making sense of health care markets - 2006 presentation to greater milwaukee employee benefits...
TRANSCRIPT
Making Sense of Health Care Markets - 2006
Presentation to Greater Milwaukee Employee Benefits Council
October 16, 2006
Merton D. Finkler, Ph.D
Professor of Economics
Lawrence University
Overview
The 80-20 rule applies to health care. Good prices need not mean good value. Consumer directed health care can be
oversold. Porter & Teisberg’s competitive ideal can focus
our attention: Pay for Performance. The health care world is not yet flat, but we can
flatten it much more than we have.
Key Sources
Agency for Health Care Research and Quality, “The High Concentration of U.S. Health Care Expenditures,” Research in Action, June 2006
David Cutler, Your Money or Your Life, Oxford Press, 2004
Michael Porter and Elizabeth Teisberg, “Redefining Competition in Health Care, Harvard Business Review,” June 2004 (and recent book)
Thomas Friedman, The World is Flat, updated and expanded edition, Farrar, Straus, and Giroux, 2006
Health Care Expense Distribution
Health expenses persist over time
Most Costly Conditions
Treated Disease Prevalence Drives Spending
The Wisconsin Food Pyramid?
Selling “Wellness”
Your Money or Your Life - Cutler
We spend more because we can do more– 10 fold decline in infant mortality in 20th century– Life expectancy at 45 increased by 4.5 years since
1950 due to reduced mortality from cardiovascular disease
– Doubling of costs of treating depression in the last 20 years has yielded improved quality of life and productivity worth 7 times the cost.
Single Biggest Factor in Reduced Mortality is Care for CV Disease
0
100
200
300
400
500
600
700
800
900
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
dea
ths
per
100
,000
Mortality Has Fallen Markedly for LBW Babies
0
5
10
15
20
25
30
Mort
ality
Rate
1950 1998
Mortality Among Low Birth Weight Infants
Mortality Benefits of Medical Advance Greatly Exceed Costs
0
1
2
3
4
5
6
7
8
CardiovascularDisease
1950-90
Heart Attack1984-98
Low BirthWeight Infants
1950-90
Depression1991-96
Breast Cancer1985-96
Medical CareCombined
1950-00
Much Care Does Not Deliver Value
Payment systems (especially fee-for-service) are largely based on intensity not value– Dependent on who delivers the service– Where the service is delivered– Barriers to entry for competitors– Few providers make money by keeping people
healthy Programs that reduce complications in
diabetics, and thus, hospitalizations, reduce incomes for physicians and hospitals.
Patients have had little reason to seek value
No information on quality of care differences Little incentive to seek value since intensive services
have been covered by third parties Just as likely to reduce cost-effective as cost-
ineffective services when faced with high out-of-pocket costs.
Current income tax exemptions – Encourage purchase of coverage for high intensity services– Reward people with high incomes for using these services– Thus, current tax policy is both inefficient and inequitable
Value and Waste - Overall
Value of Services
Low HighIn
ten
sity
of
Serv
ices
Hig
h
Low
Chronic disease management
Health promotion (Follow-up/monitorin
g)
Heroic interventions
(surgeries, tests, …)
Episodic acute and chronic care
Value and Waste – Traditional Payment
Value of Services
Low HighIn
ten
sity
of
Serv
ices
Hig
h
Low
Fancy Stuff
Disease management
Follow up/monitoring
Waste and Value – Managed Care
Value of Services
Low HighIn
ten
sity
of
Serv
ices
Hig
h
Low
Fancy Stuff
Disease management
Follow up/monitoring
Waste and Value – Pay for Quality
Value of Services
Low HighIn
ten
sity
of
Serv
ices
Hig
h
Low
Fancy Stuff
Disease management
Follow up/monitoring
Pay for Performance
Reward high value (quality per unit cost) services by– Measuring and publishing information on
quality of medical care– Rewarding providers who deliver value– Offering lower patient cost-sharing for cost-
effective care– Covering compliance with chronic care
management plans (including RX use)
P4P (Continued)
Will pay for performance be widely adopted?
Over 100 current experiments exist– Bridges to Excellence– Leapfrog– Center for Medicare and Medicaid
Services
Bridges to Excellence Sites
Harvard Business Review on P4P
Performance Scorecard for U.S.A.
Consumer Directed Health Care
CDHC responds to the OPM problem: – Aim: reduce entitlement mentality
Standard Features– High deductible insurance plan– Personal account funded partly or fully by employer– Gap between deposited amount and the deductible– Tax system encouragement– Internet-based decision support
Key assumptions– A large percentage of medical care use is discretionary– Out-of-pocket incentives will reduce inappropriate spending
Do Consumers Have the Tools to Make Informed Healthcare Decisions?
80% of adults w/ internet access seek healthcare information online.
AHRQ’s “Quality Tools” (www.qualitytools.ahrq.gov) Will consumers distinguish between accurate and false
(or irrelevant) information?– Recent Rand study: only 27% of consumers use
formal sources of information to choose a physician– Health Insurance Experiment showed that increased
cost-sharing yielded reduced use of both effective and ineffective services
CDHC (Continued)
Quality of service information (patient satisfaction) is available in a number of markets.
Study of elderly suggests no correlation between consumer satisfaction survey results and expert measures of the quality of care provided.
Do you know your risk for Cancer? Diabetes? Heart Disease? Osteoporosis? Stoke? If not, check outwww.yourdiseaserisk.harvard.edu
CDHC (Continued)
Most likely targets for CHDC are the bottom 50%. Those in the top 20% typically spend > deductible and
face limited incentives to purchase high value/low intensity care & to avoid low value/high intensity care.
