Pharmacy and the Health Care System-Fall 2005

Pharmacy and the Health Care System-Fall 2005
Lee R. Strandberg, Ph.D. Emeritus Professor Pharmacy Economics and Pubic Health & Director, Managed Care Pharmacy Samaritan Health Services

What is this course about?
I. Pharmacy and the Health Care System Pharmacy and its Relationship to the Health Care Delivery System II. Health Economics What causes medical care spending to increase? Who pays for medical care?

Health Economics -con’t.
Why is the cost of producing health such an important political issue all over the world? How do other countries provide and pay for medical care? What are some of their problems? What influence does organizational structure and insurance have on demand for medical care?

I. Pharmacy and the Health Care System
What is a Professional The Five Elements of a Profession The Importance of Client Trust Professional and Business Ethics

What is a Professional Expected to exercise special skill and care
Has clients not customers Places client’s interest first A customer determines services/goods wanted Prof is held to a higher standard of behavior

The Five Elements of a Profession
1. A Body of Knowledge Profession controls its training centers One of its associations accredits academic programs Controls admission into the profession Convinces the community that no one is allowed the professional title unless conferred by accredited academic program State establishes licensing and or examination

2. Professional Authority Client acknowledges the superior competence of the professional Client surrenders a portion of own autonomy to the professional Client trusts the professional’s judgement

3. Community Sanctions Include restrictions on use of a professional title Licensure requirements imposed by the State Accreditation of academic programs Granting professional privileges ie., duty ( right) to respect client confidentiality

4. Code of Ethics Virtually all professions have one May or may not be as important today as they once were

5. Professional Culture Every profession operates through a formal and informal network These networks produce the single attribute that differentiates professions from other occupations: Values, Norms and Symbols Value: Central beliefs of a profession Norms: Accepted ways of social behavior within the profession Symbols: Recognized insignia

The Importance of Client Trust
Prof. Authority may be most important It originates when clients place trust in the professional to make decisions Professional, in return, implicitly promises to act in client’s best interest “Social action depends on there being mutual reciprocal expectations as to how people are likely to act, and on these expectations not being too often disappointed”

Professional versus Business Ethics
Are you viewed primarily as a professional or business person People will view you differently, one or the other or both Health care providers have to be both at the same time to meet patient needs Health care is both an economic good and special social relationship

Major Elements of Health Care System: Sources of Conflict

Health Care Organizations by Type of Ownership
Unmanaged Indemnity Managed Indemnity (PPO Plus Indemnity) IPA HMO Staff HMO PHO HMO Physician owned HMO ????

System Composition and Characteristics

SYSTEM COMPOSITION Providers Purchasers Regulators

PROVIDERS People Organizations Hospitals MCOs PPOs Clinics PBMS

PURCHASERS Self Insured Employers-Private Sector
Government - Medicare/Medicaid Insurance Companies/Agents Insurance Brokers/Insurance Consultants Business Coalitions on Health

Regulators Board of Pharmacy Food and Drug Administration (FDA)
Drug Enforcement Administration ( DEA) Elected State and Federal Legislators

Determinants of Health
Physical Environment-Food, Housing... Social Environment-Education, Income… Biological Status-Age, Sex, Genetics Health Services-Delivery System, Technology, Prevention Behavior

System Characteristics

Five Basic Characteristics of the Health Care System
1. Respond to Incentives (people and organizations 2. Quality and Quantity are infinitely expandable 3. Provider Incentives lean to high tech, high cost 4. Consumer is a poor judge of health care quality 5. Full Insurance Coverage increases use of services

Evolution of National Health Policy
Six Stages of National Policy 1. The Beginning 2. Categorical Grants in Aid 3. Decades of Investment 4. Organization and Delivery of Service 5. Decade of Transition 6. Managed Care Era

The Beginning Original Federal role was minimal in late 1700s
Fed took responsibility for health care of military Quarantine was responsibility of each sea port Local officials could not enforce quarantine regulations

The Beginning Major Debate Centered on State Vs Federal Rights
Who Should be Responsible for Public Health Debate Ended in Court Ruling in 1893 Debates Started in Court in 1796

The Beginning The System is still slow to respond
Government moves into areas ignored by the market

Categorical Grants (1935-1945) 2nd Stage
1930’s focused attention on public health issues States could not handle public health problems Social Security Act of 1935 addressed some of these issues

Social Security Act Originally was Social Health Ins. Act
Provided money for child health programs establish and maintain various public health programs

Social Security Act Two consequences
1. Decision making shifted from local to national 2. Increased involvement to non health professionals in health issues

3rd Stage. Decades of Investment (1946-1962)
The need for investment in basic health resources became evident Congress passed the Hill Burton Act-1946 Funded 4,000 health buildings (hospitals etc..) Mandated that hospitals give free care for 20 yr.. Cost $ 4 billion

Decades of Investment Congress also funded medical research
cancer, heart, mental health…

Decades of Investment Belief at that time was spending on developing health resources Would increase access to care However, it did not increase access Problems remain with uninsured, rural poor, urban poor, rural in general Providers tend to locate around population centers

4th Stage: Organization and Delivery of Services (1963-1966)
Three major themes 1. Provide Consumers with money to buy health care 2. Emphasis on organization and delivery of care 3. Emphasis on health care planning as a means to control costs

Medicare. Amendment to Soc......... Sec Act in 1965
Targets those over 65 (can qualify for some features even if younger) Is an insurance program Is a Federal Program

Medicare Part A Covers Hospital Stays Skilled nursing facility care
Some Home Health Care Hospice Care No Premium $110 Deductible-2005

Medicare Part B Covers Doctors’ Services Outpatient hospital services
Home health care Monthly Premium $

Medicare Part D-Prescription Drugs
Drug Program Effective Jan 2006 Monthly premium-$35 Beneficiary pays first $250 in drug costs Pays 25% of total drug costs between $250 and $2,250 Patient pays 100% between $2,250 and $5,100 (donut hole) Pay greater of $2 for generics, $5 for brand or 5% ($3600 out of pocket)

Part D Low Income Assistance
Medicare now covers Rxs for eligibles on Medicaid State must pay fed back for this (clawback) Those below 100% of poverty pay $1-$3 co pay Those above 100% will pay $2 $5 co pays Medicaid eligibles pay no premium or deductible and no drug costs above $3,600 out of pocket

Part D-con’t Any Medicare eligible can enroll-benefit is voluntary
Can’t have other Rx coverage ie Tricare Qualified retiree health plans with Rx coverage equal to Part D will receive subsidies of 28% of costs for coverage above $250 and up to $5,000per Medicare enrollee Benefit delivered through private health plans and PBMs Act requires that plans cover at least 2 drugs in each therapeutic class Medicare hired USP to develop a formulary They proposed covering 146 classes, PBMs say that is too many, PhARMA says it is not enough

Part D Costs Initial CBO estimate was $400 billion (10 years)
True Cost projected to be $540 billion Typical 65 yr old with drug benefit will spend 37% of Social Sec Inc on Medicare premiums, co-payments, and out of pocket expenses in 2006 Will grow to 40% in 2011 and 50% by 2021 Medicare prohibited from negotiating with drug manuf for best price ie., VA and State of Maine.

Drug Discount Cards Patient pays 100% co pay-a discount price Card sponsors are private companies ie PBMs. AARP , Chain Drug stores 72 originally approved by CMS Low enrollment because of confusing sign up procedures May have an annual enrollment fee of up to $30 Gvt subsidies of $600 to individuals making less than $12,569 or couples $15,862/year

Rx Drug Coverage and Seniors
2003 Data Four in 10 did not take all drugs prescribed due to cost, side effects, perceived lack of effectiveness, or believe that they did not need the med 27% lacked Rx coverage (will be covered under Part D) Half have more than one MD 36% more than one pharmacy 26% skipped taking meds because of cost 12% spent less on basic needs because of med costs

Medicare Comparative Cost Adjustment Program
Establishes a test competition between local private Medicare plans and traditional Medicare starting in 2010 Comparisons will run for 6 years

Medicaid. Amendment to Soc......... Sec. Act in 1965
Targets needy and low income of any age Is an assistance program Is a federal state partnership Provides financial assistance-varies by state Fed match varies between $1 and $3.89 Fed 2005 Covers 51 million people-more than one out of every 6 Americans (2005)

Medicaid Congress recently limited the number of years a person can be on Medicaid (able bodied adult) Covers out patient medicine Define inpatient, outpatient, ambulatory

Medicaid and Medicare Did not address organization and delivery of health care services Provider Compensation was usual and customary (fee for service) Did not promote efficient use of limited health care resources

Fifth Stage: Decade of Transition ( 1967-1987)
Addressed Development of Comprehensive Delivery Systems 1. Professional Standards Review Organizations (PSRO) 2. Health Maintenance Organization (HMO) 3. Preferred Provider Organization (PPO) 4. Pharmacy Benefit Management Companies (PBMs)

(1) PSRO -Amendment to Social Security Act
Passed in 1972 by US Congress Purposes 1. Review health care paid for by Medicare and Medicaid Review Quality To Assure Appropriate Utilization of Services

PSRO- CON’T Non profit organizations funded by US Gvt
Hired nurses and physicians to review hospital charts Could deny payment to providers for cause Probably cost more than they saved

PSRO-CON’T --PROs Were replaced by Professional Review Organizations (PRO)-1983 PROs still in operation Oregon Medical PRO (OMPRO)-1220 SW Morrison PDX OMPRO does Medicaid and Medicare and Private Sector Reviews Does disease specific studies (asthma, anticoagulation...

