Medicare Crisis Spurs Healthcare Revolution At the same time that corporations are transforming themselves to deal with the threats and opportunities posed by the growing elder population, politicians and social planners are fretting over the problems they fear that this demographic tidal wave will create for pensions and for the healthcare system.
For many, the healthcare crisis is particularly frightening. This is underscored by the recent government forecast that the Medicare trust fund will be empty by 2019. However, the Trends editors dont see this as a crisis, but rather an opportunity to revolutionize a 1960s entitlement program for the 21st century. That brings us to Trend #2: Medicare crisis spurs healthcare revolution. Its important to understand that part of the perceived crisis is due to the bureaucratic use of outmoded assumptions that no longer hold true. This component will simply disappear as time passes. The other part of the perceived crisis is created by a system that is built around obsolete practices and technologies rather than an optimal mix.
Lets start by examining the flawed assumptions:
First, the fear of a Medicare crisis is based on an assumption that the elderly will be in poor health, and therefore in need of costly medical care.
However, todays generation of people in their 60s, 70s, and 80s is in much better shape than earlier generations were at these ages. Better nutrition, more effective medical treatments, and a greater awareness of the importance of exercise have all contributed to the fittest generation of senior citizens in history.
Therefore, the anxiety that society will be burdened with huge numbers of sick and disabled people of advanced age is probably based on irrelevant data from decades ago.
In fact, in a January 2004 article, the Financial Times quotes Raymond Tallis, professor of geriatric medicine at Manchester University as explaining, "New data demolish such concerns. There is a lot of evidence that disability among old people is declining rapidly."
Some experts interpret this evidence to mean that we are experiencing a "compression of morbidity." In other words, breakthroughs in both the prevention and the treatment of disabling illnesses are expanding the number of years that people will live in good health, while shortening the time that people will live in poor health before death.
For proof, consider the recent release of the National Long- Term Care Survey by Kenneth Manton and his colleagues at Duke University.2 The survey shows that the total number of Americans aged 65 and over increased by 30 percent from 1982 to 1999 ? at the same time, though, the proportion of those who were significantly disabled dropped from 26.2 percent to 19.7 percent.
Even more importantly, the rate of decline doubled during the period. Put another way, the percentage of chronically ill elderly people is plunging ? and it is plunging faster every year.
And here’s another key fact from the survey that shows another assumption is wrong: The proportion of elderly Americans who live in nursing homes is not growing. In fact, this figure is falling even faster than the rate of disabled elderly. During the period of the study, the percentage of senior citizens in nursing homes plummeted from 6.8 percent to 4.2 percent.
This good news is just the beginning. Experts on aging and medicine foresee that the “compression of morbidity” will continue to accelerate in the coming years. All it will take is for Americans to continue the trend toward living healthier lives, cutting fat from their diets, and quitting smoking. We should also see continued advances in preventive medicine that will reduce the number of victims of stroke, heart attacks, Alzheimer’s, and other threats to a healthy, active lifestyle after people retire.
But just how far can we expect people to live, once most of the major diseases are defeated and more people learn to take better care of themselves? The answer remains a mystery, despite a growing number of research studies. According to John Grimley Evans, professor of geriatric medicine at Oxford University, “Given the way we have evolved and the genes we have inherited, I do not believe we can expect the human system to last beyond 115 to 120 years.”
This is confirmed by a study published in the New England Journal of Medicine3 that shows that people who are healthy at the age of 70 and live independently for many years accumulate total medical costs that are similar to those who are sickly at 70 and die sooner. This leads to the shattering of another false assumption: that longer life leads to higher healthcare costs.
The study’s authors, a team of researchers at the Centers for Disease Control and Prevention, concluded that healthy people at 70 save on annual healthcare outlays compared with those who are ill, and that the savings aren’t offset by their longer lifespans. In an editorial, David M. Cutler, an economics professor at Harvard University, argued that “current Medicare projections, which implicitly assume that longer life costs more, are substantially overstated.”
The bottom line is that tomorrow’s elderly will be healthier and more dynamic than any we’ve seen before ? and they’re likely to stay that way right up until the last year or two of their lives. Consequently, historicallybased medical-cost forecasts that foresee a nation of nursing home residents lead to grossly distorted projections. Don’t be misled by forecasters using these assumptions.
However, the Trends editors don’t fault the administration too much for the recent “alarmist” rhetoric. Publicizing a projection showing the program collapsing in 2019 is exactly what was needed to start this bureaucratic glacier moving.
Today’s Medicare program was created for a different era. When the law was passed, the challenge was building schools for the Boomers and caring for the relatively few elderly, smoking was the norm, biotech was non-existent, drugs like Zantac and Zocor were dreams, and hospital stays were long.
