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Healthcare Economics

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  1. In an effort to reduce education expenditures, Ohio shuts down two of the five colleges that train nurses.
  1. Using the traditional supply and demand model, discuss the effects of the budget cut on three markets: the markets for nurse schooling (tuition and number of students), nurses (wages and employment), and the health services (prices and quantity). Use graphs if appropriate.
  1. Suppose that in addition to the above scenario, average household incomes increased due to a rebound in the automotive industry. Describe how equilibrium prices and quantities in the health services market would compare to the situation prior to the combined budget cuts and increases in the automotive industry.

  1. Billy Sue “produces” health through the consumption of medical care, education, and food. She has twelve years of schooling and her level of food consumption is not expected to change this year. The relationship between medical care and health status is provided in the following table:

M = medical care visits
H = index of health
MP = marginal product of medical care visits
AP = average product of medical care visits

  1. Complete the table.
  2. What is the marginal product if Billy Sue increases her use of medical care from 4 to 5?
  3. Graph the relationship between medical care and health.
  4. Graph the relationship between medical care and both marginal product of medical care and average product of medical care.
  5. Explain the meaning concept “marginal product of health care.” Why does the marginal product diminish?

  1. Ohio is one of many states that passed Certificate of Need (CON) laws in the 1970s. Many interest groups are in favor of repealing all CON regulations. Assuming perfect markets, describe in one page or less, using graphs where appropriate, the effect of a repeal of Ohio’s CON law on:

a. hospital inpatient market in Ohio
b. long-term care market in Ohio.
Feel free to consult the web for information on CON. Treat part (a) and (b) as separate (no effect transferring into the other market).
For the following, read the attached article and review the CDC link provided.
4.a. Assuming that all transplant surgeries are successful, draw a graph that represents the decision the Arizona legislature faced. (Hint: Make the X-axis quantity of vaccines, make the Y-axis quantity of organ transplants)
4.b. On your graph, indicate the decision the Arizona legislature took.
4.c. What concept does the graph represent?
4.d. Provide at least 3 arguments that support/explain your curve.
5. What if the Centers for Medicare and Medicaid Services decides to require Arizona to continue providing the same level of vaccination services and cover organ transplants? Depict this decision on your graph and explain your reasoning.
6. You are now a member of the Arizona legislature dealing with a real market (i.e. not everybody needs vaccines, decision isn’t solely between funding transplants or vaccines). What would you have decided? Why? Include concepts covered in class or found in the materials in your explanation.
Arizona Budget Cuts Put Organ Transplants At Risk
by Ted Robbins
November 17, 2010
In Arizona, 98 low-income patients approved for organ transplants have been told they are no longer getting them because of state budget cuts.
The patients receive medical coverage through the Arizona Health Care Cost Containment System (AHCCCS), the state’s version of Medicaid. While it may be common for private insurance companies or government agencies to change eligibility requirements for medical procedures ahead of time, medical ethicists say authorizing a procedure and then reversing that decision is unheard of.
A Matter Of Heart
Randy Shepherd is 36 and 6-foot-3, but he has to toss baseballs to his 3-year-old son, Nathan, while sitting in a lawn chair. Shepherd has cardiomyopathy; his heart muscle is deteriorating. The condition is the result of rheumatic fever he had as a child. As a teenager, he had his heart valves replaced, but that was 20 years ago.
“The muscle’s gotten tired and distended,” Shepherd says. “It’s just worn out.”
You can hear the weakness in his voice, even though doctors implanted a pacemaker in 2008. They’ve told Shepherd that he needs a heart transplant to survive.
AHCCCS (pronounced like “access”) was the only health insurance Shepherd could get because he had a pre-existing condition and, since he was forced to stop working in his plumbing business, little money. The agency authorized his transplant more than a year ago.
“The nurse who’s the transplant coordinator did tell me about two months ago that I’m the next one of my body size and blood type, so the next [heart] that’s available is mine,” Shepherd says.
A Question Of Ethics
But as of Oct. 1, AHCCCS said it is unable to pay for Shepherd’s transplant. In fact, facing a $1.5 billion budget deficit, Arizona has cut out all state-funded lung transplants, some bone-marrow transplants and some heart transplants — including transplants for the condition Shepherd has.
“To basically renege on what you promised was [going to] be a chance at life is a very, very bitter indictment of the ethics of the Legislature,” says Arthur Caplan, head of the Center for Bioethics at the University of Pennsylvania.
Caplan calls the reversal “awful” behavior because Arizona is going back on a covenant it made with its patients, and because these are patients for whom time is critical — patients who spent months, some years, thinking they were covered.
“They then stop trying to raise money, stop trying to see what Uncle Fred might be willing to give them,” Caplan says. “They don’t have the bake sale. They don’t make the appeal in church.”
Saving Money?
Arizona says the cuts will save about $4.5 million this year.
No one from AHCCCS would agree to an interview with NPR. But the state agency provided data it also gave to legislators to make their decision. It says only 15 percent of those waiting actually ever find transplant matches. The problem is, however, that no one knows ahead of time which 15 percent that will be.
The state’s data also show the procedures have poor outcomes and that most patients die after the transplants. But critics say the data was cherry-picked, as it included only patients enrolled in AHCCCS and only for a two-year period.
A coalition of Arizona transplant centers, including well-known programs at the University of Arizona and the Mayo Clinic, recently gave the state data for a broader patient group and a longer time period. It showed much better outcomes.
Waiting Until January
State Rep. John Kavanagh, a member of the House Appropriations Committee in the Arizona Legislature, has looked at the new information.
“It’s a terrible situation,” Kavanagh says, “but we don’t want anybody to die because of a faulty data set. So if we made a mistake, we’re [going to] reinstate those that require it.”
Kavanagh is promising a hearing when the Arizona Legislature convenes in January. He says the state can cut the money somewhere else.
Meanwhile, one patient has found a private bone-marrow donor.
Shepherd says he and his wife were bitter when they first learned his approval for a new heart was taken away, but they have learned to appreciate the time and the medical procedures he has already had.
“If I were to die because they didn’t give me the transplant, I’ve had the last 18 months with my kids that I wouldn’t have had otherwise because AHCCCS paid for my pacemaker,” Shepherd says.
Now on federal disability, he will become eligible for Medicare next year. That gives him some hope whatever the Arizona Legislature does. Meanwhile, 96 other patients in Arizona wait.

CDC Vaccination Pricing List