PROs Much of its work already being done by current managed care organizations But remains an independent verification of work done by others

(2) HMO Act of 1973 Signed into law by Richard Nixon-was his cost Mgt. agenda Provided start up $$ to small HMOs $364 million provided by feds Regence HMO started this way via Capitol Health Care in Salem mid 1970s Purpose was to stimulate development of cost management

HMO Definition An organization which assumes
Responsibility for financing and developing Comprehensive package of health benefits Guarantee to provide care to an enrolled Pt. population For a fixed prepaid premium

HMO Vs Indemnity Insurance (Major Medical)
HMO is an insurance CO + a delivery system Major Med is only an insurance company Indemnity (to protect against loss)

HMO Vs Indemnity Insurance
HMO guarantees to provide health care services Major Med-you find your own health care providers no network of ;pharmacies/hospitals or doctors...

Capitation Vs FFS Capitation-Providers receive a fixed, monthly payment for each primary patient FFS Providers receive a fee for each service provided How does provider payment drive behavior???

How did Health Insurance Start?
Baylor Univ hospital in Dallas Texas 1929 Local teachers paid for hospital and physician services in advancem, Was beginning of Blue Cross Blue Shield

How did HMOs start? Grand Coulee Dam Project -1930s
Kaiser Construction Company needed health care for workers Spun off as a separate company after W.W.II Group Health Coop-mid 1940s Seattle A true consumer CO-op

Three Major Types of HMOs
Staff IPA (Independent Practice Assoc ) Group

Staff HMO (i.e............, Kaiser) Salaried MD, RPh, Nurses
Owns on hospitals/clinics In House Pharmacies Does not contract out for pharmacy services -such as using community pharmacies

IPA ( i.e., Good Health Plan)
Independent physicians, alone or in groups Contracts out for pharmacy service and all other providers Physicians paid on a fee schedule and/or risk assumption

Group Model (i.e............, Pacific Care)
Contracts with medical clinics (exclusive) Contracts out for pharmacy services and all other providers Physicians paid on a fee schedule and/or risk assumption

POS-Point of Service Model
Variation of all previous models Allows patient to select non panel providers and pay more

HMO Issues from Consumer/Provider/Purchaser Viewpoint
Patient wants rich benefit package/low cost/high quality Purchaser Provider high quality and high income

Various HMOs Cigna (Ins. CO.) Regence (BCBS-Or)Network
CareOregon (Academic) Good Health Plan ( Sisters of Providence)

Various HMOs Select Care ODS HMO (Ins. CO.) Mid Valley IPA-Salem.

HMO Growth-Market Share
Overhead

What Tools are used by Managed Care and Employers to Manage Costs?
Lower Hospital Admissions Drug Formularies (list of drugs pd for by HMO) Treatment Protocols Prescribing Protocols (what to prescribe) Providers at Financial Risk-Changes treatment patterns/incentives

Cost Mgt Con’t Centralized Data Analysis
Profile Physician treatment/prescribing patterns Hospital Contracting (fixed payments/bed days) Patient Profiling Disease management-Osteoporosis example Pharmaceutical Care Drug Use Review

(3) Preferred Provider Organizations (PPO)
Contractual arrangement among providers and employers, / ins. companies.., to provide services to a defined pop. of patients at established fees Does not assume financial risk

PPO Examples Provider networks
pharmacies hospital doctors Paid FFS, but less than usual and customary PPOs were formed to increase sales volume & to protect market share of participating providers

4.(PBMs) Pharmacy Benefit Mgt. CO.
For and non profit corporations contracted to Manage the pharmacy benefit for Insurance companies/MCOs/private employers, Gvt

PBM Examples 1. Advance PCS
--Originally owned by McKesson Wholesale Drug CO, Eli Lilly then Rite Aid Merger with Caremark underway 2. Medco-PAID Prescriptions Originally owned by Calif. Pharmacists Association Spun off in the 1960s by CPHA via action from US Justice Dept.... Bought by Merck, then spun off as a separate company in 2004

PBM Examples-CON'T Diversified Pharmaceutical Services (DPS)
Originally owned by United Health Care-Minneapolis Then by Smith Kline Beecham-UK Now ??

Federal Trade Commission (FTC) and PBMs (1998)
Sen. Wyden requested FTC investigation re monopoly-restraint of trade Apparent conflict of interests when PBM owned by pharm. manuf. Will PBM tend to push use of own products v those made by other manuf?

PBM’s –Unregulated Private Monopoly?
Top 3 PBM’s will have 80% of all Rx business Exec from PCS-Caremark merger said it will increase their leverage with Rx manuf. Creighton School of Pharm study-Dr. Garis.

Sixth Stage: Managed Care Era (1988-Present)
Definition: Systems, programs or actions aimed at controlling health care utilization, costs and promoting quality improvement Goals: To foster competition among providers and plans To incorporate provider risk and incentives to promote efficiency To improve and document patient outcomes To develop critical pathways designed to improve patient outcomes

Hospital-Sisters of Providence-The Good Health Plan
Managed Care Organizations (MCOs)by ownership (MCO is new name for HMO) Hospital-Sisters of Providence-The Good Health Plan Insurance Company-HMOO-Blues Staff Model-Kaiser/Group Health Cooperative Physician-COIHS/Family Care Academic Medical Center-CareOregon-OHSU

Today’s MCOs Possess: Superior data analysis technology
More Provider risk assumption More emphasis on medical outcomes Enhanced purchaser sophistication drives more accountability Superior Medical and Drug Technology MC Source

Health Insurance Continuum
1. Pure Indemnity 2. Modified Indemnity 3. PPO 4. PHO/ Group IPA HMO 5. Staff “Pure HMO” 6. Equity HMO 7. Consumer Choice Model/Medical Savings Accts

1. Pure Indemnity No Utilization Review No Provider Selection
Total Freedom of Choice FFS Payment Experience Rated

2. Modified Indemnity Preadmission certification for hospital admissions Concurrent Review Second Surgical Opinion

3. PPO Physician Profiling
Providers selected to participate in the PPO Consumer Incentives to limit choice of providers

4. PHO (physician hospital organization)/Group IPA
Formal Peer Review Provider Panel in place Payment to providers using withholds/Capitation Community Rated

5. Staff HMO (Kaiser) Formal peer review Uses Protocols
Providers are employees/on salary Group Practice

6. Equity HMO (MidValley IPA-Salem)
Formal Peer Review, Protocols Provider Panel Profit Sharing among docs Owned by Doctors

7. Consumer Choice –Medical Savings Accts
Offers consumers a variety of choices to meet individual needs MSA accts-pay for health care with pre tax dollars Pharmacy example

Factors Causing Delivery System to Change
1. Declining Hospital Use 2. Purchaser Pressure to reduce costs(Public and Private) 3. MD numbers

1. Declining Hospital Use
Diagnosis Related Groups (DRG Payment System) Fixed Fees for hospital services regardless of hospital costs Increased outpatient services Public Lifestyles (wellness…) Incentives to physicians to not use hospitals Growth of Managed Care

Purchaser Pressure to Manage Costs
Increased contracting by employers with HMOs Increased demand for performance/accountability Increased employer sophistication

MD Numbers 1950-14 MDs/100,000 people nationwide 1980-20 “ 1990-24
“ 40% of MDs are over age 50 (2000) 38% will retire within 3 yrs/12% part time Corvallis has about 100 MDs/50,000 people Or 2/1000 pop Australia 2.5/1000; UK 1.7; Canada 2.1; France 3.0; Germany 3.4; US 2.7

Common Characteristics of Managed Care Organizations
Factor: Provider Panel/Fee Schedule/UR Utilization Review FOC (freedom of choice of provider) Assume Risk Sells insurance

How Employers Select/Evaluate an HMO
Handout/Overhead

NCQA Stds now include Health Outcomes
HEDIS 3.0 No. CHF pts taking ACE Inhibitors (proposed) Pt satisfactions survey Mandatory Disease Management Programs (Diabetes-see Genesis rpt) Includes Medicare and Medicaid pt. pop.

