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McKinsey Health Systems Institute 1
The Future of Medicare!Implications of the Affordable Care Act and our Fiscal Imperatives !
Bob Kocher, MD Director of the McKinsey Center on U.S. Health Reform and Non Resident Senior Fellow, Brookings InstitutionApril 28, 2011!
McKinsey Health Systems Institute 2
Summary !
The fundamental issue in U.S. health care for next decade will be cost and affordability
Ultimately, budget pressures will force policies that achieve slower Medicare and Medicaid cost growth
The Affordable Care Act has accelerated an environment for change in the health system
McKinsey Health Systems Institute 3
Historically health care has grown globally at GDP +2.0% and at GDP +2.5% in the U.S.!
75%-100% 50%-75% 25%-50% 0%-25%
U.S.
OECD 1960-2005 (quartiles) Percent GDP
2.5
5.0
7.5
10.0
12.5
15.0
1960 1970 1980 1990 2000
SOURCE: OECD 1960-2005 (pub. 2007)
U.S.: GDP +2.5
OECD Median: GDP +2.0
McKinsey Health Systems Institute 4
Resulting in the U.S. spending far more on health care than expected when adjusting for relative wealth!
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000
South Korea Poland
Portugal Spain
Switzerland
United States
Austria
Canada
Czech Republic
Denmark
Finland
France
Germany Iceland
Per capita GDP Dollars
2006 R2=0.88
Spending above ESAW2
Per capita health care spending, 2006 $ at PPP1
1 Purchasing power parity 2 Estimated spending according to wealth SOURCE: Organisation for Economic Co-operation and Development (OECD)
McKinsey Health Systems Institute 5
Health care is the primary driver of future federal spending!
SOURCE: Congressional Budget Office, Long-Term Budget Outlook, Figure 1-1; June 2009
Federal revenues and noninterest spending CBO’s extended-baseline scenario Percentage of GDP
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
1962
19
65
1968
19
71
1974
19
77
1980
19
83
1986
19
89
1992
19
95
1998
20
01
2004
20
07
2010
20
13
2016
20
19
2022
20
25
2028
20
31
2034
20
37
2040
20
43
2046
20
49
2052
20
55
2058
20
61
2064
20
67
2070
20
73
2076
20
79
2082
Revenues
Social Security
Medicare and Medicaid
Other Federal Noninterest Spending
Actual Projected
McKinsey Health Systems Institute 6
…and at some point our debt will hit a tipping point !
Federal Debt Held by the Public Percentage of GDP
SOURCE: Congressional Budget Office, Long-Term Budget Outlook, Figure 1-1; June 2009
0
20
40
60
80
100
120
140
160
180
200
1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Percentage of GDP
Alternative Fiscal Scenario
Extended - Baseline Scenario
Actual Projected
McKinsey Health Systems Institute 7
State budget shortfalls are forcing states to act more aggressively to control Medicaid spending!
SOURCE: The Center on Budget and Policy Priorities; Kaiser 50 State Medicaid Survey, Sept 2010
Most states anticipate budget shortfalls in 2011, totaling $126 billion… 9,000 – 20,000
No data
2,000 – 9,000
1,000 – 2,000
500 - 1,000
0 to 500
2011 budget gap - $m
McKinsey Health Systems Institute 8
Summary !
The fundamental issue in U.S. health care for next decade will be cost and affordability
Ultimately, budget pressures will force policies that achieve slower Medicare and Medicaid cost growth
The Affordable Care Act has accelerated an environment for change in the health system
McKinsey Health Systems Institute 9
U.S. health reform was designed to increase access, reduce costs, and improve quality of care!
50 million Americans
uninsured
Access
Goals: ▪ Extend coverage ▪ Protect consumers ▪ Increase choice
2x personal consump4on of China is spent on healthcare each year
Cost
Goals: ▪ Affordability ▪ Productivity ▪ Deficit reduction
100 thousand Americans die each year due to
medical errors
Quality
Goals: ▪ Step change in
outcomes ▪ population health ▪ Liberate data
McKinsey Health Systems Institute 10
The ACA is designed to address each of these challenges!
