Questions and Answers of Economics For Healthcare Managers

Cardiac catheterization, which involves inserting a long, flexible tube into an artery or vein and threading it through to the heart, is used to diagnose and treat cardiovascular conditions. Patients
What does it mean to have market power? Are firms with market power extremely profitable?
Among wealthy countries, only the United States and New Zealand allow direct-to-consumer prescription pharmaceutical advertising. The value of direct-to-consumer advertising of prescription drugs is
Can you identify a healthcare firm with market power? What characteristics led you to choose the firm that you did?
Why would a merger reduce costs? Why would a merger increase markups? Why do many mergers fail nonetheless?
What information would you like to have when planning advertising spending?
Why might banning advertising drive up prices?
Offer examples of attribute-based product differentiation and information-based product differentiation.
Two physical therapy firms want to merge. The price elasticity of demand for physical therapy is −0.40. Firm A has a volume of 10,400, fixed costs of $50,000, marginal costs of $20, and a market
A local hospital offered to buy firm A in exercise 15.7 for $5,000, and the offer was refused. However, many observers now perceive that firm A is “in play” and may be sold if the right offer
Two clinics want to merge. The price elasticity of demand is −0.20, and each clinic has fixed costs of $60,000. One clinic has a volume of 7,200, marginal costs of $60, and a market share of 2
What would each of the clinics in exercise 15.9 be worth to an outside buyer (using the guideline of ten times annual profits)? What would each of the clinics be worth to each other?Exercise 15.9Two
A hospital anticipates that spending $100,000 on an advertising campaign will increase bed days by 1,000. The marketing department anticipates that each additional bed day will yield $2,000 in
A clinic is considering reducing its advertising budget by $20,000. The clinic forecasts that visits will drop by 100 as a result. Costs are $140 per visit and revenues are $180 per visit. Should the
The price elasticity of demand for dental services is −0.25. In a market with 100 dentists, the local dental society demanded and received an 8 percent increase in prices from the dominant dental
The marginal cost of a physician visit is $40. In a county with 50 physicians, the local medical society negotiated a rate of $90. Previously, any physician who offered discounts to an insurer or a
Harvoni is a lifesaving medication for people with hepatitis C. A four-week supply averaged $32,114 for privately insured patients in the United States in 2015. In Switzerland the price was $16,861.
Walmart sells a walker called the Carex Explorer for $63.98. Medicare covers the Explorer, but it used to pay between $99.77 and $143.65 (CGS 2015). As a result of competitive bidding, the current
Global warming is a classic example of a public good. Analyze this comment and explain your answer.
When students start school, they have to prove that they were vaccinated against diseases such as chicken pox, polio, and measles, which can spread quickly through an unprotected group. Students with
The existence of market failure does not signal what should be done in response. Analyze this comment and explain your answer.
Imperfect competition is the norm, so healthcare markets cannot work. Analyze this comment and explain your answer.
Markets work; governments do not. Analyze this comment and explain your answer.
Are market forces strong enough to deliver efficient healthcare? Please explain.
For each scenario, assess whether an externality is present.a. Vaccinating children against influenza reduces its incidence among the elderly.b. Newly graduated nurses flock to teaching hospitals for
The supply of measles vaccine is given by Q = 450 × P. The demand for measles vaccine is given by Q = 20,000 − 50 × P.a. What is the market equilibrium price and quantity?b. The demand curve
The supply of an antibiotic is Q = 30 × P − 200. The demand for it is Q = 8,800 − 20 × P.a. What is the market equilibrium price and quantity?b. Use of the antibiotic creates $20 in external
Vaccination schedules are predictable, meaning that insurance coverage for vaccinations does not protect consumers against risks. Insurance coverage for vaccinations drives up costs because more
About two-thirds of funding for substance abuse treatment comes from taxpayers. Does substance abuse treatment have external benefits that warrant this level of public funding?
Provide examples of the following types of government intervention in healthcare:a. Government productionb. Subsidies for productsc. Taxes on productsd. Price regulatione. Quality regulationf.
Provide healthcare examples of the following types of market failure:a. External benefitsb. External costsc. Public goodsd. Imperfect competitione. Imperfect information
Private foundations support medical research. Does this fact prove that tax funding of medical research is unnecessary? Please explain.
