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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
October 25, 2010 Health Care Reform Week Two OLLI
October 25, 2010 Health Care Reform Week Two OLLI
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 %
October 25, 2010 Health Care Reform Week Two OLLI
Health Spending as Share of Economy
100%
20%
Historical Trend
CBOProjection
2008 2082
50 %
October 25, 2010 Health Care Reform Week Two OLLI
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
Source: OECD HEALTH DATA 2007
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
Source: OECD HEALTH DATA 2007
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
Source: OECD HEALTH DATA 2007
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
Source: OECD HEALTH DATA 2007
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
Source: OECD HEALTH DATA 2005
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.
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
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.
0.0
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ay
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's H
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lati
ve
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ts t
o H
osp
ita
ls
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
October 25, 2010 Health Care Reform Week Two OLLI
Source: Business Week Aug. 30, 2010
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
Projected Medicare SpendingPre and Post PPACA
and with only Population Growth
October 25, 2010 Health Care Reform Week Two OLLI
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.
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
October 25, 2010 Health Care Reform Week Two OLLI
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
Threefold variation in unadjusted Medicare spending.
Source: Dartmouth Atlas of Health Care 1999
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
October 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 %
October 25, 2010 Health Care Reform Week Two OLLI
MedPAC 2010 March Report
Keys to Future Cost Control
• Healthcare Workforce
• Health Information Technology
• Technology
October 25, 2010 Health Care Reform Week Two OLLI
Healthcare Workforce
• Education reforms
– Changing mode of practice
– Greater efficiency (Shorter)
• Scope of practice
– Practicing to the “top of the license”
October 25, 2010 Health Care Reform Week Two OLLI
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
October 25, 2010 Health Care Reform Week Two OLLI
Future Payment Innovations
• Hospital Bundles– Admission, Re-admission, Post-Acute, Physician
• Ambulatory Episode Payments
• Medical Home
• Accountable Care Organizations
October 25, 2010 Health Care Reform Week Two OLLI
“New Age” Technology
Patient managed care
October 25, 2010 Health Care Reform Week Two OLLI
October 25, 2010 Health Care Reform Week Two OLLI
October 25, 2010 Health Care Reform Week Two OLLI
Questions??
October 25, 2010 Health Care Reform Week Two OLLI