Healthcare technology is advancing so fast that our cumulative knowledge in the field is doubling roughly every two years. Yet, today’s Medicare system is still designed to make the most of what existed in 1964.
Today, there is an emerging trend favoring the overhaul of the way we provide medical care to older Americans. The objective is to improve the quality of life for the recipients, while keeping the system economically viable. This political trend is intersecting the rapidly advancing technology to create a veritable healthcare revolution.
Part of the challenge is that the costs are not spread evenly over the elderly population. In fact, the sickest 5 percent of the population consumes 47 percent of the Medicare resources. One emerging trend is to identify and focus on those patients. One way to do that is through continuous monitoring of patients with chronic conditions like diabetes, which often leads to horrendously expensive end-of-life care.
The goal of this heightened monitoring is to prevent a medical crisis that could send the patient to the hospital. Such coordinated care for people with chronic illnesses such as diabetes, heart disease, and high blood pressure is the focus of disease management programs, which got a big boost in the Medicare law signed by President Bush in early December 2003.4
Three-fourths of Medicare beneficiaries have at least one chronic condition, and close to one-third have four or more. These people account for 80 percent of Medicare spending. The government hopes to enroll as many as 400,000 older people with chronic conditions in these disease management programs. By involving the patient, physicians, pharmacists, and other providers in common-sense steps to improve patient health, the government seeks to limit costly hospital stays.
Technology comes into play in keeping the costs of such programs under control. For example, in a program involving several hundred veterans in Florida, a small countertop computer called a Health Buddy asks patients how they feel and allows them to transmit information. “It’s a daily check in,” said Steve Brown, chief executive of Health Hero Network of Mountain View, California, maker of the computer. “It’s something that breaks the cycle of isolation and crisis. You can have a huge impact if you just provide people with continuity of care.”
Among both chronically and acutely ill patients, doctors may be contributing to rapidly escalating healthcare expenses by ordering too many diagnostic imaging scans, experts contended at a Portland seminar according to a March 25, 2004 Associated Press report.5 Panelists at a seminar ? titled “Emerging Technology: How Much Is Enough?” ? pointed to forecasts that show diagnosticimaging expenditures nationwide shooting up 28 percent between 2000 and 2005.
The projection came from a report by the BlueCross BlueShield Association, using estimates from a consulting firm. The AP quoted Jack Friedman, chief executive of Providence Health Plans, a Portland-based insurer, who said the scans might relieve patients’ anxieties, but they do not always justify their costs. “There’s a lot of heart, but no science” behind the escalation in scans, he said.
Several trends are at work that will help minimize this problem.
First, much of the cost of imaging is amortization of capital expenditures. Moore’s Law will inevitably lead to lower equipment costs and better functionality.
Secondly, off-shoring using the Internet enables U.S. practitioners to tap into experts in places like India to interpret the results at a dramatically lower cost.
And thirdly, the urgency of the apparent Medicare crisis is creating momentum for a coming crackdown on waste, fraud, and abuse in the program, and this should lead physicians to make more defensible decisions with regard to imaging and other expensive procedures.
An increasingly important piece of the healthcare pie is dominated by pharmaceuticals. The Medicare drug-benefit signed into law in December is the first major reflection of this reality. Medicare was enacted when the pharmaceutical industry was still in the “dark ages” and preventive medicine was virtually non-existent. Hospitals and many surgical specialties are likely to see their revenue growth level off in spite of the growth in the older population because drugs and minimally-invasive procedures reduce the need for expensive and life-threatening procedures.
Another hugely important trend that’s likely to lead to better quality of life for late-stage patients, while substantially reducing costs, is called palliative care. Palliative care focuses on comfort, not cure. It tries to relieve a patient’s physical and psychological distress, instead of preserving life at any cost.
Though palliative care is widely used in some countries, such as Britain, it has been slow to catch on in the U.S., where many doctors prefer to use the latest technology or drug to prolong a patient’s life. Today, fewer than 20 percent of community hospitals in the U.S. use the approach, according to the American Hospital Association.
In 2002, there were palliative care programs in 844 community hospitals, 18 percent more than in the previous year. In palliative programs, less money is spent on drugs, diagnostics, tests, and last-ditch treatments. For instance, a typical five-day stint for a cancer patient at Virginia Commonwealth University medical center cost $5,312 in the palliative wing ? 57 percent less than it cost to house a similar patient elsewhere in the hospital.
Finally, the political trend to taking action now to avert a crisis is laying the groundwork for restructuring the legal and transactional framework of the healthcare industry. As we’ve reported previously, skyrocketing medical malpractice insurance costs for doctors and hospitals is one of the most significant factors in the rise of medical costs.
