Fact Sheet
For more than 10 years, the Agency for Healthcare Research and Quality (AHRQ) has been conducting and funding research to provide information for decisionmakers about costs. This fact sheet summarizes specific AHRQ research focusing on health care costs.
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Background / AHRQ Research /
Research on Lowering Health Care Costs / Current Research on Health Care Costs / Future Research / More Information
Background
The United States spends a larger share
of its gross domestic product (GDP) on
health care than any other major
industrialized country. Expenditures for
health care represent nearly one-seventh
of the Nation's GDP, and they continue
to be one of the fastest growing
components of the Federal budget. In
1960, for example, health care
expenditures accounted for about 5
percent of the GDP; by 2000, that figure
had grown to more than 13 percent.
Although the rate of growth in health
care costs slowed somewhat in the mid-1990s,
it has once again started to rise at
a rate that exceeds other sectors of the
economy. Thus, identifying ways to
contain health care costs and obtain high
value for our health care investments
continues to be a priority for the Nation,
particularly for policymakers and public
and private payers.
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AHRQ Research
All players in the health care system—employers, insurers, providers, and
consumers, as well as Federal and State
policymakers—need objective, science-based
information to help them make
critical decisions about how to allocate
scarce health care resources. For more
than 10 years, the Agency for Healthcare
Research and Quality (AHRQ)—and its
predecessor, the Agency for Health Care
Policy and Research—has been working
to meet this need. For example:
- AHRQ research focused on health
expenditures, health insurance
premiums, and payment sources has
improved our understanding of how
the employment-related health
insurance market functions and the
cost and availability of coverage for
workers in different economic and
employment circumstances.
- AHRQ-supported studies have
examined out-of-pocket care costs for
different segments of the population,
the costs associated with expanding
health care coverage to the uninsured,
the financial consequences of
preventable hospital admissions, and
the use of waivers for home and
community-based care for people with
AIDS.
- Extramural researchers supported by
AHRQ have analyzed the cost
consequences of a variety of policy
choices, such as prescription
formularies, the use of prior
authorization programs, and the use
of physician and organizational
incentives.
Two major AHRQ initiatives—the
Medical Expenditure Panel Survey
(MEPS) and the Healthcare Cost and
Utilization Project (HCUP)—provide
essential data that have been used across
the country by researchers and
policymakers in tracking health care use
and costs and assessing trends over time.
- MEPS data have been used
extensively by the research and policy
communities. For example, MEPS
data have been applied to:
- Study the burden of out-of-pocket health care
expenditures.
- Estimate prescription
drug expenditures by the elderly.
- Characterize the insured and
uninsured populations.
- Identify payment sources.
- Estimate personal expenditures for selected health
conditions.
- Determine the concentration of expenditures among
various segments of the population.
- HCUP provides information on
inpatient hospital charges at the
national and State levels, including all
inpatient records with charge data,
clinical data, and demographic
information from 80 percent of all
hospital discharges in the United
States. HCUP is a Federal-State-industry
partnership that provides a
geographically representative sample
of hospital discharges across the
United States.
HCUP data help
researchers, policymakers, and health
care administrators answer questions
about conditions treated and
procedures performed in U.S.
hospitals and ambulatory surgery
centers for the population as a whole
and for population subsets, such as
children and the elderly. HCUP data
provide information on reasons for
hospitalization, how long people stay
in the hospital, the procedures they
undergo while hospitalized, and how
specific conditions are treated in the
hospital.
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Research on Lowering Health
Care Costs
AHRQ-funded research provides
essential information to help reduce
health care costs—to consumers, to
employers who sponsor insurance
coverage, and especially to the Medicare
and Medicaid programs.
Reducing the risk of stroke for
elderly patients with atrial
fibrillation (irregular heartbeat).
About 80,000 strokes occur in
America each year that can be
attributed to atrial fibrillation (AF).
Although warfarin, a blood thinning
agent, lowers the risk of stroke in AF
patients, less than half of appropriate
candidates for warfarin were receiving
it. The use of warfarin to prevent
stroke could save an estimated $1.45
million each year per 100,000 people
aged 65 and older, of whom about
6,000 would have AF. AHRQ-supported researchers identified why
physicians were reluctant to prescribe
warfarin and developed a program to
help them increase the appropriate
use of warfarin. Medicare Peer
Review Organizations began projects
to increase the use of warfarin and
other anticoagulation drugs in 20
States. As a result, use of
anticoagulation therapy increased 58
to 71 percent, with a projected 1,285
strokes prevented.
Employers may lower costs by
offering their employees multiple
insurance plans and making the
same dollar contribution to each.
