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B&H Talks To . . . Peter Kongstvedt, MD, Cap Gemini Ernst & Young

Article

"Of the top 10 issues facing the health system today, the first 11 are cost," says the vice-president in CGE&Y Health&s Managed Care practices who discusses, among other things, skyrocketing health care costs and the effectiveness of consumer-directed plans.

 

B&H talks to . . . Peter Kongstvedt, MD, Cap Gemini Ernst & Young

"Of the top 10 issues facing the health system today, the first 11 are cost," says the vice-president in CGE&Y Health's Managed Care practice. B&H Managing Director Rick Service and Managing Editor Andrew Kardon recently sat down with the VP to discuss, among other things, skyrocketing health care costs and the effectiveness of consumer-directed plans.

Business and Health: Is the notion of consumer-directed health plans really anything more than window dressing on shifting costs? Will consumers fall for it? We've seen 17,000 GE workers going on strike over paying more for health insurance. It was a huge issue in the near-strike for the NYC Transit system.

Peter Kongstvedt: There is an element of trying to keep premium increases a bit lower by plain old-fashioned cost-shifting, but consumer-directed is actually more than a euphemism. There's a widespread belief amongst people in the industry — not just health plans, but physicians and hospitals and others involved in health care — that the third-party payer system has insulated consumers so much from the actual cost of health care that they have lost touch with reality.

A study by a major benefits consulting firm asked employees what percentage of their health insurance premium they paid out-of-pocket, and most employees believed that they paid well over half, when the truth is that it's closer to 17 percent. CMS looked at the percent of out-of-pocket in the total health spent — contribution to premium, co-insurance, copay, that type of thing. It's been dropping steadily since the ‘70s, and it's now about 15 percent. Yes, the hard dollars that consumers pay out-of-pocket have been rising, but not nearly as fast as the actual cost of health care, so they have really and truly been spending less as a percentage of the total.

Consumers, though, simply don't agree. A Kaiser Foundation/NPR survey done in May 2002 asked consumers, "Why are health care costs rising?" They put up there — with a bullet — high profits made by drug companies, greed and waste, malpractice lawsuits, aging in the population, expensive high-tech medical equipment, and new drugs; consumer insulation from the actual cost of health care didn't even make it to 40 percent.

So consumers don't feel like they've been insulated, even though most people have no incentive to look for lower priced doctors and services. The hope of these consumer-directed plans is to try and expose them more to the true cost and get them to change their behavior.

B&H: Part of removing the insulation from around consumers is getting them to use the system less, correct?

PK: That which they direct themselves. I think it's unknown at this point whether consumers will forgo something necessary that their doctor recommends. If a physician says, "I really think you need this," the chances are pretty high that the patient's going to go ahead and get it.

B&H: We're getting into changes in physician behavior, as well. Patients know a lot more these days, and they're urged on by advertising. That puts a lot of pressure on docs to give them whatever they want. Will consumer direction stiffen some medical spines?

PK: There was a term coined by Elliott Friedsen back in 1973, the Entitled Demander — patients who demand something because they believe they're entitled to it, not necessarily because they think they need it. And it's true that it doesn't cost physicians a penny to recommend something. But the hope is that if consumers have to pay more out-of-pocket, they'll have more in-depth discussions with their physicians to find what they really need. If the patient walks into the room — which happens a lot by the way — saying, "Hey, I read about MRIs, and I've been having headaches for 10 years, and I want one," that's where they're hoping the discussion will be, that the physician will say, "If you've had headaches for 10 years and you clench and grind your teeth when you sleep, you don't really need an MRI." We're going to see that.

B&H: Let's talk about giving consumers more information about costs. Great concept, but I wonder about real world applications.

PK: It's early in that. There are some companies, Subimo is just one example, that a number of health plans use to collect and collate data on hospitals and other providers that consumers can then access via the Internet. In other cases, some of the pharmacy benefits management companies provide differences in cost between drugs in the same class. But, right now — I hate to say this — there's very little evidence that consumers are using this data.

B&H: Does this have something to do with what their encounters are like? If somebody's experiencing chest pain, they're not going to go to a computer to find out which hospital is the most economical.

PK: Nor does any health plan or doctor want them to. The average consumer's experience with the health care system is not an acute heart attack. If you look at the appointment book of any primary care physician, the bulk of it is routine stuff. The vast majority of procedures are elective. So if consumers bear more costs out-of-pocket, they may very well want to go someplace where costs are lower, assuming that the quality is the same.

B&H: Right now, you basically go where your doctor tells you.

PK: Again, the hope of those who are putting these plans in place — and by the way, I'm not necessarily advocating this benefits design — is that when consumers have skin in the game they'll have those discussions with their doctor instead of simply heading for Mt. St. Elsewhere.

B&H: Do you expect much the same thing to happen with drugs, that consumers will readily ask doctors if a cheaper treatment might be just as effective?

PK: Actually a lot of that takes place at the pharmacy now. The patient may go get a prescription filled and discover, "It's fifty bucks. Whoa!" Pharmacy benefits managers are encouraging the pharmacist to offer clinical counseling, to say, "Well there are three alternatives, have you talked to your doctor about them?" Or even have the pharmacist call the doctor and say, "The patient would like to know if it's OK to take genericillin instead of wondercillin." That's actually happening, although it's going to be complicated by HIPAA privacy provisions.

