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U.S. Healthcare and the Law
University of California, Hastings School of Law
King, Jaime S.

·         Chief Concerns of HC System = Quality, Cost, Access, Choice
·         Political strength, economic power and culture and traditional influence how we view pros and cons of proposals/design/change our system
A.      Where did it all go?
1.       Most of it in 2013 went to (1) physicians + clinics + (2) Hospital care
2.       72% of it was paid for by Health Insurance à about 70% of that was government funded (federal and state) and 33% was private insurance
A.      Ways to Pay for HC in the US
1.       Private Insurance
a.       Employer Sponsored Insurance through Insurance Co (Maj)
b.       ER Self Insured but administered through Ins Co
c.        Non ER Group Insurance
d.       Individual Insurance
2.       Public Health Insurance/Gov Funded
3.       Out of Pocket/No Insurance
B.      Consequences of Not Lowering Costs
1.       Inaction by Uninsured/Those who cant’ afford it à skip care until absolutely nec aka most expensive
2.       High Co-Pays and Deductibles à 3P payers reduce their costs signif by establishing copays + high deductibles BUT cost reductions shifted directly to consumers
a.       May encourage consumers to forego HC they would’ve ordinarily used
b.       C/A: seen as necessary to induce consumers ot make financially responsible decision in consumption of HC services
III.   HOW WE COMPARE INTERNATIONALLY à first in nothing! We pay more for the same services but our quality is not better, it’s the same
A.      Most expensive HC system in the world
1.       Underperforms on most dimensions of performance
a.       Last on dimensions of access, patient safety, coordination, efficiency + equity
2.       Ranked against AUS, Canada GE, Netherlands, NZ, + UK à rank last
a.       Others ensure accessibility w/ universal health ins systems + better ties btwn Pts + physician practices
3.       Fail to achieve better healthcare outcomes
B.     Lagging in adoption of nat’l policies that promote primary care, quality improvement, + information technology
I.        REGULATION vs. COMPETITION (gov reg vs. private mkt vs. combo)
A.      Demand Curves
1.       Elastic Demand à Prices decreases as Quantity increases (slowly over time)
2.       Inelastic Demand à Price starts off higher and drastically decreases as Quantity increases in the slightest
B.      Not dichotomy (A or B) but Complimentary
C.      HC = “Regulated Industry”
1.       Subject to local/state/fed controls à bc purchase about 45% of all hc services
a.        Exs: Physician licensure, accreditation of hospitals + other health facilities, supervision of provider behavior by gov payers, reg of insurance industry practices, certificate of need reg reqing gov approval to open/add to HC facilities
D.      Gov Policy Lately à rely more on market competition over reg (even in sectors gov is payer aka medicare/caid)
1.       Much HC regulation aimed at strengthening impact of competition OR supplements/replaces market
2.       Market Improving Devices:
a.       Encouraging spread of HMOs and insurance products that promote consumer choice
b.       Removing regulatory barriers to competition through aggressive AT enforcement
c.        Regulating HI to encourage transparency and consumer choice
d.       Limiting providers’ ability to take advantage of position as agents + engage in self referral/kickbacks
A.      “Market imperfections” – market/regulatory failures that pervade financing and delivery of hc services
·         Result in suboptimal performance à undermine consumer welfare in commercial mkts for HC products/svcs
1.       Imperfect Agency Relations/“Imperfect Agents”: Subject to conflicts of interest OR do not fully understand needs of their consumers/patients (Ex: ERs, plans/insurers chosen by ERs, physicians)
a.       Most people “purchase” services w/assistance of multiple agents
b.       Justify Regulation for à physician referrals, prohibiting kickbacks
2.       Information gaps / Asymmetries in Info: Btwn Pts + providers & Uncertainty as to diagnosis/treatment/outcomes (pg 11)
a.       Technical nature of medical info & Complexity of Diagnoses + Treatment Alts: difficult for patients + 3P payers to determine cost, quality + necessity of medical treatment
i.         Makes judgments on causation (and thus costs and benefits of treatment) difficult
b.       Info asymmetrically distributed btwn providers, patients, and payers making info consumers need to shop in own best interest hard to acquire
