Increasing the Affordability of Health Care Revised 7/2007 1

Total National Health Expenditures, 1980 – 2005(1) Spending on health care is on the rise. Total National Health Expenditures, 1980 – 2005(1) Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 8, 2007. (1) CMS completed a benchmark revision in 2006, introducing changes in methods, definitions and source data that are applied to the entire time series (back to 1960). For more information on this revision, see http://www.cms.hhs.gov/NationalHealthExpendData/downloads/benchmark.pdf. (2) Expressed in 1980 dollars; adjusted using the overall Consumer Price Index for Urban Consumers. 2

However, hospitals are a shrinking share of the growing spending pie. National Expenditures for Health Services and Supplies(1) by Category, 1980 and 2005(2) $234.0B $1,860.9B Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 8, 2007. (1) Excludes medical research and medical facilities construction. (2) CMS completed a benchmark revision in 2006, introducing changes in methods, definitions and source data that are applied to the entire time series (back to 1960). For more information on this revision, see http://www.cms.hhs.gov/NationalHealthExpendData/downloads/benchmark.pdf. (3) “Other” includes net cost of insurance and administration, government public health activities, and other personal health care. (4) “Other professional” includes dental and other non-physician professional services. 3

The U.S. is the only country where health care accounts for more than 13 percent of the GDP, spending 16.5% in 2006. 4

Fifty percent of adults with incomes less than $50,000 have experienced problems paying for insurance in the past two years… Percent of Adults Facing Serious Problems Paying for Insurance in the Past Two Years, by Income Level, 2006 50% 47% 38% 34% 23% Note: Percent values on the top of each bar reflect the sum of the values within each bar. Source: The Commonwealth Fund (2006) Public Views on Shaping the Future of the U.S. Health Care System 5

…and may small businesses do not even offer coverage. Percent of Firms Offering Health Benefits, 2002 and 2006 Source: “Employer Health Benefits 2006 Annual Survey,” (#7527), The Henry J. Kaiser Family Foundation and Health Research and Educational Trust, September 2006 6

These factors contribute to a growing number of uninsured. Number and Percent Uninsured, 1985 – 2005 Source: US Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2005. Data released August 2006. Table 8. People With or Without Health Insurance Coverage by Selected Characteristics: 2004 and 2005. Link: http://pubdb3.census.gov/macro/032006/health/h01_001.htm. (1) 2004 and 2005 figures reflect revised estimates released by the Census Bureau on March 23, 2007. 7

Increased spending is linked to several factors. Increased demand for care Demographics Health status Technology: health care can do more things for more people Rising costs to provide care Labor shortage Technology Regulatory burden For private sector, government underfunding 8

Drivers of Demand Demographics 9

The aging of the population is driving up demand for health care. US Population Trends and Projections by Age, 1980 - 2050 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 85 and over 65 - 84 Thousands 20 - 64 0 - 19 1980 1990 2000 2010 2020 2030 2040 2050 Source: US Census Bureau 10

With the aging of the Baby Boomer population, hospital admissions of Boomers will more than double… Number of hospital admissions * Projected. 1 Non-Boomer adults indicates non-Boomers over the age of 15. Source: “When I’m 64”, American Hospital Association, May 2007. FCG projections based on National Center for Health Statistics, National Hospital Discharge Survey 2004, May 2006 11

Total Hospital Admissions in 2004 Total Hospital Admissions in 2030* …leading to a majority of hospital patients being over 65. Total Hospital Admissions in 2004 35 Million Total Hospital Admissions in 2030* 49 Million * Projected. Source: “When I’m 64”, American Hospital Association, May 2007. FCG projections based on National Center for Health Statistics, 2004 National Hospital Discharge Survey, May 2006 12

Physician office visits for adults will number more than one billion by 2020. Number of Physician Office Visits * Projected. 1 Non-Boomer adults indicates non-Boomers over the age of 15. Source: “When I’m 64”, American Hospital Association, May 2007. FCG projections based on National Center for Health Statistics, National Ambulatory Care Survey 2004, June 2006 13

INSERT YOUR DATA HERE INSERT ANY AGING OR DEMOGRAPHIC CHANGES YOU ARE EXPECTING IN YOUR COMMUNITY 14

Drivers of Demand Health Status 15

We have a rising number of people with chronic conditions. Number and Percent of Americans with Chronic Medical Conditions,* 1995 – 2030 Percent of Total Population Millions of People *Values for 2005 to 2030 are projections. Source: Adapted from Partnership for Solutions, Johns Hopkins University, Chronic Conditions: Making the Case for Ongoing Care, December 2002 16

