Questions and Answers of Economics For Healthcare Managers

How would the calculation in exercise 3.13 differ for a worker who earns $500,000 and lives in Vermont? This worker faces a state income tax rate of 9.5 percent and a federal income tax rate of 35
During the last five years, average daily occupancy at the Autumn Acres nursing home has slid from 125 to 95 even though Autumn Acres has cut its daily rate from $125 to $115. Do these data suggest
How would each of the following changes affect the demand curve for acupuncture?a. The price of an acupuncture session increases.b. A reduction in back problems occurs as a result of sessions about
Your hospital is considering opening a satellite urgent care center about five miles from your main campus. You have been charged with gathering demographic information that might affect the demand
A clinic focuses on three services: counseling for teens and young adults, smoking cessation, and counseling for young parents. An analyst has developed a forecast of the number of visits each group
Your boss has asked you to describe how the demand for an overthe- counter sinus medication would change in the following situations. Assuming the price does not change, forecast whether the sales
Your firm, which operates a nationwide system of cancer clinics, has annual profits of $800 million and cash reserves of $500 million. Your clinics have a replacement value of $200 million, and fire
A physical therapy clinic faces a demand equation of Q = 200 − 1.5 × P, where Q is sessions per month and P is the price per session.a. The clinic currently charges $80. What is its sales volume
In August 2015 Turing Pharmaceuticals raised the price of Daraprim from $13.50 a tablet to $750, an increase of 5,456 percent (Over and Silverman 2015). Daraprim is the only available treatment for
The price–quantity relationship has been estimated for a new prostate cancer blood test: Q = 4,000 − 20 × P. Use a spreadsheet to calculate the quantity demanded and total spending for prices
Researchers have concluded that the demand for annual preventive clinic visits by children with asthma equals 1 + 0.00004 × Y − 0.04 × P. In this equation Y represents family income and P
Refer to exercise 6.1. What would average spending be if low-risk patients were 92 percent of the population?Exercise 6.1An insurance market consists of high-risk patients, who average $40,000 in
One in five adults is obese in wealthy countries around the world. Unfortunately, in the United States, the rate is about two in five (Organisation for Economic Cooperation and Development [OECD]
Why are price elasticities of demand called “elastic” or “inelastic” when other elasticities are not?
Why is the demand for healthcare products usually inelastic?
Per capita income in the county was $40,000, and physician visits averaged 4.00 per person per year. Per capita income has risen to $42,000, and physician visits have risen to 4.02 per person per
Sales were 4,000 at a price of $200 but fell to 3,800 when the price was increased to $220. Calculate the percentage change in sales, the percentage change in price, and the price elasticity of
Average visits per week equal 640 when the copayment is $40 and 360 when the copayment rises to $60. Calculate the percentage change in visits, percentage change in price, and price elasticity of
Per capita income in the county was $45,000, and physician visits averaged 5.0 per person per year. Per capita income has risen to $49,500. The income elasticity of demand for visits is 0.4. By what
The price elasticity of demand is −1.2. Is demand elastic or inelastic?
Why are elasticities useful for managers?
The price elasticity of demand is −0.12. Is demand elastic or inelastic?
If the income elasticity of demand is 0.2, how would the volume of services change if income rose by 10 percent?
You are a manager for a regional health system. Using an estimate of the price elasticity of demand of −0.25, calculate how much ambulatory visits will change if you raise prices by 5 percent.
If the cross-price elasticity of clinic visits with respect to pharmaceutical prices is −0.18, how much will ambulatory visits change if pharmacy prices rise by 5 percent? Are pharmaceuticals
If the cross-price elasticity of clinic visits with respect to emergency department prices is 0.21, how much will ambulatory visits change if emergency department prices rise by 5 percent? Are
If the income elasticity of demand is 0.03, how much will ambulatory visits change if incomes rise by 4 percent?
A study estimates that the price elasticity of demand for Lipitor is −1.05, but the price elasticity of demand for statins as a whole is −0.13.a. Why is demand for Lipitor more elastic than for
Your data for the clinics in exercise 9.1 suggest that clinic 2 is operating at capacity and is highly efficient. Its output is unlikely to increase. Furthermore, clinic 4 has unused capacity but is
The price elasticity of demand for the services of Kim Jones, MD, is −4.0. The price elasticity of demand for physicians’ services overall is −0.1.a. Why is demand so much more elastic for the
More and more healthcare institutions seek to reduce costs while increasing the quality of care. Accurate forecasts of the use of medical supplies represent an important element of this effort.
Your data for the clinics in exercise 9.1 suggest that clinic 2 is operating at capacity and is highly efficient. Its output is unlikely to increase. Furthermore, clinic 4 has unused capacity but is
The table lists visits for each of the four clinics operated by your system. You anticipate that volumes will increase by 4 percent next year. Forecast the number of visits for each clinic, and
Business plans require a sales forecast. Scott Fishman, the CEO of Envisage, sees three common mistakes in business plans (Fishman 2015):• They forecast “hockey stick” revenue growth.• They
A major employer has just added health insurance coverage for its employees. Consequently, 5,000 of your patients will pay a $30 copayment rather than the list price of $100 per visit. These patients
You estimate that the price elasticity of demand for clinic visits is −0.25. You anticipate that a major insurer will increase the copayment from $20 to $25. This insurer covers 40,000 of your
The following table shows data on asthma-related visits. Is there evidence that these visits vary by quarter? Can you detect a trend?A powerful test would be to run a multiple regression in Excel.
