Session 11 The Challenge of Controlling Health Care Costs Stuart Altman, PhD August 12, 2015

Transcription

1 Practicing Medicine in the Era of Health Reform Session 11 The Challenge of Controlling Health Care Costs Stuart Altman, PhD August 12, 2015 Tufts Health Care Institute

2 The Next Big Health Care Challenge: Can We Control Healthcare Spending? Stuart H. Altman The Heller School, Brandeis University August 12, 2015

3 Why Is High Healthcare Cost (Spending) a Problem First Let s Look at Workers and Their Families

4 160% 140% Cumulative Increases in Health Insurance Premiums, Workers Contributions to Premiums, Inflation, and Workers Earnings, % 120% 100% 103% 114% 80% 88% 60% 40% 20% 0% 36% 24% 21% 27% Notes: Health insurance premiums and worker contributions are for family premiums based on a family of four. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, (April to April). Health Insurance Premiums Workers' Contribution to Premiums Workers' Earnings Overall Inflation

5 For Governments at The Federal and State Levels Healthcare Spending Is Their Biggest or Among Their Biggest Expenses

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7 What Is (Are) The Major Factor(s) Driving Increases In Health Spending? Is It That We Use Too Many Expensive Services? Or Are The Prices Too High for The Services We Use? Or a Combination of Both

8 Can We Learn What Is Driving Our Healthcare Spending By Comparing The U.S. To Other Countries!

9 Total Health Expenditure as a Share of GDP Canada Germany Japan % GDP 18 Switzerland United States Source: OECD HEALTH DATA

10 Some Positive News!!!

11 Annual Average Growth Rate In Real Health Expenditure Per Capita, Australia 4.6 United Kingdom 5.4 OECD 4.7 United States 4.3 Canada 4.6 Netherlands 6.0 Switzerland 2.9 Japan 2.7 France 2.7 Germany 2.0 Source: OECD HEALTH DATA 2012

12 Why Does US Spend More On HealthCare Than Other Countries? Do We Use More Healthcare Services?

13 Does The U.S. Use More Hospital Care?

14 In-Patient Acute Care Beds in Selected Countries, 2010 Per 1,000 population US Australia UK Korea Germany Japan Sources: OECD HEALTH DATA 2012

15 Hospital Discharge Rate in Selected Countries ,000 Discharges per 100,000 Pop 25,000 20,000 15,000 10,000 5,000 13,100 13,596 23,984 15,549 16,886 10,709 8,260 0 US UK Germany Australia Korea Japan Canada Source: OECD HEALTH DATA 2012

16 What About Physician Services?

17 Practicing Physicians in Selected Countries 2010 Physicians per 1,000 population US Germany Australia UK NZ Canada Japan Source: OECD HEALTH DATA 2012

18 Doctors Consultations per Capita in Selected Countries Number of Consultations per Capita US Japan Korea Australia UK Mexico Source: OECD HEALTH DATA 2012

19 Do We Pay Our Physicians More?

20 Specialist Physicians Remunerations, Ratio To GDP Per Capita (2009) Salaried Self-employed US (2001) UK Germany (2007) Australia Canada Source: OECD HEALTH DATA 2012

21 General Practitioners (GPs) Remunerations, Ratio To GDP Per Capita, Salaried Self-employed US (2001) UK Germany (2007) Australia Canada Source: OECD HEALTH DATA 2012

22 Chart taken from The Quality Cure, David Cutler Table 5 University of California Press Earnings from 2004.

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24 Now Let s Look At Pharmaceuticals and Expensive Medical Procedures

25 Pharmaceutical Expenditures as Percentage of Total Health 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Expenditures, % 12.4% 10.4% 12.4% 15.2% 0.0% U.S U.K. Australia Canada Germany Source: OECD HEALTH DATA 2012

26 MRIs in Selected Countries (Units per million persons) US Australia Germany UK Sources: OECD HEALTH DATA 2012

27 Coronary Bypass Surgeries in Selected Countries Procedures per 100,000 pop US Australia Canada UK Mexico Source: OECD HEALTH DATA 2012

28 Hip Replacement Surgeries by Country, 2010 Procedures Per 100,000 Population US Australia Canada Germany UK Mexico NZ Patients Receiving Hip Replacements Source: OECD HEALTH DATA 2012

