Transcript Whack a Mole and Other Questionable Approaches to Health

Whack a Mole and Other
Approaches to Health Care Cost
Containment
Merton D. Finkler, Ph.D
Lawrence University
The Agenda
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A Brief History of Health Care Cost
Containment Efforts
Strategies That Don’t Work
Three Potentially Successful Strategies
Guidelines for Selecting the Right Cost
Containment Strategy
Whack a Mole Game
20%
15%
10%
5%
0%
Hospitals Physicians
Drugs
Insurance
Nursing
Homes
Points to Remember
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Component-based cost containment is
temporary.
The burden of health care cost falls mostly on
labor.
Value-based purchasing requires leaping many
barriers.
All sustainable strategies involve sacrifice.
Each organization needs to find the tradeoff
that best matches its mission.
Total Health Care Expense Growth
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
0.0%
Cost Containment 1980 to the
Present
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Health care expenditures increased at double
digit rates in the early and late eighties
Health care expenditures are again
approaching double digit rates
Insurance premiums have featured double-digit
growth for the past two years.
Each health care service component has had
its turn at leading the rise in costs
Hospital Expenditure Growth
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
0.0%
Hospital Cost
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14% or greater expenditure growth in 1980-82
DRGs led to stabilized expenditure growth.
Movement to outpatient services, ambulatory surgery,
and clinics since the mid 1980s
Early 1980s, 80% of all surgeries was inpatient hospital
event and 20% outpatient or ambulatory surgery center
Now close to reversed
Hospital costs share declined from 42% of total to 32%.
Yet spending on hospital services accounted for over
50% of health care expenditure growth in 2001.
Hospitals continue to build.
Physician and Clinical Services
Expenditures Growth
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
0.0%
Physician and Clinical Services
Expenditure Growth
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Double – digit $ growth throughout the 1980s
1984 Medicare fee freeze – defeated by volume
increases (especially for diagnostic services)
1992 – RBRVS – fee schedule and volume
performance standards have helped to keep category
in line with overall medical expenditures
Physician and clinical service costs share has risen
from 19% to 23%, mostly in the 1980s
Technology has moved out of the hospital.
Insurance and Administrative
Cost Inflation
40.0%
30.0%
20.0%
10.0%
-20.0%
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
-10.0%
19
82
19
80
0.0%
Insurance and Administrative Cost
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The insurance and administrative portion (load factor)
of the premium has been most volatile cost component.
Insurance pricing cycle features market share chasing
followed by bouts of profit margin expansion and
reserve replenishment
Average growth above 20% for 1988-1990 led to
movement for major health care policy reform
It failed but managed care (pricing) boomed.
Pharmaceutical Cost Inflation
25.0%
20.0%
15.0%
10.0%
5.0%
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
0.0%
Pharmaceutical Cost
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Double-digit growth since 1980 except for 1992-94
The most rapidly rising component of expenditures
since 1995.
Some argue increased Rx has been the key ingredient
in keeping total expenditures down.
Mix of rising usage, new products & rising prices
Public policy response varies; some states act as large
purchaser and/or price fixer (Maine).
Three tiered programs drive private purchasing.
Expenditure share has risen from 5% to 9.7%
Back to the Future
Who Bears the Burden?
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Two Central Facts
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Consequence: Labor bears most of the burden even if
employers pay the bill
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Employer arranged health care plans are a cost of labor
Management is more responsive to changes in the cost of
labor than laborers are to changes in pay
(80% - median estimate among economists)
Common Perception: businesses or consumers bear
the burden
Incidence of Health Plan $ Increase
Total
Compensation
Labor
Supply
After HC$
Increase
Wage or
Salary
Labor
Demand
Number of
Laborers
Real Wages Were Flat until 1996
4.0
3.0
2.0
1.0
-2.0
-3.0
-4.0
Total real compensation
Real wages and salaries
Real Benefits
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
-1.0
1980
0.0
Real Wages and Sales did not grow
between 1980 and 1995
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Total real compensation grew by 0.5% per year
Real wages grew by 0.0% per year
Real benefits grew by 1.6% per year
For 2000, TC 1%;Ben  2.2%;Wages  0.5%
Conclusion: Increases in productivity (1.5%)
consumed by health insurance and pension
Conclusion: Laborers bear the burden of
health insurance cost even if employer pays
The Whack a Mole Response to
Rising Health Care Costs
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Short-sighted benefit redesign:
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Cost Accountant’s Revenge
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Target the fastest growing component (e.g., ER
use, RX use)
If policy slows the fastest growing component, a
new fastest grower emerges
Only attempts to address total expenditures
have the potential for sustainable success
Capital Expenditures Control
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Duplication of services and reduction of excess
capacity have often led to calls for controlled entry –
Certificate of Need (CON) laws
Common practice –1970s & 80s, the results: barriers to
new entrants and no changes in expenditure growth
Solutions are dictated by political power, not market
success
CON insulates existing providers from attempts to
increase quality or reduce cost
Which Costs Should Be Contained?
