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A review of health care costs: deck chairs and the Titanic, part 1

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https://stateofreform.com/news/federal/2019/02/deck-chairs-and-the-titanic-part1/?utm_source=State+of+Reform&utm_campaign=ccf3275364-5+Things+CA+July+2_COPY_01&utm_medium=email&utm_term=0_37897a186e-ccf3275364-272256165

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This article is Part I of a two-part series on the cost of health care and its component parts. Part I explores the recent growth of health care costs in the United States as well as the utilization inputs in the cost equation.

Part II will break down the pricing component of cost, determined by market leverage and the cost of delivering services. 

 

If you ask policymakers, industry leaders, and health care consumers, many will tell you that their number one concern with health care today is the cost.

For the most part, as a society we’ve moved past the days when access or quality were of primary concern to stakeholders. I would wager it’s not because those issues aren’t important.  Everyone knows we have wild challenges still with access and quality.

Rather, the acuity of the cost problem has risen so much, so quickly, that cost as an issue overshadows everything else.

This is a big topic, but it’s not really that hard to understand. Health care costs are actually a simple story.

There are only two categories of health care costs in America today. There are the deck chairs, and there is the Titanic.

Context matters, so let’s start there

Here’s one data point, but it’s largely the same point everywhere you look in health care.

These are average annual premiums for single and family coverage in the employer-based market. Those costs have doubled in the last 14 years, reflecting an average annual growth rate of roughly 5 percent since 2004.

 

 

Here’s another data point. According to CMS in an article in Health Affairs, “health care spending growth averaged 4.3 percent per year during 2008–17, compared to an average annual rate of 7.3 percent over the 1998–2007 period.” That might seem like costs are slowing, but it’s not the whole story.

Remember the “Great Recession?” It was the period of time when the economy almost fell apart. So, measuring health care spending growth should be done within some context of the overall economy.

For this, we can use a standard inflation calculator of the overall economy to compare its growth to the growth of health care costs. When viewed this way, health care inflation grew at a multiple of 2.7x the broader economy’s inflation rate between 1998-2007 and a multiple of 3.0x during 2008-2017.

So, not only are costs high in health care today, but they are growing faster than ever compared to overall inflation in the US economy.

 

Moving around the Titanic’s deck chairs

Let’s explore this metaphor a bit.

The Titanic is a big ship with a big deck. And so there are lots and lots of deck chairs to move around. And moving them around can cause authentic improvement to the quality of the experience.

A view out over the bow at a setting sun is a much better view than the one provided by a chair facing the steam funnel. Sometimes, chairs facing other chairs can foster comity and community through conversation. Sometimes, having alone time to ponder the stars in the night sky from the ship deck is nice.

How the chairs are deployed has a meaningful impact on the user’s experience of sailing on the Titanic.

I run with this analogy because there are a lot of things we do in health care today that meaningfully improve the experience, outcome and cost of health care.

You can probably name 10 such efforts without blinking an eye: improved care coordination, tele-health, community health workers, shared risk payment methods, integration of behavioral health, access to oral health, strong vaccination standards, online forums for shared patient experiences, good bedside manners, etc., etc.

All of these initiatives, as well as others, improve care and the user experience. They all can address cost in various ways, too. They can reduce hospital utilization, allow patients to access care remotely, reduce re-admissions or complications from drug interactions. There is a lot to like here that is meaningful and worth our time as a society to implement.

Put differently, in the cost equation where total health care cost equals utilization times prices (THC = U x P), I would categorize these initiatives as part of the utilization input of the cost equation. All of these initiatives address how we access and use health care in our system today.

But, at the end of the day, these are deck chairs.

