Reinhard Busse, Prof. Dr. med. MPH FFPHFG Management im Gesundheitswesen, Technische Universität Berlin

(WHO Collaborating Centre for Health Systems Research and Management)&

European Observatory on Health Systems and Policies

Ageing and the Challenge to Finance Health Care in Europe:

An Overview and Innovations

$1,227 – savings calculated to Czech government each time a smoker dies

Report from Philip Morris

An ageing crisis?

• Compression of morbidity– Longer and healthier life expectancy– "Living longer and dying faster“

• Reduced cost of dying at older ages• Lower life time health costs by the healthier • Drawing less from health services • Contributing for longer: late retirement

The ageing of the population: an exampleThe price of success?

The good news: We get older, because we are healthier (even though some still have doubts)

Separating the (high) costs of dying from overall health-care costs shows a more modest picture

Public health spending: exp. growth rates/ year 1971-2002 [* from 1981]

Age effect Income effect Other factors Total spending

Australia (to 2001 only) 0.5 1.7 1.7 (1.4)* 4.0 (3.6)*

Austria 0.2 2.5 1.5 (0.0)* 4.2 (2.2)*

Belgium (from 1995 only) 0.4 2.2 0.6 2.9

Canada 0.6 2.1 0.4 (0.6)* 3.1 (2.6)*

Denmark 0.2 1.6 0.1 (-0.5)* 1.9 (1.3)*

Finland 0.6 2.4 0.5 (0.2)* 3.4 (2.6)*

France 0.3 1.9 1.6 (1.0)* 3.9 (2.8)*

Germany 0.3 1.6 1.9 (1.0)* 3.7 (2.2)*

Greece (from 1987 only) 0.4 2.1 0.8 3.4

Ireland 0.0 4.4 0.9 (-1.0)* 5.3 (3.9)*

Italy (from 1988 only) 0.7 2.2 -0.1 2.1

Japan (to 2001 only) 0.6 2.6 1.8 (1.1)* 4.9 (3.8)*

Luxembourg (from1975 only) 0.0 3.3 0.7 (-0.1)* 4.2 (3.8)*

Netherlands (from 1972 only) 0.4 2.0 0.9 (0.3)* 3.3 (2.6)*

New Zealand 0.2 1.2 1.4 (1.0)* 2.9 (2.7)*

Norway 0.1 3.0 2.2 (1.5)* 5.4 (4.0)*

Portugal 0.5 2.9 4.4 (2.8)* 8.0 (5.9)*

Spain 0.4 2.4 2.5 (0.8)* 5.4 (3.4)*

Sweden 0.3 1.6 0.7 (-0.4)* 2.5 (1.5)*

Switzerland (from 1985 only) 0.2 0.9 2.9 3.8

United Kingdom 0.1 2.1 1.5 (1.0)* 3.8 (3.4)*

United States 0.3 2.1 2.7 (2.6)* 5.1 (4.7)*

Average 0.4 (0.3)* 2.5 (2.3)* 1.5 (1.0)* 4.3 (3.6)*

Only 1/10th

1/3rd and modifiable

Third-party Payer

Population Providers: hospitals,

primary care etc.

Third-party payer: Local Health Authorities; Health insurance funds

Population Providers: hospitals,

primary care etc.

Collector of resources

Steward/regulator

Third-party payer

Population Providers

Collector of resources

Steward/regulator

Functions

Regulation

Coverage:Who? What?How much?

Mobilizingfinancial

resources

Resource pooling & allocation

Purchasing(via contracts)/

payment

Access toand provision of services

Creating human & technical resources

Third-party Payer

Population Providers

Taxes

Social HealthInsurance

contributions

Voluntary insurance

Out-of-pocket

prepaid

sickness fundshealth

authorities

private insurers

Issue 1: Finding the “right“ funding mix …

public

Third-party Payer

Population Providers

Taxes

Social HealthInsurance

contributions

Voluntary insurance

Out-of-pocket

India 2006

24%

1%

1%

69%

25% public

Third-party Payer

Population Providers

Taxes

Social HealthInsurance

contributions

Voluntary insurance

Out-of-pocket

USA 2006

33%

13%

36%

13%

46% public

Third-party Payer

Population Providers

Taxes

Social HealthInsurance

contributions

Voluntary insurance

Out-of-pocket

High income (excl. US) 2006

39%

38%

5%

14%

77% public

The more public (less private) – the better? Yes, for equity

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

10 20 30 40 50 60

Private expenditure on health as % of total expenditure on health (2002)

% o

f hou

seho

lds

with

cat

astr

ophi

c (>

40%

of i

ncom

e)

tota

l hea

lth e

xpen

ditu

re

SHI

TAX

MIXED

USAGR

ROK

CH

CDN

P

ED

B

FIN

FDK

UK

NIS

S

inequitable

% private

% households bankrupt due to health expenditure

58.7

20.1

35.7

11.4

16.5 16 15.3 14.4

10.6

14.6

5.5

16.614.9

11.1

14.5

18.7

15.513.4

15.4

9

35.9

12.8

30.3

6.7

12.414.3

7.8

15.1 14.4

11

15.6

6.5

18.216.5

13

17.2

21.5

18.717.5

20.4

15

-22.8

-7.3-5.4 -4.7 -4.1 -1.7 -0.6

0 0.4 1.6 2.8 3.2 4.1 5

8.4

-0.2

1 1 1.6

1.9 2.7

6

-30

-20

-10

0

10

20

30

40

50

60

70

Korea UnitedStates

Switzerlandb)

France Ireland Denmark Netherlandsb),c)

Japan Canada d) UnitedKingdom e)

Norway Luxembourgb)

Australia Austria f) Germany New Zealandc)

Spain Finland Iceland d) Italy d) Sweden g)

