1 health care financing november 10, 2000 health care financing november 10, 2000
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11
Health Care Financing
November 10, 2000
Health Care Financing
November 10, 2000
22
Total Annual Health Spending Per CapitaConstant (1998) DollarsTotal Annual Health Spending Per CapitaConstant (1998) Dollars
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
1950 1960 1970 1980 1990 2000
Source: HCFASource: HCFA
33
Costs as a percentage of GDPCosts as a percentage of GDP
8%10%12%14%16%18%20%22%
Perc
enta
ge o
f G
DP
1980 1985 1990 1995 2000 2005 2010 Year
Health Care SpendingPercent of GDP
44
Why Healthcare Costs RiseWhy Healthcare Costs Rise
EnhancedTechnologyEnhanced
Technology
PopulationAging
PopulationAging
Purchaser / Consumer Separation
Purchaser / Consumer Separation
Expectationof
Perfection(Litigation)
Expectationof
Perfection(Litigation)
$$
55
Average Expenditure Increase Per Capita - Excess Beyond InflationAverage Expenditure Increase Per Capita - Excess Beyond Inflation
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
1950 1960 1970 1980 1990 2000
Source: HCFASource: HCFA
Medicare Mgd Care Backlash
66
Health InsuranceHealth Insurance
Insurance to pay for the cost of illness and Insurance to pay for the cost of illness and injury. It pays for hospitals, physicians and injury. It pays for hospitals, physicians and
other providersother providers
Insurance to pay for the cost of illness and Insurance to pay for the cost of illness and injury. It pays for hospitals, physicians and injury. It pays for hospitals, physicians and
other providersother providers
77
HistoryHistory
• 1847 Massachusetts Health Insurance of Boston covers 1847 Massachusetts Health Insurance of Boston covers illness expensesillness expenses
• 1861 Accident insurance covered injuries from rail and 1861 Accident insurance covered injuries from rail and steamboat travelsteamboat travel
• 1883 Bismark adopts compulsory coverage for accidents 1883 Bismark adopts compulsory coverage for accidents and illness in Germanyand illness in Germany
• 1929 Teachers contract with Baylor Hospital for room, 1929 Teachers contract with Baylor Hospital for room, board, and medical expenses in exchange for monthly feeboard, and medical expenses in exchange for monthly fee
• 1932 Blue Cross Blue Shield begins to offer group 1932 Blue Cross Blue Shield begins to offer group policies to employerspolicies to employers
• 1847 Massachusetts Health Insurance of Boston covers 1847 Massachusetts Health Insurance of Boston covers illness expensesillness expenses
• 1861 Accident insurance covered injuries from rail and 1861 Accident insurance covered injuries from rail and steamboat travelsteamboat travel
• 1883 Bismark adopts compulsory coverage for accidents 1883 Bismark adopts compulsory coverage for accidents and illness in Germanyand illness in Germany
• 1929 Teachers contract with Baylor Hospital for room, 1929 Teachers contract with Baylor Hospital for room, board, and medical expenses in exchange for monthly feeboard, and medical expenses in exchange for monthly fee
• 1932 Blue Cross Blue Shield begins to offer group 1932 Blue Cross Blue Shield begins to offer group policies to employerspolicies to employers
88
First HMOFirst HMO
• Health Maintenance OrganizationHealth Maintenance Organization
• 1932 Sidney Garfield begins prepayment, $.05 per worker 1932 Sidney Garfield begins prepayment, $.05 per worker per day to promote wellness and prevent industrial per day to promote wellness and prevent industrial accidents. Optional $.05 per day covered illness as wellaccidents. Optional $.05 per day covered illness as well
• 1938 Henry Kaiser contracts with Dr. Garfield to treat 1938 Henry Kaiser contracts with Dr. Garfield to treat workers on Grand Coulee Dam. Membership later opened workers on Grand Coulee Dam. Membership later opened to family membersto family members
• Health Maintenance OrganizationHealth Maintenance Organization
• 1932 Sidney Garfield begins prepayment, $.05 per worker 1932 Sidney Garfield begins prepayment, $.05 per worker per day to promote wellness and prevent industrial per day to promote wellness and prevent industrial accidents. Optional $.05 per day covered illness as wellaccidents. Optional $.05 per day covered illness as well
• 1938 Henry Kaiser contracts with Dr. Garfield to treat 1938 Henry Kaiser contracts with Dr. Garfield to treat workers on Grand Coulee Dam. Membership later opened workers on Grand Coulee Dam. Membership later opened to family membersto family members
99
Growth Employee Benefit1940-1950
Growth Employee Benefit1940-1950
• Wage and price freeze and union membership drive Wage and price freeze and union membership drive growth of employee benefit plansgrowth of employee benefit plans
