EXAM 2 Flashcards
What differs medical field returns from other jobs?
Backloaded, high direct and opportunity costs and requires patience
Net Present Value
Value of all future streams of income today
NPV = summation from t=0 to T (discount factor delta ^ t * income at time t)
Discount factor (delta)
Value of future income today
> large if patient
> delta = 1 / 1 + r
Discount rate (r)
Market interest rate that’d make someone indifferent between spending now and saving later
> lower r = more patient
IRR
Inefficiencies in health market
1) Defensive Medicine
2) Physician induced demand
3) Discrimination
Types of discrimination
1) taste based (preferential treatment for certain groups/patients, NEVER efficient)
2) statistical (stereotypes in biological or behavioral tendencies, CAN be efficient but isn’t always)
What act kick started growth in US hospitals?
Hill-Burton Act 1946
Allocated funds for increased hospitals + beds in rural areas
Tech advances and financial incentives have since reduced beds + length of stays
3 models of Relationshop btwn hospitals and physicians
1) Physicians workbench
2) Direct employee
3) Physician owned hospital
Positive volume - outcome correlation + hypotheses
Hospitals with higher volume leads to lower mortality rates
Two hypotheses as to why:
1) learning by doing (volume -> good outcome)
2) selective referral (good outcome -> volume)
What kind of market is a hospital?
Differentiated Product Oligopoly
(Strict barriers to entry w few firms and services NOT perfect subs)
Herfindahl Hirschman Index
Calculation indicating whether a market is concentrated (>.18 concentrated, .25 highly concentrated)
Why isn’t a hospital market a competitive one?
1) no homogeneous product
2) many buyers few sellers
3) no full info
Why Limited competition in hospitals?
Not just entry barriers, bc of insurance, govt setting prices, and emergency nature of health
Medical arms race expected impact?
Increased competition > overconsumption of resources > higher costs with same quality (mixed actual findings)
Pros/cons of Non profits and why do they exist?
Pro: exempt from taxes and donors receive tax deduction
Con: Cannot sell stock, distribute profits to owners and reduced to charitable activities
Why?
Altruistic motive theory
Govt failure theory
Asymm info (more trusted)
Non profits are for profits in disguise
Who pays for uncompensated care?
80% by public sources and 20% through cost shifting (rich pay for poor care)
KEY RESULTS OF R-S MODEL
With asymmetrical info and heterogeneous risk types:
1) No pooling equilibrium can exist
2) Separating equilibrium can exist but low risk types will be quantity constrained
Adverse Selection
Oversupply of low quality goods due to asymmetric info
Pareto improving transactions
Those where no one is worse off (if these don’t occur we have a market failure)
Equilibrium conditions
Set of contracts in equilibrium if:
1) buyers and sellers maximize utility
2) seller doesn’t earn negative profit
3) there are no attractive contracts outside the set that earn at least 0 profit
