Current and Future Economic Issues of the Healthcare Sector - Coursework Example

Economic Issues in Health Care work Introduction There are two reasons why the United States invests hugely in health care: first is a rising demand for health care and, second is waste and inefficiency. These two aspects are strongly associated with the distinctive features of the U.S. health care market. Five of the most important and pressing economic issues that confront the U.S. healthcare sector today and will continue to do so in the near future are the following: (1) physician-induced demand; (2) defensive medicine; (3) third-party payment; (4) rapid technological change; and (5) cost shifting. This paper thoroughly analyzes these five factors that are affecting the demand and supply, as well as the costs, of health care services in the United States. It also suggests specific strategies that relevant entities may use to address these issues from an economic perspective. Physician-Induced Demand Physician sovereignty implies that health care professionals, such as doctors, largely influence or regulate the demand for health care. People believe that they require the checkups, medicines, and therapies that the physician advises. Health care demands professional knowledge or expertise. People depend on the doctor. The physician could consider cost, but they are obviously minor (Culyer et al., 2011). Decisions are made based on established clinical knowledge and practice and the guarantee of appropriate, correct health care. The usual thriftiness of a consumer who weighs prices against one another thoroughly and makes budgets is nonexistent in health care. Although this is not essentially negative, it does further result in a greater demand for, and thus increasing costs of, medical care. Moreover, within conventional ‘fee-for-service insurance’, the higher the number of services that are suggested the greater the income the physician or hospital gets (Aizer, 2007, 405). This situation could result in unnecessary services with gains that are not equal or more than their costs. In fact, physicians may be inclined to over-service, over-test, and overprescribe, particularly if this excessive medical care lessens the possibility of an expensive medical malpractice case (Hicks, 2014). The over-demand produced by third-party payments is a perfect illustration of how consumer decision-making and behavior can be influenced by financial incentives. Consumers are simply acting in response reasonably to the incentive of a lowered price, and the unused or misused medical care is an indication of consumer preference. The result may not be socially desired, yet the consumer remains self-governing (Mechanic, 2005). Nevertheless, in the actual domain of health care, the physician usually has significant power over the care needed or asked for by the patient. Since the physician usually prescribes a treatment or guidelines, and the patient is apparently at liberty to accept or decline, the consumer is in the end autonomous in the sense that s/he has the ultimate power over medical care expenses (Culyer et al., 2011). Yet, many patients have little or no knowledge of medicine hence they normally easily agree to a doctor’s prescription. This grants physician substantial liberty to carry out their own choices. At best, it gives them the chance to exercise their dominant knowledge to convince patients that specific services are needed (Mechanic, 2005). If they take advantage of this chance to improve their own earnings by suggesting medical care that is futile or unneeded, the relationship between the physician and the patient is a cause of health care cost excess. At least three situations are required for the use of physician-induced demand (Moomaw et al., 2009, 172): “(1) asymmetric information (physicians have information that is superior to patients’ information) regarding the efficacy of health care alternatives; and (2) the desire of physicians to increase their own wealth.” Furthermore, the income of doctors should be based directly on the level of medical care that they recommend. The first two situations can certainly be observed in the U.S., even though doctors as a group are definitely driven by more than monetary incentive. The third situation is existent where doctors perform fee-for-service health care; namely, where a price is charged for every service given (Moomaw et al., 2009). Economists have observed a number of possible restrictions to the full application of physicians’ choices (Greenberg, 2002, 46-48): physician ethics-- some doctors may regard it wrong or unethical to suggest care that has uncertain positive outcomes; satisfaction maximization—capitalizing on satisfaction could be more vital to physicians than capitalizing on wealth; second opinions— second opinions may be demanded by third-party payers before they consent to pay for costly health care; information monitoring by patients—numerous patients have a certain extent of awareness of their health condition, and such knowledge is becoming easily accessible online; and, potential competition—recorded patterns of doctors’ location suggest visibly that physicians have been incapable of holding on to their market share due to increasing numbers of doctors. These findings indicate that physician-induced demand is barely even a negligible cause of elevated health care cost, but still an issue that may continuously affect health care. Defensive Medicine Medical malpractice cases are costly. Besides increasing malpractice insurance cost, which contributes to the increase in health care expenditure, the risk of malpractice cases forces doctors to exercise defensive medicine, which also pushes medical care costs upward. Instead of being convicted for negligence or sloppiness, physicians recommend tests that are essentially definite to be needless (Yosef, 2008). For instance, it has been calculated that 50 percent of the caesarean-section deliveries carried out in the U.S. annually are needless, yet malpractice risks are quite substantial when newborns are harmed in the birth process that caesareans are performed at the initial indication of any abnormality, in spite of their expensiveness (Hicks, 2014). Because of such aspects, physician sovereignty results in a greater total demand for health care, the