Production, Cost, & Technology/Regulation

Question 1

Lee and Jones Study: What was the Purpose?

Answer 1

The purpose of the study was to calculate the # of physicians necessary to perform X # of medical procedures.

Question 2

In the Lee and Jones Study, how was the need of medical procedures determined or based on?

Answer 2

Was based on incidence of a morbidity (illness) in the population.

Question 3

Calculating the Traditional Health Technology Analysis for Lee and Jones Study:
1. Calculate the morbidity rate with a number of 250,000 patients given that a certain condition strikes 1% of that population:

Answer 3

250,000 x (1 morbidity/100 persons) = 2,500 Morbidities

Question 4

Calculating the Traditional Health Technology Analysis for Lee and Jones Study:
2. With total morbidity, what is the amount of time (based on estimated time treatment will take) physicians need to treat 250,000 patients:

Answer 4

2,500 morbidity x 6 hours = 15,000 hours

Question 5

Calculating the Traditional Health Technology Analysis for Lee and Jones Study:
3. Need to calculate how many physicians needed if one works 2,000 hours per year if they know they need to work 15,000 hours?

Answer 5

15,000 hours x (1 physician/2,000 hours) = 7.5 physicians

Question 6

Let’s say that with 7.5 physicians, the population is projected to increase from 250,000 to 400,000 taken into consideration the 2,500 morbidities (that will not change)…

Answer 6

400,000/250,000 x 7.5 physicians = 12 physicians. In this case, if the projected (actual) total is less than 12, then it is projected that a (actual) shortage will exist.

Question 7

Severe Assumptions of the Lee Jones Study..

Answer 7

1. There is no substitution of other inputs for physicians inputs
2. There is no projected technological change in production of health care services.
3. There is a single, unique answer to how many medical procedures are appropriate…
4. Prices and costs of various inputs are safely ignored
5. Medical doctors are the appropriate body of people to determine population needs.

Question 8

Elasticity of Substitution

Answer 8

When hospitals and medical groups try to shift away from the most costlier input to the cheapest input. For example: if physicians salaries increased relative to nurses, then there is a substitute for more nurses than doctors.

Question 9

If there was no substitution between two inputs…

Answer 9

Then one input on X (physicians) and one input on Y (nurses) that will meet at M where Q = 1 and the line looks like a L.

Question 10

There is a substitution when…(Hint: refer to graph)

Answer 10

The input the X axis (physicians) move up or down depending on situation and input on Y axis (nurses) moves left or right as X moves. It is a downward sloping curve. So if there is a substitution for more nurses than physicians, than Y shifts to Z and moves downward (refer to graph in lecture presentation).

Question 11

What does research suggest when it comes to elasticity of substitution?

Answer 11

There are substitution possibilities that could be substantial. For instance, Could cause substantial savings. Nurse practitioners and physicians assistants can substitute for physicians time.

Question 12

Economies of Scope

Answer 12

Occurs when it is possible to produce two or more goods jointly at a more cheaper cost than produced separately.

Question 13

Economies of Scope done at which three facilities in healthcare:

Answer 13

1. Teaching Hospitals
2. Medical Schools (Medical education, patient care, and research)
3. Joint Production

Question 14

Calculation of Economies of Scope Using Following Situation:

Suppose that a hospital could produce 2 commodities, either Q1, Q2, or both…

Answer 14

1. Total cost of Q1 with no Q2 are TC (Q1,0) (Separate Cost)
2. Total cost of Q2 with no Q1 are TC (0,Q2) (Separate Cost)
3. Total Costs of Both are TC (Q1, Q2) (Cost of Producing Them Together)

Question 15

We Have Economies of Scope When…

Answer 15

TC (Q1, Q2) < TC (Q1, 0) + TC (0, Q2)

Question 16

Joint Production

Answer 16

Simultaneous Production of two or more goods at the same time.

Question 17

Pure Costs In Joint Production?

Answer 17

Cost of producing the other good/cost of producing something

Question 18

Joint Costs in Joint Production and how we Calculate…

Answer 18

The cost that adds value to more than one product or process. Can calculate by adding pure costs together and subtract that from the total cost (TC-PC=JC).

Question 19

Joint Costs and Reimbursement

Answer 19

Reimbursement cannot come from pure costs since it would run a deficit. Much of the controversy with respect to funding revolves around the problem of who will pay for the joint costs.

Question 20

Technological Change is Responsible for…

Answer 20

Change in Health Expenditures.

Question 21

According to Newhouse (1992), what are the reasons for changes in health expenditure:

Answer 21

1. Aging
2. Increased Insurance
3. Increased Income
4. Technological Change

Question 22

Regulation in Economies

Answer 22

Rules and regulations are established to prevent monopolies. By regulating what to produce or consume.

Question 23

Regulatory Policy

Answer 23

Manages regulation of non-market means to address the quantity, price, or quality of good brought to the market.

Question 24

Prospective Payment

Answer 24

Finances Medicare programs to payment system based on diagnosis related groups (DRG’s). Means that payment rates were set prior to the period in which care is given based on diagnosis given. Uses fixed reimbursement to help provide economic incentive to conserve resources.

Question 25

Retrospective payment

Answer 25

The older payment system to Medicare where a hospital will submit the bill to Medicare after patient care has been received with costs to the hospital known. Basically where Medicare paid the bills and allowed the hospitals to recover their expenses.

Question 26

DRG’s (Diagnosis Related Groups)

Answer 26

Under PPS, the DRG’s determine the flat rate that hospitals reach when charging for medical costs. Where each DRG represents a case type identifying patients with a similar case. Flat rate is calculated based on costs incurred for that DRG nationally.

Question 27

What are DRG’s calculations based on…

Answer 27

1. Demographic region of certain national areas (socioeconomic statuses, income, health statuses, etc.)
2. Whether hospital is a teaching or non-teaching hospital.
3. Urban vs. Rural

Question 28

What are 4 things that identify what DRG’s designed to do?

Answer 28

1. Improve the accuracy of Medicare inpatient hospital payments by using hospital costs rather than charges.
2. Adjust payment systems to recognize better the severity of certain illness and cost of treating Medicare patients by either increasing or decreasing costs.
3. Eliminates bias that would leave the healthiest and most profitable treated and the sickest and poorest to suffer.
4. Refine the current payment system ensure hospitals are investing in service areas based on clinical needs rather than financial incentives.

Question 29

DRG Weights

Answer 29

Where DRG’s represent the average resources needed to treat patients. With weights, we determine that it is more expensive to run a hospital in areas like a big city (New York) or more expensive to run a teaching hospital. With those in mind, we adjust the DRG’s.