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University of Minnesota The Healthcare Marketplace Medical Industry Leadership Institute Course: MILI 6990/5990 Spring Semester A, 2015

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Title: University of Minnesota The Healthcare Marketplace Medical Industry Leadership Institute Course: MILI 6990/5990 Spring Semester A, 2015


1
University of MinnesotaThe Healthcare
MarketplaceMedical Industry Leadership
InstituteCourse MILI 6990/5990Spring Semester
A, 2015
  • Stephen T. Parente, Ph.D.
  • Carlson School of Management
  • Department of Finance
  • sparente_at_umn.edu

2
Lecture 1 Overview
  • Course Overview
  • Syllabus
  • Faculty and student introductions
  • The U.S. healthcare marketplace an introduction

3
Course Overview Basic Info
  • Instructor - Stephen T. Parente, Ph.D
  • Sparente_at_umn.edu
  • Phone 612-624-1391
  • Office 3-279 CSOM
  • Hours by appointment (usually on Wednesdays)
  • Website
  • http//ehealthecon.hsinetwork.com/mili6990_2015.h
    tml
  • Lectures every Monday

4
Course Overview - Readings
  • Set of readings that will be made available to
    you electronically.
  • You may need to get articles electronically
    through the library.
  • Additional material may be handed out in class.

5
Course Overview - Units
  • Historical Overview of the Healthcare Sector
  • 2. Physician Services Market
  • 3. Hospital Services Market
  • 4. Insurance Market
  • 5. Medical Devices and Pharmaceuticals Market
  • 6. Healthcare Information Technology Market
  • 7. International Healthcare Markets

6
Course Overview - Units
  • Each unit will include
  • Introductory lecture
  • Research and practitioner findings
  • Emerging trends and market drivers

7
Student Evaluation
  • Market Sizing Memo (20)
  • Data driven, Entrepreneurial/venture perspective
  • Due on 3/6/2015 at 4pm (or sooner)
  • Midterm Exam (25)
  • In-class, closed-book, closed-note, 2/25/2013
  • Mix of definitions, short answer, and essay
    questions
  • No make-up exams given unless pre-approved by an
    instructor.
  • Market Opportunity Research Paper (45)
  • 1 page topic proposal due on 2/16/2015
  • Final paper due on 3/9/2015, by 4pm
  • Participation (10)

8
Market Opportunity Research Paper
  • Your choice of a specific health care
    market-oriented topic.
  • Identify a market opportunity in the medical
    industry.
  • Describe its history
  • Describe opportunities and limitations
  • Expand on an opportunity to affect this market
    that is
  • Financially sustainable
  • Profitable for innovators
  • Cost-effective (from a societal perspective)
  • Paper could provide starting point for your MILI
    MBA specialization application (to be described
    later).
  • Logistics
  • 12 point font 7-8 pages of text
  • Due Dates
  • Proposal 2/16/2015
  • Sizing memo 3/6/2015
  • Final paper 3/9/2015, 4pm latest

9
Contractual Responsibilities
  • Student
  • Attend lectures
  • Engage in discussion
  • Learn by personal reading and investigation of
    research topic of choice
  • Instructor
  • Be prepared for lectures
  • Listen to students
  • Provide an exchange for ideas

10
Questions?
11
Introductions
  • Name
  • Year/program
  • Graduate school focus (e.g., finance)
  • What do you hope to do in 5 years?
  • Any specific healthcare interests/issues that are
    important to you.
  • Whats the most significant contact you or a
    family member had with healthcare?

12
  • An Introduction to the
  • U.S. Healthcare Marketplace

13
Congress
Main Street
Biotechnology
Federal Government
lt90 Income
Big Business
Physicians
99 Income
91-99 Income
Courts
Insurers
Hospitals
14
Stakeholders
  • Consumers
  • Providers
  • Hospitals
  • Physicians and Clinics
  • Long-term care facilities (e.g., nursing homes)
  • Pharmaceuticals, Medical Device, Biotechnology
    firms
  • Insurers
  • Employers
  • Government

15
Healthcare Triangle
Cost
Access
Quality
16
How much do we spend on health care?
  • 2,900,000,000,000 in 2013, which is equivalent
    to 9,354 for each man, woman, and child (310
    million) in the United States.

