Health Economics

Instructions
a. Answers must be typed, double-spaced, and may not exceed a total of 10 pages. You can allocate the 10 pages any way that you see fit, but the questions
are structured such that each question will on average take at most 2 pages to answer.
b. Answers should be written in essay form. A table, graph or equation may be integrated into an answer, but cannot be used as a substitute for written
explanation
c. Answers must include any citations for references to facts or conclusions in published papers, just as if you were writing a term paper.
d. This is an INDIVIDUAL assignment – you may NOT work with others (i.e., honor system).
Questions
1) Recently, a proposed merger between two large health insurance companies, was blocked by the federal government on antitrust grounds. The
government argued that the merger would decrease market competition in many market areas that were already highly concentrated, and that the result
would be higher insurance premiums in those areas. The companies countered that a merger would provide the scale needed to cope with structural
changes in individual insurance market bought about by ACA, and in the absence of such adjustments, the number of plan options offered via the exchanges
might decrease. Provide an evaluation of the government and company positions.
2) A pharma company has recently developed drug X for the treatment of disease Z. Drugs A,B,C,D are currently used to treat disease Z. The table below
summarizes the present values of costs and health outcomes in QALYs associated with the use of all drugs in individuals with disease Z.
Suppose you are an executive in a managed care organization charged with the responsibility of determining whether drug X will be reimbursed for the
treatment of disease Z within your health plan.
I) Complete the table below (rank appropriately). Based on the information in this table, is any treatment (drug) dominated? If yes, which drug and by which
drug(s)?
ii) Calculate the ICERs. What is the ICER for drug X? What does this mean? Why knowing the ICER for drug X is helpful to aid your decision-making?
iii) Based on usual thresholds for cost-effectiveness, is the ICER for drug X below or above those? What would you decide for its reimbursement within your
health plan?
Drug
Costs
QALYs
Drug A
$8,000
4
Drug B
$12,000
6
Drug C
$20,000
8
Drug D
$18,000
5
Drug X
$45,000
10
3) Briefly describe the following:
a) Hospitals’ cost-shifting behavior
b) Factors that drive overutilization of medical care
c) Determinants of price elasticity of demand
d) Monopoly and its consequences
e) Asymmetric information
f) Derived demand for medical care
4) In the last few years, support for a single-payer, national healthcare system has risen and is currently supported by the majority of the US population. In
your opinion, please respond to the following:
a) What are the major issues that distort the current market-based system (and microeconomic theories are violated/not applicable) in the US?
b) What would be the strengths of implementing a single-payer, national healthcare system?
c) What are the issues that such systems face globally?
Bonus question (+20%)
Suppose you are an administrator in a hospital and you have been tasked with making a recommendation regarding the cost-effectiveness of two alternative
treatment options over a period of 10 years. Your goal is to identify the costs of investing in each option and the outcomes associated with each treatment
option and eventually make a recommendation based on your findings to your board on which option to choose from a cost-effectiveness standpoint. This is
the only information you have:

Treatment A
Treatment B
Mortality rate
10%
12%
QALYs
25
23
Initial cost
$100k
$80k
Costs in year 1
$30k
$25k
Costs between years 2 to 10
$20k/year
$15k/year