• Employers enhance benefit package to include health Employers enhance benefit package to include health insuranceinsurance
• Wage and price freeze and union membership drive Wage and price freeze and union membership drive growth of employee benefit plansgrowth of employee benefit plans
• Employers enhance benefit package to include health Employers enhance benefit package to include health insuranceinsurance
1010
Government Sponsored Insurance 1965
Government Sponsored Insurance 1965
• Medicare provides coverage for elderly and Medicare provides coverage for elderly and disableddisabled
• Medical provides coverage for poorMedical provides coverage for poor
• Medicare provides coverage for elderly and Medicare provides coverage for elderly and disableddisabled
• Medical provides coverage for poorMedical provides coverage for poor
1111
Changes in PaymentChanges in Payment
• 1984 Payment By DRG1984 Payment By DRG
• Discounts to providers with managed careDiscounts to providers with managed care
• 1984 Payment By DRG1984 Payment By DRG
• Discounts to providers with managed careDiscounts to providers with managed care
1212
Shift in PaymentShift in Payment
• Emergence of Government as PayerEmergence of Government as Payer
• In 1965, 75% of payment from private In 1965, 75% of payment from private sourcessources
• By 1995 only 54% was privateBy 1995 only 54% was private
• Emergence of Government as PayerEmergence of Government as Payer
• In 1965, 75% of payment from private In 1965, 75% of payment from private sourcessources
• By 1995 only 54% was privateBy 1995 only 54% was private
1313
Change in Benefit DesignChange in Benefit Design
• Growth of Managed CareGrowth of Managed Care
• 1980 9.1 million Americans in Managed Care1980 9.1 million Americans in Managed Care
• By 1995 that rose to 46 million By 1995 that rose to 46 million
• The number is much higher nowThe number is much higher now
• Growth of Managed CareGrowth of Managed Care
• 1980 9.1 million Americans in Managed Care1980 9.1 million Americans in Managed Care
• By 1995 that rose to 46 million By 1995 that rose to 46 million
• The number is much higher nowThe number is much higher now
1414
Managed CareCost--Choice Trade offManaged CareCost--Choice Trade off
$0.65
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
Cost
HMO Contract PPO IndemnityChoice
Health InsuranceRelative Premium Rates
1515
Clinical Quality is Generally Better in Managed Care than in Traditional Fee-for-Service CareClinical Quality is Generally Better in Managed Care than in Traditional Fee-for-Service Care
• Virtually every measure of preventive care is much higher Virtually every measure of preventive care is much higher for members in managed care plans than in traditional for members in managed care plans than in traditional indemnity plans (CDC, OIG)indemnity plans (CDC, OIG)
• Inappropriate, often dangerous, care has a higher incidence Inappropriate, often dangerous, care has a higher incidence in FFS systems than in managed care (HCFA)in FFS systems than in managed care (HCFA)
• Risk adjusted heart attack mortality rates were lower in Risk adjusted heart attack mortality rates were lower in managed care plans than traditional insurance (American managed care plans than traditional insurance (American Journal of Managed Care)Journal of Managed Care)
• Medicare women with breast cancer in HMO’s have their Medicare women with breast cancer in HMO’s have their cancer diagnosed at an earlier stage, and have better cancer diagnosed at an earlier stage, and have better outcomes than those in traditional Medicare (JAMA)outcomes than those in traditional Medicare (JAMA)
• Virtually every measure of preventive care is much higher Virtually every measure of preventive care is much higher for members in managed care plans than in traditional for members in managed care plans than in traditional indemnity plans (CDC, OIG)indemnity plans (CDC, OIG)
• Inappropriate, often dangerous, care has a higher incidence Inappropriate, often dangerous, care has a higher incidence in FFS systems than in managed care (HCFA)in FFS systems than in managed care (HCFA)
• Risk adjusted heart attack mortality rates were lower in Risk adjusted heart attack mortality rates were lower in managed care plans than traditional insurance (American managed care plans than traditional insurance (American Journal of Managed Care)Journal of Managed Care)
• Medicare women with breast cancer in HMO’s have their Medicare women with breast cancer in HMO’s have their cancer diagnosed at an earlier stage, and have better cancer diagnosed at an earlier stage, and have better outcomes than those in traditional Medicare (JAMA)outcomes than those in traditional Medicare (JAMA)
1616
Backlash!Backlash!
