Health Economics and Policy

Selected Writings by Victor Fuchs

Victor R Fuchs

• Publisher: WSPC
• Year: 2018
• ISBN:
  9789813232884
• Topic: Business
• Subtopic: Insurance
• Index: Business

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"The collection represents an extraordinary intellectual achievement and... a handbook for anyone thinking about health and health policy."

Foreword by Sir Angus Deaton
winner of the Nobel Prize in Economics

"Victor Fuchs... is one of the world's most influential figures in health, medicine, and policy... His writings could be considered the single most authoritative guidebook on health economics."

Foreword by Victor J Dzau
MD, President of the National Academy of Medicine

Victor Fuchs offers a selection of his public lectures, articles, papers, and op-eds during the past 50 years. Also included are forewords by Sir Angus Deaton, Nobel Prize Laureate in Economics, and Victor Dzau, MD, president of the National Academy of Medicine. Organized in eight parts, it begins with an introduction to the field of health economics and ends with tributes to the founders and leaders of the field. In between, Fuchs discusses the determinants of health, the cost of medical care, international comparisons, health insurance, demography and aging, and health policy and health care reform. A special introduction precedes each Part. This book represents what Fuchs calls the economic perspective applied to health and medical care, a perspective of which Angus Deaton says, "Fuchs has long been the master."

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--> Contents:

• Praise from Experts
• Dedication
• Other Health-Related Books by Victor Fuchs
• Foreword (Angus Deaton)
• Foreword (Victor Dzau)
• Health Economics:
  • Health Economics
  • Health Care and the United States Economic System: An Essay in Abnormal Physiology
  • What Every Philosopher Should Know About Health Economics
  • The Future of Health Economics
  • Major Concepts of Health Care Economics
• Who Shall Live?:
  • Poverty and Health: Asking the Right Questions
  • Schooling and Health: The Cigarette Connection
  • Reflections on the Socio-Economic Correlates of Health
  • Social Determinants of Health: Caveats and Nuances
  • Black Gains in Life Expectancy
• The Cost of Care:
  • The Basic Forces Influencing Costs of Medical Care
  • Surgical Work Loads in a Community Practice
  • The Supply of Surgeons and the Demand for Operations
  • Case Mix, Costs, and Outcomes Differences between Faculty and Community Services in a University Hospital
  • Eliminating "Waste" in Health Care
  • The Doctor's Dilemma — What Is "Appropriate" Care?
• International Comparisons:
  • How Does Canada Do It? A Comparison of Expenditures for Physicians' Services in the United States and Canada
  • Hospital Expenditures in the United States and Canada
  • Why Do Other Rich Nations Spend So Much Less on Healthcare?
  • The Challenges to Health Policy in Modern Economies
  • How and Why US Health Care Differs From that in Other OECD Countries
• Health Insurance:
  • From Bismarck to Woodcock: The "Irrational" Pursuit of National Health Insurance
  • Public Support for National Health Insurance: The Roles of Attitudes and Beliefs
  • A Comprehensive Cure: Universal Health Care Vouchers
  • Who Really Pays for Health Care? The Myth of "Shared Responsibility"
• Demography and Aging:
  • The New Demographic Transition: Most Gains in Life Expectancy Now Realized Late in Life
  • "Though Much Is Taken": Reflections on Aging, Health, and Medical Care
  • "Provide, Provide": The Economics of Aging
  • The Financial Problems of the Elderly: A Holistic View
  • New Priorities for Future Biomedical Innovation
• Health Policy and Health Care Reform:
  • Economics, Health, and Post-Industrial Society
  • Economics, Values, and Health Care Reform
  • The Structure of Medical Education — It's Time for a Change
  • Reflections on Economic Research and Public Policy
  • Health Reform: Getting the Essentials Right
  • The Transformation of American Physicians
• Professional Appreciations:
  • Preface, Kenneth Arrow and the Changing Economics of Health Care
  • Nobel Laureate Gary S Becker: Ideas About Facts
  • A Review of Martin S Feldstein's Economic Analysis for Health Service Efficiency
  • An Appreciation of Michael Grossman
  • My Remarks When Awarding the ASHE (American Society of Health Economists) Career Award for Lifetime Contributions to the Field of Health Economics in My Name to Joseph Newhouse (2014)
• My Philosophy of Life
• Acknowledgements
• List of Co-Authors
• List of Journals
• Author Index
• Subject Index

