LDI Health Policy Seminar

1
LDI Health Policy SeminarWill Health Costs
Bury American Manufacturing? A View from
Detroit

• Mark A. Kelley, M.D.
• CEO Henry Ford Medical Group

2
Henry Ford and Detroit - 1915
3
Henry Ford and Detroit - 1915

• Explosive growth in auto production 1913-15
• 300,000 cars annually 1/3 of the worlds
  production
• Recruited employees from immigrants and the South
• Large new plant on outskirts of town Highland
  Park first major assembly line

4
Henry Fords Industrial Approach to Health Care

• Employed full-time physicians, some recruited
  from the East
• Full hospital care for fixed price (5/day
  daily wage) no insurance
• Latest technology hospital designed by Ford
  engineers

5
The Auto Industry Labor Movement Brief History

• 1930-1940
• UAW founded in 1930s by Walter Reuther
• After civil unrest, labor organized in Big Three
  (Ford last in 1941)
• Major issues working conditions, hourly wages

6
The Auto Industry Labor Movement Brief History

• 1941-1950
• Post war boom, suburban expansion, national
  highway system
• American auto reigned supreme suburban living

7
The 1950s Labors Heyday

• 1950 GM grants pensions and automatic wage
  adjustments
• 1955 Ford agrees to unemployment benefits
• 1956 UAW creates health insurance company
  Health Alliance Plan (HAP)
• Mid 1950s Major strikes in steel, coal industry

8
Henry Ford Hospital 1950s

• Regional academic medical center, support of Ford
  family
• Ranked 6 hospital in the nation
• Major national training center
• Go-To place in Michigan

9
Troubles in the Motor City1965-1975

• Urban riots cripple Detroit
• Invincible image of auto industry damaged
• Racial polarization
• Massive population shift to suburbs
• Athens of the Midwest shattered

10
Troubles in the Motor City 1965-1975

• 1973 Oil crisis demands fuel efficient cars
• 1970s American auto quality falters
• Honda, Toyota gain market foothold, via cost and
  quality

11
Henry Ford Hospital Becomes a System

• White flight to suburbs fractures the city
  infrastructure
• Hospital remembered as staging area for National
  Guard
• Launches first satellite to attract suburban
  patients

12
The 1980s Save the Industry!

• Federal bailout of Chrysler Corporation
• Focus on quality (Job 1 at Ford)
• Young and frightened workforce (baby boomers)
• More partnering with labor and management

13
Big Three Approach to Health Care 1980-90s

• Predictable costs without labor strife
• HMO prepayment attractive for
• Population-based prevention
• Community-based premium
• Little cost to employees
• Arms length relationship with health care, except
  in the workplace
• This strategy, fueled by managed competition
  paradigm, worked wellfor a while

14
HFHS Response 1980-99

• Suburban competition
• HMO (HAP) purchased for access to UAW
• System grows suburban primary care and acquires
  regional hospitals
• Integrated delivery system as survival strategy

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OOPS!! Health Costs Are Out of Control (Again)
16
GDP per Capita to GDP Spent on Health Care
OECD CountriesSource Anderson, Health Affairs
222003
17
Failure of Employer-Based Health Insurance

• Demand for choice defeated HMO strategy
• Cannot limit provider selection health care
  delivery fragmented
• Liability risk of restricting access
• Populations do not cost high risk patients
  account for 80 of costs
• Inability to curb technology growth
• Source Enthoven, Health Affairs, Spring 2003

18
The Big Threes Health Crisis in 2003

• Flat HMO premiums in 1990s spurred temporary
  profits
• Rebound of double digit premium inflation
• Unique problems
• Aging workforce (average age 45)
• Lifetime health coverage beyond Medicare
• Higher actuarial risk workforce
• None of these problems are shared by
  international competitors!

