Kinh tế học - Industry overview

Industry OverviewHealth EconomicsProfessor Vivian HoFall 20091Health Care Expenditures in the United States, 1960-2007 1960 1970 1980 1990 2000 2005 2007 Nominal health expenditures $27.5 74.9 253.9 714.0 1,353.3 1,987.7 2,241.2(billions of dollars)Annual rate of growth -- 10.5% 13.0 10.9 5.9 8.9 6.2(average annual % changefrom previous period shown)Nominal per capita health $148 356 1,102 2,813 4,790 6,697 7,421expendituresHealth expenditures as 5.2% 7.2 9.1 12.3 13.8 16.0 16.2percentage of GDPSource: CMS Homepage: Health Care Industry is Rapidly EvolvingAdvances in medical technology and drugs are dramatically improving patient careBut, these improvements are costlyAging U.S. population % 65 years+ 1950 8.1 1970 9.8 2008 12.8 3Increased cost containment effortsChanges in government reimbursement of health care providersPrivate insurers are exercising more control over patient careIncreased competitive pressuresMergers of existing providersEntry of new competitorsWhere are the most promising business opportunities?The Health Care Industry is Rapidly Evolving4Which category has the largest share of health care expenditures?Hospital CarePhysician CarePrescription Drugs5America’s Top 100 Fastest-Growing CompaniesFORTUNE, September 29, 2008100 RANKCOMPANYEPSGROWTHRATEREVENUES(millions)WHAT THEY DO9Intuitive Surgical62%753.7Makes and services surgical robots that allow for less invasive procedures29Natus Medical57% 139.8Makes products to detect, treat and monitor newborn health conditions64Psychiatric Solutions44%1686.0Provides in-patient behavioral-health services in 27 states66Omnicell26%238.6Sells devices for controlling, dispensing and tracking medications in 1,100 hospitals67Kendle International44%633.3Provides support for clinical development, regulatory affairs, biometrics, and late phase projects70Health Extras57%2233.3Manages 60,000 network pharmacies that process prescriptions (now Catalyst Health Solutions)76Amedisys43%900.7Provides home health care and hospice services94Allscripts Healthcare Solutions46%300.4Develops software for doctors to reduce errors, costs, and paper in charts, prescriptions and orders6PHARMACEUTICAL INDUSTRYU.S. prescription drug expenditures reached $228b in 2007Industry highly dependent on research and development (R&D)$897m to bring a new drug to marketAggressive marketing to physicians, hospitals, pharmacists, and even the patient7PHARMACEUTICAL INDUSTRYPfizer$48.3b in sales in 200840.8% of sales come from 4 drugs: Lipitor, Lyrica, Celebrex, Norvasc.8PHARMACEUTICAL INDUSTRYThe Wall Street Journal Online April 6, 2005Pfizer Plans a RevampAnd $4 Billion in Cost CutsDrug Giant Scales BackEarnings Estimates, Citing Patent and Safety Woes9MANAGED CARESystems which manage the quality and cost of patient careMost common: Health Maintenance Organization (HMO)Consumer pays a fixed annual capitation fee, for which HMO agrees to provide comprehensive medical services21% of U.S. population (64.5m) enrolled in 200910MANAGED CAREADVANTAGE: If capitation fee > costs, HMO keeps the profitDISADVANTAGE: HMO responsible for cost overrunsSubject to lawsuits if provides sub-optimal care11WSJ 2/17/9812LONG-RUN KEY TO SURVIVALBe an efficient provider of high-quality patient care13Can we apply the tools of economics to study the health care sector?14Valuing Human LifeIndividuals make decisions everyday that reflect how they value health and mortality risks.Driving a carSmoking a cigaretteEating a medium-rare hamburgerNote: These slides draw from material in Viscusi WP and Aldy JE, “The Value of a Statistical Life: A Critical Review of Market Estimates Throughout the World,” The Journal of Risk and Uncertainty 2003; 27(1): 5-76.15Valuing Human LifeMany of these decisions involve observable market choicesPurchase of a safety device.Working on a risky job.These decisions involve implicit tradeoffs between risk and money.Economists can use data on these decisions to construct the value of a statistical life (VSL).16Valuing Human LifeExample: How much additional money must a firm offer a worker to take on a risky job, versus one with no risk?To answer this question, one could compare the average wages of risky jobs vs. non-risky jobs.Working as a coal miner is more risky than working as an investment banker, but investment bankers get paid more.One must examine the tradeoff between wages and risks, holding constant all other factors that influence pay.17Valuing Human LifeDataset with observations on workers, their annual Earnings, worker characteristics, job characteristics, including the risk of dying on the job in that worker’s industry.Ln(Earningsi) =α0 +α1(Educationi) + α1(Experiencei) + α2(Management Positioni) + α3(Fatality Riskj) + εijOne can estimate this regression, and the estimate of α3 can be used to derive a VSL. 18Valuing Human LifeSuppose the estimated coefficient α3 = 300. This implies that a worker requires 300 times more earnings for a job with a 100% fatality risk versus a job with a 0% fatality risk, holding all other factors constant.If average earnings are $32,000 then the VSL = $32,000 * 300 = $9,600,00019Valuing Human LifeData on worker characteristics is available from the Bureau of the Census.The Department of Labor collects data on fatal occupational injuries by industry.U.S. Occupational fatality rates by industry, 2005IndustryBLS, CES surveyNatural resources and mining139.0Mining28.3Construction16.2Manufacturing2.8Trade, Transportation, & Utilities5.8Wholesale Trade3.5Retail Trade2.6Financial Activities1.2Educational & Health Services0.9Fatality Rates Per 100,000 Workers20Valuing Human LifeLabor market data from the U.S. typically finds a VSL $4m to $9m in year 2000 dollars.One can also estimate a VSL based on the prices that people pay for safety devices that reduce the risk of death.Price of smoke detectors vs. reduction in fire fatality risks.Premium paid for areas with low air pollution vs. reduction in death from clean air.Price of children’s car seats vs. reduction in auto fatalities when in use. 21Policy ImplicationsU.S. agencies are required to compare the costs of proposed regulations to the benefits, which are often in terms of lives saved.Values of a statistical life used by U.S. Regulatory Agencies, 1985-2000AgencyRegulationValue of a statistical life (millions, 2000 $)Federal Aviation AdministrationProtective Breathing Equipment$1.0Food & Drug AdministrationRegulations Restricting the Sale & Distribution of Cigarettes & Smokeless Tobacco to Protect Children & Adolescents$2.7Environmental Protection AgencyNational Ambient Air Quality Standards for the Ozone$6.322Policy ImplicationsShould the VSL vary with:Age?Income?Country?23ConclusionBecause resources are limited, health economists are concerned with determining what medical services to produce, how they should be produced, and who should receive themAs we will see in this course, the tools of economics can be applied to the health care sector to derive valuable insights about our health care system24