Since treated prevalence has increased, incentives to cut back on medical care may be misdirected unless they encourage
– Behavior that reduces health risks– Primary and secondary prevention– Compliance with best practice
Angus Deaton’s Story
Economist at Princeton Advised to obtain a hip replacement
– 150,000 done each year– Average cost $50,000
Only information on orthopedists was the general rule: “go where the volume is.”
No information on prices – of which there are many Actual transactions prices (and consumer out-of-pockets) were
impossible to know in advance. Nor was he asked if he wanted service x at price y.
Result: impossible to know the total cost in advance. Conclusion: informed consumer decision-making is not trivial
Porter and Teisberg’s competitive ideal for health care
Claim: wrong kind of competition exists – – To shift costs– To increase bargaining power– To capture patients and restrict choice– To restrict services to reduce costs
Right kind of competition– Focuses on value delivered to patients– Based on unlimited competition among providers
Competition base: episode of care for particular medical conditions
Result should be regional & national competition based on who can deliver the most value for patients with particular medical conditions
The Shift Goes On
P and T on Role of Health Plans
Get out of the “denial” business Provide information to support patient and
physician decision-making Reward excellence and value-enhancement for
patients Simplify administrative structure and billing Encourage multi-year contracting
P and T on Role of Employers
Increase benefits that add the most health per $ spent instead of seeking to minimize cost
Support enrollees in making cost-effective long term health care choices & in managing their own health
Hold all stakeholders accountable for using benefit dollars wisely
P and T’s Ideal
“Buy value” is not new. At least 20 years old. Reinhardt: “Porter and Teisberg …offer a
utopian vision of a health system that might occur to anyone possessed with a modicum of common sense but not too familiar with the real world of health care.”
See recent Health Affairs blog for reaction: www.healthaffairs.org/blog
A Few Pertinent Questions
Will P and T’s competition decrease the attractiveness of integrated delivery programs and, thus, further fragments delivery structure along new lines – episode of care products? (Enthoven’s says yes)
Will we find a way to agree on appropriate quality measures and deliver such information in cost-effective ways to those who need the information? P4P helps!
Will stakeholders in the current payment structure give up their advantages to benefit the “greater good”? Wishful thinking
The Skeptics
Reinhardt: “It is naïve to assume that the potential losers … would simply roll over and accept their fate.”
Maynard: “…improved control of expenditures … would oblige physicians, nurses, hospitals, and the Rx industry to moderate their lifestyles.”
Chronic Care Management
Adoption of Clinical Information Technology
The health care world is not yet flat, but we can flatten it
The World is Flat – Thomas L. Friedman Rule No. 1 – Sept 22, 2006 – NY Times “Whatever can be done, will be done- because so
many people now have access to the tools of innovation and connectivity. The only question is: Will it be done by you or to you?”
A Flat World has no barriers to competition: Consumers will seek value and make purchases based on who can deliver it no matter where that provider is located.
Today’s health care world is not flat
Lots of information is available and easily transferable because of online connectivity, but the knowledge to use it is very specialized.
Many barriers to the purchase of such care exist– Travel cost– Lack of Information– Health plan limitations– Poor incentives to seek value
Flatness requires changes in behavior
What are your priorities? Will you go as far to obtain medical care as you would for
– A Packers’ Game– To buy a new car– To shop for a suit or dress ?
A change in incentives would help, but information about quality differences matters too.
– P and T are right about regionalization of tertiary care. We have too many low volume providers of intensive services.
– Leapfrog members have vowed to reward volume since volume is strongly related to cost-effectiveness.
– Sacrifices of local access to obtain more cost-effective care
Some services might be ready for flattening: consider radiology
Patient – Physician relationship does not exist Services can be separated from other aspects of care
management Digital radiography reduces barriers to entry Does it really matter whether a CT scan or an MRI is
read by a Chinese radiologist in Milwaukee, a Greek radiologist in Kansas City or an Indian in Bangalore if the perceived quality is the same?
Does the price differ? Indeed!
Radiology in the Central U.S.
Transactions Price for an MRI Ingenix - Dec 2004 - Nov 2005
-
200
400
600
800
1,000
1,200
1,400
1,600
10th Percentile 25th Percentile 50th Percentile 75th Percentile 90th Percentile
Chicago Cincinnati Cleveland Detroit Indianapolis
Kansas City Mo Milwaukee Minneapolis St. Louis
What can purchasers do?
Educate people about value– Nexium vs. Prilosec – (United Health Care – won’t cover Nexium)
Give incentives to comply with evidence-based, best practice, especially for those with chronic disease– Chronic care improvement model– http://www.improvingchroniccare.org/
Design payment structures to– Encourage people to be healthy and to comply with best
practices (cost-effective care)– Discourage third party payment for cost-ineffective care
Summary
The rise in health care costs will continue. Technology and demographics will propel it.
Oscar Wilde said “Economists know the price of everything and the value of nothing”
Cutler, Thorpe, Porter, Reinhardt, and Maynard beg to differ! So do I.
Summary (Continued)
To obtain the most for our health care $, public policy needs to stop rewarding high cost/ low value care.
If consumers / patients wish lower spending on health care, they must
– accept reduced convenience for some services– reduce their risk of disease– learn to manage the diseases they have– and learn to purchase care that adds value and to not
purchase high cost / low value care.
