Increasing the Affordability of Health Care Revised 7/2007

1. Increasing the Affordabilityof Health Care Revised 7/2007 1

2. Total National Health Expenditures, 1980 – 2005(1) Spending on health care is on the rise. Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 8, 2007. (1) CMS completed a benchmark revision in 2006, introducing changes in methods, definitions and source data that are applied to the entire time series (back to 1960). For more information on this revision, see http://www.cms.hhs.gov/NationalHealthExpendData/downloads/benchmark.pdf. (2) Expressed in 1980 dollars; adjusted using the overall Consumer Price Index for Urban Consumers. 2

3. National Expenditures for Health Services and Supplies(1) by Category, 1980 and 2005(2) However, hospitals are a shrinking share of the growing spending pie. $234.0B $1,860.9B Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 8, 2007. (1) Excludes medical research and medical facilities construction. (2) CMS completed a benchmark revision in 2006, introducing changes in methods, definitions and source data that are applied to the entire time series (back to 1960). For more information on this revision, see http://www.cms.hhs.gov/NationalHealthExpendData/downloads/benchmark.pdf. (3) “Other” includes net cost of insurance and administration, government public health activities, and other personal health care. (4) “Other professional” includes dental and other non-physician professional services. 3

4. The U.S. is the only country where health care accounts for more than 13 percent of the GDP, spending 16.5% in 2006. 4

5. Fifty percent of adults with incomes less than $50,000 have experienced problems paying for insurance in the past two years… Percent of Adults Facing Serious Problems Paying for Insurance in the Past Two Years, by Income Level, 2006 50% 47% 38% 34% 23% Note: Percent values on the top of each bar reflect the sum of the values within each bar. Source: The Commonwealth Fund (2006) Public Views on Shaping the Future of the U.S. Health Care System 5

6. …and may small businesses do not even offer coverage. Percent of Firms Offering Health Benefits, 2002 and 2006 Source: “Employer Health Benefits 2006 Annual Survey,” (#7527), The Henry J. Kaiser Family Foundation and Health Research and Educational Trust, September 2006 6

7. These factors contribute to a growing number of uninsured. Number and Percent Uninsured, 1985 – 2005 Source: US Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2005. Data released August 2006. Table 8. People With or Without Health Insurance Coverage by Selected Characteristics: 2004 and 2005. Link: http://pubdb3.census.gov/macro/032006/health/h01_001.htm. (1) 2004 and 2005 figures reflect revised estimates released by the Census Bureau on March 23, 2007. 7

8. Increased spending is linked to several factors. • Increased demand for care • Demographics • Health status • Technology: health care can do more things for more people • Rising costs to provide care • Labor shortage • Technology • Regulatory burden • For private sector, government underfunding 8

9. Drivers of DemandDemographics 9

10. The aging of the population is driving up demand for health care. 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 US Population Trends and Projections by Age, 1980 - 2050 85 and over 65 - 84 Thousands 20 - 64 0 - 19 1980 1990 2000 2010 2020 2030 2040 2050 Source: US Census Bureau 10

11. With the aging of the Baby Boomer population, hospital admissions of Boomers will more than double… Number of hospital admissions * Projected. 1 Non-Boomer adults indicates non-Boomers over the age of 15. Source: “When I’m 64”, American Hospital Association, May 2007. FCG projections based on National Center for Health Statistics, National Hospital Discharge Survey 2004, May 2006 11

12. …leading to a majority of hospital patients being over 65. Total Hospital Admissions in 2004 35 Million Total Hospital Admissions in 2030* 49 Million * Projected. Source: “When I’m 64”, American Hospital Association, May 2007. FCG projections based on National Center for Health Statistics, 2004 National Hospital Discharge Survey,May 2006 12

13. Physician office visits for adults will number more than one billion by 2020. Number of Physician Office Visits * Projected. 1 Non-Boomer adults indicates non-Boomers over the age of 15. Source: “When I’m 64”, American Hospital Association, May 2007. FCG projections based on National Center for Health Statistics, National Ambulatory Care Survey 2004, June 2006 13

14. INSERT YOUR DATA HERE • INSERT ANY AGING OR DEMOGRAPHIC CHANGES YOU ARE EXPECTING IN YOUR COMMUNITY 14

15. Drivers of DemandHealth Status 15

16. We have a rising number of people with chronic conditions. Number and Percent of Americans with Chronic Medical Conditions,*1995 – 2030 Percent of Total Population Millions of People *Values for 2005 to 2030 are projections. Source: Adapted from Partnership for Solutions, Johns Hopkins University, Chronic Conditions: Making the Case for Ongoing Care, December 2002 16

