Trends in National Health Care Expenditures

1
(No Transcript)
2
Chapter 7

• Financing Health Care

3
CHAPTER OBJECTIVES

• Understand the scope and magnitude of U.S. health
  care spending in relationship with other
  developed countries
• Understand how the U.S. health care payment
  system evolved current trends
• Understand the related roles of government the
  private sector in financing health care
• Understand efforts to link costs with quality

4
PART 1

• National Health Care Expenditures
• Influences on health care finances
• Primary components of health care expenditures
• Private Health Insurance
• Blue Cross/Blue Shield
• Commercial Insurers
• Managed Care

5
Overview

• Multiple payment sources
• Working Americans employer health insurance
  (Blue Cross/Blue Shield, managed care plans)
• Public funds support Medicare (66 ), Medicaid
  for low-income individuals

6
Influences on Health Care Financing

• Providers, employers (purchasers), consumers,
  politics
• Tensions- Responsibilities of
• Government
• Employers
• Consumers
• Providers
• The Market

7
Health Care Expenditures in Perspective

• 2008 expenditures 2.33 trillion, 16 of GDP,
  7,681/person 1/6 of total economy
• Hospital care, physician services, prescription
  drugs 3 top expenses
• Government sources finance 48 of total
  expenditures

8
FIGURE 7-1 National Health Expenditures per
Capita and Their Share of the Gross Domestic
Product, 19602008.
Source Centers for Medicare and Medicaid
Services, Office of the Actuary, National Health
Statistics Group.
9
FIGURE 7-2 The Nations Health Care Dollar 2008
Where It Went.
Source Centers for Medicare and Medicaid
Services, Office of the Actuary, National Health
Statistics Group.
10
FIGURE 7-3 The Nations Health Care Dollar 2008
Where It Came From
1Other Public includes programs such as workers
compensation, public health activity, Department
of Defense, Department of Veterans Affairs,
Indian Health Service, State and local hospital
subsidies and school health. 2Other Private
includes industrial in-plant, privately funded
construction, and non-patient revenues,
including philanthropy. 3Out of pocket includes
co-pays, deductibles, and treatments no covered
by Private Health Insurance. Note Numbers shown
may not add to 100.0 because of rounding.
Source Centers for Medicare and Medicaid
Services, Office of the Actuary, National Health
Statistics Group.
11
Factors that Decreased Expenditure Growth

• Managed care utilization controls
• Hospital prospective payment
• Managed care physician fee restrictions

12
U.S. Health Spending Compared with Other
Developed Countries (2)

• 1970-2005 U.S. had largest increase in percent
  of GDP devoted to health care among 29 other
  countries
• Lower life expectancy based on per capita income
• Lower ranking on health status indicators
• Spent gt twice median spending of others per
  capita on health care

13
U.S. Health Spending Compared with Other
Developed Countries (2)

• With 3rd highest level of public spending on
  health care, U.S. public insurance covered only
  26.5 of population
• Lower U.S. utilization rates per capita (hospital
  stays and physician visits)
• Lower supply of expensive technology
• Higher income medical care pricesnot superior
  health care or better outcomes

14
U.S. Health Care Waste

• 30-40 of spending yields no value, inefficiently
  producing valuable services
• CBO Director (2008) future health care
  spendingthe single most important factor
  determining the nations long-term fiscal
  condition
• Evidence-based physician practice needed to
  reduce variability

15
Health Care Fraud Abuse

• FBI 2009 estimates 75-250 B
• U.S. Justice Department HHS Inspector General
  investigate, convict and exclude providers
• 2009 Health Care Fraud Prevention and
  Enforcement Action Team using new technology to
  identify and analyze suspected fraud

16
Major Contributors to Increases in Health
Expenditures

• New diagnostic treatment technology
• Growth in older population
• Medical specialization
• Uninsured, underinsured populations
• Labor intensity
• Reimbursement system incentives

