• All MBA Programs
• MBA - Health Care
• Degree Requirements
• Admission/Enrollment
• Courses
• Student Outcomes
• Newsletter

---

Related Links

• Health Care Quarterly Main Page

Costs

What are the Real Drivers of Health Care Costs?

Tom’s Comments:

 Health care costs continue to rise at an alarming rate and something needs to be done to stop this trend.  Where and when have we heard this refrain before?  Except for a short reprieve in the 1990s, fears over health care cost inflation have been a constant refrain from government (federal and state) and employers since the 1960s.  During that time-period, most consumers (except those that fall in the underinsured ranks) have been relatively insulated from these cost increases, at least up until the last eight years.  Once health care costs resumed their upward spiral, employers started to either cut back on benefits, increase employee cost-sharing or eliminate their health care coverage all-together.  

 Clearly, health care cost and access issues, as they exist today, are not just limited to the have-nots, and the problem is growing.  

• See link: (http://www.commonwealthfund.org/publications/publications_show.htm?doc_id=367876)   
   
• In the April/May 2007 issue we also discussed the health cost trends that will result in a doubling of spending by 2016; “Health Care Spending to Double by 2016”;  
   

There has been much hype about creative approaches to reduce the health cost trend to a more manageable growth percentage, but to-date all of these approaches have failed to live up to their expectations, including Consumer Driven Health Products (CDHP).  We have cited studies in prior issues of the Quarterly Health Care Report, including May/June 2008, under “Consumer Drive Health Care”
relating to CDHP, which have shown that these products’ real impact, as constructed today, are mostly accomplished by cost-shifting to employees.  While employees definitely need to be more accountable for their health care purchasing decisions, the real impact on health care cost trend of CDHP is minimal.  For further evidence see the chart below and compare CDHP trends to those of the other products other than indemnity.

The real drivers of health care cost trends are noted below.  I have also attached links from prior issues of the Quarterly Health Care Report that further explore these drivers.

 

The Major Health Care Cost Drivers

• The high cost of technology; See January/February 2008 article under “Medicare”
   
• End of life issues; See May/June  2008 QHCR “Cost of Medical Treatment”
   
• Medicare/Managed Care Organizations physician and hospital payment methodologies that incent overutilization and do not reward quality or prevention;

• Unhealthy life-styles;

1. See January/February 2008 QHCR under “Life-style Diseases”
2. See July 2006 QHCR “73 Million have Diabetes or at Risk in the U.S.”

• Chronic diseases;

1. See July 2006 QHCR “Employers Focus on Chronic Ailments”
2. See May/June 2008 QHCR “Variations in Clinical Practice Patterns”
   See this issue of the QHCR “Payment Reform and Chronic Diseases”
    

• An inefficient fragmented health care system that often results in a stagnating tug-of-war between the health care stakeholders (e.g. hospitals, physicians, Managed Care Organizations, government, employers, consumers, etc.);

1. See January/February 2008 QHCR articles under “Electronic Medical Record”
   

• Clinical practice pattern variation that has had a negative impact on cost and quality; 
  

1. See May/June 2008 QHCR “Variations in Clinical Practice Patterns”

• The lack of real engagement of the consumer in the health care purchasing decision;

1. See January 2006 QHCR  “Should There be Limits on the Tax Exemption of Health Care Benefits”            

• The lack of a coordinated and comprehensive primary care system that is focused on wellness and prevention;

1.  See this issue of the Quarterly Health Care Report under “Primary Care”

What we need is a comprehensive short and long-term national plan that focuses on achieving the optimum balance of cost, quality and access to care.  This plan must also address each of the above drivers of high costs and poor quality in health care in a coordinated manner.  There is no simple answer to these problems nor is there just one approach (government, market system, hybrid, etc.) to addressing these issues.  What we do know is that we cannot continue to address these issues in a piecemeal fashion with no real sense of direction or purpose.

