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Health Economics > Lectures 9 - 13 for Final > Flashcards

Lectures 9 - 13 for Final Flashcards

1
Q

Value of a statistical life (VSL):

A

Threshold ­­ current = $7M
■ If intervention costs more → reject
■ If intervention costs less → accept

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2
Q

How are VSL’s determined?

A

Juries
● Revealed preference (willingness to pay)
● Revealed preference in occupation (ex. window washer wage differs depending on the height at which they wash; coal miners)
● Survey

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3
Q

Cost-Benefit Analysis (CBA)

A
  • Convert Everything to Dollars
  • Do the costs outweigh the benefits?
  • Assumes a constant VSL
  • Used more in regulation than in medicine/PH
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4
Q

Cost-Effectiveness Analysis (CEA)

A

Cost-effective

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5
Q

Incremental Cost Effectiveness Ratio/Cost-Effectiveness Ratio

A

Difference in costs / Difference in Effectiveness;

[Cv-Co]/[Ev-Eo]

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6
Q

Cost-Utility Analysis

A

Same as cost-effectiveness but units is QALYs or DALYs

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7
Q

What is considered a QALY threshold for cost-utility analysis?

A

$50k-$100k per QALY; in LIC use per capita GDP

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8
Q

Discuounting

A

PV = FV/[(1+r)^t]
You often need to compare stuff over time (i.e. chronic disease - cheaper to prevent or treat later)?
Need to use this to compare the future vs today
3% is seen as the starting discount rate for medical decision making

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9
Q

If you have 10mm people and the cost of a vaccine is $2; what is your cost to vaccinate all?

A

2*10mm = $20mm

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10
Q

If you have 10mm people and 99.5% of the people who are vaccinated live, how many people will live?

A

.995*10mm= 9.95 milliion lives saved

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11
Q

If you have 10mm people and vaccinate none of them, and 99% get no small pox, and of the 1% that do, 10% live, how may people are alive at the end?

A

.9910mm=9.9 million lives
plus
(0.010.10)*10mmm = 0.01mm

= 9.91mm lives

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12
Q

If total cost of vaccination = 20,000,000 and total cost of not = 0, and effectiveness for vaccination (aka lives saved) is 9.95mm and effectiveness for non-vaccination is 9.91mm, then what is the value per life saved?

A

(20,000,000-0)/(9.95-9.91) = 20,000,000,/.04= $500/lives saved.

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13
Q

Reminder to look at Heparin Decision Tree Example

A

Look at example

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14
Q

Sensitivity

A

P(T+|D+)

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15
Q

Specificity

A

P(T-|D-)

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16
Q

PPV:

A

P(D+|T+) = [sensprevalence]/[(sensprev)+(1-spec)*(1-prev)]

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17
Q

Where is the prevalence located on a 2x2?

A

bottom of the D+ column (“e” cell)

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18
Q

What is cell a as a calcuation?

A

prevalence*sensitivity

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19
Q

what is d cell as a calucation?

A

F cell*specificity

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20
Q

What is the calculation for PPV also?

A

a cell divided by total test positive.

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21
Q

What do we fear in testing?

A

false positivies

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22
Q

When does it make sense to screen?

A

When the A cell is way more heavily populated than the b cell.

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23
Q

When can we expect more false positives?

A

when the disease is very rare

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24
Q

review HIV example

A

review HIV example

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25
Q

Preventive Care Spectrum

A

1) saves lives and money
2) cost-effective
3) cost-ineffective
4) increases cost and worsens health

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26
Q

Calculation for cost WITH prevention

A

of peiople * cost of prevention

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27
Q

Calucation for cost WITHOUT prevention

A

of people * cost of event * incidence without prevention

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28
Q

When does prevention save money?

A

when the cost WITH prevention is less than the cost WITHOUT prevention.

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29
Q

Six Criticisms of Cost-Effectiveness

A

1) Ethics
2) Heterogeneity in patient benfit
3) Heterogeneity in provider skill
4) Some thresholds can be arbitrary
5) Normal people don’t think like this
6) Incentives Matter

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30
Q

Problem with Cost-Effectiveness: ethics

A

are we comfortable putting money on human lives?

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31
Q

Heterogeneity in patient benefit as a problem with cost-effectiveness

A

cost-effectiveness may be too crude/simple, bc for certain groups the treatment may be effective/worth it

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32
Q

Heterogeneity in provider skill as a problem with cost-effectiveness

A

volume-outcome relationship; providers who do the same procedure all the time have better outcomes; in high volume centers, outcomes are usually better and cost effectiveness will look better

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33
Q

Some thresholds are arbitrary as a problem with cost-effectiveness

A

why do we draw the line where we do?

