Market Forces in Health Care

1. Market Forces in Health Care Eric D. Kupferberg, PhD 23 September 2010

2. Two Possible Frames • What force or role does the market play in shaping health care in America? • What are the forces operating in the health care market?

3. Defining Market Forces • Typically supply and demand • Defined in relation to each other • Price as a mediator

4. Defining Market ForcesDemand, Supply, and Price

5. Ideal Markets & Perfect Competition • Assumes large number of small sellers so that no one seller can greatly determine the price • Assumes that both buyers and sellers are well-informed and aware of any changes in price • Assumes that the goods that are bought and sold are nearly homogenous so that buyers make decisions primarily on price

6. No “Ideal” in Health Care Markets • Limited number of insurers • Many small cities and rural areas have few hospitals • Limited suppliers of medical devices, technologies, and pharmaceutical prices • Consumers rarely see the entire cost; only pay 10-20$ per visit

7. No “Ideal” in Health Care Markets • Governments purchase large portion and control costs • Limited health literacy • Patients rarely comparison shop • Health care is not a homogeneous good

8. Who is Demanding?Who’s the Consumer? • Patients and potential patients • Employers • Physicians & specialists • Hospitals, clinics, ACS facilities • Medicare and medicaid branches • Veterans administration

9. Isolated Consumers are Rare • Even the most common transaction in health care involves at least two consumers and two suppliers • Example: standard office visit is the product of a patient purchasing services, a physician purchasing facilities and equipment, an employer purchasing a health plan, etc. • Consumer demands often mediated by a 3rd party (e.g., patient needs negotiated by physician)

10. No Monolithic Heath Care Market • All markets are local • Heterogeneous mix of consumers and suppliers • Market niches matter more than position in general health care marketplace • Consumers are non-uniform with regards to race, ethnicity, gender, geography, education and economic status

11. Fluctuating DemandThe Role of Governments • Expansion of Medicare benefits increases demand • Broadening of eligibility requirements increases demand • Patient “Bill of Rights” legislation increases demand • State cuts in Medicaid reduces demand for most health care products & services • Medicaid cuts increase demand for emergency health care

12. Fluctuating DemandThe Role of Governments

13. Fluctuating Demand and Increased Cost

14. Fluctuating DemandThe Influence of Costs • Higher health care and out of pocket costs decreases demand • Increasing numbers of uninsured decreases demand; numbers of uninsured will top 50 million by 2006 • Economic growth increases demand; increased economic disparities worsens overall health status in the population • Health care is a normal good, but its price elasticity is smaller than other goods (e.g., food, gasoline, automobiles, housing)

15. Fluctuating DemandThreats to Health • Recent and emerging diseases can dramatically increase demand: AIDS, antibiotic resistant TB, new flu variants, bioterrorism, SARS, obesity, etc. • BUT, the greater force is the aging population

16. We Are Living Longer

17. Aging PopulationDemographic Realities • Baby boomers will turn 65 in 2010 • Percentage of people over age 65 will increase from 12.8% in 1995 to 18.5% in 2025 • Older population has many more conditions requiring health care • Older population maintains a greater taste for health care products and services and devotes greater attention to planning for the future • Co-varies with regional, ethnic, and economic factors (e.g., middle-class rural farmers in the mid-west tend to reply on hospitals and physicians, while middle-class professional elderly rely on nursing homes)

18. Percentage of Older Adults Growing

19. Aging PopulationChronic Conditions • Chronic conditions are the major cause of illness, disability, and death in the U.S. Chronic conditions cost $774 billion in 2000 (75% of all health care spending), and will rise to $1.07 trillion in 2020 (80% of all health care costs) • Chronic conditions greatly contributed to the doubling of expenditures on prescription drugs from 1999 to 2004 • Chronic conditions require additional time to diagnose and coordinate among several providers • Adoption of care management processes (CMPs) has been slow and has yielded mixed results