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Premium Inflation is Significant
HMO Premium vs. HMO Cost Increases 1988 - 2006
Annual premium increases
MD
I/P
Rx
1999
2000
2001E
2002E
2003E
2004E
2005E
2006E
Source Salomon Smith Barney Research estimates
based on data from CMS, Milliman USA, AAHP, KPMG.
20
Big Three Pays 900 More for Health Care per
Vehicle

• Reasons
• Rich post-retirement benefits for aging workforce
• Workers retire well before age 65
• First coverage for most hourly workers
• No national policy on technology or drugs

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Big Threes Challenges Reflect Those of the Nation

• Big Three could not predict or control
• improved life expectancy
• technology and pharmacy proliferation
• American health care consumerism
• Big Three should have predicted effects of
• the baby boomer workforce
• life time health care benefits
• rich pharmacy benefits
• These are the very same issues facing Medicare!

22
The Auto Industrys Position on Health Care - 2003

• The business case for quality worked well for the
  Big Three manufacturers health care should
  follow!
• Facts
• There is waste in health care, uneven quality,
  little standardization
• Health care not organized for quality and cost
• Health care is delivered locally as a cottage
  industry
• Human behavior is not easily engineered

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USA Health Expenditures Annual Percentage
GrowthSource Levit, Health Affairs 212002
24
Hospital Days/Capita 2000
25
MD Visits/Capita 2000
26
CT Scanners per Million Pop., 2000
27
Angioplasties/100,0001999
28
Pharmaceutical Costs per Capita-2000Source
Anderson, Health Affairs 222003
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2. Health care costs too much and providers
drive the inflation

• Facts
• UAW contracts are too rich
• Hospital and pharmacy costs have dominated
  inflation
• U.S. doctors earn relatively the same western
  counterparts
• Utilization of health services same as other
  western nations

30
UAW Public Position on Health Care

• Etiology of problem
• Administrative costs of private insurance
• For profit components of the industry
• Medical arms race
• Solution National health insurance and policy
• Positions
• Support pharmacy benefit
• Oppose health vouchers/defined contributions
• Support strong CON process
• Source UAW website 2003

31
You be the Quarterback 1

• What would be your immediate health care strategy
  if you were
• The UAW
• the Big Three

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Features of 2003 UAW Contract

• UAW Gains
• 2-3 wage increase (beyond COLA) last two years
  of contract
• Expanded medical coverage retirees protected
• Pension increases for future retirees
• Unionize suppliers

33
Features of 2003 UAW Contract

• Company Gains
• Bonuses instead of wage increases (preserves the
  base)
• No increases for current retirees
• Permission to sell/close plants
• Tighter prescription control

34
UAW Medical Benefits Contract History

• 1993 Fully paid benefits, no new co-pays
• 1996 Drug co-pay up from 3 to 5. new members
  must enroll in HMO for two years
• 1999 Expanded preventive care mandatory HMO
  enrollment for four years
• 2003 Expanded preventive care three tier drug
  co-pay 10 office co-pay HMO requirement
  dropped
• Source Detroit Free Press 9/19/2003

35
Henry Ford Health Systems Perspective

• Financial
• Crisis 1998-2001 because of capitation and flat
  premiums
• Stability with double digit premium rise
• Dilemma of owning an HMO
• Autos want to beat health inflation (somehow)
• Changing Delivery Tactics
• HMO paradigm forced Kaiser mentality
• Move to PPO allows balance of AMC and delivery
  system
• AMC cannot survive on capitation no margin

36
Henry Ford Health Systems Perspective

• Politics
• Underfunded, poorly managed Medicaid
• Failing safety net in Detroit
• Auto industry controls technology via CON
• Recent legislation for HFHS suburban hospital

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Henry Ford Health Systems Perspective

• Patients
• Clueless about benefits (except pharmacy)
• Insurance coverage constantly shifting
• Two incomes common
• Quality
• No progress in paying for quality (despite
  Leapfrog)
• Early discussions about chronic disease
  management
• Autos view health care as an HR issue

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You be the Quarterback 2

• As the auto company exec in charge of health
  care, what is your long-term strategy to solve
  the health care problem?

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What are the Options for the Big Three?

• Reduce Health Care Costs
• Curb health care technology proliferation
• Local CON, HMOs as stall tactics
• National No traction except in Medicare
• Push more cost decisions to employees
• PPOs vs closed network
• Higher co-pays (ERs)
• Tiered pharmacy benefits
• Other moves difficult with national platform
• Reduce administrative costs/waste
• Chronic disease management
• May see major employers align

40
Health Cares Closed Box

• .

