Pharmacy and the Health Care System-Fall 2005 Lee R. Strandberg, Ph.D. Emeritus Professor Pharmacy Economics and Pubic Health & Director, Managed Care.
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Pharmacy and the Health Care System-Fall 2005
Lee R. Strandberg, Ph.D.Emeritus Professor Pharmacy Economics and Pubic Health&
Director, Managed Care PharmacySamaritan 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 What causes medical care spending
to increase? Who pays for medical care?
Health Economics -con’t.
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 ProfessionalThe Five Elements of a ProfessionThe Importance of Client TrustProfessional and Business Ethics
What is a Professional
Expected to exercise special skill and care
Has clients not customersPlaces client’s interest firstA customer determines services/goods
wantedProf is held to a higher standard of
behavior
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
The Five Elements of a Profession
2. Professional AuthorityClient acknowledges the superior
competence of the professionalClient surrenders a portion of own
autonomy to the professionalClient trusts the professional’s judgement
The Five Elements of a Profession
3. Community Sanctions Include restrictions on use of a professional
titleLicensure requirements imposed by the
StateAccreditation of academic programsGranting professional privileges ie., duty
( right) to respect client confidentiality
The Five Elements of a Profession
4. Code of EthicsVirtually all professions have oneMay or may not be as important today as
they once were
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
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
F in an c in gM ech an ism s
P riva teP u b lic
H ea lth C areP rovid ers
S econ d aryP rovid ers
A cad em ic ,A ssoc ia tion s
C on su m ers
Health Care Organizations by Type of Ownership
Unmanaged Indemnity Managed Indemnity (PPO Plus Indemnity) IPA HMO Staff HMO PHO HMO Physician owned HMO ????
System Composition and Characteristics
SYSTEM COMPOSITION
ProvidersPurchasersRegulators
PROVIDERS
PeopleOrganizations
HospitalsMCOsPPOsClinicsPBMS
PURCHASERS
Self Insured Employers-Private SectorGovernment - Medicare/MedicaidInsurance Companies/AgentsInsurance Brokers/Insurance
ConsultantsBusiness Coalitions on Health
Regulators
Board of PharmacyFood and Drug Administration (FDA)Drug Enforcement Administration ( DEA)Elected State and Federal Legislators
Determinants of Health
Physical Environment-Food, Housing...Social Environment-Education,
Income…Biological Status-Age, Sex, GeneticsHealth Services-Delivery System,
Technology, PreventionBehavior
System Characteristics
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
Evolution of National Health Policy
Six Stages of National Policy1. The Beginning2. Categorical Grants in Aid3. Decades of Investment4. Organization and Delivery of Service5. Decade of Transition6. 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
The Beginning
Major Debate Centered on State Vs Federal Rights
Who Should be Responsible for Public Health
Debate Ended in Court Ruling in 1893Debates Started in Court in 1796
The Beginning
The System is still slow to respondGovernment moves into areas ignored
by the market
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
Social Security Act
Originally was Social Health Ins. ActProvided money for
child health programsestablish and maintain various public health
programs
Social Security Act
Two consequences1. Decision making shifted from local to
national2. Increased involvement to non health
professionals in health issues
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
Decades of Investment
Congress also funded medical researchcancer, heart, mental health…
Decades of Investment
Belief at that time was spending on developing health resources
Would increase access to careHowever, it did not increase accessProblems remain with uninsured, rural poor,
urban poor, rural in generalProviders tend to locate around population
centers
4th Stage: Organization and Delivery of Services (1963-1966)
Three major themes1. Provide Consumers with money to buy
health care2. Emphasis on organization and delivery
of care3. Emphasis on health care planning as a
means to control costs
Medicare. Amendment to Soc......... Sec Act in 1965
Targets those over 65 (can qualify for some features even if younger)
Is an insurance programIs a Federal Program
Medicare Part A Covers
Hospital StaysSkilled nursing facility careSome Home Health CareHospice CareNo Premium$110 Deductible-2005
Medicare Part B Covers
Doctors’ ServicesOutpatient hospital servicesHome health careMonthly Premium $78.20-2005
Medicare Part D-Prescription Drugs
Drug Program Effective Jan 2006Monthly premium-$35Beneficiary pays first $250 in drug costsPays 25% of total drug costs between $250
and $2,250Patient 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)
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
Part D-con’t
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
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
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
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
Medicaid. Amendment to Soc......... Sec. Act in 1965
Targets needy and low income of any ageIs an assistance programIs a federal state partnershipProvides 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)
Medicaid
Congress recently limited the number of years a person can be on Medicaid (able bodied adult)
Covers out patient medicineDefine inpatient, outpatient, ambulatory
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
Fifth Stage: Decade of Transition ( 1967-1987)
Addressed Development of Comprehensive Delivery Systems1. Professional Standards Review
Organizations (PSRO)2. Health Maintenance Organization
(HMO)3. Preferred Provider Organization (PPO)4. Pharmacy Benefit Management
Companies (PBMs)
(1) PSRO -Amendment to Social Security Act
Passed in 1972 by US CongressPurposes
1. Review health care paid for by Medicare and Medicaid
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
PSRO-CON’T --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...
