PowerPoint Presentation

Cost Containment and the Patient Protection and

Affordable Care ActInnovation, Business & Law Colloquium:Innovation, Business & Law Colloquium:

Health Care Reform ActHealth Care Reform Act

David Orentlicher, MD, JDDavid Orentlicher, MD, JDVisiting Professor of LawVisiting Professor of Law

University of Iowa College of LawUniversity of Iowa College of LawSeptember 23, 2010September 23, 2010

On one handOn one hand

The legislation “puts into place The legislation “puts into place virtually every cost-control reform virtually every cost-control reform proposed by physicians, economists, proposed by physicians, economists, and health policy experts.”and health policy experts.” Orszag & Emanuel (2010)Orszag & Emanuel (2010)

On the other handOn the other hand

"The job of figuring how to cover "The job of figuring how to cover uninsured people used up all the uninsured people used up all the political oxygen that was available. political oxygen that was available. They didn't have the energy for They didn't have the energy for costs." costs." Alan Sager, quoted by McClatchy-Alan Sager, quoted by McClatchy-

Tribune News Service, April 1, 2010Tribune News Service, April 1, 2010

Cost containmentCost containment

Outline of today’s classOutline of today’s class The cost problemThe cost problem Is PPACA the solution?Is PPACA the solution? If not, how else might we contain If not, how else might we contain

costs?costs? What constraints does the law place What constraints does the law place

on cost containment strategies?on cost containment strategies?



costs?costs? What constraints does the law place What constraints does the law place

on cost containment strategies?on cost containment strategies?

The highest spending The highest spending countrycountry

Health care spending in economically-Health care spending in economically-advanced democraciesadvanced democraciesUSUS $7,290/capita $7,290/capita 16% of GDP 16% of GDP

SwitzerlandSwitzerland 61% of US 61% of US 67% of US 67% of US

CanadaCanada 53% of US 53% of US 63% of US 63% of US

GermanyGermany 49% of US 49% of US 65% of US 65% of US

JapanJapan 35% of US 35% of US 51% of US 51% of US

New ZealandNew Zealand 34% of US 34% of US 57% of US 57% of US OECD Health Data 2009 (2007 data except Health Data 2009 (2007 data except

2006 for Japan)2006 for Japan)

Total expenditure on health Total expenditure on health per capita (US$ PPP)per capita (US$ PPP)

OECD, 2006

Total expenditure as % GDPTotal expenditure as % GDP

OECD, 2006

The cost problemThe cost problem

What do we get for our What do we get for our money?money?

Inadequate return on our Inadequate return on our health care $health care $

US health system is less efficient than US health system is less efficient than systems in:systems in: Spain, France, Germany, Austria, ItalySpain, France, Germany, Austria, Italy UK, Denmark, NorwayUK, Denmark, Norway Japan, China, AustraliaJapan, China, Australia Canada, Mexico, Colombia, VenezuelaCanada, Mexico, Colombia, Venezuela

Evans, et al. 2001Evans, et al. 2001

US patients treated in higher-cost US patients treated in higher-cost communities have similar outcomes to communities have similar outcomes to US patients in lower-cost communitiesUS patients in lower-cost communities Gawande 2009Gawande 2009

Infant mortality per 1,000 Infant mortality per 1,000 birthsbirths

OECD, 2006

Total preventable years of Total preventable years of life lost per 100,000 pop.life lost per 100,000 pop.

OECD, 2006

Quality of careQuality of care Breast cancer, 5-year survival rateBreast cancer, 5-year survival rate

US-90.5%, Canada-87.1%, Japan-86.1%, France-US-90.5%, Canada-87.1%, Japan-86.1%, France-82.8%, UK -77.9%82.8%, UK -77.9%

Colon cancer, 5-year survival rateColon cancer, 5-year survival rate Japan-67.3%, US-65.5%, Canada-60.7%, France-Japan-67.3%, US-65.5%, Canada-60.7%, France-

57.1%, UK-50.7%57.1%, UK-50.7% Asthma hospitalization rate (per 100,000 pop.)Asthma hospitalization rate (per 100,000 pop.)

US-120, UK-75, Japan-58, France-43, Canada-18US-120, UK-75, Japan-58, France-43, Canada-18 Diabetes hospitalization rate (per 100,000 pop.)Diabetes hospitalization rate (per 100,000 pop.)

US-57, UK-32, Canada-23, Germany-14, Italy-11US-57, UK-32, Canada-23, Germany-14, Italy-11

Inadequate return on our Inadequate return on our health care $health care $

Not because we’re less healthyNot because we’re less healthy

% of pop. daily tobacco % of pop. daily tobacco smokerssmokers

OECD, 2006

Alcohol consumption (liters Alcohol consumption (liters per capita)per capita)

OECD, 2006

% of pop. 65 years or % of pop. 65 years or olderolder

OECD, 2006

% of pop. 19 years or % of pop. 19 years or youngeryounger

OECD, 2006

Obesity rates

Overall effect of health Overall effect of health statusstatus

Americans overall are less healthy, Americans overall are less healthy, but this is only a small part of our but this is only a small part of our higher health care costshigher health care costs McKinsey & Company McKinsey & Company study found that found that

“disease burden” adds “disease burden” adds $25 billion in in health care costs for treatment of health care costs for treatment of disease (out of $2.5 trillion in health disease (out of $2.5 trillion in health care spending)care spending)

Why are costs higher in the Why are costs higher in the US?US?

