US Healthcare System Presentation PDF

US Healthcare System Omar F. Attarabeen, PhD  Active Learning 2 Do we have the best healthcare? Work in groups. Explain your position by citing three pieces of evidence or examples. How much do...

US Healthcare System Omar F. Attarabeen, PhD  Active Learning 2 Do we have the best healthcare? Work in groups. Explain your position by citing three pieces of evidence or examples. How much do you think the total healthcare annual spending is per person in the US and elsewhere? How much is too much? How much is too little? How much should it be on average? Are we spending too much, too little, or just as much as we should? How much do you think the total healthcare annual spending is per person in the US and elsewhere? Factors to think about when answering this question: Quality of life 1. Luxembourg 7. Iceland 2. Netherlands 8. Austria 3. Denmark 9. Norway 4. Oman 10.Sweden 5. Switzerland 11.Australia 6. Finland 12.United States How much do you think the total healthcare annual spending is per person in the US and elsewhere? Factors to think about when answering this question: Average Life Expectancy for men and women 1. Hong Kong 85.63 8. Singapore 83.86 2. Japan 84.85 9. Spain 83.80 3. South Korea 84.43 10.Réunion 83.67 4. Polynesia 84.19 11.Malta 83.47 5. Switzerland 84.09 … 6. Australia 84.07 … 7. Italy 83.87 48. United States 79.46 How much do you think the total healthcare annual spending is per person in the US and elsewhere? Factors to think about when answering this question: Quality of Healthcare, [based on several factors including 1) care process, 2) access, 3) administrative efficiency, 4) equity, and 5) healthcare outcomes] Country Rank Sweden 6 (tie) Britain 1 Switzerland 6 (tie) Australia 2 Germany 8 Netherlands 3 Canada 9 New Zealand 4 (tie) France 10 Norway 4 (tie) United States 11 How does health spending in the U.S. compare to other countries? 2022 Data. (It is >$15,000 currently) Per Capita Out-of-Pocket Expenditures, 1970-2022 How does health spending in the U.S. compare to other countries? Health expenditures as percent of GDP, 1970-2022 Paradoxes of the U.S. Health Care System Highest health care standards – Professional and facility licensures – Professional and facility certifications – Drug and medical device testing Most advanced technology available U.S Healthcare Paradoxes. 11 ~ 17.3% of the GDP in 2022 Current US healthcare spending surpasses all other countries 26 million are without health insurance (2022 Data) Additional few millions are underinsured Current system is inflationary wasteful and unfair How does health spending in the U.S. compare to other countries? The U.S. spends roughly twice as much per person on healthcare compared to other wealthy countries. Is there something wrong with how we spend money on healthcare? Maybe yes, because the more money spent does not seem to be linked to higher quality of life, higher life expectancy, or higher quality of healthcare. Maybe no, because each country has unique political, economic, and social attributes that contribute to its spending. Maybe the answer is not simply yes or no. Healthcare in the US Fragmented system Not very straightforward, you should “research” to find out if you are eligible for certain insurance plans. Highly individualized At one point in time, you may have no insurance. At another point in time, you may have two insurance plans. Getting insured may require you to submit applications, provide evidence, and sometimes have interviews (Department of Social Services) So many policies, laws, and guidelines (think of ACA) Time is an important factor. You may lose insurance if you don’t “re-submit” your application. Healthcare in the US So many ways to get insurance, depending on. Age (e.g., Medicare) Income (e.g., Medicaid) Disease state (e.g., Medicare, Medicaid) Residence (Eligibility for insurance may depend on state of residence) Pregnancy status (pregnant women have different eligibility criteria for Medicaid compared to men or non-pregnant women) Family structure (e.g., whether there are minor dependent in the household) Healthcare in the US Sometimes it is not easy to get insurance. Because you have a job (Really?!!!) When your job does not provide insurance, but income is not high enough to allow you to buy private insurance. Another example: international visitors (e.g., students, tourists) may not be eligible for certain insurance plans. Because they are “visitors”, they may not be allowed to legally work in the US. Healthcare in the US Sometimes you are fully (or almost fully) insured (no copayments, no deductible, no premiums) when having only one insurance plan. (e.g., Certain governmental insurance plans) Whereas other times you are “underinsured” even when having more than one insurance plan Think about deductibles, copayment, co-insurance Gaps in covered services (think of formularies, prior authorizations) Limits on where you can