The total 2009 medical cost for a typical American family of four in an employer-sponsored PPO will increase by more than 7% this year and those same families will pay $500 more for healthcare than they did in 2005, according to the fifth annual Milliman Medical Index that was released Monday.
Though employees will spend more in 2009, the total medical cost increase is actually the lowest annual trend rate since the MMI started five years ago—and is the third consecutive rate decrease.
Workers will spend nearly 15% more in employee payroll deductions for healthcare compared to 2008. Employee out-of-pocket cost sharing will increase by 5.4%. Meanwhile, employers will see the same 5.4% increase, which is the lowest medical cost increase over the past five years.
Faced with rising health costs and a difficult economy, employers are increasingly transferring healthcare costs to employees through higher premiums and out-of-pocket costs. With another 15% added to employee premiums and 5% in out-of-pocket costs, have we reached a tipping point? Ron Cornwell, principal and consulting actuary at Milliman, says "no.”
"For some employers, it has reached a tipping point. For some employees, it has reached a crisis stage. There are stories out there, but in the aggregate we still see there is still some room in the system to take on some of the burden of these costs right now,” says Cornwell.
Though employees are paying more for healthcare, employers still pay the majority of costs. Milliman said employers contribute 59% to healthcare costs, compared to 24% for employee contributions, and 17% from employee out-of-pocket costs. That said, the difference between the employee and employee cost trend is the largest difference since Milliman started the MMI.
"This statistic reiterates the struggle that employers are experiencing right now with this tight economy and rising healthcare costs," says Cornwell.
Though employers are shifting benefit plans toward greater employee responsibility, businesses are also laying off employees and cutting salaries as a way to achieve immediate cost savings. "In light of this, we find many employers are choosing to implement salary reductions or layoffs now in order to ensure their viability and will consider additional, perhaps more dramatic, changes to their benefit plans in future annual benefit cycles. In other words, we expect benefit plan changes to continue even after the recession subsides,” wrote Milliman.
Macroeconomic effects on healthcare costs
The combination of sagging private business revenues, rising unemployment rates, decreasing government tax revenue, and lower healthcare provider gross revenues are affecting total healthcare expenditures.
Reviewing every category (outpatient, inpatient, physician, pharmacy, and other), Milliman found in the last five years, outpatient and pharmacy rate increases are the largest. During that same time span, physician cost trends were one of the lowest trends though they still comprise the highest component of spending, according to the MMI.
Rising healthcare costs are connected to higher prices for services rather than for utilization of inpatient and outpatient hospital services. In fact, Milliman predicts a flat utilization trend this year in these areas.
Employees are delaying care because of higher out-of-pocket costs and economic instability coupled with more uninsured because of layoffs and employers cutting benefits, according to Milliman.
Though delaying care could keep costs under control in the short-term, patients putting off needed care may lead to long-term health problems and costs. This could also force providers in the short-term to increase prices, says Lorraine Mayne principal and consulting actuary.
"These utilization changes may temporary keep the trend lower, but ultimately may put an upward pressure on the cost for services because healthcare providers will need to continue covering their costs and maintaining their incomes," says Mayne.
Though costs are on the rise, the Milliman researchers found positive initiatives could lower costs, such as improving quality and efficiency, commercial payers focusing on inpatient utilization review, and Medicare concentrating on reducing readmissions and not paying for never events.
Miami tops percentage of national average
Out of the 14 major metropolitan areas that Milliman reviewed for MMI, Miami topped the list with an MMI of $20,282, which is 120% of the national percentage. New York City finished a close second with $19,684 MMI or 117.4% of national percentage.
Phoenix and Seattle, meanwhile, were the lowest MMI with $14,857 (88.6% national percentage) and $15,564 (92.8% national percentage) respectively. The cost differences between the higher and lowest MMI would have been even greater if Milliman had included rural areas.
Kate Fitch, principal and healthcare consultant at Milliman, says the costs of services varied by service area. For instance, though Seattle enjoys the lowest inpatient costs, they rank much worse for outpatient costs. Phoenix, which has the lowest outpatient and physician costs are mid-range for inpatient costs.
Fitch says the costs are related to many factors. Most important are the variations in provider practice patterns and consumer purchasing patterns and to a lesser extent regional variations in costs dealing with doing business in those areas, differing labor costs, and local regulations.
