By Naz Farrow

The cost of healthcare is at last showing signs of levelling off, however there is little doubt that it is still one of the ‘big three’ issues facing the Island today.

Alongside the economy and education, the cost of healthcare is a pressing concern — one that affects everyone in Bermuda. Figures for the 2011/2012 financial year show that although healthcare spending flattened out it was still $678 million, or $10,562 per person.

It is a drain on businesses and unless the costs are contained it will become increasingly expensive, and therefore less desirable, to carry out business in Bermuda. It may also be a barrier to employing new staff.

Bermuda’s Health Ministry has to provide a lead in this area, but the employer and the employee can also play a large part in containing costs. So can parents and schools.

To blame the insurer is to miss the point and to do nothing guarantees increased premiums and a greater financial stress on the community as a whole.

Healthcare is the only section of the economy where the decision to purchase a service is not controlled by the consumers. The patient does not make the decision about the treatment received — it is the physician or provider of services that determines the treatment and often the price and who ultimately has a strong influence on the demand and supply.

There are five stakeholders — the employer, the employee, the providers of healthcare, the Government and the insurers.

Since employers are obliged by law to contribute to the premium (usually 50% of the premium costs with the remaining 50 percent being deducted directly from payroll) their healthcare spend becomes a bottom line issue. Control of this expense becomes a key focal point

For the employees there is certainly a concern about cost, but this is more weighted towards benefits that can drive up the cost, contrary to the wishes of the employer. The utilisation of benefits and employee responsibility is becoming a key feature of cost containment. Certainly when a healthcare issue arises, cost is not an important factor to the patient.

The providers of healthcare are the hospitals, the clinics, labs, pharmacies and doctors and this group clearly has the pre-eminent role in the cost-effective provision of health services. Reasonable fees, together with a considered approach to the necessity and appropriateness of any service provided, are the main features of cost control.

Hospitals, doctors and clinics, who invest in advanced medical services and new technology, and pharmacies are all working for a profit to generate funds needed for future development and reinvestment.

The reality is that technology and our scientific capability to deliver healthcare is potentially outstripping our ability to pay for it. Advances in medical practices are allowing us to live longer, surviving illnesses which a few years ago would have been terminal.

However there is a price to pay: new drugs, diagnostic tests, etc, that are more accurate and efficient at treating life-threatening diseases are more expensive than the traditional solutions.

Government provides a regulatory framework that provides oversight for the provision and delivery of healthcare. This regulation was written in the early 1970s and is periodically amended. However as the health system has evolved in Bermuda, there is a pressing need to update the legislation and provide for a more robust regulatory oversight.

Although the insurance industry sets the cost of insurance premiums, it is not responsible for the increase in healthcare claims from which the premiums are derived. Claims costs are driven by overall utilisation and the cost of the services delivered by service providers.

There are many issues driving the cost of healthcare, some of the most obvious are the ageing population and the chronic conditions, such as diabetes, caused by what can only be called the obesity epidemic.

A person in their 60s typically claims at 2.5 times the average cost of a person in their 40s. The older we get the more we typically utilise healthcare, the higher the cost of care, and the higher the probability of a high-cost claim occurring.

Combine that with the fact that the number of persons aged in their 60s has increased from making up approximately two to three percent of the population base to 15% of the population base in wealthy countries like Bermuda and we have a challenging predicament to manage.

We also have a hospital that, compared with other small communities, is providing a reasonable provision of care. But the size of the community places limitations on the care that can be delivered cost effectively in Bermuda as we do not have the population volume to spread the cost

King Edward VII Memorial Hospital in approximately 2011/ 12 changed their billing methodology for services. For in-patient services they changed from a flat diem rate to DRG. The DRG methodology means that the cost of any service is now charged at an average cost for the care received depending upon the diagnosis for the patient.

This is a fairer method of reimbursement as reflects the true cost of providing care and also provides an incentive to move patients quickly through the system, improving efficiency. However, the short-term result was that there was cost shifting to those who carry private insurance resulting in increases of approximately 25-30%.

Combined with the fact that we have experienced an expansion in outpatient lab and diagnostic services, which are part of the trend towards defensive medicine, this has resulted in healthcare inflation running into double digits.

In my opinion, Bermuda would be prudent to employ the HEROic approach to healthcare which was proposed by Dr Paul Ellwood, who has been described as one of the most important figures in American health. He was responsible for the introduction of the HMO concept which is Health Maintenance Organizations.

The ‘H’ stands for a health system that combines insurance with healthcare delivery.

‘E’ stands for Evidence-based medicine. Physicians and patients must agree that they will pursue evidence-based protocols whenever patients have a corresponding diagnosis. This means that we must all agree to deliver appropriate, medically-necessary treatment. Not just treatment for the sake of it.

‘R’ is for responsibility. Patients need to assume greater responsibility for their own health and for the cost of the healthcare that they require.

‘O’ stands for outcome accountability. Does the treatment work? This requires ongoing scrutiny.

Bermuda should retain these elements as it continues to evolve and develop its delivery of healthcare.

Who is responsible for the increase in the cost of healthcare? Perhaps there is no one body responsible.

Technology and our scientific capability to deliver healthcare is potentially outstripping our ability to pay for it. Technology is providing ever more expensive options that offer improvement in the quality of life and the promise of longevity. Maybe we just have to get used to paying higher premiums if we want to live longer?

The hospital, the doctor and the clinics who invest in advanced medical services and new technology, and the pharmacy are all working for a profit. All parties are working for a return on their investment so they can generate funds for future development and reinvestment into their businesses.

The health insurance industry simply helps to make the wheels go around and asks for a return on its investment too.

It is an easy target for politicians. It is important to understand that, although the industry sets the cost of insurance, it is not responsible for the increase in the cost of healthcare payments from which the premiums are derived. That is driven by the cost of medical care services.

Recently, new initiatives have been implemented to update and improve the health system in Bermuda and have impacted the cost of healthcare. The timing is problematic for the number of initiatives that are currently underway with seemingly little regard for the impact on people’s pockets.

All of these initiatives are well intended but it is simply impossible for any society to disregard cost when considering its options. We cannot simply blame the insurance industry for the rising costs. We are making our best efforts to advise government and local providers that some of the initiatives are ill-timed and that the forecasts of their consultants may need further analysis.

The increases in premiums in the last few years are attributable to three major factors:

* General inflation

* Price increases for certain services in excess of inflation and

* Increased utilisation

In Bermuda we have been impacted by a combination of all these factors especially in the local system and especially through increased utilisation.

There is no simple solution, but a social partnership with all the key stakeholders who are committed to making informed decisions will allow us to move forward.

More can be achieved in Bermuda if we are allowed to pre-certify the utilisation of certain services as we do overseas.

Government too has to be realistic about the reforms that they are seeking to implement in difficult economic times. Open public debate and further education is needed so that people can decide whether they want to pay more for their healthcare in return for the provision of more services locally.

* Naz Farrow is the Chief Operating Officer — Health, Colonial Group International. This article first appeared in the summer edition of Bermuda Re magazine.