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Stuart H. Altman
Growing Healthcare Spending:Growing Healthcare Spending:Can or Should It Be Controlled to Can or Should It Be Controlled to
Prevent a Health System Prevent a Health System ““MeltdownMeltdown”” ??
Stuart H. AltmanStuart H. AltmanDean and Sol C. Chaikin Professor
The Heller School for Social Policy and ManagementBrandeis University
Stuart H. Altman
Overall Healthcare Spending Overall Healthcare Spending Per Capita In Massachusetts Per Capita In Massachusetts
Much Higher Than U.S. Much Higher Than U.S. ------ But!But!
•• Mass. PerMass. Per--Person Spending 30 to 45 percent Person Spending 30 to 45 percent Above National AverageAbove National Average
•• Spending in Mass. Have Grown Faster Than Spending in Mass. Have Grown Faster Than National AverageNational Average
-------- But Not A Good Measure of Spending But Not A Good Measure of Spending By Massachusetts ResidentsBy Massachusetts Residents
Stuart H. Altman
Massachusetts Spending for Massachusetts Spending for Medicare Slightly Higher Than U.S.Medicare Slightly Higher Than U.S.
•• Medicare payments per beneficiary in Medicare payments per beneficiary in Massachusetts adjusted for IME/GMEMassachusetts adjusted for IME/GME–– Total payments 14% above US averageTotal payments 14% above US average–– Payments for acute care services 6% above US Payments for acute care services 6% above US
averageaverage
•• Why is this so much lower than personal Why is this so much lower than personal health spending per capitahealth spending per capita–– Excludes clinical research, out of state patients, Excludes clinical research, out of state patients,
IME/GME paymentsIME/GME payments–– Adjusts for local price differencesAdjusts for local price differences
©Stuart H. Altman
Stuart H. Altman
Massachusetts 2005 Health Insurance Massachusetts 2005 Health Insurance Premiums Are Higher Than US Average Premiums Are Higher Than US Average
——But Gap Is LessBut Gap Is Less
MA US Difference MA Rank out of 50
Family Premium
$11,435 $10,728 6.6% 8th
Single Premium
$4,235 $3,991 6.1% 12th
Source: Agency for Healthcare Research and Quality, 2007.
Stuart H. Altman
Therefore Pressures To Therefore Pressures To Increase Healthcare Spending Increase Healthcare Spending In MassachusettsIn Massachusetts Similar To Similar To
Overall U.S.Overall U.S.
Thus Will Focus Remarks Thus Will Focus Remarks on National Figures!on National Figures!
Stuart H. Altman
How Does U.S. Compare To How Does U.S. Compare To Other Countries?Other Countries?
Stuart H. Altman
Correlation Between Per Capita Correlation Between Per Capita Expenditure on Health Care and GDP, Expenditure on Health Care and GDP,
20022002--20032003
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0 10,000 20,000 30,000 40,000 50,000per Capita GDP ($US PPP)
per C
apita
Exp
on
Hea
lth
($U
S PP
P)
The figure for Japan is 2002 estimate; the figures for Australia, Austria, China, Hungary, Ireland, Israel, Poland, Sweden and United Kingdom are of 2002; the figures for Canada, France, Iceland, Norway and Switzerland are 2003 estimates. The rest are of 2003.
Source: OECD Health Data 2005 and WHO.
U.S.
Canada Norway
Japan
Switzerland
Germany
Israel
KoreaChina
U.K.
Australia
$572
y = 309.6467e0.0001x
R2 = 0.9030
©Stuart H. Altman
Stuart H. Altman
Why Is Health Spending Why Is Health Spending Higher In U.S.Higher In U.S.
Do We Use More Services or Just Do We Use More Services or Just Spend More for The Services We Spend More for The Services We
Use?Use?
