The Economic Unraveling of U.S. Health Care: Cost Shifting, Provider Segmentation, and Health Savings Accounts

1
The Economic Unraveling of U.S. Health CareCost
Shifting, Provider Segmentation, and Health
Savings Accounts

• MCVs Neurology Grand Rounds
• December 14, 2006
• Rick Mayes, Ph.D.
• Assistant Professor, Department of Political
  Science

2
Overview

• This presentation examines
• Major economic trends in U.S. health care system
• The cost shifting and provider segmentation
  phenomena and their implications for doctors,
  hospitals and patients
• Potential reforms and future concerns

3
BACKGROUND

• Since 2000 . . .
• health insurance premiums have increased 73
• (versus 14 in general inflation and avg. wage
  growth)
• - avg. cost of single coverage (4,000
  annually in 2005)
• - avg. cost of family coverage (11,000 annually
  in 2005)
• The percent of companies offering health
  insurance to their workers has fallen from 69 in
  2000 to 60 in 2005
• (5.5 million working Americans have lost their
  coverage since 2000)

4
Source Kaiser Family Foundation (2005)
5
Health Insurance Premiums Declining Coverage
6
The Uninsured, 15.6 of the U.S. Population
(Census, 2005)
7
Consequences Care Postponed Not Received
8
Extreme Consequences Bankruptcy Earlier Death

• 50 of uninsured patients have debts from
  previous medical care a 1/3rd are being pursued
  by collection agencies
• Uninsured women with breast cancer are twice as
  likely to die as women with breast cancer who
  have health insurance.
• (Kaiser Commission, 2002)
• Men without health insurance are nearly 50 more
  likely to be diagnosed with colon cancer at a
  later, more dangerous stage than men with
  insurance.
• (Kaiser Commission, 2002)
• Upwards of 750,000 families are bankrupted by
  medical debt each year, even though 80 of them
  have some form of health insurance single
  largest cause of bankruptcy (Health Affairs,
  2005).

9
Arnold and Sharen Dorsett with their children,
Dakota, Zachery and Jessica, back. Though they
had insurance, health-care costs for Zachery led
the Dorsetts to file for bankruptcy this year.
Nicole Bengiveno/The New York Times
10
Cost-Shifting Hydraulic for Doctors Hospitals
B C MarginContribution
130
B
120
Cost Shift
C
A
110
Cost
100
Shortfall
Margin
90
80
70
Payment-to-Cost Ratio
60
Below Cost Payers
Above Cost Payers
50
40
30
20
10
10
80
90
70
60
50
40
30
20
0
100
Percentage of Market Share
11
Physicians Cost-Shifting (or Differential
Pricing)
Source The Lewin Group, The American College of
Emergency Physicians (ACEP) Practice Expense
Study, for the American College of
Emergency Physicians.
12
Community Hospitals the Role of Cost-Shifting
Source The Lewin Group analysis of data
contained in AHA TrendWatch Chartbook Trends
Affecting Hospitals and Health Systems.
13
Source American Hospital Associations Annual
Survey of Hospitals (n6,800 hospitals), 2006.
Pearsons correlation coefficients
1984-1997 Medicare and Private ratios r
-.86 1980-2004 Medicare and Private ratios r
-.79 1984-1997 Medicaid and
Private ratios r -.39 1980-2004 Medicaid and
Private ratios r -.64
14
Source Glenn Melnick, Uninsured Americans,
Hearing Before the Subcommittee on Health of the
Ways and Means, U.S. House of Representatives,
108th Cong., 2nd Sess. (9 March 2004)
Professor Melnicks testimony from the
Center for Health Financing, Policy and
Management, School of Policy, Planning and
Development, University of Southern
California.Technical Note Data are derived
from the Medicare Prospective Payment Systems
Impact File, Centers for Medicare and Medicaid
Services (CMS, 2004), available at
http//www.cms.hhs.gov/providers/hip
ps/ippspufs.asp, last visited October 1, 2004).
15
Source MedPAC (June 2004)
Segmentation of U.S. Health Care System is
Increasing
16
Complicating the Hospital-Physician Relationship
17
(No Transcript)
18
(No Transcript)
19
Source CMS, Office of the Actuary, 2004.
Segmentation of U.S. Health Care System Increasing
20
(No Transcript)
21

• POLICY implications of the significant rise in
  physician-owned, for-profit
• ambulatory surgery centers, specialty hospitals,
  and diagnostic imaging centers
• 1.) prospects for improved quality, lower costs,
  and more professional autonomy
• - Adam Smith and the advantages of
  specialization (e.g., pins and focused
  factories)
• 2.) financial impact on community hospitals fair
  or unfair competition?
• - cherry picking the best-insured private
  patients by, largely, for-profit entities
• - skimming lower-cost, healthier Medicare
  cases within individual DRGs
• - cardiac, orthopedic, radiological services
  huge proportion of hospitals net revenues
• 3.) impact on communities overall access to care
• - declining volume smaller patient populations
  make charity care harder to provide

