Transcript PHARMACY AND THE HEALTH CARE STSTEM

Pharmacy and the Health Care
System-Fall 2005
Lee R. Strandberg, Ph.D.
Emeritus Professor
Pharmacy Economics and Pubic Health
&
Director, Managed Care Pharmacy
Samaritan Health Services
What is this course about?
I. Pharmacy and the Health Care
System

Pharmacy and its Relationship to the
Health Care Delivery System
 II. Health Economics
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What causes medical care spending
to increase?
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Who pays for medical care?
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Health Economics -con’t.
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Why is the cost of producing health such an
important political issue all over the world?
 How do other countries provide and pay for
medical care?
 What are some of their problems?
 What influence does organizational structure
and insurance have on demand for medical
care?
I. Pharmacy and the Health
Care System
What is a Professional
 The Five Elements of a Profession
 The Importance of Client Trust
 Professional and Business Ethics

What is a Professional
Expected to exercise special skill and
care
 Has clients not customers
 Places client’s interest first
 A customer determines services/goods
wanted
 Prof is held to a higher standard of
behavior

The Five Elements of a
Profession
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1. A Body of Knowledge
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Profession controls its training centers
One of its associations accredits academic
programs
Controls admission into the profession
Convinces the community that no one is allowed
the professional title unless conferred by accredited
academic program
State establishes licensing and or examination
The Five Elements of a
Profession

2. Professional Authority
Client acknowledges the superior
competence of the professional
 Client surrenders a portion of own
autonomy to the professional
 Client trusts the professional’s judgement
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The Five Elements of a
Profession
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3. Community Sanctions
Include restrictions on use of a professional
title
 Licensure requirements imposed by the
State
 Accreditation of academic programs
 Granting professional privileges ie., duty (
right) to respect client confidentiality
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The Five Elements of a
Profession
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4. Code of Ethics
Virtually all professions have one
 May or may not be as important today as
they once were
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The Five Elements of a
Profession
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5. Professional Culture
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Every profession operates through a formal and
informal network
These networks produce the single attribute that
differentiates professions from other occupations:
Values, Norms and Symbols
Value: Central beliefs of a profession
Norms: Accepted ways of social behavior within
the profession
Symbols: Recognized insignia
The Importance of Client Trust

Prof. Authority may be most important
 It originates when clients place trust in the
professional to make decisions
 Professional, in return, implicitly promises to
act in client’s best interest
 “Social action depends on there being mutual
reciprocal expectations as to how people are
likely to act, and on these expectations not
being too often disappointed”
Professional versus Business
Ethics
Are you viewed primarily as a
professional or business person
 People will view you differently, one or
the other or both
 Health care providers have to be both at
the same time to meet patient needs
 Health care is both an economic good
and special social relationship

Major Elements of Health Care
System: Sources of Conflict
Consumers
Financing
Mechanisms
Private
Public
Health Care
Providers
Secondary
Providers
Academic ,
Associations
Health Care Organizations by
Type of Ownership
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Unmanaged Indemnity
Managed Indemnity (PPO Plus Indemnity)
IPA HMO
Staff HMO
PHO HMO
Physician owned HMO
????
System Composition and
Characteristics
SYSTEM COMPOSITION
Providers
 Purchasers
 Regulators
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PROVIDERS
People
 Organizations
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Hospitals
 MCOs
 PPOs
 Clinics
 PBMS
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PURCHASERS
Self Insured Employers-Private Sector
 Government - Medicare/Medicaid
 Insurance Companies/Agents
 Insurance Brokers/Insurance
Consultants
 Business Coalitions on Health
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Regulators
Board of Pharmacy
 Food and Drug Administration (FDA)
 Drug Enforcement Administration ( DEA)
 Elected State and Federal Legislators
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Determinants of Health
Physical Environment-Food, Housing...
 Social Environment-Education,
Income…
 Biological Status-Age, Sex, Genetics
 Health Services-Delivery System,
Technology, Prevention
 Behavior
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System Characteristics
Five Basic Characteristics of the
Health Care System
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1. Respond to Incentives (people and
organizations
2. Quality and Quantity are infinitely expandable
3. Provider Incentives lean to high tech, high cost
4. Consumer is a poor judge of health care quality
5. Full Insurance Coverage increases use of
services
Evolution of National Health
Policy
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Six Stages of National Policy
1.
 2.
 3.
 4.
 5.
 6.
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The Beginning
Categorical Grants in Aid
Decades of Investment
Organization and Delivery of Service
Decade of Transition
Managed Care Era
The Beginning
Original Federal role was minimal in late
1700s
 Fed took responsibility for health care of
military
 Quarantine was responsibility of each
sea port
 Local officials could not enforce
quarantine regulations
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The Beginning
Major Debate Centered on State Vs
Federal Rights
 Who Should be Responsible for Public
Health
 Debate Ended in Court Ruling in 1893
 Debates Started in Court in 1796
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The Beginning
The System is still slow to respond
 Government moves into areas ignored
by the market
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Categorical Grants (1935-1945)
2nd Stage
1930’s focused attention on public health
issues
 States could not handle public health
problems
 Social Security Act of 1935 addressed
some of these issues
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Social Security Act
Originally was Social Health Ins. Act
 Provided money for
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child health programs
 establish and maintain various public health
programs
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Social Security Act
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Two consequences
1. Decision making shifted from local to
national
 2. Increased involvement to non health
professionals in health issues
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3rd Stage. Decades of
Investment (1946-1962)
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The need for investment in basic health
resources became evident
 Congress passed the Hill Burton Act-1946
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Funded 4,000 health buildings (hospitals etc..)
Mandated that hospitals give free care for 20 yr..
Cost $ 4 billion
Decades of Investment
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Congress also funded medical research
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cancer, heart, mental health…
Decades of Investment
Belief at that time was spending on
developing health resources
 Would increase access to care
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However, it did not increase access
 Problems remain with uninsured, rural poor,
urban poor, rural in general
 Providers tend to locate around population
centers
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4th Stage: Organization and
Delivery of Services (1963-1966)
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Three major themes
1. Provide Consumers with money to buy
health care
 2. Emphasis on organization and delivery
of care
 3. Emphasis on health care planning as a
means to control costs
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Medicare. Amendment to
Soc......... Sec Act in 1965
Targets those over 65 (can qualify for
some features even if younger)
 Is an insurance program
 Is a Federal Program

