Medicare, Cost Shifting and Universal Coverage: The Economic Unraveling of U.S. Health Care

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Medicare, Cost Shifting and Universal
CoverageThe Economic Unraveling of U.S. Health
Care

• RAM/AMA -- VCU School of Medicine
• March 2008
• Rick Mayes

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OVERVIEW

• This presentation examines
• major economic trends in U.S. health care system
• The phenomena known as cost shifting and
  provider segmentation, the medical arms race
  they are fueling, and the implications for
  doctors, hospitals, and patients.
• growing concerns and potential reforms

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Source OECD Data 2007
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BACKGROUND

• Since 2000 . . .
• health insurance premiums have increased more
  than 78
• (versus 18 in general inflation and avg. wage
  growth)
• - avg. cost of single coverage (4,500
  annually in 2007)
• - avg. cost of family coverage (12,000 annually
  in 2007)
• The percent of companies offering health
  insurance to their workers has fallen from 69 in
  2000 to approx. 58 in 2007
• (6 million working Americans have lost their
  coverage since 2000)

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Health Insurance Premiums Declining Coverage
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Consequences Care Postponed Never Received
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Extreme Consequences Bankruptcy Earlier Death

• 50 of uninsured patients have debts from
  previous medical care a 1/3rd are being pursued
  by collection agencies
• Uninsured women with breast cancer are twice as
  likely to die as women with breast cancer who
  have health insurance.
• (Kaiser Commission, 2002)
• Men without health insurance are nearly 50 more
  likely to be diagnosed with colon cancer at a
  later, more dangerous stage than men with
  insurance.
• (Kaiser Commission, 2002)
• Upwards of 750,000 families are bankrupted by
  medical debt each year, even though 80 of them
  have some form of health insurance single
  largest cause of bankruptcy (Health Affairs,
  2005).

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Arnold and Sharen Dorsett with their children,
Dakota, Zachery and Jessica, back. Though they
had insurance, health-care costs for Zachery led
the Dorsetts to file for bankruptcy this year.
Nicole Bengiveno/The New York Times
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Four Key Facts about U.S. Health Care

• 1. 16 of the U.S. population is uninsured (huge
  financial drain on state governments and medical
  providers, as well as a major cause of immense
  human suffering and decreased economic
  productivity)
• 2. Each year, approximately 20 of the insured
  and uninsured populations in the U.S. drive
  roughly 80 of all health care spending and
  consumption.
• 3. Health care involves high fixed costs
  (buildings, equipment, salaried personnel,
  overhead) and low marginal or variable costs
  (Rx drugs, food, paper, gloves, gowns, tests).
  example an MRI
• 4. There are several payers (Medicare,
  Medicaid, employers, health insurers,
  individuals) but only one set of medical
  providers (doctors, hospitals, nurses, etc.),
  which fuels financial gamesmanship by health
  insurers and providers.

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Cost-Shifting Hydraulic for Doctors Hospitals
B C MarginContribution
130
B
120
Cost Shift
C
A
110
Cost
100
Shortfall
Margin
90
80
70
Payment-to-Cost Ratio
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Below Cost Payers
Above Cost Payers
50
40
30
20
10
10
80
90
70
60
50
40
30
20
0
100
Percentage of Market Share
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Physicians Cost-Shifting (or Differential
Pricing)
Source The Lewin Group, The American College of
Emergency Physicians (ACEP) Practice Expense
Study, for the American College of
Emergency Physicians.
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Community Hospitals the Role of Cost-Shifting
Source The Lewin Group analysis of data
contained in AHA TrendWatch Chartbook Trends
Affecting Hospitals and Health Systems.
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Source American Hospital Associations Annual
Survey of Hospitals (n6,800 hospitals), 2006.
Pearsons correlation coefficients
1984-1997 Medicare and Private ratios r
-.86 1980-2004 Medicare and Private ratios r
-.79 1984-1997 Medicaid and
Private ratios r -.39 1980-2004 Medicaid and
Private ratios r -.64
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Growing Concerns

• The ultimate cost shift employers passing on a
  larger and larger share of their increased health
  care costs to their employees in the form of
  higher monthly wage deductions and/or increased
  co-payments, deductibles, and out-of-pocket costs
  (especially for employees dependents).
• Beyond this strategy, more and more employers
  have simply stopped offering health insurance
  (16 of the U.S. population is uninsured 46
  million individuals or the aggregate population
  of 24 states, 2005)

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Economic Incentives Health Care

• The segmentation and migration of medical care to
  non-hospital settings
• - free standing diagnostic imaging centers
• - ambulatory surgery centers (ASCs)
• - physicians concierge medical practices
• Health Savings Accounts (HSAs) and the decline
  of risk-pooling provided by group health insurance

