why health care will change

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Page 1 Brian Klepper, PhD Why Health Care Will Change October 18, 2012 Brian Klepper, PhD How Health Care’s Cost Crisis and the Drive Toward A Health Care Market Will Change Everything The Human Resource Management Conference at the University of Alabama Did health care think it could hold back market forces forever?

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Why Health Care Will Change. How Health Care’s Cost Crisis and the Drive Toward A Health Care Market Will Change Everything. The Human Resource Management Conference at the University of Alabama. October 18, 2012 Brian Klepper, PhD. - PowerPoint PPT Presentation

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Page 1: Why Health Care Will Change

Page 1Brian Klepper, PhD

Why Health Care Will Change

October 18, 2012

Brian Klepper, PhD

How Health Care’s Cost Crisis and the Drive Toward A Health Care Market

Will Change Everything

The Human Resource Management Conference at the

University of Alabama

Did health care think it could hold back market forces forever?

Page 2: Why Health Care Will Change

Page 2Brian Klepper, PhD

Opportunity: Hospitals’ Dilemma

• Procedural Volumes Are Down• $30 billion/year Medicare cuts for the next decade• Commercial Health Plans Will Squeeze Too• Medicare’s Financial Penalties For Too Many Readmits

Their Challenge: Maintain/Grow Revenue & Margin

Solution: Grow Market Share

Requirement: Prove Better Care at Lower Cost

Page 3: Why Health Care Will Change

Page 3Brian Klepper, PhD

Opportunity: Advanced Images

• Lafayette, IN

• WeCare TLC’s Volume-Based Contract

• MRI w/Reading - $450/Each

• Clients had been Paying $1,750-$3,200

• 18K Covered Lives

• More than 100 images/month

• This is Doable in Many Areas: e.g., Amb Surgery, Pain Mgmt

• Question: Why Aren’t Health Plans Doing This?!

Page 4: Why Health Care Will Change

Page 4Brian Klepper, PhD

Relative To Other Developed Nations, US Health Care’s Quality is Sketchy & Its Value Is Lowest of Industrialized World

Page 5: Why Health Care Will Change

Page 5Brian Klepper, PhD

Average Annual Health Insurance Premiums and Worker Contributions for Family Coverage, 2008-2012

Page 6: Why Health Care Will Change

Page 6Brian Klepper, PhD

Cumulative Increases in Health Insurance Premiums, Workers’ Contributions to Premiums, Inflation, and Workers’ Earnings, 1999-2011

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2011. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2011; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999-2011 (April to April).

Premium has grown 4x inflation for more than a decade.

Page 7: Why Health Care Will Change

Page 7Brian Klepper, PhD

11/11/11 – Gallup/Healthways Survey of 90,000 American Adults

5% Drop in Employer Coverage in 3 Years

Page 8: Why Health Care Will Change

Page 8Brian Klepper, PhD

Projected Annual Total Household Compensation and Compensation Net of Health insurance Premiums

Page 9: Why Health Care Will Change

Page 9Brian Klepper, PhD

American Health Care Cost Is Absorbing Nearly ALL Economic Growth

Source: Auerbach DI and Kellermann AL, “A Decade of Health Care Cost Growth Has Wiped Out Real Income Gains for an Average U.S. Family,” Health Affairs, 30:9, 9/2011.

In the decade preceding 2009, 79% of all household income growth was siphoned off by health care.

Page 10: Why Health Care Will Change

Page 10Brian Klepper, PhD

If health care costs tracked general inflation over the past 15 years, average family income would have been $8,410 (13.9%) higher in 2010 than it was. ($68, 805 vs. 60,395)

Young and Devoe Family Medicine, Oct 2012

Impact on Family Income

Page 11: Why Health Care Will Change

Page 11Brian Klepper, PhD

Health Care’s Growing Burden on Federal Budget Crowds Out Other Needs, Like Education and Infrastructure Replacement

