McKinsey Health Systems Institute 1 The Future of Medicare Implications of the Affordable Care Act and our Fiscal Imperatives Bob Kocher, MD Director of the McKinsey Center on U.S. Health Reform and Non Resident Senior Fellow, Brookings Institution April 28, 2011
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McKinsey Health Systems Institute 1
The Future of Medicare!Implications of the Affordable Care Act and our Fiscal Imperatives !
Bob Kocher, MD Director of the McKinsey Center on U.S. Health Reform and Non Resident Senior Fellow, Brookings InstitutionApril 28, 2011!
McKinsey Health Systems Institute 2
Summary !
The fundamental issue in U.S. health care for next decade will be cost and affordability
Ultimately, budget pressures will force policies that achieve slower Medicare and Medicaid cost growth
The Affordable Care Act has accelerated an environment for change in the health system
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Historically health care has grown globally at GDP +2.0% and at GDP +2.5% in the U.S.!
75%-100% 50%-75% 25%-50% 0%-25%
U.S.
OECD 1960-2005 (quartiles) Percent GDP
2.5
5.0
7.5
10.0
12.5
15.0
1960 1970 1980 1990 2000
SOURCE: OECD 1960-2005 (pub. 2007)
U.S.: GDP +2.5
OECD Median: GDP +2.0
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Resulting in the U.S. spending far more on health care than expected when adjusting for relative wealth!
The ACA is designed to address each of these challenges!
Access ▪ Extends coverage through state Exchanges
▪ Expands federal health programs
▪ New consumer protections
▪ Purchasing subsidies
▪ Penalizes poor performance in hospitals
▪ Incentivizes wellness and prevention
▪ Funds Center for Innovation to investigate new approaches for better quality care
▪ Strengthens training around patient safety
Quality Care
Cost ▪ Streamlines administrative processes
▪ Cuts waste, fraud and overpayments
▪ Incentivizes bundled payments, CER and generics
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The all-important CBO score!
Cost of the Affordable Care Act
$940 billion
Savings and new revenues resulting from
legislation
$1,059 billion
$119 billion reduction in the deficit*
* Now $230 billion
CBO estimates ACA reduces the long term trend by 25-50bps
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Implementation is phased over several years!NOT EXHAUSTIVE
▪ Hospital readmission program
▪ Medicare Advantage cuts
▪ ACOs
▪ Administrative simplification
▪ CMS Innovation Center
▪ Patient Centered Outcomes Research
▪ Pharma fees/rebates
▪ Health Exchanges ▪ Subsidies and
mandate ▪ Medicaid expanded ▪ Hospital acquired
condition fee (2015) ▪ Bundled payments
2011 2012 2013 2014 2018 "Cadillac" tax
§ Dependent coverage extended to 26 § $250 "doughnut hole" rebate for seniors § Protections for people with pre-existing
conditions § No dropping when person becomes
sick § Medical loss ratio requirement
§ Ban on lifetime/annual limits § Increased free preventative
coverage § More options for “high risk” people § Tax credits to small business § New commissions § 10% tanning tax
2010 provisions
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Market changes will play out very differently across the country!
SOURCE: MPACT Release 4.7
Growth in the Individual market, 2009-2016
Driven by: • High uninsured today • Low income equating to
high subsidy
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Increased coverage 1
Increase in utilization 2
Cadillac tax (2018) 5
Reductions in DSH 4
Reduction in Medicare reimbursement rates 3
Reformulation of Medicare wage index 6
The ACA will force hospitals to improve productivity!
+
-
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48
586070667070
523937
27302522
020406080
2002
U.S. physician practice ownership Percent
2008 06 05 07 04 03
Hospital owned
Physician owned
SOURCE: Physician Compensation and Production Survey, MGMA, 2003 – 2009; “ACO Core Competencies and Critical Success Factors,” Terri Welter, 28 July 2010.
40
31
2218
24
1585
0
10
20
30
40
2012 (e) 2008 2004 2000
U.S. physician employment Percent of active physicians employed by hospitals
PCPs
Specialists
In response, hospitals are accelerating hiring of physicians!
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However, extent to which these changes translate to desired improvement in cost, access and quality is uncertain!
Consolidation/integration of providers does not lead to higher prices as a result of greater market power 1 Linking prices to real benefits to ensure payment reflects underlying value 2
The speed and completeness of shifting away from fee-for-service payment models 3
Well functioning insurance markets and Exchanges 4
Liberation of high quality, timely data to enable providers to manage risk and support consumers markets 5
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Summary !
The fundamental issue in U.S. health care for next decade will be cost and affordability
Ultimately, budget pressures will force policies that achieve slower Medicare and Medicaid cost growth
The Affordable Care Act has accelerated an environment for change in the health system