MEDICAL ECNOMICS

1. MEDICAL ECNOMICS AUGUST 2001 JIM ROHRER, PHD DEPT OF HEALTH SERVICES RESEARCH & MGT

2. OBJECTIVES –be able to • IDENTIFY UNMET ASSUMPTIONS IN HEALTH CARE AND WHY THEY MATTER • EXPLAIN SOME WAYS HEALTH CARE SYSTEMS ARE DIFFERENT IN OTHER COUNTRIES • DESCRIBE RECENT TRENDS IN US HEALTH CARE • EXPLAIN HOW PRODUCTION COSTS CAN BE CONTROLLED

3. ECONOMIC THEORY • “..ECONOMIC THEORY PROVIDES NO SUPPORT FOR THE BELIEF THAT COMPETITION IN HEALTHCARE WILL LEAD TO SUPERIOR SOCIAL OUTCOMES.” Tom Rice, The Economics of Health Reconsidered. HA Press 1998.

4. UNMET ASSUMPTIONS • CONSUMER KNOWS WHAT IS BEST FOR HIM/HER • CONSUMERS ARE RATIONAL • CONSUMERS HAVE ENOUGH INFORMATION • FIRMS DO NOT HAVE MONOPOLY POWER

5. RICE’S CONCLUSIONS • IF YOU WANT THE COMPETITIVE MARKET TO WORK, YOU MUST FIRST GIVE CONSUMER’S PURCHASING POWER – UNIVERAL HEALTH INSURANCE • WHEN HEALTH INSURANCE IS VOLUNTARY, THE FREE RIDER EFFECT WILL RESULT IN UNDER-FUNDING • EQUITY REQUIRES THAT THE HEALTHY SUBSIDIZE THE SICK VIA EQUAL PREMIUMS

6. REVIEW • US HAS MOST EXPENSIVE HEALTH CARE SYSTEM IN THE WORLD • YET WE HAVE ACCESS PROBLEMS • AND QUALITY PROBLEMS • SOMETHING IS NOT WORKING RIGHT

7. INTL COMPARISON, 1998

8. MD PERSPECTIVES, 2000

9. EXPLANATIONS • MANAGERIAL INEFFICIENCY (EG 1500 INSURANCE COMPANIES) • CLINICAL INEFFICIENCY (UNNECESSARY CARE) * HIGH SURGERY RATES IN US * VARIATION IN SURGERY RATES NOTE: MD’S DO NOT DELIBERATELY PERFORM UNNECESSARY PROCEDURES

10. POLICY REACTION • MANAGED CARE AND GOVERNMENT WANT REDUCED COSTS/ENROLLEE • TTL COST = PRICE X QUANTITY • REDUCE ALLOWED CHARGES • REDUCE NUMBER OF EXPENSIVE PROCEDURES PERFORMED • SUBSTITUTE LOWER COST PERSONNEL

11. RECENT DEVELOPMENTS • LARGE CAPITATED MD NETWORKS MAY BE GOING OUT – SMALL GROUPS WORKING ON FEE SCHEDULES ARE COMING BACK • MEDICARE+CHOICE IS A FAILURE-SENIORS DON’T SIGN UP-BUT “COMPETING HMO’S” IS THE ONLY REFORM IDEA AVAILABLE

12. ECONOMICS OR MEDICINE? • MD’S TELL MANAGED CARE THAT MANY PROCEDURES ARE UNNECESSARY • LONG STANDING CONFLICT BETWEEN MEDICINE AND SURGERY? • ROYAL COLLEGE OF PHYSICIANS AND SURGEONS (APOTHECARIES AND BARBERS?)

13. WHY DO WE OVERUSE PROCEDURES IN THE US? • REIMBURSEMENT ON FFS BASIS • POOR COVERAGE OF PRIMARY CARE AND PREVENTION • GOOD COVERAGE OF EXPENSIVE PROCEDURES

14. COMPARE TO NHI/NHS • PATIENT DOESN’T PAY OUT OF POCKET • VISIT FAMILY DOCTOR AS NEEDED • HOSPITAL MD’S ARE SALARIED/NO INCENTIVE TO DO PROCEDURES

15. UK EXAMPLE • 5% OF GDP VS 17% IN US • EVERYONE HAS ACCESS • PREVENTIVE MED MUCH MORE INGRAINED (SEE BMJ, PREV MED) • IF WE TRIPLED THE BUDGET OF THE NHS IT WOULD BE A GOOD SYSTEM AND STILL CHEAPER THAN US

16. BACK TO REALITY • WE ARE STUCK WITH US SYSTEM SO • MD’S START HMOS AND REDUCE PROCEDURES RATES? • TRIED AND FAILED • HOSPITAL PARTNERS DEPEND ON PROCEDURES • MOST FACULTY ARE PROCEDURAL

17. SECOND OPTION • CUT COSTS – REDUCE COST PER VISIT VIA MANAGERIAL CONTROLS • NOTE:MGRS DON’T LIKE THIS ANY MORE THAN MD’S DO • INCREASE VISITS/MD • REDUCE OVERHEAD – BUILDINGS, CLERKS

18. INCREASING PRODUCTIVITY • KEEPING SAME NUMBER OF MD’S * GET MORE PTS (MARKETING) * REDUCE WAIT TIME FOR APPT * MORE SCHEDULED CLINIC HRS * INCENTIVE PAY (A LA FFS) * CHANGE MIX OF MD’S TO INCREASE REVENUES (PROCEDURES)

19. INCREASING PRODUCTIVITY OTHER OPTIONS • REDUCE THE NUMBER OF MD’S IN THE PRACTICE • REDUCE MD SALARIES

20. HAMPSTER IN ITS WHEEL? • IRRATIONAL IN SOME WAYS • BUT CONSISTENT WITH FREE MARKET VALUES • COMPETITION • PERSONAL RESPONSIBILITY FOR HEALTH • OPPORTUNITY FOR PROFIT

21. DISCUSSION QUESTIONS • IS THERE A PROBLEM WITH PRACTICING IN A PROCEDURAL SPECIALTY WHEN WE SUSPECT THAT MANY OF THE PROCEDURES ARE NOT NECESSARY? • IS THERE A PROBLEM WITH DOING QUICK PRIMARY CARE VISITS W/O PREVENTION SVCS?