The supply function for the product in exercise 10.7 is 160 + (0.9 × P). P is the price received by the seller. At the equilibrium price, the quantity demanded will equal the quantity supplied.a.
Use the data in exercise 9.7 to answer these questions:a. Calculate the naïve estimator, which is Qt = Qt − 1.b. Calculate the two-period moving-average forecast.c. Calculate the mean absolute
Consumers who can buy health insurance through an employer get a tax subsidy. Use demand and supply analysis to assess how this subsidy affects consumers who cannot buy insurance through an employer.
Sales data are displayed in the table.a. Calculate the naïve estimator, which is Salest = Salest − 1.b. Calculate the two-period and three-period moving averages.c. Calculate the mean absolute
The table contains data on the number of doses of an antihistamine sold per month in a small town.a. To sell 196 doses to customers, what will the price need to be?b. For stores to be willing to sell
A pharmaceutical company produces a sinus medicine. Monthly sales (in thousands of doses) for the past three years are shown in the table on the next page.a. Develop a regression model that allows
Your marketing department estimates that Medicare urology visits equal 5 − (1.0 × C) + (−6.5 × TO) + (5 × TR) + (0.01 × ϒ). Here, C denotes the Medicare copayment (now $20), TO is waiting
The graph below shows a basic demand and supply graph for home care services. Identify the equilibrium price and quantity. Label them P* and Q*.a. Retirements drive up the wages of home care workers.
The table contains demand and supply data for eyeglasses in a local market.a. At $280, how many pairs will consumers want to buy?b. How many pairs will consumers want to buy if the price is $290?c.
More than 12 million Americans rely on long-term services and supports in home, community, or institutional settings. This number may more than double by 2050 (Commission on Long-Term Care 2013).
The demand function is Q = 1,000 − (0.5 × P). P is the price paid by consumers. Calculate the quantity demanded when there is no insurance. (Put these values in column DU of the table.)The state
Physicians’ offices supply some urgent care services (i.e., services patients seek for prompt attention but not for preservation of life or limb).a. Name three other providers of urgent care
Suppose the market equilibrium price for immunizations is $40 and the volume is 25,000.a. Identify three providers of immunization services.b. What sort of shift in supply or demand would reduce both
The Affordable Care Act (ACA) has increased the share of the population with health insurance. Most of the newly insured are young and reasonably healthy. As a result, the ACA will primarily affect
The demand function is Q = 600 − P, with P being the price paid by consumers. Put a list of prices ranging from $400 to $0 in a column labeled P. (Use intervals of $50.)a. Consumers have insurance
Because of fluctuations in insurance coverage, the average price paid out of pocket (P) by patients of an urgent care center varied, as the table shows. The number of visits per month (Q) also
Make the business case why healthcare providers should advocate for expansion of insurance coverage for the poor.
Why are price controls unlikely to make consumers better off if a market is reasonably competitive?
Surgical complications reduce patients’ quality of life and survival. As exhibit 11.2 shows, surgical complications also increase hospital length of stay, readmission rates, and costs. Such
Not-for-profit hospitals enjoy federal, state, and local tax exemptions, but they face challenges from governments in both courtrooms and statehouses (Santos 2016). Contemporary hospitals differ
The owners of the clinic in exercise 11.1 invested $400,000. What is the return on investment? Is it adequate?Exercise 11.1A clinic has $1 million in revenues and $950,000 in costs. What is its
Go to the Yahoo! Finance website (finance.yahoo.com), and look up the operating margin and return on equity for Community Health Systems (symbol CYH). How does it compare to Pfizer (PFE), Amgen
The owners of the laboratory in exercise 11.3 invested $6 million. What is the return on investment?Exercise 11.13A laboratory has $4.2 million in revenues and $3.85 million in costs. What is its
View selected interest rates on the website of the Board of Governors of the Federal Reserve System (www.federalreserve. gov/releases/h15/). What is the current annual yield for one-year Treasury
A laboratory has $4.2 million in revenues and $3.85 million in costs. What is its operating margin?
A not-for-profit hospital realizes a 3 percent return on its $200,000 investment in its home health unit. Its current revenue after discounts and allowances is $382,000. Administrative costs are
A clinic has $1 million in revenues and $950,000 in costs. What is its operating margin?
Kim and Pat underwrite insurance. Each underwrites 50 accounts per month. Each account takes four hours to underwrite. The value of their time is $40 per hour. Monthly costs for each are $1,500 for
Why did hospitals have limited incentives to reduce readmissions before the ACA?
What are some examples of modifiable social determinants of health that would be feasible for an ACO to influence? For a health system not in an ACO? For an insurer?
