Platform mutual aid for healthcare coverage in China

by Rong Yi, Milliman, February 10, 2022

Since 2012, China has achieved near-universal health coverage through a set of sweeping national health reforms. The basic social health insurance mostly covers inpatient services. Outpatient and prescription drug coverage are not yet standardized within China, and the levels of benefits vary significantly by geography. Along with rapid economic growth, urbanization, and an aging population, a growing demand has emerged for healthcare services and for better healthcare coverage. As a result, commercial health insurance has also been growing rapidly.

Traditional life insurers have been dominating the commercial health insurance market in China. In recent years, large IT companies or their investment arms have been making headways into the healthcare space. Leveraging digital technology and direct access to individual consumers, they are actively involved in both the “2B” (business-to-business) and “2C” (business-to-consumers) fronts. They aggregate consumer data to support health insurance underwriting and sales, or act as sales channels to insurers. On the 2C front, they provide personal health and lifestyle management as add-on services to their existing users, technical solutions for patient engagement, appointment booking for office visits, mobile payment for healthcare expenses, health insurance billing, and more. These IT giants have also started to partner up with insurers to offer health insurance products. As the “new kid on the block”, the companies bring in not only capital and technology but also unique vision and strategy on how to grow health insurance business. It is against this context and backdrop that platform mutual aid was spawned and took hold in China. Platform mutual aid programs are risk-pooling and mutual aid mechanisms built on large digital platforms. In this paper, we will discuss what they are, what they are not, and how they work.

What works in China’s market may not work in other parts of the world. In fact, as we complete this article at the end of 2021, the industry has seen permanent closures of mutual aid programs started by the most prominent platform companies, such as Meituan Mutual Aid, Waterdrop Mutual Aid, and Qingsong Mutual Aid in the course of 2021.[1] The leader of platform mutual aid in terms of membership, Xianghubao, is a product developed by Ant Financial, a subsidiary of Alibaba that has gone through dramatic changes since its inception in 2018.[2] Xianghubao grew to enroll more than 100 million members in its first year, plateaued in the second year, and has started to decline in membership since the start of 2021 due to concerns over the cancellation of Ant Financial’s initial public offering (IPO). On December 28, 2021, Ant announced that Xianghubao will officially close in a month.[3]

While rapid change is characteristic of any new form of business, especially in China, the impact of platform mutual aid programs has been felt in almost all corners of China’s burgeoning health insurance market. New market rules and regulations were rolled out to regulate the platform mutual aid programs.

We do not wish to speculate on the future direction of platform mutual aid business as a whole. As independent observers, we think that the platform mutual aid model is worth studying as a business phenomenon for its concept, design, execution, and technology. It may inspire further innovations in insurtech, which hopefully would grow more robust in the future. Platform mutual aid has also challenged China’s health insurance industry and pushed it to innovate and stay competitive in parallel for its own viability.

What is platform mutual aid?

Platform mutual aid programs were born in the era of digital economy in China. They make use of platform technology to create risk pools for participating individual members to cover defined sets of medical conditions against each other. Many programs started with making fixed reimbursement payments similar to those of critical illness insurance, and later changed to making reimbursements of medical expenses. Participants typically are users of internet-based social network platforms or e-commerce platforms, with a set “desirable” personal attributes such as good credit history, long purchase history, stable income, etc. Unlike conventional commercial health insurance, participants do not go through an explicit medical underwriting process, but instead are invited to participate or automatically opted in by the platform, based on their user profile. The platform sets up the rules as to the kind of disease conditions and medical expenses eligible for reimbursement payments, analogous to a conventional health insurance policy’s product design.

Take Xianghubao as an example. Members obtain eligibility automatically if they have been a user of Alibaba’s e-commerce platform and have a good credit standing. There is no up-front membership fee. One of the most critical success factors in mutual aid is membership. After all, mutual aid and insurance programs are both risk-pooling and risk-sharing mechanisms that become more stable and cheaper to operate as total enrollment increases. In this case, Ant Financial is able to leverage consumer data collected from its affiliated businesses to prescreen participants and then leverage its large user base for program launch, both of which have low overhead and low operating costs.

To receive a payment from the program when losses occur, Xianghubao has a multistep verification process to ensure the authenticity and accuracy of the claim. After verification, each claim will also go through a public exposure period, during which the claim will be under the community’s review and approval to further reduce fraud and abuse. For cases in which the community cannot reach a consensus to approve, a jury system with representatives from the user community would make the final decision. If a claim is denied after all of these due processes, Xianghubao still has an additional channel, called "Xianghubang" (“bang” means help in Chinese), which collects charity donations on behalf of the claimant, independently of the Xianghubao channel.

FIGURE 1: PLATFORM MUTUAL AID BUSINESS MODEL

 

Mutual risk-sharing mechanisms are by no means new. They have existed since long before formal insurance was established, and are still quite popular in today’s world, especially in developing countries, agrarian societies, and rural areas where income fluctuations are large and formal credit and insurance markets are less robust.[4]

Traditional informal mutual risk mechanisms rely on social networks—family, relatives, friends, coworkers, neighbors in the same village, etc.—to establish the risk pool. It is conceivable that personal relationships cannot go very far, because interpersonal trust and credibility become weaker as relationships become less direct.

Platform-based mutual risk programs make use of digital technology and can reach very large numbers of participants. The participants in the same mutual program are not required to know each other, but they share a common belief, which is that the platform will take care of the credentialing of the participants, make sure that claims can be paid, and take necessary measures to combat fraud, waste, and abuse. Not every platform can do all of these easily. Only organizations with strong market positions as a digital platform, long tenure, great technology, and the ability to operate in full transparency are able to attract enough participants to form a risk pool of meaningful size.

Any mutual risk-sharing arrangement will encounter issues such as asymmetric information, adverse selection, and moral hazard, and platform mutual aid programs are no exception. Fundamental actuarial and insurance business principles still apply.

Evolution of platform mutual aids in China

China's platform mutual aid programs started about 10 years ago. In the initial years, a few dozen mutual aid programs mushroomed almost overnight. Many of the early mutual aid programs were perceived by the general public to be in a gray zone between formal insurance and charity.[5] Due to the limited number of participants, many mutual aid programs closed down quickly. One of the earliest programs that is still in existence today is Kang-Ai.[6] It was inspired by the founder’s personal experience with cancer.[7] Now it has expanded to include separate risk pools for at least 50 catastrophic conditions, such as breast cancer, pediatric blood cancer, rare diseases, chronic conditions with complications, accidental deaths, sudden deaths for entrepreneurs under the age of 50, and more. It even provides risk pools for members’ elderly parents.

Since 2016, as more large internet companies entered the competitive landscape and further crowded out smaller mutual aid programs, business models started to mature. For instance, the insurtech company Waterdrop[8] rolled out its mutual aid program, Waterdrop Mutual Aid, in May 2016. Waterdrop also recommended plans from insurance companies to mutual aid members. It was reported that close to 40% of users who had participated in Waterdrop’s mutual aid also subsequently thought about buying insurance products.[9] After all, Waterdrop’s business objective was to grow its insurance business. Mutual aid was viewed as a way of customer acquisition and retention. It also educated the users on risks and protection through educational content provided to its members. Companies such as Ant Financial (of Alibaba), Suning (mostly known as the network for household electronics and appliances), 360 (a technology company), Meituan (similar to Groupon in the United States), Didi (ride hail platform), and Baidu (internet search company, similar to Google in the United States) also established their own mutual aid programs.

Membership growth in platform mutual aid was spectacular between 2016 and 2020. In 2019, platform mutual aid programs in China enrolled about 150 million members.[10] By the end of May 2020, about 330 million people were participating in platform mutual aid.[11] Xianghubao, by Ant Financial/Alibaba, the largest platform mutual aid program in China, started in December 2018, had a membership of 23 million in January 2019, and reached 100 million members in December 2019.[12]

FIGURE 2: DEVELOPMENT OF PLATFORM MUTUAL AID

 

What typically happens with innovations, especially the disruptive kind, is that market rules and regulations take time to catch up to suit the new competitive landscape and social values. Additionally, from a forward-looking standpoint, heavy-handed regulation may run the risk of stifling innovation. Mutual aid shares characteristics with both insurance and charity but is neither. In practical terms, deciding which government oversight entity or entities should have the jurisdiction, what provisions are needed in the regulations, and how to execute them all still need to be sorted out in China.

In July 2017, the Ministry of Civil Affairs issued regulation on fundraising by charities using the internet platforms.[13] It stipulates that platform mutual aids are not charity fundraising activities. In August 2020, the China Banking and Insurance Regulatory Commission published an article in an industry journal[14] and identified a number of critical issues and market risks to be addressed in platform mutual aid from a regulatory standpoint. It then followed by issuing a set of rules[15] in December 2020, forbidding unlicensed entities to carry out insurance business through the internet. There is not yet a formal set of market rules specific to platform mutual aids as far as we are aware.

During the COVID-19 pandemic, coupled with the aforementioned regulatory controls, China’s platform mutual aid programs have started to see membership declines since mid-2020. Meituan Mutual Aid shut down its program in January 2021. Waterdrop Mutual Aid and Qingsong Mutual Aid both announced plans to shut down their programs in March, after nearly five years in operation. Ant Financial’s cancelled IPO negatively impacted Xianghubao’s membership, which dropped down to 92.7 million in April 2021 from its peak at 105.8 million in November 2020.[16]

Member characteristics

While the platform mutual aid industry goes through rapid changes, who are the members, and how have they been impacted by mutual aid?

In May 2021, Ant Group Research Institute published a white paper on the platform mutual aid industry.[17] It is the first of its kind for China. Through a large questionnaire-based survey, Ant collected data on about 59,000 representative individuals and analyzed the socioeconomic characteristics of the study population sample. The report finds that members participating in platform mutual aid predominantly have middle-to-low incomes, reside in less developed regions, and because they have not purchased any commercial health insurance they are concerned about the cost associated with catastrophic diseases.[18] Additionally, almost 13% of the sample did not enroll in the national basic social health insurance program, whereas, at the national level, only around 5% of the population is not enrolled in a typical year m. Almost half of the members participated in mutual aid as a family.

In terms of member perception or user experience, more than 92% of the survey respondents (through a multiple-choice question) say that it helps to "relieve the burden of medical expenses for serious illnesses."[19] Hope that mutual aid could provide long-term healthcare costs was also indicated by 40% of the respondents. In addition, a big majority expressed interest in seeing the mutual aid programs cover more disease conditions, supply adequate financial protection, and provide prompter payouts.[20]

In fact, other public sources reported in mid-2021 that Waterdrop Mutual Aid had helped more than 21,000 families during the more than five years of operation, and Xianghubao helped more than 100,000 individual members since its inception. We do not have more updated data on program payouts, especially on how many additional individuals and families have received payment since then. On the other hand, there have been reports[21] on the increase in management fees and greater inclination to deny payment requests, which seem to have resulted from reductions in membership, lack of market oversight, and changes in the general public’s sentiment about platform mutual aid as a credible and reliable source of coverage. These factors play together and propel each other, which seems to be leading the entire industry down a rapidly deteriorating path.