Employee
Health
Health Providers
Company
Govt
41
What are the Options for the Big Three?

• Lobby for National Health System/More Medicare
  Benefits
• Strong emphasis on prescriptions
• Aggressive approach limited by
• Lack of political will in Washington
• Threat of increased taxes
• Other Tactics
• Leverage local providers only works in one
  industry town
• Hit UAW contract harder
• Restrict future benefits

42
What are the Options for the Big Three?

• Doomsday Scenario Move manufacturing off-shore
• Developing countries have lower costs (for
  everything)
• American demand for low price favors off-shore
• Detroit faces same crisis as Boston and NYC did
  in 1900s

Irony For Toyota, offshore is American South
43
HFHS Long Range Tactics

• Work to Curbs Costs when Possible
• Chronic disease management (maybe)
• Educate patients about purchasing choices
• Re-engineer practice (like manufacturing)
• To improve access
• Reduce rework (quality and communication)
• Use alternative methods (open access, e-mail,
  group visits)
• Maximize leverage of a closed system

44
HFHS Long Range Tactics

• 2. Diversify the Local Economy
• Strong regional expertise in engineering,
  tooling, process improvement
• All these skills are applicable to health care
• Could Detroit have as much influence on health
  care as it did on manufacturing?

45
Will Health Care Costs Bury American
Manufacturing?

• YES If current status quo prevails!
• Auto industry will fail but federal government
  will intervene
• U.S. automakers are the icons of American
  manufacturing
• Intervention Fund current entitlements, recast
  the contracts

46
Will Health Care Costs Bury American
Manufacturing?

• NO Under several scenarios
• 1. National health insurance paid by new taxes
  (levels the playing field with other countries)
• 2. National Medicare policy is clear and
  provides
• More benefits (gets autos off the hook long-term)
• Less benefits will result in national brake on
  drug/technology proliferation

47
Will Health Care Costs Bury American
Manufacturing?

• NO
• 3. Near Death for industry (like airlines)
  leads to union concessions (as in 2003 contract)

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Will Health Costs Bury American Manufacturing? --
Forecast

• Near Death scenario has already begun (2003
  contracts)
• Health care will be major agenda in 2008-12
  elections, promoted by auto industry
• Auto industry will try to catch the wave of
  disenfranchised retirees

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Will Health Costs Bury American Manufacturing? --
Forecast

• Dont Underestimate the Power of the
• Baby Boomers!
• They make your cars
• They stopped a war
• They toppled Nixon
• WHEN PROVOKED,
• THEY VOTE!!

50
Health Care in 1915

• Organized training only in the East especially
  Johns Hopkins
• Standardized care in group practice (Mayo Clinic,
  Cleveland Clinic)
• Advances in surgery and radiology, infectious
  disease
• Life expectancy age 45 TB major cause of death

51
Big Three Health Strategy - 1990s

• Treat health care industry like another supplier,
  focusing on quality and cost
• Keep immediate costs down (wages) as trade-off
  for unknown future costs (health and retirement)
• Keep workers healthy to promote productivity

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The National Health Care Cost Dilemma
HOW WILL COSTS BE CONTROLLED
2.64

• US Population 2010
• 299 Million
• 75.1 Million gt 55
• 8708 per capita

• Return to Work Outcomes
• Chronic Disease Mgt
• Effectiveness Analysis
• Outcomes Analysis
• Cost/Quality Benchmarks
• Consumer Choice

Health Care Cost
Trillions of Dollars
Demographics Aging Population
Managed Care No Future Savings
Accessibility Consumerism
Medical Pharmaceutical Technology
1.54

• US Population 2002
• 280 Million
• 61.4 Million gt 55
• 5805 per capita

Health Data Collection and Analysis
Source US Census and Centers for Medicare and
Medicaid Services
2010
2002
53
Michigan Manufacturers Survey 2003

• 80 of companies experienced double digit
  inflation health premiums in past year
• 72 ranked health care first as most important
  company issue
• Top reasons cited for rising costs prescription
  drugs, medical liability, inefficient health
  care, new technologies
• Health care top issue in employee relations
• Source MMA website - mma-net.org 2002