Source: White House Council of Economic Advisors

Page 12: Why Health Care Will Change

Page 12Brian Klepper, PhD

Health Care As A Percentage of the US Economy Over Time

Source: White House Council of Economic Advisors

Page 13: Why Health Care Will Change

Page 13Brian Klepper, PhD

Source: International Federation of Health Plans, Cited in NYTimes, 1/22/12

US Health Care Unit Pricing Is Much Higher

Page 14: Why Health Care Will Change

Page 14Brian Klepper, PhD

And Lucrative Pricing Drives Higher Utilization

Page 15: Why Health Care Will Change

Page 15Brian Klepper, PhD

And Lucrative Pricing Drives Higher Utilization

Page 16: Why Health Care Will Change

Page 16Brian Klepper, PhD

Unnecessary/Inappropriate Care & Cost

“Our research found that wasteful spending in the health system has been calculated at up to $1.2 trillion of the $2.2 trillion (54.5%) spent in the United States.

[R]edundant, inappropriate or unnecessary tests and procedures [were] identified as the biggest area of excess, followed by inefficient healthcare administration and the cost of care necessitated by conditions such as obesity, which can be considered preventable by lifestyle changes.”

The Price of ExcessPricewaterhouseCoopers, 2008

Page 17: Why Health Care Will Change

Page 17Brian Klepper, PhD

Perspective

• Congressional Super Committee was charged with identifying/saving $1.2 trillion over 10 years. (They failed.)

• In 2012 dollars, 54.5% of health care spending providing no value would equal almost $1.5 trillion annually.

Page 18: Why Health Care Will Change

Page 18Brian Klepper, PhD

Unintended Consequence of Reform/Exchanges

• Cost Reduction Unlikely• More Cost-Shifting to Individuals• Individual Coverage More Costly to Administer• Transition from Self-Funding To Insurance – Less

Flexibility, Required Adherence to Mandates• Exchanges will mark a movement away from

defined benefit to defined contribution. Really about health care costing more than employers can bear. May not be helpful.

Page 19: Why Health Care Will Change

Page 19Brian Klepper, PhD

Barriers To Health Care Quality/Value

• Regulatory Capture

• Fee-For-Service Reimbursement

• Lack of Pricing/Quality/Safety Transparency

• Compromise of Primary Care

Page 20: Why Health Care Will Change

Page 20Brian Klepper, PhD

Regulatory Capture (Lobbying For The Special Interest)

• In 2009 (during the reform proceedings), health care organizations spent $1.2 billion to lobby Congress.*

• 4,525 lobbyists participated: 8 for every member of Congress.*

In other words, policy is developed to favor the special rather than the public interest.

*Sources: Open Secrets, The Center for Responsive PoliticsEight Healthcare Lobbyists for Every Member of Congress, Fierce Healthcare,

2/25/10.

Page 21: Why Health Care Will Change

Page 21Brian Klepper, PhD

The AMA’s Relative Value Scale Update Committee (RUC)

• 31 physicians - 26 specialists & 5 PCPs

• CMS’ sole advisors on medical services valuation

• Secret proceedings, sham survey methods, composition unrepresentative of physicians in market, financially conflicted

• CMS has historically accepted 90% of recommendations

• Commercial health plans typically follow Medicare’s payment lead

Page 22: Why Health Care Will Change

Page 22Brian Klepper, PhD

Real World Impacts of RUC Influence

1. Over-values specialty services while under-valuing PC

2. Inhibits PC’s moderating influence and accountability function over specialty services.

3. Creates systemic incentives to perform more services, and more expensive services. (Specialists “practicing to the codes.”)

4. Payment disparities between PC and specialties. Crisis-level PC shortage now.

Page 23: Why Health Care Will Change

Page 23Brian Klepper, PhD

FFS Reimbursement

Fee-For-Service fosters “Merchant Medicine.”

Every product/service produces a margin,

creating incentives to provide more care

and more expensive care, independent of quality.

Page 24: Why Health Care Will Change

Page 24Brian Klepper, PhD

FFS Reimbursement - Procedural Volumes

“Medicare spends a fortune each year on procedures that have no proven benefit and should not be covered.”

“When a procedure…is not supported by evidence, …taxpayers should have no obligation to pay for it.”