Accreditation NCQA accredits MCOs Joint Commission accredits hospitals
Joint Commission on Accreditation of Health Organizations will move to accredit MCOs also

1935-1996 - Legislative History
Social Sec. Act 1935 Hill Burton Act 1946 Medicare-Medicaid 1965 PSRO 1972 1973 HMO Act 1983 PROs (replaced PSRO) 1996 Health Ins. Portability & Accountability Act (HIPAA) Medicare Modernization Act of 2003 Rx benefit starting 2006

1935-1996 Con’t 1983 PROs (replaced PSRO)
1988 Medicare Catastrophic Coverage Act Repealed in 1989 Medicare would have covered outpatient Rx Funded by Medicare eligibles-not entire working population of USA

1935-1996 Con’t 1990 OBRA 90 (Omnibus Budget Reconciliation Act)
(Medicaid Antidiscriminatory Drug Price and Patient Benefit Restoration Act) Mandated Drug manuf. rebates back to Medicaid rebates based on lowest price drug manuf. charged to MCOs Drug Manuf have raised contract prices charged to MCO, reducing Medicaid rebates $$ OBRA mandated RPh Pt Counseling (Medicaid Pts) provided basis for St Bds Phar to mandate Pt. Counseling

1935-1996 Con’t HIPAA (Kennedy Kassenbaum Act)
Main focus is security of patient data-Privacy Makes Ins portable from job to job discussion

Three Health Care Cost Management Options
1. Regulatory (health care planning-Gvt control) 2. Market Place Competition-Competing Delivery systems-little Gvt control 3. Managed Care Approach-Combines market and regulation approach Managed Care Approach-Employer Driven over last few years

Group Practice of Medicine
Characteristics 1. Shared Facilities and equipment 2. Full Time MDs 3. Two or more medical specialists 4. Shared patient responsibility 5. Pooled income (PCs are usually a partnership-like a law firm with Partners)

Hospitals - General Stats (2001)
Federal Hospitals 264 Community Hospitals 4,956 Not for profit Community-3,012 For profit Community-747 State/Local Gvt-1,197 Handouts for 2002 stats

Hospitals 90% of hosp revenue is from Ins.
must compete for MDs based on facilities and technology MDs have admitting privileges, are not hosp. employees Hosp has MDs on staff i.e......, ER and Radiology

Hospitals are Accredited
by Joint Commission Need accreditation to participate in Medicare/Medicaid/residencies Joint Commission includes AHA, AMA, Am Society Health Systems Pharmacists

Provider Specialization
80 % of MDs today are specialists but provide primary care i.e......, Internists, OBGYN, Pediatrician MDs have specialty boards BD Qualified-complete post grad training BD Certified-training plus residency No laws covering MD specialist training regulated by the Medical Profession Looming shortage of specialists

MD CON'T MD gains hospital admitting privileges upon review of medical staff

RPh Specialties LTCF/Geriatric Nuclear Pharmacy
Institutional Based Clinical Practice

Health Care Costs. Overheads handout

Cost of Health Insurance-Kaiser Study
Ave Annual Premium (family ) $9,068 (2003) 13.9 % increase over 2002 Small business (3-9 workers) 16.6% increase Mid sized ( workers) 12.4% increase Ave premium paid by a family grew 1.29% over 2002 now $201/month. Single employee pays $42/month.

How Much is a Billion?? billion seconds ago it was early 1950s
billion minutes ago, it was about 2,000 yrs ago billion dollars in Wash DC was about 10 hrs.

Aging Trends: Ratio of People Age 20:64 to Those 65+
(source: WSJ )

Aging Trends 30 Million over age 65 in 1988
40 Million over age 65 by 2011 50 Million over age 65 by 2019 One in Five will be over age 65 by 2030

General Causes of Cost Increases
Demand Factors Supply Factors

Demand Factors Aging Population
Emergence of Chronic Diseases as Dominant Cause of Morbidity Increase of environment and behavior risk factors Plan Benefit Design Repeat Hospitalization for Same Disease

Supply Factors Life Style (behavior, lack of preventive care)
Increased Utilization Technology System Inefficiencies duplication of services/facilities waste/fraud Incomplete electronic medical record system

Cost of Unhealthy Workers
People who smoke one pack per day have 65 % more hospitalizations than non smokers when both have COPD smoking creates 50 billion in annual health care costs 25% of pop smoke Obesity costs employers $12 Billion per year (2003)

Seat Belt Use non seat belt user cost 150% more to treat
than a seat belt user in same type of accident

Lifestyles that increase costs (handouts)
lack of exercise xs weight smoking hypertension cholesterol lack of seat belt use

Employee Wellness/Weight Reduction
Obesity increases health care costs and absenteeism 65% of US pop is overweight (2003) BMI over 25/30% are obese (BMI over 30) Defined as a BMI for men greater than 27.8; for women greater than 27.3 Major differences in health care costs noted for overweight people were age 45 + and particularly among women BMI is weight divided in inches squared times 704.5

Ave Annual Health Care Costs for Employees Age 45+ by BMI (1996)
At Risk Overall-$2,933 At Risk Men-$2,064 At Risk Women-$3,610 Not At Risk-$1,748 Not At Risk Men-$1,202 Not At Risk Women-$2,038

Why Do Hospital Costs Increase
Staff Salaries Technology Uncompensated Care General Costs of doing business

Composition of Medicaid
AFDC 66% of pop/26% of cost Elderly 15% of pop/37% of cost Mentally retarded, disabled 12% of pop/ 35% of cost

Rx Spending by Year (Billions $)
1999 $105 2000 $121 2001 $139 2002 $160 2003 $184 2004 $212

Pharmacy Expenditures
Approx 11% of total cost Majority of Rxs 3rd party Ave No. Rxs/yr =4 Ave No. Rxs retiree/yr 12 Will become # 1 health care cost category within 4-5 years Number 2 in this market behind hospital spending

Impact of Aging on Health Care Costs
Study on 3.75 million lives (year 2000 data) Per capital lifetime cost $316,000 Females $361,200 (2/5th of cost-longer lifespan Males $278,700 1/3 of cost middle age 50% during senior years -survivors to age 85-1/3 of cost in remaining yrs

Health, Life Expectancy and health spending among elderly
2003 data Cumulative health spending for healthier elderly are similar to those for less healthy elderly who die sooner Health promotion efforts aimed at persons under 65 may improve longevity and health without increasing costs Healthy age yrs Those with at least one limitation in activity of daily living yrs

Methods to Manage Medication Costs
1. Maximum Allowable Cost (MAC) MCO establishes ceiling on generic prices Average Wholesale Price-AWP Actual Acquisition Cost-AAC AWP could be $567.00/AAC could be $43.00

2. Dispensing fees Money paid to pharmacist for dispensing Rx
usually two or three dollars/Rx Combined with AWP (minus) to pay for Rxs AWP-12% plus $2.50 (common fee structure)

3. Patient Rx Co-Pay $5.00 generic/$10.00 brand
Percent i.e......, 50% of allowed charge/$10 minimum Three Tiered Copay Higher Rx Copays lowers Utilization of services

Average Rx Co-pays-Generics
2000 $7.00 2001 $8.00 2002 $9.00 2003 $9.00

Average Rx Co-pays-Preferred Brand
2000 $13.00 2001 $15.00 2002 $17.00 2003 $19.00

Average Rx Co-pays Non-Preferred Brand
2000 $17.00 2001 $20.00 2002 $25.00 2003 $29.00

4. Capitation/Risk Pharmacies unlikely to have risk in future
Dr prescribes so RPh can only do so much to control costs Insurance co., HMOs, employers have financial risk

5. Formularly List of Drugs paid for by the plan
Developed based on therapeutics and cost

6. Generic Drugs Mandated by some plans always less expensive
are all generics therapeutically equivalent to brand counterpart??? Lanoxin, Theodur, Premarin, Tegretol...