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--> Readership: Graduate students, researchers and policymakers in the fields of health economics and healthcare policies. -->
Keywords:Health;Medical Care;Health Policy;Economics;Health Care Reform;Health InsuranceReview:

"You have to be as old as I am to know how long Victor Fuchs has been the dean of health economics. No one knows more, or has thought as carefully about all matters relating to health care than Victor. He is a wise, caring and very funny man. Now more than ever, we need his wisdom, and here we have it in nice bite-sized digestible portions, just like the doctor would order. Read it and learn."

Richard Thaler
Professor of University of Chicago Graduate School of Business
Winner of Nobel Prize in Economics

"When Thomas Carlyle called economics 'the dismal science' he had not had the privilege of reading Victor Fuchs. A grand master of clear thinking and trenchant prose, Fuchs sheds an economist's light on a host of topics in health and health care. This collection rewards the reader with many rich, nuanced and gratifying insights."

Harvey V Fineberg, M.D.
President, Gordon and Betty Moore Foundation
Past President, National Academy of Medicine

"This book introduces a broad audience to economist Victor Fuchs' analytical skills, wisdom, and deep humanity. A must-read for every proponent of better health at affordable cost."

Richard Zeckhouse
Professor
Harvard University
Kennedy School of Government

"Victor Fuchs has brought penetrating insights to the analysis of US health and health care for more than five decades. He has been unafraid to speak moral and economic truth to power and to forge his own creative proposals. One can only hope that those in position of power will heed his advice."

Barry S Coller, M.D.
Professor of Medicine
Physician-in-Chief
Rockefeller University Hospital

"For decades, economist Victor Fuchs has been a voice of reason, untangling the complexities of health economics with unsurpassed clarity and wisdom. Because his topics are so central to health care, and because his writing is so lucid, reading this book will benefit not only seasoned health policy experts but also the general public."

Steven Schroeder, M.D.
Professor of Medicine
UC San Francisco

"The collection of essays by Victor Fuchs spans all of the key topics in health economics and makes them accessible. His elegant analyses bridge the gaps between economics, medicine, and public policy. Written with verve and style, this book is a useful starting point for anyone interested in health and health care."

Janet Currie
Chair, Department of Economics, Princeton University

"This book is a treasure trove of insights from the productive career of one of America's most thoughtful health analysts and clearest policy writers."

Alice Rivlin
Brooking Institution
Former Vice-Chair, Federal Reserve

"Victor Fuchs' insights, captured in articles written over his long career, have brilliantly informed and enlivened the debate over the failures and successes of our health care system, while constantly pointing the way to better, and more equitable care and outcomes for all Americans."

Leonard Schaeffer
Professor USC Health Policy
Founder and First CEO, Wellpoint

"This collection of Victor Fuchs seminal writings highlights not only his knowledge and incisive thinking about important health policy issues over five decades, but his unparalled wisdom. A gem of a collection."

Stephen M Shortell
Professor of Health Policy and Management Emeritus
Dean Emeritus, School of Public Health, UC-Berkeley

"Fuchs' intellectual vision was trans-disciplinary before the term was first uttered. He taught us that nearly all health care problems benefit from the perspective of economics, but none can be resolved from that perspective alone."

Kenneth Warner
Professor Emeritus and Dean Emeritus
University of Michigan School of Public Health

"Victor Fuchs is known as the Dean of Health Economics — and these seminal papers show exactly why."

