1. Presented at Hawi'i Health Policy Forum - October 2005 What Accounts for the Rise in Health Care Spending and What to Do About It: Future Directions for Health Care Reform Kenneth E. Thorpe, Ph.D. Robert W. Woodruff Professor and Chair Department of Health Policy and Management Rollins School of Public Health Emory University kthorpe@sph.emory.edu

2. Presented at Hawi'i Health Policy Forum - October 2005 Overview Crafting effective health reform solutions requires a clear understanding of what accounts for the growth in spending Key “facts” from the US context 1.80% of total health care spending linked to chronically ill patients 2.Chronically ill receive approximately 50% of all clinically recommended medical care 3.Rise in “treated disease prevalence” accounts for nearly two-thirds of the growth in health care spending 4.Rise in obesity prevalence in US accounted for 27% of the growth in health spending over the past 20 years.

3. Presented at Hawi'i Health Policy Forum - October 2005 More than 80% of Health Care Spending on Behalf of People with Chronic Conditions

4. Presented at Hawi'i Health Policy Forum - October 2005 Distribution of Medical Care Spending by Number of Chronic Health Care Conditions, 2001 Number of Chronic Health Care Conditions Percent of Total Health Care Spending Percent of Population 0 1 2 3 4 5 Total All Chronic Care 17% 21% 18% 16% 12% 16% 83% 55% 24% 11% 5% 4% 1% 45%

5. Presented at Hawi'i Health Policy Forum - October 2005 Issue: Level vs. Change in Spending Level: US Spends 50% more per capita than European countries Traced to higher clinical and administrative expenses, fragmented purchases, and ultimately higher prices Change: Growth in spending in US has risen faster that 19 of 23 OECD countries between 1980 and 2003.

6. Presented at Hawi'i Health Policy Forum - October 2005 Why Does Real Per Capita Health Spending Rise Over Time? 1.Rise in Treated Disease Prevalence 2.Rise in Spending Per Treated Case 3.Both

7. Presented at Hawi'i Health Policy Forum - October 2005 Rise in Treated Disease Prevalence Linked to the Rise in Obesity Key Single Largest Driver of Health Care Spending Over Time- Accounts for 62% of Rise in Per Capita Spending

8. Presented at Hawi'i Health Policy Forum - October 2005 Percent of Privately Insured Population Treated, By Medical Condition, 1987-2002 Medical Condition1987 %2002 % Mental Disorders Hyperlipidemia Hypertension Diabetes Pulmonary Conditions (OPD, Asthma) Lupus/Other Related Arthritis Back Problems Upper GI Kidney Problems 4.7% 1.4% 9.3% 2.4% 9.3% 4.2% 4.6% 2.6% 0.7% 11.0% 7.4% 12.0% 4.0% 17.7% 6.5% 7.6% 8.1% 7.0% 1.3%

9. Presented at Hawi'i Health Policy Forum - October 2005 What Accounts for The Rise in Treated Disease Prevalence? 1.Rise in Population Disease Prevalence – fueled by obesity and other risk factors 2.Changes in threshold for treating asymptomatic patients (hypertension, hyperlipidemia, the metabolic syndrome) 3.Innovation (SSRI, statins, medical devices)

10. Presented at Hawi'i Health Policy Forum - October 2005 Changes in Obesity Prevalence, 1978-2000

11. Presented at Hawi'i Health Policy Forum - October 2005 Changes in Obesity Prevalence, 1978-2000

12. Presented at Hawi'i Health Policy Forum - October 2005 Rise in Treated Disease Prevalence Linked to the Rise in Obesity Key Single Largest Driver of Health Care Spending Over Time % Change in Spending Over Time, 1987-2002 Rise in Obesity Prevalence Holding Technology Constant = 11% Rise in Additional Cost Of Treating Obese vs. Normal Weighted Patients = 16% TOTAL= 27%

13. Presented at Hawi'i Health Policy Forum - October 2005 Implications for Reform 1.Universal Coverage will need assurance that we have the ability to control spending- need policy options address both level and growth. 2.Policy options for reform need to attack the key drivers of cost—rising disease prevalence. Reforms need to result in better value care provided to all patients, but in particular to chronically ill patients. 3.Change how plans are paid and compete. Drive competition around specific chronic diseases that accounts for the most spending, most of the growth in spending. Ability to effectively treat multiple chronic conditions.

14. Presented at Hawi'i Health Policy Forum - October 2005 Implications for Reform 4.Develop captitated payment based on Annual cost of providing all clinically recommended care for patients with single or multiple chronic illnesses (starting to occur in the market today—Medicare already has the methodology for risk adjusting payments. 5.Compete on value Best clinical outcomes at lowest cost No co-pays or deductibles for clinically recommended services. Assures access to state-of-the-art care by most vulnerable patients.

15. Presented at Hawi'i Health Policy Forum - October 2005 Implications – Slowing the Growth in Spending 1.Key Issues: Slow rise in treated disease prevalence through, Slowing the rise in obesity prevalence 2.Policy Tools School Based Interventions New and effective health promotion, wellness, disease prevention programs available for all adults Financial incentives to participate

16. Presented at Hawi'i Health Policy Forum - October 2005 Summary Changes outlined above requires fundamental restructuring of US and most European health care systems Structure competition among health plans, provide groups around key chronic conditions Develop national strategy for addressing rise in treated disease prevalence Devote resources to developing effective health promotion, wellness programs for use in schools, and the worksite.