Chapter 2 An Overview of the US Healthcare System Copyright 2015 Health Administration Press1

After mastering this material, students will be able to  look critically at the healthcare system,  identify major trends,  find information about healthcare systems – in the United States and – in the rest of the developed world, and  use marginal analysis. 2Copyright 2015 Health Administration Press

THINKING ABOUT HEALTHCARE Inputs and Outputs Copyright 2015 Health Administration Press3

Key Issues  Healthcare products are both – inputs into health, and – outputs of the healthcare sector.  Healthcare products vary widely – in health effects, and – in cost. Copyright 2015 Health Administration Press4

Key Issues  Marginal analysis helps managers focus. – Make more of this output or less? – Use more of this input or less?  Evidence that the US healthcare sector is not efficient: – Outcomes are mediocre at best. – Costs are extremely high. Copyright 2015 Health Administration Press5

INPUTS AND OUTPUTS Copyright 2015 Health Administration Press6

Inputs and Outputs  Healthcare products are both – outputs of producers, and – inputs into the production of health.  Examples of inputs into health production – that are outputs of producers, and – that are not.  Why does recognizing this matter? Copyright 2015 Health Administration Press7

Heart Failure (Assume these have the same outcomes.)  Option 1: Enhanced self-care – Classes and discussions – Supervised exercise  Option 2: Enhanced nursing care – Outreach calls – Individual teaching  Option 3: Enhanced primary care – More visits – Tighter controls on clinical status Copyright 2015 Health Administration Press8

Heart Failure Example  Option 1: Enhanced self-care  Option 2: Enhanced nursing care  Option 3: Enhanced primary care  Which option – would you prefer? – would produce the best outcomes? – would cost the least? The most? – would be profitable for a US healthcare firm? Copyright 2015 Health Administration Press9

THE US SYSTEM IS INEFFICIENT Copyright 2015 Health Administration Press10

What’s the problem? Life expectancy at birth has risen steadily in the United States. Copyright 2015 Health Administration Press11

The rub is that health has improved more elsewhere at much lower cost. Copyright 2015 Health Administration Press12

US spending per person is much higher. Copyright 2015 Health Administration Press13

Using marginal analysis: What does this tell you? Life Expectancy at Birth Change Canada France Germany Japan US Copyright 2015 Health Administration Press14

Using marginal analysis: What does this tell you? Per Person Spending Change Canada$2,519$4,522$2,003 France$2,542$3,423$1,574 Germany$2,677$4,495$1,817 Japan$1,969$3,213$1,244 US$4,791$8,508$3,717 Copyright 2015 Health Administration Press 15

Using marginal analysis: What does this tell you? Marginal Analysis Δ Spending Δ Years Δ S/ Δ Y Canada$2,0032.0$1,002 France$1,5743.0$525 Germany$1,8172.6$629 Japan$1,2441.5$829 US$3,7172.0$1,859 Copyright 2015 Health Administration Press16

MAJOR TRENDS Copyright 2015 Health Administration Press17

Trends That Continue to Reshape Healthcare 1.Rapid technical change 2.Shrinking share of direct payments 3.Rapid growth of the healthcare sector 4.Rapid growth of the outpatient sector 5.Slower growth of the inpatient sector 6.Increase of uninsured Copyright 2015 Health Administration Press18

The Growth of Spending Copyright 2015 Health Administration Press 19

Why is spending an issue?  What’s wrong with spending more on healthcare? – Discuss this question with two or three colleagues. – Report back to the class. Copyright 2015 Health Administration Press20

Medicare spending varies a lot, with little evidence that care is better. Copyright 2015 Health Administration Press21

Shrinking Share of Direct Payments Copyright 2015 Health Administration Press22

Even for hospitals, outpatient care has become more important. Copyright 2015 Health Administration Press Adjusted census adds outpatient visits (weighted by revenue). 23

Contraction of Inpatient Care Copyright 2015 Health Administration Press24

What the Future Holds  Can you think of any care that is apt to shift from inpatient to outpatient?  Can you think of any care that is apt to shift from outpatient to inpatient?  What does this imply? Copyright 2015 Health Administration Press25

TECHNICAL CHANGE Copyright 2015 Health Administration Press26

Rapid Technical Change  Changes in diagnosis  Changes in prevention  Changes in therapy – Turning diseases into chronic conditions – Lengthening survival after diagnosis – Improving quality of life after diagnosis Copyright 2015 Health Administration Press 27