Higher prices in USHigher prices in US Costs are higher in US in large part because Costs are higher in US in large part because

prices for health care services are higherprices for health care services are higher Single-payer systems can bargain more Single-payer systems can bargain more

effectively with doctors, hospitals and effectively with doctors, hospitals and pharmaceutical companiespharmaceutical companies Can also have enforceable spending targets via “all-Can also have enforceable spending targets via “all-

payer regulation” (Oberlander and White 2009)payer regulation” (Oberlander and White 2009) Higher ratio of specialists to primary care Higher ratio of specialists to primary care

physicians in USphysicians in US Probably reflects high ratio of specialist pay to Probably reflects high ratio of specialist pay to

primary care pay (Vladeck 2010)primary care pay (Vladeck 2010) High costs of medical education also may be High costs of medical education also may be

important (Peterson and Burton 2007)important (Peterson and Burton 2007)

Greater use of surgical Greater use of surgical procedures and expensive procedures and expensive

diagnostic testsdiagnostic tests More procedures to treat blocked coronary More procedures to treat blocked coronary

arteries (twice OECD avg.), more knee arteries (twice OECD avg.), more knee replacements (50% above OCED avg.), and replacements (50% above OCED avg.), and more cesarean sections (25% above OECD avg.)more cesarean sections (25% above OECD avg.) Increase in outpatient surgery centers very Increase in outpatient surgery centers very

importantimportant More MRI exams (more than twice OECD avg.) More MRI exams (more than twice OECD avg.)

and more CT exams (more than twice OECD and more CT exams (more than twice OECD avg.)avg.) OECD Health Data 2009 and Peterson and Burton OECD Health Data 2009 and Peterson and Burton

20072007

Structural contributors to high Structural contributors to high costscosts

Insurance => Price-insensitive consumersInsurance => Price-insensitive consumers If treatment costs $100 and yields a “value” of If treatment costs $100 and yields a “value” of

$75, it shouldn’t be provided—but if the $75, it shouldn’t be provided—but if the patient only pays $25 and receives the $75 patient only pays $25 and receives the $75 value, it will be worth it to the patientvalue, it will be worth it to the patient

Americans pay more total dollars out of Americans pay more total dollars out of pocket, but we generally pay a smaller pocket, but we generally pay a smaller percentage of our health care costs out of percentage of our health care costs out of pocket (i.e., through deductibles and co-pocket (i.e., through deductibles and co-payments) (premium payments are not payments) (premium payments are not included)included)

France-8%, US-13%, Germany-13%, Canada-15%, France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32% (Peterson and Burton Japan-17%, Switzerland-32% (Peterson and Burton 2007)2007)

Structural contributors to high Structural contributors to high costscosts

Fee-for-service reimbursement => Fee-for-service reimbursement => Quality-insensitive physicians and Quality-insensitive physicians and hospitalshospitals When physicians and hospitals are paid more When physicians and hospitals are paid more

to do more, regardless of outcome, they’ll do to do more, regardless of outcome, they’ll do moremore

Especially when they lose money on higher quality Especially when they lose money on higher quality care (Urbina 2006)care (Urbina 2006)

Example of clinic that switched from salary to Example of clinic that switched from salary to commission on fees generated and doctors commission on fees generated and doctors scheduled more appointments and ordered scheduled more appointments and ordered more blood tests and x-rays (Hemenway 1990)more blood tests and x-rays (Hemenway 1990)



costs?costs? What constraints does the law What constraints does the law

place on cost containment place on cost containment strategies?strategies?

PPACA and cost controlPPACA and cost control

Many different provisions designed Many different provisions designed to contain coststo contain costs

Serious question whether they really Serious question whether they really address the cost problem—PPACA address the cost problem—PPACA doesn’t take on the major drivers of doesn’t take on the major drivers of higher costs other than to some higher costs other than to some extent through demonstration extent through demonstration projectsprojects

Permanent reductions in Permanent reductions in Medicare reimbursement rates Medicare reimbursement rates

((§§ 3401) 3401) Applies to hospitals, nursing homes and other Applies to hospitals, nursing homes and other

facilitiesfacilities Every year, payment rates are adjusted to reflect Every year, payment rates are adjusted to reflect

increases in the operating costs of health care increases in the operating costs of health care facilitiesfacilities The increases have been calculated from a The increases have been calculated from a

“market basket” of goods and services that the “market basket” of goods and services that the facilities purchase (with reductions for failure to facilities purchase (with reductions for failure to file quality data and other “technical” file quality data and other “technical” adjustments)adjustments)

Under PPACA, a productivity adjustment will Under PPACA, a productivity adjustment will be made based on economy-wide productivity be made based on economy-wide productivity gains (which are greater than in health care)—gains (which are greater than in health care)—there also will be a ten-year further reduction there also will be a ten-year further reduction in the update percentage (0.10 to 0.75 percent in the update percentage (0.10 to 0.75 percent per year)per year)

