Transcript Health Economics & Policy Chapter 9 The Market for Hospital Services 3

Health Economics & Policy
3rd Edition
James W. Henderson
Chapter 9
The Market for Hospital Services
Factors Transforming the
Hospital Industry
Germ theory of disease
 Advances in medical technology

– Pharmaceuticals
– Diagnostic imaging
– Surgical practices

Increased urbanization and mobility
20th Century Hospitals





1900-1920: Flexner Report led to medical
school /hospital affiliations
1920s: Physician licensing and hospital
privileges; role and trainings of nurses
1930s: Health insurance beginnings;
important drug discoveries
1940s: IRS rulings that health benefits are tax
deductible and tax exempt
1950s: Advances in drugs and technology
20th Century Hospitals




1960s: Medicare and Medicaid passed
1970s: Explosive growth; development of
expensive procedures and technology; double
digit increases in HCE annually
1980s: Hospital DRGs; HCE/GDP > 10%
1990s: New forms of managed care to control
costs
U.S. Institutional Setting

Hospital classification
– Community hospitals
– Teaching hospitals
– Private for profit, private not-for-profit,
public not-for-profit
Hospital spending
 Hospital market structure

Community Hospital
Characteristics, 1970-2001
Measure
1970
1980
1985
1990
1995
1998
2000
2001
No. of hospitals
5,859
5,904
5,784
5,420
5,194
5,015
4,915
4,908
Beds (thousands)
848.2
992.0
1,003.1
929.4
872.7
840.0
823.6
826.0
Beds per 1,000
4.17
4.38
4.06
3.73
3.32
3.11
2.93
2.90
population
Admissions (thousands) 29,252
36,143
33,449
31,181
30,945
31,812
33,089
33,814
Admissions per 1,000
144.0
159.6
135.6
125.4
117.9
117.7
117.6
118.7
population
Resident U.S.
203.2
226.5
247.1
248.7
262.5
270.3
281.4
284.8
Population
Average length of stay
7.7
7.6
7.1
7.2
6.5
6.0
5.8
5.7
(days)
Percent occupancy
78.0
75.4
64.8
66.8
62.8
62.5
63.9
64.5
Outpatient visits
133.5
202.3
218.7
301.3
414.3
474.2
521.4
538.5
(millions)
Outpatient visits per
4.57
5.60
6.54
9.66
13.39
14.91
15.76
15.93
admission
Outpatient surgeries as
16.3
34.6
50.5
58.1
61.6
62.7
63.0
a percent of total
Cost per day ($)
74
245
460
687
968
1,067
1,149
1,217
Cost per stay ($)
605
1,851
3,245
4,947
6,216
6,386
6,649
6,980
Source: Statistical Abstracts of the United States, various years; and National Center for Health Statistics
(1996); and Health, United States, 2003: With Chartbook on Trends in the Health of Americans, Tables 95,
106, and 122, 2003.
Community Hospitals,
by Ownership Type
Year
1975
1980
1985
1990
1995
1998
1999
2000
2001
5,875
5,830
5,732
5,384
5,194
5,015
4,956
4,915
4,908
Year
1975
1980
1985
1990
1995
1998
1999
2000
2001
Number of
hospitals
Number of beds
(thousands)
941.8
988.4
1,000.7
927.4
872.7
840.0
829.6
823.6
826.0
For Profit
No.
%
Nongovernment
Not-for-Profit
No.
%
775
730
805
749
752
771
747
749
754
3,339
3,322
3,349
3,191
3,092
3,026
3,012
3,003
2,998
13.2
12.5
14.0
13.9
14.5
15.4
15.1
15.2
1534
For Profit
No.
%
73.5
87.0
103.9
101.4
105.7
113.0
106.8
109.9
108.7
7.8
8.8
10.4
11.0
12.1
13.4
12.9
13.3
13.2
56.8
57.0
58.5
59.3
59.5
60.3
60.8
61.1
61.1
Nongovernment
Not-for-Profit
No.
%
658.2
692.5
707.5
656.8
609.7
587.7
586.7
583.0
585.1
69.9
70.0
70.7
70.8
69.9
70.0
70.7
70.8
70.8
Government
No.
%
1,761
1,778
1,578
1,444
1,350
1,218
1,197
1,163
1,156
30.0
30.5
27.5
26.8
26.0
24.3
24.1
23.7
23.6
Government
No.
%
210.2
208.9
189.3
169.2
157.3
139.4
136.1
130.7
132.2
Source: Health, United States, 2003: With Chartbook on the Health of Americans, Table 106, 2003.
22.3
21.2
18.9
18.2
18.0
16.6
16.4
15.9
16.0
The Role of Not-for-profits

Not-for-profit organizational form
–
–
–
–

Right to transfer assets
Capital funds from donations
Use of surplus funds restricted
Total liquidation transferred to trust
Nature of competition in the not-for-profit
sector
– Medical arms race
– When you run out of money, you run out of
options – maintain 3-5% margins
Pricing Practices in Medicine
Price discrimination
 Cost shifting

Charges and discounts for
diagnostic bilateral mammogram
Hospital (Location)
Official
charge
Medicaid Medicare
HMOs,
Health
plans
Policy on Uninsured
UCLA Medical Center
(Los Angeles)
$460
$127
$90
Up to $242
Gives discounts based on
individual's ability to pay, says CFO
Sergio Melgar
Oregon Health &
Science University
(Portland)
$240
$65
$59
Average
$128
Works with uninsured patients to
help them find financial aid; offers
sliding scales, payment plans
Jamaica Hospital
(Queens, N.Y.)
$351
$50
$96
$40 to $78
Has sliding fee scales for
uninsured, says CEO David Rosen
Johns Hopkins
Hospital & Health
System (Baltimore)
$261
$156
$173
$186
State regulation of charges
reduces disparity between bills to
insured and uninsured
Grinnell Regional
Medical Center
(Grinnell, Iowa)
$285
$73
$79
$119 to
$190
Works with uninsured to set a
payment schedule
Source: Lucette Lagnado, “A Young Woman, An Appendectomy, And a $19,000 Debt,” Wall Street
Journal, March 17, 2003, A1.
Models of Hospital Behavior
Utility maximizing models
 Physician-control models

The Trend Toward Multihospital Systems

The theory of consolidation
– Reasons for consolidation

Empirical evidence