possibility of waste, and increased health care expenditures. The legal system of the United States offers reward or incentive to patients who can verify that they have been victimized by medical malpractice. Physicians avail or purchase malpractice insurance as security against the monetary impact of medical malpractice. Malpractice insurance cost may have raised the frequency at which physicians perform defensive medicine (Culyer et al., 2011). The issue with defensive medicine is that this could be medical care with little or no benefit for the patient. The possibility of such practice is heightened if a third-party payer is involved, for doctors are less hesitant to suggest treatment of uncertain outcome when they are aware that their patients are not shelling out the total cost (Adeniran, 2004). Still, defensive medicine does not have to be uneconomical. It could lead to greater quality health care or a decrease in frequency of high-risk practices. All of these outcomes give benefits to patients. As stated by some doctors, defensive medicine is a leading aspect in the rise of their medical expenditures. Yet, the most commonly mentioned calculation suggests that it clarifies or justifies less than 1% of all health care costs (Picone et al., 2003, 56). Hence, it must be a very small cause of uneconomical costs. Third Party Payment Third-party payment implies that the bulk of medical expenses are paid for by either private insurance or government agencies. This system eases patients’ worry about their health care cost since they are not obliged to shell out directly for health care procedures. The indirect connection between health care costs and insurance premiums is weak—insurance premiums do not seem to be directly connected to the frequency of visits people make to the medical clinic or hospital or how often they go to the hospital emergency room (Bilodeau et al., 2000). When a third party answers for their health care, patients are more eager to and able to demand more health care services. Yet, this is not essentially negative. Nevertheless, similar to physician-induced demand, third-party payment elevates the demand for health care and thus its cost (Hicks, 2014). The technique to cut down health care expenditures is to reduce overuse of services by widening alternatives and personal accountability. The health care systems established nowadays deprive patients of motivations to limit expenditures. In granting the elderly and workers with substantial health care privileges afforded by third parties, the nation protected health care users from the actual costs of health care (Mechanic, 2005). Co-payments and deductibles comprise merely a portion of overall health care expenditures. The health care benefits paid for by employers or companies are largely tax-exempt or nontaxable and are in fact ‘concealed’ earnings to employees. The popularity of third-party payers (e.g. government, businesses, or insurance companies) protected consumers from their health care’s actual economic costs (Culyer et al., 2011). Third-party payments are very prevalent within the U.S. health care sector that medical services are prescribed in response to officials of insurance companies, rather than patients’ decisions in dialogue with their physicians. As stated by the National Center for Policy Analysis (Mechanic, 2005, 105): In many places, a hospital must receive telephone approval from a third-party bureaucrat before admitting a patient. The person giving or denying the approval has not met or examined the patient. The decision is based on a cost-benefit analysis using statistical averages, with little or no room for the nonaverage, abnormally sick patient. These decisions can have life or death consequences. Increased total health care expenditures and over-utilization are consequences of first-dollar coverage. Within the present system, health care users are somewhat uninterested in the cost of the health care services they get (Mechanic, 2005). The ongoing rapid increase of health care costs can merely be counteracted if the nation implements basic reforms which compel consumers to reduce use of needless services and force hospitals and physicians to compete based on quality and price. Rapid Technological Change Nuclear medicine, transplant procedures, magnetic resonance imaging, and kidney dialysis machines are several illustrations of medical technological developments recently. When hospitals or physicians spend for high-tech equipment and facilities, health care costs skyrocket. Medical professionals and their patients usually evaluate hospitals or clinics by the excellence of doctors (Greenberg, 2002). Trustworthy and reliable physicians usually prefer to work at hospitals that hold all the highly advanced technologies. This implies that hospitals contending for premium medical professionals should acquire it all. Hence, costly equipment is reproduced in some hospitals. Physicians should employ the technology to explain its use and importance. Their requests for costly tests, medicines, or treatments rise, comprising an increase in the total demand for medical care services (Aizer, 2007). Numerous professionals argue that costly and fast progressing technology is the leading factor pushing health care costs upward. One of the rapidly developing components in medical technology expenditure nowadays is prescription drugs. Newly produced pharmaceutical goods and/or services can lengthen the life span and enhance the quality of life. Although they are usually cost-effective or economical compared to treatment outcomes that may have been avoided with medications, numerous of these new medicines are very costly (Picone et al., 2003). Some of the medicines could also draw or attract consumers into the health care sector. For instance, professionals calculate that most of Viagra purchases were made by adult males who had not been treated for impotence beforehand (Yosef, 2008). Therefore, expenditures on prescription medicines has rose quickly, and demand for these medicines, alongside other types of health care technology, is portion of the total rise in demand for health care services. Cost Shifting Obligation for limiting the costs of health care services is quite dispersed hence efforts to maintain lower costs are problematic. Third-party payment encourages