Market Forces in Health Care
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Transcript of Market Forces in Health Care
Market Forces in Market Forces in Health CareHealth Care
Eric D. Kupferberg, PhDEric D. Kupferberg, PhD
23 September 201023 September 2010
Two Possible FramesTwo Possible Frames
What force or role does the market play in What force or role does the market play in shaping health care in America?shaping health care in America?
What are the forces operating in the What are the forces operating in the health care market?health care market?
Defining Market ForcesDefining Market Forces
Typically supply and demandTypically supply and demand
Defined in relation to each otherDefined in relation to each other
Price as a mediatorPrice as a mediator
Ideal Markets & Perfect Ideal Markets & Perfect CompetitionCompetition
Assumes large number of small sellers so that Assumes large number of small sellers so that no one seller can greatly determine the priceno one seller can greatly determine the price
Assumes that both buyers and sellers are well-Assumes that both buyers and sellers are well-informed and aware of any changes in priceinformed and aware of any changes in price
Assumes that the goods that are bought and Assumes that the goods that are bought and sold are nearly homogenous so that buyers sold are nearly homogenous so that buyers make decisions primarily on pricemake decisions primarily on price
No “Ideal” in Health Care No “Ideal” in Health Care MarketsMarkets
Limited number of insurersLimited number of insurers Many small cities and rural areas have Many small cities and rural areas have
few hospitalsfew hospitals Limited suppliers of medical devices, Limited suppliers of medical devices,
technologies, and pharmaceutical pricestechnologies, and pharmaceutical prices Consumers rarely Consumers rarely seesee the entire cost; the entire cost;
only pay 10-20$ per visitonly pay 10-20$ per visit
No “Ideal” in Health Care No “Ideal” in Health Care MarketsMarkets
Governments purchase large portion Governments purchase large portion and control costsand control costs
Limited health literacyLimited health literacy Patients rarely comparison shopPatients rarely comparison shop Health care is not a homogeneous goodHealth care is not a homogeneous good
WhoWho is Demanding? is Demanding?Who’s the Consumer?Who’s the Consumer?
Patients and potential patientsPatients and potential patients
EmployersEmployers
Physicians & specialistsPhysicians & specialists
Hospitals, clinics, ACS facilitiesHospitals, clinics, ACS facilities
Medicare and medicaid branchesMedicare and medicaid branches
Veterans administrationVeterans administration
Isolated Consumers are RareIsolated Consumers are Rare
Even the most common transaction in health care Even the most common transaction in health care involves at least two consumers and two involves at least two consumers and two supplierssuppliers
Example: standard office visit is the product of a Example: standard office visit is the product of a patient purchasing services, a physician patient purchasing services, a physician purchasing facilities and equipment, an employer purchasing facilities and equipment, an employer purchasing a health plan, etc.purchasing a health plan, etc.
Consumer demands often mediated by a 3Consumer demands often mediated by a 3rdrd party party ((e.g.e.g., patient needs negotiated by physician), patient needs negotiated by physician)
No Monolithic Heath Care No Monolithic Heath Care MarketMarket
All markets are localAll markets are local
Heterogeneous mix of consumers and suppliersHeterogeneous mix of consumers and suppliers
Market niches matter more than position in Market niches matter more than position in general health care marketplacegeneral health care marketplace
Consumers are non-uniform with regards to race, Consumers are non-uniform with regards to race, ethnicity, gender, geography, education and ethnicity, gender, geography, education and economic statuseconomic status
Fluctuating DemandFluctuating DemandThe Role of GovernmentsThe Role of Governments
Expansion of Medicare benefits increases demandExpansion of Medicare benefits increases demand
Broadening of eligibility requirements increases Broadening of eligibility requirements increases demanddemand
Patient “Bill of Rights” legislation increases demandPatient “Bill of Rights” legislation increases demand
State cuts in Medicaid reduces demand for most State cuts in Medicaid reduces demand for most health care products & serviceshealth care products & services
Medicaid cuts increase demand for emergency Medicaid cuts increase demand for emergency health carehealth care
Fluctuating DemandFluctuating DemandThe Influence of CostsThe Influence of Costs
Higher health care and out of pocket Higher health care and out of pocket costs decreases demandcosts decreases demand
Increasing numbers of uninsured Increasing numbers of uninsured decreases demand; numbers of decreases demand; numbers of uninsured will top 50 million by 2006uninsured will top 50 million by 2006
Economic growth increases demand; Economic growth increases demand; increased economic disparities worsens increased economic disparities worsens overall health status in the populationoverall health status in the population
Health care is a Health care is a normal goodnormal good, but its , but its price elasticity is smaller than other price elasticity is smaller than other goods (goods (e.g.e.g., food, gasoline, automobiles, , food, gasoline, automobiles, housing)housing)
Fluctuating Fluctuating DemandDemandThreats to HealthThreats to Health
Recent and emerging diseases Recent and emerging diseases can dramatically increase can dramatically increase demand: AIDS, antibiotic demand: AIDS, antibiotic resistant TB, new flu variants, resistant TB, new flu variants, bioterrorism, SARS, obesity, etc.bioterrorism, SARS, obesity, etc.