The amount of cost-sharing an
employer requires as well as the
number of plans the employer offers
to employees can significantly affect
the employer's health care costs. A
recent AHRQ study found that
employers may be able to lower their
health insurance costs by offering
their employees three or more health
plans and making fixed-dollar
contributions to each, thus making
employees more price sensitive.
More competition among HMOs
means lower prices for consumers.
AHRQ-funded researchers compared
data on health maintenance
organization (HMO) premiums in
various markets. Premiums were
lower in more competitive markets,
where a high percentage of the
population was enrolled in HMOs
and many HMOs competed for their
business.
Managed care held down mental
health costs for employers and
insurers by using a carve-out plan.
A recent AHRQ study looked at a
large employer group faced with a
State mandate calling for mental
health parity, which was expected to
lead to rising costs. One insurer
introduced a carve-out (an
organization separate from the main
insurer to manage health care in a
specific area) for mental health
coverage. After 3 years of the carve-out
plan, mental health costs had
dropped significantly.
Changing Medicaid coverage for
anti-ulcer drugs reduced use of
these drugs without increasing
hospitalizations. Anti-ulcer
medications account for 10 to 13
percent of State Medicaid pharmacy
budgets. After AHRQ-supported
researchers published their findings,
the Florida Medicaid program revised
its coverage policies to reduce
inappropriate use of anti-ulcer drugs.
As a result, Medicaid reimbursement
for the drugs decreased 33 percent.
There was no associated increase in
Medicaid hospitalizations for
complicated peptic ulcer disease
(PUD), uncomplicated PUD, or
non-ulcer peptic disease.
Easy-to-use tool predicts which
nursing home residents with
pneumonia and other respiratory
infections can be treated safely
without costly hospitalization.
Aggregated charges to the Medicare
program for hospital treatment of
pneumonia in 2000 were estimated
to be over $10.1 billion, and the
Medicaid program paid for an
additional $3.4 billion in hospital
care for pneumonia that year. An
average hospital stay for pneumonia
care in 2000 cost about $15,000.
AHRQ-funded researchers in
Missouri developed a tool that
nursing home clinical staff can use to
determine the severity of pneumonia
and whether a resident should be
hospitalized.
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Reducing Costs—AHRQ Research Makes a Difference
- Acute Cardiac Ischemia-Time Insensitive Predictive Instrument. Widespread use of the ACI-TIPI could result in more than 200,000 fewer hospital admissions and
112,000 fewer coronary care unit admissions each year, for an overall annual savings
of $728 million. This software runs a new electrocardiogram (EKG) machine that can
help ER physicians more quickly identify patients who are having a heart attack and
make decisions about thrombolytic therapy to break up blood clots. The Food and Drug Administration (FDA) has approved this software for use in hospital emergency rooms and by prehospital emergency personnel. ACI-TIPI was developed with AHRQ support.
- Outpatient treatment of pelvic inflammatory disease. Often, women who have mild-to-moderate cases of PID can be successfully treated as outpatients, which would
result in substantially reduced costs. PID affects more than 1 million U.S. women
each year, with annual estimated direct and indirect costs of more than $4 billion. A
recent AHRQ-supported study of more than 800 women with clinical signs and
symptoms of mild-to-moderate PID found no differences in outcomes among women
who were hospitalized and those treated as outpatients.
- Use of less expensive antibiotics to treat middle ear infection in children. Middle ear infection (otitis media) is the most frequent reason for prescribing antibiotics to children. In Colorado, low-cost antibiotics accounted for 21 percent of antibiotic
expenditures for otitis media, while high-cost antibiotics accounted for 76 percent of
expenditures. A recent AHRQ-funded study found that less costly antibiotics were just
as effective as high-cost antibiotics in treating otitis media, and that use of the less
expensive antibiotics could have saved nearly $400,000 in Medicaid expenditures for
the State of Colorado.
- Self-management programs reduce the use of health care services among people
with chronic diseases. About 70 percent of all health care expenditures are related to
chronic disease. A recent study found that patients with chronic diseases who
participated in a brief self-management training program improved their health or had
less deterioration and used fewer health care services over a 2-year period, compared
with their status before the program. The program resulted in savings of $590 per
participant over the 2 years, due to fewer hospital days and outpatient visits. The
program has been implemented in a number of health care settings across the United
States and abroad.
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Current Research on Health Care
Costs
AHRQ has many ongoing projects
focused on health care costs, cost-effectiveness,
and financing, including
private insurance, Medicare, Medicaid,
and lack of insurance. Examples of
projects currently in progress include:
Safety and financial ramifications
of emergency department copayments. Copayments are
a commonly used patient-level
incentive for modulating the demand
for services and the use of
unnecessary care. Although we know
that copayments and other forms of
cost-sharing can lead to reduced use
of services, we do not know what
effects these incentives have on
patient outcomes. These investigators
will evaluate the effects of different
copayment levels on emergency
department (ED) use on treatment
costs and patient outcomes within the
Kaiser Permanente-Northern
California health system. The main
outcomes of interest are hospital
admissions, intensive care unit (ICU) admissions,
mortality, and treatment costs.