17
New Diagnostic Treatment Technology

• Equipment, devices pharmaceutical agents,
  requiring advanced personnel training new
  personnel roles
• Computed tomography scanning, Magnetic resonance
  imaging, PET scanning
• Pacemakers, implantable cardio-converters
• Drugs and drug marketing to consumers

18
Aging Population

• Since 1900, 65 year olds tripled in number
• 85 year old projected at 8.9 M by 2030
• Major consumers of hospital inpatient care
• Advanced age accompanied by chronic conditions
  requiring surgeries, drug therapies

19
Medical Specialization

• 60 of physicians are specialists
• Americans demand specialty care and use of
  diagnostic testing
• Managed care relaxing hurdles to specialty care
  referrals

20
Uninsured and Under-insured

• 47 million, 16 of Americans
• Almost 75 of uninsured in households with at
  least one full-time worker
• No insurance late care, medical complications,
  emergency care, avoidable hospitalizations
• Costs passed to insurance premiums, taxes

21
Labor Intensity

• People- centered services require high staff to
  consumer ratio
• New technologies require new, technically trained
  personnel
• Aging population contributes to home care, other
  personnel needs
• 3.2 M new jobs by 2014 will be in health services

22
Economic Incentives

• Traditional payment for piece-work drove high
  utilization
• Managed care, prospective payment dulled
  incentives
• System still largely physician and hospital
  driven with continuing incentives for over-use

23
Private Health Insurance

• 1800s movement to insure workers against lost
  wages due to work injuries later coverage added
  for serious illness
• Insurance payments to medical care providers not
  until 1930s

24
Health Insurance Concepts

• Antithetical to insurance premise of guarding
  against unlikely events, health insurance evolved
  to pay for both routine and unexpected events
• Indemnity coverage protected from all costs of
  care prevailed 1930s-1970 introduction of
  managed care

25
Blue Cross/Blue Shield

• 1930 Baylor University teachers contract with
  Baylor, TX hospital to cover inpatient services
  on an annual basis
• Model for Blue Cross development
• Blue Shield for physician payment followed in
  1940s with AMA financing of Association of
  Medical Care plans

26
Insurance Transformed Health Care (1)

• Established hospitals as centers of medical care
  proliferation technology
• Put hospital care within easy reach of working
  population
• Annual hospital admissions 50 higher for covered
  individuals than nation as a whole by late 1930s

27
Insurance Transformed Health Care (2)

• Private insurance countered forces that lobbied
  for national health insurance, strongly opposed
  by private medicine
• Focused government insurance on low-income
  individuals
• Stimulated American Hospital Assn. local
  hospitals to subsidize semi-private and ward care
  for low-income populations

28
Features of Blue Cross Blue Shield

• Initially, not-for-profit corporations
  community rated (without regard to demographics,
  occupation, etc.), later, experience- rated to
  compete with for-profit companies
• Since 1990s, many plans converted to for-profit
  status

29
Commercial Health Insurance

• Entered market in decade following Blues
• Used experience-rating to charge higher premiums
  to less healthy competed with Blues for healthy
  persons with lower premiums
• By early 1950s surpassed Blues enrollment

30
Managed Care

• Throughout the 1960s, rapidly increasing Medicare
  expense, quality concerns by government and
  industry health insurance purchasers resulted in
  development of the HMO Act of 1973
• Many employer groups had used specific,
  contracted arrangements Act opened participation
  to all employers

31
HMO Act of 1973

• Loans grants for planning, implementing
  combined insurance, health care delivery
  organizations
• Required comprehensive services for acute and
  preventive care
• Employers of gt25 mandated to offer HMO option, if
  available fund premiumsto prior plans

32
HMO Fundamentals

• Links health care provision to prepayment
• Population, not individual-based reimbursement
• Financial risk-sharing among providers, insurers,
  consumers
• Intended to reverse incentives for utilization

