research and analysis by avalere health adopting technological innovation in hospitals: who pays and...
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Research and analysis by Avalere Health
Adopting Technological Innovation in Hospitals: Who Pays and Who Benefits?
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Research and analysis by Avalere Health
Advances in medicine, while costly, have substantially improved health outcomes and quality of care…
Source: Luce, B.R., et al. (2006). The Return on Investment in Health Care: From 1980 to 2000. Value in Health, 9(3), 146-156.
Chart 1: Return per Incremental Dollar Spent on Health Care
$1.10$1.55$1.49
$4.80
Heart attack Type 2 diabetes Stroke Breast cancer
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Research and analysis by Avalere Health
…though many new technologies are costly for hospitals.
Item Base Equipment Cost Extras
Implantable cardioverter defibrillator (ICD)
$20,000 to $35,000 Variable
Basic minimally-invasive surgery suite
$100,000 to $500,000 Variable cost per case for disposables (e.g., surgical instruments) depending on type of procedure
Image-guided surgery system for ENT procedures
$100,000 to $175,000 $50 to $400 per case for disposables
Intraoperative MRI for neurosurgery
$1.5 million to $5.3 million Variable, but substantial, for constructing MRI-safe operating room space
Sources: Sg2 cited in: Gardner, E. (2006). Making the Cut. Modern Healthcare, 36(7), 50-56. Meier, B. (2005, August 2). As Their Use Soars, Heart Implants Raise Questions. New York Times, www.nytimes.com.
Chart 2: Sample Costs of Adopting Innovative Technology
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Research and analysis by Avalere Health
Medicare has dedicated payment mechanisms for new technology…
Source: MedPAC. (March 2003). Payment for New Technologies in Medicare’s Prospective Payment Systems. Report to the Congress: Medicare Payment Policy. Washington, D.C.
Chart 3: Hospital Inpatient and Outpatient New Clinical Technology Payment Mechanisms
Inpatient Add-on Payments
Outpatient Pass-through Payments
Outpatient New Technology APCsMedical Devices Drugs and Biologicals
Eligible new technologies
Represent a new procedure or are an input to an existing DRG
Are an input to an existing service
Are an input to an existingservice
Represent a new service
Criteria for payment Clinical benefit, newness and cost
Clinical benefit, newness and cost
Newness and cost Newness
Basis for payment Additional costs of treating a case using the new technology
Cost of the new technology
Cost of the new technology
Cost of providing the service
Payment 50% of the additional costs, capped at 50% of the estimated cost of the new technology
100% of reported costs minus device costs already built into the base payment rate
106% of average sales price (ASP)
Midpoint of the payment range for the new technology APC group
Payment financing New expenditures Budget neutral Budget neutral New expenditures
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Research and analysis by Avalere Health
…though few new clinical technologies actually have been approved for inpatient add-on payments.
* Excludes revision of one 2004 approval.** Excludes one application which was withdrawn prior to CMS decision.
Source: Avalere Health analysis of Hospital Inpatient Prospective Payment System Final Rules.
Chart 4: New Clinical Technology Add-on Payment Decisions, 2003 to Present
1
2 2
1
3
1
8
6
11
2003 2004 2005* 2006 2007**
Approved Denied
No
. o
f A
dd
-on
Pa
yme
nt
Ap
plic
atio
ns
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Research and analysis by Avalere Health
Medical Records, $1.3
Lab tests, $1.6
Drugs, $2.0
Nursing time, $7.1
Length of stay, $19.3
Drugs, $6.2
Radiology, $1.7Lab tests, $1.1
Transcriptions, $0.9Chart pulls, $0.8
Private Payers, $15.8
Medicare, $11.7
Medicaid (federal), $6.1
State and local, $4.2Out-of-pocket spending, $2.0Other, $2.0
Widespread use of EHR systems can realize significant savings for the system as a whole…
* The authors’ analysis focuses on electronic medical record systems (EMR-S), defined to include EMR, clinical decision support, a central data repository, and computerized physician order entry (CPOE).
Source: Girosi, F., Meili, R., and Scoville, R. (2005). Extrapolating Evidence of Health Information Technology Savings and Costs. Santa Monica, CA: RAND Corporation.
Chart 5: Estimated Average Annual Savings from Widespread Use of EMR-S* by Source and Recipient of Savings, in Billions
Inpatient savings
Outpatient savings
Source Recipient
Total Savings, $41.8 Billion
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Research and analysis by Avalere Health
…though many hospitals will need help getting to full health IT implementation.
Note: Based on 903 community hospitals with complete information.
Source: American Hospital Association. (2005). Forward Momentum: Hospital Use of Information Technology. Washington, D.C.
Chart 6: Distribution of Hospitals by Level of Health IT Use
High10%
Getting started36%
Low27%
Moderate27%
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Research and analysis by Avalere Health
Hospitals with high Medicare case loads are less likely to adopt health IT…
Source: Fonkych, K., and Taylor, R. (2005). The State and Pattern of Health Information Technology Adoption. Santa Monica: RAND Corporation.
