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WEATHERHEAD Bold Ideas. Lasting Impact. © Weatherhead School of Management. Case Western Reserve University. 2006 U.S. Healthcare System: How it works and How it doesn’t J. B. Silvers, PhD Wm. & Elizabeth Treuhaft Professor of Health Systems Management WEATHERHEAD SCHOOL OF MANAGEMENT/School of Medicine CASE WESTERN RESERVE UNIVERSITY

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Page 1: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.© Weatherhead School of Management. Case Western Reserve University. 2006

U.S. Healthcare System: How it works and How it doesn’t

J. B. Silvers, PhDWm. & Elizabeth Treuhaft Professor of Health Systems

ManagementWEATHERHEAD SCHOOL OF MANAGEMENT/School of Medicine

CASE WESTERN RESERVE UNIVERSITY

Page 2: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Big topic . . but let me try, building on the 6 questions

• Payment : Money drives decisions

• Physician: Choices here are no exception

• Product: Good care and good value are the key

• Purchaser: Unique role for business in the U.S.

• Prospects: Sustainability threatened. . .a little like a good restaurant on a bad day!

Page 3: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

HOW’S EVERYTHING?

It might have good things but it doesn’t always work well . . .!

Page 4: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

SIX QUESTIONS TO TEST YOUR HEALTH SYSTEM LITERACY

1. A "PPO" IS WHICH OF THE FOLLOWING? (PREFERRED PROVIDER ORGANIZATION) A. LIMITED GROUPING OF HEALTH CARE

PROVIDERS B. A NEW TERRORIST ORGANIZATION C. A MECHANISM FOR CHANNELING

PATIENTS

VOTE

Page 5: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Method of Organization and Payment Central to System

• Source of Funds: Federal, State, Employers, Individuals Medicare: Over 65, Disabled, ESRD (Federal Categorical) Medicaid: Federal match of State $ for Children and Poor Families

(relative to Federal Poverty Line) Employee-Sponsored (fully-insured or self-insured exempt from state

insurance regulation via ERISA) Individual: Purchased directly from companies or through brokers

• Type of Payment: Conventional (i.e.,80% of charges), usually fee-for-service (FFS) Health Maintenance Org (HMO) flat per member per month (pmpm)

capitation, FFS or other incentive to providers Preferred Provider Org (PPO) restricted network, lower payment Point of Service (POS) patient choice of restricted or unrestricted

network with higher co-pay for use of out-of-network providers Consumer Directed, High Deductible Health Plans (CDHP, HDHP)

Page 6: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Two things you need to know about the money side

• Medicare dominates everything on payment Sets prices for hospital stays & physician services

– Others copy them (i.e., pay X “percent of Medicare”) Hires managed care as option (Medicare Advantage)

– Capitated payment at higher rate (+11%) for more services– Even higher rate (+17%) for rural plans (Private Payment Medicare Advantage) . . . these are the target for cuts to finance physician incomes

• Employer-Sponsored Health Plans dominate otherwise Smaller employers buy regular insurance (90%)

– Typically through brokers who get 5-10% of the premium Larger employers self insure (80%)

– Hire insurance co. as agents, admin services only (ASO) Most (82%) of employees are in ERISA plans exempt from state insurance regulation

Page 7: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Spending differs by payor and segment of the population

Drugs (w/o Part D)

Hospital

PhysicianAdmin

Drugs

Hospital

PhysicianAdmin

Medicaid($5000/yr*)

*Children $1600/yr (17% of total) Adults $2100/yr (12%) Elderly $11,800/yr (26%) Disabled $13,500/yr (41%)

MedicareTraditional ($6000/yr)

Nursing Homes

Drugs

Hospital

Physician

Admin

Drugs

Hospital

Physician

Admin

MedicareAdvantage($7000/yr)

Employer-Sponsored($3500/yr)