33
HMO Models

• Staff MD employees provide primary care in
  HMO-owned facilities
• Independent Practice Association Community-based
  MDs serve HMO members on pre-paid,
  fee-for-service, contracted basis
• Hybrids group practice, network, direct contract

34
Payment Methods

• Encourage cost-conscious, effective, efficient
  care
• Capitation per-member per-month fee paid in
  advance whether or not services used
• Withholds retains percentage of customary fee,
  refunded if targets met

35
Financial Risk-sharing

• For Providers capitation, withholds, expenditure
  targets
• For Subscribers co-payments, deductibles

36
Evolution of Managed Care (1)

• Point of Service (POS) plans spawned by demands
  for out-of-network choices
• Preferred Provider Organizations (PPOs) MDs
  hospitals offer private payers self-insured
  firms negotiated fee discounts in return for
  business volume guarantee (60 of all
  employer-covered workers)
• Today, virtually all health insurance is some
  form of managed care

37
Evolution of Managed Care (2)

• Disease Management
• Use of evidence-based guidelines for subscribers
  with high-risk medical and potentially high-cost
  conditions
• Identified from claims data
• Insurer or contracted services to monitor
  condition and ensure compliance

38
Evolution of Managed Care (3)

• Primary physician gatekeeper role declining in
  importance
• Subscriber demands for more choice in referrals
• Staff model decline

39
Managed Care Backlash (1)

• Organized medicine, consumers protested
  restrictions on choice of providers, referrals,
  other practices
• Presidential commission est. to review patient
  protections
• President Clinton imposed patient protections on
  companies supplying federal workers

40
Managed Care Backlash (2)

• Bipartisan Patient Protection Act proposed in
  1998 never passed
• State legislatures led with 900 laws
  regulations addressing provider and consumer
  protections

41
Managed Care Backlash (3)

• Consumer-Driven Health Plans employers response
  to rising costs demands for consumer choice
• Employees take responsibility for health care
  decisions and cost-consciousness
• Health care reimbursement or Health Savings
  Accounts using high-deductible policies
• 2009 8 employee participation

42
Trends in Managed Care Costs (1)

• 1990s slowest rate of cost growth in years
• 1998 premiums rose again
• Insurance underwriting cycle
• Prescription drug costs
• Investor pressures
• Consumer demands for choice

43
Trends in Managed Care Costs (2)

• 1999-2009, avg. family policy premiums increased
  131 to 13,375
• Workers contribution 17 single, 27 family
• 40 hour/week minimum wage worker (7.25/hour)
  gross earnings (before taxes) 15,080

44
Impact of Rising Premiums

• Higher worker contribution results in dropped
  coverage
• Employers use benefit buy-downs, reducing
  benefit scope, increasing co-pays, and/or
  deductibles
• 1 increase in premiums 164,000 additional
  uninsureds

45
Managed Care Report Card

• 5-year literature review notes failings in dual
  promise to lower costs and increase quality
• Needed
• Systematic information systems revamping
• More appropriate provider incentives
• Revised, evidence-based clinical processes

46
Managed Care Industry Changes

• Consolidations mergers 5 publicly traded
  companies now enroll 103 million members, 82 of
  all subscribers
• Responses to provider/consumer issues
• States patient protection legislation
• Loosening of choice on patient referrals
• Patient access to policies, esp. payment denials

47
PART 2

• Managed Care Quality
• Self-funded Insurance Programs
• Government as Payer
• Cost and Quality Initiatives
• State Experiments
• Future Challenges

48
Managed Care Organizations and Quality

• American Association of Health Plans est. 1979
  renamed National Committee on Quality Assurance
  (NCQA) in 1990
• Independent, not-for-profit, funded by
  accreditation fees and revenues from sale of a
  quality indicator compendium on 250 health plans
  serving 50 million Americans

49
NCQA (1)

• Evaluations accreditation on a voluntary basis
  for
• Managed care organizations
• Preferred provider organizations
• Managed behavioral health organizations
• New health plans
• Disease management programs

