Presentation Transcript

1. Interventions

   Lesson 25: Health Care
2. Teaser #121: Is it possible for the price level to go up at the same time inflation is going down?
3. Solution: Yes.  Inflation measures the rate of growth of the price level.  When the rate of inflation falls (called disinflation), the price level is still rising, but at a slower rate.  When prices fall, we experience deflation.

4. Health Care Demand

   Unique Aspects of Health Care Factors that Affect Demand for Health Care Health Insurance and Health Care Demand Health and Lifestyle
5. Unique Aspects of Health Care Large Portion of All Spending in U.S. Government Involvement Uncertainty Asymmetric Knowledge Externalities
6. Large Portion of All Spending in U.S. Health care spending accounts for roughly 16% of the United States Gross Domestic Product. That translates to one out of every six dollars spent by U.S. consumers, producers and government is spent on health care.
7. Government Involvement Licensure of Health Care Professionals Insurance or Aid Provided to the Poor, Elderly, Military Veterans, Disabled, Etc. Price Controls – Medicare and Medicaid Dictate Prices for Certain Procedures Tax Incentives Provided to Firms that Provide Health Insurance to their Employees
8. Uncertainty Health – Illness can strike any person at any time in seemingly random fashion. Health Care Outcomes – Outcomes from medical intervention vary greatly from patient to patient.
9. Asymmetric Knowledge Definition – When two economic agents bargain in an economic exchange and one has more relevant information than the other. Doctors have the advantage of asymmetric information over patients. Patients try to even the playing field by learning more about their condition and possible treatments that may be effective.
10. Externalities Definition – An externality is a cost or benefit that is imposed on others when an action is taken. Positive Externality – The benefits for us all when people are vaccinated against disease. Negative Externality – The costs that are imposed on others from pollution, second-hand smoke, etc.
11. Illness Events – Consumer (patient) preferences for medical care are enhanced. Systemic Factors – Gender and age have influence on demand for health care. Some medical conditions are gender specific (prostate cancer for men, pregnancy complications for women). As people age they demand more health care. Factors that Affect the Demand for Health Care
12. Factors that Affect the Demand for Health Care Advice from Providers – Asymmetric information may play a big part here. Beliefs – A person’s belief in the effectiveness of medical treatment will affect their demand for medical care. Income – Assuming health care is a normal good, the higher the income the higher the demand for medical care.
13. Factors that Affect the Demand for Health Care Money Price – Law of Demand states that as the price of medical care increases, less quantity will be demanded (ceteris paribus). Time Price – Because time is a complement to medical care we assume that the higher the value of time for an individual, the less medical care they will demand.
14. Health Insurance and its Impact on Health Care Demand Demand for Health Care Insurance – Consumers buy insurance to guard against uncertainty of illness events (mentioned earlier) and the risks associated with the costs that come from medical care. Insurance is like a snow shovel – one buys it with the hopes of never having to use it.
15. Health Insurance and its Impact on Health Care Demand Price of Insurance – Law of Demand states that as the price of insurance increases, less quantity will be demanded (ceteris paribus). Marginal Analysis – If price of insurance exceeds your expected benefits from the insurance then the consumer will not buy. Many young people do not have insurance for this reason: They perceive themselves to be healthy and that their benefits from health insurance would be less than they pay.
16. Health Insurance and its Impact on Health Care Demand Health Care Demand and Insurance – Those with better coverage from their insurance (lower per use cost) tend to use more health care services. They are less sensitive to the price of medical care they face because of low or no co-payments. Also, those with less coverage (higher per use cost) tend to use less health care services. They are more sensitive to prices they face because of high co-payments or paying full price (Rand HIE).
17. Assignment#1Health and Lifestyle Leading causes of death are different for different age groups. Young and old people tend to die because of their actions and practices in life. Navigate to the National Vital Statistics List the leading causes of death for young people (15-24yrs.) and for older people (>65yrs.) Give some ideas on what health care professionals can do to prevent these deaths.