17
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18
What factors drive health care spending?
19
Distribution of US Health Spending
Source AHRQ, 2012
20
Distribution of Health Spending
Source NMCES, NMES, MEPS, Berk and Monheit
(March/April, 2001)
21
Distribution of National Health Expenditures, by
Type of Service (in Billions), 2010
Nursing Care Facilities Continuing Care
Retirement Communities, 143.1 (5.5)
NHE Total Expenditures 2,593.6 billion
Note Other Personal Health Care includes, for
example, dental and other professional health
services, durable medical equipment, etc. Other
Health Spending includes, for example,
administration and net cost of private health
insurance, public health activity, research, and
structures and equipment, etc. Source Kaiser
Family Foundation calculations using NHE data
from Centers for Medicare and Medicaid Services,
Office of the Actuary, National Health Statistics
Group, at http//www.cms.hhs.gov/NationalHealthExp
endData/ (see Historical National Health
Expenditures by type of service and source of
funds, CY 1960-2010 file nhe2010.zip).
22
Trends in US Health Spending Growth
23
Current Cost Driver in Health Care
24
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25
ExpendituresPriceQuantity
26
International Comparison of Health Spending,
19802005
Average spending on healthper capita (US PPP)
Total health expenditures as percent of GDP
Source OECD Health Data 2007.
27
Where Does the Money Go?
28
Where Does the Money Go?
29
Where Does the Money Go?
30
Where Does the Money Go?
31
Healthcare Triangle
Cost
Access
Quality
32
Quality
  • Defined
  • the degree to which health services for
    individuals and populations increase the
    likelihood of desired health outcomes and are
    consistent with current professional knowledge
    (Institute of Medicine)
  • doing the right thing at the right time in the
    right way for the right person and having the
    best results possible. Agency for Healthcare
    Research and Quality)
  • Clinical quality vs. consumer satisfaction
  • Structure, Process, Outcome measures

33
Access
  • An individuals ability to obtain medical
    services on a timely and financially acceptable
    basis. (Jonas Kovner)
  • Influences
  • Availability of facilities and transportation
  • Hours of operation
  • Ability to pay

34
Healthcare Triangle
Cost
Access
Tradeoffs
Quality
35
Take-Away Points
  • Many stakeholders in the U.S. system, each with
    its own interests and incentives.
  • Increasing costs across all segments over time,
    with market-based and regulatory factors
    contributing to the degree of growth in each.
  • Many expensive conditions to treat are chronic
    (long-lasting) rather than acute, and some are
    directly related to lifestyle choices.
  • There are tradeoffs between cost, quality, and
    access.

36
Small Group Discussion
  • Name three agents (other than patients) in the
    healthcare marketplace that are likely to be
    affected significantly by the current healthcare
    reform bills in the House and Senate.
  • Are they the same?
  • If the agents are the same, what are the
    differences in policy prescriptions?

37
Break
38
Future Healthcare Market Trends
  • Integrated history of the 20th century healthcare
    marketplace
  • Market linkages
  • Key issues for the 21st century
  • Demographics
  • Health lifestyle
  • Behavioral choices
  • Chronic illness
  • Technology
  • Clinical technologies
  • Administrative technologies
  • Confronting key issues U.S. health system reform

39
Healthcare Marketplace
Hospitals
Physicians
Insurance
Consumers
Medical Device
Long-term care
Employers
Government
Pharma-ceuticals
IT
40
1900-1910
  • Flexner report results in redefinition of
    medical education
  • New technologies (e.g., radiology) and
    pharmaceuticals (e.g., Salvarsan 606)
  • Federal government involvement in pharmaceuticals
  • Poison Squad
  • Pure Food and Drug Act
  • Long-term care provided in rest homes

41
1910-1920
  • World War I
  • Antiseptic medicine reducing in-hospital
    mortality rates
  • 1st attempt at National Health Insurance under
    Wilson administration