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Those paid by third parties
Total payments to the industry (including outof-pocket)
Those related to diseases and their burdens
Politicians, employers, and individuals have
different answers
Managed Care in the 1990s
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1990s version featured insurance companies
trading patient volume for provider network
discounts or capitated payment
Most insurers focused on discounts and major
utilization trends – “the low hanging fruit”
Employers selected 1 plan (an insurance
carrier HMO) to reduce administrative cost
HMO plans offered comprehensive benefits
Managed Care and its Backlash
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Comprehensive benefits with employer-chosen
restricted access infuriated virtually everyone.
Low unemployment rates and income tax
exemption encouraged expanded benefits and
networks ; thus, less management & higher $
Further reductions in hospital length of stay not
cost-effective but contentious
3 Potentially Sustainable Strategies
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Make health care a consumer responsibility
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Cap payments to the health care sector
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Nationalize insurance or employ global budgets
Encourage primary and secondary prevention
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Encourage patients to be efficient consumers
Disease management for chronic disease
Changes in life style for the rest of us
Ideally, seek to add value
Consumer Responsibility to the
Rescue
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A response to OPM (Other People’s Money)
Increased cost sharing – it’s your money, you decide
how to spend it
Benefit Shift: from comprehensive coverage with
restricted choice to partial subsidy for broad choice
Medical Savings Accounts feature the extreme version
– only catastrophic insurance
Many new (untested) options exist
Consumer income and preferences drive choices
The Costs of Shifting the Burden
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Some employers abandon health care
Risk segmentation increases
Reduced incentives to join comprehensive
benefit plans (HMOs)
Incentives to postpone treatment and ignore
prevention are increased
“Out of the managed care frying pan into the
cost sharing fire”
The Ultimate: Cheap Insurance
Single Payer Rises Again
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Expenditures can be contained by politically
set budgets or global caps
Canada and UK have successfully controlled
the health care line item
Priorities in these systems set politically or by
providers
The Costs of Single Payer
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Individual preferences play limited role
Burdens of illness not addressed, only gov’t budgets
Technology limited: both that which adds value and
that which does not
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Fewer MRIs means more surgery
Fewer new drugs means more intensive medicine
If enrollees can choose a capped plan (or not),
individual preferences can served
Gov’t. systems run out of money before fiscal year
ends
The Budget Cake is Only So Big
Chronic Disease Burdens are Huge
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The burden of illness far exceeds documented paid
claims
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Total burden approximates $10k per year per worker with only
47% from group health $ (Goetzel)
Chronic disease burdens cost > $1 trillion per year
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CDC/RWJ report estimates that 125 million American suffer
from a chronic condition (Anderson)
Average annual medical cost of $6,032 for those with vs.
$1,105 for those without a chronic disease (Anderson)
Chronic disease a/c 67.5% of medical $ for working age adults
Ave. work impairment is ranges from 2.3 to 10.9 days per 30
day work period (Kessler)
Top 10 Diseases by Employer Expense
Chronic Disease Management
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Use evidence-based medicine
Well conceived disease management
programs yield $5 - $10 of benefit per $ spent
Successful programs integrate care,
emphasize communication, and reduce
barriers to compliance
Success requires compliance with evidencebased guidelines
Primary Prevention
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The prevalence of chronic disease and the
impact of risk increases with age
Pick prevention programs that match risks
Wellness programs – Goetzel AJHP – medical
costs dropped for 28 /32 corporate programs
reviewed
Reduced Risk Means Reduced Cost
Some Costs of Prevention
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Payment comes before savings and, thus, may
not make sense with annual enrollment
switching
Each program has a different payback period
Each population faces a different set of risks
Compliance (medical community and
patient/consumers) does not happen without
education and compatible incentives
Pay Me Now or Pay Me Later
Seek to Add Value
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Determine services that add the most
improvement in health status or consumer
satisfaction per $ spent
Employ evidence-based medicine – that based
on the most valid and reliable scientific
information available
Reward evidence-based “best” practice
Recognize there may not be one “best” way.