18. Health Care Supply

    Factors that Affect the Supply of Health Care Supply of Medical Insurance Medical Prices vs. Consumer Price Index
19. Factors that Affect the Supply of Health Care Resource Prices – When resource prices increase, less health care is supplied at every price. The resource prices are reflected in everything from the wages and salaries of labor (doctors, nurses, lab techs, pharmacists, etc.) to the cost of capital (MRI machines, doctor offices, hospital beds, etc.).
20. Factors that Affect the Supply of Health Care Technology – The institution of new technology is assumed to allow those who provide health care to increase quantity supplied at every price Productivity – Often positively affected by technological advance, as productivity increases, more health care will be supplied at every price
21. Factors that Affect the Supply of Health Care Expectations of Producers – If the future expectations of price and profit are for them to increase, producers will increase the quantity supplied of health care at every price Number of Producers – As the number of health care suppliers increase, more health care will be supplied at every price
22. Supply of Health Care Dynamic Issues – Changing factors that affect demand and supply of medical care. Income Growth – As consumer income increases, more health care is demanded at every price. Aging of Society – As our baby-boomers approach retirement, more health care will be demanded at every price. Technology – As R&D and technology allow health care providers to do more, more is supplied at every price.
23. Supply of Health Care Medical Outcomes – Supplying health care does not always produce health. Uncertainty exists as to the effectiveness of treatment. Health is most affected by lifestyle choices (diet, exercise, drinking alcohol, smoking cigarettes, etc.). Health is produced by a combination of many factors.
24. Supply of Medical Insurance Medical Insurance – Price of medical insurance is based on the risk (probability) of illness or injury multiplied by the average cost of treating the illness or injury. Premium – Price a consumer pays for health insurance coverage. The higher the risk of injury or illness or the cost of treating these, the higher the premium will be.
25. Supply of Medical Insurance Premium = (1 + Loading Fee) x (Expected Benefits) Loading Fee – A percentage of the expected benefits that companies charge for administrative costs, risk bearing, sales expenses, etc. Typical loading fees are 15% to 20%. Expected Benefits – The sum of all probabilities of injury or illness multiplied by its respective cost of treatment.
26. Supply of Medical Insurance Group Insurance – Insurance companies like to provide insurance to large groups of people who are brought together for reasons other than health or well being (e.g. employment). Risk Reduction – Pooling of customers reduces risk (some are healthy, some are not) and allows the insurer to provide coverage to groups for lower premiums.
27. Supply of Medical Insurance Vertical Integration – Doctors and nurses work directly for insurance company as in the case of a Health Maintenance Organization (HMO) and Integrated Delivery Systems (IDS). Insurance companies attempt to reduce the costs of supplying medical care by increasing efficiency of payment structure.
28. What is CPI? CPI (Consumer Price Index) – The market value of a fixed “basket” of goods and services that consumers regularly purchase to have a measure of inflation. Inflation – A sustained rise in the average price level as measured by the CPI. CPI Shortcomings – The CPI does not account for increases in quality nor does it easily account for new products and services provided.
29. Medical Prices and the CPI Medical CPI – The market value of a fixed “basket” of goods and services that consumers regularly purchase. Medical CPI vs. CPI – Since 1970 the medical CPI has far outpaced the CPI suggesting that prices rose faster in the health care sector than in other sectors of the economy.
30. Medical Prices and the CPI Quality of Health Care – The quality of health care provided in the U.S. has increased dramatically since 1970. Hospital rooms are air conditioned and have T.V.s, doctors and nurses are better qualified, the quality of capital has improved in many ways including some advances such as laser surgery, etc.
31. Medical Prices and the CPI Technology – Health care providers often do not have the luxury of waiting to buy a new piece of capital until its price becomes reasonable. Many consumers wait until the price of a new invention is significantly reduced due to competition (think about the price of DVD players when they first were introduced). Medical care facilities look to have the latest technology to attract patients.
