Health Economics Midterm
The basic principles in the delivery of HC in Denmark:
Legislation states: 1.) Equal access to HC 2.) By law the aim of the health services is to fulfill the need for: - treatment of high quality - coherence between the services (smooth patient pathways) - easy access to information - transparent health services and - short waiting times for treatment - if your treatment is filled in timely manner, you can be referred to the private sector
Price Elasticity of Demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
Economic Evaluations
compare the program's costs to either the effects it produces or the monetary value of those effects. • Do not capture some elements of fairness equality and feasibility • Economic evaluations are rarely the only criterion for in in policy-making • One example: cancer... cancer org is really str
Perfectly elastic
flat demand curve; consumers are perfectly price sensitive
unit elastic
when the percentage change in price and quantity demanded are the same
Externalities
• "Spillovers from other people's consumption or production of commodities which affect an individual in either a negative or a positive way, but which are out of the individual's locus of control. Normally not accounted for in market transactions where consumers and producers only factor in their own cost and benefits."
Market Failure
only with lower than avg risk ppl, who are suddenly not insured, reason b/c there cold be a market here if there was the right info and perfect knowledge, if insurance knew what they needed, there would be chance of exchange with lower than avg risk
Suppler-induced demand/ Provider Moral Hazard
providers encourage patients to consider healthcare of little or no benefit resulting in inefficient use of resources but higher payment of providers. Especially a challenge with Fee-for-Service (HC provider gets paid for their service)
Opportunity cost
- As resources are scarce, an individual chooses the good which gives him the greatest utility, and thus forgoes the consumption of alternative goods of lesser value to him. - The opportunity cost is the value of the utility of the next best alternative
Marginal Analysis
1. A decision to consume a product is rarely stated in "all or nothing" - Instead we talk about the marginal unit (working 1 extra shift at the hospital )2. Law of diminishing marginal utility: Utility falls as consumption rises
Different types of Economic Evaluations
1. Cost analysis A. no outcome is measures -- costs are the only thing that matter 2. Cost-effectiveness analysis A. The outcome is "natural" effect units for example rates of cancer or stakes 3. Cost utility analysis A. Qualitative and quantitative health improvements (QALY's) 4. Cost benefit analysis A. All monetary units - willingness to pay
Markets
1. interaction between fully informed and sovereign individuals 2. an adjustment mechanism that permits exchange of goods and services between producers and consumers via demand and supply 3. he goal = Market equilibrium - when consumers maximize their utility through purchase and suppliers their profits through selling
Political/Administrative Structure: National
1.) Allocation of funds between sectors (done twice yearly) 2.) Write legislation 3.) Make clinical guidelines
Role of Uncertainty & The special characteristics of the medical market
1.) Demand is unsteady and unpredictable 2.) A preference against profit motive in the supply of medical services 3.) Uncertainty as to the quality of the product is perhaps more intense here than in any other important commodity 4.) Entry to the profession is limited
Per case/DRG Diagnosis-related groups
1.) Diagnosis-related groups is a system to classify hospital treatments into groups 2.) DRG are based on the average costs in every group 3.) A group could be a by-pass operation and include the services around this (doctors salary, instruments, medicine etc) 4.) There is a calculated DRG-tarif for every admission and every outpatient visit) 5.) Very much activity driven
Reform: New Political/Administrative Structure
1.) Five layers, arguably less complex 2.) Solve coherency problem: suggest creating health care clusters: responsibility: create coherency for patients that get lost in triangle, 10% of all patients cycle between 3 branches, will be chronic or elderly patients 3.) New Municipalities: a lot more tasks/ responsibilities, 4.) less democratic because get rid of regional level, more bureaucratic
Four Steps in an economy evaluation
1.) Framing the evaluation ◦ Purpose of the intervention. What is the alternative interventions to compare, Type of outcome, Time frame of the intervention and expected outcome. 2.) Identifying, quantifying and valuing the resources needed 3.) Identifying, quantifying and valuing the health consequences 4.) Presenting the information for decision-making -your recommendations to the politicians
What would be the barriers in a Danish HC system to actually provide equal access and equal treatment in terms of quality?
