FoC 2010 - Market Forces Lecture - edk 10-7-10 by huangyuarong


									Market Forces in Health

Eric D. Kupferberg, PhD
23 September 2010
Two Possible Frames
   What force or role does the market play in
    shaping health care in America?

   What are the forces operating in the health care
     Defining Market Forces
   Typically supply and demand

   Defined in relation to each other

   Price as a mediator
Defining Market Forces
Demand, Supply, and Price
Ideal Markets & Perfect

   Assumes large number of small sellers so that no
    one seller can greatly determine the price

   Assumes that both buyers and sellers are well-
    informed and aware of any changes in price

   Assumes that the goods that are bought and sold
    are nearly homogenous so that buyers make
    decisions primarily on price
    No “Ideal” in Health Care
   Limited number of insurers
   Many small cities and rural areas have few
   Limited suppliers of medical devices,
    technologies, and pharmaceutical prices
   Consumers rarely see the entire cost; only pay
    10-20$ per visit
No “Ideal” in Health Care Markets

   Governments purchase large portion and
    control costs
   Limited health literacy
   Patients rarely comparison shop
   Health care is not a homogeneous good
    Who is Demanding?
    Who’s the Consumer?

   Patients and potential patients
   Employers
   Physicians & specialists
   Hospitals, clinics, ACS facilities
   Medicare and medicaid branches
   Veterans administration
Isolated Consumers are Rare

   Even the most common transaction in health care
    involves at least two consumers and two suppliers

   Example: standard office visit is the product of a
    patient purchasing services, a physician purchasing
    facilities and equipment, an employer purchasing a
    health plan, etc.

   Consumer demands often mediated by a 3rd party
    (e.g., patient needs negotiated by physician)
No Monolithic Heath Care Market

   All markets are local

   Heterogeneous mix of consumers and suppliers

   Market niches matter more than position in general
    health care marketplace

   Consumers are non-uniform with regards to race,
    ethnicity, gender, geography, education and economic
    Fluctuating Demand
    The Role of Governments

   Expansion of Medicare benefits increases demand

   Broadening of eligibility requirements increases demand

   Patient “Bill of Rights” legislation increases demand

   State cuts in Medicaid reduces demand for most health
    care products & services

   Medicaid cuts increase demand for emergency health
Fluctuating Demand
The Role of Governments
Fluctuating Demand and
Increased Cost
    Fluctuating Demand
    The Influence of Costs

   Higher health care and out of pocket costs
    decreases demand

   Increasing numbers of uninsured decreases
    demand; numbers of uninsured will top 50
    million by 2006

    Economic growth increases demand;
    increased economic disparities worsens
    overall health status in the population

    Health care is a normal good, but its price
    elasticity is smaller than other goods (e.g.,
    food, gasoline, automobiles, housing)
      Fluctuating Demand
      Threats to Health

   Recent and emerging diseases can
    dramatically increase demand:
    AIDS, antibiotic resistant TB, new flu
    variants, bioterrorism, SARS, obesity,

   BUT, the greater force is the aging
We Are Living Longer
    Aging Population
    Demographic Realities

   Baby boomers will turn 65 in 2010
   Percentage of people over age 65 will increase from
    12.8% in 1995 to 18.5% in 2025
   Older population has many more conditions requiring
    health care
   Older population maintains a greater taste for health
    care products and services and devotes greater
    attention to planning for the future
   Co-varies with regional, ethnic, and economic factors
    (e.g., middle-class rural farmers in the mid-west tend
    to reply on hospitals and physicians, while middle-
    class professional elderly rely on nursing homes)
Percentage of Older Adults Growing
    Aging Population
    Chronic Conditions

   Chronic conditions are the major cause of illness,
    disability, and death in the U.S. Chronic conditions
    cost $774 billion in 2000 (75% of all health care
    spending), and will rise to $1.07 trillion in 2020 (80%
    of all health care costs)
   Chronic conditions greatly contributed to the doubling
    of expenditures on prescription drugs from 1999 to
   Chronic conditions require additional time to diagnose
    and coordinate among several providers
   Adoption of care management processes (CMPs) has
    been slow and has yielded mixed results
Chronic Conditions Rise With Aging Population
Chronic Conditions Rise With Aging Population
Senior Have More Chronic Conditions
    Technological Innovations
    Multiplier and Magnifying Repercussions

   Many medical technologies do not simply replace
    older technologies; they are additive
   New medical technologies increase demand for
    related or downstream technologies
   Technological imperatives: “because it’s there”
    or “because we can” (e.g., imaging services and
    some psychopharmaceuticals)
   Health care exceptionalism: typically new
    technologies reduce the cost of a good; not true
    for health care
  Technological Innovations
  Medical Devices

     Minimally invasive surgical techniques
     Novel sepsis treatments
     Implantable devices
     Diabetes management tools
     At-home diagnostic health kits
     Pharmaceutically coated stents
     Tissue engineering
     Transdermal patches
     Tissue engineering
     Xenotransplantation
Source: Gene O’Dell, “2003 AHA Environmental Assessment,” Trustee 56 (Oct. 2003): 24.
    Technological Innovations
    Diagnostic Technologies

   New MRI, CAT, PET, and
    ultrasound machines
    create their own market

   Advances in diagnostic
    technologies increases
    demand for surgical

   Many prenatal screening
    tests on the horizon
Hospital Tech Adoptions: Price

   Technologies evaluated by profitability
   Technologies acquired when expected
    revenue stream exceeds expected cost over
    the useful life of a product
   Hospital manager must consider “loss
    leaders” which loose money but benefit the
    entire hospital by bringing visibility to other
    parts of the hospital
Technology 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 Maximization