Stuart H. Altman
InIn--Patient Acute Care BedsPatient Acute Care Bedsin Selected Countriesin Selected Countries 2002 2002
(per 1,000 persons)(per 1,000 persons)8.9
3.62.4
2.93.7
5.76.6
0123456789
10
US China Australia UK Korea Germany Japan
Sources: OECD HEALTH DATA 2005
Stuart H. Altman
Hospital Discharge RateHospital Discharge Ratein Selected Countries 2002in Selected Countries 2002
15,663
20,164
23,215
11,712
8,82810,19911,067
0
5,000
10,000
15,000
20,000
25,000
US UK Germany Australia Korea Japan Canada
Dis
char
ges
per 1
00,0
00 P
op
Source: OECD HEALTH DATA 2005
Stuart H. Altman
Average Length of Stay in Hospital Average Length of Stay in Hospital in Selected Countriesin Selected Countries
6.99.2
22.2
9.0
5.7
0.0
5.0
10.0
15.0
20.0
25.0
US Australia UK China Germany Japan
In-P
atie
nt A
cute
Car
e D
ays
In-patient Acute Care Days
Source: OECD HEALTH DATA 2005
Stuart H. Altman
Practicing Physicians Practicing Physicians in Selected Countries in Selected Countries
20022002
1.5
2.02.12.12.1
2.5
3.3
2.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
US Germany Australia UK NZ Canada Japan China
Phys
icia
ns p
er 1
,000
pop
ulat
ion
Source: OECD HEALTH DATA 2005
Stuart H. Altman
DoctorsDoctors’’ Consultations per Consultations per Capita in Selected CountriesCapita in Selected Countries
20022002
2.6
5.66.2
10.6
14.1
8.9
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
US Japan Korea Australia UK Mexico
Num
ber o
f Con
sulta
tions
per
Cap
ita
Source: OECD HEALTH DATA 2005
Stuart H. Altman
Percent of Total Healthcare Percent of Total Healthcare Expenditures on PharmaceuticalsExpenditures on Pharmaceuticals
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%
U.S U.K. Australia Canada Germany
Stuart H. Altman
What About The Availability of What About The Availability of Expensive Medical Technology Expensive Medical Technology
and Procedures?and Procedures?
Stuart H. Altman
MRIs in Selected Countries MRIs in Selected Countries 20022002
(Units per million persons)
5.26.0
6.0
8.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
US Australia Germany UK
Sources: OECD HEALTH DATA 2005
Stuart H. Altman
Cardiac Cauterization Procedures in Cardiac Cauterization Procedures in Selected Countries Selected Countries
20032003424.8
302.6
230.9
6.614.10
50100150200250300350400450
US Australia Canada UK Mexico
Proc
edur
es p
er 1
00,0
00 p
op
Source: OECD HEALTH DATA 2005
Stuart H. Altman
Patients Using Renal Dialysis Patients Using Renal Dialysis Treatment in Selected Countries Treatment in Selected Countries
20022002148.9
37.054.1
69.0
33.4 26.440.5
0
20
40
60
80
100
120
140
160
US Australia Canada Germany UK Mexico NZ
Patients With Dialysis
Proc
edur
es P
er 1
00,0
00
Popu
latio
n
Source: OECD HEALTH DATA 2005
Stuart H. Altman
Liver Transplant Procedures in Liver Transplant Procedures in Selected Countries Selected Countries
200220021.8
0.8
1.2
0.9
1.2
0.9
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
US Australia Canada Germany UK KoreaLiver Transplant
Proc
edur
e pe
r 100
,000
Po
pula
tion
Source: OECD HEALTH DATA 2005
Stuart H. Altman
Technology Is a Major Driver in Technology Is a Major Driver in Health Care Expenditure Growth.Health Care Expenditure Growth.--
----Is it Worth It?Is it Worth It?
““When costs and benefits are weighed together, When costs and benefits are weighed together, technological advances have proved to be worth technological advances have proved to be worth
far more than their costs.far more than their costs.””
David M. Cutler and Mark McClellan, “Is Technological Change In Medicine Worth It?” Health Affairs, September/ October 2001. Can be found at:http://www/laskerfoundation.org/reports/pdf/cutler_mcclellan_2001.pdf
Stuart H. Altman
But Is Every Technology That But Is Every Technology That Has Some Medical Benefit Has Some Medical Benefit
Worth The Costs?Worth The Costs?
Stuart H. Altman
Alternative Levels of Healthcare Alternative Levels of Healthcare Services And Improvements to Services And Improvements to
Health OutcomesHealth Outcomes
#1Inputs of HealthcareInputs of Healthcare
#2
Economic Optimum
Hea
lth O
utco
mes
Hea
lt h O
utco
mes
0
Dollars
Costs of Care
Costs of Care
#4
Harmful CareHarmful Care
#3
Maximum Impact
Stuart H. Altman
In Other Countries They In Other Countries They Control Spending By Limiting Control Spending By Limiting
Use of High Cost Medical Use of High Cost Medical Procedures Closer To #2Procedures Closer To #2
We Can Start By Eliminating The We Can Start By Eliminating The Harmful Services in Category #4.Harmful Services in Category #4.
