vortrag jw iaahs coll. dresden nach prod. und proofactuaries.org/iaahs/colloquia/dresden/wettke...

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Dr. Jürgen WettkeDresden, April 28, 2004

Opportunities and Challenges Within the European and US Healthcare Systems

Opportunities and Challenges Within the European and US Healthcare SystemsIAAHS Colloquium 2004IAAHS Colloquium 2004

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Key issue questions

Source: McKinsey

What can we learn from other countries' successes andfailures?

What can we learn from other countries' successes andfailures?

Are there untappedinternational opportunitieswith implications for payorsand providers?

Are there untappedinternational opportunitieswith implications for payorsand providers?

Why is there not more crosscountry knowledge sharingof reform ideas?

Why is there not more crosscountry knowledge sharingof reform ideas?

Will the increase in healthcarecosts ever stop?Will the increase in healthcarecosts ever stop?

Is integrated care the solutionto more efficient healthcare?Is integrated care the solutionto more efficient healthcare?

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Key messages

•While healthcare systems are all substantially different, they all face the same challenges

•Major reforms have been implemented with varying success

•Healthcare systems appear to be converging

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The Western European healthcare market amounts to 65% of the US healthcare market

* Austria, Belgium, Denmark, Finland, Greece, Ireland, Luxembourg, Norway, Portugal, Sweden; for Austria, Belgium and Luxembourg data from 2000 Source: OECD Health Data 2003, McKinsey

US100% =USD 1,392 bn

Western Europe65% =USD 900 bn

Ger-many

France UKItaly Spain TheNether-lands

Switzer-land

Others*

Percent, 2001, USD PPP

US Western Europe

17

98

10235

65

11

100

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Although healthcare systems are different …

US• Private systems (employer based

or individual), voluntary• Government-sponsored programs

(elderly, poor, disabled)• Broad range of products,

deductibles, and co-payments dependent upon type of product

Sweden• National healthcare system• Several patient co-payments

(e.g., on Rx, inpatient care)

UK• Tax-financed national

healthcare system (NHS)

• Gatekeeper system• Patient co-payments

(e.g., on Rx, dental services, glasses)

Spain• Tax-financed national

healthcare system• Gatekeeper system• Free choice of physicians

Source: McKinsey

Germany• Almost complete insurance

coverage• Income-related insurance

premiums• Solidarity and subsidiarity

principle

Switzerland• Mandatory basic insurance• Voluntary supplementary

insurance• Income-related insurance

premiums• Patient co-payments

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FUNDING SOURCES FOR HEALTHCARE SYSTEMS, 2001Percent

… three basic models can be identified

Liberal – payorand provider competition

* Including private social insurance and all other private funds** 2000

Source: OECD 2003

US Switzer-land**

Bismarck – coverage is compulsory and directly contributory

TheNether-lands

Ger-many

France

Beveridge – coverage is compulsory and contribu-tory through taxation

Italy Denmark Norway

Total health expenditure per capitaUSD PPP 2,626 2,808 2,561 2,212 2,503 3,0124,887 3,248

1533

41 11

4456

Out-of-pocket payments

Private insurance*

Public expenditure on healthcare

11 10

2814 14

6375 76

20 16 14

4

76 82 85

12

9

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European healthcare systems share similar characteristics

• Strong sense of social solidarity– Dominated by public payors– Comprehensive coverage

• Preponderance of public and non-profit providers

• Very "local markets" – limited cross-border exchange

• Very fragmented provider landscape

• Little influence of employers on public payors

Source: McKinsey

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Challenges of healthcare systems (1/9)

• Sustainability of financing healthcare services

• DRG introduction • Public sickness fund competition

Germany

Source: McKinsey

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• Structural change of the health insurance scheme

• Introduction of reference price system and drug de-listing

• Impact of 35-hour work week in hospitals, hospital reform

France

Source: McKinsey

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• Rising spend despite cost containment measures