17. Lifestyle factors are contributing to the rising levels of chronic illness. Prevalence of Diabetes(1) and Obesity(2), U.S. Population, 1990-2005 • Source: Centers for Disease Control and Prevention. • Diabetes is age-adjusted prevalence from the National Diabetes Surveillance System. http://www.cdc.gov/diabetes/statistics/prev/national/index.htm • Obesity is median % of individuals 18 years or older reporting body mass index greater than 30 kg/m2 in states, DC, and the U.S. territories reporting data to the Behavioral Risk Factor Surveillance System. http://apps.nccd.cdc.gov/brfss/Trends/trendchart.asp?qkey=10010&state=US 17

18. By 2030, 37 million Boomers will be managing more than one chronic disease. 18

19. On average, the cost of health care for an individual with more than 5 chronic conditions is nearly 15 times that of an individual with no chronic conditions. 19

20. INSERT YOUR DATA HERE • INSERT DATA ON CHRONIC CONDITIONS SPECIFIC TO YOUR COMMUNITY. • In addition to your own internal data that can be gleaned from the medical records, visit www.cdc.gov for state level data on chronic disease from the BRFSS survey. 20

21. Drivers of DemandTechnology: Health care can do more things for more people 21

22. Each year we can do more things for more people, but innovations are costly. Projected Annual Costs of Recent Technology Related Medicare Coverage Expansions Source: Adapted from Neumann PJ, Medicare National Coverage Decisions: How is CMS Doing? Presented at National Health Policy Conference, February 2005 22

23. People demand innovations in care because they save lives. Mortality from Heart Attacks in Relation to Advances in Care 1980s 1990s 2000s CABG Metal stents Drug-eluting stents Death Rate per 100,000 Blood Thinners Beta Blockers Thrombolytics Implantable defibrillators Statins ACE inhibitors Source: www.cdc.gov/nchs; The Value of Investment in Health Care 23

24. Rising Costs of Providing CareLabor Shortage 24

25. Percent of Hospital Costs(1) by Type of Expense, 3Q06 Health care is very labor intensive, but… (2) Source: AHA analysis of Centers for Medicare and Medicaid Services data, using base year 2002 weights. (1) Does not include capital. (2) Includes postage and telephone expenses. 25

26. …hospitals also face workforce shortages in key care-giving professions… Vacancy Rates for Selected Hospital Personnel, December 2006 116,000 RN Vacancies* Source: 2007 AHA Survey of Hospital Leaders Note: 116,000 vacancies is a national estimate created by extrapolating the vacancy rate to all 5,000 community hospitals in 2005. ST: Speech Therapist, OT: Occupational Therapist, PT: Physical Therapist. 26

27. National Supply and Demand Projections for FTE RNs,2000 – 2020 A continuing and growing workforce shortage is a key driver of the increased costs of RNs… Shortage of over 1,000,000 nurses in 2020 Source: National Center For Health Workforce Analysis, Bureau of Health Professions, Health Resources and Services Administration, 2004. Link: http://bhpr.hrsa.gov/healthworkforce/reports/rnpopulation/preliminaryfindings.htm. 27

28. …as well as physicians. Physician Shortage for Select Specialties * Projected. Sources: Physician Supply and Demand: Projections to 2020, HRSA, October 2006 “Research Shows Rapid Decline in Geriatric Medicine Students,” Press Release, University of Cincinnati, April 4, 2007“Aging Boomers Face a Doctor Shortage,” CBS News, March 4 2003 28

29. Rising Costs of Providing CareTechnology, Regulatory Burden and Government Underfunding 29

30. Hospitals face significant increases in the costs of caring for patients… Percent Change in Hospital Expenses for Pharmaceuticals and Medical Supplies/Devices, 2004 to 2005 Source: AHA 2006 Survey of Hospital Leaders 30

31. …driven in part by new technology that increases costs for providing the same service. Stents: The Rising Costs of Technological Development Source: University HealthSystem Consortium 31

32. Regulatory burden contributes to rising costs for hospitals and the system as a whole. WHO REGULATES HOSPITALS Federal Circuit Courts Supreme Court State Departmental Survey & Congress Appeals Certification CMS Courts OIG Attorneys General Medicare Integrity Medicaid Program Contractors Health Boards PRRB Medical Boards DME Regional Regional Local Governments Intermediaries Carriers PRO ’ s Contractors Offices Licensure FDA Regional Home Health Intermediaries DOT Hospitals DEA OSHA FAA DOJ OPO ’ s Treasury SEC FBI IRS EPA FTC FCC HHS/HRSA HHS/NIOSH JCAHO NRC DOL 32

