Econ C07: Economics of Medical Care. Marginal and Average Productivity

Transcription

1 Econ C07: Economics of Medical Care Notes 3: The Productivity of Medical Care By Deepasriya Sampath Kumar February 17, 2000 Marginal and Average Productivity Def. The marginal product with an increase input to the product is the change in the output with respect to this input. Def. The marginal product of labor is the change in the output from an increase of labor by one unit. Def. The average product is the average number of products produced by each input given the current number of inputs. Thus the average product of labor is the average number of outputs produced by each worker. The law of diminishing returns suggests that with increases in inputs eventually both the marginal product of labor and the average product of labor will fall. Note: Marginal Product can be negative but Average Product is always positive. 1

2 Exercise 1: Review of Production Suppose that a study is being conducted with regards to the efficacy of various doses of a drug. Suppose that the doses of medicine can be increased by 10mg and for those given 0mg-100mg, the respective health quotient values are 10, 20, 35, 49,57, 62, 65, 67, 69, 70, and 70. a) Calculate the marginal and average product of increased dosage for this production function Ans. Dosage Health Quotient MPD APD (Q) (Q/mg) (Q/mg) b) Does the production function exhibit diminishing returns to increased dosage? Ans. Yes, there does seem to be diminishing marginal returns to dosage. c) Explain intuitively what might cause the marginal product of dosage to become negative? Ans. You may have toxicity effects from too much of a drug. 2

3 Productivity Changes on the Extensive Margin and Intensive Margins We expect that in general the marginal productivity of health care resources will increase at low levels of usage. Moreover, we expect at high levels of usage, the harm from iatrogenic illness could outweigh any gains, making the marginal product of health care resources negative. There are two ways to increase the use of medical care resources On the extensive margin This includes extending treatment or screening to a greater base of the population. As this margin is pushed, the number of successive treatments adds less and less additive value e.g. - screening tests for everyone On the intensive margin You can change the frequency at which medical care is provided. As the frequency gets higher, the marginal gain from each extra exam provides less and less until it As the frequency gets higher, the marginal gain from each extra exam provides less and less until it becomes negatively beneficial. eg. mammograms and x-rays etc. Aggregate vs. Marginal Comparisons On average, there seems to be a lot of gain in extending medical care; however, on the margin we may not be gaining very much This though it may seem paradoxical it is not. 3

4 Aggregate Data Comparisons One way to study the productivity of medical care is through aggregate data comparisons. Normally, these aggregate studies use simple measures of health to study productivity of health care. Namely, Health Outcomes Life Expectancy Rates Age-Specific Mortality Rates etc. Findings of Aggregate Studies Across Countries studying mortality rates show four measures move in parallel to one another: per capita income, per capita education/literacy, medical care usage, and good health outcomes. Each of these factors tends to effect each of the others. Question 2: How does each of the above measures have an effect on the other measures? Question 3: However, within country state by state studies, have sometimes shown relationships between mortality and income to be positive. Site two plausible reasons for the same? Ans. 1. Income effects can lead to bad and good behavior and the bad may over rule the good 2. Income leads to insured risk leads to more risk taking 4

5 Moreover, in county level data studies, where use is measured by using Medicare expenditures per enrollee, it was found that health was greatly effected and mortality decreased by increased medical spending. Moreover, detrimental behavior measures, such as cigarettes sold per capita, showed higher rates of mortality. (Hadley, 1982) Problems with Aggregate Studies Unraveling the pure effects of medical care on health is difficult in aggregate studies. Measuring actual health care usage is difficult. Increased cost does not necessarily signify greater usage. Moreover, in worldwide studies, there is too much variability in medical and payment systems. Moreover, exchange issues come into play here. Randomized Controlled Trial Data RAND Health Insurance Study the relationship between insurance coverage and health the resultant effects (if any) on actual health outcomes members in four cities and two rural sites were studied. Random assignment of several health insurance plans 5

6 Results Insurance Structure and Pricing Effects Copayment Plans lead to lower usage of medical care In turn, it showed that medical care usage was elastic in nature. Health Outcomes Effects (Used ADL surveys) Low Coverage Group Used 2/3s of the Medical Resources as the Full Coverage Group High Income - No difference in ADL measures between Full Coverage and Partial Coverage Group Low Income Groups - Some difference Full Coverage Group - Had Better Corrected Vision Had Better Blood Pressure Measures of about a 3 millimeter decline in blood pressure or 2% RAND researchers thus concluded that targeted investment in health care more important than broad spending. On the margin, more spending did not lead to better health Problems with RAND studies Short Term vs. Long Term Effects True Effects may not come out in a samplesize of 5800 person 6