PROs
Much of its work already being done by current managed care organizations
But remains an independent verification of work done by others
(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 fedsRegence HMO started this way via
Capitol Health Care in Salem mid 1970sPurpose was to stimulate development
of cost management
HMO Definition
An organization which assumesResponsibility for financing and
developingComprehensive package of health
benefitsGuarantee to provide care to an enrolled
Pt. population For a fixed prepaid premium
HMO Vs Indemnity Insurance (Major Medical)
HMO is an insurance CO + a delivery system
Major Med is only an insurance companyIndemnity (to protect against loss)
HMO Vs Indemnity Insurance
HMO guarantees to provide health care services
Major Med-you find your own health care providersno 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???
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
How did HMOs start?
Grand Coulee Dam Project -1930sKaiser Construction Company needed
health care for workersSpun off as a separate company after
W.W.IIGroup Health Coop-mid 1940s Seattle
A true consumer CO-op
Three Major Types of HMOs
StaffIPA (Independent Practice Assoc.........)Group
Staff HMO (i.e............, Kaiser)
Salaried MD, RPh, NursesOwns on hospitals/clinicsIn House Pharmacies
Does not contract out for pharmacy services -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
Group Model (i.e............, Pacific Care)
Contracts with medical clinics (exclusive)Contracts out for pharmacy services and
all other providersPhysicians paid on a fee schedule
and/or risk assumption
POS-Point of Service Model
Variation of all previous modelsAllows patient to select non panel
providers and pay more
HMO Issues from Consumer/Provider/Purchaser Viewpoint
Patientwants rich benefit package/low cost/high
qualityPurchaser
wants rich benefit package/low cost/high quality
Providerhigh quality and high income
Various HMOs
Cigna (Ins. CO.)Regence (BCBS-Or)NetworkCareOregon (Academic)Good Health Plan ( Sisters of
Providence)
Various HMOs
Select CareODS HMO (Ins. CO.)Mid Valley IPA-Salem.
HMO Growth-Market Share
Overhead
What Tools are used by Managed Care and Employers to Manage Costs?
Lower Hospital AdmissionsDrug Formularies (list of drugs pd for by
HMO)Treatment ProtocolsPrescribing Protocols (what to prescribe)Providers at Financial Risk-Changes
treatment patterns/incentives
Cost Mgt Con’t
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
(3) Preferred Provider Organizations (PPO)
Contractual arrangement among providers
and employers, / ins. companies.., to provide services to a defined pop. of
patientsat established fees Does not assume financial risk
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
4.(PBMs)
Pharmacy Benefit Mgt. CO.For and non profit corporations
contracted toManage the pharmacy benefit forInsurance companies/MCOs/private
employers, Gvt
PBM Examples
1. Advance PCS--Originally owned by McKesson Wholesale Drug
CO, Eli Lilly then Rite AidMerger with Caremark underway2. Medco-PAID PrescriptionsOriginally owned by Calif. Pharmacists
AssociationSpun 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
Diversified Pharmaceutical Services (DPS)Originally owned by United Health Care-
MinneapolisThen by Smith Kline Beecham-UKNow ??
