Mary McWilliams
Executive Director
Health care and the US Economy:
Problems and Prospects
Seattle Economics Council
February 8, 2012
1
2
Average Health Care Spending per Capita, 1980–2009
Adjusted for differences in cost of living
Dollars
US
8000
NOR
7000
SWIZ
NETH
6000
CAN
DEN
5000
GER
FR
4000
SWE
3000
UK
AUS
2000
NZ
JPN
1000
0
1980
1984
1988
1992
1996
2000
2004
2008
THE
COMMONWEALTH
FUND
Source: OECD Health Data 2011 (June 2011).
3
Health care employment rises despite
recession
4
Health care is a bigger problem than
Social Security
5
Source: Congressional Budget Office
6
Public Sector Pays Over Half of Health Care
7
Out of Pocket Spending a Decreasing Percentage of Total
Among Persons Under 65, Approximately 1 in 7 Persons Is Uninsured and 1 in 5 Has
Public Coverage
Primary Source of Insurance for Persons Under Age 65
Public Coverage
20.9%
Individual Coverage
4.9%
Uninsured, 13.8%
Employer Coverage, 60.4%
Source: 2010v1 Washington State Population Survey.
8
The Percent Uninsured Has Returned to the Level
of the Early 1990s and Employer Coverage Has
Declined Over Time
9
10
Health Care Costs Have
Wiped Out Real Income Gains
Monthly Income for Typical U.S. Family of Four
$9,000
$8,000
$7,000
$ 870 for inflation
$6,000
$ 945 for health care
$5,000
$
$4,000
$1910 more income
$3,000
95 for spending
Inflation on NonHealth Care Goods
Health Care Taxes,
Premiums, Expenses
Net Available Income
$2,000
$1,000
$0
1999
2009
Source: "A Decade of Heallth Care Cost
Growth Has Wiped Out Real Income Gains
For an Average US Family," Health Affairs,
September 20011
12
Reducing Healthcare Spending
Requires Less Hospital Spending
Total U.S. Healthcare Expenditures, 2009
Hospitals are the
largest component of
healthcare spending
and of increases
in healthcare spending
Hospitals
Physician and Clinical
Other Services & Products
Prescription Drugs
Increase in U.S. Healthcare Expenditures, 2000-2009
Administration & Insurance Costs
Hospitals
Nursing Care Facilities
$0
$200,000
$400,000
$600,000
U.S. Healthcare Expenditures (Millions)
$800,000
Physician and Clinical
Other Services & Products
Prescription Drugs
Administration & Insurance Costs
Nursing Care Facilities
$0
$100,000
$200,000
$300,000
U.S. Healthcare Expenditures (Millions)
$400,000
The Cost Curve is Already Bent
2.6
9
2.5
8
Actual Spending
On Health Services
7
2.3
% Growth NHE
2.2
% Growth NHE
6
2.1
2.0
5
1.9
4
1.8
1.7
3
1.6
1.5
2
1.4
1
1.
3
1.2
0
2000
2003
Source: CMS, Office of Actuary
2004
2005
2006
2007
2008
2009
2010
Actual Spending On Health Services
2.4
HOSPITAL ADMISSION TRENDS
2000-2011
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
Source: Banc of America Securities LLC
1Q11
3Q10
1Q10
3Q09
1Q09
3Q08
1Q08
3Q07
1Q07
3Q06
1Q06
3Q05
1Q05
3Q04
1Q04
3Q03
1Q03
3Q02
1Q02
3Q01
1Q01
3Q00
1Q00
-6.0%
Jun-03
Aug-03
Oct-03
Dec-03
Feb-04
Apr-04
Jun-04
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
PATIENT VISITS BN
Patient visits at lowest level seen in over 7 years
TOTAL PATIENT VISIT IN US
1.800
1.750
1.700
1.676 Sep05
1.600
Source: IMS Health, National Disease and Therapeutic Index, Apr 2011
1.671 Dec06
1.650
1.656 Jun05
1.653 Jun07
1,616 Aug09
1.641 Jun06
1.607 Jun08
1.550
1.563 Jun04
1.500
1,511 Apr 2011
1.450
ROLLING MAT
Imaging Volume Slump
Source: Thomson Reuters
Branded Generics Disaggregated
Generics continue to grow strongly
Total market
Generics
15%
Brands
% GROWTH TRx
10%
5%
0%
-5%
-10%
-15%
2007
2008
2009
2010
Source: IMS Health, National Prescription Audit, Mar 2011, Branded generics disaggregated
MAT Mar 2011 YTD Mar 2011
Many Increases in Costs
Due to Price, Not Utilization
© 2009-2011 Center for Healthcare Quality and Payment Reform, Network for Regional Healthcare Improvement
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140%
Chart 4.6: Aggregate Hospital Paymentto-cost Ratios for Private Payers,
Medicare, and Medicaid, 1989
– 2009
Private Payer
130%
120%
110%
100%
Medicare
90%
80%
Medicaid(1)
70%
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2009, for community hospitals.
(1)
Includes Medicaid Disproportionate Share payments.
