Transcript Document

Hospitals
Outline
• Economic Rational for the Non-Profit Hospital
• How Do Hospitals Compete?
• Hospital Pricing
Evolution of the Modern Hospital
• Most hospitals in the late 19th and early 20th century
functioned as almshouses and pesthouses.
– Places for the poor
– Funded by private charity
– Those who had money could afford to die at
home.
• As medical science advanced the hospital came to
the center of medical care
The History of U.S. Hospitals
• Hill Burton Act of 1946 provided funding to refurbish old
hospitals and to build new hospitals
• The increased prevalence of health insurance in the 1950s
resulted in an increase in demand for hospital services
• Creation of Medicare & Medicaid increased demand
• Period of downsizing
– Introduction of Prospective Payment Systems
– Growth of managed care
Hospitals by Type By Year
1975
1990
2000
2010
2013
Change
7,156
6,649
5,810
5,754
5,686
-21%
Federal
382
337
245
213
213
-44%
Private Nonprofit
3,339
3,191
3,003
2,904
2,904
-13%
For Profit
775
749
749
1,013
1,060
38%
State-Local Govt
1,761
1,444
1,163
1,068
1,010
-43%
All Hospitals
Hospital Beds by Type By Year
(in 1000s)
1975
1990
2000
2010
Change
1,466
1,213
983
942
-36%
Federal
132
98
53
45
-66%
Private Nonprofit
658
657
583
556
-16%
For Profit
73
101
110
125
71%
State-Local Govt
210
169
131
125
40%
All Hospitals
Hospital Trends
• Hospital ALOS on the decline
– PPS encouraging “quicker and sicker” discharges
– Managed care limiting hospital stays
– Growth of alternative services
• Movement to outpatient settings
• 84% of U.S. community hospitals have less than 300 beds
– Rural hospitals average 65 beds; urban hospitals 231
• 5.7 million hospital employees (40% of health care workforce, 4% of
employed civilians)
– Current trend is to downsize employment
– Average hourly earnings highest among healthcare sites
Evolution of the Hospital
• Downward trend in the number of hospitals
– Expected to continue as consolidation continues
and care moves out of the hospital.
• For-profit hospitals are on the rise, but Nonprofits are
still a large majority, why?
Why is the Nonprofit Hospital Dominant?
• Contract failure
– Asymmetric information
– Shopping problem
– Trust between patient and physician
• Public goods
• Inertia
• Many “nonprofits” make a large profit
– Tax exempt vs nontax exempt
What is the Objective a Non-Profit
Hospital?
• Most firms exist to maximize profits
• But for a NFP, what is their objective?
– “Profit” Maximization
• No Margin, no mission?
– Utility Maximization
– Physician Control
10
How do For Profit Hospitals Compare
to Private Non Profits?
• Costs and Pricing
• Uncompensated Care 4.5% vs 4%
• Quality
• Entry and Exit
– NFP quicker to enter a new market and slower to
exit
• Bottom Line: Very hard to “see” a difference
11
Hospital Financing
Payment-to-cost ratio
1.2
1
0.8
0.6
0.4
0.2
0
How do Hospitals Compete?
• Normally competition leads to lower prices and
decreased costs.
• In hospitals it is often argued the opposite occurs.
– Some research shows that when hospital markets
become more competitive there is increased costs
and higher prices to consumers
– Policy implications are to discourage competition
The decision to specialize
Hospital 1
Basic only
Basic Only
$10,000
$7,000
$2,000
$2,000
Both
Hospital 2
$7,000
Both
$3,000
$10,000
$3,000
Hospital Competition
• Medical Arms Race
– “Consumer-Driven” Competition
– Hospitals compete not in the price/quality space
but in a “relative” competition
• Physicians
• Perceived quality relative to competitors
• Incentive to over-invest in technology and expand into
“unprofitable” services
Hospital Competition
• Policy Reaction to MAR
– CON Laws
• Hospitals must justify the need is there for a particular
service or facility prior to adding it.
• Non CON states such as Texas have seen some of the
largest examples of this type of behavior
– Anti-Trust Policy
• Implication is that monopolies are not so bad
• Mergers that would have been blocked in other
industries have been allowed in hospitals
Hospital Competition
• Evidence on MAR
– Research prior to the 1990s tends to find that when
markets become more competitive, then there is an
increase in costs and consumers face higher prices.
• Contrary to standard economic theory
– Research looking at data in the 1990s found the
opposite:
• More competitive markets resulted in lower prices and costs
• Selective contracting
– By the end of the 1990s the Medical Arms Race was
considered dead
Hospital Competition
• Unraveling of “Managed Care”
– As consumers have demanded choice in providers,
selective contracting has become much less
selective
• Robotic Surgery
• Proton Beam Therapy
• Children’s hospitals
• Policy should be focused on getting providers to
compete for contracts.
Hospital Pricing
• Hospital pricing has received much attention lately
– Prices that private plans pay are opaque to both
consumers and to payers
• Details of contracts are kept secret
• Complexity of medical care
• Employers and employees pay the prices but are not
aware of the contract details
• Silos in health care
Hospital Pricing
Hospital Pricing
Hospital Pricing
• It is clear that high prices lie at the heart of the health
spending problem in the US
• We don’t fully understand why prices vary across
services and across providers.
• Research from the Center for Studying Health System
Change, September 2013
– Examined 13 metropolitan areas
Hospital Pricing
• High degree of variation in pricing both within and
across markets
– Larger for outpatient than inpatient
– 5 of the 13 markets are in Michigan which has an
unusually concentrated insurance market
• One insurer has 70% of market share
• Yet even here there is large variation
Solutions?
• Reference Pricing
– Payer sets a maximum amount for a specific
procedure
• Narrow Networks (selective contracting)
• Other “value based” insurance contracts
– “Nudge” consumer to high value providers
• Regulation
– All-Payer Model
– Price Transparency