receive healthcare (think of networks and preferred providers) US Drug Expenditures Reminder 17 Paradoxes of the US Health Care System Fragmentation of health care regulation, financing, and delivery Very high rate of medical errors A study claims more than 250,000 deaths per year are due to medical error in the U.S. (3 rd leading cause of death in the US) (https://www.hopkinsmedicine.org/news/media/releases/study_suggests_medical_errors_now_third_leading_cause_of_death_in_the_us ) Not everyone with adequate health insurance Socioeconomic and racial disparities in outcomes Incidence and Impact 19 Fatal medication errors doubled in outpatients between 1983-1993 7.6% errors occurred in outpatient prescriptions = 228 million errors in 2004 25% of elderly patients received high-risk medications Diagnostic error rates are estimated to be 10% for a variety of conditions Homework: Emily Jerry’s story. The US Healthcare System. Excess & Deprivation 20 Some patients receive too little care Uninsured Underinsured Medicaid coverage Underutilization Some patients receive too much care Insured Medicaid coverage High disposable incomes Over utilization Maldistribution 21 Population – High socioeconomic patients Better educated Better & higher paying jobs Healthcare coverage Lower percent of income to pay for healthcare Lower socioeconomic patients Poorly educated Lower paying jobs Decrease in healthcare coverage Increase the percentage of income to pay for healthcare Excess Care (Waste). 22 Six main categories 1. Overtreatment (subjecting patients to care that is unneeded, has no value, or is harmful) 2. Care coordination failures (fragmented and uncoordinated care) 3. Care execution (delivery) failures (medical errors and failure to adopt widely recognized best practices) 4. Administrative complexity (needless and often conflicting rules, regulations, procedures) 5. Pricing failures (unrealistically high prices) 6. Fraud and Abuse (Fraudulent billing and deceitful practices) It is estimated that wastes were $558-$910 billion (21%-34% of national health expenditures) annually. Public’s View 23 High Cost of Care Lack of Universal Access According to a 2023 Gallup poll, 49% of Americans have a negative view of the US healthcare system, while 35% have a positive view. 63% of Americans say the healthcare system is stressful to navigate, and 53% say they are treated more like a number than a person. The Outcomes of Health Insurance. 24 Pros Solved the problem of unaffordable health Normalized the unpredictability of healthcare expense Spread the risk over pool of enrollees Cons Created higher utilization Created higher provider charges Gaps in uncovered population(s) of patients Health Policy Overview: Public and Private Increased dependence on third-party payments for medical care due to government policies. Employers offered health insurance as a benefit to attract workers; added to negotiations by unions Wage controls excluded benefits (i.e., health insurance) Tax deductibility of health insurance benefit as an expense for employers (but not individuals) 1965: Medicare/Medicaid instituted US Healthcare Policy – A National Incremental Increase Case Study Incremental Employer mandates to provide health insurance (HMO Act) Expanded eligibility of Medicare/Medicaid (S-CHIP) Managed competition of 1993 (failed Clinton Plan) Health Savings Accounts (MMA) Comprehensive (i.e., universal coverage) Single-payer (government-run) Health care vouchers (choice and competition) US Healthcare Policy – A National Incremental Case Study, cont. Continued Dissatisfaction with Health Care System in U. S. in 21st Century expressed by Americans Patient Protection and Affordable Care Act (effort to embody core principle that everybody should have some basic security when it comes to their health care.” (President Barak Obama) Incremental Health Reform that reduces # of uninsured Americans by 32 million Provisions include: – Most individuals required to have health insurance beginning in 2014 – Health Insurers prohibited from imposing lifetime limits on coverage and prohibited from rescinding coverage, except in cases of fraud – Young adults allowed to remain on parent’s health insurance up to age 26 The Uninsured in the U.S. About 10% of the population are without health insurance. Only 7.1% of Americans with household income greater than $75,000 are uninsured Removing one of the financial barriers (i.e., being insured) does not guarantee receiving quality health care; (e.g., having insurance is not an independent predictor of getting preschool vaccinations) The Uninsured in the U.S., cont. Other barriers: System Lack of scheduling flexibility Long wait times Personal Reliable transportation Home environment Employment conflict Health education and misinformation Indemnity vs. Service Benefit Insurance. Indemnity insurance: Reimbursement of a percentage of expenses to subscribers rather than direct payment to providers