What The U.S. Must Do To Slow Growth In Spending and Prevent a Meltdown of The Healthcare System? Stuart H. Altman

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1 What The U.S. Must Do To Slow Growth In Spending and Prevent a Meltdown of The Healthcare System? Stuart H. Altman Dean and Chaikin Professor of National Health Policy The Heller School for Social Policy and Management Brandeis University

2 Per Capita Growth In Health Expenditures Has Been Growing at 2% Above Inflation For 40 Years Is This Inevitable? (adjusted for inflation) y = x Per Capita NHE in $

3 Health Insurance Premium Growth Now Equals Underlying Health Expenses % 12% 10% 8% 6% 4% 2% Both Are Significantly Higher Than Wage Growth? 8.5% Workers Earnings Health Services Premiums 11.0% 11.2% 7.7% 0% Health Services Health Insurance Premiums Worker's Earnings

4 How Much Larger Can Gap Between Premium and Wage Growth Before System Melts 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0%0% 11% 3% 25% 7% Down? 43% 10% 59% 12% 73% 15% 87% % 93% 23% Premiums Wages

5 Not Surprising--- Much Faster Growth In Premiums Is Leading To A Decline In Percentage of Workers Covered By Employer Based Coverage and an Increase in the Uninsured!

6 Has The Meltdown Begun??? 65% 64% 63% 62% 61% 60% 59% 58% 57% 56% Percentage of Workers Covered By Employer Based Insurance 62% 63% 65% 63% 62% 61% 60% 59.5% 59%

7 2007 Health Premium as Percentage of Family Income Income Based on Family of Four 80.0% 70.0% 60.0% 50.0% 58.6% Family Premium 2007 = $12, % 30.0% 20.0% 10.0% 29.3% 14.7% 16.2% 0.0% 100% FPL 200% FPL 400%FPL US median Source: Calculations based on data from Kaiser Family Foundation and US Census Bureau.

8 What Would Happen if Wage Growth and Premium Growth Stayed Constant for the next 10Years?

9 Growth in Family Premium Projection Based on Historical Annual Growth of 9.5% $32,000 $28,000 $24,000 $20,000 $16,000 $12,000 $8,000 $4,000 $0 $5,370 Actual Projected $30,001 $12, Source: Kaiser Family Foundation and author s calculations.

10 Health Insurance Premium as Percentage of Family Income 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 58.6% 104.8% 29.3% 52.4% % 28.9% 14.7% 16.2% 0.0% 100% FPL 200% FPL 400%FPL US median Source: Calculations based on data from Kaiser Family Foundation and US Census Bureau.

11 Limiting Growth in Healthcare Spending Is Not Easy! But We Were More Successful In Previous Decades! Why?

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

13 Differences in spending: largely due to differences in volume Cedars Sinai Saint Elizabeth s MGH Baystate Cooley Dickinson Cleveland Clinic Part B spending* $19,427 $12,292 $10,316 $9,519 $8,840 $6,490 Hospital days Physician visits Primary care visits Medical specialist visits *last two years of life, all other measures are during last six months of life

14 Commonwealth Fund --- Framework for a High Performance Health System Need to Deliver Care Through Healthcare Systems That Emphasize Coordination and Integration

15 Authors of The Commonwealth Fund Report Believe --- Improved safety and quality envision cooperative behavior between hospitals and physicians so as to make optimum use of expanded health IT, hospital P4P and chronic care management for the frail elderly and patients with severe chronic conditions

16 Payment and Delivery System Options Full Capitation Partial Capitation Case Rates P4P robust P4P lite Fee for Service II. Doctors Rebel Efficiency: Quality: Margin Payment Loose Tight Med/Low Med Med/Low Low Low Zero I. A Return to the 70 s Payment Loose Efficiency: Low Tight Med/Low Quality: Med/Low Low Margin High Low IV. A Future Goal Efficiency: Quality: Margin III. An Unrealistic Option Efficiency: Quality: Margin Payment Loose Tight Med/High High High Med/High High Med Payment Loose Med Med Med Tight Med/High Med/Low Low Solo Practice Stage of Delivery System Evolution Tightly integrated system with employed MDs

17 Any Significant Restructuring of Healthcare Delivery System Will Require Reimbursement Systems That Supports Such Behavior---- Fee-for for-service System Needs to be Modified or Abandoned!

18 Current Fee-for for-service Payment System Encourages Aggressive Competition Not Collaboration Between Hospitals and Physicians

19 Why Competition Between Hospitals and Physicians Can Be Wasteful and Reduce The Quality of Care Major source of waste lies in unwarranted intensity of hospital and physician services particularly for patients in their last months of life Pattern of hospitals and physicians competing with each other to expand provision of selected specialty services such as imaging and certain tests and procedures, reflect distortions in pricing structures

20 Options For Changing Payment System Bundled or Case Payments Significant Pay-for for-performance Add- On or Penalties Value-Based Payments Permit Wider Use of Gain-sharing Between Hospitals and Doctors

21 Aligning Incentives Between Hospitals and Doctors The Importance of a Value-Based Payment System--- Allows Hospitals to Be Rewarded for More Appropriate and Cost Effective Care Permits Hospitals to Share With Physicians The Benefits of Higher Valued Care Need Transparency and Elimination of Conflicts of Interest