1. Market-based Healthcare Reform 14 ways to increase competition, improve quality and reduce cost January 2014 A billion dollars here, a billion dollars there, and pretty soon you're talking real money. -Everett Dirksen U.S. Senator 1951-69

2. Introduction Healthcare was a mess long before Obamacare came along. Its a complicated problem, but reform really is possible. Its just hard politically. The next steps in reform need to clearly separate the two objectives of driving access to care and driving efficiency of care (quality of healthcare per dollar spent). Both are noble objectives, but they are not the same. The Patient Protection and Affordable Care Act (aka Obamacare) focused almost entirely on expanding access to care, but it was sold as equal parts access and efficiency improvement. The GOP will never be able to toss out all of PPACA, nor should it try. Rightly or wrongly, some of the access improvements (e.g. elimination of pre-existing conditions exclusions) are far too popular to toss. The huge opportunity is in reforms to drive efficiency. The most efficient industries are the ones with the most competition for customers cars, electronics, transportation, energy. Healthcare is inefficient because it lacks true competition for our business. Lack of supplier and customer incentives are largely to blame. These incentives have begun to change, but the change has only just begun. Increasing incentives and eliminating the many barriers to true competition in healthcare are the secrets to improving efficiency. What follows are some new and old ideas for accelerating the changes that will bring better health outcomes per dollar. 3. How bad is the problem? 4. Ugly Facts Comparisons2 Norway #2-- $5,400/person, 9.6% of GDP (Norway is wealthier per capita than the U.S.) Germany #7-- $4,200/person, 11.6% of GDP OECD Median-- $3,200/person, 9.5% of GDP Annual U.S. healthcare spending is $2.9 trillion, $9,216/person This is about 18% (over a sixth) of our economy6 No other nation comes close to these levels, even adjusting for wealth differences1 5. American Exceptionalism U.S. healthcare spending vs. OECD countries2 OECD is the Organization for Economic Co-operation and Development, consisting of 30 countries considered high-income, and developed. It was established in 1948. 6. We pay a big premium for our healthcare Are we getting our moneys worth? Life Expectancy U.S. ranked 23rd out of 30 within the 30 OECD nations1 Cancer survival (5-year survival rate vs. OECD Median2) Breast - 5% better Cervical - 2% worse Colorectal - 3% better Ischemic stroke survival2 Better Hemorrhagic Stroke survival2 Worse Acute Myocardial Infarction survival2 Better Asthma mortality (Ages 5-39)2 Worse Diabetes, Lower extremity amputations2 Worse 7. The Myth of Employer Health Plans My company provides my health benefits, so the increases dont affect me. Reality Rising Benefit costs put downward pressure on Salaries Cost of an Employee = Salary + Benefits Ballooning healthcare costs disadvantage U.S. companies GMs healthcare costs add $1.5-$2.0K to the cost of each vehicle3 GMs global competitors do not have this problem 8. Healthcare Costs vs. Wages Cumulative active employee health care cost increases vs. wage increases Source: Towers Watson Health Care Cost Survey 2010 (active employee data) and Bureau of Labor Statistics, seasonally adjusted data from the Current Employment Statistics Survey August to August, 2000 2009 9. Where does the money go?9 2013 Total $2.9 Trillion $899 Billion $580 Billion $290 Billion $203 Billion $203 Billion $174 Billion $551 Billion Hospital Services Other Physician Services Prescription Drugs Dental, Other Professional Admin Long term Care 10. Opportunities Hospital Services Physician Services Prescription Drugs Malpractice and Defensive Medicine Diagnostic Imaging Services 11. Hospital Services2 U.S. hospitals cost per discharge is more than triple Germanys Matching the OECD Median would save $487 billion/year *** 12. Physician Services2 Premium pay is a big component of over spending Savings potential: $118-239 Billion/year 13. Prescription Drug Pricing Enormous differences in prices of identical drugs across borders2 14. Excessive Costs for Diagnostic Imaging Higher utilization and higher pricing of CT & MRI exams2 15. The Self-Referral Problem When referring Physicians own an MRI machine their patients get more MRI exams. 12 Press Release, November 30, 2011 CHICAGO Physicians who have a financial interest in imaging equipment are more likely to refer their patients for potentially unnecessary imaging exams, according to a study presented today at the annual meeting of the Radiological Society of North America (RSNA) During [2000-2006 study period], private office imaging utilization rates by non- radiologists who control patient referral grew by 71 percent There were 86 percent more negative scans in the FI* group than the NFI** group, indicating a significantly higher number of potentially unnecessary exams * FI Group patients whose physicians had a financial interest in the MRI **NFI Group patients whose physicians did not have a financial interest in the MRI 16. How bad will it get? Projections for family of four with employer-sponsored healthcare 8 17. Growth of 3.9% since 2009 (Inflation = 1%, GDP growth = 2%) If ACA works as advertised, it wont solve the cost problem. Healthcare spending growth is expected to accelerate as baby boomers retire and ACA is implemented But the cost curve is bending isnt it? Growth slowed since 2009 (fewer people employed, higher deductibles) Its getting worse less quickly, but the good news wont last. 18. We are in hot water! If you put a frog into a pot of boiling water, it will leap out right away to escape the danger. But, if you put a frog in a kettle of cool water and gradually heat the kettle until it starts boiling, the frog will not become aware of the threat until it is too late. The frog's survival instincts are geared toward detecting sudden changes. Excessive healthcare cost growth has been the norm for decades. The water is getting hot. Lets not be frogs! 