economics
expert dell
frontmatter.pdf
sixth Edition
Econom ics of Health an d M edical Care
Lanis L. Hicks, PhD Professor and Associate Chair
Department of Health Management & Informatics
School of Medicine
University of Missouri, Columbia
29861_FMXx_ttlpg.indd 1 9/21/12 11:19 AM
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Library of Congress Cataloging-in-Publication Data
Hicks, Lanis L.
Economics of health and medical care.—6th ed. / Lanis Hicks.
p. ; cm.
Rev. ed. of: Economics of health and medical care / Philip Jacobs, John Rapoport. 5th ed. Aspen Pub-
lishers. c2002.
Includes bibliographical references and index.
ISBN 978-1-4496-2986-1 (pbk.)—ISBN 1-4496-2986-5 (pbk.)
I. Jacobs, Philip, 1943- Economics of health and medical care. II. Title.
[DNLM: 1. Economics, Medical—United States. W 74 AA1]
338.4’736210973—dc23
2012019556
6048
Printed in the United States of America
16 15 14 13 12 10 9 8 7 6 5 4 3 2 1
iii
Contents
New to This Edition .................................................................................... xiii
Acknowledgments ......................................................................................... xv
About the Author ......................................................................................... xvi
Introduction ................................................................................................xvii
Three Major Tasks of Economics ............................................................................. xviii Descriptive Economics ............................................................................................ xviii Explanatory Economics .......................................................................................... xviii Evaluative Economics ............................................................................................... xix
Tools Used In Economic Analysis .............................................................................. xix Economic Variables ....................................................................................................xx Relationships Between Economic Variables..................................................................xx Graphic Representation of Relationships ................................................................... xxi The Direction of Relationships .................................................................................. xxi The Slope of Relationships ....................................................................................... xxii The Position of Relationships ................................................................................. xxiii The Shape of Relationships ......................................................................................xxiv The Nature of Economic Propositions ........................................................................xxv
Outline of Contents ..................................................................................................xxvi How to Use This Book .............................................................................................. xxix Bibliography ............................................................................................................. xxix
PART I: DESCRIPTIVE ECONOMICS ............................................................... 1
Chapter 1: Output of the Healthcare Sector ................................................ 3
Objectives .......................................................................................................................3 1.1 Introduction .............................................................................................................3 1.2 Medical Care ............................................................................................................4 1.3 Risk Shifting and Health Insurance .........................................................................8 1.4 Health Status ..........................................................................................................10
1.4.1 Concepts ...........................................................................................................10
iv CONTENTS
1.4.2 Measures of Individual Health ...........................................................................10 1.4.3 Population Health Measures ..............................................................................12 1.4.4 Outcome ...........................................................................................................15
1.5 Consumption and Investment Output ................................................................17 Exercises .......................................................................................................................19 Bibliography .................................................................................................................20
Chapter 2: Economic Dimensions of the Healthcare System .................... 25
Objectives .....................................................................................................................25 2.1 Introduction ..........................................................................................................25 2.2 Economic Units and Economic Flows ...................................................................26
2.2.1 Economic Units .................................................................................................26 2.2.2 Flows Between Units .........................................................................................27
2.3 Cost of Activities ....................................................................................................37 Exercises .......................................................................................................................43 Bibliography .................................................................................................................44
PART II: EXPLANATORY ECONOMICS ......................................................... 49
Chapter 3: Demand for Medical Care: A Simple Model ............................. 51
Objectives .....................................................................................................................51 3.1 The Concept of Demand .......................................................................................51 3.2 Individual Demand: The Price-Quantity Relationship ..........................................52
3.2.1 Demand and Quantity Demanded .....................................................................52 3.2.2 Changes in Demand ..........................................................................................55
3.3 Deriving the Demand Relationship .......................................................................57 3.3.1 Tastes ...............................................................................................................58 3.3.2 Income..............................................................................................................59 3.3.3 Prices of Other Goods and Services .....................................................................59 3.3.4 Behavioral Assumption: Utility Maximization ....................................................60 3.3.5 Predictions ........................................................................................................60
3.4 Market Demand .....................................................................................................61 3.5 Measuring Quantity Responsiveness to Price Changes .........................................62 3.6 Insurance, Out-of-Pocket Price, and Quantity Demanded ....................................67 3.7 Elasticity of Demand Estimates .............................................................................70 Exercises .......................................................................................................................73 Bibliography .................................................................................................................75
Chapter 4: Additional Topics in the Demand for Health and Medical Care ........................................................................... 79
Objectives .....................................................................................................................79 4.1 Introduction ...........................................................................................................79 4.2 Implications of Health Care for Life and Health ...................................................80 4.3 External and Social Demand for Medical Care ......................................................82 4.4 Influence of Quality on the Demand for Medical Care ........................................84 4.5 Time and Money Costs ..........................................................................................85 4.6 The Demand for Health .........................................................................................86
Contents v
4.7 Agency Theory and Supplier-Induced Demand ....................................................88 4.7.1 Demand Under Uncertainty: The Demand for Health Promotion ........................90 4.7.2 Limitations of the Model ...................................................................................92 4.7.3 Discounting Future Values .................................................................................93
Exercises .......................................................................................................................95 Bibliography .................................................................................................................96
Chapter 5: Healthcare Production and Costs ........................................... 101
Objectives ...................................................................................................................101 5.1 Introduction .........................................................................................................101 5.2 Production: The Input–Output Relationship ......................................................102
5.2.1 Basic Relationship ...........................................................................................102 5.2.2 Shifts in the Relationship.................................................................................106 5.2.3 Substitution Among Inputs ..............................................................................108 5.2.4 Volume-Outcome Relationship .........................................................................109
5.3 Short-Run Cost–Output Relationships ................................................................110 5.3.1 Production and Cost ........................................................................................110 5.3.2 Total Cost .......................................................................................................112 5.3.3 Marginal Cost .................................................................................................113 5.3.4 Average Cost ...................................................................................................113
5.4 Cost Curve Position .............................................................................................116 5.5 Economies of Scope .............................................................................................118 5.6 Long-Run Cost Curves .........................................................................................119 5.7 Empirical Estimation of Cost Curves ...................................................................121
5.7.1 Background .....................................................................................................121 5.7.2 Group Practices ...............................................................................................123 5.7.3 Hospital Marginal Costs ..................................................................................124 5.7.4 Hospital Economies of Scale ............................................................................125 5.7.5 Nursing Home Costs .......................................................................................126 5.7.6 Health Insurance Costs ...................................................................................127
