April 6-8,
2005
Chicago
Hyatt Regency, McCormick Place
So is Bradley Strunk. Mr. Strunk is a health care researcher for the Center for Studying Health System Change, a nonpartisan think tank in Washington D.C. that was started with a grant from the Robert Wood Johnson Foundation to study trends and change in the health system.
Strunk is also the opening keynote presenter for Council’s Focus Health Care Forum, coming to Chicago April 6-8, 2005. Focus is Council’s third industry event created to offer solutions to the current spiraling crisis in health care costs. With 26 information-packed sessions presented by 38 leading employers and subject matter experts, it will reveal proven strategies for getting a handle on health care costs. Click here for more information or to register.
In an interview with Council on Education in Management, Bradley Strunk shares some of the items on The Center for Studying Health System Change’s research agenda and their thinking on cost drivers in the health care industry.
Council: What are some of the primary objectives of the Center for Studying Health System Change right now?
Strunk: Our mission is to analyze changes in the American health care system, changes in the financing, organization, and delivery of care and the effects that those changes have on people out there across the country. After we work to understand those changes, we then communicate those changes to decision-makers in the health care system, as well as to policy makers, who are really our primary audience, particularly federal decision makers. [The Center] is also focused on state-based policy and other decision makers around the country in the health care system as well.
We’re a nonpartisan organization, so we don’t necessarily take policy positions, our goal is more to provide objective, incisive information about the kinds of issues that folks in the administration and in Congress need to know about so that with that information they can then make hopefully good decisions.
Council: What is the history of your organization? How did it come to be?
Strunk: [The Center for Studying Health System Change] was started about ten years ago; through a seed grant from the Robert Wood Johnson Foundation. The Foundation saw that there wasn’t a group tracking how health care was changing. A great deal of change came as a result of the Clinton health care reform effort. There was a recognition within the Foundation that health care was changing very rapidly across the country, and there wasn’t a group in Washington following those changes very closely. They decided to create a new group whose mission it was to track that kind of information.
Council: What projects are you personally working on in 2005?
Strunk: The largest portion of my time is spent looking at health care cost trends. We do a study every year looking at the costs that underlie private health insurance. We’re trying to understand why private health insurance premiums are rising as rapidly as they are. I also spend a lot of time thinking about the health insurance industry, looking at trends in health insurance coverage, offerings that are offered in the marketplace, and along with some colleagues tracking what’s happening with Consumer Directed Health care (CDHC), Health Savings Accounts (HSAs), as well as other aspects of the managed care industry, such as relationships between providers and the insurance industry; the balance of power.
Council: What are some of the trends you have observed recently in the health care industry?
Strunk: Most recently we have seen a slight deceleration in health care costs; spending grew less rapidly in 2003 as compared to prior years. Even so, costs continue to grow very rapidly, far above growth in the overall economy. Based on the most recent data we’ve seen the problem isn’t going away. While growth may slow somewhat in the coming years, it is unlikely it will slow significantly, and the problem of rapidly rising premiums will continue to be a problem.
Another trend is the extent to which employers have been shifting cost. This continues to happen to a very large degree, considerably more than it did just a few years ago. Employers now view this as a necessary way to cope with those large increases, and are passing a very large portion to employees. This has a significant impact on the average employee.
Council: What’s your view on the impact of the pharmaceutical industry as a driver of health care costs?
Strunk: What we’ve seen in our own studies is that the impact of pharmaceuticals for the privately insured, it’s effect on overall premium growth, has actually come down quite a bit, compared to say the late 1990s and the first years of this decade. Back then pharmaceutical costs were growing far more rapidly than now, and had a disproportionately large effect on overall growth in health insurance premiums. In the last few years, growth in prescription drugs has come down quite a bit. It is still growing, and still growing fast, but the rate has been significantly cut.
Council: Why has pharmacy slowed down as a contributor to overall health spending?
Strunk: There are a number of reasons for this. For one, employers have increased co-pays for prescription drugs and moved to three-tier drug structures. This has been very effective in discouraging utilization of the most expensive drugs. Another factor that’s been important is a very prominent slowdown in the number of new blockbuster drugs approved by the FDA. Really it’s these new blockbuster drugs that are so expensive and contribute so much to this trend of spending on prescription drugs. Essentially the pace of innovation in the pharmaceutical industry has slowed significantly.
Council: What about the pressure on the pharmaceutical industry and on the FDA? Vioxx comes to mind.
Strunk: Vioxx was a huge drug, and it’s just suddenly disappearing, while it hasn’t affected spend trends yet, could produce a small but material drop. Certainly if other drugs in that class such as Celebrex are pulled we should see a drop in spending. Overall though, it’s hard to predict the pace of innovation going forward in this industry. At least in the past few years we’ve seen very clearly that the pace of innovation has slowed.
Council: So if pharmaceuticals are less of a factor, what’s fueling rising costs now?
