research and analysis by avalere health cost of caring march, 2011

Research and analysis by Avalere Health

Cost of Caring

March, 2011


Chart 1: National Expenditures for Health Services and Supplies(1) by Category, 1980 and 2009(2)

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 6, 2011.(1) Excludes medical research and medical facilities construction.(2) CMS completed a benchmark revision in 2009, introducing changes in methods, definitions and source data that are applied to the entire

time series (back to 1960). For more information on this revision, see http://www.cms.gov/nationalhealthexpenddata/downloads/benchmark2009.pdf.

(3) “Other” includes net cost of insurance and administration, government public health activities, and other personal health care.(4) “Other professional” includes dental and other non-physician professional services.

Hospital care is shrinking as a share of total health care spending.

Hospital Care, 42.7% Hospital Care, 32.6%

Physician Services, 20.3%

Physician Services, 21.7%

Other Professional,(4) 7.1%

Other Professional,(4) 7.3%

Home Health Care, 1.0%

Home Health Care, 2.9%

Prescription Drugs, 5.1%Prescription Drugs, 10.7%

Other Medical Durables and Non-durables, 5.9% Other Medical Durables and

Non-durables, 3.4%

Nursing Home Care, 6.5%Nursing Home Care, 5.9%

Other,(3) 11.4% Other,(3) 15.5%

1980 2009

$235.6B $2,330.1B


2000 2001 2002 2003 2004 2005 2006 2007 2008 20090%

20%

40%

60%

80%

100%

120%

Hospital Care

Insurance Premiums

Pharmaceuticals

Sources: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group. (2011). National Health Expenditures Aggregate, Per Capita Amounts, Percent Distribution, and Average Annual Percent Growth, by Source of Funds: Selected Calendar Years 1960-2009, and The Kaiser Family Foundation and Health Research & Educational Trust. (2009). Employer Health Benefits: 2009 Annual Survey. Washington, DC. (1) Average annual premiums for family coverage.

Spending on hospital care has lagged growth in health insurance premiums and pharmaceuticals.

Chart 2: Cumulative Percentage Change in National Spending for Hospital Services, Health Insurance Premiums(1) and Pharmaceuticals, 2000-2009


Advances in medicine contribute to longer lives.

Chart 3: U.S. Life Expectancy at Birth, 1940-2007

Source: National Center for Health Statistics. (2010). Deaths: Final Data for 2007. Hyattsville, MD. Access at http://www.cdc.gov/NCHS/data/nvsr/nvsr58/nvsr58_19.pdf.

1940 1950 1960 1970 1980 1990 2000 2007

62.9

68.269.7

70.8

73.7

75.4

76.877.9

Ag

e in

Ye

ars


Mortality Rate0

4

8

12

16

20

19962006

Breast Cancer-related Imaging Scans

0

20,000

40,000

60,000

80,000

100,000

1996

2006

Ag

e-a

dju

ste

d M

ort

alit

y R

ate

(P

er

10

0,0

00

Po

pu

latio

n)

Nu

mb

er

of

Ima

gin

g S

can

s

Source: Lichtenberg, F. R. (2010). Has Medical Innovation Reduced Cancer Mortality? Cambridge, MA. Access at http://www.nber.org/papers/w15880. (1) Includes breast cancer-related imaging scans captured in the MEDSTAT MarketScan Commercial

Claims and Encounters Database, which includes private sector health data from approximately 100 payers. It is not a nationally representative sample and it does not include Medicare beneficiaries.

Breast cancer mortality has decreased as breast imaging use has increased.Chart 4: Breast Cancer Mortality Rate and Breast Cancer-related Imaging Scans,(1) 1996 and 2006


Emerging technologies advance care delivery, but can be costly.Chart 5: Operating Room Costs(1) per Case for Three Radical Prostatectomy Techniques

Open Radical Prostatectomy Laparoscopic Surgery Robot-assisted Prostatectomy

$1,870

$3,876

$5,410

Source: Joseph, J., et al. (2008). The Cost of Radical Prostatectomy: Retrospective Comparison of Open, Laparoscopic, and Robot-assisted Approaches. Journal of Robotic Surgery, 2(1), 21-24.

(1) Measured at one institution, the University of Rochester Medical Center.


Individuals age 65 years and older, the fastest growing segment of our population, use more health care services.

Ages 6-17 Ages 18-44 Ages 45-64 Ages 65 and Over

$1,496

$2,754

$6,138

$9,696

Per

Cap

ita S

pend

ing

Chart 6: Mean Annual Expenses(1) per Person by Age, 2007

Source: National Center for Health Statistics. (2011). Health, United States, 2010. Hyattsville, MD. Access at http://www.cdc.gov/nchs/data/hus/hus10.pdf. (1) Expenses are per person with an expense and include health care and prescribed medication.


Ten chronic conditions account for the majority of Medicare spending growth.

Chart 7: Conditions Accounting for Growth in Medicare Spending, 1987-2002

Source: Thorpe, K., et al. (2006). The Rise In Spending Among Medicare Beneficiaries: The Role Of Chronic Disease Prevalence And Changes In Treatment Intensity. Health Affairs, 25(5), 378-388.

(1) Other includes cancer, diabetes, and pulmonary conditions.