7 Aggregate vs. Marginal Studies We should note that the aggregate and marginal studies shown quite opposite effects from health care spending; however, this is not irreconcilable given the fact that there are diminishing marginal returns to productivity taking place. Health care can be very productive, but we have moved into a rate of use of health care at which the marginal productivity is small at best. Exercise 4: Too much Medicine Read the article entitled Are you taking too much medicine?, Consumer Reports, March a) Suppose that you are a person weighing around 150 lbs, draw a hypothetical graphs of the the marginal and average rates of health quotient effectiveness from increases in dosage for Fexofenadine, Lovastatin, and Amlodipine for you. b) On the same graphs, draw the marginal and average increased dosage productivity curves, for a person who is 200 pounds. c) Look at the Self-test sections, suppose you answered yes to some of these questions, what happens to your marginal and average increased dosage curves. 7

8 Graph of any drug MPD APD Health Reduced Dosage Current Dosage Dosage Evidence on Productivity of Specific Treatments Many studies have looked at the effect of specific treatment on patients in terms of cost-effectiveness (CE). The cost effective ration is the ratio of added expensive of treatment / added life years There is certainly evidence that extending treatment of certain types along the extensive margin can lead to decreases in marginal productivity. For example, extending low-dose lovastin to Male heart attack survivors, aged 55-64, cholesterol level >= 250 leads to a cost/life year of $2153 which is relatively low. Extending to male heart attract survivors, aged 55-64, cholesterol level<250 still leads to a cost/life year of 2,293. Extension to female nonsmokers however certainly does not add much to the marginal productivity with a CE of $2,093,440. 8

9 Yet, this measure of productivity may not always be correct. Added life may not always be the most important measure of health care productivity, what about quality of life measures? Question 5: Most available studies of the effects of medical care on health care outcomes use mortality as the measure of health. If there are other dimensions to health in addition to living versus dying that remain unmeasured (such as freedom form pain, mobility to move around freely, physical endurance to perform work, etc.) how (if at all) might that alter our estimates of the marginal productivity of medical care? Ans. The measures of marginal productivity in a particular country at this point in time may be skewed and we may not that the marginal productivity curve itself may shift right words and upwards. However, it should be noted that this does not effect the expectation of diminishing marginal returns to extending health care to much. Medical Practice Variations Doctors themselves seem to disagree about the right ways to use medical care based upon a growing series of studies showing different patterns to use of various medical care. Much of the disagreement again centers around the extensive margin. The studies of medical practice variations have almost universally focused on the rate at which standard populations have received specific medical interventions. 9

10 Most Studies of this sort Dependent Variable : Generally hospital admission rates Covariates: Age and Sex as well as other Demographics Use COV = Coefficient of Variance Measures Results Low = Agreement High=Disagreement Procedures with large variance of use in one part of the country show the same in other parts of the country in most country. Moreover, though the absolute variation differs from study to study, the relative variation shows considerable stability Aggregation on variability reduces variability levels on procedures. Thus, big regions of study show less variance in procedural practices than smaller regions Is substitution the Cause of Medical Practice Variations. This is certainly possible. Suppose procedures are less expensive or less available in certain parts of the country, certainly substitution can lead to a higher variation. Isotreatment Curves, Town A, B, and C T1 A C B T2 10

11 Looking at the curves, we see substitution from different prices and budgets in two different towns, A & B, could lead to variability in the actual treatment but still provide the same utility. Town C, however, is experiencing a different and more intensive type of treatment so the utility of said treatment is higher. Is physician-specific variation the cause for medical disagreement also? The answer is probably,yes. However, the difficulty in studying this phenomena lies in the difficulty in teasing out patient and sickness effects away from treatment choices and rates Blue Cross Study most relevant of these studies IPA HMO primary care doctor study Attributing what portion of final medical costs were related to the primary doctor choices, it was found that there was great variability among this measure and of treatment styles among doctors even among a single community. So, what? As long as the outcome is good health, why does it matter? Medical Spending is highly variable with style differences 2/3 less resources are used by the lower 10% of doctors In another study using Medicare patients in 1991, similar results were found.(ruv = Resource Based Value System) 11

12 Policy Questions? How do you standardize medical practice, and should we? How do medical interventions become accepted as standard medical practice? How do you disseminate information regarding therapeutic efficacy? Summary Health is produced by medical care, though the process is uncertain. Average health indicators of medical care are generally increasing, though marginal health indicators of medical care may be decreasing or even small There have been a battery of tests that study variation among medical practices and the effect of the same. In general, there was a great deal of variation among practices. But, this variation in itself tended to follow fixed patterns. 12