health services management econ

healthcare organization

• An entity designed for a specific purpose:

  • To create products provide services, using people and resources to improve health; and

  • To maintain relationships with customers, suppliers, competitors, and regulators

direct care

• Provide healthcare services to individual people firsthand

• Traditionally paid by insurance

non direct care

• Provide products and services that support healthcare services

• May be paid by insurance or out-of pocket

healthcare management 

Accomplishing organizational goals by controlling and regulating activities and behaviors within established relationships to coincide with previously established plans

planning

• set priorities and performance targets

organizing 

•  designate reporting relationships and responsibilities

staffing

•  recruit, develop, and retain workforce

controlling 

• monitor performance and take corrective action

directing

•  lead, motivate, and communicate with staff

decision making 

•  weigh pros and cons of alternative actions 

systems theory

• Measures workplace effectiveness based on interaction between organization and its environment

  • Open vs closed system

  • To what extent is the organization interacting with its environment?

• We have to pay attention to the people and how they are relating to one another in the organization, while also focusing on outside processes

patient centered management

• Systems approach, interdisciplinary

• Addressing root causes of disease, social determinants of health, patient engagement, collaboration, cultural competency

leadership - board of directors

• Establish mission

• Set vision

• Motivate stakeholders

• Be effective spokesperson

• Determine future strategy

• Transform organization

• Network

management - staff

• Staff personnel 

• Assure patient centered practices

• Control resources

• Supervise services provided

• Oversee adherence to regulations

• counsel/develop employees

• Manage operations

organizational culture

• Shared beliefs, attitudes, and behavior that prescribe the way things are dine

• The character, personality, and experience of organizational life

• Guiding principles defined and shaped by the organization’s values, mission, vision, and managers

mission statement 

• Fundamental purpose

• What the organization does, for whom, and why

• Broad and enduring

vision statement

• Desired future state

• What organization plans to accomplish over a period of time (ex 3 to five years)

values

• Principles in which organization believes

• Shape purpose, goals, and daily behavior

• Serve as a foundation for activities

healthcare organization governance

Responsibility for organization’s strategic oversight

governing body

• Group of people who collectively assume responsibility for organization’s governance

• Board of trustees - nonprofits

• Board of directors - for profits

sources of authority

• State law

• Organization’s bylaws

• Articles of incorporation

board member duty of care

• Act with good faith and competence - ordinarily prudent person in similar circumstances

• Make informed reasonable decisions

board member duty of loyalty

• Act in organization’s best interest

• Avoid conflicts of interest/do not use information for personal gain

board member duty of obedience

• Act consistent with organiations goals and missions

• Follow the law and organization rules

governing board responsibilities

• Strategic planning, including mission vision and value

• Oversight of quality performance and measurement 

• Financial oversight

• Ceo selection, performance, evaluation, and succession planning

• Risk and identification and oversight

• Communication and accountability

• Governance

ex officio board members

• Employees are not usually governing board members

• The CEO may be an ex officio board member

  • Does not vote

  • Serves on the board as a result of their employment in that job

for profit organizations

• Public investor owned or private equity

• Goal compensate investors
  How is profit used?

  • Distribute profit to shareholders

• Do they pay income tax?

  • yes

• Must they offer charity care?

  • May offer to be a good citizen but no tax advantage for doing so

nonprofit organizations

• Public charity or Private foundation

• Benefit the public - promotion of health for a community’s benefit 

• How is profit used?

  • Reinvest profit back into organization

• Do they pay income tax?

  • Exempt from income tax

• Must they offer charity care?

