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TRANSCRIPT
Is the health care cost
curve permanently
bent?
Kaveh Safavi MD JD
Managing Director –
Global Health
2 Copyright © 2014 Accenture. All rights reserved.
“If something cannot go
on forever, it will stop.
- Herbert Stein
Former chairman of the Council of Economic Advisers,
Presidents Nixon and Ford
Copyright © 2014 Accenture. All rights reserved. 3
Healthcare Cost Trends and the Role of Technology
1. Is the trend real or just an
artifact of the recession?
2. Will the curve remain bent
for the long term?
3. What role does technology
play in the short and long run?
4. What are the implications
for long-term curve bending
for technology?
For public policy?
Copyright © 2014 Accenture. All rights reserved. 4
-5
0
5
10
15
20
1990 1993 1996 1999 2002 2005 2008 2011
NHE as percent of GDP Rate of NHE growth Rate of GDP growth
Rate of Healthcare Spending Growth at an All-Time Low
Source: Martin A B et al. Health Affairs January 2014
Recession:
July 1990 -
March 1991
Recession:
March 2001 -
Nov. 2001
Recession:
Dec. 2007 -
June 2009
Perc
en
t
Copyright © 2014 Accenture. All rights reserved. 5
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011
Per Capita Per Enrollee
Health Spending Growth – Per Capita and Per Enrollee
Spending for the Insured Declined More than Average
Source: Ryu, AJ. et al. Health Affairs May 2013; Cutler, DM. Sanhi, NR. Health Affairs, May 2013
At this pace, public
sector spending will
be $770 B less than
projected by 2022
Gro
wth
Rate
(%
)
Copyright © 2014 Accenture. All rights reserved. 6
Recession Explains Only One-Third of Slow Down
Source: Cutler DM, Sahni RS, Health Affairs, May 2013
Slowing Health Expenditures
2013 • A recent study attributes the
cause of slowed spending; the
recession accounts for just
37%
• Changing payer mix and
Medicare payment reform
combine to account for 8%
• Select ‘Other’ factors include:
New technology
Patient cost sharing
Provider efficiency
Other
55%
Recession
37%
Recession
Medicare Payment Reform Other
Payer Mix Change
Copyright © 2014 Accenture. All rights reserved. 7
Factors Accounting For Growth In Per Capita National Health
Expenditures, 2004-2013.
Healthcare Spending Increases were
Primarily Price Related
Source: Hartman M et al. Health Affairs 2015
-1
0
1
2
3
4
5
6
2004-08 2009 2010 2011 2012 2013
Medical prices
Age and sex factors
Residual use andintensity
Perc
en
t
National Health Expenditures
Per capita spending
growth
Copyright © 2014 Accenture. All rights reserved. 8
U.S. hospital costs are 70% higher but utilization is 30% lower than other
developed countries
High U.S. Spending Is Not Due Primarily to Over Use of
Services
Source: Anderson, GF. Frogner , BK. Health Affairs, November 2008
Percent of GDP
Real Annual Avg Growth Rates (%) 1970-2005
Inpatient Spending per
Capita (U.S. $ PPP)
Inpatient Acute Care Days per
Capita
U.S. 15.3 4.4 $1526 0.7
OECD Median 9.1 4.1 (2.3-6.8) $904 1.0 (0.4-2.1)
Copyright © 2014 Accenture. All rights reserved. 9
Utilization Rates in US are not Necessarily Higher
Source: Topher, S. Annals of Internal Medicine October 2012
Services Utilization US France Non US
OECD
Higher
Cardiac Catheterization / 100,000 persons 357.8 NA 171.75
Hip Replacement / 100,000 persons >65 years 14.4 13.7 11.7
MRI Scan / 1000 persons 91.2 55.2 25
Lower
Hospital Discharge / 100,000 persons 13,086 26,251 16,234
Physicians Visit / capita 3.9 6.9 6.5
Pacemaker Insertions / 100,000 56.3 NA 61.4
Transurethral Prostatectomy / 100,000 men 43.4 186.7 114.15
Copyright © 2014 Accenture. All rights reserved. 10
Price of US Services are Considerably Higher
Source: Topher, S. Annals of Internal Medicine October 2012
Price of Services
(in US Dollars) US France Switzerland
Routine Office Visit 89 23 64
Cost per hospital stay 15,734 3,396 4,566
Hip replacement surgery
(hospital and physician) 38,017 11,353 17,521
Coronary Artery Bypass graft
(hospital and physician) 67,583 16,140 25,486
Average US generalist, income = 5x average US worker.
Average US specialist, income = 10x average US worker.
Average OECD generalist, income = 2x average OECD worker.
Average OECD specialist, income = 2.7x average OECD worker.
