Health Economics

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  • Edition: 4th
  • Format: Paperback
  • Copyright: 2009-02-10
  • Publisher: Prentice Hall
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Health Economics combines current economic theory, recent research, and health policy issues into an accessible overview of the field. Recent research illustrates core economic concepts, which are then used to focus on key policy areas, such as the structure and effects of Medicare reform, insurance plan design, and emerging medical technologies.

Author Biography

Charles E. Phelps went to the University of Rochester in 1984 as professor and director of the Public Policy Analysis Program, a graduate program offered by the Department of Political Science, in conjunction with the Department of Economics. In 1989 he became chair of the Department of Community and Preventive Medicine in the School of Medicine and Dentistry. He became Provost in July 1, 1994, and served until July 31, 2007. As Provost, he was responsible for overseeing the academic activity of the University, including teaching, research, and supporting services (e.g., libraries, information technology, and technology transfer) in each of the University's six schools. He currently holds the titles of University Professor and Provost Emeritus.

Phelps has achieved national and international recognition for his scholarly research. In 1991 he was elected to the Institute of Medicine of the National Academy of Sciences and to the National Bureau for Economic Research. He served for six years on the Report Review Committee of the National Academies.

Phelps is currently a Fellow at the Center for Advanced Studies in the Behavioral Sciences at Stanford University (academic year 2008–2009).

Provost Emeritus Phelps participated from 1997 to 2007 in the Association of American Universities’ Committee on Digital Technology and Intellectual Property Rights, and was an active participant in the AAU's work in areas involving related topics. He testified before Congress in June 1998 on issues pertaining to the implementation of the World Intellectual Property Organization (WIPO) treaty and has spoken on related matters in conferences on these issues sponsored by, among others, the Department of Commerce. In July 2005, he testified on Patent Reform for the Senate Judiciary Committee's Subcommittee on Intellectual Property.

Provost Emeritus Phelps earned his bachelor’s degree from Pomona College in Claremont, California. He then earned both an MBA in hospital administration and PhD in economics from the University of Chicago. Before beginning his career at the University of Rochester, Phelps worked at the RAND Corporation from 1971 to 1984.

Phelps served from 1998–2006 on the Board of Trustees for the Council on Library and Information Resources (CLIR) in Washington, DC, the last two years as Chair. He currently serves on the Board of Trustees of the Center for Research Libraries in Chicago, and on the Board of Directors of VirtualScopics, Inc., a diagnostic-imaging technology company located in Rochester, New York. He also serves as an advisor to CVT, a pharmaceutical company in Palo Alto, California.

