US Healthcare System - Overview

1. US Healthcare System - Overview Daniel B. McLaughlin

2. Course Outline • The American Health Care System and Policy Development • Health care Financing and Health Insurance Reform • Quality, Chronic Disease Management and ACOs • Suppliers and Hospitals • Health Informatics and Population Health • The class creates a new American healthcare system

3. Today’s Class • Issues in American health care today • Three theories that structure the system • Systems • Competition and markets • Funds Flow and cost management • Health Policy and Politics • The future for stakeholders in the System

4. Questions • What is causing an increase in health care costs in the U.S.? • What makes changing our health care system a challenge? • One theory for improving health care is to improve consumer behavior. What should be done to improve consumer behavior • One theory for improving health care is to improve market competition. What should be done to improve competition

5. The Best Health Care System in the World

6. The Best • Medical Research • Drug and Device Development • Innovative Care Delivery • Health Services Research • Passionate and skilled caregivers • Engaged Consumers and Patients

7. Paradox Geographic practice disparity Quality: over use, under use, misuse and safety Acute care model for Chronic disability Professions shortage Primary care Nursing Access problems: uninsured, underinsured, bankruptcy Insurance: pre existing conditions, lifetime limits & high deductibles Welfare payment for aged and disabled Most costly system in the World – 18% of GDP

8. Projections of National Health Expenditures and Their Share of Gross Domestic Product, 2012-2021 Dollars in Billions: NHE as a Share of GDP: SOURCE: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/(see Projected; NHE Historical and projections, 1965-2021, file nhe65-21.zip).

9. Costs and Global Competition Healthcare cost $1,800 Healthcare cost $900

10. Groups: What is causing an increase in health care costs in the U.S.?

11. Top 10% of patients create 65.2% of costs Health Care Spending in the U.S. Population 2009 Percent of Total Health Care Spending (≥$51,951) (≥$17,402) (≥$9,570) (≥$6,343) (≥$4,586) (≥$851) (<$851) Note: Dollar amounts in parentheses are the annual expenses per person in each percentile. Population is the civilian noninstitutionalized population, including those without any health care spending. Health care spending is total payments from all sources (including direct payments from individuals and families, private insurance, Medicare, Medicaid, and miscellaneous other sources) to hospitals, physicians, other providers (including dental care), and pharmacies; health insurance premiums are not included. Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), Household Component, 2009.

12. Chronic Disease Costs - 2012 Total US costs in $Trillion Cancer 0.46 Diabetes 0.19 Hypertension 0.45 Pulmonary conditions 0.20 Heart Disease 0.25 Stroke .05 Total 1.61 Includes medical costs and lost productivity

13. Hospital Care is the Greatest Health Care Expenditure Category 2010 Nursing Care Facilities & Continuing Care Retirement Communities, $143.1 (5.5%) NHE Total Expenditures: $2,593.6 billion Note: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc. Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity, research, and structures and equipment, etc.

14. Per Person Medicare Spending Varies by Region Source: The Commonwealth Fund, from Eliot Fisher, presentation at Academy Health Annual Research Meeting, June 2006.

15. What makes changing our health care system a challenge?

16. Why Is Change so Hard? Medicine Most intense science of all 10,000 new articles a year 17 years from research to practice (AHRQ) Professional autonomy value system Business Predominately privately owned and operated Still cottage industry in many places Strong financial incentives for current system Market failures abound Compassion Hippocratic oath Technological Imperative It’s Personal Everyone is part of the system Strong feelings about my health, my family’s health, my doctor

17. Goals for Health Care in the U.S. Reduce cost growth,Improve access, andImprove quality andsafety In a way that is acceptable to the American Public With Liberty and Justice for All

18. Three Theories System’s View (The Health Policy Community) Markets View (Freedom) Incentives and funds flow View (Justice for all)

19. Health Care – A Systems View Professional - Patient

20. Health System – Core Consumer Behavior Tools – Dx & Rx Professional - Patient Illness Burden Knowledge

21. Health System – Tools • Issues: • Need for moreprimary care providers • Aging workforce • Compensation Health Care Workers Facilities Medical Technology Information Technology Tools – Dx & Rx Issues: - Growth of EHR - Big Data Professional - Patient • Issues: • Continued growth but cost effectiveness now an issue • FDA approval – testing moving offshore • - Transparency on drug/device company relationships with providers • New Structures • - Accountable Care Organizations • Medical Home • Insurance Exchanges

22. Health System – Consumer Consumer Behavior Tools – Dx & Rx Professional - Patient Knowledge

23. One theory for improving health care is to improve consumer behavior. What should be done to improve consumer behavior?