Public health information can be broadcast at a cost of $100. Public health information is a pure public good, in that many people can use the information simultaneously and preventing people from
Every 1 percent reduction in the level of particulates in the air costs $200,000. Low-income residents in a region have a demand for particulate reduction of R = 10 − P, where R is the level of
Few orthopedic surgeons publish data describing their surgical volumes, infection rates, mortality rates, functional gain rates, or customer satisfaction rates.a. How much would a regulation
The Louisiana State Board of Embalmers and Funeral Directors was formed in 1914 to regulate embalmers, funeral homes, and funeral directors and to handle consumer complaints. The board has one
Why are many consumers apt to be rationally ignorant about their options?
Physician quality report cards are everywhere: The federal government, consumer groups, professional organizations, US News and World Report, and ProPublica all produce reports on physicians’
Why would insurance coverage tend to increase rational ignorance?
A proposal has been advanced to limit advertising of pharmaceutical prices to prevent unfair pricing by national chains. You estimate that limits on price advertising will change the price elasticity
Prices for a medical procedure average $1,000 and range from $800 to $1,200. How much could a consumer paying full price save by getting the best price? Suppose that insurance is responsible for 75
Why are many economists opposed to licensure of medical facilities and personnel?
Identify circumstances in which both public and private regulation are present. Which serves consumers better? Why?
Find out who is on the board of the licensing agency for one of the health professions for your state. Does the board include more members of the profession being regulated or more consumers?
You will receive a $10,000 insurance payment in two months. If you are willing to pay for expedited handling, you can be paid in one month. Would you be willing to pay $50? $100? $200? More?
More than two-thirds of the millions of children without health insurance appear to be eligible for Medicaid or the Children’s Health Insurance Program (Kenney et al. 2015). For many of these
You will receive a $20,000 insurance payment in 12 months. If you are willing to accept a reduced payment, you can be paid in 11 months. Would you be willing to
What annual interest rate is implied by your answer to exercise 18.1? You calculate this rate by dividing $10,000 by the difference of $10,000 and the amount you are willing to pay for expedited
How could you use behavioral economics to increase the number of insured employees in your firm?
How likely is someone aged 25 to 44 to have an emergency department visit? What is the probability of having two visits? What is a typical charge for an emergency department visit? On the basis of
What was your forecast of emergency department spending in exercise 18.7? Your forecast should equal the probability of one emergency department visit times the typical charge plus the probability of
A town has two hospitals. One averages 30 births per day; the other averages 15. Overall, half of the babies are boys, but some days more than 60 percent of the babies are boys. Is either hospital
Eighty percent of the participants at a meeting are physicians. The rest are nurse practitioners. Your neighbor Amy is there. She is 40, married, and highly motivated. Colleagues have told you that
Will you be in the top half of your class or the bottom? What proportion of your classmates will forecast that they will be in the top half? What implications does this scenario have for decision
To reduce the costs of resolving insurance disputes, insurers have required that customers use arbitration. Arbitrators are required to be knowledgeable about medicine and insurance contracts. Why
How might the Food and Drug Administration be subject to capture? Who would be likely to capture the agency?
Hospital privileges usually restrict what physicians can do. Medical licenses do not. What drives this difference?
Consumers Union, the Leapfrog Group, and the US Department of Health and Human Services have websites that provide consumer information about hospitals. Why are multiple sources of information
Give an example of a healthcare product that is financed by the government but produced by private firms. Can you explain why this arrangement exists?
Many struggle to change health-related behaviors. One reason is that people seeking to lose weight, increase exercise, or stop smoking act in a time-inconsistent manner. For example, someone joins a
What annual interest rate is implied by your answer to exercise 18.2? Is it the same as the rate in exercise 18.3? Why would this comparison matter?Exercises 18.2You will receive a $20,000 insurance
How are exercises 18.1 and 18.2 different? How are your answers to them different?Exercises 18.1You will receive a $10,000 insurance payment in two months. If you are willing to pay for expedited
You have finished interviewing candidates for an assistant director position. One of them stands out as the best candidate to you. You know that this view sets you up for confirmation bias as you
Your vice president is an accountant and believes that accountants make the best practice managers. One of the three finalists for a practice management role has an accounting background. Everyone on
Thirty-four percent of the employees in your health system are obese, and 16 percent of their children are obese as well. Obese employees are less productive, have higher medical costs, and miss more
The United States spends far more than other wealthy industrial countries but has poorer outcomes. Spending per person is more than double the spending per person in Canada, France, and the United
What is wrong with spending 17.2 percent of GDP on healthcare?