42
1920-1930
  • Great Depression (1929)
  • Hospitals and doctors underutilized because
    unaffordable to many
  • Origin of Blue Cross in Baylor, TX (1929)
  • Proliferation of pre-paid group practices (e.g.,
    Kaiser, Group Health of Puget Sound)
  • U.S. Food and Drug Administrations (FDA) is
    created (1930)
  • Veterans Administration (VA) Health Care System
    formed (1930)

43
1930-1940
  • AMA waged war on hospital-based group practices
    and other organized systems perceived to be
    socialized medicine
  • Philanthropists and New Deal legislation
    subsidize academic medical centers and other
    hospital construction
  • Hospitals and doctors continue to face
    underutilization due to poor economic conditions
  • Federal Food, Drug and Cosmetics Act passed
    (1938)
  • Sulfa drugs discovered to treat conditions like
    pneumonia
  • 2nd attempt at National Health Insurance
    legislation

44
1940-1950
  • World War II
  • Development and use of antibiotics like
    penicillin
  • Hill-Burton Act of 1946 for hospital and nursing
    home construction
  • Proliferation of employer-sponsored health
    insurance due in part to wartime wage freezes
  • McCarran-Ferguson Act allows health insurance to
    be regulated at the state, rather than the
    federal level
  • VA growth
  • 3rd attempt at National Health Insurance
    legislation

45
1950-1960
  • Post-WW2 national income increasing
  • Massive increases in federal support for medical
    research
  • Fee-for-service medicine and patient-driven
    competition by hospitals and physicians
  • Employer-sponsored health insurance expansion
    with Revenue Act of 1954

46
1960-1970
  • Genetics research begins (1962)
  • Health manpower legislation for educational
    subsidies (1964)
  • Medicare and Medicaid passage as compromise to
    national health insurance under Johnson
    administration
  • Significant effect on hospitals and physicians
  • Shift from rest homes to nursing homes for
    long-term care
  • Harris-Kefauver Drug Act
  • Promotes competition in pharmaceutical industry

47
1970-1980
  • Medical arms race
  • Passage of the Health Maintenance Organization
    (HMO) Act of 1973
  • Hospital inflation growing rapidly under
    cost-based or retrospective reimbursement
  • Passage of Certificate of Need laws at the state
    level rate setting by state governments
    creation of state and local health planning
    agencies
  • Employee Retirement Income Security Act (ERISA)
    (1974) passes and exempts plans run by unions and
    single employers from state regulation
  • Nursing homes become more widely available
  • Nixon proposes National Health Insurance, but
    legislation does not get passed

48
1980-1990
  • Public health crisis (HIV/AIDS)
  • Double-digit inflation creates impetus for
    Medicare Prospective Payment System (1983)
  • Technology and incentives create a shift from
    inpatient to outpatient care
  • Waxman-Hatch Act passes to promote competition by
    generic drugs in the pharmaceutical market

49
1990-2015
  • Public health issues
  • Increasing rates of obesity (30 by 2002)
  • Diabetes prevalence such as diabetes grow
  • Clinton Health Security Act legislation fails
    (1993-94)
  • Managed care penetration increases
  • Selective contracting and shift to payer-driven
    competition
  • Significant entry and exit in the Medicare HMO
    market.
  • Medicaid managed care

50
1990-2015
  • Provider consolidation
  • Record mergers and acquisitions by hospitals and
    physician groups
  • Managed care nightmare
  • Balanced Budget Act of 1997
  • Cuts Medicare payment rates
  • Nursing shortages
  • Pharmaceuticals
  • Medicaid prescription drug rebates imposed (1991)
  • PBMs
  • Direct to Consumer advertising permitted (1997)
  • Medicare Part D (2006)

