HLSM 200 Introduction to Health Services Management

HCMT 492
Healthcare Economics and
Finance
Spring Semester 2010
Dr. Keith J. Benson
Understanding The US
Healthcare System
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4 P’s
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Patients
Providers
Payers
Policymakers
Big Three
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Cost
Quality
Access
Course Description
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Reviews environmental changes affecting
health care funding
Reviews:
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Cost management
Fiscal polices
Basic healthcare finance
Basic healthcare economics
Course and Learning Objectives
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The basic concepts of health care
economics.
Capital acquisition and capital structure
within in a health care environment.
Course and Learning Objectives
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Analyze health care organizational
financial statements.
Apply cost control strategies to health care
organizations.
Appreciate the relationship of financial
management to the other functional areas
of health care management.
Important Note
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Interpersonal skills
Communication skills – both oral and written
communication
Critical thinking skills
Ethical behavior skills
Team or group skills
Computer/Technology skills
Management (course content skills)
What Is Economics
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Most of the time we take a “micro” view –
focus on the economic behavior of small
units – consumers, firms, individual
industries and markets
Look at prices and outputs of goods and
services, especially those linked to health
care.
We will look at a macro level occasionally.
Why Focus on Health Care
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Growing recognition that health care is a
big business (14% of the US GDP - over
$2.4 Trillion spent on health care in 2007)
$2,400,000,000,000
$1 out of $7 spent in the US
Importance of the Health
Economy
Largest share of personal income spent on
health & healthcare
„ Number of jobs in the health economy
(10-11%)
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Total Personal Medical Services
Consumption Expenditures, 1998-2007
(Billions $)
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1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
970.7
989.0
1,026.8
1,075.2
1,136.6
1,180.8
1,216.5
1,257.3
1,290.2
1,327.8
http://www.nber.org/palmdata/indicators/consumption.html#TotalServices<ahref='#N_1'>\1\</
a>
Three Possible Reasons for the
Increased Ratios
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People, for various reasons, may be buying
more health services
People, for various reasons, may be buying
higher-quality health services, including products
and services that were previously not available
There may have been health care inflation over
and above what occurred in the general
economy
Features of Economic Analysis
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The
The
The
The
assumption of rationality
use of abstraction
use of marginal analysis
use of models as metaphors
Rational Decision Making
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Decision maker is being rational
Defined as making choices that best
further one’s owns ends given one’s
resource constraints
Need to properly understand incentives
facing decision maker
Use of Abstraction
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The art of eliminating nonessential detail
in order to make the remaining model
more useful to the purpose at hand
Why – details of economic phenomena are
too complex to permit direct
comprehension
Marginal Analysis
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The marginal unit means the next unit
The decision maker needs to understand
the cost and the benefit of the next or
marginal unit
Use of Models
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Abstract models help make sense of the
world
Consider a young child asking what the
solar system looks like. Drawing the sun
and planets, but no one supposes the sky
actually looks like this
How Health Care Is Different
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Presence and Extent of Uncertainty
Uncertain of health status
Don’t usually know the need for health
care
Demand is irregular in nature both to the
consumer and firm
How Health Care Is Different
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Prominence of Insurance
Consumers purchase insurance to guard
against uncertainty
Because of health insurance most
Americans do not pay directly for the full
costs of their health care
Example – Mark ½ $ Million dollar baby
How Health Care Is Different
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Problems of Information
Actual and potential information problems exist
Some information is unavailable or the consumer
is unable to understand
Asymmetry of information – situation where
parties on the opposite sides of a transaction
have differing amounts of relevant information
How Health Care Is Different
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Large Role of Not-for-Profit (NFP) Firms
A common assumption of economic
analysis is that firms maximize profit.
What motivates NFPs if they can not enjoy
the profits?
How Health Care Is Different
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Restrictions on Competition
Many practices restrict competition
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Licensure requirements for providers
Restrictions on provider advertising
Standards of ethical behavior
Many types of Regulations
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Promote quality
Curb costs
How Health Care Is Different
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Role of Need
Poor health of another human being often
evokes a feeling of concern that
distinguishes health care from many other
goods
Should health care be available regardless
of ability to pay
How Health Care Is Different
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Government Subsidies and Public
Provision
Gov’t pays about 45% of health care bill
Gov’t provides health care services
Think of other goods where the gov’t is
both a major payer and provider of the
good?