Health Medical Care and Medical Spending Health Economics
- Slides: 47
Health, Medical Care, and Medical Spending Health Economics Professor Vivian Ho Fall 2007 These slides summarize material in Santerre & Neun: Health Economics, Theories Insights and Industry Studies, Thomson 2004
Ø Can we apply the tools of managerial economics to health care? 2
Outline An economic model of utility, health, and medical care l Measuring health status l Empirical evidence on health production l Health care expenditures l 3
A Basic Economic Model l Health as a consumer durable good: u Utility = U (X, Health) X represents “other goods and services” l H is a stock -- every action will affect health l On its own or combined with other goods and services, the stock of H generates a flow of services that yield satisfaction=utility l 4
The Total Utility Curve for Health Utility Total U 3 U 2 Utility U 1 U 0 H 1 H 2 H 3 Health 5
A Basic Economic Model (cont. ) • Production of health: u Health H = g (Medical care, other stuff) Marginal Increase in Health Total Product MP Medical Care 6
A Basic Economic Model (cont. ) l Medical care is not homogeneous and differs in: u Structural quality (e. g. facilities and labor) u Process quality (e. g. waiting time, case mgmt. ) u Outcome quality (e. g. patient satisfaction, mortality) l Therefore medical services are often difficult to quantify 7
A Basic Economic Model (cont. ) l Health=H(Profile, Medical Care, Lifestyle, Socioeconomic Status, Environment) If an individual has a heart attack, then overall health decreases, regardless of the amount of medical care consumed u The total product curve for medical care shifts down l As a person ages, both health and the marginal product of medical care likely to fall u The out total product curve shifts down and flattens 8
A Shift in the Total Product Curve for Medical Care Health TP 0 TP 1 Medical Care 9
MEASURING HEALTH l Important for all health care managers today u Insurers and consumers are demanding costs AND quality 10
HEALTH OVER THE LIFE CYCLE HEALTH Appendicitis Auto Crash Cancer (radiation therapy) Cancer complications Hmin TIME BIRTH 11
HEALTH OVER THE LIFE CYCLE l Individuals make choices about health (make tradeoffs) which maximize U over time l Relatively high value for the future • Low discount rate l l e. g. Low-fat diet and exercise to avoid heart disease Relatively low value for the future • High discount rate l e. g. Smoking, excess drinking, drug abuse 12
DISCOUNTING l Required when costs are incurred in the future u Why? Individuals have a positive value of time preference l l If r = 10%, then $100 invested today yields $110 next year Spending $100 one year from now is “cheaper” than spending $100 today 13
DISCOUNTING CHOICES Invest Spend $100 today $100 = $90. 91 (1 +. 10) and have $9. 09 left over 14
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DISCOUNTING l If costs occur over multiple time periods, we must calculate the present discounted value (PDV) of these costs: T PDV = Σ t=0 • 1 COSTSt t (1 + r) Example: A project requires: $100 in year 1 $ 75 in year 2 $ 50 in year 3 PDV = $100 + $ 75 + $ 50 = $209. 50 2 (1 +. 10) 16
DISCOUNTING l If we discount costs, we must also discount benefits Assume r = 10% $990 Spend $990 to save 1 year of life today Invest $900 to save 1 year of life next year and have $90 left to spend this year 17
DISCOUNTING u Appropriate discount rate? • The medical literature has settled on 5% for comparative reasons u Discounting is not an adjustment for inflation COST YOLS 1 = Σ (1 + r)t COST Σ 1 YOLS (1 + r)t 18
Why we discount cost AND benefits l Consider an intervention which costs $100 and saves 10 years of life l Also assume r = 10% Option 1: Spend $100 today: C E = 100 = 10 10 Option 2: Invest for 1 year → $110, saves 11 YOL. If we discount costs to present value, but don’t discount YOL: C E = l 100 1 11 = 9 11 If we discount both costs and benefits: C = E 1 110 (1 +. 10) 1 (1 +. 10) = 10 11 19
MORTALITY l Alive vs. Dead u Advantages: l u Disadvantages: l 20
MORTALITY MEASURES 1950 1970 1980 1990 2000 963. 8 945. 3 878. 3 863. 8 873. 6 1446. 0 1222. 6 1039. 1 938. 7 869. 0 15 -24 128. 1 127. 7 115. 4 99. 2 81. 5 65 -74 4067. 7 3582. 7 2994. 9 2648. 6 29. 2 20. 0 12. 6 9. 2 6. 9 20. 5 15. 1 8. 5 5. 8 4. 6 8. 7 4. 9 4. 1 3. 4 2. 3 68. 2 70. 8 73. 7 75. 4 76. 9 1. Crude death rate (per 100, 000) 2. Age-adjusted death rate 3. Age-specific death rate 4. Infant mortality Neo-natal Postneonatal 5. Life Expectancy (at birth) 2432. 9 21
MORTALITY MEASURES l Life expectancy NOT a prediction of how long people live u 76. 9 is a summary of age-specific death rates in 2000 u “If those born in 2000 experienced agespecific death rates prevailing in 2000, on average they would live to be 76. 9 22
MORBIDITY l The relative incidence of disease u Advantages: l u Captures quality of life Disadvantages: Difficult to measure l Difficult to aggregate when patient has >1 problem l 23
MORBIDITY l Acute disease u e. g. l Chronic disease u e. g. l appendicitis, pneumonia, gun shot wounds arthritis, diabetes, asthma Incidence u occurrence l of new cases in any particular year Prevalence u new and ongoing cases in any particular year v Heart disease is more prevalent, but its incidence is declining 24