For the first time in a generation, strong momentum is developing to overhaul the system. According to a recent analysis by Tillinghast-Towers Perrin, tort costs, including medical malpractice, consume more than 2 percent of GDP or more than $200 billion per year.6
Worse yet, only 22 percent of the tort dollars goes to compensate victims for economic losses. In fact, at least 54 percent of every tort dollar never even reaches the victim. When people realize that an increasing share of their Medicare taxes are going into the pockets of trial lawyers, it’s likely that they’ll provide the push necessary to put limits on these awards and thereby dramatically reduce this component of healthcare costs.
Another political “hot potato” has always been introducing market forces into Medicare, which was conceived as a European-style single-payer program.
According to a new poll from Towers Perrin, employees agree that rising healthcare costs are a problem ? but they don’t believe it is theirs to fix. Less than half of those surveyed believe their company can’t absorb higher costs, or that it is fair for employers to ask them to pay more out of pocket.7
Clearly, that’s the wave of the future in programs aimed at younger people who are active in the workforce. In response, many employers have become more proactive in steering employees to lower-cost doctors and hospitals, nudging them into disease-management programs, and showering them with incentives to pursue healthier lifestyles in the hopes they will not only spend less on healthcare, but need less of it in the long run.
Once consumers are footing more of the bill, the thinking goes, they will also more carefully consider elective procedures and unnecessary doctor visits, and start shopping around for healthcare services just as they do for most other things. Whether this sort of approach will be integrated into a comprehensive Medicare reform program is unclear, but definitely a possibility.
Based on this discussion of current trends, we’d like to offer the following forecasts:
First, expect to see a major breakthrough in tort reform. If President Bush is re-elected, it is virtually certain that a law placing a $250,000 cap on “pain and suffering” and punitive damages will be enacted during his second term. This will lower the exorbitant costs of medical malpractice insurance, which in turn will help keep healthcare costs in check.
Second, we foresee dramatic growth in the palliative care movement over the next five years. However, this treatment approach will still handle only a small segment of the Medicare population, because of the American cultural bias toward prolonging life at any cost.
Third, the “compression of morbidity” will continue to expand healthy lifespans. With better prevention and treatment for disabling diseases, people will live active lives well into their late 80s and 90s. Again, this is a positive sign for keeping the Medicare program afloat.
Fourth, the expiration of patents on many key drugs will lower medical costs for elderly Americans. As many of the most widely prescribed drugs leading to longer lives come “off patent” over the next few years, they will be replaced by cheaper generic drugs at much lower prices.
Fifth, expect the “disease management” approach to signal a new shift for using Medicare more efficiently to prevent illnesses, rather than treating them. “It is better for us to start managing diabetes, hypertension, asthma, and other conditions before they get exacerbated. It will save us money in the long run,” said Health and Human Services Secretary Tommy Thompson.8 Already, pilot programs are leading to savings. At Aetna Inc., 3,000 people with chronic heart failure are in a disease management program that has produced a 17 percent drop in costs and a 32 percent reduction in hospitalizations. As the government enrolls hundreds of thousands of the most chronic patients into the disease management program, it will contract with private companies to coordinate their medical care. This will create lucrative opportunities for private disease management companies that use nurses and computers to monitor these patients. Disease management companies, such as Lifemasters of Irvine, California, had combined revenues of $600 million in 2002; we expect their revenues to reach $10 billion by the end of the decade.
References List :
1. Financial Times, January 18, 2004, "Growing Old Gracefully," by Norma Cohen and Clive Cookson. ⓒ Copyright 2004 by The Financial Times Ltd. All rights reserved. 2. To access information about the National Long-Term Care Survey, visit the Duke University website at: www.cds.duke.edu 3. The New England Journal of Medicine, September 11, 2003, "Disability and the Future of Medicare," by David M. Cutler, Ph.D. ⓒ Copyright 2003 by the Massachusetts Medical Society. All rights reserved. 4. Associated Press, December 13, 2003, "New Medicare Law Boosts to Chronic Care," by Mark Sherman. ⓒ Copyright 2003 by The Associated Press. All rights reserved. 5. Associated Press, March 25, 2004, "New Technology Affects Health Costs." ⓒ Copyright 2004 by The Associated Press. All rights reserved. 6. To access information about U.S. tort costs, visit the Tillinghast-Towers Perrin website at:www.towersperrin.com/tillinghast/press/2003_press/pr02112003.htm 7. To access information about rising healthcare costs, visit the Tillinghast-Towers Perrin website at:www.towers.com/towers/webcashe/towers/United_States/press_releases/2003_09_29.htm 8. Associated Press, December 13, 2003, "New Medicare Law Boosts to Chronic Care," by Mark Sherman. ⓒ Copyright 2003 by The Associated Press. All rights reserved.
