Posts Tagged ‘medical costs’

The Best Health Care in the World: Part Two – What does it cost?

Thursday, March 13th, 2008

In 1992 I became a Trustee of a major, tertiary care, teaching hospital in Massachusetts. For Trustee indoctrination, new Trustees spent a week in a classroom learning about every facet of hospital life. One morning we were briefed by the hospital’s CFO. I was astonished to learn that the hospital had 27 different billing systems, one for each insurer and HMO with which it did business. To me, this was Kafkaesque. I mention it now, because in the intervening years, the situation has become worse, much worse.
At 31% of total US health care expenditures, the administrative costs of healthcare providers are double those in Canada (Woolhandler et al, New England Journal of Medicine, August 21, 2003, page 768), and, with the exception of tiny Luxembourg (population 425,000), America’s health administration and insurance costs are the highest of any of the world’s developed democracies.
We spend more, far more, than any other country in the world on health care. Do we get what we pay for? In Parts Two and Three of this series on health care, we examine that question. In Parts Four and Five we relate it all to workers’ compensation, at 3% to 4%, a tiny room in the American health care house that Jack built.
The US compared with other developed countries: The cost explosion.
The United States has been a member of the Organization for Economic Cooperation and Development since the OECD’s founding in 1961 (the forerunner of the OECD was the Organization for European Economic Cooperation, set up under the Marshall Plan in 1947). There are 30 member-countries of the OECD, all democracies, most of which are thought to be the most economically advanced nations in the world.
In September, 2007, the US Congressional Research Service, the best research group you’ve never heard of, published a report for Congress titled, “U.S. Health Care Spending: Comparison with Other OECD Countries.” (Abstract , including downloadable full report in PDF.) This 60-page, well sourced report paints a grim, if occasionally confusing picture.
Until 1980, US spending on health care, as measured as a percentage of gross domestic product (GDP) ranked at the high end of OECD countries, but not excessively so. In 1980, US spending as a share of GDP was 8.8%, which compared favorably to Sweden’s 9.0%, Denmark’s 8.9%, Ireland’s 8.3% and the Netherlands 7.2%. True, spending in the United Kingdom, at 5.6%, France and Norway, at 7.0%, each, and Canada, at 7.1%, was lower, but no one could claim that the US spending was out of control.
Then something happened. By 1990, our spending as a share of GDP had grown to 11.9%, while the rest of the OECD countries remained fairly static – Sweden’s and Denmark’s declined to 8.3%, the UK’s rose to 6.0%, and so on. And by 2003, the US share had ballooned to 15.3%, nearly three percentage points higher than Switzerland, at the time our closest competitor. In fact, in 2004, the OECD average spending as a percentage share of GDP, excluding the US, was 8.6%, just over half of the US share.
In the average OECD country nearly 74% of healthcare costs are publicly financed; in the US, less than 45 %. Moreover, per capita health care spending in OECD countries, excluding the US is $2,438; in the US, per capita spending is 250% higher, at $6,102.
When analyzing why the US spends so much more on health care, one hardly knows where to begin, because in nearly every category we dwarf the field.
Take prescription drugs, for example. Average per capita spending on pharmaceuticals among all OECD countries, including the US is $383, but in the US it is $752, which is $153 dollars per person more than the second largest spender, France. Despite this, because the US spends so much on all of health care, pharmaceuticals account for only 12.3% of total spending, which is near the bottom of the pack among all OECD countries where average spending on pharmaceuticals is 17.8%.
One would think, perhaps, that spending is so much higher in the US because we have more hospitalization, or doctor visits per capita, but one would be wrong. Hospital discharges per 1,000 people in the US are 25% lower than the average for all OECD countries, and doctor visits are 42% lower.
Well, maybe people have significantly more intense and aggressive service while they are hospitalized in the US? One indicator of intensity is the average length of acute care hospital stay. In the US, the length of acute hospital stay is 5.6 days, which is less than all but eight of the other 29 OECD countries. But shorter stays could mean higher efficiency. A better way to look at it is to look at specific causes for hospital stays, like heart attacks, for instance. The US average hospital stay following acute myocardial infarction is 5.5 days, the lowest in the OECD.
Consider childbirth. Here the US has the third-lowest rate of stay, 1.9 days – much shorter than the OECD average of 3.6 days.
Another reason for high costs in the US is our aggressive testing. Only Japan has more CT scanners and MRI units per million people.
And, although doctors will roll their eyes when they read this, still another reason for our higher costs is physician compensation. At an average of $230,000 and $161,000 for specialist and general practitioner pay, respectively, each of these groups earns more than double their OECD counterparts.
Clearly then, there is no denying that, for whatever reasons, the US outspends its OECD partners by a long shot. The question that has to be asked is: Are we getting what we are paying for? All of us, taxpayers, employers, employees and individuals – the collective “we.”
That will be the subject of Part Three in this series.
Prior posts in this series:
Part 1: The best health care plan in America

