1. Flattening the Trajectory of
Health Care Spending:
Lessons from RAND Research
Art Kellermann, MD, MPH, FACEP
Paul O’Neill-Alcoa Chair in Policy Analysis
RAND Corporation

2. Larry S. Lewin
1938-2012
• Founded The Lewin Group
• One of our nation’s most
influential thinkers about
health services for 40+ years
• Elected to the IOM in 1984, he
was awarded the IOM’s
Yarmolinsky Medal for
distinguished service in 2004
2 05/2010
A9750-2 04/2012

3. “Donna”
(1952-1987)
• 35 y.o. mother of three
• Rushed to the Med ER
via EMS after collapsing
• Comatose, severely
hypertensive with
extensor posturing
• CT revealed….
3 05/2010
A9750-3 04/2012

4. We’re number one!
4 05/2010
A9750-4 04/2012

5. International Comparison of Spending on
Health, 1980–2009
Average spending on health Total expenditures on health
per capita ($US PPP) as percent of GDP
8000 18
US
NOR 16
7000
SWZ
NETH 14
6000
CAN
DEN 12
5000 GER
FR 10
4000 SWE
UK 8
AUS US
3000 NETH
NZ 6 FR
GER
DEN
2000
4 CAN
SWZ
NZ
1000 SWE
2 UK
NOR
AUS
0 0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
5 05/2010
A9750-5 04/2012
Source: OECD Health Data 2011 (June 2011).

6. Average Health Insurance Premiums and Worker
Contributions for Family Coverage, 1999-2008
$12,680
119%
Increase
$9,325
$5,791
117%
$4,247 Increase
$3,354
$1,543
1998 2008
Employer contribution
Worker contribution
NOTE: The average worker contribution and the average employer contribution do
not add to the average total premium due to rounding.
SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2008. 6 05/2010
A9750-6 04/2012

7. Most Americans Don’t Realize How
Much They Pay for Health Care…
7 05/2010
A9750-7 04/2012

8. • National statistics on the cost of health care are hard
to place in the context of everyday life
• We analyzed what a decade of health care cost growth
did to the finances of a median-income family of 4 that
was fortunate enough to have employer-sponsored
health insurance
8 05/2010
A9750-8 04/2012

9. Families “See” Their Premium Payments and
Out-of-pocket Spending…
1999
$85 Family insurance premium
$135 Out-of-pocket spending
9 05/2010
A9750-9 04/2012

10. They Don’t See their Employer’s Share
of Their Premiums or the Share of their
Taxes Spent on Health Care
1999
$85 Family insurance premium
$135 Out-of-pocket spending
$240 Employer insurance
premium
$345
Taxes to health care
A9750-10 10 05/2010
04/2012

11. Between 1999 and 2009, Visible and Invisible
Health Spending Grew Dramatically
2009
$195
1999
$85 Family insurance premium $235
$135 Out-of-pocket spending
$240 Employer insurance $550
premium
$345
Taxes to health care
$440
Deficit spending $390
A9750-11 11 05/2010
04/2012

12. As a Result, Families Had Little Left Over
A9750-12 12 05/2010
04/2012

13. It Didn’t Have to Be This Way
$95 2009: Actual net gain in
$295 5 family income
Deficit
spending 2009: Health care spending
included $335 grows at GDP + 1%
2009: Health care spending
$545 grows with inflation
($ 400) ($ 200) $0 $200 $400 $600
A9750-13 13 05/2010
04/2012

14. If healthcare cost growth had tracked
general inflation over the decade, this family
would have had nearly $5,400 more to spend
on other priorities in 2009 alone.
A9750-14 14 05/2010
04/2012

15. What else might a family have
done with this money?
• Made two extra mortgage
payments
• Enrolled for a year of
full-time community
college classes
• Paid for four-and-a-half
months of child care for a
4-year-old
• Paid down 18% of their
credit card debt
A9750-15 15 05/2010
04/2012

16. What Did The Extra Spending Buy?
Compared to 10 years earlier, Americans got:
• 10% more MD office and same-day hospital visits
• The same number of overnight hospital stays
• 84% more MRI scans per 1,000 people; CT use (and
the associated doses of radiation) doubled
• An increase in adult life expectancy of one year—less
than half the avg. gain achieved by other OECD
countries during the same time perioid
SOURCE: ―The State of Health Care Quality 2003: Industry Trends and Analysis,‖
NCQA. November 2003.
A9750-16 16 05/2010
04/2012

17. Are We Getting Our
Money’s Worth?
A9750-17 17 05/2010
04/2012

18. In 2003, RAND Measured the Quality of
Health Care in 12 Communities
• SEATTLE
LANSING
•
• BOSTON
SYRACUSE •
CLEVELAND
• •
• NEWARK
INDIANAPOLIS
LITTLE
ORANGE
ROCK
COUNTY • PHOENIX • GREENVILLE
• •
• MIAMI
SOURCE: McGlynn et al., "The Quality of Health Care Delivered to Adults
in the United States,‖ New England Journal of Medicine. 2003;348(26).
A9750-18 18 05/2010
04/2012