1.) Geographic barriers: difficult to attract GPs in areas outside cities ◦ system is creating incentives for them to work out in Jutland or islands 2.) If you're wealthier: more options for finding care in other countries 3.) Stigma: If you're intravenous drug user, sex worker - less trusted by doctors, so stop seeing them, health worsens 4.) Stigma of psychiatric diseases: anxiety, depression, but improved in last 20 years ◦ new hospitals have updated psychiatric care, and new public perspective of these patients 5.) Language barrier: immigrants coming in ◦ discussion on who should pay for translators 6.) Visitors to Denmark who get hurt: you would get treated within social sector, but depends on what kind of immigrant you are, if you have acceptance to stay or for short time 7.) Cultural literacy • 8.) Women treated less and complaints are treated less seriously than men 9.) different care from specific GPs, one may send you straight to hospital
Block Grant
1.) Gives providers a fixed amount of money 2.) Is payed as a lump sum (often in advance in the beginning of the year) 3.) The amount is set regardless of the number of patients etc 4.) Block grant normally gives the providers of health freedom to prioritize how to spend the money
Capitation
1.) Gives providers a fixed amount per patient to cover some/allmedical needs (partial or full capitation) of a specific group of patients for a specified time period 2.) Not linked to volumes of services 3.) Gives more flexibility to spend resources 4.) Is payed as a lump sum (often in advance in the beginning of the year)
Why study health economics?
1.) HC accounts for between one-sixth and one-tenth of the total economy in most western countries 2.)Health economics and decision-makers control our health care systems - not doctors 3.) Health economics and health politics operate as different paradigms and follow different logics
WHO points to 3 fundamental goals of HC Sys
1.) Health improvement: client as center 2.) Responsiveness 3.) Fairness of financial contribution
Licensure/ Why do we need professions in health care?
1.) Make sure people giving health care meet certain standard, big risks 2.) Accountability 3.) Need people in all fields-- HR, admin, 4.) * Securing high quality of care in a high risk market 5.) The market is seldomly sued and no room for trial and error-learning 6.) Consequence: No entry fee (Dont have free entry to make as supplier of health care) 7.) Risk of supplier induced demand due to the resulting market power of the profession
Fee for Service
1.) Payment for every procedure 2.) Payment is retrospective 3.) Based on the volume of the individual service delivered
Fundamental assumptions in economics
1.) Resources are scarce, income is limited 2.) People's behavior when making choices is predictable, because resources are scarce and we try to improve on our own situation, i.e. maximize utility (benefit)
Most important goals and values of Danish HC Sys
1.) Responsiveness 2.) Improve health 3.) Accessibility: geographic, financial (Affordability - least out of pocket) 4.) Updated technology 5.) Denmark - regulated /tax based 6.) Patient-centered care 7.) Preventive 8.) Cost effective
Political/Administrative Structure: Municipal
1.) Run nursing homes/home nursing 2.) Responsible for prevention of diseases and health promotion (to smokers, addicts)
• Institutional response to asymmetry of information:
1.) Theoretical solution: Communicating all information to patients 2.) Pragmatic solution: Professional ethic standards (The hippocratic oath, health care service laws) plus.. ‣ Lisensure: Restrictions on suppliers´ access to the market
Episode based
1.) Use to try to solve the problem of coherence, want to do bundled payments, fixed amounts intended to cover the costs providing some or all services delivered to a patient for a complete episode of care/or treatment of a patient year 2.) Intended ti improve the incentives for better coordination of care 3.) Often in combination with capitation 4.) Incentive for provider to do whole cycle of care,
health care system
A health care system is the combination of resources, organization, financing and management that culminate in the delivery of health services to the population. - Health services are limited to include examination, treatment care, rehabilitation, information, prevention, i.e. services offered to the population and carried out by persons who receive payment for their work
What are the main differences between Denmark and the US?
A major difference between Denmark and the US is that Denmark provides equitable free healthcare to all residents. This is funded by a pretty significant tax that is progressive meaning you are taxed based on how much you make, thus the rich pay more. This tax covers the majority of medical treatment and an individual will only have to pay out of pocket for certain services such as dentistry, podiatry, and some prescriptions. This is contrasted to the US where the vast majority of the population has to pay out of pocket for medical expenses or is covered by private pay insurance with some healthcare programs federally funded. These differences highlight larger cultural differences between the two countries with Denmark being more of a homogenous and egalitarian society where the US has a much higher socioeconomic gap and perhaps less of an opportunity for social mobility.
