At the Intersection of Health, Health Care and Policy Cite this article as: Alan R. Weil Markets, Prices, And Incentives Health Affairs, 34, no.6 (2015):902 doi: 10.1377/hlthaff.2015.0574
The online version of this article, along with updated information and services, is available at: http://content.healthaffairs.org/content/34/6/902.full.html
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Health Affairs is published monthly by Project HOPE at 7500 Old Georgetown Road, Suite 600, Bethesda, MD 20814-6133. Copyright © 2015 by Project HOPE - The People-to-People Health Foundation. As provided by United States copyright law (Title 17, U.S. Code), no part of Health Affairs may be reproduced, displayed, or transmitted in any form or by any means, electronic or mechanical, including photocopying or by information storage or retrieval systems, without prior written permission from the Publisher. All rights reserved.
Not for commercial use or unauthorized distribution Downloaded from content.healthaffairs.org by Health Affairs on November 15, 2015 by guest
from the editor-in-chief
DOI: 10.1377/hlthaff.2015.0574
Markets, Prices, And Incentives by alan r. weil
M
arkets have seemingly magical powers— think of the “invisible hand”—but they also contain dark magic, distorting behavior to achieve pecuni ary interests that may come at the ex pense of people’s health. This month’s Health Affairs variety issue includes a number of papers that examine how health care markets function and how policies that set prices create incentives for behavior—both desirable and un desirable. provider markets and incentives The effect of hospital market consoli dation on prices has received a great deal of attention, but less is known about physician practices. Eric Sun and Laurence Baker examined the trend toward greater concentration in ortho pedic practices. While physician fees for total knee arthroplasty, a common procedure, fell overall by $261 between 2001 and 2010, the fees increased by $168 in markets that moved from the lowest to the highest level of concen tration. These findings confirm that physicians are able to command higher prices when there is less competition among them. In an effort to discourage short stays, Medicare changed payment methods for long-term care hospitals in 2002. Longer stays are paid on a cost basis, while shorter stays are paid at a much lower rate, creating a strong financial incentive to keep patients past the threshold at which their stay shifts to being considered long term. Yan Kim and colleagues examined patient dis charge patterns before and after the policy change and found strong evi dence that the new financial incentives
902
health affairs
june 2015
affected patient care. Before the policy change, discharges occurred at all times; after the change, discharge rates spiked on the day the patient moved from short-term to long-term status. Another Medicare initiative designed to change hospital behavior is the Hos pital Readmissions Reduction Program. Adopted as part of the Affordable Care Act, it levies penalties on hospitals with above average readmission rates associ ated with specific conditions. While de clining readmissions have been widely reported, less is known about possible unintended program effects, such as increased use of outpatient emergency care or observation status—methods hospitals could use to mitigate the pen alties. Kathleen Carey and Meng-Yun Lin analyzed hospital behavior in New York and found declining readmissions for conditions included and excluded from the program, with little evidence of unintended effects. labor markets The labor market also has a significant effect on health care costs, with salaries accounting for half of all health care expenditures. Sherry Glied and col leagues compared salaries in the health care sector to those of similar workers in other sectors. Although overall dif ferences were small, the experience of health professionals—particularly doctors and nurses—stood out. The au thors found that the earnings premium for physicians—the excess over what would be predicted based on education and experience alone—rose from 21 percent in 1984 to 58 percent in 2008. Demand for long-term services and supports by older Americans is ex pected to double in the first half of this century, bringing with it tremendous
need for additional professional and nonprofessional workers. While many have projected labor shortages, Joanne Spetz and colleagues examined those projections in the context of certain as sumptions about the future needs of el ders. For example, the racial and ethnic composition of the elderly population will be more Hispanic, non-Hispanic black, and non-Hispanic nonwhite over the coming decades. The disease burden and care preferences of these groups will have a significant effect on the size and composition of the work force that will be necessary to meet fu ture needs. Zachary Wagner and colleagues ex amined a very different relationship between health and labor markets. The AIDS epidemic in sub-Saharan Africa is estimated to have depressed economic growth in that region by a few percent age points. The President’s Emergency Plan for AIDS Relief (PEPFAR) devoted billions of dollars to treatment, yield ing substantial health improvements. The authors found dramatic increases in male employment in PEPFAR coun tries, generating economic growth of approximately half of the program’s costs. incentives for public health Most of us don’t think of safe driving in the context of markets, but research by Shantha Rajaratnam and colleagues might lead us to change our approach. In 2007 Massachusetts greatly in creased restrictions on and penalties for teenage drivers. The results were dramatic: double-digit percentage de clines in crashes for the youngest driv ers, and sizable declines for those ages eighteen and nineteen. In essence, the “price” of breaking the rules against unsupervised nighttime driving in creased, with the notable effect of a reduction in motor vehicle accidents— the leading cause of teenage death in the United States. We hope this collection of papers sheds light on the power of markets and incentives, both in the United States and around the world. n
34:6
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The online version of this article, along with updated information and services, is available at: http://content.healthaffairs.org/content/34/6/902.full.html
For Reprints, Links & Permissions: http://healthaffairs.org/1340_reprints.php E-mail Alerts : http://content.healthaffairs.org/subscriptions/etoc.dtl To Subscribe: http://content.healthaffairs.org/subscriptions/online.shtml
Health Affairs is published monthly by Project HOPE at 7500 Old Georgetown Road, Suite 600, Bethesda, MD 20814-6133. Copyright © 2015 by Project HOPE - The People-to-People Health Foundation. As provided by United States copyright law (Title 17, U.S. Code), no part of Health Affairs may be reproduced, displayed, or transmitted in any form or by any means, electronic or mechanical, including photocopying or by information storage or retrieval systems, without prior written permission from the Publisher. All rights reserved.