  • Must provide some charity care in exchange for tax exempt status

revenue

 what the organization earns from providing services

• money available to fund operations

expenses

 what it costs the organization to provide servies

profit (or loss)

 total revenues minus total expenses

profit margin

 profit divided by total revenue 

990 summary

• Number of employees

• Number of volunteers

990 mission and programs

• Brief description of mission

• Accomplishments for 3 largest program service areas

990 governance, management, and disclosure

• Number of voting members on governing body

• Conflict of interest policies

990 compensation

• Names of current board members (typically not paid(

• Names of “key employees”

990 statement of revenue

• Program service revenue

• Government grants

• Fundraising

• What the organization earns from providing services

990 statement of functional expenses

• Salaries and wages

• Employee benefits

• Fees (legal, accounting, fundraising expenses, etc)

• Advertising 

• Office expenses 

• What it costs the organization to provide services

990 reconciliation of net assets

• Total revenue less expenses 

• Organization’s profit or loss

primary health services

• Family medicine

• Internal medicine

• Pediatrics

• OBGYN

• Diagnostic lab/radiology

• Emergency medicine

• Pharmaceutical

preventative health services

• Pre and perinatal 

• Health screenings

• Well child visits

• Pediatric eye, ear, dental screenings

• Immunizations

• Family planning 

• Preventative dental

enabling services

• Referrals to specialists

• Case management 

• Help with accessing public benefits

• Outreach and education

• Transportation

• Interpretation and translation

optional servies

• Mental health and SUDs

• Recuperative care

• Environmental health

• Agricultural workers

what is missing from the FPL?

• What is missing?

  • Taxes

  • Regional price differences

  • Payments from antipoverty programs (EITC, housing subsidies, SNAP)

• Assumes 2 parent households, 1 parent working and 1 staying home full time

• Food accounts for smaller share of household expenses today, having been overtaken by costs of housing, childcare, transportation, and health care 

MIT’s living wage calculator

 determines the amount that a full time worker must earn to cover their family’s basic needs

• Varies by family size and county

• Accounts lowest option to meet minimum but adequate needs for food, child care, health care, housing, transportation, civic engagement, internet/mobile, and other necessities, as well as income and payroll taxes

• Does not account for eating out, leisure time, vacations, savings, or retirement/long term investments 

price

•  consumers have less purchasing power due to price increase

time

•  travel time and waiting time - opportunity costs, lost wages

income

•  purchasing power, incentive to stay healthy and maintain ability to work 

care quality

• - patient perception of higher quality increases demand 

health status

•  increased demand when health status decreases

education

•  increased health literacy, earning capacity, likelihood of insurance 

age

age related health declines—inccreased demand, increased service intensity

tastes and preferences

• - other factors that influence an individual’s willingness to purchase

complementary goods

demand for complements also decreases, things that are used together ex. syringes and vaccines

substitute goods

demand for substitutes increases (assuming buyer has information about substitutes and their prices)

ex. physical therapy vs surgery 

socioeconomic factors

40% Education, employment, income, family and social support, community safety 

physical environment

10% Air and water quality, housing and transit 

health behaviors

30% Tobacco use, diet and exercise, alcohol and drug use, sexual activity, 

clinical care

20% Access to care and quality 

health inputs

• Health care, diet, exercise, environment, income, and time 

 Leads to health capital stock over time 

Leads to health outputs each year

• Healthy days, physically and mentally, activity limitations 

commercial determinants of health

 behaviors of private entities in the healthcare industry that influence health based on what is or is not provided to whom, when, where, how, and at what cost 

• Manufacturers (pharmaceutical and medical device firms)

• Providers (hospitals, clinicians, trade associations)

• Payers (insurance)

• Other firms (consulting firm)

health industry as an essential service

which can also cause considerable harm, contributing to high spending with poor outcomes

• Political practices (lobbying)

• Preference shaping (consumption of individual medical services > promotion of public health and equity)

• Legal and extralegal environment (corporate ownership and market consolidation)

• Product generation and promotion (marketing, provider induced demand)

income

 preventative care, healthy food, insurance, education/health literacy, living environment, working conditions 

health

number of hours worked/amount earned, more health expenses/less disposable income, leave of absence/inability to do work 

absolute income hypothesis

increased income leads to increased consumption of health goods and services leads to lower mortality/morbidity 

• Assumes relationship between income level and health is constant (linear) and income is the only factor determining purchasing decisions

law of diminishing marginal utility

• As you continue to consume a given product, you will eventually get less additional utility (satisfaction) from each unit you consume 