  

Health Care Cost Trends

First, the good news: The annual medical trend rate for health care in 2008 increased by its lowest percentage since 2001. The bad news: The average increase is still in the double digits and is three times the Labor Dept.'s Consumer Price Index, according to results of a study released Aug. 11 by Aon Corp. Health plan actuaries surveyed by Aon expect costs will increase an average of 10.6% during 12-month rating periods that begin between April and September of this year. A year ago, AON forecasted a 10.9% increase from the prior year. And in 2002, the first year of the study, the company predicted a 16% increase (see table, below).

Bill Sharon, senior vice president at Aon and director of the study, attributes the decrease in trend rate to a growing number of employers that have launched wellness and health promotion programs, shifted more financial responsibility to employees, and placed greater attention on the use of generic medications.

"Over the past six to eight years, employers have become more aggressive with tactics such as the management of chronic conditions, wellness programs and greater focus on pharmacy costs," he tells HPW. "Employers have put more pressure on health plans to focus on areas like utilization management." In turn, he adds, insurers are putting more pressure on providers to control costs.

Despite rising health coverage costs, health benefits have become thinner over the past several years, and employees are being asked to take on more financial risk in the form of higher deductibles, larger premiums and bigger copayments. But employers can shift costs only so far before it affects their ability to attract and retain employees, Sharon says. Once employers reach that point, the next stage is to target wellness and disease management, he explains.

To see a copy of the study, visit http://aon.mediaroom.com/. 

(“Lower Medical Cost Trend Rate is Good News, Bad News for Health Plans and Employers,”  AIS Health Business Daily, August 25, 2008) http://www.aishealth.com/Bnow/hbd082508.html

                     

Can Pay-for-Performance be Linked to Measures that have True Economic and Clinical Value?

Tom’s Comments:

Many of the so-called “pay-for-performance” programs focus on incentives that reward uniform processes that may or may not have a sufficient positive impact on health care costs or quality.   The research noted below attempts to identify performance measures that have true economic and clinical value.  The identification of such measures in some ways is the easy part, the collection and analysis of the data needed to implement an economically/clinically based incentive system could be overwhelming.  The authors recognize this dilemma, and they strongly recommend that payers (government/employers/managed care organizations) and foundations play an aggressive role in funding systems (e.g. electronic medical records, etc.) that would facilitate the collection and analysis of the data related to key measures.  These measures would then be the foundation for a payment system that would have true economic and clinical value.

The Value of Ambulatory Care Measures:  A Review of Clinical and Financial Impact from an Employer/Payer Perspective

In 2007, for the first time in its history, the Medicare program tied a portion of a scheduled increase in physician fees to performance on a standard set of ambulatory care measures. This change in reimbursement strategy was prompted by (1) a recognition that measuring the value of Medicare physician spending has been, and continues to be, elusive; (2) a strong private sector movement to tie a portion of physician payment to demonstrated performance in delivering quality care; and (3) an acknowledgment that consumers deserve transparent information on the competence of physicians to meet certain quality thresholds.

In a 2-part study, the authors reviewed 62 ambulatory care measures (See Table 1 and Figure 1 below) proposed for a specialty organization’s recertification program and for a pay-for-performance initiative. These measures were selected by an expert panel, and 50 of them were endorsed by the National Quality Forum (NQF), the Ambulatory Care Quality Alliance (AQA), and/or the NCQA. The measures span primary care, including coronary artery disease (CAD), heart failure (HF), diabetes mellitus, osteoarthritis, asthma, major depression, hypertension, and acute-care conditions. The first part of the study consisted of ranking each measure according to an index that combined clinical and economic value, and the second part consisted of conducting detailed actuarial analyses of the subset of measures that had the highest index score.