51
1990-2015
  • Insurance
  • Health Insurance Portability and Accountability
    Act (HIPAA) (1996)
  • Managed care backlash (1998-)
  • State Childrens Health Insurance Program
    (S-CHIP) (1997)
  • Medical savings accounts (MSAs) (1996),
    consumer-driven health plans (CDHP) (2001),
    health savings account (HSA) legislation (2003)
  • Health insurance costs almost 10,000 per family
    or 4000 per individual by 2004 uninsured
    numbers rise to 44 million 2011 15,000 per
    family, 50 million uninsured
  • Patient Protection and Affordable Care Act
    (PPACA) or ACA passes on March 21, 2010. Full
    implementation in 2014.
  • Quality concerns
  • HEDIS quality measures of health plans first
    developed (1991)
  • Institute of Medicine reports on medical errors
    and patient safety (To Err is Human The Quality
    Chasm)
  • Leapfrog Group (1998)
  • HITECH Act (2009) dedicates 34 million for
    electronic health records
  • Long-term care and shift toward senior housing

52
Congress
Main Street
Biotechnology
Federal Government
lt90 Income
Big Business
Physicians
99 Income
91-99 Income
Courts
Insurers
Hospitals
53
Thought question In what ways does the global
healthcare marketplace influence the U.S.
healthcare marketplace?
54
Health Care Expenditure Growth
55
Drivers of Expenditure
  • Demand-side
  • Insurance
  • Tax treatment
  • Demographics
  • Aging
  • Preferences for Technology
  • Health behaviors
  • Obesity
  • Tobacco
  • Supply-side
  • Imperfect information
  • Increasing monopoly thesis (Pauly and Satterwaite
    (1981)
  • Quality information
  • Technological change

56
Efforts to Control Costs
  • Limits on hospital inputs
  • Utilization management
  • Rate-setting
  • DRG-based payment
  • Managed care

57
Population and Demographics
Key Issues for the 21st Century
Health and Lifestyle
Technology
58
Production of Health
Demographics
Genetics
HEALTH
Lifestyle and Health Behaviors
Medical Care
59
Demographics
60
(No Transcript)
61
(No Transcript)
62
Thought questions Demographics
  • How will the demographic shifts affect the market
    for physicians? Physician services? Hospital
    services? Long-term care?
  • How will these demographic shifts affect younger
    generations?
  • In addition to the population distribution, what
    other demographic or socioeconomic changes will
    affect health care markets? How?

63
Significance of Health Behaviors
  • What is a health bad?
  • Concept
  • Examples
  • Why do economists and others care?
  • Externalities case in which a consumer
    (producer) affects the utility (costs) of another
    consumer (producer) through actions that lie
    outside the price system public price is not
    fully accounted for in the private price
  • Market failure
  • Subsidies for positive externalities (flu shots)
  • Taxes for negative externalities (excise taxes on
    cigarettes)

64
Consequences of Health Bads
  • Smoking
  • Cigarette smoking is the leading cause of lung
    cancer (90 of deaths) chronic bronchitis
    emphysema (COPD), and a major cause of heart
    disease and stroke
  • Associated with additional cancers (e.g.,
    bladder, pancreatic, and cervical)
  • Vision and hearing problems and slowed healing
    from injuries
  • Responsible for 435,000 deaths per year in 2000
  • Obesity
  • Linked to hypertension, high cholesterol,
    coronary heart disease, type 2 diabetes,
    depression, and various types of cancer
  • Responsible for 400,000 deaths in 2000
  • 75 billion in medical care expenditures in 2003
  • Excessive Alcohol Consumption
  • Associated with lost productivity, disability,
    early death, crime, neglect of family
    responsibilities
  • Motor vehicle accidents while driving under the
    influence
  • 100,000 deaths from alcohol abuse in 2000

65
For next week
  • Read
  • Focus on
  • Starr (he did win a Pulitzer for it after
    Harvard denied him tenure)
  • Physician entrepreneurship
  • Watch about 1/20/2015 State of the Union Address
  • Identify a medical industry business opportunity
    of interest related to what could be mentioned in
    address.
  • How critical is government policy change to
    enable your opportunity.
  • If no policy change, what would be your Plan B.
  • Is you opportunity a win/win for your investors
    and society at large? If so, how?
  • E-mail me your opportunity by Sunday afternoon
    (after the Super Bowl).
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