Other

Other

Other

Other

Page 8: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

SIX QUESTIONS TO TEST YOUR HEALTH SYSTEM LITERACY

2. A "DRG" IS WHICH OF THE FOLLOWING? (DIAGNOSIS RELATED GROUP) A. A WAY TO DESCRIBE A HOSPITAL

ADMISSION B. A WAY TO GROUP SIMILAR CASES C. A WAY TO CREATE PAYMENT INCENTIVES

VOTE

Page 9: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Byzantine Medicare Inpatient Payment Determination

Hospital Adjusted

Operating & Capital Base

Payment Rate2009

Operating & Capital

Base Payment

Rate2008

Update

Wage Index

MS-DRG Weight (Medical Severity

Adjusted* Diagnosis Related Group weight **)

Hospital Adjusted

Base Payment

Rate2009

* Principal Diagnosis, Procedure, Complications & co-morbidities** 745 individual DRG weights

Direct (pass-through) & Indirect Medical (Interns, Residents/bed) Education

Pmt.

Disproportionate Share Payments (if Medicaid &

SSI Pt Days >15% of total)

Other Policy Payments (Critical Access

Hospital>35 mi, Medicare-dependent>60%)

Outlier Payments (Est. Cost > Loss Threshold)

Reduction for Early Transfer (LOS <mean LOS-1))

Reduction if Quality Indicators not Provided

PAYMENT RATE FOR AN

INDIVIDUALPATIENT’SADMISSION

Mean ‘08 Payment$9,278 all hospitals$13,499 large teaching $6,026 small rural

Page 10: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Look at some Sample Medicare Payments for 2008

• MS-DRG #001: Heart transplant or implant of heart assist system w MCC DRG Weight=23.1117 x $13,499 large teaching hospital=

$312,000 Geometric Length of Stay ~30.8 days (Arith Length of Stay ~45.6)

• MS-DRG #063: Acute ischemic stroke w use of thrombolytic agent w/o CC/MCC DRG Weight=1.8642 x $9,278 average hospital= $17,300 Geometric Length of Stay ~3.9 (Length of Stay LOS~4.5 )

• MS-DRG #063: 90 Concussion w/o CC/MCC DRG Weight=0.7405 x $6,026 small rural hospital =$4,462 Geometric Length of Stay ~2.0 (Length of Stay LOS~2.5)

Page 11: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

SIX QUESTIONS TO TEST YOUR HEALTH SYSTEM LITERACY

3. PHYSICIANS GENERALLY ARE PAID WELL BECAUSEA. IT COSTS A LOT OF MONEY TO TRAIN

THEM B. PATIENTS LOVE AND ARE LOYAL TO THEIR

DOCTORS C. THEY PROVIDE VALUABLE SERVICES TO

PATIENTS IN NEED

VOTE

Page 12: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Limitation

Adjusted for geographical cost factors

Complicated Medicare Physician Payment Determination

Conversion Factor2009

Conversion Factor2008

Update

Relative Value Units (RVU)* -work -practice expense -malpractice expense

Physician Payment Rates by

procedure2009

* Determined for 10,000 proceduresas defined by Healthcare Common Procedure Coding System (HCPCS)

UPDATE ADJUSTMENT FACTOR (UAF)

SUSTAINABLE GROWTH RATE (SGR)

Growth rate that reflects inflation, enrollment, real GDP per capita and policy changes

Change required to recoup (or pay extra) the cumulative difference between actual changesand max allowable under SGR (=< 7%)

Page 13: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

And these changes are followed by all other payers!!

• Private payers follow Medicare but pay about 25% more.

• When the Medicare Fee Schedule [MFS] changes everything shifts with it.

