Questions and Answers of Economics For Healthcare Managers

Which of the plans in exercise 1.3 would be fairest?Exercise 1.3A mandatory health insurance plan costs $4,000. One worker earns $24,500 in employment income and $500 in investment income. Another
The table shows cost and revenue data for a clinic. Calculate the clinic’s marginal cost, marginal revenue, and profits at each volume. Which price maximizes its profits?
Why is the demand for an individual firm’s healthcare products usually elastic?
The table shows cost and revenue data for a clinic. Calculate the clinic’s marginal cost, marginal revenue, and profits at each volume. Which price maximizes its profits?
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
The table shows output and cost data. Calculate the average total cost, average fixed cost, average variable cost, and marginal cost schedules. If the market price were $500, should the firm shut
A clinic’s average and marginal cost per case is $400. It charges $600 per case and serves 1,000 customers. Its marketing team predicts that it will expand its sales to 1,250 customers if it cuts
A clinic’s average and marginal cost per case is $400. It charges $600 per case and serves 1,000 customers. Its marketing team predicts that it will expand its sales to 1,250 if it signs a contract
Why would a for-profit organization that incurs losses choose to operate?
Why would a profitable for-profit organization choose to exit a line of business?
What do American Airlines, Home Depot, Staples, Stanford University, AT&T, the Mayo Clinic, and Safeway have in common? They all price discriminate (Howe 2017). They charge different customers
If cost shifting is just a useful public relations ploy, why does it get so much attention?
Suppose that exhibit 12.4 is your practice’s marketing forecast.Discussion Questions• By law, you must charge everyone the same price. What do you charge?• Your costs equal $100,000 plus $20
The marginal cost pricing model calculates a markup over marginal costs using estimates of the price elasticity of demand. Will any other pricing strategy result in higher profits?
You are the manager of a 20-physician cardiology practice. You are getting ready to advise your board about a proposal for capitated specialty care from a local HMO. Data from your fee-for-service
Will raising prices increase the rate of return from a line of business?
Can you think of a healthcare firm that does not price discriminate (i.e., charge different customers different amounts for the same product)?
Price discrimination requires the ability to distinguish customers who are the most price sensitive and the ability to prevent arbitrage (resale of your products by customers who buy at low prices).
Your pharmacy provides services to Medicare and PPO patients. You estimate a price elasticity of demand of −2.2 for Medicare patients and −5.3 for PPO patients. Your marginal and average cost for
Your dental clinic provides 3,000 exams for private pay patients and 1,000 exams for members of a union. Your fixed costs are $50,000 and your incremental cost is $40. a. Private pay patients have a
You provide therapeutic massage services, focusing on stress reduction services that are not covered by insurance. Your monthly overhead is $2,000. You value your time at $20 per half hour (how long
The table shows case-mix-adjusted price and volume data for Dunes Hospital. Calculate its marginal cost, marginal revenue, and profits at each level of output. What price should it choose?
Your firm spent $100 million developing a new drug. It has now been approved for sale, and each pill costs $1 to manufacture. Your market research suggests that the price elasticity of demand in the
Why are most healthcare providers able to charge different groups of purchasers different prices for the same products?
A clinic has incremental costs per case of $10 and overhead costs of $100,000. It faces a price elasticity of demand of −2.a. What is the clinic’s profit-maximizing price?b. How would the
You manage a not-for-profit hospital in a competitive market. Suppose you decide to charge less than the profit-maximizing price to your customers.a. What effect would that decision have on
Assume the price elasticity of demand for physicians’ services is −0.2. If your marginal cost per visit is $20, what is your profit-maximizing price if you control 5 percent of the market? What
A busy urgent care clinic has average costs of $40 and incremental costs of $60.a. How could incremental costs be higher than average costs?b. The clinic charges $80 for a visit. What price
An accountable care organization (ACO) represents a consortium of doctors, hospitals, and other providers who contract to take financial responsibility for the quality of care. As such, it faces a
Describe some healthcare situations in which an agent has taken advantage of a principal. Then describe some healthcare transactions that have not taken place because of fears about asymmetric
In 2011 CareFirst BlueCross BlueShield, a plan offering coverage in Maryland, the District of Columbia, and northern Virginia, implemented a patient-centered medical home (PCMH) program that included
Identify some ways that nursing homes can signal high quality to consumers. Which of these signals are most apt to be reliable?
