Stuart H. Altman Chaikin Professor of Health Policy Brandeis - - PDF document

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Who Will Control The Future U.S. Healthcare System: What

Is Driving Its High Costs?

Stuart H. Altman

Chaikin Professor of Health Policy Brandeis University

Will The Healthcare System Be Controlled By Those That Provide Care or Those That Pay for Care: What Role Will Government Play?

To Answer This Question It Is First Helpful To Understand‐‐‐ Why Healthcare Is So Expensive

How Does The U.S. Compare To Other Countries

Total Health Expenditure as a Share of GDP

6 8 10 12 14 16 18 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 Canada Germany Japan Switzerland United States % GDP Source: OECD Reports

Are We More Expensive Because We Use More Services or Are Prices Higher In U.S. Than Other Industrialized Countries?

Does The U.S. Use More Hospital Care?

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In‐Patient Acute Care Beds in Selected Countries, 2010

2.4 3.4 2.6 5.5 5.7 8.1 1 2 3 4 5 6 7 8 9 10

US Australia UK Korea Germany Japan

Per 1,000 population

Sources: OECD HEALTH DATA 2012

Hospital Discharge Rate in Selected Countries 2010

15,549 23,984 13,596 13,100 8,260 10,709 16,886 5,000 10,000 15,000 20,000 25,000 30,000

US UK Germany Australia Korea Japan Canada

Discharges per 100,000 Pop

Source: OECD HEALTH DATA 2012

Average Length of Stay in Hospitals in Selected Countries 2010

4.6 5.4 4.7 4.3 4.6 6.0 2.9 2.7 2.7 2.0

2 4 6 8

Australia United Kingdom OECD United States Canada Netherlands Switzerland Japan France Germany

(All Causes)

Source: OECD HEALTH DATA 2012

What About Physician Services?

Practicing Physicians in Selected Countries 2010

2.0 2.4 2.6 2.7 3.1 3.7 2.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 US Germany Australia UK NZ Canada Japan Physicians per 1,000 population

Source: OECD HEALTH DATA 2012

Doctors’ Consultations per Capita in Selected Countries

2010

2.9 5 6.5 12.9 13.1 3.9 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 US Japan Korea Australia UK Mexico Number of Consultations per Capita

Source: OECD HEALTH DATA 2012

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Do We Pay Our Physicians More?

Specialist Physicians’ Remunerations, Ration To GDP Per Capital (2009)

6.4 5.4 5.0 5.6 2.7 3.2 4.7 1 2 3 4 5 6 7 8 9 10 US (2001) UK Germany (2007) Australia Canada

Salaried Self-employed

Source: OECD HEALTH DATA 2012

General Practitioners’ (GPs) Remunerations, Ration To GDP Per Capital, 2009

4.3 4.7 3.4 2.0 3.6 2.7 2.6 3.8 1 2 3 4 5 6 7 8 9 10 US (2001) UK Germany (2007) Australia Canada

Salaried Self-employed

Source: OECD HEALTH DATA 2012

Now Let’s Look At Pharmaceuticals and Expensive Medical Procedures

Pharmaceutical Expenditures as Percentage of Total Health Expenditures, 2010

12.4% 10.4% 15.2% 12.4% 13.3% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% U.S U.K. Australia Canada Germany

Source: OECD HEALTH DATA 2012

MRIs in Selected Countries

2010

(Units per million persons)

5.9 10.3 6.0 31.6

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

US Australia Germany UK

Sources: OECD HEALTH DATA 2012

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Coronary Bypass Surgeries in Selected Countries

2010

79 56.3 60.5 3.4 37.2

10 20 30 40 50 60 70 80 90

US Australia Canada UK Mexico

Procedures per 100,000 pop

Source: OECD HEALTH DATA 2012

Hip Replacement Surgeries by Country, 2010

203.7 161.1 123.5 295.0 181.2 7.5 143.4

50 100 150 200 250 300 350 US Australia Canada Germany UK Mexico NZ

Patients Receiving Hip Replacements Procedures Per 100,000 Population

Source: OECD HEALTH DATA 2012

CT Scanners in Selected Countries

2010

(Units per million persons)

8.2 17.7 6.0 40.7

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0

US Australia Germany UK

Sources: OECD HEALTH DATA 2012

Caesarean sections, 2010

329.0 314.0 282.0 239.9 234.9 261.8

50 100 150 200 250 300 350 US Germany Australia UK NZ Canada

Per 1000 Live Births

Source: OECD HEALTH DATA 2012

Total Excess Utilization of Health Services Not The Principal Culprit!