% of total expenditure on health in 1990

% of total expenditure on health, lates tavailable year (2006, unless otherwise noted)

Difference between 1990 and 2002

Out-of-pocket 1990-2006: a mixed picture

decreasing

increasing

Italy

Third-party payer

Population Providers

Collector of resources

Steward/regulator

Issue 2: Making payers and providersaccountable for need, costs, quality …

Purchasing(via contracts)/

payment

Reform trends purchasers

• NHS: development of purchasers through purchaser/provider split

purchasers = regions, health authorities, primary care trusts …providers = autonomous institutions (responsible for their own staff)

• SHI: transformation of sickness funds from payers to active purchasers

Reform trends changing the way hospitals (and other providers) are paidFee-for-service

* Ill patientsusually attractive* Over-provisionof Services* Under-referral* No incentivefor high quality

Budget

* (ill) Patientsnot attractive* Under-provisionof services* Over-referral* Quality: bad results-> more work

DRGs (per case)

* Very ill patients(within DRG) notattractive* Tendency toaverage provision* Contradictoryweak incentives

USA Europe

Reform trends changing the way hospitals (and other providers) are paidFee-for-service

* Ill patientsusually attractive* Over-provisionof Services* Under-referral* No incentivefor high quality

Budget

* (ill) Patientsnot attractive* Under-provisionof services* Over-referral* Quality: bad re-sults -> more work

DRGs (per case)

* Very ill patients(within DRG) notattractive* Tendency toaverage provision* Contradictoryweak incentives

No incentives for appropriate continuity of care across providers

Quality indicators, transparency & pay-for-performanceManaged care

So then, why DRGs?

To get a common “currency” of hospital activity for

• transparency performance measurement efficiency benchmarking,

• budget allocation (or division among purchasers),• planning of capacities,• payment ( efficiency)

For what types of activities?Scope of DRGs – the “DRG house”

DRGs for acute Inpatient care

Patients excluded from DRG system

Other activities

“Unbundled” activities for DRG patients

e.g. teaching, research

e.g. psychiatric or foreign patients

e.g. high-cost services or innovations

Possibly mixed with global budget or FFS Day cases

Outpatient clinics

Excluded costs, e.g. investments

Being aware of strategic behaviour of hospitals in times of DRGs

Options to avoid deficits under DRGs

LOS

RevenuesCosts/

Total costs

DRG-type payment

Reduce LOS

Increase revenues(right-/ up-coding;

negotiateextra payments)

Reduce costs(personnel,

cheaper technologies)

How DRG systems try to counter-act such behaviour:1. long- and short-stay adjustments

LOS

Revenues

Deductions(per day)

Surcharges(per day)

Short-stay outliers

Long-stay outliers

Inliers

Lower LOSthreshold

Upper LOSthreshold

How DRG systems try to counter-act such behaviour:2. Fee-for-service-type additional payments

England France Germany Nether-lands

Payments per hospital stay

One One One Several possible

Payments for specific high-cost services

Unbundled HRGs for e.g.:• Chemotherapy•Radiotherapy•Renal dialysis•Diagnostic imaging•High-cost drugs

Séances GHM for e.g.:• Chemotherapy•Radiotherapy•Renal dialysis

Additional payments:• ICU• Emergency care• High-cost drugs

Supplementary payments for e.g.:• Chemotherapy•Radiotherapy•Renal dialysis•Diagnostic imaging•High-cost drugs

No

Innovation-related add’lpayments

Yes Yes Yes Yes (for drugs)

How DRG systems try to counter-act such behaviour:

3. adjustments for quality

• England & Germany: no extra payment if patient readmitted within 30 days

• Germany: deduction for not submitting quality data

• England: up 1.5% reduction if quality standards are not met

• France: extra payments for quality improvement (e.g. regarding MRSA)

SHI: Capitation

Paying family doctors … the old wayTraditional forms of paying GPs (until early 2000s)

FFS

France Germany EnglandNetherlands Sweden

FFS (regionally

capped)Capitation Salary

PHI: FFS

Capitation

Payment components in GP care

Objective:appropriateness

& outcomes

Objective: productivity

& patient needs

Objective: admin. simplicity

& cost-containment

(& geogr. equity)

Basic

serv

ice

paym

ent

Extr

a se

rvic

epa

ymen

tQ

ualit

y pa

ymen

t

FFS

ADL payment

CAPIbonus

France Germany EnglandNetherlands Sweden

“RLV“ (capped

FFS)

FFS with capsper service type

FFSDMP payment

FFS (per visit & out-of-hours)

Capitation

Bonus and/orMalus

QOF bonus

Capitation

FFS (per visit)

FFS (“enhanced services“)

Paying family doctors … the new way

For GP payment, countries are moving toward a “European model” consisting of: (1) Capitation (inscription)/ capped FFS (visit-

triggered) to pay for providing basic services; (2) special lump sums for specific patient groups

(if capitation is not sufficiently risk-adjusted) + FFS for (potentially) underprovided services and/or requiring special expertise or technology;

(3) quality-related bonus (or malus) for (not) reaching certain targets.

Conclusions

60%

20-30%

10-20%

Examples of new payment measures• ‘year of care’ payment for the complete service

package required by individuals with chronic conditions (DK)

• Per patient bonus for physicians for acting as gatekeepers for chronic patients and for setting care protocols (F)

• bonus for DMP recruitment and documentation (D)• 1% of overall health budget available for integrated

care (D)• bonuses for reaching structural, process and outcome

targets (UK)• ‘pay-for-performance‘ bonuses (US)

Population ageing Strengthen the health systems response

• Improved management of chronic conditions• Coordination / integration of care• Focus on primary prevention (tobacco, alcohol,..)• Support healthy ageing, e.g. fall prevention

programmes

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