The cost of health care in America has emerged as a central issue in our current economic crisis and in the expansion of health coverage for the uninsured. Driving our National Health Expenditure (“NHE”) are many factors including the annual average increase in population of 3.2 million people per year through 2030. Births have reached a 45 year high in the most recent year reported. Elders, 65 and older are increasing by 1.6 million on average per year through 2030 and consume a much higher level of health care services than the average American. Even if per capita health care cost remained constant, our NHE would mushroom simply due to the underlying demographics.

The Congressional Budget Office (CBO) and the Center for Medicare and Medicaid Services (CMS) project the NHE will reach 17.9 percent of GDP in 2009, a dramatic increase from the 16.2 percent reported in 2007. The CBO’s optimistic GDP projections through 2015 place the NHE at 19.5 percent of GDP by 2015. Many economists differ with the CBO projections. In fact, the lessons of the Great Depression suggest GDP growth is not assured as the 1930-1932 declines of 9,8,and 13 percent have demonstrated. Certainly no one would suggest flat GDP through 2015 is out of the realm of possibility?

Herein lies the problem. Even if price controls were implemented, demographics and disease growth will continue to drive health care cost. In fact, under the CMS assumptions the NHE would rise to 26.6 percent should GDP remain flat through 2015. This level fails to consider the impact of expanded health coverage for the uninsured. As this trend line becomes evident government will be forced to accelerate the pace of change in health care reform. These changes will focus first on eliminating the profit and administrative cost associated with health care. Pay for performance will dominate the marketplace resulting in payment reductions by Medicare and insurers to eliminate regional cost differences, hospital readmission payments, and subsidies for rural and teaching hospitals.

Bundled Payments will move from the currently proposed 30 day Post Acute add-on to hospital IPPS payments to comprehensive episodic rates for physician, acute, and post acute services. Not all acute and post acute providers will survive and not all should. Over 30,000 acute and post acute providers currently serve the Medicare Program each optimizing the payment system without regard for the comprehensive care of the patient. The expansion of capitated patient population payments ( Block Payments) will result in the emergence of new delivery arrangements focusing on resource use and coordinated disease management. Winners and losers will quickly surface and those that have focused on cost effective delivery systems and outcome performance will thrive!

When health care providers are given a fixed amount of resources and held accountable for patient outcomes then you will witness the true ingenuity and excellence of the American Health Care System. Truly enlightened health care organizations such as Kaiser Permanente, John Hopkins Hospital, and Carilion Clinic are already preparing to play a leading role in caring for a defined patient population such as all Medicare Patients in a Region under a capitated Block Payment. As with most dramatic changes only through crisis will new and better solutions and models emerge. We welcome reform and its potential to favorably transform health care cost and patient outcomes.

Re-posted on the Kissito Post Acute Website

America unquestionable has the best health care system in the world. Having worked in comparative systems and been engaged in global health issues in my travels and work in 63  countries…I can say we are the best and we can be proud of it!  However, having the best system does not mean we necessarily have the best outcomes. In fact we rank 41st in average life expectancy and 33rd in infant mortality statistics. Once again these outcomes are not a reflection of our system but of the lifestyle choices we make as Americans and the lack of significant funding in the area of preventative care. This is further compounded by the fact Americans have an ingrained sense of equality that says, “The cost of health care should be the same for all people regardless of health choices and lifestyle.”

While the growth in our national health expenditure has been significant…growth in GDP has minimized its impact. For 2007 CMS reports our expenditure to be 16.2 percent of GDP or about $2.2 trillion annually. With a CBO projection of a 2.2 percent contraction in 2010 GDP we are in for a real shock in health care cost as a percent of GDP. CMS projections of the national health expenditure through 2015 would consume 27.5 percent of GDP if our 2009-2015 GDP growth rate was flat. Flat GDP through 2015 is now a very real scenario based on current indicators of economic activity. Why 27.5 percent? Are hospitals and physicians engaged in runaway inflation? Actually, it has very little to do with per capita growth in cost. Its all about demographics! Last year we hit a 45 year high in newborns with 4.3 million babies, with one in eight being clinically premature. Teenage pregnancy is on the rise after a 15 year decline. The overall population is growing and consuming health care services by 3.2 million people on average  per year through 2030. The age 65 and older population is growing by 1.6 million on average  per year. Demographics and access is what truly drives health care cost.

Health Information Technology “HIT” is a great tool….but until we take the billions of proposed economic stimulus dollars being allocated to HIT and spend it on preventative health and establishing a single payer system ,which sets limits on the services available, we will continue to experience dramatic health expenditure growth. We need to engage in a brutal societal confrontation of the facts…..what can we expect from our health care system and what can we afford? I am optimistic in the face of crisis we as a great nation will make the right choices. Furthermore, once we make these choices like Iceland, Norway, Canada, and Australia have already then we can achieve their status as number 1-4 in the Human Development Index. Incidentally, these four countries maintain an average GDP health expenditure of 9.3 percent. Wow….better outcomes with a $994.5 billion annual reduction in our national health expenditure. Let the great debate began!