Exercises .....................................................................................................................127 Bibliography ...............................................................................................................131
Chapter 6: Behavior of Supply ................................................................... 139
Objectives ...................................................................................................................139 6.1 Introduction .........................................................................................................139 6.2 A Model of Supply Behavior: An Individual Investor-Owned Company ...........140
6.2.1 The Basic Model .............................................................................................141 6.2.2 Nonpatient Revenues .......................................................................................146 6.2.3 Shifts in the Supply Curve ...............................................................................147
6.3 Market Supply ......................................................................................................148 6.4 Supply Behavior of Tax-Exempt Agencies: The Output Maximization Hypothesis ...........................................................149 6.5 Supply Decisions Involving Quality ....................................................................152 6.6 Supply Behavior of Tax-Exempt Agencies: The Administrator-as-Agent Model .................................................................155 Exercises .....................................................................................................................157 Bibliography ...............................................................................................................160
Chapter 7: Provider Payment .................................................................... 165
Objectives ...................................................................................................................165 7.1 Introduction .........................................................................................................165 7.2 Principal-Agent Relationships Among Payers and Providers ..............................166 7.3 Physician Payment ...............................................................................................167
7.3.1 Fee-for-Service Payment ...................................................................................167 7.3.2 Per Case Payment ...........................................................................................169 7.3.3 Per Capita and Salary Payment .......................................................................170 7.3.4 Agency Theory and Physician Payment ............................................................171 7.3.5 A Resource-Based Relative Value Scale .............................................................172
7.4 Hospital Payment .................................................................................................174 7.4.1 Alternative Bases of Payment ..........................................................................174 7.4.2 Agency Theory and Hospital Payment ..............................................................175 7.4.3 Other Hospital Payment Issues ........................................................................176
7.5 Diagnosis-Related Groups ....................................................................................177 7.6 Long-Term Care Facility Payment .......................................................................181 7.7 Health Maintenance Organizations .....................................................................183 7.8 Provider Supply Under Managed Care ................................................................184
7.8.1 Agency Theory and Incentive Contracts ............................................................184 7.8.2 Management of Provider Behavior ....................................................................188
Exercises .....................................................................................................................189 Bibliography ...............................................................................................................190
Chapter 8: Competitive Markets ................................................................ 199
Objectives ...................................................................................................................199 8.1 Introduction .........................................................................................................199 8.2 The Competitive Model: Assumptions ................................................................201 8.3 The Competitive Model: Predictions ...................................................................202
8.3.1 Overview .........................................................................................................202 8.3.2 Market Price ....................................................................................................202 8.3.3 Price and Quantity Movements Caused by Demand Shifts ................................203 8.3.4 Price and Quantity Movements Caused by Supply Shifts ...................................204 8.3.5 Simultaneous Demand and Supply Shifts .........................................................206 8.3.6 Shortages ........................................................................................................208 8.3.7 Surpluses ........................................................................................................209 8.3.8 Multimarket Analyses .....................................................................................210
8.4 Evidence For and Against the Competitive Model ..............................................211 8.4.1 Overview .........................................................................................................211 8.4.2 Excessive Profits ..............................................................................................212 8.4.3 Fee Differences Among Patients .......................................................................212 8.4.4 Quality of Care ...............................................................................................213 8.4.5 Restricting Competitive Behavior .....................................................................213 8.4.6 Consumer Ignorance and Supplier-Induced Demand .........................................213
8.5 Competitive Bidding ............................................................................................214 8.6 Supplier-Induced Demand ...................................................................................217
8.6.1 A Pedagogic Model ..........................................................................................217 8.6.2 Supply ............................................................................................................218
vi CONTENTS
8.6.3 Objectives .......................................................................................................219 8.6.4 DOCPOP and Physician Fees: A Positive Relationship? ....................................220
Exercises .....................................................................................................................222 Bibliography ...............................................................................................................225
Chapter 9: Market Power in Health Care ................................................. 231
Objectives ...................................................................................................................231 9.1 Introduction .........................................................................................................231 9.2 Monopolistic Markets ..........................................................................................232
9.2.1 Simply Monopoly ............................................................................................232 9.2.2 Demand .........................................................................................................232 9.2.3 Cost ................................................................................................................234 9.2.4 Objectives .......................................................................................................234 9.2.5 Price Discrimination .......................................................................................236 9.2.6 Physician Pricing and Supply in Public Programs .............................................237 9.2.7 Nursing Home Markets and Public Rates..........................................................239
9.3 Monopsony—Buyers’ Market Power ...................................................................240 9.4 Market Structure and Its Determinants ...............................................................242
9.4.1 Measuring Market Concentration .....................................................................242 9.4.2 Determinants of Market Structure ....................................................................243 9.4.3 Economies of Scale ..........................................................................................243 9.4.4 Pricing Policies ................................................................................................244 9.4.5 Input Prices and Taxes ....................................................................................245 9.4.6 Regulation ......................................................................................................245 9.4.7 Market Power in the Market for Physician Services ...........................................246
9.5 Nonprice Competition and Market Power ..........................................................250 9.5.1 Overview .........................................................................................................250 9.5.2 Monopolistic Competition ...............................................................................250 9.5.3 Monopolistic Competition and Preferred Provider Organizations .......................252 9.5.4 Increased Concentration ..................................................................................254 9.5.5 Nonprice Competition .....................................................................................255
Exercises .....................................................................................................................255 Bibliography ...............................................................................................................258
Chapter 10: Health Insurance .................................................................... 267
Objectives ...................................................................................................................267 10.1 Introduction .......................................................................................................267 10.2 Role of Insurance ...............................................................................................268 10.3 Demand for Health Insurance ...........................................................................269
10.3.1 Individual Demand for Insurance ..................................................................269 10.3.2 Limitations of the Theory ..............................................................................273 10.3.3 The Market Demand for Insurance ................................................................274 10.3.4 Moral Hazard ...............................................................................................275 10.3.5 Demand Responsiveness to the Price of Health Insurance ................................278 10.3.6 Choice of Health Plan ...................................................................................279