The Agency Relationship
Agency relationship is formed when a principal (e.g. a patient) delegates decision making to an agent (e.g. doctor). • Asymmetry of information is central to agency issues ◦ Motive behind such delegation is that principals recognize they are relatively uninformed about the decisions to be made, which is solved by using an informed agent. • The different types of info that a patient lacks 1.) Info about health status 2.) Info about available treatment 3.) *Info about the effectiveness of treatment and different kinds 4.) The perfect agent acts to maximize the utility of the principal
Asymmetry of Information
An asymmetry of information between the parties in an exchange - here health services. The problem: A normal good: We know the utility gain. Health care: Difficult to measure the utility gain
Moral Hazard
Arises when people behave recklessly because they know they will be saved if things go wrong. Is a change in the attitudes of the consumers and the providers of health care, which results from becoming insured against the full costs of such care 1.) Incentives change 2.) Creates a problem of excess demand
Criticism of the activity based financing
Focus on activity not outcome: • incentive to overtreat • treatment isolated to cover the condition - not looking at the patient as a whole • no coordination - duplication of care -> the patient needs to show up multiple times at the hospital -> inefficient also for the society. • No true cost measures looking at the cost during the entire patient pathway
Imperfect Agent
Healthcare providers may exploit consumers ignorance to maximize their on utility
What is, in your opinion, the most important barrier for the health care market working as a perfect market?
In order to function as a perfect market, a market must have small, plentiful producers, certainty in consumers, knowledge in consumers, no externalities, and freedom to choose without influence or coercion. The lack of knowledge consumers have is what underlies the others in this situation. Consumers can't have certainty of knowing what they want and when, because they do not necessarily have access to information about their medical condition, various treatments, and how medications may affect their condition. This is especially true for those who receive a shocking, complicated, or otherwise difficult to process diagnosis. Health care providers understand this information better, making them capable of coercing unknowledgeable patients, who may turn to experts for help.
Adverse Selection
Occurs before an agreement between the insurance company and the consumer is made. • Results from asymmetry of info • Occurs when there is a knowledge gap between the parties, which the party with excess info can use to his own advantage • Insurer cannot distinguish between different risk groups - perfect information would allow insurer to estimate the fair price for each individual. • Creates a serious social problem • Lack of ability to distinguish > premiums based on average risk which may be inefficiently high for low risk groups. • Consequence: low risk and high risk groups might be left uninsured.
The Welfare State Model
State plays key role in the protection of the social and economic well being of the citizens. 1.) Focus on equity = universal (one level of quality for everyone)
Economies of scale
The conditions under which costs per unit produced falls as production increases
price elastic
The demand for a product is highly responsive to price changes. The range of a demand curve where elasticities of demand are greater than 1.0.
price inelastic
The demand for a product is not very responsive to price changes. The range of a demand curve where elasticities of demand are less than 1.0.
Production Possibility Curve
The different combinations of outputs that are achievable with a limited set of resources. Tells us about: 1. Utility maximizing behavior 2. Scarcity of resources 3. Opportunity cost
Risk of Uncertainty
We can only guess our future needs for health care service. Virtually all special features of this health industry stem from uncertainty ◦ demand is unsteady and unpredictable = inefficiencies. We don't know if, how, when we will fall ill or the consequences of the illness.
The Iron Triangle
Third party player (funds) Provider (services) Consumer (Funds) Third Party Player
Cost-effectiveness analysis
form of program evaluation that assesses outcomes in terms of the costs involved in developing, running, and completing the program Different between average and incremental • An average cost-effectiveness ratio is equal to the total cost of an intervention divided by the outcome of the intervention compared to "doing nothing" ◦ all or nothing • An incremental cost-effectiveness ratio is the incremental cost of an intervention divided by the incremental outcome compared to the next most effective intervention. ◦ the effect of doing a bit more ◦ Incremental cost-effectivenss ratio
Diseconomies of Scale
happens when companies grow too large (or are too small) resulting in increasing unit costs • In the insurance field: Diseconomies of small scale due to marketing + administration costs
Perfectly inelastic
quantity does not respond at all to changes in price (E=0)
Political/Administrative Structure: Regional
specialized care, GPs, hospitals • The regions have to follow the legislation made on the national level • They are responsible for the core health care services 1.) The primary sector (GP's) 2.) The secondary sector (hospitals)
Per case/DRG Diagnosis-related groups examples
• (DRG) is the the basis for paying hospitals and measuring their activity in most high-income countries • The DRG system can be used in activity based financing = the providers budget increase with the number of treatments produced • Used with different meanings across and within countries • DRG-based payments provide strong incentives to increase the number of cases treated and to reduce the number of services per case
When implementing VBHC - question #2 Which one of the six components would you believe is the most challenging to implement in the Danish healthcare sector? Why?