7. Therapeutic Substitution
Exchanging one brand drug for another must have MD OK Amoxicillin for Penicillin Naprosyn for Ibuprofen

8. Mail Order Prescriptions
May be less expensive than retail on a per Rx basis Plan benefit usually structured, in the past, to reduce patient CoPay This means Rx use goes up, if patient out of pocket is less This means total Rx costs are greater if Mail Order has lower CoPay Popular benefit, but not a cost saver for the MCO Drug waste on mail order -4-12% of spend

9. Group Buying of Rx items
Hospitals band together to buy in volume Independent Pharmacies band together to buy Rx items Chains are merging to increase buying power

10. Benefit Design Lower out of pocket for Rx increases utilization

11. Treatment Protocol Lipid Example/Cardiovascular Risk Assessment
Group Health Evidenced Based Medicine-CD

Hospital Cost Management
DRG Diagnosis Related Group Fixed Fees for Hospital Procedures Established by Medicare Commonly used by Ins. companies Risk Assumption

Physician Cost Management
RBRVS Resource Based Relative Value System Fee Schedule for MD Office visits Established by Medicare Commonly used by Ins. Companies Risk Assumption-Capitation

Utilization Review Programs
1. Hospital Based Pre Admission Certification On Site Review Concurrent Review Severity of Illness Reporting by MD show overhead

UR- no. 2 Medication Non Adherence
Definition: Overuse, underuse, misuse of Rx $177.4 billion annual cost to the system (2001 data) 28 % of Medicare hospital Admissions caused by Rxs 11% adverse reactions 17% non compliance

Compliance Related to Doses per day
bid- 80% compliance/ tid -60%/ qid 30% question: To what degree does compliance with a specific Rx lower total costs

Nonadherence and Hospitalization
Oral antihyperglycemic Med non adherence and subsequent hospitalization among people with Type II Diabetes (Diabetes Care Aug 2004) Non adherence was defined as a med possession ration of less than 80% 28.9 % were nonadherent to diabetic meds 18.8 % and 26.9% sere non adherent to antihypertensive and lipid meds Hospitalization rates increased when MPR dropped to 80% or less for diabetic pts

3. Drug Utilization Review (DUR)
Inpatient. Focuses on use of target Rx items ie., antibiotics Outpatient Focuses on medication use patterns

Disease State Management (DSM)
Readings DSM targets high cost, chronic diseases Where interventions can save money in 12 months or less For plans of under 65 age people

DSM (from RPh point of view) involves
linking Community Based RPh clinical services to MCO and document outcomes Handouts-Ashville Project

DSM promotes patient education and responsibility
RPh works to improve Rx compliance to improve adherence to treatment protocol

Rationing Occurs in all health care systems based on money coverage
waiting time

Methods to Monitor Health Care Quality

Judging the Quality of Health Care
Two Dimensions: Technical Process and Art of Care Technical: Was the most appropriate treatment used? Art of Care: Manner in which the Provider interacted with Patient

Technical Care refers to amount, type and manner of resource utilization requires correct diagnosis, proper course of treatment requires successfully implementing the treatment requires monitoring patient progress requires stopping treatment if needed

Art of Care Refers to interpersonal interaction between provider and patient Patient Satisfaction measured by survey instrument called SF 36. Health Status Short Form questions measures patient satisfaction with care provided

Quality Assessment Accomplished by establishing minimum standards
and measuring observed care against the standards Example: % of pop that should be vaccinated and Quality Improvement the organization seeks to improve quality all the time

Quality Assurance (QA Programs)
Organization establishes a minimum std of performance Develops ways to measure whether or not the std was met Measured statistically

Quality Improvement Total Quality Improvement (TQM)
Based on work of Deming QI: Quality Mgt and Improvement are information driven processes that involve using monitoring procedures to ensure that continuous improvement is being obtained

Measuring the Quality of Care
Structure-equipment Process-how the equipment was used Outcome-what were the results

Evaluation of Pharmaceuticals
Efficacy: Defines Optimal Practice (clinical trials for FDA approval) Effectiveness: Compare actual with optimal practice (real world or standard care) Quality Assessment: Evaluate why actual and optimal practice differ Quality Improvement: Design interventions to close gap between actual and optimal

Cost of Illness Analysis
Calculate the Cost of a Disease i.e.., how much is spent on Diabetes each year??

Cost Minimization Analysis
Compares costs for comparable treatments with the same clinical effectiveness and outcomes What is the least expensive drug to treat a disease ?

Cost Benefit Analysis Measures Costs and consequences only in dollars
If you lower blood pressure, how much money does that save? If your patients are more compliant, how much money does that save? CBA could compare costs of a drug or non drug therapy i.e.., diet/exercise Vs drugs to control blood pressure

Cost Effective Analysis
Measures costs in relation to therapeutic objectives in natural units Cost to reduce blood pressure x number of points

Cost Utility Analysis Measures costs of therapeutic intervention against outcome preferences by the patient Cost of cancer drugs against number of life-years gained by patient and patient’s preference for his or her quality of life when taking chemo.

Section II. Health Economics

Overview Who pays for medical care? How do they pay for it?
What causes medical care spending to increase? Does medical care always increase a patient’s health status? Why is government so intimately involved in medical care and the production of health?

Overview Why is the cost of producing health such an important political issue all over the world? How do other countries provide and pay for medical care? What are some of their problems? What influence does organizational structure and insurance have on demand for medical care?

Health Economics Topic Areas
I. Health, Health Economics and Medical Care II. Transformation of Medical Care into Health III. Policy Issues in Health Care Finance IV. Global Perspective: Australia, Canada, Germany, UK and Sweden

I. Health, Health Economics and Medical Care
A. Unique Aspects B. Health Care From an Economic Perspective C. Factors Influencing Demand for Medical Care D. Factors Influencing Demand for Health Insurance E. Changes Through Time Influencing Health Care Markets

II. Transformation of Medical Care into Health
A. Productivity of Medical Care B. How Insurance Affects Demand for Medical Care C. Role of Quality in Demand for Medical Care

III. Policy Issues in Health Care Finance
A. Mandatory Employer Health Ins B. Uninsured Population C. Health Care Rationing D. Erosion of Plan Benefits E. Rising Premium Costs F. Managing Process of Care v Managing Costs G. Medicare Reform Efforts

IV. Health Care Finance-Global-Australia, Canada, Germany, UK, Sweden
A. Financing Mechanisms B. Organization of Delivery Systems C. Problems D. Reorganization Efforts

I (A) Unique Aspects-Health, Health Econ and Medical Care
Government Involvement Uncertainty Asymmetric Knowledge Externalities Participants

Government-State Licenses health care providers/facilities
State Health Insurance Commissioner Local Public Health Clinics Others

Uncertainty Illness is a random event
(Accidents, colds, flu, pneumonia, diabetes, CHF) Illness is a behavior driven event (obesity, diet, exercise, drunken driving) Uncertainty creates hypochondriac behavior (illness anxiety)

Asymmetric Knowledge Licensed health care providers usually have more knowledge than patients MD decides what the patient needs to do and purchase Managed Care Organizations ( MCOs) are intervening between MD-Patient re MD prescribing, requiring Prior Authorizations ( PA)

Externalities One person’s actions can create benefits or costs for others Communicable diseases ( flu, hepatitis, e-coli -handwashing-cooking) Antibiotics in the food supply/Drunken Driving Cocaine Use/Violence health care costs Medication non compliance

Participants Government Individual Consumers Employers
Benefit Consultants Politicians Consumer Groups Insurance Companies

(B) Health Care From an Economic Perspective
Health as a Durable Good Health as a Public Good The Production of Health

Health as a Durable Good
Health is a good that increases a person’s utility People seek medical care to maintain/increase their health/utility

Health as a Public Good The Health of family/coworkers, or lack of it, influences us as individuals How is health status influenced by Wall Street and the federal budget?