Let’s Look at Price Differences

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Healthcare Prices in the U.S. and European Countries

Fee Type Procedure Canada France Germany Netherlan ds Spain UK USA Average/ Low-end USA High-End USA Medicare Scans and Imaging CT Scan Abdomen $83/530 $248 $319 $258 $161 $179 $750* $1,600 $400 Physician Fees Routine Office Visit $30 $31 $22 $32 $15 Primary care capitation Specialty salaries No Fees $59 $`151 $72 Normal Delivery $498 $1,023 TBD $622 $1,041 $2,384 $4,847 $1,601** Hospital Charges Ave Cost Per Hospital Stay $9,043 $9,840 TBD $3,535 $2,261 $3,388 $12.549* $40,680 $12,000 Total Hospital and Physician Costs Bypass Surgery $14,111 $11,916 TBD TBD $15,761 $12,868 $56,472* $116,798 $22,092** Hip Replacement $8,483 $8,200 $8,500 $7,600 $9,152 $8,347 $32,093* $67,983 $17,500 Tests and Cultures Pap Smear $27 $14 $26 $16 $20 See note above $24 $64 $17 Drug Prices Lipitor $33 $53 $48 $63 $32 $40 $125 $334 No Medicare Rx fees Nexium $65 $67 $37 $102 $36 $41 $154 $424 Non‐US fees shown above came from both government sources and data files of IFHP member plans. For countries with multiple health plans or multiple regions with different payment systems, the fees reflect a representative sample of estimated average prices. Canadian scans include the government “reading” fees and the charges used by private scanning facilities for patients who pay their own expenses. There are no government fees associated with MRIs because this equipment is typically purchased by local health authorities and s included with fees for facility‐level use. *Represents USA average fees rather than USA low‐end fees. ** Representative Medicare fees from Portland, Oregon market or CMS Medicare average for tests and cultures; all other Medicare fees are averages provided by a global consulting and actuarial firm. Source: International Federation of Health Plans: Fee Report – Europe, Canada and USA

Why Are Prices So Much Higher In U.S.?

• Everyone In Health Care Earns More In U.S.
• Drugs and Devices are More Expensive
• Administrative Costs of Mixed Public/Private System

Much More Expensive

• The Cost of Malpractice System
• Newer and More Expensive Delivery System
• Provider have increased price leverage through their

consolidation and contractual arrangements

• Health Care In U.S. is BIG Business

So‐‐‐How Will or Should the U.S. Proceed to Lower Healthcare Costs?

Many Provider Groups and Policy Analysts Encouraging “Supply‐Side” Approach To Lowering Spending Growth

The Key is Moving Away From Fee‐for‐Service Payments

Supply‐Side Approach Give Providers The Dominant Role:

Lets Them (YOU) Decide How To Spend a Predetermined and Limited Budget Accountable Care Organizations (ACOs) and Bundled Payments

• Allow Providers to Decide What is Appropriate

Care

• Reward Care That is Less Fragmented and

Minimizes Duplicative and Wasteful Services

• Permit Care Providers To Pay for Services Not

Traditionally Considered as Health Care Services

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Supply Side Approach Requires Either a Capitated (HMO) or “Faux” Capitated Payment System

Medicare Pays Claims Using Fee‐for‐ Service but Attributes All Monies Spent for ACO Patients

Concerns About Supply Side Approach

• Most ACO’s and Bundled Payments Use “Shared

Savings” Approach and Not “Fixed Budgets”

• Patients Have The Right to Opt Out of ACO’s
• Both ACO’s and Bundled Payments are Voluntary
• First Generation “Pioneer” ACO’s Thus Far Had Only

Limited Success

• The Need for Big Systems BUT

– Some of Big Systems Have Used Market Power to Extract Higher Prices That Outweigh Efficiency Benefits

As an Alternative ‐‐‐Many Employers and Private Health Plans Supporting Demand Side Approaches

Incent Consumers and Payers To Find Lower Cost Providers Fastest Growing Private Insurance Are High Deductible and Preferred Provider (PPO) Plans

Most Such Plans Continue To Use Fee‐ for‐Service Payment Systems

<1% 1% 1% 1% 2% 3% 3% 3% 5% 5% 4% 7% 8% 10% 27% 46% 73% 16% 17% 19% 20% 20% 21% 20% 21% 25% 24% 27% 24% 29% 28% 31% 21% 16% 56% 55% 58% 60% 58% 57% 60% 61% 55% 54% 52% 46% 42% 39% 28% 26% 11% 9% 10% 8% 10% 12% 13% 13% 15% 15% 17% 18% 23% 21% 24% 14% 7% 19% 17% 13% 8% 8% 5% 4% 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1996 1993 1988 Conventional HMO PPO POS HDHP/SO

Distribution of Health Plan Enrollment for Covered Workers, by Plan Type, 1988‐2012

Techniques Used By Private Insurance To Lower Spending Growth

• Require Patients To Buy High Deductible

Health Plans

• Increase Use of “Limited” or “Tiered”

Networks Based on “Value‐Based Criteria

• Linking Payments To Lower Priced Providers‐‐‐

”Reference Pricing”

• Some Using Different Forms of Bundled or

Global Payments

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Will States Play a Role In Promoting a More Efficient Delivery System?