Table of Contents

Prefacep. xiii
Why Health Economics?p. 1
Important (If Not Unique) Aspects of Health Care Economicsp. 2
How Markets Interrelate in Medical Care and Health Insurancep. 9
Afterthoughtp. 30
Summaryp. 30
Related Chapters in Handbook of Health Economicsp. 31
Problemsp. 31
Utility and Healthp. 32
How to Think About Health and Health Care (or...How Health Economics?)p. 33
The Production of Healthp. 36
Health Through the Lifecyclep. 38
A Model of Consumption and Healthp. 40
Summaryp. 53
Related Chapter in Handbook of Health Economicsp. 54
Problemsp. 54
Appendix to Chapter 2: A Formal Model of Utility Maximizationp. 55
The Transformation of Medical Care to Healthp. 56
The Productivity of Medical Carep. 56
Confusion About the Production Function: A Policy Dilemmap. 73
Physician-Specific Variations (Medical Practice Styles)p. 80
Extensive and Intensive Margin Differences: Are They Similar?p. 85
Summaryp. 86
Related Chapters in Handbook of Health Economicsp. 87
Problemsp. 87
Appendix to Chapter 3: Marginal, Average, and Total Productivityp. 88
The Demand for Medical Care: Conceptual Frameworkp. 91
Indifference Curves for Health and Other Goodsp. 92
From Indifference Curves to Demand Curvesp. 98
How Demand Curves Depend on Illness Eventsp. 100
Demand Curves for Many Medical Servicesp. 101
The Demand Curve for a Society: Adding Up Individual Demandsp. 102
Use of the Demand Curve to Measure Value of Carep. 103
How Insurance Affects a Demand Curve for Medical Carep. 105
Time Costs and Travel Costsp. 116
The Role of Quality in the Demand for Carep. 118
Revisited: The Price Index for Health Carep. 121
Summaryp. 122
Related Chapters in Handbook of Health Economicsp. 123
Problemsp. 123
Appendix to Chapter 4: Demand Curves and Demand Elasticitiesp. 124
Empirical Studies of Medical Care Demand and Applicationsp. 126
Studies of Demand Curvesp. 127
Effects of Age and Gender on Demandp. 138
The Effects of Illness on Demandp. 139
Lifestyle and its Effects on Demandp. 139
The Demand for "Illness"p. 142
The Demand for Quality: Choice of Provider Specializationp. 145
Other Studies of Demand for Medical Carep. 146
Applications and Extensions of Demand Theoryp. 150
Decision Theory: Deriving the "Right" Demand Curve for Medical Carep. 155
Cost-Effectiveness Ratios and Demand Curvesp. 156
Why Variations in Medical Practice?p. 157
Summaryp. 158
Related Chapters in Handbook of Health Economicsp. 159
Problemsp. 159
Appendix to Chapter 5: An Example of Medical Decision Theoryp. 160
The Physician and the Physician Firmp. 165
The "Firm"-Inputs, Output, and Costp. 166
The Physician as Entrepreneurp. 167
The Physician-Firm and its Production Functionp. 168
The Physician as Diagnosticianp. 169
Nonphysician Primary-Care Providersp. 176
The Size of the Firm-Group Practice of Medicinep. 180
The Physician as Laborp. 185
The Aggregate Supply Curve: Entry and Exitp. 191
The Open Economy: U.S.- and Internationally Trained Physiciansp. 191
Summaryp. 193
Related Chapters in Handbook of Health Economicsp. 193
Problemsp. 193
Appendix to Chapter 6: Cost Passthroughp. 194
Physicians in the Marketplacep. 197
Physician Location Decisionsp. 198
Consumer Search and Market Equilibriump. 204
Actual Search by Patientsp. 216
Advertising and the Costs of Informationp. 219
The Role of Licensurep. 221
Estimates of the Demand Curve Facing Physician-Firmsp. 223
Induced Demandp. 225
The Role of Payment Schemesp. 233
Summaryp. 235
Related Chapters in Handbook of Health Economicsp. 236
Problemsp. 236
The Hospital as a Supplier of Medical Carep. 238
The Hospital Organizationp. 239
Who Is the Residual Claimant?p. 244
Where Does the Utility Function Come From? A Political Theory Modelp. 249
Hospital Costsp. 254
Long-Run Versus Short-Run Costsp. 258
The Hospital's "Cost Curve"p. 259
Another Complication: Outpatient Surgeryp. 262
The Demand Curve Facing a Single Hospitalp. 264
The Utility-Maximizing Hospital Manager Revisitedp. 266
Summaryp. 266
Related Chapters in Handbook of Health Economicsp. 267
Problemsp. 267
Hospitals in the Marketplacep. 269
Hospitals and the Market for Medical Staffp. 270
Hospitals and Patientsp. 272
A Model of Equilibrium Quality and Pricep. 274