Health as a Public Good:Wall Street and Health Care ( NEJM-2-25-99)
% of all HMO enrollees - investor owned HMO % Investor owned HMOs shaped the health care market - including non profits Intensified market place competition Pushed cost containment to new levels More monitoring of physicians by non-MDs

Health as a Public Good: Wall Street and Health Care
Stocks of major hospitals, HMOs and MD management companies have declined in recent years Resulting in Insurance company mergers Pharmaceutical and biotech stocks are outperforming market averages Enbrel-Immunex from Seattle DeCode-Iceland Project

Health as a Public Good:1997 Balanced Budget Act
Requires Medicare to cut $115 Billion/5 years Medicare subsidizes non-Medicare patients Will reduce Medicare payments to hospitals Will force hospitals to outsource Increase number of empty beds Medicare Reform

Health as a Public Good: Trends
HMOs/Insurance companies are experiencing losses/low margins Pressure to keep premium increases in check Increased technology costs Extremely unhappy patients cost shifting non covered items Federal Patient Bill of Rights

The Production of Health
Involves Medical Care Individual Behavior Environmental Factors Economic Factors Others

(C) Factors Influencing Demand for Medical Care
1. Illness Events 2. Systematic Factors 3. Consumer Beliefs 4. Provider Advice 5. Income 6. Money Price 7. Time Price 8. Medical Care Supply

(C) Factors Influencing Demand for Medical Care-con’t
9. Changing Inputs into Outputs 10. Input Costs and Final Product Price 11. Laws and Regulations 12. Organizational Structures 13. Final Product Price 14. Individual Behavior and Public Consequences 15. Rx Drug Advertising

1. Illness Events Overall Disease Trends in the 20th Century
Issues in Infectious Diseases Antibiotics Iatrogenic Disease (Hospitals) Chronic Diseases and Infections

20th Century Disease Trends North America/Europe
Substantial decline in mortality and an increase in life span Transitioned from infectious diseases to chronic Infections-4.2% of Disability Adjusted Life Years (DALY) Chronic/Neoplasms-81.0% of DALYs DALY-measure of burden caused by disease and injury

20th Century Infectious Disease Trends
Substantial declines during first 8 decades Caused by improvements in sanitation, medical care, living conditions, economy Trend reversed in 1981-increase in deaths from infection Trend lasted 15 years till % red. Red. Caused by decline in Aids deaths

1900-1980-Three Distinct Periods
% decline/ yr... % (sulfonamides 1935, penicillin 1941, streptomycin 1943) Para aminosalicylic acid 1944, isoniazid 1952 ( Tuberculosis ) % Increased from (AIDS) AIDS treatments-anti virals, protease inhibitors

Cause of Death World-Wide 1995 ( WHO)
51.9 Million Deaths 33% Infectious Disease 67% Other

Top Ten Infectious Disease
Respiratory-4.4 Million Deaths Diarrhea-3.1 TB-3.1 Malaria-2.1 Hepatitis B-1.1 HIV/AIDS-1 Measles, Neonatal tetanus, Whopping Cough, Roundworm, Hookworm

Antibiotics One-third of all Rxs are inappropriate
50 million Rxs/yr... for cold and viral inf. Up to 30% of Strep pneumonia resistance to penicillin AOM-80% of children recover without antibiotic Rx More than 70% of AOM preceded by viral resp inf. Dirty hands/surfaces v airborne droplets

Managing Resistance via Computer Programs
Nosocomial Infections: Hospital acquired (Vancomycin Use) NEJM Article LDS Hospital in Salt Lake City, UT System reduced no. days excessive drug dose adverse events allergies MIC matches

Antibiotic Prescribing Trends
Towards more powerful new products (Zithromax, Biaxin) Increasing Dose of Amoxicillin Influenced by: Patient Compliance MD MCO Payment Local Resistance Trends

Reduced Prescribing Antibiotics to Children
Study published in Pediatrics 2003 Tracked all Rxs for 225,000 children in 9 HMOs from Antibiotics use dropped 24% in patients under age 3 25% decline for those age 3-6 16% decline for those age 6-18

Number of Antibiotic Rxs/child per year by age (1996-2000)
Age 3 months to 3 yrs. (2.46/1.89) Age (1.47/1.09) Age 7-18 (0.85/0.69)

Iatrogenic Hospital Disease
Injury induced by the treatment itself 1.3 million injuries per year $2 billion direct cost per year 20-70 % may be preventable Adverse Drug Events ( ADEs)-19% ADE-most common cause of Iatrogenic Disease 777,000 ADEs causing injury/death/year AHRQ ( ) $1.56-$5.6 Billion cost

Iatrogenic Hospital Disease
Approx. 3 hospitalized pts/1000 die-ADE Approx. 1 will have long term effects-ADE Hospital Information systems reduce incidence of ADEs Some ADEs can never be stopped (Stevens-Johnson Syndrome) 4 articles in handout

Pharmacist –Patient interviews cuts med errors
Aug 15, 2004 Am J Health System Pharmacy Rphs and pharm students at Northwestern Mem Hosp in Chicago Interviewed 204 pts with hrs adm To identify and resolve any discrepancies between pts med records, adm profile and actual med regimen 50% of pts had med history discrepancies 22% could have caused harm during hospitalization 59% could have harmed pts after discharge Intervention cost $5000-saved $39,000

Chronic Diseases and Infections
Ulcers-H-Pylori Antibiotics and Risk of 1st Acute Myocardial Infarction ( AMI) Risk of AMI declines if patient has taken Tetracycline or Quinolones Bacteria in mouths can cause Nephritis Rheumatoid arthritis Dermatitis, Pneumonia, Endocarditis

2. Systematic Factors Rate at which health depreciates over time
Age, Sex, Occupation, Behavior, Race, Inherited factors...

3. Consumer Beliefs (Alternative Medicine)
A broad set of health care practices that are not readily integrated into the dominant health care model. Alternative Medicine poses challenges to diverse social beliefs and practices Cultural Economic Scientific Medical & Education

4. Provider Advice Patient’s don’t always follow expert advice
non compliance (Rx , treatments - ) OSU Ph D study ( Public Health & Pharmacy)

5. Income Individual Economy in General Health Insurance
Government subsidies ( Transfer Payments) Medicare Medicaid Public Health Programs Others??

6. Money Price Cost of health care items
Out of pocket costs--co payments, deductibles... Cost of Health Insurance Premium

7. Time Price Your Personal Time to see a physician, schedule something...

8. Medical Care Supply No. of MDs/100,000 population
Needed: /100,000 population-yr.?? Varies considerably by geography and local wealth Rural-20% of USA pop. 9% of MDs

9. Changing Inputs into Outputs-Quality Counts
Def: The degree to which health services for individuals and populations increase the likelihood of desired health outcomes Quality is in the eye of the beholder MD-application of evidence-based medicine Pt.-how long was the wait for an appt or Rx Employer-no complaints/low cost

Problems with Lack of Quality that Increase Costs
Costs from Iatrogenic Disease Physician practice variations Lack of Information systems (already discussed) Treating chronically ill patients in an acute care model

Does Quality Care Drive Market Share
New York State’s physician specific mortality report for CABG Physicians & Hospitals with lower mortality rates have experienced increased business How many CABG procedures per year are needed to attain proficiency?

Hospital Volume and Surgical Mortality in the US
Mortality decreases as hospital surgical volume increases Risk varies with type of procedure 12% diff for pancreatic resection 0.2% diff for carotid endarterectomy 64% diff for aortic aneurysm repair (hosp with 30 or fewer surgeries most risk) NEJM April 2002, JAMA March 2000.

10. Input Costs and Final Product Price
What controls the Final Product Price of a health care item?

11. Laws and Regulations Health Care Mandates
Coverage mandated by State law Applies only to health insurance polices controlled by state health insurance laws 1000 mandates across the USA Mandates coverage for hairpieces, in vitro fertilization, pastoral counseling… Self insured companies are exempt Mandates impact small business Cost impact-up to 30%

12. Organizational Structures
Managed Care

Organizational Structures
Have different levels of efficiency and information systems Develop locally based on local needs/politics An IPA on the West Coast looks different than those on the East Coast Therefore create different health care costs and local financing options

US Health Care System: Drivers of Change
Employers Insurers Gvt Citizens Employees Consumer Choice Patients; Physicians Hospitals; Product Suppliers; Dis.Mgt. Technology

13. Final Product Price Established by Insurance co., HMO, Gvt

14. Individual Behavior and Public Consequences
Obesity-Body Mass Index ( BMI) ntl 222=28.6%-Obesity costs 9% of total Smokers: Health care costs -(millions) $9,473 smokers, non smokers $11,138 Smokers cost less because they have a shorter life span. (NEJM ) Cost of Violence Cost of Illegal Drug use/infants born addicted

Habits: “I’ll take fries with that”
Obesity Sedentary life Tobacco Risky behavior

Modifiable Factors Associated with Deaths USA 1990
# of deaths

Prevalence of Overweight among U.S. Adults, BRFSS, 1989
<10% 10-15% >15% Source: Mokdad, et al.