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?
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.
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
Managed Care Organizations (MCOs)by ownership (MCO is new name for HMO)
Hospital-Sisters of Providence-The Good Health Plan
Insurance Company-HMOO-BluesStaff Model-Kaiser/Group Health
CooperativePhysician-COIHS/Family CareAcademic Medical Center-CareOregon-
OHSU
Today’s MCOs Possess:
Superior data analysis technologyMore Provider risk assumptionMore emphasis on medical outcomesEnhanced purchaser sophistication
drives more accountabilitySuperior Medical and Drug Technology www.vips.com/ MC Source
Health Insurance Continuum
1. Pure Indemnity 2. Modified Indemnity3. PPO4. PHO/ Group IPA HMO5. Staff “Pure HMO”6. Equity HMO7. Consumer Choice Model/Medical
Savings Accts www.myhealthbank.com
1. Pure Indemnity
No Utilization ReviewNo Provider SelectionTotal Freedom of ChoiceFFS PaymentExperience Rated
2. Modified Indemnity
Preadmission certification for hospital admissions
Concurrent ReviewSecond Surgical Opinion
3. PPO
Physician ProfilingProviders selected to participate in the
PPOConsumer Incentives to limit choice of
providers
4. PHO (physician hospital organization)/Group IPA
Formal Peer ReviewProvider Panel in placePayment to providers using
withholds/CapitationCommunity Rated
5. Staff HMO (Kaiser)
Formal peer reviewUses ProtocolsProviders are employees/on salaryGroup Practice
6. Equity HMO (MidValley IPA-Salem)
Formal Peer Review, ProtocolsProvider PanelProfit Sharing among docsOwned by Doctors
7. Consumer Choice –Medical Savings Accts
www.myhealthbank.comOffers consumers a variety of choices to
meet individual needsMSA accts-pay for health care with pre
tax dollarsPharmacy example
Factors Causing Delivery System to Change
1. Declining Hospital Use2. Purchaser Pressure to reduce
costs(Public and Private)3. MD numbers
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
Purchaser Pressure to Manage Costs
Increased contracting by employers with HMOs
Increased demand for performance/accountability
Increased employer sophistication
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
Common Characteristics of Managed Care Organizations
Factor: Provider Panel/Fee Schedule/UR Utilization Review
FOC (freedom of choice of provider)Assume RiskSells insurance
How Employers Select/Evaluate an HMO
Handout/Overhead
NCQA Stds now include Health Outcomes
HEDIS 3.0No. CHF pts taking ACE Inhibitors (proposed)Pt satisfactions surveyMandatory Disease Management Programs
(Diabetes-see Genesis rpt) Includes Medicare and Medicaid pt. pop.
Accreditation
NCQA accredits MCOsJoint Commission accredits hospitals
Joint Commission on Accreditation of Health Organizations
will move to accredit MCOs also
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
1935-1996 Con’t
1983 PROs (replaced PSRO)1988 Medicare Catastrophic Coverage
Act Repealed in 1989Medicare would have covered outpatient RxFunded by Medicare eligibles-not entire
working population of USA
1935-1996 Con’t
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
1935-1996 Con’t
HIPAA (Kennedy Kassenbaum Act)Main focus is security of patient data-
PrivacyMakes Ins portable from job to jobdiscussion
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 approachManaged Care Approach-Employer Driven
over last few years
Group Practice of Medicine
Characteristics1. Shared Facilities and equipment2. Full Time MDs3. Two or more medical specialists4. Shared patient responsibility5. Pooled income (PCs are usually a
partnership-like a law firm with Partners)
Hospitals - General Stats (2001)
Federal Hospitals 264Community Hospitals 4,956
Not for profit Community-3,012For profit Community-747State/Local Gvt-1,197Handouts for 2002 stats
Hospitals
90% of hosp revenue is from Ins.must compete for MDs based on
facilities and technologyMDs have admitting privileges, are not
hosp. employeesHosp has MDs on staff i.e......, ER and
Radiology
Hospitals are Accredited
by Joint CommissionNeed accreditation to participate in
Medicare/Medicaid/residenciesJoint Commission
includes AHA, AMA, Am Society Health Systems Pharmacists
Provider Specialization
80 % of MDs today are specialistsbut provide primary care i.e......, Internists,
OBGYN, PediatricianMDs have specialty boards
BD Qualified-complete post grad trainingBD Certified-training plus residency
No laws covering MD specialist trainingregulated by the Medical ProfessionLooming shortage of specialists
MD CON'T
MD gains hospital admitting privileges upon review of medical staff
RPh Specialties
LTCF/GeriatricNuclear PharmacyInstitutional 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 1950sbillion minutes ago, it was about 2,000
yrs agobillion dollars in Wash DC was about 10
hrs.
