Restructuring The Care Delivery System: Will Limited Growth In Revenues Force A Change? Stuart H. Altman Chaikin Professor of Health Policy Heller School for Social Policy and Management Brandeis University Question Confronting Healthcare Executives ‐‐‐ ”Should We Upend Our Existing Delivery System Model To Lower Costs or Continue Business As Usual”? Will Limits On Future Resources Force The System To Change 1
Do We Really Have a Problem? Altman and His Cronies Have Been Talking About The Coming of The Bogey Man For Years So ‐‐‐ What’s Happening? 2
Yes ‐‐ Healthcare Spending Growth Has Slowed But Will It Continue? Average Annual Percent Change in National Health Expenditures, 1960 ‐ 2012 18% 16% 14% 13.1% 12% 11.0% 10% 9.5% 8.4% 8.4% 8.5% 8% 7.0% 7.1%6.8% 6% 6.4% 6.6% 6.2% 5.5% 5.8% 4% 4.7% 3.8% 3.9% 3.9% 3.7% 3.8% 2% 0% 1970 1980 1990 93 97 98 99 2000 1 2 3 4 5 6 7 8 9 10 2011 2012 2013 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health Expenditures by type of service and source of funds, CY 1960-2010; file nhe2010.zip). 3
Is The Decline In Spending Growth The Result Of: ‐‐‐‐ A Slow Down In Economic Growth Or Structural Factors Within The Healthcare Syste m Medicare Actuaries Think Limited Growth Will Return As a Result of An Expanding Economy and Aging Medicare Recipients 4
Growth In Yearly Healthcare Spending Actual (2012 ‐ 2014) and Projected (2015 ‐ 2019) 2012 ‐ 2014 2015 ‐ 2019 6.20% 4.80% Annual Growth in Spending Most Growth From Medicare and Medicaid Spending Increases! Even For Medicare Most of Growth The Result Of More Care for Older Patients 5
Growth in Health Care Spending By Payer: Actual 2012 ‐ 2014, Projections 2015 ‐ 2019 12.0% Average Annual % Increase 9.7% 10.0% 8.0% 7.1% 6.9% Growth in Enrollment 6.0% 7.0% 6.0% 2.6% 5.1% 5.3% 3.1% 4.8% 0.8% 0.5% Growth in Spending per 3.7% 4.0% Enrollee 4.6% 4.5% 4.5% 2.0% 3.4% Total Health Consumption 3.8% 2.7% Expenditure Growth 0.0% 0.3% Total Health Private Medicare Medicaid Total Health Private Medicare Medicaid Consumption Health Consumption Health Expenditures Insurance Expenditures Insurance 2012 ‐ 2014 2015 ‐ 2019 Source of Funds Source: Office of The Actuary, CMA , September 2014. Does It Matter? 6
The Altman/Reinhardt Thesis I’m a bit Older! In The Past Hospital Spending Driven More By Cost of Care (Reimbursement Model) In The Future Cost of Care Likely To Be Driven More By Spending Limits (Payment Model) 7
WHY ‐‐‐ In The Past ‐‐‐ Most Hospitals Able to Make ‐ Up Shortfalls From Lower Government Payments and Uncompensated Care By Higher Payments From Pvt. Patients 8
Private Insurance Payments Used to Pay for Lower Government Payments 140.00% Hospital Payment ‐ to ‐ Cost Ratios 134.50% 130.00% 120.00% Medicare 110.00% Medicaid* 100.00% 94.70% Private 90.00% Payer 91.40% 80.00% 70.00% 60.00% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 But What About The Future? 9
Government Sponsored Payments Will Become A Greater Force in Healthcare System Medicare and Medicaid Enrollments Will Grow Disproportionately ‐‐‐ 10
Growth in Enrollment by Payer Source, 2006 - 2022 80 71% 70 Percent Change in Enrollment 57% 60 50 40 30 20 10 6% 0 Private Medicare Medicaid CMS, National Health Expenditure Projections, 2012 to 2022, January 2013. As a Result Government Payments Will Dominate The Healthcare System! 11
Total Health Insurance Payments by Payer Source 2006 versus 2022 (Percent of Total) CMS, National Health Expenditure Projections, 2012 to 2022, January 2013. Can Healthcare Providers Continue To Counted on Higher Private Insurance Payments To Make Up for Shortfalls In Government Payments? UNLIKELY! 12