22
Reimbursement, Incentives Human Behavior

• Public Policy 101 Incentives structure modern
  life as we know it.
• e.g., IRS and tax audits, HOV lanes and toll
  roads, Deans List and
• academic probation, parenting, teaching,
  dating, sales, Amway, etc.
• Incentives come in 3 basic flavors or varieties
  (e.g., smoking)
• (a.) moral U.S. govt asserts that terrorists
  raise money from black-market sales of cigarettes
• (b.) social banning of cigarettes in restaurants
  and bars
• (c.) economic 3-per-pack sin tax ( but not
  in Virginia obviously)

23
Moral/Social Incentives and Modern Life

• The Chicago Police Department in conjunction
  with the Mayor's office have now made
  prostitution solicitors' information available
  online. By using this website, you will be able
  to view public records on individuals who have
  been arrested for soliciting prostitutes or other
  related arrests. The following individuals were
  arrested and charged for either patronizing or
  soliciting for prostitution. It is not a
  comprehensive list of all individuals arrested by
  the Chicago Police Department for patronizing or
  soliciting for prostitution. The names,
  identities and citations appear here as they were
  provided to police officers in the field at the
  time of arrests.

                       DOE/SMITH, CARLOS M/31
165XX BRENDEN LN. OAKPARK 1102 N CICERO AVE
2005/10/01 720 ILCS 5.0/11-15-A-1
DOE/SMITH, JOSE M/37 54XX S ROCKWELL ST
CHICAGO 1102 N CICERO AVE 2005/10/02 720 ILCS
5.0/11-15-A-1
DOE/SMITH, JOHN M/54 28XX W 38TH PL CHICAGO
2500 S CALIFORNIA BLVD 2005/09/06 720 ILCS
5.0/11-15-A-1
DOE/SMITH, ALEX M/28 22XX MAGNOLIA CT WEST
BUFFALO GROVE 1102 N CICERO AVE 2005/10/02
720 ILCS 5.0/11-15-A-1
24
Economic Incentives and Modern Life

• - Australian prison ships in the early 1900s
• - April 15, 1987 and the disappearance of
• of 7 million American children
• - frequent flyer miles (loyalty programs)

25
Segmentation of U.S. Health Care System
Increasing Concierge Medicine
Patients like Ilse Kaplan, left, receive more
personal attention from Dr. Bernard Kaminetsky in
exchange for an annual fee of about 1,650.
26
Segmentation of U.S. Health Care System
Increasing HSAs
27
The Moral Hazard Argument Against Expanding
Health Insurance Coverage

• Term used to describe the paradoxical fact that
  insurance can change behavior of the person
  insured.
• example employer-provided donut insurance or
  auto insurance
• avg. annual amount spent on medical care (by
  uninsured person) 934
• avg. annual amount spent on medical care (by
  insured person) 2,347
• Conclusion I co-pays, deductibles, utilization
  reviews make patients use health care more
  efficiently (frugally, wisely, sparingly, etc.)
• Conclusion II instead of expanding group health
  insurance, reduce it

28
The Moral Hazard Argument Against Expanding
Health Insurance Coverage

• Fallacy I Moral-hazard argument only makes sense
  if we consume health care in the same way we
  consume donuts, car repairs or consumer goods.
• Fallacy II Having to pay for your own care does
  not automatically make ALL of your health care
  consumption more efficient. How could it?
• example wifes appt. with dermatologist
• Reality cost-sharing is a very BLUNT instrument
• example RAND Corporations Health Insurance
  Experiment (1971-86)
• BOTTOM-LINE health insurance is moving in the
  actuarial direction and away from the social
  insurance model w/enormous consequences to come

29
Concerns

• The ultimate cost shift employers passing on a
  larger and larger share of their increased health
  care costs to their employees in the form of
  higher monthly wage deductions and/or increased
  co-payments, deductibles, and out-of-pocket costs
  (especially for employees dependents).
• Beyond this strategy, more and more employers
  have simply stopped offering health insurance
  (16 of the U.S. population is uninsured 45.6
  million individuals or the aggregate population
  of 24 states, 2005)

30
The Massachusetts Health Plan Individual Mandate
31
Exit Questions

• (1.) What do providers have to do when every
• payer only wants to pay the marginal cost?
• (2.) Ultimately, from a political economy
• perspective, who is responsible for the
• common good (e.g., graduate medical
• education, public health insurance,
• medical research) in a competitive market?