Health Care Economics
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- Assignment 1 should be done after you have completed Units 1, 2, 3, and 4.
- This assignment is worth 25% of your final grade. It contains 12 questions, which have been assigned various marks. Assignment 1 has a total of 100 marks.
- Prepare written responses to all questions. Although your responses should be concise, ensure that you answer all portions of each question as completely as possible.
- When you have completed Assignment 1, save a copy for your records, and then send it to your tutor using the assignment link.
- When you receive your graded assignment, carefully review the comments your tutor or evaluator has made. This review component is an important step in your learning process. If you have any questions or concerns about the assignment evaluation, contact your tutor as soon as possible
A model of the determinants of health combines three economic variables and two economic relationships.
For instance, the three economic variables are:
- the amount a patient pays for a visit to a physiotherapist (P);
- the number of times the patient visits the physiotherapist (V); and
- the length of time it takes the patient to recover from a rotator cuff (shoulder) injury (D) (max.=365 days).
The two economic relationships are:
- the number of visits (V)=18-$0.09 (P).
In other words, if the price is zero, the patient will make 18 visits in order to receive treatment for this injury. If the price is $200, the patient will make zero visits.
- the number of days to recover (365-D).
In this case, the number of healthy days (D) in the next year will be 180+5V. If the number of visits is zero, the patient will have 180 healthy days and it will take 185 (365-180) days to recover from the rotator cuff injury. If the number of visits is 18, the patient will have 270 [180+5(18)] healthy days, and the time to recover from the injury will be 95 days (365-270).
Use the above information to determine the relationship between price and health status in this model. In other words, solve for D and for P, and set up two equations: one showing the value of D in terms of P; and one showing the value of P in terms of D. Once you have determined the two equations, provide an interpretation of each equation.
||Physician Services (thousands)
a. Calculate the number of physicians, per thousand population in Canada, from 2002 to 2005. What conclusions can be drawn about the physician coverage of Canada’sopulation?
b. Calculate the per capita usage of physician services in Canada for each of the above four years, and determine the annual percentage changes in per capita usage. (Show all of your work to earn full marks.)
3. Green Shield Insurance provides NEMOCorporation with coverage for prescriptions, dental work, and extended health services. Each subscriber uses $435 worth of dental services per year; $410 worth of prescriptions per year; and $385 worth of extended health coverage per year. Green Shield has a 25 percent copayment clause, and a loading factor of 65 percent.NEMOwill pay 50 percent of the plan costs. What is the annual and monthly premiums charged to the employees ofNEMOcorporation? (Show all of your work to earn full marks.)
4. The services of a certified psychologist cost $110 per hour, and an extended health plan covers 50 percent of that cost. Under the plan, the clients covered used 625 hours of this service in a typical three-month period. To save money, the extended health plan reduced its coverage to 40 percent of the cost. As a result, the clients covered reduced their use of this service to 482 hours in a typical three-month period.
a. Calculate the total cost of providing this insured service to the plan before and after the change in coverage. (Show all of your work to earn full marks.)
b. Based on the data above, calculate the elasticity of demand for the services of a certified psychologist. (Show all of your work to earn full marks.) Interpret the elasticity of demand, and explain the behaviour of the clients covered based upon thisinterpretation.
5. The northern community of Assiniboine Narrows has a population of 12,000. It has one medical clinic with three doctors, each working 40 hours per week. Each doctor sees four patients per hour. The clinic would like to hire one or two more doctors.
The mortality rate in the community is 11 per 1,000 population. This rate will fall to 9.5 per thousand if one doctor is added and to 9 per thousand if two doctors are added. Each new doctor will cost the system $250,000 per year.
An alternative plan is to bring in two home care nurses. Each home care nurse will see two patients per hour. The addition of the first nurse will reduce the mortality rate by 0.8 per thousand, and the addition of a second nurse will reduce the mortality rate by 0.6 per thousand. Each home care nurse will cost the system $100,000 per year.
Use calculations to examine the alternatives available to Assiniboine Narrows. Then, based on your calculations, make a recommendation as to the preferred course of action. Ensure that you calculate the output and outcome of each additional health professional.
6. Assume a given demand curve for massage therapy services. In the context of providing massage therapy services, list, and describe in detail, five different variables that may cause an increase in the demand for these services.
7. In 2006, a hospital with 135 beds had 8,795 admissions. The average length of stay
for each patient was 4.7 days. Assuming full capacity is 100 percent, calculate the occupancy rate of the hospital for 2006. Also, calculate the hospital capacity for 2006.
8. Based on the information given in theCanada Health Actas well as the information provided in yourStudy Guide, write a description of how medical services are funded in Canada. Be sure to describe the services covered under the following three areas: hospital care, medical care, and areas not currently funded (unless one has supplementary health insurance).
9. Using the relationship between the price of a visit to a physiotherapist and the quantity of visits demanded, define and distinguish among the direction, theslope, and thepositionof an economic relationship.
10. Following her knee replacement operation, Mrs. Purtik was sent to a long-term care
facility for rehab for a period of time. She now receives home care and makes visits to a physiotherapist. How many providing agencies would be responsible for Mrs. Purtik’s treatment and care in a traditional health care system? How many providing agencies would be involved in her case in a regionalized health care system? Explain your answer in both cases.
11. In the context of hospital care, define and distinguish among occupancy rate, capacity, and utilization.
12. Discuss the role and interrelationships between the following economic units in the
operation of Canada’s health care system: consumers, suppliers, third parties, and regulators.
Health Care Economics
1. Assignment 2 should be done after you have completed Units 5, 6, 7, and 8.
2. This assignment is worth 25% of your final grade. It contains 12 questions that have been assigned various marks. Assignment 2 has a total of 100 marks.
