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LDI Health Policy Seminar “Will Health Costs Bury American Manufacturing?” A View from Detroit Mark A. Kelley, M.D. CEO Henry Ford Medical Group Henry Ford and Detroit - 1915 Henry Ford and Detroit - 1915 Explosive growth in auto production 1913-15

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ldi health policy seminar will health costs bury american manufacturing a view from detroit

LDI Health Policy Seminar“Will Health Costs Bury American Manufacturing?” A View from Detroit

Mark A. Kelley, M.D.

CEO Henry Ford Medical Group

henry ford and detroit 19153
Henry Ford and Detroit - 1915
  • Explosive growth in auto production 1913-15
  • 300,000 cars annually = 1/3 of the world’s production
  • Recruited employees from immigrants and the South
  • Large new plant on outskirts of town Highland Park – first major assembly line
henry ford s industrial approach to health care
Henry Ford’s “Industrial Approach” to Health Care
  • Employed full-time physicians, some recruited from the East
  • Full hospital care for fixed price ($5/day = daily wage); no insurance
  • Latest technology – hospital designed by Ford engineers
the auto industry labor movement brief history
The Auto Industry Labor Movement Brief History

1930-1940

  • UAW founded in 1930s by Walter Reuther
  • After civil unrest, labor organized in Big Three (Ford last in 1941)
  • Major issues; working conditions, hourly wages
the auto industry labor movement brief history6
The Auto Industry Labor Movement Brief History

1941-1950

  • Post war boom, suburban expansion, national highway system
  • American auto reigned supreme; suburban living
the 1950 s labor s heyday
The 1950’s – Labor’s Heyday
  • 1950: GM grants pensions and automatic wage adjustments
  • 1955: Ford agrees to unemployment benefits
  • 1956: UAW creates health insurance company – Health Alliance Plan (HAP)
  • Mid 1950s: Major strikes in steel, coal industry
henry ford hospital 1950s
Henry Ford Hospital – 1950s
  • Regional academic medical center, support of Ford family
  • Ranked #6 hospital in the nation
  • Major national training center
  • “Go-To” place in Michigan
troubles in the motor city 1965 1975
Troubles in the Motor City1965-1975
  • Urban riots cripple Detroit
  • Invincible image of auto industry damaged
  • Racial polarization
  • Massive population shift to suburbs
  • “Athens of the Midwest” shattered
troubles in the motor city 1965 197510
Troubles in the Motor City 1965-1975
  • 1973: Oil crisis demands fuel efficient cars
  • 1970s: American auto quality falters
  • Honda, Toyota gain market foothold, via cost and quality
henry ford hospital becomes a system
Henry Ford Hospital Becomes a System
  • “White flight” to suburbs fractures the city infrastructure
  • Hospital remembered as staging area for National Guard
  • Launches first “satellite” to attract suburban patients
the 1980s save the industry
The 1980s: Save the Industry!
  • Federal bailout of Chrysler Corporation
  • Focus on quality (“Job #1” at Ford)
  • Young and frightened workforce (“baby boomers”)
  • More partnering with labor and management
big three approach to health care 1980 90s
Big Three Approach to Health Care – 1980-90s
  • Predictable costs without labor strife
  • HMO prepayment attractive for:
    • Population-based prevention
    • Community-based premium
    • Little cost to employees
  • Arms length relationship with health care, except in the workplace

This strategy, fueled by managed competition paradigm, worked well—for a while

hfhs response 1980 99
HFHS Response 1980-99
  • Suburban competition
  • HMO (HAP) purchased for access to UAW
  • System grows suburban primary care and acquires regional hospitals
  • Integrated delivery system as survival strategy
gdp per capita to gdp spent on health care oecd countries source anderson health affairs 22 2003
GDP per Capita to % GDP Spent on Health Care: OECD CountriesSource: Anderson, Health Affairs 22:2003
failure of employer based health insurance
Failure of Employer-Based Health Insurance
  • Demand for choice defeated HMO strategy
  • Cannot limit provider selection; health care delivery fragmented
  • Liability risk of restricting access
  • Populations do not cost $$; high risk patients account for 80% of costs
  • Inability to curb technology growth

Source: Enthoven, Health Affairs, Spring 2003

the big three s health crisis in 2003
The Big Three’s Health Crisis in 2003
  • Flat HMO premiums in 1990s spurred temporary profits
  • Rebound of double digit premium inflation
  • Unique problems:
    • Aging workforce (average age 45)
    • Lifetime health coverage beyond Medicare
    • Higher actuarial risk workforce

None of these problems are shared by international competitors!