Obesity Trends* Among U.S. Adults BRFSS, 1998
(*BMI  30, or ~ 30 lbs overweight for 5’4” woman) No Data <10% %-14% % 20% Source: Mokdad A H, et al. J Am Med Assoc 2000;282:16

Percentage of Obese Oregonians 1993 - 2000

Percentage of Adults Getting Any Physical Activity 30 Minutes Per Day, 5 Days Per Week

Individual Behavior Factors Associated with Women’s Adherence to Mammography Screening Guidelines 27% of women had the age-appropriate number of exams More likely to adhere if they reported participating with their MD in the decision to be screened Were younger, had smaller families, higher education/income…see article

Individual Behavior Public Health/Pharmacy PHD study
Asthmatic patients in OHP Ambulatory patients managed by a RPh working with pts MD Better outcomes achieved if MD actively participated in process/supported

Individual Behavior-Rx non-adherence
Costs more than we spend on outpatient Rxs/yr... Creates health care costs = 125% of Drug Spend Better educated AIDS patients are more compliant 57% of College grads v 37% of high school dropouts were compliant Education makes no difference with diabetic patients compliance Statin 1 in 4 elderly pts compliant after 5 yrs

Rx Drug to Consumer Advertising
Spending $2.5 Billion in 2000 $1. 8 Billion spent 1999 Up 40% over 1998 Total promotional spending 1999 $13.9 Billion Ten Rx items=41% of spending (1999) Claritin $137.4 million/Propecia $99.7/Viagra $93.5/Prilosec $79.5/Xenical $75.5/Lipitor $55.5/Zyban $54.8/Nolvadex $54.4/Flonase $53.5 $125 mill on Vioxx-more than spent on Pepsi ads in 2000

Rx Advertising Spending 2001 (Billions $)
$2.6 DTC Ads $5.2 MD Sales Calls $10.5 on Free Samples.

Rx Advertising 2002 $2.6 DTC $6.2 MD Sales Calls $11.9 on Free Samples

D. Factors Influencing Demand for Health Insurance
1. Financial Risk 2. Price of Insurance 3. Tax Laws 4. The Supply of Health Insurance 5. Interaction of Insurance, Employers and Medical Markets

1. Financial Risk Most people seek insurance to avoid the high cost of illness Some high income people do not purchase health insurance Reflects individual attitude towards risk assumption

Most prominent feature of Am. Health Ins coverage is its slow erosion
2. Price of Insurance/4. Supply of Ins., & 5. Interaction of Ins., Employers and Medical Markets Most prominent feature of Am. Health Ins coverage is its slow erosion Americans without health ins grew from 14.2% in 1995 to 16.1%-1997 (43.4 million people) % of pop without ins-17.3% 2002 No. of people underinsured grew faster Caused by deterioration of employer provided coverage-the source of coverage for nearly two in three people

2/4/5. Why? Because health care prices have increased more rapidly than income (Kronick Article Health Affairs Mar/Apr 1999) Lack of insurance is correlated to low income annual income xs $75 K; 8% with no ins annual income less than $25K 24% with no ins

2/4/5. 50% of those below Medicaid poverty line had at least 1 month with no ins. 31.6% of all the poor had no ins at all in 1997 52% of all employees below poverty level had no ins 1996.

2/4/5. Employers health care premiums increased 218 % (1980-1993)
Inflation adjusted GDP rose by 17% during same time period Average cost of a family policy PPO is above $10,000 per year (2004) Average worker pays $558 for single coverage/$2,661 family plan/yr 2004

2/4/5.-What Caused the Erosion in Coverage-Insured and Underinsured?
1. Rising Premiums (Technology/ Demographics/Utilization) 2. Trend toward Temporary Workers 3. Benefit reductions-most notable Rx drugs 4. Coverage Limits-excluded items. 5. Shift from HMO to POS (requires out of pocket payment-pt then submits for payment to ins co.)

Con’t 6. Loss of Medicaid Coverage due to Welfare Reform passed by Congress 7. Rising cost of Medigap coverage for over 65. 8. Reduction in services to illegal immigrants (in some states)

3. Tax Laws Health insurance premiums and expenses are tax deductible
US Tax Code subsidizes health care purchases

E. Changes Through Time Influencing Health Care Markets
1. Changes in Overall Economy 2. Demographics 3. Technology 4. Price and Spending Patterns 5. Growth in Medical Prices 6. Medical Spending Patterns

1. Changes in Overall Economy
A robust economy should be able to afford health care ins for employees Is this the case now Vs s?? Why was health insurance added as an employee benefit after WWII?

2. Distribution of US Pop by Age/Year
Y2000 (%) Y Y2050 Under Source WSJ

3. Technology New Technologies substitute for older ones at higher cost Rx Industry is an example- Genetically engineered drugs i.e.., treat breast cancer without side effects Enbrel for RA

3. Technology Genetic information varies from person to person
Pharmacogenomics-study of genes to determine how DNA variations diminish or amplify drug effect Can have a drug for 1% of population Hep C and Peg Intron Genetic Testing for Rx-Patient Compatibility

4/5/6.Price, Spending and Growth in Medical Expenditures
Spending Trends 1997 Spending was $1.092 trillion (13.5% GDP) 2007 Projected $2.1 trillion (16.6% GDP) Gvt spending-40% of total in 1990 Gvt spending % 1992 Gvt spending-46% % 2002

4/5/6.-Role of Employers Paid for 60% of health care costs
Deducted as a business expense

4/5/6-Role of Government As modern economies prosper-more is spent on health care Countries with per capita incomes above $8,500 accounted for 89% of global health spending in 1994 These countries comprised 16 % of global pop. 7% of DALYs

4/5/6. US-Spends More per Capita than other Countries-Why?
1. MDs in US are paid more/unit of service 2. US hospital costs are higher 3. Medical technology diffuses more rapidly and used to treat more people

4/5/6. Medicaid Funding Covers 51. million people
Costs $257 billion 2002

4/5/6. Medicare Funding-4 Sources
1. Mandatory contributions from employers and employees 2. General Tax revenues 3. Beneficiaries Premiums 4. Deductibles and co-payments pd by patients (supplemental ins.) Part A-Hospital Trust Fund Part B-MD, Outpatient, Home Health..$ monthly premium Part D. Rx-premium and co pays

4/5/6. Contributions of Individuals
Out of Pocket spending-17.2% of all ntl health spending Drugs the largest single cat of out of pocket

4/5/6. Five General Factors Driving Health Care Spending
1. Population Growth 2. Economy wide Inflation 3. Excess Medical Inflation 4. Per Capita Use of Services 5. Intensity

The Internet and Health Care
Ultimate Knowledge Business Impacts Organization of health care services (MD referrals/selection) Information available to consumers Provision of services (cyberspace HMO) Data analysis Data acquisition and storage Examples from the net

II. Transformation of Medical Care into Health
A. Productivity of Medical Care B. How Insurance Affects Demand for Medical Care C. Role of Quality in Demand for Medical Care

A. Productivity of Medical Care
1. Marginal and Ave Productivity 2. Productivity Changes on Extensive Margin 3. Productivity Changes on Intensive Margin 4. Evidence on Aggregate Productivity of Medical Care 5. Aggregate Data Comparisons

A. Productivity of Medical Care
6. Prospective, Randomized Clinical Trials 7. Evidence on Productivity of Specific Treatments 8. Medical Practice Variations on the Extensive Margin 9. Variations in Physician Practice Patterns

1. Marginal and Average Productivity
For almost every medical intervention, there is a point at which Incremental Productivity (Marginal) of medical care could become negative. However the Average Productivity can be high. On Average, Medical Care has been beneficial, but after a point, overall benefits can decline

2. Productivity Changes on Extensive Margin
Productivity of health care resources varies with total amount used Marginal productivity of health care resources will increase at low levels where none existed before i.e.., penicillin where none had been used before Marginal productivity will fall as more resources are used Large amts of care-Iatrogenic Disease

2. Productivity Changes on Extensive Margin
Inpatient Practice Patterns-Oregon v Florida (NEJM-1994) FL MDs used 53% more resources per Medicare patient admission than did OR MDs-no apparent diff in outcomes Study was case mix adjusted Is an example of variation in MD practice patterns

Medicare Spending-Miami, MPLS, Portland & Orange CA
Age,Sex and Race adjusted spending for FFS Medicare Pts Miami 1996 $8,414-MPLS $3,341 Portland is about same as Minneapolis Higher spend does not produce better health outcomes Means more spending on physicians and hospital stays If high cost areas were reduced to low cost areas, Medicare costs would decline 30% or $120 billion per year.

3. Productivity Changes on the Intensive Margin
Frequency of doing something How often should a 40 yr.... old get a physical How often should a 50 yr.... old get a physical How often PSA screenings, mammograms?

4. Evidence on Aggregate Productivity of Medical Care
How much health care do we get from our current patterns of medical care use? JAMA study-Prof... Ware, using the SF 36, Health Status Survey-1996 4 yr.., 2235 patients comparing FFS v HMO Patients were age 18-97 hypertension, NIDDM, AMI, CHF, Depr.