3. Prepare written responses to all questions. Although your responses should be concise, ensure that you answer all portions of each question as completely as possible.
4. When you have completed Assignment 2, save a copy for your records, and then send it to
your tutor using the assignment link.
5. When you receive your graded assignment, carefully review the comments your tutor or evaluator has made. This review component is an important step in your learning process. If you have any questions or concerns about the assignment evaluation, contact your tutor as
soon as possible.
1. Given a supply curve for ultrasound clinics, predict how the supply curve will shift (i.e., increase or decrease) in each of the following situations (justify your prediction in each case).
a. The technology used for ultrasound equipment has a breakthrough that dramatically lowers the cost of the ultrasound machine.
b. The wages of the clinic’s support staff are increased.
c. New ultrasound equipment reduces patient examination times.
d. Local utility rates increase.
2. Predict the impact on the supply and/or demand for physiotherapy services in each of the situations described below. In each case, draw a graph that includes an original supply and demand curve as well as the new, predicted supply or demand curve.Note:You are not required to submit the graphs; however, youmustindicate the supply and/or demand curve shifts, the direction of each shift, and the predicted changes in equilibrium price and quantity (increase, decrease, or indeterminate).
a. Physiotherapy services are covered less generously by provincial health plans than
b. Physiotherapy professional associations significantly raise their entrance standards.
c. An aging population incurs more muscle and joint injuries that require
d. Events b. and c. occur simultaneously.
3. You are the manager of a health clinic that is located in a building owned by four physician partners. The clinic owners hire all the clinic staff, including doctors, nurses, lab technicians, and office staff.
a. Based on what you have learned in the context of this course, identify and discuss
the decisions that would need to be made in order to efficiently operate this clinic in both the short run and the long run.
b. Discuss and classify the clinic input costs—fixed inputs and variable inputs—in the
short run. Provide specific examples of both types of inputs.
4. Economic theory suggests that as plant size increases, the average cost of production
should fall. However, when examining the operation of large health and medical
facilities, the opposite is often the case. Identify and discuss at least two factors that may contribute to diseconomies of scale in the operation of a
large urban hospital.
5. Given a demand curve for a drug that reduces the joint pain associated with arthritis, what effect would each of the following circumstances have on thedemandor thequantity demandedof this drug? In each case, explainwhyyou have predicted such a change.
a. An increase in the percentage copayment of insurance coverage, which raises the
out-of-pocket price for the drug for the insured client.
b. A reduction in fees charged by chiropractors, which lowers the out-of-pocket
price for chiropractic services, which are a substitute treatment for
c. An aging of the population—more elderly people are experiencing joint pain.
d. A new TVadvertisement convinces people that this drug is extremely effective in reducing the joint discomfort associated with arthritis.
6. Improved Access (IA), a local charity devoted to helping inner city residents, has opened a downtown, drop-in medical clinic. The space rents for $3,500 a month (including utilities), and equipment leases cost $45,000 per year.IAhas hired two nurse practitioners at $7,200 a month each, and a receptionist,
whose monthly wage is $3,300. Benefit costs for all staff are $36,600 per year. Office costs, including telephone rentals are $1,500 per month.IAstaff
are paid on salary, which is not dependent upon the volume of patients seen.
Clinic supplies are $40 per patient, and the clinic sees 975 patients a month.
Use the above information to calculate the following monthly costs for IA’s clinic:
- Total Fixed Cost (TFC):
- Total Variable Cost (TVC):
- Total Cost (TC):
- Average Fixed Cost (AFC):
- Average Variable Cost (AVC):
- Average Total Cost (ATC):
7. a. Describe the assumptions of the monopoly model, as it applies to health and medical
services, where price discrimination takes place.
b. Describe the assumptions of the market model, as it applies to health and medical
services, where suppliers can induce consumer demand.
8. Four common bases of payment for physicians are salary, fee for service, fee per
visit, and capitation. Describe the effect each payment basis has on output.
Also discuss studies that have examined the relative costs and benefits of each
9. The table below indicates the total weekly costs of operating an X-ray clinic at different volumes of output (i.e., X-rays).
|# of X-rays
a. Do the necessary calculations to enter the correct amounts in the last two
columns. Remember, marginal cost is defined as the extra cost of providing the
service to one more patient.
b. What is the fixed cost of running the X-ray clinic? How do you know?
c. Given the fixed cost above, what is the total variable cost of providing 80 X-rays?
What is the average variable cost at that output level?
10. The average total cost of operating a surgical room is $700 per case if the volume
is 100 cases, and $690 per case if the volume is 110 cases. What is total cost at each of these two volumes? What is the marginal cost of another case within this range?
11. Extended care facilities are paid on a per diem basis, and they have an upward sloping supply curve. What will be the effect on supply or quantity supplied in each of
the following cases:
a. a reduction in the real per diem rate paid to the extended care facility?
b. an increase in wages paid to the staff who work in the extended care facility?
c. a new cleaner that allows the extended care facility to hire fewer custodial staff?
d. a greater supply of home care services (a substitute for extended care facilities)?
12. The federal agency responsible for covering the cost of dental care for low-income
seniors has set a rate of $100 for various dental treatments. In addition to these seniors, dentists have patients who pay for their dental services. The demand curve for each dentist is shown below.
||Quantity of Dental Treatments
Each dentist also has a cost schedule, as shown below.
|Quantity of Dental Treatments
a. If each dentist in this system works on a profit-maximizing basis, how many
treatments will be provided to both the paying patients and to the federally
funded seniors? (Show your work by tabulating appropriate columns for TRandTC, as well as forMRandMC.)
b. What would the number of paying patients and federally funded seniors be if the
federal funding agency raised its rate to $120 per treatment? (Show all your work.)