BUTBUT, the greater force is the , the greater force is the aging populationaging population
Aging PopulationAging PopulationDemographic RealitiesDemographic Realities
Baby boomers will turn 65 in 2010Baby boomers will turn 65 in 2010
Percentage of people over age 65 will increase Percentage of people over age 65 will increase from 12.8% in 1995 to 18.5% in 2025from 12.8% in 1995 to 18.5% in 2025
Older population has many more conditions Older population has many more conditions requiring health carerequiring health care
Older population maintains a greater Older population maintains a greater tastetaste for for health care products and services and devotes health care products and services and devotes greater attention to planning for the futuregreater attention to planning for the future
Co-varies with regional, ethnic, and economic Co-varies with regional, ethnic, and economic factors (factors (e.g.e.g., middle-class rural farmers in the , middle-class rural farmers in the mid-west tend to reply on hospitals and mid-west tend to reply on hospitals and physicians, while middle-class professional physicians, while middle-class professional elderly rely on nursing homes)elderly rely on nursing homes)
Aging PopulationAging PopulationChronic ConditionsChronic Conditions
Chronic conditions are Chronic conditions are thethe major cause of illness, major cause of illness, disability, and death in the U.S. Chronic disability, and death in the U.S. Chronic conditions cost $774 billion in 2000 (75% of all conditions cost $774 billion in 2000 (75% of all health care spending), and will rise to $1.07 health care spending), and will rise to $1.07 trillion in 2020 (80% of all health care costs)trillion in 2020 (80% of all health care costs)
Chronic conditions greatly contributed to the Chronic conditions greatly contributed to the doubling of expenditures on prescription drugs doubling of expenditures on prescription drugs from 1999 to 2004from 1999 to 2004
Chronic conditions require additional time to Chronic conditions require additional time to diagnose and coordinate among several diagnose and coordinate among several providersproviders
Adoption of care management processes (CMPs) Adoption of care management processes (CMPs) has been slow and has yielded mixed resultshas been slow and has yielded mixed results
Technological InnovationsTechnological InnovationsMultiplier and Magnifying Multiplier and Magnifying RepercussionsRepercussions
Many medical technologies do not simply Many medical technologies do not simply replace older technologies; they are replace older technologies; they are additiveadditive
New medical technologies increase demand New medical technologies increase demand for related or downstream technologiesfor related or downstream technologies
Technological imperatives: “because it’s Technological imperatives: “because it’s there” or “because we can” (there” or “because we can” (e.g.e.g., imaging , imaging services and some psychopharmaceuticals)services and some psychopharmaceuticals)
Health care exceptionalism: typically new Health care exceptionalism: typically new technologies reduce the cost of a good; not technologies reduce the cost of a good; not true for health caretrue for health care
Technological InnovationsTechnological InnovationsMedical DevicesMedical Devices
Minimally invasive surgical Minimally invasive surgical techniquestechniques
Novel sepsis treatmentsNovel sepsis treatments Implantable devicesImplantable devices Diabetes management toolsDiabetes management tools At-home diagnostic health kitsAt-home diagnostic health kits Pharmaceutically coated stents Pharmaceutically coated stents Tissue engineeringTissue engineering Transdermal patchesTransdermal patches Tissue engineeringTissue engineering XenotransplantationXenotransplantationSource: Gene O’Dell, “2003 AHA Environmental Assessment,” Source: Gene O’Dell, “2003 AHA Environmental Assessment,” TrusteeTrustee 56 (Oct. 2003): 24. 56 (Oct. 2003): 24.
