1 Economics of healthcare and its impact on health and human services in the Seacoast May 2, 2012 “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.” Dennis Delay Economist, NHCPPS

2 2 Although we focus on energy, health care growth absorbs more of your income than changes in oil prices. Source: Center for Medicare and Medicaid Services (CMS), US Dept of Energy

3 3 More expensive And growing faster relative to our economic competitors

4 High Quality, High Cost

5 5 Providers: Hospitals and Physicians are the primary source of growth NH Hospital spending rose rapidly post 1998, physicians after 2003 Source: Center for Medicare and Medicaid Services (CMS), and NHCPPS estimates

6 Economists study markets: Health Care Markets include: Professional services market (nursing, physicians) Institutional services market (hospitals, nursing homes, ambulatory care) Health care financing (how do we pay for it?) Other inputs (pharmacy, technology)

7 What is required for a perfect market? Lots of buyers and sellers! No barriers to entry, or exit Perfect information (everybody knows cost and quality) No participant with market power to set prices

8 Market Actions - Example: Cost-Shifting The allocation of unpaid costs of care delivered to one patient population through above-cost revenue collected from other patient populations. For hospitals, nursing facilities and physicians, the historical cause of cost shifting has been below-cost reimbursement rates paid by public programs and uncompensated care losses due to charity care and bad debt.

9 Break Even

10 The Costs of NH’s Health Care System: Hospital Prices, Market Structure, and Cost-Shifting (NHCPPS, March 2012)

11 Why does cost shifting confuse economists? Cost shifting occurs when negotiated private prices are raised in reaction to lower administered prices (by the government). “Some economists distinguish between cost shifting and price discrimination. Price discrimination is defined as different prices charged to different payers for similar services. Cost shifting is defined more narrowly as a dynamic response by hospitals to a reduction in Medicare payments, in the form of a fully or partially compensating increase in prices charged to private insurers.” James Robinson, Health Affairs, July 2011

12 Cost shifting really means something else: For cost shifting behavior to make economic sense, a hospital must possess some monopoly power that it has not already exploited. Price discrimination seen in industries with high capital costs, and where consumers are unable to resell the service. “Shift” depends on the magnitude of the price elasticity of demand. Source: REXFORD E. SANTERRE, Health Economics, 2009

13 Health Care is NOT A Traditional Market System Consumers have limited, if any, access to information on price or quality. There are institutional monopolies. The seller determines what the consumer will get; supply drives demand. Important health care services are often obtained at a time of personal crisis. Government regulation and programs alter provider behavior.

14 Hopeful Signs:

15 But here come the baby boomers ….

16 Goals for the Health Care System Low Cost (for a given level of quality) High Quality –Constant health improvement of population –Use of best practices in treatment of conditions (where they exist) –Satisfaction with healthcare system Access (and equity) –Health resources are distributed in a way consistent with our expressed demands (income, age, gender, etc..)

17 Final Thought Piece on Health Care Costs A study by Boyle et al. (1983) showed that it cost $2,900 per life-year gained and $3,200 per quality- adjusted life-year gained to use neonatal intensive care to increase the survival rates of low-birth weight infants weighing from 1,000 to 1,499 grams. For newborns weighing between 500 and 999 grams, the figures were $9,300 and $22,400, respectively. The study results indicated that neonatal intensive care has a higher benefit/cost for newborns weighing between 1,000 and 1,499 grams than for lower birth weight children.

18 Want to learn more? Online: nhpolicy.org Facebook: facebook.com/nhpolicy Our blog: policyblognh.org (603) “…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.” Board of Directors Sheila T. Francoeur, Chair David Alukonis Michael Buckley William H. Dunlap Eric Herr Richard Ober James Putnam Stephen J. Reno Stuart V. Smith, Jr. Donna Sytek Brian F. Walsh Martin L. Gross, Chair Emeritus John D. Crosier, Sr., Todd I. Selig Kimon S. Zachos Directors Emeritus