Jeremy Nurse

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Jeremy Nurse Consulting Actuary Mike Williams Senior Consultant ( United Kingdom ) Saturday, 4 September 2010
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Transcript of Jeremy Nurse

Slide 1© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Jeremy Nurse
Consulting Actuary
Mike Williams
Senior Consultant
( United Kingdom )
Cost containment in Health business
Hydra conference 4 September 2010
Mike Williams
Jeremy Nurse
© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Agenda
European health expenditure and performance
US cost containment in health plans
UK cost containment in health insurance / developments in the NHS
Heard a lot about PPPs already.
Will talk about healthcare costs from a number of different perspectives, covering Europe, the US and finally the UK
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Europe - health expenditure and performance
What we’ll cover
Health performance
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Public and private health expenditure vary significantly across Europe
Source: OECD, WHO
Public % GDP
Private % GDP
France, Denmark, Germany were top spenders in the public sector as % GDP in 2008
Switzerland, Bosnia-Herzegovina, Greece highest private spenders.
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Public and private health expenditure as % GDP
also varies significantly
Source: WHO, European Health For All Database (2008 data updated July 2010)
Combining
France
Switzerland
Germany
Bosnia-Herzegovina
Austria
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Higher or lower private spend does not correlate with overall spend
Source: OECD, WHO
Slightly different picture looking at the mix of public/private spending.
Looking at split of public/private health spending there are obvious variations. Highest public spenders as a proportion of overall health spend are:
Luxembourg
Croatia
Demark
Cyprus
Bulgaria
Bosnia-Herzegovina
But really a reflection of more or less dominant public sector
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While health expenditure varies widely, but appears to be influenced by GDP
Source: WHO
There appears to be a correlation between the expenditure on health and the level of GDP per capita, both on a ppp (purchasing power parity basis).
So the message is that, on average, countries spend in proportion to GDP, with some appearing above the trend line, notably
Switzerland
Austria
France
Netherlands
Germany
Denmark
But the real issue is value – so do higher spender get better results?
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Healthcare performance – the Netherlands leads the way
Source: Health consumer powerhouse, Euro Health Consumer Index 2010
To answer this question we turn to the Euro Health Consumer Index
This survey is run annually by The Health Consumer Powerhouse to assess the performance of the healthcare systems in European countries
The maximum score a country can get is 1,000 points and the performance is measured taking into account five indicator categories:
Patients rights and information
Pharmaceuticals
Looking at the 2010 results, the top ranking 5 countries are:
1. Netherlands
2. Germany
3. France
4. Switzerland
5. Austria
Which is interesting because most of these have cropped up before as the higher spenders
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Source: Health consumer powerhouse, Euro Health Consumer Index 2010, WHO
Performance and total health spending are related – to a degree
Looking at performance vs health spending on a purchasing power parity basis provides an initial impression, that becomes clear once trend lines are added
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Source: Health consumer powerhouse, Euro Health Consumer Index 2010, WHO
Performance and total health spending are related – to a degree
Trend lines indicate a general trend, albeit with notable exceptions, that higher spend can lead to superior performance.
In essence the countries with points below the trend line are performing better than average, because they’re spending below the trend line to achieve good results, while the ones with points above it are performing worse, because they’re spending more.
Interestingly the top 3 performers – Netherlands, Germany and France – are all below the trend line and therefore, on this measure, exceeding expectations.
Is there a correlation with public/private split?
Not really:
Netherlands is at the higher end of the scale for public spending, while Switzerland is at the higher end of the scale for private spending.
Germany, France and Austria are all middle ranking in public/private split.
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Drivers of cost include:
Advances in drug and treatment technologies
Higher expectations of care/consumerism
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Drivers of cost - longer life and disease growth
Source: WHO
Looking at a couple of these factors:
Longer life in itself leads to more health consumption for a variety of reasons:
More overall time to consume health services
Higher consumption in older age
Occurrence of ‘new’ health issues eg AMD
Cancer is more common at older ages
New cancer cases
More older people in many countries due to population bulge
WHO - Global cancer rates could increase by 50% to 15 million by 2020
World Cancer Report provides clear evidence that action on smoking, diet and infections can prevent one third of cancers, another third can be cured
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Total health expenditure per capita and life expectancy
Source: WHO
France
Germany
Spain
UK
Looking at life expectancy and health expenditure across a number of western European markets illustrates that:
People are living longer
Health expenditure is rising on a similar trajectory
Two ways of interpreting this – either a) countries commitment to investing in health services is paying off handsomely in extending people’s lives or b) – the real answer - older people are one of the drivers of cost
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What does this mean?
