Econ Final
Why is public enterprise for health care attractive?
no profit incentive, no cost minimization, enhanced equity (greater access)
What do antitrust laws accomplish?
promotes competitino among the firms within an industry and prohibits firms from engaging in certain types of market practices that may inhibit inefficiency.
What are pharmacists most incentivized to sell, generic or name brand? Why?
Generics because they make higher profit margins.
What are the three states with the fewest doctors?
Georgia, Wyoming, Oklahoma
Where is the Bismarck model implemented?
Germany, Japan, Switzerland
What does a patent accomplish for drug producers?
Gives the sole right of production of new molecular entity (NME) for maximum of 20 years.
What drives the demand of pharmaceuticals?
Improve quality of life, extend life, reduce cost of treatment, reduce side effects
What is Medicaid?
Provides coverage for certain economically disadvantaged groups.
What type of hospital provides greater amount of uncompensated care?
Public hospitals
What theories describe how to approach economic reasons for government intervention?
Public interest theory and special interest group theory.
How do the prices of brand name and generic drugs vary when substitutes are available?
brand name AND generics are lower when more substitutes are available.
What were the fertility rates in the 1800's compared to today for Europe and US?
changed from 4-5 to about 2
Health policy trilemma.
health, wealth, equity
What is the conentration in the therapeutic markets?
high
What causes the quick increase in generic entry into the market upon patent expiration?
high brand name profit margin.
Likelihood of high volume consumption of health services (fixed/variable payment and low/high cost). Very low likelihood?
high, fixed
Likelihood of high volume consumption of health services (fixed/variable payment and low/high cost). Moderate likelihood?
high, variable
Relevant Geographic Market (RGM)
hospital service area or fixed radius around hospital.
What are two types of demand side subsidies?
in kind, cash
What are some pros and cons with reinventing end of life care?
in the 1990's 30% of resources consumed by 5-6% of those who died the same year. Some end of life care is wasteful, prolongs suffering and eliminating could save money.
What type of power is demonstrated if an entitiy or government sets the price they are willing to pay for a good?
monopsony power.
What are some barriers to entry for physicians?
Opportunity costs, class size caps, limits to scope of practice, alternative medicine.
What government interventions have been focused on preventing orphan disease neglect?
Orphan Drug Act and advanced purchase of undiscovered vaccines for HIV, malaria, TB.
What are some negative consequences to the US not implementing price controls in the pharma industry?
Other countries free ride, drug companies count on making money on US consumers.
Uncompensated care
Overall measure of services provided for which no payments were received from the patient, client, or third-party payer.
What are some drawbacks to drug companies acquiring PBM's?
PBM formulary excludes competitors drugs and ability to share pricing information encouraging collusion.
What are the two parts of Medicare?
Part A, compulsory, and B, voluntary or supplemental.
What are the main barriers to entry into the pharma markets?
Patents, first-mover/brand loyalty advantage, control over inputs.
What are some issues with malpractice insurance from the physican's, advocates, and patient's perspectives?
Patients are dissatisfied, advocates concerned with lack of claims, and physicians are upset with volume of frivolous claims.
How does reimbursement for fixed-payment vary with consumption?
Payment is independent of consumption of services rendered.
What are some examples of academic and publi instiutions engaging in induced innovation?
Penicillin production WWII, obesity, malaria research stopped after Vietnam War.
What happens when the marginal dollar spent on education or parks produces more utility than the marginal dollar spent on health care?
allocatively inefficient by spending too much on what it doesn't value and by shifting this spending health declines while utility increases.
what does palliative care accomplish?
Approach that de-emphasizes long-shot medical treatments to combat advancing diseases, and instead focuses on delivergin EOL comfort.
What physicians practice primary care?
Family practice, general practice, internal medicine, obstetrics, and peadiatrics.
Types of U.S. hospitals?
Federal hospitals, military, VA, non-federal, community hospitals.
What are the compensation schemes?
Fee for service and pay for performance.
What are the forms of reimbursement?
Fee-for-service, discounted fees, DRG
OTA, 1993
Finds that drug prices could be reduced by at least 4.3% without reducing returns below R&D costs
What are some examples of the health policy trilemma choices that must be answered?
How should markets work? How to control moral hazard? How should markets be regulated?
How does reimbursement for fixed-payment shift the risk to the provider?
If actual costs exceed fixed payment, provider incurs a loss.
What are some problems with the life expectancy/health expenditures graph?
If countries differ in terms of inherent levels of health, values differ, and inequality then it is insufficient to judge effectiveness of health systems across countries.
What does it mean that a health care system is decentralized?