Technology innovations to address old problems

Membership and risks are the two most critical factors that a platform mutual aid program needs to address. To pare it down, each factor also has multiple layers of challenges underneath. 

• A successful program needs a large member base to be financially viable—the law of large numbers in Insurance 101. Internet companies, social media platforms, e-commerce giants, and the like are naturally well positioned in reaching large numbers of members. After all, their users often interact with the digital platform constantly.
•  There needs to be a screening process for the kinds of members a platform wants to enroll in a risk mutual, analogous to insurance underwriting. Traditional underwriting process in insurance can be quite costly. In the ecosystem of a platform economy, desirable member characteristics that are correlated with lower risks can be more easily identified and filtered on. In fact, most if not all e-commerce platforms and technology companies have accumulated customer data, some of which include lifestyle and other health-related information. Such information can be used to develop risk profiles at the member level for screening.
• Once members sign up, retaining their membership is yet another layer of challenge. Platform mutual aid programs compete fiercely against each other and also with traditional commercial health insurance that covers the same or similar medical conditions but with guaranteed payouts. As a result, they are compelled to  lower management fees while maintaining the credibility that they will have sufficient funds to operate, to combat fraud, and to make payments. It is conceivable that without adequate investment and continuous cash flow to support the business operations, a program could easily fail before it reaches stability. This is apparent not only to the mutual aid programs themselves, but also to the participating members. Members who are risk-averse may prefer to participate in programs backed by a big widely known name, because large platforms are less likely to fail and they can also endure losses in the initial year by cross-subsidization. For instance, Xianghubao has not become profitable since its inception in late 2018. As a business unit its only source of revenue is an 8% management fee, and 40% of the management fee is spent on claims investigation and verification onsite.[22]
• Program transparency is critical in a mutual aid program that does not rely on members knowing each other directly. A transparent process in handling claims may increase the credibility of the program and reduces unnecessary disputes among participants, which may subsequently improve program efficiency. Blockchain technology, for what it is, may be a perfect solution to the transparency and credibility issue. For instance, Xianghubao uses blockchain to document each claims settlement and makes it available for the community of participants to review and monitor. In fact, blockchain technology has been used in China’s insurance industry in documentation, health statement authentication, creating excess claims, and authenticating linked insurance products from different lines of business.[23]
• Similar to traditional insurance, platform mutual aid programs need to control risks and mitigate losses. Losses are directly associated with the provision of healthcare, which varies by many factors such as practice location (e.g., urban vs. rural), setting (inpatient or ambulatory), provider specialty, training and preference, financial reasons that motivate providers and patients in different ways, etc. Even if a claim has been determined as valid, the mutual aid program still needs to determine, on behalf of the community and for the benefit of the community, what portion of the claimed losses is compensable and what portion is not. A guiding principle is that the program does not pay overuse or inappropriate care. Again, as a leader in digitization, Xianghubao applies digitized disease-specific guidelines and knowledge maps for treatment protocols as needed.[24]   

FIGURE 3: DIGITAL TECHNOLOGY IN PLATFORM MUTUAL AID

Factors to consider in future growth

We are independent observers and do not wish to opine on the future directions of any specific company or of the entire platform mutual aid industry. However, we think that there are a few considerations to take into account with respect to the future growth of platform mutual aid and, along the same lines, how it interacts with other players in China’s healthcare coverage ecosystem. In Figure 4, we identified market and regulatory forces in the healthcare ecosystem that could either contribute to the growth of platform mutual aid or compress its growth potential. It is worth pointing out that the most important dynamic in China’s healthcare is the policy direction of the national basic social health insurance. Because China's basic social health insurance covers the basic healthcare needs of 95% of the population, its expansion or contraction will likely have significant impact on commercial health insurance, platform mutual aid, and all other stakeholders in the healthcare ecosystem.

The closure of Xianghubao, the largest player in platform mutual aid, certainly has deep implications for platform mutual aid programs and the insurance industry, which may take some time to play out. There are a few highly valuable innovations that the insurance industry can benefit from, such as the use of blockchain technology for authenticating claims, the data-driven approach to claims adjudication, the combination of clinical guidelines and artificial intelligence (AI) to identify potential waste, and the individualized and targeted member outreach and education.

Platform mutual aids also have the ability to form risk pools at speeds unheard of in traditional insurance, because it reaches members directly through an existing platform and completely bypasses the underwriting process. Insurance companies will not give up medical underwriting unless it is required, but some have contemplated simplifying underwriting to speed up the enrollment process. To do so, they collaborate with platform companies and use them as targeted marketing and sales channels.

Platform mutual aid programs are able to form risk pools for very specific risks, such as Kang-Ai’s risk pool for sudden deaths among entrepreneurs under the age of 50. For additional background, while there is insufficient empirical data on sudden deaths among entrepreneurs under the age of 50, such deaths usually make headlines in the news and cause a lot of public attention. It is as if where there is public sentiment about a perceived risk, there would be a risk-sharing arrangement that a platform can build. While this level of flexibility and nimbleness is unparalleled in commercial insurance, it certainly has challenged the way insurance companies think about product designs. Is the under-50 entrepreneur sudden death risk different from the population average? How should the risk be appropriately priced? Does it make business sense to design such a product?

FIGURE 4: RELATIONSHIP BETWEEN COMMERCIAL INSURANCE AND BASIC SOCIAL HEALTH INSURANCE

 

As the end of 2021 draws near, the COVID-19 pandemic is still making waves throughout the world. During this difficult time, people are ever more reliant on platforms to communicate and to do business with each other. At the same time, big platform companies are also facing increased government oversight and public scrutiny. These factors will impact the future of platform mutual aid programs. 

Limitations and Caveats

In conducting the background research of platform mutual aid in the past year, we referenced numerous news articles and industry reports. We were only able to do cross-validation of the statistics cited by these sources but are unable to independently verify the statistics ourselves.

The authors are employees at Milliman and do not have any interest in any of the businesses mentioned in this article.

The observations are entirely those of the authors and do not represent those of Milliman.

The authors thank Wendy Liu for her diligent research, Guanjun Jiang, and other Milliman colleagues for peer review and input.

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[1] Xuemeng, H. (April 21, 2021). Regulators stress that "licensed driving" online mutual aid platforms face choices. China Financial News Network. Retrieved January 20, 2022, from https://www.financialnews.com.cn/bx/bxsd/202104/t20210421_217028.html.

[2] Wall Street Journal (May 6, 2021). Ant Looks to Revamp a Controversial Business Without Sparking an Outcry.

[3] Reuters (December 28, 2021). Update 1 – China's largest online mutual aid platform curtain call, Ant Group's "Mutual Treasure" will be closed in one month. Retrieved January 20, 2022, from https://www.reuters.com/article/idCNL4S2TD1BJ.

[4] Informal mutual risk sharing has been well studied by economists since the late 1980s. One of the most prominent economists, Angus Deaton, awardee of the 2015 Sveriges Riksbank Nobel Prize in Economic Sciences , practically initiated a whole field within economics on how individuals and households use informal mutual risk-sharing arrangements to cope with income fluctuations in the absence of formal mechanisms.

[5] Quite a few media outlets had commented on the need to differentiate between mutual aid and charity, including the most widely read ones, such as http://www.xinhuanet.com/comments/2021-05/06/c_1127411101.htm, and http://www.xinhuanet.com/comments/2021-05/06/c_1127411101.htm.

[6] See the Kang-Ai website at http://www.kags.cn/.

[7] The story of how Kang-Ai was founded can be found on its website at https://www.kags.cn/#:~:text=%E5%9B%A0%E6%AF%8D%E4%BA%B2%E7%99%8C%E7%97%87%E5%8E%BB%E4%B8%96%E3%80%81%E7%88%B6%E4%BA%B2,%E6%97%A5%E8%87%BB%E5%AE%8C%E5%96%84%E7%A8%B3%E5%81%A5%E5%8F%91%E5%B1%95%E4%B8%AD%E3%80%82.

[8] See the Waterdrop website at https://www.waterdrop-inc.com/.

[9] Wei, J. (March 30, 2021). Waterdrop mutual aid is closed! Tens of millions of members and 4 billion financing, why did it come to the end? Sohu.com. Retrieved January 20, 2022, from https://www.sohu.com/a/458091396_157944.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] China Ministry of Civil Affairs (July 30, 2017). Announcement of the Ministry of Civil Affairs on Issuing Two Industry Standards Including "Basic Technical Specifications for Internet Public Fundraising Information Platforms for Charitable Organizations." Retrieved January 20, 2022, from http://www.mca.gov.cn/article/xw/tzgg/201707/20170715005320.shtml.

[14] China Insurance Security Fund (August 31, 2020). Voice of Supervision: Analysis of Illegal Commercial Insurance Activities and Countermeasures and Suggestions (No. 4, 2020). Retrieved January 20, 2022, from http://www.cisf.cn/fxgc/zdtj/2730.jsp.

[15] China Government (December 7, 2020). Order of China Banking and Insurance Regulatory Commission (2020 No. 13). Retrieved January 20, 2022, from http://www.gov.cn/zhengce/zhengceku/2020-12/14/content_5569402.htm.

[16] Zhai, K. et al. (May 6, 2021). Ant Looks to Revamp a Controversial Business Without Sparking an Outcry. Wall Street Journal. Retrieved January 20, 2022, from https://www.wsj.com/articles/ant-looks-to-revamp-a-controversial-business-without-sparking-an-outcry-11620293404?page=1.

[17] See https://antcloud-cnhz02-athomeweb-01.oss-cn-hzfinance.aliyuncs.com/attachment/2020-06-13/3f900e1a-d421-49ba-a635-bb9792a0179f.pdf. The report commented that this could be a result of selection bias, meaning that individuals who did not participate in China's national basic social health insurance are more inclined to join a mutual aid arrangement to get some health coverage. On the other hand, the report also recognized that there might be a problem with underreporting in the data collection process.

[18] Ibid.

[19] Ibid.

[20] Ibid.

[21] For instance, see https://www.sohu.com/a/458130739_564023 and http://www.21jingji.com/2021/5-8/0OMDEzODBfMTYyNDU0OQ.html.

[22] Xiaoyi, H. (May 8, 2021). When the online mutual aid exits the market in 3 months, where is the mutual treasure road that has lost more than 8 million users? 21st Century News Group. Retrieved January 20, 2022, from http://www.21jingji.com/2021/5-8/0OMDEzODBfMTYyNDU0OQ.html.

[23] Zero One Think Tank (July 2020). Insurance industry, another high ground for blockchain financial applications. Retrieved January 20, 2022, from https://www.01caijing.com/article/266378.htm.

[24] Wei, J. (March 30, 2021), Waterdrop mutual aid is closed! op cit.