29 CT Scanners in Selected Countries (Units per million persons) US Australia Germany UK Sources: OECD HEALTH DATA 2012

30 Caesarean sections, Per 1000 Live Births US Germany Australia UK NZ Canada Source: OECD HEALTH DATA 2012

31 Total Excess Utilization of Health Services Not The Principal Culprit!

32 Finally Let s Look at Price Differences

33 Healthcare Prices in the U.S. and European Countries Fee Type Procedure Canada France Germany Netherlan ds Spain UK USA Average/ Low-end USA High-End USA Medicare Scans and Imaging Physician Fees CT Scan Abdomen Routine Office Visit Normal Delivery $83/530 $248 $319 $258 $161 $179 $750* $1,600 $400 $30 $498 $31 $1,023 $22 TBD $32 $622 $15 $1,041 Primary care capitation Specialty salaries No Fees $59 $2,384 $`151 $4,847 $72 $1,601** Hospital Charges Ave Cost Per Hospital Stay $9,043 $9,840 TBD $3,535 $2,261 $3,388 $12.549* $40,680 $12,000 Total Hospital and Physician Costs Bypass Surgery Hip Replacement $14,111 $11,916 TBD TBD $15,761 $12,868 $56,472* $116,798 $22,092** $8,483 $8,200 $8,500 $7,600 $9,152 $8,347 $32,093* $67,983 $17,500 Tests and Cultures Pap Smear $27 $14 $26 $16 $20 See note above $24 $64 $17 Drug Prices Lipitor $33 $53 $48 $63 $32 $40 $125 $334 No Medicare Rx Nexium $65 $67 $37 $102 $36 $41 $154 $424 fees Non US fees shown above came from both government sources and data files of IFHP member plans. For countries with multiple health plans or multiple regions with different payment systems, the fees reflect a representative sample of estimated average prices. Canadian scans include the government reading fees and the charges used by private scanning facilities for patients who pay their own expenses. There are no government fees associated with MRIs because this equipment is typically purchased by local health authorities and s included with fees for facility level use. *Represents USA average fees rather than USA low end fees. ** Representative Medicare fees from Portland, Oregon market or CMS Medicare average for tests and cultures; all other Medicare fees are averages provided by a global consulting and actuarial firm. Source: International Federation of Health Plans: Fee Report Europe, Canada and USA

34 The U.S. Has Tried To Control Health Spending In The Past --- BUT----With Limited Success and For a Limited Time Period

35 The Changing Growth Pattern of Per Capita National Health Expenditure (adjusted for inflation) Y = x Managed Care Y = x ? Per Capita NHE in $ Y = 40.31x Gov t Reg. Y = x M&M Begins Y = x Little Reg./Little Mkt.

36 1970 s U.S. Gov t. Attempts To Control Health Care Costs The Most Active Involvement of Gov t (Federal and State) Cost of Living Council National Wage and Price Controls Supply Controls Establishment of National Health Planning State Administered Certificate-of-Needs Laws Medicare Limits Hospitals Sec 222 Physicians---Sec 223

37 After Federal Price Controls Ended in the Mid-1970 s Government and the Private Sector Went Their Own Ways Government moved to administered prices first for hospitals (1983) and then for physicians (1988) A number of states set up regulated payment systems Private sector was operating under a fee-for-service system where hospitals and physicians set prices Employers offered the health fringe benefit : often paying 100 percent of the premium Private sector focused on use rather than price. Moving employees into HMOs was one way to achieve lower use

38 1980 Limited Cost Control: Some Interest in Managed Care (HMO) 1973 HMO Act required firms with over 25 employees to offer an HMO as an option Many did, but usually paid the full amount or at 80 percent this meant little difference in terms of dollars for employee So, little competition in terms of the price of insurance, which was preferred to at the point of service

39 The 1990 s and Managed Competition Managed competition occurs at the level of the integrated financing and delivery of care, not at an individual provider level. Goal to divide providers in each community into competing economic units and to use market forces to motivate them to develop efficient delivery system. This is the right price for competition Built to look like the FEHBP--Federal Employees get a choice of plan and government pays a percent of the premium based on low cost plans.