Estimated savings = $196 billionEstimated savings = $196 billion

Permanent reductions in Permanent reductions in Medicare reimbursement rates Medicare reimbursement rates

((§§ 3401) 3401) Note that PPACA provisions reflect a mix Note that PPACA provisions reflect a mix

of policy and politics—see the annual of policy and politics—see the annual reductions in update percentages:reductions in update percentages:

20102010 0.25%0.25% 20152015 0.20%0.20%

20112011 0.25%0.25% 20162016 0.20%0.20%

20122012 0.10%0.10% 20172017 0.75%0.75%

20132013 0.10%0.10% 20182018 0.75%0.75%

20142014 0.30%0.30% 20192019 0.75%0.75% After 2019, IMAB recommendations due After 2019, IMAB recommendations due

to kick in to kick in

Reduction in payment rates forReduction in payment rates forMedicare Advantage program Medicare Advantage program

((§§ 3201) 3201) Medicare Advantage is an option for Medicare Advantage is an option for

Medicare recipients to enroll in a private Medicare recipients to enroll in a private health care plan rather than choosing health care plan rather than choosing traditional, fee-for-service Medicare traditional, fee-for-service Medicare (Part C of Medicare)(Part C of Medicare)

While the idea was to provide a more-While the idea was to provide a more-efficient, lower-cost option, Medicare efficient, lower-cost option, Medicare Advantage plans have turned out to be Advantage plans have turned out to be more expensive (up to 150% of more expensive (up to 150% of traditional Medicare)traditional Medicare)

The low-hanging fruit of cost savingsThe low-hanging fruit of cost savings Estimated savings = $135 billionEstimated savings = $135 billion

Part B Medicare premium Part B Medicare premium calculation for high-income calculation for high-income

recipients (recipients (§ 3402§ 3402)) Part B of Medicare covers physician fees, Part B of Medicare covers physician fees,

laboratory fees and other outpatient serviceslaboratory fees and other outpatient services Most Medicare recipients pay 25 percent of Most Medicare recipients pay 25 percent of

the Part B premium; currently, higher income the Part B premium; currently, higher income recipients pay between 35 and 80 percent of recipients pay between 35 and 80 percent of the Part B premium.the Part B premium.

PPACA freezes the income thresholds for PPACA freezes the income thresholds for higher-income premiums at 2010 levels for ten higher-income premiums at 2010 levels for ten years before resuming annual adjustments for years before resuming annual adjustments for inflation.inflation.


Reduction in disproportionate Reduction in disproportionate share hospital (DSH) payments share hospital (DSH) payments

((§ 3133§ 3133 ) ) DSH payments are made to hospitals DSH payments are made to hospitals

that treat a disproportionate share that treat a disproportionate share of low-income patientsof low-income patients

Originally introduced to compensate Originally introduced to compensate hospitals for higher costs of treating hospitals for higher costs of treating low-income patients; now justified as low-income patients; now justified as a way to maintain access to care for a way to maintain access to care for low-income patientslow-income patients


Independent Medicare Advisory Independent Medicare Advisory Board (IMAB) (Board (IMAB) (§ 3403)§ 3403)

IMAB will develop proposals to keep IMAB will develop proposals to keep Medicare spending within statutory Medicare spending within statutory targets, and proposals will automatically targets, and proposals will automatically take effect unless Congress adopts take effect unless Congress adopts substitute provisionssubstitute provisions Proposals may not ration health care, raise Proposals may not ration health care, raise

costs to recipients, restrict benefits or modify costs to recipients, restrict benefits or modify eligibility criteriaeligibility criteria

IMAB also will provide Congress with IMAB also will provide Congress with recommendations for slowing the growth of recommendations for slowing the growth of health care spending in the private sector.health care spending in the private sector.

Estimated savings = $16 billion by 2020, Estimated savings = $16 billion by 2020, more substantial after that (assuming it more substantial after that (assuming it works)works)

Independent Medicare Independent Medicare Advisory Board (IMAB) (Advisory Board (IMAB) (§ §

3403)3403) Concerns about IMABConcerns about IMAB

Will IMAB focus on short-term fixes rather Will IMAB focus on short-term fixes rather than long-term changes that really can than long-term changes that really can “bend the cost curve?”“bend the cost curve?”

Will Congress bypass the IMAB process and Will Congress bypass the IMAB process and authorize increases in funding through authorize increases in funding through independent legislation?independent legislation?

Are the limitations on the kinds of proposals Are the limitations on the kinds of proposals that IMAB can develop too restrictive?that IMAB can develop too restrictive?

Will cuts in reimbursement reduce patient Will cuts in reimbursement reduce patient access to physicians?access to physicians?

