Transcript Making Sense of Health Care Markets

Making Sense of Health Care
Markets - 2006
Presentation to Greater
Milwaukee Employee
Benefits Council
October 16, 2006
Merton D. Finkler, Ph.D
Professor of Economics
Lawrence University
Overview
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The 80-20 rule applies to health care.
Good prices need not mean good value.
Consumer directed health care can be
oversold.
Porter & Teisberg’s competitive ideal can focus
our attention: Pay for Performance.
The health care world is not yet flat, but we can
flatten it much more than we have.
Key Sources
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Agency for Health Care Research and Quality, “The
High Concentration of U.S. Health Care Expenditures,”
Research in Action, June 2006
David Cutler, Your Money or Your Life, Oxford Press,
2004
Michael Porter and Elizabeth Teisberg, “Redefining
Competition in Health Care, Harvard Business
Review,” June 2004 (and recent book)
Thomas Friedman, The World is Flat, updated and
expanded edition, Farrar, Straus, and Giroux, 2006
Health Care Expense Distribution
Health expenses persist over time
Most Costly Conditions
Treated Disease Prevalence
Drives Spending
The Wisconsin Food Pyramid?
Selling “Wellness”
Your Money or Your Life - Cutler
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We spend more because we can do more
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10 fold decline in infant mortality in 20th century
Life expectancy at 45 increased by 4.5 years since
1950 due to reduced mortality from cardiovascular
disease
Doubling of costs of treating depression in the last
20 years has yielded improved quality of life and
productivity worth 7 times the cost.
Single Biggest Factor in Reduced
Mortality is Care for CV Disease
900
deaths per 100,000
800
700
600
500
400
300
200
100
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
Mortality Has Fallen Markedly for
LBW Babies
Mortality Among Low Birth Weight Infants
Mortality Rate
30
25
20
15
10
5
0
1950
1998
Mortality Benefits of Medical
Advance Greatly Exceed Costs
8
7
6
5
4
3
2
1
0
Cardiovascular
Disease
1950-90
Heart Attack
1984-98
Low Birth
Weight Infants
1950-90
Depression
1991-96
Breast Cancer
1985-96
Medical Care
Combined
1950-00
Much Care Does Not Deliver Value
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Payment systems (especially fee-for-service)
are largely based on intensity not value
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Dependent on who delivers the service
Where the service is delivered
Barriers to entry for competitors
Few providers make money by keeping people
healthy
Programs that reduce complications in
diabetics, and thus, hospitalizations, reduce
incomes for physicians and hospitals.
Patients have had little reason to
seek value
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No information on quality of care differences
Little incentive to seek value since intensive services
have been covered by third parties
Just as likely to reduce cost-effective as costineffective services when faced with high out-of-pocket
costs.
Current income tax exemptions
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Encourage purchase of coverage for high intensity services
Reward people with high incomes for using these services
Thus, current tax policy is both inefficient and inequitable
Value and Waste - Overall
Value of Services
Low
High
Health promotion
(Follow-up/monitoring)
Chronic disease management
Episodic acute and chronic care
High
Intensity of Services
Low
Heroic interventions
(surgeries, tests, …)
Value and Waste – Traditional Payment
Value of Services
Low
High
Follow up/monitoring
Disease management
High
Intensity of Services
Low
Fancy Stuff
Waste and Value – Managed Care
Value of Services
Low
High
Follow up/monitoring
Disease management
High
Intensity of Services
Low
Fancy Stuff
Waste and Value – Pay for Quality
Value of Services
Intensity of Services
Low
Low
High
Follow up/monitoring
High
Disease management
Fancy Stuff
Pay for Performance
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Reward high value (quality per unit cost)
services by
– Measuring and publishing information on
quality of medical care
– Rewarding providers who deliver value
– Offering lower patient cost-sharing for costeffective care
– Covering compliance with chronic care
management plans (including RX use)
P4P (Continued)
Will pay for performance be widely
adopted?
 Over 100 current experiments exist
– Bridges to Excellence
– Leapfrog
– Center for Medicare and Medicaid
Services
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Bridges to Excellence Sites
Harvard Business Review on P4P
Performance Scorecard for U.S.A.
Consumer Directed Health Care
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CDHC responds to the OPM problem:
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Standard Features
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Aim: reduce entitlement mentality
High deductible insurance plan
Personal account funded partly or fully by employer
Gap between deposited amount and the deductible
Tax system encouragement
Internet-based decision support
Key assumptions
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A large percentage of medical care use is discretionary
Out-of-pocket incentives will reduce inappropriate spending
Do Consumers Have the Tools to Make
Informed Healthcare Decisions?
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80% of adults w/ internet access seek healthcare
information online.
AHRQ’s “Quality Tools” (www.qualitytools.ahrq.gov)
Will consumers distinguish between accurate and false
(or irrelevant) information?
– Recent Rand study: only 27% of consumers use
formal sources of information to choose a physician
– Health Insurance Experiment showed that increased
cost-sharing yielded reduced use of both effective
and ineffective services
CDHC (Continued)
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Quality of service information (patient satisfaction) is
available in a number of markets.
Study of elderly suggests no correlation between
consumer satisfaction survey results and expert
measures of the quality of care provided.
Do you know your risk for Cancer? Diabetes? Heart
Disease? Osteoporosis? Stoke? If not, check out
www.yourdiseaserisk.harvard.edu
CDHC (Continued)
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Most likely targets for CHDC are the bottom 50%.
Those in the top 20% typically spend > deductible and
face limited incentives to purchase high value/low
intensity care & to avoid low value/high intensity care.
