growing healthcare spending...stuart h. altman growing healthcare spending: can or should it be...

Stuart H. Altman

Growing Healthcare Spending:Growing Healthcare Spending:Can or Should It Be Controlled to Can or Should It Be Controlled to

Prevent a Health System Prevent a Health System ““MeltdownMeltdown”” ??

Stuart H. AltmanStuart H. AltmanDean and Sol C. Chaikin Professor

The Heller School for Social Policy and ManagementBrandeis University

Stuart H. Altman

Overall Healthcare Spending Overall Healthcare Spending Per Capita In Massachusetts Per Capita In Massachusetts

Much Higher Than U.S. Much Higher Than U.S. ------ But!But!

•• Mass. PerMass. Per--Person Spending 30 to 45 percent Person Spending 30 to 45 percent Above National AverageAbove National Average

•• Spending in Mass. Have Grown Faster Than Spending in Mass. Have Grown Faster Than National AverageNational Average

-------- But Not A Good Measure of Spending But Not A Good Measure of Spending By Massachusetts ResidentsBy Massachusetts Residents

Stuart H. Altman

Massachusetts Spending for Massachusetts Spending for Medicare Slightly Higher Than U.S.Medicare Slightly Higher Than U.S.

•• Medicare payments per beneficiary in Medicare payments per beneficiary in Massachusetts adjusted for IME/GMEMassachusetts adjusted for IME/GME–– Total payments 14% above US averageTotal payments 14% above US average–– Payments for acute care services 6% above US Payments for acute care services 6% above US

averageaverage

•• Why is this so much lower than personal Why is this so much lower than personal health spending per capitahealth spending per capita–– Excludes clinical research, out of state patients, Excludes clinical research, out of state patients,

IME/GME paymentsIME/GME payments–– Adjusts for local price differencesAdjusts for local price differences

©Stuart H. Altman

Stuart H. Altman

Massachusetts 2005 Health Insurance Massachusetts 2005 Health Insurance Premiums Are Higher Than US Average Premiums Are Higher Than US Average

——But Gap Is LessBut Gap Is Less

MA US Difference MA Rank out of 50

Family Premium

$11,435 $10,728 6.6% 8th

Single Premium

$4,235 $3,991 6.1% 12th

Source: Agency for Healthcare Research and Quality, 2007.

Stuart H. Altman

Therefore Pressures To Therefore Pressures To Increase Healthcare Spending Increase Healthcare Spending In MassachusettsIn Massachusetts Similar To Similar To

Overall U.S.Overall U.S.

Thus Will Focus Remarks Thus Will Focus Remarks on National Figures!on National Figures!

Stuart H. Altman

How Does U.S. Compare To How Does U.S. Compare To Other Countries?Other Countries?

Stuart H. Altman

Correlation Between Per Capita Correlation Between Per Capita Expenditure on Health Care and GDP, Expenditure on Health Care and GDP,

20022002--20032003

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0 10,000 20,000 30,000 40,000 50,000per Capita GDP ($US PPP)

per C

apita

Exp

on

Hea

lth

($U

S PP

P)

The figure for Japan is 2002 estimate; the figures for Australia, Austria, China, Hungary, Ireland, Israel, Poland, Sweden and United Kingdom are of 2002; the figures for Canada, France, Iceland, Norway and Switzerland are 2003 estimates. The rest are of 2003.

Source: OECD Health Data 2005 and WHO.

U.S.

Canada Norway

Japan

Switzerland

Germany

Israel

KoreaChina

U.K.

Australia

$572

y = 309.6467e0.0001x

R2 = 0.9030

©Stuart H. Altman

Stuart H. Altman

Why Is Health Spending Why Is Health Spending Higher In U.S.Higher In U.S.

Do We Use More Services or Just Do We Use More Services or Just Spend More for The Services We Spend More for The Services We

Use?Use?