Rita Redberg, MDEditor, Annals of Internal Medicine“Squandering Medicare’s Money”

NY Times, 5/25/11

Page 25: Why Health Care Will Change

Page 25Brian Klepper, PhD

FFS Reimbursement - Procedural Volumes

• Lucrative procedures encourage specialists To “practice to the codes.”

• Physicians who own advanced imaging order up to 6x more than those who don’t

• Stents are no more effective than “optimal drug therapy” and lifestyle changes, and they introduce significant risk/cost. Medicare spends $1.6 billion annually on drug-eluting stents.

• Endless examples.

Page 26: Why Health Care Will Change

Page 26Brian Klepper, PhD

Cost/Quality Performance Transparency• Medicare physician data is locked.

• Hospital procedure base fees are often unknown until billing. Recent Health Affairs California appendectomy study showed 3 day LOS pricing $1,529 - $186,955, a 122x difference.

• Health care markets don’t work except for the most aggressive commercial enterprises.

• Providers/Vendors under little external pressure to improve.

Page 27: Why Health Care Will Change

Page 27Brian Klepper, PhD

Primary Care - Cases Increasingly Referred to Specialists

• Typical 2012 Established Primary Care Office Visit Duration = 7.5-12 Min. 30 Years Ago, It Was 20-25

• PCPs Paid By Visit, So May Refer Time-consuming Problems

• Most Specialists Profit From Procedures

• Result: Huge Increases In Specialty Visits, Outpt Diagnostics, Procedures

Page 28: Why Health Care Will Change

Page 28Brian Klepper, PhD

Primary Care - Specialty Payment Disparities

Compare Primary Care Office Visit (99214) and Cataract Extraction with Intra-Ocular Lens Implant

• 99214 – 25 Minutes and 3 Different Problems. Could be anything. Palette is all medical knowledge. Medicare pays $111.36

• Cataract Extraction & Intra-Ocular Lens Implant – 15 minutes. Restores sight! 50 year old, low risk, repetitive procedure. Medicare pays $836.36.

• Hourly rate of Ophthalmologist pay is 12.5x PCP pay.

• PCP’s job is arguably more complex/challenging.

Klepper & Kibbe, Rethinking the Value of Medical Services, Health Affairs Blog, 8/1/11.

Page 29: Why Health Care Will Change

Page 29Brian Klepper, PhD

Winners & Losers

• Winners• Nearly Everyone in the Health Industry

(Except Primary Care)

• Losers• Patients – Unnecessary Care and Risk of Harm

• Purchasers (Employers, Taxpayers, Individuals) – Immense Unnecessary Cost

• Primary Care Physicians

Page 30: Why Health Care Will Change

Page 30Brian Klepper, PhD

Acting In All Our Interests

• Health Care Organizations Comprise Almost 1/5 of the US Economy and 1/10 of US Jobs.

• Only One Group is Larger, With the Influence to Overpower Health Care in Policy:

The Non-Health Care Business Community

Page 31: Why Health Care Will Change

Page 31Brian Klepper, PhD

The Prospects Haven’t Been Good

• Employers haven’t meaningfully mobilized to date

• Many seem resigned or are fleeing

• Appears to be no larger sense of enlightened self-interest

Page 32: Why Health Care Will Change

Page 32Brian Klepper, PhD

1. Health Care’s Excesses Threaten The Stability Of The Larger US Economy.

2. Policy Formulation Has Been “Captured” By The Health Care Industry, So The Greatest Promise For Change Lies In Market-based Reforms.

Inescapable Conclusions

Page 33: Why Health Care Will Change

Page 33Brian Klepper, PhD

Market-Based

Approaches

Page 34: Why Health Care Will Change

Page 34Brian Klepper, PhD

The Inflection Point

The Convergence Of:

• Policy Paralysis

• Overwhelming Cost

• Excess Capacity

Attacking Waste Becomes A Powerful Market

Opportunity

Page 35: Why Health Care Will Change

Page 35Brian Klepper, PhD

Market-Based Reforms

Over the past 20 years, employers (& health plans) have:

• Significantly increased co-pays for “steerage.”• Introduced generic drugs and mail-order.• Introduced wellness, disease mgmt, lifestyle

coaching programs • Introduced incentives• Renegotiated network discounts.• Given employees “more skin in the game.”

