Economics: Medicine and Health Care Spending Essay

Submitted By Jogeshwar-Singh
Words: 1108
Pages: 5



• The US healthcare system is characterized by both productive and allocative inefficiency.
• In aggregate, healthcare spending could be lowered by nearly a third without adversely affecting health, while access to care and the quality and safety of care need to be raised to improve population health.

• There is considerable variation in health care utilization and spending across geographic areas in the United States, but little evidence of corresponding differences in health outcomes or satisfaction with care.
• This variability is often cited as evidence that current levels of health care spending reflect “flat-of-the-curve” medicine, that is, treatment for which the marginal benefit of an additional unit of care is approximately zero. However, the evidence on regional variation is almost exclusively limited to the public sector, because it relies on Medicare data.
• Less is known about the corresponding patterns in the private sector.

Spending variation is influenced by many complex factors:
Spending Variation


Research shows significant variation in health care spending:
Medicare Spending per Beneficiary, by Hospital Referral Region

National Average = $8,304
< $7,000
$7,000 – $7,500
$7,500 – $8,000
$8,000 – $9,000
> $9,000
Not populated
Source: The Dartmouth Atlas of Health Care. (2009). The Policy Implications of Variations in Medicare
Spending Growth. Link:
Note: Data adjusted for age, race, and sex but not price. Category definitions as in source document.

• The present and future of supply-side payment reform (e.g. pay for performance, accountable care organizations, global and bundled payments) and demand-side payment reform (e.g. value-based insurance design and benefit tiering) intended to address the aggregate systemic issues. • Empirical evidence from other healthcare systems suggests that geographical variations can be persistent despite integration of care and payment reform theory and scattered empirical evidence also suggests that both supply-side and demand-side payment reform may accentuate existing geographical variations in high-value care.

• Turning to the physical fragmentation and imperfect collaboration among providers and entities within the health care value chain, interventions have been designed to address organizational structure (e.g. primary care gate keepers).
• When physicians are collocated and practice in shared organizational and physical settings within hospitals the common organizational structure may lead to higher value care. Other organizational differences exist: among primary care physicians, compared to those from larger organizational settings, solo primary care practitioners have more ‘aggressive’ treatment plans and their patients do worse.
• Physical fragmentation may also be associated with economically rational reduction in information sharing for commercial reasons

• Integrating patient care physically may improve the technical efficiency of the delivery system with respect to the current state of the medical technology frontier.
• The study of virtual fragmentation and imperfect information sharing among providers and other stakeholders in the healthcare system has led to interventions aimed at improving information flow.
• It is important to note that even world class integrated delivery systems such as Kaiser Permanente have geographical variations in care across their different campuses, hospitals and areas of service in California, albeit less so than among the surrounding communities’ Medicare patients. • Finally world-class evidence based medicine is delivered in a very advanced health information technology-enabled environment.
Such considerations suggest that physician heterogeneity and…