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The Costs of Caring: Sources of Growth in Spending for Hospital Care July 2005.
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Transcript of The Costs of Caring: Sources of Growth in Spending for Hospital Care July 2005.
The Costs of Caring:Sources of Growth in
Spending for Hospital Care
July 2005
2
Medical breakthroughs in medicine have contributed to longer lives…
50
55
60
65
70
75
80
Source: Centers for Disease Control and Prevention, National Vital Statistics Reports, vol. 53, no. 6, November 10, 2004
Chart 1: Average Life Expectancy in the United States1940 – 2002
Avera
ge L
ife E
xpect
ancy
in
Years
20001940 1945 1950 1955 1960 1965 1970 1975 1980 1985
1990 1995
3
$1,151$1,222
$1,310$1,426
$1,559$1,679
$0
$400
$800
$1,200
$1,600
$2,000
1998 1999 2000 2001 2002 2003
Source: Centers for Medicare and Medicaid Services, Office of the Actuary
Chart 2: National Health Expenditures (in Billions of Dollars)1998 – 2003
In B
illio
ns
…but rising national health expenditures have raised concerns.
4
Source: Centers for Medicare & Medicaid Services, Office of the Actuary
Prescription Drugs
Hospital Care
Nursing Home Care
Home Health Care
-7%
13%
33%
53%
73%
93%
113%
1999 2000 2001 2002 2003
Spending on hospital care has lagged in growth compared to other health services…
Chart 3: Cumulative Percentage Growth in National Health Expenditures, by Category 1999 – 2003
Physician Services
Cum
ula
tive P
erc
enta
ge G
row
th (
from
19
98 v
alu
es)
5
…but still represents the largest component of total growth in health care spending.
* “Other” includes dental and other non-physician professional services, other medical durables and non-durables, government public health activities, and other personal health care
Share ofSpending Growth
Source: Centers for Medicare & Medicaid Services, Office of the Actuary
Hospital Care - 28%
Physician Services - 23%
Prescription Drugs - 18%
Nursing Home Care - 4%
Other* - 15%
Home Health Care - 1%
Admin. & Net Cost of Priv.Health Insurance - 11%
Hospital Care - 32%
Physician Services - 23%
Prescription Drugs - 11%
Nursing Home Care - 7%
Other* - 17%
Home Health Care - 3%
Admin. & Net Cost of Priv.
Health Insurance - 7%
Share ofSpending
Chart 4: Share of Spending by Category, 2003 vs. Share of Spending Growth by Category, 1998 – 2003
6
Chart 5: Key Components of Hospital Costs of Care
Volume, intensity, and the rising costs of purchased goods and services contribute to increases in spending for hospital care.
Number of Services Pro
vided
Cost
s of
Goods
& S
ervi
ces P
urchased
TechnologyOther
OtherGoods &Services
LaborCosts
UseRates
PopulationHospitalCosts ofCaring
Intensity of Care
Aging
Acuity
7
Chart 6: Share of Hospital Cost Growth Explained by Number of Services Provided,
Costs of Goods and Services Purchased, and Intensity of Care1998 – 2003
The most important current driver is the rising costs to hospitals of the goods and services purchased to provide care.
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1998 – 2003, for community hospitals; Centers for Medicare and Medicaid Services, Office of the Actuary; Medical Expenditure Panel Survey
Intensity of Care- 5%
($7 B)
Number of Services Provided
43%Costs of Goods and Services
($67 B)
($55 B)Purchased52%
8
-11%
15% 10%
52%
56% 38%36%
33%
59%
39%47%
53%64%
5% 3%
-20%
0%
20%
40%
60%
80%
100%
1999 2000 2001 2002 2003
Chart 7: Trends in Share of Cost Growth: Costs of Goods and Services Purchased, Number of Services Provided, and Intensity of Care
1999 – 2003
Costs of Goods and Services Purchased
Intensity of Care
Number of Services Provided
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1998 – 2003, for community hospitals; Centers for Medicare and Medicaid Services, Office of the Actuary; Medical Expenditure Panel Survey
In past years, the increase in the demand for care has played a larger role.