Patient-Centered OutcomesPatient-Centered OutcomesResearch Institute (Research Institute (§ § 6301)6301)

Created to promote comparative-Created to promote comparative-effectiveness research (CER)effectiveness research (CER) Research that evaluates and compares the Research that evaluates and compares the

patient health outcomes and benefits of patient health outcomes and benefits of two or more medical treatments or servicestwo or more medical treatments or services

Responsibilities includeResponsibilities include Setting priorities for CER and funding CER Setting priorities for CER and funding CER

studiesstudies Analyzing data from CER studies and Analyzing data from CER studies and

reportingreporting to the public on the significance to the public on the significance of the study resultsof the study results

Patient-Centered OutcomesPatient-Centered OutcomesResearch Institute (Research Institute (§ § 6301)6301)

The Institute may not recommend The Institute may not recommend coverage changes or other policies coverage changes or other policies based on its analyses, butbased on its analyses, but

Medicare and Medicaid may consider Medicare and Medicaid may consider the Institute’s analyses in determining the Institute’s analyses in determining coverage policies as long as:coverage policies as long as: No denial of coverage “solely on the basis No denial of coverage “solely on the basis

of” CERof” CER Coverage decisions do not treat the lives of Coverage decisions do not treat the lives of

elderly, disabled or terminally ill elderly, disabled or terminally ill individuals as having lower valueindividuals as having lower value

Can the CER institute become Can the CER institute become our NICE?our NICE?

NICE evaluates the cost-effectiveness of NICE evaluates the cost-effectiveness of medical therapies and approves those medical therapies and approves those that are sufficiently cost-effective for that are sufficiently cost-effective for Britain’s National Health ServiceBritain’s National Health Service Treatments are cost-effective if they provide Treatments are cost-effective if they provide

1 1 QALY for no more than £20,000 (now for no more than £20,000 (now $31,250)$31,250)

Sometime, NICE approves treatments up to Sometime, NICE approves treatments up to £30,000 ($46,900) per QALY£30,000 ($46,900) per QALY

Rarely, NICE approves treatments beyond Rarely, NICE approves treatments beyond £30,000 per QALY£30,000 per QALY

NICE has approval authority, while the NICE has approval authority, while the CER institute can only issue reportsCER institute can only issue reports

What’s a “good” buy?What’s a “good” buy?

“Expensive” more than $100,000/QALY

“Reasonable” $50,000/QALY (UK upper limit ~

$47,000)

“Very Efficient” less than $25,000/QALY

Most writers use $50-100,000 as upper limit of good value, but public preferences suggest upper limit over $200,000.

Hirth RA, et al., Medical Decision Making. 2000;20:332-342

Some sample QALYs (2002 Some sample QALYs (2002 dollars)dollars)

Harvard Public Health Review (Fall Harvard Public Health Review (Fall 2004)2004) < $0 (If the cost per QALY is less than zero, the intervention < $0 (If the cost per QALY is less than zero, the intervention

actually saves money)actually saves money)Flu vaccine for the elderlyFlu vaccine for the elderly

Under $10,000Under $10,000Beta-blocker drugs post-heart attack in high-risk patientsBeta-blocker drugs post-heart attack in high-risk patients

$10,000 to $20,000$10,000 to $20,000Combination antiretroviral therapy for certain patients infected with Combination antiretroviral therapy for certain patients infected with the AIDS virusthe AIDS virus

$15,000 to $20,000$15,000 to $20,000Colonoscopy every five to 10 years for women age 50 and up Colonoscopy every five to 10 years for women age 50 and up

$20,000 to $50,000$20,000 to $50,000Antihypertensive medications in adults age 35-64 with high blood Antihypertensive medications in adults age 35-64 with high blood pressure but no coronary heart diseasepressure but no coronary heart diseaseLung transplant in UK (Anyanwu AC et al.Lung transplant in UK (Anyanwu AC et al. J Thorac Cardiovasc Surg 2002;123:411-420)

$50,000-$100,000$50,000-$100,000Dialysis for patients with end-stage kidney diseaseDialysis for patients with end-stage kidney diseaseAntibiotic prophylaxis during dental procedures for persons at Antibiotic prophylaxis during dental procedures for persons at moderate to high risk of bacterial endocarditis ($88,000) (moderate to high risk of bacterial endocarditis ($88,000) (Med Decis Med Decis Making. 2005;25(3):308-20)Making. 2005;25(3):308-20)

Over $500,000Over $500,000CT and MRI scans for kids with headache and an intermediate risk of CT and MRI scans for kids with headache and an intermediate risk of brain tumor brain tumor

Condition/Treatment Cost per QALY

Treatment for Erectile Dysfunction $6,400/QALY

*Physician Counseling for Smoking $7,200/QALY

Total Hip Replacement $9,900/QALY

*Outreach for Flu and Pneumonia $13,000/QALY

Treatment of Major Depression $20,000/QALY

Gastric Bypass Surgery $20,000/QALY

Treatment for Osteoporosis $38,000/QALY

*Screening For Colon Cancer $40,000/QALY

Implantable Cardioverter Defibrillator $75,000/QALY

Lung-Volume Reduction Surgery $98,000/QALY

Tight Control of Diabetes $154,000/QALY

*Treating Elevated Cholesterol ( + 1 risk factor) $200,000/QALY

Resuscitation After Cardiac Arrest $270,000/QALY

Left Ventricular Assist Device $900,000/QALY

COST/QALY: Selected Medicare services

Cost of treatment for metastatic colon cancer

(Schrag D. NEJM. 2004;351:317-319)

