HEALTH CARE ECONOMICS

(AN EXPRESSION OF CARING FOR ALL CITIZENS)

A Learning Packageby:

Mrs. Marilyn D. Junsay, MSN., RN.

presented by:Ms. Leviene V. Divinagracia, MM

• Health care is something that touches our lives.

• Everybody visits the doctor, dentist, or traditional herbalist, and many of us are treated in the hospital. Yet, health care seems to be an almost permanent crisis.

• The government keeps on talking about “Health for all Filipinos” yet, there are shortages of hospital beds, health care providers, supplies and equipment.

Why do people demand health

care?• People want to be healthy– This desire to be healthy has led to

the demand for health care

All health care providers must have a clear understanding of

the economics of care.

• Economics deals with the efficient allocation

of scarce resources– It determines which of the alternatives in health care represent

the most efficient use of resources.– Health care providers must determine whether the most efficient

allocation is also socially, ethically and morally acceptable.– Health care providers (physicians, nurses, midwives, dentists,

medical technologists, health aid, diet therapists, nutritionists, health technicians and other health and medical auxiliaries) must make their concerns known to political leaders or officials who shape the health care system.

– The health care policy and economics are linked and therefore health care providers must increase their knowledge regarding economic principles and the ways these principles affect the health of the nation.

ECONOMICS and HEALTH ECONOMICS

• ECONOMICS - The study of the distribution of scarce resources across a population.– It is the science concerned with the ways society

allocates scarce resources commonly known as goods and services.

• HEALTH ECONOMICS – The study of the distribution of health care.

• Examples of health care economic environments

Individual consumersInsurance companiesEmployersState and federal governments

• Examples of resource inputs

LaborCapitaltechnology

• Resources are considered scarce when society demands more resources and goods than are generally available.– It cover all inputs used to produce goods and

services.

• Scarcity has two sides:The infinite nature of human wantsThe finite or limited nature of resources available

to produce goods and servic

• MACROECONOMICS – In healthcare, the macroeconomic market is the

entire country’s health care system including the way that it performs in terms of profit, loss and efficiency.

– Macroeconomics of health is concerned with parallel sets of large – scale system issues concerning:• Spending for employment and other aspects of health

as part of the economy.• Biological health status: longevity / fertility /

productivity

• MICROECONOMICS– This is about how individuals choose, minimize costs or maximize

profits or wealth or utilities within a given trading system subject to a set of rules and prices.

• ECONOMIC POLICY– The course of action intended to influence or control the behavior

of an economy.– It is implemented and administered by the government.

• FINANCING – The amount of money that flows from payors to an insurance

plan, either private or government.

• REIMBURSEMENT– The flow of money from the insurance companies to providers or

hospitals.

The Health Care Market System

• Market – a place, situation, or a procedure. It is a mechanism by which buyers and sellers get together to exchange goods and services including health care.

• Supply and Demand – is a microeconomic theory.– Demand is the buyer’s willingness to purchase a

particular product or service.– Supply is the seller’s willingness to supply a particular

product or service for a price.

• A market for health care involves two groups: the buyers and sellers who interact to trade

healthcare.• Everybody then is a potential buyer

(consumer) of healthcare. – A buyer is anybody who was ill or who

wanted preventive medical treatment or who wanted information about their health.–The sellers are the providers of medical

and health care services such as doctors, nurses, physical therapists, dentists, medical technologists, nutritionists, health technicians, health aids/auxiliaries and other personnel in the healthcare fields.

– Price is the quantity of something that is required in exchange for something else. It is generally expressed as a monetary unit of exchange.

• Supply of healthcare refers to the availability of resources for the delivery of health services. Resources include:– Health care facilities, Human resources and Financing

• Healthcare facilities – while hospitals continue to be the primary facility for the delivery of healthcare, economic pressures have resulted in the closure of many traditional hospitals and the emergence of alternative delivery facilities such as managed care organizations, ambulatory care centers and home health care. (Stoneline &Weiner, 1993)

• Human Resources – health personnel have grown substantially in the past years, still distribution inequities continues to persist especially in the rural areas. Such inequities provide opportunities for advanced practice nurses to practice in areas where there are large groups of medically under-served individuals.

• Financing – this is primarily provided by either private or commercial insurance companies or by public entitlement programs like Medicare and Medicaid.

Healthcare Economic Terms

• Capitation – amount established to cover the cost of healthcare services delivered to a person for a specific length of time, usually one year. This usually refers to a negotiated, per capita (per person) rate to be paid periodically by a managed care organization to a healthcare provider.

• Case Management – the process whereby all health related matters of a case are managed by a physician or nurse. Nurses, physicians and case managers coordinate designated components of health care such as appropriate referrals to consultants, specialists, hospitals and services.

• Co-payment – is a cost sharing arrangement whereby the person who is insured pays a specified charge.

• Diagnosis-Related Groups (DRGs) – is a prospective cost reimbursement classification system for in-patient services based on diagnosis, age, sex, and the presence of complications. It is used as a means for both identifying costs for providing services associated with a given diagnosis and reimbursing hospitals and providers for services rendered.

• Fee for service – a payment system whereby nurses, physicians, hospitals and other healthcare providers are paid a specific amount for each service performed as it is rendered and identified by a claim of payment.