Medicare Part A Covers
Hospital Stays
 Skilled nursing facility care
 Some Home Health Care
 Hospice Care
 No Premium
 $110 Deductible-2005
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Medicare Part B Covers
Doctors’ Services
 Outpatient hospital services
 Home health care
 Monthly Premium $78.20-2005
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Medicare Part D-Prescription
Drugs
Drug Program Effective Jan 2006
 Monthly premium-$35
 Beneficiary pays first $250 in drug costs
 Pays 25% of total drug costs between
$250 and $2,250
 Patient pays 100% between $2,250 and
$5,100 (donut hole)
 Pay greater of $2 for generics, $5 for
brand or 5% ($3600 out of pocket)
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Part D Low Income Assistance
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Medicare now covers Rxs for eligibles on
Medicaid
State must pay fed back for this (clawback)
Those below 100% of poverty pay $1-$3 co
pay
Those above 100% will pay $2 $5 co pays
Medicaid eligibles pay no premium or
deductible and no drug costs above $3,600
out of pocket
Part D-con’t
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Any Medicare eligible can enroll-benefit is voluntary
Can’t have other Rx coverage ie Tricare
Qualified retiree health plans with Rx coverage equal
to Part D will receive subsidies of 28% of costs for
coverage above $250 and up to $5,000per Medicare
enrollee
Benefit delivered through private health plans and
PBMs
Act requires that plans cover at least 2 drugs in each
therapeutic class
Medicare hired USP to develop a formulary
They proposed covering 146 classes, PBMs say that
is too many, PhARMA says it is not enough
Part D Costs
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Initial CBO estimate was $400 billion (10 years)
 True Cost projected to be $540 billion
 Typical 65 yr old with drug benefit will spend 37% of
Social Sec Inc on Medicare premiums, co-payments,
and out of pocket expenses in 2006
 Will grow to 40% in 2011 and 50% by 2021
 Medicare prohibited from negotiating with drug manuf
for best price ie., VA and State of Maine.
Drug Discount Cards 2004-2005
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Patient pays 100% co pay-a discount price
Card sponsors are private companies ie PBMs. AARP
, Chain Drug stores
72 originally approved by CMS
Low enrollment because of confusing sign up
procedures
May have an annual enrollment fee of up to $30
Gvt subsidies of $600 to individuals making less than
$12,569 or couples $15,862/year
Rx Drug Coverage and Seniors
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2003 Data
 Four in 10 did not take all drugs prescribed due to
cost, side effects, perceived lack of effectiveness, or
believe that they did not need the med
 27% lacked Rx coverage (will be covered under Part
D)
 Half have more than one MD
 36% more than one pharmacy
 26% skipped taking meds because of cost
 12% spent less on basic needs because of med costs
Medicare Comparative Cost
Adjustment Program
Establishes a test competition between
local private Medicare plans and
traditional Medicare starting in 2010
 Comparisons will run for 6 years
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Medicaid. Amendment to
Soc......... Sec. Act in 1965
Targets needy and low income of any
age
 Is an assistance program
 Is a federal state partnership
 Provides financial assistance-varies by
state Fed match varies between $1 and
$3.89 Fed 2005
 Covers 51 million people-more than one
out of every 6 Americans (2005)
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Medicaid
Congress recently limited the number of
years a person can be on Medicaid (able
bodied adult)
 Covers out patient medicine
 Define inpatient, outpatient, ambulatory
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Medicaid and Medicare
Did not address organization and
delivery of health care services
 Provider Compensation was usual and
customary (fee for service)
 Did not promote efficient use of limited
health care resources
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Fifth Stage: Decade of Transition
( 1967-1987)
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Addressed Development of
Comprehensive Delivery Systems
1. Professional Standards Review
Organizations (PSRO)
 2. Health Maintenance Organization
(HMO)
 3. Preferred Provider Organization (PPO)
 4. Pharmacy Benefit Management
Companies (PBMs)
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(1) PSRO -Amendment to Social
Security Act
Passed in 1972 by US Congress
 Purposes
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1. Review health care paid for by Medicare
and Medicaid
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Review Quality
To Assure Appropriate Utilization of Services
PSRO- CON’T
Non profit organizations funded by US
Gvt
 Hired nurses and physicians to review
hospital charts
 Could deny payment to providers for
cause
 Probably cost more than they saved
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PSRO-CON’T --PROs
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Were replaced by Professional Review
Organizations (PRO)-1983
PROs still in operation
Oregon Medical PRO (OMPRO)-1220 SW
Morrison PDX
OMPRO does Medicaid and Medicare and
Private Sector Reviews
Does disease specific studies (asthma,
anticoagulation...
PROs
Much of its work already being done by
current managed care organizations
 But remains an independent verification
of work done by others
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(2) HMO Act of 1973
Signed into law by Richard Nixon-was
his cost Mgt. agenda
 Provided start up $$ to small HMOs
 $364 million provided by feds
 Regence HMO started this way via
Capitol Health Care in Salem mid 1970s
 Purpose was to stimulate development
of cost management
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HMO Definition
An organization which assumes
 Responsibility for financing and
developing
 Comprehensive package of health
benefits
 Guarantee to provide care to an enrolled
Pt. population
 For a fixed prepaid premium
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HMO Vs Indemnity Insurance
(Major Medical)
HMO is an insurance CO + a delivery
system
 Major Med is only an insurance company
 Indemnity (to protect against loss)
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HMO Vs Indemnity Insurance
HMO guarantees to provide health care
services
 Major Med-you find your own health care
providers
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no network of ;pharmacies/hospitals or
doctors...
Capitation Vs FFS
Capitation-Providers receive a fixed,
monthly payment for each primary
patient
 FFS Providers receive a fee for each
service provided
 How does provider payment drive
behavior???
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How did Health Insurance Start?
Baylor Univ............. hospital in Dallas
Texas 1929
 Local teachers paid for hospital and
physician services in advancem,
 Was beginning of Blue Cross Blue Shield
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How did HMOs start?
Grand Coulee Dam Project -1930s
 Kaiser Construction Company needed
health care for workers
 Spun off as a separate company after
W.W.II
 Group Health Coop-mid 1940s Seattle
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A true consumer CO-op
Three Major Types of HMOs
Staff
 IPA (Independent Practice Assoc.........)
 Group
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Staff HMO (i.e............, Kaiser)
Salaried MD, RPh, Nurses
 Owns on hospitals/clinics
 In House Pharmacies
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Does not contract out for pharmacy services
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-such as using community pharmacies
IPA ( i.e., Good Health Plan)
Independent physicians, alone or in
groups
 Contracts out for pharmacy service and
all other providers
 Physicians paid on a fee schedule and/or
risk assumption
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Group Model (i.e............, Pacific
Care)
Contracts with medical clinics (exclusive)
 Contracts out for pharmacy services and
all other providers
 Physicians paid on a fee schedule and/or
risk assumption
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POS-Point of Service Model
Variation of all previous models
 Allows patient to select non panel
providers and pay more
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HMO Issues from
Consumer/Provider/Purchaser Viewpoint
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Patient
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Purchaser
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wants rich benefit package/low cost/high
quality
wants rich benefit package/low cost/high
quality
Provider
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high quality and high income
Various HMOs
Cigna (Ins. CO.)
 Regence (BCBS-Or)Network
 CareOregon (Academic)
 Good Health Plan ( Sisters of
Providence)
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Various HMOs
Select Care
 ODS HMO (Ins. CO.)
 Mid Valley IPA-Salem.
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HMO Growth-Market Share
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Overhead
What Tools are used by Managed Care and
Employers to Manage Costs?
Lower Hospital Admissions
 Drug Formularies (list of drugs pd for by
HMO)
 Treatment Protocols
 Prescribing Protocols (what to prescribe)
 Providers at Financial Risk-Changes
treatment patterns/incentives
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Cost Mgt Con’t
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Centralized Data Analysis
 Profile Physician treatment/prescribing
patterns
 Hospital Contracting (fixed payments/bed
days)
 Patient Profiling
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Disease management-Osteoporosis example
Pharmaceutical Care
Drug Use Review
(3) Preferred Provider
Organizations (PPO)
Contractual arrangement among
providers
 and employers, / ins. companies..,
 to provide services to a defined pop. of
patients
 at established fees
 Does not assume financial risk
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PPO Examples
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Provider networks
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pharmacies
hospital
doctors
Paid FFS, but less than usual and customary
 PPOs were formed to increase sales volume &
 to protect market share of participating
providers
4.(PBMs)
Pharmacy Benefit Mgt. CO.
 For and non profit corporations
contracted to
 Manage the pharmacy benefit for
 Insurance companies/MCOs/private
employers, Gvt
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PBM Examples
1. Advance PCS
--Originally owned by McKesson Wholesale
Drug CO, Eli Lilly then Rite Aid
 Merger with Caremark underway
2. Medco-PAID Prescriptions
 Originally owned by Calif. Pharmacists
Association
 Spun off in the 1960s by CPHA via action
from US Justice Dept....
 Bought by Merck, then spun off as a
separate company in 2004
PBM Examples-CON'T
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Diversified Pharmaceutical Services
(DPS)
Originally owned by United Health CareMinneapolis
 Then by Smith Kline Beecham-UK
 Now ??
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Federal Trade Commission
(FTC) and PBMs (1998)
Sen. Wyden requested FTC investigation
re monopoly-restraint of trade
 Apparent conflict of interests when PBM
owned by pharm. manuf.
 Will PBM tend to push use of own
products v those made by other manuf?
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PBM’s –Unregulated Private
Monopoly?
Top 3 PBM’s will have 80% of all Rx
business
 Exec from PCS-Caremark merger said it
will increase their leverage with Rx
manuf.
 Creighton School of Pharm study-Dr.
Garis.
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Sixth Stage: Managed Care Era
(1988-Present)
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Definition: Systems, programs or actions
aimed at controlling health care utilization,
costs and promoting quality improvement
 Goals:
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To foster competition among providers and plans
To incorporate provider risk and incentives to
promote efficiency
To improve and document patient outcomes
To develop critical pathways designed to improve
patient outcomes
Managed Care Organizations (MCOs)by
ownership (MCO is new name for HMO)
Hospital-Sisters of Providence-The Good
Health Plan
 Insurance Company-HMOO-Blues
 Staff Model-Kaiser/Group Health
Cooperative
 Physician-COIHS/Family Care
 Academic Medical Center-CareOregonOHSU
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Today’s MCOs Possess:
Superior data analysis technology
 More Provider risk assumption
 More emphasis on medical outcomes
 Enhanced purchaser sophistication
drives more accountability
 Superior Medical and Drug Technology
 www.vips.com/ MC Source
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Health Insurance Continuum
1. Pure Indemnity
 2. Modified Indemnity
 3. PPO
 4. PHO/ Group IPA HMO
 5. Staff “Pure HMO”
 6. Equity HMO
 7. Consumer Choice Model/Medical
Savings Accts www.myhealthbank.com
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1. Pure Indemnity
No Utilization Review
 No Provider Selection
 Total Freedom of Choice
 FFS Payment
 Experience Rated
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2. Modified Indemnity
Preadmission certification for hospital
admissions
 Concurrent Review
 Second Surgical Opinion
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3. PPO
Physician Profiling
 Providers selected to participate in the
PPO
 Consumer Incentives to limit choice of
providers
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4. PHO (physician hospital
organization)/Group IPA
Formal Peer Review
 Provider Panel in place
 Payment to providers using
withholds/Capitation
 Community Rated
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5. Staff HMO (Kaiser)
Formal peer review
 Uses Protocols
 Providers are employees/on salary
 Group Practice
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6. Equity HMO (MidValley IPASalem)
Formal Peer Review, Protocols
 Provider Panel
 Profit Sharing among docs
 Owned by Doctors
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7. Consumer Choice –Medical
Savings Accts
www.myhealthbank.com
 Offers consumers a variety of choices to
meet individual needs
 MSA accts-pay for health care with pre
tax dollars
 Pharmacy example

Factors Causing Delivery
System to Change
1. Declining Hospital Use
 2. Purchaser Pressure to reduce
costs(Public and Private)
 3. MD numbers
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1. Declining Hospital Use
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Diagnosis Related Groups (DRG Payment
System)
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Fixed Fees for hospital services regardless of
hospital costs
Increased outpatient services
 Public Lifestyles (wellness…)
 Incentives to physicians to not use hospitals
 Growth of Managed Care
Purchaser Pressure to Manage
Costs
Increased contracting by employers with
HMOs
 Increased demand for
performance/accountability
 Increased employer sophistication
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MD Numbers
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1950-14 MDs/100,000 people nationwide
1980-20 “
1990-24
40% of MDs are over age 50 (2000)
38% will retire within 3 yrs/12% part time
Corvallis has about 100 MDs/50,000 people
Or 2/1000 pop
Australia 2.5/1000; UK 1.7; Canada 2.1;
France 3.0; Germany 3.4; US 2.7
Common Characteristics of
Managed Care Organizations
Factor: Provider Panel/Fee
Schedule/UR Utilization Review
 FOC (freedom of choice of provider)
 Assume Risk
 Sells insurance
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How Employers Select/Evaluate
an HMO
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Handout/Overhead
NCQA Stds now include Health
Outcomes
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HEDIS 3.0
No. CHF pts taking ACE Inhibitors (proposed)
 Pt satisfactions survey
 Mandatory Disease Management Programs
(Diabetes-see Genesis rpt)
 Includes Medicare and Medicaid pt. pop.
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Accreditation
NCQA accredits MCOs
 Joint Commission accredits hospitals
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Joint Commission on Accreditation of
Health Organizations
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will move to accredit MCOs also
1935-1996 - Legislative History
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Social Sec. Act 1935
Hill Burton Act 1946
Medicare-Medicaid 1965
PSRO 1972
1973 HMO Act
1983 PROs (replaced PSRO)
1996 Health Ins. Portability & Accountability
Act (HIPAA)
 Medicare Modernization Act of 2003 Rx benefit
starting 2006
1935-1996 Con’t
1983 PROs (replaced PSRO)
 1988 Medicare Catastrophic Coverage
Act