10.4 Supply of Health Insurance ...............................................................................281 10.4.1 Supplier Behavior ..........................................................................................281 10.4.2 Risk and Size of the Insured Population ..........................................................282
Contents vii
viii CONTENTS
10.4.3 Insurer Costs .................................................................................................283 10.4.4 Insurer Revenues ...........................................................................................283 10.4.5 Predictions about Supply ...............................................................................283
10.5 Adverse Selection in Health Insurance Markets ................................................284 10.6 Violations of Insurance Conditions ...................................................................286 Exercises .....................................................................................................................287 Bibliography ...............................................................................................................289
Chapter 11: The Labor Market ................................................................... 297
Objectives ...................................................................................................................297 11.1 Introduction .......................................................................................................297 11.2 Demand for Labor ..............................................................................................298
11.2.1 Demand for Labor by the Individual Firm ......................................................298 11.2.2 Market Demand for Labor .............................................................................302
11.3 Labor Supply ......................................................................................................302 11.3.1 Individual Labor Supply ................................................................................302 11.3.2 Health Insurance Benefits and Labor Supply ..................................................304 11.3.3 Market Supply of Labor .................................................................................306
11.4 The Competitive Labor Market ..........................................................................306 11.4.1 Assumptions .................................................................................................306 11.4.2 Predictions ....................................................................................................307
11.5 Market Power in Labor Markets .........................................................................309 11.5.1 Buyer’s Market Power ....................................................................................309 11.5.2 Unions as Monopoly Sellers of Labor ..............................................................311
Exercises .....................................................................................................................312 Bibliography ...............................................................................................................314
PART III: EVALUATIVE ECONOMICS .......................................................... 323
Chapter 12: Economic Evaluation of Health Services ............................. 325
Objectives ...................................................................................................................325 12.1 Introduction .......................................................................................................325 12.2 The Purposes of Economic Evaluation ..............................................................326 12.3 Steps in Economic Analysis ...............................................................................326 12.4 Selecting the Right Type of Analysis ..................................................................328 12.5 Guidelines for Conducting a Cost-Effectiveness Analysis .................................330
12.5.1 Perspective ....................................................................................................332 12.5.2 Time Horizons ..............................................................................................332 12.5.3 Outcomes ......................................................................................................333 12.5.4 Efficacy and Effectiveness ..............................................................................336 12.5.5 Costs ............................................................................................................337 12.5.6 Discounting Future Costs and Benefits ...........................................................339 12.5.7 Cost-Effectiveness Ratios ...............................................................................340 12.5.8 Sensitivity Analysis .......................................................................................340 12.5.9 Interpreting the Results ..................................................................................341
12.6 Benefit–Cost Analysis .........................................................................................342 12.6.1 Valuation of Outcomes ..................................................................................343 12.6.2 Human Capital .............................................................................................343
Contents ix
12.6.3 Risk Preference ..............................................................................................344 12.6.4 Contingent Valuation ....................................................................................344 12.6.5 Techniques of Valuation ................................................................................345 12.6.6 Benefit–Cost Ratio ........................................................................................345
Exercises .....................................................................................................................346 Bibliography ...............................................................................................................348
Chapter 13: Value Judgments and Economic Evaluation ....................... 357
Objectives ...................................................................................................................357 13.1 Introduction .......................................................................................................357 13.2 Values and Standards in Economic Evaluation .................................................358 13.3 Efficient Output Levels ......................................................................................360
13.3.1 Individual Valuations of Goods and Services or Activities ...............................360 13.3.2 Values in a Selfish Market .............................................................................360 13.3.3 The Socially Optimum Quantity of Medical Care ...........................................363 13.3.4 Optimal Output with Altruism ......................................................................364 13.3.5 Alternative Delivery Arrangements .................................................................366
13.4 Optimal Health Insurance .................................................................................369 13.5 Extra-Welfarism ..................................................................................................371 13.6 Concepts of Equity.............................................................................................373 13.7 Goals of Health Policy .......................................................................................375
13.7.1 Environmental Conditions .............................................................................375 13.7.2 Efficiency ......................................................................................................375 13.7.3 Equity ...........................................................................................................376 13.7.4 Public Financial Constraints .........................................................................377 13.7.5 Health Status of the Population .....................................................................377
Exercises .....................................................................................................................377 Bibliography ...............................................................................................................378
Chapter 14: Financing Health Care ........................................................... 385
Objectives ...................................................................................................................385 14.1 Introduction .......................................................................................................385 14.2 Insurance Terminology ......................................................................................386 14.3 Financing Means and Burdens in the United States .........................................388 14.4 Economic Analysis of Alternative Payment Sources .........................................390
14.4.1 Private Health Insurance ...............................................................................391 14.4.2 Taxation .......................................................................................................395
14.5 The Implications of Alternative Types of Healthcare Financing .......................398 14.6 The Administrative Cost of Alternative Types of Healthcare Financing ...........401 Exercises .....................................................................................................................402 Bibliography ...............................................................................................................403
Chapter 15: Public Health Insurance ........................................................ 409
Objectives ...................................................................................................................409 15.1 Introduction .......................................................................................................409 15.2 Public Health Insurance .....................................................................................410
x CONTENTS
15.2.1 Medicare .......................................................................................................410 15.2.2 Medicaid .......................................................................................................414 15.2.3 Paying the Providers ......................................................................................418
15.3 Uncovered Care..................................................................................................420 15.4 Some Trends in Public Health Insurance ...........................................................420
15.4.1 Disbursements of the Hospital Insurance Trust Fund ......................................420 15.4.2 Medicare’s SMI Revenues and Expenditures ....................................................421 15.4.3 Out-of-Pocket Expenditures for Medicare Enrollees ..........................................422
15.5 Goals of Medicare ..............................................................................................423 15.6 Policy Alternatives for Medicare ........................................................................424
15.6.1 Economic Analysis and Alternative Solutions .................................................424 15.6.2 The Scope of the Program ..............................................................................425 15.6.3 Insurance Premiums ......................................................................................425 15.6.4 Copayments, Coinsurance, and Deductibles ...................................................425 15.6.5 Provider Payments .........................................................................................426 15.6.6 Managed Care and Competition ....................................................................426