• Fragmented territorial coverage• Reorganization on a regional level

Italy

Source: McKinsey

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• Rising public sector hospital debt• Increasing role for private payors• Cost containment measures in public

sector

Portugal


Source: McKinsey

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• Financial and managerial responsibility of autonomous regions

• Rising spend despite cost containment

Spain

Source: McKinsey

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• Budget deficits• Hospital performance• Short supply of healthcare personnel

Scandinavia

Source: McKinsey

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* Krankenversicherungsgesetz (Health Insurance Act)Source: McKinsey


• High per capita premiums• Payor competition and revision

of KVG*• Hospital financing, hospital

benchmarking

Switzerland

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• Funding up, very tough targets for NHS

• Various opportunities for private players to enter

UK

Source: McKinsey

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• Medicare Modernization Act (MMA) – recently passed reform with 300 provisions and profound impact on many stakeholders, as well as on patient care and access

• Rising healthcare costs and aggressive cost shifting• Aging population and increasing consumerism

US

Source: McKinsey

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European countries and the US are facing many of the same challenges

Healthcare costs are increasing significantly more quickly than GDP

Large quality gaps despite growing amount of money inflow

Patients beginning to act as consumers and are deman-ding more and better services

• How can we sustain the healthcare finance system, given the demo-graphics and increasing costs of medical care?

• How do we attain higher quality for lower costs?

• Does privatization automatically mean loss of social solidarity?

Source: McKinsey

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REAL ANNUAL PER CAPITA GROWTH RATES (1990 - 2003)Percent

If current healthcare spending growth continues …

4.5**

2.4

1.9

6.0

3.2

1.7

Costs are increasing significantly more quickly than GDP

* Average for 15 European countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, UK), unweighted data, partly calculated by using extrapolated data

** Without Austria and Spain*** Extrapolated by using data from 1990 to 2001

Source: OECD 2003, McKinsey

Pharmaceutical expenditure

Healthcare spending

GDP

Europe* US

• By 2010, the average European* healthcare spending per capita will be USD PPP 2,966*** compared to the current average of USD PPP 2,199

• And the average US healthcare spending per capita will be USD PPP 6,322*** compared to the current average of USD PPP 4,887

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Large quality gaps within states …

* Indexed, 100% = German average** Adjusted value

Source: "Benchmarking von Arzneimittelausgaben“, McKinsey analysis

Diabetesmortality rate*Percent

Baden-Wurttemberg

Thuringia

SaxonyBerlin

North Rhine-Westphalia

Hamburg

Diabetes pharmaceutical spending**EUR per inhabitant

More than 100% difference between Hamburg and Saxony

German average

More than 300% difference in probability of death from diabetes (Thuringia vs. North Rhine-Westphalia)

Also note: no clear correlation between spending

and outcome

50

100

150

200

5.0 7.5 10.0

EXAMPLE GERMANY

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… and also across countries

1 20002 Average for 15 European countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,

The Netherlands, Portugal, Spain, Sweden, UK), unweighted data3 Number of deaths from breast cancer divided by number of new cases in the same year4 Extrapolated data for the number of deaths among females by using data from 1990 to 19995 Extrapolated data for the number of new cases by using data from 1990 to 1998

Source: OECD 2003; Cancer Facts & Figures 2000, American Cancer Society; Statistisches Jahrbuch 2002, StaBu; McKinsey analysis

Italy 4

Luxembourg

Germany 5

France 4

39

36

30

26

23

22

690

550

460

450

430

390

482

US 1

Italy

European average 2

UK

France+86%

Germany

SpainFinland

US

Infant mortality (2001)Deaths per 100,000 live births

Mortality rate from breast cancer 3

(2000), percent

+44%

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Patients increasingly act as consumers in Europe

* UK, Italy, and GermanySource: 1,500 telephone interviews (500 per country), Factiva, McKinsey analysis

Patients are becoming more proactive …… and healthcare is being debated more often

