1、Health care costs are risingHealth care costs have increased faster than inflation for decades 1960:the typical American spent 1/20 of her income on medical care2010:1 in every 6 dollars of the American economy is spent on medical careThis amounts to a total of$2.6 trillion and$8,402 per person Heal
2、th care expenditures over timeWhat are health care costs?When we speak of“health care costs,”we really mean total health expenditures Equation for medical expenditures E:E=P Q E is expenditures on medical careP is the price of medical care Q is the quantity of medical care E=P x Q Hypotheses to expl
3、ain rising expenditures:Prices have increasedQuantity demanded has increasedTechnological innovations and technological overuseRest of this chapter explores each one of these hypothesesQuantity may be increasingAn aging populationpeople demand more health care as they ageA richer populationrising in
4、comes lead to more health care consumption More insurance coverageMore insurance reduces out-of-pocket prices to patients of obtaining medical careIncreasing quality of medical careeach dollar spent on health care generates a higher marginal health benefit,so demand for health care increasesAre risi
5、ng costs a bad thing?If rising costs are due to rising demandrising health care costs is not necessarily a bad thingPeople are not necessarily worse offIf rising costs are due to rising pricesRising costs does harm consumers Health is getting more expensive to produce,so people will either have to c
6、ut back on health care or spend more money to stay healthy Prices may be rising,becauseIncreased resource costsLess competitive markets Hospital mergers may have made the market more monopolisticExpensive new technology if modern medical care routinely incorporates new,expensive technologies like MR
7、I machines,the price of treating many ailments will riseMedical inflationA medical care consumer price index(CPI)measures changes in the price level for medical goods and servicesMedical inflation:a rise in the price level for medical goods and servicesA medical care CPI can tell us how much more it
8、 costs this year to buy the same things we bought last year Medical care CPIIn the last thirty years,the U.S.medical care CPI has remained consistently higher than overall inflation Calculating the medical care CPICreate a bundle of goods and servicesBundle should approximate typical consumption of
9、goods and services demanded Compare the total of cost of this bundle this year to the total cost last yearCalculating the medical care CPISuppose for simplicity that there are only two goods in the bundle,A and B.(q0A,q0B)quantity of goods A and B in the bundle(p0A,p0B)yesterdays prices of A and B(p
10、1A,p1B)todays new prices for A and B Laspeyres index ICPI:Interpreting the ICPIIf the Laspeyres price index rises by 5%,then consumers are 5%worse off the things they want to consume are 5%more expensive Potential Problems with the ICPITechnological changeOriginal bundle no longer reflects actual pu
11、rchasesEx:blood transfusions are now much safer than they were 50 years ago due to improved screening techniquesEx:polio vaccines have replaced treatments like the iron lungNew technologies in the CPIConsider the cure for Hodgkins Lymphoma:Before 1950,no cure available Price:infinite Quantity:0In 20
12、13,cure available;price is finite and quantity positiveSo the price of Hodgkins cure has fallen dramatically Technology overuseAnother hypothesis for explaining rising health care cost is technology overuseLots of medical innovation in recent decadesCan the introduction of more and more expensive te
13、chnologies explain rising health care costs?If so,are these technologies being used efficiently?Or is there evidence of technology overuse?The Dartmouth AtlasThe Dartmouth Atlas tracks Medicare spending across the United States The project finds:Patients with the same diagnoses can receive dramatica
14、lly different care depending on where they liveIn general,no correlation between more expensive treatment and health outcomesVariations in medical spendingMedicare expenditures on patients in their last two years of life averaged$46,412 nationwideBut tremendous regional variationMedicare spent on av
15、erage$59,379 per patient in New Jersey,almost double what it spent in North DakotaAverage bill in Miami,Florida:$83,504 Average bill in La Crosse,Wisconsin:$36,949 Variation in spending even within the same citySpending and health outcomesDespite these variations in health expenditures,health outcom
16、es do not appear to differ between high expenditure and low expenditure regions:Similar self-reported health status and mortality rates between high-expenditure regions and low-expenditure onesIs this evidence of wasteful medical spending?Maybe:we consider the case of Miami&La Crosse next Ex:La Cros
17、se vs.MiamiAverage Medicare expenditures in the last two years of lifeMiami,Florida:$83,504La Crosse,Wisconsin:$36,949Despite spending less than half as much,enrollees in La Crosse did not seem to be less healthy than Miami enrollees Ex:La Crosse vs.MiamiEx:La Crosse vs.MiamiHealth Production Functi
18、on(HPF)plots relationship between expenditures and maximal level of obtainable healthHPF increases with health expendituresHPF has diminishing returns to health care spendingWhether Miamis higher expenditures reflects wasteful spending depends on whether Miami and La Crosse share the same HPFHPFs of
19、 Miami and La CrosseFigure A hypothesis:Miami and La Crosse lie on the same HPF,then Miami could be achieving the same level of health for much lower expendituresFigure B hypothesis:Miami and La Crosse lie on different HPFsThey may both be investing in health optimally given local characteristics an
20、d constraintsIf so,variation in spending does not necessarily represent wasteful spending or technology overuseHPFs of Miami and La CrosseTheory#1:Different input costs Different locations have different costs of livingoBut adjusting for local prices fails to significantly reduce the geographic vari
21、ation in per patient Medicare expendituresoThis hypothesis does not explain why variations in spending persist at the more local level Why might Miami and La Crosse have different HPFs?Why might Miami and La Crosse have different HPFs?Theory#2:Different hospital amenities Differences in the quality
22、of care that explain variations in spending Higher-spending hospitals may be devoting more resources on the satisfaction of patients,even if those resources do not contribute directly to health But patients in high-spending regions do not report higher levels of inpatient satisfactionTheory#3:Differ
23、ent medical malpracticeenvironments Hospitals in regions with a higher rate of medical malpractice suits practice more defensive medicine Fails to explain variations in spending within states that share the same malpractice codesWhy might Miami and La Crosse have different HPFs?Why might Miami and L
24、a Crosse have different HPFs?Theory#4:Differing levels of severity of illness Spending variation reflects differing levels of illness severity in different regionsPerhaps the diabetics in La Crosse are healthier than diabetics in Miami If lower medical expenditures in La Crosse result from healthier
25、 patients living there,the variation in spending would be warranted Dartmouth Atlas researchers perspectiveThe researchers argue that these theories are insufficient for explaining all of the variation in Medicare expenditures Some evidence does suggest that different regions have different local tr
26、aits that cause them to lie on different HPFsbut the researchers contend that those local differences do not account for all the variation in expenditures Dartmouth Atlas researchers perspectiveIf high expenditure regions such as Miami are indeed spending at suboptimal points,what causes them to do
27、so?Supply-sensitive care and moral hazard Supply-sensitive care refers to health services whose use depends greatly on the supply or availability of that service Example:a doctors reliance on MRI technology may depend on how accessible an MRI machine is to him Supply-sensitive care can also include
28、hospitalizations and stays in a intensive care unit Hypothesis:doctors with greater access to resources will tend to overprescribe careSupply-sensitive careIf demand for care is sensitive to supply,then we would expect hospitals with more resources to have larger expendituresDartmouth Atlas shows ev
29、idence of a positive correlation between#of hospital beds and#of hospital dischargesSuggestive evidence that the variation is at least in part due to technology overuseConclusionDespite the evidence of overuse,returns of medical technology have been highOne study estimates that medical innovations between 1970-2000 in the US were worth$3.2 trillion per yearOverall value of medical technology high but there are also costly and only slightly effective drugs on the marketDifferentiating between good and bad technologies is the goal of Health Technology Assessment
