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Health care and the US Economy: Problems and Prospects

Seattle Economics Council February 8, 2012

Mary McWilliams

Executive Director

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Source: OECD Health Data 2011 (June 2011).

Average Health Care Spending per Capita, 1980–2009Adjusted for differences in cost of living

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Dollars

THECOMMONWEALTH

FUND

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Health care employment rises despite recession

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Health care is a bigger problem than Social Security

5Source: Congressional Budget Office

Public Sector Pays Over Half of Health Care

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Out of Pocket Spending a Decreasing Percentage of Total

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Among Persons Under 65, Approximately 1 in 7 Persons Is Uninsured and 1 in 5 Has Public Coverage

Primary Source of Insurance for Persons Under Age 65

Source: 2010v1 Washington State Population Survey.

Employer Coverage60.4%

Public Coverage20.9%

Individual Coverage4.9%

Uninsured13.8%

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The Percent Uninsured Has Returned to the Level of the Early 1990s and Employer Coverage Has Declined Over Time

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Health Care Costs Have Wiped Out Real Income Gains

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

1999 2009

Monthly Income for Typical U.S. Family of Four

Inflation on Non-Health Care GoodsHealth Care Taxes, Premiums, ExpensesNet Available Income

Source: "A Decade of Heallth Care Cost Growth Has Wiped Out Real Income Gains For an Average US Family," Health Affairs, September 20011

$ 95 for spending

$ 945 for health care

$ 870 for inflation

$1910 more income

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Reducing Healthcare Spending Requires Less Hospital Spending

$0 $200,000 $400,000 $600,000 $800,000

Nursing Care Facilities

Administration & Insurance Costs

Prescription Drugs

Other Services & Products

Physician and Clinical

Hospitals

U.S. Healthcare Expenditures (Millions)

Total U.S. Healthcare Expenditures, 2009

$0 $100,000 $200,000 $300,000 $400,000

Nursing Care Facilities

Administration & Insurance Costs

Prescription Drugs

Other Services & Products

Physician and Clinical

Hospitals

U.S. Healthcare Expenditures (Millions)

Increase in U.S. Healthcare Expenditures, 2000-2009

Hospitals are the largest component ofhealthcare spending and of increasesin healthcare spending

The Cost Curve is Already Bent

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2000 2003 2004 2005 2006 2007 2008 2009 2010

Source: CMS, Office of Actuary

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Actual SpendingOn Health Services

% Growth NHE

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1.9

2.0

2.1

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HOSPITAL ADMISSION TRENDS2000-2011

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1Q00

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1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

Source: Banc of America Securities LLC

Patient visits at lowest level seen in over 7 years

Source: IMS Health, National Disease and Therapeutic Index, Apr 2011

TOTAL PATIENT VISIT IN US

1,511 Apr 2011

1,616 Aug09

1.563 J un04

1.656 J un05

1.641 J un06

1.653 J un07

1.676 Sep05

1.607 J un08

1.671 Dec06

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Imaging Volume SlumpSource: Thomson Reuters

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2007 2008 2009 2010 MAT Mar 2011 YTD Mar 2011

% G

RO

WTH T

Rx

Total market

Generics

Brands

Generics continue to grow strongly

Source: IMS Health, National Prescription Audit, Mar 2011, Branded generics disaggregated

Branded Generics Disaggregated

19© 2009-2011 Center for Healthcare Quality and Payment Reform, Network for Regional Healthcare Improvement

Many Increases in CostsDue to Price, Not Utilization

Chart 4.6: Aggregate Hospital Payment-to-cost Ratios for Private Payers, Medicare, and Medicaid, 1989 – 2009

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2009, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

Medicare

Medicaid(1)

Private Payer

70%

80%

90%

100%

110%

120%

130%

140%

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Seattle is One of the Nation’s “Cost-Shift” Markets

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Medicare and Commercial Inpatient Spending Per Member, 2007Medicare IP PMPM Index Commercial IP PMPM Index

Low Cost for Medicare & Commercial

Cost Shift fromMedicare to Commercial

High Cost for Medicare & Commercial

22© 2009-2011 Center for Healthcare Quality and Payment Reform, Network for Regional Healthcare Improvement

Wide Variation in Prices Per Delivery in MA Hospitals…

Source: Massachusetts Health Care Cost Trends: Price Variation in Health Care ServicesMassachusetts Division of Health Care Finance and Policy, June 2011

23© 2009-2011 Center for Healthcare Quality and Payment Reform, Network for Regional Healthcare Improvement

…With No Relationship to Quality

Source: Massachusetts Health Care Cost Trends: Price Variation in Health Care ServicesMassachusetts Division of Health Care Finance and Policy, June 2011

The Secret to Cost Containment: Not Population Health but Subpopulation

Health

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Dartmouth Atlas shows wide variation in cost

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Wide Swings in Cost and Care The Dartmouth Atlas uses Medicare claims data to track how cost

and quality vary across the U.S.