On the Journey of Cost Containment - China’s DRG Development and Implementation

By Rong Yi and Wendy Liu, September 16, 2021

Diagnosis Related Groups (DRGs) was first introduced in the US in the 1980s as a payment methodology for Medicare. After decades of development, implementation and operational improvement, it remains one of the most dominant payment mechanisms by government and private payers, and is also widely used as an analytical and measurement tools in the healthcare industry.

Health policy researchers in China started exploring the DRG methodology in the late 1980s. At the time, coverage and benefit levels varied significantly by employment status and place of residence. Structured claims data with standardized codes were not available back then to support deeper analysis, although the feasibility of implementing DRG was studied in the early-to-mid 1990s[1].

In 2009 China’s State Council issued a set of sweeping healthcare reform proposals[2], laying out the foundation of the new basic social health insurance scheme, which is in existence today.  Included in the proposals were emphasis on equity, efficiency and quality in public hospital management, as well as investing in information technology for the healthcare sector. DRG research and development took off since then. As China went through rapid economic growth, significant urbanization and aging of the population, healthcare expenditure keeps rising steadily. There is a strong need for cost containment. Core to China’s basic social health insurance scheme is coverage for inpatient services. It is not surprising that DRG is prioritized as a payment methodology.

In the past 20 years, several independent research teams have developed and piloted their own versions of DRGs – BJ-DRGs, C-DRGs, CN-DRGs, CR-DRGs, to name a few. Hospital information system vendors, insurance companies working as third-party administrators for local social health insurance bureaus, and other technology companies invested and competed in hospital management system solutions based on these various versions of DRGs. In October 2019 the National Social Health Insurance Bureau rolled out CHS-DRG, the official version for national adoption. The diagrams below highlight a number of key milestones in the exploratory phase and the roll-out of the national standard.

CHS-DRGs’ grouping relies on the ICD-10 diagnosis codes[3] and ICD-9-CM-3 procedure codes on hospital inpatient discharge records. Similar to the DRG methodologies used in other parts of the world, CHS-DRGs also looks for secondary diagnoses, secondary procedures, complications/comorbidities, and sometimes individual factors (gender, and birthweight for neonates) to determine the severity of a hospital admission.  There are 618 DRGs in the current methodology, falling into 26 Major Diagnostic Categories (MDCs). 229 are surgical DRGs.

It is worth pointing out that the implementation of the CHS-DRGs national standard allows for local flexibility to reflect differences in data quality and readiness. For instance, where data is not of reasonably good quality or has small number of cases, consolidation of existing DRGs would be permitted. Local flexibility is a practical approach to implementing a sophisticated and data-driven methodology such as the DRGs.  After all, China is vast geographically. There are more than 34,000 hospitals, more than 954,000 community health facilities, and almost 16,000 specialized public health facilities, with a total of 8.8 million hospital beds at the end of 2019[4] . Different localities and facilities are at different stages of health information technology adoption. According to an industry report[5], during 2017-2018, only 39% hospitals implemented electronic medical record systems.

 

Looking Ahead

DRG is not only a grouping methodology and a payment mechanism, it also has significant impact on the management and operations of a healthcare system. As it relates to hospital inpatient services, the core to China’s basic social health insurance, its impact can be wide and deep.

On the data front, as more and more cities implement DRG, it is reasonable to expect that hospitals and other healthcare facilities will increase in their adoption of electronic medical records systems. An emphasis on standardized, quality and accurate coding of diagnoses and procedures has already become apparent amongst the hospitals that are running DRG pilots. We see both pros and cons of this digitization trend.

• Pros – more structured and standardized data becomes available which will help the entire healthcare ecosystem measure and compare cost, quality and value of healthcare service. For commercial health insurance, insurance brokers, drug and device manufacturers, and telehealth, structured data is particularly important to business success.
• Cons – DRG implementation requires resources and expertise, which could create further polarization of healthcare facilities in that better endowed facilities will be moving on a faster track in terms of finance and management than others

In other countries that introduced DRGs to replace an existing fee-for-service payment system, it is expected that DRG based payments can help reduce the inefficiencies associated with excessive (and sometimes unnecessary) provision of services (especially diagnostic tests) and drug prescribing, as well as long hospitalizations. It is also expected that perverse incentives may arise with the introduction of DRGs in different countries, such as providers cutting down on necessary services, or prematurely discharging patients from the hospital, or cherry-picking of patients[6]. 

There has been anecdotal reports on gaming of the DRG system. For instance, patients were discharged earlier than medically appropriate due to length of stay limitations introduced by the DRG pilots[7]. There are also concerns with respect to upcoding to receive higher DRG payment.  Given the newness of DRG implementation, well-documented empirical evidence on gaming of the system is not available.  It remains to be seen whether the implementation of DRG would result in lower care quality or whether low-value care would be “squeezed” from the inpatient setting to the outpatient setting.

If DRG implementation can lead to successful cost containment in the inpatient setting, it would benefit both the government and private payers. A very important type of commercial health insurance product in China is high deductible hospital inpatient coverage. Better cost containment could potentially lead to fewer claims reaching the deductible. 

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[1] Numerous articles referenced a collection of feasibility studies conducted by the Beijing Hospital Management Research Institute in 1994 titled “Articles on the Feasibility of DRGs in Hospital Management in Beijing”.  The articles cannot be retrieved online. The Beijing Hospital Management Research Institute is now under the Beijing Municipal Health Commission Policy Research Center (http://www.phic.org.cn/zzjg/lsyg/), one of the main contributors of China’s DRG research over the years.

[2] http://www.gov.cn/jrzg/2009-04/06/content_1278721.htm

[3] China uses the ICD-10 WHO version with its own modifications. The latest version is called ICD-10 GB/T 14396-2016. The implementation of the modified ICD-10 WHO code set started in 2001.

[4] http://www.nhc.gov.cn/guihuaxxs/s10748/202006/ebfe31f24cc145b198dd730603ec4442.shtml

[5] “2020 China’s Electronic Medical Record Adoption and Future Trends”, chyxx.com

[6] Bredenkamp, Caryn, Sarah Bales, and Kristiina Kahur, eds. 2020. Transition to Diagnosis-Related Group (DRG) Payments for Health: Lessons from Case Studies. International Development in Focus. Washington, DC: World Bank. doi:10.1596/978-1-4648-1521-8.

[7] For instance, https://news.dayoo.com/guangzhou/202108/17/153828_54021117.htm, and https://china.huanqiu.com/article/44O20Ko4h3f

China’s Commercial Health Insurance Market

By Rong Yi, PhD, Principal, China Healthcare Analytics Practice, Milliman, Inc.; August 10, 2021

China is large and complex economically, demographically, and geographically, and is also going through rapid changes at paces rarely seen in history. In this blogpost we provide a very high-level overview of China’s rapidly growing commercial health insurance market. Before delving into health insurance, let us provide some context in comparative light to set the stage.

Economy, Population and Public Health Insurance

China used to be one of the poorest countries in the world. After forty years of rapid economic growth, it has now become the second largest economy in the world. Measured by purchasing power parity (PPP), China’s real GDP exceeds that of the US by almost 16% (24.27 trillion USD vs. 20.94 trillion USD)[1]. China also has the world’s largest population, at 1.4 billion, making its GDP per capita roughly 16% of that of the US.[2]

 

China’s population growth has slowed down noticeably since the past decade, and is projected to have negative population growth after 2030, and by then 25% of its vast population would have reached retirement.[3]

China’s healthcare expenditure has been increasing in keeping with the economic growth and aging of the population. As of 2018 it accounted for a little above 5% of its GDP. It is reasonable to expect this trend to continue in the coming years. For instance, JP Morgan predicts that China’s healthcare expenditure will reach almost 7.9% in 2026[4].

Rapid economic growth also brings about rapid rate of urbanization. According to China’s 2020 Census, 63.9% of China’s population resides in the urban area, up from about 20% forty years ago^[5]. There are 18 cities with more than 10 million residents. Of these, 4 cities have more than 20 million residents. Healthcare facilities and other resources concentrate in these select metropolises.

More than 95% of the Chinese population has government-sponsored health insurance, known as the Basic Social Health Insurance (BSHI), which are further divided up into two groups based on employment status and urban/rural resident status. Funding of health coverage comes from the central government, local governments, employers, and the participants, and the level of funding varies by geographic area.

BSHI’s benefit design varies significantly by geography. Core to the BSHI coverage is inpatient services. Within inpatient services coverage, different areas may have different deductibles, copays, coinsurance and benefit cap. For urban employees, around 85% of covered services is paid by the BSHI. For the unemployed residing in the urban area or the rural residents, the percent coverage can be significantly lower[6]. In areas where the local economy is better off, outpatient services, outpatient prescription drugs, and sometimes chronic diseases (such as hypertension, diabetes, and dialysis) that require routine outpatient management and monitoring are also covered. The Chinese government has made it a policy priority to lower patient liability. In the past 15 years, the average out-of-pocket has gradually decreased from around 56%[7] in 2006 to slightly under 28.4% in 2019[8]. In comparison, out-of-pocket spending in the US during the same time period also has been gradually declining, from 13.5%[9] in 2006 to 11%[10] in 2019.

Commercial Health Insurance

From 2011 to 2020, the premium income of China's health insurance increased rapidly from 69.2 billion yuan to 817.3 billion yuan, with a compound annual growth rate exceeding 30%[11]. Whether the commercial health insurance market may continue to grow at this rate remains to be seen, however, it is a broad consensus that China’s commercial health insurance market still has a lot of room to grow in the foreseeable future, owning to the following factors:

There are four main types of medical insurance products[12].

 Coming up next…

In the coming months we will discuss China’s new product designs, market solutions and technological innovations that may be of reference for the US healthcare market, as well challenges that China’s healthcare market is facing which may need expertise from outside of China to help with.

Caveats and Acknowledgements

This blogpost has been created for MCOL. Views and opinions expressive in the above are those of the author’s and do not necessarily represent that of the Milliman as a whole.

Wendy Liu contributed to the article. Guanjun Jiang provided peer review.

---

[1] Retrieved from https://data.worldbank.org/indicator/

[2] ibid, 1

[3] http://www.stats.gov.cn/tjsj/tjgb/rkpcgb/

[4] https://am.jpmorgan.com/sg/en/asset-management/per/investment-ideas/china-health-care/

[5] ibid, 1

[6] China National Health Security Administration Annual Summary Report for 2020, retrieved from http://www.nhsa.gov.cn/art/2020/6/24/art_7_3268.html

[7] ibid, 1

[8] China Ministry of Finance, http://sd.mof.gov.cn/zt/dcyj/202011/t20201103_3615823.htm  

[9] ibid, 1

[10] Retrieved from https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/

[11] http://www.gov.cn/xinwen/2020-12/16/content_5569978.htm

[12] Strictly speaking, critical illness insurance products are more akin to life insurance in that a lump sum payment would be made in the event of a claim, which is quite different from the other three types that are reimbursement policies.

Chinese Healthcare and More with Rong Yi

by Clive Riddle, June 16, 2021

MCOL is very excited and please to be welcoming Dr. Rong Yi as a contributor to mcolblog. She is the principal responsible for Milliman’s Greater China Healthcare Analytics Practice, and will be be discussing Chinese Healthcare and more in future periodic posts.