The predominant form of health insurance for decades Drawbacks: Patients had to save receipts, fill out forms, and it was expensive for insurance companies to process Because of this and reimbursement on a retrospective, fee-for-service basis, costs (and premiums) rapidly increased, and companies had little ability to control it Now, providers are paid directly, which allows for cost controls (i.e., standardization, automation, negotiation of discounts) Current Insurance Trends Private insurance primarily supported and reinforced existing patterns of health services. This neglected prevention, control of communicable diseases, and care for those not covered and with high incidence of disease – poor, disabled, elderly, etc. – which became the responsibility of the public sector. This was addressed in 1965 with Medicare and Medicaid. As healthcare costs rapidly increased in the 1970s, employer groups and insurance companies desired to control reimbursement of providers and utilization of services. Until recently, quality and outcomes were not priorities. Evolution of Prepaid Prescription Drug Programs Until the early 1970s, most prescription drug coverage was only available through major medical insurance programs. – Prescription drug coverage was a small percentage of claims, and therefore a low priority. – Large number of small claims not consistent with principles of insurance and risk management. – Antitrust laws prevented pharmacists from negotiating prices as a group. The birth of Pharmacy Benefit Managers(PBM’s) The Health Insurance Industry: Structure The term “third-party payer” may suggest that there are only three parties involved, but the structure of the insurance industry is far more complicated. Stakeholders: – Patients, employees, dependents – Employer, union – Insurance companies, related industries (actuaries, underwriters, business products, etc.) – Providers (physicians, hospitals, etc.) – Government – Non-governmental organizations (accrediting agencies, universities, researchers, trade groups and professional organizations, etc.) The Health Insurance Industry: Structure, cont. Actuarial analysis - a statistical analysis of the population served, and an estimate of the necessary income to cover the estimated expenses. Estimates three expenses: 1. Cost for each type of service 2. Utilization rate (number of each type of service) 3. Administrative Necessary income to cover expenses is expressed as the cost per member per month (PMPM). The Health Insurance Industry: Structure, cont. Some (usually large) corporations self-insure rather than use an insurance company. – Most states require a restricted escrow account that guarantees payment of health benefits. – Most use an underwriter + administrative services. Principles of Risk Management The purpose of insurance is to help individuals and businesses manage certain types of unanticipated risk (e.g., premature death, serious injury). Anticipated risks are not insurable (e.g., asset depreciation). Purchasing insurance requires a known small loss a premium A trade-off for protection against a large unknown Insurance does not remove the risk of loss, but transfers part of the risk to the insurer. Principles of Risk Management, cont. Two types of risk: Pure Possibility of loss, but no gain Examples: fire, storms Insurable Speculative Chance of gain as well as loss Examples: gambling, starting a new business Uninsurable Basic Principles and Strategies of Health Insurance. Pure risk becomes insurable only if: The probability of the event can be accurately determined The event occurs irregularly on an individual basis The loss is accidental It results in a substantial loss The loss is measurable Attributable to a specific event Readily quantifiable in monetary terms The individual must have an insurable interest – to prevent loss Basic Principles and Strategies of Health Insurance, cont.. Prescription coverage: Prescription coverage provides a relatively small benefit Has a high administrative cost Prescription coverage is inconsistent with insurance principles It is not accidental Normally there is no substantial loss Why is it covered by health plans? Drug therapy can be preventive and mitigate and/or delay the expense of other more costly therapies. However, the potential benefits are not always realized. Potential Risk Management Problems Catastrophic hazard Most policies do not cover catastrophes earthquakes War Companies avoid insuring large numbers of policyholders in the same geographic area to mitigate exposure Adverse selection If one knew when a loss would occur, individuals or companies would buy insurance just before the loss or drop it when it was no longer needed - adverse selection. Adverse selection raises premiums for future policyholders. Potential Risk Management Problems, cont. Incentives to create losses - a policyholder actually gains from a loss which incentivizes the loss. Supplier-induced demand - a