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  1. terms from quiz 3 and quiz 4
  2. Describe the major features of the distribution of spending between eligible groups for Medicaid.
    • elderly and disabled account for 25% of Medicaid enrollees and 70% of the spending.
    • dually eligible account for 40% of Medicaid spending.
    • 3.6% of the enrollees with expense above $25,000 in 2001 accounted for nearly half of all spending.
    • Children represent nearly half of all enrollees but less than one fifth of spending.
    • Medicaid accounts for 17% of all spending on health care in the US, and it accounts for 44% of the spending on nursing homes.
  3. What is SCHIP, who does it cover? How does it differ from Medicaid?
    • State Children’s Health Insurance Program was part of the Balanced Budget Amendment (BBA) of 1997.
    • covers low income children who are not eligible for Medicaid
    • differ from Medicaid coverage, for example they may not cover all the services under EPSDT.
  4. What is an entitlement program? Name one government financed program that is an entitlement program and one that is not. Explain why they are or are not entitlement programs.
    • Under an entitlement program, it is mandatory that benefits are provided to all eligible individuals.
    • For example, if a State is having a budget crisis, it can not refuse to sign up individuals who meet the criteria for Medicaid. Medicare is also an entitlement program.
    • The Veteran’s Administration is not an entitlement program. The VA is given a budget to work with, and they must ration the care to eligible veterans and remain within the budget.
    • SCHIP is also not an entitlement program. If a State believes it is going to exceed its budget for SCHIP, the State is allowed to refuse to enroll additional people, even if the people meet the State’s eligibility requirements.
  5. Describe the major historical trends in health care spending in the United States.
    • health care spending has consistently grown faster than the GNP for the past 80 years.
    • Government expenditures increased in 1960 with the introduction of Medicare and Medicaid (25% to 50% of GNP)
    • Private expenditures decreased beginning in 1960 (75% to 50%)
    • Composition of private spending changed significantly. Out of pocket spending decreased
    • Insurance benefits increased, but has declined slightly in recent years.Composition of public spending also changed. Federal spending increased. State and Local spending has had a roughly constant share of the expenditures
  6. Contrast rates of spending during different periods in recent years and projected spending 1970 –1993, 1993-2000, 2001-2002, and since 2002.What were the major reasons for the changes?
    • 1970 –1993 After Medicare and Medicaid for several decades there was double digit growth in annual spending on health care in the US.
    • 1993-2000 annual growth rate about half, because of managed care effecting private spending and BBA on government spending.
    • 2001-2002 partial undoing of the BBA and managed care, the rate trended back toward double digits
    • since 2002 growth rate has tended to gradually slow
  7. As of 2007, what were the size, in terms of GNP, of the major sectors of health care spending in the US. What was the change in these sectors since 1993?
    • Hospital expenditures were 5.04% of GNP / Hospital care decline from 36% of total health care spending in 1993
    • expenditures on physician and clinical services were 3.46 % of GNP, / prescription drugs increased from 6 % to 10%
    • retail prescription drugs were 1.65% of GNP /
    • nursing home care was 1.38% of GNP.
    • By contrast national defense was 4.77% of GNP in 2007.
    • elementary and secondary schools 3.77% of GNP in 2006.
  8. What is the difference between positive and normative economics
    • Positive economics tries to determine the consequences of a policy.
    • Normative economics tries to determine which policies should be followed.
  9. What are the factors that the Andersen models indicate influence access to health care? Give an example of each type of factor?
    • Utilization occurs if enabling, and predisposing, and need variables are all present.
    • Family: Income, Insurance, type and access to a regular care source
    • Community: Provider: Population ratio, rural/urban
    • Demographic: Age, Sex, History
    • Social Structure: Education, Occupation, Religion
    • Beliefs: Attitude toward services, knowledge about disease
    • Perceived: Disability, Symptoms, Diagnosis
    • Evaluated: Symptoms, Diagnosis
  10. What does Andersen mean by a ‘mutable’ factor? List some.
    Can do something to cause change i.e. potential access variables such as the number of providers in the community and the distribution of the providers in the community
  11. What does Andersen suggest as different measures of access?
    • Potential Access: Availability, Entry, Structure, Predisposing, Enabling, Need
    • Realized Access: Utilization, Time, Type, Satisfaction, Convenience, Finaincing
    • after the introduction of Medicaid and Medicare, the poor still use services at a lower rate. The barriers were travel time, delay in obtaining an appointment, and having a regular source of care.
    • Inequitable access occurs when social structure, health beliefs, and enabling variables determine who gets medical care.
  12. Describe Grossman’s model. What are the reasons that the model suggests people demand health care?
    What is the process that is used to meet this demand?
    • Grossman’s model is an economic model that developed from human capital theory.
    • 1. demand for medical care is derived. medical care is an input to produce health.
    • 2. consumer purchases the inputs and produces health. They combine time and inputs, so they are part of the production process.
    • 3. Health is a capital good that depreciates. The cost of holding health for one period is depreciation and interest forgone. The depreciation is faster for elderly because their cost of holding health is higher.
    • 4. Health has the following aspects:
    • A) Consumption - people want health because it makes them feel better
    • B) Pure investment - health allows someone to work more, so health is worth more to high wage workers
  13. Briefly describe Parson’s concept of the sick role.
    • being sick was a role, and not just a condition, if there was a set of institutionalized expectations:
    • a. exempted from some activities, relative to the "nature and severity of the illness".
    • b. condition that they can't solve on their own.
    • c. must want to get well.
    • d. obligated to seek technically competent help and must cooperate in the process of trying to get well. individual may reject the sick role because of “frustration of expectancies of his normal life pattern
    • The sick role concept suggests several potential barriers to access.
    • a. they may be required to give up some activities.
    • b obliged to try to take care of a condition on their own before seeking help.
    • c. obligation to proclaim themselves well, even if they aren't sure they are well.
    • d. obligation to adapt to the systeme. The sick role is relative, both in the degree of the exemption and the requirement to seek care. Thus the rights and responsibilities are subject to interpretation of the severity of each case.
  14. What is a production function?
    technical relationship between combinations of input and the resulting outputs.
  15. What are the four types of risk management? Provide a health care example of each type.
    • spending money to reduce risk
    • purchasing insurance which transfers risk.
    • take no action and bear the risk.
    • Risk pooling occurs when a large number of independent risks are combined.
  16. Explain the concept of repackaging risk.
    to partition one security into two: one that is less risky than the original security, and one that contains higher risk.
  17. What are the major problems with using the standard deviation as a measure of risk? Make sure to explain prospect theory.
    • the standard deviation does not always adequately reflect risk.
    • doesn't necessarily let managers know the probability of a loss exceeding the limit. it is necessary to know how the cash flows are distributed.
  18. What types of risk does reinsurance control? What types of risk does it not control?
    • protect an insurer against unpredictable variation in claims experience.
    • provides protection against a single bad year that could cause severe financial results.
    • may allow the primary insurer to underwrite more coverage than they otherwise could with the same level of reserves