Technological InnovationsTechnological InnovationsDiagnostic TechnologiesDiagnostic Technologies
New MRI, CAT, PET, and New MRI, CAT, PET, and ultrasound machines ultrasound machines create their own marketcreate their own market
Advances in diagnostic Advances in diagnostic technologies increases technologies increases demand for surgical demand for surgical servicesservices
Many prenatal screening Many prenatal screening tests on the horizontests on the horizon
Hospital Tech Adoptions: PriceHospital Tech Adoptions: Price
Technologies evaluated by profitabilityTechnologies evaluated by profitability Technologies acquired when expected Technologies acquired when expected
revenue stream exceeds expected cost revenue stream exceeds expected cost over the useful life of a productover the useful life of a product
Hospital manager must consider “loss Hospital manager must consider “loss leaders” which loose money but benefit leaders” which loose money but benefit the entire hospital by bringing visibility the entire hospital by bringing visibility to other parts of the hospitalto other parts of the hospital
Technology Competition ModelTechnology Competition Model
• Sales maximization theory; hospitals want to be the largest
• Conspicuous consumption theory; want to show that the hospital is the most technologically advanced
• Hospitals acquire technology that maximizes physician income
Utility MaximizationUtility Maximization
Hospital manager invests in Hospital manager invests in technology to enhance the quality or technology to enhance the quality or quantity of services providedquantity of services provided
Technology competes against other Technology competes against other services, for example nurses, for a services, for example nurses, for a share of the hospitals budget; share of the hospitals budget; technology is evaluated in this technology is evaluated in this contextcontext
Technological Technological InnovationsInnovationsA New Wave of PharmaceuticalsA New Wave of Pharmaceuticals
Promise of genomics and Promise of genomics and bioinformatics to replace bioinformatics to replace chemotherapy for treatment chemotherapy for treatment of some cancers, to reduce of some cancers, to reduce heart diseases, and combat heart diseases, and combat autoimmune disordersautoimmune disorders
New microarrays and New microarrays and genomic technologies seek to genomic technologies seek to target specific populationstarget specific populations
Source: G. Steven Burrill, “From Pipe Dream to Pipeline Dream: Personalised Medicine Takes Off,” EBR (Spring 2003).
Technological InnovationsTechnological InnovationsIncreasing Demand for Increasing Demand for PharmaceuticalsPharmaceuticals
Source: Congressional Budget Office, “Testimony on Projections of Medicare and Prescription Drug Spending,” (7 March 2002).
Fluctuating DemandFluctuating DemandAccess to InformationAccess to Information
Web-based sources abound (e.g., WebMD)Web-based sources abound (e.g., WebMD)
Health features in newspapers and magazinesHealth features in newspapers and magazines
Television and radio reportsTelevision and radio reports
Advocacy groups distribute informationAdvocacy groups distribute information
At-home diagnostic tests increase demandAt-home diagnostic tests increase demand
For physicians: professional meetings, For physicians: professional meetings,
journals, and industry periodicalsjournals, and industry periodicals
Percent of Consumers Percent of Consumers Searching For Healthcare Searching For Healthcare InformationInformation
While While PepsiPepsi spent spent $125 million$125 million advertising its soda in advertising its soda in
2000, the manufacturer of 2000, the manufacturer of VioxxVioxx spent spent $160 million$160 million. .
(2003, BCBSA).(2003, BCBSA).
Source: Blue Cross “Key Factors Driving Health Care Costs” 2003
Direct to Consumer Advertising
Nielson Reports- June 16, 2008 / FDA.gov 02
Advertising SpendingAdvertising Spending
2008 2008 RankRank
Top 10 Product Top 10 Product CategoriesCategories
Q1 2008 ($ Q1 2008 ($ mil)mil)
Q1 2007 ($ Q1 2007 ($ mil)mil)
% % changchang
ee
11AutomotiveAutomotive $2,695.80 $2,695.80 $2,940.60 $2,940.60 --
8.32%8.32%
22 PharmaceuticalPharmaceutical $1,311.70 $1,311.70 $1,310.00 $1,310.00 0.13%0.13%
Fluctuating DemandFluctuating DemandConsumer ExpectationsConsumer Expectations
Patients demand greater control and more Patients demand greater control and more choiceschoices
Short waiting periods, direct access to Short waiting periods, direct access to specialists, access specialists, access viavia email email
Medical considering “Report Card” listing Medical considering “Report Card” listing measures of patient satisfaction and quality measures of patient satisfaction and quality outcomes for specific conditionsoutcomes for specific conditions
Access to state of the art medical Access to state of the art medical technologiestechnologies
Fluctuating DemandFluctuating DemandConsumer Expectations & Cultural NormsConsumer Expectations & Cultural Norms
Standards of beauty influence demand for Standards of beauty influence demand for body augmentations and cosmetic body augmentations and cosmetic surgeriessurgeries
Cultural bias against melancholy and Cultural bias against melancholy and shyness increases demand for psychiatric shyness increases demand for psychiatric services and medicationsservices and medications
Growing cultural acceptance of psychiatric Growing cultural acceptance of psychiatric services and medicines increase demandservices and medicines increase demand
Fluctuating DemandFluctuating DemandCase Example: ObesityCase Example: Obesity
Formerly Public Health efforts targeted Formerly Public Health efforts targeted smoking. New focus highlights obesity as smoking. New focus highlights obesity as a leading cause of preventable illnessa leading cause of preventable illness
More than 50% of adult Americans are More than 50% of adult Americans are overweight, and obesity has increased by overweight, and obesity has increased by 60% from 1991 to 200360% from 1991 to 2003
Who is a Supplier?Who is a Supplier?
