Medical Care Markets

1
Chapter 3

• Medical Care Markets

2
Medical Care Marketplace

• How big?
• Why different?
• Major Costs
• Hospital
• MD
• Rx
• Future?
• 40 - 300 higher than other developed countries

3
2001 Cost of Care
Use of Total Per Person
4
Access to care

• _____ uninsured nationally?
• ____
• Uninsured receive 60 of medical care
• Insured 2,683/capita
• Uninsured 1,640/capita
• Canadian per capita 1,610

5
Medical Outcomes
6
4 Reasons Men DieBefore Women
7
Competitive Markets

• Allocative Efficiency
• Final distribution of consumption
• Consumers buy a good until the price benefit
• Technical Efficiency
• Efficiency in production
• Minimize costs and maximize profits
• Is this present in healthcare?
• Health disparities...

8
Government Helps Createthe Market

• Simple aspirin purchase
• FDA regulation for the ASA
• Weights and measures
• Store code enforcement
• Value of currency
• Packaging
• Banking (credit card?)

9
Creating the Market

• Government has role if
• Market Fails
• Inequitable information exchange
• Limited buyers /or sellers
• High transaction costs
• Closed market based on technology, morals and
  such
• Case of Public Goods
• Free consumption (air, water, etc.)
• Not personally replenishable

10
How Government Works
11
More on Market Failures

• 4 methods government deals with monopoly issues
• Become the producer
• Subsidize the fixed cost and control the overall
  price marginal cost
• Control price to just above average to limit tax
  subsidy, but avoid windfall profit
• Do nothing - let the market bear

12
Healthcare Market Failures

• Lack of true competition
• Few hospitals in the market
• Oligopoly
• Externalities
• Public health programs
• Public goods
• Philanthropy
• Uninsured

13
Healthcare Market Failures

• Imperfect Information
• In most every aspect for consumer
• Information overload factor as well
• Barrier to entry
• CONs
• AMA
• Third Party Payers
• Forms of reimbursement

14
Government Healthcare Roles...

• Payer/Funder
• Medicare, Medicaid, Employee Benefits, Grants and
  Clinics
• Provider
• Veterans Admin, Mental Health
• Regulator
• Rules and regulations, Legislation, CON

15
As a Payer/Funder

• Federal Govt funds 59.8 of all healthcare
• 2002 estimate _at_ 3,245 of the total 5,427
• Major cost drivers (1999)
• Medicare/Caid and VA 549 billion
• Tax subsidies for insurance 110 billion
• Insurance for workers 66 billion
• Does the s spent by the govt change the total
  amount of for healthcare?

16
As a Payer/Funder

• Care and Caid are Entitlement programs
• Open ended funding vs. closed funding
• Explosive growth has lead to budget deficits
• Florida State officials expect increased
  Medicaid enrollment to raise the state's Medicaid
  costs by an estimated 400 million this fiscal
  year
• Idaho State lawmakers voted to eliminate
  programs that provide dental services for
  low-income and disabled adults.
• Louisiana The state plans to limit funds for
  hospitals that provide care to low-income adults.
• Massachusetts The state has reduced by 50 the
  amount of flu vaccine available to groups that
  provide immunizations to seniors and the homeless
  at no cost.
• New Jersey The state has reduced eligibility for
  public health care programs that target the
  "working poor."
• Wisconsin The state sold bonds backed by 2.3
  billion in tobacco settlement payments over the
  next 14 years for 1.4 billion (Wall Street
  Journal, 10/7).

17
As a Payer/Funder

• CBO Budget Deficit Will Be 100B in 2002,
  Highlights Medicare, Medicaid Spending Increases
  Jun 17, 2002
• Squeeze money for the government's health care
  programs
• As of Sept. 30, the national deficit 149b
• Vs. 137 billion surplus for the same period last
  year
• 125 billion of the 286 billion "swing" can be
  attributed to higher government spending
• Including a 10.7 increase in spending on
  Medicare and Medicaid.