There is a broad correlation between health spending and performance
The best performers do generate efficiencies against the general trend
Public/private split doesn’t seem to directly influence performance
Many drivers of cost are unavoidable
But health is a complex business…
There is a broad correlation between health spending and performance – so to gain good outcomes does require spending at commensurate levels
The best performers do generate efficiencies against the general trend – so there are some savings to be had, but you can’t beat the trend
Public/private split doesn’t seem to directly influence performance – this is more about health systems and histories.
Many drivers of cost are unavoidable – such as ageing and the development of new technologies, but some costs can be contained through education and prevention
But health is a complex business…it is a huge expense in countries around the world and vast resources go into managing and planning it. Nowhere is this more evident than in the US, who’s spend on health significantly exceeds the European countries that we’ve been looking at……to Jeremy
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US - cost containment in health plans
What we’ll cover
Consumer-driven health plans
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Public and private health expenditure as % of the GDP
Source: WHO, European Health For All Database (2008 data updated July 2010); *USA data for 2007, from WHO Global Health Observatory.
US spends almost 16% of GDP on healthcare – about 50% more than the highest spending European country and about double the European average
Substantially higher amount is privately funded – mostly through employers
Surprisingly large publicly funded – particularly through Medicare / Medicaid for uninsured and elderly
Significant Healthcare reforms currently underway – compulsory insurance
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US experience
The Keys to Continued Success: Lessons Learned From Consistent Performers
15th Annual National Business Group on Health/Towers Watson Employer Health Care Survey
Consumer control gaining momentum
Savings accounts – act as an incentive towards more healthy lifestyle
A substantial employer cost – as much (sometimes more) than employer-sponsored pension provision
Substantial focus on cost control – mostly exercised by insurers acting as negotiators with the medical facilities/doctors
Therefore two areas of focus:
employer healthcare survey
recent cost control initiatives (follows on from PPOs, HMOs and other initiatives in the 1980s and 1990s)
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US – jargon-buster!
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Companies show dramatic differences in their ability to reduce health care cost trends
Median two-year cost trend for calendar years 2008 and 2009 is 6.5%. Best-performers report significantly lower cost trends at 0.3%.
Note that “Best performers” (and “Poor performers”) may not represent a consistent group of employers, due to various factors
Average/Median performers gives a reasonable representation of the overall picture
(segue to next slide)
But to get a good picture of what works in controlling costs, we need to consider “Consistent performers”
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Consistent performers have outpaced other companies in containing costs over the last four years…
Consistent performers experienced median annual costs increase 2.5% in 2009, versus median increase for all companies of 7.0%.
41 consistent performers in this year’s analysis
Consistent Performers are those where their healthcare costs have increased by less than the median amount in each of the last 4 years
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Key drivers of performance; extent to which consistent and best performers implement programs relative to poor
Maximizing health and productivity
…and have exceeded all other companies in five key areas
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More employers increasing point-of-care cost sharing and making changes to plan design
(*) Planned for 2011.
PERCENTAGE POINT CHANGE FROM 2009 TO 2011
Increase the share of total health care costs paid by employees
34%
43%
56%
22%
23%
30%
37%
14%
18%
28%
38%
20%
17%
23%
28%
11%
16%
21%
27%
11%
18%
21%
28%
10%
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Employers support account-based health reform initiatives
VERY SUPPORTIVE
SOMEWHAT SUPPORTIVE
Account-based plans – emphasis on individual responsibility through health savings accounts, high-deductible plans and similar financial incentives
Status quo – continue with current system without any fundamental changes in how health insurance is financed
Private insurance – promote the private insurance market as an alternative to employment-based plans, allowing individual market plans to compete across state lines
Individual mandate – all individuals above a minimum income level would be required to obtain health insurance coverage or pay a tax penalty
Pay-or-play mandate – employers provide either a minimum health care package or make contributions toward an individually purchased plan
ERISA preemption – amend Employee Retirement Income Security Act or allow ERISA waivers permitting state health care reforms
Tax policy/refund credits – eliminate the exclusion of employer premium contributions from employee taxable income for refundable credits to
individuals
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Continued growth in CDHPs
Today, 54% of companies have a CDHP in place—a 6% increase over last year.