Aging Trends: Ratio of People Age 20:64 to Those 65+
1955-6.29 to 11990-4.69 to 12010-4.47 to 12030-2.65 to 12050-2.59 to 1
(source: WSJ 11-29-99)
Aging Trends
30 Million over age 65 in 198840 Million over age 65 by 201150 Million over age 65 by 2019One in Five will be over age 65 by 2030
General Causes of Cost Increases
Demand FactorsSupply Factors
Demand Factors
Aging PopulationEmergence of Chronic Diseases as
Dominant Cause of MorbidityIncrease of environment and behavior
risk factorsPlan Benefit DesignRepeat 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 dayhave 65 % more hospitalizations than non
smokerswhen both have COPDsmoking creates 50 billion in annual health
care costs25% of pop smokeObesity 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 exercisexs weightsmokinghypertensioncholesterollack 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-$2,933At Risk Men-$2,064At Risk Women-$3,610Not At Risk-$1,748Not At Risk Men-$1,202Not At Risk Women-$2,038
Why Do Hospital Costs Increase
Staff SalariesTechnologyUncompensated CareGeneral Costs of doing business
Composition of Medicaid
AFDC 66% of pop/26% of costElderly 15% of pop/37% of costMentally retarded, disabled 12% of pop/
35% of cost
Rx Spending by Year (Billions $)
1999 $1052000 $1212001 $1392002 $1602003 $1842004 $212
Pharmacy Expenditures
Approx 11% of total costMajority of Rxs 3rd partyAve...... No. Rxs/yr =4Ave....... No. Rxs retiree/yr 12Will become # 1 health care cost
category within 4-5 yearsNumber 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 pricesAverage Wholesale Price-AWPActual Acquisition Cost-AACAWP could be $567.00/AAC could be
$43.00
2. Dispensing fees
Money paid to pharmacist for dispensing Rx
usually two or three dollars/RxCombined with AWP (minus) to pay for
RxsAWP-12% plus $2.50 (common fee
structure)
3. Patient Rx Co-Pay
$5.00 generic/$10.00 brandPercent i.e......, 50% of allowed
charge/$10 minimumThree Tiered CopayHigher Rx Copays lowers Utilization of
services
Average Rx Co-pays-Generics
2000 $7.002001 $8.002002 $9.002003 $9.00
Average Rx Co-pays-Preferred Brand
2000 $13.002001 $15.002002 $17.002003 $19.00
Average Rx Co-pays Non-Preferred Brand
2000 $17.002001 $20.002002 $25.002003 $29.00
4. Capitation/Risk
Pharmacies unlikely to have risk in futureDr prescribes so RPh can only do so
much to control costsInsurance co., HMOs, employers have
financial risk
5. Formularly
List of Drugs paid for by the planDeveloped based on therapeutics and
cost
6. Generic Drugs
Mandated by some plansalways less expensiveare all generics therapeutically
equivalent to brand counterpart???Lanoxin, Theodur, Premarin, Tegretol...