Atul Gawande, M.D.
Professor of Surgery
Harvard Medical School Key Features:

• Provides insights into American health economics and policy
• Includes Forewords by Sir Angus Deaton, Princeton, Nobel Prize Winner in Economics and Victor Dzau, MD, President, National Academy of Medicine

Part 1

Health Economics

Introduction

Fifty years ago health economics was a minor sub-specialty in economics with little attention from academics or the general public. Now it is a large field with thousands of professionals around the world. It is a rare week in the United States that does not feature at least one major health economics story: sky-high drug prices, contested merger proposals, rising insurance premiums, a surge in suicides, or other health issues. It is the responsibility of health economists to provide understanding of the complex interactions of patients, physicians, drug companies, hospitals, insurance companies, and other stakeholders in the more than three trillion dollar a year U.S. health economy. Some health economists teach in economics departments, others in schools of business, public health, medicine, or public policy. Some are researchers in industry, government, or non-profit institutes.

Part 1 is intended for highly disparate audiences: economists (articles 1.1 and 1.4), readers who have no familiarity with economics (1.2 and 1.3), and the op-ed for all readers with an interest in health policy. The first paper is my 1989 response to the editors of The New Palgrave Dictionary of Economics (almost 2,000 entries) to provide the entry on health economics. I chose to emphasize empirical studies of health and medical care that draw on concepts from finance and insurance, industrial organization, labor economics, and public finance. The fourth paper, an invited lecture to the International Health Economics Association World Congress in 1999, documents the wide variety of journals other than economics — health services research, health policy, medical — that publish research by health economists. The audience for health economics research includes not only other economists, but also public health officials, health care administrators and planners, physicians, and other health care professionals.

The second and third paper and the op-ed explain basic economic concepts such as demand and supply, the margin, elasticity, and monopoly that economists use to study behavior in health care markets. All three pieces overlap, contain some duplication, and differ in complexity. All are useful for thinking about efficiency in the production of health care and equity in its distribution. The simplest is the lecture to philosophers. Many health policy problems arise because health and health care differ from most other goods and services. All three pieces illustrate how economics can help inform policies concerning health and health care, but they also show its limitations. As in every field, policy choices in health depend on values as well as understanding of causal relations, but the valuation of life is more complex than the valuation of a pound of butter or other goods and services that are bought and sold in markets. Health is produced by individuals and families as well as market supplied medical care; thus concepts such as household production and the allocation of time within households play an important role in health economics. More than most of my colleagues, I like to emphasize the importance of applying economic concepts to the study of health as well as medical care. When I came into the field in the 1960s, it was often referred to as “medical economics.” That is no longer true, but the majority of research still focuses on health care, not health.

I also want to emphasize the importance of health economists becoming familiar with health care institutions and technology if they wish to make useful contributions to public or clinical policy. Economic theory tells us that when France changed the financing of national health insurance from a payroll tax to a compulsory contribution on payroll at the same rate, it was really no change at all. French health experts, however, were delighted with the change because the tax was paid to the Minister of Finance, while the contribution would be paid to the Minister of Social Insurance, a much more reliable friend of health insurance.

A subject of continuing interest to economists is the welfare effect of health insurance, especially the effects of moral hazard and adverse selection. The research is of high quality, but I think a more important research question is why the U.S. approach to health insurance–employment based plans, Medicaid, Medicare, and insurance exchanges differs so much from the national health insurance plans of most OECD countries. The consequences of that difference for the cost and quality of care also deserve careful study.

Recent trends in the consolidation of health care organizations into larger units though mergers and acquisitions have been a subject of considerable interest to health economists. This consolidation could be of benefit to society if it leads to greater efficiency in the production of care, but consolidation may also give more monopoly power to the larger organization and result in higher prices to patients. Several government agencies will typically review proposed consolidation when an already large organization is involved. Analysis of the public welfare benefits or harm of the merging entities requires attention to many factors. Some health care organizations such as Kaiser Permanente in California are fully integrated, providing insurance, hospital, physician, and other services under a single contract at lower cost than traditional forms of organization. But the Kaiser type of organization has not spread widely. Contrast that with food retailing, for example, where a low cost entry such as Walmart became nationwide and the largest food retailer in the country in a relatively short time. Economists and other social scientists are far from a full understanding of the forces that determine the structure and behavior of the U.S. health care industry.

