Transcript January 26: Where does 3 Trillion go? Market and course overview

University of Minnesota
The Healthcare Marketplace
Medical Industry Leadership Institute
Course: MILI 6990/5990
Spring Semester A, 2015
Stephen T. Parente, Ph.D.
Carlson School of Management
Department of Finance
[email protected]
Lecture #1 Overview
• Course Overview
– Syllabus
– Faculty and student introductions
• The U.S. healthcare marketplace: an
introduction
Course Overview – Basic Info
• Instructor - Stephen T. Parente, Ph.D
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[email protected]
Phone: 612-624-1391
Office: 3-279 CSOM
Hours: by appointment (usually on Wednesdays)
• Website:
http://ehealthecon.hsinetwork.com/mili6990_2015.html
• Lectures: every Monday
Course Overview - Readings
• Set of readings that will be made available to
you electronically.
• You may need to get articles electronically
through the library.
• Additional material may be handed out in
class.
Course Overview - Units
1.
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4.
5.
6.
7.
Historical Overview of the Healthcare Sector
Physician Services Market
Hospital Services Market
Insurance Market
Medical Devices and Pharmaceuticals Market
Healthcare Information Technology Market
International Healthcare Markets
Course Overview - Units
• Each unit will include:
– Introductory lecture
– Research and practitioner findings
– Emerging trends and market drivers
Student Evaluation
• Market Sizing Memo (20%)
– Data driven, Entrepreneurial/venture perspective
– Due on 3/6/2015 at 4pm (or sooner)
• Midterm Exam (25%)
– In-class, closed-book, closed-note, 2/25/2013
– Mix of definitions, short answer, and essay questions
– No make-up exams given unless pre-approved by an instructor.
• Market Opportunity Research Paper (45%)
– 1 page topic proposal due on 2/16/2015
– Final paper due on 3/9/2015, by 4pm
• Participation (10%)
Market Opportunity Research Paper
• Your choice of a specific health care market-oriented topic.
• Identify a market opportunity in the medical industry.
– Describe its history
– Describe opportunities and limitations
– Expand on an opportunity to affect this market that is:
• Financially sustainable
• Profitable for innovators
• Cost-effective (from a societal perspective)
• Paper could provide starting point for your MILI MBA
specialization application (to be described later).
• Logistics
– 12 point font; 7-8 pages of text
• Due Dates
– Proposal: 2/16/2015
– Sizing memo: 3/6/2015
– Final paper: 3/9/2015, 4pm latest
Contractual Responsibilities
• Student
– Attend lectures
– Engage in discussion
– Learn by personal reading and investigation of
research topic of choice
• Instructor
– Be prepared for lectures
– Listen to students
– Provide an exchange for ideas
Questions?
Introductions
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Name
Year/program
Graduate school focus (e.g., finance)
What do you hope to do in 5 years?
Any specific healthcare interests/issues that
are important to you.
• What’s the most significant contact you or a
family member had with healthcare?
An Introduction to the
U.S. Healthcare Marketplace
<90% Income Federal
Government
Courts
Insurers
Congress
Physicians
Main Street
Biotechnology
Big Business
99% Income
Hospitals
91-99% Income
Stakeholders
• Consumers
• Providers
– Hospitals
– Physicians and Clinics
– Long-term care facilities (e.g., nursing homes)
• Pharmaceuticals, Medical Device,
Biotechnology firms
• Insurers
• Employers
• Government
Healthcare Triangle
Cost
Access
Quality
How much do we spend on health care?
• $2,900,000,000,000 in 2013, which is
equivalent to $9,354 for each man,
woman, and child (310 million) in the
United States.
What factors drive health care spending?
Distribution of US Health Spending
Source: AHRQ, 2012
Distribution of Health Spending
% of U.S.
population
ranked by
expenditures
1977
1987
1996
Top 1%
30%
28%
27%
Top 2%
41%
39%
38%
Top 5%
58%
56%
55%
Top 10%
72%
70%
69%
Top 30%
91%
90%
90%
Top 50%
97%
97%
97%
Source: NMCES, NMES, MEPS, Berk and Monheit (March/April, 2001)
Distribution of National Health Expenditures, by
Type of Service (in Billions), 2010
Nursing Care Facilities &
Continuing Care Retirement
Communities, $143.1
(5.5%)
NHE Total Expenditures: $2,593.6 billion
Note: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment,
etc. Other Health Spending includes, for example, administration and net cost of private health insurance, public health activity,
research, and structures and equipment, etc.
Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the
Actuary, National Health Statistics Group, at http://www.cms.hhs.gov/NationalHealthExpendData/ (see Historical; National Health
Expenditures by type of service and source of funds, CY 1960-2010; file nhe2010.zip).
Trends in US Health Spending Growth
Health Spending Growth in Excess of PGDP With Component Effects
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
1966
1971
hospital
1976
physician
1981
1986
prescription
1991
1996
nh + hh + or
2001
other
2006
2011
total net
Current Cost Driver in Health Care
Expenditures=Price*Quantity
International Comparison of Health
Spending, 1980–2005
Average spending on health
per capita ($US PPP)
7000
6000
Total health expenditures
as percent of GDP
16
United States
Germany
Canada
France
Australia
United Kingdom
14
12
5000
10
4000
8
3000
6
2000
4
1000
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
0
Source: OECD Health Data 2007.