Since treated prevalence has increased, incentives to
cut back on medical care may be misdirected unless
they encourage
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Behavior that reduces health risks
Primary and secondary prevention
Compliance with best practice
Angus Deaton’s Story
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Economist at Princeton
Advised to obtain a hip replacement
– 150,000 done each year
– Average cost $50,000
Only information on orthopedists was the general rule: “go where
the volume is.”
No information on prices – of which there are many
Actual transactions prices (and consumer out-of-pockets) were
impossible to know in advance. Nor was he asked if he wanted
service x at price y.
Result: impossible to know the total cost in advance.
Conclusion: informed consumer decision-making is not trivial
Porter and Teisberg’s
competitive ideal for health care
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Claim: wrong kind of competition exists –
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Right kind of competition
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To shift costs
To increase bargaining power
To capture patients and restrict choice
To restrict services to reduce costs
Focuses on value delivered to patients
Based on unlimited competition among providers
Competition base: episode of care for particular
medical conditions
Result should be regional & national competition based
on who can deliver the most value for patients with
particular medical conditions
The Shift Goes On
P and T on Role of Health Plans
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Get out of the “denial” business
Provide information to support patient and
physician decision-making
Reward excellence and value-enhancement for
patients
Simplify administrative structure and billing
Encourage multi-year contracting
P and T on Role of Employers
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Increase benefits that add the most health per
$ spent instead of seeking to minimize cost
Support enrollees in making cost-effective long
term health care choices & in managing their
own health
Hold all stakeholders accountable for using
benefit dollars wisely
P and T’s Ideal
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“Buy value” is not new. At least 20 years old.
Reinhardt: “Porter and Teisberg …offer a
utopian vision of a health system that might
occur to anyone possessed with a modicum of
common sense but not too familiar with the real
world of health care.”
See recent Health Affairs blog for reaction:
www.healthaffairs.org/blog
A Few Pertinent Questions
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Will P and T’s competition decrease the attractiveness
of integrated delivery programs and, thus, further
fragments delivery structure along new lines – episode
of care products? (Enthoven’s says yes)
Will we find a way to agree on appropriate quality
measures and deliver such information in cost-effective
ways to those who need the information? P4P helps!
Will stakeholders in the current payment structure give
up their advantages to benefit the “greater good”?
Wishful thinking
The Skeptics
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Reinhardt: “It is naïve to assume that the
potential losers … would simply roll over and
accept their fate.”
Maynard: “…improved control of expenditures
… would oblige physicians, nurses, hospitals,
and the Rx industry to moderate their
lifestyles.”
Chronic Care Management
Adoption of Clinical Information
Technology
The health care world is not yet
flat, but we can flatten it
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The World is Flat – Thomas L. Friedman
Rule No. 1 – Sept 22, 2006 – NY Times
“Whatever can be done, will be done- because so
many people now have access to the tools of
innovation and connectivity. The only question is: Will
it be done by you or to you?”
A Flat World has no barriers to competition:
Consumers will seek value and make purchases based
on who can deliver it no matter where that provider is
located.
Today’s health care world is not flat
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Lots of information is available and easily
transferable because of online connectivity, but
the knowledge to use it is very specialized.
Many barriers to the purchase of such care
exist
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Travel cost
Lack of Information
Health plan limitations
Poor incentives to seek value
Flatness requires changes in
behavior
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What are your priorities? Will you go as far to obtain
medical care as you would for
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A Packers’ Game
To buy a new car
To shop for a suit or dress ?
A change in incentives would help, but information
about quality differences matters too.
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P and T are right about regionalization of tertiary care. We
have too many low volume providers of intensive services.
Leapfrog members have vowed to reward volume since
volume is strongly related to cost-effectiveness.
Sacrifices of local access to obtain more cost-effective care
Some services might be ready for
flattening: consider radiology
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Patient – Physician relationship does not exist
Services can be separated from other aspects of care
management
Digital radiography reduces barriers to entry
Does it really matter whether a CT scan or an MRI is
read by a Chinese radiologist in Milwaukee, a Greek
radiologist in Kansas City or an Indian in Bangalore if
the perceived quality is the same?
Does the price differ? Indeed!
Radiology in the Central U.S.
Transactions Price for an MRI
Ingenix - Dec 2004 - Nov 2005
1,600
1,400
1,200
1,000
800
600
400
200
10t h Percent ile
25t h Percent ile
50t h Percent ile
75t h Percent ile
Chicago
Cincinnat i
Cleveland
Det r oit
Kansas Cit y Mo
Milwaukee
Minneapolis
St . Louis
90t h Percent ile
Indianapolis
What can purchasers do?
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Educate people about value
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Nexium vs. Prilosec
(United Health Care – won’t cover Nexium)
Give incentives to comply with evidence-based, best
practice, especially for those with chronic disease
– Chronic care improvement model
– http://www.improvingchroniccare.org/
Design payment structures to
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Encourage people to be healthy and to comply with best
practices (cost-effective care)
Discourage third party payment for cost-ineffective care
Summary
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The rise in health care costs will continue.
Technology and demographics will propel it.
Oscar Wilde said “Economists know the price
of everything and the value of nothing”
Cutler, Thorpe, Porter, Reinhardt, and Maynard
beg to differ! So do I.
Summary (Continued)
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To obtain the most for our health care $, public policy
needs to stop rewarding high cost/ low value care.
If consumers / patients wish lower spending on health
care, they must
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accept reduced convenience for some services
reduce their risk of disease
learn to manage the diseases they have
and learn to purchase care that adds value and to not
purchase high cost / low value care.
Thank You
for Your Attention
email: [email protected]