Massachusetts First State To Pass Universal Coverage Legislation

Commonwealth Has Long History of Expanding Coverage and Regulating Health Spending

Brandeis University 38

Initial Reform Legislation Focused

• n Expanding Health Insurance

Coverage

Second Phase Focused On Slowing Healthcare Costs (Spending)

BUT‐‐‐Letting Private Market (Commercial Insurers and Individual Providers) Set Rates Have Lead to Significant Differences in Payment Amounts

Serious Concern That Differences Not Always Justified?

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Relative 2008 BCBSMA Hospital Payment Rates

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Source: BCBSMA data submitted to the attorney general. Red = teaching hospitals.

Massachusetts Establishes a State‐Wide Spending Growth Benchmark

All Healthcare Spending In State Should Not Grow By More Than State Long‐term Growth in Income (3.6%)

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Massachusetts Statewide Heath Care Spending Targets (All Payer)

Brandeis University

6.2%/yr 5.9%/yr 3.6%/yr 3.1%/yr

Bil lio ns

Source: Author’s calculation based on historical state spending estimates and projected national health spending growth from the CMS Office of the Actuary and targets set forth in Chapter 224.

“Health Policy Commission” Set Up To Monitor and Encourage Payers and Providers To Stay Within Spending Limits Health Policy Commission Oversight

• Appropriateness of targets
• Total spending relative to targets
• Individual provider performance

– Corrective action plans – Cost and market impact review – Penalize Providers Who Fail to Reform System – Refer Providers Who Use Market Power To Raise Rates to Attorney General

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In Addition‐‐‐

Commission Oversight (cont.)

• Hold annual public hearings
• Certify ACO and PCMH
• Assist in review of risk‐based

provider organizations

• Establish patient protections and

quality oversight

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First Major Test of Commission

Review Proposed Merger of Partners Health Care With South Shore and Hallmark Community Hospital Systems and Affiliated Physician Groups.

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Anti‐Trust Enforcement: How Important

Hospital mergers are on the rise again

50/37

Insurance markets have become more concentrated, too

• More than 400 mergers between 1996 and

2009

• Consolidation taking place within and across

geographic markets

– More than half of metro areas have an insurer with 50+ percent commercial market share

• But insurance exchanges may shake things up

– Across the 34 states with federally‐facilitated exchanges, 33 new entrants

51/37

So what? Bigger could be better

– Anti‐Trust Economist Believe‐‐‐Mergers of competing hospitals lead to higher prices and (likely) lower quality (Gaynor and Town 2012)

• Consolidation may also raise price in outpatient settings

– Physician services (e.g., Baker et al. 2013) – Dialysis (Cutler, Dafny and Ody 2014)

– Insurance mergers also lead to higher premiums but providers may be paid less (Dafny, Duggan and Ramanarayanan 2012)

52/37

So what? Bigger could be better, continued

• Some evidence that non‐horizontal

integration raise prices as well

– Independent hospitals acquired by systems

• utside their market raise price 14‐18% (Lewis and

Pflum 2014) – Price and total spending increases in areas with increases in physician‐hospital financial integration (Bundorf et al 2014).

53/37

Courts have sided with federal antitrust enforcers in recent years

FTC victories in past 6 years:

• General‐acute care hospital mergers

– Inova – Prince William (Virginia) – Rockford – OSF Healthcare (Illinois) – ProMedica – St. Luke’s (Ohio) – Capella ‐ Mercy (Arkansas)

• General acute care‐specialty hospital mergers

– Reading Health System – Surgical Institute of Reading

• Physician mergers

– St. Luke’s – Saltzer Medical (Idaho)

54/37

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ACA Doesn’t Protect Hospitals Against Anti‐Trust Enforcement

• “In a world that was not governed by the

Clayton Act, the best result might be to approve the Acquisition and monitor its

• utcome to see if the predicted price

increases actually occurred. In other words, the Acquisition could serve as a controlled

• experiment. But the Clayton Act is in full

force, and it must be enforced. The Act does not give the Court discretion to set it aside to conduct a health care experiment.”