19. It Found that American Adults
Get Recommended Care About
55% of the Time
Care that
meets
quality
standards
SOURCE: McGlynn et al., NEJM (2003).
A9750-19 19 05/2010
04/2012

20. You Aren’t Safe Anywhere…
Boston
Overall
Greenville Preventive
Indianapolis Acute
Chronic
Little Rock
Newark
Orange Co
Syracuse
30 40 50 60 70 80 90 100
% of recommended care received
A9750-20 20 05/2010
04/2012

21. But We’re Still #1,
Right?
A9750-21 21 05/2010
04/2012

22. Deaths from Treatable Conditions
Deaths per 100,000 population: 2006-2007*
100
80
60
40
20
0
SOURCE: Nolte and C.M. McKee, ―Variations in Amenable Mortality—Trends
in 16 High-Income Nations,‖ Health Affairs, published on line Sept 12, 2011. A9750-22 22 05/2010
04/2012

23. Between 1999 and 2008, the Rate of
Uninsured, Nonelderly Adults Rose from 17% to 20%
1999–2000 2005–2006
NH ME
WA VT NH ME
ND WA VT
MT
MN MT ND
OR MN
WI NY MA
ID SD OR NY MA
MI RI WI
WY ID SD RI
PA CT MI
IA NJ WY CT
PA NJ
NE OH IA
IN DE NE OH
NV IN DE
IL WV MD NV
UT CO VA IL MD
DC UT WV VA
CA KS MO KY CO DC
CA KS MO KY
NC
TN NC
OK SC TN
AZ NM AR OK AR SC
MS AL GA AZ NM
MS AL GA
TX
LA TX
LA
FL
FL
AK
AK
HI 23% or more
HI
19%–22.9%
14%–18.9%
Less than 14%
SOURCES: Commonwealth Fund State Scorecard on Health System Performance, 2007.
Updated data: Two-year averages 1999–2000, updated with 2007 CPS correction, and 2005–2006
from the Census Bureau’s March 2000, 2001 and 2006, 2007 Current Population Surveys.
A9750-23 23 05/2010
04/2012

24. Where Do Americans Get
Treatment When They Get Sick?
ER Docs Primary care MDs Specialists
Active physicians
(597,430)
All acute care visits
(273 million)
Acute care visits by Medicaid
and SCHIP pts. (39 million)
Acute care visits by the
uninsured
(24 million)
0% 20% 40% 60% 80% 100%
SOURCE: Pitts, Carrier, Rich and Kellermann. Health Affairs, Sept 2010
A9750-24 24 05/2010
04/2012

25. SOURCE: Kellermann, AL. Waiting Room Medicine: Has It Really Come to This?
Annals of Emergency Medicine. 2010;56(5):468-471.
A9750-25 25 05/2010
04/2012

26. Is more medical
care the answer?
A9750-26 26 05/2010
04/2012

27. Our nation wastes $750 billion per year on
unnecessary or inefficient services, excessive
administrative costs, high prices, medical
fraud, and missed opportunities for prevention.
SOURCE: Institute of Medicine. Best Care at Lower Cost: The Path to Continuously
Learning Health Care in America. Washington, DC: National Academies Press, 2012.
A9750-27 27 05/2010
04/2012

28. A System Without Brakes
• Patients
– “If its expensive, it must be better”
– “My doctor knows best”
• Doctors
– “The more I do, the more I make”
– “The less I do, the more risks I take”
• Hospitals
– “Fill every bed” (with an elective admission)
– “Perform as many procedures as possible”
• Vendors
– “Newer products = higher prices”
– “We can always make them pay”
A9750-28 28 05/2010
04/2012

29. No One Is Dealing with the
Underlying Problem – Rising Costs
A9750-29 29 05/2010
04/2012

30. There are 4 basic ways to reduce costs*
Two are bad ideas.
1. Provide the same care,
but pay less for it
2. Bluntly ration care via
government decree
* Orszag P, “How Health Care Can Save or Sink America: The Case for Reform
and Fiscal Sustainability,” Foreign Affairs, Vol. 90, No. 4, 2011, pp. 42–57.
A9750-30 30 05/2010
04/2012

31. The 3rd approach is to make
patients more cost-conscious*
3. ―Consumer directed‖ health
plans seek to engage
patients as partners in their
care by giving them more
―skin in the game‖
* Orszag P, “How Health Care Can Save or Sink America: The Case for Reform
and Fiscal Sustainability,” Foreign Affairs, Vol. 90, No. 4, 2011, pp. 42–57.
A9750-31 31 05/2010
04/2012

32. CDHPs are controversial
• Supporters assert that:
– Financial incentives cause patients to make
prudent health care choices
– Patients will take greater responsibility for their
care and seek information
“Consumer-directed coverage involves empowerment, it involves
patients taking greater responsibility and being more informed
and participating in their health care decision-making”
Devon Herrick, National Center for Policy Analysis, a Dallas-
based think tank

33. • Detractors assert that:
– CDHPs shift spending to patients without
reducing overall costs
– Information on quality and price are
seldom available
– Patients may forgo needed care, leading
to health crises and higher costs
downstream
"Consumer-driven health care is badly named, because it's
certainly not driven by consumers. It's really just shifting the cost
of health care onto the backs of patients.“
Jonathan Oberlander, University of North Carolina