• Managed Care – the external monitoring and co-managing of an ongoing provider-client relationship to ensure that the provider delivers only appropriate care.

• This is seen as a means to control costs while also maintaining quality and access to appropriate care.

• This is also a mechanism for introducing competition into the health care market and thereby making the health care market respond in the expected fashion to the supply and demand cycle.

• Can Health Care Costs be Contained?

• Cost containment – means to keep costs within acceptable limits.

• It involves cost awareness, monitoring, management, and incentives to prevent, reduce and control costs.

• Four (4) Major Contributors to Escalating Medical Costs

• Overcapacity of hospitals• Surplus of highly specialized

providers• Financing of healthcare services• The role of healthcare consumers

• Hospitals – confinement to tertiary private hospitals is a nightmare.– An ordinary influenza with no complications with confinement of 5 days

without Medicare or health insurance will cost you P8,000-10,000.– A few hours of admission in the Emergency room will already slash your pocket

by P1,000 -3,000.The patient pays for the “state of the art” phenomenon in private hospitals. Government hospitals likewise are getting expensive.

• The surplus of highly specialized providers (Physicians’ influence on healthcare costs):

• Although fees charged by physicians for services account for only 20% of medical costs, decisions made by physician represents 80% of expenditures.

• Physicians make decisions on when patients are to be hospitalized, for how long, and treatments to be employed.

• FACTORS contributing to the escalating costs of health care:– the high income of physicians and greater physician specialization

• The financing of Healthcare Services– Who will finance? The patient, the patient’s family, Medicare,

Medicaid, the Health Maintenance Organization (HMO) and other prepaid insurances.

–Medicare is a federal government sponsored health insurance for the elderly and other clients with chronic illnesses.

–Medicaid is a federal state cooperative health insurance plan for the financially indigent.

– In the Philippines, once you are a government service insurance system (GSIS) or social security system (SSS) member, you are automatically covered by a compulsory insurance called Medicare. The Medicare as such is replaced by the so-called National Health Insurance or the Phil Health Insurance.

• The Role of the Health Care Consumer– A consumer is a person who uses a commodity or a

service. All of us are consumers of health care commodities and services. It is our choice whether to settle for less or settle for an optimum value especially when illness and financial considerations affect our decision and personal choice.

– Consumers prefer to seek healthcare from professionals they know or have previously consulted.

– Some may not seek treatment or hospitalization because of fear and denial of symptoms

– Some may have financial difficulties and thus have difficulties in obtaining healthcare.

– Our knowledge of health and disease frequently affects the way we seek healthcare.

Other Factors Causing the Upward climb of Health care:

• The cost of new technology• Construction of new facilities• Growth in specific population groups – such as

the elderly – requires a health care on a regular basis.

• The surging cost of physicians’ fees• Lack of competition in the health care field• Rising cost per volume of service (CPVS)- is the

cost associated with a particular volume of service.

• Per capita increase in volume of services (PCIVS) – is the increase in client days in hospital, client visits in an ambulatory clinic, or home visit to the community health agency over a one-year period.

• Advanced technology• Client complexity

– Incidents or variances – that may delay the patient’s discharge, increase cost or alter the quality of care.

– Uncompensated care – refers to the personal health care rendered by hospitals or other providers without payment from client or government-sponsored or private insurance program.

– Health care fraud – “FRAUD” as defined by the Medicare program, as the deliberate deception or misrepresentation of an individual who also knows that the deception could result in some unauthorized benefits him or some other persons.• Examples of the most common forms of fraud:

– Billing service not furnished– Misrepresenting the diagnosis to justify payment– Soliciting, offering or receiving a kickback– Unbundling or exploding charges– Falsifying certificates of medical necessity, plans of treatment

and medical records to justify payment.– System variance – due to omission in the hospital

system. (e.g. when the patient has to wait for long hours in the admitting department for a vacant bed or room, thus, a diagnostic procedure is delayed for another day.

Health Service Organizations

• Health Service Organizations are formed to deliver care through varied organizations created and influenced by both the way the clients choose to finance and pay for that care and the

technology available.

Public Health System

• It is intended to protect the community against the hazards of group living.

• Some examples of State and local Public Health programs:– Public health and primary health care services– Mental health hospitals and health services– Nursing home care– Monitoring, data collection and epidemiological

assessment– Development, implementation of health laws

Primary Health Care System• Primary health care as an organization

movement officially began at the 30th world health organization (WHO) assembly in 1977 with the adoption of the resolution identifying the goal of health attainment that would enable the citizens of the world to live socially and economically productive lives.

• It is defined as essential care made universally accessible and available to individuals and families within a community, with emphasis on health promotion, disease prevention, community involvement, multi-sectoral cooperation and at a cost that the community and the country can afford. (WHO, 1978)

Health Care Delivery Settings• Hospitals

• Ambulatory care – is a care delivered in an office or other setting and at the time and place of the client’s choosing.

• Ambulatory surgery• Home health care• Long-term care facilities, Home and

Community based care– Nursing homes

• Hospice care – is a specific type of care designed for terminally ill patients who choose to spend their remaining days at home or in a home-like setting rather than in an institution.