32. Assignment # 2 Navigate “Effects of Cost Sharing on the Use of Medical Services and Health” Please summarize the Rand HIE and briefly discuss the important results. In light of these results, suggest ways to improve insurance plans to effectively reduce unnecessary use of medical services and resources.
33. The Physician Physician as an Entrepreneur The Physician Firm Licensure and Certification Patient Search for a Physician
34. Physician as Entrepreneur Entrepreneur – Individual that combines land, labor and capital in a business venture. Dual Role – Physician serves as a labor input for the physician firm as well as the major decision maker of the firm. Transfer Pricing – Physician must charge his/her firm market price for their services. If not, the firm will overuse their services and not profit maximize (e.g. will not use nurses enough).
35. Physician as Entrepreneur Induced Demand– A physician-entrepreneur may succumb to the inclination to use asymmetric information to increase profits by prescribing treatment that may be unnecessary. Altruistic Preferences – When a physician’s satisfaction is partly determined by their patients’ health improving.
36. The Physician Firm Monopolistic Competition – A market characterized by firms with an ability to affect the price they charge by using tactics to differentiate their service (or product). The physician firm is considered to most closely resemble monopolistic competition. If the physician is successful differentiating their service they can charge more.
37. The Physician Firm Service (Product) Differentiation- Physician firms can differentiate their service by having state-of-the-art equipment, a nice waiting room or specialization of the physician(s). Specialization – The physician chooses to become a specialist (surgeon, pediatrician, etc.) by weighing the extra costs of additional education and training against the extra income that will result from being a specialist.
38. The Physician Firm Group Practice – Many physicians work together in one firm. Multi-Specialty Firm – A group practice that has many specialists. This type of arrangement may be advantageous for the firm because through referrals, they can induce demand for their firm’s services. Patients may appreciate the convenience.
39. Licensure and Certification Licensure of Physicians – States license physicians to provide a base floor of quality. This is done to protect the patients (consumers). The bad side to this is that the licensure, necessary for practicing medicine, acts as a barrier to entry. This barrier serves to increase the wages of those in the profession by reducing competition.
40. Licensure and Certification Certification – Physicians may become Board Certified in the specialty that they practice. Even generalists may become certified. Decision to Certify – The physician chooses to become certified in their specialty by weighing the extra costs of additional education and training against the extra income that will result from being Board Certified.
41. Licensure and Certification Quality Signal – Many contend that the returns to certification are tied to a sense that many patients (consumers) have that the certification indicates higher quality. Returns to Certification – Many studies have confirmed the returns to certification are significant (10-20%) and that perceived returns are what motivates certification.
42. Patient Search for a Physician Product Differentiation – Recall that physician firms try to differentiate their service (product) in an attempt to attract patients. What follows are some specific ways they differentiate. Location – Being conveniently located is a plus for some patients, particularly those who have mobility problems.
43. Patient Search for a Physician Services – Waiting room amenities like up-to-date magazines, a water dispenser, candy for the kids, etc. may appeal to some patients. Physical Differences – Nice surroundings, modern furniture and equipment may attract and retain some patients.
44. Patient Search for a Physician Advertising – In markets where advertising for physicians is legal it has a significant impact on patient search by reducing the cost of information. Many believe that it is harmful because it can promote a sub-par doctor with deep pockets. In markets where advertising is prohibited, the only outlet for doctors is the Yellow Pages (look at yours).
45. Patient Search for a Physician Price – For some, particularly those without insurance, price may be of interest. Price as an Indicator of Quality – Many people subscribe to the belief that ‘You get what you pay for’ and that price indicates quality.

46. Assignment #3Reaction Paper

    How do you select a doctor? Is price important in your decision (insurance implications), location, etc.? Are your choices limited by your insurance company?
47. Health Care Efficiency Outcomes Management Total Quality Management
48. Outcomes Management Outcomes refer to patient results from medical care interventions. Outcomes are often measured in the context of marginal productivity of medical care. Marginal Productivity of Medical Care – The change in a patient’s health associated with a given medical care intervention.
