Pharmacy and the Health Care SystemFall 2005

1
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

2
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
• What causes medical care spending to
  increase?
• Who pays for medical care?

3
Health Economics -cont.

• 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?

4
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

5
What is a Professional

• Expected to exercise special skill and care
• Has clients not customers
• Places clients interest first
• A customer determines services/goods wanted
• Prof is held to a higher standard of behavior

6
The Five Elements of a Profession

• 1. A Body of Knowledge
• 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

7
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 professionals judgement

8
The Five Elements of a Profession

• 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

9
The Five Elements of a Profession

• 4. Code of Ethics
• Virtually all professions have one
• May or may not be as important today as they once
  were

10
The Five Elements of a Profession

• 5. Professional Culture
• 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

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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 clients 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

12
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

13
Major Elements of Health Care System Sources of
Conflict
14
Health Care Organizations by Type of Ownership

• Unmanaged Indemnity
• Managed Indemnity (PPO Plus Indemnity)
• IPA HMO
• Staff HMO
• PHO HMO
• Physician owned HMO
• ????

15
System Composition and Characteristics
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SYSTEM COMPOSITION

• Providers
• Purchasers
• Regulators

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PROVIDERS

• People
• Organizations
• Hospitals
• MCOs
• PPOs
• Clinics
• PBMS

18
PURCHASERS

• Self Insured Employers-Private Sector
• Government - Medicare/Medicaid
• Insurance Companies/Agents
• Insurance Brokers/Insurance Consultants
• Business Coalitions on Health

19
Regulators

• Board of Pharmacy
• Food and Drug Administration (FDA)
• Drug Enforcement Administration ( DEA)
• Elected State and Federal Legislators

20
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
22
Five Basic Characteristics of the Health Care
System

• 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

23
Evolution of National Health Policy

• Six Stages of National Policy
• 1. The Beginning
• 2. Categorical Grants in Aid
• 3. Decades of Investment
• 4. Organization and Delivery of Service
• 5. Decade of Transition
• 6. Managed Care Era

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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

27
Categorical Grants (1935-1945) 2nd Stage

• 1930s focused attention on public health issues
• States could not handle public health problems
• Social Security Act of 1935 addressed some of
  these issues

28
Social Security Act

• Originally was Social Health Ins. Act
• Provided money for
• child health programs
• establish and maintain various public health
  programs

29
Social Security Act

• 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)

• The need for investment in basic health resources
  became evident
• Congress passed the Hill Burton Act-1946
• Funded 4,000 health buildings (hospitals etc..)
• Mandated that hospitals give free care for 20
  yr..
• Cost 4 billion

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Decades of Investment

• Congress also funded medical research
• cancer, heart, mental health

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Decades of Investment

• Belief at that time was spending on developing
  health resources
• Would increase access to care
• 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)

• 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

34
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

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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

• 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

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Part D-cont

• Any Medicare eligible can enroll-benefit is
  voluntary
• Cant 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

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Part D Costs

• 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.

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Drug Discount Cards 2004-2005

• 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

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Rx Drug Coverage and Seniors

• 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

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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)

• 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
• 1. Review health care paid for by Medicare and
  Medicaid
• Review Quality
• To Assure Appropriate Utilization of Services

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PSRO- CONT

• 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

50
PSRO-CONT --PROs

• 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...

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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
• no network of pharmacies/hospitals or doctors...

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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
• A true consumer CO-op

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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
• Does not contract out for pharmacy services
• -such as using community pharmacies

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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

• Patient
• wants rich benefit package/low cost/high quality
• Purchaser
• wants rich benefit package/low cost/high quality
• Provider
• high quality and high income

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Various HMOs

• Cigna (Ins. CO.)
• Regence (BCBS-Or)Network
• CareOregon (Academic)
• Good Health Plan ( Sisters of Providence)

66
Various HMOs

• Select Care
• ODS HMO (Ins. CO.)
• Mid Valley IPA-Salem.