Cerebrovascular Disease and Hypertension, 10%

Hyperlipidemia and Heart Disease, 16%

Mental Disorders, 10%

Trauma, 8%

Other(1), 15%

Arthritis, 7%

Chronic

Condi-tions

66%

Other

34%


Rates of chronic disease are rising.

Chart 8: Prevalence of Common Chronic Diseases, 2001 and 2008

Diabetes Asthma

13

31

19

38

20012008

Pre

vale

nce

(mill

ions

)

Sources: Centers for Disease Control and Prevention. (2009). Longer-term Trends in Diabetes. Access at http://www.cdc.gov/diabetes/statistics/slides/long_term_trends.pdf, and Centers for Disease Control and Prevention. (2008). National Health Interview Survey, 2001 and 2008. Access at http://www.cdc.gov/asthma/nhis/default.htm#01.


Rising obesity rates lead to increased costs.

Source: Congressional Budget Office. (2010). How Does Obesity in Adults Affect Spending on Health Care? Access at http://cbo.gov/ftpdocs/118xx/doc11810/09-08-obesity.pdf. (1) Spending figures are expressed in 2009 dollars.

Normal Weight Overweight Obese

$2,440$2,650 $2,630

$4,030$4,260

$5,560

1987

2007

Chart 9: Per Capita Spending(1) for Normal Weight, Overweight and Obese Adults, 1987 and 2007


Hospitals are treating sicker patients who require more specialized care.Chart 10: Inpatient Case-mix(1) Index (CMI) for the Medicare Population, 2000-2007

2000 2001 2002 2003 2004 2005 2006 20070.95

1.00

1.05

1.10

1.15

CM

I

Source: Deb, P. (2010). Trends in Case-mix in the Medicare Population. Paper presented to the American Hospital Association, Federation of American Hospitals, and Association of American Medical Colleges.(1) Case-mix is defined as the mix of patients across diagnosis-related groups (DRGs) in a

hospital.


All Other: Non-labor Intensive, 3.7%

Professional Liability Insurance, 1.5%

Utilities, 2.1%

All Other: Labor Intensive, 3.8%

Professional Fees, 9.3%

(2)

Other Products(e.g., Food,

Medical Instruments),

14.2%

Prescription Drugs, 5.9%

Other Services, 20.4%

Wages and Benef its,59.5%

Wages and benefits for caregivers and support staff represent 60 percent of spending on hospital care.Chart 11: Percent of Hospital Costs(1) by Type of Expense, 4Q09

Source: AHA analysis of Centers for Medicare & Medicaid Services data, using base year 2006 weights.(1) Does not include capital.(2) Includes postage and telephone expenses.


Hospital labor costs reflect the many types of people who contribute to care.

Source: American Hospital Association.

Chart 12: Example of a Heart Attack Patient’s Staff Interactions from Emergency Department to Discharge


Shortages of workers with the required specialized skills have pushed up wages and benefits for hospitals relative to other industries.

Chart 13: Percent Change in Employment Cost Index,(1) All Private Industries and Hospitals, March 2001 to March 2010

Private Industry Hospitals

27%

38%

Source: Bureau of Labor Statistics. (2010). Employment Cost Index Historical Listing Current-dollar March 2001 – December 2010. Access at http://www.bls.gov/web/eci/echistrynaics.pdf.(1) The ECI is a measure of the change in the costs of labor.

Pe

rce

nt

Ch

an

ge

in C

ost

In

de

x


Alternative employment opportunities will challenge hospitals to attract and retain caregivers.Chart 14: Projected Employment Growth Rates for Registered Nurses by Health Care Setting, 2008-2018

48%

33%

25% 24%

17%

Em

plo

yme

nt G

row

th R

ate

Source: Bureau of Labor Statistics. (2009). Occupational Outlook Handbook 2010-2011. Access at http://www.bls.gov/oco/ocos083.htm#outlook.


Hospitals are one of the most highly regulated sectors and face sizeable administrative costs.Chart 15: Illustration of Agencies Regulating Hospitals

IRS EPA FTC FCC

FBI

HHS/HRSA

Joint Commission

NRC DOL

SEC

OPOs

FAA

DEA

Regional Home Health Intermediaries

DME RegionalContractors

Treasury

DOJ

OSHA

DOT

FDA

Regional Offices

MACs QIOs

Source: Adapted from Washington State Hospital Association. (2001). How Regulations Are Overwhelming Washington Hospitals. Access at http://www.wsha.org/files/62/RegReform.pdf, and American Hospital Association and PricewaterhouseCoopers. (2001). Patients or Paperwork? The Regulatory Burden Facing America’s Hospitals. Access at http://www.aha.org/aha/content/2001/pdf/FinalPaperworkReport.pdf.

Payers

• Medicare

• Medicare Advantage

• Medicaid

• CHIP

• TRICARE (DoD)

• Uncompensated Care Pool

• Employer-Sponsored Insurance

• Patient Self-Pay

• Worker’s Compensation

• Other Public Insurance

• Other Private Insurance

HHS/NIOSH

State

• Survey & Certification

• Courts

• Attorneys General

• Medicaid

• Board of Health

• Medical Boards

• Local Governments

• Licensure

• Health Care Authority

• Department of Labor and Industries

• Public Disclosure Commission

• Office of the Insurance Commissioner

research and analysis by avalere health cost of caring march, 2011

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