the patients and their family members to be complacent about the costs of their health care. Hospital officials find it quite simple and convenient to transfer added expenditures for required treatments (Hicks, 2014). Moreover, doctors and hospitals regularly embark on cost shifting, which is the handing over of some of the patients’ unpaid expenses to highly insured patients by means of increases in fees. The hospital repayment processes of Medicare and Medicaid usually leave part of the patient’s expenses uncovered, and several hospitals provide medical services for critical conditions although payment is questionable. They afterward cover these unpaid expenses by increasing their rates and demanding greater amount from insurance companies for the medical services given to well-insured patients or from wealthy, uninsured patients (Moomaw et al., 2009). Cost shifting misleads choices made about medical care and confounds the appraisal of treatment costs. Specific Strategies to Address the Selected Issues from an Economic Perspective Due to the numerous challenges in U.S. health care, numerous solutions have been recommended. Several of these solutions approach a more market-driven direction; other solutions depend on higher government intervention in the health care sector. Some political experts and traditional economists claim that the government has excessive power over the health care sector in the U.S. They call for the removal or a substantial decrease in the government’s involvement in the health care system (Culyer et al., 2011). The strong point of free markets is their competence in comparing private supply and demand, provided that competitive markets are present. This idea raises arguments in support of a restoration of free markets on the supply and demand curves of the health care industry (Mechanic, 2005). As regards health care’s supply side, traditional economists claim that a more competitive, privatized supply of medical services would lead to reduced expenditures. Several hospitals are not managed or operated on a for-profit term; other objectives, like providing premium total care, employing the latest technologies, or focusing on specific services, are most important. The privatization of state-run and state-held hospitals and other changes to raise competition among hospitals, it is asserted, would oblige them to focus more on profit, hence reducing much incompetence (Bilodeau et al., 2000). Competition in the health care industry assumed a liberal point of view with the initial recommendation of President Obama for health care restructuring. Claiming that health insurance firms require competition so as to ‘keep them honest,’ (Hicks, 2014, 95). Obama suggested a public alternative that would contend with private insurance. People would have an option between the public insurance and the private insurances. When governments answer for health care services, they are authorized to determine payment rates and should specify what is availed. Some governments across the globe have enforced rigid rules on what they will shoulder, whereas other countries tolerate more individual preference in health care. In creating a health care approach, it is important to identify what populations or groups will public subsidy include (Yosef, 2008). Choices for coverage can be universal or could be restricted to a specific economic status or age. On the other hand, private financing is the process of subsidizing healthcare by individuals, or in certain instances, by insurance companies. In the U.S., the company has traditionally bought health insurance for its employees (Culyer et al., 2011). The U.S. has the bottommost out-of-pocket expenses as a portion of private spending on health care. The outcome has been a division between the level of care received by the insured consumer and the sum s/he shells out for medical services. Many claim that the absence of personal financial accountability has led to increased health care cost in the U.S. In contrast, in India people are obliged to shoulder the bulk of health care expenses, but usually do not have the capacity to pay, leading to poor health condition (Hicks, 2014). The solution is proper balancing of accountability for financing in order to create an economically stable and effective health care system. Conclusions The United States invests huge and rising amounts of resources in health care. In spite of this substantial investment, the country does not have the best health outcomes in the world. The market for health care brings about inflated demand and poor regulation of costs. In consequence, the nation is confronting skyrocketing health care expenditures, waste and inefficiency, and imbalanced or exclusive health care access. Alternative solutions for the five problems discussed in this paper-- (1) physician-induced demand; (2) defensive medicine; (3) third-party payments; (4) rapid technological progress; and (5) cost shifting—are enhancing competition and privatization, modification of current Medicare and Medicaid systems, creation of national health insurance, and promotion of managed care processes. References Adeniran, R. (2004). The United Kingdom and the United States Health Care Systems: A Comparison. Home Health Care Management & Practice, 16(2), 109-116. Aizer, A. (2007). Public Health Insurance, Program Take-Up, and Child Health. Review of Economics and Statistics, 89(3), 400-415. Bilodeau, D. et al. (2000). Hospital Cost Function in a Non-Market Health Care System. Review of Economics and Statistics, 82(3), 489-498. Culyer, A. et al. (2011). Handbook of Health Economics. New York: Elsevier. Greenberg, W. (2002). The Health Care Marketplace. New York: Beard Books. Hicks, L. (2014). Economics of Health and Medical Care. Sudbury, MA: Jones & Bartlett Publishers. Mechanic, D. (2005). Policy Challenges in Modern Health Care. New York: Rutgers University Press. Moomaw, R. et al. (2009). Economics and Contemporary Issues. Mason, OH: Cengage Learning. Picone, G. et al. (2003). Does Higher Hospital Cost Imply Higher Quality of Care? Review of Economics and Statistics, 85(1), 51-62. Yosef, A. (2008). Health beliefs, practice, and priorities of health care of Arab Muslims in the United States: Implications for Nursing Care. Journal of Transcultural Nursing, 19(3), 284-291. Read More