Growing Pressure on

Medical Costs

Perspectives from Benefits Management at HCF

MARCH 2014

Dr Andrew Cottrill

Medical Director

acottrill@hcf.com.au

Same drivers…

2

• Ageing population • Increased incidence of Chronic Disease • Lifestyle illnesses • New Technology • Changes in patterns of practice • Consumer driven demand • Supplier induced demand • Defensive (medico-legal) practice

9.4% of GDP

7.9% of GDP

Australian Health and Total Spending

Source: www.aihw.gov.au/australias-health/2012/spending-on-health/

Changing face of healthcare

3

Genomics

Proteomics

3D Organ Printing

Robotics Nanoparticles

Personalised Medicine

M Health

4

Improving Value

Value is about satisfying clinical need through the

Right Service

Right Place

Right Time

Right Cost

“In the United States a survey by the Agency for Healthcare Research and Quality found that while healthcare expenditure doubled between 1994 and 2005, the quality of care – measured in terms of effectiveness, patient safety, timeliness, and patient-centredness – improved by barely a third”

Source: Larsson et el: “From Concept to Reality: Putting Value-Based Health Care into Practice in Sweden.” Nov 2010, Boston Consulting Group.

5

Implantable Cardiac Defibrillators

HCF spends approximately $8.5 Million per year

Defibrillator costs: Average $51,000

Plus, leads, EPS studies etc, theatre, accommodation.

Total Costs per episode around $65 - 80,000

And again, when the batteries run out!

6

22.5% ICD implants did not meet evidence based criteria for implantation

JAMA, Jan 5, 2011, Vol 305, No1

Diagnostic cardiac catheterisation

7

HCF funded 2,494 admissions last FY, at an average charge of $9,700, at total cost of approx $ 24 M.

“One quarter of patients undergoing DC for suspected coronary artery disease were rated as inappropriate for the procedure…”

Hannan, L et al: “Appropriateness of Diagnostic Catheterization for Suspected Coronary Artery Disease in New York State” Circ Cardiovascular Interv. Jan 28, 2014

8,986 DC procedures: • 35.3% appropriate • 39.8% uncertain • 24.9% inappropriate

Value: Gastric Banding

8

“In Australia, the number of LAGB procedures increased by 10 times over the last decade, as compared to the rate of RYGB

procedures”

LAGB RYGB

LAG

B x

1,0

00

RYG

B x

10

0

… LAGB trending to younger patients

9

Recommends:

• At least 15 years old

• BMI > 40

• Associated complication such as Type 2 diabetes

• Persistent problems despite undertaking lifestyle programs

Value: HCF data on Bariatric Surgery

10

Year of Admission

LAGB Other Bariatric Total

No Admits

Benefits Paid

No Admits

Benefits Paid

No Admits

Benefits Paid

FY0910

911 80% $8.7 M

233 20% $2.5 M 1,144 $ 11.1 M

FY1011

676 69% $6.6 M

305 31% $3.4 M 981 $ 10.0 M

FY1112

547 57% $5.5 M

420 43% $4.9 M 967 $ 10.4 M

FY1213

519 47% $5.2 M

587 53% $6.7 M 1,106 $ 11.8 M

Year of Admission

Reversal Repair Adjust Reduction Total

Benefits Paid

Benefits Paid

Benefits Paid

Benefits Paid Benefits

Paid

FY0910 $682 K $205 K $757 K $ 1,644 K

FY1011 $1,152 K $233 K $ 0.5 K $914 K $ 2,299.5 K

FY1112 $1,460 K $266 K $2 K $922 K $ 2,650 K

FY1213 $1,765 K $243 K $2 K $864 K $ 2,874 K

Total

Benefits Paid

$ 12.7 M

$ 12.3 M

$ 13.1 M

$ 14.7 M

11

“RYGB produces substantially greater weight loss than LAGB. Whilst peri-operative complications are greater after RYGB, long term complication rate is higher following LAGB.”

World J Gastroenterol 2013 September 28;

Nguyen NQ et al. Vol 19(36): 6035-6043

RYGB LABG p

Pre-op BMI 46.8 40.4 <.001

BMI reduced kg/m2 -14.8 -1.2 <.0001

Perioperative compl. 8% 0.5% <.001

Long term compl. 2.1% 8.9% <0.001

Fasting Blood Glucose 33% 17% <.02

Total Cholesterol 54% 4% <.001

Plasma Triglycerides 81% 27% <.0001

Avg weight loss (n=930; Start BMI >30) 7.7kg 7.9%

Members achieving some weight loss 916 99%

5% or more weight loss 695 75%

10% or more weight loss 258 28%

15% or more weight loss 52 6%

… and a more conservative approach

12

13

Other procedures to consider…

Routine Pre-operative echo & stress testing

Hyperbaric oxygen therapy for diabetic wounds

Sleep studies

Arthroscopy for knee OA

Da Vinci robotic surgery

Midurethral sling vs colposuspension

Cervical discectomy

Drug eluting stents vs bare metal stents

Stents in stable coronary disease

Endovascular abdominal aortic aneurysm repair vs open surgical repair

Spinal fusion

CT coronary angiography vs percutaneous coronary angiography

Inguinal hernia repair

Indications for Caesarean sections

Colonoscopy - indications

Prostatectomy - indications

Levers

14

Product

Design

Regulatory Environment

Pricing Signals Member

Behaviour

Preventive Health

Strategies

Provider Behaviour

Regulatory Environment

Pricing Signals

Levers

15

Member Behaviour

Preventive Health

Strategies

Provider Behaviour

- Exclusions - Restrictions - Minimum benefits - Benefit limitation periods + Incentives + Loyalty rewards

