32000 Healthcare Economics

The insurance market consists of high-risk patients who average $50,000 in spending per year, and low-risk patients who average $500 per year. Low-risk patients represent 90% of the population. What would average spending be?

$5,450

A new treatment for 1,000 patients costs $1,000,000. The life expectancy of each patient who received the new treatment increased by 2 years. What is the cost per life year?

$500

A consultant predicts that there is a 25% chance of earning $50,000 and a 75% chance of earning $100,000. The expected profit is:

$87,500

the demand for medical care is especially complex because:

(all of the above) consumers may have poor information about costs and benefits of care, providers often have a significant influence on what consumers buy, the price of care depends on insurance coverage.

When outcomes are uncertain, managers need to:

(all of the above) describe the risk involved, evaluate the risks involved, manage the risks involved

An example of adverse selection would be:

(both of the above) a consumer with gum disease signing up for expensive dental insurance. and a migraine sufferer choosing a plan that covers high-cost migraine drugs.

A laboratory has $4.2 million in revenues and $3.85 million in costs. What is its operating margin?

4.2-3.85/4.2

(A) Define Cost Benefit Analysis, Utility Benefit Analysis, and Cost Minimization Analysis. (B) A hospital changes from one anesthesia drug to another, resulting in a cost reduction of $100 per surgical patient. What additional information is needed to conduct a Cost Minimization Analysis?

5A: Cost Benefit Analysis: an analysis that compares the value of an innovation with its costs. Utility Benefit Analysis: An analysis that measures the cost of an innovation per quality-adjusted life year Cost Minimization Analysis: An analysis that measures the cost of two or more innovations with the same patient outcomes. B) In this scenario there is nothing stated about the quality or quantity of output for each alternative. We know that the cost of the second alternative is less but, to conduct a cost minimization analysis we also need the information about efficiency of output.

Define Asymmetric Information. List the three (3) features/dynamics that make Asymmetric Information particularly troublesome in the healthcare sector.

Asymmetric information is when information is known to one party in a transaction but not the other. 1) By paying the bills of healthcare providers, insurance creates a principle agent relationship not found in most fields 2) Insurance reduces the patient's incentive to monitor the performance of healthcare providers because it limits the patient's exposure to financial opportunism. 3) Asymmetric information is intrinsic to most patient-provider relationships. Patient's typically seek providers' services because they want information, so opportunism is always possible.

Please define capitation payment.

Capitation is compensation paid per beneficiary enrolled with a physician or an organization. Capitation payments drop if customers leave the practice, which gives physicians incentives to serve patients well. Capitation also creates incentive to undertreat.

Which is not a challenge that affects healthcare managers more than other managers?

Competition

Define Cost Shifting. Provide an example of Cost Shifting in a major medical center setting. Is Cost Shifting a fair and equitable practice?

Cost shifting is the hypothesis that price differences are due to efforts by providers to make up for losses in certain lines of business by charging higher prices in other lines of business. An example of cost shifting in a major medical center would be charging an insured person more for a service compared to an uninsured person. Cost shifting may be beneficial for providers, but I don't think cost shifting is a fair and equitable practice for the consumer. When looking at the example, it may seem fair to charge the uninsured person less for services because they do not have an insurance plan to help with costs, but this situation causes problems for the person who actually has insurance. The insured person should not have to bear the cost of the uninsured by paying more for the same services just because they chose to provide themselves with health coverage.

Define Demand and Supply Curves. Illustrate graphically the Demand and Supply Curve. What is that point where a Demand and Supply Curve intersect?

Demand Curves: A graph that describes how much consumers are willing to buy at different prices. Supply Curves: A graph that describes how much producers are willing to sell at different prices These two curves intersect at equilibrium prices, which represent and agreement between the firm and the consumers.

A patient who is correctly diagnosed, who receives the correct treatment, and whose treatment is delivered properly will never experience harmful side effects.

False

Diversification is the only strategy for managing risk. True

False

High-deductible insurance plans have all but disappeared.

False

An example of a case-based payment would be:

Medicare diagnosis-related groups (DRGs).

Please define moral hazard and give an example.

Moral hazard is the tendency for people to behave in riskier ways knowing that someone else bears the cost of those risks. An example of moral hazard would be comprehensive insurance policies because they decrease the incentive to take care of the possessions that are covered under those policies.

The main function of insurance is to:

Pool the risks of healthcare costs

Your house is worth $200,000. Your risk of a catastrophic flood is 0.5%. Such a flood would destroy your house and would not be covered by home owner's insurance. You buy flood coverage for $1,200. Are you risk adverse or risk seeking?Why?

Risk Adverse because the expected loss is less than the premium. $1,000 vs. $1200

What risk does a health system bear when it agrees to a bundled payment for hip replacement?

The risk that its costs for hip replacement will be higher than expected.

Americans typically have fewer physician visits than most Europeans.

True

The term managed care refers to preferred provider organizations (PPOs) and health maintenance organizations (HMOs).

True

A surgeon charges $5,000 for a procedure. His contract with your insurer sets an allowed fee of 80% of charges. You are responsible for 25% of the allowed fee.

You pay $1,000

Private insurers are testing:

bundled payments, accountable care organizations, medical homes (all of the above)

Rational decision making involves:

choosing the option that best helps you realize your goals, given your resources.

The demand for medical care is usually inelastic because:

consumers perceive that there are few good substitutes for medical care.

A change in the price of a competing product will not shift demand.

false

Americans are more likely to be admitted to a hospital than most Europeans.

false

Increasing patient co-payments from $20 to $25 should increase visits.

false

Inelastic demand means that consumption will be unaffected by price changes.

false

Medicare Advantage health maintenance organizations (HMOs) tend to attract higher-risk patients than traditional Medicare.

false

A narrow network plan:

includes a limited number of hospitals and physicians, usually excludes providers who have negotiated very high prices, may be limited to providers who can demonstrate high quality. (all of the above)

Which of the following would result in lower costs?

lower prices for imports

When describing costs:

managers will systematically err if they do not identify the perspective they take.

A 2007 study showing that the proportion of people with health insurance is higher among people with higher income is an example of:

positive economics

According to 2013 OECD (Organization for Economic Co-operation and Development) data. American life expectancy at birth:

ranks twenty-sixth of 34 OECD members.

A policy change that would reflect the input view of healthcare would be:

subsidizing construction of neighborhood walking trails.

Allegra is one of several second-generation nonsedating antihistamines. In setting prices, Sanofi-Aventis should assume that:

the demand for Allegra is more elastic than the demand for antihistamines as a class.

Compared to Canada, France, Germany, and the United Kingdom, the US had:

the highest spending er person and the shortest life expectancy in 2011.

A reduction in the net price to consumers will usually increase sales.

true

An inefficient provider will have difficulty competing with efficient rivals.

true

In the Rand Health Insurance Experiment, total spending was lower for consumers who paid part of the cost of care.

true

Insured consumers are more apt to use healthcare services than uninsured consumers.

true

Latex gloves come in cases of 100. Last month, Wholesaler A's sales rose from 200 gloves to 400 gloves. Wholesaler B's sales rose from two cases to four cases. Both examples represent a 100 percent increase.

true

Most estimates of the income elasticity imply that consumption of medical products increases with income.

true

Most of the time, the opportunity cost of an input will be what you pay for it.

true

Multiple trials of accountable care organizations are under way.

true

Prices that private insurers pay hospitals vary widely even within markets.

true

Sales forecasts are application of demand theory.

true

An accountable care organization:

usually improves the quality of care

An efficient hospital:

will have higher costs than other hospitals with similar quality of care.