HSAD 7301PBHL 5123

1
HSAD 7301/PBHL 5123

• COST

2
WHAT DO WE MEAN BY COST?

• THERE ARE THREE MEANINGS OF COST
• A) CONSUMER PERSPECTIVE THE PRICE OF MEDICAL
  CARE, OFTEN OUT-OF POCKET PORTION
• B) MACROECONOMIC PERSPECTIVE EXPENDITURE WHICH
  IS THE PRODUCT OF PRICE AND QUANTITY E PQ
• C) PROVIDERS PERSPECTIVE RESOURCES USED FOR
  PROVIDING HEALTH CARE.

3
ANNUAL PERCENT INCREASE IN NATIONAL HEALTH
EXPENDITURES
MANAGED CARE
BBA-97
DRGS
BBA-97
CMS NATIONAL HEALTH STATISTICS
4
CONSUMER PRICE INCREASES FOR MEDICAL CARE
5
NATIONAL HEALTH EXPENDITURES AS A PERCENT OF
GROSS DOMESTIC PRODUCT
CMS NATIONAL HEALTH STATISTICS
6
NATIONAL HEALTH EXPENDITURES AS A PERCENT OF GDP
-2000
Organization for Economic Cooperation and
Development
7
Growth in National Health Expenditures
Health spending growth slowed between 1993 and
2000 to an average increase of 5.6 percent,
about half the rate of increase between 1980 and
1993.
Percent
Nominal
Real
Calendar Years
Note Deflated using the GDP chain weighted
price index. Nominal values expressed in current
dollar terms (not adjusted for inflation). Real
values adjusted for economy-wide
inflation. Source CMS, Office of the Actuary,
National Health Statistics Group.
8
Increases in Health Insurance Premiums Compared
to Other Indicators, 1988-2002
Chart 1
Source KFF/HRET Survey of Employer-Sponsored
Health Benefits 1999, 2000, 2001, 2002 KPMG
Survey of Employer-Sponsored Health Benefits
1988, 1993, 1996. Note Data on premium increases
reflect the cost of health insurance premiums for
a family of four.
2
9
Prescription Drug Expenditure Growth and Share of
National Health Expenditures
Sharply rising prescription drug expenditure
growth nationwide in the mid- to late 1990s
caused noticeable growth in prescription drugs as
a share of total health spending.
17.3
12.1
Percent
Growth
9.4
4.9
Share of NHE
Calendar Years
Source CMS, Office of the Actuary, National
Health Statistics Group.
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WHY SHOULD, OR WHY SHOULDNT WE CONTROL THE
RISING COST OF HEALTH CARE IN THE U.S.?

• SHOULD
• ANNUAL MEDICAL CARE PRICE INCREASES HAVE BEEN
  HIGHER THAN GENERAL PRICE INFLATION IN THE
  ECONOMY SINCE 1983
• INCREASING HEALTH EXPENDITURES WILL REQUIRE
  RAISING NEW TAX REVENUE
• THE LARGE BABY BOOM COHORT WILL LEAD TO
  UNPRECEDENTED INCREASES IN HEALTH CARE
  EXPENDITURES
• HEALTH CARE COSTS FINANCED BY EMPLOYER
  CONTRIBUTION DRIVE UP THE PRICE OF ALL GOODS AND
  SERVICES.
• THERE IS AN UNKNOWN, BUT CONSIDERABLE OF AMOUNT
  OF DUPLICATION AND WASTE IN THE HEALTH CARE
  INDUSTRY
• LARGE SEGMENTS OF THE POPULATION CAN NO LONGER
  AFFORD HEALTH CARE OR HEALTH INSURANCE
• GOVERNMENT AND EMPLOYERS ARE HAVING A DIFFICULT
  TIME FUNDING HEALTH INSURANCE
• RAPIDLY RISING HEALTH COST WILL TEMPT EMPLOYERS
  TO DROP INSURANCE COVERAGE AND INCREASE THE
  NUMBER OF UNINSURED

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WHY SHOULD, OR SHOULDNT WE CONTROL HEALTH CARE
COSTS?

• SHOULD NOT
• HIGH EXPENDITURE ON MEDICAL TECHNOLOGY PROLONGS
  LIFE AND INCREASES WELL BEING (BENEFIT)
• MEDICAL CARE EXPENDITURE IS A SOCIETAL GOOD.
• HEALTH CARE SECTOR EMPLOYS
• APPROXIMATELY 10 OF THE U.S. WORKFORCE AND
  PROVIDES DECENT WAGES TO MANY.

