Health Sciences 3840B Lecture 12: Lec 12 Physicians and Hospitals
30 May 2018
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Target income model doesn’t have utility function basis to it
Fee for service payments are in the green –as a proportion of total payments, they’re decreasing over time
If women are working less hours than men and there are more female physician, overall less total hours
Doctors were aging, retiring, less total care
No longer that same demographic shift in physicians
Regulation on entry into the market
Gives an artificial monopoly on services
There are two types of monopoly: natural (high fixed costs, ex. Hospitals makes sense to just not have 10 in 1 city, high fixed costs in capital, building,
equipment, don’t have to have regulation to ensure that that hospital has monopoly, increasing returns to scale?) and artificial
When you leave competition environment, payments set administratively, negotiations between funder and provider
They need each other’s input to make the fee schedule
You can’t attract people with lower prices
As the wage goes up, you work more hours (expected) but as it gets higher you have a reduction in hours
Utility of having some time off increases and is more than utility of working more so you have more money
End up decreasing your working hours at some point when you get into higher wages, backward bending slope
No underlying objective that is determining what their behaviour is
Usually we’re thinking about something that people are trying to maximize such as utility or happiness
Physicians just have a target, and want to get their income closer to the target
Alternative model is saying that the objective of physicians is to keep their income at some target
Not grounded in economic theory??????
Principal agent problem: CEO wants something done and is trying to incentive people to do it
What is the analogous problem for a hospital?
Not the same structure as a firm
Could say that the hospital’s objective is to maximize health
But not always a reasonable model
Nobody directing physicians exactly
A lot of decisions about resource allocation are going to be made outside the organization, by a physician working at the hospital but not under a direct
decision maker
Given that they face this trade-off how is a hospital as an organization valuing this quality quantity trade off?
Hospital has a utility function over on number of patients and minimum quality of care provided
No one overall objective
Not necessarily better if there was one objective
Why would we want this decentralized decision making? Physicians are closest to the patient and knows their needs, so you want them to have some
autonomy in the decision
There are benefits to competition -> efficiency, allocative efficiency and cost-effective efficiency
Local hospitals are monopolies, no competition to encourage efficiency
Instead use capacity constraints at system level = limited amount of resources without competition between hospitals
There are other ways to introduce competition
Could have between diff providers for funding –not competing for patients but trying to improve performance to get funding
Non-market regulatory framework
Hospital that can provide at the lowest cost would get the contract
In principle this could lead to hospitals competing and trying to improve performance or reduce their cost so that they can get funding
Improve cost effectiveness efficiency
This competition came at a cost in the changes of the quality of care
Failure but this concept still has potential
Lec 12 Physicians and Hospitals
May 6, 2018
4:04 PM
Health Economics Page 1
Document Summary
Target income model doesn"t have utility function basis to it. Fee for service payments are in the green as a proportion of total payments, they"re decreasing over time. If women are working less hours than men and there are more female physician, overall less total hours. No longer that same demographic shift in physicians. There are two types of monopoly: natural (high fixed costs, ex. Hospitals makes sense to just not have 10 in 1 city, high fixed costs in capital, building, equipment, don"t have to have regulation to ensure that that hospital has monopoly, increasing returns to scale?) and artificial. When you leave competition environment, payments set administratively, negotiations between funder and provider. They need each other"s input to make the fee schedule. As the wage goes up, you work more hours (expected) but as it gets higher you have a reduction in hours.
