Health Care Economics

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Health Care Economics

• Fiscal Planning and the Costs of Health Care

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Overview

• Objectives
• Budgeting
• Health Care Financing In Canada
• Managed Care and Capitation

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Health Care Statisitics
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Fiscal Planning

• Planning, developing and monitoring the budget.
• Keeping track of revenues, expenses, assets and
  liabilities.
• Should reflect the objectives and philosophy of
  the organization

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Objectives

• Canada Health Act Axioms Comprehensiveness,
  universality, portability, accessibility
• Profit maximization
• Cost Containment

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Canada Health Act

• Public Administration
• The health care insurance plans are to be
  administered and operated on a non-profit basis
  by a provincial public authority
• Comprehensiveness
• The health insurance plans of the provinces and
  territories must insure all insured health
  services (hospital, physician, surgical-dental)

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• Universality
• 100 of the insured residents of a province or
  territory must be entitled to the insured health
  services provided by the plans
• Portability
• Residents moving or temporarily absent from their
  home provinces or territories, or from the
  country, must also continue to be covered for
  insured health care services.

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• Accessibility
• reasonable access to insured health care services
  
• reasonable access in terms of physical
  availability
• reasonable compensation to physicians and
  dentists
• payment to hospitals to cover the cost of insured
  health care services.

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Profit Maximization

• Choosing strategies that maximize revenues over
  expenditures/costs.
• Types of Costs
• Direct costs
• Indirect cost
• Controllable Costs
• Noncontrollable costs
• Fixed costs
• Variable costs

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Cost Containment

• Effective and efficient delivery of services
  while generating revenues for continued
  organizational productivity (RD, expansion in
  services and facilities).
• Survival of health care organizations depends on
  the sound management of fiscal resources.

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Budgeting

• A budget is a financial plan detailing expected
  revenues and expenditures.
• An organizations budget can be broken down by
  departments (operations, human resources, IT,
  etc.)

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Responsibility Accounting

• A system of accountability in which managers are
  held responsible for those items of revenue and
  cost - and only those items - over which the
  manager can exert significant control.
• The managers are held responsible for differences
  between budgeted and actual results.

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Types of Budgets

• Human Resources/Personnel
• Operating
• Capital
• Perpetual/Continuous

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Human Resources/Personnel

• Health care is labour intensive high proportion
  of labour used relative to other resources.
• As a result the largest budget item is
  expenditures on personnel the personnel budget.

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Staffing Measures

• Skill Mix Percentage of registered nurse,
  licensed vocational/practical nurse, unlicensed
  assistive personnel, and contracted nurse care
  hours to total nursing care hours.
• Nursing Care Hours per Patient Day Number of
  registered nurses per patient day and number of
  nursing staff hours (registered nurse, licensed
  vocational/practical nurse, and unlicensed
  assistive personnel) per patient day.

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Operating Budget

• It contains estimates of the total value of
  resources required for the performance of the
  operations
• Second most significant component of the hospital
  budget is operating supplies.

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Capital Budget

• Capital budgeting (or investment appraisals) are
  the planning processes used to determine an
  organizations long term investments such as new
  machinery, replacement machinery, new plants, new
  products, and research and development projects.

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Perpetual/Continuous Budget

• A 12-month budget that rolls forward one month as
  the current month is completed.

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Zero-based budgeting

• A method of budgeting in which managers are
  required to justify all costs as if the
  programmes involved were being proposed for the
  first time.
• In other words, they assume that no programme is
  necessary and no money need be spent.

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Incremental Budgeting

• Existing programmes and departments are treated
  as already approved, subject only to increases or
  decreases in the financial resources allocated.
• The organisation's historical costs are the base
  from which budget planning starts.

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Steps in the Budgetary Process

• Budget Item Assessment
• Plan Development
• Plan Implementation
• Plan Evaluation

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Provider Reimbursement

• Service Fees
• Medicare
• Managed Care and Capitation

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Health Care Finance in Canada

• The Canada Health Transfer (CHT) is the primary
  federal transfer to provinces and territories in
  support of health care.
• CHT support is allocated to provinces and
  territories on an equal per capita basis to
  ensure equal support for all Canadians regardless
  of their place of residence.

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Medicare/Universal Public Health Insurance System

• The provinces provide all residents with health
  insurance cards, which entitle the bearer to
  receive free medical care for almost all
  procedures.

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Moral Hazard in Health Insurance

• This refers to the propensity of insured patients
  to use more medical services than needed because
  they are covered by insurance.
• Co-payments, deductibles and gatekeepers reduce
  moral hazard.

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• The deductible or excess is the portion of any
  claim that is not covered by the insurance
  provider.
• A co-payment, or co-pay, is a flat dollar amount
  paid for a medical service by an insured person.
• A gatekeeper authorizes referrals to specialists
  or other doctors if deemed necessary.

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Managed Care

• Forms of Managed Care
• Health Maintenance Organization (HMO)
• An HMO is an insurance plan under which an
  insurance company controls all aspects of the
  health care of the insured. In the design of the
  plan, each member is assigned a "gatekeeper", a
  primary care physician (PCP) who is responsible
  for the overall care of members assigned to
  him/her.

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• Preferred Provider Organization (PPO)
• PPOs are insurance plans in which the insured is
  free to choose his/her own physician,
• Insured receives greater benefits returns if a
  pre-approved "network" of caregivers and
  facilities is utilized in non-emergency
  situations, and a PCP is identified and
  consulted.

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• Point of Service (POS)
• A POS plan utilizes some of the features of HMO
  and PPO plans.
• Members of a POS plan do not make a choice about
  which system to use until the point at which the
  service is being used.
• Exclusive Provider Organization (EPO)
• Similar to PPOs, except that they do not provide
  any benefit if the insured chooses a
  non-preferred provider, except in emergencies.

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Characteristics of MCOs

• Healthcare services must be pre-authorized
• Hospital admissions must be authorized
• The PCP and other providers must manage all
  hospital care, even if a specialist provides most
  of the care.
• The PCP and other providers must authorize each
  visit to the specialist

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Capitation

• Capitated reimbursement is a health management
  plan which pays health care service providers a
  fixed amount of money to provide designated
  health services based on the number of people
  enrolled in the plan per month.

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• Advantages
• Financial risk transferred to provider
• MCOs have a better grasp on budgetary needs
• Disadvantages
• Right capitation amount is difficult to estimate.
• With a low number of enrollees the provider may
  not be able to cover practice costs.
• Provider is encouraged to limit services
  provided.

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Challenges for Health Economists

• Setting priorities for policy-makers.
• Determining which health technology innovations
  are adopted by the health care system.
• Assessment of Childhood Vaccine Programs
• Development of Pharmaceutical Reimbursement
  Policies