Chapter 05 Economics of Health Care Delivery

1Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Chapter 05

Economics of Health Care Delivery

2Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Objectives

1. Relate public health and economic principles to nursing and health care.

2. Describe the economic theories of microeconomics and macroeconomics.

3. Identify major factors influencing national health care spending.

4. Analyze the role of government and other third-party payers in health care financing.

3Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Objectives, Cont’d

5. Identify mechanisms for public health financing of services.

6. Discuss the implications of health care rationing from an economic perspective.

7. Evaluate levels of prevention as they relate to public health economics.

4Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Introduction

Poverty can be directly related to poorer health outcomes.

Estimates indicate that public spending on health care makes a difference but needs the support of increased private health care spending to improve the overall health status of populations.

5Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Public Health and Economics

Economics Health economics Public health economics Public health finance

Four principles that explain how it may occur:• Sourcing and use of monies controlled solely by

government• Government controls money but private sector controls

how money is used• Private sector controls money but government controls

how money is used• Private sector controls money and how it is used

6Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Principles of Economics

Supply and DemandEfficiency and Effectiveness

MacroeconomicsMeasures of Economic Growth

Economic Analysis Tools

7Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Supply and Demand

Shifts result of: Competition for goods

or services Increase in costs of

materials used to make a product

Technological advances

Change in consumer preferences

Shortage of goods or services

8Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Efficiency and Effectiveness

Efficiency Suggests that inputs are combined and used in

such a way that there is no better way to produce the service, or output, and that no other improvements can be made

Effectiveness For example, effectiveness of a mass

immunization program is related to the level of “herd immunity” developed.

9Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Macroeconomics

Focuses on the “big picture”—the total, or aggregate, of all individuals and organizations Aggregate is usually a country or nation

Business cycle and economic growth Human capital approach

10Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Measures of Economic Growth

Economic growth reflects an increase in the output of a nation.

Gross national product (GNP) Gross domestic product (GDP)

11Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Economic Analysis Tools

Cost-benefit analysis (CBA) Considered the best of these methods

Cost-effectiveness analysis (CEA) Quality of adjusted life-years (QALYs)

Cost-utility analysis (CUA)

12Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Factors Affecting Resource Allocation in Health Care

The UninsuredThe Poor

Access to CareRationing Health Care

13Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

The Uninsured

Forty-six million uninsured people in the United States in 2006 Mostly in low-paying jobs, part-time jobs,

temporary jobs, or small business jobs Uninsured persons typically are:

Young adults (especially young men) Minorities Under 65 years of age, in good or fair health Poor or near poor

The Patient Protection and Affordable Care Act (2010)

14Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

The Poor

Socioeconomic status is inversely related to mortality and morbidity for almost every disease

Link between poor health and SES status because of: Poor housing Malnutrition Inadequate sanitation Hazardous occupations Cumulative effects of characteristics that explain

poverty

15Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Access to Care

Medicaid intended to improve access to health care for the poor

Reasons for delay, difficulty, or failure to access care: Inability to afford health care Lack of transportation Physical barriers Communication barriers Child care needs Lack of time or information Refusal of services by providers

16Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Rationing Health Care

Implies reduced access to care and potential decreases in acceptable quality of services offered For example, health provider refuses to accept

Medicare or Medicaid clients

17Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Primary Prevention

USDHHS argued that a higher value should be placed on primary prevention.

The goal of this approach is to preserve and maximize human capital by providing health promotion and social practices that result in less disease.

An emphasis on primary prevention may reduce dollars spent and increase quality of life.

18Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

The Context of the United States Health Care System

First PhaseSecond Phase

Third PhaseFourth Phase

Challenges for the Twenty-First Century

19Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

First Phase: 1800 to 1900

Infectious epidemics Inadequate and unsafe hospital care Minimal technology Experience-based training

20Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Second Phase: 1900 to 1945

Acute infections, trauma Specialty hospitals emerge Therapeutic advances Shift to science-based training

21Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Third Phase: 1945 to 1984

Chronic diseases Increasing numbers and types of facilities “Durable” technologies: therapeutics and

diagnostics Development of medical specialties, new

“types” of employees

22Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Fourth Phase: 1984 to Present

Emergence of new and old infectious diseases

Mergers, integration Super drug therapies, computerization,

service technologies Primary care, “turf” issues, multidisciplinary

care teams Managed care

23Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Challenges for the Twenty-First Century

Emergence of new and old communicable and infectious diseases, larger food-borne disease outbreaks, acts of terrorism

Chronic disease prevention programs Infrastructure to support more complex

technologies Hospital “intensivists” More care provided in the home Doctorate of Nursing Practice Emphasis on prevention and wellness

24Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Trends in Health Care Spending

National health expenditures reached $2.5 trillion in 2009

Predict total United States spending in 2019 will be $4.5 trillion

Health spending outpacing gross domestic product More than $17 of every $100 spent has been spent for

health care Largest portions of health care expenses for hospital

care and physician services Only a small fraction spent on home health, public health,

research, and construction.

25Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Distribution of United States Health Care Expenditures, 2007

26Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Factors Influencing Health Care Costs

Demographics Affecting Health CareTechnology and Intensity

Chronic Illness

27Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Demographics Affecting Health Care

Aging population Federal expenses for Social Security will increase

• Demands on Medicare and Medicaid increase Expected to affect health services more than any

other demographic factor Likely to experience multiple chronic conditions

that may become disabling Potential health policy reform

28Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Technology and Intensity

Enhances delivery of care Has potential to increase costs of care

Demands investment in personnel, equipment, and facilities

Adds to administrative costs Payers have attempted to restrict use of certain

technologies

29Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Chronic Illness

New factor impacting health care spending Accounted for 70% of deaths in 2007 Chronic conditions:

Cost the most Most number of bed days Most number of work-loss days Most activity impairments

Most common chronic condition was stroke

30Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Financing Health Care

Public SupportPublic Health

Other Public SupportPrivate Support

31Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Public Support

Marine Hospital Service (1798) National Board of Health (1879), renamed U.S.

Public Health Service (USPHS) Medicare (1965)

Provides hospital insurance and medical insurance to persons 65 years of age and older, to permanently disabled persons, and to persons with end-stage renal disease

Medicaid (1965) Provides financial assistance to states and counties to pay

for medical services for poor older adults, the blind, the disabled, and families with dependent children

32Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Public Health

Most public government agencies operate on an annual budget.

Public health agencies receive primary funding from taxes, with additional money for select goods and services through private third-party payers.

Select public health programs receive reimbursement for services.

33Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Other Public Support

Federal government finances health services for retired military persons and their dependents through TriCARE, Veteran’s Administration (VA), and Indian Health Service (HIS)

34Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Private Support

Private health care payer sources include: Insurance Employers Managed care Individuals

• Medical savings accounts

35Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Health Care Payment Systems

Paying Health Care OrganizationsPaying Health Care Practitioners

36Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Paying Health Care Organizations

Retrospective reimbursement Charge method Prospective reimbursement, or payment

37Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc.

Paying Health Care Practitioners

Fee-for-service Capitation Reimbursement for nursing services

1998: Nurse practitioners (NPs) and Clinical Nurse Specialists (CNSs) granted third-party reimbursement for Medicare Part B services• Effort to control costs of medical care• Reimbursement rate set at 85% of physician rates for the

same service