4. Results-JAMA study Physical health declined and mental health remained stable during 4 yr.. follow up physical declines larger for elderly than nonelderly Over 65 declines in health were more common in HMOs v FFS 54% v 28% Conc. Elderly and poor chronically ill pts had worse health outcomes in HMOs

4. Results-NEJM study-Canada/US AMI
Canadian pts. Hospital stay 1 day longer Much lower rate of cardiac cath/ angioplasty, and CABG At one yr.., 24% of Canadians, 53% of US-had angioplasty or CABG Canadians-more visits to GPs, but fewer to specialists At 30 days, functional status was same

4. Results After one year, US pts had substantially more improvement
Prevalence of chest pain and dyspnea at 1 yr.. was higher among Canadians 34% v 21% (chest pain) & 45% v 29% (dyspnea)

5. Aggregate Data Comparisons
Comparing Mortality Data Among Hospitals to Assess Quality of Care Are death rate comparisons among hospitals valid comparison?

6. Prospective, Randomized Clinical Trial Data
The gold standard of research FDA’s favorite study design Method used for many drug, population, medical studies Prospective trials involving control and experimental groups Treatment and non-treatment arms

7. Evidence on Productivity of Specific Treatments
Use of Beta blockers post AMI-JAMA 1998 115,015 patients 65 and older 50% (USA av.) received a beta blocker post AMI hosp. Discharge 30-38% in Oregon Among ideal pts., 1 yr.. death rate was 7.7% for those getting b-blocker; 12.6% for those not getting the drug

7. Evidence-con’t-JAMA Oct 2000
Use of Beta blockers post AMI % of patients who received beta blocker upon discharge National Ave 75% Oregon 77% Alaska 73% California 68% Washington 66% Hawaii 51%

7. Evidence-con’t Wide variation in use of coronary angiography after AMI rates of angiography inversely related to risk of death from heart disease and risk of heart events Pts followed for 1-4 yrs after AMI

Prescribing Variations for Cox II –Vioxx/Celebrex
27% Rxs were for lower back pain-not approved indication Over 50% had less than a 60 day supply over a 1 year follow up, so drugs are not used for long term therapy when stomach bleeds/problems most common 50% were taking 325 mg ASA which negates COX II effects 74% of pts had no history of GI risks Celebrex as effective as naproxyn

8. Medical Practice Variations on the Extensive Margin
Productivity can vary with amount of care provided Similar to previous slide “productivity changes”..medical practice variations drive productivity variations to some degree

8. Con’t Hospital Readmission Rates-Boston/New Haven. NEJM 1994
Medicare Claims study AMI, stroke, GI bleed, hip fracture, surgery (breast, colon, lung cancer) Boston’s hosp readmit rate was higher No difference in outcomes

8. Con’t Place of Death Medicare data base 1992-1993
38.7% of all deaths occurred in hospital Marked variations in all 306 hospital regions in US Low was 22.5 % in PDX High was 53.5% in Newark

9. Variations in Physician Practice Patterns
What is severity of illness adjusting-how does it work? Why do it at patient or hospital level Software to study this subject

9. What is SOI Some patients, who have the same disease, are more ill than others There are a variety of computerized systems that “risk adjust” Some are based on key clinical findings (abstract the medical record) Others are based on information from discharge abstracts

9. Do Different Systems Produce Different Results?
MedisGroups-predicted death rates for pneumonia & stroke well (medical record abstracting) Disease Staging-AMI (computerized discharge abstracts) MC Source/Episode Treatment Groups

9. Why do it? Managed Care Report Cards will not go away
No other way to dialogue with MDs re quality of care Avoid penalizing providers ( Hospital and MD) who treat high risk patients i.e.., New York CABG data by MD

B. How Insurance Effects Demand for Medical Care
1. Co-Payments, Deductibles 2. Co Insurance Rae 3. Indemnity 4. Max/Min out of pocket 5. Prior Authorizations

1. Co-Payments, Deductibles
Impact of Co-payments/Deductibles on Utilization and Cost Are Income sensitive PERS-Data (AHCPR Study) Group Health Study Benefit Design, Federal Subsidies (Designing a Medicare Rx Benefit-Health Affairs 4/2000)

Medicare Benefit-Issues
What is covered-Formulary Amount of Tax Subsidy Who is eligible Co-pays Open Enrollment Period Who will manage it? Feds or Ins/PBMs Who has financial risk-Feds or Ins co. Who has oversight?

2. Co-Insurance Rate Patient pays a percent i.e.., 20%, Plan the balance Typical for indemnity/major medical

3. Indemnity To indemnify-Protect against loss
Traditional Insurance, no MD or Pharmacy network Patient seeks out own provider, submits a paper claim

4. Max/Min Out of Pocket Patient must meet a front end deductible
Benefits Max out at a certain level of spending Common in Rx benefit design

5. Prior Authorizations NEJM Study-Limiting Ambulatory Rxs and LTCF Admits NEJM Study-Limiting Psychotropic Rxs and use of Acute Mental Health Services PA on ambulatory Rxs by MCOs Celebrex Viagra Enbrel; Prilosec; OHP--Claritin, Flonase

Guidelines for Submitting Clinical & Economic Data-Formulary Consideration
Washington’s Regence Health Program ( King County Medical) Requires Drug Manuf to submit Clinical Prospective and Retrospective Economic Evaluations CBA, CEA studies Same format used by Australia to determine drug listings for their formulary

Quality of Care What is quality? How should it be measured?
Who should be held accountable for providing quality health care? What are the consequences of poor quality?

C. Role of Quality in Demand for Medical Care
1. Evaluation of Health Care Quality 2. HEDIS 3. Consumer Reports 4. Consumer Satisfaction Surveys

1. Evaluation of Health Care Quality-6 Challenges in Measuring Quality
1. Identify and balance competing perspectives of major participants Quality is in the eye of the beholder Purchaser-how well are $ being spent/lack of complaints/others?? Patients-cost/access/waiting times/any problem can be fixed… MDs-mixed: financial/own judgement/patient demands

1. Evaluation-Con’t 2. Develop an Accountability Framework
Joint Commission (JCAHO) NCQA-HEDIS Public release of inf relation to quality of care delivered by plan, hospital, medical group, MD--implies that the entity is responsible for results reported Reporting same measures for similar groups implies it’s reasonable to compare?

1. Evaluation-Con’t 3. Establish explicit criteria for judging performance (annual mammograms) 4. Indicators for External Reporting (Which HEDIS indicators should be reported) 5. Balance financial and quality goals 6. Facilitate Information system development

HEDIS-NCQA www.ncqa.org
HEDIS is a set of standardized performance measures designed to ensure that purchasers and consumers have the info needed to reliably compare MCO performance. Measures Process and some outcomes

Process Measures-% Who received
Flu Shots Vaccinations Diabetic eye exams Breast Cancer screenings Cholesterol Mgt. after AMI Beta Blocker post AMI

Outcome Measures Patient satisfaction with health plan
Patient functioning in daily lives

3/4. Consumer Reports/Consumer Satisfaction Surveys
Oregon Coalition of Health Care Purchasers reviewed 11 HMOs and PPOs in PDX area Did patient get information, was MD courteous, MD communication skills, any problems getting health care random sample, no mention if patients surveyed in each health plan were similar-demographically...

III. Policy Issues in Health Care Finance
A. Mandatory Employer Sponsored Health Insurance B. Uninsured Population C. Health Care Rationing D. Erosion of Plan Benefits E. Rising Premium Costs F. Managing Process of Care v Managing Costs G. Medicare Reform Efforts

A. Mandatory Employer Sponsored Health Insurance
National Ave-per employee health care costs 1998-$4,033/yr Most small businesses oppose mandatory ins. Less than half of small business employees now receive ins via employer # declined between 1996/1998 from 52% to 47%

B. Uninsured Population-NY Times Feb 26, 1999
43.4 million lacked ins-1997- (44.2 million lacked ins % of pop) (42.5 million lacked ins % of pop) Men more likely than women to go without ins. 18% v 15% 15% under age 18 30% between ages 18-21 23% between ages 25-34 17% between ages 35-44 14% between ages 45-64; 1 % over 65

B. Uninsured POP-Families USA June 2004
43.6 million uninsured in US 2002 81.8 million 1 out of 3 or 32.2 % under 65 were without health insurance for all or part of 65 % were uninsured for six or more months 84 % of those without health ins held jobs 14% of Oregon’s pop is uninsured

B. Uninsured Pop. 49% of full time workers with incomes below poverty line lack ins. Compared to 17% of all full time workers Hispanics-34% Blacks 22% Asians 21% Whites 15% All care is rationed, one way or another-by employment, income, waiting lists, availability. OHP Rationing is based on an explicit list OHP started 95% plus of Medicaid pts in some 20 MCOs around the state

OHP-Rationing Prioritized all health care services into a rank ordered list Based on what is covered, not who List of covered treatments is based on relative effectiveness of medical service OHP covers uninsured workers and traditional Medicaid pop.