Impact of payment policies on the
cost, content, and quality of care.
These researchers are combining data
from health plans to examine how
economic incentives inherent in the
relationship between health plans and
health care providers (physicians and
hospitals) influence the cost, quality,
and type of services received by
patients.
Incidence of reduced use of
prescribed medications in response
to out-of-pocket costs among
Medicare beneficiaries. This study is
assessing the impact of out-of-pocket
costs incurred by Medicare+Choice
beneficiaries on their use of
prescription medications.
Comorbidity, costs, and outcomes
in dialysis patients. Previous research
has shown that patients with end-stage
renal disease (ESRD) who have
high comorbidity—for example,
people with diabetes have higher rates
of peritoneal dialysis failure.
Increasing comorbidity may
profoundly impact illness severity, risk
of death, resource use, and overall
health care costs in the dialysis
population.
Researchers at the
University of Utah are developing a
comorbidity tool to help clinicians
identify high-risk patients and select
the optimal dialysis modality at the
initiation of treatment. This will be of
particular interest to the Medicare
ESRD program, since most dialysis
patients are aged 60 or older and have
one or more comorbid conditions.
The primary outcomes of interest will
be hospital days and Medicare
hospital costs.
Economic analysis of pulmonary
artery catheter use. The pulmonary
artery catheter (PAC) is a commonly
used device that helps to guide care of
critically ill patients, such as those
with acute lung injury or acute
respiratory distress syndrome.
Although clinicians believe that PAC
is useful for decisionmaking, PAC
substantially increases health care
costs, and recent data suggest that it
also may increase mortality. These
University of Pittsburgh researchers
are conducting an economic analysis
of PAC to compare long-term
survival, quality of life, costs, and
cost-effectiveness between patients
who receive a PAC and those who
receive the less invasive central venous
catheter.
Patient-centered care and health
care costs. Preliminary research
suggests that patient-centered care—which is characterized by
incorporating the patient's experience
of illness and psychosocial context
into shared physician-patient
decisionmaking—may reduce use of
health care services while improving
health status and patient satisfaction,
particularly among patients who
present with unexplained, hard-to-diagnose
complaints. These University
of Rochester researchers are
examining the relationship between
the provision of patient-centered care
and health care costs, health status,
and satisfaction. Other goals include
characterizing the features of patient-physician
communication that
contribute to lower health care costs
and identifying modifiable factors in
physician interaction style that can
lead to decreased use of services, lower
costs, and recognition of patient
emotional stress.
Analysis of managed care spending
for high-cost illnesses. Recent
AHRQ research revealed that the use
of health care services is highly
concentrated—just 1 percent of the
population accounts for 27 percent of
all health care expenditures. These
findings were based on data from
MEPS. The study also
found that the concentration of
expenditures has been remarkably
stable over the past decade, indicating
that managed care has had little
impact on how resources are spent in
treating high-cost illnesses.
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Future Research
This list represents only a small sample
of the many pressing research questions
on health care costs and financing.
Examples of priorities for future research
in this area include:
- How can we lower health care costs
without compromising quality? Also,
how can we lower costs without
simply shifting costs from one sector
to another?
- What factors are driving the recent
rise in overall health care
expenditures? For which services are
costs rising, and what forces are
responsible for the increasing costs?
- What is the relative burden of out-of-pocket
expenditures for vulnerable
population groups?
- How do expenditures vary by
insurance status, and what factors
account for variation within insurance
groups?
- What are the costs and factors
associated with use of alternative and
complementary care?
- What proportion of overall health
care expenditures is associated with
end-of-life care?
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More Information
To find out more about AHRQ and our
extensive portfolio of research on health
care costs and financing, visit the AHRQ
Web site at http://www.ahrq.gov/research/costix.htm or contact:
Joel Cohen, Ph.D.
Center for Cost and Financing Studies
Joel.Cohen@ahrq.hhs.gov
(301) 427-1659
Jan De La Mare, M.P.Aff.
Center for Organization and Delivery Studies
Jan.DeLaMare@ahrq.hhs.gov
(301) 427-1423
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AHRQ Publication No. 02-P033
Current as of September 2002
Internet Citation:
Health Care Costs. Fact Sheet. AHRQ Publication No. 02-P033, September 2002. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/news/costsfact.htm