Examining the cost and cost-effectiveness of adding

bevacizumab (Avastin) to chemo in metastatic colon cancer

Randomized trial compared chemotherapy Randomized trial compared chemotherapy alone vs. chemotherapy + bevacizumabalone vs. chemotherapy + bevacizumab

Bevacizumab regimen prolonged median Bevacizumab regimen prolonged median survival from 15.6 to 20.3 months survival from 15.6 to 20.3 months (p<0.001)(p<0.001)

Cost of extra 4.7 months?Cost of extra 4.7 months? $101,500 (assuming $5,000 per month for $101,500 (assuming $5,000 per month for

bevacizumab)bevacizumab) $259,149 per year of life gained (not quality $259,149 per year of life gained (not quality

adjusted)adjusted) NICE decided not to recommend for NHS coverageNICE decided not to recommend for NHS coverage

Randomized trial compared Randomized trial compared chemotherapy alone vs. chemotherapy + chemotherapy alone vs. chemotherapy + bevacizumabbevacizumab

Bevacizumab regimen prolonged median Bevacizumab regimen prolonged median survival from 10.2 to 12.5 months survival from 10.2 to 12.5 months (p=0.007)(p=0.007)

Cost of extra 2.3 months?Cost of extra 2.3 months? $66,270-$80,343$66,270-$80,343 $345,762 per year of life gained (assuming $345,762 per year of life gained (assuming

$66,270 cost)$66,270 cost) Grusenmeyer PA, Gralla RJ. J. Clin. Oncology. Grusenmeyer PA, Gralla RJ. J. Clin. Oncology.

2006;24(18S):6057.2006;24(18S):6057.

Examining the cost and cost-effectiveness of adding bevacizumab (Avastin) to chemo in advanced non-

small cell lung cancer

Can the CER institute become Can the CER institute become our NICE?our NICE?

Cost-effectiveness decisions are controversialCost-effectiveness decisions are controversial Prohibited under PPACA from being used as sole Prohibited under PPACA from being used as sole

basis for denying coverage in federal programs basis for denying coverage in federal programs ((§§6301)6301)

Oregon Health Care PlanOregon Health Care Plan Ended up with fairly generous “basic” coverageEnded up with fairly generous “basic” coverage

Mammography screening guidelines in 2009 Mammography screening guidelines in 2009 (even though cost wasn’t a factor)(even though cost wasn’t a factor) US Preventive Services Task Force recommended US Preventive Services Task Force recommended

that routine screening begin at age 50 instead of that routine screening begin at age 50 instead of age 40age 40

The “tragic choices” problem (Orentlicher 2010)The “tragic choices” problem (Orentlicher 2010) It’s difficult to make life-and-death decisions openlyIt’s difficult to make life-and-death decisions openly

PPACA demonstration projectsPPACA demonstration projects Bundled payments for hospital care Bundled payments for hospital care

and for the month following discharge and for the month following discharge (capitation lite) ((capitation lite) (§2704 and §3023)§2704 and §3023)

Capitation payments instead of fee-for-Capitation payments instead of fee-for-service reimbursement (service reimbursement (§§2705)2705)

Incentives for doctors and hospitals to Incentives for doctors and hospitals to form accountable care organizations form accountable care organizations (financial rewards for higher quality (financial rewards for higher quality and/or lower cost care) (and/or lower cost care) (§§2706 and 2706 and §§3022)3022) Will integrated systems exploit market Will integrated systems exploit market

power to maintain revenues rather than to power to maintain revenues rather than to introduce efficiencies and reduce costs?introduce efficiencies and reduce costs?

Quality-adjusted payments Quality-adjusted payments under PPACAunder PPACA

Incentive payments to hospitals that meet Incentive payments to hospitals that meet specified performance standards (§3001)specified performance standards (§3001)

Adjustments to physician reimbursement based Adjustments to physician reimbursement based on quality and cost of care provided (§3001)on quality and cost of care provided (§3001)

Expansion of reports to physicians that indicate Expansion of reports to physicians that indicate how their use of resources in patient care how their use of resources in patient care compares to use by other physicians (§3003)compares to use by other physicians (§3003)

Lower payments to hospitals with high numbers Lower payments to hospitals with high numbers of patients who become sicker because of their of patients who become sicker because of their hospital care (§3008)hospital care (§3008)

Lower payments to hospitals that have Lower payments to hospitals that have excessive numbers of patients readmitted to the excessive numbers of patients readmitted to the hospital after discharge (§3025)hospital after discharge (§3025)

Quality-adjusted paymentsQuality-adjusted payments

Pay for performance so far has a Pay for performance so far has a mixed track recordmixed track record It’s difficult to assess quality of care—It’s difficult to assess quality of care—

did a patient do well because of or did a patient do well because of or despite the doctor’s intervention?despite the doctor’s intervention?