B&H: Your firm has said that drug costs "have become virtually unmanageable for the government and consumers alike," and you're not alone in that opinion. Yet the rate of increase in drug spending has actually slowed for three years in a row.

PK: But it hasn't slowed hugely. I don't want to pick on the drug companies for the costs, particularly a rate of rise that is relative to the rise of everything else, but you've got to put it in that context. As a percentage of the total, drug spending has gone down a bit over the last couple of years, because hospital in-patient and out-patient care and procedures have gone so far up. The only providers who are consistently getting clobbered are the PCPs.

B&H: Let me give you a statement: "The reason why there's so much concern about the cost of prescription drugs is simply that prescription drug manufacturers are a large, wealthy and convenient target."

PK: Yes, it's their turn in the barrel. The media and politicians have beaten managed care to a bloody pulp, and a lot of the early-managed care activities don't happen any more. Who's left standing? But anybody who's thoughtful about health care costs can see a conundrum. Drug companies have invented some wonderful new drugs. If you put too much of a chill on the drug industry, you're really going to slow this down. We treat more than we ever did before. Some of it is inappropriate, but a lot of it is appropriate, and nobody wants to stop that. The detection and treatment of hypertension and high cholesterol are preventive measures that are highly costly. You do it because they're right, not because they save money.

The other thing that we need to keep in mind is that the drug industry, unlike any other aspect of health care, is truly global. And because of price controls every place else in the world, we end up paying a disproportionate share for research and development. How nice of us. But then, we're a rich nation, so this is not necessarily inappropriate.

B&H: How much more savings can tiered copays and the like squeeze out of generics? They've got about 45 percent of the market, so a lot has already happened.

PK: Not all of it's happened. In almost all drug companies, a handful of drugs make up the vast majority of profits. And a lot of those are drugs for which there are, in fact, alternatives — NSAIDs and COX-II inhibitors, for instance — so there's still room to go.

B&H: You mentioned earlier that it's the primary care physicians who are getting beaten up most. Expand on that, if you would.

PK: CMS for Medicare has been ratcheting down reimbursement. Medicaid is ratcheting down and also tightening eligibility, which increases the level of uninsured. I feel for the doctors. The hospitals have been able to counter this in the commercial sector. Because of regional consolidation they've been in a much stronger negotiating position. They've been putting through some fairly substantial price increases, but they've also been having to reinvest in equipment, technology, pay the nurses more and so forth, so they have legitimate costs. Generally speaking, they are not really gouging the system. I think it's going to get worse. There may be an ironic side effect if fee-for-service reimbursement becomes lousier. Capitation may start to look better again.

B&H: If you flatten out or, in relative terms, reduce earnings potential, can you still attract the best and brightest into the field?

PK: We've already seen that people going into medicine are balancing a little differently. When I went to medical school and out into practice, you were pretty much expected to work your butt off. Nowadays, people are saying, "Wait a minute, I want a life too. And I don't want to have to work 80 hours a week for the rest of my life, and I'm not even sure that the money is worth it. I'd rather have a life. I'd rather share call with my colleagues, have better control of my hours, see my kids when I want to see them," and so forth. We've already seen movement towards people who are more interested in balancing their lifestyle than in working hellaciously long hours. Flattening reimbursement probably just supports that. You know, people want to make enough money to have a decent living, a good living. And their professionalism is going to demand that they maintain the quality.

B&H: Let's talk about the uninsured. You've written about their impact on the risk pool and passing along the cost of care for people who don't have insurance. EBRI predicted recently that in a few years, one out of five people will be without health insurance. At what point do we reach critical mass?

PK: This is a severe problem, and every CEO of every health-related organization that I've spoken to personally, whether it's a payer or provider, believes that we must address this issue — that it's a disgrace that we don't have universal coverage. And it is getting worse. The 41 million are just the permanently uninsured. There are another 20 million without insurance at some point during the year. Only one in five employees who are COBRA eligible take it up. If average COBRA family cost is $600 a month and average unemployment benefits only $939 a month, it's pretty easy to do the math. There's a small percentage of free riders. Roughly 4 percent of the uninsured make more than $50,000 a year. Eight percent make between $30,000 and $50,000, and then it just keeps growing as income goes down and down.

I think that we are rapidly approaching — within five years — the point where universal coverage in some form is going to have to exist. I don't see that it will be a single-payer system such as exists in Canada, though. There really is no political support for that. There will probably be growing support, though, for mandated coverage — probably through the employer, and maybe using the tax system. I personally don't think that tax benefits are going to cut it. They're too anemic in the lower income range, and that's where the problem really is. Even refundable tax credits don't do much, because if you give somebody a refund and their Buick is broken, they fix the Buick. No car, no job.

But we're going to have to address this, and we might do it under the only "Nixon can go to China" principle. If the Republicans hold both chambers and if the President is re-elected, the Republicans might be able to move this through more easily than the Democrats could.

For more information about CGE&Y and its health-related services, please visit www.cgey.com/health/ .

Resource Links:

Kaiser Family Foundation/NPR survey (May 2002)
http://www.npr.org/news/specials/healthcarepoll/healthgraphs.pdf

Centers for Medicare & Medicaid Serviceshttp://cms.hhs.gov

 



B&H Talks To . . . Peter Kongstvedt, MD, Cap Gemini Ernst & Young.

Business and Health

2003;2.

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