Lifestyle factors are contributing to the rising levels of chronic illness. Prevalence of Diabetes(1) and Obesity(2), U.S. Population, 1990-2005 Source: Centers for Disease Control and Prevention. Diabetes is age-adjusted prevalence from the National Diabetes Surveillance System. http://www.cdc.gov/diabetes/statistics/prev/national/index.htm Obesity is median % of individuals 18 years or older reporting body mass index greater than 30 kg/m2 in states, DC, and the U.S. territories reporting data to the Behavioral Risk Factor Surveillance System. http://apps.nccd.cdc.gov/brfss/Trends/trendchart.asp?qkey=10010&state=US 17

By 2030, 37 million Boomers will be managing more than one chronic disease. 18

On average, the cost of health care for an individual with more than 5 chronic conditions is nearly 15 times that of an individual with no chronic conditions. 19

INSERT DATA ON CHRONIC CONDITIONS SPECIFIC TO YOUR COMMUNITY. INSERT YOUR DATA HERE INSERT DATA ON CHRONIC CONDITIONS SPECIFIC TO YOUR COMMUNITY. In addition to your own internal data that can be gleaned from the medical records, visit www.cdc.gov for state level data on chronic disease from the BRFSS survey. 20

Drivers of Demand Technology: Health care can do more things for more people 21

Each year we can do more things for more people, but innovations are costly. Projected Annual Costs of Recent Technology Related Medicare Coverage Expansions Technology Medicare Costs Drug-eluting coronary stents $2 – 4 B ICD for sudden death prophylaxis $1 – 3 B PET for Alzheimer’s disease $1 B Verteporfin for macular degeneration $750 M Left-ventricular assist devices $1 – 7 B Source: Adapted from Neumann PJ, Medicare National Coverage Decisions: How is CMS Doing? Presented at National Health Policy Conference, February 2005 22

People demand innovations in care because they save lives. Mortality from Heart Attacks in Relation to Advances in Care 1980s 1990s 2000s CABG Metal stents Drug-eluting stents Death Rate per 100,000 Blood Thinners Beta Blockers Thrombolytics Implantable defibrillators Statins ACE inhibitors Source: www.cdc.gov/nchs; The Value of Investment in Health Care 23

Rising Costs of Providing Care Labor Shortage 24

Percent of Hospital Costs(1) by Type of Expense, 3Q06 Health care is very labor intensive, but… Percent of Hospital Costs(1) by Type of Expense, 3Q06 (2) Source: AHA analysis of Centers for Medicare and Medicaid Services data, using base year 2002 weights. (1) Does not include capital. (2) Includes postage and telephone expenses. 25

…hospitals also face workforce shortages in key care-giving professions… Vacancy Rates for Selected Hospital Personnel, December 2006 116,000 RN Vacancies* Source: 2007 AHA Survey of Hospital Leaders Note: 116,000 vacancies is a national estimate created by extrapolating the vacancy rate to all 5,000 community hospitals in 2005. ST: Speech Therapist, OT: Occupational Therapist, PT: Physical Therapist. 26

National Supply and Demand Projections for FTE RNs, 2000 – 2020 A continuing and growing workforce shortage is a key driver of the increased costs of RNs… National Supply and Demand Projections for FTE RNs, 2000 – 2020 Shortage of over 1,000,000 nurses in 2020 Source: National Center For Health Workforce Analysis, Bureau of Health Professions, Health Resources and Services Administration, 2004. Link: http://bhpr.hrsa.gov/healthworkforce/reports/rnpopulation/preliminaryfindings.htm. 27

…as well as physicians. Physician Shortage for Select Specialties 28 * Projected. Sources: Physician Supply and Demand: Projections to 2020, HRSA, October 2006 “Research Shows Rapid Decline in Geriatric Medicine Students,” Press Release, University of Cincinnati, April 4, 2007“Aging Boomers Face a Doctor Shortage,” CBS News, March 4 2003 28

Rising Costs of Providing Care Technology, Regulatory Burden and Government Underfunding 29