Physicians, nurses, PAs, NAs, medical Physicians, nurses, PAs, NAs, medical technicians, front office stafftechnicians, front office staff
Hospitals, ACS, out-patient clinics, VA Hospitals, ACS, out-patient clinics, VA institutions, psychiatric facilities, etc.institutions, psychiatric facilities, etc.
Medical colleges, nursing programs, medical Medical colleges, nursing programs, medical technician schoolstechnician schools
Pharmaceutical firmsPharmaceutical firms Producers of medical instruments and Producers of medical instruments and
technologiestechnologies
Vacancy Rates for Selected Hospital Personnel, December 2006
Source: 2007 AHA Survey of Hospital LeadersNote: 116,000 vacancies is a national estimate created by extrapolating the vacancy rate to all 5,000 community hospitals in 2005. ST: Speech Therapist, OT: Occupational Therapist, PT: Physical Therapist.
116,000 RN Vacancies*
Fluctuating SupplyFluctuating SupplyShortage of NursesShortage of Nurses
Nationwide shortage of nurses will increase Nationwide shortage of nurses will increase
from its current 6% level to 29% by 2020from its current 6% level to 29% by 2020
Demand for nurses will increase by 40% from Demand for nurses will increase by 40% from
2000 to 2020, compared to the 6% expected 2000 to 2020, compared to the 6% expected
growth in numbers of nursesgrowth in numbers of nurses
Increasing demand due to aging population Increasing demand due to aging population
and improved health educationand improved health education
Nursing shortage increases pressures on Nursing shortage increases pressures on
physicians and increases health care costsphysicians and increases health care costs
IT Technologists
Housekeeping/ Maintenance
Nursing Assistants
LPNs
Billing/Coders
Laboratory Technicians
Imaging Technicians
Pharmacists
Registered Nurses
Percent of Hospitals Reporting Recruitment More Difficult in 2006 vs. 2005
Source: 2007 AHA Survey of Hospital Leaders.
Therapists (Speech,Occupational and Physical)
Fluctuating SupplyFluctuating SupplyShortage of PhysiciansShortage of Physicians
Acute in primary care, where decreasing Acute in primary care, where decreasing salaries have lead and medical school cultures salaries have lead and medical school cultures have led to lower recruitmentshave led to lower recruitments
Shortage in some specialties (Shortage in some specialties (e.g.e.g., thoracic , thoracic surgery reporting near crises)surgery reporting near crises)
Shortages augmented by aging population Shortages augmented by aging population which requires procedures not dominant in which requires procedures not dominant in current populationcurrent population
Physician Workforce Physician Workforce StudyStudy
12 physician specialties in Massachusetts 12 physician specialties in Massachusetts are operating under severe labor market are operating under severe labor market conditionsconditions
The primary care specialties of internal The primary care specialties of internal medicine and family medicine are now medicine and family medicine are now considered to be in critically short supplyconsidered to be in critically short supply
The number of physician specialties found The number of physician specialties found to be in short supply has doubled to a total to be in short supply has doubled to a total of 12 in just three yearsof 12 in just three years
Physician recruitment and retention remain Physician recruitment and retention remain serious problems in Massachusetts, serious problems in Massachusetts, especially for community hospitalsespecially for community hospitals
Current Pool of Physicians is Current Pool of Physicians is Inadequate to Fill Vacant Inadequate to Fill Vacant PositionsPositions