Strunk: The rate of growth in hospital spending has increased. The reason for that is largely that unit prices for hospital services (not utilization) have been rising rapidly. This is in great part a result of a shift in the balance of power between insurance companies and providers. Over the last 5-7 years providers have gained considerably more clout with insurers and health plans. They have used that to demand higher payment rates.
Council: Why does the provider community now have more “clout”?
Strunk: Consolidation in the hospital industry has helped to increase their leverage. Another factor is the “managed care backlash.” HMOs were very popular, but then consumers rebelled against things like requiring prior authorizations and using primary care physicians as gatekeepers to specialist care. Consumers developed a lot of disdain for those types of practices. Enrollment in HMO plans began to fall. Since managed care came into town, the rates at which provider payment incerased were constrained. So after all these years of almost no increases, now [providers] are making up time.
Council: What about malpractice insurance? Don’t doctors and hospitals claim that the cost of malpractice suits and insurance policies is driving up health care cost?
Strunk: Malpractice insurance is really not a significant driver of growth in health care cost. Certainly it’s a reason why it’s expensive, but it’s not why health care costs grow rapidly from one year to the next. For one thing, spending on physician care is actually the slowest growing category of health care spending, so it’s not what physicians pay for malpractice insurance. Malpractice insurance could be a factor with the hospital industry, since we know that hospital costs are growing rapidly. In actuality, when you look at hospitals’ total operating budgets, [malpractice insurance] accounts for only about 1% of operating budgets. So even if those premiums grow very rapidly from one year to the next, it wouldn’t have a large impact on their total budget.
One thing that’s important to mention, the thing that is a large part of hospital budgets and spending, is wages and salaries and benefits for their workers. In the last few years there has been a prominent shortage of health care workers, particularly of nurses, and wages have grown very quickly for the past several years. Hospitals are demanding higher pay because their own operating costs have been growing rapidly, particularly because of a shortage of workers.
Council: What about inefficiencies and poor performance in the delivery of health care? Can employers really have an impact on these areas?
Strunk: I think what you’re talking about here is a long term solution. There is a serious problem with waste in the health care system. Duplication of services, overuse of services, that’s the long-run trend in growth. Things that can eliminate waste are certainly long-run, more important solutions. We need to see advances in information technology in the health care sector. Certainly the pharmaceutical industry is very advanced, but other parts of the health care sector are behind the curve. Electronic medical records, for instance, are on the minds of a lot of people, but if you look at their prevalence it’s very low. The other main way that information technology could help is to allow providers to communicate and coordinate care and to communicate evidence-based treatment protocols. Related to that is just greater development of evidence-based medicine, and of treatment protocols, to bring greater standardization to how health care is delivered.
To give you an example, one thing that’s happening is so-called pay for performance where providers receive incentive payments when they perform well on quality of care or improve their quality of care or performance to a great degree. I’ve done some research on this to show there are really good programs that can bring about the type of quality comparisons we were talking about earlier. To a certain extent, there has to be a business case for these types of programs in order for health insurers to pay providers additional money when they demonstrate high quality care. That business case I think stands on whether or not employers are supportive of those efforts. In a way, employers have to be willing to pay a little extra to reward providers, and support from the employer community for programs like that is certainly a way that employers can participate in this process. Bridges to Excellence, a program initiated by GE, is one great example of this, However, there are a lot of models for this type of “pay for performance. In the Bridges to Excellence model the incentives go directly from the employer community to the provider. Under other models health plans pay providers. In both cases, employers getting involved and being supportive is very important.
Council: What about HSAs and HRAs, and the whole area of Consumer Directed Health Care (CDHC)? Do you think these programs can be effective in reducing spending on health care for the long term?
Strunk: There is certainly a lot of emphasis being put on them. The evidence to date shows there is little interest in the employer community. These programs have a chance, yes, but some things have to happen. The most important thing for them to be successful in the marketplace is greater information for the patient/consumer who has to navigate the healthcare system. Consumers must be able to make comparisons of quality between providers and comparisons of cost. They need to be able to know which hospital in their community is less expensive so they can make meaningful comparisons. When you have a product [like CDHC] that puts so much responsibility on the patient to make decisions it’s necessary to give them the tools to make those decisions. Certainly there are exceptions, but the tools in general are still in the early stages. Growth in these kinds of products and enrollment will depend a lot on information and how that develops.
Council: Would you agree that consumers have some of these tools for decision making when it comes to pharmacy?
Strunk: Well, when it comes to information about their products, they are certainly the furthest along.
Council: Is it realistic to say that such decision making tools are possible when it comes to comparing providers and hospitals, and that consumers could use these tools effectively?
Strunk: Yes, but it has a long way to go, a lot of barriers to overcome, that’s sort of why at least in the short term they won’t gain significant market share. As much as the pharmaceutical industry has advanced in relation to other parts of the health sector, pharmaceutical spending is only 20% of total health care spending. The real dollars are associated with hospital and physician care. Getting information about hospitals and physicians, being able to compare on price and quality really is important.
April
6-8, 2005
Chicago
Hyatt Regency, McCormick Place
Group
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