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Medicare, Cost Shifting and Universal Coverage: The Economic Unraveling of U.S. Health Care. RAM/AMA -- VCU School of Medicine March 2008 Rick Mayes. OVERVIEW. This presentation examines : major economic trends in U.S. health care system

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medicare cost shifting and universal coverage the economic unraveling of u s health care

Medicare, Cost Shifting and Universal Coverage:The Economic Unraveling of U.S. Health Care

RAM/AMA -- VCU School of Medicine

March 2008

Rick Mayes

overview
OVERVIEW

This presentation examines:

  • major economic trends in U.S. health care system
  • The phenomena known as cost shifting and provider segmentation, the “medical arms race” they are fueling, and the implications for doctors, hospitals, and patients.
  • growing concerns and potential reforms
background
BACKGROUND

Since 2000 . . .

health insurance premiums have increased more than 78%

(versus 18% in general inflation and avg. wage growth)

- avg. cost of single coverage ($4,500 annually in 2007)

- avg. cost of family coverage ($12,000 annually in 2007)

The percent of companies offering health insurance to their workers has fallen from 69% in 2000 to approx. 58% in 2007

(6 million working Americans have lost their coverage since 2000)

extreme consequences bankruptcy earlier death
Extreme Consequences: Bankruptcy & Earlier Death
  • 50% of uninsured patients havedebtsfrom previous medical care; a 1/3rd are being pursued by collection agencies

* Uninsured women with breast cancer are twice as likely to die as women with breast cancer who have health insurance.

(Kaiser Commission, 2002)

  • Men without health insurance are nearly 50% more likely to be diagnosed withcolon cancerat a later, more dangerous stage than men with insurance.

(Kaiser Commission, 2002)

* Upwards of 750,000 families are bankrupted by medical debt each year, even though 80% of them have some form of health insurance; single largest cause of bankruptcy (Health Affairs, 2005).

slide14

Arnold and Sharen Dorsett with their children, Dakota, Zachery and Jessica, back. Though they had insurance, health-care costs for Zachery led the Dorsetts to file for bankruptcy this year.

Nicole Bengiveno/The New York Times

four key facts about u s health care
Four Key Facts about U.S. Health Care

1.16% of the U.S. population is uninsured (huge financial drain on state governments and medical providers, as well as a major cause of immense human suffering and decreased economic productivity)

2.Each year, approximately 20% of the insured and uninsured populations in the U.S. drive roughly 80% of all health care spending and consumption.

3.Health care involves high “fixed” costs (buildings, equipment, salaried personnel, overhead) and low “marginal” or variable costs (Rx drugs, food, paper, gloves, gowns, tests). example: an MRI

4.There are several “payers” (Medicare, Medicaid, employers, health insurers, individuals) but only one set of medical “providers” (doctors, hospitals, nurses, etc.), which fuels financial gamesmanship by health insurers and providers.

cost shifting hydraulic for doctors hospitals
Cost-Shifting Hydraulic for Doctors & Hospitals

B = C + MarginContribution

130%

B

120%

Cost Shift

C

A

110%

Cost

100%

Shortfall

Margin

90%

80%

70%

Payment-to-Cost Ratio

60%

Above Cost Payers

Below Cost Payers

50%

40%

30%

20%

10%

0

10

20

30

40

50

60

70

80

90

100

Percentage of Market Share

physicians cost shifting or differential pricing
Physicians & Cost-Shifting (or “Differential Pricing”)

Source: The Lewin Group, “The American College of Emergency Physicians (ACEP) Practice Expense Study,” for the

American College of Emergency Physicians.

community hospitals the role of cost shifting

200%

180%

160%

140%

120%

100%

The correlation coefficient between

Private Payer Payment-to-Cost Ratio and

Medicare, Medicaid & Uncompensated

Care cost shift burden is 0.75

80%

Private Payer Payment-to-Cost Ratio

60%

40%

20%

0%

0%

5%

10%

15%

20%

25%

Medicare, Medicaid & Uncompensated Care Cost Shift Burden (in %) by State

Community Hospitals & the Role of Cost-Shifting

Source: The Lewin Group analysis of data contained in AHA TrendWatch Chartbook: Trends Affecting Hospitals and Health Systems.

slide19

Source: American Hospital Association’s Annual Survey of Hospitals (n=6,800 hospitals), 2006. Pearson’s correlation coefficients:1984-1997: Medicare and Private ratios: r = -.86 1980-2004: Medicare and Private ratios: r = -.79 1984-1997: Medicaid and Private ratios: r = -.39 1980-2004: Medicaid and Private ratios: r = -.64

growing concerns
Growing Concerns
  • The ultimate cost shift: employers passing on a larger and larger share of their increased health care costs to their employees in the form of higher monthly wage deductions and/or increased co-payments, deductibles, and out-of-pocket costs (especially for employees’ dependents).
  • Beyond this strategy, more and more employers have simply stopped offering health insurance (16% of the U.S. population is uninsured; 46 million individuals or the aggregate population of 24 states, 2005)
economic incentives health care
Economic Incentives & Health Care
  • Thesegmentation and migration of medical care to non-hospital settings:

- free standing diagnostic imaging centers

- ambulatory surgery centers (ASC’s)

- physicians’ concierge medical practices

  • Health Savings Accounts (HSA’s) and the decline of risk-pooling provided by group health insurance
outpatient surgery is also rapidly migrating to non hospital settings
Outpatient surgery is also rapidly migrating to non-hospital settings…

Percent of Outpatient Surgeries by Facility Type, 1981-2005

Physician Offices

FreestandingFacilities

Hospital-based Facilities

Source: Verispan’s Diagnostic Imaging Center Profiling Solution, 2004. *2005 values are estimates.

as the number of ambulatory surgery centers asc s has increased rapidly
…as the number of ambulatory surgery centers (ASC’s) has increased rapidly.