2
United States
Germany
Canada
France
Australia
United Kingdom
0
80 982 984 986 988 990 992 994 996 998 000 002 004
9
1
1
1
1
1
1
1
1
1
1
2
2
2
Where Does the Money Go?
Where Does the Money Go?
Where Does the Money Go?
Where Does the Money Go?
Healthcare Triangle
Cost
Access
Quality
Quality
• Defined
– “…the degree to which health services for individuals
and populations increase the likelihood of desired
health outcomes and are consistent with current
professional knowledge” (Institute of Medicine)
– “…doing the right thing at the right time in the right
way for the right person and having the best results
possible.” Agency for Healthcare Research and Quality)
• Clinical quality vs. consumer satisfaction
• Structure, Process, Outcome measures
Access
• “An individual’s ability to obtain medical
services on a timely and financially
acceptable basis.” (Jonas & Kovner)
• Influences
– Availability of facilities and transportation
– Hours of operation
– Ability to pay
Healthcare Triangle
Cost
Access
Tradeoffs
Quality
Take-Away Points
• Many stakeholders in the U.S. system, each with
its own interests and incentives.
• Increasing costs across all segments over time,
with market-based and regulatory factors
contributing to the degree of growth in each.
• Many expensive conditions to treat are chronic
(long-lasting) rather than acute, and some are
directly related to lifestyle choices.
• There are tradeoffs between cost, quality, and
access.
Small Group Discussion
• Name three agents (other than patients) in the
healthcare marketplace that are likely to be
affected significantly by the current healthcare
reform bills in the House and Senate.
• Are they the same?
• If the agents are the same, what are the
differences in ‘policy prescriptions’?
Break
Future Healthcare Market Trends
• Integrated history of the 20th century healthcare
marketplace
– Market linkages
• Key issues for the 21st century
– Demographics
– Health & lifestyle
• Behavioral choices
• Chronic illness
– Technology
• Clinical technologies
• Administrative technologies
• Confronting key issues: U.S. health system reform
Healthcare Marketplace
Hospitals
Physicians
Insurance
Consumers
Long-term
care
Employers
Medical
Device
Government
IT
Pharmaceuticals
1900-1910
• Flexner report results in redefinition of
medical education
• New technologies (e.g., radiology) and
pharmaceuticals (e.g., Salvarsan 606)
• Federal government involvement in
pharmaceuticals
– Poison Squad
– Pure Food and Drug Act
• Long-term care provided in “rest homes”
1910-1920
• World War I
• Antiseptic medicine reducing in-hospital
mortality rates
• 1st attempt at National Health Insurance
under Wilson administration
1920-1930
• Great Depression (1929)
• Hospitals and doctors underutilized because
unaffordable to many
• Origin of Blue Cross in Baylor, TX (1929)
• Proliferation of pre-paid group practices (e.g.,
Kaiser, Group Health of Puget Sound)
• U.S. Food and Drug Administrations (FDA) is
created (1930)
• Veterans Administration (VA) Health Care
System formed (1930)
1930-1940
• AMA waged war on hospital-based group practices and
other organized systems perceived to be “socialized
medicine”
• Philanthropists and New Deal legislation subsidize
academic medical centers and other hospital
construction
• Hospitals and doctors continue to face underutilization
due to poor economic conditions
• Federal Food, Drug and Cosmetics Act passed (1938)
• Sulfa drugs discovered to treat conditions like
pneumonia
• 2nd attempt at National Health Insurance legislation
1940-1950
• World War II
• Development and use of antibiotics like penicillin
• Hill-Burton Act of 1946 for hospital and nursing
home construction
• Proliferation of employer-sponsored health
insurance due in part to wartime wage freezes
• McCarran-Ferguson Act allows health insurance to
be regulated at the state, rather than the federal
level
• VA growth
• 3rd attempt at National Health Insurance
legislation
1950-1960
• Post-WW2: national income increasing
• Massive increases in federal support for
medical research
• Fee-for-service medicine and patient-driven
competition by hospitals and physicians
• Employer-sponsored health insurance
expansion with Revenue Act of 1954
1960-1970
• Genetics research begins (1962)
• Health manpower legislation for educational
subsidies (1964)
• Medicare and Medicaid passage as compromise to
national health insurance under Johnson
administration
– Significant effect on hospitals and physicians
• Shift from rest homes to nursing homes for longterm care
• Harris-Kefauver Drug Act
– Promotes competition in pharmaceutical industry
1970-1980
• Medical arms race
• Passage of the Health Maintenance Organization (HMO)
Act of 1973
• Hospital inflation growing rapidly under cost-based or
retrospective reimbursement
• Passage of Certificate of Need laws at the state level; rate
setting by state governments; creation of state and local
health planning agencies
• Employee Retirement Income Security Act (ERISA)
(1974) passes and exempts plans run by unions and single
employers from state regulation
• Nursing homes become more widely available
• Nixon proposes National Health Insurance, but legislation
does not get passed
1980-1990
• Public health crisis (HIV/AIDS)
• Double-digit inflation creates impetus for
Medicare Prospective Payment System
(1983)
• Technology and incentives create a shift
from inpatient to outpatient care
• Waxman-Hatch Act passes to promote
competition by generic drugs in the
pharmaceutical market
1990-2015
• Public health issues
– Increasing rates of obesity (30% by 2002)
– Diabetes prevalence such as diabetes grow
• Clinton Health Security Act legislation fails
(1993-94)
• Managed care penetration increases
– Selective contracting and shift to payer-driven
competition
– Significant entry and exit in the Medicare HMO
market.
