THE COMMONWEALTH FUND Hospital Pricing and Patient Financial Risk Karen Davis President, The Commonwealth Fund June 22, 2004 Hearing on Pricing Practices.

THE COMMONWEALTH

FUND

Hospital Pricing and Patient Financial Risk

Karen DavisPresident, The Commonwealth Fund

June 22, 2004

Hearing on Pricing Practices of HospitalsSubcommittee on Oversight

Committee on Ways and MeansU.S. House of Representatives

THE COMMONWEALTH

FUND

Average Annual Growth in Hospital Costs, 1988–2002

8.8

3.54.0

7.5

9.5

0

1

2

3

45

6

7

8

9

10

1988–1993 1993–1997 1997–2000 2000–2001 2001–2002

Percent

Source: K. Levit et al., “Health Spending Rebound Continues in 2002,” Health Affairs (January/February 2004): 147–159.

1

THE COMMONWEALTH

FUND

Hospital Costs Are a Major New Source of Increased Outlays, 2002

0%

20%

40%

60%

80%

100%

Share of Spending Increase

Hospital 34%

Physician 22%

Rx Drugs 16%

All other* 34%

* Includes spending for dental, other professional, and other personal health care services; home health and nursing home care; durable and other nondurable medical products; administration and insurance net cost; government public health; medical research; and medical construction.

Source: K. Levit et al., “Health Spending Rebound Continues in 2002,” Health Affairs (January/February 2004): 147–159.

2

THE COMMONWEALTH

FUND

3.1%2.6%

1.8%

0.6%

-1.0%

3.9%4.6%

4.0%

3.1%

2.1%

2.5%

3.4%

-2%

0%

2%

4%

6%

1994 1995 1996 1997 1998 1999

AHCs A ll Hospitals

Source: Commonwealth Fund; Report by Allen Dobson, Lane Koenig, Namrata Sen, Silver Ho, Lewin Group, Analysis of AHA Annual Survey data.

Trends in Operating Margins of All Hospitals and Academic Health Centers, 1994–1999

Note: Operating Margin = (Net revenue - Non-operating Revenue - Hospital Expense)/(Net Revenue - Non-Operating Revenue). AHC includes reported community hospitals data only; Total includes reported and imputed community hospital data only.

3

THE COMMONWEALTH

FUND

Current Financial Situation of U.S. Hospitals

Insufficient to maintain current levels of

service30%

Sufficient to maintain current levels of service

38%

Allows for some improvement or

expansions of care32%

4

Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.

THE COMMONWEALTH

FUND

Trends in Payment to Cost Ratios by Payer for All U.S. Hospitals, 1994–1999

Payment to Cost Ratio

Note: Includes reported community hospital data only.Source: Commonwealth Fund; Report by Allen Dobson, Lane Koenig, Namrata Sen, Silver Ho, Lewin Group, Analysis of AHA Annual Survey data.

1.24 1.241.22

1.17 1.16 1.15

1.001.021.041.020.99

0.97

0.960.970.960.950.940.94

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1994 1995 1996 1997 1998 1999

Private Payer Medic are Medic aid

5

THE COMMONWEALTH

FUND

Health Care Costs Concentrated in Sick Few

0%

10%

20%

30%

40%

50%60%

70%

80%

90%

100%

U.S. Population Health Expenditures

1%5%

10%

55%

69%

27%

Source: A.C. Monheit, “Persistence in Health Expenditures in the Short Run: Prevalence and Consequences,” Medical Care 41, supplement 7 (2003): III53–III64.

Distribution of Health Expenditures for the U.S. Population, By Magnitude of Expenditure, 1997

50%

97%

$27,914

$7,995

$4,115

$351

Expenditure Threshold

(1997 Dollars)

6

THE COMMONWEALTH

FUND

Percent of Hospitalized Patients with Out-of-Pocket Costs Exceeding 10% of Income by

Cost-Sharing Amount

Source: S. Trude, Patient Cost Sharing: How Much is Too Much? Center for Studying Health System Change, December 2003.

