Health Economics

ECONOMICS 436/530 HEALTH ECONOMICS

Professor Thornton Fall 2017 T,Th, 11:00-12:15 Pray-Harrold 408

Office: Pray-Harrold 703-C Phone: 487-0080 Email: [email protected] Website: http://people.emich.edu/jthornton Office Hours: T, Th, 12:15-2:00, 3:15-3:30; W, 3:00-3:30; and by appointment.

Readings

Required Text: James Thornton, Health Economics and the U.S. Healthcare System, Unpublished. Available free to students in pdf format. Recommended Text: Paul J. Feldstein, Health Policy Issues: An Economic Perspective, Sixth Edition, 2015. Articles: Optional journal articles and readings accessed on the Web. For links to these articles go to the Econ 436 homepage.

Purpose

The purpose of this class is to use economic principles to gain a better understanding of the U.S. healthcare system and the behavior of patients, medical care providers, third-party payers, and employers in medical care markets. The class will also focus on three important social healthcare problems that involve medical care spending, quality, and access, the nature and causes of these problems, and policy actions that have been or might be used to attempt to solve them.

Your grade in the class will be based on quizzes, a final exam, and homework. The quizzes have a weight of 60%, the final exam 30%, and the homework 10%. There will be four quizzes comprised of multiple choice questions. The quiz with the lowest score will be dropped. The format for the final exam is as follows. After completion of the material for each section of the class, an essay question will be available for you to access on the homepage and prepare an answer in advance. Of the eight essay questions, six will be selected for the exam. You will answer four of these. One is a required question. You will then select three of the remaining five questions. You are expected to prepare thoughtful answers to the questions and will be evaluated accordingly. The final exam is Thursday, December 14, 11:00-12:30. There are two homework assignments. One week after completion of sections 4 and 7, you will submit a draft of the answers for the essay questions that you have prepared for the final exam for those sections of the course. Your answers will not be evaluated for content; rather, you will receive full credit, half credit, or no credit based on my determination of the amount of effort you made to prepare answers. Full credit is recorded as an A, half credit a C, and no credit an F. In addition, graduate

1 students enrolled in Econ 530 are required to submit a short summary (one to three pages) of each required graduate reading. There will be no make-up quizzes. If you miss one quiz, this will be the quiz that is dropped. If you miss more than one quiz, you must have an excused absence. Your final exam will then receive a greater weight to account for the missed quiz.

Attendance

You are expected to attend class. A thorough understanding of lecture material is essential for performing well on the quizzes and exams. Material will be provided in lectures that is not necessarily covered in the readings. If you are required to miss class, then I would strongly recommend that you attempt to get class notes from a fellow student. I do not provide lecture notes to students.

Homepage

To access the homepage for this class, go to my website: http://people.emich.edu/jthornton. Click on the link for Econ 436. The Econ 436 homepage can be used to obtain a variety of information including the syllabus, study questions, handouts, lecture outlines, links to articles available on the web, and links to healthcare data and other healthcare information on the web.

Outline and Readings

The following is an outline of topics to be covered and a list of related reading assignments. Readings fall under three categories: required reading for all students (*), required reading for graduate students enrolled in Econ 530 (G), and optional readings. Optional readings are designed to supplement class lectures, and provide those of you who are interested in a particular topic additional reading on that topic. Articles marked (w) are available on the Web. These articles can be accessed through links on the Econ 436 homepage.

1. Medical Markets and the Healthcare System

A. What is health economics? B. Economic approach to the study of healthcare C. Distinctive features of medical markets

Thornton, J., Chapters 1, 2. (*). Feldstein, Chapters 4, 5 (pages 59-61 ), 30. Arrow, K. (1963). “Uncertainty and the Welfare Economics of Medical Care.” American Economic Review. (G), (w). Pauly, M. (1968). “The Economics of Moral Hazard: Comment.” American Economic Review. (G), (w).

2. Contribution of Medical Care to the Economy

A. Medical care services as an input B. Validation services, consumer services, and health outputs

2 C. Production and consumption benefits of health

Thornton, J., Chapter 3. (*). Fuchs, V. (1972). “The Contribution of Health Services to the American Economy.” In V. Fuchs (ed.), Essays in the Economics of Health and Medical Care. (w). Grossman, M. (1972), ‘On the Concept of Health Capital and the Demand for Health’, Journal of Political Economy, 80(2): 223–255. (w). DeVol, R. and A. Bedroussian. (2007). An Unhealthy America: The Economic Burden of Chronic Disease. Milken Institute. (w). Bloom D., and D. Canning. (2008). “Population Health and Economic Growth,” Working Paper No. 24, The World Bank. (w).