50
NCQA (2)

• Accreditation entails rigorous reviews of all
  organization aspects including on-line surveys
  and onsite visits
• Management, physician credentials, member rights
  responsibilities, preventive health services,
  utilization, medical records, disease management
  programs, outcomes of care, measures of clinical
  processes

51
NCQA (3)

• Certifications for organizations that provide
• Provider credentials verifications
• Utilization management services
• Disease management services

52
HEDIS (1)

• Health Plan Employer Data and Information Set
  (HEDIS) evolved from partnership among health
  plans, employers and the NCQA in 1989.
• Standardized method for MCOs to collect,
  calculate, report performance information to
  facilitate plan comparisons by employers, other
  purchasers consumers

53
HEDIS (2)

• Data set contains 71 measures of MCO performance
  in 8 domains (Report Cards)
• Effectiveness of care
• Accessibility availability of care
• Satisfaction with care
• Health plan stability
• Use of service

54
HEDIS (3)

• Domains, continued
• Cost of care
• Informed health choices
• Health plan descriptive information

55
HEDIS Promotes Transparency

• Centers for Medicare and Medicaid Services
  requires all funded MCOs to report HEDIS data
• All NCQA accredited plans must publicly report
  their clinical quality data
• Many states require Medicaid managed care plans
  to report HEDIS data

56
Internal MCO Quality Monitoring

• Physician performance outcomes monitoring
• Hospital outcomes quality
• Disease management programs, e.g.
• Patient self-management education
• Risk stratification
• Outreach with clinical specialists

57
Self-Funded Insurance Programs (1)

• Large employer, union or trade association
  collects premiums, pays medical benefits claims
  instead of using a commercial carrier
• Actuarial firm may set premiums
• Third party administrator (TPA) administers
  benefits, pays claims, collects utilization data,
  manages expensive cases

58
Self-Funded Insurance Programs (2)

• Employer Advantages
• Avoid administrative charges of commercial
  carriers
• Avoid state premium taxes
• Accrue interest on reserves
• Exemption from ERISA minimum benefits liability
  for plan coverage denial decisions

59
Government as Payer A System in Name Only (1)

• Early focus military, government employees,
  special populations, e.g. Native Americans
• Now Medicare, Medicaid, U.S. Public Health
  Service hospitals, state, local, long-term
  psychiatric facilities, Veterans Affairs,
  military dependents, workers compensation,
  public health protection, service grants

60
Government as Payer A System in Name Only (2)

• System Mosaic of reimbursement,
  vendors/purchaser relationships, matching funds,
  direct services, e.g.
• Contracts with providers, not direct service
  provision (Medicare, Medicaid, grants)
• Federal with State matching funds (Medicaid)
• Direct services (Veterans Affairs)

61
Medicare Historical Significance

• 1965 Title XVIII of Social Security Act
• All Americans 65 yrs. entitled to health
  insurance benefits 20 million entered system in
  1965.
• Financed by payroll taxes
• Conceded accreditation, administration to private
  sector-JCAHONow JC
• Hospital payments by local Blue Cross
  intermediaries

62
Initial Medicare Components

• Part A Mandatory hospital coverage, outpatient
  diagnostics, extended care facilities, home care
  post-hospitalization funded by Social Security
  payroll taxes.
• Part B voluntary MD coverage, tests, medical
  equipment, home health funded by beneficiary
  premiums matched with federal revenues
• Cost sharing deductibles, co-insurance medi-gap
  policies

63
AdditionalMedicare Components

• Part C Managed Care Options for Private Health
  Plan Enrollment (1997)
• Part D Prescription Drug Coverage (2003)

64
Growth in Medicare Expenditures

• Costs rose much more rapidly than expected
• 1976 Most cost growth due to hospital personnel,
  non-personnel and profits
• Early amendments added covered services,
  increased costs quality concerns escalated
  through 70s and 80s.
• Later amendments addressed cost growth reductions
  and quality improvement

