Pharmacy and the Health Care System-Fall 2005 Lee R. Strandberg, Ph.D. Emeritus Professor Pharmacy Economics and Pubic Health & Director, Managed Care.

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


2. Professional AuthorityClient acknowledges the superior

competence of the professionalClient surrenders a portion of own

autonomy to the professionalClient trusts the professional’s judgement


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


4. Code of EthicsVirtually all professions have oneMay or may not be as important today as

they once were


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


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.

















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




No Data <10% 10%-14% 15-19% 20%




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


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


2. Find ways to pay for more health careMore taxesHigher Medicare premiumsHigher Co-pays Implement a Voucher System


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

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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