person paid for a service determines how often the service is provided – potential conflict of interest (e.g., physicians). Moral hazard – Decreasing the out-of-pocket loss increases the likelihood that the peril will occur. – Having health insurance encourages patients to consume healthcare services of low value that they would not otherwise use. – Overconsumption increases premiums for all. Strategies To Avoid Risk Management Problems Group policies – Spreads risk over larger population where most are healthy – mitigates adverse selection – No coverage for preexisting condition for a defined period of time - decreases adverse selection – Less expensive to sell and administer over a larger population coverage – Tax incentives no tax liability for employees decreased tax liability for employers – business expense Strategies To Avoid Risk Management Problems, cont. Coverage limitations – Coverage limitations may be placed on how much and/or how often it will be reimbursed. Coordination of benefits – Policies include a coordination of benefits provision – Claim(s) limit when coverage is provided by more than one insurance policy – A subrogation provision determines the order in which overlapping insurance plans will pay. Administration of Prescription Drug Programs Pharmacy benefit managers – Prescription drugs are a high administrative cost benefit that requires huge volumes to be cost-effective; hence, the rise of pharmacy benefit managers (PBMs). – Health plans usually “carve out” the prescription benefit to a PBM. Participating pharmacy agreement – Participating/network pharmacies contract to provide specific pharmacy services for a specific reimbursement. Preferred Pharmacies – closed networks Administration of Prescription Drug Programs, cont. Elements of a Participating Pharmacy Agreement: Three components: Dispensing fee‒A fixed amount paid for every prescription dispensed Ingredient costs‒Based on an estimate of the cost of goods sold Patient co-pay – the amount paid per prescription – defined in the contract Dispensing fee + Ingredient costs = Total cost of the prescription. Reimbursement = Dispensing fee + Ingredient costs ‒ Patient cost-sharing Administration of Prescription Drug Programs Alphabet Soup!. Actual acquisition cost(AAC) – The price that the pharmacy pays the drug wholesaler or manufacturer to obtain the drug product Average manufacturer price(AMP) – The average price received by a manufacturer from wholesalers for drugs distributed to the retail class of trade. Average wholesale price(AWP) – The list price for what drug wholesalers charge pharmacists. Estimated acquisition price(EAC) – The third party’s estimate of what the pharmacy pays the drug wholesaler or manufacturer. Maximum allowable cost(MAC) – The maximum cost that the third party will pay for a multisource drug. Wholesaler acquisition cost(WAC) - A list price for what pharmaceutical manufacturers charge drug wholesalers. Ingredient Costs Estimated acquisition cost (EAC) – Usually based on a percent of the manufacturer’s AWP, which hopefully is higher than the actual acquisition cost (AAC) paid by the pharmacy. Maximum allowable cost(MAC) - Brands with generics or multiple generics may only be reimbursed at the cost of a generic AWP - AAC = earned discount Volume (how much is bought) Early payment Trade (special deals and promotions) Gross Profit = Reimbursement - AAC Patient Cost Sharing. Shifts some of the costs of the plan to the patient; may have a “stop-loss” – maximum out-of-pocket amount after which the plan pays 100%. May also decrease utilization. Three types: 1. Copayment 2. Deductible 3. Co-insurance Three Types of Patient Cost Sharing Copayment A specified amount every time a service is received; most common May be “tiered” – Deductible – patient pays out of pocket up to a specified amount over a defined period of time Co-insurance – patient pays a specified fixed percentage of a service Administration of Prescription Drug Programs Payment Total reimbursement (plan + patient) should cover: AAC (Actual acquisition cost) COD (Cost of dispensing) Net profit Break-even cost (BEC) = AAC + COD Gross margin (GM) = Reimbursement minus AAC (should be sufficient to cover COD plus NP) Administration of Prescription Drug Programs, cont. Payment – Most plans’ total reimbursement for a prescription, however, will not exceed the pharmacy’s usual and customary (U&C) charge – price paid most commonly by private-pay patients; therefore, most plans reimburse the lower of: (1) EAC + COD, (2) MAC + COD, or (3) U&C – Some plans are shifting from paying EAC to wholesale acquisition cost (WAC) rather than the AWP set by the manufacturer – Public plans are considering using the average manufacturer’s price (AMP) – based on the actual costs of the manufacturer - instead of AWP Impact of Health Insurance: Pharmacy Impact of Health Insurance: Pharmacy Dispensing fees have continued to declined since the 1990’s while