Incentives and Choice in Health Care PDF
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ECONOMICS/HEAlTH POlICY i IncentIves n c incentiVeS and cHoice in HealtH care e n a n d choIce edited by Frank A. Sloan and Hirschel Kasper t In i V A vast body of empirical evidence has accumulated demonstrating that incentives affect health care choices made by both consumers and suppliers of health care services. Decisions in e S health care are affected by many types of incentives, such as the rate of return pharmaceutical health c are manufacturers expect on their investments in research and development, or disincentives, such a as increases in the copayments patients must make when they visit physicians or are admitted n to hospitals. d In this volume, leading scholars in health economics review these new and important results and describe their own recent research assessing the role of incentives in health care markets c and decisions people make that affect their personal health. The contexts include demand decisions—choices made by individuals about health care services they consume and the health H insurance policies they purchase—and supply decisions made by medical students, practicing o physicians, hospitals, and pharmaceutical manufacturers. i Researchers and students of health economics and policy makers will find this book a c valuable resource, both for learning economic concepts, particularly as they apply to health e care, and for reading up-to-date summaries of the empirical evidence. General readers will find the book’s chapters accessible, interesting, and useful for gaining an understanding of the likely in effects of alternative health care policies. H Frank a. Sloan is J. Alexander McMahon Professor of Health Policy and Management e and Professor of Economics at Duke University. He is the coauthor of The Price of Smoking a (MIT Press, 2004) and author or editor of many other books on health economics. l t HirScHel kaSper is Professor of Economics at Oberlin College. H c “Incentives do matter. This excellent set of chapters by prominent economists demonstrates how health care decisions by consumers, providers, and students are affected by monetary a and nonmonetary incentives. This book should be of interest to everyone concerned with r health policy.” e —Paul Feldstein, Robert Gumbiner Professor, The Paul Merage School of Business, University of California, Irvine “This book contains a comprehensive analysis of virtually every major issue in health economics. It is truly remarkable that the authors, who constitute a who’s who in the field, have produced Sloan essays that can be fully understood by the informed lay person. The book is certain to have a and profound impact on the public policy community, the public health community, and the public kaSper, at large. Bravo!” —Michael Grossman, Distinguished Professor of Economics, City University of New York editorS Graduate Center, and Health Economics Program Director and Research Associate, National Bureau of Economic Research The MIT Press 978-0-262-69365-3 edited by Massachusetts Institute of Technology Cambridge, Massachusetts 02142 Frank a. Sloan and HirScHel kaSper http://mitpress.mit.edu Incentives and Choice in Health Care Incentives and Choice in Health Care edited by Frank A. Sloan and Hirschel Kasper The MIT Press Cambridge, Massachusetts London, England © 2008 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher. MIT Press books may be purchased at special quantity discounts for business or sales promotional use. For information, please email <[email protected]> or write to Special Sales Department, The MIT Press, 55 Hayward Street, Cambridge, MA 02142. This book was set in Palatino by SNP Best-set Typesetter Ltd., Hong Kong. Printed and bound in the United States of America. Library of Congress Cataloging-in-Publication Data Incentives and choice in health care / edited by Frank A. Sloan and Hirschel Kasper. p. cm. Includes bibliographical references and index. ISBN 978-0-262-19577-5 (hardcover : alk. paper)—ISBN 978-0-262-69365-3 (pbk. : alk. paper) 1. Medical economics. 2. Medical economics—United States. I. Sloan, Frank A. II. Kasper, Hirschel. RA410.I53 2008 338.4′73621—dc22 2007039861 Contents Preface vii Acknowledgments xi Contributors xiii 1 Introduction 1 Frank A. Sloan and Hirschel Kasper 2 To Find the Answer, One Must Know the Question: Health Economics and Public Policy 21 Henry J. Aaron 3 Health Capital: Theory and Empirical Evidence 51 Donna Gilleskie 4 What We Know and Don’t Know about the Effects of Cost Sharing on the Demand for Medical Care—and So What? 85 Joseph P. Newhouse and Anna D. Sinaiko 5 Adverse Selection and Moral Hazard: Implications for Health Insurance Markets 103 Mark V. Pauly 6 Direct-to-Consumer Advertising in Health Care: An Overview of Economic Issues 131 Ernst R. Berndt and Julie M. Donohue vi Contents 7 Reefer Madness, Frank the Tank, or Pretty Woman: To What Extent Do Addictive Behaviors Respond to Incentives? 