Page 36: Why Health Care Will Change

Page 36Brian Klepper, PhD

Market-Based Reforms

But we mostly haven’t

Managed the care process, like businesses would.

Page 37: Why Health Care Will Change

Page 37Brian Klepper, PhD

Market-Based Approaches That Work

• Collaborative Benefits Management• Paying To Manage Process• Empowering Primary Care• Large Case Management• Domestic Medical Destinations• Analytics for Risk Identification• Care Gap Analyses

Page 38: Why Health Care Will Change

Page 38Brian Klepper, PhD

Market-Based Approaches That Work – Large Case Mgmt.

Page 39: Why Health Care Will Change

Page 39Brian Klepper, PhD

Market-Based Approaches That Work• Analytics of Provider Performance• Data Collaboratives• New Technologies (e.g., Minimally Invasive

Procedures, Genomics)• Incentives/Patient Engagement• Direct Volume-Based Purchasing• Rx Step Therapies• Lifestyle Management/Obesity Step Therapies

Page 40: Why Health Care Will Change

Page 40Brian Klepper, PhD

Specialty Condition Low Average HighFP

Otitis media $46 $109 (+137%) $412 (+796%)Bronchitis $89 $150 (+69%) $771 (+766%)

IMUTI $81 $140 (+73%) $778 (+860%)Angina $86 $297 (+245%) $743 (+764%)

CardiologyAngina $241 $611 (+154%) $1389 (+476%)

OrthopedicsKnee surg. $2,727 $4,473 (+64%) $9,383 (+244%)

Source: Jerry Reeves MD, Culinary Fund Heatlh Plan, 2005

Cost/Quality Performance TransparencyVegas Physicians

Page 41: Why Health Care Will Change

Page 41Brian Klepper, PhD

The Development of Health Care Markets

Mainstream health care is becoming part of a market for the first time in decades.

This means health care vendors will need to appeal to purchasers on the basis of cost, quality and safety performance.

Page 42: Why Health Care Will Change

Page 42Brian Klepper, PhD

Brian R. Klepper, PhDis a health care analyst and commentator. He is Chief Development Officer for WeCare TLC, LLC, an onsite primary care clinic and medical management firm based in Longwood, FL, and Managing Principal of Healthcare Performance Inc., a consulting practice based in Atlantic Beach, FL.

An active author and speaker, Dr. Klepper has provided health care commentary to CBS Evening News, the Wall Street Journal, the New York Times, and the Washington Post. He has published articles on Kaiser Health News, Medscape, Healthleaders, The New England Journal of Medicine, Modern Healthcare, Business Insurance and newspapers nationally.

Brian is a columnist on Business of Medicine and Primary Care for Medscape, the most-read medical site. He is an editor for The Doctor Weighs In, an online professional health care magazine, and a regular contributor to the Health Affairs Blog, Kevin MD, Health Care Policy and Marketplace Review, and other expert health care blogs. With his wife, he also maintains Elaine’s Journey, which details their struggle against primary peritoneal (Ovarian) cancer.

Brian serves on the American Academy of Family Physicians’ Primary Care Services Valuation Task Force, and is a reviewer for Health Affairs and The Journal of Ambulatory Care Management. He is an Advisor to the Lundberg Institute, the Patient-Centered Primary Care Collaborative, which advocates for medical homes, and the Center for Value Health Innovation, which helps business identify and implement approaches proven to improve quality while reducing cost.

In January 2011, with David Kibbe MD, he began a campaign, Replace the RUC!, that focuses on the most important driver of inappropriate health care cost. That effort resulted in a lawsuit by six Augusta, GA primary care physicians against the US Centers for Medicare and Medicaid Services (CMS) over its longstanding inappropriate relationship with the AMA’s Relative Value Scale Update Committee (RUC).

904.395.5530 (o), 904.343.2921 (c), [email protected]