3/16/2018. Healthcare Cost : Why are they so high? Why should I understand? Health Care Spending per Capita 2016 OECD data (US Dollars) DC Gohn

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1 Healthcare Cost : Why are they so high? Why should I understand? DC Gohn % of GDP Health Care Spending as Percentage of GDP Australia Canada Germany Japan Norway Spain Sweden Switzerland United Kingdom United States 2 0 Health Care Spending per Capita 2016 OECD data (US Dollars) United States $ 9892 Switzerland $ 7919 Germany $ 5550 Sweden $ 5487 Canada $ 4752 Japan $ 4519 United Kingdom $ 4192 Italy $ 3391 Spain $ 3248 Mexico $ 1080 OECD Average $

2 /16/2018 What gets my attention! Cost of Employer Sponsored Health Insurance Family of 4 Employee Expense = $ 4,895/year Employer Expense = $ 14,232/ year Deductible = $ 2,000/ year Total = $ 21,127 $30, $25, $20, $15, $10, $5, $- ESI Yearly Cost Milliman Institute Affordability Index Yearly ESI Cost/Median Income 2

3 The New Healthcare Cost Containment Trinity The Big Myths 1. You only get what you pay for.our healthcare is more expensive because it is better 1. Obamacare will/would have made it cheaper 3

Lifespan 3/16/2018 Myth 1 Lifespan vs Cost 10 Myth Busting

Embarrassing Life Expectancy 26/35 Same as Chile Obesity

Good Health Resources Metric OECD Ranking Healthcare

4 Lifespan 3/16/2018 Myth 1 Lifespan vs Cost 10 Myth Busting Metric OECD Ranking Comment Infant Mortality 29/35 Embarrassing Life Expectancy 26/35 Same as Chile Obesity 35/35 Dead Last Diabetes 34/35 Really bad Smoking 3/35 * Good Health Resources Metric OECD Ranking Healthcare coverage 34/35 Nurses 10/35 Practicing physicians 26/35 Hospital beds 29/35 4

Metric OECD Ranking 30 day MI mortality 13/35 30 day CVA mortality 2/35 CHF admissions 32/35 Ischemic Deaths 34/35 Most Surprising of all 1/35 in self reported health Myth # 2 Affordable Care Act 1.

5 Metric OECD Ranking 30 day MI mortality 13/35 30 day CVA mortality 2/35 CHF admissions 32/35 Ischemic Deaths 34/35 Most Surprising of all 1/35 in self reported health Myth # 2 Affordable Care Act 1. ACA will reduce healthcare cost 2. Near universal coverage will improve health and lower overall cost ACA Cost Reduction Programs like ACO s, bundled payments and readmission penalties are models being tested to reduce government spending. The effectiveness and sustainability are unclear. Productivity Adjustment Factor reduces governmental outlay not cost*? Less reimbursement for the same work 5

6 Expanded Coverage Will it lower cost? The Oregon Experiment In 2008 Oregon had 90,000 people who needed Medicaid but only funding for 10,000.. The answer a randomized trial based on a lottery The Oregon Health Insurance Experiment After 2 years there was no statistical difference in hypertension, elevated cholesterol, Hemoglobin A1c or Framingham score despite increased utilization of health services by the treatment group Depression was lower and financial strain was less Raises questions concerning the impact of expanded coverage Where Is The Money Spent? Government 7% Medical Products 3% Other 8% Dental 7% Nursing Care Facilities 13% Drugs 10% Hospital Care 32% Physicians 20% 6

Why are cost so high?? Ho 2018 AEA S mores Law Need some more Want some more Do some more Charge some more See Dielman et al. JAMA.2017;318(17):1668-1678. Papanicolas et al.