inventory costs have increased. Gross margins have decreased from 32.2% of sales to 23.2% of sales since the mid 1980’s Successful pharmacies that have survived have increased efficiency (automation) and decreased expenses and have been able to maintain a net profit around 3% of sales. Pharmacists need to control product costs volume purchasing and volume discounts overhead costs (especially for personnel). The efficient use of automation and technicians appropriately can lower operating costs. Impact of Health Insurance: Pharmacy Medicare Part D Implemented in January 2006 Mixed public – private third party The percent of prescriptions reimbursed through a PBM nearly doubled in 1990-2005 in the private insurance market from 41%->74.6% The percent of prescription reimbursed have nearly doubled since the implementation of Medicare Part D in January 2006 to approximately 90% Managed Care Organizations Managed care organizations (MCOs) assume financial risk for expenditures and have incentives to control costs and utilization of health services. Kaiser Permanente – Started by Henry J. Kaiser, an industrial contractor, to provide an entire medical delivery system for his 15,000 workers building the Grand Coulee Dam. – Workers were covered for work injuries, but could cover other care for themselves and dependents for an additional 50¢/adult and 25¢/child per week. The Health Maintenance Organization Act of 1973 required employers with >25 employees that offered a health plan to also offer an HMO-type alternative to an indemnity plan. Types of Managed Care Organizations (MCOs) The differentiating feature between fee-for-service (FFS) plans and managed care is the use of provider networks. A provider network is a group of providers contracted to supply a full range of primary and acute health care services. Four characteristics that differentiate types of MCOs - Risk-bearing - Physician type - Relationship exclusivity - Out-of-network coverage Characteristics that Differentiate Types of MCOs Risk-bearing – the amount of risk borne by the provider, which can range from full risk to no risk. Physician type – the relationship between the MCO and the physician(s). Relationship exclusivity – whether the physician provides care to patients from one MCO only or to patients from multiple MCOs. Out-of-network coverage – whether care received from a provider who is not in the MCO’s network is a covered benefit. Types of Managed Care Organizations: HMOs Distinguishing characteristics of HMOs: Generally do not provide coverage for medical care that is received out of network They place providers at risk, either directly or indirectly Capitation Risk pools Gatekeeper  HMO Provider Risks Capitation – Providers are paid a predicted cost of care for a given population for a specified period of time – Obligated to provide all needed care for that population Risk pools – A portion of payment (a “withhold”) is placed in a pool to cover claims that exceed projections – Physician and HMO share any surplus or loss at end of year Gatekeeper – A primary-care physician that must coordinate and authorize all medical services in order to be covered – Financially at risk so as to minimize unnecessary services Four Types of HMOs Staff-model HMO directly owns facilities and providers are employees. Physicians bear no risk, but are subject to utilization review; therefore may influence care. Group-model HMO contracts with large, multispecialty medical groups offering services exclusively to the HMO. Capitated Four Types of HMOs, cont. Network-model – Nonexclusive contracts with large medical groups. – Physicians bear risk, but reduced influence by HMO. Independent practice association (IPA)-model – Physicians form a separate legal entity that then contracts with MCO; the IPA shares risk with MCO. – IPA contracts with physicians on a discounted FFS basis; may or may not share some risk with IPA. – Contracted physicians usually have their own practices and can provide services to other patients and MCOs as well. Types of Managed Care Organizations: PPOs Preferred Provider Organizations (PPOs): PPOs are affiliations of providers that seek contracts with insurance plans. – Nonexclusive arrangements – Individuals are free to see any provider, but have a financial incentive to see those within the preferred network. – Providers accept a discounted FFS rather than capitation. – Providers bear no risk, but, along with the discounts, they are subject to utilization management and review to control costs. Exclusive Provider Organizations (EPOs) are a form of a PPO that strictly limits participation among providers. Types of Managed Care Organizations: Hybrid Plans Hybrid plans: Combine two or more organizational models. Point-of-service plan – patients select a provider at the time a service is needed rather than upon joining the plan. Patient accepts different coverage for in-network and out-of- network providers. Providers