15.7 Policy Alternatives for Medicaid ........................................................................429 15.7.1 Scope of the Program .....................................................................................429 15.7.2 Copayments ..................................................................................................430 15.7.3 Provider Payments .........................................................................................430 15.7.4 Competitive Bidding by Suppliers ...................................................................430 15.7.5 Managed Care ...............................................................................................430
15.8 Pay-for-Performance Initiatives .........................................................................431 Exercises .....................................................................................................................433 Bibliography ...............................................................................................................433
Chapter 16: Reform of the Healthcare Market ........................................ 443
Objectives ...................................................................................................................443 16.1 Introduction .......................................................................................................443 16.2 Insurance Market Reform ..................................................................................444
16.2.1 The Need for Reform .....................................................................................444 16.2.2 The Basic Model ...........................................................................................445 16.2.3 Information Asymmetry and Adverse Selection ...............................................447 16.2.4 Underwriting and Group Rating .....................................................................447 16.2.5 Subsidies .......................................................................................................448 16.2.6 Cooperative Pools ..........................................................................................449 16.2.7 Community Rating and Biased Selection ........................................................449 16.2.8 Mandates ......................................................................................................451 16.2.9 Risk Selection Limitation and Risk Adjustment...............................................452
16.3 Managed Care ....................................................................................................453 16.3.1 Introduction ..................................................................................................453 16.3.2 Types of Managed Care Organizations ...........................................................454 16.3.3 Control of Resource Use .................................................................................455 16.3.4 Empirical Evidence: Resource Use, Quality of Care, and Satisfaction ...............456 16.3.5 Managed Care in the Market .........................................................................458
16.4 Information and Consumer Choice ..................................................................460 16.5 Consumer-Focused Health Care ........................................................................462
16.5.1 Patient-Centered Medical Homes ...................................................................462 16.5.2 Accountable Care Organizations ....................................................................464
Exercises .....................................................................................................................466 Bibliography ...............................................................................................................466
Chapter 17: Regulation and Antitrust Policy in Health Care ................ 477
Objectives ...................................................................................................................477 17.1 Introduction .......................................................................................................477
17.1.1 The Concept of Economic Regulation .............................................................478 17.1.2 Regulation of Health Care .............................................................................478 17.1.3 Regulation as a Means of Correcting Market Failure .......................................478 17.1.4 Regulation as a Political Good .......................................................................479
17.2 Regulation of Health Care .................................................................................480 17.2.1 Regulation of Hospitals and Long-Term Care Facilities ...................................480 17.2.2 Regulation of Hospital Quality ......................................................................480 17.2.3 Supply-Side Regulation of Hospitals ...............................................................481 17.2.4 Demand-Side Regulation of Hospitals ............................................................482 17.2.5 Regulation of Long-Term Care Facilities .........................................................482 17.2.6 Regulation of Physician Services ....................................................................482 17.2.7 Regulation of Physician Quality and Utilization .............................................483 17.2.8 Regulation of Physician Pricing ......................................................................483 17.2.9 Regulation of the Pharmaceutical Industry .....................................................483 17.2.10 Food and Drug Administration Regulation of Drugs .....................................484 17.2.11 State Regulation of Pharmacists ...................................................................484 17.2.12 Regulation of Health Insurance and Managed Care ......................................484
17.3 Antitrust Policy ..................................................................................................485 17.3.1 Conceptual Framework ..................................................................................485 17.3.2 The Structure of Healthcare Markets ..............................................................488 17.3.3 Antitrust Policy: History and Institutions .......................................................489 17.3.4 Price Fixing and Conspiracy in Restraint of Trade in Healthcare Markets ........491 17.3.5 Mergers in Healthcare Markets .......................................................................491 17.3.6 Antitrust Policy: Monopolization ...................................................................495 17.3.7 Quality Competition and Antitrust Policy ......................................................496 17.3.8 Antitrust Issues Related to Managed Care ......................................................497 17.3.9 Federal Antitrust Policy Guidelines ................................................................498
Exercises .....................................................................................................................499 Bibliography ...............................................................................................................500
Chapter 18: Evolving Issues in Health Care .............................................. 507
Objectives ...................................................................................................................507 18.1 Introduction .......................................................................................................507 18.2 Issues Facing the Healthcare System..................................................................507
18.2.1 Contributions of Technology ..........................................................................509 18.2.2 Hospital Contributions ..................................................................................510
18.3 Financing Mechanisms ......................................................................................512 18.3.1 Pay for Performance ......................................................................................512 18.3.2 Bundled Payments ........................................................................................513 18.3.3 Value-Based Purchasing ................................................................................514
Contents xi
18.4 Consumer Engagement ......................................................................................514 18.5 Summary and Conclusions ................................................................................515 Exercises .....................................................................................................................516 Bibliography ...............................................................................................................516
Appendix A: Glossary of Health Economics Terms .................................. 525
Appendix B: Answers to Odd Numbered Questions ................................. 575
Index ............................................................................................................. 589
xii CONTENTS
xiii
New to This Edition
Throughout the 6th edition, data have been updated to reflect changes that have occurred in the economy and in the healthcare system. Also, the bibliographies at the end of each chapter have been updated and expanded, providing additional resources for the users. The glossary at the end of the book has also been updated and expanded to incorporate new and additional terminology in health care, as well as provide additional definitions of basic economic terminology.
The Medicare program has been expanded, and so additional information on the new Part C and Part D components of Medicare have been included, as has discussion of the conversion of the original Diagnosis-Related Group (DRG) classification system to the new Medicare Severity Diagnosis Related Groups (MS-DRG) system. The information on Medicaid has been updated to incorpo- rate the implications of healthcare reform on the programs and on the states. High-risk pools have been incorporated into the discussion of insurance, and the discussion of employer-based insurance has been expanded. A section on the theory, conditions, and role of insurance markets has also been included, along with an expanded discussion of moral hazard, including Nyman’s model.
On the topic of demand, additional information has been included on normal and inferior goods, expectations, and on substitution effects. In addi- tion, the implications of being uninsured have been included and additional discussion of rationing was added. On the topic of supply, the type of owner- ship relative to its performance is now included. The terms not-for-profit and for-profit have been replaced with the terms tax-exempt and investor-owned, respectively, to transition to current use in the field.
With respect to provider payment, a discussion of critical access hospitals is included, as is an analysis of the shift to nonpatient revenues and the fac- tors impacting the shift. The type of ownership relative to performance is also discussed. The impact of the Patient Protection and Affordable Care Act of 2010 on bundled payments is included, and the discussions on capitation and salaried physicians were expanded. Discussion of the DRG payment system for hospitals, including an example of calculations, Resource-Based Relative Value Scale (RBRVS) payment system for physicians, and Resource Utilization Groups IV (RUGs-IV) system for long-term care are included. A discussion of Medicare’s pay-for-performance program has also been included.
The previous chapter on economic evaluation of health services has been moved up in the text to introduce the concepts and methods of economic evaluation earlier to the student. The chapter now includes a section on the steps in performing any economic analysis, and the Incremental Cost- Effectiveness Ratio (ICER) method of evaluation is included. There is also expanded discussion on the net–benefit approach and the benefit–cost ratio approach, as well as a discussion of life tables.