 

 

The Public On Next Steps For The ACA And Proposals To Expand Coverage

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https://www.kff.org/health-reform/poll-finding/kff-health-tracking-poll-january-2019/

Key Findings:

  • Half of the public disapproves of the recent decision in Texas v. United States, in which a federal judge ruled that the 2010 Affordable Care Act (ACA) is unconstitutional and should not be in effect. While the judge’s ruling is broader than eliminating the ACA’s protections for people with pre-existing conditions, this particular issue continues to resonate with the public. Continuing the ACA’s protections for people with pre-existing conditions ranks among the public’s top health care priorities for the new Congress, along with lowering prescription drug costs.
  • This month’s KFF Health Tracking Poll continues to find majority support (driven by Democrats and independents) for the federal government doing more to help provide health insurance for more Americans. One way for lawmakers to expand coverage is by broadening the role of public programs. Nearly six in ten (56 percent) favor a national Medicare-for-all plan, but overall net favorability towards such a plan ranges as high as +45 and as low as -44 after people hear common arguments about this proposal.
  • Larger majorities of the public favor more incremental changes to the health care system such as a Medicare buy-in plan for adults between the ages of 50 and 64 (77 percent), a Medicaid buy-in plan for individuals who don’t receive health coverage through their employer (75 percent), and an optional program similar to Medicare for those who want it (74 percent). Both the Medicare buy-in plan and Medicaid buy-in plan also garner majority support from Republicans (69 percent and 64 percent­).
  • Moving forward, half of Democrats would rather see the new Democratic majority in the U.S. House of Representatives focus their efforts on improving and protecting the ACA (51 percent), while about four in ten want them to focus on passing a national Medicare-for-all plan (38 percent).

 

Health care spending is more than just the parts you see

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https://www.axios.com/understanding-health-care-spending-46e21c47-79ee-474b-80ff-778a705cdcae.html

Illustration of a red cross spinning to reveal money

People focus on the health costs that are most tangible and sometimes outrageous to them: their deductibles, and drug costs, and surprise medical bills, and the annual increase in the share of the premium they pay. But there’s more that gets less attention because it’s not as visible to them.

Why it matters: To really understand how Medicare for All or any other big change in health care financing would affect them, people need to understand how they would impact their overall family health budgets. Few people think about the other health costs they pay: their taxes to support health care, or what their employers are paying towards premiums (which is depressing their wages).

Between the lines: Consider this hypothetical example of a total family health “budget”:

  • The Browns, a family of four with at least one member in poor health and a $50,000 income, have standard employer coverage much like 156 million other Americans. They spend $9,250 per year (19% of their income) on health.
  • This includes $3,950 (8% of their income) in out-of-pocket health spending, $3,900 (8% of their income) in health insurance premiums, and, although they are almost certainly not aware of it, approximately $1,400 (3% of their income) in state and federal taxes that fund health programs.
  • The Browns are not taxed on the contributions their employer makes toward health insurance premiums, which economists generally say offset wages. Their employer is contributing an additional $13,050 to their health insurance premiums, as well as $750 in Medicare payroll taxes.
  • When combined, the Brown’s spending on health care and the money spent by their employer on their behalf totals a considerable $23,050. And remember, they make $50,000.

A few ideas that could help people learn more about their health total care spending and how reform proposals might affect their health spending:

  • The IRS and states could include a simple pie chart on everyone’s tax forms, showing taxpayers where their tax dollars go today.
  • Along with estimating the impact of health reform legislation on the federal budget, or the number of uninsured, the CBO could estimate its impact on typical family budgets, taking into account all of the forms of health spending families have today. Organizations like ours could do this as well.

What to watch: This could be particularly important when analyzing Medicare for All proposals, since they would so significantly alter the financing of health care by shifting it from premiums and out-of-pocket costs to taxes.

  • A Medicare for All plan would likely reduce what the nation spends on health care by lowering payment rates to providers and creating administrative efficiencies. The average family would likely pay less, but how much is hard to say without more details.
  • However, by changing the financing so significantly, there would likely be both winners and losers. Low-income people and sick people might pay less, and higher-income people and those who are healthy could pay more.