• 1) Organize into integrated practice units: Drastic restructuring, changing what patients are used to, patients with chronic illnesses ◦ You can say its partly done, may not be done in way Porter argues, cause he means physical organization in IPUS, with these new hospitals idea is that patient would meet with specialists, even though its not one department covering only prostate cancer, still be different specialists diagnosing- some would argue we are already doing this • 2) Measure outcomes and costs for every patient: Hard to operationalize what good or bad outcome is, very expensive ◦ Now, working with 8 projects, it is really heavy task, can be difficult to agree on outcome goals, not the most difficult part because patients and clinicians manage to agree ◦ Actually collecting info is difficult, even though a lot of data is out there already, it was collected for other purposes so it cannot be used for something different • 4.)Integrate care delivery across separate facilities: System seems to be having difficulty with this currently? ◦ related to legal issues that we can't share data with other facilities ◦ coherency problems among hostels, and from GP to hospital to municipalities ◦ legal issues most difficult hurdle: even if you did well on these components, some many elements of VBHC that we couldn't do anyway
Moral Hazard
• Behavior-change (of providers or consumers) as a result of not having to bear the financial burden of the possible consequences of a behavior: LACK OF COST AWARENESS → • Occurs when one person takes more risks because someone else bears the financial burden of those risks • A potential problem in systems with a third party payer - insurance-based systems or tax-based systems
How to fund the HC system?
• Countries use different ways of funding health services. • The way the health care sector is funded has a huge impact on the structure of the health care system and the health services the citizens get. • Despite local variations, health care systems tend to follow general patterns of funding. • Out of pocket and/or third party payments (tax or insu.)`
What to fix? (of current HC system)
• Growing demand and expectations • Demography: larger percentage of elderly people • Limited resources
Why is PED important in the HC industry
• Health care producers can use the knowledge of health care services being inelastic, in order to increase revenue • Indicates that government action/policy can have an impact ◦ Patent vs. Generic substitutes on drugs • Relates to the discussion of introducing free market rules on the health care market - more competition, meaning more substitutes, could make some health care goods and services more elastic • The question of "who pays": Introducing more direct consumer payments would make some goods more elastic
The Rand Study
• How diff levels of cost sharing affected how people used HC, compared to free care • What are the consequences for health? ◦ Participants were randomly assigned to one of five types of health insurance plans created specifically of the experiment ◦ biggest effect between it being free and paying the least amount (25% co insurance) ◦ 45% higher total HC expenses pr. capital on the "free plan" compared to the 95% co-insurance plan ◦ for free service: reductions in BP, better corrected vision, better health of gums...: chronic problems in lot of population, easy to fix and easy to diagnose ◦ so significant differences in healthy people
Block grant example
• In Dk the hospitals are financed thru a block grant • Is determined based on last year's budget corrected for activity and productivity growth • The block grant is often provided with some restrictions. The hospitals have to fulfill some political goals.
Fee for Service example
• Most common payment-system in primary care in Europe - also in Denmark (in combination with capitation) • The dominant payment-method in the states • Used in Denmark paying the GP's
cost-benefit analysis
• Outcome measure in monetary units Willingness to pay • Economic theory: the value of a good is reflected in the price people are willing to pay • PRO/CON ◦ potentially able to include all costs and benefits and express it with monetary unit, but still ask self whether you're sure patient is able to assess what they are willing to pay ◦ CON = time consuming to do all these interviews ◦ Its not being used that much because it means you have to put vale on life and death ◦ "Alive is worth that much money" so its not used that much in terms of deciding on should we implement this drug, still be used in health care, but maybe rather get rid of smaller hospital for bigger --- not directly related to how many patients are being treated. so depends on what youre analyzing and how sensitive it is to directly saving patients lives
Capitation example
• Partial capitation very common in Europe in primary care in combination with Fee for Service • Many countries are doing pilots on capitation used on selected groups to improve care coordination and give incentives to shift focus from quantity to quality
Value Based HC
• Patient centered: outcome measured on what the patient perceives the cost and outcome is • Philosophy: quality over quantity • Requires a lot of communication between sectors and with patient • Hard to make a universal system, because it is so individualized
Experts vs. politicians
