Exam 9: Management and Regulations of Hospital Costs

In 1977, a medication to fight heart disease cost $1,000 and had a mortality rate of 80% after 1 year. Surgery cost $25,000 and had a mortality rate of 60% after 1 year. In 2012, a medication to fight heart disease cost $150 and has a mortality rate of 30%. Surgery costs $10,000 and has a mortality rate of 10%. One should expect expenditures on heart disease treatments to escalate because

Economies of scale result when a hospital realizes increases in the average cost per patient day as more patients are treated.

Which of the following hospital inputs can be considered fixed for at least a 3-month period?

Many hospitals break out the payment for a radiologist's service into two components: the radiologist's time interpreting x-rays and the hospital's charge for producing the x-rays. After doing so, they decide to contract out the service of producing the x-rays. This is most likely because

Improvements in quality of medical procedures often mean that cost per unit of output decreases, quality of life is improved; however, total costs to society increase. This seeming paradox

In what areas did hospitals seek to increase revenues after the institution of administered pricing of DRGs? Did this increase economic efficiency?

The Balanced Budget Act of 1971 imposed price controls on hospital charges.

Comparing hospital cost per day over time is difficult because changes in the quality and type of service offered are so large.

Please discuss who wins and who loses ever since the Certificate of Need (CON) legislation has been enacted to restrict the addition of any new hospital beds, such as beds for cardiac care.

Considering all the confusion about hospital charges, costs and prices, what is the most common way for private insurers to develop a set of reimbursement rates they will use with every particular hospital?

A specialty hospital opens up with 50 beds to perform only abdominal surgeries. Observed economies of scale for most hospitals are documented at 100 beds. Will this specialty hospital be able to realize economies of scale in the production of abdominal surgeries?

Economists might point to the existence of so many blood collection services in strip malls and not in hospitals as evidence of economies of scale in blood collection services. Please explain why this might or might not be true.

Pro Forma financial statements use the information contained in management's operating and capital budgets as well as management's projections of the revenue and expense conditions for the future to estimate the hospital's financial condition over time.

When comparing accounting vs. economic costs, the major disadvantage of using accounting costs is that they will always predict lower costs per surgery on those days when the number of surgeries is higher than expected. In reality this is not true, however, as every deviation from the planned level of operation raises costs, such as payment of overtime, extra expenses when hiring temps, cost of rush ordering of exhausted supplies, etc.

Which of the following tools has not yet been used to constrain growth in hospital costs?

Diseconomies of scale are generally realized when hospitals reach the size of more than 500 beds. If an organization of this size still stays in business, it must be maintaining efficiency for a limited range of more-specialized services, while most likely not being able to provide less-specialized services efficiently.

As shown in Table 9.3, average hospital cost per patient day is the lowest for hospitals with 50 to 99 beds is continuously increasing as hospital size increases beyond that point, and is the highest for hospitals with 500 beds or more. Explain how is this possible in a highly competitive hospital environment? How can such large hospitals (500 beds or more) still stay in business? Discuss.

In 1977, a medication to fight heart disease cost $1,000 and had a mortality rate of 80% after 1 year. Surgery cost $25,000 and had a mortality rate of 60% after 1 year. In 2012, a medication to fight heart disease cost $150 and has a mortality rate of 30%. Surgery costs $10,000 and has a mortality rate of 10%. As a result of technological improvements, in this particular case medical costs can be expected to escalate. Is this response to technological advances typical for most products in the economy, or unique to healthcare only? Discuss why or why not, using the market for cell phones for comparison.

The cost per patient day at Hospital A is much higher than the cost per patient day at Hospital B. Which one of the options below does not offer a valid possible explanation behind that fact?

Long run cost functions