SIXTH EDITION HEALTH LICY issues AN ECONOMIC PERSPECTIVE PAUL J. FELDSTEIN MAP AUPHA Health Administration Press, Chicago, Illinois Association of University Programs in Health Administration, Arlington, Virginia
DETAILED CONTENTS List ofexhibits Preface xxiii xxxi 1 The Rise of Medical Expenditures 1 Before Medicare and Medicaid 1 The Greater Role of Government in Healthcare 2 Changing Patient and Provider Incentives 5 Government Response to Rising Costs 8 The Affordable Care Act 13 Summary 15 Discussion Questions 16 Notes 17 References 17 2 How Much Should We Spend on Medical Care? 19 Consumer Sovereignty 19 Economic EflSciency 21 Government and Employer Concerns over Rising Medical Expenditures 24 Approaches to Limiting Increases in Medical Expenditures... 26 Summary 29 Discussion Questions 29 References 30 3 Do More Medical Expenditures Produce Better Health? 31 Medical Services Versus Health 31 Health Production Function 32 Improving Health Status Cost-Effectively 35 Relationship of Medical Care to Health Over Time 37 Summary 39 xi
xii Detailed Contents Discussion Questions 41 Notes 41 References 41 4 In Whose Interest Does the Physician Act? 43 The Perfect Agent 43 Supplier-Induced Demand or the Imperfect Agent 44 Increase in Physician Supply 47 Insurers' Response to Demand Inducement 47 HMO Incentives by Imperfect Agents 48 Informed Purchasers 49 Summary 51 Discussion Questions 51 Note 51 Additional Reading 52 References 52 5 Rationing Medical Services 53 Government Rationing 53 Rationing by Ability to Pay the Market-Determined Price... 54 Decision Making by Consumers of Medical Services 56 Marginal Benefit Curve 56 Price Sensitivity 58 Moral Hazard 59 Summary 61 Discussion Questions 62 References 62 6 How Much Health Insurance Should Everyone Have? 65 Definitions of Insurance Terms 65 Insurance-Purchase Decision Making 67 Tax-Free, Employer-Paid Health Insurance 68 Summary 74 Discussion Questions 75 Notes 75 References 76 7 Why Are Those Who Most Need Health Insurance Least Able to Buy It? 79 The Different Private Health Insurance Markets 79 Determinants of Private Health Insurance Premiums 80
Detailed Contents xiii How Health Insurance Markets Work 82 The ACA's Changes to the Individual Health Insurance Market 88 The Effect of the ACA's Rules on Premiums in the Individual Market 92 Summary 93 Discussion Questions 94 Notes 95 Additional Readings 96 References 96 8 Medicare 99 The Current State of Medicare 99 Part A (HI) 99 PartB (SMI) 101 Part C: Medicare Advantage Plans 102 Part D: Prescription Drug Coverage 103 Medigap Supplementary Insurance 104 The ACA's Changes to Medicare 104 Concerns About the Current Medicare System 107 Proposais for Medicare Reform 116 Politics of Medicare Reform 119 Summary 119 Discussion Questions 120 Notes 121 References 122 9 Medicaid 125 An Illustration of Medicaid Eligibility 126 State Children's Health Insurance Program (SCHIP) 127 Medicaid Beneficiaries and Medicaid Expenditures 128 The ACA's Changes to Medicaid Eligibility 130 Medicaid Problems 132 Medicaid Reforms 136 Summary 140 Discussion Questions.. 141 Notes 142 References 142 10 How Does Medicare Pay Physicians? 145 Previous Medicare Physician Payment System 145 Reasons for Adopting the New Payment System 146
xiv Detailed Contents Components of the New Payment System 147 Effects of Medicare's Payment System 152 Summary 158 Discussion Questions 159 Notes 159 References 160 11 The Impending Shortage of Physicians 163 Definitions of a Physician Shortage or Surplus 164 Consequences of an Imbalance in the Physician Supply and Demand 167 Economic Evidence on Trends in Physician Demand and Supply 170 Long-Term Outlook for the Physician Shortage 177 Summary 181 Discussion Questions 181 Notes 182 References 183 12 The Changing Practice of Medicine 185 Types of Medical Croups 185 Changes in the Size and Type of Medical Croups 186 Reversal offortunes of Large Multispecialty Croups 191 The Outlook for Medical Practice 194 Summary 199 Discussion Questions 199 Note 200 Additional Readings 200 References 200 13 Recurrent Malpractice Crises 203 Explanations for the Rise in Malpractice Premiums 204 Objectives of the Malpractice System 207 Proposed Changes to the Malpractice System 213 Enterprise Liability 216 Disclosure, Apology, and Offer Programs 217 The Effects ofvarious Tort Reforms 218 Summary 218 Discussion Questions 220 Notes 220 References 222
