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MIT MIT MIT MIT S EMINAR ON S EMINAR ON MIT ESD.69 EMINAR ON EMINAR ON MIT HST.926 H EALTH EALTH C ARE (Special Student) ARE HMS HC.750 (Special Section) S YSTEMS YSTEMS I NNOVA NNOV TION ATION ‘ H EALTH EALTH C ARE ARE S YSTEMS’ FROM FROM A H EALTH YSTEMS’ A EALTH P P OLICY OLICY P ERSPECTIVE P ERSPECTIVE St n St Sta St Stan Stan an N. an N an N N. F F ink Fink F Fink ink nkels nkels nkels nkels elstein elstein elstein elstein ein, M ein ein ein M. , M D M D M D. . D . N Massac Massachuse Massac Massachuse husetts Ins husetts Ins tts Institut tts Institut itute of itute of e of Technology e of Technology nology nology Sep Sept temb t ember 16 b b er 16 16 16, , 2010 2010 2010 2010

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Timeline: Maj Timeline: Major Themes of U.S. Health Policy or Themes of U.S. Health Policy y y Major Quality of Care I nitiatives 1 9 9 0 Market Approaches to Cost Containm ent 1 9 8 0 ‘Regulatory’ Approaches to Cost Containm ent 1 9 7 0 - 8 0 Expand Access to Health Care 1 9 4 5 1 9 4 0 1 9 4 0 1 9 5 0 1 9 5 0 1 9 6 0 1 9 6 0 1 9 7 0 1 9 7 0 1 9 9 0 1 9 9 0 2 0 0 0 2 0 0 0 2 0 0 9 2 0 0 9 1 9 8 0 1 9 8 0 2

When National Health Care Spending When National Health Care Spending Was Half Was Half of Current Rates, Many Called its Growth, of Current Rates, Many Called its Growth, “Unsustainable” “Unsustainable” “ “ bl b l ” TOTAL HEALTH EXPENDITURE AS % GDP BY YEAR % GDP on HEALTH . . . 2008 3 SOURCE: WHO and OECD Data

1940’s and 50’s 1940’s and 50’s Major Theme: Major Theme: Major Theme: Major Theme: Expand Access Expand Access Expand Access Expand Access • Origin of employer based health insurance Origin of employer-based health insurance. • National health insurance falls to be enacted. • Hill-Burton Legislation (1946) – incentives to build ild new h h ospit ital ls and h d health lth care f f acilities. iliti • • Major investment in medical research – National Major investment in medical research National Institutes of Health. 4

1960’s 1960’s Major Theme: Major Theme: Major Theme: Major Theme: Expand Access Expand Access Expand Access Expand Access • Medicare (1965) – Government insurance coverage for elderly disabled elderly, disabled. • Medicaid (1965) – Government insurance coverage for indigent. • • ‘Regional Medical Programs’ – Expand access to new Regional Medical Programs Expand access to new medical technology. • ‘Health Professions Legislation’ – Incentives to build new medical and other health professions schools, increase number of graduates. 5

‘Moral Hazard’ The prospect that a party insulated from risk will behave differently from The prospect that a party insulated from risk will behave differently from the way it would behave if it were fully exposed to the risk. ‘Adverse Selection’ The more extensive the insurance coverage, one has, the more likely the party will experience a loss. ‘Principal/Agent’ Problem He/she who orders does not buy, and he/she who buys does not order. ‘Cost Reimbursement’ When costs are fully reimbursed by insurers, incentives don’t exist to confirming the costs confirming the costs. 6

When National Health Care Spending When National Health Care Spending Was Half Was Half of Current Rates, Many Called its Growth, of Current Rates, Many Called its Growth, “Unsustainable” “Unsustainable” “ “ bl b l ” TOTAL HEALTH EXPENDITURE AS % GDP BY YEAR % GDP on HEALTH 7.8% in 1975 . . . 2008 7 SOURCE: WHO and OECD Data

1970’s 1970’s Technology: The Culprit Behind Rising Technology: The Culprit Behind Rising C ost Health Care C H H Health Care C l h l t t h C C os s t ts t ‘Technological Imperative’ Doctors’ need to access the latest, most sophisticated technologies to meet what they perceive to be the needs of their patients (Victor Fuchs, 1974). ‘Process Innovation Lags Product Innovation’ New technology should be cost reducing as process innovation typically follows product innovation (James Utterback 1978) follows product innovation (James Utterback, 1978). THI S HAS NOT HAPPENED I N HEALTH CARE ‘Perverse Incenti ‘P I ti ves’ ’ If a doctor is an effective performer and ‘Health Triumphs Over Disease’, he/she earns less compensation. 8

1970’s 1970’s Major Theme: Regulatory Major Theme: Regulatory Approaches to Approaches to C ontainmen H H Health Cost C Health Cost C l h C l h C t t t t on t tainment t i i t t t • • Wage Wage-Price Freeze - Price Freeze • Certificate of Need • Rate Setting • HMO Legislation (mixed regulatory, market approach) • Peer Review 9

1980’s 1980’s Major Theme: Market Approaches to Major Theme: Market Approaches to C C C C C C H Heal H H ealth l l t h Care h Care h C ost C ost C onta C ontainment inment • Revisions to HMO Legislation – reduce barriers to entry • • ‘Prospective Payment’ – Diagnosis Related Group Prospective Payment Diagnosis Related Group (DRG) Reimbursement • ‘M ‘Managed Care’ d C ’ • ‘Managed Comp petition’ • Rand Health Insurance Experiment 10

1990’s 1990’s Major Theme: Market Approaches to Major Theme: Market Approaches to C C C C C C Heal H H H ealth l l t h Care h h Care C ost C ost C onta C ontainment inment • Clinton health reform plan fails to be enacted. • • Increasing penetration of ‘Managed Care Increasing penetration of Managed Care ’. • ‘Unmanaged Competition’ • ‘Evidence-Based Medicine’ 11

When National Health Care Spending When National Health Care Spending Was Half Was Half of Current Rates, Many Called its Growth, of Current Rates, Many Called its Growth, “Unsustainable” “Unsustainable” “ “ bl b l ” TOTAL HEALTH EXPENDITURE AS % GDP BY YEAR % GDP on HEALTH . . . 2008 12 SOURCE: WHO and OECD Data

2000 2000 Major Theme: Major Theme: Major Theme: Major Theme: Quality Initiatives Quality Initiatives Quality Initiatives Quality Initiatives ƒ 3 National Academy Reports ― ‘To Err is Human’ ‘T E i H ’ ― ‘Crossing the Quality Chasm’ ― ‘Building a Better Delivery System’ • Interest in ‘Lean’ and other systems approaches to fixing problems of health care delivery. • Medicare prescription drug coverage. • Cost containment efforts stymied – lack of political will? 13

2009 Health Care Reform 2009 Health Care Reform • PPACA Initiatives with the PPACA Initiati es ith the Potential to Improve the Value of Health Deliver Health Delivery • Please refer to handout 14

MIT OpenCourseWare http://ocw.mit.edu ESD.69 / HST.926J Seminar on Health Care Systems Innovation Fall 20 10 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.