Repealed in 1989
 Medicare would have covered outpatient Rx
 Funded by Medicare eligibles-not entire
working population of USA
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1935-1996 Con’t
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1990 OBRA 90 (Omnibus Budget
Reconciliation Act)
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(Medicaid Antidiscriminatory Drug Price and Patient
Benefit Restoration Act)
Mandated Drug manuf. rebates back to Medicaid
rebates based on lowest price drug manuf. charged
to MCOs
Drug Manuf have raised contract prices charged to
MCO, reducing Medicaid rebates $$
OBRA mandated RPh Pt Counseling (Medicaid Pts)

provided basis for St...... Bds Phar to mandate Pt.
Counseling
1935-1996 Con’t
HIPAA (Kennedy Kassenbaum Act)
 Main focus is security of patient dataPrivacy
 Makes Ins portable from job to job
 discussion

Three Health Care Cost
Management Options
1. Regulatory (health care planning-Gvt
control)
 2. Market Place Competition-Competing
Delivery systems-little Gvt control
 3. Managed Care Approach-Combines
market and regulation approach


Managed Care Approach-Employer Driven
over last few years
Group Practice of Medicine

Characteristics
1. Shared Facilities and equipment
 2. Full Time MDs
 3. Two or more medical specialists
 4. Shared patient responsibility
 5. Pooled income (PCs are usually a
partnership-like a law firm with Partners)
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Hospitals - General Stats (2001)
Federal Hospitals 264
 Community Hospitals 4,956
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Not for profit Community-3,012
 For profit Community-747
 State/Local Gvt-1,197
 Handouts for 2002 stats
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Hospitals
90% of hosp revenue is from Ins.
 must compete for MDs based on
facilities and technology
 MDs have admitting privileges, are not
hosp. employees
 Hosp has MDs on staff i.e......, ER and
Radiology

Hospitals are Accredited
by Joint Commission
 Need accreditation to participate in
Medicare/Medicaid/residencies
 Joint Commission


includes AHA, AMA, Am Society Health
Systems Pharmacists
Provider Specialization

80 % of MDs today are specialists


but provide primary care i.e......, Internists,
OBGYN, Pediatrician
MDs have specialty boards
BD Qualified-complete post grad training
 BD Certified-training plus residency

No laws covering MD specialist training
 regulated by the Medical Profession
 Looming shortage of specialists

MD CON'T

MD gains hospital admitting privileges
upon review of medical staff
RPh Specialties
LTCF/Geriatric
 Nuclear Pharmacy
 Institutional Based Clinical Practice

Health Care Costs.

Overheads handout
Cost of Health Insurance-Kaiser
Study






Ave Annual Premium (family ) $9,068 (2003)
13.9 % increase over 2002
Small business (3-9 workers) 16.6% increase
Mid sized (200-999 workers) 12.4% increase
Ave premium paid by a family grew 1.29%
over 2002 now $201/month.
Single employee pays $42/month.
How Much is a Billion??
billion seconds ago it was early 1950s
 billion minutes ago, it was about 2,000
yrs ago
 billion dollars in Wash DC was about 10
hrs.

Aging Trends: Ratio of People
Age 20:64 to Those 65+
1955-6.29 to 1
 1990-4.69 to 1
 2010-4.47 to 1
 2030-2.65 to 1
 2050-2.59 to 1


(source: WSJ 11-29-99)
Aging Trends
30 Million over age 65 in 1988
 40 Million over age 65 by 2011
 50 Million over age 65 by 2019
 One in Five will be over age 65 by 2030

General Causes of Cost
Increases
Demand Factors
 Supply Factors

Demand Factors
Aging Population
 Emergence of Chronic Diseases as
Dominant Cause of Morbidity
 Increase of environment and behavior
risk factors
 Plan Benefit Design
 Repeat Hospitalization for Same
Disease

Supply Factors

Life Style (behavior, lack of preventive care)
 Increased Utilization
 Technology
 System Inefficiencies



duplication of services/facilities
waste/fraud
Incomplete electronic medical record system
Cost of Unhealthy Workers
People who smoke one pack per day
 have 65 % more hospitalizations than
non smokers
 when both have COPD
 smoking creates 50 billion in annual
health care costs
 25% of pop smoke
 Obesity costs employers $12 Billion per
year (2003)

Seat Belt Use
non seat belt user cost 150% more to
treat
 than a seat belt user in same type of
accident

Lifestyles that increase costs
(handouts)
lack of exercise
 xs weight
 smoking
 hypertension
 cholesterol
 lack of seat belt use

Employee Wellness/Weight
Reduction





Obesity increases health care costs and
absenteeism
65% of US pop is overweight (2003) BMI over
25/30% are obese (BMI over 30)
Defined as a BMI for men greater than 27.8;
for women greater than 27.3
Major differences in health care costs noted
for overweight people were age 45 + and
particularly among women
BMI is weight divided in inches squared times
704.5
Ave Annual Health Care Costs for
Employees Age 45+ by BMI (1996)
At Risk Overall-$2,933
 At Risk Men-$2,064
 At Risk Women-$3,610
 Not At Risk-$1,748
 Not At Risk Men-$1,202
 Not At Risk Women-$2,038

Why Do Hospital Costs Increase
Staff Salaries
 Technology
 Uncompensated Care
 General Costs of doing business

Composition of Medicaid
AFDC 66% of pop/26% of cost
 Elderly 15% of pop/37% of cost
 Mentally retarded, disabled 12% of pop/
35% of cost

Rx Spending by Year (Billions $)
1999 $105
 2000 $121
 2001 $139
 2002 $160
 2003 $184
 2004 $212

Pharmacy Expenditures
Approx 11% of total cost
 Majority of Rxs 3rd party
 Ave...... No. Rxs/yr =4
 Ave....... No. Rxs retiree/yr 12
 Will become # 1 health care cost
category within 4-5 years
 Number 2 in this market behind hospital
spending

Impact of Aging on Health Care
Costs

Study on 3.75 million lives (year 2000 data)
 Per capital lifetime cost $316,000
 Females $361,200 (2/5th of cost-longer
lifespan
 Males $278,700
 1/3 of cost middle age
 50% during senior years
-survivors to age 85-1/3 of cost in remaining yrs
Health, Life Expectancy and health
spending among elderly





2003 data
Cumulative health spending for healthier
elderly are similar to those for less healthy
elderly who die sooner
Health promotion efforts aimed at persons
under 65 may improve longevity and health
without increasing costs
Healthy age 70+14.3 yrs
Those with at least one limitation in activity of
daily living + 11.6 yrs
Methods to Manage Medication
Costs

1. Maximum Allowable Cost (MAC)
MCO establishes ceiling on generic prices
 Average Wholesale Price-AWP
 Actual Acquisition Cost-AAC
 AWP could be $567.00/AAC could be
$43.00

2. Dispensing fees
Money paid to pharmacist for dispensing
Rx
 usually two or three dollars/Rx
 Combined with AWP (minus) to pay for
Rxs
 AWP-12% plus $2.50 (common fee
structure)

3. Patient Rx Co-Pay
$5.00 generic/$10.00 brand
 Percent i.e......, 50% of allowed
charge/$10 minimum
 Three Tiered Copay
 Higher Rx Copays lowers Utilization of
services

Average Rx Co-pays-Generics
2000 $7.00
 2001 $8.00
 2002 $9.00
 2003 $9.00

Average Rx Co-pays-Preferred
Brand
2000 $13.00
 2001 $15.00
 2002 $17.00
 2003 $19.00

Average Rx Co-pays Non-Preferred
Brand
2000 $17.00
 2001 $20.00
 2002 $25.00
 2003 $29.00

4. Capitation/Risk
Pharmacies unlikely to have risk in future
 Dr prescribes so RPh can only do so
much to control costs
 Insurance co., HMOs, employers have
financial risk

5. Formularly
List of Drugs paid for by the plan
 Developed based on therapeutics and
cost

6. Generic Drugs
Mandated by some plans
 always less expensive
 are all generics therapeutically
equivalent to brand counterpart???