Detailed Contents xv 14 Do Nonprofit Hospitals Behave Differently from For-Profit Hospitals? 225 Why Are Hospitals Predominantly Nonprofit? 227 Performance of Nonprofit and For-Profit Hospitals 228 The Question of Tax-Exempt Status 232 Summary 233 Discussion Questions 234 Notes 234 References 235 15 Competition Among Hospitals: Does It Raise or Tower Costs? 237 Origins ofnonprice Competition 237 Transition to Price Competition 240 Price Competition in Theory 242 Price Competition in Practice 243 Summary 247 Discussion Questions 247 Notes 248 References 248 16 The Future Role of Hospitals 251 From Medicare to the Present 251 Hospital Costs: The Public and Private Sectors 256 Hospital Revenues 257 The Current Hospital Outlook 262 Hospital Strategies 264 Summary 266 Discussion Questions 267 Notes 267 References 269 17 Cost Shifting 271 Setting Prices to Maximize Profits 273 Origins of Claims of Cost Shifting 277 Price Discrimination 278 Conditions Under Which Cost Shifting Can Occur 279 The Direction of Causality 281 Summary 282
xvi Detailed Contents Discussion Questions 283 Notes 283 Additional Reading 284 References 285 18 Can Price Controls Limit Medical Expenditure Increases?...287 Effect of Price Controls in Theory 287 Effect of Price Controls in Practice 291 Global Budgets 295 Summary 296 Discussion Questions 297 Notes 297 References 298 19 The Evolution of Managed Care 301 Why Managed Care Came About 301 What Is Managed Care? 302 What Are the Types of Managed Care Plans? 303 How Has Managed Care Performed? 306 How Has Managed Care Evolved? 313 What Recent Developments Managed Care Has Undergone 315 How the Affordable Care Act Affects Managed Care 318 Summary 319 Discussion Questions 320 Note 321 Additional Reading 321 References 321 20 Has Competition Been Tried and Has It Failed to Improve the US Healthcare System? 325 Criteria for Judging Performance of a Country's Medical Sector 325 How Medical Markets Differ from Competitive Markets... 327 Demand-Side Market Failures 330 Supply-Side Market Failures 333 How Can Medical Markets Be More Competitive? 335 Are the Poor Disadvantaged in a Competitive Market? 336 Patient Incentives Drive Price Competition in Government and Private Markets 337 What Might Competitive Medical Markets Look Like? 338 Summary
Detailed Contents xvii Discussion Questions 341 Notes 341 References 343 21 Comparative Effectiveness Research 345 CER and the Role of Government 345 Concerns Over How CER Will Be Used 347 Cost-Effectiveness Analysis 351 Quality-Adjusted Life Years 352 The National Institute for Health and Clinical Excellence...354 Summary 355 Discussion Questions 356 Note 356 Additional Reading 357 References 357 22 US Competitiveness and Rising Healthcare Costs 359 Who Pays for Higher Employee Medical Costs? 359 Who Pays for Retiree Medical Costs? 364 Possible Adverse Effects of Rising Medical Costs on the US Economy 365 Summary 367 Discussion Questions 368 Notes 368 References 369 23 Why Is Getting into Medical School So Difficult? 371 The Market for Medical Education in Theory 373 The Market for Medical Education in Practice 373 Accreditation for Medical Schools 375 Recommended Changes 376 Summary 379 Discussion Questions 380 Notes 380 References 381 24 Will a Shortage ofregistered Nurses Reoccur? 383 Measuring Nursing Shortages 383 Nursing Shortages in Theory 385 Nursing Shortages in Practice 385 The Outlook for Registered Nurses 391