Not for commercial use or unauthorized distribution Downloaded from content.healthaffairs.org by Health Affairs on November 15, 2015 by guest
from the editor-in-chief
DOI: 10.1377/hlthaff.2015.0574
Markets, Prices, And Incentives by alan r. weil
M
arkets have seemingly magical powers— think of the “invisible hand”—but they also contain dark magic, distorting behavior to achieve pecuni ary interests that may come at the ex pense of people’s health. This month’s Health Affairs variety issue includes a number of papers that examine how health care markets function and how policies that set prices create incentives for behavior—both desirable and un desirable. provider markets and incentives The effect of hospital market consoli dation on prices has received a great deal of attention, but less is known about physician practices. Eric Sun and Laurence Baker examined the trend toward greater concentration in ortho pedic practices. While physician fees for total knee arthroplasty, a common procedure, fell overall by $261 between 2001 and 2010, the fees increased by $168 in markets that moved from the lowest to the highest level of concen tration. These findings confirm that physicians are able to command higher prices when there is less competition among them. In an effort to discourage short stays, Medicare changed payment methods for long-term care hospitals in 2002. Longer stays are paid on a cost basis, while shorter stays are paid at a much lower rate, creating a strong financial incentive to keep patients past the threshold at which their stay shifts to being considered long term. Yan Kim and colleagues examined patient dis charge patterns before and after the policy change and found strong evi dence that the new financial incentives
902
health affairs
june 2015
affected patient care. Before the policy change, discharges occurred at all times; after the change, discharge rates spiked on the day the patient moved from short-term to long-term status. Another Medicare initiative designed to change hospital behavior is the Hos pital Readmissions Reduction Program. Adopted as part of the Affordable Care Act, it levies penalties on hospitals with above average readmission rates associ ated with specific conditions. While de clining readmissions have been widely reported, less is known about possible unintended program effects, such as increased use of outpatient emergency care or observation status—methods hospitals could use to mitigate the pen alties. Kathleen Carey and Meng-Yun Lin analyzed hospital behavior in New York and found declining readmissions for conditions included and excluded from the program, with little evidence of unintended effects. labor markets The labor market also has a significant effect on health care costs, with salaries accounting for half of all health care expenditures. Sherry Glied and col leagues compared salaries in the health care sector to those of similar workers in other sectors. Although overall dif ferences were small, the experience of health professionals—particularly doctors and nurses—stood out. The au thors found that the earnings premium for physicians—the excess over what would be predicted based on education and experience alone—rose from 21 percent in 1984 to 58 percent in 2008. Demand for long-term services and supports by older Americans is ex pected to double in the first half of this century, bringing with it tremendous
need for additional professional and nonprofessional workers. While many have projected labor shortages, Joanne Spetz and colleagues examined those projections in the context of certain as sumptions about the future needs of el ders. For example, the racial and ethnic composition of the elderly population will be more Hispanic, non-Hispanic black, and non-Hispanic nonwhite over the coming decades. The disease burden and care preferences of these groups will have a significant effect on the size and composition of the work force that will be necessary to meet fu ture needs. Zachary Wagner and colleagues ex amined a very different relationship between health and labor markets. The AIDS epidemic in sub-Saharan Africa is estimated to have depressed economic growth in that region by a few percent age points. The President’s Emergency Plan for AIDS Relief (PEPFAR) devoted billions of dollars to treatment, yield ing substantial health improvements. The authors found dramatic increases in male employment in PEPFAR coun tries, generating economic growth of approximately half of the program’s costs. incentives for public health Most of us don’t think of safe driving in the context of markets, but research by Shantha Rajaratnam and colleagues might lead us to change our approach. In 2007 Massachusetts greatly in creased restrictions on and penalties for teenage drivers. The results were dramatic: double-digit percentage de clines in crashes for the youngest driv ers, and sizable declines for those ages eighteen and nineteen. In essence, the “price” of breaking the rules against unsupervised nighttime driving in creased, with the notable effect of a reduction in motor vehicle accidents— the leading cause of teenage death in the United States. We hope this collection of papers sheds light on the power of markets and incentives, both in the United States and around the world. n
34:6
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5/27/15 12:11 PM