RESULTS
From the list of 62 metrics, only 20 (each of which is endorsed by the NQF, AQA, or NCQA) received high combined scores for clinical and economic support in our ranking scheme. Of these 20, most were shown to be cost-saving in actuarial modeling.  The low scoring measures did share one important element—they tended to be process measures with distant relationships to outcomes. Although practices such as taking the patient’s medical history and performing a physical are time-honored parts of the medical evaluation and may be prerequisites to interventions of proven clinical or economic benefit, they do not reduce morbidity or mortality directly—which is the measure of output that is important to payers and purchasers—and as a result have little or no actuarial value.

---

  Table 1. Clinical Effectiveness, Cost-effectiveness, and Combined Scores by Metric

Measure	Clinical Effectiveness Score	Cost-effectiveness Score	Combined Score
Blood pressure < 140/90 mm Hg (HTN)	6	5.5	33
Systolic blood pressure <140 mm Hg (HTN)	6	5.5	33
Diastolic blood pressure <90 mm Hg (HTN)	6	4.5	27
Blood pressure <140/90 mm Hg (DM)	6	4.5	27
A1C>9% (DM)	6	4.5	27
A1C <7% (DM)	6	4.5	27
LDL-C <100 mg/dL (DM)	6	4.5	27
LDL-C <130 mg/dL (DM)	6	4.5	27
LDL-C <100 mg/dL after discharge for AMI, CABG, or PCI (CAD)	6	4.5	27
LDL-C <130 mg/dL after discharge for AMI, CABG, or PCI (CAD)	6	4.5	27
LDL-C <100 mg/dL with any CAD	6	4.5	27
LDL-C <130 mg/dL with any CAD	6	4.5	27
Weight reduction (HTN)	5	4.5	23
BB use in HF	5	4.5	23
ACE inhibitor/ARB use in LVSD (HF)	5	4.5	23
BB post-Mi with prescription 7 days after discharge (CAD)	5	4.5	23
BB post-Mi with prescription 6 months after discharge (CAD)	5	4.5	23
Antiplatelet therapy in CAD— aspirin only (CAD)	5	4.5	23
ACE inhibitor/ARB in CAD with LVSD (CAD)	5	4.5	23
Back pain — bed rest >4 days (ACCs)	5	3.5	18
Upper respiratory infection — no use of antibiotics (ACCs)	5	3.5	18
UTI — antibiotic use for <7 days (ACCs)	5	3.5	18
Use of warfarin in HF and atrial fibrillation	4	3.5	14
Retinal eye screening (DM)	4	2.5	10
Microalbuminuria screening past year (DM)	4	1	4
Microalbuminuria screening (DM)	4	1	4
Use of appropriate medications in AST	4	1	4
Pharmacologic therapy (AST)	4	1	4
Effective acute-phase treatment in DEP	4	1	4
Decongestant used <4 days in nasal congestion (ACCs)	4	1	4
Effective continuation-phase treatment (DEP)	3	1	3
Assessment of volume overload (HF)	3	1	3
History taking for "red flags" in ALBP	2	1	2
History taking for cauda equina symptoms in ALBP	2	1	2
ALBP — physical exam	2	1	2
Optimal practitioner contacts (DEP)	2	1	2
Foot examination (DM)	2	1	2
Measurement of serum creatinine (HTN)	2	1	2
Avoiding contraindicated medications (ALBP)	1	1	1
Avoiding contraindicated physical treatments (ALBP)	1	1	1
Classification of asthma (AST)	1	1	1
Lung function testing (AST)	1	1	1
Influenza vaccination for asthma (AST)	1	1	1
Lipid profile (CAD)	1	1	1
LDL-C drug therapy (CAD)	1	1	1
Evaluation of activity level and anginal symptoms (CAD)	1	1	1
Annual A1C (DM)	1	1	1
Lipid profile (DM)	1	1	1
Assessment of left ventricular function (HF)	1	1	1
Weight measurement within last 6 months (HF)	1	1	1
Activity level documentation (HF)	1	1	1
Weight measurement (HF)	1	1	1
Plan of care (HTN)	1	1	1
Measurement of serum potassium (HTN)	1	1	1
Electrocardiogram (HTN)	1	1	1
NSAID and analgesic use in OA	1	1	1
Assessment of function and pain (OA)	1	1	1
History taking for knee pain (pain)	1	1	1
UTI- documentation of flank pain, fever, and dysuria (ACCs)	1	1	1
UTI- documentation of vaginal discharge (ACCs)	1	1	1
UTI- Bactrim as first-line therapy (ACCs)	1	1	1
Sodium restriction (HTN)	1	1	1