A new chapter has been added at the end, examining the evolving issues in health care. A number of current issues are introduced and their implica- tions for efficiency in the production and consumption of healthcare services are mentioned in more detail. The impact of focusing on value-added services in health care is described, as is the potential implications of the healthcare system incorporating consumer engagement in the delivery of care.
xiv NEW TO THIS EDITION
xv
Acknowledgments
xv
I would like to thank the authors of the previous editions, Philip Jacobs and John Rapoport, for allowing me to revise and update their book. The organization and structure of the earlier edition provided a strong base for this edition.
I would also like to thank two staff members who converted my writing and additions into a polished manuscript for submission. Thank you Veronica Kramer and Margaret Rossano for your assistance on this undertaking, espe- cially during the changes occurring in our department.
xvi
About the Author
xvi
Lanis L. Hicks, PhD, Professor and Associate Chair in the Department of Health Management and Informatics, University of Missouri, School of Medi- cine, is a health economist. Her research interests are rural health, workforce requirements, and economic evaluations. She has focused on evaluating the cost-effectiveness of technologies in the delivery of health care, evaluating the economic impact of healthcare policies, and has been involved with a mul- tidisciplinary team identifying and evaluating measures of quality in nursing homes and the relationship between cost and quality. Currently, she is Principle Investigator and Director of the Missouri Health Information Technology Assistance Center, which provides assistance to healthcare professionals and hospitals to enable them to adopt, implement, and achieve meaningful use of electronic health records. She has been on faculty at the University of Missouri since 1978. In recognition of her contributions, Dr. Hicks was the recipient of the 1999 National Rural Health Association’s Distinguished Researcher award.
xvii
Introduction
This book is an introduction to the economic approach to understanding healthcare issues and problems. The approach is based on the identification of scarcity as a major cause of many of today’s healthcare problems. Scarcity can be defined as a deficiency in the quantity and/or quality of available goods and services compared with the amounts that people desire. Perhaps the most glaring deficiency in the United States today is the lack of health insurance coverage on the part of roughly 50 million people, many of whom consequently have difficulty obtaining adequate care, especially primary care. Although there are others as well who have inadequate access to care, the size of the uninsured population has become a bellwether of the access problems in the U.S. healthcare system.
Yet the fundamental difficulty is not merely that there is “not enough” to go around. Side by side with problems of scarcity are problems of “too much.” In 2010, total expenditures on health care in the United States reached over $2.6 trillion, over 7.5% of the gross national product (GNP), the dollar sum of all final goods and services produced. In 1965, healthcare expenditures were only 5.6% of the GNP. Included in these expenditures are high-cost services whose impact on health has been questioned, including large-volume “little ticket” items, such as radiographs and lab tests, which make up about a quar- ter of all hospital costs (Angell, 1985); high-cost procedures, such as coronary artery bypass grafting and transplants, costly intensive care services, and new drugs, whose effectiveness is often still undocumented; and some hospital services for the terminally ill, which consume a disproportionate share of the healthcare dollar (Zook and Moore, 1980; Long, et al., 1984). A number of commentators have asserted that a considerable amount of “flat of the curve” medicine, that is, medical care that produces little or no improvement in health, is being practiced (Enthoven, 1980). Accusations of “too much,” when uttered side by side with cries of “not enough,” point to the importance of studying the entire resource allocation process in health care.
Economics is the science that deals with making choices and the conse- quences of resource scarcity; health economics addresses the consequences of resource scarcity in the healthcare industry. Because of its broad scope,
xviii INTRODUCTION
economics does not provide a body of rigid doctrines about scarce resources. Rather, economics offers an overall viewpoint intended to help in understand- ing the many problems related to various types of scarcity.
This book focuses on how to do economics; that is, how to think about economic problems in a systematic way. It divides the discipline into three separate areas, which can be regarded as the three main tasks of economics: description, explanation, and evaluation. The exposition of these tasks in a health context is the objective of this book; the performance of these tasks should be regarded as the objective of the reader.
Accomplishing these tasks involves asking specific questions and search- ing for answers to them. It should be stressed that searching for relevant questions is as critical a part of the process of analyzing economic problems as searching for answers. By formulating a problem in the context of scarcity, a deeper understanding of it can be obtained, and discovery of a solution or a means of accommodation might be the end result.
THREE MAJOR TASKS OF ECONOMICS
The three major tasks of economics covered in this book—description, explanation, and evaluation—will usually not be performed in isolation from one another. Rather, descriptive economics will be used to complement expla- nations and evaluations of events. But even though these tasks may be inter- mingled in economic analysis, the specific task being performed should be kept clearly in mind.
Descriptive Economics
Description involves the identification, definition, and measurement of phenomena. By performing this task, we obtain some notion of existing facts. It should be pointed out that this task basically amounts to fact-finding. There is, at this stage, no explanation of why the facts are what they are and no evaluative pronouncement or judgment. Of course, the selection of which phenomena to describe is usually motivated by an ultimate explanatory or evaluative purpose.
For example, the statement that, in 2008 Americans 65 years and older visited physicians’ offices 6.9 times per year on average, while those in the 18- to 44-year-old age group paid 2.2 visits per year (National Center for Health Statistics, 2011), falls within the realm of description.
Explanatory Economics
The second task of economics is explaining and predicting certain phenomena. This task involves conducting a cause-and-effect analysis. In undertaking such a task, we are moving one step beyond description; we are now identifying the causes of certain events that have occurred. This task is performed with the aid of models that classify various causal factors (assuming there is more than one) in a systematic framework. Based on this framework, hypotheses are developed about the net effect of each causal factor on the
Tools Used in Economic Analysis xix
phenomena we want to explain. We do not do any further analysis at this stage. That is, we do not pass judgment on whether the phenomena we have observed are present in the desired amounts.
As an example of an explanation, suppose we want to determine why those in the 65-year-old and above age group utilized more medical care than those in the 18- to 44-year-old age group. First, we would develop a framework that incorporates the major causal factors relevant to this phe- nomenon. Let us say that our framework contains two essential causal factors: (1) the health status of each group and (2) the price paid by the members of each group for their medical care. Using these causal factors, we might then hypothesize that quantity of medical care demanded will increase when health status is lowered and when consumers pay less for their medical care. These causal factors relate to our example because (1) the health status of the older group is lower and (2) government-sponsored health insurance for the elderly reduces the amount the older group pays for medical care. Assuming these facts to be true, our hypothesis would predict that the older group will demand medical care in greater quantities. Should these increased quantities also be available, then the older group will utilize more medical care.