49. Outcomes Management Ideal Situation - Marginal productivity of medical care should be positive. That is to say that a patient’s health should improve with a given medical intervention. Acceptable Situation–Marginal productivity of medical care can be zero. That is to say that a patient’s level of health is maintained by a given medical intervention.
50. Outcomes Management Unacceptable Situation - Marginal productivity of medical care should never be negative. That is to say that a patient’s health should never be worsened by a medical intervention. This can occur because of an inaccurate diagnosis, unforeseen reaction to treatment or complications from medical treatment.
51. Outcomes Management Outcomes Management – A concerted effort to eliminate (or reduce) the incidence of negative marginal product of medical care interventions. Negative impacts of medical interventions (patient falls, bedsores, medication errors, etc.) are recorded and statistically tracked to help medical care decision-makers to direct (or redirect) resources (equipment, training, etc.) to help to reduce the incidence of negative impacts.
52. Outcomes Management Effectiveness of Diagnostic Testing – Medical care decision-makers try to decide when a diagnostic test should be administered and how often in order to receive the best “bang for the buck”. Marginal Analysis – Weighing the costs (doctor and nurse wages, lab costs, etc.) and benefits (accurate, early diagnosis) of diagnostic testing to decide what is best for the patient and the firm.
53. Outcomes Management Extensive Margin – This is the marginal analysis that determines the appropriate population to which the diagnostic test should be given in order to maximize the productivity of the tests (accurate and early diagnosis) with the lowest levels of cost (wages, lab costs, etc.) possible. Example: Checking people at age 40 or older for colon cancer and those with family history of colon cancer perhaps earlier.
54. Outcomes Management Intensive Margin – This is the marginal analysis that determines the appropriate frequency of diagnostic testing that should be given in order to maximize the productivity of the tests. Example: Checking people for colon cancer every 2 months, 6 months, year, 3 years, 6 years, 10 years, etc.
55. Total Quality Management Total Quality Management – A concerted effort on the part of hospital staff to continuously assess service in order to increase patient satisfaction. Patient Surveys – Exit surveys are often used to decide where improvement is needed.
56. Total Quality Management Cost Containment – In addition to efforts to improve patient satisfaction, a constant exploration of ways to reduce costs are a nice by-product. IPOC – Interdisciplinary Plan of Care. Doctors, nurses, therapists, pharmacists, etc. meet to discuss the necessary components of effective care for a patient.
57. Total Quality Management Evolution of Total Quality Management – Many versions of this approach have developed over the past 15 years. The most popular is Continuous Quality Improvement where a benchmark of quality is established and all resources are used to continuously improve quality of service to the patient.
58. Total Quality Management Inpatient vs. Outpatient Services – One major result of Total Quality Management is the increased use of outpatient services that were once inpatient services. Without a hospital stay, costs are reduced dramatically.
59. National Health Expenditures($ in Billions)
60. U.S. Health Care Spending A Dangerous Trend 1960 – 1 in $20 or 5% of U.S. GDP 1970 – 1 in $14 or 7% of U.S. GDP 1980 – 1 in $12 or 8% of U.S. GDP 1990 – 1 in $9 or 11% of U.S. GDP 2000 – 1 in $7 or 14% of U.S. GDP 2010 – 1 in $6 or 17% of U.S. GDP* 2017 – 1 in $5 or 20% of U.S. GDP* *Projected by Congressional Budget Office
61. 2007 Federal Spending Senior Benefits $952.3 Billion Includes Social Security, Medicare, Selected Medicaid Expenditures only on Seniors. Defense Spending $552.6 Billion Two Wars and High Costs for New Technologies.