716

2432

66

010

2030

4050

6070

Modest

Copayments*

$100

Deduc tible*

$500

Deduc tible*

$1000

Deduc tible*

$2500

Deduc tible*

Percent

* Notes:Modest Co-payments Option has $20 co-pay for physician visits, $150 co-pay for ED visits, and $250 co-pay per day inpatient hospitalization; $100 Deductible Option has 10% in-network coinsurance and 20% out-of-network coinsurance; $500 Deductible Option has 20% in-network coinsurance and 30% out-of-network coinsurance; $1000 Deductible Option has 20% in-network coinsurance and 30% out-of-network coinsurance; $2500 Deductible Option also 30% in-network coinsurance, 50% out-of-network coinsurance; Maximum out-of-pocket limits are set at $1,500 more than deductible for all options.

7

THE COMMONWEALTH

FUND

Two of Five Adults Have Medical Bill Problemsor Accrued Medical Debt:* Uninsured and

Low Income Most at Risk

32

53

41

576260

29

45

35

0

25

50

75

Total Income less than $35,000 Income $35,000 or more

All Uninsured Continuously insured

Percent of adults ages 19–64 with any medical bill problem or outstanding debt

* Problems paying/not able to pay medical bills, contacted by a collection agency for medical bills, had to change way of life to pay bills, or has medical debt being paid off over time.

Source: The Commonwealth Fund Biennial Health Insurance Survey (2003).Note: Income groups based on 2002 household income.

8

THE COMMONWEALTH

FUND

Average Annual Growth Rate of Total Health Care Spending per Capita Between 1991 and 2001 in

Selected Countries

4.1 4.1 3.9

3.1 3.1 3.02.4 2.4

2.1

0.0

1.0

2.0

3.0

4.0

5.0

Austra lia U nited

K ingdom

J apan New

Zealand

U nited

States

OECD

Median

F ranc e Germany Canada

Source: U.E. Reinhardt, P.S. Hussey, and G.F. Anderson, “U.S. Health Care Spending in an International Context,” Health Affairs (May/June 2004): 10–25.

Percent

9

THE COMMONWEALTH

FUND

Hospital Spending per Capita in 2000Adjusted for Differences in the Cost of Living

1,498

929

703618 581

823

0

200

400

600

800

1,000

1,200

1,400

1,600

U nited

S tates

F ranc e Canada Germany Aus tralia J apanba

a 1998b 1999

Dollars

10

Source: G. Anderson et al., Multinational Comparisons of Health Systems Data, 2002, The Commonwealth Fund, October 2002.

THE COMMONWEALTH

FUND

205 204

154 151

11899

155

0

50

100

150

200

250

Germany F ranc e Australia OE CD

Median

E ngland United

S tates

Canada

Hospital Admissions for Acute Careper 1,000 Population in 2000

a a

a 1999

Number of admissions per 1,000 population

11

Source: G. Anderson et al., Multinational Comparisons of Health Systems Data, 2002, The Commonwealth Fund, October 2002.

THE COMMONWEALTH

FUND

9.6

7.16.4 6.2 6.2 5.9 5.5

4.9

0.0

2.0

4.0

6.0

8.0

10.0

Germany Canada OECD

Median

A ustralia England U nited

States

Franc e N ew

Zealand

Average Length of Hospital Stay for Acute Care

ba

b

b

cb a

a

a 2000b 1999c 1998

Days

12

Source: G. Anderson et al., Multinational Comparisons of Health Systems Data, 2002, The Commonwealth Fund, October 2002.

THE COMMONWEALTH

FUND

Kidney Transplant Five-YearRelative Survival Rate

100 104 104 106113

0

20

40

60

80

100

120

U nited

S tates

U nited

K ingdom

New

Zealand

Aus tralia Canada

Standardized Performance on Quality Indicator100=Worst Result; Higher Score=Better Results

Source: P.S. Hussey et al., “How Does the Quality of Medical Care Compare in Five Countries?” Health Affairs, May/June 2004.

13

THE COMMONWEALTH

FUND

Satisfaction with the Health Care System

82937776

47

84

1612

4

0

25

50

75

100

A US CA N NZ UK US

Somew hat satisfied V ery satisfiedPercent

Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.

14

THE COMMONWEALTH

FUND

Disclosing Hospital Quality Information to the Public: Views of Hospital CEOs

in Five Nations

Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.

