRI Knee Scan $1,271 $696

Colonoscopy $3,200 $2,800

Immunization $85 $16

Ear Wax Removal $175 $104


Source: Business Week Aug. 30, 2010


PPACAControlling Cost

Medicare as the Model

CBO Budget Options toReduce Excess Medicare Spending*

2015-2019

Excess Spending

Medical Home

Peer Profiling

Primary Care Partial Cap

ACOs

Hospital Readmissions

Bundle Hosp. Post Acute

Reduce IME

Reduce Post Acute Update

Reduce Hops. Inpat. Update

Set MA = FFS

Adj. Updates for Productivity

Excess Spending Delivery Reforms Payment Cuts

$356 B

Source: CBO, Budget Options Health Care, Dec. 2008

$163 B

* Excess defined as growth exceeding GDP growth + 1 percentage point

PPACA Changes toProjected Medicare Spending

Total Change $424.B

Reduce Price Increases for

(Primarily Hospitals, Skilled Nursing Facilities, Home Health Agencies)

$146 B

Modify Medicare Advantage Plan Payments $118 B

Reduce Medicare Disporportionate Share Hospital Payments

$25 B

Prescription Drug—Close Doughnut Hole $18 B

Lower Part B Premiums Not estimated

Lower Cost Sharing Not estimated


Projected Medicare SpendingPre and Post PPACA

and with only Population Growth


Billions

1000

500

2010 2019

Increase Due toPopulation

Are the Changes Sustainable?Home Health

-10

-5

0

5

10

15

20

25

30

35

40

20th

Pctile

Average 80th

Pctile

-9 %

17 %

37 %

Profit Margin

Percent

Profit Margin on Medicare Patients 2008

Are the Changes Sustainable?Hospitals

While such payment update reductions would provide a strong incentive for providers to maximize efficiency, it is doubtful that many could improve their own productivity to the degree achieved by the economy at large. Over time, a sustained reduction in payment updates, …would cause Medicare payment rates to grow more slowly than, …the providers’ costs of furnishing services to beneficiaries.

CMS Office of the Actuary, January 8, 2010.


Hospital Spending

Tracks Available Funds

Higher Private Revenues

Managed CareConstrained Revenue

Post Managed Care

Making Game-Changing Investments

• AMCs uniquely willing to invest in state-of-the-art technology.

• E.g., proton therapy required $140M investment -new infrastructure




Private Plans in MedicareFour Eras

Payment

Risk Contract Program1982-1997

95 percent of Fee for Service

Medicare + Choice1997-2003

2 percent annual increase

Medicare Advantage2003-2010

Bidding against benchmarks and floors

PPACA Modified Medicare Advantage2011--

Fee for Service plus/minus


PPACA Medicare Advantage Payments

• Benchmark depends on county’s cost

– 25 percent most expensive– 95 % of FFS

– 25 percent least expensive– 115 % of FFS

– Remaining counties—100–107.5 % of FFS

• Quality Bonuses (4 and 5 star plans)

– 1.5 % in 2012

– 5.0 % in 2014

• Goes into effect in 2012


Threefold variation in unadjusted Medicare spending.

Source: Dartmouth Atlas of Health Care 1999


Miami versus MinneapolisCoronary Artery Disease Episodes

Miami Minneapolis

Cost Index 0.66 1.28

Episodes per beneficiary

1.32 0.88

ServicesE&M 1.05 0.93

Imaging 1.62 0.76

Tests 1.14 0.90

Inpatient 0.51 1.46

Procedures 0.39 1.24October 25, 2010 Health Care Reform Week Two

OLLI

Medicare Advantage Quality Ratings

• Stars based on:

– Customer service and satisfaction

– Complaints

– Delivery of selected services (e.g., annual visits, screenings

– Selected health outcomes


Physician Payments

• Not changed by PPACA

• Fees adjusted by Sustainable Growth Rate (SGR) formula since 1997

• SGR required fee reductions since 2002

• Reductions overridden by Congress

• Budget rules mean reductions postponed not eliminated

• Projected 2011 reduction –30 percent

Will not happenOctober 25, 2010 Health Care Reform Week Two

OLLI



Physician Participation in Medicare

Medicare BeneficiariesPrivately Insured 55-64 year olds

No delay in getting an appointment

For routine care 77 % 71 %

For illness or injury 85 % 79 %

Looking for new primary care physician

6% 8%

No problem 78 % 71 %

Big Problem 12 % 21 %


MedPAC 2010 March Report

Keys to Future Cost Control

• Healthcare Workforce

• Health Information Technology

• Technology


Healthcare Workforce

• Education reforms

– Changing mode of practice

– Greater efficiency (Shorter)

• Scope of practice

– Practicing to the “top of the license”


49

Time Primary care

physician

Medical

assistant 1

RN Nurse

Practitioner

Medical

Assistant 2

8:00

8:10

8:30

9:00

9:30

10:00

10:30

Template of the Present

Patient A

Patient B

Patient C

Patient D

Patient E

Patient F

Patient G

Patient H

Patient I

Patient J

Patient K

Patient L

Patient M

Patient N

Assist with

Patient A

Assist with

Patient B

Assist with

Patient C

Assist with

Patient D

Assist with

Patient E

Assist with

Patient F

Assist with

Patient G

Assist with

Patient H

Assist with

Patient I

Assist with

Patient J

Assist with

Patient K

Assist with

Patient L

Assist with

Patient M

Assist with

Patient N

Triage

50

Time Primary care

physician

Medical

assistant 1

RN Nurse

Practitioner

Medical

Assistant 2

8:00

8:10

8:30

9:00

9:30

10:00

10:30

Template of the Past

Patient A

Patient B

Patient C

Patient D

Patient E

Patient F

Patient G

Patient H

Patient I

Patient J

Patient K

Patient L

Patient M

Patient N

Assist with

Patient A

Assist with

Patient B

Assist with

Patient C

Assist with

Patient D

Assist with

Patient E

Assist with

Patient F

Assist with

Patient G

Assist with

Patient H

Assist with

Patient I

Assist with

Patient J

Assist with

Patient K

Assist with

Patient L

Assist with

Patient M

Assist with

Patient N

Triage

E-visits

and

phone

visits

E-visits

and phone

visits

Complex patient

Complex patient

RN

Care manage

-ment

Acute

Patients

Huddle

Panel

manage-

ment

Panel

manage-

mentBP

coaching

clinicHuddle with

RN, NPHuddle with MD

Coordinate with

hospitalists and

specialists

Template of the Future

Health Information Technology• Care delivery

– Facilitates appropriate care

– Prevents error

• Quality assurance

– Monitoring services delivered, need and appropriateness, and quality

• Payment reform

– Bundling based on need and science

– Accountability for delivery of appropriate bundle


Future Payment Innovations

• Hospital Bundles– Admission, Re-admission, Post-Acute, Physician

• Ambulatory Episode Payments

• Medical Home

• Accountable Care Organizations


“New Age” Technology

Patient managed care




Questions??


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