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CAUSES OF COST INCREASE
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Factors Accounting for Growth in Personal Health
Care1 Expenditures Per Capita
The most important factor accounting for the
slowdown in personal health care expenditure
growth after 1993 was the decline in medical
price growth.
2
Average Annual Percent Change
Selected Calendar Year Periods
1 Personal health care spending comprises
therapeutic goods or services rendered to treat
or prevent a specific disease or condition in a
specific person. 2 Utilization includes
quantity, quality, and mix of services. As a
residual, this factor also includes any errors in
measuring prices or total spending. Note
Medical prices are calculated using the personal
health care chain-type index constructed from the
producer price index for hospital care, nursing
home input price index for nursing home care, and
consumer price indexes specific to each of the
remaining personal health care components. Source
CMS, Office of the Actuary, National Health
Statistics Group.
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FACTORS INCREASING HEALTH COSTS -
(2001-2002)(Price Waterhouse Coopers, April,
2002)

• 1. DRUGS, MEDICAL DEVICES,
• OTHER MEDICAL ADVANCES
  22
• 2. GENERAL INFLATION
  18
• 3. RISING PROVIDER EXPENSES
  18
• 4. GOVT. MANDATES AND REGULATIONS 15
• 5. INCREASED CONSUMER DEMAND
  15
• 6. LITIGATION AND RISK MANAGEMENT
  7
• 7. OTHER (FRAUD ABUSE, ETC.)
  5

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SHI SINGHCAUSES OF COST INCREASE

• GENERAL PRICE INFLATION
• MEDICAL INFLATION
• THIRD PARTY PAYMENT
• IMPERFECT MARKET
• TECHNOLOGY
• ELDERLY
• MEDICAL FOCUS OF HEALTH CARE
• ADMINISTRATIVE COST
• DEFENSIVE MEDICINE
• WASTE AND ABUSE
• PRACTICE VARIATION

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ARKANSAS BLUE CROSS12 CAUSES OF COST INCREASE

• CHANGING DEMOGRAPHICS
• NEW TECHNOLOGIES
• PATIENT DEMAND
• INCREASING LITIGATION/REGULATIONS
• INCREASING SUPPLY OF PHYSICIANS
• SHORTAGE OF NON-PHYSICIAN PROFESSIONALS
• CONSUMER NOT DIRECT PAYER
• HEALTH STATUS OF POPULATION
• EMERGING DISEASES
• INCREASING UNINSURED
• VARIABILITY IN PHYSICAIN PRACTICE PATTERNS
• EXCESS USE OF AVOIDABLE CARE

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STRATEGIES TO CONTROL COST
18
FEDERAL GOVERNMENT HISTORICAL EFFORTS

• HEALTH PLANNING
• COMMUNITY HEALTH PLANNING (1960S)
• PL 93-641 NATIONAL HEALTH PLANNING (1972)
• CONTROL GROWTH OF FACILITIES AND TECHNOLOGY BASED
  ON NEEDS IN THE COMMUNITY (CON PROCESS)
• REDUCE MALDISTRIBUTION OF RESOURCES
• FAILED TO ACHIEVE COST CONTAINMENT GOALS
• FEDERAL EFFORT DISCONTINUED IN 1983, SOME STATES
  STILL RETAIN CON PROCESS
• WAGE AND PRICE CONTROLS (1971-1974) NIXON
• ECONOMIC STABILIZATION PROGRAM
• FEDERAL MANDATE ON INCREASES IN WAGES AND PRICES
• HIGH RATE OF INFLATION
• VOLUNTARY COST CONTROLS (1978-1979) CARTER
• VOLUNTARY EFFORT BY HEALTH PROVIDERS TO CONTROL
  COST
• MEDICARE FEES (1984-1986)
• FREEZE ON MEDICARE PHYSICIAN FEES
• PRO/PSRO (NOW QUALITY IMPROVEMENT ORGANIZATIONS
  - QIO)
• PROFESSIONAL STANDARDS REVIEW ORGANIZATION FOR M
  M
• REVIEW MEDICAL NECESSITY-UTILIZATION
• REVIEW QUALITY OF CARE

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FEDERAL EFFORTS

• HEALTH MAINTENANCE ORGANIZATIONS (1972)
• FUNDED DEVELOPMENT OF HMOS AS A LOWER COST
  ALTERNATIVE
• MANAGED CARE
• DEVELOPED MEDICARE CHOICE PRODUCTS (NOW MEDICARE
  ADVANTAGE)
• ENCOURAGED THE DEVELOPMENT OF MEDICAID MANGED
  CARE PRODUCTS

