Title: Whack a Mole and Other Approaches to Health Care Cost Containment
1Whack a Mole and Other Approaches to Health Care
Cost Containment
- Merton D. Finkler, Ph.D
- Lawrence University
2The Agenda
- A Brief History of Health Care Cost Containment
Efforts - Strategies That Dont Work
- Three Potentially Successful Strategies
- Guidelines for Selecting the Right Cost
Containment Strategy
3Whack a Mole Game
4Points to Remember
- 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.
5Total Health Care Expense Growth
6Cost Containment 1980 to the Present
- 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
7Hospital Expenditure Growth
8Hospital Cost
- 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.
9Physician and Clinical Services Expenditures
Growth
10Physician and Clinical Services Expenditure
Growth
- 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.
11Insurance and Administrative Cost Inflation
12Insurance and Administrative Cost
- 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.
13Pharmaceutical Cost Inflation
14Pharmaceutical Cost
- 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
15Back to the Future
16Who Bears the Burden?
- Two Central Facts
- 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 - Consequence Labor bears most of the burden even
if employers pay the bill - (80 - median estimate among economists)
- Common Perception businesses or consumers bear
the burden
17Incidence of Health Plan Increase
18Real Wages Were Flat until 1996
19Real Wages and Sales did not grow between 1980
and 1995
- 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? 1Ben ? 2.2Wages ? 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
20The Whack a Mole Response to Rising Health Care
Costs
- Short-sighted benefit redesign
- Target the fastest growing component (e.g., ER
use, RX use) - Cost Accountants Revenge
- If policy slows the fastest growing component, a
new fastest grower emerges - Only attempts to address total expenditures have
the potential for sustainable success
21Capital Expenditures Control
- 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
22Which Costs Should Be Contained?
- Those paid by third parties
- Total payments to the industry (including
out-of-pocket) - Those related to diseases and their burdens
- Politicians, employers, and individuals have
different answers
23Managed Care in the 1990s
- 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
24Managed Care and its Backlash
- 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
253 Potentially Sustainable Strategies
- Make health care a consumer responsibility
- Encourage patients to be efficient consumers
- Cap payments to the health care sector
- Nationalize insurance or employ global budgets
- Encourage primary and secondary prevention
- Disease management for chronic disease
- Changes in life style for the rest of us
- Ideally, seek to add value
26Consumer Responsibility to the Rescue
- A response to OPM (Other Peoples Money)
- Increased cost sharing its 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
27The Costs of Shifting the Burden
- 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
28The Ultimate Cheap Insurance
29Single Payer Rises Again
- 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
30The Costs of Single Payer
- Individual preferences play limited role
- Burdens of illness not addressed, only govt
budgets - Technology limited both that which adds value
and that which does not - 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 - Govt. systems run out of money before fiscal
year ends
31The Budget Cake is Only So Big
32Chronic Disease Burdens are Huge
- The burden of illness far exceeds documented paid
claims - Total burden approximates 10k per year per
worker with only 47 from group health
(Goetzel) - Chronic disease burdens cost gt 1 trillion per
year - 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)
33Top 10 Diseases by Employer Expense
34Chronic Disease Management
- 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 evidence-based
guidelines
35Primary Prevention
- 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
36Reduced Risk Means Reduced Cost
37Some Costs of Prevention
- 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
38Pay Me Now or Pay Me Later
39Seek to Add Value
- 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.
40Value-Based Purchasing No Mean Feat
- 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
41Join a Purchasing Coalition
- 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
42Central Florida Health Care Coalition
- 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
- 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
43Pay for Performance
- Central Florida Coalition spent 1 million 5
year implementation plan - Measure and communicate best practices
- Establish platinum, gold, and silver payment
- 50 based on clinical quality
- 25 based on cost
- 25 based on patient satisfaction
- Silver level pay 65 of Medicare
- Also reward platinum consumers
- Make consumers aware of cost
- Reward compliance and risk reduction
44Trade-offs to be facedall options
- Increased life expectancy means increased cost
but increased healthy years - Success in acute care increases life expectancy.
- Chronic disease increases with age, and, thus,
life expectancy. - Demographic factors suggest that health burdens
will rise dramatically in the future thus need
to determine - Which services to provide
- Who will pay the bill
- Health care resources are scarce thus, priority
setting, not new entitlements, is needed
45Fundamental Choice for Purchasers
- Patients / customers must choose either broad
choice or increased integration - A broad network of providers
- with high cost or external rationing
- fragmented care
- A narrow network of integrated providers
- with lower costs and internal rationing
- more care coordination
- IBM helps its enrollees evaluate tradeoffs in
terms of their own preferences
46The Big Tradeoff
47Fundamental Choice for Medical Community
- Physicians must choose between
- Independent practice with
- Oversight from third parties
- Some ability to bill for extra services
- Limited financial risk
- Continuous need to market services
- Group practice with
- Assumption of financial risk
- Some clinical independence
- Group practice decision-making and oversight
- Opportunity for cost-effective integrated
programs
48Guidelines for Purchaser Choice of a Cost
Containment Strategy
- 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
49Guidelines continued
- Invest in the information (including
evidence-based 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.
50Editorial views
- 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
51American Values
- You can always count on Americans to do the
right thing - after theyve 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
52One Solution Value Choice
- Find value and support it.
- Fixed contribution by employers to a flexible
spending account (Enthoven) - Provide two options for coverage
- A focused narrow network that encourages
prevention and chronic disease management - Broad choice with consumers determining how to
spend their money