Individual consumers and health care providers interact in the market.
How does the HPF of a country potentially discount the ability to draw meaningful conclusions from measures used to compare countries like death rates to health expenditures?
Individual countries could be on different HPFs, shifting the curve upwards or downwards, rather than being on the same curve and acting inefficiently.
Define horizontal equity.
Individuals with the same income should pay the same amount of net taxes.
Lichtenberg 2005 (social welfare)
Intervention adds one week per year of life expectancy at incremental cost of $6750.
What are the pros to a centralized health care system?
Is more capable of distributing output more uniformly and has greater abiliity to exploit any large-sized economies.
What is social welfare?
Is the summed utility levels of all individuals within a society. Actions that influence this are said to have social benefits/costs.
What are some arguments against the high profitability of pharma firms?
It is ethical to produce at affordable prices given the quality of life impact.
What is an example of differing preferences for health.
It is possible that the marginal dollar spent on education or parks produces more utlility than the marginal dollar spent on health care.
What are some examples of price ceilings set to control drug costs?
Italy maximum permissable pricing, NHS sets price willing to purchase.
What are the types of racial discrimination?
Taste based and statistical.
What is an example of a drug that were pulled for problems and influences more strict regulations?
Thalidomide in 1960.
Describe the main attributes of third party payers.
are private companies or governement, intermediaries between consumer and physician, monitor behavior in an effort to control costs, assume the risk associated with purchase of health care.
How is uncompensated care measured?
as a percent of total hospital expenditures
In 2014 what was the industry sales volume and profit margin for the top 10 firms in the world?
$10 billion and 30%
What is the median salary of PAs and nurses?
$86,410, $64,690
In 2014 the top 10 pharma companies in the world controlled how much of the market?
1/3
How long is the entire process for drug approval?
12 years.
What is the performance of the physician services industry in terms of wages?
12% nominal increase, while real income declined.
What are the rates of return for primary care docs, specialists, business managers, and attorneys?
15.9%, 20.9%, 29%, 25.4%
How did pharmaceutical industry get its start?
1899 Bayer introduced aspirin.
When was safety or testing regulations implemented in the US for drugs?
1930
What is the maintenance fertility rate?
2.1 children per lifetime
What percent of sales constitutes promotional expenditures for pharma firms?
20-30%
How has the research and development costs grown in the US' past?
2004 - 2010 grew from 47.6 to 67.4 billion.
How many months for the first three stages of drug testing?
42.6 months
What is some evidence for negative defensive medicine?
44% general surgeons reported suggesting unecessary invasive procedures, 18% general surgeons and 9% OB/GYNs ordered biopsies defensively, 39% specialist will avoid caring for high risk patients.
What are the locations of the top ten pharma firms globally?
6 in the US and 4 in Europe
What are some examples of incentives to increase birth rates?
70's and 80's Sweden provided immediate payment to parents, France provides tax reductions and subsidies for child care, and Russia implemented a "day of conception" holiday.
What is the distribution of managed care organizations for Medicaid/Medicare?
71% Medicaid, 23% Medicare
What is the current market makeup for physician assistants?
74,800 licensed in 2008, 45% primary care, bachelor's required, 80% programs award master's degree, can prescribe in all 50 states in some capacity.
US pharma industry is made up of how many firms? What is the HHI?
763 in 2007, HHI 457
What is the primary input in the physician services industry?
80% direct care.
What percentage of hospitals are community hospitals?
86%
What percent of US pop. uninsured?
9%
How prevalent is defensive medicine according to some studies?
93% reported defensive medicine and 59% ordered more diagnostics than medically necessary (70% ED).
Pharma companies are able to use noncompetitive pricing and may continue after patent expiration. Discuss why.
A longer monopoly period helps build brand loyalty and prevent generic market entrants.
What are externalities?
A market transaction affecting parties other than the buyers and sellers that produces an un-priced by product of production or consumption.
Preventing disease progression
A more effective approach than chronic disease prevention for aging population cost controls.
Fee-for-service payment.
A price paid for each unit of a medical service.
What are Pigouvian subidies and taxes?
A tax or subsidy designed to alter behavior in relation to externalities, i.e. increase consumption of positive externalities.
Net Present Value (NPV)
A way of calculating value of all future streams of income (from today's value).
What is an example of induced innovation?
Aging population incentivized companies to produce drugs for elderly.
Why is medical school a barrier to entry?
Acceptance rate (50%), length of credentialing, and cost. (140-$240K)
Describe how Medicaid works.
Administered by each state, provides basic package of benefits, and finances long-term nursing care.
What instruments are used to make, and hold valid, personal end of life decisions?