Private Payments Needs To Grow Substantially To Maintain Hospital Margins 180.00% Hospital Payment ‐ to ‐ Cost Ratios 162.50% 160.00% Medicare 140.00% Medicaid* 120.00% Private Payer 100.00% 85.00% 80.00% 80.00% 60.00% Even Actuaries Estimate No Change In Growth of Private Insurance Payments 13
Growth in Health Care Spending By Payer: Actual 2012 ‐ 2014, Projections 2015 ‐ 2019 12.0% Average Annual % Increase 9.7% 10.0% 8.0% 7.1% 6.9% Growth in Enrollment 6.0% 7.0% 6.0% 2.6% 5.1% 5.3% 3.1% 4.8% 0.8% 0.5% Growth in Spending per 3.7% 4.0% Enrollee 4.6% 4.5% 4.5% 2.0% 3.4% Total Health Consumption 3.8% 2.7% Expenditure Growth 0.0% 0.3% Total Health Private Medicare Medicaid Total Health Private Medicare Medicaid Consumption Health Consumption Health Expenditures Insurance Expenditures Insurance 2012 ‐ 2014 2015 ‐ 2019 Source of Funds Source: Office of The Actuary, CMA , September 2014. Will Expansion of Medicaid and Private Insurance Bail Out The System? Depends: Where You Live and Whether Non ‐ Medicaid Expansion States Change Course 14
Other Good News Slower Medicare Spending Growth Could Lessen Need to Further Cut Medicare Payment Rates 15
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But Reductions In Hospital Payment Growth Legislated In ACA Likely To Continue What About Payments To Physicians? 17
The Saga of Controlling Medicare Spending for Physician Services A Few Congressional Staffers in 1997 Thought ‐‐‐ Medicare Should Limit Its Growth In Spending for Physician Services to The Growth In The Countries Real GDP! 18
What Is The Medicare Physician Spending Target Sustainable Growth Rate (SGR) • Input Costs for Physician Services 2.0% • Real GDP per capita 1.9 • Fee ‐ for ‐ Service Enrollment ‐ 0.2 • Changes due to law or regulation ‐ 1.5 • Sustainable Growth Rate 2.2% So What Happened ‐‐‐‐ 19
Actual Spending Growing Faster Than SGR 2000 ‐ 2004 • Growth In Volume of Services 5.5% Types of Services • Evaluation and Management 3.6% • Imaging 10.3 • Major procedures 3.8 • Other procedures 6.4 • Test 8.2 Since 2001, actual spending for physician services has exceeded target Note: Estimates shown are preliminary Source: Office of the Actuary 2008. 20
Because of legal limits on how much physician fees could be cut in one year and past deficit between target and actual spending ‐‐‐ Deficits Put OFF ‐‐‐ So ‐‐‐ Physician fees were scheduled to be cut by 18.9% 2013 So What Can Hospitals and Physicians Expect In Terms of Revenue Growth 21
My Best Shot Expected Hospital Revenue Growth • Medicaid – Depends Where Located • Medicaid Expansion States – Continued Growth In Demand For Services • Non-Medicaid Expansion – Less Growth in Demand, Lower Growth in Revenue – All Bets Off If Serious Cut Back In ACA 22
Expected Hospital Revenue Growth • Medicare – Growth In Patient Demand But Limited Growth in Per Patient Rates – Significant Changes In Program Put Off • Existing Cuts Will Continue • Outside Chance The DRG System Will Incorporate Physician Payments and Post-Acute Care – Some Likelihood That SGR Will Be Revised But No Big Inc. in Phy. Payments Expected Hospital Revenue Growth • Pvt. Insurance – Non-Exchange • Reduced Demand • Limited Growth in Payt. • Higher Patient Cost Sharing – Govt. Exchange • Expanded Demand • More Use of Tiered Network • Much Higher Patient Cost Sharing 23
Sorry ‐‐‐ But Even If SGR Repealed Growth In Medicare and Private Insurance Physician Rate Will Be Lim ited So ---What To Do! Prudent Dictates---Need To Increase Efforts To Develop More Efficient (Lower Cost) Delivery System 24
Rob Mechanic and I Will Discuss Possible Options ( Depending On Your Market Place ) in Our Breakout Session on Tuesday 25
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