Provide an example of costly monitoring in the healthcare workplace. Can you think of an employment contract that would allow a reduction in monitoring without a reduction in quality?
One physical therapist is paid $20 per session. Another is paid $400 per week plus $20 per session in excess of 20 sessions per week. A third is paid $400 per week, plus $200 per week for having all
What are some strategies for reducing adverse selection in insurance markets? What sorts of problems do these solutions cause?
One physician is paid $100 per visit. Another is paid $2,500 per week plus $100 per session in excess of 20 sessions per week. A third is paid $2,000 per week plus $100 per session in excess of 20
The Federal Trade Commission requires that firms advertise truthfully. Why does this requirement promote competition? Would firms be better or worse off if the Federal Trade Commission adopted a
Your firm sells backup generators to hospitals and clinics. The generators are guaranteed to operate on demand for two years. Your data show that the generators run an average of 42 hours per year.
For the population as a whole, average healthcare spending is $1,190 per year. Those with a family history of cancer (5 percent of the population) spend $20,000 on average, and those with no family
You want to hire a new laboratory technician. Excellent technicians generate $1,000 in value added each week. Adequate technicians generate $500 in value added each week. Half the graduates are
A new test identifies individuals with a genetic predisposition to develop heart disease before age 70. People who are predisposed to heart disease cost twice as much to insure as those who are
Your hospital wants to buy practices to expand its primary care networks. You are aware that physicians who want to sell their practices differ. Some love to practice medicine and love seeing
Having access to the books and understanding local markets better than new owners, the owners of medical practices generally understand their finances better than prospective buyers do. What sorts of
Most dermatologists reside in metropolitan areas, so teledermatology should be considered as an access option for individuals living outside these areas. However, two questions must be answered. How
You are considering acquiring a firm rumored to have developed an effective gene therapy for diabetes. The value of the firm depends on this therapy. If the therapy is effective, the firm is worth
Why have economic analyses of clinical and administrative innovations become more important?
Why is cost-minimization analysis most likely to be useful for managers?
Why would an economist object to including overhead costs in costminimization analysis?
A clinic finds that it can reduce costs by eliminating appointments. The clinic is able to eliminate some telephone staff, and physicians become more productive. Patients wait until the physician is
Treating a patient with lung cancer with modern drugs increases average life expectancy by 0.25 years. The added cost of therapy is $24,000. What is the cost per life year? Should modern drugs be
A test for bladder cancer costs $100. If given to 1,000 individuals, it will reduce medical costs by $80,000 and increase average life expectancy from 15.0 to 15.1. What is the cost per life year?
Compared with a drip system, an infusion pump reduces the cost of administering chemotherapy from $25 per dose to $20 per dose. The complication rate of each system is 2 percent. Which should you
After choosing between the options in exercise 14.7, you discover that an infusion pump with a dosage monitoring system costs $15 per dose. Its monitoring functions reduce the complication rate to 1
Switching from one anesthesia drug to another reduces costs by $100 per patient. What additional information do you need to do a cost-minimization analysis?
A vaccine costs $200 per patient. Administration of the vaccine to 1,000 people is expected to increase the number of pain-free days for this population from 360,000 to 362,000. Calculate the cost
An acute care hospital has found that having geriatric nurse specialists take charge of discharge planning for stroke patients reduces the average length of stay from 5.4 days to 5.2 days. On
The current cost function for a lab that evaluates Pap smears is C = 200,000 + 25 × Q. Q, the annual volume of tests, is forecast to be 30,000. The incremental cost is $25 because each evaluation
The expected cost of Betazine therapy is $544. It is effective 57 percent of the time, with a 6 percent chance of an adverse drug reaction. The table shows data for Alphazine, a new treatment.
You are comparing replacing the current lab, which has a cost function of C = 200,000 + 25 × Q, with an automated lab that has a cost function of C = 300,000 + 20 × Q. Doing so would reduce the
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

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