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The economics of health care is an important concern in countries around the world, and is a particular area of concern in the United States. Hospital care constitutes about one-third of total health care expenditures, and patients who have been hospitalized often have very high costs after discharge, including for rehospitalization, skilled nursing facility, and home health use. Hospitals are increasingly being held responsible for managing these costs. As a result, hospitalists must have a good understanding of the economics of hospital care and the effects that hospitalists can have on health care costs. Many of the most important issues in the economics of hospital care, such as the critical role of health care technology, are relevant to many other aspects of health care economics. However, hospital care has certain fairly unique elements that deserve particular attention.

Health care now consumes about 1 in 6 dollars spent in the United States, up from 1 in 12 dollars in 1960. This increase in spending is not a problem in and of itself; growth in a sector of the economy can be highly desirable if it reflects the development of valuable new technologies (eg, computers). However, in the case of health care there are good reasons to question whether increases in spending have been consistently worthwhile. One reason for concern is that much of health care spending is covered by insurance. Insurance helps ensure that high cost, unpredictable health care is available to people when they need it. However, insurance also causes individuals to consume health care even when it might not be otherwise worthwhile for them. Moreover, because patients may not easily understand many of the complex decisions about their care, often spending may not align well with their underlying preferences. While many efforts are being made to better inform and empower patients to participate in their medical decisions, health care providers, hospitals, insurers, and policy makers must make decisions that patients cannot fully participate in and that influence patient care. Social institutions, such as licensure, accreditation, public reporting of outcomes, and market competition may also help ensure that these parts of the health care system act more effectively as agents of patients.

Indeed, while there is evidence that the value of increased health care spending on average has far exceeded the cost, there is also evidence that a sizable fraction of medical interventions provide little health benefit. The United States spends more per capita on health care than any other country, but many countries achieve comparable or better population health outcomes. These cross-national differences cannot be attributed completely to differences in the health care systems across countries. Nevertheless, the efficiency with which resources are used within these health care systems is a critical concern when seeking to maximize the health outcomes given available resources. Tools such as medical cost-effectiveness analysis are often used to assess how the cost of care compares to the health benefits produced. One metric for assessing cost ...

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