What is technology?  Tests and procedures – Angioplasty – Joint replacements  Drugs – Afinitor for kidney cancer – HPV vaccine  Medical devices  Support systems Copyright 2015 Health Administration Press28

What is technology?  Tests and procedures  Drugs  Medical devices – Computed tomography scanners – Implantable defibrillators  Support systems – Electronic medical record – Telemedicine Copyright 2015 Health Administration Press29

The Impact of Technology  On health – Change in survival – Change in well-being  On costs – Change in cost per procedure – Change in number of procedures Copyright 2015 Health Administration Press30

Which do you choose? A.Standard hip surgery costs $5,000. – Mobility index = 100 – Quality index = 100 B.Robotic hip surgery costs $10,000. – Mobility index = 100 – Quality index = 100 Copyright 2015 Health Administration Press31

Which do you choose? A.Standard hip surgery costs $5,000. – Mobility index = 100 – Quality index = 100 B.Robotic hip surgery costs $4,000. – Mobility index = 120 – Quality index = 120 Copyright 2015 Health Administration Press32

Are you more likely to have surgery if robotic is an option? A.Standard hip surgery costs $5,000. – Mobility index = 100 – Quality index = 100 B.Robotic hip surgery costs $4,000. – Mobility index = 120 – Quality index = 120 Copyright 2015 Health Administration Press33

Sensible technology always saves money per procedure. Copyright 2015 Health Administration Press34

Some uses of technology are of marginal benefit.  Marginal impact on health is unknown – Proton beam therapy for prostate cancer – Most drugs  Marginal impact on health is unknown for some uses – Vagus nerve stimulation for depression – Chelation therapy for autism Copyright 2015 Health Administration Press35

Some uses of technology are too expensive.  A cheaper approach works just as well. – Branded versus generic drugs – Clinical evaluation versus imaging for deep vein thrombosis  Benefits are small relative to costs. – Plavix versus aspirin for stroke prevention – Antifungals for toenail discoloration Copyright 2015 Health Administration Press36

Assessing the Cooperative Health Clinic  For chronically ill, older patients  Monthly group meeting – Patients – Primary care physician – Nurse – Other providers as necessary Copyright 2015 Health Administration Press37

Structure of Monthly Group Meeting  15 minutes of warm-up  30 minutes of education  20 minutes of – doctor or nursing assessment – socialization  15 minutes of question and answer  10 minutes of planning Copyright 2015 Health Administration Press38

The cooperative health clinic is associated with  higher patient satisfaction,  lower costs ($42 per member per month),  lower hospital and emergency department use,  unchanged function and health status, and  lower revenue in both – the clinic, and – the hospital.  Should your health system adopt it? Copyright 2015 Health Administration Press39

OVERVIEW OF THE AFFORDABLE CARE ACT (ACA) Copyright 2015 Health Administration Press40

Key Features of the ACA  Expanding insurance coverage  Reducing Medicare spending  Testing payment reforms Copyright 2015 Health Administration Press41

Expanding Insurance Coverage  Changes in private insurance regulations  Subsidies for low-income individuals  Funds for Medicaid expansion Copyright 2015 Health Administration Press42

The share of Americans with insurance has gone up since passage of the ACA. Copyright 2015 Health Administration Press43

But the biggest changes may still be to come.  Rise of insurance – Full risk for insurer – Paid for by individuals – Much more sensitive to premium differences – Much more sensitive to price differences – Longer-term relationships Copyright 2015 Health Administration Press44

Why are US costs so high?  Negotiated prices are high and variable.  Differences in negotiated prices are trade secrets.  Consumers do not respond to price differences. Copyright 2015 Health Administration Press45

Private Head CT Scan Price Copyright 2015 Health Administration Press46

Private MD Price: Normal Delivery Copyright 2015 Health Administration Press47

Private Appendectomy Price: MD plus Hospital Copyright 2015 Health Administration Press48

CONCLUSIONS Copyright 2015 Health Administration Press49

Conclusions  The US healthcare system – is the world’s most expensive system, and – delivers mediocre outcomes.  Life expectancy in the United States – has improved (78.7 years at birth), – is higher than in Mexico (74.2 years at birth), and – is lower than in Canada (81.0 years). Copyright 2015 Health Administration Press50

US healthcare costs  are higher than in other rich countries,  mainly because of high private prices, and  are increasing less rapidly than in the past.  Why? – ACA? – Great Recession? – Something else? Copyright 2015 Health Administration Press51

Conclusions  The healthcare system is changing. – Less inpatient care – More outpatient care  The full effects of health reform are TBD. Copyright 2015 Health Administration Press52