Catch Me If You Can: Hospitals, Cost Shifting, and the

Transcript Catch Me If You Can: Hospitals, Cost Shifting, and the

Medicare, Cost Shifting and Universal Coverage:

The Economic Unraveling of U.S. Health Care RAM/AMA -- VCU School of Medicine

March 2008 Rick Mayes

OVERVIEW

This presentation examines

major economic trends in U.S. health care system 2.

The phenomena known as cost shifting and provider segmentation , the “ medical arms race ” they are fueling, and the implications for doctors, hospitals, and patients.

growing concerns and potential reforms

Source: OECD Data 2007

BACKGROUND

Since 2000 . . .

health insurance premiums have increased more than 78% ( versus 18% in general inflation and avg. wage growth )

- avg. cost of single coverage ($4,500 annually in 2007) - avg. cost of family coverage ($12,000 annually in 2007) The

percent of companies offering health insurance

to their workers has fallen from 69% in 2000 to approx. 58% in 2007 (

6 million

working

Americans have lost their coverage since 2000

) 5

Health Insurance Premiums & Declining Coverage

Consequences: Care Postponed & Never Received

•

Extreme Consequences : Bankruptcy & Earlier Death 50% of uninsured patients have care; a 1/3 rd debts from previous medical are being pursued by collection agencies *

Uninsured women with

breast cancer

are twice as likely to die as women with breast cancer who have health insurance. (Kaiser Commission, 2002) •

Men without health insurance are nearly 50% more likely to be diagnosed with colon cancer at a later, more dangerous stage than men with insurance.

(Kaiser Commission, 2002) * Upwards of 750,000 families are

bankrupted

each year, even though 80% of them have some form of health insurance; single largest cause of bankruptcy by medical debt

(Health Affairs,

2005).

Arnold and Sharen Dorsett with their children, Dakota, Zachery and Jessica, back. Though they had insurance, health-care costs for Zachery led the Dorsetts to file for bankruptcy this year.

Nicole Bengiveno/The New York Times

Four Key Facts about U.S. Health Care

16% of the U.S. population is uninsured (huge financial drain on state governments and medical providers, as well as a major cause of immense human suffering and decreased economic productivity)

Each year, approximately 20% of the insured and uninsured populations in the U.S. drive roughly 80% of all health care spending and consumption.

Health care involves high “fixed” costs (buildings, equipment, salaried personnel, overhead) and low “marginal” or variable costs (Rx drugs, food, paper, gloves, gowns, tests).

example: an MRI 4.

There are several “payers” (Medicare, Medicaid, employers, health insurers, individuals) but only one set of medical “providers” (doctors, hospitals, nurses, etc.), which fuels financial gamesmanship by health insurers and providers.

Cost-Shifting Hydraulic for Doctors & Hospitals

130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

Cost Shift Margin Above Cost Payers

0 10 20 30 40

Percentage of Market Share

B A Shortfall Below Cost Payers

60 70 80

B = C + Margin C Contribution

90 100

Cost

Physicians & Cost-Shifting (or “Differential Pricing”) Relative Payment Level by Payer for Nine Common ED Codes 2.5

1.97

2.0

1.95

1.5

1.0

0.5

1.00

0.49

1.31

0.83

0.0

Medicare Medicaid FFS PPO HMO

Source

: The Lewin Group, “The American College of Emergency Physicians (ACEP) Practice Expense Study,” for the American College of Emergency Physicians.

Worker's Compensation

Community Hospitals & the Role of Cost-Shifting

200% 180% 160% 140% 120% 100% 80%

The correlation coefficient between Private Payer Payment-to-Cost Ratio and Medicare, Medicaid & Uncompensated Care cost shift burden is 0.75

60% 40% 20% 0% 0% 5% 10% 15%

Medicare, Medicaid & Uncompensated Care Cost Shift Burden (in %) by State

20% Source: The Lewin Group analysis of data contained in AHA TrendWatch Chartbook: Trends Affecting Hospitals and Health Systems.

18 25%

Hospital Payment-to-Cost Ratio by Payer, 1981-2005

140% 131% 130%

Private

128% 127% 124% 122% 120% 116% 116% 114% 110% 101%

Medicare

102% 100% 96% 90% 93% 88% 91% 91% 99% 95% 97% 89% 92% 93% 87% 88% 83% 80%

Medicaid

76% 70% 8 1 8 2 8 3 8 4 8 5 8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3

Ye ar

9 4 9 5 9 6 9 7 9 8 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5

Source

: American Hospital Association’s Annual Survey of Hospitals (n=6,800 hospitals), 2006. Pearson’s correlation coefficients:

1984-1997: Medicare and Private ratios: r = -.86

1984-1997: Medicaid and Private ratios: r = -.39

1980-2004: Medicare and Private ratios: r = -.79

1980-2004: Medicaid and Private ratios: r = -.64

Growing Concerns

• The ultimate cost shift:

employers passing on a larger and larger share of their increased health care costs to their employees

in the form of higher monthly wage deductions and/or increased co payments, deductibles, and out-of-pocket costs (especially for employees’ dependents).