• Income has a diminishing effect on health: substantial improvement in health initially as income increases

  • Health improvements get smaller as income increases 

Whitehall study

• Tracked health outcomes of 18000 british male civil servants for 10 years, beginning in 1967

• Those with lowest ranking jobs were 3x as likely to die younger than those with highest ranking hobs

• Lower ranking hobs were associated with obesity, smoking, low physical activity levels, higher prevalence of underlying disease, and high blood pressure

• Whitehall II study tracked over 10000 people from 1985-2013 and found consistent results showing a stable relationship between occupational rank and health 

headstart program

 receive federal funds to provide preschool services to children ages 3-5

• “Promote the school readiness of young children from loaw income families by enhancing their cognitive, social, and emotional development)

• Children are eligible if 

  • Family income below FPL

  • Recieves temporary assistance or supplemental security income benefits

  • Family is homeless 

  • Child is in foster care

• Federal law provides that children who are eligible for special education services should be prioritized for head start services 

healthcare spending and financing

• US healthcare spending was nearly 4.9 trillion in 2023 

• Spending

  • Hospital care - 31%

  • Physician and clinical spending - 20%

  • Prescription drugs - 10%

  • Nursing homes - 4%

  • Dental services - 4%

  • Home health care - 3%

  • Other spending - 28% - professional servives, medical equipment, other nondureable medical products, government administreation, gov public health activities etc 

• Financing 

  • Out of pocket - 10%

  • Private health insurance 30%

  • Medicare 21%

  • Medicaid 18%

  • Other funding 21%

the healthcare services market

• is not a perfectly competitive market because there is not equal information, nor is there equal market powers, also there is a third party (insurance)
  

how does a healthcare market differ from perfect competition

• Perfect competition 

  • Buyer pays seller for good/service

  • Buyer and seller are price takers

  • Price is the only term that matters

  • Buyer decides what to purchase

  • Price is the same for all buyers

• Healthcare market

  • Multiple pirates involved in payment 

  • Seller or payer may influence price

  • Trust, quality, licensure/regulation

  • incomplete/asymmetric information

  • Price discrimination (different prices for different buyers)

insurers role in the healthcare market 

• Pool and price risk

• Manage service utilization

• Reimburse providers for care

why by health insurance

• Protection from large bills if one becomes seriously or chronically ill

• Costs beyond capacity of individual savings or contributions from family/friends

• Some predictability for out of pocket cost of routine medical care 

• Probability and expected value of healthcare costs averaged over a large group of people is predictable

health insurance

• method of pooling financial risk so that one person’s loss is shared across so many people 

benefits of risk pooling

• Patients: 

  • limited financial risk/peace of mind

  • Ability to obtain medical care could not otherwise afford

• Insurers 

  • Profits when premiums collected exceed provider reimbursement and administrative costs

  • Profits from interest earned on premium funds before paid out 

• Providers

  • Increased demand for healthcare services

  • Regular payments

actuarially fair price

 Estimated annual cost of healthcare for the covered population +

loading factor

administrative costs and profits

how premiums are set

actuarially fair price + loading factor

medial loss ratio

the percent of premium income that insurers pay out for medical claims (vs administrative costs and profit) 

why are insurance premiums rising

• Higher service costs

• Higher use of specialty prescriptions

• Provider consolidation

• Higher utilization 

• Workforce shortages

which types of insurance are subsidized by the federal government?

medicare: part A funded by payroll  taxes paid by employers and employees

Parts b and d funded by income taxes and enrollee premiums 

Medicaid: funded by federal and state taxes. Nominal out-of-pocket costs enrollees

Individual market - provides tax credits and subsidies - premiums paid by individuals. Federal subsidies based on income 

Some help for employer-sponsored but clients are likely not aware. Employer payment is not taxable to employees 

price sensitivity/elasticity

• Demand for healthcare goods and services is generally price inelastic (price changes do not affect the quantity demanded)

• However, there is some variation in by service type:

  • Price sensitive (demand increases as price decreases)

    • Mental health coverage 

    • Prescription drugs

  • Not price sensitive (price changes do not change demand)