We have just featured Rong in a new MCOL Podcast in which she provides a nice overview of healthcare in China, and how their healthcare issues and system compare and contrast to the U.S. She also provides some background on what led her on her own path with healthcare, analytics, and covering these topics in China.

Please take a listen to this new Pocast, in which I interview Rong, and watch for her future posts: https://www.healthsharetv.com/content/chinese-healthcare-and-more-mcol-podcast-rong-yi

A global pandemic calls for global response: The importance of equitable global vaccine distribution

By Dr. Seleem R. Choudhury, March 11, 2021

According to the United Nations, 75% of all COVID-19 vaccinations have been administered among just 10 countries, while 130 countries have not received even a single dose of the vaccine, as of mid-February 2021 (Al Jazeera, 2021). Global health and political leaders have condemned this unbalanced distribution of vaccines and are taking action to ensure vaccine equity. Dr. Tebros Adhanom Ghebreyesus, director-general of the World Health Organization (WHO), said in a recent address, “The world is on the brink of a catastrophic moral failure—and the price of this failure will be paid with lives and livelihoods in the world’s poorest countries” (United Nations, 2021).

Vaccine equity is the global intent to ensure that all have fair access to the COVID vaccine in order to overcome the virus that is threatening every nation. Unless the roadblocks to success for international cooperation on equitable vaccine access and delivery are removed, the world risks prolonging the pandemic by creating a two-tier vaccine system—the haves and the have-nots, the eternal battle of rich versus poor. Many rich nations have set the lofty goal of vaccinating at least 80% of their populations. Even if these countries were to achieve this goal, without the equitable distribution of vaccines to poorer nations, they run the risk in a global economy of contracting a COVID-19 variant more immune to the vaccine and bringing it back to their own nation, thus perpetuating the pandemic.

The movement to increase the distribution of vaccines to poorer nations has gained momentum under WHO’S 100-day challenge (United Nations, 2021). In February 2021, G7 leaders pledged to intensify cooperation on COVID-19 and increase their contribution to vaccine-sharing initiative COVAX (Parker, Williams, Peel, & Chazan, 2021). As the WHO’s January 2021 Vaccine Equity Declaration states:

“We must act swiftly to correct this injustice. Multiple variants are showing increased transmissibility and even resistance to the health tools needed to tackle this virus. The best way to end this pandemic, stop future variants, and save lives is to limit the spread of the virus by vaccinating quickly and equitably, starting with health workers.” (World Health Organization, 2021).

The data of equity

As of this article’s publication, over two million people have died from COVID-19. As a New York Times article puts into perspective, that is more than the population of the state of Nebraska, and nearly equal to the population of the entire country of Slovenia (Santora & Wolfe, 2021).

Though it has been several months since the first COVID vaccine was administered, the virus continues to spread despite the vaccine, especially in the poorer nations. Vaccine supplies are low due to richer countries purchasing more vaccines than they could distribute in the required time frame.  As a result, some experts predict that many low-income countries may not be able to reach mass immunization until 2024. Worse, some nations may never get there (Safi, 2021).

To support the equitable distribution of the vaccine moving forward, the WHO established the Covid-19 vaccine allocation plan—known as COVAX—at the end of 2020 (World Health Organization, 2020). COVAX’s goal is to ensure that the research, purchase, and distribution of any new vaccine is shared equally between the world’s richest countries and those in the developing world.  According to the WHO, 172 economies are engaged in discussions about participation in the COVAX initiative (World Health Organization, 2020).

The variants

Catalyzing vaccine distribution in poorer countries is essential to prevent the development of new variants of COVID that could cost more lives around the world. It is the natural state of RNA viruses such as the coronavirus to evolve and change gradually. The flu, for example, is an ever-adapting virus, which is why people must receive a new vaccination each year.  Viruses are primed to change, but occasionally a mutation occurs that alters how rapidly the virus spreads, its level of infectiousness, or the severity of the disease (Gray, 2021).

This is the primary concern with new variants of COVID emerging in different countries. The most recent variations of the disease in South Africa and Brazil are concerning epidemiologists as they show signs that the virus may be “adapting to evade immunity in some people” (Gray, 2021).  To stay ahead of the evolution of the virus, scientists are evaluating each new mutation to determine which ones are likely to be most impactful (Callaway, 2020).

We have established that a partially immunized population runs the risk being impacted by variants that are transmitted more easily and are more likely to result in death for those infected with the virus (Toy, 2021).  Embracing vaccine equity is the best solution to guard against this.  If nations insist on focusing only on their own populations, new variants will perpetually threaten them, necessitating changes to the vaccine.  If countries continue to choose not to share, then this ludicrous process starts again.  If everyone has immunity through vaccination, then variants’ effects will be diminished, with virtually no virus circulating or adapting (Toy, 2021).

Next steps

The COVAX initiative is a good start to addressing vaccine equity.  It has gained strength now that the US has joined under its new presidential administration (The White House, 2021). Additionally, at a virtual G7 meeting, leaders pledged $7.5 billion to the WHO-led collaboration (Parker, Williams, Peel, & Chazan, 2021).  This crucial financial backing will allow COVAX to accomplish its aim of securing and equitably allocating 2 billion doses of COVID vaccines, starting with healthcare workers and other high-risk groups as defined by the WHO, by the end of 2021 (Kettler, 2021).

While equitable distribution is being addressed globally, individual nations must also grapple with the challenges of vaccine distribution within their own populations (Liao, 2021).  The WHO has proposed a “Roadmap For Prioritizing Uses Of COVID-19 Vaccines In The Context Of Limited Supply” to aid countries in their own vaccine equity efforts. The Roadmap considers priority populations for vaccination based on epidemiologic setting and vaccine supply scenarios (World Health Organization, 2020).

Summary

Interestingly, several countries are filling the gap created by the United States and the other G7 countries. India, Russia, China and Israel appear to be waging a strategy of soft power towards global health (Mashal & Yee, 2021). It is hard to imagine populations of countries not being grateful to those that help towards timely vaccinations, and it could leave recipients obligated to repay in other ways. This could potentially realign global alliances and change geopolitics.

It is hard to ignore WHO Director-General Ghebreyesus’s concerns about the irreconcilable cost of the moral failure of continued inequitable vaccine distribution.  The world’s poorest countries will be disproportionately affected, and richer nations will continue to have on-again-off-again economies as variants of the virus wreak havoc on the health of their own populations.

The immediate sharing of doses will reduce the chance of ongoing variants and begin to revive the global economy.  The only way to vaccinate the majority of the world’s population with urgency is to do it together.  A global pandemic requires a global neighbourhood philosophy and response with no strings attached.

Read more from Dr. Seleem Choudhury at seleemchoudhury.com  

Resources

Al Jazeera (2021). ‘Wildly unfair’: UN boss says 10 nations used 75% of all vaccines. Al Jazeera.

Callaway, E. (2020). The coronavirus is mutating — does it matter? Nature.

Gray, R. (2021). This is how new Covid-19 variants are changing the pandemic. BBC.

Haseltine, W. (2021). How The Covid-19 Virus Changes. Forbes.

Hernandez, J. (2021). Two Members of W.H.O. Team on Trail of Virus Are Denied Entry to China. New York Times.

Kettler, H. (2021). What is COVAX? Path.

Liao, K. (2021). What Is Vaccine Equity? Global Citizen.

Mashal, M. & Yee, V. (2021). The Newest Diplomatic Currency: Covid-19 Vaccines. New York Times.

Parker, G., Williams, A., Peel, M., & Chazan, G. (2021). G7 leaders vow to boost vaccine supplies to developing world. Financial Times.

Safi, M. (2021). Most poor nations 'will take until 2024 to achieve mass Covid-19 immunisation.’ The Guardian.

Santora, M. & Wolfe, L. (2021). Covid-19: Over Two Million Around the World Have Died From the Virus. New York Times.

The White House (2021). National Security Memorandum on United States Global Leadership to Strengthen the International COVID-19 Response and to Advance Global Health Security and Biological Preparedness. The White House.

Toy, S. (2021). Covid-19 Vaccination Delays Could Bring More Virus Variants, Impede Efforts to End Pandemic. The Wall Street Journal. 

United Nations (2021). WHO chief warns against ‘catastrophic moral failure’ in COVID-19 vaccine access. UN News.

World Health Organization (2021). Call to Action: Vaccine Equity Declaration. World Health Organization.

World Health Organization (2021). COVID-19 Vaccine Equity Declaration. World Health Organization.

World Health Organization (2020). Fair allocation mechanism for COVID-19 vaccines through the COVAX Facility. World Health Organization.

World Health Organization (2020). WHO SAGE Roadmap For Prioritizing Uses Of COVID-19 Vaccines In The Context Of Limited Supply. World Health Organization.

World Health Organization (2020). 172 countries and multiple candidate vaccines engaged in COVID-19 vaccine Global Access Facility. World Health Organization.172 countries and multiple candidate vaccines engaged in COVID-19 vaccine Global Access Facility

Taking a Peek at the Irish Healthcare System on Saint Paddy’s Day

Clive Riddle, March 17, 2017

In observance of St. Patrick’s Day – that day on which we are all Irish – let’s take a quick peek at the Irish healthcare system. Ireland’s Health Service Executive provides all of Ireland's public health services in hospitals and communities across the country. Here’s what their website has to say about their public services:

“Who can access health services in Ireland? Ireland has a comprehensive, government funded public healthcare system. A person living in Ireland for at least one year is considered by the HSE to be 'ordinarily resident' and is entitled to either full eligibility (Category 1) or limited eligibility (Category 2) for health services. People who have not been resident in Ireland for at least one year must satisfy the HSE that it is their intention to remain for a minimum of one year in order to be eligible for health services. Dependants of such individuals must also contact the HSE to confirm their eligibility.” The website informs us that over 30% of people in Ireland are Category 1.

A recent article in Irish Times: Ireland worst of 36 countries for ease of access to healthcare – details recently released negative findings from the annual Euro Health Consumer Index report. The report states “the fact that Ireland has the highest percentage of population purchasing duplicate healthcare insurance – over 40 per cent, down from 52 per cent three years ago – also presents a problem. Should this be regarded as an extreme case of dissatisfaction with the public system, or simply as a technical solution for progressive taxation?”

The article cites these negative findings from the report:

  -  Irish patients spend longer waiting for emergency treatment in hospital than any others in Europe

  -  Ease of access to the Irish healthcare system is the worst of the 36 countries surveyed, with longer waiting times for minor operations and CT scans

  - Overall, the Irish system ranks 21st [out of 36] in the 2016 Euro Health Consumer Index, the same as in the previous year.

  - The Irish health service is also fifth-worst – on a composite “bang for your buck” measure included in the report.

MCOL’s Global Member website includes an archive of International Healthcare Factoids. Here’s some recent selected Irish healthcare factoids from the archive:

Healthcare Spending in Ireland

* Health accounted for 9.91% of Irish gross domestic product (GDP) in 2014.