Stuart H. Altman

InIn--Patient Acute Care BedsPatient Acute Care Bedsin Selected Countriesin Selected Countries 2002 2002

(per 1,000 persons)(per 1,000 persons)8.9

3.62.4

2.93.7

5.76.6

0123456789

10

US China Australia UK Korea Germany Japan

Sources: OECD HEALTH DATA 2005

Stuart H. Altman

Hospital Discharge RateHospital Discharge Ratein Selected Countries 2002in Selected Countries 2002

15,663

20,164

23,215

11,712

8,82810,19911,067

0

5,000

10,000

15,000

20,000

25,000

US UK Germany Australia Korea Japan Canada

Dis

char

ges

per 1

00,0

00 P

op

Source: OECD HEALTH DATA 2005

Stuart H. Altman

Average Length of Stay in Hospital Average Length of Stay in Hospital in Selected Countriesin Selected Countries

6.99.2

22.2

9.0

5.7

0.0

5.0

10.0

15.0

20.0

25.0

US Australia UK China Germany Japan

In-P

atie

nt A

cute

Car

e D

ays

In-patient Acute Care Days


Stuart H. Altman

Practicing Physicians Practicing Physicians in Selected Countries in Selected Countries

20022002

1.5

2.02.12.12.1

2.5

3.3

2.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

US Germany Australia UK NZ Canada Japan China

Phys

icia

ns p

er 1

,000

pop

ulat

ion


Stuart H. Altman

DoctorsDoctors’’ Consultations per Consultations per Capita in Selected CountriesCapita in Selected Countries

20022002

2.6

5.66.2

10.6

14.1

8.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

US Japan Korea Australia UK Mexico

Num

ber o

f Con

sulta

tions

per

Cap

ita


Stuart H. Altman

Percent of Total Healthcare Percent of Total Healthcare Expenditures on PharmaceuticalsExpenditures on Pharmaceuticals

12.4%

10.4%

15.2%

12.4%13.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

U.S U.K. Australia Canada Germany

Stuart H. Altman

What About The Availability of What About The Availability of Expensive Medical Technology Expensive Medical Technology

and Procedures?and Procedures?

Stuart H. Altman

MRIs in Selected Countries MRIs in Selected Countries 20022002

(Units per million persons)

5.26.0

6.0

8.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

US Australia Germany UK

Sources: OECD HEALTH DATA 2005

Stuart H. Altman

Cardiac Cauterization Procedures in Cardiac Cauterization Procedures in Selected Countries Selected Countries

20032003424.8

302.6

230.9

6.614.10

50100150200250300350400450

US Australia Canada UK Mexico

Proc

edur

es p

er 1

00,0

00 p

op


Stuart H. Altman

Patients Using Renal Dialysis Patients Using Renal Dialysis Treatment in Selected Countries Treatment in Selected Countries

20022002148.9

37.054.1

69.0

33.4 26.440.5

0

20

40

60

80

100

120

140

160

US Australia Canada Germany UK Mexico NZ

Patients With Dialysis

Proc

edur

es P

er 1

00,0

00

Popu

latio

n


Stuart H. Altman

Liver Transplant Procedures in Liver Transplant Procedures in Selected Countries Selected Countries

200220021.8

0.8

1.2

0.9

1.2

0.9

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

US Australia Canada Germany UK KoreaLiver Transplant

Proc

edur

e pe

r 100

,000

Po

pula

tion


Stuart H. Altman

Technology Is a Major Driver in Technology Is a Major Driver in Health Care Expenditure Growth.Health Care Expenditure Growth.--

----Is it Worth It?Is it Worth It?

““When costs and benefits are weighed together, When costs and benefits are weighed together, technological advances have proved to be worth technological advances have proved to be worth

far more than their costs.far more than their costs.””

David M. Cutler and Mark McClellan, “Is Technological Change In Medicine Worth It?” Health Affairs, September/ October 2001. Can be found at:http://www/laskerfoundation.org/reports/pdf/cutler_mcclellan_2001.pdf

Stuart H. Altman

But Is Every Technology That But Is Every Technology That Has Some Medical Benefit Has Some Medical Benefit

Worth The Costs?Worth The Costs?

Stuart H. Altman

Alternative Levels of Healthcare Alternative Levels of Healthcare Services And Improvements to Services And Improvements to

Health OutcomesHealth Outcomes

#1Inputs of HealthcareInputs of Healthcare

#2

Economic Optimum

Hea

lth O

utco

mes

Hea

lt h O

utco

mes

0

Dollars

Costs of Care

Costs of Care

#4

Harmful CareHarmful Care

#3

Maximum Impact

Stuart H. Altman

In Other Countries They In Other Countries They Control Spending By Limiting Control Spending By Limiting

Use of High Cost Medical Use of High Cost Medical Procedures Closer To #2Procedures Closer To #2

We Can Start By Eliminating The We Can Start By Eliminating The Harmful Services in Category #4.Harmful Services in Category #4.