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HMO Growth-Market Share

• Overhead

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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 Cont

• Centralized Data Analysis
• Profile Physician treatment/prescribing patterns
• Hospital Contracting (fixed payments/bed days)
• Patient Profiling
• Disease management-Osteoporosis example
• Pharmaceutical Care
• Drug Use Review

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(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

• Provider networks
• 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

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4.(PBMs)

• Pharmacy Benefit Mgt. CO.
• For and non profit corporations contracted to
• Manage the pharmacy benefit for
• Insurance companies/MCOs/private employers, Gvt

73
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

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PBM Examples-CON'T

• Diversified Pharmaceutical Services (DPS)
• Originally owned by United Health
  Care-Minneapolis
• Then by Smith Kline Beecham-UK
• Now ??

75
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?

76
PBMs Unregulated Private Monopoly?

• Top 3 PBMs 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)

• Definition Systems, programs or actions aimed
  at controlling health care utilization, costs and
  promoting quality improvement
• Goals
• 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

78
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-CareOregon-OHSU

79
Todays 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

84
4. PHO (physician hospital organization)/Group
IPA

• Formal Peer Review
• Provider Panel in place
• Payment to providers using withholds/Capitation
• Community Rated

85
5. Staff HMO (Kaiser)

• Formal peer review
• Uses Protocols
• Providers are employees/on salary
• Group Practice

86
6. Equity HMO (MidValley IPA-Salem)

• Formal Peer Review, Protocols
• Provider Panel
• Profit Sharing among docs
• Owned by Doctors

87
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

88
Factors Causing Delivery System to Change

• 1. Declining Hospital Use
• 2. Purchaser Pressure to reduce costs(Public and
  Private)
• 3. MD numbers

89
1. Declining Hospital Use

• Diagnosis Related Groups (DRG Payment System)
• 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

90
Purchaser Pressure to Manage Costs

• Increased contracting by employers with HMOs
• Increased demand for performance/accountability
• Increased employer sophistication

91
MD Numbers

• 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

92
Common Characteristics of Managed Care
Organizations

• Factor Provider Panel/Fee Schedule/UR
  Utilization Review
• FOC (freedom of choice of provider)
• Assume Risk
• Sells insurance

93
How Employers Select/Evaluate an HMO

• Handout/Overhead

94
NCQA Stds now include Health Outcomes

• 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.

95
Accreditation

• NCQA accredits MCOs
• Joint Commission accredits hospitals
• Joint Commission on Accreditation of Health
  Organizations
• will move to accredit MCOs also

96
1935-1996 - Legislative History

• 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

97
1935-1996 Cont

• 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

98
1935-1996 Cont

• 1990 OBRA 90 (Omnibus Budget Reconciliation Act)
• (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

99
1935-1996 Cont

• HIPAA (Kennedy Kassenbaum Act)
• Main focus is security of patient data-Privacy
• Makes Ins portable from job to job
• discussion

100
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

101
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)

102
Hospitals - General Stats (2001)

• Federal Hospitals 264
• Community Hospitals 4,956
• Not for profit Community-3,012
• For profit Community-747
• State/Local Gvt-1,197
• Handouts for 2002 stats

103
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

104
Hospitals are Accredited

• by Joint Commission
• Need accreditation to participate in
  Medicare/Medicaid/residencies
• Joint Commission
• includes AHA, AMA, Am Society Health Systems
  Pharmacists

105
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

106
MD CON'T

• MD gains hospital admitting privileges upon
  review of medical staff

107
RPh Specialties

• LTCF/Geriatric
• Nuclear Pharmacy
• Institutional Based Clinical Practice

108
Health Care Costs.

• Overheads handout

109
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.

110
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.