19. How can we fix it? 20. Healthcare Lacks Competition In other markets We shop around; we get competitive bids; we go to Costco. We compare prices and customer ratings We love getting a great deal and were good at it. In the healthcare market We make $10,000 purchase decisions without pricing or quality data We often pay no more when the price is higher. The payer does! We lack the incentive and the info to shop around, so we dont. Buyer incentives and provider transparency are the keys 21. Could greater competition reduce healthcare costs and improve quality? Is healthcare special, not governed by normal market forces? NO! What would allow market forces to work in healthcare? Customer Incentives Everyone needs a reason to care about the true cost of their care Catastrophic care coverage with high deductibles Transparency Quality - Reliable data on outcomes, complication rates, patient satisfaction Price - Up front information on the total price of care Fewer Barriers Eliminate unnecessary rules that restrict new competitors 22. The Payoff Of a $1 trillion reduction in health spending. Puts more money in consumers pockets Improves competitiveness of U.S. companies Levels the playing field vs. global competitors Reduces deficits and debt Enables investments Healthcare for the poor Upgrading the energy grid Building roads and bridges But how? 23. Which way do we go? 24. If U.S. healthcare spending per person was equal to Germanys, we would save over $1 trillion/year* * Difference between the U.S. and Germanys health spending per capita(2) X U.S. population (311 million) Reform does not mean sacrificing. It means cutting waste. If we matched the OECD Median, savings would be $1.5 trillion/year. 25. YES, EASILY! Can we afford to reduce healthcare spending by $1 trillion/year? $1 trillion reduction is $3,200/person Spending would go to $6,000/person This is the 2002 level (inflation adjusted) 26. 14 Market-based Reforms 27. Change Incentives to Unleash the Consumer When people have no reason to save resources, they waste them. Reward patients for cost effective health choices People who make financially irresponsible choices in managing their health should pay more than people who dont. e.g. Medication non-compliance, smoking, a sedentary lifestyle 1. Reduce the role of third party payers by reducing regulations Reduce the individual mandate to catastrophic events only Less mandated coverage means more consumerism, more competition Take the third party payer out of routine, predicable healthcare spending 2. Eliminate the tax distortion of employer health coverage It hides the true costs from employees Shift the money to employees & let them decide what insurance to buy 28. Reform the Third Party Payment System 3. Allow Insurance companies to compete across state lines Consumer choices are unnecessarily limited Current regulations prevent this, benefiting no one except large insurers 4. Increase Medicare copayments for those who can afford it. Medicare Part B average copayment rate has fallen by nearly half during the past 35 years. 5. Provide beneficiaries with a defined level of support and allow them to purchase insurance. Beneficiaries may choose health plans with lower premiums but higher deductibles and/or coinsurance than those in traditional Medicare. Similar model to the Medicare prescription drug coverage Similar to proposal by Rep. Paul Ryan (R., Wis.) and Sen. Ron Wyden (D., Ore.) 29. Increase Transparency of Information on Healthcare Value 6. Prices of healthcare services must be communicated to patients and/or family Require providers to give patients a Good Faith Estimate of all charges to enable comparison shopping Life-threatening emergencies must be an exception 7. Quality and Outcomes data must be standardized, reported, and made accessible to patients via web Imperfect data is better than no data Data integrity and granularity will improve over time 30. AMA controls the supply of U.S. physician labor4,5 Beyond defining education standards, AMA controls med school enrollment AMA has a financial interest in keeping physician supply low Shortages reduce competition, raising the cost of medical education, driving up physician salaries If U.S. physician pay aligned with the UK, it would save $118 billion/yr If pay aligned with Germany, it would save $239 billion/yr 8. AMA should draft education standards, but should not be allowed to influence the number of students enrolled or the # of medical schools 9. We must ease restrictions that make it difficult for internationally trained physicians to practice medicine in the U.S. The powerful American Medical Association restricts the supply of physicians which bids up their compensation. Eliminate Competitive Barriers due to Special Interests: Physician Supply 31. Eliminate Competitive Barriers due to Special Interests: Pricing Create Transparency in Setting Medicare Prices13 AMAs Relative Value Update Committee (RUC) controls the Medicare price list (Physician Fee Schedule) RUC holds secret, closed door meetings three times a year to adjust prices paid by Medicare and followed by many private payers Meetings are invitation only, among AMA members Once prices are set, there is no transactional price competition for Medicares business 10. The price-setting process should be externally audited with results published 11. RUC Meetings should be open to the public with attendee lists and meeting minutes published 32. Reducing U.S. Prescription Drug Prices Unlike oil, prescription drugs do not have global market-driven prices U.S. prices are almost double international prices2 (Median of countries from following slide) Many countries (e.g. Canada) cap prescription drug prices High R&D spending by pharma companies is funded by higher U.S. drug prices Re-importing U.S.