Perc
en
t of
Gro
wth
Att
rib
uta
ble
to
Each
Fact
or
9
Source: CPI Data from Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average; Hospital Market Basket data from Centers for Medicare and Medicaid Services, Office of the Actuary
0%
2%
4%
6%
1999 2000 2001 2002 2003
The prices of goods and services purchased by hospitals have risen faster than more general measures of inflation.
Chart 8: Average Annual Percent Change in the Consumer PriceIndex (CPI) and Hospital Market Basket
1999 – 2003
Hospital Market Basket
CPI
Avera
ge A
nnu
al Perc
ent
Chang
e
10
Chart 9: Share of Cost Growth Explained by Key Components of Hospital Costs1998 – 2003
All Other – 8.0%
Prescription Drugs – 3.1%Prof. Liability Insurance – 0.3%
Professional Fees – 2.9%
Wages & Salaries/Employee Benefits – 37.7%
Between 1998 and 2003, growth in hospital salaries and benefits was the greatest single factor driving up the cost of hospital care.
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1998 – 2003, for community hospitals; Centers for Medicare and Medicaid Services, Office of the Actuary; Medical Expenditure Panel Survey
Costs of Goods and Services
Purchased52%
($67 B)
11
8.1%
7.4%
6.7% 6.7%
5.4%5.0%
RegisteredNurses
Pharmacists LPNs NursingAssistants
ImagingTechnicians
LaboratoryTechnicians
Chart 10: Vacancy Rates for Hospital Personnel2004
Hospitals continue to face workforce shortages in key clinical professions…
Source: American Hospital Association 2005 Survey of Hospital Leaders
Vaca
ncy
Rate
12
… resulting in rising wages and benefits for caregivers and others.
7.0%
4.4%
6.4%5.6%
3.2%
4.9%
0%
2%
4%
6%
8%
1998 1999 2000 2001 2002 2003
Annual Perc
ent
Change
Chart 11: Average Annual Rate of Change in Total Cost Per Hospital FTE1998 – 2003
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1998– 2003, for community hospitals
13
Chart 12: Factors Influencing the Number of Services Provided1998 – 2003
Both a growing population and more hospital use per person have contributed to higher service volume.
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1998 – 2003, for community hospitals; Centers for Medicare and Medicaid Services, Office of the Actuary; Medical Expenditure Panel Survey
Number of Services Provided
43%
($55 B)
Population
Growth16%
Use Rates27%
14
Our growing and aging population…
Pop
ula
tion (
in m
illio
ns)
Chart 13: Projected Population Growth, by Age Cohort2000 – 2050
Source: U.S. Census Bureau, Population Division, Population Projections Branch, Projected Population of the United States, by Age and Sex: 2000-2050
0
100
200
300
400
500
2000 2010 2020 2030 2040 2050
Aged 20-44
Aged 45-64
Aged 65+
Aged 0-19
15
Chart 14: Per Capita Personal Health Care Expenditures and Per Capita Discharges in
Short-Stay Hospitals*, by Age Cohort1999
Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Accounts data, 1999, December 2004; National Center for Health Statistics, Centers for Disease Control and Prevention, Health, United States, 2004
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Ages 0-18 Ages 19-44 Ages 45-54 Ages 55-64 Ages 65+0
0.05
0.1
0.15
0.2
0.25
0.3
Per capita personal health care expenditures Per capita discharges in short-stay hospitals
Per
Capit
a P
ers
onal H
ealt
h
Care
Expend
iture
s
Per
Capit
a D
isch
arg
es
inSh
ort
-Sta
y H
osp
itals
* Data on Discharges in Short Stay Hospitals is for ages 0-17, 18-44, 45-54, 55-64, and 65+
…is contributing to increased per capita hospital use, higher health care expenditures,…
16
Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2003, for community hospitals
100
200
300
400
500
600
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
30
32
34
36
38
40
Chart 15: Inpatient Admissions and Outpatient Visits in Community Hospitals1980 – 2003
Outpatient Visits
Inpatient Admissions Inp
ati
ent
Adm
issi
ons
(in
mill
ions)
Ou
tpati
ent
Vis
its
(in m
illio
ns)
…and rising demand for hospital services.