Access ▪ Extends coverage through state Exchanges
▪ Expands federal health programs
▪ New consumer protections
▪ Purchasing subsidies
▪ Penalizes poor performance in hospitals
▪ Incentivizes wellness and prevention
▪ Funds Center for Innovation to investigate new approaches for better quality care
▪ Strengthens training around patient safety
Quality Care
Cost ▪ Streamlines administrative processes
▪ Cuts waste, fraud and overpayments
▪ Incentivizes bundled payments, CER and generics
McKinsey Health Systems Institute 11
The all-important CBO score!
Cost of the Affordable Care Act
$940 billion
Savings and new revenues resulting from
legislation
$1,059 billion
$119 billion reduction in the deficit*
* Now $230 billion
CBO estimates ACA reduces the long term trend by 25-50bps
McKinsey Health Systems Institute 12
Implementation is phased over several years!NOT EXHAUSTIVE
▪ Hospital readmission program
▪ Medicare Advantage cuts
▪ ACOs
▪ Administrative simplification
▪ CMS Innovation Center
▪ Patient Centered Outcomes Research
▪ Pharma fees/rebates
▪ Health Exchanges ▪ Subsidies and
mandate ▪ Medicaid expanded ▪ Hospital acquired
condition fee (2015) ▪ Bundled payments
2011 2012 2013 2014 2018 "Cadillac" tax
§ Dependent coverage extended to 26 § $250 "doughnut hole" rebate for seniors § Protections for people with pre-existing
conditions § No dropping when person becomes
sick § Medical loss ratio requirement
§ Ban on lifetime/annual limits § Increased free preventative
coverage § More options for “high risk” people § Tax credits to small business § New commissions § 10% tanning tax
2010 provisions
McKinsey Health Systems Institute 13
Market changes will play out very differently across the country!
SOURCE: MPACT Release 4.7
Growth in the Individual market, 2009-2016
Driven by: • High uninsured today • Low income equating to
high subsidy
McKinsey Health Systems Institute 14
Increased coverage 1
Increase in utilization 2
Cadillac tax (2018) 5
Reductions in DSH 4
Reduction in Medicare reimbursement rates 3
Reformulation of Medicare wage index 6
The ACA will force hospitals to improve productivity!
+
-
McKinsey Health Systems Institute 15
48
586070667070
523937
27302522
020406080
2002
U.S. physician practice ownership Percent
2008 06 05 07 04 03
Hospital owned
Physician owned
SOURCE: Physician Compensation and Production Survey, MGMA, 2003 – 2009; “ACO Core Competencies and Critical Success Factors,” Terri Welter, 28 July 2010.
40
31
2218
24
1585
0
10
20
30
40
2012 (e) 2008 2004 2000
U.S. physician employment Percent of active physicians employed by hospitals
PCPs
Specialists
In response, hospitals are accelerating hiring of physicians!
McKinsey Health Systems Institute 16
However, extent to which these changes translate to desired improvement in cost, access and quality is uncertain!
Consolidation/integration of providers does not lead to higher prices as a result of greater market power 1 Linking prices to real benefits to ensure payment reflects underlying value 2
The speed and completeness of shifting away from fee-for-service payment models 3
Well functioning insurance markets and Exchanges 4
Liberation of high quality, timely data to enable providers to manage risk and support consumers markets 5
McKinsey Health Systems Institute 17
Summary !
The fundamental issue in U.S. health care for next decade will be cost and affordability
Ultimately, budget pressures will force policies that achieve slower Medicare and Medicaid cost growth
The Affordable Care Act has accelerated an environment for change in the health system
McKinsey Health Systems Institute 18
Patient Centered Outcome Research Institute
Centers for Medicare and Medicaid Innovation
Readmisions / Hospital acquired condition penalties
Hospital productivity adjustment
Bundled payments
Accountable Care Organizations
How the ACA transforms Medicare !
Independent Payment Advisory Board
McKinsey Health Systems Institute 19
Thank you!
Questions
