Innovating for More Options
Royal College of Physicians of Ireland Oliver O’Connor
28 November 2012
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Health Spending – unsustainable?
The Malthusian Vision
• Spending is growing too fastrelative to income
• We will have more older people needing more care
• We will have more people with chronic diseases
• We will have new technologies that cost more
• So – it will all come to some crisis
• We may be in the crisis already
• It will bankrupt us
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OECD: Health spending up 4.5% GDP in 40 years
Average health spending as a share GDP across OECD countries
9.7
10.0
9.0
Private expenditure Public expenditure
7.8
7.5 6.9
6.6
Share of GDP (%)
5.2
5.0
2.5
0.0
1970 1980 1990 2000 2008 2010
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What factors drove health spending growth?
• Income growth: 25% - 50%
• Technology: 28% – 58%
• Ageing: 6.5% - 9%
• Price increases: 5% - 18%
• Defensive medicine – negligible
– Source: OECD, ‘Value for Money in Health Spending’, 2011
- Very hard to estimate
- In Ireland’s case, staff levels +37% 2000-09 and and pay
costs +21%, 2005-09
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But spending growth now reversing for some
Average health spending as a share GDP across OECD countries
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%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
-2.0
EU27 Average
Netherlands
France
Germany
Denmark
Austria
Portugal
Belgium 2
Greece
Spain
Sweden
United Kingdom
Italy
Ireland
Slovak Republic
Slovenia
EU-27
Finland
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Malta
Luxembourg 3
Hungary
Czech Republic
Cyprus
Bulgaria
Ireland 9.2%
Poland
Lithuania
Latvia
Estonia
Romania
doi: 10.1787/9789264183896-en
Switzerland
Serbia
Norway
Where we are now: Health as % GDP
Iceland
Public
Private
OECD (2012), Health at a Glance: Europe 2012, OECD Publishing.
Residual

Where is health spending going?
• Three views
– OECD 2006 – out to 2050
– OECD 2009 – out to 2025
– IMF staff 2012 – out to 2030
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1: OECD 2006 estimated Health could nearly
double its % GDP
14%
Public health and long-term care spending (% of GDP)
Total: 12.8%
12%
3.3%
10% Total: 10.1%
2.4%
8%
Total : 6.7%
6% 1.1%
9.6%
4% 7.7%
5.7%
2%
0%
2005 2050 Cost-pressure scenario 2050 Cost-containment
scenario
Long-term care Health care
Source: OECD 2006
“Public expenditure on health and long-term care could rise to almost double
current levels, from close to 7% of GDP in 2005 to some 13% by 2050”
- assuming that growth in... technological change remains unchanged
- “restraining this” could halve the growth amount – correct?
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2: OECD 2010 – ageing to add 1.2% GDP to Irish
health cost by 2025 (plus 1.1% on long term care)
OECD, Economic Outlook 88, quoted in National
Competitiveness Council Competitivenesss
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3: Spending growth by 2030 - IMF staff view
• Worry: costs of ageing and the economy
• More worry: we add excess cost
• ECG – excess cost growth, over and above that
resulting from demographics/ageing
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3: Ireland – the least unsustainable?
Projected increase in public health spending 2011-30, %GDP
• Average 3% extra %GDP Source: Clements, Coady and
• Ireland only 0.7% Gupta, IMF; “The Economics of Public
• Low “Excess Cost Growth” Healthcare Reform in Advanced and
Emerging Economies”
• Note … public spending only ooc@sky.com

Ireland – youngest in Europe
Share of population aged 65+, 2010
25.0
20.0
15.0
10.0
5.0
0.0
• Arguably, health spending should be relatively lower for this reason
• Ireland still has headroom to prepare for ageing (20 years behind most)
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Unsustainable? Unaffordable?
• Irish health spending not growing too fast
• Most countries health spending growth not out of control
• No country ever bankrupted by health spending
• Unlike banking/insurance, health moves slowly – a positive – so
adjustment possible
• Ireland has great advantage from young population
• But immediate challenge of adjustment and reform
• Medium term: controlled growth in health spending
• At 9%-11% GDP, with our demographics – affordable
– so long as debt servicing cost not absorbing too much
• But is it the right type of spending?