About half of the $500 million in federal stimulus funds released to improve Native American healthcare last week will be used to replace two Indian Health Services hospitals, one in Eagle Butte, SD, and the other in Nome, AK, the Indian Health Service has announced.
The $227 million will build a hospital for a population of 9,300 American Indians in the Cheyenne River area of South Dakota as well as replace a 61-year-old hospital for the 10,000 population Norton Sound area in Alaska.
Another $100 million will be used to improve Indian health buildings, including making them more energy efficient. About $85 million will be spent on advancing electronic medical records, $68 million to improve sanitation facilities, and $20 million will go for better medical equipment, including ambulances and CT scanners.
The government did not release total spending in each of the 29 states to receive money, but the big winners in terms of the number of programs funded are Arizona, 96 projects; Oklahoma, 87; California, 78; Alaska, 72; and New Mexico, 68. About 302 maintenance and improvement projects received allocations.
"These Recovery Act funds will provide critical assistance to American Indian and Alaska Native Communities," said IHS director Yvette Roubideaux. "These funds will help improve health care, create jobs and make our native communities stronger."
In the wake of charges from the Los Angeles city attorney that at least three hospitals were discharging homeless patients by unlawfully "dumping" them to downtown's Skid Row, a new recuperative care program has provided one solution, albeit a small one.
So far, the program has also saved private hospitals a reported $3 million in the first 12 months, not to mention additional city fines that might have been imposed.
Launched in March 2008, the 30-bed Recuperative Care Program, located at the Bell Shelter in the city of Bell, eight miles south of downtown Los Angeles, enables about 25 participating hospitals to be more confident that the homeless patients they discharge will get the follow-up care they need.
"We think we've found an innovative and creative approach to address a problem that no one until now has been able to find a solution for," says Gene Grigsby, president of the nonprofit National Health Foundation, which coordinates the program. "I would call it a success, both in terms of cost savings and sustainability. And we are serving the needs of a group of hospitals that are participating in the program."
As a result of the illegal practices, three hospitals–Hollywood Presbyterian Medical Center, Methodist Hospital, and Kaiser Permanente hospitals in Los Angeles—paid millions in fines. In a related case involving allegations of dumping of psychiatric patients, College Hospital in Costa Mesa last month was also imposed a $1.6 million fine.
A new city law prohibits hospitals from discharging any homeless patient to downtown Los Angeles streets without the patient's written consent, or risk a fine of $10,000 per incident. That's why the new facility is about eight miles south of downtown Los Angeles in a warehouse district within the city of Bell.
Hospital officials said that their only alternative until now was keeping such patients hospitalized unnecessarily on average an extra four days, at a cost of between $1,400 and $2,000 per day until appropriate case management and other services for them could be found. That's expensive, considering that the county's homeless population numbers about 80,000, and thousands of them frequently require care in an acute setting.
Grigsby says Hollywood Presbyterian Medical Center, UCLA, Cedars Sinai, California Hospital Medical Center, and White Memorial and Olympia hospitals are discharging the most patients to the recuperative facility, which has provided 2,450 bed days in the first 12 months. County hospitals utilizing the program include Los Angeles County University of Southern California Medical Center, Rancho Los Amigos, and Harbor UCLA Medical Center. The patients are transported to the Bell by hospital transport vehicles.
In the works for several years even before the scandal broke, a task force of hospitals, attorneys, county officials, and nonprofit agency leaders was trying to resolve the problem, Grigsby says.
Two Los Angeles-area health plans, LA Care and QueensCare, each contributed $500,000 in start up funds for the two-year demonstration project. Kaiser Permanente Community Benefits Program, which helps fulfill Kaiser's obligations as a nonprofit healthcare system, spent $700,000 to renovate the Bell Shelter. Grigsby says the Kaiser contribution is in addition to the city attorney's requirement that it contribute $500,000 to a charitable foundation.
Other funds come from $175 per day fee that the discharging hospitals pays, which Grigsby says is a bargain considering the cost of keeping homeless patients extra days. Private hospitals send their patients to fill 15 of the 30 beds. The other 15 are used by Los Angeles County hospitals.
At the shelter, patients receive follow-up care for wounds, broken limbs, diabetes, and about 120 other medical conditions that resulted in their initial hospitalization. They sleep on cots in a large barrack-like facility, a portion of which also serves as a winter homeless shelter. The facility has nurses or physician assistants on site 24 hours a day.