Lanoxin, Theodur, Premarin, Tegretol...
7. Therapeutic Substitution

Exchanging one brand drug for another
must have MD OK
 Amoxicillin for Penicillin
 Naprosyn for Ibuprofen

8. Mail Order Prescriptions






May be less expensive than retail on a per Rx
basis
Plan benefit usually structured, in the past, to
reduce patient CoPay
This means Rx use goes up, if patient out of
pocket is less
This means total Rx costs are greater if Mail
Order has lower CoPay
Popular benefit, but not a cost saver for the
MCO
Drug waste on mail order -4-12% of spend
9. Group Buying of Rx items
Hospitals band together to buy in volume
 Independent Pharmacies band together
to buy Rx items
 Chains are merging to increase buying
power

10. Benefit Design

Lower out of pocket for Rx increases
utilization
11. Treatment Protocol

Lipid Example/Cardiovascular Risk
Assessment

Group Health Evidenced Based MedicineCD
Hospital Cost Management

DRG Diagnosis Related Group
Fixed Fees for Hospital Procedures
 Established by Medicare
 Commonly used by Ins. companies


Risk Assumption
Physician Cost Management

RBRVS
Resource Based Relative Value System
 Fee Schedule for MD Office visits
 Established by Medicare
 Commonly used by Ins. Companies


Risk Assumption-Capitation
Utilization Review Programs

1. Hospital Based
Pre Admission Certification
 On Site Review
 Concurrent Review
 Severity of Illness Reporting by MD
 show overhead

UR- no. 2 Medication Non
Adherence
Definition: Overuse, underuse, misuse
of Rx
 $177.4 billion annual cost to the system
(2001 data)
 28 % of Medicare hospital Admissions
caused by Rxs

11% adverse reactions
 17% non compliance

Compliance Related to Doses
per day
bid- 80% compliance/ tid -60%/ qid 30%
 question: To what degree does
compliance with a specific Rx lower total
costs

Nonadherence and Hospitalization

Oral antihyperglycemic Med non adherence and
subsequent hospitalization among people with Type II
Diabetes (Diabetes Care Aug 2004)
 Non adherence was defined as a med possession
ration of less than 80%
 28.9 % were nonadherent to diabetic meds
 18.8 % and 26.9% sere non adherent to
antihypertensive and lipid meds
 Hospitalization rates increased when MPR dropped to
80% or less for diabetic pts
3. Drug Utilization Review
(DUR)
Inpatient. Focuses on use of target Rx
items ie., antibiotics
 Outpatient Focuses on medication use
patterns

Disease State Management
(DSM)
Readings
 DSM targets high cost, chronic diseases
 Where interventions can save money in
12 months or less
 For plans of under 65 age people

DSM (from RPh point of view)
involves
linking Community Based RPh clinical
services
 to MCO
 and document outcomes
 Handouts-Ashville Project

DSM
promotes patient education and
responsibility
 RPh works to improve Rx compliance
 to improve adherence to treatment
protocol

Rationing

Occurs in all health care systems based
on
money
 coverage
 waiting time

Methods to Monitor Health Care
Quality
Judging the Quality of Health
Care
Two Dimensions: Technical Process and
Art of Care
 Technical: Was the most appropriate
treatment used?
 Art of Care: Manner in which the
Provider interacted with Patient

Technical Care
refers to amount, type and manner of
resource utilization
 requires correct diagnosis, proper course
of treatment
 requires successfully implementing the
treatment
 requires monitoring patient progress
 requires stopping treatment if needed

Art of Care
Refers to interpersonal interaction
between provider and patient
 Patient Satisfaction measured by survey
instrument
 called SF 36. Health Status Short Form
36. 36 questions
 measures patient satisfaction with care
provided

Quality Assessment





Accomplished by establishing minimum
standards
and measuring observed care against the
standards
Example: % of pop that should be vaccinated
and Quality Improvement
the organization seeks to improve quality all
the time
Quality Assurance (QA
Programs)
Organization establishes a minimum std
of performance
 Develops ways to measure whether or
not the std was met
 Measured statistically

Quality Improvement
Total Quality Improvement (TQM)
 Based on work of Deming
 QI: Quality Mgt and Improvement are
information driven processes that involve
using monitoring procedures to ensure
that continuous improvement is being
obtained

Measuring the Quality of Care
Structure-equipment
 Process-how the equipment was used
 Outcome-what were the results

Evaluation of Pharmaceuticals

Efficacy: Defines Optimal Practice (clinical
trials for FDA approval)
 Effectiveness: Compare actual with optimal
practice (real world or standard care)
 Quality Assessment: Evaluate why actual and
optimal practice differ
 Quality Improvement: Design interventions to
close gap between actual and optimal
Cost of Illness Analysis

Calculate the Cost of a Disease i.e..,
how much is spent on Diabetes each
year??
Cost Minimization Analysis
Compares costs for comparable
treatments with the same clinical
effectiveness and outcomes
 What is the least expensive drug to treat
a disease ?

Cost Benefit Analysis

Measures Costs and consequences only in
dollars
 If you lower blood pressure, how much money
does that save?
 If your patients are more compliant, how much
money does that save?
 CBA could compare costs of a drug or non
drug therapy i.e.., diet/exercise Vs drugs to
control blood pressure
Cost Effective Analysis
Measures costs in relation to therapeutic
objectives in natural units
 Cost to reduce blood pressure x number
of points

Cost Utility Analysis
Measures costs of therapeutic
intervention against outcome
preferences by the patient
 Cost of cancer drugs against number of
life-years gained by patient and patient’s
preference for his or her quality of life
when taking chemo.

Section II. Health Economics
Overview





Who pays for medical care?
How do they pay for it?
What causes medical care spending to
increase?
Does medical care always increase a patient’s
health status?
Why is government so intimately involved in
medical care and the production of health?
Overview

Why is the cost of producing health such an
important political issue all over the world?
 How do other countries provide and pay for
medical care?
 What are some of their problems?
 What influence does organizational structure
and insurance have on demand for medical
care?
Health Economics Topic Areas
I. Health, Health Economics and
Medical Care
 II. Transformation of Medical Care into
Health
 III. Policy Issues in Health Care Finance
 IV. Global Perspective: Australia,
Canada, Germany, UK and Sweden

I. Health, Health Economics and
Medical Care





A. Unique Aspects
B. Health Care From an Economic
Perspective
C. Factors Influencing Demand for Medical
Care
D. Factors Influencing Demand for Health
Insurance
E. Changes Through Time Influencing Health
Care Markets
II. Transformation of Medical
Care into Health
A. Productivity of Medical Care
 B. How Insurance Affects Demand for
Medical Care
 C. Role of Quality in Demand for
Medical Care

III. Policy Issues in Health Care
Finance







A. Mandatory Employer Health Ins
B. Uninsured Population
C. Health Care Rationing
D. Erosion of Plan Benefits
E. Rising Premium Costs
F. Managing Process of Care v Managing
Costs
G. Medicare Reform Efforts
IV. Health Care Finance-Global-Australia,
Canada, Germany, UK, Sweden
A.
 B.
 C.
 D.

Financing Mechanisms
Organization of Delivery Systems
Problems
Reorganization Efforts
I (A) Unique Aspects-Health,
Health Econ and Medical Care
Government Involvement
 Uncertainty
 Asymmetric Knowledge
 Externalities
 Participants

Government-State
Licenses health care providers/facilities
 State Health Insurance Commissioner
 Local Public Health Clinics
 Others

Uncertainty

Illness is a random event
(Accidents, colds, flu, pneumonia, diabetes,
CHF)
 Illness is a behavior driven event
 (obesity, diet, exercise, drunken driving)
 Uncertainty creates hypochondriac behavior
(illness anxiety)

Asymmetric Knowledge
Licensed health care providers usually
have more knowledge than patients
 MD decides what the patient needs to do
and purchase
 Managed Care Organizations ( MCOs)
are intervening between MD-Patient re
MD prescribing, requiring Prior
Authorizations ( PA)

Externalities
One person’s actions can create benefits
or costs for others
 Communicable diseases ( flu, hepatitis,
e-coli -handwashing-cooking)
 Antibiotics in the food supply/Drunken
Driving
 Cocaine Use/Violence health care costs
 Medication non compliance

Participants
Government
 Individual Consumers
 Employers
 Benefit Consultants
 Politicians
 Consumer Groups
 Insurance Companies

(B) Health Care From an
Economic Perspective
Health as a Durable Good
 Health as a Public Good
 The Production of Health

Health as a Durable Good
Health is a good that increases a
person’s utility
 People seek medical care to
maintain/increase their health/utility

Health as a Public Good
The Health of family/coworkers, or lack
of it, influences us as individuals
 How is health status influenced by Wall
Street and the federal budget?

Health as a Public Good:Wall Street and
Health Care ( NEJM-2-25-99)

1987 42% of all HMO enrollees - investor
owned HMO
 1997 62%
 Investor owned HMOs shaped the health care
market - including non profits



Intensified market place competition
Pushed cost containment to new levels
More monitoring of physicians by non-MDs
Health as a Public Good: Wall
Street and Health Care

Stocks of major hospitals, HMOs and MD
management companies have declined in
recent years
 Resulting in Insurance company mergers
 Pharmaceutical and biotech stocks are
outperforming market averages


Enbrel-Immunex from Seattle
DeCode-Iceland Project
Health as a Public Good:1997
Balanced Budget Act






Requires Medicare to cut $115 Billion/5 years
Medicare subsidizes non-Medicare patients
Will reduce Medicare payments to hospitals
Will force hospitals to outsource
Increase number of empty beds
Medicare Reform
Health as a Public Good: Trends

HMOs/Insurance companies are experiencing
losses/low margins
 Pressure to keep premium increases in check
 Increased technology costs
 Extremely unhappy patients



cost shifting
non covered items
Federal Patient Bill of Rights
The Production of Health

Involves
Medical Care
 Individual Behavior
 Environmental Factors
 Economic Factors
 Others

(C) Factors Influencing Demand
for Medical Care








1.
2.
3.
4.
5.
6.
7.
8.
Illness Events
Systematic Factors
Consumer Beliefs
Provider Advice
Income
Money Price
Time Price
Medical Care Supply
(C) Factors Influencing Demand
for Medical Care-con’t







9. Changing Inputs into Outputs
10. Input Costs and Final Product Price
11. Laws and Regulations
12. Organizational Structures
13. Final Product Price
14. Individual Behavior and Public
Consequences
15. Rx Drug Advertising
1. Illness Events
Overall Disease Trends in the 20th
Century
 Issues in Infectious Diseases