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Lower health care costs for companies with higher CDHP enrollment in 2009
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What does this mean?
US experience shows that it’s possible to stabilise health care spending, and consistent performers are leading the way
Appropriate use of tactics in five areas drives best performance
Effective use of financial incentives
Effective information delivery
Maximising health improvement
Many best-performing companies have adopted CDHPs, but for most, this is just one component of a larger consumer-oriented model
Increasing CDHP enrollment is key to moderating cost trends
CDHPs continue to grow in adoption and acceptance. All data show that aggressive promotion of CDHP gets results.
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UK - cost containment in health insurance / developments in the NHS
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What we’ll cover
Insurance
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UK medical insurance - cost containment
A mixed picture
Claims management
Care guidelines
Major driver for insurers is being able to win and retain business. It’s a cut throat market so this is important.
Ensuring that the right claims are paid, in the most efficient manner and at the right cost is fundamental.
Likewise efficiency in overall operations is key to managing cost and remaining competitive.
Hospital negotiations have always been part of the scene, but the drive by both insurers and hospital groups to maintain or improve returns can and is leading to conflict
Networks used to be just about overall hospital cost and negotiating power. These days there are condition specific networks and diagnostic networks eg for MRI scans
Care guidelines are another developing area. AXA PPP healthcare has introduced Corporate Health Plan Pathways, requiring an open GP referral so it selects consultant for its member rather than leaving it to the GP
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UK medical insurance - cost containment
Employers have other priorities
Employees
Still a benefit – interventions limited
Employers – bigger fish to fry
Businesses have been focused on survival over the last couple of years
In terms of spend, pension costs are a huge issue
In health insurance soft insurer rates and a relatively modest cost per life [c£550] mean that cost containment in this are is not a top priority
Employees – pmi is still seen as a benefit, so interventions are limited
Employee only cover is certainly more common
But there is little hard intervention:
xs levels are low eg £100/life
There is some use co-insurance
And psychiatric or cancer cover may carry limitations
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The NHS and PPPs
Two main public private partnerships used by Department of Health:
The Private Finance Initiative (PFI)
NHS Local Improvements Finance Trust (NHS LIFT)
Provision of infrastructure and services
Little interaction with insurers
The private finance initiative (PFI) provides a way of funding major capital investments, without immediate using public funds.
[Private consortia, usually involving large construction firms, are contracted to design, build, and in some cases manage new projects. Contracts typically last for 30 years, during which time the building is leased by a public authority. This section of the site gives guidance to contractors and DH staff on contracts, current news and updates, as well as facts, figures and further information.]
NHS LIFT is a vehicle for improving and developing frontline primary and community care facilities.
[It is allowing PCTs to invest in new premises in new locations, not merely reproduce existing types of service. It is providing patients with modern integrated health services in high quality, fit for purpose primary care premises.]
But in terms of interaction with insurers there is not much of a partnership in evidence, beyond the use of NHS private wings, where use may be paid for by insurers.
But that may be gradually changing
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Bringing together public and private care
March 2009
Followed Professor Mike Richards report
‘NHS organisations should not withdraw NHS care simply because a patient chooses to buy additional private care.’
In the past the attitude was that public and private care should be clearly separated. And this has led to patients being denied NHS care if they are receiving private care for their condition
This became an issue recently with the growth of expensive cancer drugs not funded by the NHS.
Professor Mike Richards was asked to look into this and recommended that:
• The Department of Health should make clear that no patients should lose their entitlement to NHS care [they would have otherwise received], simply because they opt to purchase additional care for their condition;
• Private care should be carried out in a different place to NHS care, as separate from other NHS patients as possible.