WA-Seattle
CO-Denver
NV-Reno
IN-Fort Wayne
CA-Fresno
CA-Sacramento
CA-San Francisco
CA-Modesto
CA-San Jose
Medicare and Commercial Inpatient Spending Per Member, 2007
Medicare IP PMPM Index
Low Cost for
Medicare & Commercial
IL-Chicago
KY-Paducah
TX-Corpus Christi
LA-Lafayette
PA-Philadelphia
MS-Jackson
MD-Baltimore
WV-Morgantown
GA-Macon
LA-Shreveport
TX-Beaumont
IN-Gary
WV-Charleston
1.8
HI-Honolulu
NM-Albuquerque
OH-Akron
PA-Pittsburgh
MI-Grand Rapids
TN-Knoxville
VA-Newport News
WA-Spokane
NC-Asheville
OR-Portland
ND-Fargo
AZ-Tucson
FL-Sarasota
ME-Portland
OR-Medford
ID-Boise
Seattle is One of the Nation’s “CostShift” Markets
Commercial IP PMPM Index
Cost Shift from
High Cost for
Medicare to Commercial
Medicare & Commercial
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Wide Variation in Prices Per
Delivery in MA Hospitals…
Source:
Massachusetts Health Care Cost Trends: Price Variation in Health Care Services
Massachusetts Division of Health Care Finance and Policy, June 2011
© 2009-2011 Center for Healthcare Quality and Payment Reform, Network for Regional Healthcare Improvement
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…With No Relationship to Quality
Source:
Massachusetts Health Care Cost Trends: Price Variation in Health Care Services
Massachusetts Division of Health Care Finance and Policy, June 2011
© 2009-2011 Center for Healthcare Quality and Payment Reform, Network for Regional Healthcare Improvement
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The Secret to Cost Containment:
Not Population Health but Subpopulation
Health
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Dartmouth Atlas shows wide variation in cost
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Wide Swings in Cost and Care
 The Dartmouth Atlas uses Medicare claims data to track how cost
and quality vary across the U.S.
 The Results:
 There is a 2.5 fold variation in Medicare spending by region
(population-adjusted)
 Patients in high-cost areas are not sicker nor do they have
better health outcomes
 More health care spending does not result in living better or
longer. In fact, the opposite may be true
 Reducing unwarranted variation could improve quality and
reduce spending 30%
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Tale of Two Cities: Miami vs. Minneapolis
Medicare Spending
$7,847
$3,664
25.1
3.8
14.1
6.6
49.9%
52.6%
(per capita, adjusted)
Specialist Visits
(last 6 mos. of patient’s life)
Hospital Stays
(inpatient days)
Care Index*
More Money Does Not Improve Value
* Effective care index includes: pneumonia vaccination; breast & colon cancer screening; eye exams,
HbA1c & blood lipid monitoring for diabetes; and, aspirin therapy, beta blockers, ACE inhibitors and
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reperfusion with thrombolytic agents or PTCA for heart attack victims. Source: Health Affairs
What Drives Decisions on Care?
 Doctors decide based on local
medical opinion and supply of
medical resources, not on science or
what informed patients want
 Doctors have surprisingly little
information on what works or the
“right” amount of care
 This is why Congress is funding
“comparative effectiveness” research
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Supply-Sensitive Care: Is More Health
Care Better?
 People assume that more care is
better
 Reinforced by fee-for-service
payment
 Where more care is provided,
patients with chronic conditions
do not have better health
 “Supply of services” accounts for
50% of the regional variation
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Alliance Role: Show How Care Varies
and Promote Better Value
 The driving force: Ron Sims and King County
 Purchasers, Providers, Plans & Patients
 2 million lives in 5 counties
 Funded by participant fees and grants
 Nationally recognized by the Robert Wood Johnson
Foundation and the federal Secretary of Health and
Human Services
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Generic prescribing shows wide variation
across and within medical groups
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What gets measured, gets managed, as
hospital metrics show
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Resource Use Varies by Delivery System
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How Will Transparency Make a Difference?
 Creates public accountability
 Sets targets for improvement
 Stimulates dialogue among
providers to compete
 Gives consumers more information
about care they need and how providers vary
 Results may be tied to provider pay incentives and/or
network design
 Improving results will reduce the personal and financial
cost of chronic disease and preventable conditions
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Transparency: Necessary but Not Sufficient –
Need to Pay Providers for Value, not Volume
 We now reward providers for
delivering more services to more
people, not for better quality
 Providers are not rewarded for
keeping people healthy
 Fundamental payment reform is
needed to reward value
 Medicare, the largest payer, sets
payment standards, but local
innovations are underway
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Organized Systems of Care Are Needed for
New Payment Models
 Deliver and/or arrange full range
of services
 Skilled in quality and cost
management
 Coordinate care with specialists
and others
 Engage patients in shared
decision-making and help patients self-manage
their conditions
 Commit to creating a better way to deliver care to
patients
 Supported by Electronic Health Record
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Prospects for Real Health Reform
 The Good News:
 There is agreement that the system is
unsustainable
 We know what’s needed to fix it
 The Bad News:
 The challenge is execution
 It will be disruptive and take time to fix
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What’s Needed to Fix the System
 Research into what works
 Focus on chronic care prevention and management
 Coordination of patients’ care
 Organized systems of care
 New ways to pay doctors and hospitals
 Patient access to evidence-based information on
quality and cost
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Challenges to Fixing the System
 One person’s “waste” is another person’s revenue
 Hospitals have huge capital investments
 New provider payment systems are unproven and complex
to administer
 Conversion from paper to electronic health records is costly
and slow
 “Organized Systems” can be cartels and drive up costs
 Comparative effectiveness research takes time and money
 The public assumes that more care is better
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The Public Needs to Understand What’s at Stake
 High rates of overtreatment, under treatment, and misuse of
medical services endanger their health
 U.S. cannot prosper when 18% of the economy wastes 30%
of what it spends
 Diverting resources from education and innovation to
medical care imperils our global competitiveness
 If U.S. keeps borrowing to pay for ineffective care, we and
our children will pay the price
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