Antibiotics
 Iatrogenic Disease (Hospitals)
 Chronic Diseases and Infections

20th Century Disease Trends
North America/Europe





Substantial decline in mortality and an
increase in life span
Transitioned from infectious diseases to
chronic
Infections-4.2% of Disability Adjusted Life
Years (DALY)
Chronic/Neoplasms-81.0% of DALYs
DALY-measure of burden caused by disease
and injury
20th Century Infectious Disease
Trends





Substantial declines during first 8 decades
Caused by improvements in sanitation,
medical care, living conditions, economy
Trend reversed in 1981-increase in deaths
from infection
Trend lasted 15 years till 1996-7% red.
Red. Caused by decline in Aids deaths
1900-1980-Three Distinct
Periods






1900-1937-2.3% decline/ yr...
1938-1952-8.2% (sulfonamides 1935,
penicillin 1941, streptomycin 1943)
Para aminosalicylic acid 1944, isoniazid 1952 (
Tuberculosis )
1953-1980-2.8%
Increased from 1981-1996 (AIDS)
AIDS treatments-anti virals, protease inhibitors
Cause of Death World-Wide
1995 ( WHO)
51.9 Million Deaths
 33% Infectious Disease
 67% Other

Top Ten Infectious Disease







Respiratory-4.4 Million Deaths
Diarrhea-3.1
TB-3.1
Malaria-2.1
Hepatitis B-1.1
HIV/AIDS-1
Measles, Neonatal tetanus, Whopping Cough,
Roundworm, Hookworm
Antibiotics






One-third of all Rxs are inappropriate
50 million Rxs/yr... for cold and viral inf.
Up to 30% of Strep pneumonia resistance to
penicillin
AOM-80% of children recover without
antibiotic Rx
More than 70% of AOM preceded by viral resp
inf.
Dirty hands/surfaces v airborne droplets
Managing Resistance via
Computer Programs

Nosocomial Infections: Hospital acquired
(Vancomycin Use)
 NEJM Article-1-22-98
 LDS Hospital in Salt Lake City, UT
 System reduced




no. days excessive drug dose
adverse events
allergies
MIC matches
Antibiotic Prescribing Trends
Towards more powerful new products
(Zithromax, Biaxin)
 Increasing Dose of Amoxicillin
 Influenced by:

Patient Compliance
 MD MCO Payment
 Local Resistance Trends

Reduced Prescribing Antibiotics to
Children
Study published in Pediatrics 2003
 Tracked all Rxs for 225,000 children in 9
HMOs from 1996-2000
 Antibiotics use dropped 24% in patients
under age 3
 25% decline for those age 3-6
 16% decline for those age 6-18

Number of Antibiotic Rxs/child per
year by age (1996-2000)
Age 3 months to 3 yrs. (2.46/1.89)
 Age 3 -6 (1.47/1.09)
 Age 7-18 (0.85/0.69)

Iatrogenic Hospital Disease








Injury induced by the treatment itself
1.3 million injuries per year
$2 billion direct cost per year
20-70 % may be preventable
Adverse Drug Events ( ADEs)-19%
ADE-most common cause of Iatrogenic
Disease
777,000 ADEs causing injury/death/year
AHRQ (4-13-01)
$1.56-$5.6 Billion cost
Iatrogenic Hospital Disease
Approx. 3 hospitalized pts/1000 die-ADE
 Approx. 1 will have long term effectsADE
 Hospital Information systems reduce
incidence of ADEs
 Some ADEs can never be stopped
(Stevens-Johnson Syndrome)
 4 articles in handout

Pharmacist –Patient interviews cuts
med errors

Aug 15, 2004 Am J Health System Pharmacy
 Rphs and pharm students at Northwestern Mem Hosp
in Chicago
 Interviewed 204 pts with 24-48 hrs adm
 To identify and resolve any discrepancies between pts
med records, adm profile and actual med regimen
 50% of pts had med history discrepancies
 22% could have caused harm during hospitalization
 59% could have harmed pts after discharge
 Intervention cost $5000-saved $39,000
Chronic Diseases and Infections

Ulcers-H-Pylori
 Antibiotics and Risk of 1st Acute Myocardial
Infarction ( AMI)


Risk of AMI declines if patient has taken
Tetracycline or Quinolones
Bacteria in mouths can cause



Nephritis
Rheumatoid arthritis
Dermatitis, Pneumonia, Endocarditis
2. Systematic Factors
Rate at which health depreciates over
time
 Age, Sex, Occupation, Behavior, Race,
Inherited factors...

3. Consumer Beliefs (Alternative
Medicine)

A broad set of health care practices that are
not readily integrated into the dominant health
care model.
 Alternative Medicine poses challenges to
diverse social beliefs and practices




Cultural
Economic
Scientific
Medical & Education
4. Provider Advice
Patient’s don’t always follow expert
advice
 non compliance (Rx , treatments - )
 OSU Ph D study ( Public Health &
Pharmacy)

5. Income
Individual
 Economy in General

Health Insurance
 Government subsidies ( Transfer Payments)

Medicare
 Medicaid
 Public Health Programs
 Others??

6. Money Price
Cost of health care items
 Out of pocket costs--co payments,
deductibles...
 Cost of Health Insurance Premium

7. Time Price

Your Personal Time to see a physician,
schedule something...
8. Medical Care Supply
No. of MDs/100,000 population
 1965-139/100,000 population
 1995-252/100,000 population
 Needed: 145-185/100,000 populationyr.??
 Varies considerably by geography and
local wealth
 Rural-20% of USA pop. 9% of MDs

9. Changing Inputs into OutputsQuality Counts

Def: The degree to which health services for
individuals and populations increase the
likelihood of desired health outcomes
 Quality is in the eye of the beholder



MD-application of evidence-based medicine
Pt.-how long was the wait for an appt or Rx
Employer-no complaints/low cost
Problems with Lack of Quality
that Increase Costs
Costs from Iatrogenic Disease
 Physician practice variations
 Lack of Information systems (already
discussed)
 Treating chronically ill patients in an
acute care model
 www.improvingchroniccare.org

Does Quality Care Drive Market
Share
New York State’s physician specific
mortality report for CABG
 Physicians & Hospitals with lower
mortality rates have experienced
increased business
 How many CABG procedures per year
are needed to attain proficiency?

Hospital Volume and Surgical
Mortality in the US





Mortality decreases as hospital surgical
volume increases
Risk varies with type of procedure
12% diff for pancreatic resection
0.2% diff for carotid endarterectomy
64% diff for aortic aneurysm repair (hosp with
30 or fewer surgeries most risk)

NEJM April 2002, JAMA March 2000.
10. Input Costs and Final
Product Price

What controls the Final Product Price of
a health care item?
11. Laws and Regulations

Health Care Mandates







Coverage mandated by State law
Applies only to health insurance polices controlled
by state health insurance laws
1000 mandates across the USA
Mandates coverage for hairpieces, in vitro
fertilization, pastoral counseling…
Self insured companies are exempt
Mandates impact small business
Cost impact-up to 30%
12. Organizational Structures

Managed Care
Organizational Structures
Have different levels of efficiency and
information systems
 Develop locally based on local
needs/politics
 An IPA on the West Coast looks different
than those on the East Coast
 Therefore create different health care
costs and local financing options

US Health Care System: Drivers
of Change









Employers
Insurers
Gvt
Citizens
Employees
Consumer Choice
Patients; Physicians
Hospitals; Product Suppliers; Dis.Mgt.
Technology
13. Final Product Price

Established by Insurance co., HMO, Gvt
14. Individual Behavior and
Public Consequences


Obesity-Body Mass Index ( BMI) ntl
222=28.6%-Obesity costs 9% of total
Smokers: Health care costs -(millions) $9,473
smokers, non smokers $11,138
 Smokers cost less because they have a
shorter life span. (NEJM 10-9-97)
 Cost of Violence
 Cost of Illegal Drug use/infants born addicted
Habits:
“I’ll take fries with that”
 Obesity
 Sedentary
life
 Tobacco
 Risky
behavior
ie
t&
In
fe
ru
gs
ct
io
ns
of
D
Ex
er
ci
se
Il l
ic
it
us
e
ar
m
s
nd
D
&
M
En
ot
vi
or
ro
Ve
nm
hi
en
cl
ta
es
lC
on
ta
m
in
an
Se
ts
xu
al
Be
ha
vi
or
Fi
re
lc
oh
ol
a
To
ba
cc
o
# of deaths
Modifiable Factors Associated
with Deaths USA 1990
400000
350000
300000
250000
200000
150000
100000
50000
0
Prevalence of Overweight among
U.S. Adults, BRFSS, 1989
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1990
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1991
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1992
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1993
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1994
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1995
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1996
Source: Mokdad, et al.
<10%
10-15%
>15%
Prevalence of Overweight among
U.S. Adults, BRFSS, 1997
Source: Mokdad, et al.
<10%
10-15%
>15%
Obesity Trends* Among U.S. Adults
BRFSS, 1998
(*BMI  30, or ~ 30 lbs overweight for 5’4” woman)
No Data
<10%
10%-14%
15-19%
Source: Mokdad A H, et al. J Am Med Assoc 2000;282:16
20%
Obesity Trends* Among U.S. Adults
BRFSS, 1999
(*BMI  30, or ~ 30 lbs overweight for 5’4” woman)
No Data
<10%
10%-14%
15-19%
Source: Mokdad A H, et al. J Am Med Assoc 2000;284:13
20%
Obesity Trends* Among U.S. Adults
BRFSS, 2000
(*BMI  30, or ~ 30 lbs overweight for 5’4” woman)
No Data
<10%
10%-14%
15-19%
Source: Mokdad A H, et al. J Am Med Assoc 2001;286:10
20%
Percentage of Obese Oregonians
1993 - 2000
% of Oregonians
25%
20%
15%
10%
5%
0%
1993
1994
1995
1996
1997
Year
1998
1999
2000
Percentage of Adults Getting Any Physical
Activity 30 Minutes Per Day, 5 Days Per Week
% adults physically active
40%
30%
20%
10%
0%
Men
Women
Individual Behavior