Some health economists pursue traditional labor subjects such as the level of wages and wage differentials in health care occupations. The so-called “nurse shortage,” much discussed when I entered the field and ever since, is not a mystery to economists but appears to be to everyone else. Many hospitals say they have unfilled nursing positions which they cannot fill because of the “shortage.” If they raised the wage, the shortage would disappear. But because the hospital has some monopsony power (it doesn’t face a completely elastic supply of nurses), it is financially better off living with the shortage than raising the wage, which it would also have to pay to nurses already employed. Another subject of interest is the effect of licensure laws and professional certification for an increasing number of health care occupations. Many health economists with a labor economics background also lead the way in the study of the demand for health and the household production of health, including studies of the role of education and other social determinants.

Because U.S. health care now consume almost 18 percent of GDP and more than half is funded by government through direct expenditures or forgiveness of taxes, health economics attracts attention from economists who specialize in public finance. As Alice Rivlin (1931–) famously said, “Long-run fiscal policy is health policy.” Given the importance of health care expenditures for federal budget deficits and the national debt, even macro-economists are switching some of their research activity to health.

A health economics sub-specialty that I think should get more attention is the economics of innovation. Over time, changes in medical science and technology are major sources of longer life expectancy and other measures of better health. Unfortunately, these changes are also usually a principal reasons for increases in health care costs. Because almost 80 percent of an increase in U.S. life expectancy is now realized after age 65, the effect on national production of increased life expectancy is minimal, but the need to fund health care and other expenses of the elderly is great. A shift in emphasis from innovations that increase life expectancy to those that improve the quality of life would probably be desirable. Also needed is a shift to value-conscious innovation instead of the “progress at any price” attitude that has dominated biomedical innovation. The U.S. economy cannot continue to cope with increases in health care costs fueled in large part by innovations produced in an environment that ignores cost. Health economics offers many opportunities to contribute to social welfare through analyses of patent laws, the competitive structure of health care industries, the legislation that governs the FDA, and the purchasing policies of Federal health insurance as they influence a shift toward more value-conscious health care innovation.

1.1

Health Economics

Health economics is an applied field in which empirical research predominates. It draws its theoretical inspiration principally from four traditional areas of economics: finance and insurance, industrial organization, labour, and public finance. Some of the most useful work employs only elementary economic concepts but requires detailed knowledge of health technology and institutions. Policy-oriented research plays a major role, and many important policy-relevant articles are published in journals read by physicians and others with direct involvement in health (e.g. Enthoven, 1978).

The systematic application of economic concepts and methods to the health field is relatively recent. In a comprehensive bibliography of health economics based on English language sources through 1974,³ fewer than 10 percent of the entries are dated prior to 1963. In that year a seminal article by Arrow (1963) discussed many of the central theoretical problems, and a few years later a major monograph based on modern econometric methods appeared.⁹

The literature prior to 1963, thoroughly reviewed by Klarman (1965), was primarily institutional and descriptive. Significant contributions include discussions of US medical care institutions,^4,15,41 mental illness,⁸ public health,⁴⁴ and the British National Health Service.²³ The first US conference on health economics was held in 1962,²⁶ the first international conference in 1973,³² and the first widely adopted textbook did not appear until 1979.¹⁰

The field divides naturally into two distinct, albeit related, subjects: the economics of health per se, and the economics of medical care. The latter has received much more attention from economists than the former, but it is useful to consider health first because the demand for medical care is, in part, derived from the demand for health, and because many of the theoretical and empirical problems in the economics of medical care arise because of difficulties in measuring, valuing, and analysing health.

Health: Concepts, Measures, and Valuation

Health is multidimensional. With the exception of the dichotomy between life and death, there is no completely objective, invariant ordering across individuals or populations with respect to health. Health can be defined according to criteria such as life expectancy, capacity for work, need for medical care, or ability to perform a variety of personal and social functions. Economists’ attempts to measure and analyse differences in health across individuals and populations have typically focused on mortality (especially age-specific and age-adjusted death rates), morbidity (as evidenced by symptoms or diagnosed illnesses), or self-evaluations of health status. There have also been several attempts to take account simultaneously of mortality, morbidity, and health-related limitations by weighting years of life according to illness and disability.

Despite claims that health is more important than any other goal and that human life is priceless, economists note that individuals make tradeoffs between health and other goals and that the valuation of health (including life itself) is necessary...