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The driving forces behind the high cost of health care.

The United States reportedly is spending about $1 trillion on health care expenses, with an annual increase of roughly $30 billion. At the recently held REBEX '93 conference in Rosemont, Illinois, Dr. Gerald Osband, vice president for medical affairs for the Wausau Insurance Cos. in Wausau, Wisconsin, related a host of reasons for the increased cost in health care over the past decade, including: people's lifestyles (smoking, alcohol and drug abuse); an aging population (long-term care and nursing home costs are going up); significant lack of primary care practitioners; lack of tort reform; physicians self-referral to establishments they have controlling interests in; and technology.

Dr. Osband emphasizes the importance of technology in driving health care costs. "The greatest force moving us forward in terms of increasing health care costs appears to be technology. Almost half of the annual increase goes into new medical technology," he said, adding that 30 percent of Medicare expenses occur during the final year of life, with the bulk of those expenditures occurring in the last month. The reason for this is, "we as a society are not willing to forego the latest technology [to prolong life], which is moving along much faster than the clinical benefit," he said.

But there are other significant factors fueling the increase in health care costs. For example, it is estimated that anywhere between $20 and $30 billion per year are spent on defensive medicine issues (e.g., ordering extra tests). Also, as employee benefits got tighter, there was cost shifting to workers' compensation. This is significant because, according to studies Dr. Osband cited, employers are paying 110 percent more for workers' compensation medical care than for the same injuries under group health care, due in part to higher overhead for claims processing

Also to be considered is the prediction that by the year 2000, prescription drug costs as a percentage of health care will top 20 percent. As with the escalating costs of health care itself, the reasons are numerous: increased liability costs; alternate therapies--drugs replacing traditional surgical procedures; new therapies for AIDS, controlling cholesterol; greater emphasis on outpatient therapies; an aging population causing increased utilization; and a shift to generic drugs.

Intuitively, one would think that the last item--a shift to the use of generics--would lower costs, and it can, but there are market side effects, according to Greg Rucinski, president of Serv-U IPA Inc. and a registered pharmacist in Milwaukee, Wisconsin. He explained that faced with the in-evitable entrance of generic drugs to the market, original compound manufacturers must recoup all of their development costs in a short time before the patent ends. After the drug development and U.S. Food and Drug Administration's approval process, there may be only five years left (before the patent expires) to recoup that investment. Moreover, as they lose market share to generics, the original developers will continually increase the cost of their name brand to help offset those losses.

As such, a big cost savings area for employers is in using genetic drugs. The average cost difference between all brand name pharmaceuticals and their generic equivalents is $24, Mr. Rucinski said, adding that "an employer's goal should be to attain generic drug utilization of over 40 percent." How does an employer go about attaining such a usage rate? Employee education and motivation are critical, he said. For example, if the employee's doctor prescribes a brand name, although a generic equivalent is available, the administrator needs to speak to/educate the physician; if the doctor does not specify a brand or generic, or the patient requests the brand name, then the policy should be to reimburse only at the generic price. Mr. Rucinski cautioned that "generics are not all equal," but noted that the federal government does rate generics for their brand name equivalency. He urged that consumers use only A-rated genetics. Taking an overall approach to reigning in health care costs, Dr.

Osband believes the concept of 24-hour managed care should be explored further. He reported that there has been a significant im-provement in using managed care versus traditional in-demnity--individuals using HMO or PPO networks have shown an average cost increase that is much lower than in the indemnity area. "So it does appear that the managed care concept has been effective," he said. Currently, 77 percent of employers offer managed care options. It was noted in particular that medical case management appears to be the area where an employer will get the greatest cost savings, resulting from: early identification of catastrophic or longterm claims; coordination of care; enhancement of communication between all parties concerned; and exploration of alternatives (e.g., home health care).
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Title Annotation:Rebex '93 - Midwest RIMS Regional Conference
Author:Kurland, Orin M.
Publication:Risk Management
Date:Jan 1, 1994
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