Factors Associated with Women’s Adherence
to Mammography Screening Guidelines



27% of women had the age-appropriate number of
exams
More likely to adhere if they reported participating
with their MD in the decision to be screened
Were younger, had smaller families, higher
education/income…see article
Individual Behavior

Public Health/Pharmacy PHD study
Asthmatic patients in OHP
 Ambulatory patients managed by a RPh
working with pts MD
 Better outcomes achieved if MD actively
participated in process/supported

Individual Behavior-Rx nonadherence






Costs more than we spend on outpatient
Rxs/yr...
Creates health care costs = 125% of Drug
Spend
Better educated AIDS patients are more
compliant
57% of College grads v 37% of high school
dropouts were compliant
Education makes no difference with diabetic
patients compliance
Statin 1 in 4 elderly pts compliant after 5 yrs
15. Rx Drug to Consumer
Advertising
Spending $2.5 Billion in 2000
 $1. 8 Billion spent 1999
 Up 40% over 1998
 Total promotional spending 1999 $13.9 Billion
 Ten Rx items=41% of spending (1999)
 Claritin $137.4 million/Propecia $99.7/Viagra
$93.5/Prilosec $79.5/Xenical $75.5/Lipitor
$55.5/Zyban $54.8/Nolvadex $54.4/Flonase
$53.5
 $125 mill on Vioxx-more than spent on Pepsi
ads in 2000
Rx Advertising Spending 2001
(Billions $)
$2.6 DTC Ads
 $5.2 MD Sales Calls
 $10.5 on Free Samples.

Rx Advertising 2002
$2.6 DTC
 $6.2 MD Sales Calls
 $11.9 on Free Samples

D. Factors Influencing Demand
for Health Insurance
1. Financial Risk
 2. Price of Insurance
 3. Tax Laws
 4. The Supply of Health Insurance
 5. Interaction of Insurance, Employers
and Medical Markets

1. Financial Risk
Most people seek insurance to avoid the
high cost of illness
 Some high income people do not
purchase health insurance
 Reflects individual attitude towards risk
assumption

2. Price of Insurance/4. Supply of Ins., & 5. Interaction of
Ins., Employers and Medical Markets





Most prominent feature of Am. Health Ins
coverage is its slow erosion
Americans without health ins grew from 14.2%
in 1995 to 16.1%-1997 (43.4 million people)
2001 16.5 % of pop without ins-17.3% 2002
No. of people underinsured grew faster
Caused by deterioration of employer provided
coverage-the source of coverage for nearly
two in three people
2/4/5. Why?

Because health care prices have increased
more rapidly than income (Kronick Article
Health Affairs Mar/Apr 1999)
 Lack of insurance is correlated to low income
 annual income xs $75 K; 8% with no ins
 annual income less than $25K 24% with no ins
2/4/5.
50% of those below Medicaid poverty
line had at least 1 month with no ins.
 31.6% of all the poor had no ins at all in
1997
 52% of all employees below poverty
level had no ins 1996.

2/4/5.
Employers health care premiums
increased 218 % (1980-1993)
 Inflation adjusted GDP rose by 17%
during same time period
 Average cost of a family policy PPO is
above $10,000 per year (2004)
 Average worker pays $558 for single
coverage/$2,661 family plan/yr 2004

2/4/5.-What Caused the Erosion in
Coverage-Insured and Underinsured?





1. Rising Premiums (Technology/
Demographics/Utilization)
2. Trend toward Temporary Workers
3. Benefit reductions-most notable Rx drugs
4. Coverage Limits-excluded items.
5. Shift from HMO to POS (requires out of
pocket payment-pt then submits for payment
to ins co.)
Con’t
6. Loss of Medicaid Coverage due to
Welfare Reform passed by Congress
 7. Rising cost of Medigap coverage for
over 65.
 8. Reduction in services to illegal
immigrants (in some states)

3. Tax Laws
Health insurance premiums and
expenses are tax deductible
 US Tax Code subsidizes health care
purchases

E. Changes Through Time Influencing
Health Care Markets
1.
 2.
 3.
 4.
 5.
 6.

Changes in Overall Economy
Demographics
Technology
Price and Spending Patterns
Growth in Medical Prices
Medical Spending Patterns
1. Changes in Overall Economy
A robust economy should be able to
afford health care ins for employees
 Is this the case now Vs 1945-60s??
 Why was health insurance added as an
employee benefit after WWII?

2. Distribution of US Pop by
Age/Year

Y2000 (%)










Under 5-6.9
5-13 13.1
14-17 5.7
18-24 9.6
25-34 13.6
35-44 16.3
45-64 22.2
65 + 12.6
85 + 1.6
100 + 0.0

Y2020
6.8
12.0
5.3
9.3
13.3
12.3
24.6
16.5
2.0
0.1
Source WSJ 11-29-99
Y2050
6.9
12.1
5.4
9.2
12.5
12.0
21.8
20.0
4.6
0.2
3. Technology
New Technologies substitute for older
ones at higher cost
 Rx Industry is an examplewww.pharma.org
 Genetically engineered drugs
 i.e.., treat breast cancer without side
effects
 Enbrel for RA

3. Technology





Genetic information varies from person to
person
Pharmacogenomics-study of genes to
determine how DNA variations diminish or
amplify drug effect
Can have a drug for 1% of population
Hep C and Peg Intron
Genetic Testing for Rx-Patient Compatibility
4/5/6.Price, Spending and Growth in
Medical Expenditures
Spending Trends
 1997 Spending was $1.092 trillion
(13.5% GDP)
 2007 Projected $2.1 trillion (16.6%
GDP)
 Gvt spending-40% of total in 1990
 Gvt spending -41.8 % 1992
 Gvt spending-46% 2001-44.2 % 2002

4/5/6.-Role of Employers
Paid for 60% of health care costs
 Deducted as a business expense

4/5/6-Role of Government
As modern economies prosper-more is
spent on health care
 Countries with per capita incomes above
$8,500 accounted for 89% of global
health spending in 1994
 These countries comprised 16 % of
global pop.
 7% of DALYs

4/5/6. US-Spends More per Capita than
other Countries-Why?
1. MDs in US are paid more/unit of
service
 2. US hospital costs are higher
 3. Medical technology diffuses more
rapidly and used to treat more people

4/5/6. Medicaid Funding
Covers 51. million people
 Costs $257 billion 2002

4/5/6. Medicare Funding-4
Sources







1. Mandatory contributions from employers
and employees
2. General Tax revenues
3. Beneficiaries Premiums
4. Deductibles and co-payments pd by
patients (supplemental ins.)
Part A-Hospital Trust Fund
Part B-MD, Outpatient, Home Health..$78.20
2005 monthly premium
Part D. Rx-premium and co pays
4/5/6. Contributions of
Individuals
Out of Pocket spending-17.2% of all ntl
health spending
 Drugs the largest single cat of out of
pocket

4/5/6. Five General Factors
Driving Health Care Spending
1.
 2.
 3.
 4.
 5.

Population Growth
Economy wide Inflation
Excess Medical Inflation
Per Capita Use of Services
Intensity
The Internet and Health Care

Ultimate Knowledge Business
 Impacts






Organization of health care services (MD
referrals/selection)
Information available to consumers
Provision of services (cyberspace HMO)
Data analysis
Data acquisition and storage
Examples from the net
II. Transformation of Medical
Care into Health
A. Productivity of Medical Care
 B. How Insurance Affects Demand for
Medical Care
 C. Role of Quality in Demand for
Medical Care

A. Productivity of Medical Care
1. Marginal and Ave Productivity
 2. Productivity Changes on Extensive
Margin
 3. Productivity Changes on Intensive
Margin
 4. Evidence on Aggregate Productivity
of Medical Care
 5. Aggregate Data Comparisons

A. Productivity of Medical Care
6. Prospective, Randomized Clinical
Trials
 7. Evidence on Productivity of Specific
Treatments
 8. Medical Practice Variations on the
Extensive Margin
 9. Variations in Physician Practice
Patterns

1. Marginal and Average
Productivity

For almost every medical intervention, there is
a point at which Incremental Productivity
(Marginal) of medical care could become
negative.
 However the Average Productivity can be high.
 On Average, Medical Care has been
beneficial, but after a point, overall benefits
can decline
2. Productivity Changes on
Extensive Margin

Productivity of health care resources varies
with total amount used
 Marginal productivity of health care resources
will increase at low levels where none existed
before i.e.., penicillin where none had been
used before
 Marginal productivity will fall as more
resources are used
 Large amts of care-Iatrogenic Disease
2. Productivity Changes on
Extensive Margin
Inpatient Practice Patterns-Oregon v
Florida (NEJM-1994)
 FL MDs used 53% more resources per
Medicare patient admission than did OR
MDs-no apparent diff in outcomes
 Study was case mix adjusted
 Is an example of variation in MD practice
patterns

Medicare Spending-Miami,
MPLS, Portland & Orange CA






Age,Sex and Race adjusted spending for FFS
Medicare Pts
Miami 1996 $8,414-MPLS $3,341
Portland is about same as Minneapolis
Higher spend does not produce better health
outcomes
Means more spending on physicians and
hospital stays
If high cost areas were reduced to low cost
areas, Medicare costs would decline 30% or
$120 billion per year.
3. Productivity Changes on the
Intensive Margin
Frequency of doing something
 How often should a 40 yr.... old get a
physical
 How often should a 50 yr.... old get a
physical
 How often PSA screenings,
mammograms?