65
Medicare Cost Containment Quality Improvement
Measures (1)

• Comprehensive Health Planning Act (1966)
  organize local health planning
• Professional Standards Review Organizations
  (1972) review Medicare hospital care.
• Health Systems Agencies (1974) plan for health
  resources based on population needs (replaced
  CHP) plans based on local population needs

66
Medicare Cost Containment Quality Improvement
Measures (2)

• OBRA 1980, 1981 amendments to reduce hospital
  lengths of stay, advocating home care
• Tax Equity Fiscal Responsibility Act (TEFRA)
  1982 Peer Review Organizations (PROs) replaced
  PSROs, providing clearer cost/quality criteria
• 2001 renamed PROs to QIOs (Quality Improvement
  Organizations)

67
Medicare Cost Containment Quality Improvement
Measures (3)

• DRGs (1983) Shifted Medicare from
• Pre-set hospital case reimbursement based on
  diagnosis using the International Classification
  of Disease (ICDA) codes
• Rewarded efficient care, financially penalized
  inefficiency
• Other insurers followed lead

68
DRG Implementation (1)

• Predictions of quicker/sicker discharges proved
  unfounded
• Federal prospective Payment Assessment Commission
  (ProPac) established to review quality
• Post-implementation research demonstrated no
  deleterious effects on patient outcomes

69
DRG Implementation (2)

• Slowed cost growth through length of stay
  reductions, personnel reductions
• Hospitals realized increased profits
• Impact of major shifts to outpatient services,
  shifting costs to private pay patients dampened
  cost-containment results

70
DRG Cost Containment Quality Improvement
Measures (3)

• COBRA 1985 penalties for financially-motivated
  patient transfers
• Emergency Medical Treatment and Labor Act (1986)
  refined 1985 COBRA

71
Cost Containment Quality Improvement Measures
(4)

• Physician Fees Rapidly rising Medicare payments
  and specialty services prompted action
• 1987-1989 price freeze ineffective results
  suggested offset by increased volume
• 1992 RBRVS Pay same amount for office
  procedures whether provided by specialist or
  primary physician incentives for primary care
  practice updated by AMA specialty societies

72
HIPAA

• 1996 Kennedy-Kassenbaum Bill
• Reaction to failed Clinton National Health
  Security Act
• Prohibited coverage denial due to pre-existing
  health condition
• Ensured continued coverage between employers
• Established portable Medical Savings Accounts

73
Cost Containment Quality Improvement Measures
(5)

• Balanced Budget Act of 1997
• Predictions of Hospital Trust Fund insolvency
• Medicare unsustainable w/o cuts in other
  programs, increased taxes budget deficits
• Medicare f-f-s outmoded in MCO environment
• Medicare gaps for low income populations

74
Balanced Budget Act of 1997

• Reduce Medicare spending growth rate over 5 years
  through direct and indirect cost reductions
• Fund State Child Health Insurance Program (SCHIP)
  to enroll 10 million Medicaid-eligible children
• Introduce Medicare managed care
• Enact demonstration projects on quality cost
  containment

75
Balanced Budget Act Provisions

• New Medicare Part C-managed care
• Demonstration projects
• Prevention initiatives
• Provider payment reductions
• Anti-fraud abuse provisions
• Rural hospital initiatives
• Outpatient Nursing Home Prospective Payment

76
Balance Budget Act Outcomes

• Significant decrease in Medicare spending growth
  through 2002 68 B in savings
• Private insurers entry through Medicare Part C
• Successful SCHIP implementation
• Fraud abuse financial recoveries

77
Responses to BBA

• Strong resistance from affected groups
• Balanced Budget Refinement Act (1999) to curtail
  MCO withdrawals from Medicare Choice (Part C)
• Consolidated Appropriations Act of 2000 restored
  17 B in cuts, postponed/adjusted new payment
  schemes