20. Chronic Conditions Rise With Aging Population

21. Chronic Conditions Rise With Aging Population

22. Senior Have More Chronic Conditions

23. Technological InnovationsMultiplier and Magnifying Repercussions • Many medical technologies do not simply replace older technologies; they are additive • New medical technologies increase demand for related or downstream technologies • Technological imperatives: “because it’s there” or “because we can” (e.g., imaging services and some psychopharmaceuticals) • Health care exceptionalism: typically new technologies reduce the cost of a good; not true for health care

24. Technological InnovationsMedical Devices • Minimally invasive surgical techniques • Novel sepsis treatments • Implantable devices • Diabetes management tools • At-home diagnostic health kits • Pharmaceutically coated stents • Tissue engineering • Transdermal patches • Tissue engineering • Xenotransplantation Source: Gene O’Dell, “2003 AHA Environmental Assessment,” Trustee 56 (Oct. 2003): 24.

25. Technological InnovationsDiagnostic Technologies • New MRI, CAT, PET, and ultrasound machines create their own market • Advances in diagnostic technologies increases demand for surgical services • Many prenatal screening tests on the horizon

26. Hospital Tech Adoptions: Price • Technologies evaluated by profitability • Technologies acquired when expected revenue stream exceeds expected cost over the useful life of a product • Hospital manager must consider “loss leaders” which loose money but benefit the entire hospital by bringing visibility to other parts of the hospital

27. Technology Competition Model • Sales maximization theory; hospitals want to be the largest • Conspicuous consumption theory; want to show that the hospital is the most technologically advanced • Hospitals acquire technology that maximizes physician income

28. Utility Maximization • Hospital manager invests in technology to enhance the quality or quantity of services provided • Technology competes against other services, for example nurses, for a share of the hospitals budget; technology is evaluated in this context

29. Technological InnovationsA New Wave of Pharmaceuticals • Promise of genomics and bioinformatics to replace chemotherapy for treatment of some cancers, to reduce heart diseases, and combat autoimmune disorders • New microarrays and genomic technologies seek to target specific populations Source: G. Steven Burrill, “From Pipe Dream to Pipeline Dream: Personalised Medicine Takes Off,” EBR (Spring 2003).

30. Technological InnovationsIncreasing Demand for Pharmaceuticals Source: Congressional Budget Office, “Testimony on Projections of Medicare and Prescription Drug Spending,” (7 March 2002).

31. Fluctuating DemandAccess to Information • Web-based sources abound (e.g., WebMD) • Health features in newspapers and magazines • Television and radio reports • Advocacy groups distribute information • At-home diagnostic tests increase demand • For physicians: professional meetings, journals, and industry periodicals

32. Percent of Consumers Searching For Healthcare Information

33. Consumers’ Sources of Healthcare Information

35. All Education Levels Seek Online Information

36. Direct to Consumer Advertising While Pepsi spent $125 million advertising its soda in 2000, the manufacturer of Vioxx spent $160 million. (2003, BCBSA). Source: Blue Cross “Key Factors Driving Health Care Costs” 2003

37. Advertising Spending Nielson Reports- June 16, 2008 / FDA.gov 02

38. Firms Brand Medical Conditions

39. DTC Part of Larger Campaigns

40. The Pharma Giants Spend Most

42. Advertising Spending

43. DTC Advertising Works

45. Fluctuating DemandConsumer Expectations • Patients demand greater control and more choices • Short waiting periods, direct access to specialists, access via email • Medical considering “Report Card” listing measures of patient satisfaction and quality outcomes for specific conditions • Access to state of the art medical technologies

46. Fluctuating DemandConsumer Expectations & Cultural Norms • Standards of beauty influence demand for body augmentations and cosmetic surgeries • Cultural bias against melancholy and shyness increases demand for psychiatric services and medications • Growing cultural acceptance of psychiatric services and medicines increase demand

47. Fluctuating DemandCase Example: Obesity • Formerly Public Health efforts targeted smoking. New focus highlights obesity as a leading cause of preventable illness • More than 50% of adult Americans are overweight, and obesity has increased by 60% from 1991 to 2003

48. Defining Obesity

49. Living in the Land of the Lean ?

50. Living in the Land of the Lean ?