4. Evidence on Aggregate
Productivity of Medical Care





How much health care do we get from our
current patterns of medical care use?
JAMA study-Prof... Ware, using the SF 36,
Health Status Survey-1996
4 yr.., 2235 patients comparing FFS v HMO
Patients were age 18-97
hypertension, NIDDM, AMI, CHF, Depr.
4. Results-JAMA study

Physical health declined and mental health
remained stable during 4 yr.. follow up
 physical declines larger for elderly than
nonelderly
 Over 65 declines in health were more common
in HMOs v FFS 54% v 28%
 Conc. Elderly and poor chronically ill pts had
worse health outcomes in HMOs
4. Results-NEJM studyCanada/US AMI





Canadian pts. Hospital stay 1 day longer
Much lower rate of cardiac cath/ angioplasty,
and CABG
At one yr.., 24% of Canadians, 53% of US-had
angioplasty or CABG
Canadians-more visits to GPs, but fewer to
specialists
At 30 days, functional status was same
4. Results
After one year, US pts had substantially
more improvement
 Prevalence of chest pain and dyspnea at
1 yr.. was higher among Canadians
 34% v 21% (chest pain) & 45% v 29%
(dyspnea)

5. Aggregate Data Comparisons
Comparing Mortality Data Among
Hospitals to Assess Quality of Care
 Are death rate comparisons among
hospitals valid comparison?

6. Prospective, Randomized
Clinical Trial Data
The gold standard of research
 FDA’s favorite study design
 Method used for many drug, population,
medical studies
 Prospective trials involving control and
experimental groups
 Treatment and non-treatment arms

7. Evidence on Productivity of
Specific Treatments





Use of Beta blockers post AMI-JAMA 1998
115,015 patients 65 and older
50% (USA av.) received a beta blocker post
AMI hosp. Discharge
30-38% in Oregon
Among ideal pts., 1 yr.. death rate was 7.7%
for those getting b-blocker; 12.6% for those
not getting the drug
7. Evidence-con’t-JAMA Oct
2000

Use of Beta blockers post AMI
 % of patients who received beta blocker upon
discharge
 National Ave 75%





Oregon 77%
Alaska 73%
California 68%
Washington 66%
Hawaii 51%
7. Evidence-con’t
Wide variation in use of coronary
angiography after AMI
 rates of angiography inversely related to
risk of death from heart disease and risk
of heart events
 Pts followed for 1-4 yrs after AMI

Prescribing Variations for Cox II
–Vioxx/Celebrex





27% Rxs were for lower back pain-not
approved indication
Over 50% had less than a 60 day supply over
a 1 year follow up, so drugs are not used for
long term therapy when stomach
bleeds/problems most common
50% were taking 325 mg ASA which negates
COX II effects
74% of pts had no history of GI risks
Celebrex as effective as naproxyn
8. Medical Practice Variations
on the Extensive Margin
Productivity can vary with amount of care
provided
 Similar to previous slide “productivity
changes”..medical practice variations
drive productivity variations to some
degree

8. Con’t
Hospital Readmission RatesBoston/New Haven. NEJM 1994
 Medicare Claims study
 AMI, stroke, GI bleed, hip fracture,
surgery (breast, colon, lung cancer)
 Boston’s hosp readmit rate was higher
 No difference in outcomes

8. Con’t







Place of Death
Medicare data base
1992-1993
38.7% of all deaths occurred in hospital
Marked variations in all 306 hospital regions in
US
Low was 22.5 % in PDX
High was 53.5% in Newark
9. Variations in Physician
Practice Patterns
What is severity of illness adjusting-how
does it work?
 Why do it at patient or hospital level
 Software to study this subject
 www.vips.com

9. What is SOI
Some patients, who have the same
disease, are more ill than others
 There are a variety of computerized
systems that “risk adjust”
 Some are based on key clinical findings
(abstract the medical record)
 Others are based on information from
discharge abstracts

9. Do Different Systems
Produce Different Results?
MedisGroups-predicted death rates for
pneumonia & stroke well (medical record
abstracting)
 Disease Staging-AMI (computerized
discharge abstracts)
 MC Source/Episode Treatment Groups

9. Why do it?
Managed Care Report Cards will not go
away
 No other way to dialogue with MDs re
quality of care
 Avoid penalizing providers ( Hospital and
MD) who treat high risk patients
 i.e.., New York CABG data by MD

B. How Insurance Effects
Demand for Medical Care
1.
 2.
 3.
 4.
 5.

Co-Payments, Deductibles
Co Insurance Rae
Indemnity
Max/Min out of pocket
Prior Authorizations
1. Co-Payments, Deductibles
Impact of Co-payments/Deductibles on
Utilization and Cost
 Are Income sensitive
 PERS-Data (AHCPR Study)
 Group Health Study
 Benefit Design, Federal Subsidies
(Designing a Medicare Rx Benefit-Health
Affairs 4/2000)

Medicare Benefit-Issues








What is covered-Formulary
Amount of Tax Subsidy
Who is eligible
Co-pays
Open Enrollment Period
Who will manage it? Feds or Ins/PBMs
Who has financial risk-Feds or Ins co.
Who has oversight?
2. Co-Insurance Rate
Patient pays a percent i.e.., 20%, Plan
the balance
 Typical for indemnity/major medical

3. Indemnity
To indemnify-Protect against loss
 Traditional Insurance, no MD or
Pharmacy network
 Patient seeks out own provider, submits
a paper claim

4. Max/Min Out of Pocket
Patient must meet a front end deductible
 Benefits Max out at a certain level of
spending
 Common in Rx benefit design

5. Prior Authorizations
NEJM Study-Limiting Ambulatory Rxs
and LTCF Admits
 NEJM Study-Limiting Psychotropic Rxs
and use of Acute Mental Health Services
 PA on ambulatory Rxs by MCOs

Celebrex
 Viagra
 Enbrel; Prilosec; OHP--Claritin, Flonase

Guidelines for Submitting Clinical &
Economic Data-Formulary Consideration
Washington’s Regence Health Program ( King
County Medical)
 Requires Drug Manuf to submit





Clinical
Prospective and Retrospective Economic
Evaluations
CBA, CEA studies
Same format used by Australia to determine drug
listings for their formulary
Quality of Care
What is quality?
 How should it be measured?
 Who should be held accountable for
providing quality health care?
 What are the consequences of poor
quality?

C. Role of Quality in Demand for
Medical Care
1.
 2.
 3.
 4.

Evaluation of Health Care Quality
HEDIS
Consumer Reports
Consumer Satisfaction Surveys
1. Evaluation of Health Care Quality-6
Challenges in Measuring Quality

1. Identify and balance competing
perspectives of major participants
Quality is in the eye of the beholder
 Purchaser-how well are $ being spent/lack
of complaints/others??
 Patients-cost/access/waiting times/any
problem can be fixed…
 MDs-mixed: financial/own judgement/patient
demands

1. Evaluation-Con’t

2. Develop an Accountability Framework




Joint Commission (JCAHO)
NCQA-HEDIS
Public release of inf relation to quality of care
delivered by plan, hospital, medical group, MD-implies that the entity is responsible for results
reported
Reporting same measures for similar groups
implies it’s reasonable to compare?
1. Evaluation-Con’t
3. Establish explicit criteria for judging
performance (annual mammograms)
 4. Indicators for External Reporting
(Which HEDIS indicators should be
reported)
 5. Balance financial and quality goals
 6. Facilitate Information system
development

HEDIS-NCQA www.ncqa.org
HEDIS is a set of standardized
performance measures designed to
ensure that purchasers and consumers
have the info needed to reliably compare
MCO performance.
 Measures Process and some outcomes
 www.ncqa.org

Process Measures-% Who
received
Flu Shots
 Vaccinations
 Diabetic eye exams
 Breast Cancer screenings
 Cholesterol Mgt. after AMI
 Beta Blocker post AMI

Outcome Measures
Patient satisfaction with health plan
 Patient functioning in daily lives

3/4. Consumer Reports/Consumer
Satisfaction Surveys

Oregon Coalition of Health Care
Purchasers
reviewed 11 HMOs and PPOs in PDX area
 Did patient get information, was MD
courteous, MD communication skills, any
problems getting health care
 random sample, no mention if patients
surveyed in each health plan were similardemographically...

III. Policy Issues in Health Care
Finance







A. Mandatory Employer Sponsored Health
Insurance
B. Uninsured Population
C. Health Care Rationing
D. Erosion of Plan Benefits
E. Rising Premium Costs
F. Managing Process of Care v Managing
Costs
G. Medicare Reform Efforts
A. Mandatory Employer
Sponsored Health Insurance
National Ave-per employee health care
costs 1998-$4,033/yr
 Most small businesses oppose
mandatory ins.
 Less than half of small business
employees now receive ins via employer
 # declined between 1996/1998 from 52%
to 47%

B. Uninsured Population-NY
Times Feb 26, 1999









43.4 million lacked ins-1997(44.2 million lacked ins 1998-16.3% of pop)
(42.5 million lacked ins 1999-15.5% of pop)
Men more likely than women to go without ins.
18% v 15%
15% under age 18
30% between ages 18-21
23% between ages 25-34
17% between ages 35-44
14% between ages 45-64; 1 % over 65
B. Uninsured POP-Families USA
June 2004





43.6 million uninsured in US 2002
81.8 million 1 out of 3 or 32.2 % under 65 were
without health insurance for all or part of 20022003
65 % were uninsured for six or more months
84 % of those without health ins held jobs
14% of Oregon’s pop is uninsured
B. Uninsured Pop.
49% of full time workers with incomes
below poverty line lack ins. Compared to
17% of all full time workers
 Hispanics-34%
 Blacks 22%
 Asians 21%
 Whites 15%
 All care is rationed, one way or anotherby employment, income, waiting lists,
availability.