OHP-What is Covered Treatments below the line are not covered
Line is now 578 Line 1 is Head Injury Line 2 is Diabetes Line 745-Radial Karatotomy

Below the Line Low Back Pain Infertility Allergic Rhinitis Common cold
Most fungal infections

Oregonian Survey of OHP 2-3-99
75% of OHP eligibles received all the care they needed 1 in 4 ran into some kind of barrier to the care they needed OHP Barriers to receiving necessary/desired care 42% service not covered 38% physical/mental disability 34% service denied by MD/plan

OHP Barriers 15% wanted to use alternative care provider 13% location
11% language 11% personal barrier 3% sign-language interpreter not available

D. Erosion of Plan Benefits
Increased patient co-payments Increased patient pay premiums Cost shifting in general More non covered items

E. Rising Premium Costs Previously reviewed

F. Managing Process of Care v Managing Cost
What is the difference?? Which one is easier to accomplish??

G. Medicare Reform-The Problem
Health care expenditures for Medicare pts grow 4% more rapidly that the GDP The # of elderly are growing 1% faster than the rest of the population Elderly consumption of care is growing rapidly If current trends continue till 2020, cost/yr will be $25,000 (1995 dollars) v $9,200 in 1995

G. Medicare Growth Caused by:
Growth in Technology Use of services (no outpatient Rx) 7 Technologies Angioplasty CABG Cardiac Cath Carotid endarterectomy Hip & Knee replacement Laminectomy

G. Medicare: Who Pays Now?
89% of Medicare revenue from taxes paid by people under age 65; income taxes; interest on the Medicare Trust Fund 11% from monthly premiums from recipients

G. Medicare: Who Receives Benefits?
34 million people over age 65 5 million of whom are permanently disabled 284,000 of whom - end stage renal 75% have household annual Inc. under $25,000 When Medicare per capita expenditures Ave $4,083

G. Medicare: How Much Does the Ave Person Contribute?
Most beneficiaries receive far more than they contribute A couple retiring in 1998, with one wage earner Who paid Ave Medicare Taxes since 1966 Paid in $16,790 + Employer contribution Part A future benefits EST. $109,000

G. Medicare: What Can Be Done?
1. Slow the growth of health care spending Decrease mat paid for services/products Product more with fewer resources Slow the rate of growth of services to patients Will cut quality of care Quality of life will decline Patients will complain to Congress

2. Find ways to pay for more health care More taxes Higher Medicare premiums Higher Co-pays Implement a Voucher System

3. Restructure the Delivery System Mandatory MCOs? Eliminate practice variations?

G. Medicare: Balance of Payments/State
Oregon Taxpayers pay out $385 Million more than we get from Medicare Wash DC, receive $638 millions over what they paid in taxes Florida receive $6,822 millions Pennsylvania receive $2,408 millions

IV. Health Care Finance: A Global Perspective: Australia, Canada, Germany, UK & Sweden

Harvard, Commonwealth Fund Study-AU, Canada, NZ, UK, US
25% of respondents said their system works “pretty well” One in three called for “complete rebuilding”-US, NZ, AU 23% of Canadians, 14% of UK would “completely rebuild”

Major Concern US-Affordability Canada, NZ, UK, -Gvt Funding
AU, NZ, - Waiting Time

US US families are most likely to report access to care problem-
US has the highest proportion reporting a time when they did not get needed care US-28% say getting needed care is “difficult” US-one in three have no regular MD

Access to Care Canada and NZ - Access problem similar to those in US
Canadians are particularly concerned about access to specialists-50% say its difficult Waiting Times-non emergency- longest in UK, shortest in US 44% of UK pts-MD will come to their home nights/weekends. (UK residents least likely to report access difficulties

Western European Health Care Reforms (Health Affairs-Mar/Apr 99) WHO Study
Four Reform Themes 1. Roles of State and Market 2. Decentralization 3. Patient’s Rights 4. Role of Public Health

1. Role of State and Market
Presumption of public primacy is being reassessed Some countries use elements of both Combining market-style incentives with continued public sector ownership and operation of facilities

2. Decentralization Decentralization of administrative and sometimes policy authority to lower levels in the public and private sector This requires a supportive environment of: Sufficient local Adm. and mgt. capacity ideological certainty in implementing tasks readiness to accept several interpretations of one problem

3. Patients’ Rights More patients want a greater say in selecting a MD or hospital Also want some say re clinical matters

4. Role of Public Health Issues of health promotion and disease prevention exist In practice, health services have a limited impact on health status of a population Education, housing, employment, & agriculture have a greater impact

Strategies for Policy Intervention-WHO
1. Confronting Resource Scarcity 2. Funding Health Care Systems 3. Allocating Resources 4. Delivering Services

1. Confronting Resource Scarcity
Cost control--demand side 1. Cost sharing - most place little emphasis on pt co-pays 2. Priority setting - Always existed in Europe and was focused on implicit choices made by MDs to explicit choices made by a public political process have restricted payments for a few things

1. Con’t 3. Supply Side strategies a wide range of things here such as
reducing MD production # of hospital beds controlling price of health care workforce global budgets changing ways providers are paid...

2. Funding Systems UK, Nordic Countries, Ireland--predominantly tax-funded system and have universal access These countries are committed to a public sector role Austria, Belgium, France, Germany, Luxembourg, Switzerland--long established statutory ins based systems Are social ins systems & similar goals

3. Allocating Resources 1. Direct contracting (UK)
And this is an alternative to traditional command and control Gvt acts as a purchasing agent for citizens 2. Payment shifts Change to performance related approaches (ffs tied a negotiated schedule/capped spending...

4. Delivery Services Efficiently
Quality of care programs Outcomes assessment Clinical guidelines Problems are in lack of good data

How has all this worked? Supply side reforms have worked quite well-limit amt spent Demand side-less successful The few countries that tried to incorporate privately accountable payers within a public structure encountered problems-Dutch, Swedes,

How is it worked? Many European countries have rejected cost sharing because of problems related to equity, Are now looking hard at Rx co-payments… But universal coverage remains a bedrock of their cultures

Australia Private ins in in a death spiral
Gvt wants to give private ins holders a 30% rebate Gvt has shifted many costs to private sector in recent years, so people quit and went back to public programs Private system will fail given current trends without cost relief from gvt

Canada Each province has its own system, with fed/provincial funding-a Universal system Fed share of funding has declined--increasing local funding problems Some provinces have cut more than others

Canada in 2002-Health Care Reform Top Political Issue
Majority of citizens believe system needs reforming Medical Savings Accts/Improve Primary Care Delivery/Contract with private for profit providers etc. Budget Problems driving change

Canada Waiting Times Cancer pts wait 3 x longer than US pats for treatment (1/3 longer than Canadian MDs thought ok) Weighted Ave wait for surgery is 6.8 weeks,-not including wait to see surgery specialist of 5.1 weeks Diagnostic assessment (MRI…) weeks varies by province MDs in BC went on strike last month

Germany Has a century old universal system
Is an employment based ins system founded by Chancellor Bismarck in 19th Century Past 20 yrs-passed laws trying to control costs and keep premium growth from exceeding employee incomes Most recent attempt is 1992 Health Structure Law

Germany-Health Structure Law
Imposed global budgeting on MDs Placed limits on # of MDs who be admitted into Ins Practice Fixed budgets for hospitals Accelerated DRG system Tight controls on Rx costs Fundamental change locked in political stalemate

Germany Political stalemate-
It’s legal system largely blocks market driven changes It has a national “any willing provider law” Has unified physician self governance (Direct relationships between docs or groups of docs and health ins funds is not possible)

UK NHS was created in 1948-is a publicly financed system-universal access PM Thatcher introduced reforms in 1991 GPs and Hospitals could become mini HMOs & have capitated risk for an pre determined # of pts

UK Concept partly developed by Prof.. Alain Entohoven of Stanford author of “Managed Competition” GP & Hospitals compete for patients using public dollars -sounds to me a lot like the OHP NHS hospitals are now called Trusts Primary care providers now form General Practice fundholders

UK has it worked? PM Tony Blair’s government has dismantled the competition experiment in favor of more central control. Health Affairs Article 2002.

Sweden Developed reforms like UK The changes caused major problems
lack of trust between providers/purchasers gvt feared losing control posed a threat to their fundamental principles of equal access (prbls-lack of total cost control,poor mgt., gvts need for central control) out of 6 working age Swedes is off work because of illness or injury. Disability pensions often larger than work income. 16% of ntl budget

Pharmacy and the Health Care System-Fall 2005

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Pharmacy and the Health Care System-Fall 2005

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