33. Hospital Payment Shortfall Relative to Costs Medicare and Medicaid, 1997 – 2005, (in billions of dollars) For the private sector, government underfunding adds to costs… 1997 1998 1999 2000 2001 2002 2003 2004 2005 Billions of Dollars Medicare Medicaid Total 2005 Medicaid and Medicare Shortfall of $25.4 Billion Source: AHA Annual Survey 33

34. …as do rising levels of uncompensated care, contributing to… Aggregate Hospital Uncompensated Care Costs,1997-2005 (in billions) Source: AHA Annual Survey 34

35. …decreasing hospital margins… Total, Operating and Patient Care Margins, 1997 (pre-BBA) vs. 2005 Total Margin Operating Margin Patient Care Margin Source: AHA Annual Survey 35

36. Operating Margins of the Top Insurers, 2003 – 2005 …while margins of top insurers are in the double digits. (1) Source: Hoovers. Data from January 2007. Link: www.hoovers.com. (1) 2004 operating margin data for WellPoint include both pre- and post-merger data for the merger with Anthem in November 2004 36

37. “More can and should be done to make care more affordable. With costs of caring on the rise and demand increasing in an ever changing environment we must seize opportunities to make care more affordable.” 37

38. A New Lens is Needed… 38

39. The increase in spending on health care is a frequent topic of debate, but the value of this investment is seldom part of the discussion. CBO Issues Warning on Rising Health Care Costs Senate Republicans in Albany Eye Big Medicaid Cuts Medicare Revamp Fails to Cure Angst Over Costs 39

40. Research indicates significant health gains have accompanied increased spending. Since 1980, per capita expenses up $2,254, but: • Overall death rate down 16% • Life expectancy from birth up by 3.2 years • Disability rates down 25% for people over 65 • 56% fewer days spent in the hospital Health gains of $2.40 to $3.00 per dollar invested 40

41. Advances in health care have lead to fewer deaths and less disability. Where we would be in 2000 without advances since 1980? 206 million more days in hospital 470,000 more deaths 2.3 million more disabled persons 41

42. Death rates for key diseases have declined dramatically. 345.2 249.6 186.9 96.2 65.3 60.8 32.3 31.8 25.4 25.2 20.7 18.1 1980 1990 2000 Death Rates for Key Conditions Studied 1980-2000 Heart Attack Stroke Type 2 Diabetes Breast Cancer Source: Health, United States 2002 42

43. America’s health care system is at a crossroads, and hospitals are part of the solution. 43

44. Key opportunities exist to increase affordability. • Focus on wellness • Go beyond the medical model of care to look at wellness and prevention • Better manage chronic disease • Anticipate the wave of the Boomers and the growing incidence of chronic disease • Improve care delivery • More demand for services requires new approaches to care delivery • Increase transparency of quality performance • Better understand and reduce duplication of services • Speed adoption of IT 44

45. Focus on Wellness • Promote preventive services • Reward personal participation • Reward healthy behaviors 45

46. More employers are investing in wellness. • Individuals with healthy lifestyles typically are: • More productive • File fewer medical claims • Have lower medical costs • Research shows a $3 to $1 return on investment • Prevention/detection demonstrates success in cancer and heart disease 46

47. Research has shown that a focus on wellness is cost effective. Average Percent Change in Employers’ Costs Resulting from Workplace Health Promotion and Wellness Programs Source: Chapman, L. (2003). Meta-evaluation of Worksite Health Promotion Economic Return Studies. Art of Health Promotion Newsletter, 6(6). 47

48. Employers also believe financial incentives could work. Do you believe that providing financial incentives to employees for participating in healthy lifestyle programs will reduce your company’s health care costs? “Money is not enough so employers must build something into the plan such as tools and health coaches.” – Midwest Business Group on Health. Source: PricewaterhouseCoopers Management Barometer Survey 48

49. Focus on wellness • INSERT INFORMATION ON THE WELLNESS PROGRAMS YOU ARE INVOLVED IN… For additional examples or ideas, visit www.aha.org/communityconnections 49

50. Better manage chronic disease • INSERT INFORMATION ON YOUR EFFORTS TO MANAGE CHRONIC DISEASE IN YOUR COMMUNITY • Its helpful to include data that show results. (i.e. lower admissions of asthma or improved lab results of those participating in a program) 50