-made drugs from low price countries is illegal 12. There are three reform options, each with risks A. Medicare as price leader, negotiates prices that align with OECD markets B. Legalize re-importation of U.S. drugs from low cost markets back to the U.S. C. Shorten the duration of drug patents to speed availability of low cost generics 33. Medical Malpractice and Defensive Medicine Overall annual medical liability system costs, including defensive medicine, are estimated to be $55.6 billion* in 2008 dollars, or 2.4 percent of total health care spending. 7 * Estimated total cost, not incremental vs. other nations 13. Cap jury awards to reduce the direct and indirect costs of malpractice litigation. 34. Diagnostic Imaging More frequent tests and higher pricing costs up to $67 billion/year U.S. doctors order CT & MRI scans at double the rate of physicians in other nations2 U.S. Prices for CT and MRI exams are nearly double international prices2 Stark Law was created to eliminate the self-referral problem Stark has huge exceptions11 that make it ineffective Eliminating self-referral would save tens of billions of dollars 14. Self-Referral and its overutilization of resources must be reduced by adding teeth to the Stark Law More specificity in its application, greater penalties for violations 35. Waking up the Lions Tackling a trillion dollars of entrenched spending will be a tough fight. These changes would threaten powerful special interests American Medical Association (AMA) Pharmaceutical Research and Manufacturers of America (PhRMA) Many, many others Reforms would be spun as Healthcare Armageddon Special interests will turn both parties against market- based reforms Remember Death Panels? There are risks and challenges in each of these changes These are implementation issues, not justifications for inaction! None are as big as the risk of not changing 36. American consumers are lions too! If we want cost reform, we should start now. Runaway healthcare costs must become a big voter issue Wheres the GOP Plan and sense of urgency? Demand a plan Obamacare adds to the cost problem Which type of cost reform do you want? Value-enhancing competition Single payer government system The current path is the worst possible option Start asking for prices before you make decisions Huge differences in prices exist e.g. MRIs can vary by 400% Its OK to shop around! We can can save money right now 37. Imagine Consumers with the information and the incentive to choose healthcare services based on price, quality, outcomes, and patient satisfaction data. Doctors and hospitals competing with each other to earn our business. Those providing excellent care at reasonable prices thrive and prosper. Others improve or go out of business. A trillion dollars of hard dollar cost savings to fund expanded patient access, invest and reduce debt. An innovative, efficient healthcare market costing 12% of GDP. This is not radical change! Many markets work this way and 12% of GDP is plenty (almost $2 trillion). 38. Sources 1. McKinsey Global Institute publication, Accounting for the Cost of U.S. Healthcare: A New Look at Why Americans Spend More, December 2008 2. Commonwealth Fund publication, Issues in International Health Policy, May 2012 3. Healthcare Costs and U.S. Competitiveness, Council on Foreign Relations, March 26, 2012 4. Forbes Magazine, The Evil-Mongering Of The American Medical Association August 26, 2009, Shikha Dalmia 5. The Medical Cartel: Why are MD Salaries So High?, Mark J. Perry 6. Assoc. Press, July 28, 2011. U.S. health care spending to reach $13,710 per person by 2020, government says 7. National Costs Of The Medical Liability System, 2010, Health Affairs. http://content.healthaffairs.org/content/29/9/1569.abstract 8. Center for American Progress, September 15, 2009. http://www.americanprogress.org/issues/2009/09/family_health_spending.html 9. Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group, 2009 10. Diagnostic Imaging Regulations Possible Benefit to Hospitals, Hospitals & Health Networks, Scott Clay and Gregory Milton, February 9, 2009. http://www.hhnmag.com/hhnmag_app/jsp/articledisplay.jsp?dcrpath=HHNMAG/Article/data/02FEB2009/0 90203HHN_Online_Clay&domain=HHNMAG 11. Exceptions to the Stark Act. http://starklaws.uslegal.com/exceptions-to-the-stark-act/ 12. Press Release: Self-referral leads to more negative exams for patients November 30, 2011. Matthew Lungren, M.D., Sin-Ho Jung, Ph.D., and Peter Kranz, M.D. http://www.eurekalert.org/pub_releases/2011- 11/rson-slt111711.php 13. The Secret World of Healthcare Pricing, Marketplace, NPR, June 11, 2012. http://www.marketplace.org/topics/life/health-care/secret-world-health-care-pricing 14. The Wrong Remedy for Healthcare, June 28, 2012. John F. Cogan, R. Glenn Hubbard, Daniel P. Kessler 15. Reuters, No matter who wins, theres still a healthcare cost crisis, Reihan Salam, October 1, 2012 39. Market-based Healthcare Reform 14 ways to increase competition, improve quality and reduce cost January 2014 A billion dollars here, a billion dollars there, and pretty soon you're talking real money. -Everett Dirksen U.S. Senator 1951-69