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My Two Cents On Health Care Reform

Commentary By Keith Bernard

CaribWorldNews, NEW YORK, NY, Tues. Sept. 15, 2009:  It is well publicized that the population of the United States would be aging rapidly over the next decade. This means that the baby-boom generation would be over sixty-five and entitled to Medicare.

In 2002, David Walker, Comptroller General of the United States, commented that, `As the 76 million baby boomers born between 1946 and 1964 become elderly, Medicare, Medicaid and Social Security will nearly double as a share of the economy by 2035.`

However, aging in itself does not put significant stress on the health system. In an analysis by Bradley Strunk and Paul Ginsburg, the authors concluded that, `Despite widespread beliefs to the contrary, aging baby boomers are not a major driver of rapidly rising healthcare costs for Americans under 65.` Several factors explain this finding. According to an article published in Health Affairs in 2004, `The per capita spending for the elderly is increasing more slowly than per capita spending for non-elderly persons.`

Although the diffusion of technological advances is a key driver of health expenditures growth, 10 percent of the population account for 70 percent of healthcare expenditures. Half of the population is responsible for only 3% of healthcare spending. For Medicare, 95 percent of costs are incurred by people with two or more chronic conditions; by far, the most expensive Medicare patients in 1999 were elderly persons with four or more chronic conditions. Per capita Medicare expenditure increased with the number of types of chronic conditions from $211 among beneficiaries without a chronic condition to $13,973 among beneficiaries with four or more types of chronic condition.
It is clear that the elderly in the Medicare program with two or more chronic conditions such as heart disease, cancer, diabetes, hypertension and asthma accounted for nearly two-thirds of Medicare spending in 2002.

According to Kaiser Foundation, 93 percent of Medicare beneficiaries aged over 85 had one or more chronic conditions. Moreover, 47 percent of beneficiaries reported living with three or more chronic conditions.

The risk of avoidable inpatient admission or a preventable complication in an inpatient setting increases dramatically with the number of chronic conditions. Better primary care, especially coordination of care, could reduce avoidable hospitalization rates, especially for individuals with multiple chronic conditions.

Because it is possible to identify the heavy users of Medicare dollars, then it is my opinion that growth in Medicare expenditure can be controlled or reduced in two ways. One is to boost disease management programs to prevent costly complications of chronic conditions. The second is to ensure that new technologies are used because they are effective, not because they are new.

Researchers from Brandeis University suggested that `the Medicare program adopt an expanded, population-based perspective. This approach would emphasize prevention of chronic illness, early identification and aggressive monitoring of cost and quality of care.`

A study conducted by the Congressional Budget Office found that the persistently expensive beneficiaries accounted for $442 billion of the $775 billion in Medicare spending in 1997. Disease management could generate direct savings for Medicare by reducing expenditures for inpatient hospital services, in several ways. One method would be to keep beneficiaries from needing to be hospitalized, thus averting a payment for hospital stay. Another would be to reduce readmission rates.
New medical technologies are adopted more rapidly in the U.S. compared with other developed nations, thereby increasing their use and costs. According to a RAND Corp. study, new medical technology is likely to further inflate future Medicare costs, posing a greater financial risk to the program. If half of the patients with new cases of heart failure or heart attacks received the new implantable defibrillators, elderly healthcare spending would rise by $14 billion in 2015 and by $21 billion in 2030. This increase would amount to almost 4% of total spending.
Medicare introduced its prospective payment systems in 1983 to curb utilization of medical technology, but providers have learned to maximize profits under the 15 such systems. According to a report conducted for MedPAC by Project HOPE, Medicare should adopt cost-effectiveness analyses for making prudent pricing and coverage decisions. Similar to those outside the United States, manufactures are used to setting prices cognizant of budget constraints because the purchasers are examining the cost per quality-adjusted life-year offered by new technology relative to existing therapies.
Medicare is the largest single buyer of medical services that include the use of medical technology. As such, the program, like any big purchaser, should be able to demand the best technology for significant discounts from providers. Therefore, Medicare should spend more money to improve its technology assessment process to assist physicians in limiting inappropriate use of medical advances. The Project HOPE report noted that the CMS `has a limited capacity to conduct clinical effectiveness research or to evaluate the impact of its payment and coverage policies on use and outcomes.`
Medicare has had much success in controlling costs, yet it needs to collaborate with other large health insurers in their demands for quality, low-priced healthcare services. These actions are inevitable given the fact that the CMS estimates that health spending between 2006 and 2015 will grow at an average annual rate of almost 7.2 percent (2.3 percentage points faster than average annual GDP growth), and that total spending in that period will be about $30.2 trillion.

Moreover, according to the Kaiser Foundation, if we began next year to hold health cost growth to current projected growth rate of GDP (i.e., slowing growth in health costs to an average of 4.9 percent annually starting in 2007), we would need to lower health spending by over $3 trillion between 2007 to 2015.

These savings would represent about 10.8 percent of projected total health spending over the period, or an average annual reduction of about $340 billion relative to projected level of spending.

In conclusion, notwithstanding the politics, the Obama administration and Congress could reduce healthcare costs significantly because the heavy users are identifiable and their healthcare expenses are controllable. Moreover, given the amount of historical health data on this demographic via the Centers for Medicare and Medicaid Services, we would be able to utilize costs benefit analysis optimally.  

EDITOR`S NOTE:Keith Bernard, MPA, is a credit analyst with B.C. Ziegler and Co., and was a 2007 delegate to the International Health Leadership Programme at the Judge School of Business, Cambridge (UK) University.