Often, process-based measures are Often, process-based measures are used, but those need continual used, but those need continual updatingupdating

Impact has been modest to dateImpact has been modest to date

Tax on high-cost health plans Tax on high-cost health plans ((§§9001)9001)

Starts in 2018Starts in 2018 Imposes a 40 percent tax to the extent that Imposes a 40 percent tax to the extent that

the value of coverage exceeds a threshold the value of coverage exceeds a threshold amountamount

The threshold starts at $10,200 for The threshold starts at $10,200 for individuals and $27,500 for families (which individuals and $27,500 for families (which is about double the average cost for health is about double the average cost for health care coverage)care coverage)

The threshold amount is adjusted upward The threshold amount is adjusted upward for health care cost inflation and higher for health care cost inflation and higher costs of the individual’s risk poolcosts of the individual’s risk pool

Estimated revenues = $32 billion in 2018 Estimated revenues = $32 billion in 2018 and 2019and 2019

Concerns about the “Cadillac” Concerns about the “Cadillac” taxtax

High costs of high-cost health plans may High costs of high-cost health plans may reflect health status of the workforce and reflect health status of the workforce and health care costs of the community rather health care costs of the community rather than the richness of the benefitsthan the richness of the benefits Gabel, et al. 2010Gabel, et al. 2010

Reducing tax subsidies for health care Reducing tax subsidies for health care insurance may have a regressive effect insurance may have a regressive effect (i.e., the higher taxes may represent a (i.e., the higher taxes may represent a higher percentage of income for lower-higher percentage of income for lower-income persons)income persons) Himmelstein & Woolhandler 2009; Gabel, et al. Himmelstein & Woolhandler 2009; Gabel, et al.

20102010

The bottom line under PPACAThe bottom line under PPACA Between 2009 and 2019, health care Between 2009 and 2019, health care

spending is projected to increase 0.2% spending is projected to increase 0.2% as a result of PPACAas a result of PPACA

But—But— Health care coverage is projected to Health care coverage is projected to

increase by 32.5 millionincrease by 32.5 million After the big increase in spending in 2014 After the big increase in spending in 2014

for the newly insured, health care spending for the newly insured, health care spending is projected to grow by 6.7% rather than is projected to grow by 6.7% rather than 6.8% between 2015 and 20196.8% between 2015 and 2019 Sisko, et al. 2010Sisko, et al. 2010

Of course, these are projections that Of course, these are projections that may or may not come to fruitionmay or may not come to fruition


Outline of today’s classOutline of today’s class The cost problemThe cost problem Is PPACA the solution?Is PPACA the solution? If not, how else might we If not, how else might we

contain costs?contain costs? What constraints does the law What constraints does the law


Cost containment Cost containment strategiesstrategies

If main drivers of high costs are physician If main drivers of high costs are physician incentives to provide excessive care and incentives to provide excessive care and patient incentives to demand excessive care, patient incentives to demand excessive care, we should employ policy changes to remove we should employ policy changes to remove these incentivesthese incentives

Changes in physician incentivesChanges in physician incentives Salary or capitation for physicians (combined with Salary or capitation for physicians (combined with

quality measures to avoid under-provision of care)—quality measures to avoid under-provision of care)—could increase physician pay and still lower overall could increase physician pay and still lower overall costscosts

Capitation would address problem of too many Capitation would address problem of too many

prescriptions for expensive drugs—CER institute prescriptions for expensive drugs—CER institute

important here tooimportant here too Limits on hospital beds, surgical suites, MRI Limits on hospital beds, surgical suites, MRI

scanners and other facilitiesscanners and other facilities

Financial incentives for Financial incentives for patients?patients?

If people are not sufficiently sensitive to If people are not sufficiently sensitive to costs because of insurance, should we costs because of insurance, should we use health savings accounts or other use health savings accounts or other mechanisms to give patients more skin mechanisms to give patients more skin in the game?in the game? Raising out-of-pocket costs reduces patient Raising out-of-pocket costs reduces patient

demand for care, butdemand for care, but Patients do not always distinguish between Patients do not always distinguish between

necessary and unnecessary carenecessary and unnecessary care Caps on out-of-pocket costs prevent patient Caps on out-of-pocket costs prevent patient

sensitivity to costs of high-cost services sensitivity to costs of high-cost services (e.g., heart surgery, cancer chemotherapy)(e.g., heart surgery, cancer chemotherapy)

Buntin et al. 2006Buntin et al. 2006

VA Reengineering StrategyVA Reengineering Strategy Define and set practice standards that Define and set practice standards that

have been shown to result in better patient have been shown to result in better patient outcomes (including elimination of outcomes (including elimination of wasteful hospital and pharmacy spending)wasteful hospital and pharmacy spending)

Monitor performance and measure Monitor performance and measure outcomes (with both internal and external outcomes (with both internal and external oversight)oversight)

Reward good performance and manage Reward good performance and manage under-performance under-performance

Optimize use of technology (electronic Optimize use of technology (electronic records, reminders)records, reminders)

Promote patient safety initiatives to reduce Promote patient safety initiatives to reduce medical errormedical error



costs?costs? What constraints does the law What constraints does the law


Legal constraints on costLegal constraints on costcontainment strategiescontainment strategies