xviii Detailed Contents Summary 396 Discussion Questions 397 Notes 397 References 398 25 The High Price of Prescription Drugs 401 Reasons for the Increase in Pharmaceutical Expenditures....401 Pricing Practices of US Pharmaceutical Companies 410 Summary 415 Discussion Questions 416 Notes 417 References 418 26 Ensuring Safety and Efficacy of New Drugs: Too Much of a Good Thing? 421 History of Regulation of Prescription Drugs 421 FDA's Stringent Guidelines for Safety and Efficacy 425 Summary 433 Discussion Questions 435 Notes 435 References 437 27 Why Are Prescription Drugs Less Expensive Overseas? 439 Accuracy of Studies on International Variations in Drug Prices 440 Why Prescription Drugs Are Expected to Be Priced Lower Overseas 442 Public Policy Issues 445 Summary 449 Discussion Questions 450 Notes 450 Additional Readings 451 References 451 28 The Pharmaceutical Industry: A Public Policy Dilemma 455 Public Policy Dilemma 456 Structure of the Pharmaceutical Industry 456 Development of New Drugs by the US Pharmaceutical Industry 450 The Political Attractiveness of Price Controls on Prescription Drugs
Detailed Contents xix Consequences of Price Controls on Prescription Drugs 463 Summary 469 Discussion Questions 471 References 471 29 Should Kidneys and Other Organs Be Bought and Sold?....473 Sources of Organs for Transplant 473 Donor Compensation Proposais 477 Opposition to Using Financial Incentives 479 Additional Considerations 480 Summary 481 Discussion Questions 481 Notes 482 Additional Readings 483 References 483 30 The Role of Government in Medical Care 485 Public-Interest Theory of Government 486 Economic Theory of Regulation 488 Summary 494 Discussion Questions 495 Note 496 References 496 31 Medical Research, Medical Education, Alcohol Consumption, and Pollution: Who Should Pay? 497 External Costs and Benefits 498 Government Policies When Externalities Exist 501 Divergence Between Theoretical and Actual Government Policy 503 Summary 504 Discussion Questions 505 Notes 505 Additional Readings 506 References 506 32 The Canadian Healthcare System 507 Comparing the Canadian System with the US System 508 Controlling Healthcare Costs in Canada 509 Consequences of Strict Limits on Per Capita Costs 514 Is Canada Abandoning Its Single-Payer System? 521
XX Detailed Contents Should the United States Adopt the Canadian System? 522 Summary 523 Discussion Questions 524 Notes 525 References 525 33 Employer-Mandated National Health Insurance 529 The Uninsured 529 Why the Uninsured Do Not Have Health Insurance 532 Consequences of Employer-Mandated Health Insurance....533 State Health Insurance Exchanges 537 Political Consequences of Employer-Mandated Health Insurance 539 Summary 541 Discussion Questions 541 Notes 542 Additional Reading 542 References 542 34 National Health Insurance: Which Approach and Why? 545 Criteria for National Health Insurance 546 National Health Insurance Proposais 550 Fundamental Differences in Perspectives Regarding Government's Health Policy Role 560 Summary 560 Discussion Questions 562 Notes 562 Additional Readings 563 References 564 35 Financing Long-Term Care 565 The Nature of Long-Term Care 565 Current State of Long-Term Care Financing 568 Why Do So Few Aged Buy Private LTC Insurance? 571 Approaches to Financing Long-Term Care 575 Summary 57g Discussion Questions 579 Notes 579 References
Detailed Contents xxi 36 The Politics of Healthcare Reform 583 Differing Goals of Healthcare Reform 583 The Need for Visible Benefits to the Middle Class and Aged 586 Croups with a Concentrated Interest in Healthcare Reform..588 The Legislative Process 595 The Obama Administration^ Objective for Healthcare Reform: A Hypothesis 600 Implementation of the ACA 603 The Years Ahead 604 Discussion Questions 605 Notes 606 References 607 Appendix: A Brief Summary ofthe Patient Protection and Affordable Care Act of2010 611 Glossary 619 Index 631 About the Author 651