train wreck? a conference on america’s looming fiscal crisis health entitlements: comments on...

Train Wreck? A Conference on America’s Looming Fiscal Crisis

Health Entitlements:Comments on Goldman and Manchester/Schwabish Papers

Samuel Y. Sessions, MD, JD


Health Entitlements:

Comments on Goldman and Manchester/Schwabish Papers

Federal Health Care Spending Outlook – Manchester and Schwabisch

Michaud, Goldman, et al.

Cost Containment – Manchester and Schwabish

Conclusions


Harbor-UCLA Medical Center

Copyright (2010)

America’s Looming Fiscal Crisis: Health Entitlements

Health Spending: Outlook

Comments on Manchester/Schwabish

CBO health care spending projections (% of GDP)

2008 2035 2080

Medicare plus Medicaid

spending (federal) 4.3% 9.7% 17.2%

Medicare/Medicaid spending growth of 5.4% of GDP from 2008 to 2035.

Total health care spending in 2035 projected to be 31% of GDP.

Sources: CBO Long-Term Budget Outlook 6/09; Manchester/Schwabish, 1/15/10


Health Spending: OutlookCBO fiscal gap estimates (% of GDP)

Fiscal gap: the immediate reduction in deficit needed to hold debt:GDP ratio constant over given period – the target.

25 years 75 years

Baseline fiscal scenario

Immediate action 2.1% 3.2%

Action in 2020 10%(?)

Alternative fiscal scenario

Immediate action 5.4% 8.1%

Source: Manchester/Schwabisch, 1/15/10

CBO projects Medicare and Medicaid will account for 80% of entitlements spending growth in next 25 years (90% in next 75 yrs).

Question: How much could they contribute to deficit reduction – hitting the fiscal gap targets?

CBO projects 57% of Medicare/Medicaid spending growth in next 25 years is due to aging alone – assume (1) this is fixed and (2) no benefits cuts or eligibility changes.43% of projected increase of 5.4% of GDP = 2.3% of GDP.Represents the limit to Medicare/Medicaid savings from ‘pure’

health care cost containment.Like cost increases, savings would be realized gradually.Would entail 25% Medicare/Medicaid cut (2.3% x 9.7% of

GDP).


Tax expenditure for employer-sponsored health insurance (ESHI) now equals about 11% of health spending.If percentage stays constant, this would be about 3% of GDP in

2035 (11% of 31%).

Conclusions:Health care cost increases may be a bigger part of the problem

than the “solution” for the deficit.Large share of Medicare/Medicaid cost increases from aging

alone limits savings from cost containment – simply the demographic bulge.

Savings from tax-free ESHI more predictable and controllable.

25% reduction of Medicare and Medicaid spending in year 2035 can serve as benchmark (limit case) in assessing proposals.



Michaud, Goldman et al. Paper

Obesity scenarioSmoking scenarioMortality scenario

Obesity scenarioWeight gain as risk factor for disease (increase in

relative risk)

Goldman, et al. Paper

Diabetes

Hypertension

Arthritis

Overweight (BMI 25-30 60% 80% 40%

Obese (BMI 30 or higher)

240% 250% 100%

Extremely obese (BMI 40 or higher)

740% 640% 440%Source: CDC: Mokdad, et al., JAMA 1/1/03

Obesity Scenario – reduce obesity to late 1970’s levels:

Status quo projection: by 2050, obesity increases from 28%-47%, and diabetes increases from 17%-29%.

Under obesity scenario, life expectancy increase of 1.2 years and disability decrease of 0.6 years for age 50 entrants in 2050.

Projected Medicare/Medicaid savings of 2.3% in 2030 and 4.6% in 2050 – savings of about 3% in 2035.

An enormous effect -- if achieved, equals more than 10% of ‘maximum’ savings (25%) from excess cost growth, while significantly improving health.

Michaud, Goldman, et al. Paper

Obesity Scenario (cont.):

Savings may be understated, since model assumes health care delivery status quo – adjusting for CBO excess cost growth would increase savings in 1st 25 years by about 75% (i.e., 43/57).Also counts population 50+ only.

Achievement ambitious and difficult, practically and politically:Studies suggest a per capita increase in caloric intake of

up to 500 kcal/day since early 1970s. Walking an extra mile a day expends 60 kcal compared

with resting – about 1/9 of the caloric increase. (Source: Katan and Ludwig, JAMA 1/6/10)


Obesity Scenario (cont.)

“[T]he apparent energy imbalance [between diet and activity] is . . . far beyond the ability of most individuals to address on a personal level.”

“Rather, an effective public health approach to obesity prevention will require fundamental changes in the food supply and the social infrastructure.”

“Changes of this nature depend on more stringent regulation of the food industry, agricultural policy informed by public health, and investments by government in the social environment to promote physical activity.”

