In this course in the Healthcare Marketplace specialization you will identify, define, and describe potential business and public policy solutions to the challenges facing society’s growing demand for health services. Students will master a body of knowledge on the health care sectors major components through reading and reflection. Healthcare has many different cultural components that will be discussed as historic trends as well as future demographic challenges. You will understand diverse philosophies and cultures within and across societies as they relate to healthcare. This outcome is particularly critical because of the tradeoffs needed to be assessed as medical technology advances faster than budgets and perhaps cultures are sometimes willing to tolerate. At the end of the day, you will gain an appreciation for the role of creativity, innovation, discovery, and expression across disciplines in the development of new medical care solutions through and examination of the physician, medical technology and financing sub-sectors of the health economy.
1.2.2 Market Evolution: Post-World War II
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From the course by University of Minnesota
Healthcare Marketplace
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From the lesson
EVOLUTION OF THE HEALTHCARE MARKETPLACE
In this module you will learn about the economic history of one of the largest segments of the world’s economy. You will become acquainted with world trends in health and the stakeholders that comprise the healthcare marketplace ranging from physicians to hospitals to insurers and pharmaceutical firms.
The take-away messages from this module are that there are many competing voices in the health economy. Furthermore, many of these voices have growing and evolving economic interests that spill over into all aspects of society.
The skills gained from this module to enable a successful capstone is an appreciation of the role of government and regulation in the making and destruction of markets. One person’s new law may be a huge hindrance but also a giant opportunity for profit from another party. You will be better prepared to distinguish the difference and succeed.
Meet the Instructors
Stephen T ParenteProfessor
Carlson School of Management, Department of Finance
This is the Healthcare Marketplace Specialization,
Healthcare Marketplace Overview.
I'm Steve Parente and this is Module 1.2.2, Market Evolution,
Post-World War II.
After World War II, so much of this healthcare market changes.
And it's probably where the United States really takes its major trajectory away
from most of the industrialized world.
One thing to keep in mind is that, in post-WWII, by in effect winning WWII,
and the rest of Europe and particularly Asia is kind of bombed out from WWII,
it gives the US, throughout the 1950s, a tremendous economic advantage.
So our national income is increasing dramatically, much more so
than most other folks.
For example, in the UK they still had gas rationing until early-1960.
There are massive increases in federal support for
medical research that are going through the National Institutes of Health.
What that translates to for consumers and
physicians is the growth of what's called fee-for-service medicine.
You need to get services, you'll have probably a Blue Cross Blue Shield plan.
They grow throughout the entire country at this point on a regional basis.
And you get that care, a fee is presented,
you give it to Blue Cross, they pay whatever the physician's really asking.
There's lots of patient driven competition by the hospitals and physicians.
Meaning that they're trying lure in as many different patients as they can.
And then the other thing that happens too is,
recall when we talked about that wage freeze in 1943, that was just
a temporary measure to get folks through really a six month recessionary cycle?
Well, turns out the government comes back in 1954 and
says you know what, employers and unions?
We're giving a lot of money away here, tax free to employees.
Not to the firms, mind you, to the employees for
getting essentially this benefit without having taxes on it.
It's a wage substitute, that's why it was put in place in 1943.
And turns out the unions and the employers lobby hard enough to get to
Congress to say, we want it this way instead.
And actually they got enough votes to go the exact opposite direction.
[LAUGH] And yet the Revenue Act of 1954 passed,
which basically enshrines that health insurance will be,
essentially a tax free benefit that's paid by employers to employees.
Again, today that is about $260 billion a year, a non-trivial chunk of change.
1960 to 1970 the beginnings of genetic research really gets underway.
In the 70s it actually gets us really amazing [INAUDIBLE] companies.
Not Silicon Valley but closely related to it, in the bay area.
We see health manpower.
That is, not having enough physicians and primary care physicians lead to additional
educational subsidies to get more folks to enter primary care.
Actually, we get to see people being recruited from
overseas countries to come and provide medical education.
Medicare and Medicaid, we'll talk more about them later in the insurance, but
become major programs for elder care for the elderly and aged and disabled.
And then Medicaid for
the poor across the US to basically give them health care coverage.
And this is really a compromise to having national
health insurance under the Johnson administration.
People think that was the goal.
It wasn't the goal.
What was impressive with this, though, is that physicians in hospitals supported it.
And the reason why they did, was that they more or less took the private
Blue Cross Blue Shield plan and just, essentially, outsourced them.
Same function for Medicaid and Medicare recipients.
There was a shift from rest homes to nursing homes for long-term care.
And then the Harris-Kefauver Drug Act,
basically promoting competition in the pharmaceutical industry, and
strengthening some of the other protections on drug safety.
When we get to the 1970s we start finding ourselves in what's called
a medical arms race.
It actually started mostly in the 60s.
Here we find hospitals basically competing for patients and saying, we have brand new
scanners, we can get you in at any time, we have different surgeries.
And this all drives healthcare costs higher.
One thing that is proposed to keep healthcare costs
lower is the Health Maintenance Organization Act of 1973.
This term, Health Maintenance Organization,
actually termed by a physician in Minnesota who proposes that
everybody needs to go through a gatekeeper, that's a physician.
That's a door there, that they would essentially have to go through.
Arguably that's a door, but you're going to have to trust me on this.