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Migration of Medical Care Provision is Increasing
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Outpatient surgery is also rapidly migrating to
non-hospital settings
Percent of Outpatient Surgeries by Facility Type,
1981-2005
Physician Offices
Freestanding Facilities
Hospital-based Facilities
Source Verispans Diagnostic Imaging Center
Profiling Solution, 2004. 2005 values are
estimates.
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as the number of ambulatory surgery centers
(ASCs) has increased rapidly.
Number of Medicare-approved ASCs, 1997-2004
Source MedPAC, A Data Book Healthcare Spending
and the Medicare Program, June 2005
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and 83 percent of ASCs are wholly- or
partly-owned by physicians.
Ownership Structures of ASCs, 2004
Source American Association of Ambulatory
Surgery Centers. ASC Ownership Survey. February
2004.
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Self-referral has been linked to increased
utilization of diagnostic services
Number of Imaging Services Ordered per
Physician-owner vs. Non-owner
Source United States Government Accountability
Office, Medicare Referrals to Physician Owned
Imaging Facilities Warrant HCFAs Scrutiny,
GAO/HEHS-95-2, Oct. 1994.
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and financial incentives influence where
physician-owners direct and treat patients.
Orthopedic Surgeries Performed by
Physician-owners at a Full-service Community
Hospital Before and After Ambulatory Surgery
Center Opening, October 1995 - September 1998
1st full month of ASC operation
100
80
Hospital Outpatient Surgery Cases
60
40
20
0
10/95
1/96
7/96
1/97
7/97
1/98
7/98
Source Lynk WJ and Longley CS. (2002). The
Effect of Physician-owned Surgicenters on
Hospital Outpatient Surgery. Health Affairs 21
218.
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• POLICY implications of the significant rise in
  physician-owned, for-profit
• ambulatory surgery centers, specialty hospitals
  diagnostic imaging centers
• 1.) prospects for improved quality, lower
  costs, and more professional autonomy
• - Adam Smith and the advantages of
  specialization (e.g., pins and focused
  factories)
• 2.) financial impact on community hospitals
  fair or unfair competition?
• - cherry picking the best-insured private
  patients by, largely, for-profit entities
• - skimming lower-cost, healthier Medicare
  cases within individual DRGs
• - cardiac, orthopedic, radiological services
  huge proportion of hospitals net revenues
• 3.) impact on communities overall access to
  care
• - declining volume smaller patient
  populations make charity care harder to provide

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Segmentation of U.S. Health Care System
Increasing Concierge Medicine
Patients like Ilse Kaplan, left, receive more
personal attention from Dr. Bernard Kaminetsky in
exchange for an annual fee of about 2,000.
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Median Compensation for Selected Medical
Specialties
Woo B. N Engl J Med 2006355864-866
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Family Medicine Residency Positions and Number
Filled by U.S. Medical School Graduates
Bodenheimer T. N Engl J Med 2006355861-864
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Proportions of Third-Year Internal Medical
Residents Choosing Careers as Generalists,
Subspecialists, and Hospitalists
Bodenheimer T. N Engl J Med 2006355861-864
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Percent Change between 1998 and 2006 in the
Percentage of U.S. Medical School Graduates
Filling Residency Positions in Various Specialties
Woo B. N Engl J Med 2006355864-866
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Segmentation of U.S. Health Care System
Increasing HSAs
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The Moral Hazard Argument Against Expanding
Health Insurance Coverage

• Moral Hazard term used to describe the
  paradoxical fact that insurance can change
  behavior of the person insured.
• example employer-provided donut insurance
  (e.g., 5 cent co-pay)
• avg. annual amount spent on medical care (by
  uninsured person) 934
• avg. annual amount spent on medical care (by
  insured person) 2,347
• Conclusion I co-pays, deductibles, utilization
  reviews make patients use
• health care more efficiently (frugally,
  wisely, sparingly)
• Conclusion II instead of expanding group health
  insurance, reduce it

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The Moral Hazard Argument Against Expanding
Health Insurance Coverage

• Fallacy I Moral-hazard argument only makes sense
  if we consume health care in the same way we
  consume donuts (or car repairs or consumer
  goods).
• Fallacy II Having to pay for your own care does
  not automatically make ALL of your health care
  consumption more efficient. How could it?
• example wifes appt. with dermatologist
• Reality cost-sharing is a very BLUNT instrument
• example RAND Corporations Health Insurance
  Experiment (1971-86)
• BOTTOM-LINE health insurance is moving in the
  actuarial direction (similar to car insurance)
  and away from the social insurance model with
  enormous consequences

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Two Exit Questions to Think About

• What do providers have to do when every payer
  only
• wants to pay the marginal cost?
• Ultimately, who is responsible for the common
  good
• (i.e., graduate medical education, charity
  care,
• medical research) in a competitive market?