Advanced directive and living will.
Define the special interest group theory's economic reasons for government intervention.
Amounts and types of legislation determined by the forces of supply and demand, overall fiscal package/political exchanges, and associated inefficiencies.
What are some factors contributing to the market failure in the private sector?
Asymetric information, equity, and externalities.
What is some evidence of discrimination?
Audit study by Shulman et al. 1999 use of black and white actors, same background, only difference race. Less likely to recommend standard treatment if black.
What are some potential causes for the fertility rate decline?
Availability of contracaption, greater female work rates, reduced infant mortality, and decreased requirement for working children.
What is negative defensive medicine?
Avoiding treating high-risk paitents or providing high risk procedures.
what is a type 1 error in terms of the FDA?
Bad drug is approved. vioxx
Why is the demand for physicians not being filled?
Barriers to entry.
What are potential explanations for the IRR remaining high for physicians?
Being a physician is lucrative, and theory would predict a flood of new entrants.
In special interest group theory, what is meant by overall fiscal pachage/political exchanges?
Benficiaries: special interest groups Costs fall disproportionately on the general public
What has led to increased life expectancies?
Better sanitation, nutrition, and medicine
What are three health policy models?
Beveridge model Bismarck model American model
What is retrospective reimbursement?
Bills for actual costs incurred for care rendered.
How are providers incentivized to prescribe expensive drugs, or name brand vs generic?
Brand loyalty, defensive medicine, or patient demands.
First mover/Brand loyalty advantage.
Brand-name drugs tend to be favored by physicians and consumers.
What study examined physician work duration and frequency of medical errors? What did they find?
Brigham and Woman's ICU 2004, found 36% increase in serious error, 21% pharm error, and 5.6 times more diagnostic error.
What is the effect of externalities?
Buyers and sellers do not fully internalize all the costs and benefits of the transaction. The product is usually under or overproduced from a societal perspective.
How does a firm evaluate the expected revenues?
By evaluating the therapeutic properties, size of market, and number of substitutes.
Secondary care consists of what services?
Cardiology, respitory, PT, sophisticated diagnostics.
What are three policy options for aging populations?
Chronic disease prevention, reinventing end of life care, introduce incentives to increase birth rate.
How should markets work? What are some options?
Completely private insurance Universal public insurance Compulsory insurance Employer-sponsored insurance Means-tested insurance
Describe the health policy Bismarck model.
Compulsory private insurance, private hospitals and physicians, price controls, balances equity and liberty.
If the market failures are so substantial, why is the for profit market allowed to operate at all?
Consumer's needs are heterogeneous, difficult to deliver cost-effective policy that meets the needs of the masses, and there are many non-profit providers.
Why doesn't the public sector just take over the health care system in the presence of market failure?
Consumer's needs are heterogeneous, difficult to deliver cost-effective policy that meets the needs of the masses, and there are many non-profit providers.
Health Care System
Deals with the production, consumption, and distribution of health care service in a society
How are drugs selected for the formulary?
Deemed medically effective and reasonably priced.
Tertiary care consists of what services?
Designed to arrest disease process, heart surg, cancer treatment, etc. Research hospitals.
Health Care System Structure
Determines who actually makes the following choices: what medical goods to produce? How to produce? Who should receive medical care?
What is the issue with physician-patient language concordance and malpractice concerns?
Difficulty with understanding patients is associated with 27% to 74% increase in probability to over prescribe to avoid malpractice and are 30-90% more likely to worry, or feel pressure about malpractice.
Induced innovation
Discoveries that result when innovators change their research agenda in response to profit opportunities.
Orphan disease
Diseases that are rare or that mostly occur in developing countries.
What are some statistics regarding patient doctor ratios in Wyoming?
Docs/100,000 =178.8, 14.9% uninsured (5th highest), and life expectancy 77.6 yrs (21st highest)
What are some statistics regarding patient doctor ratios in Oklahoma?
Docs/100,000 =178.87 18.9% uninsured (7th highest), and life expectancy 75.6 yrs (5th lowest)
What are some statistics regarding patient doctor ratios in Georgia?
Docs/100,000 =179.9, 19.7% uninsured (5th highest), and life expectancy 77.1 yrs (10th lowest)
What are some statistics regarding patient doctor ratios in NY?
Docs/100,000 =277.4 11.9% uninsured (13th lowest), and life expectancy 80.4 yrs (15th lowest)
What are some statistics regarding patient doctor ratios in MD?
Docs/100,000 =281 11.3% uninsured (13th lowest), and life expectancy 78.1 yrs (13th lowest)
What are some statistics regarding patient doctor ratios in Mass?