15 medical conditions driving cost increases – many can be managed

Friday, October 22nd, 2004

The August issue of Health Affairs carried a recent study issued by Emory University revealing that more than half the overall growth in cost of health-care spending could be attributed to the 15 most costly medical conditions. The study notes that many of these conditions are preventable or manageable conditions through interventions.
The 15 costly medical conditions (chart) accounted for 56 percent of the growth in health-care spending between 1987 and 2000; five accounted for more than 30 percent of the spending.
The study looked to the cost of treatment and prevalance as attributes in the change in spending (chart). In 8 of these conditions, the cost of the care itself primarily accounted for the rise in spending; in the other 7 conditions, increased costs were more associated with an increase in prevalance, presenting opportunities for intevention.
“For several conditions, the rise in the epidemiological prevalence appears to be responsible for the growth in treated cases. This result highlights the importance of developing interventions designed to reverse the rise in disease prevalence. This appears to be the case for pulmonary disease, which accounted for nearly 8 percent of the rise in spending over the decade. Prevalence and death rates for asthma have been rising since 1975. Factors accounting for the rise in asthma and other pulmonary disorders are not well understood. They have been linked to environmental exposures (both indoor, such as dust mites and smoking, and outdoor air quality). In addition, diabetes accounted for up to 3 percent of the rise in health care spending, with about 50 percent of the rise traced to a rise in treated prevalence. The U.S. Centers for Disease Control and Prevention (CDC) reports a continued rise in diabetes prevalence that now exceeds eighteen million among adults alone. The rise in the treated prevalence of diabetes closely tracks the substantial rise in obesity in the population. Since effective treatments exist for both of these conditions, however, it would be a mistake to see increased spending to treat them in a completely negative light.”
As the work force ages, general health concerns are likely to have a greater and greater impact on the workers compensation bottom line; many health conditions can increase a person’s risk for work injuries and can impede recovery when injuries do occur. Work wellness and preventive programs can help to screen, intervene, and manage many of the conditions cited on this list, and can have a salutory effect on occupational disability programs as well.

Ouch! Pain drugs or drug pains?

Thursday, October 23rd, 2003

The Bloviator points us to the fifth article in an excellent series on prescription drugs that ran in the Washington Post. This article deals with the millions of Americans who are turning to Mexico to curb rising drug costs – a practice not limited to consumers. In their quest to secure prices that are 20 to 70% cheaper, some municipalities are virtually turning into international drug cartels. Today, Boston announced its intent to buy its drugs in Canada.

The prescription drug headaches are even more severe in the workers comp sector than the group health side. NCCI recently compared WC to group health and found that under WC, buyers pay 74% more…some of the report’s key findings:

*Prescription drug share of medical costs by accident year in Workers Compensation (WC) grew from 6.5% in 1997 to 9.6% in 2001.

*Utilization has a greater impact on WC drug costs than price.

*WC pays roughly 125% of the Average Wholesale Price (AWP) of prescription drugs; Group Health (GH) pays only 72%. Therefore, WC paid 74% more than GH for the same drugs.

*Generic equivalents are prescribed when available 79% of the time for WC claims. A total of 56% of WC costs are associated with drugs that have no generic equivalent. Therefore, savings opportunities from using generic equivalents are only available for approximately 8% of total WC drug costs.

*Painkillers represent 55% of the cost of prescriptions in WC.

As Kelly goes, so goes the nation.

Wednesday, October 22nd, 2003

More and more, the nation’s health care crisis is bleeding into the workers’ compensation insurance arena where medical costs in a number of jurisdictions are rising dramatically.

Until now, many states had insulated themselves from escalating costs by creating and enforcing medical fee schedules, most often tied to Medicaid rates. While this strategy has mostly kept the lid on the pressure cooker of medical reimbursement, steam is beginning to escape as the medical community brings its considerable weight to bear on insurers. Around the country employers are feeling the heat intensify.

This week, Kelly Services, Inc., a large, international, publicly traded (KELYA) temporary staffing agency, saw its quarterly profit fall sharply due to an increase of $6.4 million in workers’ compensation medical costs.

The company, which places people in professional and industrial jobs, said that the third quarter workers’ compensation charge is the principle reason that its earnings have dropped from 18 cents a share a year ago to 4 cents a share this year.

In some states, medical costs now exceed the costs of indemnity, or wage replacement, costs. Nearly ten years ago, LynchRyan predicted that such a thing could happen (The LynchRyan Report, Spring, 1994, Managed Care – Who Manages, Who Cares?), but even we never thought things would get so bad so fast!