Read the slides because he didn't actually go through them
- Activity based funding
- Money given to hospitals based on services provided to and complexity of patients
- Private hospitals do this and then add on a margin for profit
- They calculate an average expenditure for the same service in comparable hospitals
- They don't do this for rural hospitals as they're more complex - block funding
- Hospital stay on average used to be 8 days. Now it's 4 days.
- This is partly due to technology and partly due to change in funding system
- They're rolling this out in accident/emergency. In future this will be in all activity based care.
- Health care is 9.4% of GDP (=$500/capita)
- Bulk billing = GPs are paid $33 per patient by the government. If they want more, then they can't bulk bill.
- 95% of the money is spent on intervention. 5% is on prevention
- Economics applied to healthcare
- How to use the resources to deliver the best possible outcomes
- The economic problem is scarcity of resources
- Resources = land, labour and capital. Each of these has multiple uses. Time is also a limited resource.
- Scarcity implies choice. The choice is how to allocate resources.
- Opportunity cost = lost use of something due to choosing one thing over another due to scarcity of resources (i.e. time).
- E.g. in medicine we're spending a lot of time on this study that we could have spent earning more money somewhere else. This is the opportunity cost of our time
- Neonatal intensive care is very expensive in rich societies because we can afford to save their life (will spend up to $100k). In poor countries there is no neonatal intensive care because they can't justify spending that much money on one person.
- In Australia, the cutoff is 24 weeks (this is the cutoff for heroic measures to save lives).
- Public health is a zero sum game so opportunity cost applies
- So we use economics to justify life and death choices
- What should be produced?
- How should it be produced?
- We are a high-labour cost country, so we use technology to replace labour.
- Who gets to consume it?
These are all just opportunity cost decisions.
- The market system (capitalism; price system - based on supply and demand)
- Based on consumer choice - one dollar one vote
- There is a risk in putting a new product on the market - people don't want them
- Profits and losses. Profit = produce more. Losses = go out of business. So we need to produce something at the least cost
- Government decides
- E.g. heroin, cocaine, rifles are banned
- Some combination of the two
- Want it an can afford it --> get it
- ' can't afford it --> can't get it
- Don't want it --> no need to buy it
- Efficiency of market is the opposite of equity
- Because having a PoW in a rural area is not efficient
- The market is voluntary and follows these 3 rules EXCEPT in the case of healthcare and education, which the government says everyone should have
Examples of efficiency
- Allocative efficiency
- Correct balance between hospital based and community based health services
- Often based on politics (e.g. marginal seats) rather than economics
- Technical efficiency
- Provision of hospital services to maximise cost efficiency e.g. hospital in the home
- Should all Australians have equal access to health care?
- But equal access is VERY expensive -- so there is a cost to equity
- Do all Australians have equal access to health care?
- Should healthcare be allocated on the basis of ability to pay?
- Takes a long time for the govt. to react and to move health services to where the population is (e.g. a lot of public hospitals east of Homebush, most of population is West of population)
Distinctive features of health
- Risk and uncertainty - high cost of some treatments
- Uncertain about what someone's health status is - whether we'll be healthy next year is a mystery
- Most individuals couldn't pay for some treatments - hence we need insurance
- The more people who insure, the less the average risk - you're pooling risks
- Insurance makes sense for low frequency high impact events (not for high frequency low impact) e.g. don't insure for GP consultation
- Everyone pays the same premium irrespective of risk. You're not risk assessed in healthcare - it is community rated (except for special extenuating circumstances)
- Risk rating is deemed inappropriate in Australia - because the point of insurance is to spread the risk from high risk people to low risk people
- People tend to underinvest in that particular product. E.g. vaccination has a benefit to society as well as to the individual.
- E.g. underinvesting in healthcare - but being healthy is good for your productivity etc
- Smoking - give an external bad to someone else
- Because of this people overproduce or underproduce
- Asymmetry of information between consumers and providers
- Drs and nurses should know more about the illness than the patient does
Supplier induced demand
- Doctors are paid a fee for each service they provide and the fee is set greater than a "competitive" level
- Incentive to provide more services than would be the case if the consumers were fully informed and operating in a truly competitive market
- E.g. doctors order x-rays etc for reasons that the patient doesn't know
- The question becomes "is it excessive?" - a conflict of interest
- Problem is: fee for service + someone else pays
- E.g. mechanic - because you have to pay for it, you have rational choice not to pay. It is possible that you can get excess servicing.
- There probably should be more supplier induced demand in medicine in Australia
- Medicare should be a probing system where people do get recalled for appropriate testing because it will result in better outcomes