24. Health System – Consumer Financial resources & goals Information Market/Clinical Past Experience – Personal, networks Consumer Behavior Tools – Dx & Rx • Environment:- Air, food, water • Economic • Cultural Professional - Patient Knowledge Illness Burden Genetics of the Individual

25. Consumer Behavior More financial incentives in HSAs and high deductible policies Engaged Patients Self manage symptoms Healthy behaviors Involvement in treatment choices Select providers on quality Navigate the system Social networking and the Internet as a resource Incentives to employers for wellness programs Activity Based Outcome based - (Safeway - UHG) Up to 30% of premium returned to employee

26. Population Health • Community connections – neighbors helping neighbors • Healthy food availability – no “food desserts” • Exercise and fitness opportunities • Cultural and racial disparities • Healthcare literacy • Income inequality • Crime • Business case is difficult

27. Chronic Disease Management • Accountable Care Organization • Accountable for a Population • Manage costs and quality • Medicare and private markets • Provider-insurance partnerships • Chronic Care Model • Clinical information systems • Organized Outreach • Delivery system design – Medical Home • Self-management support • Community and organizational leadership

28. Medical Home Personal Physician (team leader) Whole person orientation Care is coordinated across all providers Quality and safety measured and improved Enhanced access (e.g. after hours) Supportive payment redesign

29. Health System – Education & Research Consumer Behavior Tools – Dx & Rx Professional - Patient Continuing Education Knowledge Illness Burden Research Primary Education

30. Education and Research Issues - Education Primary care Scope of practice issues new professions emerging Issues - Research Comparative Effectiveness Research (PCORI) Funding challenges NIH no longer exempt for cuts Industry funding moving overseas Data entrepreneurs with Big data

31. Health System – Financing Financial resources & goals Consumer Behavior Tools – Dx & Rx Financing Sources & Structure Professional - Patient Government Knowledge Illness Burden Employers Individuals

32. Private Insurance Market Share

33. Medicaid and CHIP A State / Federal Partnership Assistance to Medicare Beneficiaries 8.9 million aged and disabled — 21% of Medicare beneficiaries Health Insurance Coverage 29 million children & 15 million adults in low-income families; 15 million elderly and persons with disabilities Long-Term Care Assistance 1 million nursing home residents; 2.8 million community-based residents MEDICAID-CHIP Support for Health Care System and Safety-net 16% of national health spending; 40% of long-term care services State Capacity for Health Coverage Federal share can range from 50 - 83%; For FFY 2012, ranges from 50 - 74.2% SOURCE: Kaiser Commission on Medicaid and the Uninsured, 2011.

34. Medicaid Today and Tomorrow Minimum Floor for Health Insurance Coverage to 133% FPL Health Insurance Coverage for Certain Categories Additional Federal Financing for Coverage MEDICAID Shared Financing States and Federal Govt. Additional Options Long-Term Care / Coordination for Duals Support for Health Care System Assistance for Duals / Long-Term Care

35. Medicare Benefit Payments, by Type of Service, 2010 and 2020 Outpatient Prescription Drugs Part A Parts A, B, C Part B Part D Outpatient Prescription Drugs 11% 19% 6% 27% 27% 8% 13% 6% 5% 12% 10% 11% 23% 4% 12% 5% Medicare Benefit Payments2010 = $509 Billion Medicare Benefit Payments2020 = $914 Billion NOTES: Totals do not include administrative expenses and are net of recoveries. Other Services include hospice services; durable medical equipment; ambulance services; independent, physician in-office, and hospital outpatient department laboratory services; hospital outpatient services that are not paid for using the prospective payment system (PPS); Part B prescription drugs; rural health clinic services; outpatient dialysis; and benefit payments not allocated to specific services, including adjustments to reflect year-to-date spending (2010), and savings from the Independent Payment Advisory Board (2020). SOURCE: Congressional Budget Office, Medicare Baseline, August 2010.

