How To Understand The Health Care System In The United States

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Stuart H. Altman, Ph.D.

Sol C. Chaikin Professor of National Health Policy Brandeis University

Medicare Payments And Its

Relationship To The U.S.

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Should Medicare Focus Only on The Functioning of The

Medicare Program, Or

Should It Be Concerned About It’s Impact on The Overall US Healthcare

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Medicare Is Already A Major

Payer For US Healthcare

But Just Wait Until The Next Decade!

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Percent Paid For Healthcare By Payer Source 2006 In Billions of Dollars-$1.76 Out-of-Pocket, 15% Pvt. Insurance, 35% Medicare, 22% Medicaid, 17% Other, 4%

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Even With No Change In Coverage Government Will Dominate

Institutional Payments 54% 66% 37% 25% 6% 7% 3% 2% 0% 20% 40% 60% 80% 100%

Gov. Pvt. Uncomp. Care Other Proportion Of Hospital Expenses Attributed To

Patients By Payer Source

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Do Hospitals Attempt To Charge Privately Insured Patients More

For Medicare/Medicaid Underpayments, Or

Do They Just Maximize Revenue From Each Source

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60% 80% 100% 120% 140% 160% 180% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 …. …. …. …. …. 2025

Medicare Medicaid Private Payers

Can Private Insurance Payments Continue To Pay For The Shortfall In Government

Payments

Source: 2005 TrendWatch Chartbook, AHA and the Lewin Group.

Hospital Payment-to-Cost Ratios (Government Ratios Maintained at Current Levels)

122.3%

95.3%

92.3%

138.0% 157.4%

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Profit (Loss) By Payer

2004 Medicare Medicaid PEIA Other Govt Non-Govt -200,000,000 -150,000,000 -100,000,000 -50,000,000 0 50,000,000 100,000,000

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Both Medicare and Private Health Insurance Payments Are Being Driven By The Same

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y = 64.645x + 504.38 0 500 1000 1500 2000 2500 3000 3500 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 P e r Cap it a NHE i n $

Per Capita Growth In Health Expenditures Has Been Growing at 2% Above Inflation

For 40 Years ---Is This Inevitable?

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Medicare Expenditures 1967-2007 IN Billions $4.7 _$6.6 $33.7 $101 $217 $275 $336 $374 $432 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 1967 1970 1980 1990 2000 2003 2005 2006 2007

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The U.S. Has In The Past Tried To Control Health

Spending---BUT----With Limited Success and For a Limited Time Period

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0 500 1000 1500 2000 2500 3000 3500 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 P e r Ca p it a NHE i n $ Gov’t Reg. M&M Begins Managed Care ? Little Reg./Little Mkt. Y = 52.703x – 102898 Y = 40.31x – 78465 Y = 88.486x – 173967 Y = 37.925x – 73195 Y = 107.95x – 1025.3

The Changing Growth Pattern of Per Capita National Health Expenditure

1966-2005 (adjusted for inflation)

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What Are The Forces That Keep Health Care Spending

Growing?

Lets See What We Can Learn From A Comparison With Other

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Correlation Between Per Capita

Expenditure on Health Care and GDP,

2002-2003 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 0 10,000 20,000 30,000 40,000 50,000

per Capita GDP ($US PPP)

per C a pi ta Exp on H e al th ($ US PPP)

The figure for Japan is 2002 estimate; the figures for Australia, Austria, China, Hungary, Ireland, Israel, Poland, Sweden and United Kingdom are of 2002; the figures for Canada, France, Iceland, Norway and Switzerland are 2003 estimates. The rest are of 2003. Source: OECD Health Data 2005 and WHO.

U.S. Canada _Norway Japan Switzerland Germany Israel Korea China U.K. Australia $1,794 y = 0.1222x - 760.9342 R2_{= 0.8121}

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Why Is Healthcare Spending

Higher In U.S.

Do We Use More Services or Just Spend More for The Services We

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In-Patient Acute Care Beds in Selected Countries 2005 3.9 3.6 3.7 2.7 3.1 6.4 8.2 0 1 2 3 4 5 6 7 8 9 10

US France Australia UK Germany Japan OECD Av.

P e r 1, 000 p o p u la ti o n

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Hospital Discharge Rate in Selected Countries 2005 163 158 201 245 121 88 106 268 0 50 100 150 200 250 300

US UK Germany Australia France Japan Canada OECD Av.

D isch ar g es p er 100, 000 P o p

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Average Length of Stay in Hospital in Selected Countries 2005 6.1 8.6 19.8 6.3 5.4 5.6 0.0 5.0 10.0 15.0 20.0 25.0

US Australia UK France Germany Japan OECD Av.