57 67

1996 2001

Healthcare proactivity of consumers in Europe*Percent of respondents (1,500 telephone interviews)

"I am proactive about my health and make choices about my lifestyle"

+10%

21 26

1996 2001

"I have been to the doctor and requested a specific treatment or prescription even though it was not initially offered to me"

Example: number of health-related articles per year in major news and business publications in EuropeIndex, 1996 = 100

100

154

1996 2001

+5%

+54%

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459318

1990 2001

1,401

1,825

Total

Private

Patients bear greater financial responsibility due to reduction of reimbursement

CAGRPercent

3.4

2.4

AVERAGE HEALTHCARE EXPENDITURE PER CAPITA IN GERMANY, FRANCE, ITALY, AND SPAIN EUR*

Total out-of-pocket expenditure rising notably due to shift towards discretionary spending, e.g.,• Reimbursement level recently reduced on several

hundred treatments • Reference pricing scheme introduced in October 2003

implies that patient co-payment is a must if they require brands that are more expensive than the reference price.

• Since January 2004, patient co-payment per drug pack is 10% of the drug price, fixed at min. EUR 5, max. EUR 10 (but never more than the drug price). Sickness funds no longer reimburse OTC and lifestyle drugs.

• Massive shift to co-payment over the last 5 years (> 60% of drug expenditure privately funded)

• Entire category of drugs (C) not reimbursed• Reference pricing introduced in 2003 sets a "cut-off"

reimbursement point by TA (based upon daily dose cost). Products priced above that level will not bereimbursed.

* At 1995 GDP price levelSource: OECD 2003, Espicom , McKinsey analysis

Total

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Source: Mercer/Foster Higgins, Hewitt Associates, Kaiser/HRET, CMS

336360

468

Average employee annual contribution to health insurance premiumUSD

2000 2001 2002

Prevalence of multi-tiered co-paymentsPercent of covered workers

Two tiers

One tier

2000 2001 2002

33 4159

48 37

28

19 2213

Three or more tiers

113126

138155

173189

1998 1999 2000 2001 2002 2003

Per capita out-of-pocket prescription drug spendUSD

CAGR = 11%

CAGR = 18%

In the US, healthcare costs are also increasingly being put onto the patients

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Key messages




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Smart navigation of patients1

Seven solutions for transforming healthcare systems

Source: McKinsey

Selected country examples

EUR 11.6 billion investment in IT infrastructure in UK

Improve quality of care Medical quality management in the Netherlands

Take control of drug spending Reference pricing scheme for branded drugs in Portugal

Improve the operation of hospitals

Efficiency improvements in hospitals in Sweden

Increase competition Competition among public payors in Germany and Medicare reform in the US

Increase patients' free choice and responsibility

Freedom to choose hospitals in Norway

Limit covered benefits Limiting of illnesses covered in Sweden

234567

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Smart navigation of patients

Building blocks Hypotheses based upon experiences to date

• Widespread usage across Europe (especially tax-based systems such as in the UK, but also The Netherlands and Switzerland) – with mixed outcome

• Inherent ambivalence: patients don't like it (it reduces their choices), politicians believe in the cost savings potential but cannot prove it

• Areas for improvement: lack of professional management, bureaucratic overload, blurred roles and responsibilities, inadequate payment schemes, individualism rather than collaborative effort to achieve common goal

• Though conceptually brilliant, the idea only delivered convincing results in special situations (Knappschaft, Germany) – most other models failed

• Strong need for adequate financing models: risk-adjusted capitation rates, internal pricing and transparent profit sharing between participants

• Being developed in many countries/regions (UK, Scandinavia, Germany), no proven success stories to date

• Enabling backbone for any efficient navigation• Think big – start small: focus on e-prescriptions/e-doctoral letters first

and test feasibility in small pilots

Integrated delivery networks (IDN)