1717
Backlash!Backlash!
1818
Managed Care at the CrossroadsManaged Care at the Crossroads
Real managed care, as envisioned by Paul Ellwood or Alain Enthoven is incompatible with economic boom times with a tight labor market and a health insurance system whose policies are part of the labor contract
Uwe Reinhardt
Real managed care, as envisioned by Paul Ellwood or Alain Enthoven is incompatible with economic boom times with a tight labor market and a health insurance system whose policies are part of the labor contract
Uwe Reinhardt
1919
Why Healthcare Costs Rise – Piling OnWhy Healthcare Costs Rise – Piling On
EnhancedTechnologyEnhanced
Technology
PopulationAging
PopulationAging
Purchaser / Consumer Separation
Purchaser / Consumer Separation
Expectationof
Perfection
Expectationof
Perfection
$$
Class Action Lawsuits Against Managed Care and EmployersClass Action Lawsuits Against Managed Care and Employers
Broad Direct Marketing of Drugs and Technology
Broad Direct Marketing of Drugs and Technology
Human Resource Shortages of Key Healthcare ProfessionalsHuman Resource Shortages of Key Healthcare Professionals
$$
2020
Health Care Organizations:Caught in the MiddleHealth Care Organizations:Caught in the Middle
Historical Cost Increase Pressures
Historical Cost Increase Pressures
Extraordinary Cost Increase PressuresExtraordinary Cost Increase Pressures
“Balanced Budget”Medicare Impact
“Balanced Budget”Medicare Impact
Employer Cost Concerns
Employer Cost Concerns
2121
Acute Examples at Prestigious OrganizationsAcute Examples at Prestigious Organizations
• Harvard – Pilgrim Health PlanHarvard – Pilgrim Health Plan• Massachusetts General / Brigham and Women’sMassachusetts General / Brigham and Women’s• Stanford / University of California at San Stanford / University of California at San
FranciscoFrancisco• Henry Ford Health SystemHenry Ford Health System• SutterSutter• AllinaAllina• Allegheny HealthAllegheny Health• Catholic Healthcare WestCatholic Healthcare West
• Harvard – Pilgrim Health PlanHarvard – Pilgrim Health Plan• Massachusetts General / Brigham and Women’sMassachusetts General / Brigham and Women’s• Stanford / University of California at San Stanford / University of California at San
FranciscoFrancisco• Henry Ford Health SystemHenry Ford Health System• SutterSutter• AllinaAllina• Allegheny HealthAllegheny Health• Catholic Healthcare WestCatholic Healthcare West
2222
Status Quo Projections at IHCStatus Quo Projections at IHC
• Annual total volume growth (inpatient and outpatient Annual total volume growth (inpatient and outpatient services, driven by population growth and utilization services, driven by population growth and utilization changes): 2.8% per yearchanges): 2.8% per year
• Reimbursement increaseReimbursement increase• Medicare / Medicaid: 1%Medicare / Medicaid: 1%• All other: 3%All other: 3%
• Expense increaseExpense increase• Salaries, wages and benefits: 5%Salaries, wages and benefits: 5%• All other: 3%All other: 3%• Depreciation: 7%Depreciation: 7%
• No utilization, efficiency or other improvementsNo utilization, efficiency or other improvements
• Annual total volume growth (inpatient and outpatient Annual total volume growth (inpatient and outpatient services, driven by population growth and utilization services, driven by population growth and utilization changes): 2.8% per yearchanges): 2.8% per year
• Reimbursement increaseReimbursement increase• Medicare / Medicaid: 1%Medicare / Medicaid: 1%• All other: 3%All other: 3%
• Expense increaseExpense increase• Salaries, wages and benefits: 5%Salaries, wages and benefits: 5%• All other: 3%All other: 3%• Depreciation: 7%Depreciation: 7%
• No utilization, efficiency or other improvementsNo utilization, efficiency or other improvements
2323
Status Quo Projections at IHCRevenue and CostStatus Quo Projections at IHCRevenue and Cost
0
500
1000
1500
2000
2500
3000
3500
2000 2001 2002 2003 2004 2005 2006
Deductions
Depreciation
Interest
Other Exp
Salaries
Revenue
2424
Today’s Turbulence Is Likely to Catalyze New Insurance MechanismsToday’s Turbulence Is Likely to Catalyze New Insurance Mechanisms
• Purchasers (both government and commercial) are likely Purchasers (both government and commercial) are likely to respond to increasing costs by placing consumers in a to respond to increasing costs by placing consumers in a position of greater choice – but with more significant position of greater choice – but with more significant responsibility – than in the pastresponsibility – than in the past
• The most dramatic incarnation of such a philosophy with a The most dramatic incarnation of such a philosophy with a reasonable likelihood of implementation is employer-reasonable likelihood of implementation is employer-based defined-contributionbased defined-contribution