* Government spending on health has increased by at least €1 billion since 2014.

* Total health spending came to more than €19 billion in 2014.

* €13.3 billion was spent by the Government on health in 2014.

* Household out-of-pocket spending was almost €3 billion in 2014.

* Ireland spent €4,147 per person on health in 2014, the sixth highest total in Europe.

Source: Irish health spending among highest in Europe

Cancer in Ireland

* 38,000 people are diagnosed with cancer each year in Ireland.

* In Ireland, 8,700 people die of cancer annually.

* 1 in 3 Irish men, and 1 in 4 women, will be diagnosed with cancer at some point.

* The chances of Irish women getting cancer is 16% above the EU average.

* The incidence of cancer among Irish men is 10% higher than the EU average.

* 6 out of 10 people will now survive at least five years after diagnosis.

Source: Risk of Irish men and women developing cancer levels off

Hospital Wait Times in Ireland

* More than 530,000 people are on public hospital waiting lists in Ireland.

* 435,000 patients were waiting for an outpatient appointment at the end of August.

* More than 74,000 of these outpatients have been waiting for an appointment for over a year.

* 43,000 have been waiting longer than the 15-month "maximum" waiting time set by the government.

* The hospital with the longest waiting list is University Hospital Galway, at 33,000.

* 78,500 people are waiting for inpatient or day case procedures.

Source: Record 530,000-plus patients on hospital waiting lists

Prevalence of Undiagnosed Type 2 Diabetes in Ireland

* An estimated 24,000 to 40,000 people in Ireland have undiagnosed type 2 diabetes.

* The risk of having undiagnosed type 2 diabetes increased by 89% for every 5kg/m2 increase in weight.

* Men were nearly 3X more likely to have abnormal blood sugar and undiagnosed diabetes than women.

* 17% of participants in a 30,000-person study had abnormal initial fasting blood sugar levels.

* Pre-diabetes was confirmed in 10% of study participants.

Source: Up to 40,000 people have undiagnosed type 2 diabetes, charity says

Under-Age-Six Physician Visitation Rates, Ireland

* Research carried out by the Department of Health last year shows that fee-paying children under the age of six have an annual GP visitation rate of 2.7

* Medical/GP visit cardholders under the age of six have a visitation rate of 3.1

*  GP numbers in Ireland have been increasing since 2010. At December 31 2013, there were 2,840 GPs in Ireland compared to 2,731 at the end of 2012, 2,562 at the end of 2011 and 2,270 at the end of 2010.

Source: Under-six visitation data revealed

Private Health Insurance in Ireland

* 2.123 million people – or 46.3% cent of the population – held private health insurance in September 2012. This represents a drop of 16,000 since March and a decrease of 61,000, or 4%, since June 2011.

* The number of people holding private health insurance peaked in 2008 at 2.3 million, but has been in decline since.

*  Aviva increased its share of the health insurance market last year. In 2011 Aviva grew its market share in Ireland to 17.7%, up from 13.7% the previous year.

* Over the same period VHI Healthcare’s market share fell from 61.6% to 57.3%.

*  Quinn Healthcare's – renamed Laya Healthcare earlier this year – share of the market remained steady at just under 21%.

Source:  Private health insurance numbers fall another 61,000

IMS Institute on the Global Oncology Market

By Clive Riddle, June 2, 2016

The IMS Institute for Healthcare Informatics this week released their new study: Global Oncology Trend Report: A Review of 2015 and Outlook to 2020, which examines the current and future global oncology market. Their 42-page report tells us that “more than 20 tumor types are being treated with one or more of the 70 new cancer treatments that have been launched in the past five years, with the sustained surge in innovative therapies driving the global oncology market to $107 billion in 2015. However, many of these drugs are not yet available to patients in most countries, and even when registered they may not be reimbursed under public insurance programs.”

The study finds that growth in global spending on oncology therapeutics and supportive care drugs increased 11.5 percent on a constant-dollar basis last year, with more than 500 companies actively pursuing oncology drug development around the world. Collectively, they are advancing nearly 600 new molecules through late-stage clinical development, most frequently for non-small cell lung cancer and breast, prostate, ovarian and colorectal cancers.

And as for the future, “annual global growth in the oncology drug market is expected to be 7.5 – 10.5 percent through 2020, reaching $150 billion. Wider utilization of new products—especially immunotherapies —will drive much of the growth, offset by reduced use of some existing treatments with inferior clinical outcomes. Payers also are expected to tighten their negotiation stance with manufacturers and adopt new payment models in an effort to drive greater value from their expenditures on these drugs.”

The report also shares that:

• The pipeline of oncology drugs in clinical development has expanded by more than 60 percent during the past decade, with almost 90 percent of the focus on targeted agents.
• The median time from patent filing to approval for oncology drugs in 2015 was 9.5 years, down from 10.3 years in 2013.
• Of the 49 oncology New Active Substances analyzed that were initially launched between 2010 and 2014, fewer than half were available to patients by the end of 2015 in all but six countries: the U.S., Germany, UK, Italy, France and Canada.
• Targeted immunotherapies are available in most developed countries, but none of the emerging markets outside of the European Union has yet registered these treatments.
• Of the drugs approved in 2014 and 2015 by a set of developed countries analyzed, only the U.S., France and Scotland have more than half included on reimbursement lists at the end of 2015.
• The annual growth rate in cancer drug costs has risen from 3.8 percent in 2011 to 11.5 percent in 2015, at constant exchange rates. Growth in the U.S. market increased from 2.0 percent to 13.9 percent in the same period.
• The U.S. now accounts for about 45 percent of the global total market for therapeutics, up from 39 percent in 2011, due in part to the strengthening of the U.S. dollar and more rapid adoption of newer therapies.
• In the U.S., cancer drugs now make up 11.5 percent of total drug costs, up from 10.5 percent in 2011
• Net price growth in the U.S. on existing branded oncology drugs have averaged an estimated 4.8 percent in 2015, compared with 6.4 percent invoice price growth
• In the U.S., cancer drugs dispensed through retail channels now account for more than one-third of total costs, up from 25 percent ten years ago and typically covered by pharmacy benefits. This reflects a shift in the mix of new therapies toward oral medicines, eliminating the need for injection or infusion in a physician’s office or outpatient facility.
• Nearly 40 percent of the total costs of targeted therapies in the U.S. are now for oral formulations, up from 26 percent in 2010.
• Only 17 percent of U.S. oncologists are in independent practices, unaffiliated with some type of integrated delivery network or corporate parent, down from 28 percent in 2010.
• Average total treatment costs for patients in commercial insurance plans with a cancer diagnosis who are receiving active treatment reached $58,000 in 2014, up 19 percent from 2013.
• Patients with commercial insurance who were treated in 2014 with cancer drugs received by injection or infusion were responsible for more than $7,000 of costs on average, compared to $3,000 for those patients receiving only oral medicines.
• Some type of coupon or patient cost offset was used for more than a quarter of cancer drug retail prescriptions filled by patients with commercial insurance in 2015, up from 5 percent in 2011 and reflecting efforts by manufacturers to reduce patient out-of-pocket costs. The average cost offset has averaged about $750 per prescription over the past five years.

The Prescription Drug Locomotive and the U.S Big Slice of the Global Rx Pie

by Clive Riddle, November 20, 2015

With prescription drug spending now having taken over the locomotive of the healthcare cost train, it behooves stakeholders to better get to know what lies on the tracks ahead. The IMS Institute for Healthcare Informatics has just released the 47-page report: Global Medicines Use in 2020:  Outlook and Implications in which they examine the global use of medicines and spending levels in 2020, including small and large molecules, brands and generics, those dispensed in retail pharmaceutics as well as those used in hospital or clinic settings.

IMS tells us the report “found that total global spend for pharmaceuticals will increase by $349 billion on a constant-dollar basis, compared with $182 billion during the past five years. Spending is measured at the ex-manufacturer level before adjusting for rebates, discounts, taxes and other adjustments that affect net sales received by manufacturers. The impact of these factors is estimated to reduce growth by $90 billion, or approximately 25 percent of the growth forecast through 2020.”

The report also tells as that “developed markets will contribute 63% of the spending, led by the U.S.  Original brands will represent 52% of spending and 85% of global spending will be for medicines to treat non-communicable diseases.” 

A pie chart exhibit in the report is telling in how large the U.S. slice of the medicine spending pie is projected for 2020 – 41% of global spending, with the next closest slice being the entire European Union at 13%.

Report findings on spending impacting U.S. costs include:

• Brand spending in developed markets will rise by $298 billion as new products are launched and as price increases are applied in the U.S., most of which will be offset by off-invoice discounts and rebates. 
• Patent expiries are expected to result in $178 billion in reduced spending on branded products, including $41 billion in savings on biologics as biosimilars become more widely adopted. 
• Many of the newest treatments are specialty medicines used to address chronic, rare or genetic diseases and yielding significant clinical value. By 2020, global spending on these medicines is expected to reach 28 percent of the total.
• More than 90 percent of U.S. medicines will be dispensed as generics by 2020. Generic medicines will continue to provide the vast majority of the prescription drug usage in the U.S., rising from 88 percent to 91-92 percent of all prescriptions dispensed by 2020. 
• Spending on medicines in the U.S. will reach $560-590 billion, a 34 percent increase in spending over 2015 on an invoice price basis. 
• While invoice price growth – which does not reflect discounts and rebates received by payers – is expected to continue at historic levels during the next five years, net price trends for protected brands will remain constrained by payers and competition, resulting in 5-7 percent annual price increases. 

Some international findings include:

• Global medicine use in 2020 will reach 4.5 trillion doses, up 24 percent from 2015.
• Most of the global increase in use of medicines over the next five years will take place in pharmerging markets, with India, China, Brazil and Indonesia representing nearly half of that growth.
• Generics, non-original branded and over the counter (OTC) products will account for 88 percent of total medicine use in pharmerging markets by 2020, and provide the greatest contribution to increased access to medicines in those countries. 
• Newer specialty medicines, which typically have low adoption rates in pharmerging countries lacking the necessary healthcare infrastructure, will represent less than one percent of the total volume in those markets.
• Global spending will grow by 29-32 percent through 2020, compared with an increase of 35 percent in the prior five years. 
• Spending levels will be driven by branded drugs primarily in developed markets, along with the greater use of generics in pharmerging markets—offset by the impact of patent expiries. 

Annual Global Oncology Medicine Spending Tops $100 Billion

by Clive Riddle, May 7, 2015 

The IMS Institute for Healthcare Informatics has just released a new report:  Developments in Cancer Treatments, Market Dynamics, Patient Access and Value: Global Oncology Trend Report 2015 which tells us “total global spending on oncology medicines – including therapeutic treatments and supportive care – reached the $100 billion threshold in 2014, even as the share of total medicine spending of oncologics increased only modestly.” 