Healthcare IT infrastructure

Gatekeepingmodels

Source: McKinsey

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Improve quality of care


• Tested in some countries/regions (The Netherlands, Scandinavia, Germany)• Example The Netherlands: regular re-certification, peer reviews, practice visits• Critical success factor: need to manage consequences by removing/sanctioning

poor performers (e.g., mammography certification in Germany)

• Promising solutions already in place: regular peer-based monitoring (e.g., The Netherlands), direct linking of guideline adherence and compensation (e.g., UK)

• Goes hand in hand with the introduction of treatment guidelines and systematic patient education

Promote adher-ence to best practice treat-ments (process quality)

Ensure quality of providers (structural quality)

Source: McKinsey

• Initial testing in some countries/regions (e.g., Scandinavia) and first attempts to link outcome and compensation (e.g., UK – part of "NHS 2008" vision)

• However, achieving systematic transparency of outcome quality is very difficult• Need for independent, fact-based outcome research as a basis for sustainable

improvements

Make outcome transparent (outcome quality)

• Work well in The Netherlands/UK and are the core of any quality effort• Approval procedures and efficient implementation are critical

Treatment guidelines

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Example: Medical quality management in The Netherlands

• Approximately 80% of primary care physicians take part in 6 to 12 peer reviews per year

• 60 to 70% of peer reviews are based upon guidelines

• Approximately 70 guidelines have been developed by the Dutch College of General Practitioners

• Statistical analysis of treatment processes and outcomes

• Testing of physicians• Video recordings of physician/patient

interaction

• Approximately 40% of all general practitioners take part

• Goal is mainly to evaluate management processes

• Re-certification every 5 years based upon participation in trainings, congresses, etc.

Key factsMeasures to ensure quality

History of quality initiatives

Initiatives to introduce peer reviews and treatment guidelines

Dekker reforms introduce competition and focus on quality

Law passed to enforce annual quality reviews

1970s

1980s/90s

1996

Source: McKinsey

Peer reviewsPeer reviews

Treatment guidelinesTreatment guidelines

Quality monitoringQuality monitoring

Practice visitsPractice visits

Re-certificationRe-certification

1

2

3

4

5

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Take control of drug spending


• Substantial differences in penetration of generics between highly developed generics markets (e.g., Germany, UK, The Netherlands) and less-developed generics markets (e.g., Italy, France, Spain)

• Emerging successful best practices: generics substitution by pharmacists, INN-only prescriptions, patient incentivization (e.g., UK, Germany)

• Late-to-market drugs with little therapeutic improvement cause high costs• Promising countermeasures: rigorous cost/benefit evaluation ("4th hurdle" –

e.g., NICE in UK, IQWiG in Germany), positive lists, or reference pricing

Reduced acceptance of "me too" drugs

Widespread use of generics

Source: McKinsey

• To date, pharma's EUR multi-billion sales machinery controls physicians' prescriptions (> 60,000 reps in the EU)

• Some promising counteractions, e.g., in Germany: individual target agreements for physicians (including generics usage, overall budget, consultation services) plus transparent bonus-malus system

Increase physi-cians' responsi-bility for induced drug spending

• Still significant potential for increasing efficiency within distribution (on average 28% of drug spending for distribution)

• Solutions: pharmacy chains (e.g., UK, The Netherlands), fee for pharmacists' service (e.g., Switzerland), promotion of mail order pharmacies (outcome still not clear)

Realize efficiency gains from drug distribution

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Example: Government action to promote use of generics in Portugal

* Denmark, Finland, France, Germany, Greece, Ireland, Italy, Spain, Sweden, UKSource: OECD Health Data, press clippings, IMS

Healthcare spending in Portugal increases more than the Euro-pean average

Reference pricing system introduced in March 2003 to reduce drug spending

Strong growth in sales of generics

• Reimbursement of drug costs only to maximum generic drug price

• Patient must pay the difference between that and the branded drug price

• Initially, rule applied to 45 registered generics; number expected to grow

• Patients overwhelm-ingly in favor of reform

PortugalIndex, 1990 = 100

1990 2001

100

228

Europe*Index, 1990 = 100

1990 2001

100133

Actions to prove long-term effect on drug spending

• Year-on-year growth of generics sales is 316% in the first half of 2003

• Total generics sales in 2003 expected to reach EUR 100 million (total market in 2002 approx. EUR 2 billion)