7 Why are cost so high?? Ho 2018 AEA S mores Law Need some more Want some more Do some more Charge some more See Dielman et al. JAMA.2017;318(17): Papanicolas et al. JAMA 2018;319(10): Do we need more? 13 developed country comparison Worst obesity rate - almost twice the average (65% have BMI >25, 38% have BMI > 30) Highest percentage of population with 2 or more chronic conditions 3 rd lowest smoking rate Lowest percentage of population under the age of 65 7

US Obesity Obese adults spend 42 percent more on direct healthcare cost Healthcare cost for adults with BMI >40 are 81

year https://stateofobesity.org/healthcare-costs-obesity/ US Diabetes 12.

dollars annually Healthcare cost of a diabetic are 2.3 times higher than a non-diabetic https://www.cdc.

8 US Obesity Obese adults spend 42 percent more on direct healthcare cost Healthcare cost for adults with BMI >40 are 81 % higher Cost estimates for obesity and associated chronic diseases range from 147 billion to 210 billion dollars per year US Diabetes 12.2 % of adults have diabetes (only Mexico has a higher incidence) Healthcare cost attributed to diabetes are 245 billion dollars annually Healthcare cost of a diabetic are 2.3 times higher than a non-diabetic /national-diabetes-statistics-report.pdf Opioid Deaths/million citizens 26/million 22/million 245/million 102/million World Average = 39.6/million 8

Cost 3/16/2018 The Cost of Opioids Currently spending 80 billion dollars per year on treatment Average cost of an ICU admission for overdose is $ 92,400 Despite the cost, mortality of ICU admitted

9 Cost 3/16/2018 The Cost of Opioids Currently spending 80 billion dollars per year on treatment Average cost of an ICU admission for overdose is $ 92,400 Despite the cost, mortality of ICU admitted overdoses has doubled in the last 6 years Third Party Payer Effect Limited Price Sensitivity Demand driven by cost of copay Not true cost Copay Demand We Want More Lifestyle Medicine 4.4 % of the world male population resides in the US 55 % of the world sales of ED drugs occurs in the US 9

10 Nip and Tuck Rank Country % of World Wide Total 1 US 20.1 % 2 Brazil 10.2 % 3 Japan 6.2 % 4 South Korea 4.8 % 5 Mexico 3.5 % 16 billion spent on cosmetic procedures in 2016 Second highest per capita procedure rate US accounts for 45 % of the 4.7 billion dollar facial aesthetic market Actual Individual Consumption Country AIC in thousands of dollars US $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Norway $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Germany $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Canada $$$$$$$$$$$$$$$$$$$$$$$$$$ UK $$$$$$$$$$$$$$$$$$$$$$$$$ Japan $$$$$$$$$$$$$$$$$$$$$$$ Want More End of Life 25 % of Medicare dollars are spent in the last year of life Cost for the last year of life is 3 times greater than the average year 1/3 of Medicare beneficiaries spend time in the ICU in the last 3 months of life 20% of Medicare patients have surgery in the last month of life 10

Imaging Country MRI/1,000 citizens CT scans/1,000 citizens Australia 27.6 110 Canada 52.8 132 France 90.9 193 OECD Median 50.6 136 US 106.

11 Imaging Country MRI/1,000 citizens CT scans/1,000 citizens Australia Canada France OECD Median US Joint Replacement Country Hip Replacement/1000 Knee replacement/1000 Switzerland Germany France US UK Canada OECD Mexico.8.3 Coronary Revascularization Country PCI/100,000 CABG/100,000 Total /100,000 Germany Switzerland France US OECD Median Canada UK

Tale of Two Cities Two cities of similar demographics McAllen yearly cost $15,000 ElPaso yearly

and ICDs 3 times more coronary stents and CABG https://www.newyorker.

