Medicare Payments And Its Relationship To The U.S. Healthcare System Stuart H. Altman, Ph.D.

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1 Medicare Payments And Its Relationship To The U.S. Healthcare System Stuart H. Altman, Ph.D. Sol C. Chaikin Professor of National Health Policy Brandeis University

2 Should Medicare Focus Only on The Functioning of The Medicare Program, Or Should It Be Concerned About It s Impact on The Overall US Healthcare System?

3 Medicare Is Already A Major Payer For US Healthcare But Just Wait Until The Next Decade!

4 Percent Paid For Healthcare By Payer Source 2006 Medicare, 22% Other, 4% In Billions of Dollars- $1.76 Out-of-Pocket, 15% Medicaid, 17% Pvt. Insurance, 35% Out-of-Pocket Pvt. Insurance Medicare Medicaid Other

5 Even With No Change In Coverage Government Will Dominate Institutional Payments 100% 80% 60% 40% 20% 0% Proportion Of Hospital Expenses Attributed To Patients By Payer Source 54% 66% 37% 25% 6% 7% Gov. Pvt. Uncomp. Care Other 3% 2%

6 Do Hospitals Attempt To Charge Privately Insured Patients More For Medicare/Medicaid Underpayments, Or Do They Just Maximize Revenue From Each Source

7 Can Private Insurance Payments Continue To Pay For The Shortfall In Government Payments 180% 160% Hospital Payment-to-Cost Ratios (Government Ratios Maintained at Current Levels) 157.4% 140% 120% 122.3% 138.0% 100% 95.3% 80% 92.3% 60% Medicare Medicaid Private Payers Source: 2005 TrendWatch Chartbook, AHA and the Lewin Group.

8 Profit (Loss) By Payer ,000,000 Non-Govt 50,000,000 Other Govt 0 PEIA -50,000,000 Medicaid -100,000, ,000, ,000,000 Medicare

9 Both Medicare and Private Health Insurance Payments Are Being Driven By The Same Forces

10 Per Capita Growth In Health Expenditures Has Been Growing at 2% Above Inflation For 40 Years ---Is This Inevitable? (adjusted for inflation) y = x Per Capita NHE in $

11 Medicare Expenditures $450 IN Billions $432 $400 $350 $300 $275 $336 $374 $250 $217 $200 $150 $100 $50 $0 $4.7 $6.6 $33.7 $

12 The U.S. Has In The Past Tried To Control Health Spending--- BUT----With Limited Success and For a Limited Time Period

13 The Changing Growth Pattern of Per Capita National Health Expenditure (adjusted for inflation) Y = x Managed Care Y = x ? Per Capita NHE in $ Y = x M&M Begins Y = 40.31x Gov t Reg. Y = x Little Reg./Little Mkt.

14 What Are The Forces That Keep Health Care Spending Growing? Lets See What We Can Learn From A Comparison With Other Countries

15 Correlation Between Per Capita Expenditure on Health Care and GDP, ,000 per Capita Exp on Health ($US PPP) 6,000 5,000 4,000 3,000 2,000 1, ,000 China y = x R 2 = Korea Israel Germany Canada Japan U.K. Switzerland Australia 0 10,000 20,000 30,000 40,000 50,000 per Capita GDP ($US PPP) U.S. Norway $1,794 The figure for Japan is 2002 estimate; the figures for Australia, Austria, China, Hungary, Ireland, Israel, Poland, Sweden and United Kingdom are of 2002; the figures for Canada, France, Iceland, Norway and Switzerland are 2003 estimates. The rest are of Source: OECD Health Data 2005 and WHO.