• Market share of generics expected to grow between8 and 10%

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Improve the operation of hospitals


• Operations within hospitals are often anachronistic: long waiting times, low utili-zation of capacities, permanent bottlenecks in ICUs, paper-based documentation

• Classic toolbox to optimize operations requires top management skills: capacity planning, clinical pathways, specialization, outsourcing of non-core activities, purchasing, etc.

• Private ownership appears to propel development (e.g., Sweden, Germany)

• Cooperations are the key to competitive advantage in the long term, e.g., purchasing organizations, shared services, and mergers and acquisitions

• However, there must be a good partner fit – otherwise substantial risk of failure exists

• Private and public hospital chains will push consolidation

• Strong enabler of efficiency gains with a proven track record (e.g., US, Australia)

• Transparency across the hospital landscape but also within hospital departments (e.g., Norway, Germany)

• Means of fair allocation of resources – "money follows performance"

Pursuing structural change options

Introduction of DRG-based pay-ment schemes

Principles of lean production and professional management

Source: McKinsey

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AustriaAustria

GermanyGermany

Example: Introduction of new financing mechanisms has begun to put pressure on hospitals

0

2

4

6

8

10

12

1980198519901995

DRG-type financing is leading to increased cost pressure and reduced length of stay All hospitals need to consider

Average length of stay acute care (2000)

Year of implementingDRG-type financing

• Actions for improving operational performance

• Specialization

• Mergers and acquisitions

• New partners (alliances)

• Exiting the market (where regulation allows) if not competitive

2005

USUS

UKUK

SwedenSweden

FranceFrance

AustraliaAustralia

Spain*Spain*

ItalyItaly

* Length of stay in 1998Source: OECD Health Data 2003, McKinsey

NorwayNorway

2000

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Increase competition among payors and providers


• Competition among payors leads to new ideas and new dynamics (e.g., better services, more efficient cost management)

• Similar: competition of systems within one country on a comparable basis (e.g., public and private payors in Germany, tax-based and private insurers in the UK)

• Good ideas: public tenders for certain contracts (e.g., medical aids in Germany), some degrees of freedom to negotiate prices and discounts (e.g., by large specialized orthopedic hospitals in the future), regional budgets, and contracting (e.g., Norway, Italy, Germany)

• Group contracting seems to make more sense because of low gains from improved competitiveness through individual contracting, compared to high administration costs (e.g., Germany vs. US)

• Some competition among hospitals exists, but many restrictions remain (e.g., monopolies, restricted market access, state ownership of facilities)

• Instead of budgeting, enforce transparency of prices and quality (same for identical treatment whether outpatient or inpatient), private ownership (hospitals and outpatient facilities), and attractive economics (flexible budgets)

Contracting among payorsand providers (contract market)

Competition among providers (treatment market)

Competition among payors(policy market)

Source: McKinsey

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Example Medicare: The key reforms include the introduction of drug benefit guidelines and competition among private payors

* Estimated to produce savings of 10.15%Source: Deutsche Bank Research, March 17, 2004, No. 292

ELEMENTS OF MEDICARE REFORM IN THE US

Opening up for competition• From 2010: pilot models including private

insurers are to be initiated in 6 major regions• If private insurers offer services at more

favorable prices, retirees are free to switch to these payors

• By 2013, Medicare costs are expected to rise from 2.5 to 3.9% of GDP

• Positive evaluation of the reforms has been muted by– Complexity of the legislation

– Limits and gaps with respect to covering costs

Extending subsidies to include drugsFrom 2006:• Pay the first USD 250 in drug costs p.a.• Pay 25% of total drug costs between