Number of Medicare-approved ASCs, 1997-2004

Source: MedPAC, A Data Book: Healthcare Spending and the Medicare Program, June 2005

and 83 percent of ascs are wholly or partly owned by physicians
…and 83 percent of ASCs are wholly- or partly-owned by physicians.

Ownership Structures of ASCs, 2004

Source: American Association of Ambulatory Surgery Centers. ASC Ownership Survey. February 2004.

self referral has been linked to increased utilization of diagnostic services
Self-referral has been linked to increased utilization of diagnostic services…

Number of Imaging Services Ordered per Physician-owner vs. Non-owner

Source: United States Government Accountability Office, Medicare Referrals to Physician Owned Imaging Facilities Warrant HCFA’s Scrutiny,

GAO/HEHS-95-2, Oct. 1994.

and financial incentives influence where physician owners direct and treat patients
…and financial incentives influence where physician-owners direct and treat patients.

Orthopedic Surgeries Performed by Physician-owners at a Full-service Community Hospital Before and After Ambulatory Surgery Center Opening, October 1995 - September 1998

1st full month of ASC operation

100

80

Hospital Outpatient Surgery Cases

60

40

20

0

10/95

1/96

7/96

1/97

7/97

1/98

7/98

Source: Lynk WJ and Longley CS. (2002). “The Effect of Physician-owned Surgicenters on Hospital Outpatient Surgery.” Health Affairs 21: 218.

slide28
POLICY implications of the significant rise in physician-owned, for-profit:

ambulatory surgery centers, specialty hospitals & diagnostic imaging centers:

1.) prospects for improved quality, lower costs, and more professional autonomy

- Adam Smith and the advantages of specialization (e.g., pins and “focused factories”)

2.)financial impact on community hospitals: fair or unfair competition?

- “cherry picking” the best-insured private patients by, largely, for-profit entities

- “skimming” lower-cost, healthier Medicare cases within individual DRGs

- cardiac, orthopedic, radiological services: huge proportion of hospitals’ net revenues

3.) impact on communities’ overall access to care

- declining volume & smaller patient populations make charity care harder to provide

- vulnerability of emergency services, burn units, psychiatric facilities

- complicates doctor-hospital relationships (e.g. staff privileges, economic credentialing)

- exacerbates the development of multi-tiered health care (e.g., elite, average, poor)

segmentation of u s health care system increasing concierge medicine
Segmentation of U.S. Health Care System Increasing:Concierge Medicine

Patients like Ilse Kaplan, left, receive more personal attention from Dr. Bernard Kaminetsky in exchange for an annual fee of about $2,000.

slide30

Median Compensation for Selected Medical Specialties

Woo B. N Engl J Med 2006;355:864-866

slide31

Family Medicine Residency Positions and Number Filled by U.S. Medical School Graduates

Bodenheimer T. N Engl J Med 2006;355:861-864

slide32

Proportions of Third-Year Internal Medical Residents Choosing Careers as

Generalists, Subspecialists, and Hospitalists

Bodenheimer T. N Engl J Med 2006;355:861-864

slide33

Percent Change between 1998 and 2006 in the Percentage of U.S. Medical School Graduates Filling Residency Positions in Various Specialties

Woo B. N Engl J Med 2006;355:864-866

the moral hazard argument against expanding health insurance coverage
The “Moral Hazard” ArgumentAgainst Expanding Health Insurance Coverage

Moral Hazard: term used to describe the paradoxical fact that insurance can change behavior of the person insured.

example: employer-provided “donut” insurance (e.g., 5 cent co-pay)

avg. annual amount spent on medical care (by uninsured person) = $934

avg. annual amount spent on medical care (by insured person) = $2,347

Conclusion I: co-pays, deductibles, utilization reviews make patients use

health care more “efficiently” (frugally, wisely, sparingly)

Conclusion II: instead of expanding group health insurance, reduce it

the moral hazard argument against expanding health insurance coverage36
The “Moral Hazard” ArgumentAgainst Expanding Health Insurance Coverage

Fallacy I: Moral-hazard argument only makes sense if we consume health care in the same way we consume donuts (or car repairs or consumer goods).

Fallacy II: Having to pay for your own care does not automatically make ALL of your health care consumption more “efficient.” How could it?

example: wife’s appt. with dermatologist

Reality: cost-sharing is a very BLUNT instrument

example: RAND Corporation’s “Health Insurance Experiment” (1971-86)

BOTTOM-LINE: health insurance is moving in the “actuarial” direction (similar to car insurance) and away from the “social insurance” model with enormous consequences…

two exit questions to think about
Two Exit Questions to Think About

What do providers have to do when every payer only

wants to pay the marginal cost?

Ultimately, who is responsible for the common good

(i.e.,graduate medical education, charity care,

medical research) in a competitive market?