And the thought being that once they get through that door then they can go
to a hospital, or they can actually see a more advanced primary care or
specialist setting.
Also in this area we see hospital inflation growing very rapidly,
because it's cost-based, you basically submit your bills to get paid.
We see the passage of this national Certificate of Need.
Meaning that state governments have to now approve
through a set of health planning agencies, whether or
not you're going to get your new technology at your hospital or not.
It's a pretty major oversight by government.
We also have ERISA.
People may think about ERISA because of 401Ks
that they might have these employers.
What it means though for healthcare is that employers now
get to essentially run plans that are exempt from state regulation.
So if, for example, a state government says everyone must have
abortion benefits, essentially the employer can come along and say nope,
that's not going to be the case.
Now granted, some things changed with the Affordable Care Act passing in 2010,
but this gave employers tremendous freedom to develop new types of health plans.
The Nixon administration proposes National Health Insurance
actually with Ted Kennedy, a Democrat, and Nixon being Republican, but
the legislation does not get passed.
The 1980's and
the 1990's we have really a major public health crisis to form with HIV and AIDS.
Nothing really seen as dramatic and sweeping as crisis like that since
tuberculosis in the early part of the 20th century, late part of 19th century.
Dealt with quite differently, there weren't sanatoriums built for
folks with AIDS but there was definitely a drive to find a cure,
or these solutions for technologies to treat it quicker than possible.
There's a development of what's called a Prospective Payment System for Medicare.
What that means is that as opposed to paying by charges,
which is whatever you want, we'll pay you by day.
That system is done away with and instead is replaced with essentially
a cap of dollars per admission.
And which actually requires a lot more information technology system to actually
verify what those pieces would be.
There is because of shutting down the inpatient world,
mentioning [INAUDIBLE] see overnight, a shift from inpatient care
to outpatient care, because that world is still charge based.
This is where you see some interesting games going off in finance here in
healthcare.
And then the Waxman-Hatch Act passed, promotes more competition,
generic drugs in the pharmaceutical industry, which really
makes generic drugs in particularly much more accessible to the market.
So a lot of things happened when we think of the 1990s to the present.
Public health issues, increasing rates of obesity,
with 30% of population technically in the range of obesity by 2002.
Diabetes prevalence going along with that, obesity a piece of it.
We see another form of national health insurance, though not
quite as comprehensive, Clinton's Health Security 93-94, that fails.
Managed care, that is the HMO pieces, actually take off pretty dramatically.
They expand into the Medicare market.
They also expand into the Medicaid market for the poor and actually by now,
when you get to 2014, I wrote an article on this.
You're now looking at about 70% of Medicaid is
actually now managed by Medicaid corporate agencies.
Provider consolidation, we see a lot of mergers and acquisitions by hospitals and
physician groups.
The solo physician is essentially going away.
People talk about in the 90's the idea of the managed care nightmare.
Meaning that they can't get to see the doctor they want.
That there's lots of bureaucratic restrictions that leads later to reducing
those restrictions and then health care costs increase a bit as we talked about in
the 2000s, earlier in the module.
The Balanced Budget Act of 1997 cuts Medicare payments rates for physicians.
Some of them don't go immediately into effect.
It creates a lot of crisis for hospitals.
For physicians it's later kicked down the can for
quite some time until it's finally resolved, actually, until 2015.
Nursing shortage has become a major issue as well,
particularly in California as that market expands, Medicaid, for their population.
For pharmaceuticals, we actually have Medicaid drug rebates imposed, basically
to lower the price of prescription drugs for folks that are poor.
On the private side, we have this things called PBMs,
pharmaceuticals benefit managers that actually
start to take the pharmaceutical market away from private insurers.
It essentially contracted out because drugs become so
much more complex as brand new products, Prozac and other things,
come on market that really are quite more dramatic.
We also will have for pharmaceuticals,
first time ever, direct to consumer advertising permitted.
It may be hard for some folks that are younger to believe it, but
there were no drug ads on TV [LAUGH] prior to 1997,
as opposed to them dominating any morning TV show today.
And then Medicare Part D.
This is a prescription drug act for for seniors.
It comes on line in 2006.
Going forward to 2015,
there's lots of things that happen on the insurance frontier.
We have what's known as HIPAA, people think of it as privacy.
It's not, actually.
It's about reforming the health insurance market.
Privacy was specified as something that had to be dealt
with by 2000 if it was not dealt with in the Senate.
There was managed care backlash, as I mentioned, in 98.
There was an expansion of the Medicaid program called SCHIP or
CHIP, Children's Health Insurance Program.
There are medical savings accounts first developed in 1996,
which later evolved into health savings accounts by 2003, in legislation.
Health insurance costs dramatically increase.
They go from $4,000 per individual in 2004 to basically, by 2011, $15,000.
The uninsured ride quite a bit.
Now granted, they go down much more once the Affordable Care Act passes and
becomes fully implemented, or mostly implemented I should say, by 2014.
And then, by 2015, we actually see the number of uninsured down to about 40
million or so, a little less.
So here's a thought question.
In what way does the global healthcare marketplace influence
US healthcare markets?
No right or wrong answer.
Just think through what your responses will be, and please share.
This concludes this module on the post-World War market evolution
in the healthcare marketplace.
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