In -P a ti e n t Ac u te Ca re Da y s

In-patient Acute Care Days

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Practicing Physicians in Selected Countries 2005 3 2.0 2.3 3.4 2.4 2.7 3.4 2.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

US Germany Australia UK France Canada Japan OECD

Av. P h ysi ci ans per 1, 000 popul at io n

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Doctors’ Consultations Per

Capita in Selected Countries

2005 6.8 6.1 6.6 13.8 7 3.8 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 US Germ any Japan _Franc e Aust ralia OE CD Av . N u m b e r of C ons ult a ti ons pe r C a pit a

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What About The Availability of

Expensive Medical Technology

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MRIs in Selected Countries

2005

(Units per million persons)

9.8 40.1 4.1 5.4 7.1 6.0 26.6 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0

US Australia Germany UK France OECD

Av.

Japan

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Patients Using Renal Dialysis Treatment in Selected Countries

2005 114.0 42.0 61.0 77.0 35.0 37.0 44.0 0 20 40 60 80 100 120

US Australia Canada Germany UK Mexico NZ

Patients With Dialysis

P ro c ed u res P e r 100, 000 P o pul a ti on

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Coronary Revascularization Procedures, in Selected Countries 2004 579 388 236 169 196 229 249 0 100 200 300 400 500 600 700

US Germany Australia UK France Canada OECD Av.

P er 1, 000 p o p u la ti on

Source: OECD HEALTH DATA 2007

Coronary angioplasty Coronary bypass

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Liver Transplant Procedures in Selected Countries 2002 1.8 0.8 1.2 0.9 1.2 0.9 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

US Australia Canada Germany UK Korea

Liver Transplant P ro ced u re p e r 100, 0 00 P opul a ti on

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Pharmaceutical Expenditures Per Capita- 2005 792 554 415 589 498 413 0 100 200 300 400 500 600 700 800

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What About Income of

Physicians?

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General Practitioners’ (GPs)

Remunerations Ratio To GDP Per Capita, 2005 4.4 3.8 _3.7 2.1 3.3 3.8 0 1 2 3 4 5 6 7 8 9 10

US (2001) UK(2004) Germany Australia (2004) Canada (2004)

Salaried

Self-employed

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Specialist Physicians’

Remunerations Ratio To GDP Per Capita, 2005 6.5 4.8 5.0 5.3 4.9 2.7 3.7 4.8 0 1 2 3 4 5 6 7 8 9 10

US (2001) UK(2004) Germany Australia (2004) Canada (2004)

Salaried

Self-employed

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Is The US (Medicare) Growth Rate In Spending Sustainable?

Or Are We Approaching a Meltdown In Our Healthcare

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Technology Is a Major Driver in Health Care Expenditure

Growth.---Is it Worth It?

“When costs and benefits are weighed together, technological advances have proved to be worth

far more than their costs.”

David M. Cutler and Mark McClellan, “Is Technological Change In Medicine Worth It?” Health Affairs, September/ October 2001. Can be found at:

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But Is Every Technology That Has Some Medical Benefit

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Alternative Levels of Healthcare Services And Improvements to

Health Outcomes #1 Inputs of Healthcare #2 Economic Optimum 0 Dollars #4 Harmful Care #3 Maximum Impact

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In Other Countries They Control Spending By Limiting Use of High

Cost Medical Procedures Closer

To #2---Plus Pay Less for Those

They Use

We Can Start By Eliminating The Harmful Services in Category #4. But Also May Need To Move Toward

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Techniques The US (Medicare) Can Use To Limit Use of

Expensive Medical Technology

• Market Mechanisms

– More Knowledge and Transparency of Value

of Use of Individual Technologies

• Comparative Effectiveness Research

– More Aggressive Managing of Care

• Value Based Benefit Design • Value Based Pricing

– More Aggressive Use of Patient Co-Payments Based on

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Techniques for Limiting Use of Expensive Medical Technology

• Government Regulation

– Certificate-of-Need Restrictions

• Funds Obtained Privately

– Limits on How Technology Can Be Funded

• Must Use Government Funds

– Limits on Payments for Technology Services – Require all Public and Private Technology

Payments to Utilize Comparative

Effectiveness Findings Using Cost –Benefit Analysis (“Quality Adjusted Life Years”)

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Many Believe Medicare Must First Change The Way It Pays Providers

• Federal government can no longer just think about

impact on Medicare beneficiaries and fiscal integrity of program

– Cannot assume that providers will continue to find other payers to balance its lower payments and

therefore if Medicare needs to pay lower amounts it must:

• Restructure its payment system and move beyond fee-for-service payments

• In addition Medicare Needs to:

– Review the amount it pays primary care physicians in relationship to specialists

– Assess whether hospital DRG payment system

encourages the use of expensive and less valuable services

– Determine whether it could do more to encourage integrated care

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