 REAL-WORLD IMPLICATIONS
As payers continue to develop incentive and reward programs for physicians, and as attention is increasingly focused on the aggregation of claims data, other administrative data, and medical record data, we all should consider the selection and weighting of performance metrics carefully in light of this analysis, and determine the actual return that might be realized by the monies spent on different types of data aggregation. Payers should find ways in their incentive and reward programs to emphasize the small set of metrics that have high  economic value. Public foundations and other contributors to data aggregation should consider the importance of and return on investing in data collections where the data will yield a far greater return than the cost of collection. Purchasers should continue to encourage their third-party payers to include a specific allowance in their incentive and reward programs for the adoption and use of electronic medical records, in recognition of the importance of having a systemic way of collecting, measuring, and scoring the performance of physicians on metrics that are both clinically and economically effective. (“The Value of Ambulatory Care Measures: A Review of Clinical and Financial Impact from an Employer/Payer Perspective,” Francois de Brantes, MBA; Paula S. Wickland, FSA, and John P. Williams, MD, The American Journal of Managed Care, June 2008 http://www.ajmc.com/Article.cfm?Menu=1&ID=10423

________________________________________________________________________

Payment Reform and Chronic Diseases

Tom’s Comments:

We have discussed issues of hospital, physician and ancillary provider payment reform in many issues of the Quarterly Health Care Report, including this issue.   During this Presidential campaign year, both candidates have talked about their “comprehensive health care reform plans” that would address issues of health care cost, quality and access to care in the U.S.  As one would expert in a political year, there is much more talk than substance.  In this issue of the Quarterly Health Care Report we identify some of the “real” drivers of health costs as well as poor quality. 

In reviewing this list of drivers, one will see that that the root causes of many of these drivers is our provider payment system.  When one combines a payment system that incents over-utilization and does not reward quality, prevention and primary care you can better understand why we have not effectively addressed the needs of people with chronic diseases. 

The payment reform issue is exacerbated by the following factors:

• Lack of good cost and quality data for consumers and employers to make real choices
• Lack of consumer accountability as a result of not having a financial stake in the transaction
• Government’s (Medicare/Medicaid) willingness to pay for health care services no matter the value received, which results in billions of dollars of wasted spending. See May/June 2008 QHCR: “Cost-Effective Health Care Treatment“

If McCain or Obama want real health care reform they need to initially address payment reform, otherwise it will be just an exercise in frustration, which we no longer have the time or the will to endure.

Getting What We Pay for:  Innovation Lacking in Provider Payment Reform for Chronic Disease Care

Despite wide recognition that existing physician and hospital payment methods used by health plans and other payers do not foster high-quality and efficient care for people with chronic conditions, little innovation in provider payment strategies is occurring, according to a new study by the Center for Studying Health System Change (HSC) commissioned by the California HealthCare Foundation. This is particularly disconcerting because the nation faces an increasing prevalence of chronic disease, resulting in continued escalation of related health care costs and diminished quality of life for more Americans. To date, most efforts to improve care of patients with chronic conditions have focused on paying vendors, such as disease management firms, to intervene with patients or redesigning care delivery without reforming underlying physician and hospital payment methods.

