Health Care Economics and Why it Matters

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Paying for Medical Care

Pre-WW II Mostly Private Pay Some Employer Provided - Kaiser The Blues

WW II Price Controls Health Insurance As Benefit

Post WW II Private Insurance The Blues Medicare/Medicaid

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The Blues

Blue Cross Hospital insurance

Blue Shield Physician insurance

Historically controlled by the providers Paid what was charged Subsidized the rural areas and care of the poor Subsidized over-bedding and over treatment

Nobody cared until the 1970s

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Social Security Income and Disability

1930s Lifted the elderly out of poverty Retirement age was older than life expectancy Why does this matter a lot?

1956 Amendments - Provided disability insurance Big and valuable program and pays for a lot of medical

care - 7.5M people Gamed a lot and manipulated both ways by Congress (reference)

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Hill-Burton

Post-WWII Funded construction of community hospitals Had community service requirements, but those

have all expired Created the US emphasis on hospital based care Spent from the 1970s to the 1990s reducing

hospital beds to control costs Excess beds or Surge Capacity?

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The Great Society- 1964Inventing the Modern Elderly

Medicare Old People Certain disabled people

Medicaid Poor People Nursing Homes - old/disabled About 40% of federal medical dollars

Politics Fought by the AMA Made Docs Rich

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The Federal Role

Feds Pay About 45% of Health Care Medicare, Medicaid, TriCare, VA System Other Plans Follow the Feds

Usual and Customary Charges for Docs Based on the Community Adjusted for the Docs Previous Charges Complex

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What do We Spend?

Total health care spending Medicare 2008 Factsheet

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Implications of Spending for Torts

Hospitals Single biggest component In the tort world, remember Willie Sutton

Outpatient Surgery Centers, Specialty Hospitals, and Imaging Centers Increasingly capturing revenue from hospitals Doc run - lots of conflicts of interest Good future in med mal

Pharm and Medical Devices Growing share of the market Best tort target

Physicians Specialists who do procedures Primary care

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Perverse Incentives

The #1 corrupting incentive in health care is that insurers pay for doing stuff and giving drugs, not for thinking and talking to patients.

Only thing new is the amount of money at stake Hospitals

Longer stays, more intense treatment, attempts to keep the dead warm For many years, hospitals did not even know what things cost, they just

charged what they needed to make money Nonprofit and forprofit are about the same

Drug and Device Companies Bribe docs to over prescribe and use inappropriate but expensive drugs and

devices Docs

Unnecessary procedures/Feel good drugs/Get a piece of the action on tests Federal law prevents kickbacks and fraud - not a tort, but interesting.

All of these depend on the myth that more care is good care

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Changing the Game for HospitalsDiagnosis Related Groups - DRGs - 1983

Watershed in Health Care Reimbursement Prospective Payment (Capitation) Based on Admitting Diagnosis Fixed Payment Some Adjustments

Encouraged health insurers to also manage physician care

Only apply to Medicare, but influence other insurance

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Making Money Under DRGs

Fewer Tests and Procedures Complete Reversal of Prior Reimbursement No Bump for ICU

Reduce Length of Stay Dropped About 20% at Once, continued to drop Ideal Is Out the Door, Dead or Alive Patients Discharged Much Sicker

Which Was Right, Then or Now?

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Controlling Docs - Laws Enabling Managed Care

Federal HMO Act in the 1970s Preempted State Laws Banning Prepaid Care

ERISA Passed to allow labor unions to negotiate national

health plans with big employers Preempts state regulation of certain self-insured

health plans Gave self-insured plans an edge and drove most

employers to them

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Managed Care Organizations - MCOs

Insurance Plans That Control Patient Care Includes the Old Alphabet Soup

HMOs PPOs IPAs

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Two Major Variables

Employer or Contractor Do the docs work for the plan or a captive group? Do the docs contract with many plans, treating

patients based on different plan benefits? Open or Closed

Do the docs treat only patients from a single plan or a mix of plans?

Why do these matter? Leverage on the doc's decisions

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Direct Controls on Costs by the Plan

Pay Less for Services Use Market Power to Bargain Control Access Points Limit Hospital Stays Limit Tests, Procedures, and Referrals

Direct Control of Access Pre-approval Tell the Docs What to Do Most Honest

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Indirect Controls

Capitation CRF--Consultation and Referral Funds Withhold and Incentive Pools Stop-loss and Reinsurance Total Capitation

Economic Credentialing Dumb Down Services Free Ride on Other Plans or the Government

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Current State of Doc Control by Insurers

Managed care backed off direct control More emphasis on just paying less Providers and businesses that do procedures, run labs,

or sell drugs and devices use their money as political power to protect their income #1 cost problem Rich docs are not automatically better docs

Primary care has seen its pay cut in real terms over the past 20 years

Cannot even attract US trained docs to primary care residencies in many places

What do We Get for Our Money?

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U.S. Has A Lower Life Expectancy than Most Other Industrialized Countries

Taken as a major criticism of the US system Is life expectancy really the right measure?

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Life Expectancy Is Not Health

Bias Weighted Toward the Young One Baby Is Worth Several Grannies

Only Life Counts Discounts Quality of Life Nursing Home Is As Good As the Ski Slopes Masks Aging Population Masks Improved Health

A Good Measure for Developing Countries

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What Complicates Health in the US?

We Have 3rd World Public Health Ineffective Prenatal Care Poor Immunization Practices Limited Access to preventive and routine care

Teen Pregnancy Prematurity Poor Parenting

Developed World Leader in AIDS

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Non-medical Issues

The Problem of the Poor Poor Education Poor Health Habits Cannot Afford Prevention

Geography Too Many Isolated Areas Expensive to Deliver Care

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How has the Health Care Umbrella been Expanded?

Sin to Sickness Alcoholism Drug Abuse

Miscatagorization Nursing Homes - housing? Vanity Surgery - life style?

Should Compare Total Social Welfare Budget with Europe General social welfare spending is much higher in

Europe

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The Core Problem

Public health and primary care does not work well Chronic diseases can be mitigated, but not cured or

prevented Shifts care to expensive technology and drugs

Emphasis on drugs also makes us a drug-ridden society DARE as a joke How do tell a kid that Adderal is good and meth is

bad?

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Impact of Governmental and Private Plan Economics and Special Interests on Care

High tech care has the strongest interest groups Providers and suppliers have a lot of money Patient advocacy groups are easy to capture Captures every more of the budget

Primary care, prevention, and public health Not sexy Big savings are low tech, long term Not a good news story Providers do not have the money to lobby

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Patient Directed Care Example

Patients will spend their own money and will thus make better decisions What is their knowledge base? Can you really learn what you need on the WWW?

How will this play out for preventive care? What is the incentive for providers?

Feel good drugs? Antibiotics?

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Why it will Get Worse:Second Order Demographics

People live longer because of medical care and public health More old people More people with chronic illness do not die Old people need more Total cost goes up

Health is much more expensive than death

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The Real Third Rail: Retirement Age

What are current implications of a system designed for people to retire at 65 when the average life expectancy was about 60?

What should retirement age be? How does increasing the retirement age help pay

for health care? How would this change society? What about the

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Health Care Reform

Who will lose? Who will win? How will we pay for expanding access?