Cost Drivers in Health Care:
What is Really Going on?
Gregory P. Marchildon
Canada Research Chair, Professor and WRTC Site Director,
Johnson-Shoyama Graduate School of Public Policy
Western Regional Training Centre in Health Services Research Seminar
October 28, 2011
1
Overview
• Sustainability: is there a problem?
• Underlying cost drivers
–
–
–
–
General inflation
Population Growth
Aging**
Other
• Health sector inflations above the general rate of inflation (price)
• Utilization (volume)
• Technology**
• Policy implications
2
Question of Fiscal Sustainability
• Focus on public-sector health expenditures
• Has been trending upwards
–
–
–
–
–
–
As proportion of gross domestic product (GDP)
Growth in real health expenditures per capita
Growth in PT health spending relative to revenue growth
Similar trend in all OECD countries
So what is the problem then? No more fiscal dividend
Another period of cost containment?
3
Public-Sector Health Exp to GDP Ratio
Public-Sector Health Expenditure as a Proportion of GDP and GDP Growth
16%
14%
12%
8.3
10%
8%
6%
4%
2%
-6%
2008
2006
2010f
-4%
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
-2%
1976
0%
GDP Growth
GDP Growth Forecast
Public-Sector Health Exp. to GDP
Public sector health expenditure to GDP trend line
Forecast
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
4
PT Government Spending on Health:
Three Distinct Periods
Per Capita in Constant 1997 Dollars
$2,800
$2,600
$2,400
$2,200
$2,000
Forecast
$1,800
$1,600
$1,400
$1,200
$1,000
1975
1980
1985
Actual
Trend (1975–1992)
Trend (1997–2008)
1990
1995
2000
2005
2010f
Forecast
Trend (1993–1996)
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
5
P/T Government Health Expenditure as a
Proportion of Total Program Spending
40%
30%
20%
10%
0%
Health as a Proportion of Provincial Programs (Total Expenditure Less Debt Charges)
CIHI PRELIMINARY FINDINGS—NOT FOR
DISTRIBUTION
6
Growth in Health Sectors: Physicians!
Average Annual Growth on Selected Categories
14.0%
Preliminary Results
12.7%
12.0%
10.0%
8.0%
6.0%
8.1%
7.6%
6.1%
7.9%
6.9%
6.8%
6.1%
6.9%
3.8%
4.0%
2.0%
0.0%
Hospitals
Other Institutions
Physicians
Average (1999-2004)
Results are under embargo until further notice
from CIHI
Drugs
Total Health
Spending
Average (2004-2009)
Sources
National Health Expenditure Database, CIHI; Statistics Canada
7
Public Sector Health Expenditure as a Percentage of
GDP, 17 OECD Countries, 2009
Denmark
9.8%
France
9.2%
Germany
8.9%
Austria
8.6%
United States
8.3%
New Zealand
8.3%
United Kingdom
8.2%
Belgium
8.2%
Sweden
8.2%
Norway
8.1%
CANADA
8.1%
Iceland
7.9%
Spain
7.0%
Japan(*)
6.9%
Finland
6.8%
Switzerland
6.8%
Australia(*)
5.9%
0%
2%
Note
* Data for 2008.
Source
OECD Health Data 2011, June edition.
4%
6%
8%
10%
12%
14%
16%
18%
8
Average Growth in Government Health Expenditures per Capita and GDP
6%
per Capita, 1998 to 2008
U.K.
Average Annual Real Growth in Public-Sector
Health Expenditure per Capita
5%
Finland
New Zealand
4%
Denmark
Belgium Austria
U.S.
Spain
Australia
3%
Japan
Canada
Sweden
Iceland
Switzerland
France
2%
Germany
Norway
1%
0%
-1%
0%
1%
2%
3%
Average Annual Real Growth in GDP per Capita
4%
5%
Unique Period: Fiscal Dividend
Average Annual Real per Capita Expenditure Growth,
1998 to 2008
3.4
4%
2%
2.0
1.4
1.5
0.6
0%
-2%
-4%
-6%
-5.6
-8%
Revenue
Debt Charges
Health
Trans./Comm.
Education
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
Social Services
10
Underlying Cost Drivers
• Underlying factors as opposed to health sectors
• Deeper understanding of underlying cost drivers →
more evidence-based policy response
• Policy response by whom?
– Provincial and territorial (PT) health ministers
– Federal government: transfers + direct expenditures
• Linkage: key FPT decision-makers and respective
arm’s length organizations in decentralized system
11
More money, please!
