Transcript Lecture 6 - Rice University

BIOE 301
Lecture Six
Satisfied with your own life?
Choice 1: yes
Choice 2: no
Choice 3: I prefer not to answer
HW5
100
% Satisfied with own life
90
80
70
60
50
40
30
20
10
0
US
Canada
Germany
India
Angola
Unable to afford food?
Choice 1: yes
Choice 2: no
Choice 3: I prefer not to answer
HW5
100
% unable to afford food
90
80
70
60
50
40
30
20
10
0
US
Canada
Germany
India
Angola
Optimistic that your life will improve?
Choice 1: yes
Choice 2: no
Choice 3: I prefer not to answer
% expressing optimism for life in next 5
years
HW5
100
90
80
70
60
50
40
30
20
10
0
US
Canada
Germany
India
Angola
Review of Lecture 5

Health Systems






What is a health system?
Goals of a health system
Functions of a health system
Types of health systems
Performance of Health Systems
Examples of health systems




Entrepreneurial
Welfare-Oriented
Comprehensive
Socialist
Overview of Lecture 6



How have health care costs changed over
time?
What drives increases in health care
costs?
Health Care Reform in the US – Back to
Oregon
HOW have costs changed
in the US over time?
Centers for Medicare & Medicaid Services
Table 1.1
National Health Expenditures and Their
Share of Gross Domestic Product (GDP), 1960-2010
National health spending growth is projected to significantly increase as a
share of GDP over the next decade.
NHE
Projected NHE
GDP Share
Projected GDP Share
$3,000
Projected
Actual
18%
16%
$2,500
14%
12%
10%
$1,500
8%
$1,000
6%
4%
$500
2%
$0
0%
1960 1970 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Calendar Year
Source: CMS, Office of the Actuary, National Health Statistics Group.
Centers for Medicare & Medicaid Services
GDP Share
Billions
$2,000
Table 1.2
National Health Expenditures Per Capita, 1986-2010
National health spending per capita is projected to increase rapidly over the next decade.
$10,000
Actual
Projected
$9,216
$9,000
$8,228
$8,000
$7,000
$6,926
$6,000
$5,757
$5,000
$5,039
$4,000
$4,177
$3,698
$3,000
$3,183
$2,000
$1,000
$2,477
$1,872
$0
1986
1988
1990
1992
1994
1996
1998
2000
Calendar Year
2002
Source: CMS, Office of the Actuary, National Health Statistics Group.
Centers for Medicare & Medicaid Services
2004
2006
2008
2010
Table 1.12
Number of People Employed in Health Care, 1985-2001
Number of people employed in health is growing.
12
Employment in Millions
10
7.8
8
8.2
8.5
8.8
9
9.2
9.5
9.7
9.9
10
10.1
10.3
6.3
6
4
2
0
1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Health Services Employment as a % of Non-Farm Private Sector Employment
7.8%
8.6% 9.1% 9.4% 9.5% 9.5% 9.4% 9.5% 9.4% 9.3% 9.2% 9.1% 9.3%
Note: Not seasonally adjusted.
Source: Bureau of Labor Statistics, data extracted from web site at data.bls.gov/labjava/outside.jsp?survey=ee. Trends and Indicators
in the Changing Health Care Marketplace, 2002 – Chartbook.
Centers for Medicare & Medicaid Services
HOW have costs changed
in the US over time?
UP, UP, UP (1/7th of the economy)
IN ABSOLUTE AMOUNT
AS A SHARE OF GDP
MORE PEOPLE WORK IN HEALTHCARE
Centers for Medicare & Medicaid Services
WHY have costs gone up
so much?
Centers for Medicare & Medicaid Services
Centers for Medicare & Medicaid Services
Table 3.6
Number of Medicare Beneficiaries, 1970-2030
The number of people Medicare serves will nearly double by 2030.
Medicare Enrollment (millions)
80
76.8
8.6
Disabled & ESRD
Elderly
70
61.0*
60
8.7
50
45.9
39.6*
40
34.3
28.4*
30
20
10
7.3
5.4
68.2
3.3
3.0
52.2
20.4
20.4
25.5
31.0
34.1
38.6
0
1970
1980
1990
2000
2010
Calendar Year
* Numbers may not sum due to rounding.
Source: CMS, Office of the Actuary.
Centers for Medicare & Medicaid Services
2020
2030
Table 3.7
Medicare Beneficiaries as a Share of the U.S. Population, 1970-2030
The U.S. population will age rapidly through 2030, when 22 percent of the population
will be eligible for Medicare.
25
65 & Over
Disabled
22.0%
2.4
Percent of Population
20
18.5%
15.0%
15
10
9.5%
12.1%
1.3
10.8
13.1%
1.2
2.7
19.5
13.9%
1.9
11.9
12.0
1990
2000
2.4
15.8
12.6
9.5
5
0
1970
1980
2010
Source: Social Security Administration, Office of the Actuary.
Centers for Medicare & Medicaid Services
2020
2030
WHY have costs gone up
so much?
Aging population
Use of technology
Centers for Medicare & Medicaid Services
What Drives Increases Costs?

Managed Care

Initially slowed growth of costs
 Slower
adoption of technology
 HMOs reduced hospital cost growth
through controls and limitations on care
 “Drive through” deliveries
Consumer backlash
 Less tightly managed care

 PPOs
 POS
plans
What Drives Increases Costs?

Administrative Costs
US spends 25-30% of health care
budget on administrative overhead
 27% of US health care workers do
“mostly paperwork”
 Canada spends only 10-15%

What Drives Increases Costs?