18
As a Payer/Funder

• Decreasing emphasis on prevention
• Decreasing emphasis on biomedical research
• More spent on intervention
• Short sighted, but necessary?
• Future being compromised to pay for today

19
As a Funder...
The House on Oct. 1 passed a bill (HR 3450) by
voice vote that would allow community health
centers to save money by forming networks for
purchasing and technical services, AP/Long Island
Newsday reports. The bill would also permit
health centers to participate in the National
Health Service Corps, which reimburses doctors'
medical school loans in exchange for providing
medical care in underserved areas (AP/Long Island
Newsday, 10/1). In addition, the bill
reauthorizes the Community Access Program, which
offers grants to communities to "better organize
and deliver care to the poor and uninsured"
(National Association of Community Health Centers
release, 10/1). The House still has to approve
funding to support this legislation, and
differences between the House and Senate
versions must be reconciled. The Senate passed a
companion bill in April (AP/Long Island Newsday,
10/1). HHS Secretary Tommy Thompson said, "This
action demonstrates that the House leadership is
again responding to the health care needs of
vulnerable and uninsured populations," and he
called for lawmakers to "expedite discussions"
on the bill so that it could be enacted before
the end of this legislative session (HHS release,
10/1).
20
As a Regulator...

• Federal
• Medicare Policy
• Sets the standard for private insurance
• Fees, rules, basis, etc.
• Over 15,000 pages of Medicare rules
• Medical Saving Accounts
• Legislation
• Whats new...

21
As Legislators...
Sens. Bob Graham (D-Fla.) and Peter Fitzgerald
(R-Ill.) on Oct. 16 introduced a bill (S 3119)
that would ban health plans from raising members'
premiums after they become ill or file claims, a
practice known as "reunderwriting," the Wall
Street Journal reports. Insurers have used the
practice as a way to reduce costs for healthier
plan members by charging sicker members more,
according to the Journal. Under the
Graham-Fitzgerald legislation and a companion
bill (HR 5682) introduced Oct. 16 by Rep. Earl
Pomeroy (D-N.D.), insurers would be prohibited
from increasing or reclassifying subscribers'
premiums "based on a health-status-related
factor." Graham said, "This bill would ensure
that individuals will not be priced out of the
market for health insurance at the very time they
need it most" (Wall Street Journal, 10/17). The
Senate bill has been referred to the Health,
Education, Labor and Pensions Committee, and the
House bill will be considered by the Energy and
Commerce Committee (Bill summaries, 10/16).
22
As Legislators...
Lawmakers, Groups Respond to Bush Administration
Proposal To Speed Market Entry of Generic Drugs
Oct 22, 2002 President Bush on Oct. 21
announced new regulations that would hasten the
approval of generic drugs by reducing the period
of time that patents can protect brand-name
medications from competition. The proposal,
scheduled to be published in the Oct. 24 Federal
Register, will undergo 60 days of public comment
before a final version is issued. White House
officials estimate the plan would save consumers
3.2 billion in its first year and 35 billion
over 10 years. It would also reduce revenues for
brand-name drug makers by 51.5 billion over 10
years, administration officials said (Pear, New
York Times, 10/22). The Bush regulations, which
would not require congressional approval, would
limit drug makers to one 30-month delay per
patent currently, companies can delay
competition by receiving multiple stays on a
single medication (Adams/Hitt, Wall Street
Journal, 10/22). In addition, the rules would
"make clear" that drug companies cannot file
patents on product aspects such as "packaging,
metabolites and intermediates that are unlikely
to represent significant innovations." Drug
makers would also have to provide the FDA with
additional information when filing patents in
order to "discourage ... patents that are not
permitted" (HHS release, 10/21).
23
Political Issues
President Bush on Oct. 21 plans to announce a
proposal that would increase patients' access to
generic drugs by reducing the period of time
that patents can protect brand-name medications
from competition, the Los Angeles Times reports.
The proposed regulation, which is similar to
legislation (S 812) passed by the Senate in July
but does not require congressional approval,
would restrict drug companies' ability to seek
patent extensions based on minor changes to
packaging or "changes that occur to drugs once
they are ingested" and would save consumers,
Medicare, Medicaid and private insurers about 3
billion annually, according to White House
officials (Gerstenzang, Los Angeles Times,
10/21).
24
Political Issues
Abortion Republicans support legislation that
would ban so-called "partial-birth" abortion,
but they have failed to move a bill out of the
Democratic-controlled Senate. National Journal
reports that "even if Republicans win back the
Senate" in November, they would not likely have
the 60 votes required to move such a bill to the
floor for a vote. Although "partial-birth"
abortion legislation has some Democratic
supporters, the bill could not overcome a
filibuster in the Senate "if a Republican
majority were small," National Journal reports.
In addition to a "partial-birth" abortion bill,
