Health Care Economics and Trends

NU 305 DL Sacred Heart University

Health Care Economics

• Where the health care dollar comes from?– Past, Present and Future

• How the health care dollar is spent?– Past, Present and Future

• What does this mean for nursing?– Past, Present and Future

Where the health care dollar comes from?

• Government (45%)• Private Insurance Companies (33%)• Individuals (out of pocket) (20%)• Other (2%)

Payment patterns

• Fee for service• DRGs• Capitation• Managed Care• Point of Service

Government

• Federal (70%)– Medicare– Veterans Administration– Military

• State (30%)– Medicare (also financed in part with federal $)– Husky Program

• HCFA (Health Care Financing Administration) is now the Center for Medicare and Medicaid Services (CMS)

Center for Medicare and Medicaid Services

• Administers Medicare, Medicaid, and the States Children’s Health Insurance

• Provides insurance for over 74 million• Department of Health and Human Services• Secretary of HHS is a member of the

President’s Cabinet

CMS

• Keeps statistics• www.cms.hhs.gov

How the money is being spent?

• Visit www.cms.hhs.gov• From home page link to “Statistics and

Data”• Link to Health Accounts• View Highlights• View Tables

Gross Domestic Product

• Gross Domestic Product is the total market value of all the goods and services produced in a country in a year.

• Standard against which health care expenditures have been measured

• Money spent on health care is then not available to spend on other programs such as education

National Health Care Expenditures, 2002

• Spending in 2002 increased 9.3% from 2001– Overall growth was 5.7% points faster than overall

economy• Spending was $1.6 trillion• 14.9% of the Gross Domestic Product

– Up from 14.1 in 2001– Up from 13.1 in 1999– Up from 12% in 1990

Trends in GrowthPer Individual

• 2002• 2001• 2000• 1999• 1997• 1991

• $5,440• $5,081• $4,637• $4,377• $4001• $2966

Reasons for Increase

• Hospital and drug costs main cause– Accounted for over 50% of overall increase

• Medicare increased payments to payers– As result of lobbying demonstrating harm to patients

• Resistance to managed care– Consumers are choosing less restrictive options– Consolidation of hospitals into systems have increased

their bargaining power

• Home health Expenditures grew by 7.2% in 2002 after declining 35% from 1996 to 1999.

• Nursing Home spending increased 4.1%.

A Closer Look at Hospital Costs

• Spending increased 9.5% to $486.5 billion, the 4th consecutive year of accelerated growth

• First time since 1991 hospital spending outpaced overall spending

• Growing demands for services• Rising labor costs - compensation

A Closer Look at Prescription Drugs

• Total national spending on drugs has doubled in the past five years and has tripled from 1990 to 2000

• Slight decrease from 15.9% in 2001 to 15.3% in 2002

• Outpaced growth in all other health services• Evidence needed that drugs are effective

and reduce comorbidity, hospital stays, etc.

So what?

• More money out of pocket• Higher insurance premiums• Fewer benefits from employers• More cost constraints on hospitals• More concern re fraud and abuse• Increase number of uninsured• Higher percentage of the GDP

Health Care Expenditures

• Personal Health Care Expenditures (PHCE) include all purchased services and products that are associated with individual health.– Hospital – Physician and Clinical Services– Dental and other Professional Services– Nursing Home Care and Home Health Care– Prescription Drugs and Medical Supplies

Personal Health Care Expenditures

• Hospital– single largest component– rate Had been slowing, but has increased in

2001 and 2002– overall hospital occupancy fell to less than

60%, but is beginning to increase

Personal Health Care Expenditures

• Physician Expenditures– growth of physician expenditures less than the

overall growth of health care spending– income declining for specialist and those who

are “procedure” dependent

Personal Health Care Expenditures

• Pharmacy– Proportion of prescription costs paid by 3rd

party payers decreased while the out-of-pocket cost to consumers increased

– Largest % increases– Advertising by pharmaceutical companies

Personal Health Care Expenditures

• Home Health Care– Costs had actually decreased in late 1990’s and

2000 – Increased 7.2% in 2002 from 2001– Medicare's share has doubled since 1990

Personal Health Care Expenditures

• Nursing Home Care– Increase of 4.1% in 2002– Decreasing occupancy even as aging population

due to alternative of assisted living and home care

– 2/3 of costs paid by Public and 1/3 Private

Trends

• Demographics• Improving Financing and Optimism• Post Election Politics• High Technology• Employers Search for Options• Customer Relationship Management• Competing on Excellence