Percent saying should NOT be released to the public:

AUS CAN NZ UK US

Mortality rates for specific conditions

34% 26% 18% 16% 31%

Frequency of specific procedures

16 5 4 13 15

Medical error rate 31 18 25 15 40

Patient satisfaction ratings 5 2 0 1 17

Average waiting times for elective procedures

6 1 0 1 29

Nosocomial infection rates 25 10 25 9 29

15

THE COMMONWEALTH

FUND

If You Had New Funding to Invest in a One-Time Capital Improvement to Improve Quality of Patient Care in One Area of Your

Hospital, What Would it Be?

Percent saying: AUS CAN NZ UK US

Electronic medical records/IT 35% 47% 46% 38% 62%

Emergency room/OR/Critical care facility

26 18 4 22 13

Basic hospital/patient facilities 17 14 21 22 3

Diagnostic equipment/medical technology

9 16 11 10 3

Source: 2003 Commonwealth Fund International Health Policy Survey of Hospital CEOs.

16

THE COMMONWEALTH

FUND

Average Annual Rate of Increase in Real Community Hospital Expenses, 1950–1986

8.3

11.6

6.1

8.7

3.1

7.8

3.2

0

2

4

6

8

10

12

14

1950–1965* 1966–1971* 1972–1974 1975–1977 1978–1980 1981–1983 1984–1986

Percent

Source: K. Davis et al., Health Care Cost Containment, Baltimore: Johns Hopkins University Press, 1990, p. 171.

Private Health

Insurance

Medicare & Medicaid

ESP

Post-ESP

HCC & VE

Market Era

Medicare PPS

17

* Annualized.

THE COMMONWEALTH

FUND

Cost-Sharing Reduces Likelihood of Receiving Effective Medical Care

56

85

5971

0

20

40

60

80

100

Low -Inc ome in Cost-Sharing P lans H igher-Inc ome in Cost-Sharing

P lans

Children Adults

Source: K.N. Lohr et al., Use of Medical Care in the RAND HIE. Medical Care 24, supplement 9 (1986): S1-87.

Percent

Probability of receiving highly effective care for acute conditions that is appropriate and necessary compared to those with no cost-sharing

18

THE COMMONWEALTH

FUND

Cost-Sharing Reduces Both Appropriateand Inappropriate Hospital Admissions

22

27

0

5

10

15

20

25

30

Appropriate Admiss ions* Inappropriate Admiss ions*

Percent reduction in number of hospital admissions per 1,000 person-years

Source: A.L. Siu et al., “Inappropriate Use of Hospitals in a Randomized Trial of Health Insurance Plans,” New England Journal of Medicine 315, no. 20 (1986): 1259–1266.

* Based on Appropriateness Evaluation Protocol (AEP) instrument developed by Boston University researchers in consultation with Massachusetts physicians

19

THE COMMONWEALTH

FUND

Cost and Quality Vary Widely Across HospitalsCoronary Artery Bypass Graft:

Observed/Expected Cost vs. Observed/Expected Quality Outcomes by Hospital

0.0

0.5

1.0

1.5

2.0

0.0 0.5 1.0 1.5 2.0 2.5

Poor Outcomes - Observed/Expected

Co

st p

er C

ase

- O

bse

rved

/Exp

ecte

d

High Quality Low Quality

High Cost

Low Cost

Source: S. Grossbart, Ph.D., Director, Healthcare Informatics, Premier, Inc.,“The Business Case for Safety and Quality: What Can Our Databases Tell Us,”5th Annual NPSF Patient Safety Congress, March 15, 2003.

20

THE COMMONWEALTH

FUND

Pay for Performance Programs

• There are over 75 pay-for-performance programs across the U.S.– Provider driven (e.g., Pacificare)– Insurance driven (e.g., BC/BS in MA)– Employer driven (e.g., Bridges to Excellence— Verizon, GE,

Ford, Humana, P&G, and UPS)– Medicare

• 2003 Medicare Rx legislation demonstrations of Medicare physicians a per-beneficiary bonus if specified quality standards are met

– Medicaid• RIte Care will pay about 1% bonus on its capitation rate to

plans meeting 21 specified performance goals• 4 other states built performance-based incentives into

Medicaid contracts—UT, WI, IO, MA• Evaluation of impact still pending

Source: Leapfrog report, draft for Commonwealth Fund.

21