The bottom line: We can only get a clear picture of how family finances would be affected by Medicare for All, or any other significant overhaul of the health care system, by looking at the totality of what they pay now.

 

 

A Billion Dollars Won’t Make You Happy, but This Will

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https://www.inc.com/jessica-stillman/bill-gates-a-billion-dollars-wont-make-you-happy-but-this-will.html?cid=nl029week09day26_3&utm_source=newsletter&utm_medium=email&utm_campaign=Inc%20Must%20Reads&position=1&partner=newsletter&campaign_date=26022019

Gates just opened up about his happiness and what he believes holds many people back from peace of mind.

Yesterday, on his seventh Reddit AMA (that’s “Ask Me Anything,” for the uninitiated), Bill Gates took on a simple but profound question: “Are you happy?” You might think the answer is obvious. The man is a billionaire, after all. Why wouldn’t a phenomenally rich guy like Gates be happy?

And indeed, the Microsoft founder answered with a resounding, “Yes!”

But even as Gates celebrated his own contentment, he also made a point of explaining that it isn’t his billions that make him happy. Instead, it’s something much simpler that, unfortunately, is increasingly out of reach for many Americans.

Gates and science agree: Not worrying about money makes you happier

When another Reddit user asked Gates, “Do you think being a billionaire has made you a happier person than if you were just a middle class person?” he offered a forthright “Yes.”

But it isn’t the trampoline room in his house or the fact he frequently flies via private jet that makes the difference. Instead, it’s the freedom to not stress about money. “I don’t have to think about health costs or college costs. Being free from worry about financial things is a real blessing. Of course, you don’t need a billion to get to that point,” he explains.

Gates reads a lot of research so he’s no doubt aware that science is on his side on this point. Study after study shows that making more will increase your happiness about up to the point where you can stop worrying about covering essentials and absorb the shocks and setbacks life inevitably throws your way. After that, having strong relationships and more time are greater predictors of well being.

The trouble with Gates’s happiness advice

So far, Gates’s thoughts on money and happiness seem sensible and straightforward. But there’s one big complication when it comes to the relationship between finances and well being. As Gates acknowledges, getting to that magic point where you can stop worrying about money and cover basics like college and health care is becoming harder and harder for most Americans.

“We do need to reduce the cost growth in these areas so they are accessible to everyone,” he adds in his answer.

Later, he elaborates on the problem of health care costs in America. When a Redditor asks, “Is there something that is incredibly important in your opinion that hasn’t garnered as much interest generally as it should have?” he replies: “In the US I would say getting bipartisan consensus on how to reduce health care costs is a critical issue that doesn’t get enough focus.”

The numbers (as usual) bear him out. The average cost of health insurance, adjusted for inflation, has increased ninefold since the 1960s. Total spending on health care rose from $74.6 billion in 1970 to $3.5 trillion in 2017. Meanwhile, the cost of an undergraduate degree at a public school rose 213 percent just from the late ’80s.

These statistics put a grim spin on Gates’s answer. Sure, you don’t need a billion dollars to be happy. You don’t even need a million dollars. (And no, don’t write me enraged tweets–no one, including Gates, who also writes about his joy in his kids, is saying money is everything when it comes to happiness.) But it is super helpful not to worry that, if your child gets sick, you won’t be able to afford her medicine. And that sadly, is too high a bar for many Americans.

What’s to be done about this? Unfortunately, this isn’t one of those columns where I can offer you an easy takeaway, except maybe to call your congresspeople and express outrage about the situation. Because Gates and a ton of research are right: In America, it’s getting a lot harder to reach the point where money isn’t a drag on happiness.

 

CEOs shouldn’t pick their replacements

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https://www.beckershospitalreview.com/hospital-management-administration/viewpoint-ceos-shouldn-t-pick-their-replacements.html?origin=ceo&utm_source=ceoe

Image result for ceo succession

While CEOs may be intimately familiar with their companies, their opinion should take a backseat to the organization’s board of directors, according to Stanford (Calif.) University business school professor David Larcker, PhD, and researcher Brian Tayan.