‐ St. Luke’s decision, Judge Winmill, 1/2014

55/37

Efficiency Savings Under ACO or Bundled Payments Can Be Achieved Without Legal Consolidation

• Clinical integraon → financial integraon
• “We reject the proposition that an entity under single

control, that is an entity formed through a merger, would be more likely to achieve the three‐part aim [of the Shared Savings Program].” ‐Centers for Medicare and Medicaid Services, Final Rule,11/2011

• E.g., St. Luke’s VP of Payer Relations, formerly of

Advocate Health, testified that independent physicians could be financially incentivized to meet specific quality metrics

• The ACA does not exempt organizations or

collaborations from antitrust laws

56/37

Should Anti‐Trust Regulators (Attorney Generals, FTC or U.S. Justice Department Use “Conduct

• r Behavioral Modification

Degrees”

So‐‐‐What Happened In Massachusetts Partners HealthCare

• Established in 1994 With Merger of Mass

General and Brigham and Women's Hospitals

• Expanded North and West With Purchase of

Several Major Community Hospitals‐‐‐13 Hospitals (60,000 Employees)

• Controls the Largest Physician Organization in

the State‐‐‐6,000 physicians

• Negotiated Among the highest Payment Rates

in The State

Southshore Health System

• Largest and Most Respected Community

Hospital in The Area

• Large Physician Group Affiliated With Hospital
• Currently send Most Very Sick Patients to

Partners Hospitals

• In Combination With Partners Will Control

50% of Commercial Market

• Provide Proportionality Less Medicaid Services

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Competing Claims

• Commission:

– Because of Existing Contracts Southshore Hospital and Physicians Would Receive Immediate Increases If Merged With Partners – Increased Market Leverage to Would Keep Rates High – Difficult for Insurers To Create Low Cost Networks – Patients Will Be Referred to Higher Cost Providers – Potential Savings From Advanced Population Based Medical Care Much Less Than Higher Costs – Quality Not Likely To Be Higher and Access Could Be Limited

Commission Recommends That Attorney General Review (and Potentially Stop) Acquisition of Southshore Hospital and Physician Group By Partners

The AG/Justice Strategy

Use Law Suit Against Southshore Merger To Gain Concessions About Reducing Partners Power In Other Sections of State

The AG/Partners “Tentative” Resolution

• Allows Partners To Merge With Southshore But

With Restrictions

– SouthShore Hospital and Affiliated Physicians Not Permitted To Use Partners Rates for 6 and a half years

• Their Rates Can Only Increase By inflation

– For Rate Negotiations Partners Separated Into Four Groups

• Academic Health Center, Southshore. Hallmark, All Other

Groups

The AG/Partners “Tentative” Resolution

– Insurers Can Choose To Negotiated Separately With Each of the 4 Groups for 10 Years

• Can Choose to Leave An Individual Group Out of

Network

– Partners Cannot Negotiate For Independent Physician Groups Not Affiliated With Partners Hospitals for 10 Years – Price Increases for All Partners Hospitals and Physician Groups Capped at Inflation Through 2020

• Total Medical Expenditures Limited To State Benchmark

The AG/Partners “Tentative” Resolution

• Limits Growth in Physician Affiliation

– No Growth for 3 Years – 2% for Two More Years

• Independent Monitor Established To Assure

Compliance With Resolution

• Agreement Must Still Be Completed and

Accepted By a Court

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Was The Agreement Strong Enough?

Depends On What Part of The Half‐ Full Glass You Are Looking At!

Half‐Empty

For Those Opposed To Power of “Partners”‐‐‐

• Resolution Much Too Limited

– Needed To Break‐Up Partners – Separate Mass General and Brigham – Reduce or Eliminate Price Differential – Make Restrictions Last Much Longer – Not Allow Any Growth in New Hospital or Physician Affiliation

Half‐Full

For Those Who Are More Pragmatic‐‐‐

AG Resolution Has a Chance of Making Healthcare Market Somewhat More Competitive

For Those More Pragmatic‐‐‐

• Cannot Ignore Political Power of Partners
• IF Cannot Breakup Partners‐‐‐

– Then Major Lever Is Stop Southshore Merger (Which Is Significant But Limited) – AG Did Attempt To Limit Power of Partners

• Question Whether limited Years of Resolution Is

Enough

• Resolution Does Give Payers Some Ability to Create

Networks That Restricts High Cost Providers

• Could Reduce Price Differently Somewhat Over Time
• Any Partners Actions Subject To Outside Review

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Suppose Neither Approach Slows Future Growth In Spending???