QUEENS’ UNIVERSITY



QUEENS’ UNIVERSITY

Department of Economics

Health Economics

ECON 243

Midterm test 2b

(26 March 2007)

Instructions: (a) The duration of the test is 65 minutes. (b) Attempt all multiple choice questions.

01. For GPs (general practitioners) to play effectively a coordinator’s role (rather than a

gatekeeper’s) in a health care organization, they must be made financially responsible

of patients’ care. Thus they should be paid by:

(a) salary;

(b) a block budget based on past care expenses;

(c) fee-for-service;

(d) capitation;

(e) per diem (or per period of stay at hospital).

02. Supplier-induced demand (SID) may not be occurring in Canada today because,

despite a predominantly fee-for-service remuneration system:

(a) there are plenty of hospital emergency rooms;

(b) Canadian physicians are socially conscious;

(c) governments set fees too low;

(d) there is a severe excess demand for doctors’ services;

(e) there are enough group practices.

03. Doctors’ fees in Canada would be set:

(a) by negotiations between the Federal Government and the Provinces;

(b) in a bilateral monopoly between the Federal Government and the provincial

Medical Association;

(c) lower than the best for MDs but higher than the best for provinces;

(d) by tripartite negotiations between The Federal Government, the Provinces and the

Provincial Medical Associations.

(e) by Health Canada.

04. Joining a group practice (partnership) may be bad for some primary care doctors in

Ontario because:

(a) they would necessarily earn less individually;

(b) they would have less leisure time;

(c) of a lower utility due to moral hazard;

(d) overhead costs per MD would increase;

(e) of their fear of any capitation payment.

05. Policy tools for solving the family physician shortage problem in Canada include:

(a) an increase in internship positions for cardiac surgeons;

(b) strong incentives for undergraduate internships in family medicine;

(c) the creation of new loan programs;

(d) provision of more intensive work or overtime opportunities;

(e) a readjustment of provincial medical standards.

06. In theory, (less than perfectly altruistic) SAL doctors may have lower productivity

(lower numbers of patients seen) and choose lower quality of care (lower time spent

with patients). Yet empirical evidence (as in the article by Gosden et al. on an

experiment in the UK) suggests the following pair of answers:

(a) yes and yes;

(b) no and yes;

(c) yes and no;

(d) no and no;

(e) none of the above.

07. The Small Area Variations (SAV) hypothesis, strangely, refers to:

(a) epidemiological diversity in small cities;

(b) demographic diversity in big cities;

(c) physician uncertainty about medical treatment effectiveness;

(d) prognosis uncertainty;

(e) diagnostic difficulties.

08. Provided MDs aren’t overworked, even under perfect physician agency some

supplier-induced demand (SID) is bound to occur under:

(a) combined fee-for-service and capitation;

(b) fee-for-service;

(c) capitation;

(d) all of the above;

(e) salary.

09. Medical care is one of the inputs in health production. Each unit of medical care

is likely to cause a constant rate of iatrogenic (medically-caused) illness (e.g.

infections, mistake-induced and malpractice damages) or, at best, will become less

effective as more is used. Thus the marginal benefit of medical care:

(a) surely increases at first but then decreases;

(b) decreases everywhere;

(c) positive but constant first then decreases;

(d) may keep increasing;

(e) all of the above.

10. The empirical evidence (as found in the article by Bishai & Lang) suggests that

waiting for surgery will be shorter in jurisdictions where:

(a) willingness to pay for wait reduction is high;

(b) there are lots of hospitals;

(c) hospital administrators decide on the rate of surgery;

(d) doctors decide on the rate of surgery;

(e) willingness to pay for wait reduction is low.

11. Under market provision of medical care, larger and centralized hospitals will be

more profitable provided:

(a) scope economies aren’t outweighed by scale diseconomies;

(b) scope and scale economies interact;

(c) scope economies are present;

(d) scale economies are achieved at a small number of beds;

(e) all of the above.

12. Economies of scale and of scope are important in medical care. Consider the

following data.

First |service | | Second |service | | | Together | | | Q1 |Cost | | Q2 | Cost | |Q1 | Q2 |Cost | | 10 | 50 | | 10 | 60 | |10 | 10 | 100 | | 20 | 110 | | 20 | 120 | |20 | 20 | 210 | | 30 | 170 | | 30 | 180 | |30 | 30 | 340 | |

The data exhibits:

(a) both scope and scale economies;

(b) scope economies but no scale economies;

(c) neither scope, nor scale economies;

(d) scale economies but no scope economies;

(e) none of the above.

13. Unlike mechanics and plumbers, physicians can’t guarantee their work because:

(a) honouring the guarantee would be prohibitively costly;

(b) often there is no second chance;

(c) such a guarantee would have no legal standing;

(d) medicine is based on best prognoses;

(e) there is no such need once a correct diagnosis is made.