Page 14: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

SIX QUESTIONS TO TEST YOUR HEALTH SYSTEM LITERACY

4. "GOOD" PRACTICE PATTERNS LEADING TO HIGH QUALITY USUALLY ARE BASED ON WHICH OF THE FOLLOWING? A. THE AVERAGE OF SIMILAR PHYSICIAN

CHOICES B. THE EXPERT OPINION OF A CONSENSUS

PANEL OF PHYSICIANS C. THE RESULTS OF OUTCOMES RESEARCH

COMPARING ALTERNATIVES

VOTE

Page 15: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Multiple Views of Quality

• Internal practice settings and payment review Hospital committees Report cards by insurance, gov, or accreditation Utilization review

• Externally validated standards and measures National Quality Forum (www.nqf.org) Joint Commission (Quality Check, www.jcaho.org) Center for Medicare & Medicaid Services (CMS-Hospital Compare Consensus conferences

• Randomized controlled Trials (RTC) Evidence-Based Medicine

Page 16: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

SIX QUESTIONS TO TEST YOUR HEALTH SYSTEM LITERACY

5. BUSINESS GROUP PURCHASERS OF HEALTH CARE SERVICES FOR THEIR EMPLOYEES ARE MOST INTERESTED IN THE FOLLOWING: A. MINIMIZING TOTAL HEALTH CARE COSTS

TO THE COMPANY B. SHIFTING AS MUCH COST TO EMPLOYEES

AS IS POSSIBLE C. MAXIMIZING THE PRODUCTIVITY OF THE

WORKFORCE

VOTE

Page 17: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Remarkably Stable Coverage of Employees – declining Retirees

• Percentage of Employers (3-199 employees) Offering Health Benefits, 1996-2007 Steady at around 60%

• Percentage of Employers (500+ employees) Offering Retiree Health Benefits, 1993-2007 Constant decline from almost half to a

quarter Large impact of accounting change

that made them recognize this obligation [FAS 106]

Government is about to have same accounting shock under GASB 45

Page 18: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

SIX QUESTIONS TO TEST YOUR HEALTH SYSTEM LITERACY

6. U.S. HEALTHCARE COSTS ARE HIGH BECAUSE--A. AMERICANS RECEIVE MORE VALUABLE

SERVICES THAN OTHERS B. OUR SYSTEM HAS MORE

ADMINISTRATIVE OVERHEAD C. PATIENTS NEED & DEMAND MORE CARE

VOTE

Page 19: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

KaiserEDU.org Reading on U.S. Healthcare Costs

$2.1 trillion/yr(16% of GDP)=$6 billion/day

=$7000 per person/yr=$20/person/day

$22,000/yr/ave family$60/ave family/day

20% non-physician

80% Physician Directed

Cost too high?

Page 20: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Factors Driving Costs

• INTENSITY OF SERVICES• PRESCRIPTION DRUGS & TECHNOLOGY• AGING OF POPULATION• ADMINISTRATIVE COSTS

. . . But what is driving these? BAD PAYMENT SYSTEM – Perverse incentives EXCESSIVE DEMAND– Patient & marketing GOVERNMENT REGULATION– Inefficiency, mandates POOR QUALITY– Process, outcome, liability

Page 21: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Amazingly Noncollapsing U.S. Health Care System• Patchwork safety net kept it running in past

Tax exempt subsidies critical “Community Benefit” concern will keep it running

• Is healthcare still “too important to be left to govt?” Reliance on private non-profit local organizations Reasons (control, quality, access) less clear Too many profit opportunities to not create bias

(It was less of a problem when docs were the only for-profit game in town!)

• Sleeping giant is employer. . perhaps more than government Last time they woke up we got managed care This time it will be consumer directed, high deductible Can either leave after this or change the system

. . BUT HOW? Stay tuned for the next chapter!!

Page 22: Us Health System Ppt

WEATHERHEAD Bold Ideas. Lasting Impact.WEATHERHEAD Bold Ideas. Lasting Impact.Copyright©2008, J. B. Silvers,

Weatherhead School of Management. Case Western Reserve University. WEATHERHEAD Bold Ideas. Lasting Impact.

Thank you!

[email protected]