• Politicians may want to just get votes.. experts would have longterm focus • Politicians have advisors that are experts • Politicians would listen to voters • Experts aren't elected, if you're represented by these experts, you end up giving up your voice
Perfect Market
• Provides utility maximization at least cost - but requires: 1.) Numerous small producers with no individual market power - producers are price takers 2.) Perfect knowledge 3.) Certainty: Consumption of a good can be planned 4.) No externalities 5.) Consumers are sovereign - they are not influenced or coerced and they act freely in choosing what goods to consume
Cost Utility analysis
• Quality Adjusted Live Years (QALY) • A universal health unit - measuring health gain • Take into account the quantity and quality of the years lived • QALY's are based on the number of years of life that would be gained by the intervention - adjusted for "what kind of life that would be" • The QALY is designed to allow for comparison of treatments across conditions. • Allow different characteristics to be valued on a single scale • Each year in perfect health is assigned 1.0 down to 0.0 for being dead • Years gained x QALY-weight • The CU-ratio is cost per QALY gained
The Copenhagen Study Design
• Region outside of city all GPs had moved from captivation system to fee for service and capitation system ◦ GPs in city said colleagues earned more money, so they wanted to move to new system = policy change in city • Study: control group outside of city, experimental city inside the city • Aim: To examine the possible change in GPs activities from a change in the remuneration system - from capitation to mixed capitation and fee for service • Conclusions ◦ Increase in services the has FFS payment (diagnostic and curative services) ‣ Found it does matter, we would like to think it doesn't matter to GPs how they're paid, but it does ◦ Decrease in services without a FFS remuneration (referrals to specialists and hospitals)
determinants for price elasticity of demand
• Substitutes: The more substitute good are available, higher the elasticity ◦ if there is alternative good that the consumer would just as happily consume, they will "jump ship" and use it ◦ Ex. if 10 stands are next to each other selling same good, and one decides to raise price on the good, they'll look for alternative • Percentage of income used on buying the good: The higher the % of income needed to buy the product - the higher the elasticity ◦ Thinking more about, may not want to buy because using higher amount of income • Short run and long run: The longer since price change the higher the elasticity (time to find substitutes) ◦ consumer has time to find substitutes in the long run, in the short run they can't make many changes, • Necessity vs. Luxury: The more necessary the more inelastic ◦ The more that you need good, the more you want to pay for it ◦ HC sector: much of what we consume is important to us • Brand loyalty: Loyalty to a brand makes the good less elastic ◦ pay for special brands even if they are more expensive • Third party player: makes it more inelastic (?) ◦ if you're not paying for good itself, you're more likely to consume
Episode based example
• The Netherlands have EBP on diabetes care
How is the payment system right now in DK?
• The regions pay hospitals: ◦ Partly block budget ◦ Partly proximity ‣ The hospital doctors is payed by salary • The regions pay GP's ◦ Partly fee for service ◦ Partly capitation ‣ The GP's are private entrepreneurs
Consumer Moral Hazard
• Two types of consumer moral hazard 1.) Behavior while "healthy" (ex. ante MH); you dont protect your health as much, may engage in more risky behavior 2.) Behavior while ill: no efficient price signals to consumers (ex post MH); more likely to over consume HC services • Overconsumption due to moral hazard causes inefficiency > upward pressure on premiums
VBHC in a Danish Context
• Value for Patients - all actors must be assessed on their ability to contribute to well being the citizens ◦ Patient, Drs, home nurse, ... municipalities, hospitals, GPs - everyone united ◦ Individualize treatment to patient • We must include patients and relatives, focus on what creates value for the patient and reduce waste by gaining a bigger insight on costs ◦ Patient centered focus, they are active part in treatment • The departments must lead quality development making use of own data in solving eventual challenges ◦ Data driven focus • Less focus on activity creates better possibilities for management and a multiprofessional approach ◦ Hospitals should decide locally how to treat and meet patient
Consumer moral hazard
◦ Moral hazard ex ante - Behaviour while "healthy" - increase in risk behaviors? ◦ Moral hazard ex post - Behaviour while ill: no efficient price signals to consumers if it is for free ◦ Overconsumption due to Moral Hazard causes. more likely to consumer more health services inefficiency > upward pressure on premiums or tax
The Money Flow
◦ THEN: hospitals have incentive to have patient come in tuesday and wednesday because get more money (based on activity ) BUT NOW collect treatments on same day, better for patient and cheaper for hospital ◦ Give tasks to GP patients, more patients sent out to GPs hospitals would benefit from that ◦ Hospitals don't benefit anymore from increasing activity, instead keep patients away from hospitals, would rather treat them closer to their home