– Medicaid managed care
1990-2015
• Provider consolidation
– Record mergers and acquisitions by hospitals and
physician groups
– Managed care “nightmare”
– Balanced Budget Act of 1997
• Cuts Medicare payment rates
– Nursing shortages
• Pharmaceuticals
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Medicaid prescription drug rebates imposed (1991)
PBMs
Direct to Consumer advertising permitted (1997)
Medicare Part D (2006)
1990-2015
• Insurance
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Health Insurance Portability and Accountability Act (HIPAA) (1996)
Managed care backlash (1998-)
State Children’s Health Insurance Program (S-CHIP) (1997)
Medical savings accounts (MSAs) (1996), consumer-driven health
plans (CDHP) (2001), health savings account (HSA) legislation (2003)
– Health insurance costs almost $10,000 per family or $4000 per
individual by 2004; uninsured numbers rise to 44 million; 2011
$15,000 per family, 50+ million uninsured
– Patient Protection and Affordable Care Act (PPACA) or ACA passes on
March 21, 2010. Full implementation in 2014.
• Quality concerns
– HEDIS quality measures of health plans first developed (1991)
– Institute of Medicine reports on medical errors and patient safety (To
Err is Human; The Quality Chasm)
– Leapfrog Group (1998)
– HITECH Act (2009) dedicates 34 million for electronic health records
• Long-term care and shift toward senior housing
<90% Income Federal
Government
Courts
Insurers
Congress
Physicians
Main Street
Biotechnology
Big Business
99% Income
Hospitals
91-99% Income
Thought question: In what ways
does the global healthcare
marketplace influence the U.S.
healthcare marketplace?
Health Care Expenditure Growth
Drivers of Expenditure
• Supply-side
– Imperfect information
• Increasing
monopoly thesis
(Pauly and
Satterwaite (1981)
• Quality information
– Technological change
• Demand-side
– Insurance
• Tax treatment
– Demographics
• Aging
– Preferences for
Technology
– Health behaviors
• Obesity
• Tobacco
Efforts to Control Costs
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Limits on hospital inputs
Utilization management
Rate-setting
DRG-based payment
Managed care
Population and Demographics
Key Issues
Health and Lifestyle
for the
21st
Century
Technology
Production of Health
Demographics
Genetics
HEALTH
Lifestyle
and Health
Behaviors
Medical
Care
Demographics
Thought questions: Demographics
• How will the demographic shifts affect the
market for physicians? Physician services?
Hospital services? Long-term care?
• How will these demographic shifts affect
younger generations?
• In addition to the population distribution,
what other demographic or socioeconomic
changes will affect health care markets?
How?
Significance of Health Behaviors
• What is a “health bad”?
– Concept
– Examples
• Why do economists and others care?
– Externalities: case in which a consumer
(producer) affects the utility (costs) of another
consumer (producer) through actions that lie
outside the price system; public price is not fully
accounted for in the private price
– Market failure
• Subsidies for positive externalities (flu shots)
• Taxes for negative externalities (excise taxes on
cigarettes)
Consequences of Health Bads
• Smoking
– Cigarette smoking is the leading cause of lung cancer (90% of deaths);
chronic bronchitis; emphysema (COPD), and a major cause of heart disease
and stroke
– Associated with additional cancers (e.g., bladder, pancreatic, and cervical)
– Vision and hearing problems and slowed healing from injuries
– Responsible for 435,000 deaths per year in 2000
• Obesity
– Linked to hypertension, high cholesterol, coronary heart disease, type 2
diabetes, depression, and various types of cancer
– Responsible for 400,000 deaths in 2000
– $75 billion in medical care expenditures in 2003
• Excessive Alcohol Consumption
– Associated with lost productivity, disability, early death, crime, neglect of
family responsibilities
– Motor vehicle accidents while driving under the influence
– 100,000 deaths from alcohol abuse in 2000
For next week
• Read
– Focus on:
• Starr (he did win a Pulitzer for it – after Harvard denied him tenure)
• Physician entrepreneurship
• Watch about 1/20/2015 State of the Union Address:
– Identify a medical industry business opportunity of interest
related to what could be mentioned in address.
• How critical is government policy change to enable your opportunity.
• If no policy change, what would be your Plan B.
• Is you opportunity a win/win for your investors and society at large? If
so, how?
– E-mail me your opportunity by Sunday afternoon (after the
Super Bowl).