1 Copyright © 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

2 Copyright © 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.

3 Copyright © 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.

4 Copyright © 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.

5 Copyright © 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

6 Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc. Principles of Economics Supply and Demand Efficiency and Effectiveness Macroeconomics Measures of Economic Growth Economic Analysis Tools

7 Copyright © 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

8 Copyright © 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.

9 Copyright © 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

10 Copyright © 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)

11 Copyright © 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)

12 Copyright © 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 Uninsured The Poor Access to Care Rationing Health Care

13 Copyright © 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)

14 Copyright © 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

15 Copyright © 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

16 Copyright © 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

17 Copyright © 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.

18 Copyright © 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 Phase Second Phase Third Phase Fourth Phase Challenges for the Twenty-First Century

19 Copyright © 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

20 Copyright © 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

21 Copyright © 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

22 Copyright © 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

23 Copyright © 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

24 Copyright © 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.

25 Copyright © 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

26 Copyright © 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 Care Technology and Intensity Chronic Illness

27 Copyright © 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

28 Copyright © 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

29 Copyright © 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

30 Copyright © 2012 by Mosby, an imprint of Elsevier Inc. Copyright © 2008 by Mosby, Inc., an affiliate of Elsevier Inc. Financing Health Care Public Support Public Health Other Public Support Private Support

31 Copyright © 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

32 Copyright © 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.

33 Copyright © 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)

34 Copyright © 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

35 Copyright © 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 Organizations Paying Health Care Practitioners

36 Copyright © 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

37 Copyright © 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