Martijn Katan and David Ludwig

(Source: Katan and Ludwig, JAMA 1/6/2010)


Mortality Scenario: good news and bad news

Projected life expectancy increase of 5.8 years for 2050 entrants, 3.9 years of which is with a disability.Does not affect disease status: prevalence of disease conditions

increases over status quo projection.Approximately 10-11% increase in 2035 Medicare/Medicaid

costs -- equals almost half of CBO’s projected excess cost growthOr further increase in 2035 Medicare/Medicaid costs of about 1% of

GDP.Adjusting for excess cost growth itself would, again, increase by

75%.Presumptive goal of health care system reform: achieve the

mortality improvements without these fiscal effects, and with better health outcomes – but see below.



Manchester/Schwabish Paper


Horseless carriage


Model of U.S. health care delivery dates back many decades:

Mostly sole practitioners, most in general practice If specialist consultations needed, arranged ad hocPaper charts – consistent with one patient-one doctor

relationshipRelatively little care available for chronic disease Hospitalizations for acute illnesses, often infectious

diseaseSurgical options limited, recovery mostly in hospitalNo CTs, MRIs, ultrasounds, ICUs, nuclear medicine,

etc., etc.


Greatly expanded range of services and knowledge due to scientific advance have been loaded onto decades-old, antique model.

Consequences: Severely fragmented, poorly-coordinated care.Limited information on relative effectiveness of treatments.Feeble ability to gather comprehensive data about care delivery.

Should be be replaced with: “team-based delivery of care, supported by modern information

technology and backed up by extensive research on effectiveness, careful monitoring of results, and alignment of incentives with goals”. (Henry Aaron)

Integrated delivery systems (IDSs) and evidence-based care. Source: Aaron, review of Lee and Mongan, Chaos and Organization in Health Care, Health Affairs

Sept/Oct 2009

Manchester/Schwabish PaperBundled payment (“episode of care payment”)Single payment would be provided for all services related to a given

episode of care or condition, by multiple providers.Providers would assume financial risk for costs of treatment and costs

associated with “potentially avoidable” complications (PACs).Estimated that PACs account for 22% of all private US health care costs(!).

A RAND study estimates reduction of national health care spending up to 5.4% between 2010 and 2019 under one bundled payment model.Global application -- not a Medicare/Medicaid proposal – “optimistic”.Assumes a 25-50% reduction in PACs through better coordinated care,

rapid implementation.Both House and Senate bills have pilot studies/demonstration

projects. (Sources: deBrantes, et al, NEJM 9/10/09 ; Hussey, et al., NEJM 11/26/09)

Manchester/Schwabish PaperAccountable care organizations (ACOs)

Group of providers (hospitals, physician groups, others) held jointly responsible for the quality and cost of health care for a population of beneficiaries.

Another capitated payment model, but more clearly intended to create incentives for creating IDSs.

Senate bill includes proposal for voluntary ACOs in Medicare: Providers paid FFS, but those in ACOs would receive bonuses if quality

measures met and spending below a benchmark – i.e., share the savings with Medicare.

CBO estimates proposal would raise $5 billion over 2013-2019.House bill has pilot program.

Integrated delivery systems – issues:Unclear that IDSs actually reduce costs.

Chronic care coordination improves health, but evidence for net cost savings is mixed.

Under status quo there is enormous underutilization as well as overutilization of services.

Mortality scenario – improved care may generate its own long-run fiscal burden. Not captured by studies of IDSs to date.

Moving to IDSs entails major shift in health care organization: most doctors still in small group practices.

In 2003, 47% of private physicians worked in practices of one or two physicians, and 82% in practices of 9 or fewer.

Sources: Mongan and Lee, Chaos and Organization in Health Care (2009); McGlynn, et al, NEJM 6/26/03; Michaud, Goldman, et al.; Casalino et al, Arch. Int. Med. 9/8/03


Integrated delivery systems (cont.):

Both outpatient practices and hospitals woefully short of the IT systems needed for integrated care delivery.

Only 1.5% of US hospitals have a comprehensive electronic medical records (EMR) system (present in all clinical units).

Only 4% of physicians have a fully functioning EMR system. American Recovery and Reinvestment Act (ARRA) provides

$19b for health IT and EMR, . . . but 2005 estimate of cost of national interoperable HIT system was $276b.

(Sources: Jha, et al., NEJ 4/16/09; DesRoches, et al., NEJM 7/3/08; Blumenthal, NEJM 4/9/09; Walker et al. Health Affairs web exclusive 1/19/05)


Comparative effectiveness research (CER).

ARRA provides $1.1b for CER, defined as: “[R]esearch that compares the clinical outcomes,

effectiveness, and appropriateness of items, services, and procedures that are used to prevent, diagnose, or treat diseases, disorders, and other health conditions”.