JWCH Institute, which is the project's contracting agency, requires homeless patients must be independent in activities of daily living, should not be on intravenous medications, be willing to see a nurse every day and be medically compliant, and be medically and psychiatrically stable enough and not suicidal or homicidal. They also may not be incontinent, a sex offender or child molester, arsonist, have a history of assault on a police officer, be unstable, or an active substance abuser.
So far, 30% of the patients that hospitals wanted to send to the center have been rejected, Grigsby says.
The program has not been free of stumbling blocks, Grigsby acknowledges. For starters, the goal was to keep the patients in the care facility for a maximum of 10 days and then discharge them to housing and social support systems.
That's been tough to accomplish. For some of the homeless patients, stays have stretched out to 30 days because of an inability to get them linked up. The Salvation Army runs a support network that provides case management and housing assistance for this population at the Bell Center and there has been an internal dispute about how many of the homeless should be referred for what sorts of services, Grigsby says.
Additionally, it's taking about five days to place the patients from the time the hospital first requests it.
And, Grigsby says, the program would like to expand another 15 beds. "But it's been extremely difficult to introduce another 15 people in a homeless setting anyplace outside of downtown Los Angeles. No community is eager to embrace this kind of program."
For those who do qualify, the program has been a success. "Recuperative care is basically medical oversight for the reason the person had to be hospitalized. We have someone who will watch them for the appropriate amount of time until they are strong enough," he says. He is writing a description of the project's successes for the journal Health Affairs.
James Lott, spokesman for the Hospital Association of Southern California, says the center "has solved a small part of the city's problem, with no naysayers or detractors so far."
However, a huge part of the problem remains, with so many chronic homeless people and a large portion of them often becoming sick enough to require hospital care.
"This is an issue that never goes away because the solutions so far have been so woefully inadequate. And we're going to be stuck with the problem for years to come," Lott says.
Paul G. Soper has joined IMA Consulting as a partner. He will work in the firm's national regulatory compliance practice. Soper joins IMA with more than 24 years of financial experience, 20 of which are in the healthcare field. Most recently, he was at Ernst & Young for 12 years where he served as an executive director of Health Sciences Advisory Services. He was responsible for healthcare consulting services to hospitals in Michigan and Wisconsin.
Eclipsys Corp. has named Philip M. Pead president and CEO. Pead, an Eclipsys director, was chairman, president and CEO of Per-Se Technologies Inc., consulting firm until its acquisition by McKesson in 2007. Pead succeeds R. Andrew Eckert, who has served as CEO and a director since 2005.
Pearson Partners International has hired Carol Maxwell as a vice president. Maxwell spent seven years spearheading talent management for Tenet Healthcare, which included senior executive recruiting and talent management for the organization's 52 academic and community hospitals. Maxwell will lead Pearson Partners International's healthcare services practice.
Advanced ICU Care, an ICU telemedicine staffing company, has appointed Doug Webb as CFO. Webb will develop financial strategy, planning, and forecasts for Advanced ICU Care. Webb was previously CFO of finance and information technology for PICA Group, a professional liability insurer. Before joining PICA, Webb served as senior vice president of finance and administration with Lightyear Communications.
Michael Kushner has joined Miami Children's Hospital as vice president and chief talent officer. Kushner has more than 20 years of experience in the field of human resources, including service in healthcare and other industries. Before joining MCH, Mr. Kushner served for five years as vice president of HR at Catholic Healthcare Partners in Cincinnati. Previously, he was vice president of HR for West Tennessee Healthcare.
Cleveland Clinic CIO C. Martin Harris, MD, has been named to HHS' Information Technology Standards Committee. As one of 23 experts appointed to the federal advisory committee, Harris will be making recommendations to the national coordinator on standards, implementation specifications, and certification criteria for the electronic exchange and use of health information. Harris, chairman of Cleveland Clinic's Information Technology Division and executive director of eCleveland Clinic, has helped launch Cleveland Clinic's patient portal, MyChart, as well as several other initiatives, including DrConnect for referring physicians, the online second opinion tool MyConsult, and MyPractice Community for private practice physicians.
The board nominating committee of the 10,000-member American Health Lawyers Association has elected Chicago attorney Gerald M. Griffith as president-elect designate/treasurer for 2009-2010. Gerry's term will begin July 1, following the end of the Association's annual meeting in Washington, DC. Gerry will also serve as president elect in 2010-2011 and as president in 2011-2012.
