THE
COMMONWEALTH
FUND
Hospital Pricing and
Patient Financial Risk
Karen Davis
President, The Commonwealth Fund
June 22, 2004
Hearing on Pricing Practices of Hospitals
Subcommittee on Oversight
Committee on Ways and Means
U.S. House of Representatives
1
Average Annual Growth in Hospital
Costs, 1988–2002
Percent
10
9
8
7
6
5
4
3
2
1
0
9.5
8.8
7.5
3.5
4.0
1988–1993 1993–1997 1997–2000 2000–2001 2001–2002
Source: K. Levit et al., “Health Spending Rebound Continues in 2002,” Health Affairs
(January/February 2004): 147–159.
THE
COMMONWEALTH
FUND
2
Hospital Costs Are a Major New Source of
Increased Outlays, 2002
100%
80%
60%
40%
20%
Hospital
34%
Physician
22%
Rx Drugs
16%
All other*
34%
0%
Share of Spending Increase
* Includes spending for dental, other professional, and other personal health care services; home health and nursing
home care; durable and other nondurable medical products; administration and insurance net cost; government public
health; medical research; and medical construction.
Source: K. Levit et al., “Health Spending Rebound Continues in 2002,” Health Affairs
(January/February 2004): 147–159.
THE
COMMONWEALTH
FUND
Trends in Operating Margins of All Hospitals
and Academic Health Centers, 1994–1999
AHCs
6%
4%
2%
3.4%
2.5%
3.9%
4.6%
3
All Hospitals
4.0%
3.1%
3.1%
2.1%
2.6%
1.8%
0%
0.6%
-1.0%
-2%
1994
1995
1996
1997
1998
1999
Note: Operating Margin = (Net revenue - Non-operating Revenue - Hospital Expense)/(Net Revenue - Non-Operating
Revenue). AHC includes reported community hospitals data only; Total includes reported and imputed community
hospital data only.
Source: Commonwealth Fund; Report by Allen Dobson, Lane Koenig, Namrata Sen, Silver Ho,
Lewin Group, Analysis of AHA Annual Survey data.
THE
COMMONWEALTH
FUND
4
Current Financial Situation of
U.S. Hospitals
Allows for some
improvement or
expansions of care
32%
Insufficient to
maintain current
levels of service
30%
Sufficient to maintain
current levels of service
38%
THE
COMMONWEALTH
FUND
Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.
Trends in Payment to Cost Ratios by
Payer for All U.S. Hospitals, 1994–1999
5
Payment to Cost Ratio
Private Payer
1.40
1.30
1.24
1.24
1.22
1.00
0.90
0.97
0.99
Medicaid
1.17
1.16
1.02
1.04
1.02
1.20
1.10
Medicare
1.15
1.00
0.94
0.94
0.95
0.96
0.97
0.96
1994
1995
1996
1997
1998
1999
0.80
Note: Includes reported community hospital data only.
Source: Commonwealth Fund; Report by Allen Dobson, Lane Koenig, Namrata Sen, Silver Ho,
Lewin Group, Analysis of AHA Annual Survey data.
THE
COMMONWEALTH
FUND
6
Health Care Costs Concentrated in Sick Few
Distribution of Health Expenditures for the U.S.
Population, By Magnitude of Expenditure, 1997
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Expenditure
Threshold
(1997 Dollars)
1%
5%
10%
50%
U.S. Population
27%
$27,914
55%
$7,995
69%
$4,115
97%
$351
Health Expenditures
Source: A.C. Monheit, “Persistence in Health Expenditures in the Short Run:
Prevalence and Consequences,” Medical Care 41, supplement 7 (2003): III53–III64.
THE
COMMONWEALTH
FUND
Percent of Hospitalized Patients with
Out-of-Pocket Costs Exceeding 10% of
Income by Cost-Sharing Amount
Percent
70
60
50
40
30
20
10
0
7
66
7
Modest
Copayments*
16
$100
Deductible*
24
$500
Deductible*
32
$1000
$2500
Deductible*
Deductible*
* Notes:
Modest Co-payments Option has $20 co-pay for physician visits, $150 co-pay for ED visits, and $250 co-pay per day inpatient
hospitalization; $100 Deductible Option has 10% in-network coinsurance and 20% out-of-network coinsurance; $500 Deductible
Option has 20% in-network coinsurance and 30% out-of-network coinsurance; $1000 Deductible Option has 20% in-network
coinsurance and 30% out-of-network coinsurance; $2500 Deductible Option also 30% in-network coinsurance, 50% out-ofnetwork coinsurance; Maximum out-of-pocket limits are set at $1,500 more than deductible for all options.
