1. Types of health care systems Entrepreneurial/libertarian – for profit, individuals choose what they want in free market Welfare oriented – Gov. mandates health insurance but needn’t provide services itself Comprehensive - Gov. provides health care for all, funded via taxes; may compete w/private system Socialistic – Gov. sole provider Some intermediates – e.g. free market w/ safety net for poor What countries have each type?

2. Competing goals in health systems: high quality, low cost, fair distribution Should “basic” health care be a right, to extent a country can afford it? What would Bentham, Kant, Rawls say? Your opinion? How much should we spend?

3. in USA From 1990 to 2005 median US household income rose  5%, while medical costs nearly doubled

4. in USA

5. A general trend in wealthy countries, perhaps more so in the US Why might growth rate and fraction of GDP be higher in the US?

6. Is high growth rate and amt. spent on health as fraction of GDP a problem? Crowds out other spending Causes financial hardship –  60% of personal bankruptcies in US due to medical bills (Am J Med 142, 721 (2009)) Do consumers make free, informed choices of how much to spend on health care? How might their decisions be distorted?

7. Factors distorting markets in health care Knowledge asymmetry - providers know more than consum. can be a problem if they have different interests Conflicts of interest (“agent” problem) – physicians, hospitals, insurers, pts. don’t have same interests (e.g. why do physicians charge uninsured  2-5x more than insured patients) Adverse selection (“cherry picking”) - insurers try to select healthier pts., don’t cover pre-existing conditions Moral Hazard – insureds over-consume because someone else pays

8. Consumers often not in position to make free decision e.g. shooting victims in Arizona pt. w/ chest pain advised to have emergency cath. or bypass pt. w/ breast lump These problems are not unique to health care – how are they dealt with in other markets? Knowledge asymmetry – educate consumers Conflicts of interest – publicize them Adverse selection – make it illegal, subsidize high risk pts. Moral hazard – insurance adjustors Weak consumer – get stronger advocate (cons. prot. ag.)

9. Arnold S. Relman, MD, long-time editor-in-chief of NEJM (1992): "In short, our health-care system, formerly a social service that was the responsibility of dedicated professionals and not-for- profit facilities, has become a vast, profit-oriented industry. [Were the good old days really that good?] The revenue of this industry constitutes the country's health-care costs. As in any other industry, providers constantly strive to increase their profitable sales, but unlike other industries, consumers exercise little control over their consumption of products and services. It should not be surprising that such a system is afflicted not only with relentless inflation but also with neglect of the needs of the uninsured and with failure to promote the use of valuable but unprofitable health services.“ Why are health care costs increasing?

10. What is main cause of increasing costs, acc. to CBO? New technology (i.e. stuff you may work on as biomed. engineers)

11. Does incr. spending -> health gains? Yes, by some measures death rate from cor. dis. has declined  30% in 15 years acc. to AHA dialysis pts. die without it how much disability is relieved by surg., at what cost; how much could be elim. with weight loss?

12. Does increased spending -> health gains? No, by other measures compare health outcomes in countries that spend different amounts on health Infant mortality (deaths in 1 st yearUSUKJapan per 1000 live births)753 % of GDP spent on health (2005)1588

13. Life expectancy Japan vs US Average =? quality measure Variance =? fairness measure These comparisons are affected by cultural/environ- mental differences, e.g. diet, but is this reason to discount the results? 8 % of GDP spent on health 15 % of GDP spent on health

14. While it is unambiguously preferable to have better health or a higher level of responsiveness [to people’s needs], it is not always better to spend more on health because at high levels of expenditure there may be little additional health gain from more resources.WHO report on Health Systems 2000 http://www.who.int/whr/2000/en/whr00_en.pdf More difficult question is whether we get adequate value for extra money spent on health How can we answer “cost-effectiveness” questions? Funding for cost-effectiveness studies is part of health care reform act of 2010

15. What is a “quality-adjusted life year” saved? Is the quality adjustment problemmatic? Does this matter if diff. are large? Richards-Kortum, ch. 5 Examples of cost-effectiveness estimates

16. How might providers/consumers be incentivized to use cost-effectiveness information? Government pays (Medicare, Medicaid) only for most cost-eff. therapy; private insurers might piggy-back on gov. recommendations to limit coverage Government pays cost of most cost-eff. therapy; if other therapy is chosen, extra cost borne by others Patient co-pay higher for not-most-cost.-eff. therapy See perspective by Orszag, NEJM 357:19 (2007)

17. Is this wishful thinking? This will be our next topic… Often new technologies are touted to save money ( but freq. for a particular party, e.g. insurers, not necessarily for society-at-large) In any case, be skeptical … CBO report: “Can New Technology Reduce Spending? … examples of new treatments for which long-term savings have been clearly demonstrated are few…Future advances—in molecular biology and genetics, in particular—may one day offer the possibility of savings if they make curative therapies available. Continued advances in understanding the genetic origins of disease offer the credible possibility that future providers will accurately predict the health risks faced by individual patients and design therapies tailored specifically to them.”

18. Main points Health care spending is rising dramatically This causes ethical, legal, social problems – e.g. bankruptcy from inability to pay medical bills unequal distribution of benefits Main cause of increased cost is new technology Evaluating if new technology is worthwhile (?cost- effective) is major problem of our time

19. Homework: read CBO report on Technology and Health Care Spending read/watch one other item on Blackboard for class 2 share in class something you learned or write a short paragraph (bullets ok) describing something you found interesting, disagreed with, or were skeptical of Think about: Who should evaluate value of new technologies – government, insurers, academics, “the market”? Should their introduction be regulated? May they be of different value to different parties? Who speaks for “society’s” interest?