The report found that “growth in global spending on cancer drugs – measured using ex-manufacturer prices and not reflecting off-invoice discounts, rebates or patient access programs – increased at a compound annual growth rate (CAGR) of 6.5 percent on a constant-dollar basis during the past five years. Oncology spending remains concentrated among the U.S. and five largest European countries, which together account for 66 percent of the total market, while the rising prevalence of cancer and greater patient access to treatments in pharmerging nations continues to grow and now accounts for 13 percent of the market” 

Murray Aitken, IMS Health senior vice president and executive director of the IMS Institute for Healthcare Informatics tells us“the increased prevalence of most cancers, earlier treatment initiation, new medicines and improved outcomes are all contributing to the greater demand for oncology therapeutics around the world. Innovative therapeutic classes, combination therapies and the use of biomarkers will change the landscape over the next several years, holding out the promise of substantial improvements in survival with lower toxicity for cancer patients.” 

Findings shared in the report include: 

• Growth in the U.S. has risen more slowly at 5.3 percent CAGR, reaching $42.4 billion in 2014, representing 11.3 percent of total drug spending compared to 10.7 percent in 2010.
• in the EU5 countries oncology now represents 14.7 percent of total drug spending, up from 13.3 percent in 2010.
• Targeted therapies now account for nearly 50 percent of total spending and have been growing at 14.6 percent CAGR since 2009.
• Within the U.S., two-thirds of Americans diagnosed with cancer now live at least five years, compared to just over half in 1990.
• The availability of new oncology medicines varies widely across the major developed countries, with patients in Japan, Spain and South Korea having access in 2014 to fewer than half of the new cancer drugs launched globally in the prior five years.
• Average therapy treatment costs per month have increased 39 percent in the U.S. over the past ten years in inflation-adjusted terms. Over the same period, patient response rates have improved by 42 percent and treatment duration has increased 45 percent, reflecting improved survival rates.
• Within the U.S., patient out-of-pocket costs have risen sharply for intravenous cancer drugs, increasing 71 percent from 2012 to 2013, reflecting changes in plan designs and increased outpatient facility costs. 

An interactive version of the full report is available via iTunes, but requires am iPad for viewing. Pdf versions of exhibits can be downloaded here. 

The Emerging Pharmaceutical Pendulum

By Clive Riddle, July 12, 2012

Conventional wisdom tells us that pharmaceutical growth is not the beast it once was. Growth has decelerated and been tamed to the point of 3-4 percent this year, due to a variety of factors including the lingering economic downturn, patent expirations with the corresponding conversion to generics, and a dip in patient demand due to increased cost sharing requirements and coverage concerns.

The IMS Institute for Healthcare Informatics now tells us the pendulum is poised to swing back the other way, and they are forecasting 5-7 percent growth in 2016. However, this resurgence is significantly projected to be driven by emerging versus developed markets.

Their just released report: The Global Use of Medicines: Outlook through 2016, “found that annual global spending on medicines will rise from $956 billion in 2011 to nearly $1.2 trillion in 2016, representing a compound annual growth rate of 3-6 percent. Growth in annual global spending is forecast to more than double by 2016 to as much as $70 billion, up from a $30 billion pace this year, driven by volume increases in the pharmerging markets and an uptick in spending in developed nations.”

Murray Aitken, the Executive Director of the IMS Institute for Healthcare Informatics tells us, “as health systems around the world grapple with macroeconomic pressures and the demand for expanded access and improved outcomes, medicines will play an even more vital role in patient care over the next five years. The trillion-dollar spending on medicines we forecast for 2016 represents a rebound in growth that will accentuate the challenges of access and affordability facing those who consume and pay for healthcare around the world.”

Their report also projects that around the globe:

• Spending on medicines in developed nations will increase by a total of $60-70 billion from 2011 to 2016, following an increase of $104 billion between 2006 and 2011.
• Spending in the U.S. will grow by $35-45 billion over the next five years, representing an average annual growth rate of 1-4 percent
• In Europe, growth will be in the -1 to 2 percent range due to significant austerity programs and healthcare cost-containment initiatives.
• The Japanese market for medicines is forecast to grow 1-4 percent annually through 2016, slightly lower than the rate during the prior five years and reflecting biennial price cuts scheduled for 2012, 2014 and 2016.
• Overall, patent expiries in developed markets will yield a five-year “patent dividend” of $106 billion, reflecting reduced brand spending of $127 billion offset by $21 billion in higher generics spending
• Annual spending on medicines in the pharmerging markets will increase from $194 billion last year to $345-375 billion by 2016, or $91 in drug spending per capita. Generics and other products, including over-the-counter medicines, diagnostics and non-therapeutics, will account for approximately 83 percent of the increase.
• Pharma manufacturers will see minimal growth in their branded products through 2016. The market for branded medicines will experience flat to 3 percent annual growth through 2016 to $615-645 billion, up from $596 billion in 2011.
• In the major developed markets, branded medicine growth will be severely constrained at only $10 billion over the five-year period due to patent expiries, increased cost-containment actions by payers and modest spending on newly launched products.
• The pharmerging markets are expected to contribute $25-30 billion in branded product growth over the same period. Off-invoice discounts and rebates will offset about $5 billion of global branded medicine growth.
• Global generic spending is expected to increase from $242 billion in 2011 to $400-430 billion by 2016, fueled by volume growth in pharmerging markets and the ongoing transition to generics in developed nations.
• Global launches for New Molecular Entities (NMEs) will rebound during the next five years, as 32-37 NMEs are expected to be launched per year through 2016. Between 2011-16, 160-185 NMEs are expected to launch, compared with 142 between 2007-11.
• Biologics are expected to account for about 17 percent of total global spending on medicines by 2016, as important clinical advances continue to emerge from research.

Inviting China and other Emerging Countries to a Medical Technology Innovation State Dinner

by Clive Riddle, January 21, 2011

China and other emerging market economies are breathing down the neck of the United States. Look no further than current headlines such as AP’s China's economic might empowers Hu on return U.S. visit, which included the lavish state dinner Hu was denied in his 2006 visit.

Evidently this applies to Medical Technology Innovation as well. PricewaterhouseCoopers (PwC) has just released their Medical Technology Innovation Scorecard, which assesses nine countries’ capacity and capability for medical technology innovation: Brazil, China, France, Germany, India, Israel, Japan, United Kingdom, and the United States.

According to PwC, the “United States continues to lead the world in its capacity to produce the latest in medical technology innovation, but emerging markets led by China, India and Brazil are catching up, and their market power is shifting innovation resources and activity overseas…While the United States is expected to maintain its leadership for the foreseeable future, even a narrowing of the gap has implications for US jobs, exports and Americans’ access to advances in medical technology.”

Michael Swanick, PwC’s US Pharmaceuticals, Medical Device and Life Sciences industry leader tells us “the medical technology field in the US has long benefited from a confluence of social, technical, political and economic forces that came together to create an ecosystem which fosters medical technology innovation. However, the balance of these forces is beginning to change, driven by global economic dynamics, governmental policies and the actions of individual companies and entrepreneurs. As the innovation ecosystem evolves, it creates challenges for those countries and companies that have ridden this wave – and offers opportunities to those, in the US and around the world, who find themselves well-positioned to adapt to new modes of innovation.”

Some key findings PwC has shared include:

• “On a scale of 1 to 9, with 9 as the highest score, the US currently has a total score of 7.1 and is the global leader in medical technology innovation.  Because of decades of innovation dominance, the US continues to show the greatest capacity for medical technology innovation.”

• “The scores of the other developed nations (the UK, Germany, Japan and France) fall within a tight band of 4.8 to 5.4. Among the developed countries included in this study, Germany and the UK demonstrate the strongest support for innovation and Japan the weakest.”

• “Israel, despite its small size, ranks near the level of the European nations, which indicates its strong capacity to foster innovation.”

• “The emerging markets lag behind developed ones. China, with its powerful economic growth engine, scores 3.4, ranking it higher than India and Brazil, each of which scored 2.7.”

• “Looking to the future, the US is expected to continue to lead in medical technology innovation, but also will lose ground to other countries during the next decade.” 

•  Relative declines are projected “for Japan, Israel, France, the UK and Germany. By contrast, China, India and Brazil are likely to see gains during the coming decade.”

• “China, which has shown the largest improvement in its medical technology innovative capacity during the past five years, is expected to continue to outpace other countries and reach near-parity with the developed nations of Europe by 2020.”

But PwC tells U.S. companies that all is not lost. “The shift away from the US to nations such as China, India and Brazil is not necessarily preordained. Factors related to intellectual property protection, difficulty of doing business in some emerging countries and weak local supplier networks could make these markets less attractive, despite their size, and could hinder these nations’ effort to assume innovation leadership.”

Analytics in the People's Republic of China

By Clive Riddle, September 17, 2010

 This week, the National Predictive Modeling Summit was held in the Washington DC area. During the Thursday afternoon workshop on International Analytics issues, Rong Yi, PhD, Senior Consultant at Milliman, Inc. gave a presentation on Predictive Analytics and the People's Republic of China.

Here’s some of what Rong had to share on health care and analytics in the People's Republic:

• 22% world’s population, 2% world’s health care resources.
• China’s health care spending is 4.7% of GDP.
• 2/3 of the population are in the rural area, supported by only 20% of health care resources.
• Chronic conditions account for 80% of deaths in China
• Hypertension: 18.1% of population (160 mil), increased by 33% in 10 years.
• Diabetes: 9.7% (92 mil) adult diabetes, 15.5% (148 mil) prediabetes.
• Overweight and Obesity: 8.1% children age 7-17, 22.4% adults
• 14 different ministries and commissions are involved in China’s public health and healthcare policymaking
• Rural Coverage: the New Cooperative Medical System started in 2003,  with 100% reach at village level as of 2010
• Urban Coverage: Workers medical insurance started in 1998; Residents medical insurance started in 2007
• Private insurance: Chinese insurers dominant, foreign insurers 5% in market share; Starting in 2011 foreign insurers are allowed to enter the China market for individual and group health insurance
• Reform includes an investment of 2,000 new hospitals in 2009-2012; 3,700 new community health services centers, and 11,000 new community health services stations
• State of Predictive Analytics:  (1) No claim-based predictive modeling at the present time; (2) commercial use of scoring methods and HRA tools include-  HRA research committee under China’s CDC, Proprietary HRA tools developed on China’s data, and specific scoring tools, e.g., ICU scoring systems, disease-specific scoring; (3) Disease risk prediction models based on health screening data on large population in which long term risks are modified using long-term factors such as lifestyle and behavioral factors (smoking, exercise)

Employer Health Care Strategies: Multinational Edition

by Clive Riddle, April 15, 2010

 It's one thing for a multi-state employer to weave their health care strategies through the maze of varying state regulations, delivery systems, demographics, patterns of care and consumer behavior. Consider the daunting task of attempting to synthesize a strategy that reaches across nations and continents.

TowersWatson tackles the subject, this week releasing results from their multinational employer health care survey: Workforce Health Strategies: A Multinational Perspective.  The survey “includes responses from 106 organizations that have at least 500 employees and significant business operations in more than one country. Ninety-three percent of the participating companies are based in North America and manage, on average, 25 health programs and operate in 20 countries around the world.”