While there is active discussion and anticipation of physician and hospital payment reform, current efforts are limited largely to experimental or small-scale pilot programs. More fundamental payment reform efforts in practice are virtually nonexistent. Existing payment systems, primarily fee for service, encourage a piecemeal approach to care delivery rather than a coordinated approach appropriate for patients with chronic conditions. While there is broad agreement that existing provider payment methods are not well aligned with optimal chronic disease care, there are significant barriers to reforming payment for chronic disease care, including (1) fragmented care delivery; (2) lack of payment for non-physician providers and services supportive of chronic disease care; (3) potential for revenue reductions for some providers; and (4) lack of a viable reform champion. Absent such reform, however, efforts to improve the quality and efficiency of care for chronically ill patients are likely to be of limited success. (“Getting What We Pay For:  Innovation Lacking in Provider Payment Reform for Chronic Disease Care,” Ann Tynan, Debra A. Draper, Center for Health System Change, Issue Brief No. 6, June 2008) http://www.hschange.com/CONTENT/995/

 ________________________________________________________________________

The Future of Long-term Care Funding

Tom’s Comments: 

The article below is a thought provoking analysis of a very important issue.  We in the U.S. have a propensity of delaying critical and sensitive decisions to another time or even another generation, especially as they relate to health care.  We as a society can see the writing on the wall, or should I say numbers on the wall, in that we have a pending crisis relating to long-term care financing.  One needs not to be a mathematician or an economist to recognize that based on the demographics of our aging society our current system of long-term care is both inadequate and on a shaky financial foundation.

Long-term care in the U.S. is primarily funded by the government through Medicaid (50%) and Medicare (20%) see Exhibit I below.  Out-of-pocket (18%) insurance (7%) and other payments (5%) represent the balance of funding.  One does not have to work in the health care industry to realize that Medicaid and Medicare as they exist today cannot continue to fund long-term care to meet the demands of our aging population.

The author does a good job of evaluating the various models for funding long-term care.  Some combination of private and governmental insurance appears to be the most viable source of funding for long term care.  As the author states, “Long-term care experts agree that a solution that is both politically and economically viable will include some mix of public and private insurance.  The challenge will be finding the proper balance between the two models.”  We cannot continue to put off this challenge; there needs to be a sense of urgency in developing a model that makes sense for the U.S. and allows it to lay the financial foundation in order to meet the needs of our aging population.

See QHCR January 2006 issue under “Is Long-term Care Insurance a Good Investment” for additional discussion relating to long-term care insurance.

 

How Can We Improve Long-term Care Financing

This research brief focuses on several options to finance long-term care.  These options include enhancing private long-term care insurance, replacing the current welfare-based system with a public social insurance program, and introducing a hybrid public-private system.

In contrast to acute medical care, long-term care assists those with chronic illnesses in managing their daily lives.  Such care, which provided to both the aged and the disabled, includes assistance with eating, bathing or toileting, and cooking or eating.  It is provided at home, in a nursing home, or in an assisted living facility.  About two-thirds of those who turned 65 in 2005 will need long-term care in their lives, and they will require assistance for an average of three years.  Currently about 10 million Americans receive some form of long-term care.

As shown in Figure I, about half of paid long-term care is funded by Medicaid, another 20% is financed by Medicare, and the balance is paid out-of-pocket or through private insurance

 

 Proposed changes to the long-term care system take one of three approaches.  The first would use tax subsidies and other incentives to enhance private insurance.  The second would create a new social insurance program, much like that in Germany, Japan and most of the industrialized world.  The third solution would meld public and private insurance.

Enhance Private Insurance

Proposals to enhance private insurance would largely leave the current structure in place.  Those with low incomes would continue to receive Medicaid, while those with higher incomes would be encouraged to purchase private insurance.  Most of the proposals would focus on enhancing private insurance through federal and state tax subsidies. 

In an effort to expand private insurance in a more comprehensive way, three researchers have designed a plan called Medi-LTC.  Under this proposal, private carriers could sell three simplified benefit packages through Medicare, similar to the way Medicare Supplemental (Medigap) health insurance is marketed today.  Unlike Medigap, however, benefits could be customized, although each package would have to provide at least basic coverage.  Carriers would be permitted to underwrite policies and, thus, could reject applicants based on health status. 