slide19

18.2%

17.7%

18.0%

14.0%

13.5%

13.2%

13.0%

12.0%

11.7%

11.0%

10.4%

10.0%

9.0%

8.1%

8.0%

8.0%

6.5%

5.7%

3.2%

2.1%

3.0%

-0.4%

-0.5%

-2.0%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

Premium Inflation is Significant

HMO Premium vs. HMO Cost Increases 1988 - 2006

Annual

premium

increases

MD

I/P

Rx

1999

2000

2001E

2002E

2003E

2004E

2005E

2006E

Source: Salomon Smith Barney Research estimates based on data from CMS, Milliman USA, AAHP, KPMG.

big three pays 900 more for health care per vehicle
Big Three Pays $900 More for Health Care per Vehicle

Reasons:

  • Rich post-retirement benefits for aging workforce
  • Workers retire well before age 65
  • First $ coverage for most hourly workers
  • No national policy on technology or drugs
big three s challenges reflect those of the nation
Big Three’s Challenges Reflect Those of the Nation

Big Three could not predict or control:

  • improved life expectancy
  • technology and pharmacy proliferation
  • American health care consumerism

Big Three should have predicted effects of:

  • the baby boomer workforce
  • life time health care benefits
  • rich pharmacy benefits

These are the very same issues facing Medicare!

the auto industry s position on health care 2003
The Auto Industry’s Position on Health Care - 2003
  • The business case for quality worked well for the Big Three manufacturers – health care should follow!

Facts:

    • There is waste in health care, uneven quality, little standardization
    • Health care not organized for quality and cost
    • Health care is delivered locally as a cottage industry
    • Human behavior is not easily engineered
2 health care costs too much and providers drive the inflation
2. Health care costs too much and providers drive the inflation

Facts:

  • UAW contracts are too rich
  • Hospital and pharmacy costs have dominated inflation
  • U.S. doctors earn relatively the same western counterparts
  • Utilization of health services same as other western nations
uaw public position on health care
UAW Public Position on Health Care
  • Etiology of problem:
    • Administrative costs of private insurance
    • For profit components of the industry
    • “Medical arms race”
  • Solution: National health insurance and policy
  • Positions:
    • Support pharmacy benefit
    • Oppose health vouchers/defined contributions
    • Support strong CON process

Source: UAW website 2003

you be the quarterback 1
You be the Quarterback #1

What would be your immediate health care strategy if you were:

  • The UAW
  • the Big Three
features of 2003 uaw contract
Features of 2003 UAW Contract

UAW Gains:

  • 2-3% wage increase (beyond COLA) last two years of contract
  • Expanded medical coverage; retirees protected
  • Pension increases for future retirees
  • Unionize suppliers
features of 2003 uaw contract33
Features of 2003 UAW Contract

Company Gains:

  • Bonuses instead of wage increases (preserves the base)
  • No increases for current retirees
  • Permission to sell/close plants
  • Tighter prescription control
uaw medical benefits contract history
UAW Medical Benefits – Contract History
  • 1993: Fully paid benefits, no new co-pays
  • 1996: Drug co-pay up from $3 to $5. new members must enroll in HMO for two years
  • 1999: Expanded preventive care; mandatory HMO enrollment for four years
  • 2003: Expanded preventive care; three tier drug co-pay; $10 office co-pay; HMO requirement dropped

Source: Detroit Free Press 9/19/2003

henry ford health system s perspective
Henry Ford Health System’s Perspective
  • Financial
    • Crisis 1998-2001 because of capitation and flat premiums
    • Stability with double digit premium rise
    • Dilemma of owning an HMO
    • Autos want to beat health inflation (somehow)
  • Changing Delivery Tactics
    • HMO paradigm forced Kaiser mentality
    • Move to PPO allows balance of AMC and delivery system
    • AMC cannot survive on capitation – no margin
henry ford health system s perspective36
Henry Ford Health System’s Perspective
  • Politics
    • Underfunded, poorly managed Medicaid
    • Failing safety net in Detroit
    • Auto industry controls technology via CON
    • Recent legislation for HFHS suburban hospital
henry ford health system s perspective37
Henry Ford Health System’s Perspective
  • Patients
    • Clueless about benefits (except pharmacy)
    • Insurance coverage constantly shifting
    • Two incomes common
  • Quality
    • No progress in paying for quality (despite Leapfrog)
    • Early discussions about chronic disease management
    • Autos view health care as an HR issue
you be the quarterback 2
You be the Quarterback #2

As the auto company exec in charge of health care, what is your long-term strategy to solve the health care problem?

what are the options for the big three
What are the Options for the Big Three?
  • Reduce Health Care Costs
    • Curb health care technology proliferation
      • Local: CON, HMOs as stall tactics
      • National: No traction except in Medicare
    • Push more cost decisions to employees
      • PPO’s vs closed network
      • Higher co-pays (ERs)
      • Tiered pharmacy benefits
    • Other moves – difficult with national platform
      • Reduce administrative costs/waste
      • Chronic disease management
      • May see major employers align
health care s closed box
Health Care’s “Closed Box”

.