Main Categories of Cost Drivers
•
•
•
•
General Inflation
Population growth
Aging
Other
– Health sector price inflation (above general inflation)
– Increased health care utilization - volume
– and……. technology
14
Individual Cost Drivers
Average Annual Growth Rate, 1998 to 2008
8%
7.4
7%
6%
2.8
Other
Aging
5%
4%
0.8
Pop. Growth
3%
1.0
General Inflation
2%
1%
2.8
0%
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
15
PT Health Spending Highest on Seniors
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1998 Health Care Spending Distribution
2008 Health Care Spending Distribution
1998 Age Distribution
2008 Age Distribution
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
16
. . . But Impact of Population Aging
Minimal Over Time
10%
9.0% 8.8%
8.6%
8%
7.2%
7.7%
7.0%
8.5%
7.9%
7.3%
7.6%
6%
4.2%
3.6%
4%
2%
0%
1998 Health Care Spending Distribution
2008 Health Care Spending Distribution
1998 Age Distribution
2008 Age Distribution
17
First Caveat
Population Growth and Aging Varies Widely Across Jurisdictions
1998 to 2008
Average Annual Growth
3%
2%
1%
0%
-1%
Population Growth
Aging
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
18
Second Caveat: Depends on Health Sector
Average Annual Growth
3%
AAG in Spending Attributable to Population Aging:
1998 to 2008
2.3%
2%
1%
1.0%
1.0%
0.6%
Total
0.8
0%
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
19
Health Sector Inflation (Price ↑)
• Specific to health sector
• Above the rate of general inflation
• Unique factors that may be policy amenable
(though difficult)
• Physicians
• Hospitals
20
Cost Driver Contributions to
Physician Expenditures, 1998-2008
• 6.8% - average annual increase in spending
1.5% - utilization per capita (increased volume)
1.0% - population growth
0.6% - population aging
3.6% - fee-for-service prices
Sources: National Physician Database (NPDB) and National Health
Expenditure Database (NHEX), CIHI
21
22
Cost Driver Contributions to
Hospital Expenditures, 1998-2008
• Limitations in data in terms of pinpointing
health sector inflation
• 6.7% - average annual increase in spending
2.8% - general inflation
1.0% - population growth
1.0% - population aging
1.9% - Other
23
Health System Wages higher than
General Economy
$25
$20
$15
$10
$5
$0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
General Economy
Health and Social Assistance
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
24
Increases in Utilization (Volume ↑)
• Assumption: the demand for more health care
services is continually going up
• Assumption: as we get older, we demand/need/use
more health goods and services
• Evidence is that increases in utilization are modest
cost driver in a number of health sectors but…
• A major cost driver in prescription drugs
25
Cost Driver Contributions to Prescription
Drug Retail Spending, 1998-2008
• 10.1% - average annual increase in spending
-2.7% - price changes
2.6% - general inflation
1.0% - population growth
1.0% - population aging
6.2% - volume of units
2.0% - mix of drug types
Sources: National Prescription Drug Utilization System (NPDUIS)
Database and National Health Expenditure (NHEX) Database, CIHI
26
Development of New Chemicals
Slowed Significantly Since 2000
Five-Year Averages of New Chemicals and New Drug Classes
Approved for Sale in Canada, 1949 to 2010
70
60
50
40
30
20
10
0
1949
1959
1969
Number of New Chemicals
1979
1989
1999
Number of New Drug Classes
27
2009
Rapid Growth in Utilization Drove Past Decade of
Spending on Cholesterol-Lowering Drugs, the FastestGrowing Major Drug Class in Canada
Sources of Growth in Retail Spending on Lipid-Lowering Drugs,
Canada, 1998 to 2007
20%
1.3%
15%
12.9%
10%
5%
1.5%
1.0%
2.6%
0%
-4.5%
-5%
-10%
General Inflation
Price Changes
Population Growth
Volume of Units
Population Aging
Mix of Drug Types
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION 28
Technology
• In the “other” category of cost drivers: 2.8%
• Black box: one of the most difficult to quantify (estimate
using residual or proxy approach)
• Literature on individual technological changes hint at its
overall importance as a cost driver
• But can also be a major reducer of costs in the medium
to long-term (after initial investment)
• Question of cost increasing v. cost reducing
• Cutler (2007): long-term costs and benefits of revascularization after
a heart attack: 1 year of additional life expectancy at cost of $40,000
29
Medical Technologies
• Medical devices and
equipment
• Prescription drugs
• Information and
communications
technology
• Electronic health
records
30
Individual Cost Drivers
Average Annual Growth Rate, 1998 to 2008
8%
7.4
7%
6%
2.8
Other
Aging
5%
4%
0.8
Pop. Growth
3%
1.0
General Inflation
2%
1%
2.8
0%
CIHI PRELIMINARY FINDINGS—NOT FOR DISTRIBUTION
31
The “Other” Category
• Remember, this 2.8% is attributable to:
– Technology
– Health-sector price inflation
– Level of morbidity, lifestyle changes – limited
evidence of an increasing impact on health
spending growth
– Fiscal freedom – dividend from lower debt
charges and generous federal transfers?
32
33
Policy Implications
• Government deficits + higher debt service charges
(end of fiscal dividend)
• Additional pressure on health care budgets
• Short-term cost containment?
– HHR costs (physicians + nurses + …)?
– Reduce drug utilization or decrease drug plan benefits?
• Population aging and LTC-home care planning?
• Investment in new (cost reducing) technologies?
• Or simply privatize the entire problem?
34
Acknowledgements
• CIHI (release of report
Health Care Cost Drivers
next week – Nov. 3)
• Dr. Livio di Matteo
• CRC program
• WRTC students and
program coordinator
• ORS, U of Regina
35
Special Announcement!
• Upcoming Conference
• Bending the Cost Curve
in Health Care
• Saskatoon – September
27-28, 2012
• Addressing Costs:
– Canadian + Provincial
– International experience
• Mark your calendars
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