Docs/100,000 =314.8 4.4% uninsured (lowest), and life expectancy 80.1 yrs (6th highest)
Maximum Allowable Cost (MAC)
Drugs that have the same chemical makeup will be reimbursed at the same rates.
When did restrictive health practices come into vogue?
Early 1980's
Grabowski and Vernon 1990
Empirical findings justifying high profits to offset the high costs and risk of innovation.
What does product differentiation all a firm to do with pricing?
Enables firm to restrict output below and raise price obove compeitive level.
What does Restoration efficiency and promotion of equity from public interest theory argue for?
Encourage competition, provide consumer information, reduce harmful externalities, and redistribute income in society.
How can the differing preferences for health discount the ability draw meaningful conclusions from measures used to compare countries like death rates to health expenditures?
Even if a country is productively efficient, it could be spending the optimal amount on HC.
What is herd immunity?
Even unvaccinated benefit from the vaccinated majority.
Bans on direct to consumer advertising are implemented where?
Everywhere but US.
What is the learning curve effect?
Evidence to support learning by doing.
What are most complaints levied at pharma companies?
Excess profits.
What sector owns nursing home industry?
For profit owns about 70%.
What are some methods that third party payers have used to control the prescribing behaviors of physicians in an effort to reduce costs?
Formularies, drug utilization review, required generics, federal regulations.
Rizzo 1999
Found that more information reduces price elasticity of demand for antihypertensives.
How is the gov./public insurance funded?
From taxes.
What is the empirical work supporting the supplier demand hypothesis?
Fuchs 1978; cromwell and mitchell 1986; Rossiter 1984 McCarthy 1985; support is weaking for the theory in presence of more sophisticated models.
How can advertising promote or impede competition?
Generation of informed habit buying behavior.
What is a type II erro in terms of the FDA?
Good drug is rejected or delayed. Beta blockers
What is an in-kind subsidy?
Goods provided to the needy.
What is an example of a supply side subsidy? What does it accomplish?
Grant to provider. Expands the production of a good.
What are some benefits of drug companies acquiring PBMs?
Greater economies of scale and fewer administrative costs.
What are two major trends leading to the population becoming increasingly older?
Greater life expectancy and reduced fertility rates.
What legislation quickened the approval process for generic drugs?
Hatch-Waxman Act 1984
Frech and Miller 2004 (social welfare)
Higher benefits for certain popouations: drugs increase life expectancy especially at ages 40 and 60.
What's the problem with more speciality care docs?
Higher costs from technology and complex procedures.
What are the tradeoffs that are seen in the market from significant barriers to entry existing for physicians?
Higher costs, physicians earn monopoly rents.
What are the downsides to stronger patents?
Higher prices, less incentive to produce new drugs for producer and competitor.
medical arms race hypothesis
Hospitals compete on quality by adopting the best medical technologies available to appeal to physicians and their patients potentially leading to overconsumption of medical technology.
Describe the long-term care plan in Japan.
In 2000 established long-term insurance for aging population, in five years costs were 25% higher, expenditures exceeded 2005 costs by 2008 despite benefit cuts and increased co-pays, thus not sustainable.
Describe how the labor market for primary care docs vs specialty docs is behaving.
In the US the growth of specialists has outpaced primary care docs for three decades, see Schroeder 1984,1992; GAO 1994.
How does reimbursement for fixed-payment benefit the provider?
Incentivizes provider to reduce costs because surplus is kept by provider as profits.
What is happning to the physician to population ratio?
Increasing. Increased 80% from 1970 to 2009 and the distribution in the US is not uniform.
What are the cons of a decentralized health care system?
Incurs high costs due to economies of size, nonuniformity, and lack of coordination.
What is empirical evidence for problems with residency in terms of experience and work demands?
July effect and August killing season in the UK when medical errors go up.
What have the restrictions and regulations imposed by government done to the drug market composition?
Led to a lower number of new chemical entities in the market (Peltzman 1973).
Who has studied the pharma promotion strategies?
Leffler 1981, Hurwitz and Caves 1988, and Caves et al. 1991.
What is the effect of professional licensure?
License costs shift supply curve to the left and demand curve shifts to the right. leads to higher wages incentivizing performance, increasing demand. If the demand shift results in greater employment policy was effective.
Describe chronic disease prevention programs to reduce the costs of an aging population.
Lifestyle changes, i.e. increased exercise.
What happens if patents are too weak?
Little incentive to develop new drugs.
What effect does a price ceiling have in a competitive market on health care?
Longer waits, rationing, lower quality.
What is an empirical estimate for the cost of medical liability system and from what study?