Francis Coleman, senior international consultant with Towers Watson tells us “to mitigate growing health care risks and associated costs as well as boost worker productivity, multinationals can increase their use of health strategies that are truly global. In particular, forward-looking multinationals are using leading indicators of health and well-being to proactively and effectively focus their resources rather than react to the rising costs caused by lifestyle diseases and increased adoption of advanced medical technologies.”

But in considering the topic that TowersWatson raises, the question rattles around in the back of my mind ‘How big of a deal is this? After all, can the scope of the multinational work force really be that large?’ So a little background research was in order. First stop, the U.S. Census Bureau, Table 772. United States Multinational Companies--Selected Characteristics which indicates that in 2006 their scope incorporated:

• Total assets $18.5 trillion
• U.S. Parents
  • Capital expenditures $442 billion
  • Value added: $2.5 trillion
  • Employment : 21.7 million
• Majority-owned foreign affiliates:
  • Capital expenditures $153 billion     
  • Value added: $996 billion
  • Employment 9.6 million

So the answer is, yes, the scope is big, and is largely U.S. centric. The National Foreign Trade Council in a press release last year entitled U.S. Multinational Companies Strengthen the Domestic Economy informed us that “The worldwide operations of U.S. multinational companies are highly concentrated in America, not abroad in their foreign affiliates. Domestic parent companies accounted for nearly 70 percent of worldwide employment of U.S multinationals….and represents about 19 percent of total private-sector payroll employment….Foreign affiliates are located primarily in high-income countries that in many ways have economic structures similar to the U.S., not in low-income countries. Affiliates in high-income countries accounted for 79 percent of total affiliate output. …U.S. parent companies account for nearly 25 percent of all private-sector output (measured in terms of GDP), or more than $2.5 trillion.”

Getting back to the matter at hand, here are some key results from the Towers Watson Multinational Survey:

•  26% have a global health strategy in place today, and  an equal number plan to implement a global health strategy by 2012
• 77% offer employee health programs in lieu of, or in addition to, publicly provided programs in all or most of the countries in which they operate.
• 83% of respondents said that stress have a high or moderate impact on their health care costs and workforce productivity, while 77% said chronic conditions and 63% said obesity (63%) had this impact.
• 40% of respondents provide case management programs in most or all countries, while 25% provide disease management, 30% offer health promotion, health screenings and behavioral health programs and 25% provide health risk assessments in most or all countries.
• 51% indicate that non-U.S. markets lack available or reliable health care cost data 44% said these markets lack available or reliable health care products and services and 30% said they lack desired health care vendors

<!--[if !supportLists]-->·             <!--[endif]-->26% have a global health strategy in place today, and  an equal number plan to implement a global health strategy by 2012

<!--[if !supportLists]-->·             <!--[endif]-->77% offer employee health programs in lieu of, or in addition to, publicly provided programs in all or most of the countries in which they operate.

<!--[if !supportLists]-->·             <!--[endif]-->83% of respondents said that stress have a high or moderate impact on their health care costs and workforce productivity, while 77% said chronic conditions and 63% said obesity (63%) had this impact.

<!--[if !supportLists]-->·             <!--[endif]-->40% of respondents provide case management programs in most or all countries, while 25% provide disease management, 30% offer health promotion, health screenings and behavioral health programs and 25% provide health risk assessments in most or all countries.

51% indicate that non-U.S. markets lack available or reliable health care cost data 44% said these markets lack available or reliable health care products and services and 30% said they lack desired health care vendors

Commonwealth Fund International Survey of Primary Care Physicians

by Clive Riddle, November 6, 2009

The Commonwealth Fund this week released their report: A Survey of Primary Care Physicians in 11 Countries, 2009: Perspectives on Care, Costs, and Experiences which compares U.S. primary care physician attributes to those in Europe, Australia, New Zealand and Canada.

Harris Interactive and subcontractors conducted the surveys via mail, phone and internet earlier this year, with results reported from over 10,000  primary care doctors, including 1,016 in in Australia, 1,401 in Canada, 502 in France, 715 in Germany, 844 in Italy, 614 in Netherlands, 500 in New Zealand, 774 in Norway, 1,450 in Sweden, 1,062 in the U.K., and 1,442 in the U.S.

The Commonwealth Fund press release on the report shaped their study in the context of health reform. Cathy Schoen, Commonwealth Fund Senior Vice President and lead author tells us "we spend far more than any of the other countries in the survey, yet a majority of U.S. primary care doctors say their patients often can’t afford care, and a wide majority of primary care physicians don’t have advanced computer systems to access patient test results, anticipate and avoid medication errors, or support care for chronically ill patients. The patient-centered chronic care model originated in the U.S., yet other countries are moving forward faster to support care teams including nurses, spending time with patients, and assuring access to after-hours. The study underscores the pressing need for national reforms to close the performance gap to improve outcomes and reduce costs." Commonwealth Fund President Karen Davis adds “access barriers, lack of information, and inadequate financial support for preventive and chronic care undermine primary care doctors' efforts to provide timely, high quality care and put the U.S. far behind what many other countries are able to achieve. Our weak primary care system puts patients at risk, and results in poorer health outcomes, and higher costs. The survey provides yet another reminder of the urgent need for reforms that make accessible, high-quality primary care a national priority."

Here’s a few highlights the Commonwealth Fund pointed out from their report:

• More than half of U.S. physicians (58%) report their patients often have difficulty paying for medications or other out-of-pocket costs, compared to between 5 percent and 37 percent in the other countries.

• Twenty-eight percent of U.S. doctors report their patients often face long waits to see a specialist—a rate similar to that reported by Australian (35%) and U.K. (22%) physicians, the lowest rates in the survey

• Just 29 percent of U.S. doctors report any arrangement for patients to see a doctor or nurse after hours, a drop from 40 percent in the 2006 Commonwealth Fund International Health Policy Survey. In contrast, nearly all doctors in the Netherlands (97%), and large majorities in New Zealand (89%) and the U.K (89%) report after-hour provision.

• While nearly half (46%) of U.S. primary care doctors report using electronic medical records (EMRs)—up from 28 percent in 2006—U.S. primary care practices, along with Canadian doctors, continue to lag well behind other leading countries.

• Primary care physicians in the U.S., are among the least likely to report that they receive financial incentives for quality improvement, such as bonuses for achieving high patient satisfaction ratings, increasing preventive care, use of teams, or managing patients with chronic disease or complex needs.

• Teams that include health professionals such as nurses serve an important role in managing care, especially for chronic conditions. The survey results indicate that use of teams including nurses and other health professionals to manage care, especially for chronic conditions,  is widespread in Sweden (98%), the U.K, (98%) and many other countries but was far less frequent in the United States (59%), Canada (52%), and France (11%)

• Asked about comparative information systems, doctors in the U.K. are most likely to routinely receive and review data on clinical outcomes (89%), followed by Sweden (71%), New Zealand (68%), and the Netherlands (65%). Less than half of doctors in other surveyed countries—including the U.S. at 43 percent—report such reviews.

• U.K physicians (65%) were by far the most likely to report they receive data on how they compare to other practices and, along with Sweden and New Zealand doctors, the most likely to have information on patient experiences. Notably, U.S. doctors lagged well behind these leading countries on feedback on both clinical quality and patient experiences.

I compiled some selected key issues addressed in the survey into a table, to make it easier to compare various primary care responses by country. While the Commonwealth Fund does go out of their way to paint the U.S, “system” in a bad light as fodder for reform, and perhaps glosses over that U.S. Access to Care isn’t comparatively that bad (refer to specialist wait times below) it is hard to argue we don’t have a lot of room for improvement across the board.

Country	(1) EHRs	(2) Patient Reminders	(3) Rx Costs	(4) Long Specialist Waits	(5) Patient Rx List	(6) Outcome Data	(7) Financial Incentives
Australia	95%	89%	23%	34%	12%	24%	65%
Canada	37%	31%	27%	75%	16%	17%	62%
France	68%	60%	17%	53%	43%	12%	50%
Germany	72%	32%	28%	66%	66%	41%	58%
Italy	94%	33%	37%	75%	59%	40%	70%
Netherlands	99%	80%	33%	36%	4%	65%	81%
New Zealand	97%	97%	25%	45%	5%	68%	80%
Norway	97%	15%	5%	55%	20%	25%	35%
Sweden	94%	51%	6%	63%	29%	71%	10%
United Kingdom	96%	97%	14%	22%	83%	89%	89%
United States	46%	47%	58%	28%	30%	43%	36%

(1) MDs using EHRs

(2) Send Patient Reminders for Preventive/Follow Up Care

(3) Patients have difficulty paying for medications

(4) Patients have long wait times to see specialists

(5) Routinely provide patients list of all medications

(6) Routinely receives/reviews patient outcome data

(7) Can receive various Financial incentives

ICD10: The Impact on P4P, Global Care, Billing and HIEs

by William DeMarco, April 28, 2009

ICD10 will have a major impact on future planning by providers and health plans. I would like to address examples relating to Pay for Performance, global care initiatives, billing documentation and health Information exchanges.

I was giving a lecture to a wonderful HFMA audience in New Hampshire on pay for performance and this topic came up, asking how will ICD10 affect P4P.

It was clear, in my opinion, that all of the use of severity DRGS and now severity levels within ICD codes that ICD 10 offered, were deliberately trying to get at the kind of detailed reporting that Medicare and many purchasers wanted. This was intended to define what process improvement s could be made to develop a better delivery system.

Benchmarking was too broad with the current system and was not fair because it could not get at the root cause without the examination of charts and abstracted medical records that offered such great detail but were labor intensive to obtain.

This statement produced several hundred nodding heads until another panelist from a well respected billing and systems firm said ICD 10 will not be implemented until 2012. When asked why she just said the insurance companies cannot even do APC reconciliation how will they ever do ICD10.

Well, many heads again nodded, probably the ones sweating bullets right now: hospitals that own PCPs and need to quickly find a way to get into ICD10 billing.

The real challenge here is not so much the electronic billing, there are crosswalks out there, but rather documentation at the physician end.

ICD10 requires a major departure from the two or three categories in an ICD 9, and will demand some documentation from physicians and physician mangers who will need to be adamant about both the precision, to avoid audits and also the electronic billing capability to get paid on time as all Medicare and Commercial will move to this system.

Of equal importance is the traveling executive whose emergency visit in Thailand will be billed using ICD 10 or ICD11. Or the family that is told if they go to India for Johnnie’s surgery ,it will be covered in full, but if they get the surgery done here it will only be 60% covered.

We are not seeing the medical tourism momentum stop, and as Blue Cross South Carolina adds Hospitals to its PPO network in Panama and Costa Rica and other employers demand credentialed professionals to see their employees overseas, the conversion to this new system is also key to success.

What we are all missing is the why?

Why are we making this so complicated?

The current system has a majority of docs using the same codes over and over.