Legal constraints may exist when Legal constraints may exist when physicians make decisions on the basis of physicians make decisions on the basis of costs on a case-by-case basis (as with the costs on a case-by-case basis (as with the closure of ICU beds in the Singer study) closure of ICU beds in the Singer study) and take the patient’s poor prognosis into and take the patient’s poor prognosis into account—the disparate treatment problemaccount—the disparate treatment problem University HospitalUniversity Hospital, , GlanzGlanz, , Baby KBaby K, and , and CauseyCausey

Legal constraints also may exist when cost Legal constraints also may exist when cost containment policies are adopted that have containment policies are adopted that have a greater effect on persons who are sickera greater effect on persons who are sicker—the disparate impact problem—the disparate impact problem AlexanderAlexander

Protection for the disabled Protection for the disabled against discrimination--against discrimination--

disparate treatment disparate treatment In In University HospitalUniversity Hospital , doctors and parents , doctors and parents

decided against surgery for a newborn thought decided against surgery for a newborn thought to have a severe and permanent neurologic to have a severe and permanent neurologic disabilitydisability The US argued that this involved discrimination on The US argued that this involved discrimination on

the basis of disability (in violation of the basis of disability (in violation of §§504 of the 504 of the Rehabilitation Act)—other children with normal Rehabilitation Act)—other children with normal neurologic development would have received the neurologic development would have received the surgerysurgery

But what’s the relevant comparison? You have to But what’s the relevant comparison? You have to treat treat similarsimilar people similarly, but you don’t have to people similarly, but you don’t have to treat treat differentdifferent people similarly. In other words, people similarly. In other words, was the withholding of surgery based on relevant was the withholding of surgery based on relevant or irrelevant differences between Baby Jane Doe or irrelevant differences between Baby Jane Doe and other infants?and other infants?


disparate treatment disparate treatment The The University HospitalUniversity Hospital court rejected the court rejected the

§504§504 claim on three grounds: claim on three grounds: Congress did not intend Congress did not intend §§504 to apply to 504 to apply to

medical treatment decisions (pp.136-137 of medical treatment decisions (pp.136-137 of HCLE excerpt)HCLE excerpt)

The problem that was being treated was The problem that was being treated was related to the disabling condition—the related to the disabling condition—the disability gave rise to the need for treatment—disability gave rise to the need for treatment—thus, the disability was not an irrelevant factor thus, the disability was not an irrelevant factor (pp.135-136 of HCLE excerpt) (pp.135-136 of HCLE excerpt)

The hospital was willing to perform the surgery The hospital was willing to perform the surgery if the parents agreed (p.137 of HCLE excerpt)if the parents agreed (p.137 of HCLE excerpt)


disparate treatment disparate treatment GlanzGlanz took a different--and more sensible-- took a different--and more sensible--approach to the approach to the §§504 question than did 504 question than did University Hospital.University Hospital. In In GlanzGlanz, a doctor refused to perform ear surgery , a doctor refused to perform ear surgery

on a patient because of an HIV infection, which on a patient because of an HIV infection, which was the patient’s disabling condition.was the patient’s disabling condition.

According to the doctor, the disability According to the doctor, the disability compromised the patient’s ability to benefit from compromised the patient’s ability to benefit from treatment—the HIV infection raised the patient’s treatment—the HIV infection raised the patient’s risk of infection from the surgeryrisk of infection from the surgery

According to the court, ability to benefit from According to the court, ability to benefit from treatment was a relevant consideration—treatment was a relevant consideration—leaving the question open as to how much of leaving the question open as to how much of a considerationa consideration


disparate treatment disparate treatment Baby KBaby K and and CauseyCausey illustrate concerns illustrate concerns

that discriminatory treatment decisions that discriminatory treatment decisions may arise under the guise of “futility” may arise under the guise of “futility” claims by doctors or hospitalsclaims by doctors or hospitals

In a futility case, the doctor or hospital In a futility case, the doctor or hospital argues that there is insufficient benefit argues that there is insufficient benefit from treatment for the patient from treatment for the patient (medicine has nothing to offer)(medicine has nothing to offer)

But in many cases, the real concern is But in many cases, the real concern is the costs of carethe costs of care


disparate treatment disparate treatment In In Baby KBaby K, a hospital did not want to , a hospital did not want to

ventilate an anencephalic child (but it was ventilate an anencephalic child (but it was willing to provide artificial nutrition and willing to provide artificial nutrition and hydration to the child)hydration to the child) The court invoked EMTALA which requires The court invoked EMTALA which requires

stabilizing treatment in all emergenciesstabilizing treatment in all emergencies The court observed that the hospital would The court observed that the hospital would

have ventilated other children with similar have ventilated other children with similar breathing difficultiesbreathing difficulties Note the contrast with Note the contrast with University HospitalUniversity Hospital—Baby —Baby