62. Total Health Care Spending Spending by Consumers and Government: $2.1 Trillion in 2006 $4.3 Trillion by 2017* * Projected by Congressional Budget Office
63. Baby Boomers 78 Million Born Between 1946 and 1964 Value Their Health Seek Out Doctors Research Their Condition Recommend Treatments and Drugs to Doctors 1st Wave Eligible for Medicare in 2011
64. Baby Boomers Leading Diagnoses Hypertension (High Blood Pressure) Arthritis Diabetes
65. Causes of High Medical Costs Aging Population Pharmaceuticals Labor Capital Inefficiency The Uninsured
66. Aging Population Life Expectancy 78yrs 1992 – 42% of All Patients Visiting the Doctor Over Age 45 2001 – 53% of All Patients Visiting the Doctor Over Age 45 (Centers for Disease Control National Center for Health Statistics Survey)
67. High Pharmaceuticals Cost 50% of All People Take at Least 1; 85% of Those 65 or Older Take Multiple* High Research and Development Cost High Advertising Cost More Media Advertising More Aggressive with Doctors (Free Samples, Demonstrations, Informational seminars in Hawaii, etc.) *Centers for Disease Control National Center for Health Statistics Survey
68. High Labor Cost Health Care is Labor Intensive High Administrative Cost (Up to 25%) Low Doctor&Nurse to Patient Ratio Below International Median Makes for Restricted Supply with Increased Demand (Upward Pressure on Price)
69. High Capital Cost Advanced Procedures Use High Cost Capital Capital Becomes Obsolete Quickly in Health Care Medical Facilities Use High Tech Capital to Attract Patients (…State of the Art Facility…)
70. Inefficiency Excessive Paperwork Insurance Claims Administrative Correspondence Hand Written Orders and Prescriptions Cause Errors in Treatment
71. Inefficiency Lack of Information Technology (IT) Use Among Physicians 50% Use IT to Exchange Clinical Data* 50% Use IT to Access Patient Notes* 22% Use IT to Write Prescriptions* *American Medical Association Survey 2005
72. The Uninsured Less Likely to See Physician for Preventive Care* Less Likely to Receive an Early Diagnosis* Twice as Likely to Use Expensive Emergency Care than the Insured* 48 Million in 2005 - U.S. Census Bureau Data *Centers for Disease Control National Ambulatory Medical Care Survey
73. Possible Solutions to Reduce Health Care Expenditures Require Preventive Care Limit Pharmaceutical Spending on Advertising and Promotions Increase Supply of Health Care Professionals Reduce Research and Development Cost Organize and Increase Efficiency Reach Out to Uninsured
74. Require Preventive Care Medicare Medicaid Private Insurers
75. Limit Pharmaceutical Advertising and Promotions Pass Legislation That Has Severe Penalties for Improper Behavior Limit Salesperson Access to Doctors and Medical Professionals
76. Increase Supply of Health Care Professionals Provide Subsidies for Medical and Technical Education Place Limits on Malpractice Claims and Rewards
77. Reduce Research and Development Cost Encourage More Collaboration Between Private Health Care Industry and Public Universities to Reduce Research and Development Cost
78. Organize and Increase Efficiency Set Requirements for All Physicians to Use IT by a Date Certain Encourage Use of Efficiency Improving Programs Total Quality Management Outcomes Management
79. Reach Out to Uninsured Health Care Accounts Catastrophic Health Insurance Provide Low or No Cost Medical Treatment for Children
80. Readings “Health Care Monopsony”
81. TO DO LIST Live to see a highly educated, deeply thoughtful, articulate, cool, biracial President who is not overly crippled by childhood wounds and capable, in no particular order, of freeing the nation of its oil dependence, restoring its international standing, creating universal health care, resurrecting the economy, ending two wars, rebuilding the public education system, finally bringing about an end to the mindlessness of racism, encouraging science and technology, firmly addressing environmental issues and global warming, and uniting the nation - and the world - in a giant cultural, tipping point leap forward. Meet super-intelligent aliens who disarm the entire planet, cure every disease and take us all for rides across the galaxy. Play a round of par golf. Trade solos with Eric Clapton. Have a drink with Jimmy Buffett Get married, stay married. One down, five to go.