may accept financial risk. Increasing in popularity Patient choice Increase provide patient volume Managing the Pharmacy Benefit In 2013, ~90% of retail prescription claims were paid for, at least in part, by a third-party plan. Although not considered an MCO, PBMs (Pharmacy Benefit Managers) have many of the characteristics of managed care, including a provider network. PBMs contract with a network of pharmacies. Ethical Issues in Managed Care Anti-MCO positions Pro-MCO positions Financial incentives FFS provide financial incentives for undermine the physician’s overtreatment. Ethics of medicine are not role as advocate and patient necessarily superior to those of trust. business; plus, medicine is also a Ethics of medicine is replaced business. Physicians rarely have complete by ethics of business. autonomy, which subsumes patient Loss of physician autonomy. rights. Limits patient choice. Patients have limits under FFS as well; MCO market has adapted to add choice. Oversight and Accreditation Primarily, state insurance departments have oversight of MCOs to ensure compliance with state laws and regulations regarding issues such as financial solvency, enrollment procedures, and patient rights. Three major accrediting agencies (“voluntary”): National Committee for Quality Assurance (NCQA) Utilization Review Accreditation Commission (URAC) Joint Commission for the Accreditation of Healthcare Organizations (JCAHO) Major Accrediting Agencies 1. National Committee for Quality Assurance (NCQA) Main agency for HMOs; submit to accreditation more than any other type of MCO; accredits PPOs as well. Health Plan Employer Data and Information Set (HEDIS) provides plan sponsors a set of objective measures with which to evaluate MCOs. 2. Utilization Review Accreditation Commission (URAC) Main agency for PPOs; accredits HMOs as well. Detailed process with both on- and off-site components. PBM Services Limited networks Deeper discounts in return for increased volume. Prepare “report cards” for network pharmacies based on preselected performance criteria, which can be used to compare pharmacies. Mail service Run their own or contract out. Take advantage of economies of scale. Incentives for patients to use mail order when possible. PBM Services, cont. Negotiated discounts, generic substitution, and rebates Rebates are additional revenue from manufacturers to PBMs for placing their drug on formulary or preferred status Amount of rebate may be based on level of prescribing or market share within a therapeutic class Proprietary information of PBM that may or may not be shared with the plan sponsor by contract PBM Services, cont. Claims adjudication Standardized electronic data interchange maintained by National Council for Prescription Drug Programs (NCPDP). Used for electronic claims submission, eligibility verification, and claims adjudication. Formulary status of drug Quantity or refill limits Copayment requirement Generic substitutions or therapeutic alternatives Information for DUR PBM Services: Formularies Formularies – list of approved drugs Open - all drugs covered Closed - drugs not on formulary are not covered Incented - financial incentives to use preferred drugs Tiered co-payments Lowest co-pay for preferred drugs Higher co-pays for different levels of nonpreferred drugs Tiers (increasing order of copayment) PBM Services: Formularies, cont. Incented Tiers 1. Generics 2. Preferred brands 3. Non-preferred brands 4. “Lifestyle” drugs 5. Non-formulary PBM Services: Formularies, cont. Incented – Prior authorization (PA) program – physician must request prior approval from PBM in order to be covered; usually for non-preferred tier or below. – Step-therapy – less expensive first-line drugs must be used and shown ineffective before more expensive second-line agents are covered. – Therapeutic alternative Pharmacists are authorized to dispense other therapeutically-equivalent drugs (based on established guidelines) for the one prescribed. Therapeutic interchange (or conversion, substitution, or switch) program – physician is contacted for approval; patient may be also. PBM Services, cont. Drug Utilization Review (DUR) Review of physician prescribing, pharmacist dispensing, and patient use of drugs. Ensures drugs are used appropriately, safely, and effectively. Retrospective DUR is an educational tool to inform providers of how to improve their drug therapy. Prospective DUR is done at time of dispensing to determine if the prescription is appropriate. Cost sharing (copayment, co-insurance or deductible) Provider and patient education PBM Services, cont. Provider and patient education Physician profiling Report card on cost and quality dimensions Expenditures per patient per month (PMPM) “Benchmarks” compare physician with others Academic detailing (or counter detailing) – plan representative provides the physician with advice on how to reduce costs Patient education to change behaviors to improve health