Whack a Mole and Other Approaches to Health Care Cost Containment - PowerPoint PPT Presentation

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Title: Whack a Mole and Other Approaches to Health Care Cost Containment


1
Whack a Mole and Other Approaches to Health Care
Cost Containment
  • Merton D. Finkler, Ph.D
  • Lawrence University

2
The 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

3
Whack a Mole Game

4
Points 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.

5
Total Health Care Expense Growth
6
Cost 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

7
Hospital Expenditure Growth
8
Hospital 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.

9
Physician and Clinical Services Expenditures
Growth
10
Physician 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.

11
Insurance and Administrative Cost Inflation
12
Insurance 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.

13
Pharmaceutical Cost Inflation
14
Pharmaceutical 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

15
Back to the Future
16
Who 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

17
Incidence of Health Plan Increase
18
Real Wages Were Flat until 1996
19
Real 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

20
The 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

21
Capital 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

22
Which 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

23
Managed 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

24
Managed 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

25
3 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

26
Consumer 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

27
The 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

28
The Ultimate Cheap Insurance
29
Single 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

30
The 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

31
The Budget Cake is Only So Big
32
Chronic 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)

33
Top 10 Diseases by Employer Expense
34
Chronic 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

35
Primary 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

36
Reduced Risk Means Reduced Cost
37
Some 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

38
Pay Me Now or Pay Me Later
39
Seek 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.

40
Value-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

41
Join 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

42
Central 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

43
Pay 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

44
Trade-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

45
Fundamental 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

46
The Big Tradeoff
47
Fundamental 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

48
Guidelines 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

49
Guidelines 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.

50
Editorial 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

51
American 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

52
One 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
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