Copyright © 2014 Accenture. All rights reserved. 11
US National Health Care Expenditures, By Year as % of GDP
Non-Clinical Sources of “Waste” Exceed Clinical Sources
Source: Berwick, D. M. et al. JAMA April 11, 2012
17.5
18.0
18.5
19.0
19.5
20.0
20.5
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
“Business as usual” national
health care expenditures
Failures of care delivery
Failures of care coordination
Overtreatment
Administrative complexity
Pricing failures
Fraud and abuse
Growth in national health
care expenditures matches
GDP growth
Copyright © 2014 Accenture. All rights reserved. 12
US rate of healthcare expense change tracks with OECD average and has
been declining for a decade
Healthcare Cost Trends Decelerating Globally
Total Healthcare Expense, % Change
US compared to OECD Average
Source: OECD.org
-10
0
10
20
2001 2003 2005 2007 2009 2011
US OECD Average
Perc
en
t
2011
OECD 0.5%
US 1.8%
10 Year Trend Range
S. Korea 9.3%
OECD/US 4.0%
Portugal 1.4%
Copyright © 2014 Accenture. All rights reserved. 13
Conceptual Rate of Cost Increases: Low vs. High Innovation
Without Innovation, the Unit Cost of Care will Grow
Faster than US GDP Due to Its Reliance on Expert Labor
Real
Annual
Cost
Increase
Low Innovation
Sector
High Innovation Sector
US Average
Productivity
without labor
Personal service
labor cost
Consumption
Source: Baumol WJ, The Cost Disease, Yale Univ. Press 2012
Years
Productivity ≠
Efficiency
Copyright © 2014 Accenture. All rights reserved. 14
• Top 20% >12%
• Bottom 20% <(-4.0)%
• Revenue $854 higher
• Expenses $316 lower
• Occupancy
• Case mix
• Area wage
• Size
• Payer mix
Top-Performing Hospitals Collect More and Spend Less
Per Discharge
Based on operating income by quintile for U.S. hospitals between 2006 and 2008
Source: Thomson Reuters ACTION O-I Comparative Database
Operating Income
Financial Advantage
No Impact
Copyright © 2014 Accenture. All rights reserved. 15
Expense Advantage per Discharge for Highest Income Hospitals
(2006 – 2008)
Top Performers Spend More on Drugs and Supplies
Cost per discharge for highest vs. lowest quintile hospital by operating income adjusted for each mix and area wage
Source: Thomson Reuters ACTION O-I Comparative Database;
Supplies ($68)
Drugs ($18)
Spend More Spend Less
Labor ($278) Interest ($121)
Bad Debt ($102)
Copyright © 2014 Accenture. All rights reserved. 16
Labor Expense Advantage is Not from Salaries or
Staffing Levels
Highest Income Lowest Income
Salary and benefit per FTE
$66,719 $62,627
Staff hours per patient per day
20.89 20.35
Based on operating income by quintile for U.S. hospitals between 2006 and 2008
Source: Thomson Reuters ACTION O-I Comparative Database
Copyright © 2014 Accenture. All rights reserved. 17
Average Length-of-Stay by Operating Income Quintile (2006 – 2008)
Labor Advantage Due to 10% Shorter Length-of-Stay
3.25
3.30
3.35
3.40
3.45
3.50
3.55
3.60
3.65
3.70
3.75
3.80
Lowest Low Average High Highest
CM
I A
dj.
Avg
. LO
S
Performance based on operating income quintiles
Source: Thomson Reuters ACTION O-I Comparative Database
Copyright © 2014 Accenture. All rights reserved. 18
Technology Will Lower Unit Labor Costs and Increase Benefits of Care
Our View
1. Healthcare cost long-term trend is dependent on labor costs
2. Sustaining long-term reductions in the cost of producing a unit of care will
rely more on productivity gains rather than efficiency
3. Labor-oriented productivity strategies will require using lower skilled labor
where possible, shifting work to customers or replacing labor with
technology
4. Communication and information technologies can have a role in all three
strategies either as an enabler or end application
5. The same technologies can be used to raise the benefits of care through
personalization, transparency, self service and other mechanisms
18
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“In your own words, how would you define “value” in healthcare?
Please be specific.” (unaided response)
For Most Patients “Value” is Neither Outcomes nor Cost
Physicians
Patients
Neither Cost or Outcome
Cost
Outcome
Not Sure
Cost & Outcome
Cost
Cost & Outcome
Outcome
Neither Cost or Outcome
Not Sure
10 20 30 40
Source: Quintiles, The New Health Report 2011
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Getting your money’s worth…
What About Better?
(total)
Cost
(relative)
Benefit f(x)
(absolute)
Benefit
(price paid)
Cost
Value constructs as proposed by Ron Adner “The Wide Lens” in
OR
Buyer’s view Seller’s view
Copyright © 2014 Accenture. All rights reserved. 21
Advanced Telehealth Benefits the Already Served,
Not Just the Underserved
• As good as face-to-face care
• One patient, many doctors
• Patient group visits
• Physician collaboration
• Enhanced patient experience
(augmented reality)
• Some segments
prefer virtual
Copyright © 2014 Accenture. All rights reserved. 22
Social Software Will Deliver Healthcare While
Increasing Self Care and Self Service
Source: www.bigwhitewall.com; Wicks, P. et al. Nature biotechnology May 2011
• Business-class social
networks
• Self-service platform
• Community created content
• Gaming
22 Copyright © 2014 Accenture. All rights reserved.
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Curve had been dented not permanently bent yet
• The curve has been changed by more than just the recession
• The baseline will be permanently reset due to unit price compression,
administrative simplification, increase patient cost-sharing and
reduction in unexplained variation in practice patterns
• The long trend line for growth will exceed GDP subject to two “X”
factors – medical technology and labor costs
• Without changing productivity the long term curve will return to GDP
“plus”
• The key policy problem is long-term public spending not overall
healthcare spending
• Digital Technology holds promise to radically impact medical costs and
utilization
24 Copyright © 2014 Accenture. All rights reserved.
“That it will ever come into
general use, notwithstanding
its value, is extremely doubtful
because its beneficial application
requires much time and gives a
good bit of trouble, both to the
patient and to the practitioner
because its hue and character
are foreign and opposed to all
our habits and associations.”
- The London Times 1834
Laennec Stethoscope
25 Copyright © 2014 Accenture. All rights reserved.
“The future ain’t what
it used to be.”
- Yogi Berra
26 Copyright © 2014 Accenture. All rights reserved.
Kaveh Safavi, MD JD
+1 312 693 1541
@drkavehsafavi