Should reducing overhead costs associated with insurance be a priority?
US national health expenditure was $7,892 per person in 2008 and $10,364 in 2016. The Consumer Price Index had a value of 210.228 in 2008 and a value of 241.432 in 2016. In 2016 dollars, how much was
How did the state and local government share of national health expenditures change between 2010 and 2016? What accounts for this change? Go to the “Actuarial Studies” page on the CMS website
Spending on pharmaceuticals rose from $253,080 in 2010 to $328,588 in 2016. Go to the inflation calculator (http:// cpiinflationcalculator.com/) and calculate 2010 spending in 2016 terms.
When was the last year that GDP grew faster than national health expenditure? Go to the CMS website (www.cms.gov/Research- Statistics-Data-and-Systems/Research-Statistics-Data-and-Systems. html) to
Your accountants tell you that the cost to set up an immunization program at a preschool and immunize one child against polio is $400. The cost to immunize 20 more children is $460 more. What is the
A new treatment for cystic fibrosis costs $2 million. The life expectancy of 1,000 patients who were randomly assigned to the new treatment increased by 3.2 years. What is the cost per life year of
In 2012 Oregon launched an ambitious redesign of its Medicaid program. It created a statewide network of coordinated care organizations, which are similar in some respects to accountable care
Why is health insurance necessary?
Why has the share of healthcare output produced by hospitals risen? Will this trend continue? Can you think of a policy or technology change that would reduce hospital use? Can you think of a policy
Mechanics usually have better information about how to fix automobiles than their customers do. What problems does this advantage create? Can mechanics or their customers do anything to limit these
Income is a possible explanation. Income per capita is higher in the United States than in the other five countries discussed in case 1.2 (World Bank 2017). This extra income could result in
Why is the idea that value depends on consumers’ preferences radical?
Which of the plans in exercise 1.3 would impose the larger burden on those with incomes under $25,000: a mandatory insurance plan financed via premiums, via the income tax, or via a payroll
A mandatory health insurance plan costs $4,000. One worker earns $24,500 in employment income and $500 in investment income. Another worker earns $48,000 in employment income and $2,000 in investment
The following table shows data for Australia, the United Kingdom, and the United States.a. How did life expectancy at birth change between 2010 and 2015?b. How did expenditure per person change
Which of the preceding questions can you answer using positive economics? For which of the preceding questions must you use normative economics?
Johnson County and Wyandotte County are adjacent counties in the Kansas City metropolitan area. Despite significant progress in recent years, the rate of premature death in Wyandotte County is more
Americans spend more on smartphones than the citizens of other countries do, yet this type of spending is seldom described as a problem. Why is spending more on healthcare different?
Identify a product that is one organization’s output and another organization’s input.
Can you think of any initiatives that reflect the input view of healthcare?
Starting a mobile clinic costs $300,000. The additional cost of serving the first patient is $40. What is the average cost of serving the first patient?
Setting up nurse practitioner clinics to serve 20,000 newborns in Georgia would cost $6 million. This program would increase life expectancy at birth from 75.1 years to 75.3 years. How many life
The conflicting incentives of FFS and capitation present significant problems for integrated health systems like Geisinger Health System of central Pennsylvania. Indeed, after its merger with Penn
Explain how adverse selection and moral hazard differ, and give an example of each.
Some consumers are overinsured, yet some are underinsured. Millions are clearly uninsured. What do you think these concepts mean?
A radiology firm charges $2,000 per exam. Uninsured patients are expected to pay list price. How much do they pay?
Should health insurance continue to be employment-based for most Americans?
A radiology firm charges $2,000 per exam. An insurer’s allowed fee is 80 percent of charges. Its beneficiaries pay 25 percent of the allowed fee. How much does the insurer pay? How much does the
A surgeon charges $2,400 for hernia surgery. The surgeon contracts with an insurer that allows a fee of $800. Patients pay 20 percent of the allowed fee. How much does the insurer pay? How much does
A community has four residents. The table shows the number of dental visits each resident will have. Calculate the total quantity demanded at each price. Then graph the relationship between price and
If the radiology firm in exercise 3.6 raised its charge to $3,000, how much would the insurer pay? How much would the beneficiary pay?Exercise 3.6A radiology firm charges $2,000 per exam. An
Should medical services be free? Justify your answer.

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