This is significant as it brings NHS funded and privately funded care for the same condition alongside each other
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Personal health budgets
Source: Department of Health
Another step in personal choice is the piloting of personal health budgets.
Personal health budgets are used in the context of social care, for the provision of care and support services. Can be notional or direct budgets
It is currently in its pilot phase, but is another example of consumers gaining more choice and freedom from central NHS control
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‘Liberating the NHS’ 2010
Published 12 July 2010
Improving healthcare outcomes
Autonomy, accountability and democratic legitimacy
Cutting bureaucracy and improving efficiency
Finally, the new Government’s plan for the NHS aims to encourage further pilots in the area of personal health budgets.
However – there is little else in the document to create optimism for the UK private sector.
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‘GP consortia will have the freedom to decide what commissioning activities they undertake for themselves and for what activities (such as demographic analysis, contract negotiation, performance monitoring and aspects of financial management) they may choose to buy in support from external organisations, including local authorities, private and voluntary sector bodies.’ (p29)
‘Putting patients and public first
4. c. Patients will have choice of any provider, choice of consultant-led team, choice of GP practice and choice of treatment. We will extend choice in maternity through new maternity networks.
Improving healthcare outcomes
5. l. Money will follow the patient through transparent, comprehensive and stable payment systems across the NHS to promote high quality care, drive efficiency, and support patient choice.
m. Providers will be paid according to their performance. Payment should reflect outcomes, not just activity, and provide an incentive for better quality.
Autonomy, accountability and democratic legitimacy
6. o. The Government will devolve power and responsibility for commissioning services to the healthcare professionals closest to patients: GPs and their practice teams working in consortia.
Cutting bureaucracy and improving efficiency
7. v. The NHS will release up to £20 billion of efficiency savings by 2014, which will be reinvested to support improvements in quality and outcomes.
w. The Government will reduce NHS management costs by more than 45% over the next four years, freeing up further resources for front-line care.
‘As part of personalised care planning, the Department will encourage further pilots to come forward and explore the potential for introducing a right to a personal health budget in discrete areas such as NHS continuing care. We also recognise that introducing personal budgets is operationally complex and the Government will use the results of the evaluation in 2012 to inform a wider, more general roll-out.’ (p18)
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What does this mean?
Cost containment among insurers primarily aimed at competiveness
For employers it’s primarily an employee benefit
NHS changes point towards prospects for ‘softer’ divisions
Cost containment among insurers primarily aimed at competiveness
For employers it’s primarily an employee benefit and therefore the willingness to clamp down is limited.
However NHS changes do point towards prospects for ‘softer’ divisions between the state and private sector.
Does this point the way towards greater cooperation? Our fingers are crossed
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Conclusions
The role and contribution of the private sector varies
The US and UK provide insights
Consumer direction is growing
The private sector plays an important role
Clearly, costs should be contained and efficiencies realised – but good healthcare does cost and there’s no escaping the fact that some of the drivers of cost are difficult or impossible to contain
The role and contribution of the private sector varies and it’s a changing landscape. Given the cost and challenges of healthcare it’s essential that the best performance is secured from both public and private sectors
The US and UK provide insights – however each system is different from the other and from other global health systems
But the theme of consumer direction is growing in both countries and in both public and private contexts.
The private sector already plays an important role – the challenge is for the sector to continue to contribute to healthcare development, delivery and financing – and that, of course, includes insurance.
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Cost containment in Health business
Hydra conference 4 September 2010
Mike Williams
Jeremy Nurse
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Total ScoreHealth $PPP
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Health Expenditure $PPP per capita
Life Expectancy at 65 years, in years
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2
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France
Switzerland
Germany
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Austria
Portugal
Denmark
Belgium
Greece
Sweden
UK
Italy
Netherlands
Ireland
Spain
Norway
Finland
Croatia
SlovakiaSlovenia
Malta
Hungary
Bulgaria
Luxembourg
5%
9%
15%
25%
20%
6%
7%
18%
27%
6%
8%
25%
34%
21%
3%
1%
8%
9%
3%
24%