Health Care Economics and Why it Matters

1. Health Care Economics and Why it Matters

2. 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

3. 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

4. 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)

5. 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?

6. 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

7. 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

8. What do We Spend? • Total health care spending • Medicare 2008 Factsheet

9. 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

10. 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

11. 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

12. 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?

13. 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

14. Managed Care Organizations - MCOs • Insurance Plans That Control Patient Care • Includes the Old Alphabet Soup • HMOs • PPOs • IPAs

15. 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

16. 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

17. 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

18. 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

19. What do We Get for Our Money?

20. 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?

21. 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

22. 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

23. 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

24. 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

25. 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?

26. 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

27. 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?

28. 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

29. 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

30. Health Care Reform • Who will lose? • Who will win? • How will we pay for expanding access?