In one important feature, private insurers would pay for the nursing home and home health benefit now provided by Medicare.  In return for transferring this risk to private insurers, Medicare would use its cost savings to subsidize premiums.  The Medi-LTC proposal has several advantages.  It would cost the government relatively little.  Direct marketing through Medicare would likely increase demand for private policies.  And competition among plans could lower prices.

The major fault with any of the proposals to enhance long-term care insurance revolves around underwriting.  Any market-based system must be carefully designed to avoid cherry-picking, where carriers set rates to encourage the healthiest buyers and discourage those most likely to claim.  Similarly, where underwriting is permitted, government assistance would need to be made available to those who are uninsurable.

 Create a Social Insurance System

A far more ambitious idea is to replace the current welfare-based system with social insurance.  The program could be managed as a new Medicare benefit or through a new independent, quasi-government entity.

An enhanced Medicare structure would add a new Part E.  One prototype plan, proposed by Urban Institute researchers Leonard Burman and Richard Johnson, would provide both home care and nursing home care to the frail elderly and younger disabled who are unable to perform at least two activities of daily living (ADLs).  The home care benefit would be limited to 100 hours per month.  Beneficiaries would pay a $500 annual deductible and 20% copayment up to $5,000 per year.  These costs would be reduced for low-income beneficiaries.  Providers would be paid according to a fixed fee schedule. 

Several funding options are available for this social insurance approach.  Germany’s universal system is financed through a 1.7% payroll tax.  Another option would be to introduce a new value added tax (VAT).  A third financing alternative is the income tax, which would rely on an across-the-board increase in individual tax rates equal to one percentage point, which would raise an estimated $55 billion in 2007.

To avoid tax increases, the American Association of Homes and Services for the Aging (AAHSA), a trade group that represents not-for-profit long-term care providers, designed an alternative.  Under the AAHSA plan, coverage would be universal or nearly so, and the vastly larger insurance pool would allow people to purchase life-time benefit for relatively low cost. 

One model plan would provide a life-time daily cash benefit of $75 after a five-year vesting period for an annual premium of about $1,270.  Both benefits and premiums would be indexed to wage growth.  Individuals would purchase the insurance beginning at age 21 and pay premiums to an independent quasi-government entity outside the federal Treasury.  Low-income individuals would receive a subsidy.

Meld Private and Public Insurance

A third approach would create a hybrid public-private system.  It would require individuals to purchase long-term care insurance, but through a government program.  In many ways it would resemble the Medi-LTC proposal described above.  However the Medi-LTC plan is voluntary, while participation in this system would be mandatory. 

In a hybrid program, such as the one proposed by the Brookings Institution’s William Galston, purchase would be mandatory beginning at age 40 and insurers would be required to accept all buyers without underwriting.  A prototype policy would cover $150-day for the first five years of care.  Additional care would be government financed.  Purchasers would pay market premiums, although subsidies would be available to low income buyers.  As with Medigap, insurers could offer a range of standardized benefits, though they could continue to compete on price.  By taking advantage of the sick pool concept, premiums would fall significantly from today’s market price.

Conclusion

Successful reforms must make long-term care insurance more widely accessible.  This goal may be achieved either through social insurance or private coverage.  To make private insurance more affordable and reduce the need for underwriting, the number of those insured must be greatly expanded.  In addition, the nature of assistance for the poor must shift from the welfare-type Medicaid to an insurance model.

Each design discussed above is flawed, yet each has the potential to improve our existing system.  Long-term care experts agree that a solution that is both politically and economically viable will include some mix of public and private insurance.  The challenge will be finding the proper balance between the two models.

(“How Can We Improve Long-term Care Financing? Center for Retirement Research at Boston College, Howard Gleckman, June 2008)
http://crr.bc.edu/images/stories/Briefs/ib_8-8.pdf