163 John Cawley 8 Medical Career Choices and Rates of Return 195 Sean Nicholson 9 The Effects of Incentives on Pharmaceutical Innovation 227 Frank A. Sloan and Chee-Ruey Hsieh 10 Physician Fees and Behavior: Implications for Structuring a Fee Schedule 263 Thomas G. McGuire 11 Physician Pay for Performance: Alternative Perspectives 289 Brian R. Golden and Frank A. Sloan 12 Competition, Information Provision, and Hospital Quality 319 Gautam Gowrisankaran 13 Summing Up 353 Frank A. Sloan and Hirschel Kasper References 371 Index 407 Preface This book is a collection of essays by many of the preeminent scholars in the fi eld of health economics. The authors describe the development of research on some of today’s most important issues in health care, and add their own recent fi ndings and perspectives, to aid the reader in gaining a better understanding of the role of incentives in choices by patients and providers in health care. The purpose of the book is to evaluate the role of incentives and markets in a variety of health contexts, ranging from demand decisions—individuals who make choices about the health care ser- vices they consume and the health insurance policies they purchase as well as their personal health more generally—to supply decisions—by students who are considering a career in medicine practicing physi- cians, hospitals, and pharmaceutical manufacturers. Preliminary versions of most of the chapters were presented on the second and third days of a conference held September 8–10, 2006, at Oberlin College in Oberlin, Ohio. This conference assembled the distinguished academic researchers of the chapters that are included here, but in addition, nearly every discussant of the papers was a graduate of Oberlin, as were most of the expert panelists, demonstrat- ing that, as one of us experienced personally (Frank Sloan, 1964), liberal arts colleges are the home to rising scholars and crucial research on issues at the top of the nation’s agenda. Academic and research economists came together at the conference with people with everyday experience in many different aspects of the nation’s health care. The roundtable on the fi rst day of the conference included panelists from a wide array of health care providers and organizations. The chief executive offi cer of the Cleveland Clinic, one of the nation’s viii Preface foremost research hospitals, opened the conference, and his remarks were followed by those of an administrator of a nonprofi t multihospi- tal chain, economists in and outside the government who evaluate health policies, and experts from venture capital funds that help fi nance new providers of medical devices and pharmaceutical drugs. A manu- facturer of generic pharmaceutical drugs offered his perspective on one panel. In organizing this project, we viewed the conference as an important vehicle for assembling the authors, discussants of the papers, health care practitioners and administrators, Oberlin students, faculty, and alumni, and persons in the community who have a general interest in health care and policy. The authors substantially revised their chapters based on the comments they received at the conference as well as through general discussion, subsequent reviews, and further refl ection and research. Much discussion of the issues contained in this book ordinarily takes place among specialists in the fi eld. Some excellent technical 1 summaries have appeared, such as the Handbook of Health Economics. The Handbook, however, is oriented to professional economists— faculty, graduate students, and other researchers. In organizing the conference and ultimately this book, our goal has been to address a general audience. This book is appropriate as a supplement to a text in health economics. It is also aimed at readers who may have a limited background in economics, but have an interest in health policy, either as a health care provider, public policy maker, or consumer-patient- citizen. Each author is well aware of the other chapters, and there is referencing across chapters. The subject matter is quite diverse, and readers may wish to concentrate on individual chapters according to their interests rather than read the book sequentially from cover to cover. This book focuses on the health care system in the United States. Yet there is much in the book that applies to other countries as well. Patient behavior is fairly universal. Innovation in pharmaceuticals and medical devices is a global concern. The issue of how to best com- pensate health care professionals is relevant, to a greater or lesser extent, to all countries. While pay for performance is still in its infancy, the issues pertinent to the United States also apply to other countries. Although polls often indicate that people like their own health care system, policy makers in few countries are entirely satisfi ed with their Preface ix existing system, and most are considering new ideas to improve what they now have. Finally, the book describes our current understanding, but also iden- tifi es what we do not know. Substantial progress has been made in health economics, but we have only scratched the surface. There is indeed much to be learned. Note 1. Culyer and Newhouse (2000).
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