– How efficient, how effective?
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Why efficiency matters: winners and losers
• In a set budget, who gains and loses from inefficiency?
– Suppliers, providers, staff: gain
– Patients: lose (unmet needs, higher morbidity, mortality)
– Taxpayers: neutral, if budget control is kept
• What happens in an efficiency gain?
– Patients may get more services
– Taxpayers may pay less cost
– Or combination of both
– But some among suppliers, providers or staff may lose
– …in a static analysis…
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Ireland is still expensive
• “pay remains high in both the public and private sectors, adding to
costs and prices in the economy”
• “a lowering of the cost base, both public and private, would make a
significant contribution to improving competitiveness and
productivity in a fundamental way”
– Central Bank of Ireland, Quarterly Bulletin, October 2012
• Health costs high
– Staffing, consumables, drugs
• Drugs total cost per person highest in OECD (but price cuts now)
– Measures to reduce volume usage coming
• Efficiency not at achievable levels
– e.g. average lengths of stay
• Barriers to efficiency in place (fixed costs and payment systems)
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Unit wage costs still high
Central Bank of
Ireland, Quarterly
Bulletin, October 2012
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OECD 2011: near 5% GDP efficiency gain
possible for Ireland - €8bn worth
OECD: Going for Growth, 2011
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Explanation of method
• “Potential savings represent the difference between i) a
scenario where public spending and life expectancy gains
would increase at the same pace over the next decade as
over the decade 1997-2007 and ii) a scenario where
countries would achieve similar health improvements
with lower public spending by moving towards the
efficiency levels of best-performing countries”
• Calculation highly influenced by high health spending growth
1997-2007
• Limitation on spending therefore delivers some relative
efficiency gain
• But how practically to get to perform at the level of the most
efficient?
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Example from health insurance cost comparison
19 Jan 2011: VHI released comparative data to illustrate its costs were lower
than US costs (and health utilisation), based on a survey by the International
Federation of Heath Plans
*
*
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Hospital day costs
Place VHI costs beside the other international comparisons in that 2010 IFHP
survey:
Irish Public VHI –
Hospital $1,050 -
Charge $1,350
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Hip replacement
VHI
Source: International Federation on Health Plans, 2010
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UK NHS unit costs much lower
€ Irish Casemix rates vs UK NHS Tariffs - selected orthopaedics
25,000
20,000
15,000
Ireland 2009
Ireland -10%
10,000 UK Average
5,000
0
HIP REPLACEMENT + CCC HIP REPLACEMENT - CCC KNEE REPLACEMT +CSCC KNEE REPLACEMT -CSCC
Caveat: Casemix a post-hoc averaging of cost; not very precise
Patient level / procedure level costing needed
Exchange rate €1=£0.80
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If we did these four operations at UK rates
Costs and savings
60,000,000
€
50,000,000
40,000,000
30,000,000 IRL -10%
UK Cost
20,000,000 Saving
10,000,000
0
HIP REPLACEMENT + HIP REPLACEMENT - KNEE REPLACEMT KNEE REPLACEMT -
CCC CCC +CSCC CSCC
Total cost savings / efficiency gain: €34m
Data used to illustrate; caveats needed
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Circulatory System Casemix Rates (2009)
Top Ten by Unit Cost
Procedure No. Cases Cost €
CRDC VALV PR+PMP+INV INVES+CCC 33 56,927
OTHER CARDTHOR/VASC PR+PMP+CCC 56 47,660
IMPLNTN/REPLCMNT AICD TTL+CCC 82 46,577
AMPUTN CIRC SYS-UP LMB&TOE+CCC 76 44,292
CRNRY BYPSS+INV INVES+REOP/CCC 68 42,924
CRDC VALV PR+PMP+INV INVES-CCC 19 38,320
CRD VLV PR+PMP-INV INVES+CCC 205 38,178
MJR RECONSTRC VASC PR-PUMP+CCC 241 35,232
INFECTIVE ENDOCARDITIS +CCC 35 30,836
OTH CARDTHOR/VASC PR+PMP+SMCC 48 30,610
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Circulatory System UK Tariffs (2011)
Top Ten by Unit Cost
Procedure Rate €