7. Therapeutic Substitution
Exchanging one brand drug for anothermust have MD OKAmoxicillin for PenicillinNaprosyn 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 volumeIndependent Pharmacies band together
to buy Rx itemsChains are merging to increase buying
power
10. Benefit Design
Lower out of pocket for Rx increases utilization
11. Treatment Protocol
Lipid Example/Cardiovascular Risk AssessmentGroup Health Evidenced Based Medicine-
CD
Hospital Cost Management
DRG Diagnosis Related GroupFixed Fees for Hospital ProceduresEstablished by MedicareCommonly used by Ins. companies
Risk Assumption
Physician Cost Management
RBRVSResource Based Relative Value SystemFee Schedule for MD Office visitsEstablished by MedicareCommonly used by Ins. Companies
Risk Assumption-Capitation
Utilization Review Programs
1. Hospital BasedPre Admission CertificationOn Site ReviewConcurrent ReviewSeverity of Illness Reporting by MDshow 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 Rxs11% adverse reactions17% 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)
ReadingsDSM targets high cost, chronic diseasesWhere interventions can save money in
12 months or lessFor plans of under 65 age people
DSM (from RPh point of view) involves
linking Community Based RPh clinical services
to MCO and document outcomesHandouts-Ashville Project
DSM
promotes patient education and responsibility
RPh works to improve Rx complianceto improve adherence to treatment
protocol
Rationing
Occurs in all health care systems based onmoneycoveragewaiting 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 progressrequires 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 DemingQI: 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-equipmentProcess-how the equipment was usedOutcome-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 FinanceIV. 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 CareB. How Insurance Affects Demand for
Medical CareC. 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. Financing MechanismsB. Organization of Delivery SystemsC. ProblemsD. Reorganization Efforts
I (A) Unique Aspects-Health, Health Econ and Medical Care
Government InvolvementUncertaintyAsymmetric KnowledgeExternalitiesParticipants
Government-State
Licenses health care providers/facilitiesState Health Insurance CommissionerLocal Public Health ClinicsOthers
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 costsMedication non compliance
Participants
Government Individual ConsumersEmployersBenefit ConsultantsPoliticiansConsumer Groups Insurance Companies
(B) Health Care From an Economic Perspective
Health as a Durable GoodHealth as a Public GoodThe 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
InvolvesMedical Care Individual BehaviorEnvironmental FactorsEconomic FactorsOthers
(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
(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 DiseasesAntibiotics 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 Deaths33% Infectious Disease67% 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 AmoxicillinInfluenced by:
Patient ComplianceMD MCO PaymentLocal Resistance Trends
Reduced Prescribing Antibiotics to Children
Study published in Pediatrics 2003Tracked all Rxs for 225,000 children in 9
HMOs from 1996-2000Antibiotics use dropped 24% in patients
under age 325% decline for those age 3-616% 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-ADEApprox. 1 will have long term effects-
ADEHospital Information systems reduce
incidence of ADEsSome 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
IndividualEconomy in General
Health InsuranceGovernment subsidies ( Transfer Payments)
MedicareMedicaidPublic Health ProgramsOthers??
6. Money Price
Cost of health care itemsOut 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 population1965-139/100,000 population1995-252/100,000 populationNeeded: 145-185/100,000 population-
yr.?? Varies considerably by geography and
local wealthRural-20% of USA pop. 9% of MDs
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
Problems with Lack of Quality that Increase Costs
Costs from Iatrogenic DiseasePhysician practice variations Lack of Information systems (already
discussed)Treating chronically ill patients in an
acute care modelwww.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”
ObesitySedentary lifeTobaccoRisky behavior
Modifiable Factors Associated with Deaths USA 1990
0
50000
100000
150000
200000
250000
300000
350000
400000#
of
dea
ths
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1989U.S. Adults, BRFSS, 1989
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1990U.S. Adults, BRFSS, 1990
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1991U.S. Adults, BRFSS, 1991
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1992U.S. Adults, BRFSS, 1992
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1993U.S. Adults, BRFSS, 1993
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1994U.S. Adults, BRFSS, 1994
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1995U.S. Adults, BRFSS, 1995
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1996U.S. Adults, BRFSS, 1996
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Prevalence of Overweight Prevalence of Overweight among among U.S. Adults, BRFSS, 1997U.S. Adults, BRFSS, 1997
<10%<10% 10-15%10-15% >15%>15% Source: Mokdad, et al.