But Also May Need To Move Toward But Also May Need To Move Toward #2 #2

Stuart H. Altman

What Has been Happening What Has been Happening Recently In The U.S. In Terms Recently In The U.S. In Terms

of Healthcare Use?of Healthcare Use?

Stuart H. Altman

The Growing Utilization of Hospital The Growing Utilization of Hospital ServicesServices

(Annual Percentage Change)

-2

0

2

4

6

8

10

12

14

Total Prices Utilization

199419951996199719981999200020012002200320042005

Souce: Ginsburg, Strunk, Banker & Cookson “Health Affairs (Web Addition) October 2006For 2006, figures provided are early estimates.

Stuart H. Altman

Concentration of Health Care Concentration of Health Care Spending in the U.S. Population, Spending in the U.S. Population,

20042004

22.5%

49.0%

64.1%

73.6%80.3%

96.9%

3.1%0%

20%

40%

60%

80%

100%

Top 1% Top 5% Top 10% Top 15% Top 20% Top 50% Bottom50%

Perc

ent o

f Tot

al H

ealth

Car

e Sp

endi

ng

(≥$39,688) (≥$13,387) (≥$7,509) (≥$5,191) (≥3,735) (≥$724) (<$724)

Percent of Population, Ranked by Health Care SpendingNote: Dollar amounts in parentheses are the annual expenses per person in each percentile. Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included.

Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2004.

Stuart H. Altman

Where Are We Going?Where Are We Going?

Stuart H. Altman

Federal Spending for Medicare and Federal Spending for Medicare and Medicaid Under Assumptions About Medicaid Under Assumptions About

Health Cost GrowthHealth Cost Growth

1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038 2044 20500

5

10

15

20

25

Actual Projection

2.5 Percentage Points1 Percentage PointZero

Differential of:

Stuart H. Altman

Even With No Change In Coverage Even With No Change In Coverage Government Will Dominate Government Will Dominate

Institutional PaymentsInstitutional PaymentsProportion Of Hospital Expenses Attributed To

Patients By Payer Source

37%

54%

6%3%

25%

66%

7%2%

0%

10%

20%

30%

40%

50%

60%

70%

Gov. Pvt. Uncomp. Care Other

20002025

Stuart H. Altman

Can Private Insurance Payments Continue To Can Private Insurance Payments Continue To Pay For The Shortfall In Government PaymentsPay For The Shortfall In Government Payments

Hospital PaymentHospital Payment--toto--Cost RatiosCost Ratios(Government Ratios Maintained at Current Levels)(Government Ratios Maintained at Current Levels)

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.

92.0%

85.0%

138.0%130.0%

157.4%

60%

80%

100%

120%

140%

160%

180%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Medicare Medicaid(1) Private Payer

Stuart H. Altman

Controlling Healthcare Controlling Healthcare Spending In The U.S. Is Not Spending In The U.S. Is Not

Easy!Easy!We Have Tried To Control it

Before With Only Limited Success

Stuart H. Altman

0

500

1000

1500

2000

2500

3000

3500

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Per C

apita

NH

E in

$

Gov’t Reg.

M&M Begins

Managed Care

?

Little Reg./Little Mkt.

Y = 52.703x Y = 52.703x –– 102898102898

Y = 40.31x Y = 40.31x –– 7846578465

Y = 88.486x Y = 88.486x –– 173967173967

Y = 37.925x Y = 37.925x –– 7319573195

Y = 107.95x Y = 107.95x –– 1025.31025.3

Growth In Per Capita National Health Growth In Per Capita National Health Expenditure Expenditure 19661966--20052005(adjusted for inflation)(adjusted for inflation)

Stuart H. Altman

Why Is Controlling Spending So Why Is Controlling Spending So Difficult?Difficult?

•• The Forces Against Significant Reductions Are Very The Forces Against Significant Reductions Are Very PowerfulPowerful–– Providers, Insurers and Healthcare SuppliersProviders, Insurers and Healthcare Suppliers

•• Concern AboutConcern About------–– Reductions In WagesReductions In Wages–– Reductions In EarningsReductions In Earnings–– Regulatory HoopsRegulatory Hoops

–– PatientsPatients–– Reduced Access to ServicesReduced Access to Services–– Bureaucratic RestrictionsBureaucratic Restrictions–– Freedom of Choice of ProvidersFreedom of Choice of Providers

–– PoliticiansPoliticians–– Need I Say More Need I Say More

Stuart H. Altman

Health Care In America Is Big Health Care In America Is Big BusinessBusiness------In Other Countries In Other Countries

ItIt’’s a Social Services a Social Service

Are We Really Going To Are We Really Going To Change That !Change That !

