Health Law Outline

Health Policy: The Firm, The Market & The Law (Hammer – Winter 2009)
TERMS and CONCEPTS (part 1 of exam – pp 1-12)
Readings (pp 13-31)
 
Agency problems
Eggertsson
Casalino
Chernew – Role of employers
·         1963 – agency failure – over provision of care; moral hazard
·         Managed care – agency failure is underprovision of care
·         Employer’s role today – norms and expectations
·         Parallel between this and physicians
o   Model of contracting – issues before, physicians would not go along with moral hazard control
·         Now employer role – more consistent
o   Physician as facilitator
·         Self insured employers – motivation to limit care
·         Agent – employer; principle – employee
·         Agency abuse
·         Competition in the labor market – if more competitive, less opportunity for agency failure
 
Robinson quote – agency theory in FFS
·         Good for individualized standardized tasks
·         Logic –
o   Example garment industry – workers paid by the item (like FFS)
o   What form of compensation is most efficient?
·         FFS Not useful
o   Complex coordination
Capitation and the trust relationship
·         Agency failure – multiple agency relationships
·         Conflicting agency relationship with patient
o   Incentive aligned against treating patient
o   Undermines trust relationship
·         Negative reaction – backlash expected
·         Moral hazard control – MC – Chernow
 
Capitation
·         Internalize cost
·         Supply side cost rationing
·         Engage in direct benefit comparison
·         Agency failure – under provide care
 
Moral hazard (Arrow, Notes p 45)
·         I insure you for something, then I distort your behavior
·         Insurance will change individual incentives
·         When individual no longer internalizes consequences they will behave in riskier ways
o   Less likely to lock doors if I have insurance to cover my CD player
·         Take less precautions
·         Demand for health insurance – how I consume health care resources
·         If I pay out of pocket – then cost benefit assumptions on my own, implicit rationing, compare marginal costs and benefits
·         If insured, is there any benefit – consume as long as marginal benefits are positive
·         Physicians can act as insurers agent and control demands of patients
o   Not how one typically thinks of it – rather physician as patient’s agent
·         Physician services – more ability to abuse as compared to hospital services
·         History of insurance – inpatient hospital available earliest
o   Less moral hazard risk
Glied
Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.
For example, an individual with insurance against automobile theft may be less vigilant about locking his or her car, because the negative consequences of automobile theft are (partially) borne by the insurance company
Moral hazard is related to information asymmetry, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.
A special case of moral hazard is called a principal-agent problem, where one party, called an agent, acts on behalf of another party, called the principal. The agent usually has more information about his or her actions or intentions than the principal does, because the principal usually cannot perfectly monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned.
In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer, since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service—which would otherwise not be necessary. In these instances, individuals have an incentive to over consume, simple because they no longer bear the full cost of medical services.
Without medical insurance, some may forego medical treatment due to its costs and simply deal with substandard health. But after medical insurance becomes available, some may ask an insurance provider to pay for the cost of medical treatment that would not have occurred otherwise.
Sometimes moral hazard is so severe it makes insurance policies impossible. Coinsurance, co-payments, and deductibles reduce the risk of moral hazard by increasing the out-of-pocket spending of consumers, which decreases their incentive to consume. Thus, the insured have a financial incentive to avoid making a claim.
1)      Moral hazard problems – ways to address
a.       Supply side cost sharing
b.      Direct monitoring of utilization
                                                              i.      Utilization review
c.       Shift search function from consumers to insurers who bear financial risk of use
                                                              i.      Closed or preferred provider panels
d.      New technology – introduction and diffusion
2)      Differs when managed care is dominant
 
Moral hazard control
·         Restricting access
·         If competitive dynamic in market could
o   Requires ability to define quality and communicate it
·         Patient protection rights, grievance procedures
o   Institutional responses to establish trust – due process rights
·         Capitation threatens trust
·         MC-specific structures that try to be trustworthy
 
Moral hazard
o   Business with no internalization of bad outcomes
 
Dynamic moral hazard
Chernew
Glieb
·         Implications over time
·         Distorted effects of insurance
·         When risk is removed, changes incentives and behavior
·         Changes consumption levels
 
Overconsumption once you are insured
 
Market failures led to institutional responses led to further market failures
 
Dynamic – what is the feedback loop?
·         Insurance covers anything medically necessary
·         Medical device industry
·         New will be paid for
·         Creates incentives
·         Compounds over time
Dynamic moral hazard
·         T