Evaluative Economics
The third task of economics is evaluation. This task involves judging or ranking alternative phenomena according to some standard or relative posi- tion of alternatives. An acceptable standard is chosen, then used to rank alternative ways of distributing scarce resources. In choosing the standard, one major criterion is acceptability. Standards are easy to come by; however, many are controversial, and the standard chosen should have some degree of acceptability.
Alternative quantities of economic variables can be evaluated using a stan- dard; that is, alternative uses of scarce resources. For example, if we choose a standard that says that the more medical care one has the better off one is, then, according to this standard, the older group in our example is better off than the younger group. Furthermore, any measure that raises the utilization of the younger group (by lowering the price paid by this group and by increas- ing the resources available for use by this group) would, according to our standard, improve the well-being of the younger group (Hemenway, 1982). Evaluative economics is also used to compare alternative uses of resources in order to achieve an identified goal or to allocate resources more efficiently in the achievement of alternative goals.
TOOLS USED IN ECONOMIC ANALYSIS
Several tools are used in economic analysis. One general tool is graphic analysis. The purpose of graphic analysis is to illustrate relationships among economic variables. Also helpful are models that allow us to draw inferences about the relationships we might expect to occur when specific underlying conditions are present. Such tools help us to be explicit about the underlying factors that are present in the workings of the resource allocation process.
xx INTRODUCTION
Economic Variables
An economic variable is an economically relevant phenomenon whose value or magnitude may vary. Examples of economic variables include prices, costs, incomes, and quantities of commodities. An economic variable can be measured along a scale, once appropriate units of measurement have been chosen. For example, price can be measured in cents or dollars per unit, and quantities can be expressed in terms of number of visits, number of hospital days, number of hospital beds, and so on. Two examples of units of measure- ment are shown in Figure I-1. Along the vertical axis, values of the price of medical care are shown. The price per visit to a physician, which is the eco- nomic variable being examined, is expressed in terms of dollars. Along this axis, the price can be 0, 100, 200, 300, and so on.
Along the horizontal axis are alternative values of the quantity of visits to a physician’s office. These are measured in terms of number of visits.
Relationship Between Economic Variables
The next step, after the identification and measurement of economic variables, is to determine the relationship between these variables. The rela- tionship shows how one variable changes with respect to another variable.
These relationships can be causal or noncausal. For example, we can state that one variable (total healthcare costs) has increased, while another
400
300
200
100
10 20 30 40
P ri c e (
d o ll a rs
)
Quantity of visits
Figure I-1 Relationship Between Price and Quantity of Visits. The dashed line shows continuous values, and the solid line shows discrete values.
Tools Used in Economic Analysis xxi
variable (time) has also increased. This is an example of a noncausal relation- ship, because it is not time itself that has caused the costs to increase. As time has passed, other influencing variables have changed, and these have caused the healthcare costs to increase.
In a causal relationship, when the value of one economic variable changes, the value of a second economic variable also changes as a result. For example, if the price falls for a visit to the doctor, the lower price causes more visits to be demanded. Causal relationships are usually expressed in the form of hypothetical statements (e.g., “If price falls, then the quantity demanded will increase”).
Graphic Representation of Relationships
Let us start with a simple relationship between price and quantity of visits: When the price is $400, the quantity of visits is 0; when the price is $300, the quantity of visits is 10; when the price is $200, the quantity of visits is 20; and when the price is $100, the quantity of visits is 30. Associated with each price is a specific quantity: 0 visits with $400, 10 visits with $300, and so on. Each of the associations can be represented by a point, as shown in Figure I-1. All these points together form the relationship. If we knew only these values, we could draw this relationship diagrammatically as the solid line in Figure I-1. This solid line is known as a step function and relates only to the values speci- fied. However, we could go further and generalize about the nature of our func- tion by saying that the values between $0 and $100 (or $100 and $200) and between 0 and 10 visits (or 10 and 20 visits) could also be specified as part of the relationship. We could draw a continuous curve joining all the points speci- fied in the relationship in order to represent the values not explicitly expressed, such as $155, 5 visits, and so on (consider the dashed line in Figure I-1). Once we have drawn a continuous curve, we have a more complete specifica- tion of the relationship between price and quantity. Any value of price, within our specified ranges, has an associated quantity of visits.
The Direction of Relationships
We can now be more specific about the nature of the relationship between the two variables. The first characteristic to be examined is the direction of the relationship. A relationship can have four possible directions, as shown in Figure I-2. First, the relationship may be positive, as shown by curve B. Here higher values of price are associated with higher values of quantity of visits. If there was a causal relationship between them, and if the direction of causa- tion ran from price to quantity, we would hypothesize that as price increases, so does quantity. The opposite type of relationship is shown by curve D. The relation is a negative—the greater the price, the smaller the quantity. Thus, higher values of price are associated with lower values of quantity of visits. The remaining cases show where variables are unrelated. For curve C, what- ever the quantity of visits, the price stays the same (i.e., $200). Curve A shows that the quantity of visits will remain the same (i.e., 30 visits) no matter the price.
xxii INTRODUCTION
The Slope of Relationships
The slope of a geometric relationship shows how much of a change in one variable is associated with a given change in a related variable. In causal terms, slope can be expressed as the magnitude of response. Several examples are shown in Figure I-3.
Curve F touches the price axis where the price equals $200. This price is associated with a quantity of visits of 0. If we raise the price by $50 to a level of $250, the associated new quantity of visits is 10, as shown by F. A $50 increase in the price is associated with a 10 visit increase in quantity. The slope of F is thus 50/10 with regard to the quantity axis (or 10/50 with regard to the price axis). Because F is a straight line, the slope remains constant at every point on the line. (Some nonlinear relationships are presented later.)
Line E also has a positive slope. As can be seen in Figure I-3, E shows a greater change in price associated with a given change in quantity than does F. From the initial price of $200 and 0 visits, a quantity change of 10 vis- its is associated with a price change from $200 to $300. The slope is thus 100/10 with regard to the quantity axis (or 10/100 with regard to the price axis). Comparing E and F, we can say that for the same quantity change, the price change in E must be double that in F.