   Hospital manager invests in
    technology to enhance the quality or
    quantity of services provided

   Technology competes against other
    services, for example nurses, for a
    share of the hospitals budget;
    technology is evaluated in this context
 Technological Innovations
 A New Wave of Pharmaceuticals

   Promise of genomics and
    bioinformatics to replace
    chemotherapy for treatment of
    some cancers, to reduce heart
    diseases, and combat
    autoimmune disorders

   New microarrays and genomic
    technologies seek to target
    specific populations

Source: G. Steven Burrill, “From Pipe Dream to Pipeline Dream: Personalised Medicine Takes Off,” EBR (Spring 2003).
   Technological Innovations
   Increasing Demand for Pharmaceuticals

Source: Congressional Budget Office, “Testimony on Projections of Medicare and Prescription Drug Spending,” (7 March 2002).
Fluctuating Demand
Access to Information

   Web-based sources abound (e.g., WebMD)
   Health features in newspapers and magazines
   Television and radio reports
   Advocacy groups distribute information
   At-home diagnostic tests increase demand
   For physicians: professional meetings,
    journals, and industry periodicals
Percent of Consumers Searching
For Healthcare Information
Consumers’ Sources of Healthcare
All Education Levels Seek Online Information
                Direct to Consumer Advertising

        While Pepsi spent $125 million advertising its soda in 2000,
        the manufacturer of Vioxx spent $160 million. (2003, BCBSA).

Source: Blue Cross “Key Factors Driving Health Care Costs” 2003
               Advertising Spending

                     Top 10 Product           Q1 2008 ($   Q1 2007 ($
      2008                                                              chang
                     Categories                  mil)         mil)
      Rank                                                                e
                     Automotive                $2,695.80    $2,940.60
          1                                                             8.32%
          2          Pharmaceutical            $1,311.70    $1,310.00   0.13%

Nielson Reports- June 16, 2008 / 02
Firms Brand Medical Conditions
DTC Part of Larger Campaigns
The Pharma Giants Spend Most
Advertising Spending
DTC Advertising Works
Fluctuating Demand
Consumer Expectations

   Patients demand greater control and more choices
   Short waiting periods, direct access to specialists,
    access via email
   Medical considering “Report Card” listing
    measures of patient satisfaction and quality
    outcomes for specific conditions
   Access to state of the art medical technologies
Fluctuating Demand
Consumer Expectations & Cultural Norms

   Standards of beauty influence demand for
    body augmentations and cosmetic surgeries

   Cultural bias against melancholy and shyness
    increases demand for psychiatric services and

   Growing cultural acceptance of psychiatric
    services and medicines increase demand
      Fluctuating Demand
      Case Example: Obesity

   Formerly Public Health efforts targeted smoking.
    New focus highlights obesity as a leading cause
    of preventable illness
   More than 50% of adult Americans are
    overweight, and obesity has increased by 60%
    from 1991 to 2003
Defining Obesity
Living in the Land of the Lean ?
Living in the Land of the Lean ?
Blue States = Lean
Red States = Obese
U.S. Population is Very, Very Lazy
Huge Marketing Potential
Obesity Increase HC Utilization
Obesity is Cost-Driver
Who is a Supplier?

   Physicians, nurses, PAs, NAs, medical technicians, front
    office staff
   Hospitals, ACS, out-patient clinics, VA institutions,
    psychiatric facilities, etc.
   Medical colleges, nursing programs, medical technician
   Pharmaceutical firms
   Producers of medical instruments and technologies
Vacancy Rates for Selected Hospital Personnel,
               December 2006

                                                                                         116,000 RN

  Source: 2007 AHA Survey of Hospital Leaders
  Note: 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.
Fluctuating Supply
Shortage of Nurses

   Nationwide shortage of nurses will increase from its
    current 6% level to 29% by 2020
   Demand for nurses will increase by 40% from 2000
    to 2020, compared to the 6% expected growth in
    numbers of nurses
   Increasing demand due to aging population and
    improved health education
   Nursing shortage increases pressures on physicians
    and increases health care costs
Percent of Hospitals Reporting Recruitment More
            Difficult in 2006 vs. 2005

         Therapists (Speech,
   Occupational and Physical)
            Registered Nurses


         Laboratory Technicians

            Imaging Technicians


             Nursing Assistants

                IT Technologists


   Housekeeping/ Maintenance

   Source: 2007 AHA Survey of Hospital Leaders.
     Fluctuating Supply
     Shortage of Physicians

   Acute in primary care, where decreasing salaries have
    lead and medical school cultures have led to lower

   Shortage in some specialties (e.g., thoracic surgery
    reporting near crises)

   Shortages augmented by aging population which
    requires procedures not dominant in current population
Physician Workforce Study

   12 physician specialties in Massachusetts are
    operating under severe labor market conditions
   The primary care specialties of internal
    medicine and family medicine are now
    considered to be in critically short supply
   The number of physician specialties found to be
    in short supply has doubled to a total of 12 in
    just three years
   Physician recruitment and retention remain
    serious problems in Massachusetts, especially
    for community hospitals
Current Pool of Physicians is
Inadequate to Fill Vacant Positions
Mean Recruitment Time of
Selected Physician Specialties

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