Issues Monitor Healthcare
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KPMG INTERNATIONAL Issues Monitor Acute or chronic: the impact of economic crisis on healthcare and health July 2012, Volume Nine kpmg.com KPMG INTERNATIONAL Issues Monitor Acute or chronic: the impact of economic crisis on healthcare and health July 2012, Volume Nine kpmg.com Dr Mark Britnell Chairman and Partner, Global Health Practice Keeping up to date with the very latest and most pressing issues in healthcare can be a challenge, and while there is no shortage of information in the public domain, filtering and prioritizing the knowledge you need can be time-consuming and unrewarding. I hope that you find this edition of Issues Monitor useful and I welcome the opportunity to further discuss the issues presented and their impact on our sector. Welcome to the July edition of Issues Monitor — Healthcare. Each edition pulls together and shares industry knowledge to help you quickly and easily get briefed on the issues that affect your sector. In our continuing series of Issues Monitors for Healthcare, this issue examines the response of various health systems to the current economic crisis, the prolonged austerity, a range of supply-side strategies, and the need to identify and implement measures that are effective in the short as well as the long term. © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Acute or chronic: the impact of economic crisis on healthcare and health The deepening economic crisis in the eurozone has exposed health systems around the world, particularly in Europe, to public and private budgetary constraints. Healthcare systems currently face a funding crisis, which is adversely affecting health outcomes. High unemployment and the slow pace of recovery have further weakened the public sector and its ability to supply quality health services in Europe. This trend is spreading beyond Europe to other geographies, including the US, as economies across the globe are far more interdependent than ever before. The current financial crisis is an acute form of what is likely to become chronic in many western economies. The scale of the challenge not only requires solutions that are effective in the short term, but also some bold and radical measures in the medium to long term. © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. 2 | Issues Monitor: July 2012, Volume Nine Overview The economic downturn and the to support the retired population and In the US, the emergence of both consequent squeeze on public those using healthcare services. This the Patient Protection and Affordable spending have significantly affected imbalance is leading to a growing Care Act (PPACA) and accountable spending on healthcare in Europe demand for healthcare globally. care organizations (ACOs) reflects and North America. Despite signs of a realization of the need to contain Demand-side pressures — such as recovery, the economic environment spending. Even so, the ambition to an increase in chronic diseases and remains fragile, with a strong possibility slow the rate of increase in expenditure the number of patients with multiple that some countries may implement suggests that the urgency of the conditions — are significant challenges further austerity measures to stabilize situation may not have been fully to the way healthcare systems operate. their finances. This, in turn, is expected reflected in the legislation. In Europe, However, the majority of growth in to significantly affect publicly funded while many short-term measures exist health expenditure over the last 20 years healthcare systems. to contain costs and review the extent has been driven by policy choices and of coverage, there are no signs yet In many countries, healthcare is likely supply-side factors. In fact, factors of providers, payers or policymakers to enter a period of extended austerity. such as increasing use of technology; having identified alternative models that Further, the pressures that are surfacing new drugs; improved facilities that help are likely to be financially sustainable in are likely to be a common feature of provide services to an increasing number the long term.1 many health systems in future. of patients; rising costs of providers; and the tendency for spending on healthcare The unfunded entitlement payments Rising healthcare expenditure to grow at more than 0.5–2.5 percent (burden of social security, Medicare Over the past few years, total above GDP growth have generally had and other entitlements in excess of healthcare expenditure has risen in a greater impact on health expenditure money set aside for them) may be both developed and emerging markets. than aging has. Its likely that up to as high as 188 percent of GDP, in Public spending on health constitutes one-third of the growth in public health the US. The National Health Service a significant share of total government expenditure could be modified by (NHS) in England has a task to become expenditure and GDP.2 In most cases, policy decisions. 20 percent more productive by 2015. health expenditure has increased, often Other healthcare systems have already Countries, states and payors will need more rapidly than GDP. During times started buckling under the pressures to adopt new and more sustainable of recession, the widening gap is also of increasing demand and constricted approaches to service delivery and likely to be reinforced by a decrease public finance. healthcare funding. In the long- in GDP growth rates.3 For example, in term, many health systems may Organization for Economic Co-operation The demographic imbalance caused face the challenge of containing the and Development (OECD) countries, by an increase in aging population impact of population changes while health spending as a percent of the globally leads to a much larger issue of simultaneously managing expectations, GDP rose from 8.8 percent in 2008 to change in dependency ratio — reduced saying no to developments and 9.5 percent in 2009.4 tax-paying and working population reprioritizing existing expenditure. © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Issues Monitor: July 2012, Volume Nine | 3 Figure 1: Total health expenditure as a share of GDP, 2009 (or nearest year) 20 15 9.1 10 2.6 2.7 1.7 3.4 1.6 1.5 3.5 3.8 2.1 2.5 % of GDP 2.8 1.6 4.9 5.1 2.3 2.0 1.8 5 9.2 9.8 8.3 8.9 8.1 8.2 8.1 7.4 1.9 6.5 5.8 7.0 5.9 6.9 2.3 4.1 5.2 5.3 5.3 2.8 3.4 3.5 2.3 0 1.4 Italy India Brazil China Spain Japan France Poland Estonia Greece Canada Norway Hungary Portugal Germany Denmark Australia South Africa Russian Fed. United States United Kingdom Public Private Source: OECD Health Data 2011; WHO Global health expenditure database Note: Healthcare expenditure values for Portugal and Greece are available for 2008 and 2007, respectively. According to OECD estimates, public trend and is projected to grow faster health expenditure as a percentage of than the GDP. According to estimates According to GDP is likely to increase by an average by the Congressional Budget Office estimates by the of 3 percent in advanced economies, (CBO), Medicare spending amounted to Congressional over the next 20 years. This growth is US$572 billion in 2011, and is expected Budget Office 6 higher than the growth in the 28 years to be more than US$1 trillion in 2021. (CBO), Medicare up to 2008 (i.e., between 1980 and Moreover, according to the 2011 spending 2008), during which time only six Medicare Trustees Report, unfunded amounted to countries had growth in excess of Medicare benefits to its beneficiaries US$572 billion 2.5 percent, while some grew at a are likely to total approximately in 2011, and is 7, 8 significantly lower rate — six had US$24 trillion over the next 75 years. expected to be less than 1.5 percent growth over The reforms introduced under the “ more than US$1 5 this period. Patient Protection and Affordable trillion in 2021. Care Act (PPACA) of 2010 are The situation in the US is especially expected to expand health insurance worrisome, as public health spending coverage and reduce the budget as a percentage of GDP is projected deficit. However, forecast savings to rise by about 5 percent over the on healthcare spending are not very next 20 years. Medicare spending high and the future of these reforms is expected to continue its upward remains uncertain.9 © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. 4 | Issues Monitor: July 2012, Volume Nine On the other hand, in Europe, public costs of providers and change the way inequalities. In fact, approaches such health expenditure is expected to the money is spent. Spending methods as reducing benefits — particularly by increase at an average rate of 2 percent can be altered by: removing high-income groups from of the GDP, and by more than coverage — have the potential to • Reducing benefits offered to 3 percent in seven European countries, undermine the solidarity principle that the population by implementing over 2011–21.10 Although the current underpins all successful social insurance measures such as completely health budget cuts are expected to and tax-based systems.