Source: S. Trude, Patient Cost Sharing: How Much is Too Much? Center for Studying
Health System Change, December 2003.
THE
COMMONWEALTH
FUND
Two of Five Adults Have Medical Bill Problems
or Accrued Medical Debt:* Uninsured and
Low Income Most at Risk
8
Percent of adults ages 19–64 with any medical bill problem or outstanding debt
All
75
Continuously insured
62
60
50
Uninsured
57
53
45
41
35
32
29
25
0
Total
Income less than $35,000
Income $35,000 or more
* Problems paying/not able to pay medical bills, contacted by a collection agency for medical bills,
had to change way of life to pay bills, or has medical debt being paid off over time.
Note: Income groups based on 2002 household income.
Source: The Commonwealth Fund Biennial Health Insurance Survey (2003).
THE
COMMONWEALTH
FUND
Average Annual Growth Rate of Total Health
Care Spending per Capita Between 1991 and
2001 in Selected Countries
9
Percent
5.0
4.1
4.1
4.0
3.9
3.1
3.1
3.0
3.0
2.4
2.4
France
Germany
2.1
2.0
1.0
0.0
Australia
United
Kingdom
Japan
New
United
OECD
Zealand
States
Median
Source: U.E. Reinhardt, P.S. Hussey, and G.F. Anderson, “U.S. Health Care
Spending in an International Context,” Health Affairs (May/June 2004): 10–25.
Canada
THE
COMMONWEALTH
FUND
10
Hospital Spending per Capita in 2000
Adjusted for Differences in the Cost of Living
Dollars
1,600
1,498
1,400
1,200
929
1,000
823
800
703
618
581
600
400
200
0
United
France
Canada
Germany
Australia
a
Japan
b
States
a
b
1998
1999
Source: G. Anderson et al., Multinational Comparisons of Health Systems Data, 2002,
The Commonwealth Fund, October 2002.
THE
COMMONWEALTH
FUND
11
Hospital Admissions for Acute Care
per 1,000 Population in 2000
Number of admissions per 1,000 population
250
205
204
200
155
154
151
150
118
99
100
50
0
Germany
France
a
Australia
OECD
Median
a
England
United
a
Canada
States
1999
Source: G. Anderson et al., Multinational Comparisons of Health Systems Data, 2002,
The Commonwealth Fund, October 2002.
THE
COMMONWEALTH
FUND
12
Average Length of Hospital Stay for
Acute Care
Days
9.6
10.0
7.1
8.0
6.4
6.2
6.2
5.9
6.0
5.5
4.9
4.0
2.0
0.0
Germany
a
2000
b 1999
c 1998
a
Canada
b
OECD
Median
a
Australia
b
England
a
United
States
France
b
b
Source: G. Anderson et al., Multinational Comparisons of Health Systems Data, 2002,
The Commonwealth Fund, October 2002.
New
c
Zealand
THE
COMMONWEALTH
FUND
13
Kidney Transplant Five-Year
Relative Survival Rate
Standardized Performance on Quality Indicator
100=Worst Result; Higher Score=Better Results
120
100
104
104
106
United
United
New
Australia
States
Kingdom
Zealand
100
113
80
60
40
20
0
Source: P.S. Hussey et al., “How Does the Quality of Medical Care Compare in
Five Countries?” Health Affairs, May/June 2004.
Canada
THE
COMMONWEALTH
FUND
14
Satisfaction with the Health Care System
Percent
Somewhat satisfied
100
75
4
16
12
50
8
93
77
76
Very satisfied
4
82
47
25
0
AUS
CAN
NZ
UK
US
THE
COMMONWEALTH
FUND
Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.