17
One in four Americans have multiple chronic conditions…
24%
11%
7%
4%3%
0%
5%
10%
15%
20%
25%
1 2 3 4 5+
Chart 16: Percent of the Population with One or More Chronic Medical Conditions2001
Number of Chronic Medical Conditions
Source: Adapted from Partnership for Solutions, Medicare Expenditure Panel Survey, 2001, Chronic Conditions: Making the Case for Ongoing Care, September 2004
Perc
en
t of
Tota
l Popula
tion
18
…and the number of people affected is projected to increase.
0
20
40
60
80
100
120
140
160
180
1995 2000 2005 2010 2015 2020 2025 203042%
43%
44%
45%
46%
47%
48%
49%
50%
Population Percent of Population
Chart 17: Number and Percent of Americans with Chronic Medical Conditions,*1995 – 2030
Mill
ions
of
Peop
le
Source: Adapted from Partnership for Solutions, Johns Hopkins University, Chronic Conditions: Making the Case for Ongoing Care, December 2002
Perc
en
t of
Tota
l P
opu
lati
on
*Values for 2005 to 2030 are projections.
19
Individuals with chronic conditions account for most health care spending…
Individuals without chronic
medical conditions(17%)
Individuals with chronic medical conditions
(83%)
Chart 18: Health Care Spending on Individuals with andwithout Chronic Medical Conditions
2001
Source: Adapted from Partnership for Solutions, Medicare Expenditure Panel Survey, 2001, Chronic Conditions: Making the Case for Ongoing Care, September 2004
20
…and are more likely to be hospitalized, for longer periods of time,…
0%
5%
10%
15%
20%
25%
30%
35%
0 1 2 3 4 5+0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Chart 19: Percent of the Population with Inpatient Hospital Stays,by Number of Chronic Medical Conditions
2001
Number of Chronic Medical Conditions
Perc
en
t of
Pop
ula
tion
Avera
ge In
pati
ent
Days
Source: Adapted from Partnership for Solutions, Medicare Expenditure Panel Survey, 2001, Chronic Conditions: Making the Case for Ongoing Care, September 2004
Percent of Population Avg. Inpatient Days
21
…at higher costs than the rest of the population.
$222
$666
$1,453
$2,050
$3,169
$4,542
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
0 1 2 3 4 5+0%
10%
20%
30%
40%
50%
60%
70%
80%
Chart 20: Average Annual Inpatient Spending per Person and Percent ofMedicare Expenditures, by Number of Chronic Medical Conditions
2001
Source: Adapted from Partnership for Solutions, Medicare Expenditure Panel Survey, 2001, Chronic Conditions: Making the Case for Ongoing Care, September 2004
Perc
en
t of
Med
icare
Exp
en
dit
ure
s
Annual Per
Pers
on
In
pati
ent
Hosp
ital
Sp
en
din
g
Number of Chronic Medical Conditions
Annual Per Person Inpatient Hospital Spending Medicare Expenditures
22
Source: Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention & Health Promotion, Behavioral Risk Factor Surveillance System, 1990-2002
16%18%
20%21%
24%
27%28%
7%9%
11%12%
13%
16% 17%14%
15%17%
24%22%
20%19%
19%18%
17%15%
14%13%12%
5%
10%
15%
20%
25%
30%
90 91 92 93 94 95 96 97 98 99 00 01 02
50-64
Med
ian P
erc
en
t
35-49
65+
18-34
Chart 21: Median Percent of the Population that is Obese*, by Age Cohort
1990 – 2002
The growing percentage of Americans with obesity has raised concerns…
*All respondents 18 and older who report that their Body Mass Index (BMI) is 30.0 or more.
