Health care and the us economy problems and prospects seattle economics council february 8 2012
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Health care and the US Economy: Problems and Prospects Seattle Economics Council February 8, 2012. Mary McWilliams Executive Director. Average Health Care Spending per Capita , 1980–2009 Adjusted for differences in cost of living. Dollars. THE COMMONWEALTH FUND.

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Health care and the US Economy: Problems and Prospects Seattle Economics Council February 8, 2012

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Health care and the US Economy: Problems and ProspectsSeattle Economics CouncilFebruary 8, 2012

Mary McWilliams

Executive Director

Average Health Care Spending per Capita, 1980–2009Adjusted for differences in cost of living





Source: OECD Health Data 2011 (June 2011).

Health care employment rises despite recession

Health care is a bigger problem than Social Security

Source: Congressional Budget Office

Public Sector Pays Over Half of Health Care

Out of Pocket Spending a Decreasing Percentage of Total

Among Persons Under 65, Approximately 1 in 7 Persons Is Uninsured and 1 in 5 Has Public Coverage Primary Source of Insurance for Persons Under Age 65

Source: 2010v1 Washington State Population Survey.

The Percent Uninsured Has Returned to the Level of the Early 1990s and Employer Coverage Has Declined Over Time

Health Care Costs Have Wiped Out Real Income Gains

$ 870 for inflation

$ 945 for health care

$ 95 for spending

$1910 more income

Reducing Healthcare Spending Requires Less Hospital Spending

Hospitals are the largest component ofhealthcare spending and of increasesin healthcare spending





Actual Spending

On Health Services



% Growth NHE










The Cost Curve is Already Bent

Actual Spending On Health Services

% Growth NHE

Source: CMS, Office of Actuary


Source: Banc of America Securities LLC



Slide auto layout

Patient visits at lowest level seen in over 7 years

Source: IMS Health, National Disease and Therapeutic Index, Apr 2011

Imaging Volume SlumpSource: Thomson Reuters

Branded Generics Disaggregated

Generics continue to grow strongly

Source: IMS Health, National Prescription Audit, Mar 2011, Branded generics disaggregated

Many Increases in CostsDue to Price, Not Utilization

Chart 4.6: Aggregate Hospital Payment-to-cost Ratios for Private Payers, Medicare, and Medicaid, 1989 – 2009

Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2009, for community hospitals.

(1)Includes Medicaid Disproportionate Share payments.

Seattle is One of the Nation’s “Cost-Shift” Markets

Wide Variation in Prices Per Delivery in MA Hospitals…

Source:Massachusetts Health Care Cost Trends: Price Variation in Health Care ServicesMassachusetts Division of Health Care Finance and Policy, June 2011

…With No Relationship to Quality

Source:Massachusetts Health Care Cost Trends: Price Variation in Health Care ServicesMassachusetts Division of Health Care Finance and Policy, June 2011

The Secret to Cost Containment: Not Population Health but Subpopulation Health

Dartmouth Atlas shows wide variation in cost

Wide Swings in Cost and Care

  • The Dartmouth Atlas uses Medicare claims data to track how cost and quality vary across the U.S.

  • The Results:

    • There is a 2.5 fold variation in Medicare spending by region (population-adjusted)

    • Patients in high-cost areas are not sicker nor do they have better health outcomes

    • More health care spending does not result in living better or longer. In fact, the opposite may be true

  • Reducing unwarranted variation could improve quality and reduce spending 30%

Tale of Two Cities: Miami vs. Minneapolis

More Money Does Not Improve Value

* Effective care index includes: pneumonia vaccination; breast & colon cancer screening; eye exams, HbA1c & blood lipid monitoring for diabetes; and, aspirin therapy, beta blockers, ACE inhibitors and reperfusion with thrombolytic agents or PTCA for heart attack victims. Source: Health Affairs

What Drives Decisions on Care?

  • Doctors decide based on local medical opinion and supply of medical resources, not on science or what informed patients want

  • Doctors have surprisingly little information on what works or the “right” amount of care

  • This is why Congress is funding “comparative effectiveness” research

Supply-Sensitive Care: Is More Health Care Better?

  • People assume that more care is better

    • Reinforced by fee-for-service payment

    • Where more care is provided, patients with chronic conditions do not have better health

    • “Supply of services” accounts for 50% of the regional variation

Alliance Role: Show How Care Varies and Promote Better Value

  • The driving force: Ron Sims and King County

  • Purchasers, Providers, Plans & Patients

  • 2 million lives in 5 counties

  • Funded by participant fees and grants

  • Nationally recognized by the Robert Wood Johnson Foundation and the federal Secretary of Health and Human Services

Generic prescribing shows wide variation across and within medical groups

What gets measured, gets managed, as hospital metrics show

Resource Use Varies by Delivery System

How Will Transparency Make a Difference?

  • Creates public accountability

  • Sets targets for improvement

  • Stimulates dialogue among providers to compete

  • Gives consumers more information about care they need and how providers vary

  • Results may be tied to provider pay incentives and/or network design

  • Improving results will reduce the personal and financial cost of chronic disease and preventable conditions

Transparency: Necessary but Not Sufficient – Need to Pay Providers for Value, not Volume

  • We now reward providers for delivering more services to more people, not for better quality

  • Providers are not rewarded for keeping people healthy

  • Fundamental payment reform is needed to reward value

  • Medicare, the largest payer, sets payment standards, but local innovations are underway

Organized Systems of Care Are Needed for New Payment Models

  • Deliver and/or arrange full range

    of services

  • Skilled in quality and cost


  • Coordinate care with specialists

    and others

  • Engage patients in shared

    decision-making and help patients self-manage their conditions

  • Commit to creating a better way to deliver care to patients

  • Supported by Electronic Health Record

Prospects for Real Health Reform

  • The Good News:

    • There is agreement that the system is unsustainable

    • We know what’s needed to fix it

  • The Bad News:

    • The challenge is execution

    • It will be disruptive and take time to fix

What’s Needed to Fix the System

  • Research into what works

  • Focus on chronic care prevention and management

  • Coordination of patients’ care

  • Organized systems of care

  • New ways to pay doctors and hospitals

  • Patient access to evidence-based information on quality and cost

Challenges to Fixing the System

  • One person’s “waste” is another person’s revenue

  • Hospitals have huge capital investments

  • New provider payment systems are unproven and complex to administer

  • Conversion from paper to electronic health records is costly and slow

  • “Organized Systems” can be cartels and drive up costs

  • Comparative effectiveness research takes time and money

  • The public assumes that more care is better

The Public Needs to Understand What’s at Stake

  • High rates of overtreatment, under treatment, and misuse of medical services endanger their health

  • U.S. cannot prosper when 18% of the economy wastes 30% of what it spends

  • Diverting resources from education and innovation to medical care imperils our global competitiveness

  • If U.S. keeps borrowing to pay for ineffective care, we and our children will pay the price

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