OK, so I’ve been a little obsessed with the First Health-Concentra deal. Several clients will be directly affected by the merger, and their priorities are mine. But I’ve been ignoring the larger world, including a report published in Health Affairs (subscription required) that has far-reaching implications.
Two researchers at CMS analyzed data on the concentration of health care expenditures, (what percentage of patients spend what portion of total medical expenses) and noted a surprising trend.
Up until the last few years, there was little change in the distribution of health care expenditures across the population. The top 1% spent about 28% of all health care dollars, the top 5% spent 56%, the top 10% – 69% and so on. Remarkably, this has been pretty consistent for decades; a 1928 study reported very similar results.
A few years ago this started to change – a bit.
The concentration among the top spenders decreased; the top 1% to 24% of dollars; 5% to 48%, and 10% to 62%.
The primary driver appears to be a shift in expenditures away from hospital and towards prescription drugs. After total drug spending increased by 125% from 1996 to 2003, drugs now account for 20% of all health care spending. Unlike other types of medical services, drug utilization increased across the entire population, among the high spenders and lower spenders alike. This served to dramatically increase the dollars spent by “lower” consumers, while the percentage increase in spending by larger consumers (who were already spending lots of money) was significantly lower.
Implications
As the authors noted, the big spenders are still big spenders. From a health policy perspective, we need to focus efforts on disease management and other “clinically oriented programs.”
The big spenders are not going to be affected at all by so-called consumer-directed health plans as presently constructed.
However, prescription drug utilization may be effectively addressed through the use of multi-tiered plans, deductibles, mandatory generics, and the like. Some recent data suggests that the rate of increase in prescription drug spending is (finally) moderating, perhaps due in some part to the popularity of these benefit designs.
“big spenders are not going to be affected at all by so-called consumer-directed health plans”
Big spenders almost all have very significant hospital expenses. The RAND study conducted in the late 1970’s found that higher copayments reduce ambulatory utilization. However, RAND found that there are two important areas in which higher cost-sharing does not much affect utilization: hospital care and child care. So I would say that your conclusion is well-supported by research data that dates back at least 30 years.
Based also on the RAND study, it’s reasonable to suppose that high-deductible plans can succeed in reducing ambulatory utilization – but I do not believe they can be expected to reduce inpatient hospital utilization. In any event, the experience of these plans will soon enough begin to replace supposition.
Separately, inpatient hospital utilization had been on a long slow decline for some years as technology enabled more and more treatment in an outpatient or ambulatory setting. If pharmaceuticals are helping this trend along, that’s good news.