Implantation of Prosthetic Heart or Ventricular Assist Device 37,551
Other Complex Cardiac Surgery with Percutaneous Coronary
10,486
Intervention, Pacing, EP or RFA
Other Complex Cardiac Surgery with Catheterisation 10,343
Major Complex Congenital Surgery 8,802
Single Cardiac Valve Procedures with Percutaneous Coronary
8,562
Intervention, Pacing, EP or RFA
Single Cardiac Valve Procedures with Catheterisation 8,406
Other Complex Cardiac Surgery and Re-do's 7,862
Complex Congenital Surgery 7,569
Single Cardiac Valve Procedures 7,239
Coronary Artery Bypass Graft (First Time) with Percutaneous
7,194
Coronary Intervention, Pacing, EP or RFA
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Circulatory System Casemix Rates (2009)
Top Ten by Total Cost
Procedure Cases Cost € Total Cost €
HEART FAILURE & SHOCK - CCC 4,175 5,155 21,522,125
CHEST PAIN 12,948 1,596 20,665,008
CRC DSRD+AMI-INVA INVE PR-CCC 2,953 6,320 18,662,960
ARRHY, CARD & COND DISDR -CSCC 6,013 2,470 14,852,110
INTERVENTN CORONARY PR+AMI-CCC 1,211 11,736 14,212,296
HEART FAILURE & SHOCK + CCC 1,173 11,718 13,745,214
CRC DSRD-AMI+IC IN PR -CSCC 2,751 4,991 13,730,241
CRNRY BYPSS-INV INVS+REOP/CSCC 433 27,317 11,828,261
SYNCOPE & COLLAPSE - CSCC 5,316 1,874 9,962,184
ARRHY, CARD & COND DISDR +CSCC 1,515 6,406 9,705,090
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OECD developing price/volume comparisons
“Explaining differences in hospital expenditure across OECD OECD, Joint session of the meetings of
countries: the role of price and volume measures “ Health Accounts Experts and Health Data
Correspondents, 11 October 2012
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Public sector cost strategies
• Staff
– HSE direct pay and pensions cost 40% but really 70%
– A lot of staff costs are fixed not variable, so use differentiated
strategies to address quasi-fixed costs
– Staff levels
– Appropriate mix and deployment of staff
– Rates of pay
– Non-core pay
– Pensions
– Non-HSE staff costs
• Supplies
– Achieve lower drug cost – good agreement now
– Achieve lower supplier / procurement cost – potential
• Then… performance manage
– Set high efficiency-clinical quality goals
– Very detailed data for clinical care/resource management together
– Measure and manage
– People who can do it and incentives aligned
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Quick notes: efficiency gains and technology
• New technologies both costly and beneficial
• HTA measures cost-benefit for the patient
• Ideal is that new technologies would also deliver efficiency
gains for payor (HSE/insurer/taxpayor)
– help reconfigure the method of care or clinical pathways
– reduce hospitalisation / lengths of stay
• Ideal collaboration: not to leave the public sector to
extract cost or make reforms but partner with it
• Risk-share by provider?
• Clinicians: their leadership both to achieve clinical
effectiveness and cost efficiency
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Health insurance reform – which direction?
• Publicly-stated Government commitment to
– Quasi-independent not-for-profit trust hospitals plus private hospitals
all competing for patients and activity
– Public and private insurers competing for customers
• However, protection of income and managed change for
existing public hospitals is a strong trend
– Public hospitals to earn more from insurance funding pool
– No clarity on when or how private hospitals can take part in ‘Money
Follows the Patient’ system
• Competing insurers promised, but could be
– No control over policy benefits, pricing, premium or providers
– Exemption from competition law -> not commercial
– Effectively, administrators of a State-mandated benefits package
– Supplementary insurance for minor matters only
• Dutch system, German or neither? NHS? Sweden?
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Conclusions
• Health spending not unsustainable
• Growth not out of control
• Ageing cost not catastrophic, can be anticipated and
managed
• But application of resources not efficient enough
• Real gains available to benefit patient care
• Adoption of new technologies would best also support
efficiency agenda of health payors
• Clinical leadership for effectiveness and efficiency
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