111
Aging Trends Ratio of People Age 2064 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)

112
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

113
General Causes of Cost Increases

• Demand Factors
• Supply Factors

114
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

115
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

116
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)

117
Seat Belt Use

• non seat belt user cost 150 more to treat
• than a seat belt user in same type of accident

118
Lifestyles that increase costs (handouts)

• lack of exercise
• xs weight
• smoking
• hypertension
• cholesterol
• lack of seat belt use

119
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

120
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

121
Why Do Hospital Costs Increase

• Staff Salaries
• Technology
• Uncompensated Care
• General Costs of doing business

122
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

123
Rx Spending by Year (Billions )

• 1999 105
• 2000 121
• 2001 139
• 2002 160
• 2003 184
• 2004 212

124
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

125
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

126
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 7014.3 yrs
• Those with at least one limitation in activity of
  daily living 11.6 yrs

127
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

128
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)

129
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

130
Average Rx Co-pays-Generics

• 2000 7.00
• 2001 8.00
• 2002 9.00
• 2003 9.00

131
Average Rx Co-pays-Preferred Brand

• 2000 13.00
• 2001 15.00
• 2002 17.00
• 2003 19.00

132
Average Rx Co-pays Non-Preferred Brand

• 2000 17.00
• 2001 20.00
• 2002 25.00
• 2003 29.00

133
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

134
5. Formularly

• List of Drugs paid for by the plan
• Developed based on therapeutics and cost

135
6. Generic Drugs

• Mandated by some plans
• always less expensive
• are all generics therapeutically equivalent to
  brand counterpart???
• Lanoxin, Theodur, Premarin, Tegretol...

136
7. Therapeutic Substitution

• Exchanging one brand drug for another
• must have MD OK
• Amoxicillin for Penicillin
• Naprosyn for Ibuprofen

137
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

138
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

139
10. Benefit Design

• Lower out of pocket for Rx increases utilization

140
11. Treatment Protocol

• Lipid Example/Cardiovascular Risk Assessment
• Group Health Evidenced Based Medicine-CD

141
Hospital Cost Management

• DRG Diagnosis Related Group
• Fixed Fees for Hospital Procedures
• Established by Medicare
• Commonly used by Ins. companies
• Risk Assumption

142
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

143
Utilization Review Programs

• 1. Hospital Based
• Pre Admission Certification
• On Site Review
• Concurrent Review
• Severity of Illness Reporting by MD
• show overhead

144
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

145
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

146
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

147
3. Drug Utilization Review (DUR)

• Inpatient. Focuses on use of target Rx items
  ie., antibiotics
• Outpatient Focuses on medication use patterns

148
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

149
DSM (from RPh point of view) involves

• linking Community Based RPh clinical services
• to MCO
• and document outcomes
• Handouts-Ashville Project

150
DSM

• promotes patient education and responsibility
• RPh works to improve Rx compliance
• to improve adherence to treatment protocol

151
Rationing

• Occurs in all health care systems based on
• money
• coverage
• waiting time

152
Methods to Monitor Health Care Quality
153
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

154
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

155
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

156
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

157
Quality Assurance (QA Programs)

• Organization establishes a minimum std of
  performance
• Develops ways to measure whether or not the std
  was met
• Measured statistically

158
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

159
Measuring the Quality of Care

• Structure-equipment
• Process-how the equipment was used
• Outcome-what were the results

160
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

161
Cost of Illness Analysis

• Calculate the Cost of a Disease i.e.., how much
  is spent on Diabetes each year??

162
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 ?

163
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

164
Cost Effective Analysis

• Measures costs in relation to therapeutic
  objectives in natural units
• Cost to reduce blood pressure x number of points

165
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 patients preference for
  his or her quality of life when taking chemo.

166
Section II. Health Economics
167
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 patients
  health status?
• Why is government so intimately involved in
  medical care and the production of health?

168
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?