14. Whereas in the absence of altruism physicians’ indifference curves are such that

extra effort requires ever-increasing levels of compensation (increasing marginal

disutility of effort) in the effort-income space (respectively, x and y axes), their

altruism towards patients changes their marginal disutility of effort to:

(a) decreasing everywhere;

(b) increasing at first with low levels of effort but then decreasing;

(c) decreasing at first with low levels of effort but then increasing;

(d) constant everywhere;

(e) increasing faster everywhere.

15. Under the physicians’ cooperative model of the hospital, if the supply price of

physicians were to rise the equilibrium staff size would undoubtedly:

(a) increase in the open-staff case;

(b) decrease in the open staff case;

(c) increase in the closed-staff case;

(d) decrease in the closed-staff case;

(e) remain unchanged in the open staff case.

16. Non-profit hospitals have some cost advantages over for-profits, such as:

(a) donations;

(b) awards;

(c) charitable labour;

(d) all of the above;

(e) none of the above.

17. A specific opportunity cost of attending medical school is:

(a) the tuition fee;

(b) the forgone income;

(c) the sleep deprivation and fatigue during arduous internship;

(d) the loss of right to refuse medical care based on Hippocratic oath;

(e) some of the above.

18. Medical schools engage in the joint production of medical education, patient care and

medical research. This typically implies:

(a) both economies of scale and scope;

(b) neither scope nor scale economies;

(c) economies of scale but not scope;

(d) economies of scope but not scale;

(e) none of the above.

19. Empirical evidence (such as in the article by Roberts et al.) as well as theory suggest

that major hospital cost saving necessitates:

(a) reduction of service;

(b) capacity reduction;

(c) better apportioning of common costs;

(d) contracting out of ancillary services;

(e) negotiations with malpractice insurers.

20. One reason why MDs would prefer a not-for-profit closed-staff (NFP-CS) physicians’

cooperative to all other hospital forms is because NFP-CSs:

a) allow MDs to maximize their income;

b) receive donations;

c) benefit from tax exemptions;

d) are perceived as benevolent;

e) undertake charitable treatment.

21. A hospital as an enterprise can best be described as a:

(a) multi-product spatial oligopoly with scope economies;

(b) non-profit monopolistically competitive firm with scope economies;

(c) multi-product spatial oligopoly with scale economies;

(d) doctors’ for-profit cooperative with both scale and scope economies;

(e) doctors’ for-profit workshop with scale economies.

22. One reason for MD altruism is:

(a) adverse selection;

(b) experience;

(c) moral hazard;

(d) self-selection;

(e) locum.

23. UK’s total purchasing experiment gave volunteer groups of GPs (TPPs, total

purchasing pilots) freedom to purchase all hospital and community health services for

their patients (in the article by Wyke et al.). This induced:

(a) gatekeepership rather than coordinatorship;

(b) a collapse of the quasi-market power of high profile hospitals;

(c) a wider range of services provided by TPPs;

(d) no substantial time and locum costs on lead GPs for their management efforts;

(e) none of the above.

24. Due to technical progress, hospitals produce quality at a lower cost. In the

quality-quantity model of non-profit hospital behaviour, this will allow:

(a) just higher quality;

(b) just higher profits;

(c) higher quantity;

(d) higher quality at the expense of lower quantity;

(e) higher quality and quantity.

25. An increase in the fee-for-service (FFS) will increase MD effort if:

(a) the substitution and income effects reinforce each other;

(b) the substitution effect outweighs the income effect on effort;

(c) the increase in the FFS increases MD income;

(d) the income effect outweighs the substitution effect on effort;

(e) the substitution and income effects undermine each other.

26. The presence of aggressive medical malpractice litigation and insurance induces:

(a) higher malpractice awards and costly defensive medicine;

(b) costly defensive medicine and contraction in some medical specialties;

(c) lower malpractice awards and expansion in some medical specialties;

(d) higher malpractice awards and expansion in some medical specialties.

(e) costly defensive medicine and expansion in some medical specialties.

27. Hospitals may be reimbursed by third-party payers (e.g. governments) by block

grants (or budget envelopes) or per episode (or case-based or Diagnosis-Related-

Group based). Some empirical evidence (as in the article by Leonard et al. ) suggests

that the length of stay incentives they generate are, respectively:

(a) long and long;

(b) short and short;

(c) long and short;

(d) short and long;

(e) none of the above.

Answers

01. d

02. d

03. c

04. e

05. b

06. d

07. c

08. d

09. a

10. a

11. a

12. b

13. b

14. c

15. b

16. c

17. c

18. d

19. b

20. a

21. a

22. d

23. c

24. e

25. b

26. b

27. d

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