Lines G and H can be regarded in a similar manner, but now the direction of these relationships is such that a higher price is associated with a lower
P ri
c e
( d
o ll a
rs )
Quantity of visits
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10 20 30 40
A
D
C
B
Figure I-2 Direction of Relationships: Curve A, constant quantity of visits for all prices; Curve B, price and quantity positively related; Curve C, constant price; and Curve D, price and quantity negatively related.
Tools Used in Economic Analysis xxiii
quantity. In the relationship represented by line G, a fall in price of $50 is associated with an increase in quantity of 10 visits. The slope is, thus, the same as the slope of F, but in the opposite direction. Line H shows a change in price of $100 associated with a quantity change of 10—the same as line E, except the slope is in the opposite direction. Where the two variables change in the same direction (as occurs in curves E and F), the slope is considered to be positive; where the change is in the opposite direction (as occurs in lines G and H), the slope is considered to be negative.
The Position of Relations
The next characteristic of a relationship is its position. In Figure I-4, two lines, J and K, are shown with similar slopes but different positions. Each line exhibits a $100 change in price associated with a change of 10 visits. Line J shows no visits at a price of $300, 10 visits at a price of $200, and so on. By comparison, K shows 10 visits at a price of $300, 20 visits at a price of $200, and so on. The essential point of this figure is to show how the two lines are positioned with respect to each other. Line K is higher than J in the sense that, at any specific price, the related quantity of visits for K is greater than the related quantity for J.
P ri
c e
( d
o ll a
rs )
Quantity of visits
10 20 30 40
400
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200
100
E
H G
F
50
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250
350
Figure I-3 Slope of Relationships. In relationship E, the price increases more than in relationship F for a given increase in quantity. In relationship H, the price decreases more than in relationship G for a given increase in quantity.
xxiv INTRODUCTION
The Shape of Relationships
The examples so far have involved only linear relationships, in which the change in one variable with regard to a given change in another variable is fixed. This is not the only type of relationship, however. Sometimes we also encounter nonlinear relationships. For this type of relationship, the magni- tude of the response will vary along the curve. Lines L and M in Figure I-5 are both nonlinear relationships.
M indicates the correspondence between the total cost of production of lab tests and the number of tests produced. At a quantity of 0, the total cost is $10; at a quantity of 1, it is $11; at a quantity of 2, it is $14; and at a quantity of 3, it is $19. The slope of the relationship changes as more lab tests are produced. For the first test, the slope is such that a $1 change in cost is associated with a change of one lab test. The next change of one lab test is associated with a $3 change in cost, and the next with a $5 change in cost. The slope with reference to the lab test axis increases as the number of lab tests increases. M is a smoothed-out version of this relationship.
Line L shows declining slopes with increasing production. A total cost of $0 is associated with a 0 level of output. An output level of 1 is associated with a cost of $5, an output level of 2 is associated with a cost of $8, and an output level of 3 is associated with a cost of $9. The slope of the relationship between 0 and 1 units of production, with regard to the production axis, is 5/1; for the next unit of production, it is 3/1; and for the next it is 1/1.
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10 20 30 40
P ri
c e
( d
o ll a
rs )
Quantity of visits
K J
Figure I-4 Position of Relationships. K shows a greater quantity of visits than J for any given price.
Tools Used in Economic Analysis xxv
The Nature of Economic Propositions
Many statements in this book regarding the resource allocation process in the healthcare field are basically attempts to spell out the consequences of cer- tain conditions. The propositions are hypothetical statements of the form “if . . . then . . . ”
For example, we might claim that if certain conditions x, y, and z hold, then, as a consequence, phenomenon q will occur. In making this statement, we essentially make a prediction of what will cause the phenomenon we want to explain. The “if” portions of these statements are called conditions or assumptions; the “then” portions are conclusions, implications, or predictions.
As an example, let us form a model to explain how much medical care an individual will demand. Our model contains initial assumptions. The first, A1, is that the price of medical care charged to an individual is $5 per visit; this $5 includes all services provided by the doctor, including transfusions, intrave- nous feedings (should they be needed), and so on. The second assumption, A2, states that the individual has a weekly income of $100 that can be spent on any of a number of goods and services. This assumption brings the example within the realm of economics, since scarcity is now introduced. The third assumption, A3, is about the behavior of the individual; the individual has as an objective the consumption of medical care only; he does not want to con- sume any other good or service. We also assume that this is entirely feasible.
5
10
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1 2 3 4
M
L
Figure I-5 Shape of Relationships. M shows higher additional costs at successively higher levels of lab tests produced. L shows lower additional costs at successively higher levels of tests.
xxvi INTRODUCTION
If the individual does not consume food, for example, he would begin to starve and have to visit a physician, where, for a fee of $5, he could receive nutrition intravenously.
What are the implications of these assumptions? The main implication is that the individual will consume 20 physician’s office visits. Given his eco- nomic situation, this is all he can afford to consume, and given that he wants only medical care and can survive by consuming this service, then he will not consume less than 20 visits. This implication is a prediction of our model; the prediction is based on the initial conditions or assumptions of the model. Predictions are derivatives of the assumptions and can be regarded as the con- sequences that would result if the assumptions were to hold.
Let us now replace one of our initial assumptions, A1, with the assump- tion that the price of medical care is $1 per visit. Now our model implies that the quantity of visits will be 100. With a fall in price, the quantity demanded will increase. This is a prediction of our model when we consider all the assumptions and do a comparative analysis.
We can also predict the consequences that would result if the individual’s income increases. Suppose we replace assumption A2 with the assumption that the individual’s weekly income is $110. This new assumption, coupled with the original assumptions A1 and A3, yields the conclusion that the quan- tity of visits demanded will increase. By performing a comparative analysis of the original conditions and the new conditions, we can conclude that an increase in income will lead to an increase in the quantity of medical care demanded.
The mere predicting or deriving conclusions about the resource allocation process is not the end of our task, however. Our conclusions are implications about what would result if the assumptions we have posited in the model are adequate approximations of the conditions that exist in reality. In explanatory economics, implications are tested against actual data to see if what we pre- dicted actually does occur. The true test of an explanatory model is how well it explains or predicts actual phenomena. In evaluative economics, our task is somewhat different—we compare the actual against the ideal set of events. Nevertheless, whether we are deriving explanatory or evaluative principles, we put our propositions into a logical form that allows us to incorporate a number of variables into our analysis simultaneously.