40 HMOs Did Lower Costs: But this turned out to be a one time effect In the 1990 s cost fell as HMO enrollment grew But this represented a changing composition between FFS Insured and HMO/PPO enrollment No evidence that HMOs continually reduced costs to bring about a lower increase in the long run cost of care and difference with FFS plans narrowed But use of hospitals certainly fell and restrictions on care rose and saw lower costs in the1990 s With the HMO backlash we never got to managed competition nirvana Instead we returned to no price competition and no regulation

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42 Return To Fee-for-Service Payment System and PPO Insurance Plans

43 Large Providers Used Their Market Power Consolidation of Provider Groups Used Market Power To Increase Prices Growth Of Hospital Outpatient Care But Not Lower Total Spending Much More Fee-for-Service Payments For Outpatient Care

44 Relative 2008 Massachusetts Blue Cross Hospital Payment Rates 44 Source: BCBSMA data submitted to the attorney general. Red = teaching hospitals.

45 SO---Where Are We Headed?

46 Cost Growth Has Slowed Substantially In Recent Years

47 Average Annual Percent Change in National Health Expenditures, Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at (see Historical; National Health Expenditures by type of service and source of funds, CY ; file nhe2010.zip).

48 Medicare Actuaries Think Limited Growth Will Return As a Result of An Expanding Economy and Aging Medicare Recepients

49 Latest Projections Suggest Healthcare Spending Is On The Rise But Will Not Return to Pre 2008 Levels

50 Growth In Yearly Healthcare Spending Actual ( ) and Projected ( )

51 Most Growth From Medicare and Medicaid Spending Increases! Even For Medicare Most of Growth The Result Of More Care for Older Patients

52 Growth in Health Care Spending By Payer: Actual , Projections Source: Office of The Actuary, CMA, September 2014.

53 Payment Systems Moving Away From Fee-for-Service Secretary of HHS Believes Government 50% of Care Paid Using Value Payment In Next 5 Years Medicare To Require Bundled Payment for Knees and Hips (Including Physician Services and Post Acute Care) More Private Insurance Payments Using Value Payment System

54 Value Payment Systems Link Payment To Quality Measures

55 State Government Can Play A Constructive Role In Helping Healthcare System To Change

56 The Massachusetts Story Brandeis University 56

57 State Government Recognizing Need to Limit TOTAL (Not Just Medicare and Medicaid) Health Care Spending---

58 Massachusetts First State To Pass Universal Coverage Legislation Commonwealth Has Long History of Expanding Coverage and Regulating Health Spending Brandeis University 58

59 Expanded Activity In Private Insurance Market After State Set Limits on Premium Increase (Could Be Below Underlying Health Service Trend) Insurers Restructure and Toughen Payment Models Introduce Limited and Tiered Network Plans Increase in High Deductible Plans 59

60 Major Healthcare Providers Promote Reform Delivery System Changes 60

61 Massachusetts Legislature Passes Compromise Cost Containment Legislation (August of 2012) Stops Short of Regulating Payments 61

62 Health Policy Commission Monitor and Encourage Payers and Providers To Stay Within Spending Limits

63 Issues of Major Importance to Commission Assuring That State Meets Spending Growth Target Allocating Grant Funds To Community Hospitals To Help Develop: New Delivery System New Payment Systems Conducting Cost and Market Reports for Those Consolidations and Merger That Could Impact On: Total Medical Spending Availability of Services e.g. Behavioral Health Regional Access to Care Certification of Patient Centered Medical Home (PCMH)

64 First Major Test of Commission Review Proposed Merger of Partners HealthCare With South Shore and Hallmark Community Hospital Systems and Affiliated Physician Groups.

65 Partners HealthCare Established in 1994 With Merger of Mass General and Brigham and Womens Hospitals Expanded North and West With Purchase of Several Major Community Hospitals---13 Hospitals (60,000 Employees) Controls the Largest Physician Organization in the State---6,000 Physicians Negotiated Among the highest Payment Rates in The State

66 South Shore Health System Largest and Most Respected Community Hospital in The Area Large Physician Group Affiliated With Hospital Currently send Most Very Sick Patients to Partners Hospitals In Combination With Partners Will Control 50% of Commercial Market Provide Proportionately Less Medicaid Services

67 Anti-Trust Enforcement: How Important Use of Broad Based Anti-Trust Legislation Can Be Difficult In Healthcare--- Extensive Insurance Coverage Changes Incentives

