Health Care Cost Drivers and Policy Options Kenneth E. Thorpe, Ph.D.

1. Causes of and Potential Solutions to the High Cost of Health Care Health Care Cost Drivers and Policy Options Kenneth E. Thorpe, Ph.D. Robert W. Woodruff Professor and Chair Department of Health Policy and Management Rollins School of Public Health Emory University October 10, 2002

2. Options for Controlling Costs • Managing Consumption • Copays, benefit design • Pharmaceutical benefit design • Preauthorization • Behavioral and Lifestyle Intervention • Managing the Delivery of Care • Disease and Care Management • Broader Structural Reforms

3. Managing the Consumption of Healthcare • Benefit Design • Employer Premium Contribution • Increase Cost Sharing • Reduce Benefits • Broader Reforms • Consumer-Driven Models • Behavioral and Lifestyle Interventions

4. Managing Pharmaceutical Spending: Managing the Components of Growth Price Increases (20 – 35%) Increased Number of Prescriptions (30 – 40%) Changing Mix of Drugs (25 – 33%) Rx Trend (15 – 25%) • General • Economic • Trends • Direct-to-Consumer (DTC) • Advertising • Rising Incidence of • Chronic Disease • March of Science • Rising Number of • New Molecular Entities Why? • Competitive • Binding • Price Negotiation • Better Formulary Management • Tiering Structure • Mandatory Generic Substitution Options

5. Behavioral and Lifestyle Interventions: Can They Work? • YES! But again, design matters • Targets smoking, stress, weight, blood pressure, high risk activities • Key Design Feature • Risk assessment • High participation among high risk individuals (use financial incentives in plan design) • Savings: Range from zero to a return on investment (ROI) of 6:1

6. Managing the Delivery of Healthcare • Care and Disease Management • Typical Conditions • COPD, CHF, Coronary Artery Disease, Diabetes, Asthma • Others • Hypertension, Behavioral Health, Cancer, Pain Management COPD= Chronic Obstructive Pulmonary Disease CHF= Congestive Heart Failure

7. Care and Disease Management: Does it Work? • Evaluations: What’s Possible? • Best designed programs could save 10 to 30% for specific group patients • Ex: Congestive heart failure (fluid in lungs) sends typical patient to hospital 2-3 times per year • Intervention? NEED IT AT HOME! • Expert to teach patient about disease • Importance of medication compliance • Diet • Monitoring weight • Check in with patient remotely or in person

8. Managing the Delivery of Healthcare High Low • Intensive Monitoring • Weight • Blood Pressure • Glucose Levels • Pulse • Pulse Ox • Care direction and • physician communication • Requires community based • (home) and physician care • Predictive Modeling • Health Risk • Assessment • Condition Education • Nurse on demand • Care reminders • Medication • Compliance

9. Managing Medicaid Spending • Reduce covered benefits • Control utilization (commercial disease management modules) • Limit provider payments • Freeze enrollment • Manage drug costs (through negotiations over price, “lock-in” disease management savings with drug companies)

10. Managing the Market and Delivery System • Size Matters (Medicaid + State Employees) • Pharmaceutical negotiations • Hospital / Provider contacts • Regulation • Certificate of Need (CON) • Rate-setting • Patient Safety Initiative and Error Reduction • Reporting systems • Interventions (computerized physician order entry)