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STATE EFFORTS

• RATE SETTING COMMISSIONS
• REVIEW HOSPITAL RATES
• MARYLAND
• HEALTH PLANNING
• RETAINED CON PROGRAMS
• MANAGED CARE
• STATE EMPLOYEES
• MEDICAID RECIPIENTS
• PROSPECTIVE PAYMENT
• PROSPECTIVE PAYMENT FOR MEDICAID RECIPIENTS
• CUT BENEFITS/PROGRAMS
• REDUCED REIMBURSEMENT
• ELIMINATED PROGRAMS

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PROSPECTIVE PAYMENT SYSTEMS

• CLINICAL CLASSIFICATION
• CPT, ICD 9, SPECIAL CODES
• REHAB- IRF-PAI (PATIENT ASSESSMENT INSTRUMENT)
• LTC RUGS/MDS (MINIMUM DATA SET)
• HOME HEALTH OASIS (OUTCOMES AND ASSESSMENT
  INFORMATION SET)
• DRG, RBRV, APC, RUG
• FINANCIAL CALCULATION
• CONVERSION FACTOR
• WEIGHTED COST
• GEOGRAPHIC WAGE/COST ADJUSTMENT
• ANNUAL ECONOMIC ADJUSTMENT
• HOSPITAL MARKET BASKET
• INCREASE RELATED TO INFLATION
• OTHER ADJUSTMENT

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MEDICARE PROSPECTIVE PAYMENT SYSTEMS

• INPATIENT HOSPITAL
• 500 DRGS
• OUTPATIENT HOSPITAL
• AMBULATORY CARE GROUPS (APCS)
• PHYSICIANS
• RESOURCE BASED RELATIVE VALUE (RBRVS)
• NURSING HOMES
• 44 RESOURCE UTILIZATION GROUPS (RUGS III)
• HOME HEALTH
• CARE EPISODE 60 DAYS
• REHABILITATION HOSPITAL
• PAI-FIM-FRGS
• PSYCHIATRIC HOSPITAL
• NEW SYSTEM UNDER DEVELOPMENT (PER DIEM)

23
Total Days of Care of Medicare Beneficiary
Staysin Short-Stay Hospitals
Total days of care per 1,000 Medicare
beneficiaries continued a historical downward
trend started in 1983.
Prospective Payment System
3,786
2,232
Note Beginning with 1994 data, the utilization
statistics do not reflect managed care
enrollment. Source CMS, Office of Information
Services Data from the Medicare Support Access
Facility data development by the Office of
Research, Development, and Information.
Section III.D. Page 3
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COMMERCIAL HEALTH INSURANCE MARKET

• MANAGED CARE PLANS PRODUCTS
• COST SHIFTING
• CONSUMER DRIVEN HEALTH PLANS
• HIGH DEDUCTIBLE PLANS
• UTILIZATION CONTROLS DEMAND DISEASE MANAGEMENT
  PROGRAMS
• PROSPECTIVE PAYMENT SYSTEMS

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HOSPITAL COST CONTAINMENT EFFORTS

• IMPROVED PURCHASING AND INVENTORY MANAGEMENT
• CONTROL LABOR COST
• TRAINING AND MULTI-TASKING
• IMPROVED BILLINGS COLLECTIONS
• INFORMATION SYSTEM EFFICIENCIES
• DIVESTITURE
• CONSOLIDATION OF SERVICES

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ARKANSAS BLUE CROSSCOST CONTAINMENT EFFORTS

• IMPROVED CONTRACTING
• NEW HEALTH PLANS
• NON-PROFIT
• LOW OPERATING COST
• ELECTRONIC SUBMISSION OF CLAIMS
• CUSTOMER SERVICE WORKSTATIONS
• DRUG FORMULARY
• COVERAGE POLICY
• CASE MANAGEMENT
• TRANSPLANT NETWORK
• BLUE CARD
• FRAUD INVESTIGATION
• COMMUNITY HEALTH PROGRAMS
• WELLNESS DISCOUNTS
• HEALTH EDUCATION PROGRAMS
• WEB SITE AND HEALTH MAGAZINE

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COST ISSUES AND CHALLENGES

• HOW TO KEEP THE RATE OF INCREASE IN HEALTH CARE
  COST CLOSE TO OR EQUAL TO THE GENERAL RATE OF
  INFLATION
• HOW TO DEVELOP COST CONTAINMENT STRATEGIES THAT
  IMPACT BOTH PRICE AND QUANTITY
• HOW TO DEVELOP COST CONTAINMENT STRATEGIES THAT
  INVOLVE CHANGES IN THE BEHAVIOR OF PATIENTS AND
  PROVIDERS