Age
23
…because obesity is linked to higher levels of chronic disease…
0% 5% 10% 15% 20% 25%
Heart Disease
Upper gastrointestinal
Hyperlipidemia
Arthritis
Other pulmonary conditions
Hypertension
Percent of Population Treated for Condition
Normal Overweight Obese
Chart 22: Treated Disease Prevalence by Obese, Overweight and Normal Weight2002
Source: Thorpe KE, Curtis SF, Howard DH, Joski P, “The Rising Prevalence of Treated Disease: Effect on Private Health Insurance Spending,” Health Affairs – Web Exclusive, June 27, 2005; Analysis based upon authors’ evaluation of National Medical Expenditure Survey (NMES), 1987, Medical Expenditure Panel Survey (MEPS), 2002
24
$0
$500
$1,000
$1,500
$2,000
$2,500
20-24.9 25-29.9 30+
Source: Thompson D, et al., Body Mass Index and Future Healthcare Costs: A Retrospective Cohort Study, Kaiser Permenente NW Division, 1999
Chart 23: Body Mass Index as a Predictor ofHospital Inpatient, Outpatient, and Drug Costs
1998
…more use of health care resources…
Mean A
nnu
al C
ost
s p
er
pers
on
$1,631$1,794
$2,218
Body Mass Index
Drug Costs
Outpatient Costs
Inpatient Costs
* Obese, by definition, is a body mass index (BMI) of greater than or equal to 30. Overweight is a BMI of greater than or equal to 25.
25
…and increased spending on health care.
Chart 24: Additional Private Health Insurance Spending Attributable to Obesity*1987 and 2002
Source: Thorpe KE, Curtis SF, Howard DH, Joski P, “The Rising Prevalence of Treated Disease: Effect on Private Health Insurance Spending,” Health Affairs – Web Exclusive, June 27, 2005; Analysis based upon authors’ evaluation of National Medical Expenditure Survey (NMES), 1987, Medical Expenditure Panel Survey (MEPS), 2002
$0
$8
$16
$24
$32
$40
1987 2002
0%
4%
8%
12%
16%
Private Insurance Spending (in billions) Percent of Private Insurance Spending
Pri
vate
Insu
ran
ce S
pen
din
g(i
n m
illio
ns)
Perc
en
t of
Pri
vate
Insu
ran
ce
Sp
en
din
g
* Calculations based upon additional expenditures (per person) on obese adults with private health insurance, relative to normal-weight adults with private health insurance.
26
Hospitals are treating sicker patients…
-5%
-2%
1%
4%
7%
10%
13%
16%
Severity 1 Severity 2 Severity 3 Severity 4
(Least)
Chart 25: Percent Change in Share of Cases, by Severity of Illness, within Diagnostic Related Groups (DRGs)
1998 – 2000 and 2000 – 2002
Source: The Lewin Group analysis of the National Inpatient Samples for 1998, 2000, and 2002 using APR-DRGs
Perc
en
t C
hang
e in S
hare
of
Case
s by
Severi
ty o
f Illn
ess
(Moderate)
(Major) (Extreme)
1998 - 2000 2000 - 2002
27
…but the more resource intensive diagnoses are not adequately reimbursed.
0
0.5
1
1.5
2
2.5
Respiratoryinfections
Pneumonia withcomplications
andcomorbidities
Medical backproblems
Nutritional andmetabolic
Renal failure
Severity 1 (Least)
Severity 2 (Moderate)
Severity 3 (Major)
Severity 4 (Extreme)
Source: MedPAC analysis of Medicare hospital inpatient claims and cost reports from CMS, fiscal year 2000-2002
Chart 26: National Average Relative Payment-to-Cost Ratios Across and Within Selected All-Patient Refined Diagnostic Related Groups (APR-DRGs)
FY 2000 – 2002
Rela
tive P
aym
ent-
to-C
ost
Rati
o
Note: Levels represent APR-DRG severity levels for selected APR-DRGs. Severity level 1 is least severely ill.