3. Medical Care Spending

A. The problem of medical care spending B. The level and growth in medical care spending C. Why is the level of spending too high? D. Why is spending growing too fast?

Thornton, J., Chapter 4. (*). Feldstein, Chapters 1, 2. Thornton, J. and S. Beilfuss. (2015). “New Evidence on Factors Affecting the Level and Growth of US Healthcare Spending,” Applied Economics Letters. (G). Weisbrod, B. (1991). “The Healthcare Quadrilemma: An Essay on Technological Change, Insurance, Quality of Care, and Cost Containment,” Journal of Economic Literature, June. (G) (w). Berwick, D., and A. Hackbarth. (2012). “Eliminating Waste In Healthcare,” JAMA, March 14. (w) Farrell, D., Jensen, E., Kocher, B., et al. (2008). “Accounting for the Cost of U.S. Health Care: A New Look at Why Americans Spend More,” McKinsey Global Institute, December. (w) Gruber, J. and J. Skinner. (2008). “Is American Health Care Uniquely Inefficient?” Journal of Economic Perspectives, Fall, pp. 27-50. (w). Lallemand, N. (2012). “Reducing Waste in Health Care.” Health Affairs Health Policy Brief, December 13. (w). Thornton, J. and J. Rice. (2008). “Determinants of Healthcare Spending: A State Level Analysis.” Applied Economics, 40. pp. 2873-2889. (w). Aaron, H., and P. Ginsberg. (2009). “Is Health Care Spending Excessive? If So, What Can We Do About It,” Health Affairs, September/October, pp. 1260 – 1275. (w). Smith, S., Newhouse, J., and M. Freeland. (2009). “Income, Insurance, And Technology: Why Does Health Spending Outpace Economic Growth?” Health Affairs, September/October, pp.1276-1284; (w). Ginsburg, P. (2008). “High and Rising Health Care Costs: Demystifying Health Care Spending.” Robert Wood Johnson Foundation Research Synthesis Report No. 16. (w). Pauly, M. (2003). “ Should We Be Worried About High Real Medical Spending Growth in the United States?” Health Affairs – Web Exclusive, January. (w). Thorpe, K. (2005). “The Rise in Healthcare Spending and What to Do About It.”, Health Affairs, November/December, pp. 1436-1445. (w). Chernew, M. and J. Newhouse. “Health Care Spending Growth,” in Handbook of Health Economics, pp. 2-44.

3 Skinner, J., “Causes and Consequences of Regional Variations in Health Care,” in Handbook of Health Economics, pp. 45-94. Cassidy, A. (2014). “Geographic Variation in Medicare Payment.” Health Affairs Health Policy Brief, March. (w).

4. Medical Care Quality

A. The problem of medical care quality B. Quality measurement and evidence C. Reasons for quality problems

Thornton, J. 5. (*). Donabedian, A. (1988). “The Quality of Care: How Can It Be Assessed,” JAMA, September 23/30. (w). James, J. (2013). “A New Evidence-Based Estimate of Patient Harms Associated with Hospital Care,” Journal of Patient Safety, September. (w). Davis, K., et al. (2014). “Mirror Mirror on the Wall: How the Performance of the U.S. Healthcare System Compares Internationally,” The Commonwealth Fund. (w). Makary, M., et al. (2016). “Medical Error – The Third Leading Cause of Death in the US,” BMJ, May 3. Starfield, B. (2000). “Is U.S. Health Really the Best in the World? JAMA, July 26. (w). Eddy, D. (2005). “Evidence-Based Medicine: A Unified Approach.” Health Affairs, January/February, pp. 9-17. (w). Timmermans, S., and A Mauck. (2005). “The Promises and Pitfalls of Evidence-Based Medicine.” Health Affairs, January/February, pp. 18-28. (w). McGlynn, E., et al. (2003). “ The Quality of Health Care Delivered to Adults in the United States,” New England Journal of Medicine, June 26, pp. 2635-2645. (w). McClellan, M. (2011). “Reforming Payments to Healthcare Providers: The Key to Slowing Healthcare Cost Growth While Improving Quality.” Journal of Economic Perspectives, Spring, pp. 69-92. (w).