You have incurred a medical bill of $10,000. Your plan has a deductible of $1,000 and coinsurance of 20 percent. How much of this bill will you have to pay directly?
Why do employers provide health insurance coverage to their employees?
You were given a lottery ticket. The drawing will be held in 5 minutes. You have a 0.1 percent chance of winning $10,000. You refuse an offer of $11 for your ticket. Are you risk averse? Explain.
Your practice offers only a PPO with a large deductible, high coinsurance, and a limited network. You pay $400 per month for single coverage. Some of your employees have been urging you to offer a
What are the fundamental differences between HMO and PPO plans?
Five of ten people earn $0, four earn $100, and one loses $100. What is the expected payoff? What is the variance of the payoff?
You have a 1 percent chance of having healthcare bills of $100,000, a 19 percent chance of having healthcare bills of $10,000, a 60 percent chance of having healthcare bills of $500, and a 20 percent
Suppose that your employer offered you $4,000 in cash instead of health insurance coverage. Health insurance is excluded from state income taxes and federal income taxes. (To keep the problem simple,
Medicare Advantage (private insurance for Medicare beneficiaries) presents major risks for insurers. First, the Centers for Medicare & Medicaid Services annually compiles performance data and assigns
The University of Pittsburgh Medical Center (UPMC) has international operations in nine countries (UPMC 2017a). It operates cancer centers and a full-service hospital in Ireland; transplantation,
You have a 1 percent chance of having healthcare bills of $100,000, a 19 percent chance of having healthcare bills of $10,000, a 60 percent chance of having healthcare bills of $500, and a 20 percent
You have a 2 percent chance of having healthcare bills of $100,000, a 20 percent chance of having healthcare bills of $10,000, a 60 percent chance of having healthcare bills of $500, and an 18
You have a 50 percent chance of making $0, a 40 percent chance of making $100, and a 10 percent chance of losing $100. Calculate the expected value and variance of the payoff. How does your estimate
Your firm faces considerable revenue uncertainty because you have to negotiate contracts with several customers. You forecast a 20 percent chance that your revenues will be $200,000, a 30 percent
Your firm rents a supply management system to hospitals. You have received a buyout offer of $5 million. You forecast a 25 percent chance that you will have profits of $10 million, a 35 percent
Your house is worth $200,000. Your risk of a catastrophic flood is 0.5 percent. Such a flood would destroy your house and would not be covered by homeowner’s insurance. Although you grumble, you
Instead of complete insurance as in exercise 4.5, you have a policy with a $5,000 deductible. What will your expected out-ofpocket spending be? What will your expected insurance benefits be? Assuming
Explain how a decrease in input prices or an increase in efficiency would affect costs.
Your firm has been sued for $3 million by a supplier for breach of contract. Your lawyers believe that three possible outcomes could occur if the suit goes to trial. One, which the lawyers term
The following data describe the costs for two pediatric clinics with the same revenue. Calculate the average and sample standard deviation of weekly costs. Which clinic is riskier? Week 1 2 3 4 5 6 7
Why does reducing cost variation reduce risk? Why does reducing fixed cost reduce risk?
You spent $500,000 on coding training last year. Is this a sunk cost? Should it be considered in making a decision whether to switch coding software?
In a week a clinic sees the following numbers of flu cases per day: 1, 2, 2, 4, 6. What is the average for this sample? What is the standard deviation for this sample?
Lean is a performance improvement strategy that emphasizes reducing waste, with waste defined as activity that adds less value than it costs. Examples of waste include patients’ waiting time (which
A Colorado woman took her daughters to what she thought was an urgent care clinic in a shopping mall (Olinger 2015). Both were treated for respiratory problems, and the visit went well. “I thought
Baptist Health System, a clinically integrated network of five hospitals in Texas, has taken part in Medicare’s knee replacement bundled payment programs since 2008. Medicare began bundled payments
Sweetwater Nursing Home has 150 beds. Its cost and volume data are as follows. Calculate its average and marginal costs for volumes ranging from 100 to 140. What patterns do you see?
A community health center has assembled the following data on cost and volume. Calculate its average and marginal costs for volumes ranging from 25 to 40. What patterns do you see?
You bought two acres of land for $200,000 ten years ago. Although it is zoned for commercial use, it currently holds eight small, singlefamily houses. A property management firm that wants to
A clinic’s cost and visit data are as follows. Calculate its average and marginal costs. Note that you can only calculate marginal cost as visits increase from 100 to 110. Visits 100 110 Total
Use the data in exercise 5.8. How would the average and marginal costs change if the phlebotomist’s wage rose to $24 per hour? What principle does your calculation illustrate?Exercise 5.8A
A phlebotomist takes 15 minutes to complete a blood draw. The supplies for each draw cost $4, and the phlebotomist earns $20 per hour. The phlebotomy lab is designed to accommodate 20,000 draws per
A practice uses $40 worth of a dentist’s time, $30 worth of a hygienist’s time, $10 worth of supplies, and $15 worth of a billing clerk’s time to produce a visit. The practice charges a patient

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