Employee

Health $$

Health Providers

Company

Govt

what are the options for the big three41
What are the Options for the Big Three?
  • Lobby for National Health System/More Medicare Benefits
    • Strong emphasis on prescriptions
    • Aggressive approach limited by:
      • Lack of political will in Washington
      • Threat of increased taxes
  • Other Tactics:
    • Leverage local providers– only works in one industry town
    • Hit UAW contract harder
    • Restrict future benefits
what are the options for the big three42
What are the Options for the Big Three?
  • Doomsday Scenario: Move manufacturing off-shore
    • Developing countries have lower costs (for everything)
    • American demand for low price favors off-shore
    • Detroit faces same crisis as Boston and NYC did in 1900s
  • Irony: For Toyota, “offshore” is American South
hfhs long range tactics
HFHS Long Range Tactics
  • Work to Curbs Costs when Possible
    • Chronic disease management (maybe)
    • Educate patients about purchasing choices
    • Re-engineer practice (like manufacturing)
      • To improve access
      • Reduce rework (quality and communication)
      • Use alternative methods (open access, e-mail, group visits)
    • Maximize leverage of a closed system
hfhs long range tactics44
HFHS Long Range Tactics

2. Diversify the Local Economy

  • Strong regional expertise in engineering, tooling, process improvement
  • All these skills are applicable to health care
  • Could Detroit have as much influence on health care as it did on manufacturing?
will health care costs bury american manufacturing
Will Health Care Costs Bury American Manufacturing?

YES – If current status quo prevails!

  • Auto industry will fail but federal government will intervene
  • U.S. automakers are the icons of American manufacturing
  • Intervention: Fund current entitlements, recast the contracts
will health care costs bury american manufacturing46
Will Health Care Costs Bury American Manufacturing?

NO – Under several scenarios:

1. National health insurance paid by new taxes (levels the playing field with other countries)

2. National Medicare policy is clear and provides:

  • More benefits (gets autos off the hook long-term)
  • Less benefits – will result in national brake on drug/technology proliferation
will health care costs bury american manufacturing47
Will Health Care Costs Bury American Manufacturing?

NO –

3.“Near Death” for industry (like airlines) leads to union concessions (as in 2003 contract)

will health costs bury american manufacturing forecast
Will Health Costs Bury American Manufacturing? -- Forecast
  • “Near Death” scenario has already begun (2003 contracts)
  • Health care will be major agenda in 2008-12 elections, promoted by auto industry
  • Auto industry will try to catch the wave of disenfranchised retirees
will health costs bury american manufacturing forecast49
Will Health Costs Bury American Manufacturing? -- Forecast

Don’t Underestimate the Power of the

Baby Boomers!

  • They make your cars
  • They stopped a war
  • They toppled Nixon

WHEN PROVOKED,

THEY VOTE!!

health care in 1915
Health Care in 1915
  • Organized training only in the East – especially Johns Hopkins
  • Standardized care in group practice (Mayo Clinic, Cleveland Clinic)
  • Advances in surgery and radiology, infectious disease
  • Life expectancy age 45; TB major cause of death
big three health strategy 1990s
Big Three Health Strategy - 1990s
  • Treat health care industry like another supplier, focusing on quality and cost
  • Keep immediate costs down (wages) as trade-off for unknown future costs (health and retirement)
  • Keep workers healthy to promote productivity
slide52

The National Health Care Cost Dilemma

HOW WILL COSTS BE “CONTROLLED”

2.64

  • US Population 2010
  • 299 Million
  • 75.1 Million > 55
  • $8708 per capita
  • Return to Work Outcomes
  • Chronic Disease Mgt
  • Effectiveness Analysis
  • Outcomes Analysis
  • Cost/Quality Benchmarks
  • Consumer Choice

Health Care Cost

Trillions of Dollars

Demographics – Aging Population

Managed Care – No Future Savings

Accessibility & Consumerism

Medical & Pharmaceutical Technology

1.54

  • US Population 2002
  • 280 Million
  • 61.4 Million > 55
  • $5805 per capita

Health Data

Collection and Analysis

Source: US Census and Centers for Medicare and Medicaid Services

2010

2002

michigan manufacturers survey 2003
Michigan Manufacturers Survey 2003
  • 80% of companies experienced double digit inflation health premiums in past year
  • 72% ranked health care first as most important company issue
  • Top reasons cited for rising costs: prescription drugs, medical liability, inefficient health care, new technologies
  • Health care top issue in employee relations

Source: MMA website - mma-net.org 2002