Douglas Johnson, legislative director of the
National Right to Life Committee, said he "isn't
optimistic" about the future of the "Abortion
Non-Discrimination Act," legislation passed in
the House this year that would mandate that
states could not pass legislation to require
hospitals to provide abortions (Zeller, National
Journal, 10/19).
25
Political Issues
Prescription Drug Benefit According to one
health care lobbyist, "Prescription drugs is the
most obvious example of where (change of party
control) makes a difference," National Journal
reports. A Democratic-controlled Congress would
likely pass legislation that spends government
funds for a Medicare prescription drug benefit.
However, a Republican-controlled Congress would
likely pass a bill that would use private
insurers to provide a prescription drug benefit
to Medicare beneficiaries. Many lawmakers won
election in 2000 on promises to pass a
prescription drug benefit and will "be under
pressure to produce," National Journal reports
(Werber Serafini, National Journal, 10/19).
26
Political Issues...
Local, Rather Than National Health Issues, Seem
To Be Dominating Close House Races, Washington
Post Reports Oct 22, 2002 With Election Day
two weeks away, local issues, including health
care, are dominating close races -- a trend that
could complicate Democrats' efforts to win
control of the House, the Washington Post
reports. The Republican-controlled House in June
passed Medicare reform legislation that includes
a prescription drug benefit, while the
Democratic-controlled Senate failed several times
to pass a drug benefit plan, effectively
"blurring" the issue and making it difficult
for Democrats to differentiate between the
parties, the Post reports. Kevin Raye, a
Republican running for Maine's 2nd District seat,
said, "People certainly ask what I think about
Iraq, but not as often as they ask about jobs and
health care" (Eilperin/Drehle, Washington Post,
10/22).
27
Political Issues
Health Care Costs and the Uninsured In the event
that Democrats take control of the House and
retain control of the Senate, health care costs
could become "higher on Congress' to-do list,"
National Journal reports. A Senate-passed bill
(S 812) that would increase access to generic
drugs "might make it through the House if
Democrats were in charge," and Congress would
approve a House-passed Medicaid and CHIP
expansions, National Journal reports. However, a
Republican-controlled Congress would likely pass
a bill that would limit non-economic damages in
medical malpractice lawsuits to 250,000. In
addition, a GOP-controlled Congress might
support a proposal by President Bush to provide
tax credits to the uninsured to help cover the
cost of private health insurance.
28
Political Issues
Patients' Rights Under a Democratic-controlled
Congress, patients' rights legislation "might get
moving again," National Journal reports. Both
the Senate and House have passed patients' rights
bills, but negotiators have failed to resolve
differences in the legislation. A Republican
takeover of the Senate "probably wouldn't do much
to change the status quo" on the issue, National
Journal reports. Ed Howard, executive vice
president of the Alliance for Health Reform,
said, "If the House changes hands, (patients'
rights legislation) might move. If the Senate
changes hands, we still have a stalemate."
29
Political Issues
AARP on Oct. 18 will launch a two-week, 4
million national ad campaign designed to
encourage seniors to consider a candidate's
stance on a Medicare drug benefit when voting in
this November's elections, Long Island Newsday
reports. The campaign features a television ad
in which two seniors watch a news report about
the government's war on illegal drugs. The ad
announcer says that there is another drug war,
"the fight for legal, affordable prescription
drugs for seniors," and advises viewers to
"know where the candidates stand. Vote. This is
a drug war we can win." In addition to the ad,
AARP has mailed voter guides outlining
candidates' positions on a Medicare prescription
drug benefit. While AARP does not endorse
candidates, CEO Bill Novelli said the campaign
"goes as far as it can without suggesting who
seniors should support," Newsday reports.
30
As a Regulator...

• Certificate of Need (CON)
• Regulate facility construction
• Actual hospitals or SNF
• Regulate facility expansion
• Open Heart, Transplant, NICU, etc.
• Used to limit supply
• Does limiting supply REALLY help?
• 35 States have CON laws

31
Pros and Cons of Regulation

• Market Limitations
• Costly to operate and require oversight
• Entrepreneurs seek to maximize profit, not social
  good
• pays only for goods valuable to individuals,
  not public goods
• In healthcare, no price awareness

• Regulatory Limitations
• Agencies costly
• Inefficient producer
• Poor customer service
• Supression of prices creates inequities
• Govt responds slowly and mostly to small
  constituency groups
• Must do no harm

32
Pros and Cons of Regulation

• Market Limitations
• Needs for those outside of the market
  (uninsured)
• Adverse selection would break the market
• Ethics of competition do not blend well with
  caring profession perception
• Need external licensing and QA

• Regulatory Limitations
• Rigid, non-flexible
• Too uniform
• Based on past as a precedent vs. the future
  trends
• No automatic adjustment to supply demand
• No entrepreneurial incentives