Having managed Hospitals and Nursing Homes for 29 years I have conversed with thousands of patients and residents. I can assure you the one universal truth in Nursing Home care is no one voluntarily wants to be in a Nursing Home. Despite this truth over 1,000,000 of our Elders are institutionalized at a per person cost according to a MetLife 2007 survey of over $77,000 annually. Growth in State Medicaid funded Nursing Home cost has been one of the principal factors in State Budget deficits and has fueled the current request for $87 billion in Federal Matching Payments under the $875 billion Economic Stimulus Plan.

Now….here is the hidden secret. America is one of the few countries which institutionalizes its Elders. Having traveled to 63 countries, one of my more interesting visits is to the local Hospital and Nursing Home. I am generally met with blank stares when I describe what I mean by a Nursing Home. This is because most of the world would never consider institutionalizing a member of their family unless the conditions were acute in nature.

I believe Americans would likewise care for our Elders at home if the support structure existed to do so. However, America has tragically gone from a place were one wage earner could support a family to requiring two wage earners in a family. Today, the support structure does not exist to care for our Elders at home. Recognizing this a number of innovative programs have emerged to fund and support family and community based initiatives to care for our Elders.

The most promising of these are the Federal and State funded Cash & Counseling programs which redirect funding from institutions to the Elder consumer who can then compensate family members, friends, or service agencies to provide the care needed to remain at home. These programs have successfully taken thousands of Nursing Home residents and returned them to communities across America. In the second year of implementation in Arkansas Nursing Home admissions declined by 40 percent!

Cash & Counseling programs have reduced the growth in state Medicaid spending and been proven over the last 10 years to significantly reduce the cost of care for our Elders. But most importantly the Elder remains in control of their life and the family unit is maintained. Everyone wins as costly institutional care is avoided and funds are made available allowing Elders and families to remain at home.

So why have Cash & Counseling programs failed to proliferate? The national health expenditure for Nursing Homes in 2007 is reported to be $131.3 billion with over 18,000 facilities licensed in America. This represents a very powerful individual and Political Action Committee presence in Washington who has contributed millions of dollars to Congressional Campaigns. As Congress and the President work on the $875 billion Stimulus Plan, organizations such as the American Health Care Association  are lobbying on behalf of Nursing Homes . These lobbyist are seeking funding to put 100,000 people to work in the next 60-180 days to build new Nursing Home capacity. The Stimulus Plan already includes $87 billion in State Medicaid funding because cash strapped states like California would otherwise be unable to  pay for Nursing Home care.

America has a unique opportunity to address a number of pressing social issues such as caring for our Elders. Cash & Counseling offers what families and Elders want while reducing the $131.3 billion price tag of Nursing Home care. Allowing Congress and the American Health Care Association to build new capacity is simply irresponsible when States can not afford to fund the cost of care of the existing capacity. True health care reform seeks new models of care such as those offered by Cash & Counseling and certainly would not expand a system which is outdated, unnecessary, and unfundable.

My wife Ana and I have been blessed with twins! The boy will be named Samuel and we will call the girl Aleezah. Twin births by definition have higher risk factors so we are comforted to be in America where we have access to the best maternal and child health care system in the world. At week 34 of the pregnancy Samuel was found to have lower than expected levels of amniotic fluid, resulting in Ana’s admission to Carilion Clinic’s Roanoke Memorial Hospital in Roanoke,Virginia.

Living in the hospital brought new perspectives to my 29 years of acute and post acute health care management. The experience demonstrates how truly privileged we are to live in America. The skill and professionalism of Carilion’s nurses and physicians, like those across America, brought comfort and peace of mind at a time of concern. We were further reassured by the presence of Carilion’s 60 bassinet Neonatal Intensive Care Unit “NICU” and it’s staff of 9 Neonatologist.

On the eve of week 36 while inquiring about the possibility of a tour of the NICU we were surprised to learn all of the NICU bassinets were full. In fact new cases would be diverted to out of area hospitals. Considering the relatively small 292,000 population of the Roanoke Metropolitan Statistical Area, it seemed unusual to have the NICU operating at capacity. But then again, all of the maternal and child health numbers appear to be surprising these days.

The Centers for Disease Control recently reported the number of births in 2006 was the largest in 45 years with 4.3 million new American babies. Teenage pregnancy is also on the rise with reported increases for the first time in 15 years. As the national health expenditure reached 16.2 percent of our GDP in 2007 we can only assume the rise in births was a contributing factor. In fact, maternity care has a major impact on health care spending as it represents the most common cause for hospitalization.

With one in eight babies deemed to be clinically premature the cost of maternal and child care is staggering. In 2001 a premature baby cost $41,610 and a full term baby cost $2,830 in the first year of life. In 2004 the cost of hospitalized mothers was estimated to be $37.3 billion. Combined mother and child care soars to $87.2 billion when adjusted by the Bureau of Labor Statistics December 2008 medical inflation index. With birth rate increases and a growing population America will face continued cost escalation for the care of mother and child.