But Also May Need To Move Toward But Also May Need To Move Toward #2 #2
Stuart H. Altman
What Has been Happening What Has been Happening Recently In The U.S. In Terms Recently In The U.S. In Terms
of Healthcare Use?of Healthcare Use?
Stuart H. Altman
The Growing Utilization of Hospital The Growing Utilization of Hospital ServicesServices
(Annual Percentage Change)
-2
0
2
4
6
8
10
12
14
Total Prices Utilization
199419951996199719981999200020012002200320042005
Souce: Ginsburg, Strunk, Banker & Cookson “Health Affairs (Web Addition) October 2006For 2006, figures provided are early estimates.
Stuart H. Altman
Concentration of Health Care Concentration of Health Care Spending in the U.S. Population, Spending in the U.S. Population,
20042004
22.5%
49.0%
64.1%
73.6%80.3%
96.9%
3.1%0%
20%
40%
60%
80%
100%
Top 1% Top 5% Top 10% Top 15% Top 20% Top 50% Bottom50%
Perc
ent o
f Tot
al H
ealth
Car
e Sp
endi
ng
(≥$39,688) (≥$13,387) (≥$7,509) (≥$5,191) (≥3,735) (≥$724) (<$724)
Percent of Population, Ranked by Health Care SpendingNote: Dollar amounts in parentheses are the annual expenses per person in each percentile. Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included.
Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2004.
Stuart H. Altman
Where Are We Going?Where Are We Going?
Stuart H. Altman
Federal Spending for Medicare and Federal Spending for Medicare and Medicaid Under Assumptions About Medicaid Under Assumptions About
Health Cost GrowthHealth Cost Growth
1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038 2044 20500
5
10
15
20
25
Actual Projection
2.5 Percentage Points1 Percentage PointZero
Differential of:
Stuart H. Altman
Even With No Change In Coverage Even With No Change In Coverage Government Will Dominate Government Will Dominate
Institutional PaymentsInstitutional PaymentsProportion Of Hospital Expenses Attributed To
Patients By Payer Source
37%
54%
6%3%
25%
66%
7%2%
0%
10%
20%
30%
40%
50%
60%
70%
Gov. Pvt. Uncomp. Care Other
20002025
Stuart H. Altman
Can Private Insurance Payments Continue To Can Private Insurance Payments Continue To Pay For The Shortfall In Government PaymentsPay For The Shortfall In Government Payments
Hospital PaymentHospital Payment--toto--Cost RatiosCost Ratios(Government Ratios Maintained at Current Levels)(Government Ratios Maintained at Current Levels)
Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2005, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.
92.0%
85.0%
138.0%130.0%
157.4%
60%
80%
100%
120%
140%
160%
180%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Medicare Medicaid(1) Private Payer
Stuart H. Altman
Controlling Healthcare Controlling Healthcare Spending In The U.S. Is Not Spending In The U.S. Is Not
Easy!Easy!We Have Tried To Control it
Before With Only Limited Success
Stuart H. Altman
0
500
1000
1500
2000
2500
3000
3500
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Per C
apita
NH
E in
$
Gov’t Reg.
M&M Begins
Managed Care
?
Little Reg./Little Mkt.
Y = 52.703x Y = 52.703x –– 102898102898
Y = 40.31x Y = 40.31x –– 7846578465
Y = 88.486x Y = 88.486x –– 173967173967
Y = 37.925x Y = 37.925x –– 7319573195
Y = 107.95x Y = 107.95x –– 1025.31025.3
Growth In Per Capita National Health Growth In Per Capita National Health Expenditure Expenditure 19661966--20052005(adjusted for inflation)(adjusted for inflation)
Stuart H. Altman
Why Is Controlling Spending So Why Is Controlling Spending So Difficult?Difficult?
•• The Forces Against Significant Reductions Are Very The Forces Against Significant Reductions Are Very PowerfulPowerful–– Providers, Insurers and Healthcare SuppliersProviders, Insurers and Healthcare Suppliers
•• Concern AboutConcern About------–– Reductions In WagesReductions In Wages–– Reductions In EarningsReductions In Earnings–– Regulatory HoopsRegulatory Hoops
–– PatientsPatients–– Reduced Access to ServicesReduced Access to Services–– Bureaucratic RestrictionsBureaucratic Restrictions–– Freedom of Choice of ProvidersFreedom of Choice of Providers
–– PoliticiansPoliticians–– Need I Say More Need I Say More
Stuart H. Altman
Health Care In America Is Big Health Care In America Is Big BusinessBusiness------In Other Countries In Other Countries
ItIt’’s a Social Services a Social Service
Are We Really Going To Are We Really Going To Change That !Change That !