Product

Design

Levers

16

Product

Design

Regulatory Environment

Pricing Signals Member

Behaviour

Preventive Health

Strategies

Provider Behaviour

Lobby Legislation Health technology Assessment processes: TGA PLAC MSAC PBAC

Levers

17

Product

Design

Regulatory Environment

Pricing Signals Member

Behaviour

Preventive Health

Strategies

Provider Behaviour

Bundled case payments Rewarding desired outcomes Not paying for mistakes wrong site wrong side surgery

Levers

18

Product

Design

Regulatory Environment

Pricing Signals Member

Behaviour

Preventive Health

Strategies

Provider Behaviour

Information to support informed health choices Information about how to navigate the health system Information about preference sensitive conditions Information to help select a provider Incentives

Levers

19

Product

Design

Regulatory Environment

Pricing Signals Member

Behaviour

Preventive Health

Strategies

Provider Behaviour

Gap arrangements Contracts Direct service delivery Sharing performance information

Levers

20

Product

Design

Regulatory Environment

Pricing Signals Member

Behaviour

Preventive Health

Strategies

Provider Behaviour

Health and wellbeing programs Health and wellness assessments Chronic disease management programs

Impact: Savings from review

21

FUTURE

… WE SHOULD EXPECT TO CONTINUE TO PAY MORE

$ 2.6 M

$ 1.7 M

$ 2.6 M

Hospitalbenefits

AncillaryBenefits

HospitalSubsituteTreatment

July 2013 – December 2013 $ 6.9 M 1.3% of total benefits

Impact

22

FUTURE

… WE SHOULD EXPECT TO CONTINUE TO PAY MORE

0

100

200

300

400

500

600

700

800

900

Jan-0

4

Ap

r-04

Jul-0

4

Oct-0

4

Jan-0

5

Ap

r-05

Jul-0

5

Oct-0

5

Jan-0

6

Ap

r-06

Jul-0

6

Oct-0

6

Jan-0

7

Ap

r-07

Jul-0

7

Oct-0

7

Jan-0

8

Ap

r-08

Jul-0

8

Oct-0

8

Jan-0

9

Ap

r-09

Jul-0

9

Oct-0

9

Jan-1

0

Ap

r-10

Jul-1

0

Oct-1

0

Jan-1

1

Ap

r-11

Jul-1

1

Oct-1

1

Jan-1

2

Ap

r-12

Jul-1

2

Oct-1

2

Jan-1

3

Ap

r-13

Jul-1

3

Oct-1

3

Bed

Days p

er

1,0

00 m

em

bers

Admission Month

Go Live

Rest of HCF

Participants from enrolment

Data as at 13 October 2013

Based on 26,400 currently active enrolments

Impact: No gap coverage

23

FUTURE

… WE SHOULD EXPECT TO CONTINUE TO PAY MORE

76 % 77 % 78 %

79 % 80 %

86.8 % 87.4 % 87.6 % 88.0 % 89.2 %

FY09/10 FY10/11 FY11/12 FY12/13 FY13/14

Hospital admissions with all medical services at no gap

Medical services at no gap

Impact: Member gaps

24

FUTURE

… WE SHOULD EXPECT TO CONTINUE TO PAY MORE

$0

$2

,00

0$

4,0

00

$6

,00

0$

8,0

00

1 11 21 31

Pa

ym

en

t to

Do

cto

r

Services

Cervical decompression Charge Distribution for item 40335

01/01/2012 - 31/12/2012

CMBS rate

HCF no gap rate

AMA Rate

73% no gap coverage

Impact: Member gaps

25

FUTURE

… WE SHOULD EXPECT TO CONTINUE TO PAY MORE

$-

$2

00

$4

00

$6

00

$8

00

$1

,00

0

1 4 7

10

13

16

19

22

25

28

31

34

37

40

43

46

49

52

55

58

61

64

67

70

73

76

79

82

85

88

91

94

97

10

0

10

3

10

6

10

9

11

2

11

5

11

8

12

1

12

4

12

7

13

0

13

3

13

6

Pa

ym

en

t to

Do

cto

r

Services

Intravitreous injection Charge Distribution for item 42740

01/02/2013 - 01/02/2014

CMBS rate

HCF No gap rate

AMA rate

98% no gap coverage

Impact: Member gaps

26

$0

$2

,00

0$

4,0

00

$6

,00

0$

8,0

00

$1

0,0

00

1 11 21 31

Pa

ym

en

t to

Do

cto

r

Service Number

Excision of Pituitary Tumour Benefit Distribution for item 39715

01/01/2010 - 31/12/2010

CMBS rate

HCF no gap rate

AMA Rate

52% no gap coverage

27

Summary

• There is no cure for healthcare inflation

• As new technologies evolve the scope of “healthcare” expands

• Value-Based healthcare should be our aim

• We have few levers with which to influence healthcare costs

• We have had some success, but managing benefits is multi-faceted and difficult because it is a complex system requiring complex solutions