Question 1

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

Accepted Answer

A)   more individuals will choose surgery in 2012 than they would have in 1970.
B)   people tradeoff reduced life expectancy for lower costs.
C)   managed care insurers tradeoff reduced life expectancy for lower costs.
D)   physicians tradeoff reduced life expectancy for lower costs.
E)   Medicare will most likely pay for the medication only. A

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

A)   Number of nurses the hospital employs.
B)   Number of physician assistants the hospital employs.
C)   Number of temporary agency nurses.
D)   Total number of beds.
E)   Number of hospital wings. E

Question 4

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

Accepted Answer

A)   economies of scale exist in x-ray production.
B)   diseconomies of scale exist in x-ray production.
C)   cost shifting is possible.
D)   radiologists historically have been able to price discriminate.
E)   the hospital is more efficient at producing x-rays.

Question 5

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

Accepted Answer

A)   cannot be explained adequately by economists at this time. More empirical study is needed.
B)   is due to economies of scale.
C)   is the result of diseconomies of scale.
D)   is explained by the fact that more people will demand the treatment if it increases life expectancy or quality of life.
E)   is due to the law of diminishing marginal returns.

Question 6

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

Accepted Answer

The answer of In what areas did hospitals seek to...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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.

Accepted Answer

The answer of Please discuss who wins and who loses...

Question 10

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?

Accepted Answer

A)   Every insurer conducts their own feasibility study for each hospital and creates their own chargemaster for that hospital from scratch.
B)   Most private insurers rely on published Medicare reimbursement rates as a basis, and set their reimbursement rates to hospitals as a certain percentage of Medicare rates (e.g. 110%) .
C)   Most private insurers rely on published Medicaid reimbursement rates as a basis, and set their reimbursement rates to hospitals as a certain percentage of Medicaid rates (e.g. 90%) .
D)   Most insurers rely on each hospital's chargemaster as a basis, and typically negotiate a certain percentage discount (e.g. 30% off all the listed charges) .
E)   There is no "most common", or dominant, way how private insurers set their payments to hospitals. A variety of methods exists, and all of them are about equally popular.

Question 11

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?

Accepted Answer

A)   Yes. The surgery may have relatively low capital costs, so spreading over 50 beds would be sufficient to realize economies of scale because specialization of surgeons' skills is more important factor in realizing economies of scale than number of beds.
B)   Yes. The key to economies of scale may be spreading high fixed costs over a small number of beds.
C)   Yes, specialty hospitals do not necessarily have to produce high number of surgeries to achieve economies of scale in their particular line of specialization.
D)   No, economies of scale cannot be realized at such a low bed count.
E)   There is not enough information to determine the answer with certainty.

Question 12

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.

Accepted Answer

The answer of Economists might point to the existence of...

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)   price controls.
B)   diseconomies of scale.
C)   certificate of need legislation.
D)   administered prices, as in DRGs.
E)   budgetary review.

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

The answer of As shown in Table 9.3, average hospital...

Question 18

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.

Accepted Answer

The answer of In 1977, a medication to fight heart...

Question 19

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?

Accepted Answer

A)   Hospital A has sicker patients than Hospital B.
B)   Hospital A is an academic medical center and Hospital B is not.
C)   Hospital A has several long term union labor contracts while Hospital B does not.
D)   Hospital B is more efficient than Hospital A.
E)   Hospital A is a small rural facility with limited equipment and staff, while Hospital B is a large urban facility with sophisticated equipment and famous doctors.

Question 20

Long run cost functions

Accepted Answer

A)   are comprised of the highest portions of short run cost functions.
B)   always lie above short run cost functions.
C)   can lie above or below short run costs functions.
D)   are decision tools for capital budgeting.
E)   often lie on top of short run cost functions.

Exam 9: Management and Regulations of Hospital Costs

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.

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

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