MEASURING MORBIDITY l Distinguish between symptom and disease u e. g. high blood pressure vs. stroke l Disabilities are also a sign of morbidity l Subjective measures - i. e. self-rated health u “Is your health excellent/good/fair/poor? ” u Problem: 1970 -80, # of people with high blood pressure declined. But % of people reporting restricted activity due to HTN doubled! u Depends on what you want to do - e. g. astronaut, airline pilot, or professor? 25
MEASURING MORBIDITY l How far do we go in classifying “medical” problems? l e. g. cosmetic surgery v. Beware of phrases in contracts or policy statements such as “providing all medical care” or “basic needs” 26
LEADING CAUSES AND NUMBER OF DEATHS, PERSONS AGED 15 -24 (2000) CAUSE OF DEATH Unintential injuries Homicide Suicide TOTAL “Violent Deaths” Cancer Heart Disease Congenital anomalies All other nonviolent causes TOTAL “Nonviolent Deaths” DEATHS 14, 113 4, 939 3, 994 23, 046 85% 1, 713 1, 031 441 757 3, 942 15% 27
LEADING CAUSES AND NUMBER OF DEATHS, PERSONS AGED 65+ (2000) CAUSE OF DEATHS Heart disease 593, 707 Cancer 392, 366 Cerebrovascular Disease (Stroke) Chronic Lower Respiratory Disease 148, 045 106, 375 Pneumonia and Influenza 58, 557 Diabetes mellitus 52, 414 Alzheimer’s disease 48, 993 Kidney disease Unintentional Injuries 31, 225 31, 050 28
Empirical Evidence on Health Prod’n l Hadley (1982) a 10% in medical care $ per capita mortality rate by only 1. 5% l Auster et al. (1969) 10% in medical services age-adjusted mortality rate by 1% l Enthoven (1980) “flat-of-the-curve” medicine 29
LIFESTYLE l cigarette smoking 10% mortality: men 45 -64 women 45 -64 blacks 2. 3% 1. 1% whites 1. 4% 1. 1% (Hadley, 1982) l A one-pack-a-day smoker incurs 10. 9 more sick days every six months than a comparable non-smoker (Leigh and Fries, 1992) l Not smoking, regular exercise, moderate/no use of alcohol, 7 -8 hours of sleep per day, proper weight, eating breakfast, and no snacking leads to 28% lower mortality for men, 43% lower for women (Breslow and Enstrom, 1980) 30
OTHER FACTORS AFFECTING HEALTH l Education u One more year of schooling prob of dying w/in 10 years by 3. 6% (Lleras-Muney 2001) l Income u People w/o high school educ & income <$10 k were 2 -3 x’s more likely to have functional limitations and poorer self-rated health 31
OTHER FACTORS AFFECTING HEALTH Sturm, Health Affairs 2002 32
Determinants of Infant Health Corman and Grossman, 1985 33
Determinants of Infant Health Selected Regression Results, Neonatal Mortality Rates Whites Blacks -0. 037 -0. 056 Newborn Intensive Care Hospitals/1000 -44. 196 -86. 196 Abortion Providers/1000 -3. 198 -16. 838 % HS Educated Corman and Grossman, 1985 34
Determinants of Infant Health l Does more schooling and the availability of more providers improve infant health? l Is the marginal productivity of more providers greater for blacks or whites? 35
Determinants of Infant Health l Why might the marginal productivities for blacks and whites differ? u The regressions have poor controls for income, health status, preferences, etc. which may be correlated with schooling and the availability of providers l If the marginal productivity for most factors is greater for blacks then whites, why isn’t the overall neonatal mortality rate lower for blacks than whites? 36
Marginal Productivity of Provider Services for Infant Health (1 -mortality rate)% Blacks Whites Medical Care 37
Marginal Productivity of Provider Services for Infant Health (cont. ) l For any given level of provider services, marginal productivity may be higher for blacks than whites l However, the level of services may be higher for whites than blacks Ø Knowing the shape of the total product curve is not enough. You must also know where you are on it 38
Health in the 50 States l One measure of health status in the population in the # of deaths (per 100, 000 residents) from heart disease l Suppose we have data on deaths from heart disease and other population characteristics by state u See l Excel Spreadsheet What factors might explain death from HD? u Why? 39
Health in the 50 States 40
Health in the 50 States 41
Health in the 50 States 42
Health in the 50 States 43
Health in the 50 States 44
Health in the 50 States l Which of the previous variables would you include in the multivariate regression for the determinants of death from heart disease? u Smoking? u Overweight/Obese? u Binge Drinking? u Household Income? u High School Graduation Rate? 45
Health in the 50 States l Which of the variables are statistically significant at the 95% confidence level? l Suppose the fraction of residents who are obese/overweight were reduced by 0. 10. u How fall? l much would death rates from heart disease Suppose that you could obtain data on a different variable that may explain heart disease death rates, but isn’t in this data set. u What would it be? 46
Conclusions In an economic model, medical care and other goods and services are combined to produce health, which yields utility to the consumer l The production of health can be measured in a variety of ways l Both higher health care expenditures and other factors are improving health status over time l 47
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