MEDICAL ECNOMICS

AUGUST 2001

JIM ROHRER, PHD

DEPT OF HEALTH SERVICES RESEARCH & MGT

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

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.

UNMET ASSUMPTIONS

CONSUMER KNOWS WHAT IS BEST FOR HIM/HER

CONSUMERS ARE RATIONAL CONSUMERS HAVE ENOUGH

INFORMATION FIRMS DO NOT HAVE MONOPOLY

POWER

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

REVIEW

US HAS MOST EXPENSIVE HEALTH CARE SYSTEM IN THE WORLD

YET WE HAVE ACCESS PROBLEMS AND QUALITY PROBLEMS SOMETHING IS NOT WORKING RIGHT

INTL COMPARISON, 1998

INDICATOR GERMANY US

MD VISITS/CAPITA

MD’S / CAPITA

VISTS / MD

HOSP DAYS / CAP

BYPASSES/100,000

$/CAPITA

6.5

3.5

1857

2.1

38

2424

6.0

2.7

2222

0.7

223

4178

MD PERSPECTIVES, 2000

PROBLEM CANADA % US %

NMBR GP’S

SPECIALSTS

EQUIPMT

SURG WAIT

MEDS COST

COST REVIEW

PT TIME

VISIT COST

55

61

63

61

17

13

42

19

19

13

8

7

48

37

42

61

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

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

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

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?)

WHY DO WE OVERUSE PROCEDURES IN THE US? REIMBURSEMENT ON FFS BASIS POOR COVERAGE OF PRIMARY CARE

AND PREVENTION GOOD COVERAGE OF EXPENSIVE

PROCEDURES

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

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

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

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

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)

INCREASING PRODUCTIVITY

OTHER OPTIONS REDUCE THE NUMBER OF MD’S IN

THE PRACTICE REDUCE MD SALARIES

HAMPSTER IN ITS WHEEL?

IRRATIONAL IN SOME WAYS BUT CONSISTENT WITH FREE

MARKET VALUES COMPETITION PERSONAL RESPONSIBILITY FOR

HEALTH OPPORTUNITY FOR PROFIT

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?