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

1 / 52
About This Presentation

Whack a Mole and Other Approaches to Health Care Cost Containment


Insurance premiums have featured double-digit growth for the past two years. ... The Ultimate: Cheap Insurance. Single Payer Rises Again ... – PowerPoint PPT presentation

Number of Views:94
Avg rating:3.0/5.0
Slides: 53
Provided by: serv398
Learn more at: http://www2.lawrence.edu


Transcript and Presenter's Notes

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

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

The Agenda
  • A Brief History of Health Care Cost Containment
  • Strategies That Dont Work
  • Three Potentially Successful Strategies
  • Guidelines for Selecting the Right Cost
    Containment Strategy

Whack a Mole Game

Points to Remember
  • Component-based cost containment is temporary.
  • The burden of health care cost falls mostly on
  • Value-based purchasing requires leaping many
  • All sustainable strategies involve sacrifice.
  • Each organization needs to find the tradeoff that
    best matches its mission.

Total Health Care Expense Growth
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

Hospital Expenditure Growth
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
  • Hospitals continue to build.

Physician and Clinical Services Expenditures
Physician and Clinical Services Expenditure
  • 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
  • Physician and clinical service costs share has
    risen from 19 to 23, mostly in the 1980s
  • Technology has moved out of the hospital.

Insurance and Administrative Cost Inflation
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.

Pharmaceutical Cost Inflation
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

Back to the Future
Who Bears the Burden?
  • Two Central Facts
  • Employer arranged health care plans are a cost of
  • 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

Incidence of Health Plan Increase
Real Wages Were Flat until 1996
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

The Whack a Mole Response to Rising Health Care
  • 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

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

Which Costs Should Be Contained?
  • Those paid by third parties
  • Total payments to the industry (including
  • Those related to diseases and their burdens
  • Politicians, employers, and individuals have
    different answers

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

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

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

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
  • Medical Savings Accounts feature the extreme
    version only catastrophic insurance
  • Many new (untested) options exist
  • Consumer income and preferences drive choices

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

The Ultimate Cheap Insurance
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

The Costs of Single Payer
  • Individual preferences play limited role
  • Burdens of illness not addressed, only govt
  • 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

The Budget Cake is Only So Big
Chronic Disease Burdens are Huge
  • The burden of illness far exceeds documented paid
  • Total burden approximates 10k per year per
    worker with only 47 from group health
  • Chronic disease burdens cost gt 1 trillion per
  • CDC/RWJ report estimates that 125 million
    American suffer from a chronic condition
  • 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)

Top 10 Diseases by Employer Expense
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

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

Reduced Risk Means Reduced Cost
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

Pay Me Now or Pay Me Later
Seek to Add Value
  • Determine services that add the most improvement
    in health status or consumer satisfaction per
  • 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.

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

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

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

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

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

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

The Big Tradeoff
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

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

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.

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

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

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
Write a Comment
User Comments (0)
About PowerShow.com