Insurance and Competition in the Hospital's Decisionp. 278
Interaction of Doctors and Hospitals: "Goodies" for the Doctorp. 281
Interaction of Doctors and Hospitals: Patients for the Hospitalp. 282
Competition-"Old Style" Versus "New Style"p. 283
Entry and Exit: The Pivotal Role of For-Profit Hospitalsp. 286
The Hospital in Labor Marketsp. 286
Nursing "Shortages"p. 292
Summaryp. 294
Related Chapters in Handbook of Health Economicsp. 295
Problemsp. 296
Appendix to Chapter 9: The Hospital's Quality and Quantity Decisionp. 296
The Demand for Health Insurancep. 300
The Demand for Health Insurancep. 301
Reasons People Want Insurancep. 302
Choice of the Insurance Policyp. 308
Insurance Market Stability: The Question Of Self-Selectionp. 318
Income Tax Subsidization of Health Insurancep. 326
Empirical Estimates of Demand for Insurancep. 333
The Overall Effect of the Tax Subsidy on the Health Sectorp. 335
"Optimal" Insurancep. 335
Other Models of Demand for Insurancep. 336
Summaryp. 337
Related Chapters in Handbook of Health Economicsp. 338
Problemsp. 338
Appendixes to Chapter 10
A Detailed Calculation of Welfare Lossp. 341
The Calculus of the Risk/Moral Hazard Trade-offp. 342
The Statistics of an Insurance Poolp. 344
Health Insurance Supply and Managed Carep. 345
The Supply of Insurancep. 345
Managed Care: A Response to the Incentives of Traditional Insurancep. 350
Why Managed Care?p. 352
Types of Interventionsp. 357
Consumer Sidep. 357
Which Interventions Work Best for Managed Care?p. 368
Long-Run Issuesp. 370
Summaryp. 374
Related Chapters in Handbook of Health Economicsp. 374
Problemsp. 374
Government Provision of Health Insurancep. 376
The Medicare Programp. 378
Medicare HMOs (Medicare Advantage)p. 381
Operational Changes in Medicarep. 390
The Medicaid Programp. 411
Summaryp. 416
Related Chapters in Handbook of Health Economicsp. 418
Problemsp. 418
Medical Malpracticep. 420
Background of the Legal System in the United Statesp. 421
The Economic Logic of Negligence Lawp. 427
Judicial Error, Defensive Medicine, and "Tough Guys"p. 430
Medical Malpractice Insurancep. 433
Evidence on Actual Deterrencep. 434
Malpractice Awards: "Lightning" or a "Broom Sweeping Clean"?p. 445
Tort Reformp. 446
Tort Reform Writ Largep. 450
HMO Liability: A New Domain for Malpractice Lawp. 450
Summaryp. 452
Related Chapter in Handbook of Health Economicsp. 452
Problemsp. 452
Externalities in Health and Medical Carep. 453
Externalities, Property Rights, and the Control of Externalitiesp. 454
Externalities of Contagionp. 456
Solutions to the Externality Problemsp. 464
International Issues-Expanding the Scope of the Externalityp. 467
Externalities from Tobaccop. 469
Information as an Externalityp. 472
Research as an Externalityp. 475
Reasons for So Little Research on Medical Effectivenessp. 476
Transfusion-Induced AIDS and Hepatitisp. 478
Summaryp. 480
Related Chapters in Handbook of Health Economicsp. 480
Problemsp. 480
Appendix to Chapter 14: Value of Lifep. 481
Managing the Market: Regulation and Technical Change in Health Carep. 484
A Taxonomy of Regulationp. 485
Licensurep. 486
"Certificate of Need" (CON) Lawsp. 493
Drugs and Devices: The New Wave of Medical Carep. 507
Summaryp. 526
Related Chapters in Handbook of Health Economicsp. 527
Problemsp. 527
Universal Insurance Issues and International Comparisons of Health Care Systemsp. 529
General Considerations for a National Health Policyp. 531
Review of Health Policy and Systems in Selected Countriesp. 541
Snapshots of Four Countriesp. 542
Aggregate International Comparisonsp. 552
Increase in Costs and Health Outcomesp. 562
A Final Conundrump. 566
Summaryp. 566
Related Chapters in Handbook of Health Economicsp. 567
Problemsp. 567
Author's Postscriptp. 569
Appendix: Introduction to Basic Economics Conceptsp. 571
The Concept of Utility and Demand Curvesp. 571
The Demand Curve by a Society: Adding Up Individual Demandsp. 576
Using Demand Curves to Measure Valuep. 577
The Problem of Supply of Goodsp. 579
Market Equilibriump. 585
Monopoly Pricingp. 588
Monopolistic Competitionp. 591
Bibliographyp. 595
Acknowledgmentsp. 623
Indexp. 625
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