Increasing Health Care Costs: the Price of Innovation? AcademyHealth Annual Research Meeting June 7, 2004 Claudia A. Steiner, MD, MPH Bernard Friedman, PhD, Herbert Wong, PhD, Roxanne Andrews, PhD

Background Health care spending in US accelerated since 1998 Health care spending in US accelerated since 1998 Inpatient care: Inpatient care: – Cost acceleration not as rapid as other components (pharmacy, high-tech outpatient), however; – largest single component of health care costs

Background (cont’d) %8.3%7.9% %8.1%8.0% %5.8%4.9% %1.6%1.5% %-0.2%0.5% %0.1%0.6% %0.6%2.1% %2.0%2.7% %2.0%3.7% %2.1%4.4% % Increases AdmissionsAv. Cost Per admit Total inpatient costs AHA Annual Survey Trends, 2002

Background (cont’d) Possible contributing factors to acceleration of inpatient costs: Possible contributing factors to acceleration of inpatient costs: – Insurers less able / willing to restrain admissions, LOS or cost-increasing technology – Cost-increasing technology attractive to well- insured patients – Cost-per-case higher due to increased co-morbid conditions – Cultural, macro-economic changes affect demand (e.g. older moms, fear of malpractice)

Objectives Determine categories of conditions which contributed most to: Determine categories of conditions which contributed most to: – growth of inpatient costs, 1993 – 2001, – Acceleration of costs after 1998 Determine if patient characteristics contributed to growth of costs Determine if patient characteristics contributed to growth of costs Consider relative contribution of more expensive medical technology (new or increased use of current) Consider relative contribution of more expensive medical technology (new or increased use of current)

Methods Database Database – Nationwide Inpatient Sample (NIS), Healthcare Cost and Utilization Project (HCUP), Agency for Healthcare Research and Quality (AHRQ) – Largest, all-payer discharge data base – – Comparison to

Methods (cont’d) Nationwide Inpatient Sample (NIS) Nationwide Inpatient Sample (NIS) – Approximates a 20% sample of community hospitals in US – Five sampling strata Region, bed size, teaching, urban/rural, ownership Region, bed size, teaching, urban/rural, ownership – Hospitals sampled from 17 states in 1993, 33 states in 2001 captures 85% of US discharges in 2001 captures 85% of US discharges in 2001 – ~ 1000 community hospitals, ~ 7 million discharges – When weighted, represents estimated 37 million annual discharges

Methods (cont’d) Clinical Classification System (CCS) Clinical Classification System (CCS) – Created and maintained by AHRQ / HCUP staff – 267 mutually exclusive, clinically meaningful disease categories – Principal ICD-9-CM diagnoses grouped into CCS categories Charges Charges – NIS data include total hospital charge for each discharge – Charges discounted to cost using methodology developed by AHRQ / HCUP economist

Methods (cont’d) Analyses Analyses – Contribution of each CCS category to overall increase inpatient costs = initial share of total costs in 1993 x percent increase between 1993 and 2001 – CCS categories rank ordered by contribution to national increase of inpatient costs for 1993 – 2001 – Changes and contribution to cost increases determined for entire study period ( ) and vs – Changes in severity of illness scores within category (APR-DRG), average age, average LOS, volume of discharges investigated

Results Summary of Discharges and Growth in Costs, Discharges 2001 Mean Cost 2001 Total Inpatient Cost, 2001 Increase Costs, 1993–2001 Annual Rate of Change Discharges Cost per Case 37,175,339$5, $231.9 bill. 21.9%0.86%1.62%

Results Summary of Discharges and Growth in Costs, 1993 – 1998, Annual Rate of Change Annual Rate of Change Discharges Cost per Case Discharges 0.09%0.61%2.18%3.33%

Results Top 50 CCS disease categories contributes 95% of overall increase in inpatient costs Top 50 CCS disease categories contributes 95% of overall increase in inpatient costs Comparing increase after 1998 to previous 5 years Comparing increase after 1998 to previous 5 years – 6 of top 50 disease categories had significant growth of admissions Non-specific chest pain, pregnancy, anemia, abdominal pain, benign neoplasm, connective tissue disorders) Non-specific chest pain, pregnancy, anemia, abdominal pain, benign neoplasm, connective tissue disorders) – 29 of top 50 disease categories had significant growth in cost per case

Results

Results

Results

Results Average LOS declined more rapidly before 1998 than after (-16.5% vs. -3.6%) Average LOS declined more rapidly before 1998 than after (-16.5% vs. -3.6%) Increases in average age occurred before 1998 (4.8% vs..5%) Increases in average age occurred before 1998 (4.8% vs..5%) Severity of illness within disease categories (measured by APR-DRG) declined in most disease categories after 1998 Severity of illness within disease categories (measured by APR-DRG) declined in most disease categories after 1998

Conclusions Hospital costs demonstrate a substantial contribution to the acceleration of health care costs Hospital costs demonstrate a substantial contribution to the acceleration of health care costs 95% of the increase in hospital costs between 1993 and 2001 captured in 50 disease categories 95% of the increase in hospital costs between 1993 and 2001 captured in 50 disease categories Grouping of conditions allows for more detailed investigation of contributing costs Grouping of conditions allows for more detailed investigation of contributing costs

Conclusions A minority of the disease conditions demonstrated an increase in volume of admissions as the primary contributor to increase in costs A minority of the disease conditions demonstrated an increase in volume of admissions as the primary contributor to increase in costs – Insurers / payers may be less able or less willing to restrain admissions as managed care restrictions have eased – Fear of malpractice may contribute to some of these disease categories

Conclusions Majority of grouped conditions demonstrated an increase in cost per case as contribution to increase in hospital costs Majority of grouped conditions demonstrated an increase in cost per case as contribution to increase in hospital costs – Several conditions include medical technology changes Introduction of new medical innovation Introduction of new medical innovation Changes in practice favoring more expensive technology Changes in practice favoring more expensive technology

Conclusions LOS, though declining less rapidly post- 1998, continues to decline on average LOS, though declining less rapidly post- 1998, continues to decline on average Patient characteristics do not appear to contribute to increase in cost per case Patient characteristics do not appear to contribute to increase in cost per case – Average age not increased – Severity of illness declined for majority of conditions

Limitations Hospital discharge data have limited additional clinical information to further adjust severity Hospital discharge data have limited additional clinical information to further adjust severity Direct contribution of malpractice pressures and managed care easing of restrictions difficult to measure Direct contribution of malpractice pressures and managed care easing of restrictions difficult to measure Avoidable costs due to inadequate preventive outpatient services warrant further investigation Avoidable costs due to inadequate preventive outpatient services warrant further investigation

Future Studies More detailed study of individual disease categories to better define where, how and why cost per case are accelerated More detailed study of individual disease categories to better define where, how and why cost per case are accelerated Local market area analyses, to include malpractice, payer mix and hospital concentration and competition, HMO penetration Local market area analyses, to include malpractice, payer mix and hospital concentration and competition, HMO penetration

Implications for Policy and Delivery of Care In an era of easing managed care and other payer restrictions, new technologies and increase use of existing technology may be very important In an era of easing managed care and other payer restrictions, new technologies and increase use of existing technology may be very important Other contributions to accelerated costs may be specific to disease categories and local market areas Other contributions to accelerated costs may be specific to disease categories and local market areas – Defensive practice styles, inadequate preventive outpatient services, hospital competition, patient demand