- pre-market testing and approval process - inhibited generic entry

Test 2 Flashcards by Lauren Winston

1a. Perfect Agent

When a physician behaves as a patient would if the patient was as informed as the physician (puts self into patient shoes)

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Fuchs (1978) Increase in supply of physicians

Causes an increase in price of physician services to make up lost money

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Rice (1983) lowered fees for physician services

causes an increase in quantity of physician services, since physicians were not getting reimbursed as much

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1b. Target Income Theory

T = p*q
an inverse relationship exists to maintain target income
q- service to a patient
p- price of service
ie. q dec. with more competition
     p inc. to maintain target income

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1b. Difficulties with target income

T is unknown

2. many unknowns with a variety of provided services

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1c. Supplier Induced Demand

Physicians engage in some persuasive activity to shift the patients demand in or out according to the physician’s best interests (imperfect agent)

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1c. SID can cause

welfare loss, provide care beyond true MC *

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There is an impact of __ on Q services

price

ie. Medicare fee reductions led to an inc volume of care

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1c. If a patient is not convinced then

There is only a shift occurring on their demand curve

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Why is a concentration in pharmaceuticals less evident

There is less concentrated share of industry because there are less substitutes and companies specialize

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Drug usage over time

1992 was 7.2% per capita
2008 13.8% per capita
elderly, inc in insurance covrage

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formulary

list of drugs covered by insurance

tiered- cost sharing can vary based on brand

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2a. Barrier to entry

patent- allow for a monopoly over x time period encourages R&D

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Initial regulations for R&D

pre-market testing and approval process

- inhibited generic entry

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1962 amendments

pre-market testing and approval process

- inhibited generic entry

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2c. 1984 Hatch Waxman Act

generics just need to porve bioequivalence to gain FDA approval
no delay between patent expiration and generic entry

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2b. FDA Approval Process

Pre-clinical animal testing
3 phases of human trials
- small # healthy
- small # diseased
- large # diseased
FDA filing and approval

Length (10-15 years)
Consumes patent time of 14years max

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1 in _ drugs are profitable

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2d. What happens as a result of generic entry

grabs market share of brand name
price of branded can inc or dec
- inc. if inelastic demand for
  brand
- dec. because competition

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orphan drugs

drugs that benefit a small portion of set population, usually get tax breaks or financial incentive
< 200 people

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2e. Investment decision Net Present Value (NPV)

NPV = period of large losses (investment) + period of high potential gains (patent life) + period of lower gains (after patent life)

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2e. Pricing justifications

R&D is a fixed cost because VC are low (per pill)
MR = MC
Real reason for high prices: because Demand is high

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2e. Why are drug prices higher in the US?

The US doesn’t have price control regulations

2. higher preference for new innovative drugs

3a. Expost moral hazard (Pauly, 1968)

if insured choose to consume more care because out of pocket price is lower

3a. Exante moral hazard (Ehrlich and Becker, 1972)

If insured less incentive to maintain health (risky behaviors)

3b. Effect of coinsurance on demand

typically increases the demand because of a decrease in price

3b. Effect of copay on demand*

Inelastic and then decreases after lower than

3c. Dead Weight Loss occurs when

Supply is greater than demand (excess cost)

3c. DWL More inelastic (less price sensitive) results in

less DWL

3c. how to find DWL

compare Q equilibrium w/ new Quantity

4a. copay

flat fee

4a. deductible

amount you pay before insurance kicks in

4a. coinsurance

rate you pay, percent of the bill

4a. Pure/ Actuarially Fair Premium (blue line)

Expected health care costs = probability of illness * cost if sick

4a. Load Fee

administration or profit mark-up for profit

4a. Premium

Pure premium + load fee Where pure premium: prob. sick * cost of sick + prob. healthy * cost of healthy

4a. Medical loss ratio

spending on medical expenses/ total premiums collected (for insurance companies) - higher for group plans

4b. Risk aversion

consumer paying more than expected healthcare costs for an insurance plan

4c. Adverse selection

occurs when asymmetric info exists in health insurance markets (asymmetric information) leading to financial risk by insurance company

4c. Adverse selection in healthcare

Buyers have more info about their health insurance company | Insurance companies want to protect self from lemons, lose money

4ci. Lemon's Principle

sick people (lemons) dive healthy people out of the market because of asymmetrical info causing companies to guess distribution so that all expenses are coverd

ACA made __ illegal

exclusion based on pre-existing conditions

Employer-provided insurance is less expensive because

pay with pre-tax dollars reduced adverse selection negotiate reimbursement to products economies of scale (assoc admin expenditures) *stable pool because a variety of health risks

4ciii. Adverse Selection Death Spiral

1. increase plan premium 2. healthy people leave decreasing enrollment 3. PPO plan loses money

4d. Experience rating

people pay different premiums based on separate risk of individual

4d. Community rating

everyone is paying the same premium (healthy people likely to leave)

Traditional/ Conventional/ FFS Plans

- covered most types of care - relatively low cost sharing - freedom to see any provider - physicians were paid fee for service (FFS) features- lack of control on expenditures, expenditures skyrocketing

From 1980s to 2010's conventional to managed care ratio went to

95: 5 1: 99

5a. Managed Care Characteristics

- utilization review - limited provider networks - formularies, list of covered drugs - physician gatekeeper: primary care, physicians must provide approval before seeing specialist

Financial reimbursement to providers

1. capitation- fixed payment per patient | 2. discounted negotiated fees

5b. Health Maintenance Organization

- restrictive plan, lowest premium - restricted provider network - stringent utilization review - provider paid by capitation - physician gatekeepers

5b. Point of Service

- like HMO - some coverage for care sought from an out of network provider - higher cost-sharing for out of network

5b. Preferred Provider Organization

- least restrictive with a higher premium - paid via discounted negotiated fees - no gatekeeper - less stringent utilization review - coverage for care sought out of network providers, however pay cost-sharing

5c Managed Care Backlash

widespread media coverage - larger networks - less stringent utilization reviews - established minimum length of stay

HMO favorability

``` Favored - shortened LOS - utilizing fewer expensive resources - prevention - satisfaction Neutral - not strong impact on quality of care Unfavorable - satisfaction ```