i.         Physicans may “induce demand” for services OR make referrals based on own economic interest
ii.        Nearly impossible to learn exact prices in advance
c.        Justify Regulation of à physician licensure and regulation of insurance
3.       Moral hazard: overuse of medical care bc insurance lowers cost of each purchase for insured individ
a.       Condition health insurance mkts exhibit that give rise to market failures à Inefficiency from overuse
4.       Adverse Selection: Insurers have strong incentive to engage in favorable risk selections (ie seeking healthy cohort of beneficiaries)
i.         Justify regulation of à formation of large pools of insured + preventing risk selection
5.       Monopoly: important requirement of competitive market is presence of multiple buyers and sellers + ease of entry for new competitors
a.       Highly Concentrated Mkts: hospital svcs, physician specialty svcs, + commercial ins
b.       Large number of regulatory barriers inhibit entry into hospital/physician service markets (certificate of need, licensure, scope of practice laws)
c.        Justify regulation à designed to facilitate entry to prevent/offset mono power
A.      Result: caused deficiencies in quality bc uncoordinated + discontinuity of care (misdiagnosis/duplicative testing)
B.      Fragmented Delivery à Impairs effective bargaining + comparative shopping
1.       Absence of vertical integration (btwn physician svcs offered in clinical offices + hospital svcs) frustrates capacity of managed care/any payer to negotiate for cost effective bundling of services
C.      Fragmented Services inefficiently segment delivery: Physicians don’t coordinate across specialty lines/with inpatient facilities SO care delivery uncoordinated + episodic
D.      Consumer insulation from costs creates insensitivity: In hospital mkt patients delegate choice to Drs + don’t internalize hospitals costs
1.       Hospital benefits more by competing for physician affiliation via non

ovided in greater volume where capacity to provide them is greater à quality might be worse where such service use is higher
a.       Exs: non surgical conditions more likely to be hospitalized in regions with more hospital beds; Medicare enrolles seen by cardiologists more often in areas with more cardiologist
A.      Steady increase in premiums for employment-related insurance – ERs pass increasing share of health ins cost on to EEs à ERs less willing to offer insurance coverage + EEs less willing to accept it when its offered
1.       Lead directly to increasing #s of uninsured
2.       Pass on costs through cost sharing or cuts in benefits
B.      Public expenditures growing dramatically contributing to sense public programs are in crisis
C.      Consumers not able to make adjustments in their own spending bc hc mkt structure sucks
1.       Lack info about quality + price à not able to assess what that price info means;
D.      Social Optimum Level of HC à Marginal Benefits = Marginal Costs
E.       Cutler on Cost à You get what you pay for
1.       Problem: Tech advances; High Prices; Defensive Med; Bias toward invasive treatment; Overtreatment
2.       Quality Adjusted Life Expectancy (QALE): value of increased life expectancy
3.       Quality Adjusted Life Year (QALY): value of one addtl year of life modified by the quality of that year
F.       Cost Conundrum: costs might be high simply bc they are high  à providers are able to arbitrarily charge what they want bc they can. Providers need incentives to keep costs low
1.       Need to move away from fragmented, quantity driven care à should do this via incentives
2.       Lobbying force of HC industry is very powerful and makes it difficult to make changes
G.      Fuch’s Suggestions for Reducing Costs: Change supply to increase competition
1.       Improve underlying health of the population
2.       Administrative controls
3.       Create more cost conscious consumers
4.       Change physician payment to encourage cost controls
H.      How does ACA Reduce Unnecessary Costs?
1.       Requires “essential benefits package” be defined for health insurance plans
a.       Sec allowed states to define reqd benefits using typical ER provided health plans as benchmarks
b.       Typical private plan excludes categories of svcs that considered “special” or “educational”
2.       Reqs private insurers provide equality in their coverage of mental HC (but issues defining that)
SOLUTION à Create Incentives for Higher Quality + Lower Cost Care by:
(1) Increasing competition over quality and cost AND (2) Linking payment to quality and efficiency