OHP-Rationing
Prioritized all health care services into a
rank ordered list
 Based on what is covered, not who
 List of covered treatments is based on
relative effectiveness of medical service
 OHP covers uninsured workers and
traditional Medicaid pop.

OHP-What is Covered
Treatments below the line are not
covered
 Line is now 578
 Line 1 is Head Injury
 Line 2 is Diabetes
 Line 745-Radial Karatotomy

Below the Line
Low Back Pain
 Infertility
 Allergic Rhinitis
 Common cold
 Most fungal infections

Oregonian Survey of OHP 2-399

75% of OHP eligibles received all the care
they needed 1997-1998
 1 in 4 ran into some kind of barrier to the care
they needed
 OHP Barriers to receiving necessary/desired
care



42% service not covered
38% physical/mental disability
34% service denied by MD/plan
OHP

Barriers
15% wanted to use alternative care provider
 13% location
 11% language
 11% personal barrier
 3% sign-language interpreter not available

D. Erosion of Plan Benefits
Increased patient co-payments
 Increased patient pay premiums
 Cost shifting in general
 More non covered items

E. Rising Premium Costs

Previously reviewed
F. Managing Process of Care v
Managing Cost
What is the difference??
 Which one is easier to accomplish??

G. Medicare Reform-The
Problem

Health care expenditures for Medicare pts
grow 4% more rapidly that the GDP
 The # of elderly are growing 1% faster than
the rest of the population
 Elderly consumption of care is growing rapidly
 If current trends continue till 2020, cost/yr will
be $25,000 (1995 dollars) v $9,200 in 1995
G. Medicare Growth Caused by:

Growth in Technology
 Use of services (no outpatient Rx)
 7 Technologies






Angioplasty
CABG
Cardiac Cath
Carotid endarterectomy
Hip & Knee replacement
Laminectomy
G. Medicare: Who Pays Now?
89% of Medicare revenue from taxes
paid by people under age 65; income
taxes; interest on the Medicare Trust
Fund
 11% from monthly premiums from
recipients

G. Medicare: Who Receives
Benefits?
34 million people over age 65
 5 million of whom are permanently
disabled
 284,000 of whom - end stage renal
 75% have household annual Inc. under
$25,000
 When Medicare per capita expenditures
Ave $4,083

G. Medicare: How Much Does
the Ave Person Contribute?





Most beneficiaries receive far more than they
contribute
A couple retiring in 1998, with one wage
earner
Who paid Ave Medicare Taxes since 1966
Paid in $16,790 + Employer contribution
Part A future benefits EST. $109,000
G. Medicare: What Can Be
Done?

1. Slow the growth of health care
spending
Decrease mat paid for services/products
 Product more with fewer resources
 Slow the rate of growth of services to
patients

Will cut quality of care
 Quality of life will decline
 Patients will complain to Congress

G. Medicare: What Can Be
Done?

2. Find ways to pay for more health care
More taxes
 Higher Medicare premiums
 Higher Co-pays
 Implement a Voucher System

G. Medicare: What Can Be
Done?

3. Restructure the Delivery System
Mandatory MCOs?
 Eliminate practice variations?

G. Medicare: Balance of
Payments/State
Oregon Taxpayers pay out $385 Million
more than we get from Medicare
 Wash DC, receive $638 millions over
what they paid in taxes
 Florida receive $6,822 millions
 Pennsylvania receive $2,408 millions

IV. Health Care Finance: A Global
Perspective: Australia, Canada,
Germany, UK & Sweden
Harvard, Commonwealth Fund
Study-AU, Canada, NZ, UK, US
25% of respondents said their system
works “pretty well”
 One in three called for “complete
rebuilding”-US, NZ, AU
 23% of Canadians, 14% of UK would
“completely rebuild”

Major Concern
US-Affordability
 Canada, NZ, UK, -Gvt Funding
 AU, NZ, - Waiting Time

US
US families are most likely to report
access to care problem US has the highest proportion reporting
a time when they did not get needed
care
 US-28% say getting needed care is
“difficult”
 US-one in three have no regular MD

Access to Care

Canada and NZ - Access problem similar to
those in US
 Canadians are particularly concerned about
access to specialists-50% say its difficult
 Waiting Times-non emergency- longest in UK,
shortest in US
 44% of UK pts-MD will come to their home
nights/weekends. (UK residents least likely to
report access difficulties
Western European Health Care Reforms
(Health Affairs-Mar/Apr 99) WHO Study
Four Reform Themes
 1. Roles of State and Market
 2. Decentralization
 3. Patient’s Rights
 4. Role of Public Health

1. Role of State and Market
Presumption of public primacy is being
reassessed
 Some countries use elements of both
 Combining market-style incentives with
continued public sector ownership and
operation of facilities

2. Decentralization

Decentralization of administrative and
sometimes policy authority to lower levels in
the public and private sector
 This requires a supportive environment of:



Sufficient local Adm. and mgt. capacity
ideological certainty in implementing tasks
readiness to accept several interpretations of one
problem
3. Patients’ Rights
More patients want a greater say in
selecting a MD or hospital
 Also want some say re clinical matters

4. Role of Public Health
Issues of health promotion and disease
prevention exist
 In practice, health services have a
limited impact on health status of a
population
 Education, housing, employment, &
agriculture have a greater impact

Strategies for Policy
Intervention-WHO
1.
 2.
 3.
 4.

Confronting Resource Scarcity
Funding Health Care Systems
Allocating Resources
Delivering Services
1. Confronting Resource
Scarcity
Cost control--demand side
 1. Cost sharing - most place little
emphasis on pt co-pays
 2. Priority setting - Always existed in
Europe and was focused on implicit
choices made by MDs to explicit choices
made by a public political process


have restricted payments for a few things
1. Con’t

3. Supply Side strategies
a wide range of things here such as
 reducing MD production
 # of hospital beds
 controlling price of health care workforce
 global budgets
 changing ways providers are paid...

2. Funding Systems

UK, Nordic Countries, Ireland--predominantly
tax-funded system and have universal access
 These countries are committed to a public
sector role
 Austria, Belgium, France, Germany,
Luxembourg, Switzerland--long established
statutory ins based systems
 Are social ins systems & similar goals
3. Allocating Resources





1. Direct contracting (UK)
And this is an alternative to traditional
command and control
Gvt acts as a purchasing agent for citizens
2. Payment shifts
Change to performance related approaches
(ffs tied a negotiated schedule/capped
spending...
4. Delivery Services Efficiently
Quality of care programs
 Outcomes assessment
 Clinical guidelines
 Problems are in lack of good data

How has all this worked?
Supply side reforms have worked quite
well-limit amt spent
 Demand side-less successful
 The few countries that tried to
incorporate privately accountable payers
within a public structure encountered
problems-Dutch, Swedes,

How is it worked?
Many European countries have rejected
cost sharing because of problems
related to equity,
 Are now looking hard at Rx copayments…
 But universal coverage remains a
bedrock of their cultures

Australia
Private ins in in a death spiral
 Gvt wants to give private ins holders a
30% rebate
 Gvt has shifted many costs to private
sector in recent years, so people quit
and went back to public programs
 Private system will fail given current
trends without cost relief from gvt

Canada
Each province has its own system, with
fed/provincial funding-a Universal system
 Fed share of funding has declined-increasing local funding problems
 Some provinces have cut more than
others

Canada in 2002-Health Care
Reform Top Political Issue
Majority of citizens believe system needs
reforming
 Medical Savings Accts/Improve Primary
Care Delivery/Contract with private for
profit providers etc.
 Budget Problems driving change

Canada Waiting Times

Cancer pts wait 3 x longer than US pats for
treatment (1/3 longer than Canadian MDs
thought ok)
 Weighted Ave wait for surgery is 6.8 weeks,not including wait to see surgery specialist of
5.1 weeks
 Diagnostic assessment (MRI…) 3.7-11.1
weeks varies by province
 MDs in BC went on strike last month
Germany

Has a century old universal system
 Is an employment based ins system founded
by Chancellor Bismarck in 19th Century
 Past 20 yrs-passed laws trying to control costs
and keep premium growth from exceeding
employee incomes
 Most recent attempt is 1992 Health Structure
Law
Germany-Health Structure Law
Imposed global budgeting on MDs
 Placed limits on # of MDs who be
admitted into Ins Practice
 Fixed budgets for hospitals
 Accelerated DRG system
 Tight controls on Rx costs
 Fundamental change locked in political
stalemate

Germany

Political stalemate It’s legal system largely blocks market driven
changes
 It has a national “any willing provider law”
 Has unified physician self governance (Direct
relationships between docs or groups of docs
and health ins funds is not possible)
UK
NHS was created in 1948-is a publicly
financed system-universal access
 PM Thatcher introduced reforms in 1991
 GPs and Hospitals could become mini
HMOs & have capitated risk for an pre
determined # of pts

UK





Concept partly developed by Prof.. Alain
Entohoven of Stanford author of “Managed
Competition”
GP & Hospitals compete for patients using
public dollars
-sounds to me a lot like the OHP
NHS hospitals are now called Trusts
Primary care providers now form General
Practice fundholders
UK
has it worked?
 PM Tony Blair’s government has
dismantled the competition experiment in
favor of more central control.
 Health Affairs Article 2002.

Sweden

Developed reforms like UK
 The changes caused major problems






lack of trust between providers/purchasers
gvt feared losing control
posed a threat to their fundamental principles of
equal access
(prbls-lack of total cost control,poor mgt., gvts need
for central control)
2002 1 out of 6 working age Swedes is off work
because of illness or injury.
Disability pensions often larger than work income.
16% of ntl budget
END