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34
Q

Normal people don’t think like this as a problem with cost-effectiveness

A

we dont think in terms of monetary value with lives but economists do

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35
Q

Incentives Matter (as a problem with cost-effectiveness)

A

Problem is when providers make money from providing cost-ineffective care; these doctors are poorly incentivized

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36
Q

An agency problem is what?

A

its a transaction with two key issues:

  • information assymetry
  • misaligned incentives
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37
Q

Capitated payment

A

an alternative to fee-for-service

providers are paid a lump sum for all treatment and must allocate care accordingly

therefore it is more profitable to provide less care

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38
Q

Target Earnings Hypothesis

A

Physicians have target earnings in mind; if you decrease the price, physicians will increase the quantity to meet that benchmark.

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39
Q

what does the mcguire model do?

A

shows why fee-for-service model induces demand because physicians do not determine price but they do determine quantity.

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40
Q

Net surplus

A

utility gained by paying less than you would normally

total difference between willingness to pay and the price

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41
Q

Minimum Net Surplus

A

the minimum quantity of care a patient will accept (or the minimum net surplus required) from a physician before they’d move physicians.

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42
Q

surplus maximizing level of medicine on mcguire model

A

maximizes are abetween price and demand

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43
Q

Review McGuire Model

A

Review McGuire Model

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44
Q

What are the assumptions of the mcguire model?

A

fee for service
patients understand the dynamics of cost and quantity
patients pay so they care about the thigns they buy

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45
Q

What is the conclusion of the mcguire model

A

physician will induce demand because its profitable under the FFS model and the patient is willing to accept more care than they want.

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46
Q

How can you make the mcguire model worse?

A

By removing assumption that patients understand price/qty dynamics, and when there is a third party payer!

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47
Q

Goals of malpractice system

A

compensate and deter negligence

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48
Q

Does our system of malpractice insurance meet the two goals?

A

no:
- not necessarily compensating patients well or quickly
- not even addressing negligence
- if anything leads to defensive medicine

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49
Q

Two key points for malpractice

A

system as it stands doesnt work well or achieve its goals - BUT - its not as expensive as you might think.

50
Q

Credence Good

A

a good where the seller knows how much you need but you dont know how much you need.

51
Q

R&D for a drug

A

around $800mm

52
Q

R&D is a

A

public good

53
Q

why does the patent system exist

A

to incentivize r&d of drugs since its a public good

54
Q

What happens afgter the patent runs out and generics enter the market?

A

inelastic consumers are the only ones who stick with the brand; generic price is lower and branded price goes up

55
Q

3 ways we can induce R&D

A

patents, NIH grants, advance market comittments

56
Q

Tradeoffs in drug r&d

A

static vs dynamic efficiency
persuasive vs informative adds
bad drugs sold vs good drugs not sold

57
Q

dynamic vs static efficency as a pharma tradeoff

A

dynamic efficienchy = benefits over time
static efficiency = benefits today

so if you get rid of patents, you up static efficiency (cheaper drugs today)

but you reduce dynamic efficiency (people less incentivized to do r&d so you reduce production of drugs in the future)

58
Q

persuasive vs invofmative re; tradeoffs in pharma

A

advertising vs informing people w/ ads

59
Q

bad drugs are sold vs good drugs are not sold

A

i.e. a tough fda means better/safer drugs’

but it also means more people will die from waiting until the drugs are “good enough”

60
Q

3 other policy debates for pharma

A

drug reimportation (import cheap drugs but issue is higher us prices incentivize research)

patent lengths (trade off between static and dynamic efficiency)

advertising

61
Q

Advanced Market Committments

A

issue; 90% of r&d is focused on 10% of the deaths

put money into the bank account and commit to giving it to whomever creates the drug.

62
Q

Three types of supply

A

licensing through the private/free market to regulate even when there is asymmetric info (i.e. yoga teachers)

rent seeking behavior (i.e. regulated yacht brokers)

quality/quantity trade off (i.e. NPs vs MDs debate)

63
Q

IRR

A

summarizes in one # how to determine whether or not to make an investment

its the value of R that equalizes pv of costs and pv of benefits

64
Q

monopolist

A

only one seller/producer of a good

the more you produce the less you make per good

65
Q

What do monopolists do

A

they sell less than they should at a higher price relative to competitive firms.

66
Q

who is an example of a monopolist?

A

the AMA - they determine the # of docs and med schools and may have a perverse incentive to do this (to keep doc salaries high).

67
Q

what would the AMA say about their restrictions on doctorness?

A

they are doing it to keep quality high. so you know your doctors are good.

68
Q

specialization’s issue?