OUTLINE OF CONTENTS
This book introduces the analysis of healthcare economics in the context of the three tasks mentioned above: description, explanation, and evaluation. Part I, which consists of Chapters 1 and 2, describes the economic dimensions of the healthcare field. Part II, consisting of Chapters 3–11, presents explana- tory analyses of a number of health-related issues. Part III, which consists of Chapters 12–18, develops evaluative analyses of several important aspects of healthcare resource use. The analyses in the book focus on three distinct markets: the medical care market, the health insurance market, and the labor market. Throughout the book, tools are developed to analyze the economic behavior of all three markets.
Outline of Contents xxvii
Chapter 1 contains a discussion of the output of the healthcare sector. Three types of output are identified: (1) health care, which consists of activi- ties designed to improve health; (2) health itself; and (3) health insurance coverage. Types of input, such as the hiring of healthcare personnel, are also discussed. Measurements of each type of output are presented. In Chapter 2, economic dimensions of the healthcare sector are identified and some mea- sures of these dimensions are presented. In particular, economic flows of the various components of the healthcare system are described, and the concept of cost is analyzed.
Chapter 3, the first explanatory chapter, develops a model to explain the demand for medical care by consumers. A number of separate factors are iden- tified as influences on the demand for medical care. These are incorporated into a single model that allows us to predict the effects of each factor when all other relevant factors are held constant. In this chapter, the demand for medi- cal care is presented as if medical care were an ordinary commodity in the consumer’s budget.
However, medical care has several characteristics that, when combined, warrant special treatment. These include the importance of medical care in influencing health status, uncertainty when illness occurs, people’s concern about others’ health status and healthcare consumption, and the asymmetry in the medical knowledge possessed by providers and consumers. In Chapter 4, a number of these characteristics are introduced and analyzed in light of the standard model developed in Chapter 3.
Chapters 5–7 focus on the behavior of healthcare providers, such as physicians, hospitals, and laboratories. Chapter 5 discusses the relation- ships between resource use and output, quality of care and output, and cost of care and output. All these relationships are examined with regard to each individual provider. Chapter 6 presents an analysis of the supply behavior of individual providers and of groups of providers (i.e., market supply). The behavior of investor-owned providers and the behavior of tax-exempt provid- ers are treated separately because tax-exempt and government providers play such an important role in the healthcare field. The chapter also considers a model of the supply behavior of health insurers as well as a model of the demand for labor (which is based on the supply model). Chapter 7 deals with one important aspect of supply analysis—provider payment. In health care, there are many examples of providers being paid by a third party (an insurer or the government). The important economic concept of the principal–agent relationship is introduced and is used to analyze alternative payment schemes for physicians, hospitals, long-term care providers, and health maintenance organizations.
Chapter 8 examines a standard textbook explanation of how the mar- ket resource allocation process works. This is the competitive market model, which has drawn a good deal of attention recently. Included in this chapter is an exposition of a phenomenon that has received considerable attention in health economics: supplier-induced demand. Not all market behavior is com- petitive. Chapter 9 looks at the concept of market power, how it is acquired by suppliers and demanders, and how its acquisition affects market phenom- ena (e.g., prices, quantity, and quality of output).
xxviii INTRODUCTION
Chapters 10 and 11 consider two types of markets whose functioning is closely tied to health care. Chapter 10 describes the market for health insur- ance, and Chapter 11 presents an analysis of the labor market and of several variants of this market that are associated with health care.
The third part of the book focuses on evaluation and health policy issues. There is a great deal of controversy over whether healthcare markets can ensure that health care is delivered efficiently to consumers. One way to study this issue is to gauge whether specific interventions improve health status in an efficient way. Benefit-cost and cost-effectiveness analyses are two tech- niques by which we can judge the economic impact of various interventions and policies on health status. Chapter 12 offers an introduction to these tools.
Chapter 13 introduces the topic of evaluation by identifying several alter- native standards that have been used in evaluating resource use in the health- care field. These standards include efficiency and equity. Two frameworks used to evaluate efficiency are presented: the narrower efficiency framework and the broader “extra-welfarist” framework. A set of specific goals for the healthcare system is derived from these welfare analyses.
Chapter 14 discusses alternative types of healthcare finance, such as out- of-pocket payment, health insurance, and taxation. It uses economic models to identify the burden of each type of financing.
Chapter 15 discusses two major public insurance programs, Medicare and Medicaid. It presents specific policy problems and, using the explanatory economic models developed in Chapters 3–11, evaluates the effects of policy measures in light of specific policy goals.
Chapter 16 focuses on methods to reform health insurance and healthcare markets. It discusses various proposals for restructuring the health insurance market so that the preferred risk selection of the health insurers might discrim- inate less against high-risk individuals, thereby increasing the equity of these markets. Chapter 16 also introduces the emerging concept of “consumerism.”
The role of government policy in influencing the performance of the health- care market is the topic of Chapter 17. Two views of regulation are presented there. According to the first, the public-interest approach, the government establishes regulations to ensure that providers act in the public interest. Evidence of the effectiveness of this approach has not been very convincing. The second view of regulation is based on a wider picture of the market. According to this view, the government is a participant in a marketplace that encompasses both the suppliers and demanders of the exchanged product as well as politicians and regulators. In this marketplace, various regulations and laws that have an impact on the supply–demand situation are “traded.” The market outcome is thus influ- enced by regulation. Faced with discontent over the results of traditional market regulation, some observers have proposed that the medical market should be reshaped in the competitive mold. Also included in Chapter 17 is an analysis of antitrust regulation, a topic of considerable policy interest in recent years.
Chapter 18 includes a brief overview of some of the most important issues facing the healthcare industry in today’s environment and the implications of these issues for the efficient functioning of the healthcare system.
Bibliography xxix
HOW TO USE THIS BOOK
There is a considerable amount of material in this book, much more than might be included in a typical introductory course in healthcare economics. As a rough guide, a typical student without any prior economics background should be able to cover a chapter a week. In a 14-week course, perhaps 13 chapters could be covered comfortably. Although more advanced students could handle more, instructors will probably want to be selective in covering the subjects.
This book could be used as the main text for a basic healthcare economics course for public health students as well as for a similar course in which the emphasis is more on health policy, management, and finance. Our sugges- tions for coverage in each kind of course are listed below.
At the end of each chapter, we have provided a set of questions and prob- lems. The student is encouraged to work through these problems, as it is easier to learn and retain the material by doing actual problems and testing yourself. At the end of the book, we provide the answers to odd-numbered problems. The answers to the other problems are contained in the instructor’s manual.
Orientation Chapters Public health 1–6, 8–9, 11–14, 17 Health finance, management, 1–10, 12–13, 15–16
and policy
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