In our work with Pendulum HealthCare Development Corporation we see level 3 office visits for a majority of doctors and patients, and yet when we compare level 1 visits of similar docs in the same region with a case mix adjusted diagnosed population, we see the end result is the same.

Why are we paying more?

In this case there were 12,000 children accessing:780 pediatricians. 1,300 pediatric specialists,60 in network hospitals.

They were generating 21,000 admissions, 190,900 clinic visits, 79,319 ED and 19,785 surgeries. The client’s goals were to integrate financial and clinical reporting capabilities to make good decisions as to how best to manage the plans medical loss ratio. When we extracted data there were many holes such as Misaligned fields for lines of business, and Claim adjustment errors.

Office Visit Level	% Medicaid Claims	% Commercial Claims
1	0.3%	2.3%
2	6.5%	35.0%
3	59.9%	58.8%
4	30.0%	3.6%
5	3.3%	0.3%

The solution was to reconfigure reports to be useable by departments and management.

For example, by aligning financial and clinic reports into 30 summaries the providers and the health plan received reporting by line of business, specific drugs, service codes, and disease condition by provider. This allowed them to have a real time cost per patient per 1,000 and PMPM by service and set the foundation for implementing HEDIS measures and other custom quality measures for operational improvement and compliance.

What this analysis also found was providers offset lower reimbursement by increasing complexity of office visit level. For example focusing on a single procedure Otitis Media for 62,000 Medicaid patients and 400,000 Commercial patients, we found over-reliance on level 4 and 5 office visits

In looking at outcomes, variances between Commercial and Medicaid is not clinically justified, so the plan allowed physician and hospitals to look at the financial impact of reducing office payments by 21%.

This got EVERYONE’S attention.

By showing drill down reports, the Client was able to look at the practice mix compared to specialty averages for each condition. This led to a timely discussion on proper use of level 1 versus level 5 billing benchmarks

The physicians and hospital were able to identify the providers who billed 90% or greater of their visits at level 5 and show them where they stand next to their peers.

I point this out to demonstrate that having severity adjustment and having risk adjusters for the elderly will all require more and more use of ICD 10 to get at providers who often unknowingly burn more resources with some diagnosis than others.

I also wanted to point out that by sharing this data with providers the health plan allowed the peer pressure of physician and hospital to create AWARENESS of the problem and the potential fee reduction consequences if behavior did not change.

As plans have this data so will Medicare and a scoring process using ICD 10 is underway at the top of the payer’s mindset using tiering and reconfiguring networks.

Finally the discovery that was made at the HIMSS conference last month and that is that the government’s stimulus program checks for EMR are going to go to reimburse providers who create ‘Meaningful User” data.

This means data must be able to be communicated from office to office, hospital to hospital and payer to payer and especially provider to payer.

Many practice management companies will be shut down as their system operates in a vacuum. Many hospitals, we have discovered in our pay for performance work, have a large system but they cannot get their large system to cross over departments and they cannot communicate electronically with payers except for billing information. This is inadequate and ICD10 will require more data fields and therefore more complex billings but also offer the opportunity for payers and providers to construct bridge reports on performance and someday outcomes.

By having a national severity distinction and preparing the data links to both internal and external customers ( A BIG LEAP) we will see regional data bases begin to form and these collections of data will form a local practice pattern form which providers and payers can better evaluate changes and watch change happen.

In all my work with doctors for the past 30 years, I can say once the doctors actually see that improvement needle move, they suddenly feel like they are back in control and this is a wonderful thing.

We have been lacking precise data to see this behavior change, which is always been the source of the argument” my patients are sicker”. We can see this shift to performance based contracting now be supported by physicians and specialty societies using ICD10.

So ICD 10 will be a major change for us as well as the health plans, hospitals and physicians. If payers are demanding value but there is no way to prove it then the data is useless and will not produce needed change. If there is a regional data base of practice patterns that can be used by payers and providers we will have less cause for acrimony and more time spent competing on quality. This was the original intention of health plans in the 1970s. Perhaps this is a second chance to make these local plans flourish.

International Health Care Data and Comparisons

By Clive Riddle

With this election year, health care is a central topic of discussion for Presidential and Congressional candidates. Inevitably, references are made inferring either superior or inferior performance of the U.S. health care system compared to various other countries.
So just what kind of current data is out there reflecting various attributes of international health care? Below is collection of selected international health care factoids, compiled by Global Health Resources this year:

Health Spending And Insurance Systems in Seven Countries, 2007

Australia Canada Germany Netherlands New Zealand United Kingdom United States National health spending Per capita (U.S. $PPP)* $3,128 $3,326 $3,287 $3,094 $2,343 $2,724 $6,697 Percent of GDP* 9.5% 9.8% 10.7% 9.2% 9.0% 8.3% 16.0% Percent of primary care practices with: Any financial incentive for quality 72% 41% 43% 58% 79% 95% 30% Electronic medical records 79% 23% 42% 98% 92% 89% 28% Percent uninsured 0% 0% <1% <2% 0% 0% 16% *PPP is purchasing power parity. GDP is gross domestic product Source: Toward Higher-Performance Health Systems: Adults’ Health Care Experiences In Seven Countries, 2007 Health Affairs, October 2007 http://content.healthaffairs.org/cgi/content/full/26/6/w717

Cost of Medical Procedures: United States and Abroad (in US dollars)

Procedure United States Costa Rica Mexico Korea Heart bypass $130,000 $24,000 $22,000 $34,150 Heart-valve replacement $160,000 $15,000 $18,000 $29,500 Angioplasty $57,000 $9,000 $13,800 $19,600 Hip replacement $43,000 $12,000 $14,000 $11,400 Hysterectomy $20,000 $4,000 $6,000 $12,700 Knee replacement $40,000 $11,000 $12,000 $24,100 Spinal fusion $62,000 $25,000 N/A $3,311 Source: Medical Tourism Association, 2007 Survey

Procedure United States Costa Rica Mexico Korea Heart bypass $130,000 $24,000 $22,000 $34,150 Heart-valve replacement $160,000 $15,000 $18,000 $29,500 Angioplasty $57,000 $9,000 $13,800 $19,600 Hip replacement $43,000 $12,000 $14,000 $11,400 Hysterectomy $20,000 $4,000 $6,000 $12,700 Knee replacement $40,000 $11,000 $12,000 $24,100 Spinal fusion $62,000 $25,000 N/A $3,311 Source: Medical Tourism Association, 2007 Survey

The Cost of Medical Procedures in Selected Countries (in US dollars)

Procedure US Retail Price* US Insurers' Cost* India** Thailand** Singapore** Angioplasty $98,618 $44,268 $11,000 $13,000 $13,000 Heart bypass $210,842 $94,277 $10,000 $12,000 $20,000 Heart-valve replacement (single) $274,395 $122,969 $9,500 $10,500 $13,000 Hip replacement $75,399 $31,485 $9,000 $12,000 $12,000 Knee replacement $69,991 $30,358 $8,500 $10,000 $13,000 Gastric bypass $82,646 $47,735 $11,000 $15,000 $15,000 Spinal fusion $108,127 $43,576 $5,500 $7,000 $9,000 Mastectomy $40,832 $16,833 $7,500 $9,000 $12,400 * Retail price and insurers' costs represent the mid-point between low and high ranges ** US rates include at least one day of hospitalization; international rates include airfare, hospital and hotel Source: Medical Tourism: Global Competition in Health Care, National Center for Policy Analysis, November 2007 http://www.ncpa.org/pub/st/st304/st304.pdf

Wait Time to get an Appointment in Seven Countries

Percent of adults who waited 6+ days for an appointment to see regular medical doctor Canada 30% United States 20% Germany 20% United Kingdom 12% Australia 10% Netherlands 5% New Zealand 4% Source: Fixing the Foundation: An Update on Primary Health Care and Home Care Renewal in Canada, January 2008 http://www.healthcouncilcanada.ca/docs/rpts/2008/phc/HCC_PHC_Main_web_E.pdf

Percent of adults who waited 6+ days for an appointment to see regular medical doctor Canada 30% United States 20% Germany 20% United Kingdom 12% Australia 10% Netherlands 5% New Zealand 4% Source: Fixing the Foundation: An Update on Primary Health Care and Home Care Renewal in Canada, January 2008 http://www.healthcouncilcanada.ca/docs/rpts/2008/phc/HCC_PHC_Main_web_E.pdf

Access to “Medical home”* Among Adults in Seven Countries, 2007

Australia Canada Germany Netherlands New Zealand United Kingdom US 59% 48% 45% 47% 61% 47% 50% *Medical Home: Has a regular doctor or place that is very/somewhat easy to contact by phone, always/often knows medical history, and always/often helps coordinate care Source: Toward Higher-Performance Health Systems: Adults’ Health Care Experiences In Seven Countries, 2007 Health Affairs, October 2007 http://content.healthaffairs.org/cgi/content/full/26/6/w717

Out-of-Pocket Expenses for Medical Bills in the Past Year in Seven Countries

(in U.S. $ equivalent) Australia Canada Germany Netherlands New Zealand United Kingdom United States None 13% 21% 9% 38% 12% 52% 10% $1-$100 11% 17% 17% 15% 17% 12% 9% More than $1,000 19% 12% 10% 5% 10% 4% 30% Source: Toward Higher-Performance Health Systems: Adults’ Health Care Experiences In Seven Countries, 2007 Health Affairs, October 2007 http://content.healthaffairs.org/cgi/content/full/26/6/w717

Mortality Amenable to Health Care in Selected Countries*

Deaths per 100,000 population Country 1997-98 2002-03 France 76 65 Japan 81 71 Spain 84 74 Australia 88 71 Sweden 88 82 Italy 89 74 Canada 89 77 Netherlands 97 82 Greece 97 84 Norway 99 80 Germany 106 90 Austria 109 84 Denmark 113 101 New Zealand 115 96 United States 115 110 Finland 116 93 Portugal 128 104 United Kingdom 130 103 Ireland 134 103 *Deaths from certain causes before age 75 that are potentially preventable with timely and effective health care. Source: Measuring the Health of Nations: Updating an Earlier Analysis, The Commonwealth Fund, January 2008 http://www.commonwealthfund.org/usr_doc/1090_Nolte_measuring_hlt_of_nations_ HA_01-2008_ITL(web).pdf?section=4039

Cost-Related Access Problems in Seven Countries, 2007

Australia Canada Germany Netherlands New Zealand United Kingdom United States Percent in past year due to cost: Did not fill prescription or skipped doses 13% 8% 11% 2% 10% 5% 23% Had a medical problem but did not visit doctor 13 4 12 1 19 2 25 Skipped test, treatment or follow-up 17 5 8 2 13 3 23 Percent who said yes to at least one of the above 26 12 21 5 25 8 37 Source: Health Care: Solutions Without Borders, The Commonwealth Fund http://www.commonwealthfund.org/aboutus/aboutus_show.htm?doc_id=597055

For More Information:

Global Health Resource
www.globalhealthresources.com