Stuart H. Altman

Nevertheless We Must Limit Nevertheless We Must Limit Growth in HealthcareGrowth in Healthcare

Spending or Face A Spending or Face A ““Meltdown Meltdown In our Public and Private In our Public and Private

Financing Systems!Financing Systems!

What Techniques Can We What Techniques Can We Use?Use?

Stuart H. Altman

What Presidential Candidates What Presidential Candidates Are Proposing To Lower Are Proposing To Lower

Costs!Costs!

Stuart H. Altman

What Presidential Candidates What Presidential Candidates Are Proposing To Lower CostsAre Proposing To Lower Costs

•• RepublicansRepublicans– Giuliani

• Health information technology• Transparency for prices, provider qualifications• Information on risk adjusted outcomes of individual providers• Medical liability reform

– Romney• Medical liability reform

Stuart H. Altman


•• DemocratsDemocrats– Clinton

• National prevention initiative• Health information technology• Chronic care coordination• Establishment of a Best Practices Institute• Information for better use of prescription drugs and limit

direct-to-consumer advertising of drugs• Negotiate lower prescription drug prices and revise patent

laws to increase use of generic drugs• Linking medical error disclosure with physician liability

protection

Stuart H. Altman


•• DemocratsDemocrats– Obama

• Invest in electronic medical records and other health IT• limit administrative costs of health insurers• Promote insurer competition through health insurance

exchange• Improve prevention and management of chronic conditions• Require hospitals and other providers to report measurers to

lower healthcare costs and improve quality• Promote and strengthen public health and promotion• Reform medical malpractice and foster new models of

addressing physician errors

Stuart H. Altman

Where Should We Begin?Where Should We Begin?

Stuart H. Altman

Techniques for Limiting Growth In Techniques for Limiting Growth In Health Spending and Likely ImpactHealth Spending and Likely Impact

•• Very Limited ImpactVery Limited Impact–– Encourage Greater Use of Preventive Services (ShortEncourage Greater Use of Preventive Services (Short--term)term)

•• Limited ImpactLimited Impact–– Provide Better Price and Quality InformationProvide Better Price and Quality Information–– Require Patients To Pay MoreRequire Patients To Pay More–– Restrict Use of Harmful CareRestrict Use of Harmful Care–– Reduce Expense and Waste of Medical MalReduce Expense and Waste of Medical Mal--Practice SystemPractice System–– Reduce Administrative Costs of InsuranceReduce Administrative Costs of Insurance–– Develop and Use Government Supported Develop and Use Government Supported ““Comparative Effectiveness StudiesComparative Effectiveness Studies

•• Greater ImpactGreater Impact–– Restructure Payment SystemRestructure Payment System------ (Bundled Payment and Value Based Pricing)(Bundled Payment and Value Based Pricing)–– Restructure Delivery System (Integrated Care)Restructure Delivery System (Integrated Care)–– Restrict Use of Marginally Useful CareRestrict Use of Marginally Useful Care–– Limit Supply of Expensive ServicesLimit Supply of Expensive Services–– Incentives to Use Preventive Services (LongIncentives to Use Preventive Services (Long--Term)Term)–– Expand and Restructure Primary CareExpand and Restructure Primary Care------Create Effective Create Effective ““Medical Homes for Patients) Medical Homes for Patients) –– Create a Governmental Create a Governmental ““High Cost Reinsurance SystemHigh Cost Reinsurance System”” with Effective Disease with Effective Disease

Management Systems for Chronic ConditionsManagement Systems for Chronic Conditions––

•• Greatest Potential ImpactGreatest Potential Impact–– Gov. Regulation of Payments To ProvidersGov. Regulation of Payments To Providers–– Establish Global Budgets Establish Global Budgets

Stuart H. Altman

------ Now Match Up Impact With Now Match Up Impact With Political or Practical Reality of Political or Practical Reality of

Implementation Implementation ------

growing healthcare spending...stuart h. altman growing healthcare spending: can or should it be...

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