30 % of all US Healthcare spending as waste JAMA. 2012;

12 Tale of Two Cities Two cities of similar demographics McAllen yearly cost $15,000 ElPaso yearly cost $7,504 McAllen : 50 % more specialist visits 60 % more stress test 3 times more pacemakers and ICDs 3 times more coronary stents and CABG Healthcare Waste Berwick and Hackbarth identified % of all US Healthcare spending as waste JAMA. 2012;307(14): doi: /jama My Waste List Excessive care from misaligned incentives based on fee for service Low value care Fragmented Care 12

13 Fee for Service Compensation tied directly to the volume of services ordered or provided Induced demand based on monetary incentives Includes physicians, hospitals and health systems Physician Induced Demand More proceduralist in an area more procedure utilization Decrease in reimbursement results in more procedures Capitated care/utilization metrics result in decrease in care EM Johnson Encyclopedia of Health Economics, Volume 3 doi: /b Low Value Care Over 40 % of Medicare beneficiaries received some form of low value care in 2009 Almost 3 % of the cost was attributed to this low value care 13 % of low risk patients received cardiac testing without clear indication JAMA Intern Med.2014 Jul; 174(4): BMJ Qual Saf Feb: 24(2):

Fragmentation of Care Specialist : PCP Ratio 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.

every year Readmission cost 27 billion dollars 21.

14 Fragmentation of Care Specialist : PCP Ratio Readmissions : A Symptom of Fragmentation 2 Million Medicare patients are readmitted every year Readmission cost 27 billion dollars 21.5 % of Medicare hospitalizations were followed by a readmission in currently this has dropped to 17.5 % Bad discharge or bad handoff?? 14

Drug Cost "One of my greatest priorities is to reduce the price of prescription drugs.

Donald J Trump SOTU 2018 Drug Cost Crestor Lantus US $ 86.40 $186.38 Germany $ 40.50 $ 60.90 Canada $ 32.10 $ 67.00 UK $ 25.80 $ 63.

65 US No governmental control of prices and prices increase over time The rest of the world prices set by government and decline

15 Drug Cost "One of my greatest priorities is to reduce the price of prescription drugs. In many other countries, these drugs cost far less than what we pay in the United States. Donald J Trump SOTU 2018 Drug Cost Crestor Lantus US $ $ Germany $ $ Canada $ $ UK $ $ Norway $ $ France $ $ India $ 3.60 $ US No governmental control of prices and prices increase over time The rest of the world prices set by government and decline over time Langreth et al. Bloomberg 12/18/2015 US CABG = $ 75,345 Switzerland CABG = $ 36,509 New Zealand CABG = $ 40,368 Netherlands CABG = $ 15,742 Appy = $ 13,910 Appy = $ 9,845 Appy = $6,645 Appy = $ 4,995 Source: International Federation of Health Plans, 2013 Comparative Price Report. 15

16 Administrative Cost Share of hospital cost Share of GDP US 25.3 % 1.43 % Canada 12.4 %.41 % Netherlands 19.8 %.77 % England 15.5 %.63 % Scotland 11.6 %.51 % Wales 14.3 %.66 % September :9 Health Affairs Himmelstein et al Administrative Cost Elevated administrative cost: 1. Excessive staff needed for complexity of coding/billing 2. Need to generate profit for capital expenditures Annual Physician Spending per Capita US = $ 1,599 4 visits annually OECD = $ visits annually 16

Physician Compensation Country Primary Care pretax Ortho pretax Ortho/PCP earnings ratio Ortho Physician/10, 000 Australia $ 92,844 $ 187,609 2.0.45 Canada $ 125,104 $ 208,634 1.7.32 France $ 95,585 $ 154,380 1.

17 Physician Compensation Country Primary Care pretax Ortho pretax Ortho/PCP earnings ratio Ortho Physician/10, 000 Australia $ 92,844 $ 187, Canada $ 125,104 $ 208, France $ 95,585 $ 154, Germany $ 131,809 $ 202, UK $ 159,532 $ 324, US $ 186,582 $ 442, data Poor Productivity Increase The Cost Disease. Wm J Baumol Conclusion Population health will control and reverse increased need of healthcare Consolidation will result in simplification which will lead to price reduction Increased regulation will be successful at driving lower utilization and targeting healthcare to a primary care approach. 17

Multinational Comparisons of Health Systems Data, 2010

1 Multinational Comparisons of Health Systems Data, 21 Gerard F. Anderson and Patricia Markovich Johns Hopkins University November 21 Support for this research was provided by The Commonwealth Fund. 2