    • offers little protection against the risk that the characteristics of a particular plan will cause it to consistently have high claim costs.
    • policies adjust premiums to reflect claims experience.
    • may respond to a high cost plan by limiting or dropping coverage.
    • over time plans will tend to bear the full cost of the claims
    • will not protect against adverse selection
  19. List 2 sources of risk that are present for providers when they agree to capitated payments instead of fee for service. List 2 sources of risk for providers when they agree to fee for service payments instead of capitated payment.
    • Capitated: More volume than prepaid
    • FFS: No pay, Slow Pay, Low Pay
  20. Briefly describe the design of the Rand study
    • 1. estimate how demand responds to insurance. do people use more care if it is free?
    • 2. Does the demand response differ for the poor.
    • 3. Are demand elasticities greater for outpatient physician services, psychotherapy, and preventative services, which would be consistent with lesser coverage
    • 4. how does the consumption of health services affect health?
    • 5. effect of possibly treating a more healthy group of patients.
  21. What were the principal findings of the Rand study?
    • use of medical services responds to changes in the amount paid out-of-pocket.
    • Cost sharing affects the number of medical contacts, as opposed to the intensity of those contacts.
    • no significant difference among the plans with respect to inpatient services.
    • Outpatient-only cost sharing reduces total expenditures relative to free care
    • Income has a positive affect on out patient use and a negative affect on inpatient use.
    • There are different responses for usage for children and usage for adults.
    • There was no differential response to health insurance coverage between the healthy and the sickly.
    • There was no difference between the sites in response to health insurance coverage.
    • There were no differences between individuals enrolled 3 years and individuals enrolled 5 years.
    • Poor adults with high blood pressure had a clinically significant reduction in blood pressure in the free fee for service plan compared to the plans with cost sharing.
    • For poor adults who began the experiment with vision problems that were correctable with eyeglasses, there was a "modest" improvement in vision.
    • Individuals on the free care plan between the ages 12 and 35 showed a "modest" improvement in health of the gums.
  22. What are the policy conclusions of the Rand study?
    • reject the hypothesis that increased coverage of outpatient services will reduce expenditures.
    • Emergency room visits are as responsive to the cost sharing aspects of a plan as are physician office visits.
    • More complete coverage of psychotherapy services was not shown to reduce total medical costs.
    • Use of well care services is about as responsive to changes in price as other services.
  23. In several sentences briefly describe Weisbrod’s model of the nonprofit sector. To what extent is the model consistent with the development of not for profit hospitals in the United States?
    • Weisbrod suggests a significant minority of the population feels that the amount of publicly provided services is too low.
    • get together and finance nonprofit organizations to provide additional public services.
    • not-for-profit firms are a mechanism for converting charitable gifts into the services donators demand.
    • not-for-profit sector is a third sector of the economy that supplements the private sector and government.
    • provides an explanation for the original financing of not-for-profit hospitals.