Mello et al. (2010) $55.6 billion annually, 2.4% of health spending.
How do the small firms compete in the pharma industry in light of established larger firms?
Manufacture and retail of generics.
Describe the number and distribution of sellers in the pharma market.
Many large firms, many small firms.
What are the three states with the most docs?
Mass, MD, NY
What is the problem with comparing a national health policies by health outcomes?
May neglect equity considerations.
What are the two major types of public health insurance?
Medicare and Medicaid
What drove concentration in the pharma industry from 1992 - 1997?
Mergers
What is the concentration of the pharma industry?
Mildly concentrated.
What is a drug utilization review?
Monitors physicians' prescribing behaviors, consequences for physicians who unnecessarily prescribe expensive drugs when generics are available.
Countries that have adopted bpolicies that solve adverse selection still face the challenge of controlling what issue?
Moral hazard.
If considering concentration ratios based on static data in the pharma industry and using therapeutic markets, what is seen?
More concentrated
what effect does regulation have on quality?
Mostly influences structure; if aimed at the quality of emplyees could raise production costs and reduce supply of providers.
What is the single most important measure of pharma output?
NCE
New Molecular Entity
New drug product.
What was the effect of limiting physician work hours to 80 hours per week?
No change in patient mortality and reporting behaviors changed, i.e. residents report less hours.
What is the outcome in a private insurance market?
Only most sick insured, minimal government involvment, high adverse selection, low taxes, many cannot afford insurance
Can the relevant product market describe the pharma markets?
No.
Do the dominant firms in the pharma industry remain in power for long periods?
No. Dominant positions may not be very permenant.
How is the hospital industry distributed?
Non-profit control around 70% hospital beds.
What is a public good?
Nonrivalry, costly to exclude, can be produced in public/private sector, funding through taxation.
Does antitrust law make sense in the healht care setting? Why?
Not necessarily, third party payers, NFP, and regulations achieve the intent. Could worsen the situation by preventing mergers and joint ventures that could lead to reduction in costs.
What is the largest health care profession?
Nurse.
What kind of pricing is a result of market inefficiencies?
Oligopolistic pricing.
What is utilization review?
One of the most frequently used methods to contain costs by evaluating decisions to minimize costs and education of patients. There are three types: prospective, concurrent, and retrospective
What is the predicted level of physicians in the US in the future?
Petterson et al. 2015 says shortage of 33,283 primary care docs by 2035.
What are the top ten pharma companies in the world?
Pfizer, Merck, Astrazeneca, Novartis, lily, Roche, Teva Pharma, GlaxoSmithKline, J&J, Amgen.
Discuss how profits for pharma compare to other industries.
Pharma is much higher than manufacturing.
Demand in the pharma industry could be described as being realized and not actual. What is actually driving the demand for pharmaceuticals?
Physician behavior/preference, retail and hospital formularies, conumer tastes.
What are two difficulties in designing chronic disease prevention programs that reduce total health care expenditures?
Policy makers must properly target interventions at the populations most likely to benefit from them. Even if a program is successful, health costs may rise if the surviving population spends health are resourcese on other expensive to treat conditions.
What are some examples of supply-side externalities?
Pollution from production (negative), government interventions (EPA)
What is a market drawback of using a formulary?
Potential for market inefficiency
Pros and cons of means-tested insurance.
Potentially equity enhancing, costs increase from taxes and moral hazard.
What is to be expected in regards to the sustainability of Medicare and costs in terms of future estimates?
Predicted increased spending accompanied by a declining work force and thus Medicare Payroll taxes.
Rothschild-Stiglitz model
Predicts that in private markets, only the frail customers are insured fully and much of the population is underinsured.
Define taste based racial discrimination.
Preferential treatment for certain groups of patients, conscious or unconscious.
Describe the problem with Thalidomide and Europe in 1960.
Prescribed to pregnant women for morning sickness. Over 10,000 born with birth defects, pulled from market and influenced more strict regulations.
Primary care consists of what services?
Preventitive care, OB/GYN, internal med, gen surg, xray, labs.
What does it mean to have non-competitive pricing?
Price products above the marginal cost of production and generate economic profits.
What factors are considered when measuring RPM?
Primary, secondary, and tertiary care.
For private and government insurance, what percent of total pharmaceuticals were purchased by each in 2010?
Private 64% public 36%
Describe the health policy American model.
Private markets are central, no universal insurance, no price control, emphasis on liberty.
Primary care physicians work primarily where?
Private sector and group practices.
Relevant product market (RPM)
Products or services that compete with one another. Difficult to measure and define.
Institutional differences between profit/non-profit providers. Profits?