Obesity Trends* Among U.S. AdultsBRFSS, 1998
(*BMI 30, or ~ 30 lbs overweight for 5’4” woman)
No Data <10% 10%-14% 15-19% 20%
Source: Mokdad A H, et al. J Am Med Assoc 2000;282:16
Obesity Trends* Among U.S. AdultsBRFSS, 1999
(*BMI 30, or ~ 30 lbs overweight for 5’4” woman)
Source: Mokdad A H, et al. J Am Med Assoc 2000;284:13
No Data <10% 10%-14% 15-19% 20%
Obesity Trends* Among U.S. AdultsBRFSS, 2000
(*BMI 30, or ~ 30 lbs overweight for 5’4” woman)
Source: Mokdad A H, et al. J Am Med Assoc 2001;286:10
No Data <10% 10%-14% 15-19% 20%
Percentage of Obese Oregonians 1993 - 2000
0%
5%
10%
15%
20%
25%
1993 1994 1995 1996 1997 1998 1999 2000
Year
% o
f O
reg
on
ian
s
Percentage of Adults Getting Any Physical Activity 30 Minutes Per Day, 5 Days Per Week
0%
10%
20%
30%
40%
Men Women
% a
du
lts
ph
ys
ica
lly
ac
tiv
e
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 studyAsthmatic patients in OHPAmbulatory patients managed by a RPh
working with pts MDBetter outcomes achieved if MD actively
participated in process/supported
Individual Behavior-Rx non-adherence
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 Risk2. Price of Insurance3. Tax Laws4. The Supply of Health Insurance5. 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. Changes in Overall Economy2. Demographics3. Technology4. Price and Spending Patterns5. Growth in Medical Prices6. 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 (%) Y2020 Y2050 Under 5-6.9 6.8 6.9 5-13 13.1 12.0 12.1 14-17 5.7 5.3 5.4 18-24 9.6 9.3 9.2 25-34 13.6 13.3 12.5 35-44 16.3 12.3 12.0 45-64 22.2 24.6 21.8 65 + 12.6 16.5 20.0 85 + 1.6 2.0 4.6 100 + 0.0 0.1 0.2
Source WSJ 11-29-99
3. Technology
New Technologies substitute for older ones at higher cost
Rx Industry is an example-www.pharma.org
Genetically engineered drugsi.e.., treat breast cancer without side
effectsEnbrel 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 Trends1997 Spending was $1.092 trillion
(13.5% GDP)2007 Projected $2.1 trillion (16.6%
GDP)Gvt spending-40% of total in 1990Gvt spending -41.8 % 1992Gvt spending-46% 2001-44.2 % 2002
4/5/6.-Role of Employers
Paid for 60% of health care costsDeducted 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 higher3. Medical technology diffuses more
rapidly and used to treat more people
4/5/6. Medicaid Funding
Covers 51. million peopleCosts $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. Population Growth2. Economy wide Inflation3. Excess Medical Inflation4. Per Capita Use of Services5. 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 CareB. How Insurance Affects Demand for
Medical CareC. Role of Quality in Demand for
Medical Care
A. Productivity of Medical Care
1. Marginal and Ave Productivity2. Productivity Changes on Extensive
Margin3. Productivity Changes on Intensive
Margin4. Evidence on Aggregate Productivity
of Medical Care5. 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 adjustedIs 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 somethingHow often should a 40 yr.... old get a
physicalHow often should a 50 yr.... old get a
physicalHow 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 study-Canada/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 researchFDA’s favorite study designMethod used for many drug, population,
medical studiesProspective trials involving control and
experimental groupsTreatment 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 Rates-Boston/New Haven. NEJM 1994
Medicare Claims studyAMI, stroke, GI bleed, hip fracture,
surgery (breast, colon, lung cancer)Boston’s hosp readmit rate was higherNo 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 levelSoftware to study this subjectwww.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. Co-Payments, Deductibles2. Co Insurance Rae3. Indemnity4. Max/Min out of pocket5. Prior Authorizations
1. Co-Payments, Deductibles
Impact of Co-payments/Deductibles on Utilization and Cost
Are Income sensitivePERS-Data (AHCPR Study)Group Health StudyBenefit 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 lossTraditional Insurance, no MD or
Pharmacy networkPatient seeks out own provider, submits
a paper claim
4. Max/Min Out of Pocket
Patient must meet a front end deductibleBenefits Max out at a certain level of
spendingCommon 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 MCOsCelebrexViagraEnbrel; 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. Evaluation of Health Care Quality2. HEDIS3. Consumer Reports4. Consumer Satisfaction Surveys
1. Evaluation of Health Care Quality-6 Challenges in Measuring Quality
1. Identify and balance competing perspectives of major participantsQuality is in the eye of the beholderPurchaser-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 goals6. 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 outcomeswww.ncqa.org
Process Measures-% Who received
Flu ShotsVaccinationsDiabetic eye examsBreast Cancer screeningsCholesterol Mgt. after AMIBeta Blocker post AMI
Outcome Measures
Patient satisfaction with health planPatient functioning in daily lives
3/4. Consumer Reports/Consumer Satisfaction Surveys
Oregon Coalition of Health Care Purchasers reviewed 11 HMOs and PPOs in PDX areaDid 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 similar-demographically...