68 Hospital mergers are on the rise again 68/37

69 But Limited Antitrust Actions In Healthcare 69/37

70 But Courts Supported Federal Antitrust Actions in Recent Years FTC victories in past 6 years: General-acute care hospital mergers Inova Prince William (Virginia) Rockford OSF Healthcare (Illinois) ProMedica St. Luke s (Ohio) Capella - Mercy (Arkansas) General acute care-specialty hospital mergers Reading Health System Surgical Institute of Reading Physician mergers St. Luke s Saltzer Medical (Idaho) 70/37

71 Is Bigger---Better? Many Provider Groups Believe Systems Need To Be Bigger To Generate Needed Savings But Anti-Trust Economist Believe---Mergers of competing hospitals lead to higher prices and (likely) lower quality (Gaynor and Town 2012) Consolidation may also raise price in outpatient settings Physician services (e.g., Baker et al. 2013) Dialysis (Cutler, Dafny and Ody 2014) Insurance mergers also lead to higher premiums but providers may be paid less (Dafny, Duggan and Ramanarayanan 2012) 71/37

72 Is Bigger---Better? Some evidence that non-horizontal integration raises prices as well Independent hospitals acquired by systems outside their market raise price 14-18% (Lewis and Pflum 2014) Price and total spending increases in areas with increases in physician-hospital financial integration (Bundorf et al 2014). 72/37

73 ACA Doesn t Protect Hospitals Against Anti-Trust Enforcement In a world that was not governed by the Clayton Act, the best result might be to approve the Acquisition and monitor its outcome to see if the predicted price increases actually occurred. In other words, the Acquisition could serve as a controlled experiment. But the Clayton Act is in full force, and it must be enforced. The Act does not give the Court discretion to set it aside to conduct a health care experiment. - St. Luke s decision, Judge Winmill, 1/ /37

74 Efficiency Savings Under ACO or Bundled Payments Can Be Achieved Without Legal Consolidation Clinical integration financial integration We reject the proposition that an entity under single control, that is an entity formed through a merger, would be more likely to achieve the three-part aim [of the Shared Savings Program]. -Centers for Medicare and Medicaid Services, Final Rule,11/2011 E.g., St. Luke s VP of Payer Relations, formerly of Advocate Health, testified that independent physicians could be financially incentivized to meet specific quality metrics The ACA does not exempt organizations or collaborations from antitrust laws 74/37

75 So---What Happened In Massachusetts

76 Competing Claims Commission: Because of Existing Contracts South Shore Hospital and Physicians Would Receive Immediate Increases If Merged With Partners Increased Market Leverage to Would Keep Rates High Difficult for Insurers To Create Low Cost Networks Patients Will Be Referred to Higher Cost Providers Potential Savings From Advanced Population Based Medical Care Much Less Than Higher Costs Quality Not Likely To Be Higher and Access Could Be Limited

77 Arguments of Partners/South Shore and Hallmark Mergers Needed To Improve Care In Suburban Locations New Organizations Will Not Generate Monopolistic Price Increases New Partners Techniques Will Lower Total Medical Expenses Commission Lacks Anti-Trust Expertise

78 Commission Recommends Attorney General Review (and Potentially Stop) Acquisitions

79 The AG/Justice Strategy

80 Was The Agreement Strong Enough? Depends On What Part of The Half- Full Glass You Are Looking At!

81 For Those Opposed To Power of Partners --- Resolution Much Too Limited Needed To Break-Up Partners Separate Mass General and Brigham Reduce or Eliminate Price Differential Make Restrictions Last Much Longer Not Allow Any Growth in New Hospital or Physician Affiliation

82 JUDGE REJECTS PROPOSED CONSENT JUDGMENT Prior to Ruling New Attorney General Tells Court--- If Consent Judgment is Rejected She Will Attempt to Block Hospital Merger

83 Reasons For Court Ruling 1. Court Did Not Believe Judgment was in the Public Interest would cement Partners already strong position in the health care market and give it the ability, because of this market muscle to exact higher prices from insurers 2. Court has Serious Concerns as to the Enforceability of the Proposed Consent Judgment (Concern About Conduct Remedies )

84 New CEO Indicates Partners Will Not Go Forward With Hospital Mergers Will Go Forward With Integrating 70 Physicians Into Its Physician Group BUT Limit Fee Increases to Inflation for 5 Yrs.