28
4.1%
5.5%
6.4%6.1%
9.3%
8.2%
7.2%
5.8%
0%
2%
4%
6%
8%
10%
1999 2000 2001 2002
Avera
ge A
nnual G
row
th R
ate
Chart 27: Average Annual Growth Rate of Hospital Capital vs. Total Growth Rate Across All Hospital Departments
1999 – 2002
Growth in capital spending has lagged relative to overall hospital cost growth…
Source: The Lewin Group analysis of hospital cost report data - Consistent panel of hospitals reporting each year (N=4644 short-stay hospitals)
Total Growth Rate
Hospital Capital
29
7.9 8.2 8.4 8.6 8.8 8.9 9.2 9.3 9.2 9.4 9.6 9.8 9.8
8.0
0
2
4
6
8
10
12
90 91 92 93 94 95 96 97 98 99 00 01 02 03
Years
Chart 28: Median Average Age of Plant*1990 – 2003
Source: The 1994 Almanac of Hospital and Financial Operating Indicators, The 1996-7 Almanac of Hospital and Financial Operating Indicators, and The 2005 Almanac of Hospital Financial and Operating Indicators
* Average age of plant: The financial age of the fixed assets of the hospital, calculated by dividing accumulated depreciation by the current year depreciation expense.
…as reflected by the nation’s aging hospitals…
30
Chart 29: National Health Expenditures on Construction1996 – 2014*
… but expenditures on health care construction are projected to increase significantly over the next decade.
$0
$7
$14
$21
$28
$35
$42
$49
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
In B
illio
ns
* Calendar years 2004-2014 are projected data. The health spending projections were based on the 2003 version of the NHE released in January 2005.
Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Accounts data
31
Ohio State University Health System Hospitals
Technology
Computerized Physician Order Entry & Electronic Medication Administration Record
170 Hospitals in U.S. Veterans Health Administration
Electronic Health Record System
Valley Hospital in Ridgewood, NJ
Medication Bar Coding System
• Average medication turn-around time decreased by 64%
• Average laboratory order time decreased by 25%
• Medication errors decreased by an estimated 70%, on average.
• Medication errors decreased to nearly 0%, with
• Lowered costs and
• Increased efficiency
Source: Mekhjian HS, Kumar RR, Kuehn L, et al., “Immediate Benefits Realized Following Implementation of Physician Order Entry at an Academic Medical Center,” Journal of the American Informatics Association, Sept-Oct 2002; Rhonda L. Rundle, WSJ, December 10, 2001; Campbell, Newark Star-Ledger, April 14, 2004
Chart 30: Examples of Information Technology Adopted by Hospitals and Health Systems
1998, 2000, and 2004
Hospitals are implementing numerous innovations in information technology…
Impact Hospital
32
Chart 31: Spending on US Health Care Information and Communications Technology,* 2004 and 2008
….and their spending in this area is projected to increase.