34. Recently, RAND Conducted the First
Comprehensive Study of HDHPs
• 60 large employers, half offered CDHPs
• Variety of benefit designs
• Employees & dependents followed for 5
years, millions of covered lives
• Compared cost growth in first year for
families who joined an HDHP to that for
similar families who did not
• Funded by RWJF and California
Healthcare Foundations

35. CDHPs cut spending, especially those
with a deductibles > $1,000/person
Plans with Plans with
All deductibles
deductible deductible
>= $500
All deductibles >= $500 Deductibles $500-999 Deductibles >=$1,000
$500-999 >= $1,000
0%
-5%
-10%
-15%
-20%
-25%

36. There Is Some Evidence that CDHP
Participants Behave Like Consumers
Sources of 21% cost reduction
Early cost reductions
stemmed from Cost per
patients initiating episode
7.5% Number of
fewer episodes of reduction episodes
care and spending 13.5%
less per episode reduction

37. CDHP Patients Used Fewer Services Per
Episode of Care
name drugs
brand name drugs Fewer specialist
Deductibles $500-999 Fewer
Deductibles >=$1,000
visits hospitalizations
0%
-5%
-10%
-15%
-20%
-25%

38. However, They Also Reduced Their Use
of High-Value Preventive Care
Cervical
Glucose level Lipid profile
Glucose cancer Mammo- Colorectal
level screening grams screen
0
-1
Average %
reduction in -2
preventive
care: HDHP -3
versus -2.9
-3.2
traditional -4
-4 -3.9
plans
-5 -4.8
-6
The reductions occurred despite
100% coverage for preventive services

39. How cost and quality info is presented
may matter as much as the info itself
A9750-39 39 05/2010
04/2012

40. There’s a limit to what consumers can achieve
• While the well-insured are largely shielded from the
consequences of their decisions, the uninsured and
under-insured have little bargaining power
• The bulk of health care spending is generated by patients
who are too sick, scared or confused to shop around for
a better deal
Concentration of Total Annual Medicare
Expenditures Among Beneficiaries, 2001*
* Source: CBO, based on
2001 data from CMS
A9750-40 40 05/2010
04/2012

41. That’s why the 4th approach – convincing
providers to focus on value – is also
important*
4. Providers drive the bulk of
health care spending
through their purchasing
decisions and the fees they
charge. Therefore, they
must be part of the solution
to spending growth
* Orszag P, “How Health Care Can Save or Sink America: The Case for Reform
and Fiscal Sustainability,” Foreign Affairs, Vol. 90, No. 4, 2011, pp. 42–57.
A9750-41 41 05/2010
04/2012

42. RAND is analyzing various ways
payers are attempting to motivate providers
• Public reporting of prices and quality:
Providers (esp. hospitals) influenced more than
consumers. Price data may have perverse effects
• P4P: To date, effects on quality modest and mixed
• Bundled payments & ACOs: Conceptually
promising, but operationally challenging
• Medical Homes: Too early to tell; RAND and
others are currently evaluating demonstrations
A9750-42 42 05/2010
04/2012

43. New technologies have
a huge impact on health care spending
A9750-43 43 05/2010
04/2012

44. Population health isn’t getting
the attention it deserves
A9750-44 44 05/2010
04/2012

46. Foster efficient and accountable providers
• Pay for value rather than volume
• Encourage providers to apply the best
available evidence to eliminate wasteful and
inappropriate care
• Enhance patient safety
• Strengthen primary care
A9750-46 46 05/2010
04/2012

47. Engage and Empower Consumers
• Embrace cost-sharing to reduce
spending, but carefully implement it
to avoid unintended consequences
• Consumers not only need to be
engaged, they must be adequately
informed
• Focus on how cost and quality info is
provided as well as what is provided
A9750-47 47 05/2010
04/2012

48. Promote Population Health
• Although 70% of premature deaths have
social or environmental causes, < 5% of
health spending is devoted to population
health
• Even modest reductions in the level
and/or rate of obesity could generate
large downstream savings
• Communities, workplaces and families
are important sites for promoting health
A9750-48 48 05/2010
04/2012

49. Facilitate High-Value Innovation
• Can existing incentives be altered to encourage
innovators to develop drugs, biologics, devices
and techniques that reduce rather than increase
costs?
States can be valuable labs for innovation
• Can federal R&D spending be managed more
efficiently and effectively than it currently is?
• Will HIT evolve to achieve its promise?
• Will states serve as laboratories for innovation?
A9750-49 49 05/2010
04/2012

50. A9750-50 50 05/2010
04/2012

51. A functional healthcare market
• Patients
– “It’s my money. I’ll use it wisely”
– “I’m in charge – it’s my health
• Physicians
– “The better I do, the more I make”
– “The safer I am, the less risks I take”
• Hospitals
– “Safety sells”
– “Greater efficiency = higher earnings”
• Technology Developers
– “Greater value = bigger profits”
A9750-51 51 05/2010
04/2012

52. A9750-52 52 05/2010
04/2012