• In some ways, this is a non-government reincarnation of In some ways, this is a non-government reincarnation of “managed competition” as discussed in the early 1990s“managed competition” as discussed in the early 1990s
• As an alternative, national single-payer systems are again As an alternative, national single-payer systems are again under discussion, but are not likely in the near futureunder discussion, but are not likely in the near future
• Purchasers (both government and commercial) are likely Purchasers (both government and commercial) are likely to respond to increasing costs by placing consumers in a to respond to increasing costs by placing consumers in a position of greater choice – but with more significant position of greater choice – but with more significant responsibility – than in the pastresponsibility – than in the past
• The most dramatic incarnation of such a philosophy with a The most dramatic incarnation of such a philosophy with a reasonable likelihood of implementation is employer-reasonable likelihood of implementation is employer-based defined-contributionbased defined-contribution
• In some ways, this is a non-government reincarnation of In some ways, this is a non-government reincarnation of “managed competition” as discussed in the early 1990s“managed competition” as discussed in the early 1990s
• As an alternative, national single-payer systems are again As an alternative, national single-payer systems are again under discussion, but are not likely in the near futureunder discussion, but are not likely in the near future
2525
LinkageTo Market
HealthPlans
HealthPlansMedical Expense Stabilization – Input Costs:
Charge Per Case for Utah HospitalsMedical Expense Stabilization – Input Costs:Charge Per Case for Utah Hospitals
-50%-40%-30%-20%-10%
0%10%20%30%40%
0 5,000 10,000 15,000 20,000 25,000 30,000
Admits
Dev
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om U
T A
vg
LDSLDS
UUUU
UVUVStMStM
McKMcK
CtWdCtWd
AFAF
ORMCORMC
DavDav
AVAVSLRSLR
MVMVLVLV
= Non IHC= Non IHC
= IHC= IHC
AP-DRG Adjusted Trended by Size (Admit Rate) - 1998AP-DRG Adjusted Trended by Size (Admit Rate) - 1998
2626
LinkageTo Market
HealthPlans
HealthPlans
Facilitate Medical Expense StabilizationFacilitate Medical Expense Stabilization
• Implement “indications for care” guidelines in all Implement “indications for care” guidelines in all clinical programsclinical programs
• Provide cost per case, cost per episode and cost Provide cost per case, cost per episode and cost PMPM incentives (depending on the clinical PMPM incentives (depending on the clinical program) for physiciansprogram) for physicians
• Develop product designs that place greater Develop product designs that place greater financial incentive for efficient care on the financial incentive for efficient care on the consumer – to avoid adversarial care management consumer – to avoid adversarial care management and prepare for defined contributionand prepare for defined contribution
• Implement “indications for care” guidelines in all Implement “indications for care” guidelines in all clinical programsclinical programs
• Provide cost per case, cost per episode and cost Provide cost per case, cost per episode and cost PMPM incentives (depending on the clinical PMPM incentives (depending on the clinical program) for physiciansprogram) for physicians
• Develop product designs that place greater Develop product designs that place greater financial incentive for efficient care on the financial incentive for efficient care on the consumer – to avoid adversarial care management consumer – to avoid adversarial care management and prepare for defined contributionand prepare for defined contribution
2727
Protocol for treatment of PneumoniaProtocol for treatment of Pneumonia
• 67 Different combinations of antibiotics67 Different combinations of antibiotics
• Protocol established best practiceProtocol established best practice
• Documented 25-47% improvement in mortalityDocumented 25-47% improvement in mortality
• 10% improvement in expense 10% improvement in expense
• 25% improvement in complications25% improvement in complications
• 67 Different combinations of antibiotics67 Different combinations of antibiotics
• Protocol established best practiceProtocol established best practice
• Documented 25-47% improvement in mortalityDocumented 25-47% improvement in mortality
• 10% improvement in expense 10% improvement in expense
• 25% improvement in complications25% improvement in complications
2828
LinkageTo Market
HealthPlans
HealthPlansFacilitate Medical Expense Stabilization
- Involve the Consumer FinanciallyFacilitate Medical Expense Stabilization- Involve the Consumer Financially
$$Health PlanHealth Plan PhysicianPhysician
ConsumerConsumer
THE ENDTHE END