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 2002-2003
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 another-by employment,
income, waiting lists, availability.OHP Rationing is based on an explicit listOHP started 2-1-9495% plus of Medicaid pts in some 20 MCOs around the
state
OHP-Rationing
Prioritized all health care services into a rank ordered list
Based on what is covered, not whoList of covered treatments is based on
relative effectiveness of medical serviceOHP covers uninsured workers and
traditional Medicaid pop.
OHP-What is Covered
Treatments below the line are not covered
Line is now 578Line 1 is Head InjuryLine 2 is DiabetesLine 745-Radial Karatotomy
Below the Line
Low Back PainInfertilityAllergic RhinitisCommon coldMost fungal infections
Oregonian Survey of OHP 2-3-99
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
Barriers15% wanted to use alternative care provider13% location11% language11% personal barrier3% sign-language interpreter not available
D. Erosion of Plan Benefits
Increased patient co-paymentsIncreased patient pay premiumsCost shifting in generalMore 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 655 million of whom are permanently
disabled284,000 of whom - end stage renal 75% have household annual Inc. under
$25,000When 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 spendingDecrease mat paid for services/productsProduct more with fewer resourcesSlow the rate of growth of services to
patientsWill cut quality of careQuality of life will declinePatients will complain to Congress
G. Medicare: What Can Be Done?
2. Find ways to pay for more health careMore taxesHigher Medicare premiumsHigher Co-pays Implement a Voucher System
G. Medicare: What Can Be Done?
3. Restructure the Delivery SystemMandatory 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 millionsPennsylvania 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-AffordabilityCanada, NZ, UK, -Gvt FundingAU, 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 Themes1. Roles of State and Market2. Decentralization3. Patient’s Rights4. Role of Public Health
1. Role of State and Market
Presumption of public primacy is being reassessed
Some countries use elements of bothCombining 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. Confronting Resource Scarcity2. Funding Health Care Systems3. Allocating Resources4. Delivering Services
1. Confronting Resource Scarcity
Cost control--demand side1. Cost sharing - most place little
emphasis on pt co-pays2. Priority setting - Always existed in
Europe and was focused on implicit choices made by MDs to explicit choices made by a public political processhave restricted payments for a few things
1. Con’t
3. Supply Side strategiesa wide range of things here such as reducing MD production# of hospital bedscontrolling price of health care workforceglobal budgetschanging 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 programsOutcomes assessmentClinical guidelinesProblems are in lack of good data
How has all this worked?
Supply side reforms have worked quite well-limit amt spent
Demand side-less successfulThe 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 co-payments…
But universal coverage remains a bedrock of their cultures
Australia
Private ins in in a death spiralGvt wants to give private ins holders a
30% rebateGvt 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 MDsPlaced limits on # of MDs who be
admitted into Ins PracticeFixed budgets for hospitalsAccelerated DRG systemTight controls on Rx costsFundamental 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 1991GPs 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
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