Chart 7: Health IT Adoption in Hospitals by Share of Medicare Patients
12%
19%
27%
35%
24%
41%
Share of Medicaredischarges is more than
50%
Share of Medicaredischarges is less than
50%
Radiology PACSBasic EMRCPOE
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Research and analysis by Avalere Health
…as are smaller hospitals.
Source: American Hospital Association. (2005). Forward Momentum: Hospital Use of Information Technology. Washington, D.C.
Chart 8: Level of IT Use by Hospital Size
48%
23%11% 7%
19%
27%
34%
31%
19%
10%18%
31%
45%
61%
6% 7% 12% 13% 13%
66%
<50 beds 50-99 beds 100-299 beds 300-499 beds 500+ beds
HighModerateLowGetting started
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Research and analysis by Avalere Health
Growth in hospitals’ Medicare costs has exceeded Medicare’s update in recent years…
Source: MedPAC. (June 2006). Acute Inpatient Services. A Data Book: Healthcare Spending and the Medicare Program. Washington, D.C.
Chart 9: Cumulative Percent Change in Medicare Acute Inpatient PPS Costs per Case and Operating Update, 1994-2004
21.3
17.4
14.010.9
7.36.15.6 5.6
2.03.5
31.8
24.3
17.0
2.9
8.0
0.4-2.1-3.2-2.6
-1.4
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Update Medicare costs per discharge
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Research and analysis by Avalere Health
…intensifying financial barriers to hospital adoption of health IT.
Source: American Hospital Association. (2005). Forward Momentum: Hospital Use of Information Technology. Washington, D.C.
Chart 10: Percent of Hospitals Indicating Initial Costs of Health IT Are a Barrier
43%
51%
53%
62%
73%
49%
43%
41%
33%
23%
94%
94%
95%
96%
92%500+ beds
300-499 beds
100-299 beds
50-99 beds
<50 beds
Significant barrier Somewhat of a barrier
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Research and analysis by Avalere Health
Clinical and information technology do not have a dedicated category in the hospital market basket.
Source: CMS. Quarterly Index Levels in the CMS Prospective Payment System (IPPS) Hospital 2002 Input Price Index using Global Insight Inc. Forecast Assumptions by Expense Category: 1990-2016. http://www.cms.hhs.gov .
Chart 11: Cost Categories, Weights and Price Proxies for the Hospital Market Basket
Expense Category Weight Price/Wage VariableCompensation Wages 48.171 ECI- Hospital Workers (Civilian)
Benefits 11.822 ECI- Hospital Workers (Civilian)
Professional Fees Professional Fees 5.510 ECI- Compensation Prof. & Tech. (Private) Utilities Electricity 0.669 PPI - Commercial Electric Power
Fuel, Oil, Coal, etc 0.206 PPI - Commercial Natural Gas
Water & Sewerage 0.376 CPI - Water & Sewage
Prof. Liability Insurance Malpractice 1.589 CMS - Prof. Liability Premiums All Other Products Drugs 5.855 PPI - Prescription Drugs
Food-Direct Purchase 1.664 PPI - Processed Foods
Food-Away From Home 1.180 CPI - Food Away From Home
Chemicals 2.096 PPI - Industrial Chemicals
Medical Instruments 1.932 PPI - Medical Instruments & Equipment
Photo Supplies 0.183 PPI - Photo Supplies
Rubber & Plastics 2.004 PPI - Rubber & Plastic Prod.
Paper Products 1.905 PPI - Convert. Paper & Paperboard
Apparel 0.394 PPI - Apparel
Machinery & Equipment 0.565 PPI - Machinery & Equipment
Miscellaneous Products 2.558 PPI - Finished Goods Less Food and Energy
All Other Services Telephone 0.458 CPI - Telephone Services Postage 1.300 CPI - Postage
All Other: Labor Intensive 4.228 ECI - Service Occupations (Private)
All Other: Non-labor Intensive 5.335 CPI - All Items (Urban)
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Research and analysis by Avalere Health
Market basket projection error has led to payment updates that fall short of actual market basket increases.
Source: AHA analysis of Federal Registers volumes 67-69, CMS market basket data and Global Insights, Inc., projections.
Chart 12: Medicare Market Basket Projected vs. Actual, 1998-2005
-0.2% -0.3%
-3.8%
-1.1%
-1.9%-1.6%
-2.1%-2.7%
2.4%2.9%
3.4% 3.5% 3.4% 3.3%2.5%
3.6%3.9% 3.8%
4.1%
2.7%
3.3%2.9%
3.0%
4.1%1998 1999 2000 2001 2002 2003 2004 2005
Cumulative Projection Difference Market Basket Projection for IPPS Rates Actual Market Basket