Profit: Earn accounting profits and pay dividends Non: Non-distribution constraint
Institutional differences between profit/non-profit providers. Initial capital?
Profit: Exchange funds for ownership Non: Donations
Institutional differences between profit/non-profit providers. Taxes and subsidies?
Profit: No exemptions or subsidies Non: tax-exempt can receive subsidies
Institutional differences between profit/non-profit providers. difficulty to Sell/liquidate the firm
Profit: easy Non: very difficult
Institutional differences between profit/non-profit providers. Types of goods and services
Profit: no restrictions Non: restricted by law
What are two key strategies for improving EOL care?
Promote and institutionalize hospice and palliative care and make provisions for patients to indicate their own preferences about EOL care.
Why does a patent on an NME not prevent competition in the pharma industry?
Promotes the development of drugs that treat same condition with new chemical composition.
Describe public interest theory's economic reasons for government intervention.
Promotion of the general interests of society as a whole, restoration efficiency and promote equity, and enhanced efficiency and equity through laws and regualations.
What is a DRG?
Prospective basis for services provided to Medicare patients.
What types of nurses are there?
RN, LPN, LVN
Ways to measure market concentration?
RPM, HHI
What shape of the PPF if x = patent strength and y = rate of innovation?
Rainbow
Who is harmed by induced innovation?
Rare or tropical diseases.
Why are PBM's helpful?
Reduce costs, provide disease management programs, conduct utilization reviews, and develop formularies.
Pros and cons of employer-sponsored insurance.
Reduces adverse selection by pooling healthy with unhealthy, but can lead to market inefficiencies, omits the unemployed.
Describe the buyer side of the pharma market.
Relatively fragmented, consumers pay out of pocket, consumer isn't deciding what to consume.
What other factors besides med school are there in the physician labor market that pose barriers to entry?
Residency, work hours
What is the Coase theorem?
Resources will be used efficiently to maximize social welfare, even with externalities through social bargaining.
What is a pharmacy benefit management company (PBM)?
Serve as intermediaries between health plans and drug manufacturers.
What legislation determines antitrust law?
Sherman Antitrust Act, 1890, clayton act 1914, federal trade commission act 1914, cellar-Kefauver amendment 1950.
Describe the health policy Beveridge model
Single payer, physicians public employees, very little cost-sharing at point of service, emphasis on equity.
What are the implications of Arrow's impossibility theorem?
Society will assess policy by analyzing how they meet three broad goals: health, wealth, and equity, but will not show what is optimal.
What are some barriers to entry for new hospitals?
State certificate of need (CON) laws and sunk costs, high costs of capital, no perfect substitutes, few firms, learning curve effects.
Define statistical racial discrimination.
Stereotypes on biology or behavioral tendencies.
The supply of nurses is countercyclical. Describe how the nurse labor supply fluctuates.
Supply decreases during economic prosperity.
What are the supply and demand side factors for the market for nurses.
Supply side: fewer students, diminishing workforce, decline in earnings, low job satisfaction. Demand: increasing due to aging populations.
What is some evidence for the learning curve effect?
Surgical mortality rates decrease with increased hospital volume. McGrath et al. 2000 find reductions in complications with experience.
What does availability and utilization of medical services depend on?
The degree of physician choice a consumer has and the yptes of referral practices used within the health care system.
What is happening to the sustainability of Medicare and costs associated with debt shift to the young?
The historical surplus of Medicare tax revenue places in Medicare Trust Fund was eliminated and has been declining since 2007.
What is private social welfare?
The utility level isolated to one individual within a society. Actions that influence this are said to have private benefits/costs.
What is a better method to describe the pharma market than RPM?
Therapeutic market
Why are providers incentivized to purchase expensive drugs?
They are not purchasing them directly.
Interpret the assumption that a discount factor = .95.
This implies that I value money in the next period only 95% as much as I value the same amount of money this period.
What purposes to malpractice liability law serve?
To compensate victims for damages from negligence, and deterence of future neglegence.
Hatch-Waxman Act of 1984
To provide up to five year extensions of patent protection to the patent holders to make up for time lost while products went through the FDA approval process.
How is market share distributed in the pharma industry?
Top ten companies share similar market dominance.
What is the trend of self-employed docs?
Trending towared consolidation. Dropped to under 56.3% in 2008.
What is a horizontal merger?
Two or more firms in the same industry combine together.
Where is the Beveridge model implemented
UK, Scandanavia, Canada, Australia, NZ
Who spends the most and still has a relatively low life expectancy?
US
What is efficent discrimination?