Trends

• Bed Shortages/New Facilities• Service and Satisfaction• Public Health• Clinical Care Improvement

Demographics

• By 2010 – average life expectancy will be up to 86 yo for

women and 76 yo for men– More than 100,000 people over 100 yo– First baby boomers will turn 65 in 2010

Demographics

• More ethnically diverse– Currently 74% of the population is white but

will decreease to 64% by 2010• 5% Asian• 13% African American

Demographics

• More educated but “tiered”– Empowered consumer– Worried consumer– Excluded consumer

Workforce Demographics

• 570,000 physicians in US, 170,000 in pipeline,

• Three new physicians for every one that retires

• Numbers of NP’s, PA’s, and other non-MD clinicians are growing

Improving Finances and Optimism

• Health Care Executives feeling more positive about their financial future

• 75% expect to breakeven or make money in five years

• Reason– Win more favorable rates– Improvements in Medicare rates– Cost controls kick in

Post Election Health Politics

• Incremental• Key issues

– Shore up Social Security– Prescription coverage for Medicare– Access for the medically uninsured

• increased another 10 million in past year– Patient Bill of Rights

High Technology

• Medical Technology – Hospitals competing based on technology– Marketing the technology– “Medical arms race” is on

• Medical Technologies– Minimally invasive surgery– Genetic mapping and testing– Gene therapy– Vaccines– Artificial blood– Xenotransplants

Technology

• Information Technology– Smart, Small, Mobile, Complex– Interconnected/Interfaces of clinical

information– Data analysis– Telehealth

Employers Search for Options

• Ways to decrease cost– Consolidating health plans– Increasing employee cost share– Increasing co-pays– Leapfrog Initiative

• 60 major employers (IBM, GE, GM, and AT&T)• Use hospitals with reduced medical errors

Customer Relationship Management

• Latest marketing trend• Need to know customer preferences• Communication, education and marketing• Patient Satisfaction Surveys

– Benchmarking– “Report Cards”

Competing on excellence

• “Top 100”- Healthgrades.com or HCIA/SACHS

• US News and World Report• Enhances market reputation

Bed Shortages/New Facilities

• Some geographical areas are having shortages/bed crisis

• Diversions• Building of new facilities for alternative

care• Occupancy rates fallen from 80% to 60%

but closures difficult. • Continued reduction in beds

Service and Satisfaction

• May be “Make or Break Issue”• Bedside manner, hospitality, sensitivity to

the patient• Service quality is key factor

Service and Satisfaction

• Informed and Influential Health Care Consumer

• Internet

Public Health

• Under funded and marginalized• Yet global, bio-terrorism issues will need

addressing

Clinical Care Improvements

• Improving clinical performance is most important cost management strategy of the future

• Clinical care costs are 80-85% of the average hospital budget

• Use of clinical guidelines, practice protocols

• Reduce variations in practice

Clinical Care Improvements

• Too Err is Human– IOM Quality of Health Care in America

Committee– Two studies (CO & UT) and NY

• Adverse events occurred in 2.9-3.7% of hospitalizations

• 8.8-13.6 % of these resulted in death

• Extrapolated to 33.6 million admissions per year implies that– 44,000 to 98,000 Americans die each year as a

result of medial errors– More than MVA, breast cancer, and Aids– Medication errors alone are estimated to

account for 7,000 deaths per year

• One study at two prestigious hospitals found– Two out of every 100 admissions experience an

preventable adverse drug event– Increase cost of the hospitalization by $4700

per admission– National estimate $2 billion

• Modest estimate of problem• Hospital only, what about all the other

settings?• Implications of cost, trust, satisfaction• Recommendations

• What are the potentials for errors?

• How can we decrease errorsin nursing?

Crossing the Quality Chasm

• Care should be safe• Care should be effective• Care should be patient centered• Care should be timely• Care should be efficient• Care should be equitable

Crossing the Quality Chasm

• Care based on continuous healing• Care should be customized based on patient

needs and values• Control should rest with the patient• Knowledge and information should be

shared wit the patient• Clinical decisions should be evidence-based

• Care system should be safe• Health system should be more transparent• Health system should anticipate patient

needs rather than simply reacting to events• Health system should not waste resources• More cooperation among clinicians

Implications for Nursing

• Setting• Education• Roles• Quality• Safety• Health Promotion• Utilization• Customer Satisfaction

• Licensure• Regulation of Unlicensed staff• Patient Satisfaction• Technology• Evidenced-based practice • Reduction of medical errors