A

there are huge income differences across specifialization which are attributed to differential barriers to entry - i.e. # of residency slots.

69
Q

two issues with doctor rankings

A

docs don’t choose patients - so they may just be getting sicker patients

cream skimming

70
Q

Monopsonist

A

when there is only one buyer of a good

i.e. coal mine in north dakota

needs to attract more workers so they pay higher wages than a competitive market would.

71
Q

What type of supply curve do monopsonists face?

A

upward sloping - so they underemploy relative to competitive people

72
Q

what does a wage floor do for monopsonists?

A

it enocurages them to hire more employees than they would because wages are set and they cant reduce wages by firing workers …therefore both wages and employment increaes.

aka are forced to hire more rather than choosing to hire less - opposite of a competitive market reactio where you choose to hire less

73
Q

what is monopsonists’ inclination?

A

fire workers to reduce wages for everyone. and pay less wages for that fired employee.

74
Q

Six New Ways to pay for care (vs. fee for service)

A
  • selective contracting
  • gatekeeping
  • prospective payment
  • ACO’s
  • bundled payments
  • pay for performance
75
Q

bargaining/bilateral

A

bilateral bargaining - prices are set by 2 negotiating parties @ a competitive market
- agreement will only happen when both parties are better off than they were

76
Q

disagreement point

A

2 negotiating parties wont agree to anything less than this bc they wont profit.

involving 2 rational actors
will only agree to a situation where they’re better off than they would be wihtout an agreement

77
Q

review graph for disagreement point

A

review graph

78
Q

selective contracting

A

when the insurance company dictates which hospital you can go to (covered in network)

its a managed care situation where the insurer is selectively contracting.

79
Q

what does selective contarcting do to the model showing bargaining?

A

it shifts the disagreement point toward the insurer’s benefit…and thus the bargaining power.

bc - if the hospital doesnt agree to the insurer’s demands, they wont be in network and will lose profits.

80
Q

what happens over time with selective contracting?

A

insurance companies almost become monopsonists with a lot of bargaiing power

81
Q

what exacerbates selective contracting problem?

A

m&a among insurance compainies… but hospitals have started to consolidate to get more power too.

82
Q

takaways about selective contracting as a method of payment

A

it does decrease prices (at least temporarily)

but consolidaiton amount is worriesome.

83
Q

what is gatekeeping

A

pcp becomes the gatekeeper to determien whether or not you can get more specialized care/ insurer may not cover specialized care unless you see a pcp first.

84
Q

pros and cons to gatekeeping

A

pro: can help to cut cost=ineffecrive care and fight induced demand
con: paperwork and bureaucracy to get through the gagtes.

also, do they make mistakes about what care is necessary? and horror stories about patients being manhandled

85
Q

prospective payment

A

pro- fights induced demand

cons - 
upcoding 
throughput
creamskimming
stinting
86
Q

upcoding

A

when you shift payments toward a more highly reimbursed category and are strategic about how you go about it

87
Q

thruput

A

when a hospital pushes people through to care for more people … lots of people, shorter stay = more profit.

issue is it gives hospital less incentive to care about population health as its cost ineffective

counter to throughput worry - readmission penalties have been introduced.

88
Q

stinting

A

when hospitals give too little care (opposite of induced demand)

89
Q

ACOs

A

hospitals with a bunch of private physician providers that change care incentives

its paid for in a combo of ffs and capitation

pro: induces firms to provide care more efficiently
cons: cream skimming, stinting (bc some payment is capitated).

90
Q

Bundled payments

A

capitations tied to an event. provide care for patient and a lump sum is to be split by all service providers

91
Q

P4P - pay for performance

A

physicians are rewarded for good outcomes

mainly for pcp’s

pro: resolves moral hazard bc incentives are aligned
pro: rewards good physicians
con: multitasking problem
con: creamskimming

92
Q

PPO:

A

preferred provider network

network no gatekeeping

93
Q

HMO:

A

staff model hmo (i.e. kaiser, where insurance co owns hospitals)

independent practice association (a network with gatekeepers)

network gatekeeping

94
Q

POS

A

hybrid between hmo and ppo; you can go out of network but cost sharing increases

gatekeeping no network

95
Q

people on managed care tend to…

A

consume less care and have better access
therefore costs are cut

no evidence it hurts people or worsens care.

96
Q

where does the major cost saving seem to be for managed care?

A

managed care can lower prices and save costs through selective contracting without hurting other margins.

97
Q

ffs on the managed care 2x2

A

no network no gatekeeping

98
Q

what is a non-profit?

A

its a firm where no one can claim profits

no owners per se
tax exempt for any donations received

99
Q

why do nonprofits exist?

