The approaching onslaught of over 70 million aging baby boomers could overwhelm the U.S. health care system and engulf the nation's tenuous economy, according to a new study, "Will the Boom Bust Health Care?," by management consulting firm Tefen USA.

A recent report from the Centers for Medicare and Medicaid Services (CMS) predicts that unless decisive action is taken, total U.S. health care spending will double to just over $4.3 trillion by 2017 - or nearly 20 percent of the nation's gross domestic product. Tefen USA estimates that this figure could be considerably higher, based on its assessment of data that people over the age of 65 experience nearly three times as many hospital days per thousand as the general population, and that sixty-two percent of 50-64 year-olds report having at least one of six chronic health conditions: arthritis, high cholesterol, cancer, diabetes, heart disease and hypertension.

Declining Hospital Capacity

Compounding the problem, according to Tefen, is a sharp decline in hospital capacity. The number of community hospitals decreased from 5,384 to 4,915 between 1990 and 2000. During the same time period, the number of beds per 1,000 of population decreased from 4.2 to 3.0. This reduction in capacity, Tefen points out, has been accompanied by a sharp increase in hospital staffing. Between 1995 and 2000, full-time equivalent personnel increased from about 3,420,000 to about 3,911,400. At the same time, hospitals have spent almost $100 billion in facility and infrastructure improvements.

"There is an immense, growing disconnect within the U.S. health care sector," said Barry Calogero, president, Tefen USA, and author of the study. "Capacity is shrinking, costs are skyrocketing, and the patient population is about to explode. Our nation must bring these disparate factors into alignment in order to preserve the foundation of U.S. health care while adapting to the economic, medical and political conditions of today and tomorrow.

Severe Consequences Projected

As baby boomer-induced health care costs grow, these severe consequences are likely to occur, according to the Tefen study:

-- The problem of uninsured Americans will escalate, as employers seek to reduce the burden of retiree health care coverage, trim their contributions to health care premiums and, in some instances, eliminate the health care benefit entirely.

-- Health care quality will suffer, with wide variation in treatments and big differences in death rates and surgical complications.

-- Federal spending on Medicare and Medicaid will skyrocket, forcing politicians to raise taxes or severely curtail a wide range of other government programs.

-- State budgets will suffer under the crush of soaring Medicaid costs, compromising support for education and other local initiatives.

-- The nation as a whole will have fewer and fewer dollars to spend on education, environmental protection, scientific research and national security.

"Despite what many people think, the solution is not a single-payer system," said Calogero. "While socialized medicine provides some advantages from an access standpoint, it does not address the underlying cost and quality issues that threaten the functional integrity of health care in the U.S. The real solution to America's health care challenges requires three components: implementing tort reforms, mandating the use of best practices and driving systemic process improvement." The Tefen study provides insights and details on each of these three solution elements.

Implement Tort Reforms

The study's author suggests that the threat of lawsuits causes providers to hide problems and engage in unnecessary procedures to avoid potential negative occurrences. "If caregivers document mistakes, they are immediately exposed to litigation," observes Calogero. "Consequently, obfuscation and secrecy become the standard practice when confronted with errors. Quality issues are concealed and knowledge is suppressed, leading to the high likelihood that mistakes will be replicated."

The solution, according to Tefen, is a system of health courts similar in practice to the arbitration system utilized to address other complex issues requiring dispute resolution, such as workers' compensation, tax and patent disputes and vaccine liability, where claims against institutions are adjudicated. Health courts would administer peer reviews and independent analysis of procedural errors - differentiating between human error and negligence - and determining damages proportionate to the mistakes.

Mandate the Use of Best Practices

The current system of medical reimbursement actually rewards providers for delivering more care - not necessarily better care, according to Tefen. "With fairly uniform medical pricing across the industry set by the government and private insurers, providers can optimize revenues only by increasing the number of procedures," explains Calogero. "This perverse system creates immense variability in how care is delivered. It gives hospitals and doctors little incentive to consistently provide treatments that medical research has shown produce the best results."

The solution, according to Tefen, is a mandated system that holds providers accountable for delivering health care using the best known practices and protocols. Such a system would reduce variability and administer compensation directly tied to improving practice patterns and medical outcomes.

Drive Systemic Process Improvement

When compared to other industries, health care is the single largest sub- optimized sector of the U.S. economy, states the author. Rampant opportunities exist to transform inefficient, serial processes into efficient, parallel ones that eliminate unnecessary activities in the care giving process. As an example, Calogero cites a study at a major academic medical center which found that only 25 percent of nurses' time was spent actually providing care in a patient's room. The rest was consumed with administrative chores.

The solution, according to Tefen, is to change inefficient paradigms. "By removing redundant duties, implementing new, time-efficient systems and eliminating supply management tasks, we have demonstrated the ability to more than double the time nurses spend with patients, with attendant improvements in quality of care."

The entire Tefen study, "Will the Boom Bust Health Care?" is now available at tefen.

About Tefen USA

Tefen USA is a subsidiary of Tefen, a global management consulting firm founded in 1982. The company focuses on driving performance excellence to achieve improvements in cost, quality, and service delivery. Tefen USA supports a variety of industries and has worked with many Fortune 500 organizations. Tefen partners with clients to build quantified cases for change, setting themselves apart by working with clients from strategy through implementation to achieve sustainable results.

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