78
Ongoing Medicare Cost Reduction Quality
Improvement Initiatives (1)

• 2001 CMS Quality Initiative to monitor
  conformance with standards of care
• Hospitals, nursing homes, home health care
  agencies, physicians, other facilities
• Medicare Quality Monitoring System
• Monitors quality of care delivered to Medicare
  f-f-s beneficiaries

79
Ongoing Medicare Cost Reduction Quality
Improvement Initiatives (2)

• Hospital Pay-for-Performance plans to reward
  positive patient results efficient care
• Hospital Compare website 20 criteria assessing
  hospital conformity with evidence-based practice
• Beginning in 2008 No reimbursement for
  treatment of hospital acquired infections
  investigating other options for never happen
  events and resulting treatment costs

80
Ongoing Medicare Cost Reduction Quality
Improvement Initiatives (3)

• Hospital Consumer Assessment of Health Care
  Providers and Systems surveys added to Hospital
  Compare to provide patient perspectives on
  hospital experience.

81
Medicaid and the SCHIP

• 1965 Title XIX of Social Security Act
• Mandatory joint federal-state program
• Shared state support based on states per capita
  income
• Basic insurance coverage for 47 M low income
  individuals
• 16 of personal health service spending 41 of
  nursing home care

82
Medicaid Scope

• Federal government establishes broad guidelines
  requirements are state-established
• Low income families and children
• Long-term care for older and disabled individuals
• Supplemental coverage for low-income Medicare
  beneficiaries for non-Medicare covered services

83
Federally Mandated Medicaid Services

• Inpatient, outpatient hospital services
• Physician services
• Diagnostic services
• Nursing home care for adults
• Home health care
• Preventive health screening
• Pregnancy related child health services
• Family planning services

84
Medicaid Expenditure Growth

• Growth in eligible populations, longevity
• Provider payment increases
• Disproportionate share hospital program
• Growth in intensive long term care
• Increased survival of low birth weight infants

85
Medicaid Funding

• Personal income tax, corporate and excise taxes
• Unlike Medicare, no entitlement a transfer
  payment from more affluent to needy individuals
• Direct reimbursement to providers no intermediary

86
Medicaid Managed Care

• 1990s States experimented with Medicaid managed
  care to stem 300 growth since 1980.
• 1993 Federal waivers allowing mandatory managed
  care accelerated enrollment.
• 1997 BBA lifted all waiver requirements
• 50 states participate majority of recipients in
  managed care

87
Childrens Health Insurance Program

• BBA targeted enrollment of 5 M children with
  federal matching funds, 1998-2007
• By 2008, 7 M enrolled but 8.1 M remained
  uninsured
• Reauthorized in 2009 through 2013 with
  enhancements

88
FIGURE 7-7 Number of Children Ever Enrolled in
the Childrens Health Insurance Program.
Source Childrens Health Insurance Statistical
Enrollment Data System (SEDS) 1/29/09
89
Medicaid Quality Initiatives

• The Center for Medicaid State Operations (CMSO)
  develops implements Medicaid SCHIP quality
  initiatives with state programs
• Division of Quality, Evaluation Health Outcomes
  provides technical assistance to states for
  quality improvement initiatives

90
Medicaid Quality Strategies

1. Evidence-based care
2. Payment aligned with quality
3. Health information technology
4. Partnerships with internal external expert
   organizations
5. Information dissemination, technical assistance,
   sharing best practices

91
Future Prospects

• Little federal action 2000-2008 left major gaps
  in plans for cost control and access improvement
• States experimented with universal coverage since
  2003
• 2008 presidential election focused on swift,
  major health care reforms

92
State Experiments

• Maine make affordable coverage available to all
  decrease cost growth, expand Medicaid, improve
  quality
• Massachusetts personal responsibility mandate
  with government subsidy
• Vermont government, employer premium assistance
  state-wide plan for preventing and managing
  chronic conditions

93
Future Challenges

• Moral dilemma defining values about allocations
  of resources
• Breaking lose from old philosophies, value
  systems and politics in implementing the Patient
  Protection and Affordable Care Act of 2010