A

1) median voter theorem
2) conflicts of interest
3) interest groups

100
Q

median voter theorem for nfps

A

median voter is centrist/swing voter… they are the ones to decide elections.

bc of median voter, extremes can never win

so nfp’s exist to plug holes where the gov’t cant go bc of the median voter.

is why nfp’s tend to be right and/or left leaning

101
Q

conflicts of interest for nfps’

A

most profitable biz for education and hospitals are contrary to what is best for their target customer. so, you make these orgs nonprofit to remove this misalignment of interest.

102
Q

interest groups

A

for-profit groups are difficult to control
so internal interest gorups cant control its direction
non-profits are more susceptible to being controlled and can go in the direction internal leaders choose

103
Q

4 views re: what do non-profits do? if they aren’t maximizing profits, what are they doint?

A

1) quantity/quality view
2) physicians cooperative
3) perquisite or prestige maxing
4) cynical take

104
Q

quantity/quality view for why nonprofits do what they do

A

1) quantity/quality view - nfp’s dont max profits, they max utility through quantity qual tradeoffs

105
Q

physicians cooperative view for why nonprofits do what they do

A

they are maximizing the salaries of a few executives at the top but not maximizing profits overall

106
Q

perquisite or prestige maxing for why nfp’s do what they do

A

they max the pristige of institution, not its profits; or they make it more attractive to work there bc profits arent the main focus

107
Q

cynical take for why nfp’s do what they do

A

nfps are really the same as for profits. only public hospitasl seem immune to going after $. nfps are for profits in disguise.

108
Q

Small Area Variation Takeaways

A
  • there is huge variation in spending

- there does not seem to be a relationshiop between spending and quality

109
Q

Where do we see more small area variation?

A

in procedures that have a lot of physician discretion

in higher intensity environment (seems to be the envionment that matters, not the physician)

110
Q

Three explainations for Small Area Variation

A

1) Flat of the Curve
2) Roemer’s Law
3) Specialization

111
Q

Flat of the curve

A

looks similar to a grossman’s health production functio if looking at activity

US is so far to the right on spending/high on benefits that there are diminishing returns for spending –> waste

112
Q

Roemer’s Law

A

A built bed is a filled bed

leads to induced demand –> more care –> more variation in care

Therefore we’ve created a certificate of need you have to get before you build a hospital

pro: gov’t is protecting against roemer’s law and thus induced demand
con: its rent-seeking behavior on the part of the hospitals

113
Q

Specialization as it ties to Small area variation

A

flat of the curve may not tell the whole story

we assume the hospital will do what’s best for the patient.

hospitals that specialize one way or another may be a better fit for a patient –> comparing regions is too crude

there is a difference in care based upon speciailization of the hospital that may determine its a better treatment for one patient, vs another, etc.

114
Q

Cross-Country Comparisons

A

US is an outlier - spends way more than other rich countries

the growth rate of spending is steeper here

US is actually less healthy, so no ROI on this intense investment

Our prices are really what make the difference

The fact that we have shorter wait times is Ok, but not justifiable for increase in cost (we are not an outlier in waiting convenience)

115
Q

Problems with our assumptions when comparing the US vs other countries

A

1) Case Mix in statistical analysis (cant compare parisian and texan)
2) Heterogeneity in population
3) the rich still come here for care
4) all countries have the same increasing spending problem, we’re just farther along the curve
5) We subsidize the rest of the world and encourage R&D

116
Q

CPI

A

Consumer price index; allows you to adjust for the price of goods over time taking into account inflation

117
Q

Problems with CPI

A
  • increasing quality can’t be accounted for
  • hard to handle new goods
  • prices aren’t observed in healthcare, so hard to use this as a metric
118
Q

3 positive views on teh US healthcare costs

A

1) Baumol’s cost disease
2) applying cost-effectiveness to the bigger picture
3) income elasticity approach

119
Q

Baumol’s cost disease

A

sectors are either progressive or stagnant

progressive: tech - things are becoming more productive over time

stagnant - health - things are less productive over time

  • so, its expected that our HC costs are increasing bc we’re in a stagnant sector (vs tech which is decreasing). its net ok because the US gdp isnt increasing over all, its just shifting
120
Q

Applying cost-effectiveness to the macro picture

A

we’ve seen an increase in both wealth and life expectancy over past hundred years

we want to get rid of the waste but not the good stuff

we’re wealther now not just due to increased spending but also gains in life expectancy

from a CE pov our high spending might be worth it bc we’re living longer which is good value.

121
Q

Income elasticity approach

A

as you get richer, more of your money will go to HC.

but hc is different bc as you spend money, you live longer.

so, you’re not concerned about HC spending bc you live longer –> driving trends in HC spending.

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