Source: Datamonitor Market Research Report, US Healthcare ICT Spending Opportunities, August 2004
$0
$7
$14
$21
$28
$35
2004 2008
$26.0
In B
illio
ns
$34.1
Hospital Spending
$11.7
Hospital Spending
$15.0
* Forecasted data using a Compound Annual Growth Rate (CAGR) of 7 percent
Other Provider
and Payer Spending
$14.3
Other Provider
and Payer Spending
$19.1
33
25%
29%
32%
32%
35%
38%
44%
53%
0% 15% 30% 45% 60%
Percent of Survey Participants Citing Taskas a Top IT Priority
Chart 32: Current IT Priorities, Within Next 12 Months (2005)
Source: Adapted from Healthcare Information and Management Systems Society, 16th Annual HIMSS Leadership Survey sponsored by Superior Consultant Company, February 14, 2005
Patient safety and compliance are top IT priorities for hospitals, over the next 12 months…
Reduce Medical Errors
Promote Patient Safety
Upgrade Security/HIPAA Compliant
Replace/Upgrade Inpatient
Clinical SystemsImplement WirelessSystems
Connecting IT at Hospital & Remote
LocationsProcess/Workflow
RedesignImplement an
Electronic Health RecordTrain Personnel to
Use System
34
42%
42%
44%
50%
52%
55%
62%
0% 10% 20% 30% 40% 50% 60% 70%
Percent of Survey Participants Citing Technology as a Most Important
Application
Chart 33: Most Important Applications, Over Next Two Years (2005)
Source: Adapted from Healthcare Information and Management Systems Society, 16th Annual HIMSS Leadership Survey sponsored by Superior Consultant Company, February 14, 2005
…and hospitals plan to invest heavily in electronic health records and bar coding applications over the next 2 years.
Electronic Health Record
Bar Coded Medication Management
Clinical Information System
Computerized Physician Order Entry
(CPOE)Enterprise-wide
Clinical Information Sharing
Clinical Data Repository
Digital Picture Archiving (PACS)
35
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
Chart 34: Projected Annual Costs of Recent Technology RelatedMedicare Coverage Expansions
A single new technology can add billions to the cost of caring.
36
Despite its cost, physicians rank imaging as the top medical innovation of the last three decades…
32%
40%
41%
41%
41%
47%
48%
55%
55%
75%
Hip and Knee Replacement
Cataract Extraction and Lens Implant
SSRIs and Other Recent Antidepressants
PPIs and H2 Blockers
CABG
Mammography
Statins
Balloon Angioplasty
ACE Inhibitors
MRI and CT
*Respondents were instructed to choose 5 to 7 medical innovations (from a list of 30) whose loss would have the most adverse effects;
PPI = Proton Pump Inhibitor
Source: Adapted from Blue Cross and Blue Shield Association, Medical Cost Reference Guide, October 2004
Chart 35: Percentage of Internists Stating Loss of the Innovation Would Most* Adversely Affect Their Patients
37
…which is reflected in the expected volume growth of more advanced imaging technology.
Source: Adapted from Blue Cross and Blue Shield Association, Medical Cost Reference Guide, October 2004
Chart 36: Actual and Projected Hospital-Based Inpatient, Outpatient and Freestanding Facility Imaging Volume in the U.S.*
2002 and 2008
0
30
60
90
120
150
X-Ray CT MRI Ultrasound Other
2002
2008
-9%Percent Growth2002 – 2008 122% 133% 57% 10%
Pro
ject
ed Im
agin
g V
olu
me in
U.S
.(i
n m
illio
ns)
Estimated Cost per Procedure**
$32.12 $703.90$292.68 $103.39
*Estimates do not include imaging services provided within physician offices ** Cost estimates are calculated from the top 5 CPT codes for each technology, weighed by volume
38
Condition YearChange in Treatment
Costs
Outcome
Change ValueNet
Benefit
Heart Attack1984-98
$10,000 One year increase in life expectancy
$70,000 $60,000
Low-Birthweight Infants
1950-90 $40,000Twelve year increase in
life expectancy$240,000 $200,000
Depression 1991-96$0
< $0*
Higher remission probability at some cost forthose already treated
Most people treated, with benefits exceeding costs
Cataracts 1969-98$0
< $0*
Substantial improvements in quality at no cost increase for those already treated
Most people treated, with benefits exceeding costs
Breast Cancer 1985-96 $20,000Four month increase in
life expectancy$20,000 $0
Source: Adapted from Cutler DM, McClellan M, “Is Technological Change in Medicine Worth It?” Health Affairs, 20(5):11-29, 2001
Chart 37: The Value of Changes in Medical Technology
Overall, medical technology has significant economic and societal benefits.
*No significant change in treatment cost or minimal cost savings.