The Results: There is a 2.5 fold variation in Medicare spending by region

(population-adjusted) Patients in high-cost areas are not sicker nor do they have

better health outcomes More health care spending does not result in living better or

longer. In fact, the opposite may be true

Reducing unwarranted variation could improve quality and reduce spending 30%

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Tale of Two Cities: Miami vs. Minneapolis

* Effective care index includes: pneumonia vaccination; breast & colon cancer screening; eye exams, HbA1c & blood lipid monitoring for diabetes; and, aspirin therapy, beta blockers, ACE inhibitors and reperfusion with thrombolytic agents or PTCA for heart attack victims. Source: Health Affairs

More Money Does Not Improve Value

Medicare Spending

(per capita, adjusted)

$7,847 $3,664

Specialist Visits

(last 6 mos. of patient’s life)

25.1 3.8

Hospital Stays

(inpatient days)

14.1 6.6

Care Index* 49.9% 52.6%

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What Drives Decisions on Care?

Doctors decide based on local medical opinion and supply of medical resources, not on science or what informed patients want

Doctors have surprisingly little information on what works or the “right” amount of care

This is why Congress is funding “comparative effectiveness” research

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Supply-Sensitive Care: Is More Health Care Better?

People assume that more care is better Reinforced by fee-for-service

payment Where more care is provided,

patients with chronic conditions do not have better health

“Supply of services” accounts for 50% of the regional variation

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Alliance Role: Show How Care Varies and Promote Better Value

The driving force: Ron Sims and King County Purchasers, Providers, Plans & Patients 2 million lives in 5 counties Funded by participant fees and grants Nationally recognized by the Robert Wood Johnson

Foundation and the federal Secretary of Health and Human Services

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Generic prescribing shows wide variation across and within medical groups

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What gets measured, gets managed, as hospital metrics show

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Resource Use Varies by Delivery System

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How Will Transparency Make a Difference? Creates public accountability Sets targets for improvement Stimulates dialogue among

providers to compete Gives consumers more information

about care they need and how providers vary Results may be tied to provider pay incentives and/or

network design Improving results will reduce the personal and financial

cost of chronic disease and preventable conditions

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Transparency: Necessary but Not Sufficient – Need to Pay Providers for Value, not Volume We now reward providers for

delivering more services to more people, not for better quality

Providers are not rewarded for keeping people healthy

Fundamental payment reform is needed to reward value

Medicare, the largest payer, sets payment standards, but local innovations are underway

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Organized Systems of Care Are Needed for New Payment Models

Deliver and/or arrange full range of services Skilled in quality and cost management Coordinate care with specialists and others Engage patients in shared decision-making and help patients self-manage

their conditions Commit to creating a better way to deliver care to

patients Supported by Electronic Health Record

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Prospects for Real Health Reform

The Good News: There is agreement that the system is

unsustainable We know what’s needed to fix it

The Bad News: The challenge is execution It will be disruptive and take time to fix

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What’s Needed to Fix the System

Research into what works Focus on chronic care prevention and management Coordination of patients’ care Organized systems of care New ways to pay doctors and hospitals Patient access to evidence-based information on

quality and cost

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Challenges to Fixing the System

One person’s “waste” is another person’s revenue Hospitals have huge capital investments New provider payment systems are unproven and complex

to administer Conversion from paper to electronic health records is costly

and slow “Organized Systems” can be cartels and drive up costs Comparative effectiveness research takes time and money The public assumes that more care is better

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The Public Needs to Understand What’s at Stake

High rates of overtreatment, under treatment, and misuse of medical services endanger their health

U.S. cannot prosper when 18% of the economy wastes 30% of what it spends

Diverting resources from education and innovation to medical care imperils our global competitiveness

If U.S. keeps borrowing to pay for ineffective care, we and our children will pay the price

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