36. Medicare Spending as a Percent of Total Federal Spending, Fiscal Year 2010 20% 20% 15% 19% 8% 6% 12% Total Federal Spending, FY2010 = $3.5 Trillion NOTES: FY is fiscal year. 1Amount for Medicare includes offsetting premium receipts. 2Other category includes disaster costs and negative outlays for Troubled Asset Relief Program. SOURCE: Office of Management and Budget, FY2011 Budget, Summary Tables; February 2010.

37. Projected National Health Expenditures in the United States, by Source of Payment, 2010 Private Health Insurance Other Private Spending Medicare Out-of-Pocket Payments Other Public Spending Medicaid and CHIP1 Total National Health Expenditures, 2010 = $2.6 Trillion

38. Financing Medicare Advantage –Health Plans Subsidies for individuals and small business Hospital Inflation (-1.5%), Re- admits, DSH Medicaid eligibility buy down Drug Discounts Personal Income Taxes> $250,000, 3.8% on unearned income Fix Medicare donut hole $ One Trillion System taxes: health plans, device companies, tanning, Cadillac Health plans MD fees – repeal SGR 4% of total NHE X 1099s for purchases > $600

39. Total Health System Model Health Care Workers Financial resources & goals Information Market/Clinical Facilities Medical Technology Information Technology Past Experience – Personal, networks Consumer Behavior Tools – Dx & Rx Financing Sources & Structure • Environment:- Air, food, water • Economic • Cultural Professional - Patient Government Continuing Education Knowledge Illness Burden Employers Research Primary Education Genetics of the Individual Individuals

40. One theory for improving health care is to improve market competition. What should be done to improve competition?

41. Theory 2 - Markets View Health Plan Hospital Employer Healthcare Workers Medical Supplies, Devices, Drugs Patient Doctor

42. Health Insurance Issues • Fee for Service incentives reward inefficiencies • Concentrated Markets • Insurance • Providers • Individual market for individuals withpre-existing conditions - portablility • Lack of price information and incentives for consumers • Lack of simplified and standardized billing systems • “This is not a bill” • Charge masters with 20,000 prices • Secondary coverage, supplemental insurance, copays and deductibles • Rise of the high deductible policy

43. Fraud • Effects all payers – public and private • Fraudulent Medicare Claims in Florida in 2007 were $300M to $400M – estimates are 10 times greater • Estimates are that 3% to 10% of healthcare costs are due to fraud • Tactics – false services, false authorizing doctors, false or paid patients • It is a complex crime frequently committed by organized crime rings • Tends to be localized to certain states • Fraud prevention tools are resisted by providers

44. Health Insurance Exchanges

45. Exchange Issues and Future • ACA - State or Federally Operated • Medicaid expansion included or not • Cost of policies • Limited networks • Enrollment and outreach • Risk Adjustment and reinsurance • Private Exchanges • Multiple insurance products • Fixed contribution on part of the employer • Similar to fixed contribution pension plans

46. One year delay in employer mandate • Rationale • Regulations on reporting became very complex • What type of health coverage is provided • What is a full time employee (30 hours or more) • More time to simplify reporting • Voluntary reporting in 2014 • Implications • Individuals still need to be insured or penalty of $95 or 1% of income • Can buy through exchanges and may receive a subsidy if their income is below $45,900 • Does not effect companies already insuring their employees • Biggest impact on retailers, farms, food processors, restaurant chains, casinos and hotels

47. Federal or State Exchanges

48. ACO’s change the market Health Plan Healthcare Workers Hospital ACO Doctor Medical Supplies, Devices, Drugs Patient

49. Theory 3 - Incentives and Funds Flow “Its not about the money, its about the money.”

50. Lowest Cost Site $$$$ Hospital ICU Inpatient Hospital Intensive Ambulatory Care (Surgery) Routine Outpatient care Long Term Care Home Care Prevention and Wellness $ Supportive Communities