Unharmful discrimination. Taste-based always inefficient, statistical may be efficient like specialized courses of treatment for racial groups.
What is Medicare?
Uniform, national public health insurance program for aged and disabled consisting of two parts.
How does the pharma industry reinforce habit-buying pratices of buyers and physicians?
Use high promotional expenditures.
How does the Medicaid subsidy work for drug reimbursement?
VA pays 76 cents on the dollar.
How does a variable payment work?
Varies with the amount of care delivered.
Returns to medical training are different than most occupations in what way?
Very back-loaded; med school/residency costly in both direct and opportunity costs.
Describe the Willy Wonka Wormwood analogy.
W takes WW to court for noise. No matter who wins negative externality is created for the other party. WW wins W shuts down W wins WW shuts down W could pay WW to cease noise solution is pareto improving - both parties better off.
What are monopoly rents?
Wages above the competitive price due to artiicial csontraint of the market.
Describe the Harvard study examining medical negligence and malpractice insurance.
Weiler et al 1993; Brennan et al 1991. 3.7% patient unjured, of which 25% negligent. 2.6% total disability and 13.6% death. Only 2% filed a claim.
Do academic and public institutions engage in induced innovation?
Yes, but do not usually profit from it.
Arrow's Impossibility Theorem
a mathematical result showing that, under certain assumed conditions, there is no scheme for aggregating individual preferences into a valid set of social preferences
Between 1950 and 2050 what are the projections for avg. age and infant to elderly ratio?
avg. age increase from 25 to 35 and ratio moves from 5:2 to 2:5.
How does product differentiation influence demand curve elasticity?
becomes less elastic.
What are the trends for the market concentration in the pharma industry?
becoming more concentrated
What is the typical IRR in medicine?
between 11% and 14%.
What does it mean that a health care system is centralized?
choices are decided by a governement or central authority.
What are some examples of demand-side externalities?
cigarette smoking (negative), vaccination (positive)
Kefauver-Harris Amendment of 1962
companies must prove safety and efficacy.
How is a private health insurance company funded?
consumer pays premium for an agreed level of coverage.
What are the costs of banning direct to consumer advertising.
consumers may not discover drugs that would help them.
Taxes and subsidies.
corrective instruments used to influence consumption.
What effect does a price ceiling have in a competitive market?
creates a shortage and other unintended consequences.
What type of market is created with patents and what happens to pricing behavior?
creates legal monopoly and leads to monopoly profits.
Discount factor formula.
d=1/(1-r)
What effect does regulation have on price?
depends on third party involvment, can produce shortages if perfectly competitive.
What type of product is the hospital industry?
differentiated
what are the stages in drug development process?
discovery, preclinical animal testing, IND, phase 1, phase 2, phase 3, long-term animal testing, approval.
How can externalities justify government intervention?
economic theory holds that in the case of No externalities markets reach an efficient outcome and that in the presence of externalities, gov. can help achieve a socially desireable state.
What are some pros and cons with compulsory insurance?
eliminates adverse selection by legally banning it, has costs to government, increased requirement for policy design/implemenation, increased costs for consumers and increased subsidies as a result, may be innefective if poorly designed.
Why is there a potential for noncompetitive pricing in the pharma industry?
first mover advantage and brand loyalty
What influences the anticipated costs associated with drug costs for a firm?
frequency and severity of adverse reactions, additional development, marketing, distribution, and production costs.
How does pharma price inflation varied in relation to the general rate?
from 1994 to 2012 rose at higher rate.
What services do community hospitals provide?
general medicine and surgical, specialty ear/nose, OB/GYN, ortho, short stays, NFP and Profit.
Why has real income declined for physicians?
growth in managed care, more financial incentives, and tighter controls by Medicare/Medicaid.
What are some tradeoffs for society in terms of health?
how much time and money should be spent on health vs how much time and money should be spent on other programs.
What are the objectives of clinical practice guidelines for physicians?
improve the quality and lower costs of care through best in class care benchmarks.
What does the literature show in terms of market concentration and hospital behavior?
increased competition improves technical efficiency (Rosko, 2001), reducess excess capacity (Santerre and Adams, 2002), lowers prices (Town and Vistnes, 2001), and lowers costs and adverse outcomes (Kessler and McClellan, 2000).
What does the literature regarding informational effect for pharma report?
informational effect: advertising increases upon release, new entrants use to expand market share, generic competition inversely proportional to advertising by innovator.
What are some limiting factors to market competition in the hospital industry?
insurance impedes price competition, hospitals compete for physicians (not patients). Findings are mixed.
What are some reasons for limited competition?
insurance, lack of price transparency, moral hazard, government price controls, derived demand.