16 Why Is Healthcare Spending Higher In U.S. Do We Use More Services or Just Spend More for The Services We Use?

17 In-Patient Acute Care Beds in Selected Countries 2005 Per 1,000 population US France Australia UK Germany Japan OECD Av. Sources: OECD HEALTH DATA 2007

18 Hospital Discharge Rate in Selected Countries 2005 Discharges per 100,000 Pop US UK Germany Australia France Japan Canada OECD Av. Source: OECD HEALTH DATA 2007

19 Average Length of Stay in Hospital in Selected Countries In-patient Acute Care Days In-Patient Acute Care Days US Australia UK France Germany Japan OECD Av. Source: OECD HEALTH DATA 2005

20 Practicing Physicians in Selected Countries 2005 Physicians per 1,000 population US Germany Australia UK France Canada Japan OECD Av Source: OECD HEALTH DATA 2007

21 Doctors Consultations Per Capita in Selected Countries US Germany Japan France Australia OECD Av. Source: OECD HEALTH DATA 2007 Number of Consultations per Capita

22 What About The Availability of Expensive Medical Technology and Procedures?

23 MRIs in Selected Countries (Units per million persons) US Australia Germany UK France OECD Av. Sources: OECD HEALTH DATA Japan

24 Patients Using Renal Dialysis Treatment in Selected Countries Procedures Per 100,000 Population US Australia Canada Germany UK Mexico NZ Patients With Dialysis Source: OECD HEALTH DATA 2007

25 Coronary Revascularization Procedures, in Selected Countries Coronary angioplasty Coronary bypass Per 1,000 population US Germany Australia UK France Canada OECD Av. Source: OECD HEALTH DATA 2007

26 Liver Transplant Procedures in Selected Countries Procedure per 100,000 Population US Australia Canada Germany UK Korea Liver Transplant Source: OECD HEALTH DATA 2005

27 Pharmaceutical Expenditures Per Capita U.S France Australia Canada Germany OECD Av.

28 What About Income of Physicians?

29 General Practitioners (GPs) Remunerations Ratio To GDP Per Capita, 2005 Salaried Self-employed US (2001) UK(2004) Germany Australia (2004) Canada (2004) Source: OECD HEALTH DATA 2007

30 10 Specialist Physicians Remunerations Ratio To GDP Per Capita, Salaried Self-employed US (2001) UK(2004) Germany Australia (2004) Canada (2004) Source: OECD HEALTH DATA 2007

31 Is The US (Medicare) Growth Rate In Spending Sustainable? Or Are We Approaching a Meltdown In Our Healthcare System

32 Technology Is a Major Driver in Health Care Expenditure Growth.- --Is it Worth It? When costs and benefits are weighed together, technological advances have proved to be worth far more than their costs. David M. Cutler and Mark McClellan, Is Technological Change In Medicine Worth It? Health Affairs, September/ October Can be found at:

33 But Is Every Technology That Has Some Medical Benefit Worth The Costs?

34 Alternative Levels of Healthcare Dollars Services And Improvements to Health Outcomes Maximum Impact Economic Optimum 0 Harmful Care #1 #2 #3 Inputs of Healthcare #4

35 In Other Countries They Control Spending By Limiting Use of High Cost Medical Procedures Closer To #2---Plus Pay Less for Those They Use We Can Start By Eliminating The Harmful Services in Category #4. But Also May Need To Move Toward #2 ---HOW?

36 Techniques The US (Medicare) Can Use To Limit Use of Expensive Medical Technology Market Mechanisms More Knowledge and Transparency of Value of Use of Individual Technologies Comparative Effectiveness Research More Aggressive Managing of Care Value Based Benefit Design Value Based Pricing More Aggressive Use of Patient Co-Payments Based on Value of Service Provided

37 Techniques for Limiting Use of Expensive Medical Technology Government Regulation Certificate-of-Need Restrictions Funds Obtained Privately Limits on How Technology Can Be Funded Must Use Government Funds Limits on Payments for Technology Services Require all Public and Private Technology Payments to Utilize Comparative Effectiveness Findings Using Cost Benefit Analysis ( Quality Adjusted Life Years )

38 Many Believe Medicare Must First Change The Way It Pays Providers Federal government can no longer just think about impact on Medicare beneficiaries and fiscal integrity of program Cannot assume that providers will continue to find other payers to balance its lower payments and therefore if Medicare needs to pay lower amounts it must: Restructure its payment system and move beyond feefor-service payments In addition Medicare Needs to: Review the amount it pays primary care physicians in relationship to specialists Assess whether hospital DRG payment system encourages the use of expensive and less valuable services Determine whether it could do more to encourage integrated care

39 So---What Will Happen?

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