169
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

170
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

171
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

172
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

173
IV. Health Care Finance-Global-Australia,
Canada, Germany, UK, Sweden

• A. Financing Mechanisms
• B. Organization of Delivery Systems
• C. Problems
• D. Reorganization Efforts

174
I (A) Unique Aspects-Health, Health Econ and
Medical Care

• Government Involvement
• Uncertainty
• Asymmetric Knowledge
• Externalities
• Participants

175
Government-State

• Licenses health care providers/facilities
• State Health Insurance Commissioner
• Local Public Health Clinics
• Others

176
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)

177
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)

178
Externalities

• One persons 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

179
Participants

• Government
• Individual Consumers
• Employers
• Benefit Consultants
• Politicians
• Consumer Groups
• Insurance Companies

180
(B) Health Care From an Economic Perspective

• Health as a Durable Good
• Health as a Public Good
• The Production of Health

181
Health as a Durable Good

• Health is a good that increases a persons
  utility
• People seek medical care to maintain/increase
  their health/utility

182
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?

183
Health as a Public GoodWall 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

184
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

185
Health as a Public Good1997 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

186
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

187
The Production of Health

• Involves
• Medical Care
• Individual Behavior
• Environmental Factors
• Economic Factors
• Others

188
(C) Factors Influencing Demand for Medical Care

• 1. Illness Events
• 2. Systematic Factors
• 3. Consumer Beliefs
• 4. Provider Advice
• 5. Income
• 6. Money Price
• 7. Time Price
• 8. Medical Care Supply

189
(C) Factors Influencing Demand for Medical
Care-cont

• 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

190
1. Illness Events

• Overall Disease Trends in the 20th Century
• Issues in Infectious Diseases
• Antibiotics
• Iatrogenic Disease (Hospitals)
• Chronic Diseases and Infections

191
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

192
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

193
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

194
Cause of Death World-Wide 1995 ( WHO)

• 51.9 Million Deaths
• 33 Infectious Disease
• 67 Other

195
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

196
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

197
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

198
Antibiotic Prescribing Trends

• Towards more powerful new products (Zithromax,
  Biaxin)
• Increasing Dose of Amoxicillin
• Influenced by
• Patient Compliance
• MD MCO Payment
• Local Resistance Trends

199
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

200
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)

201
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

202
Iatrogenic Hospital Disease

• Approx. 3 hospitalized pts/1000 die-ADE
• Approx. 1 will have long term effects-ADE
• Hospital Information systems reduce incidence of
  ADEs
• Some ADEs can never be stopped (Stevens-Johnson
  Syndrome)
• 4 articles in handout

203
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

204
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

205
2. Systematic Factors

• Rate at which health depreciates over time
• Age, Sex, Occupation, Behavior, Race, Inherited
  factors...

206
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

207
4. Provider Advice

• Patients dont always follow expert advice
• non compliance (Rx , treatments - )
• OSU Ph D study ( Public Health Pharmacy)

208
5. Income

• Individual
• Economy in General
• Health Insurance
• Government subsidies ( Transfer Payments)
• Medicare
• Medicaid
• Public Health Programs
• Others??

209
6. Money Price

• Cost of health care items
• Out of pocket costs--co payments, deductibles...
• Cost of Health Insurance Premium

210
7. Time Price

• Your Personal Time to see a physician, schedule
  something...

211
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 population-yr.??
• Varies considerably by geography and local wealth
• Rural-20 of USA pop. 9 of MDs

212
9. Changing Inputs into Outputs-Quality 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

213
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

214
Does Quality Care Drive Market Share

• New York States 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?

215
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.

216
10. Input Costs and Final Product Price

• What controls the Final Product Price of a health
  care item?

217
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

218
12. Organizational Structures

• Managed Care

219
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

220
US Health Care System Drivers of Change

• Employers
• Insurers
• Gvt
• Citizens
• Employees
• Consumer Choice
• Patients Physicians
• Hospitals Product Suppliers Dis.Mgt.
• Technology

221
13. Final Product Price

• Established by Insurance co., HMO, Gvt

222
14. Individual Behavior and Public Consequences

• Obesity-Body Mass Index ( BMI) ntl
  22228.6-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

223
Habits Ill take fries with that

• Obesity
• Sedentary life
• Tobacco
• Risky behavior

224
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225
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226
Modifiable Factors Associated with Deaths USA 1990
of deaths
227
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228
Prevalence of Overweight among U.S. Adults,
BRFSS, 1989
Source Mok