Hospitals face significant increases in the costs of caring for patients… Percent Change in Hospital Expenses for Pharmaceuticals and Medical Supplies/Devices, 2004 to 2005 Source: AHA 2006 Survey of Hospital Leaders 30

…driven in part by new technology that increases costs for providing the same service. Stents: The Rising Costs of Technological Development Source: University HealthSystem Consortium 31

Regulatory burden contributes to rising costs for hospitals and the system as a whole. WHO REGULATES HOSPITALS IRS EPA FTC FCC FBI HHS/HRSA HHS/NIOSH JCAHO NRC DOL SEC OPO ’ s FAA DEA Regional Home Health Intermediaries DME Regional Contractors Treasury DOJ OSHA DOT FDA Regional Offices Carriers PRO PRRB Medicare Integrity Program Contractors Congress Federal Circuit Courts Supreme Court Departmental Appeals OIG State Survey & Certification Courts Attorneys General Medicaid Health Boards Medical Boards Local Governments Licensure Hospitals CMS 32

For the private sector, government underfunding adds to costs… Hospital Payment Shortfall Relative to Costs Medicare and Medicaid, 1997 – 2005, (in billions of dollars) 1997 1998 1999 2000 2001 2002 2003 2004 2005 Billions of Dollars Medicare Medicaid Total 2005 Medicaid and Medicare Shortfall of $25.4 Billion Source: AHA Annual Survey 33

…as do rising levels of uncompensated care, contributing to… Aggregate Hospital Uncompensated Care Costs,1997-2005 (in billions) Source: AHA Annual Survey 34

Source: AHA Annual Survey …decreasing hospital margins… Total, Operating and Patient Care Margins, 1997 (pre-BBA) vs. 2005 Total Margin Operating Margin Patient Care Margin Source: AHA Annual Survey 35

Operating Margins of the Top Insurers, 2003 – 2005 …while margins of top insurers are in the double digits. Operating Margins of the Top Insurers, 2003 – 2005 (1) Source: Hoovers. Data from January 2007. Link: www.hoovers.com. (1) 2004 operating margin data for WellPoint include both pre- and post-merger data for the merger with Anthem in November 2004 36

“More can and should be done to make care more affordable. With costs of caring on the rise and demand increasing in an ever changing environment we must seize opportunities to make care more affordable.” 37

A New Lens is Needed… 38

CBO Issues Warning on Rising Health Care Costs The increase in spending on health care is a frequent topic of debate, but the value of this investment is seldom part of the discussion.                             CBO Issues Warning on Rising Health Care Costs Senate Republicans in Albany Eye Big Medicaid Cuts                                                  …but little talk about the value we get for our health care dollar. This study is designed to foster a more balanced dialogue about our health care system. We commissioned this study to bring the issue of value to the forefront—to take a rigorous look at the return on America’s investment in health care. It is important to note what this study isn’t: This study is not an attempt to argue for a blank check for providers and technology manufacturers. Nor does this study say we couldn’t do it better. Medicare Revamp Fails to Cure Angst Over Costs 39

Health gains of $2.40 to $3.00 per dollar invested Research indicates significant health gains have accompanied increased spending. Since 1980, per capita expenses up $2,254, but: Overall death rate down 16% Life expectancy from birth up by 3.2 years Disability rates down 25% for people over 65 56% fewer days spent in the hospital [REVIEW FINDINGS AS ON CHART] [FYI: if questions come up: ALL parts of study used the same assumption about the value of an additional year of life--$100,000. Figure derived from an extensive literature—particularly Bureau of Economic Analysis. Figure used routinely by government agencies to conduct cost/benefit analysis of regulation—USDA and food safety, EPA for pollution controls Also widely used in medical literature for technology assessment. For the overall analysis the value is calculated by figuring out how many additional years of life were gained for the population as a whole (just for the year 2000) and applying a value for each life-year gained. The overall analysis is conservative because it does not account for improvements in quality of life.] Health gains of $2.40 to $3.00 per dollar invested 40

Advances in health care have lead to fewer deaths and less disability. Where we would be in 2000 without advances since 1980? 470,000 more deaths 206 million more days in hospital 2.3 million more disabled persons To put this in more concrete terms—if we hadn’t spent $2254 more per person on health care, where would we be? Just in the year 2000, we would have experienced 470,000 more deaths, 2.3 million more disabled people, and 206 million more days in the hospital. [FYI: this is a ONE year number] 41