Disclosing Hospital Quality Information
to the Public: Views of Hospital CEOs
in Five Nations
Percent saying should NOT
be released to the public:
AUS
CAN
NZ
UK
US
Mortality rates for specific
conditions
34%
26%
18%
16%
31%
Frequency of specific
procedures
16
5
4
13
15
Medical error rate
31
18
25
15
40
Patient satisfaction
ratings
5
2
0
1
17
Average waiting times for
elective procedures
6
1
0
1
29
25
10
25
9
29
Nosocomial infection rates
15
THE
COMMONWEALTH
FUND
Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.
If You Had New Funding to Invest in a
One-Time Capital Improvement to Improve
Quality of Patient Care in One Area of Your
Hospital, What Would it Be?
Percent saying:
AUS
CAN
NZ
UK
US
Electronic medical records/IT
35%
47%
46%
38%
62%
Emergency room/OR/Critical care
facility
26
18
4
22
13
Basic hospital/patient facilities
17
14
21
22
3
Diagnostic equipment/medical
technology
9
16
11
10
3
16
THE
COMMONWEALTH
FUND
Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.
Average Annual Rate of Increase in Real
Community Hospital Expenses, 1950–1986
Percent
14
12
10
Private
Health
Insurance
17
Medicare
& Medicaid
11.6
8.3
8
Post-ESP
ESP
Market Era
8.7
7.8
6.1
6
4
HCC & VE
Medicare
PPS
3.1
3.2
2
0
1950–1965* 1966–1971*
1972–1974
1975–1977
1978–1980
1981–1983
* Annualized.
Source: K. Davis et al., Health Care Cost Containment, Baltimore: Johns Hopkins
University Press, 1990, p. 171.
1984–1986
THE
COMMONWEALTH
FUND
18
Cost-Sharing Reduces Likelihood of
Receiving Effective Medical Care
Probability of receiving highly effective care for acute conditions that
is appropriate and necessary compared to those with no cost-sharing
Percent
Children
100
80
60
Adults
85
56
71
59
40
20
0
Low-Income in Cost-Sharing Plans
Higher-Income in Cost-Sharing
Plans
Source: K.N. Lohr et al., Use of Medical Care in the RAND HIE. Medical Care 24,
supplement 9 (1986): S1-87.
THE
COMMONWEALTH
FUND
19
Cost-Sharing Reduces Both Appropriate
and Inappropriate Hospital Admissions
Percent reduction in number of hospital admissions per 1,000 person-years
27
30
25
22
20
15
10
5
0
Appropriate Admissions*
Inappropriate Admissions*
* Based on Appropriateness Evaluation Protocol (AEP) instrument developed by
Boston University researchers in consultation with Massachusetts physicians
Source: A.L. Siu et al., “Inappropriate Use of Hospitals in a Randomized Trial of Health
Insurance Plans,” New England Journal of Medicine 315, no. 20 (1986): 1259–1266.
THE
COMMONWEALTH
FUND
20
Cost and Quality Vary Widely Across Hospitals
Coronary Artery Bypass Graft:
Observed/Expected Cost vs. Observed/Expected Quality Outcomes
by Hospital
2.0
Cost per Case Observed/Expected
High Cost
1.5
1.0
0.5
Low Cost
0.0
Low Quality
High Quality
0.0
0.5
1.0
1.5
2.0
2.5
Poor Outcomes - Observed/Expected
Source: S. Grossbart, Ph.D., Director, Healthcare Informatics, Premier, Inc.,
“The Business Case for Safety and Quality: What Can Our Databases Tell Us,”
5th Annual NPSF Patient Safety Congress, March 15, 2003.
THE
COMMONWEALTH
FUND
21
Pay for Performance Programs
• There are over 75 pay-for-performance programs across
the U.S.
– Provider driven (e.g., Pacificare)
– Insurance driven (e.g., BC/BS in MA)
– Employer driven (e.g., Bridges to Excellence—
Verizon, GE, Ford, Humana, P&G, and UPS)
– Medicare
• 2003 Medicare Rx legislation demonstrations of
Medicare physicians a per-beneficiary bonus if
specified quality standards are met
– Medicaid
• RIte Care will pay about 1% bonus on its
capitation rate to plans meeting 21 specified
performance goals
• 4 other states built performance-based incentives
into Medicaid contracts—UT, WI, IO, MA
• Evaluation of impact still pending
THE
COMMONWEALTH
FUND
Source: Leapfrog report, draft for Commonwealth Fund.