With the most sophisticated health care delivery system in the world and the financial resources to support it, how then, could the United States rank 33^rd in Infant Mortality? While Infant Mortality in most countries is a reflection of the health care delivery system, in America it is a mirror of the choices we make! Maternity professionals across America have long know mothers, particularly teenage mothers, who continue to smoke, consume alcohol, and participate in the use of illicit drugs during pregnancy are far more likely to have premature births and distressed babies. Health care cost is out of control for a reason….America’s population is becoming increasingly unhealthy.

The practice of health care is a process in which professionals seek the root cause of a problem. Simply treating problem symptoms fails to cure the patient. A national health expenditure of 16.2 percent of GDP is the symptom of an unhealthy population. The root cause is the bad choices we as Americans make. Health Care reform is not about Tax Policy or Payment Systems….it is about holding people accountable for the choices they make. The real solutions to health care reform include health insurance indexing, education, and preventative Care.

Similar to the rate indexing of life insurance based on actuarial tables of life expectancy, those who make unhealthy choices must pay more for health insurance than those who adhere to healthy guidelines. When there are consequences for the choices we make, health care cost will decline. Further declines in health care cost as a percentage of GDP can be achieved through the transfer of funds from symptom management to preventing the problem in the first place through health education and preventative medicine. The health care system has the excesses within it today (see related Posts on this Blog) to shift meaningful amounts of resources immediately into education and prevention.

President Obama and Congress have a unique opportunity to focus our scarce resources on health awareness and disease prevention. This is not an unrealistic or purely academic solution as it has already been achieved in Iceland, Norway, Canada, and Australia. These four countries represent the worlds top positions in the Human Development Index, while expending on average 9.3 percent of their countries GDP on health care. Had America embarked on a similar course in 1965 when the Medicare and Medicaid programs became law we too may have achieved a national health care expenditure of 9.3 percent with it’s resulting cost savings of $994.5 billion per year!

     The United States ranks surprisingly low in each of these indicators given the disproportionate share of GDP we spend on health care. We rank 41st in Life Expectancy (2006), 33rd in Infant Mortality Rate (2007), 33rd in Under Five Mortality Rate (2007), and 15th in the HDI (2006 published in 2008). Despite the poor performance in outcomes the U.S. expenditure for health care represented 16.2 percent of GDP in 2007, the highest level in the world.

     Countries ranking in the top four in the HDI (Iceland, Norway, Canada, and Australia) spent from 8.8 to 9.7 percent of their GDP (2006) on health care with an un-weighted mean of 9.3 percent. The U.S. Department of Commerce has forecasted 2008 GDP to be $14,413 billion based on a final analysis of the third quarter. Had the U.S. expended the same average percentage of GDP as the top 4 HDI nations we could have reduced our national health expenditure by $994.5 billion.

     The Obama Administration may be correct in noting Health Care Reform could play a pivotal role in addressing the nation’s current economic condition. While any reduction in the percentage of GDP allocated to health care would occur over time, each percentage point represents $144 billion in savings. In subsequent posts we will comment on realistic proposals to achieve dramatic decreases in our national health care expenditure.

     The dilemma of course with any such reduction is the impact on current employment. To reduce even 1 percentage point from the GDP expenditure and assuming 50 percent of each health care dollar represents labor costs…then at an average salary of $50,000 over 1.4 million jobs would be lost. To realize a GDP expenditure of 9.3 percent would entail the loss of 9.9 million jobs under these assumptions.

One controversial CBO budget option addresses Medicares payment for Post Acute services. Under the CBO option Hospitals would become the gatekeeper of all Post Acute care. Hospitals would receive a separate payment for Post Acute care or a combined Acute and Post Acute payment. Under this proposal, Acute Hospitals would replace Medicare as the payor of Post Acute services. Presently, Medicare payments cover Post Acute care in one of four settings: Long Term Acute Care Hospitals “LTAC’s”, Inpatient Rehabilitation Facilities “IRF’s”, Skilled Nursing Facilities “SNF’s”, and Home Health Agencies “HHA”.

While appearing to place an unfair burden on Acute Hospitals, the proposal envisions hospitals becoming sophisticated purchasers of services and profiting from prudent management.  CMS has long argued the existence of unwarranted cost variations for similar treatments in the four Post Acute settings. Medicare payments for Post Acute care have grown dramatically reaching $45 Billion in 2007. Post Acute payments now account for 15 percent of each Medicare dollar and represent a significant potential for cost savings. The bundled payment proposal could save $18.6 Billion in the period from 2010-2019 according to the CBO.

Our experience at Kissito Post Acute suggests a Medicare Only Certified Skilled Nursing Facility coupled with Home Health has the ability to manage most hospital discharges requiring Post Acute care.  This model demonstrates significant cost savings when compared to similar services in the LTAC/IRF setting. We can expect the Obama Administration will accelerate the CBO proposal for implementation in 2011 bringing about fundamental change in the way Post Acute care is delivered and paid for in the United States.

Hospitals and Post Acute providers that collaborate in common patient assessment instruments, EHR, and cost-effective service networks will benefit through these changes. Those seeking the status quo and relying on the more costly LTAC/IRF models of care will be greatly challenged during this transition.