Academy Health Annual Meeting, Orlando, June 2007 What Accounts for the Rise in Medicare Spending? Kenneth E. Thorpe, Ph.D. Robert W. Woodruff Professor and Chair Department of Health Policy and Management Rollins School of Public Health Emory University

Academy Health Annual Meeting, Orlando, June 2007 Medicare Spending Challenge Medicare Spending as Percentage of GDP 4.5% 9.0% 12.9%

Academy Health Annual Meeting, Orlando, June 2007 Overview Crafting effective health reform solutions requires a clear diagnosis of what accounts for the growth in spending Crafting effective health reform solutions requires a clear diagnosis of what accounts for the growth in spending Policy proposals to date to address the high and rising costs of Medicare Policy proposals to date to address the high and rising costs of Medicare Increase co-payments Increase co-payments Increase eligibility age Increase eligibility age Reduce benefits Reduce benefits Reduce provider payments Reduce provider payments Promote competition among private plans in Medicare through “premium support” Promote competition among private plans in Medicare through “premium support”

Academy Health Annual Meeting, Orlando, June 2007 Overview Issues Do these solutions address the key drivers of why Medicare spending is rising over time? (Not for the most part) Will or can “competition” in Medicare work?

Academy Health Annual Meeting, Orlando, June 2007 Bottom Lines Over 95% of health care spending in the Medicare program is associated with 1 or more chronic health care conditions Over 95% of health care spending in the Medicare program is associated with 1 or more chronic health care conditions Medicare beneficiaries receive only about 60% of the clinically recommended preventive care for these conditions Medicare beneficiaries receive only about 60% of the clinically recommended preventive care for these conditions Most of the rise in spending (over three quarters) is linked to a rise in prevalence of treated disease: Most of the rise in spending (over three quarters) is linked to a rise in prevalence of treated disease: Linked to rising rates of obesity Linked to rising rates of obesity Linked to more aggressive detection and treatment of asymptomatic patients (particularly for CVD risk) Linked to more aggressive detection and treatment of asymptomatic patients (particularly for CVD risk)

Academy Health Annual Meeting, Orlando, June 2007 Factors Generating the Rise in Medicare Spending Rise in per capita spending can be decomposed into: Rise in per capita spending can be decomposed into: Rise in the prevalence of treated disease Rise in the prevalence of treated disease Rise in spending per treated case Rise in spending per treated case Interactions Interactions

Academy Health Annual Meeting, Orlando, June 2007 Why Does Treated Prevalence Rise Over Time? Rise in incidence and prevalence (obesity underlies much of this) of disease Rise in incidence and prevalence (obesity underlies much of this) of disease Technology (treatment expansion) Technology (treatment expansion) Changes in clinical thresholds (metabolic syndrome) for treating asymptomatic patients Changes in clinical thresholds (metabolic syndrome) for treating asymptomatic patients Better disease detection and screening (both by patients and physicians—depression) Better disease detection and screening (both by patients and physicians—depression) Others ? Others ?

Academy Health Annual Meeting, Orlando, June 2007 More Aggressive Treatment of Asymptomatic Patients True for: True for: Metabolic syndrome (nearly 52% of Medicare enrollees ) Metabolic syndrome (nearly 52% of Medicare enrollees ) Hypertension Hypertension Hyperlipidemia Hyperlipidemia Other lipid abnormalities Other lipid abnormalities

Academy Health Annual Meeting, Orlando, June 2007 The Metabolic Syndrome: A Key Cardiovascular Risk Factor The share of Medicare beneficiaries with the metabolic syndrome has increased 5 percentage points to 51 percent of adults in just 5 years! The share of Medicare beneficiaries with the metabolic syndrome has increased 5 percentage points to 51 percent of adults in just 5 years! Rates of pharmacologic treatment are rising as well Rates of pharmacologic treatment are rising as well Good news—more aggressive treatment may be associated with the decline in CV mortality Good news—more aggressive treatment may be associated with the decline in CV mortality Bad news—high and rising number of adults with the metabolic syndrome—will continue to increase health care spending! Bad news—high and rising number of adults with the metabolic syndrome—will continue to increase health care spending!

Academy Health Annual Meeting, Orlando, June 2007 US is more aggressive in treating asymptomatic patients with CV risk factors

Academy Health Annual Meeting, Orlando, June 2007 Rising Treated Disease Prevalence among Medicare Beneficiaries, Medical Condition 1987 %2004 % Hyperlipidemia Mental Disorders HypertensionOsteoarthritis Pulmonary Disorders ArthritisDiabetesCancer Heart Disease 11.0%13.0%37.9%3.1%20.2%21.2%13.5%12.4%25.8%28.7%20.7%48.4%6.8%20.8%28.2%18.5%13.9%28.0%

Academy Health Annual Meeting, Orlando, June 2007 Trends in Prevalence Virtually all the conditions with large changes in prevalence are chronic. Virtually all the conditions with large changes in prevalence are chronic. Patients with chronic disease: Patients with chronic disease: Have long-standing, on-going and largely predictable medical care needs Have long-standing, on-going and largely predictable medical care needs Are less likely to require hospital care compared to acutely ill episodic cases Are less likely to require hospital care compared to acutely ill episodic cases Rely disproportionately on prescribed drugs, physician and other provider care. Rely disproportionately on prescribed drugs, physician and other provider care.

Academy Health Annual Meeting, Orlando, June 2007 Most of the rise in spending in Medicare is linked to a rise in treated disease Medical Condition Δ Treated Prevalence Δ SPC Population Hyperlipidemia71.5%13%15.6% Mental Disorders 123.7%-68.0%44.6% Hypertension48.5%21.3%30.2% Osteoarthritis200.4%-150.7%49.9% Pulmonary Disorder 10%40.7%49.6% Back Problems 48.9%31.3%19.8% Diabetes54.3%18.8%26.9% Cancer17.7%59.2%23.1% Heart Disease 23.4%36.3%40.3% Arthritis45.7%21.7%32.6%

Academy Health Annual Meeting, Orlando, June 2007 Rise in treated prevalence also linked to more aggressive treatment of asymptomatic patients % with metabolic syndrome46%51.7% Medicare (any adult) % with NO Treatment43.4% ( )31.9% ( ) Treated for 1 Condition45.1% (40.8 – 49.4)39.4% ( ) 2 Conditions11.2% (8.5 – 13.9)23% ( ) 3 Conditions0.3% ( )5.7% ( )

Academy Health Annual Meeting, Orlando, June 2007 Implications Need to change how Medicare pays for health care (toward bundled services for chronic conditions) Need to change how Medicare pays for health care (toward bundled services for chronic conditions) Need to engage beneficiaries in self- management through financial incentives (all clinically recommended preventive services free) Need to engage beneficiaries in self- management through financial incentives (all clinically recommended preventive services free) Need to build appropriate models for delivering care for today’s patients, not those of 1965! Need to build appropriate models for delivering care for today’s patients, not those of 1965!