FORECAST: Slowdown in hospital spending growth expected

Implementation of the Affordable Care Act (ACA) is intended to reduce the growth in hospital costs for Medicare patients directly, but this study analyzed the potential for associated decreases in costs due to the “spillover” effects related to lower utilization by non-elderly patients.  The analysis was based on data from 1995 to 2009.  Here is a nice brief summary of how Medicare reimbursement policy has affected costs over time.  This is a direct quote:

…Medicare, when first implemented, spurred broad increases in hospital capacity, with large spending spillovers among the nonelderly.  Our results describe a similar spillover but in reverse.  Medicare’s impact on the broader health system seems to depend on how Medicare pays providers.  In the 1960s and 1970s, Medicare paid hospitals very generously, and so the implementation of Medicare spurred spillover increases in spending and utilization among the nonelderly.  Over the period of our study, Medicare kept tight constraints on hospital payments, and those Medicare constraints appear to have contributed to falling inpatient hospital utilization rates among the nonelderly.  (pages 1592-1593)

The author, who is with RAND, concludes that the changes in Medicare due to the ACA will “slow the growth in hospital spending to a larger degree than has been projected.”

Source: White, C. (2014, October). Cutting Medicare hospital prices leads to a spillover reduction in hospital discharges for the nonelderly. HSR. Health Services Research. 49(5), 1578-1595.  Click here for access to article: http://onlinelibrary.wiley.com/doi/10.1111/1475-6773.12183/pdf  Posted by AHA Resource Center (312) 422-2050, rc@aha.org

MEDICAL COSTS: Employers paying $9,248 PEPY in 2013

This is the 18th annual survey of trends in employee benefits offered by large employers (over 1,000 employees).

LARGE EMPLOYERS: Mean Per Employee Per Year Medical and Drug Costs Expected in 2013

• $9,248 paid by employer (76%)
• $2,888 paid by employee (24%)
• $12,136 total (100%)

This survey provides a tremendous amount of information about leading edge employee benefit trends, including an examination of how large employers are planning to respond to implementation of the Patient Protection and Affordable Care Act.  Among the trends examined — likely discontinuation of commitment to funding post-65 retiree health care and continued emphasis on wellness incentives.  Trends affecting account-based health plans (ABHPs) are also reviewed. 

Why do I like this report?  1.) Authoritative source.  2.) Data rich.  3.) Gives some near-term trend data.  4.) Best practices of industry leaders.

Source:   Towers Watson / National Business Group on Health.  Reshaping Health Care: Best Performers Leading the Way, 2013.  Click here for full text and then choose the “download pdf” option: http://www.towerswatson.com/en/Insights/IC-Types/Survey-Research-Results/2013/03/Towers-Watson-NBGH-Employer-Survey-on-Value-in-Purchasing-Health-Care  Posted by AHA Resource Center (312) 422-2050, rc@aha.org

Private Payer Health Care Cost and Utilization Report: 2010

The newly formed Health Care Cost Institute has released its first report on the nation’s health care costs and utilization. What’s unique about this report? For the first time, it provides a comprehensive look at the privately-insured, based on over 3 billion medical claims from 3 of the nation’s largest private insurers – Aetna, Humana, and UnitedHealthcare. The next report covering 2011 will also include claims data Kaiser Permanente when released later this year.

Here are some highlights from the report covering 2010:

• The annual expenditure for each under age-65 beneficiary of an employer-sponsored health plan — averaged across all plan members whether or not they filed a claim — was $4,255, with an annual growth of 3.3%. This overall mean expenditure included an average $893 for inpatient care, $1,126 for outpatient care, $1,472 for professional services, and $765 for prescription drugs.
• However, the average inpatient claim paid price was $14,662, an increase of 5.1% over 2009, while the average outpatient paid claim cost $2,224, up 10.1% from the previous year.
• The report documents a general overall decline or flat growth in the usage rate of health services since 2007. Economic factors may play a role. In 2010 the average out-of-pocket cost per beneficiary grew to $689, up over 7% from 2009. Out-of-pocket costs represented 16.2% of the total claim price, with the insurer covering nearly 84%.

Source: Health care cost and utilization report: 2010. Health Care Cost Institute, May 2012. http://www.healthcostinstitute.org/2010report

Posted by the AHA Resource Center, (312) 422-2050, rc@aha.org

Reforming how we think about health care costs could reform health care

Two Harvard Business School professors have outlined a new methodology for measuring the cost of delivering care that makes the patient – rather than the procedure or hospital department – the unit of measure.  In the words of the authors:

 “Value in health care is measured in terms of the patient outcomes achieved per dollar expended.  It is not the number of different services provided or the volume of services delivered that matters but the value.  More care and more expensive care is not necessarily better care.”

The article examines how the following three assumptions  – or myths – have confounded the accurate assessment of health care costs:

• Charges can be used as surrogates for provider costs.
• Hospital overhead costs are too complex to allocate accurately.
• Most health care costs are fixed costs.

The cost measurement system developed by the authors is outlined in seven steps with a clinical example and flow chart included to help illustrate the process.  A brief sidebar from the University of Texas M.D. Anderson Cancer Center explains how the cost measurement process was implemented as a pilot and the successes achieved.

Source: Kaplan, Robert S., and Porter, Michael E.  How to solve the cost crisis in health care.  Harvard Business Review.  89(9):46-52, 54, 56-64, September 2011.  Available for preview and/or purchase at http://hbr.org/2011/09/how-to-solve-the-cost-crisis-in-health-care/ar/1.

Annual Cost of Medical Errors Estimated at $17.1 Billion

Analysts with the actuarial firm Milliman estimate that measurable medical errors cost the nation $17.1 billion in 2008. Pressure ulcers, postoperative infections, and post-laminectomy syndrome were the most frequently occurring errors identified in their examination of medical claims data. Ten types of errors were the most costly, accounting for two-thirds of annual medical error costs. Postoperative infections, pressure  ulcers, and mechanical complication of a noncardiac device, implant, or graft topped the most costly list of errors. Data is provided on the incidence,  expense per error,  and the national aggregate cost for each of the most frequent and most costly error types.

Source: Van Den Bos J and others. The $17.1 billion problem: the annual cost of measurable medical errors. Health Affairs, vol. 30, no.4, Apr. 2011, pp. 596-603. http://content.healthaffairs.org/content/30/4/596.abstract

Medicare households spend 15% of their budgets on health expenses

According to a new analysis from the Kaiser Family Foundation, Medicare households spent an average 15% of their total household expenditures on health care in 2009. This compares to about 5% for non-Medicare households.  The biggest share  — nearly 10%  — of Medicare household spending went toward health insurance premiums, which have been increasing. Other expenditures were for medical services, prescription drugs, and medical supplies.

Unsurprisingly, Medicare household spending rates climb with age as health issues increase and financial resources often decrease. For age 80 and over households, over 18% of the household budget went toward health care annually — $5,182 [$432 per month] out of  total household expenditures of $28,548.

Source:  Cubanski J and others. Health care on a budget: the financial burden of health spending by Medicare households.  Menlo Park, CA: Kaiser Family Foundation, April 2011. http://www.kff.org/medicare/8171.cfm