In an op-ed for The Wall Street Journal, the authors note that while it was once general practice for CEOs to pick their successors, changes to corporate governance in recent years have shifted the balance of power to a company’s “independent, professional, outside directors.”

The authors claim that allowing a company’s CEO outsize influence on the hiring of their successor is a mistake because the CEO may not have the right perspective on evaluating candidates and may intentionally or unintentionally control the information presented to the board about candidates, shaping the board’s decision about those individuals.

“At the end of a long career, many CEOs are concerned about their legacy. This can bias them toward favoring candidates who will guide the company in the same direction — and in the same manner — that they themselves led it,” they write.

Instead, the authors argue that a company’s board should be responsible for the final hiring decision and use the CEO’s input to help come to that conclusion.

“Hiring the CEO is a fiduciary duty. The board owes it to the shareholders … to get it right. A subcommittee of independent directors with previous experience in succession at other companies should manage the process, with an open invitation to all board members to participate. If the board doesn’t have depth of experience in place, it can bring in an outside adviser to help,” they write.

To access the full report, click here.

 

Tenet’s patient volumes face sustained pressure

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https://www.healthcaredive.com/news/tenets-patient-volumes-face-sustained-pressure/549171/

Image result for headwinds

Dive Brief:

  • Tenet Health reported Monday patient volumes continue to slide for both inpatient and outpatient units for the fourth quarter and full-year. Looking at volumes on a same facility basis, which accounts for the sale of facilities, total admissions declined nearly 3% in the fourth quarter compared to 2017 and fell nearly 2% in 2018 compared to 2017. Still, the hospital operator beat analyst expectations for its fourth quarter revenue and earnings per share.
  • Hospital segment fourth quarter revenue fell nearly 8% to $3.8 billion from 2017 due to hospital sales last year and the California Provider Fee program. The ambulatory segment reported a modest increase in revenue to $554 million. And client losses in the Conifer RCM segment, which Tenet is looking to sell, caused revenue to dip nearly 6% compared with the fourth quarter in 2017.
  • Overall, for the full year, revenue declined nearly 5% from 2017, while net income improved to $111 million compared to a net loss of $704 million in 2017

Dive Insight:

Hospitals throughout the country continue to face a number of headwinds affecting patient volumes, particularly inpatient admissions. But Tenet reported volume declines for nearly every patient measure, including outpatient visits. 

Tenet’s competitor CHS also reported a drop in total admissions for the year, although CHS’ was much steeper.

While analysts with Jefferies said the softening of patient volumes for Tenet was of concern, the company also delivered strong payer-mix growth and increased hospital profit margins, which underscores “(management’s) progress in delivering cost efficiencies,” the investment bank’s analysts wrote in a note.

CEO Ronald Rittenmeyer told investors Tuesday the company is entering 2019 with a renewed sense of urgency around volume growth. Tenet’s chief operating officer will be tasked with improving organic growth at the system’s hospitals, he said.

Rittenmeyer also outlined the priorities for 2019, which include expanding its ambulatory business, adding new physicians and improving operations to win over patient loyalty. He added the company will look to develop its brand image by delivering the “same unified message” in advertising in its markets around the country.

Tenet disclosed it may have found a buyer or partner for its Conifer business, though executives could not offer any specifics. “We have recently entered into exclusivity with one of the parties that has been engaging with us. While there can be no assurance that this negotiation will result in a transaction we are very pleased with this progress,” Rittenmeyer said.

Tenet also released its guidance for 2019. It expects to generate revenue between $18 billion and $18.4 billion while its window for net income is expected to be between $15 million and $115 million.

Rittenmeyer called 2018 “a year of significant change for the company,” and pledged “additional progress in each of our business segments in 2019 in line with our plan to deliver long-term sustainable growth.”