Death rates for key diseases have declined dramatically. Death Rates for Key Conditions Studied 1980-2000 345.2 249.6 186.9 20.7 96.2 65.3 60.8 18.1 25.2 25.4 31.8 32.3 1980 1990 2000 Heart Attack Stroke Type 2 Diabetes The Findings: Improved Outcomes With the transformation in care, we see dramatic improvements in outcomes. Heart attack mortality has been cut in half, stroke by a third and breast cancer by more than 20%. The rising incidence of diabetes—with rising obesity—means we have rising mortality but our ability to treat diabetes has improved markedly. Breast Cancer Source: Health, United States 2002 42

America’s health care system is at a crossroads, and hospitals are part of the solution. 43

Key opportunities exist to increase affordability. Focus on wellness Go beyond the medical model of care to look at wellness and prevention Better manage chronic disease Anticipate the wave of the Boomers and the growing incidence of chronic disease Improve care delivery More demand for services requires new approaches to care delivery Increase transparency of quality performance Better understand and reduce duplication of services Speed adoption of IT 44

Promote preventive services Reward personal participation Focus on Wellness Promote preventive services Reward personal participation Reward healthy behaviors 45

More employers are investing in wellness. Individuals with healthy lifestyles typically are: More productive File fewer medical claims Have lower medical costs Research shows a $3 to $1 return on investment Prevention/detection demonstrates success in cancer and heart disease 46

Research has shown that a focus on wellness is cost effective. Average Percent Change in Employers’ Costs Resulting from Workplace Health Promotion and Wellness Programs Source: Chapman, L. (2003). Meta-evaluation of Worksite Health Promotion Economic Return Studies. Art of Health Promotion Newsletter, 6(6). 47

Employers also believe financial incentives could work. Do you believe that providing financial incentives to employees for participating in healthy lifestyle programs will reduce your company’s health care costs? “Money is not enough so employers must build something into the plan such as tools and health coaches.” – Midwest Business Group on Health. Source: PricewaterhouseCoopers Management Barometer Survey 48

INSERT INFORMATION ON THE WELLNESS PROGRAMS YOU ARE INVOLVED IN… Focus on wellness INSERT INFORMATION ON THE WELLNESS PROGRAMS YOU ARE INVOLVED IN… For additional examples or ideas, visit www.aha.org/communityconnections 49

Better manage chronic disease INSERT INFORMATION ON YOUR EFFORTS TO MANAGE CHRONIC DISEASE IN YOUR COMMUNITY Its helpful to include data that show results. (i.e. lower admissions of asthma or improved lab results of those participating in a program) 50

INSERT INFORMATION ON YOUR EFFORTS TO IMPROVE CARE DELIVERY Its helpful to include data that show results. (i.e. wait times in the ED, faster discharge times, quicker bed turn over) Demonstrated improved patient satisfaction levels (i.e. survey results) 51

Increase transparency of quality performance INSERT INFORMATION ON YOUR HQA QUALITY SCORES or OTHER BENCHMARK DATA YOU USE TO ASSESS YOUR QUALITY PERFORMANCE 52

Better understand and reduce duplication Following care guidelines and protocols, clinicians could help reduce readmission rates to hospitals and lessen complications. INSERT INFORMATION ON WAYS YOUR ORGANIZATION IS ADDRESSING THIS GOAL 53

INSERT INFORMATION ON WAYS YOUR ORGANIZATION IS ADDRESSING THIS GOAL Speed adoption of IT Today’s health care system is choked with paper. Health care will be more affordable if we spend more time at the bedside and less on paperwork. INSERT INFORMATION ON WAYS YOUR ORGANIZATION IS ADDRESSING THIS GOAL 54

Broadening of the digital backbone in healthcare “Widespread adoption of electronic medical records and other health information technology is estimated to save $162 billion a year by improving care management, reducing preventable medical errors, lowering death rates from chronic diseases, and reducing the number of employee sick days.” Payer benefits Drops in administrative costs More accurate forecasting Provider benefits Reduced duplicate testing Reduced adverse drug reactions 55 Source: Pricwaterhouse Coopers, June 2007

We can and must do this together! Keeping health care affordable will involve every segment of the health care system – insurers, hospitals, business, physicians, nurses, employers and individuals. We can and must do this together! 56