HE+ANS+to+HW6+-+Spring+2010 - Department of Economics...

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Department of Economics Prof. Derek DeLia Health Economics 220:316:01 Spring 2010 ANSWERS TO HOMEWORK #6 QUESTION 1 : a. In the U.S., doctors could be hospital employees, managers, or owners but typically they are none of these. Instead doctors usually have staff membership, which gives them the right to use and organize the hospitals’ staff and other resources to treat their patients. For this reason, hospitals are sometimes referred to as doctors’ workshops. b. Historically, hospitals did not compete on the basis of price since patients had their bills paid by insurance and insurers paid for hospital care on the basis of cost-based fee-for-service. This resulted in a medical arms race (MAR) where hospitals competed for patients and physicians by making sure they could offer the latest and most expensive technologies even if these technologies were rarely used or offered little health benefit relative to their costs. c. In the 1980’s and 90’s managed care plans would not sign contracts with hospitals unless the hospitals would offer lower prices for their services. This created pressure on hospitals to reduce their costs and in particular be more careful about investing in expensive new technologies. this process appeared to slow down the MAR but after 2000 managed care became a little less stringent and the MAR appeared to be heating up again. QUESTION 2 : a. Hospitals order equipment and supplies on behalf of physicians who are neither owners nor employees of the hospital but use the hospital as their “workshops.” As a
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This note was uploaded on 05/05/2010 for the course ECON 316 taught by Professor Delia during the Spring '10 term at Rutgers.

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HE+ANS+to+HW6+-+Spring+2010 - Department of Economics...

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