K’s breathing difficulties were related to her K’s breathing difficulties were related to her anencephaly just as Baby Jane Doe’s need for anencephaly just as Baby Jane Doe’s need for surgery was related to her disabilitysurgery was related to her disability


disparate treatment disparate treatment In In CauseyCausey, a hospital withdrew dialysis and , a hospital withdrew dialysis and

ventilation from a comatose woman with a ventilation from a comatose woman with a 1-5% chance of regaining consciousness 1-5% chance of regaining consciousness and a life expectancy of up to two years.and a life expectancy of up to two years. The court rejected the concept of futility on the The court rejected the concept of futility on the

ground that it entails non-medical, value ground that it entails non-medical, value judgmentsjudgments

Rather, the court held that doctors can Rather, the court held that doctors can withhold treatment when it is not part of the withhold treatment when it is not part of the medical profession’s standard of care (p.632 of medical profession’s standard of care (p.632 of HCLE excerpt)HCLE excerpt)

Note the contrast with the Note the contrast with the Baby KBaby K court, which court, which rejected a defense based on the professional rejected a defense based on the professional standard of carestandard of care


disparate treatment disparate treatment Putting all of the cases together, we Putting all of the cases together, we

end up with a majority of courts end up with a majority of courts deferring to medical judgment, deferring to medical judgment, especially if there is evidence that the especially if there is evidence that the decision is based on the patient’s decision is based on the patient’s diminished ability to benefit from diminished ability to benefit from treatment (treatment (GlanzGlanz)) Also, courts are more deferential when Also, courts are more deferential when

hospitals implement decisions and are then hospitals implement decisions and are then sued rather than asking the court to sued rather than asking the court to approve the denial of care in advanceapprove the denial of care in advance


disparate impactdisparate impact AlexanderAlexander gave a green light to across-the- gave a green light to across-the-

board coverage restrictions that have a board coverage restrictions that have a disparate impact on persons with disparate impact on persons with disabilitiesdisabilities In In Alexander, Alexander, Tennessee capped hospitalization Tennessee capped hospitalization

for Medicaid recipients at 14 days per yearfor Medicaid recipients at 14 days per year Disparate impact because only 7.8% of non-Disparate impact because only 7.8% of non-

disabled persons who were hospitalized needed disabled persons who were hospitalized needed more than 14 days, while 27.4% of disabled more than 14 days, while 27.4% of disabled persons who were hospitalized needed more persons who were hospitalized needed more than 14 daysthan 14 days

Plaintiffs argued that the disparate impact was Plaintiffs argued that the disparate impact was gratuitous—only ten states imposed such limits gratuitous—only ten states imposed such limits


disparate impactdisparate impact The Supreme Court held (in a unanimous The Supreme Court held (in a unanimous

decision authored by Justice Thurgood decision authored by Justice Thurgood Marshall) thatMarshall) that §§504 protects against some instances of 504 protects against some instances of

disparate impact discrimination disparate impact discrimination Persons with disabilities must be provided Persons with disabilities must be provided

“meaningful access” to the services offered“meaningful access” to the services offered Tennessee’s durational limit provides meaningful Tennessee’s durational limit provides meaningful

access—14 days of hospitalization is sufficient for access—14 days of hospitalization is sufficient for 95% of disabled recipients of Medicaid95% of disabled recipients of Medicaid

Court greatly concerned with administrative Court greatly concerned with administrative burden and feasibility of requiring Medicaid to burden and feasibility of requiring Medicaid to avoid disparate impactsavoid disparate impacts


disparate impactdisparate impact After After AlexanderAlexander, it’s difficult to , it’s difficult to

imagine successful challenges to cost imagine successful challenges to cost containment strategies on the basis containment strategies on the basis of their disparate impacts of their disparate impacts Especially if meaningful access is Especially if meaningful access is

interpreted with respect to health care interpreted with respect to health care generally rather than the specific health generally rather than the specific health care service (e.g., cancer chemotherapy care service (e.g., cancer chemotherapy if coverage for a very expensive drug is if coverage for a very expensive drug is denied)denied)

Legal constraints on cost Legal constraints on cost containmentcontainment

The case law indicates that political The case law indicates that political constraints are much more constraints are much more

important than legal constraintsimportant than legal constraints

What is a QALY?

0 1

Dead Perfecthealth

Major stroke

Recurrent stroke

Studying for a law school

exam

OECD Organisation for Economic Co-operation Organisation for Economic Co-operation

and Development (www.oecd.org). The and Development (www.oecd.org). The 33 member countries include: 33 member countries include: U.S., Canada, Mexico, ChileU.S., Canada, Mexico, Chile Denmark, Norway, Sweden, FinlandDenmark, Norway, Sweden, Finland U.K., France, Germany, Netherlands, U.K., France, Germany, Netherlands,

SwitzerlandSwitzerland Portugal, Spain, Italy, Greece, Turkey, IsraelPortugal, Spain, Italy, Greece, Turkey, Israel

Hungary, Czech Republic, Slovak Republic, Hungary, Czech Republic, Slovak Republic, Slovenia, Poland Slovenia, Poland

Japan, KoreaJapan, Korea Australia, New ZealandAustralia, New Zealand

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us costs

us health system

us patients

us canada53

us germany49

us japan35

billionin health care

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