    • Hospital admissions

• Six in 10 covered workers have an annual deductible of $1,000 or more

moral hazard in the healthcare market

• Insurance generally increases consumption of healthcare services by making people less aware of, and less sensitive to, price

• Excess service use results in higher premiums and higher healthcare prices

• Insurers use cost sharing and/or utilization management to control “excess” service use 

rand health insurance experiment

• Increased premiums 

  • Decreased enrollment and coverage renewals 

  • Largest effects on those with the lowest income 

  • Many become uninsured and faced increased barrier to care and financial burdens 

• Increased cost sharing 

  • Even small levels decreased use of needle services

  • Increased use of more expensive services (ER)

  • Negative effects on health outcomes 

  • Increased financial burdens for families

• Money? 

  • State savings are limited

  • Offset by disenrollment, increased cost in other areas, and administrative expenses 

ACA no cost sharing requriements

• Vaccines

• Newborn screenings

• FDA approved contraceptives

• Statins to prevent cardiovascular disease

• Colorectal cancer screening 

• PREP drugs to prevent HIV 

• Type 2 diabetes screening

conventional insurance

• Providers are independent of health plan

• No utilization management 

• no preferred provider network, fee for service, patient pays for a portion of provider charge

Closed pre paid panel group practice HMOs

• Providers are integrated within health plan

• Strict utilization management 

• Restrictive, quality of care decreases because of how strict they were—with plans that refused other care needed 

open HMO, PPO, POS

• Network providers contracted with health plan

• Some utilization management

HMO

• health maintenance organization - must see network providers —patient pays set monthly charge rgardless of service use (capacitation)

PPO

• preferred provider organization, low cost sharing for in network services, no gatekeeper for specialist or hospital services

POS

•  point of service plan - lower cost sharing for in network services, need referral for specialist or hospital services

HDHP/SO

•  high deductible ehealth plan with savings option - deductible of at least $1000 single/$2000 family coverage, offered with health reimbursement or health savings account 

• HDHP/SOs allow for lower premiums 

• Incentivizes patients to “shop around”

how managed care can reduce costs

• Total premiums = (price x quantity) + overhead

  • Reduce price - 

    • Decrease provider payment 

    • Increase patient cost sharing 

  • Reduce quantity

    • Referrals 

    • Prior authorization

    • Limit on number of days/visits

    • Reject claim as not medically necessary 

  • Substitute cheaper inputs 

    • RX formularies

    • Replace doctors with md-level practitioners

    • Require physical therapy v surgery 

  • Reorganize

    • Integrate providers with health plan (closed panel HMO)

what is the price of healthcare services

it depends on coverage, deductibles paid, cost sharing, and co insurance

Prices paid by private insurance are higher than those paid by public programs 

charges

• the “list price” for a healthcare service (amount charged by provider without any discounts)

  • Does not reflect what (most) patients pay 

  • Typically set abnormally high (in relation to cost of providing the service)

prices

•  total amount that provider expects to receive from insurer/patient as payment for a healthcare service 

  • Accounts for discounts negotiated by insurers (provider agrees to lower price in exchange for higher patient volume) 

advantages and disadvantages of fee for service

• Fee schedule is prospective 

• Payment is retrospective

• Provider receives set amount for each service provided to patient 

• Payment is based on volume, not quality 

• Incentive to provide more services and more intense services 

• Waste and unnecessary care

simplified capitation

• Payment is prospective

• Provider receives fixed monthly amount to provide a defined set of services to each patient 

• Provider is paid regardless of whether patients use services

• Incentive to provide fewer services and/or keep patients healthy 

• Patients may go without care they actually need 

value based care

• Legal and regulatory changes

• Standards and capabilities for data collection, sharing, and analysis

• New models to improve care coordination across settings

• New models that incentivize high quality, cost-efficient care

• Provider performance measures based on clinical best practices 

pay for performance

• Provider receives set amount for each service provided to patient, plus incentives for reporting data or achieving certain quality measures

• Financial incentives may be bonuses or penalties

• Incentives are not based on achieving cost targets