Cost not mentioned.Reference to “comparative cost-effectiveness analysis” in

earlier drafts of bill was dropped. (Source: Reinhardt, NYT, 3/13/09)

Both House and Senate health care reform bills include CER provisions, with additional funding; neither includes cost in CER definition.


Comparative effectiveness research (cont.)

ARRA directed the Institute of Medicine to generate a list of CER priorities for DHHS to consider in implementing ARRA.

On 6/30/09 IOM released report; highest priority item for CER in psychiatry (no. 22 out of 100 overall) identified by the IOM:

“Compare the effectiveness of wraparound home and community-based services and residential treatment in managing serious emotional disorders in children and adults.” (Institute of Medicine, 6/30/09)

What might have been an alternative priority?


Comparative effectiveness research (cont.)Antidepressant Celexa (citalopram) consists of two mirror

image molecules -- left molecule is biologically active; right one is inert.

Celexa’s patent expired in 2003; Forest Laboratories introduced left-hand molecule, Lexapro (escitalopram), as a new drug.

26 million Lexapro prescriptions written in 2008, the third highest for any drug; cost: $2.4 billion. 21.5 million prescriptions written for generic citalopram.If lexapro had sold at citalopram prices, cost would have

been $317 million – difference of $2.1 billion – one drug, one year. (Sources: Shook, Businessweek online 3/24/03; www.drugtopics.com; author’s calculations.)

Studies favor lexapro, but almost all financed by companies marketing lexapro.


For same pharmaceuticals, U.S. costs 2.3 times higher than in rest of the world.

Retail prescription drug spending, 2008: $234b.

78% of pharmaceutical spending is on brand-name drugs.

Sources: Halvorson 2009; Hartman et al. HA 1/2010; Singer NYT 1/13/09

(Sources: Cipriani et al, Cochrane, 4/25/09 ; Lexchin, et al, BMJ, 5/31/03; Turner, et al, NEJM 1/17/08; Halvorson, Health Care Will Not Reform Itself (2009); Hartman, et al., HA 1/10; Singer NYT 1/13/10)


Tax-free employer-provided health insuranceThe largest tax expenditure, equal to about 11% of health

care costs.Encourages overspending on health insurance and represents

one of many ways in which costs are hidden from ‘consumers’.Senate bill includes 40% excise tax on “Cadillac plans”

($8,500 for individual coverage, and $23,000 for family coverage)

Issues: Effects too limited and too back-loaded?May simply shift costs to insureds without systemic reformMay have adverse impact on pools of older, sicker employeesDoesn’t directly address affect price of inputsDisingenous – missed opportunity to educate?



Conclusions

Much of projected Medicare and Medicaid cost increase is due to aging – the long-awaited ‘demographic bulge’ – and unavoidable.

Health care cost containment savings are slow and uncertain (absent benefits cuts, eligibility changes, or major provider cuts).

Reforming tax treatment of ESHI avoid these problems and be a better source for deficit reduction, especially near-term.

Serious CER may also provide faster, and more certain, cost savings than delivery system reform.Need to address cost of inputs, not just how they are utilized.

Health Entitlements: Conclusions

Some public and population health measures could improve health status and significantly cut costs by reducing health care demand.

Shift to integrated delivery systems is needed regardless of cost issues – but may generate its own long-term fiscal burden.

There are major infrastructure, cultural and other obstacles to achieving integrated care delivery.

Rather than implementation of technocratic scheme, significant cost containment likely to involve major political battles – e.g., with drug companies, medical specialists, food industry – that were mostly avoided in current legislation.“Rationing” is “socialized medicine”, 2010-style.



“[A]ll payers, whether they are employers or public officials, are attracted to promises of blameless cost control. ‘Managing care’ defined as giving people the right treatment in the right place at the right time (and no more) promised that patients would get what they needed – no painful ‘rationing’ – while providers would have no legitimate gripe about any lost income.”

Joseph

White

Source: “The United States: Risks for Americans and Lessons from Abroad”, in Comparative Studies and the Politics of Modern Medical Care (Marmor, Freeman, Okma, eds. 2009)

“The current U.S. health care system can be described, in at least one respect, as a massive engine for the redistribution of resources from employers, taxpayers, and households to the organizations that provide health care goods and services, and . . . [those] who work for [them]. Controlling costs will mean, unavoidably, altering the terms of that redistribution.”

“It’s not surprising that those likeliest to lose out from such a process, or even from an open discussion of such a process, would be so eager to change the subject. . . . We would all be better served, we believe, if the issues of who wins and who loses were made more open and more explicit.”

Bruce Vladeck and Thomas Rice

Source: Vladeck and Rice, “Market Power And The Failure of Discourse: Facing Up To The Power of

Sellers,” Health Affairs, Oct./Sept. 2009



Health Entitlements:Comments on Goldman and Manchester/Schwabish Papers


train wreck? a conference on america’s looming fiscal crisis health entitlements: comments on...

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