Value-Based Purchasing:
No Mean Feat
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No common definition of value or quality;
hence hard to implement
Multiple reporting requirements and data
validity mean extra expense to implement
Public sector purchasers face legislative and
administrative restrictions on options
Purchasers must have market power
Providers resist quality performance
comparisons
Join a Purchasing Coalition
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Increased bargaining power if in same market
Shared benefits and administrative
responsibility is essential for success
Mixed results since each pool represents an
unique mix of risks, benefits, and incentives
California HIPC aggressively negotiated prices
with plans; most others had very limited effect
Central Florida Health Care
Coalition
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1 million covered lives – 1/3 of the market
Started in mid 1980s, spent millions
Focus: good quality is cost-effective
Identify evidence-based best practices
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Over-use, under-use, and inappropriate use
MBGH estimates at $1,350 per employee per year +
$350 indirect costs for poor quality care
Estimate: 30% of direct hc $ related to poor quality
Pay for Performance
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Central Florida Coalition spent $1 million – 5 year
implementation plan
Measure and communicate best practices
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Establish platinum, gold, and silver payment
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50% based on clinical quality
25% based on cost
25% based on patient satisfaction
Silver level: pay 65% of Medicare
Also reward platinum consumers
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Make consumers aware of cost
Reward compliance and risk reduction
Trade-offs to be faced–all options
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Increased life expectancy means increased cost but
increased healthy years
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Demographic factors suggest that health burdens will
rise dramatically in the future; thus need to determine
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Success in acute care increases life expectancy.
Chronic disease increases with age, and, thus, life expectancy.
Which services to provide
Who will pay the bill
Health care resources are scarce; thus, priority setting,
not new entitlements, is needed
Fundamental Choice for
Purchasers
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Patients / customers must choose either broad choice
or increased integration
– A broad network of providers
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A narrow network of integrated providers
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with high cost or external rationing
fragmented care
with lower costs and internal rationing
more care coordination
IBM helps its enrollees evaluate tradeoffs in terms of
their own preferences
The Big Tradeoff
Fundamental Choice for Medical
Community
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Physicians must choose between
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Independent practice with
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Oversight from third parties
Some ability to bill for extra services
Limited financial risk
Continuous need to market services
Group practice with
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Assumption of financial risk
Some clinical independence
Group practice decision-making and oversight
Opportunity for cost-effective integrated programs
Guidelines for Purchaser Choice of
a Cost Containment Strategy
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Focus on the total burden of illness, not
component cost control
Develop and nurture long term partnerships
among patients, providers, and payers.
(Structure the system for all to win)
Identify health risk factors and choose health
programs and benefit designs to reduce them
Guidelines continued
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Invest in the information (including evidencebased guidelines) and communication
infrastructure for prevention
Provide incentives for enrollees, providers, and
payers to reward performance consistent with
reduced risks and illness burdens
Success requires strong leaders who seek
value from health services & human capital.
Editorial views
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“…So far, health care has no Toyota…” –Molly
Coye
JD Kleine – Oxymoron: The Myth of a U.S.
Health Care System
“Knowing is not enough; we must apply.
Willing is not enough; we must do” - Goethe
American Values
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“You can always count on Americans to do the
right thing - after they’ve tried everything else.”
– W. Churchill
“When faced with second-best trade-off
between cost-conscious choice and no choice
at all, however, Americans may grumble but
select the former.” – J. Robinson
One Solution: Value + Choice
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Find value and support it.
Fixed contribution by employers to a flexible
spending account (Enthoven)
Provide two options for coverage
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A focused narrow network that encourages
prevention and chronic disease management
Broad choice with consumers determining how to
spend their money