USD 250 and 2,250 p.a.• Pay 100% of drug costs between

USD 2,250 and 5,100 p.a.• Pay 5% above USD 5,100 p.a.• From June 2004, Medicare beneficiaries have

access to Medicare-endorsed drug discount cards*• Insured with an annual income of more than

USD 80,000 pay higher contributions

SIMPLIFIED

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Increase patients' free choice and responsibility


• Broad range of choice across European healthcare system: from 100% free choice (e.g., Germany) to fully controlled systems (e.g., UK, Portugal)

• Change is underway: introduction of hospital list in the UK, central reservation management in Sweden and Norway

• Challenge: more choice for patients as a powerful driver of competition ("vote by feet")

• Systems suffer from "full-coverage mentality" of patients (e.g., low compliance in drug usage, visits to multiple doctors, unhealthy lifestyle)

• Measures to change mindset from "treat when diseased" to "contribute to staying healthy": large-scale preventative programs (breast/prostatic/colon cancer screening), premium discounts for healthy lifestyle or participation in disease management programs

More patient responsibility for healthcare utilization

More freedom for patients to choose payor/provider

Source: McKinsey

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Example: Introduction of free choice of hospital leads to emerging competition in Norway

How it works

• Free choice of hospital (since January 2001)

• Patients free to call toll-free number or visit website to find shortest waiting times and book treatment (since May 2003)

• Hospital outcome ratings and rankings of service level by hospital on Internet (since September 2003)

• Patient is guaranteed treatment within a certain time period by law

Positive effects still to be proven: system has been in place just less than one year

Source: www.sykehusvalg.net; McKinsey

Choose body part

Body area

Find shortest waiting time

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Limit covered benefits


• Rationing of coverage is effective in terms of promoting "system-compliant" behavior – Exclusion of OTC medicines (e.g., UK, Germany)– Co-payment schemes for drugs, physician, or hospital services

(e.g., France, Germany)– Reimbursement reference pricing: generics coverage (e.g., Portugal)

and medical aids (e.g., Germany)• Instead of "one-size-fits-all packages": modularization of coverage into basic,

voluntary (e.g., acupuncture, contact lenses, glasses, etc.), and luxury coverage (e.g., single bedroom, gold in-lays, etc.)

Differentiation and more co-payment by patient

Source: McKinsey

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Example: Sweden is limiting coverage

"The Diseases for Which You Will Not Receive Treatment"

(Expressen, Oct 30, 2003)

Examples of diseases not covered in the future

Heart disease• Infarct observation with low likelihood

of cardiac infarctStomach diseases• Chronic abdomen painWomens' diseases• Water gym for pregnant womenChildrens' diseases• Slightly overweight, eating disorder• Infection of the respiratory passages• Growing pains• Headache, stomach pain• Primary bed wetting

Source: Expressen; McKinsey

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Key messages




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Healthcare systems appear to be converging

Primarily insurance-based systems

(Benelux, France, Germany, Austria, Switzerland)

• Higher premiums for healthcare

• Better accessibility to services

Primarily tax-based systems

(UK, Spain, Italy, Scandinavia, Finland)

• Lower absolute level and growth rate of health-care costs

• Waiting lists, rationing of services

Convergence

Source: McKinsey

More freedomto choose providers

Increase in capacity

Wider choice of treatment quality

Reduction of services covered

Reduction of overca-pacity/consolidation

Introduction of gatekeeping/steering principal

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Source: McKinsey

Key observations and takeaways

•Although healthcare systems vary, all systems appear to have similar problems

• In order to cope with rising healthcare costs and quality issues, nearly all countries have introduced reforms with varying outcomes

•The European and US systems have major oppor-tunities to become more efficient and effective

•Many governments are testing various solutions -often with limited upfront analysis and without learning from other countries' successes and failures

•The impact of any reform depends upon execution -"fine tuning" is critical

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