Technology



New technology can increase/reduce health
care costs
From 2001-2002, new technology was
responsible for 22% of increase
Growth in radiology


$175,000 x-ray machines replaced with CT
machines (>$1M)
Increased utilization of technology increases
costs
4X more PTCAs in pts aged 65-74 from 1990-1998
 Direct marketing of high-tech procedures
http://www.ew1.org/index.aspx?CORE_ElementID=
ew1_Overview

What Drives Increases Costs?

Technology

Cost reductions through increased
outpatient procedures
 Chemotherapy

Low cost cure for Alzheimer’s disease
could reduce nursing home costs
What Drives Increases Costs?

Aging Population
“Baby boomers” will strain health care
system
 Felt most in 2011-2030
 Greatest single demand country has
ever faced for long term care
 Elderly account for much of health care
spending

 40%
of short term hospital stays
 25% of prescription drug use
 58% of all health expenditures
What Drives Increases Costs?

Prescription Drugs
Fastest growing category of health
spending
 Some reasons:

 Direct
marketing of drugs to the general
population (increased costs, increased
usage)
 Drug company profits
Back to Oregon

How did Oregon state respond to the rise in
health care costs?


Coby Howard’s death: widespread media
coverage
John Kitzhaber
Former ER physician
http://www.morrisverdin.co.uk/Oregon State senator
map.gif
 Governor of Oregon
 Oregon cannot afford to pay for every medical
service for every person
 Oregon could expand insurance to cover all IF it was
willing to ration care

Health Care Reform in Oregon

1989 – Goal of Universal Coverage


At that time only 42% of low-income
Americans were covered by Medicaid
Bill passed:
Mandated private employers provide insurance for
employees (never received federal waiver
necessary for implementation)
 Expanded Medicaid to provide coverage for all
people in state below federal poverty line
 Would expand Medicaid coverage by rationing care

Health Care Reform in Oregon

How were services ranked?



Appointed Health Services Commission
List of 709 condition/treatment pairs
First try at ranking


1600 health services
Ranked according to cost-effectiveness
CostofTreatment
priorityra ting 
NetExpectedBenefit  Durationof Benefit


Resulted in counter-intuitive ranking
Negative public reaction
Results of First Ranking
Treatment
Benefit Duration
Cost
Ranking
$38
371
Tooth Capping
.08
4 years
Ectopic Pregnancy
.71
48 years $4,000
371
Splints for TMJ
.16
5 years
$98
376
Appendectomy
.97
48 years
$5700
377
Some life saving procedures ranked below minor interventions!!
Health Care Reform in Oregon

Back to the drawing board


Divided 709 condition/treatment pairs into 17
categories
Ranked categories according to net benefit
1 – Treatment of acute life-threatening conditions
where treatment prevents imminent death with a
full recovery and return to previous health state
 14 – Repeated treatment of nonfatal chronic
conditions with improvement in quality of wellbeing with short term benefit


Assigned condition/treatments to categories
and ranked within category
Health Care Reform in Oregon

How were services rationed?

Each session legislature would decide how
much $$ to allocate to OHP. Draw line –
Cover all services above the line
 Cover no services below the line

Where do they draw the line?
Oregon Health Plan, 1999
Rank
Diagnosis
Treatment
570
Contact dermatitis and atopic dermatitis
Medical therapy
571
Symptomatic urticaria
Medical therapy
572
Internal derangement of knee
Repair/Medical therapy
573
Dysfunction of nasolacrimal system
Medical/surgical treatment
574
Venereal warts, excluding cervical condylomata
Medical therapy
575
Chronic anal fissure
Medical therapy
576
Dental services (eg broken appliances)
Complex prosthetics
577
Impulse disorders
Medical/psychotherapy
578
Sexual dysfunction
Medical/surgical therapy
579
Sexual dysfunction
Psychotherapy
Did it Work?

No widespread rationing



Number of services excluded is small and
their medical value is marginal
Benefit package is now more generous than
state’s old Medicaid system
Coverage for transplants is now more
generous
Did it Work?

Line is rather fuzzy



Plan pays for all diagnostic visits even if Rx is
not covered
Physicians use this as a loophole
Has not produced significant savings

During first 5 years of operation, saved 2%
compared to what would have been spent on
old program
Did it Work?

Coverage was significantly expanded


600,000 previously uninsured were covered
State’s uninsured rate dropped from:






17% (1992)
11% (1997)
Number of uninsured children dropped from 21% to
8%
Reduced # of ER visits
Reduced # of low birth-weight infants
How did they pay for this?



Not from savings from rationing
Raising revenues through cigarette tax
Moving Medicaid recipients into managed care plans
Political Paradox of Rationing
The more public the decisions about
priority setting and rationing,
The harder it is to ration services to
control costs.
Oregon Today


Oregon economy is weak
Oregon Senate Special Committee on OHP

People qualified for plan would be ranked





1st: Poor pregnant women, children under 6 in families with
incomes less than twice federal poverty level
2nd: Adults at 50% of federal poverty line
3rd: Adults at 50-75% of federal poverty line
4th: Adults at 75-100% of federal poverty line
5th: Medically needy (limited income, high medical expenses)

Those highest on list would be first to get services
Those at the bottom of the list would be first cut

http://www.npr.org/news/specials/medicaid/index.html

Summary of Lecture 6
How have health care costs changed
over time?
 What drives increases in health care
costs?
 Health care reform – back to Oregon

Assignments Due Next Time

Exam 1


February 2nd
Practice Exam is available under student
resources