Market Forces in Health Care Eric D. Kupferberg, PhD 23 September 2010
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?
Defining Market Forces • Typically supply and demand • Defined in relation to each other • Price as a mediator
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
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
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
Who is Demanding?Who’s the Consumer? • Patients and potential patients • Employers • Physicians & specialists • Hospitals, clinics, ACS facilities • Medicare and medicaid branches • Veterans administration
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)
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
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
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)
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
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)
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
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
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.
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
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
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
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
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).
Technological InnovationsIncreasing Demand for Pharmaceuticals Source: Congressional Budget Office, “Testimony on Projections of Medicare and Prescription Drug Spending,” (7 March 2002).
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
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
Advertising Spending Nielson Reports- June 16, 2008 / FDA.gov 02
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
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
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