Tuesday, January 29, 2013

The Future of Health Care Spending

Much of the concern surrounding Obamacare is the ultimate cost of the program. No one knows for sure what the final numbers may be, but it's likely spending will continue to increase until the new system is fully implemented and further evaluated.

A recent Wall Street Journal report suggests that in 2014 U.S. Health Care spending will increase simply because of the additional millions of new people obtaining health insurance for the first time as a result of the initial implementation of the Affordable Care Act (ACA). The recession also contributed to lower than normal spending numbers as many individuals delayed needed services, either because they could not afford them, or they simply did not have health insurance.  

The most recent figures for health care spending are for 2011 where health care accounted for almost 18% of the Gross Domestic Product.  By 2021 this number's expected to rise to 20%. It's important to note that even without the ACA, spending was going to increase. We're an aging population with a tremendous amount of baby boomers heading into the critical care periods of their life.  Every day, another 10,000 people enter the Medicare program as they reach 65 years of age.

In order to fully understand health care spending in the future, it is necessary to identify the major factors that contribute to spending now. How we better manage these components will determine if we're able to eventually lower our medical costs. Most of what accounts for the costs of medical care can be broken down into these areas: Technology, Administrative, Unnecessary care, Fraud, How providers receive payment and Self-preventive measures. Lisa Zamosky summarized each of these areas very well in her Los Angeles Times article. 

While we are the most technologically advanced nation in the world in terms of health care procedures and instrumentation, this comes out a significant price. Michael Thompson of Price WaterHouse Coopers' Health and Welfare Practice in New York points out that while technology has helped other industries reduce and control cots, it has actually had the opposite effect in health care. Everyone, from doctors to hospitals to patients want the newest and best technology. In order to remain competitive in an increasingly competitive battle to deliver the best care, providers strive to always be on the cutting edge with the latest MRI or CAT scan. Cheaper is not the mission here. And the costs associated with these new improved technologies is then passed onto the patient via increased insurance premiums, co-payments or higher deductibles.  The area of technology is one where we have the least amount of control in terms of health care spending.

On the other hand, curtailing administrative expenses can be accomplished by developing a more efficient process in both the provider's office and in the insurance company's processing claims area. The ACA requires insurance companies to spend a minimum of 80% of the health care premium on medical benefits and 20% on administrative expenses for individual and small groups.  This is referred to as the medical loss ratio.  For large groups the medical loss ratio is 85%. Details of how these ratios are developed can be found in this Congressional Research Service report.

Failure to comply with the ACA, brings a penalty to the insurance company with the insured receiving a rebate. In essence, this new law encourages less red tape in the system.

According to The Washington Post annual unnecessary care accounts for $750 billion or one-third of the total $2.6 trillion spent on health care. That number is astonishing. The chart below breaks down all that is considered "unnecessary."


This is a lot of waste, but on the positive side, with the proper review, it can be fixed relatively easily. Misdiagnosis, billing errors and individuals ignoring preventive measures or early detection can all be reduced.  If we don't demand and implement better quality controls on the above components, health care spending will continue to increase at an alarming rate.

The area we have not yet addressed relates to the way we pay providers. The traditional fee for service model does not support a system for controlling health care spending. The fee for service model encourages more utilization.  Providers are paid on the basis of quantity, as opposed to quality measures.  Even if we talk about going to a single payor system of health care, the fee for service model will only continue to encourage more testing, more visits and ultimately increased costs. One of the flaws of the Medicare program is that it does not encourage efficiency and health care cost containment. Because providers end up receiving less money for services provided when treating Medicare patients they too often mistreat, over treat or haphazardly order unnecessary tests.

There are a number of innovative delivery system approaches that are currently being tested to encourage efficiency and quality over the present volume oriented fee for service approach.  The Accountable Care Organization (ACO) is one such approach whereby providers group together to form a more efficient delivery system.  The ACO may bundle payments.  They offer one flat negotiated fee for certain procedures, such as hip or knee replacements in contrast to charging patients and insurers for each individual service involved in the procedure. The ACO works on the premise of developing certain benchmarks by which the provider and insurance company agree upon. Examples of these benchmarks include hospital readmission rates, reduction in rate of infections and reduced emergency room visits. If the agreed upon benchmarks are met, the provider and insurance company split the savings based on pre-negotiated terms. This system begins to encourage meeting quality of care benchmarks, as opposed to encouraging volume oriented fee for service reimbursement.  While the jury is still out on this approach, it is a step in the right direction.

Stay Positive. Stay Informed. Stay Healthy.
- The Patient's Advocate

Monday, January 14, 2013

U.S. Health vs The World

The timing of former President Bill Clinton's Foundation's 2013 Health Matters Conference on Tuesday could not be more appropriate.  Within the last week the National Research Council and the Institute of Medicine released an extensive report on the state of health of the citizens of the United States compared to peer nations around the world. The results are not encouraging for us. In fact, they're down right lousy and embarrassing.

For a country that prides itself on being the very best, when it comes to America's individual and collective health, we're extraordinarily supremely unhealthy. As part of his Global Clinton Initiative the former President turned world ambassador and philanthropist joins leading health and wellness advocates to promote and improve individual healthy lifestyles in the home, the community and the workplace.

This report from the NRCIM has nothing to do with the current topical discussions that involve the quality of our healthcare or our rising costs. Instead, the data reflects individuals's personal health maintenance, taking into account factors like obesity, diet, mortality, etc.

The news is bitterly morbid for American men whose life expectancy is lower than 17 other of the world's wealthiest countries.  When it comes to American women, only the Danish have a shorter life span. Here's the link to the detailed report that explains more of the determining factors behind our national deficiency.

When you see startling statistics such as these you cannot expect to behave like nothing's wrong. As a country and as individuals we must reexamine how we live, how we eat and how we exercise. The on going discussions around Health Care absolutely must include areas like nutrition, physical fitness and mental well being. It's all part of the larger issue.  If nothing else, this report should serve as a national wake-up call. Our health and future depend on it.

Stay positive. Stay informed. Stay healthy.
- The Patient's Adovcate