    • Jeffrey Weiss points out that Weisbrod’s model doesn’t necessarily predict that the net effect of charitable contributions will be to increase the amount of public services.
    • It could be that the presence of nonprofit organizations reduces the general public’s desire to fund public services with government spending.
  24. Contrast the major theories of why there are not-for-profit organizations.
    • over 70% of short-term general hospital beds are in not-for-profit hospitals.
    • the firm’s “residual”, can’t be distributed to “owners”, but is reinvested in the organization
    • not-for-profits are exempt from some taxes
    • donations to not-for-profits receive favorable tax treatment.
    • Nonprofits are a response to government failure.
    • Nonprofits are a response to information asymmetries and transaction costs in private markets.
    • Nonprofits further goals of entrepreneurs and managers.
    • Nonprofits are driven by competitive interaction with other nonprofits.
  25. Contrast theories of hospital behavior. Provide a one sentence description of each of the following models, and a reason why one might be preferable to the others: profit maximization model, the utility maximizing model, physician control models, the Harris model, and constituency models.
    • A. Profit maximization models: Profit maximizers produce at the point where marginal revenue equals marginal cost
    • The model predicts hospitals will reinvest profits by choosing those investments that yield the highest return.
    • In Feldstein's description of the profit maximizing model the hospital can practice price discrimination. The hospital will price discriminate according to the price elasticity for each class of patient and for each type of service.

    B. Utility maximization models: managers have objectives other than maximization of profits, hospitals may maximize: 1. Quantity of services, 2. Quality of services, 3. Prestige, 4. Environment for executives

    C. Physician control models: physicians act as contractors who retain the residual revenue after other inputs are paid. In these models physicians have an incentive to favor over-investment in hospital equipment, since this investment increases their productivity. it means more purchasing power is available for physician’s services.

    • D. The Harris Model: hospital as two separate firms, a medical staff, which is the demand division, and the administration, which is the supply division. cost containment strategies should recognize the role of physicians as demanders of service, rather than being directly solely at the suppliers of hospital services.
    • E. hospitals as trying to serve multiple constituencies. Instead of trying to maximize profit, the managers must balance the interests of patients, physicians, government agencies, employers, professional trade organizations and others.
  26. What advantages and disadvantages do for profit hospitals have when compared to not for profit hospitals? Does the evidence suggest that either type is more efficient?
    • For Profit Advantages:
    • For Profit Disadvantages:
    • Evidence suggests that chains have 2-8% higher cost per admit, not for profit hospitals are at least no more expensive then for profit hospitals.

    • Disadvantages to the nonprofit firm
    • 1. Managers may not aggressively pursue efficiency.
    • 2. More difficult for not for profits to raise capital.
    • 3. The credibility of the not-for-profit designation could be destroyed by individuals who use the
    • not-for-profit designation for personal gain.
  27. Briefly define governance. What is the distinction between governance and management? What are the roles of a not for profit board?
    • Governance is the direction, control and exercise of authority, describes who has the power, authority, explains the basis of the power.
    • Governance determines who manages, the organization’s mission, capital investment. Management hires, schedule, co-ordinates departments.
    • A not for profit board is responsible for policy and oversight
  28. How did the number of acute care hospitals change between 1982 and 2002? How did the average daily census change between 1982 and 2002? How did the FTEs between 1982 and 2002?
    • 1983-2002 roughly a 15% reduction.
    • Average daily census declined from .75 mil .5 mil.
    • The FTEs increased from 3mil to 4 million.
  29. What is the relative share of not-for-profit, public, and investor owned acute care hospitals in 2002? How has that distribution changed since 1982?
    • 2002- 60% were not-for-profit, roughly 25% were state and local acute care hospitals and roughly, 15% were investor owned.
    • 1982 - 2002 the number of not-for-profit acute care hospitals declined by roughly 10%, the number of public acute care hospitals declined about 33% and the number of investor owned hospitals increased slightly.
  30. What is COTH? What is the “triad” of teaching hospitals’ mission. What % of US hospitals are COTH hospitals?
    COTH is the Council of Teaching Hospitals and Health Systems. Slightly less than 10% of US hospitals are COTH. The Triad includes teaching, research and patient care.
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