• Beyond this strategy, 2005)

more and more employers have simply stopped offering health insurance

(16% of the U.S. population is uninsured; 46 million individuals or the aggregate population of 24 states, 20

Economic Incentives & Health Care

• The

segmentation

and

migration

care to non-hospital settings: of medical

free standing diagnostic imaging centers ambulatory surgery centers (ASC’s) physicians’ concierge medical practices

• Health Savings Accounts (HSA’s) and the

decline of risk-pooling

provided by group health insurance

Migration

of Medical Care Provision is

Increasing

Number of Independent Diagnostic Testing Facilities, 2000-2006

6,000 5,011 5,000 Entities Locations 4,000 3,197 3,000 2,655 2,000 1,784 2,012 3,615 2,403 4,107 2,618 4,593 2,944 3,012 5,385 3,233 1,000 0 2000 2001 2002 2003 Year 2004 2005 2006 22

100%

Outpatient surgery is also rapidly migrating to non-hospital settings…

Percent of Outpatient Surgeries by Facility Type, 1981-2005 Physician Offices

80%

Freestanding Facilities

60% 40%

Hospital-based Facilities

20% 0%

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005*

Source

: Verispan’s Diagnostic Imaging Center Profiling Solution, 2004. *2005 values are estimates.

…as the number of ambulatory surgery centers (ASC’s) has increased rapidly.

Number of Medicare-approved ASCs, 1997-2004

5000 4136 3887 4000 3597 3371 3028 2786 3000 2644 2462 2000 1000 0 1997 1998 1999 2000 2001 2002 2003 2004 24

Source

: MedPAC,

A Data Book: Healthcare Spending and the Medicare Program

, June 2005

…and 83 percent of ASCs are wholly- or partly-owned by physicians.

Ownership Structures of ASCs, 2004

Physician & Hospital 19% All Hospital 15% Other 2% Physician, Hospital & Corporation 10% Physician & Corporation 11% All Physician 43%

Source

: American Association of Ambulatory Surgery Centers. ASC Ownership Survey. February 2004.

Self-referral has been linked to increased utilization of diagnostic services…

Number of Imaging Services Ordered per Physician-owner vs. Non-owner

Non-owner Physicians 13 Physician-owners 13 11 9 8 8 7 6 5 4 4 2 MRI CT Ultrasound Echocardiography Nuclear Medicine Complex X-ray

Source

: United States Government Accountability Office,

Medicare Referrals to Physician Owned Imaging Facilities Warrant HCFA’s Scrutiny

, GAO/HEHS-95-2, Oct. 1994.

…and financial incentives influence where physician-owners direct and treat patients

Orthopedic Surgeries Performed by Physician-owners at a Full-service Community Hospital Before and After Ambulatory Surgery Center Opening, October 1995 - September 1998 1st full month of ASC operation

100 80 60 40 20 0 10/95 1/96 7/96 1/97 7/97 1/98 7/98

Source

: Lynk WJ and Longley CS. (2002). “The Effect of Physician-owned Surgicenters on Hospital Outpatient Surgery.”

Health Affairs

21: 218.

POLICY implications of the significant rise in physician-owned, for-profit: ambulatory surgery centers, specialty hospitals & diagnostic imaging centers: 1

prospects for improved quality, lower costs, and more professional autonomy

- Adam Smith and the advantages of specialization (e.g., pins and “focused factories”)

financial impact on community hospitals: fair or unfair competition?

- “cherry picking” the best-insured private patients by, largely, for-profit entities - “skimming” lower-cost, healthier Medicare cases within individual DRGs - cardiac, orthopedic, radiological services:

huge

proportion of hospitals’ net revenues

impact on communities’ overall access to care

- declining volume & smaller patient populations make charity care harder to provide - vulnerability of emergency services, burn units, psychiatric facilities - complicates doctor-hospital relationships (e.g. staff privileges, economic credentialing) - exacerbates the development of multi-tiered health care (e.g., elite, average, poor) 28

Segmentation

of U.S. Health Care System Increasing:

Concierge Medicine Patients like Ilse Kaplan, left, receive more personal attention from Dr. Bernard Kaminetsky in exchange for an annual fee of about $2,000.

Median Compensation for Selected Medical Specialties Woo B. N Engl J Med 2006;355:864-866

Family Medicine Residency Positions and Number Filled by U.S. Medical School Graduates Bodenheimer T. N Engl J Med 2006;355:861-864

Proportions of Third-Year Internal Medical Residents Choosing Careers as Generalists, Subspecialists, and Hospitalists Bodenheimer T. N Engl J Med 2006;355:861-864

Percent Change between 1998 and 2006 in the Percentage of U.S. Medical School Graduates Filling Residency Positions in Various Specialties

Woo B. N Engl J Med 2006;355:864-866

Segmentation

of U.S. Health Care System Increasing:

HSA’s

**The “Moral Hazard” Argument Against Expanding Health Insurance Coverage**

Moral Hazard

: term used to describe the paradoxical fact that insurance can change behavior of the person insured.

example:

employer-provided “donut” insurance (e.g., 5 cent co-pay)

avg. annual amount spent on medical care (by

uninsured

person) = $934 avg. annual amount spent on medical care (by

insured

person) = $2,347

Conclusion I

: co-pays, deductibles, utilization reviews make patients use health care more “efficiently” (frugally, wisely, sparingly)

Conclusion II

: instead of expanding group health insurance,

reduce

it 35

**The “Moral Hazard” Argument Against Expanding Health Insurance Coverage**

Fallacy I

: Moral-hazard argument only makes sense if we consume health care in the

same

way we consume donuts (or car repairs or consumer goods).

Fallacy II

: Having to pay for your own care does

not

automatically make ALL of your health care consumption more “efficient.” How could it?

example:

wife’s appt. with dermatologist Reality

: cost-sharing is a very BLUNT instrument example:

RAND Corporation’s “ Health Insurance Experiment

” (1971-86)

BOTTOM-LINE

: health insurance is moving in the “

actuarial

” direction (similar to car insurance) and away from the “

social insurance

” model with enormous consequences… 36

Two Exit Questions to Think About

What do providers have to do when every payer only wants to pay the

marginal

cost?

Ultimately, who is responsible for the common good ( i.e., graduate medical education, charity care, medical research ) in a competitive market?