What resources comprise practice inputs?
labor and non-labor
what are the cons of a health care system?
lacks the competitive incentive to innovate and faces high costs of collecting information about consumer needs.
What is the benefit of providing physicians with prescription power?
less intentional and unintentional abuse of drugs.
What is a formulary?
lists of drugs that physicians are required to prescribe.
What services do community hospitals offer?
long term, psych, tuberculosis.
What are the tradeoffs for workin hours?
longer work hours increase fatigue and strain cognitive ability and shorter work hours increase the number of hand-offs and have the potential for more error.
Likelihood of high volume consumption of health services (fixed/variable payment and low/high cost). Low likelihood?
low, fixed
Likelihood of high volume consumption of health services (fixed/variable payment and low/high cost). High likelihood?
low, variable
Therapeutic market
market consists of all drugs that treat a condition.
What are gov. regulations used for?
market corrections, control price, quantity, or quality, and new entrants
What are the effects of horizontal mergers?
may harm consumers from collusion, higher prices and may benefit the consumer through economies of scale, better tech, and cost savings from more efficient production.
What are the pros of a decentralized health care system?
may provide more alternatives and innovation.
What is the overal concentration of the pharma industry?
mildly concentrated
What are some arguments for the high profitability of pharma firms?
need to recoup investment costs
In 2003 what limitations were implemented for physician work terms?
no more than 80 hours per week.
What type of market competition is the hospital industry comprised of?
oligopoly
Discuss physician work hours.
over 60 hrs per week and on call residents could work up to 30 consecutive hours.
What are the three risks consumers face when purchasing pharmaceuticals?
overpaying for low quality, adverse reactions, consequences of wrong drug or wrong dose.
What is an unintended consequence of malpractice insurance for physician behavior?
overutilization of services, or defensive medicine.
Why are profit margins for pharma higher than other industries?
patents, brand-loyalty, and inelastic demand.
What is the supplier induced demand hypothesis?
physicians abuse their role as medical advisors to advance their own economic self-interests made possible by assymetric information. (agent - principle)
What are the different modes of hospital-physician relationships?
physicians' workbench - not employed by hospital (most prevalent), direct employees (UK NHS US, physician owned hospitals (japan US)
What are the benefits of banning direct to consumer advertising?
prevent moral hazard, reduce strain on doctor-patient relationship
What accounts for most of the variation in a generic company's market share?
price
What happens to the price of branded drugs when generics enter the market?
price increases.
What are the determinants of R&D spend?
profit potential, price restrictions, firm size, and risk aversion.
What are some types of government intervention?
provide public goods, levies taxes, correct for externalities, impose regulations, enforce antitrust laws, operate public enterprises, sponsors redistribution.
What happens to supply and demand curves under the supplier demand hypothesis?
quantity of docs increases shifting the supply curve to the right but to offset price reductions docs induce demand, causing the demand curve to shift outward.
New drug cost ofset theory
reduce the cost of treating diseases.
What are some pros and cons with universal public insurance?
reduces adverse selection, everyone insured, greater equity, moral hazard increases, higher taxes, distorted economic behavior leading to less efficiency.
Turveris National Drug Index
reports 8.77% increase in cost of drugs in 2016 and over last three years annual prices have rose by 9.98%
What is one critique with the learning curve effect?
selective referral hypothesis posits that good outcomes lead to high volume.
What regulations has the government used to modify drug purchasing behavior in an effort to reduce cost?
set maximum allowable cost and Medicaid subsidies.
A physician believes that Hispanic patients are less likely to follow through with an expensive therapeutic regimen that leads to major side effects, so he does not ever prescribe it for them is an example of what type of racial discrimination?
statistical
Define vertical equity.
sufficiently progressive net tax system.
In special interest group theory, what is meant by amounts and types of legislation determined by the forces of supply and demand?
suppliers of legislation: vote-maximizing politicians buyers of legislation: wealth-maximizing special interest groups
What does the literature regarding persuasion effect for pharma report?
targeting of younger physicians for older products, promotion preserves market share, generics low market shares despite discounts.
An American physician detest interacting with French people, so she always gives French patient quicker examinations than she gives Americans is an example of what type of racial discrimination?
taste-based
Internal rate of return.
the discount rate with equalizes the NPV of both careers (or the difference between NPVx - NPVy=0
what influences drug pricing strategy over time
therapeutic novelty
What has Arrow shown about society's preferences?
they are not necessarily transitive.
What are two types of equitable redistribution schemes?
vertical equity and horizontal equity
When is social welfare maximized?
when goods are prouced to the point where marginal benefit equals marginal cost.