Stuart H. Altman
Nevertheless We Must Limit Nevertheless We Must Limit Growth in HealthcareGrowth in Healthcare
Spending or Face A Spending or Face A ““Meltdown Meltdown In our Public and Private In our Public and Private
Financing Systems!Financing Systems!
What Techniques Can We What Techniques Can We Use?Use?
Stuart H. Altman
What Presidential Candidates What Presidential Candidates Are Proposing To Lower Are Proposing To Lower
Costs!Costs!
Stuart H. Altman
What Presidential Candidates What Presidential Candidates Are Proposing To Lower CostsAre Proposing To Lower Costs
•• RepublicansRepublicans– Giuliani
• Health information technology• Transparency for prices, provider qualifications• Information on risk adjusted outcomes of individual providers• Medical liability reform
– Romney• Medical liability reform
Stuart H. Altman
What Presidential Candidates What Presidential Candidates Are Proposing To Lower CostsAre Proposing To Lower Costs
•• DemocratsDemocrats– Clinton
• National prevention initiative• Health information technology• Chronic care coordination• Establishment of a Best Practices Institute• Information for better use of prescription drugs and limit
direct-to-consumer advertising of drugs• Negotiate lower prescription drug prices and revise patent
laws to increase use of generic drugs• Linking medical error disclosure with physician liability
protection
Stuart H. Altman
What Presidential Candidates What Presidential Candidates Are Proposing To Lower CostsAre Proposing To Lower Costs
•• DemocratsDemocrats– Obama
• Invest in electronic medical records and other health IT• limit administrative costs of health insurers• Promote insurer competition through health insurance
exchange• Improve prevention and management of chronic conditions• Require hospitals and other providers to report measurers to
lower healthcare costs and improve quality• Promote and strengthen public health and promotion• Reform medical malpractice and foster new models of
addressing physician errors
Stuart H. Altman
Where Should We Begin?Where Should We Begin?
Stuart H. Altman
Techniques for Limiting Growth In Techniques for Limiting Growth In Health Spending and Likely ImpactHealth Spending and Likely Impact
•• Very Limited ImpactVery Limited Impact–– Encourage Greater Use of Preventive Services (ShortEncourage Greater Use of Preventive Services (Short--term)term)
•• Limited ImpactLimited Impact–– Provide Better Price and Quality InformationProvide Better Price and Quality Information–– Require Patients To Pay MoreRequire Patients To Pay More–– Restrict Use of Harmful CareRestrict Use of Harmful Care–– Reduce Expense and Waste of Medical MalReduce Expense and Waste of Medical Mal--Practice SystemPractice System–– Reduce Administrative Costs of InsuranceReduce Administrative Costs of Insurance–– Develop and Use Government Supported Develop and Use Government Supported ““Comparative Effectiveness StudiesComparative Effectiveness Studies
•• Greater ImpactGreater Impact–– Restructure Payment SystemRestructure Payment System------ (Bundled Payment and Value Based Pricing)(Bundled Payment and Value Based Pricing)–– Restructure Delivery System (Integrated Care)Restructure Delivery System (Integrated Care)–– Restrict Use of Marginally Useful CareRestrict Use of Marginally Useful Care–– Limit Supply of Expensive ServicesLimit Supply of Expensive Services–– Incentives to Use Preventive Services (LongIncentives to Use Preventive Services (Long--Term)Term)–– Expand and Restructure Primary CareExpand and Restructure Primary Care------Create Effective Create Effective ““Medical Homes for Patients) Medical Homes for Patients) –– Create a Governmental Create a Governmental ““High Cost Reinsurance SystemHigh Cost Reinsurance System”” with Effective Disease with Effective Disease
Management Systems for Chronic ConditionsManagement Systems for Chronic Conditions––
•• Greatest Potential ImpactGreatest Potential Impact–– Gov. Regulation of Payments To ProvidersGov. Regulation of Payments To Providers–– Establish Global Budgets Establish Global Budgets
Stuart H. Altman
------ Now Match Up Impact With Now Match Up Impact With Political or Practical Reality of Political or Practical Reality of
Implementation Implementation ------
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