5. Medical Care Access and the Patient Protection and Affordable Care Act

A. Is medical care access a problem? B. Patient protection and affordable care act of 2010. C. Affordable Care Act objectives D. Extending health insurance to the uninsured E. Health plan standards F. Medical care quality and cost G. Cost and financing of the Affordable Care Act H. Economic implications of the Affordable Care Act

Thornton, J. Chapter 6. (*). Feldstein, Chapters 32, 33, 34, 36. Thornton, J., and J. Rice. (2009). “Does Extending Insurance Coverage to the Uninsured Improve Population Health Outcomes?, Applied Health Economics and Policy. Gruber, J. (2008). “Covering the Uninsured in the U.S.” Journal of Economic Literature, September.

4 Fuchs, V., and E. Ezekeil. (2005). “Health Care Reform: Why? What? When?” Health Affairs, November/December, pp. 1399-1414. (w). Fuchs, V. (2008). “Three Inconvenient Truths About Health Care.” New England Journal of Medicine, October 23, pp. 1749-1751. (w). Rosenbaum, S. (2011). “The Patient Protection and Affordable Care Act: Implications for Public Health Policy and Practice.” Public Health Report, National Institutes of Health, Jan-Feb, pp. 130-135. (w). Dash, S., C. Monahan, and K. Lucia. (2013). “ Health Insurance Exchanges and State Decisions.” Health Affairs Health Policy Brief, July 18. (w). Aron-Dine, A., Liran, E. and Finkelstein, A. (2013). “The Rand Health Insurance Experiment, Three Decades Later.” Journal of Economic Perspectives, Winter, pp. 197-222. (w). Baicker, K., et al. (2013). “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine, May 2. Decker, S. (2012), “In 2011 Nearly One-Third of Physicians Said They Would Not Accept New Medicaid Patients, But Rising Fees May Help,” Health Affairs, August. (w) James, J. (2015). “The Oregon Health Insurance Experiment,” Health Policy Brief, July. (w)

6. Hospitals and the Market for Medical Care

A. Organization of hospitals B. Theories of hospital behavior C. Hospital payment system D. Hospital competition E. Physician-owned hospitals F. Hospital mergers

Thornton, J. Chapter 7. (*). Feldstein, Chapter 14, 15, 16, 17. Newhouse, J. (1970). “Towards a Theory of Nonprofit Institutions: An Economic Model of a Hospital.” American Economic Review, March, pp. 66-74. (G) (w). Pauly, M., and M. Redisch. (1973). “The Not-For-Profit Hospital as a Physicians’ Cooperative.” American Economic Review, March, pp. 87-99. (G) (w). Gaynor, M. (2011). “Health Care Industry Consolidation.” Statement before the Committee on Ways and Means Health Subcommittee, U.S. House of Representatives. (G) (w). Cassidy, A. (2015). “Bundled Payments for Care Improvements Initiative.” Health Affairs Health Policy Brief, November. (w). Gaynor, M., and R. Town. “Competition in Health Care Markets,” in Handbook of Health Economics, pp. 499-638. Reinhardt, U. (2006). “The Pricing of Hospital Services: Chaos Behind a Veil of Secrecy,” Health Affairs, January/February, pp. 57-69. (w). Guterman, S. (2006). “Specialty Hospitals: A Problem Or A Symptom,” Health Affairs, January/February, pp. 95-105. (w). Vogt W., and R. Town. (2006). “How Has Hospital Consolidation Affected the Price and Quality of Hospital Care.” Robert Wood Johnson Foundation Research Synthesis Report No. 9. (w).

5 Capps, C., Dranove, D., and C. Ody. (2015). “The Effects of Hospital Acquisition of Physician Practices on Prices and Spending.” Institute for Policy Research, Northwestern University, Working Paper, WP-15-02. (w). Casalino, L., November, E., Berenson, R., and H. Pham. (2008). “Hospital Physician Relations: Two Tracks and the Decline of the Voluntary Medical Staff Model,” Health Affairs, September, pp. 1305-1314. (w). Blumenthal, D., et al. (2015). “Access, Quality, and Cost of Care at Physician Owned Hospitals in the United States: Observational Study.” BMJ, August. (w). Batty, M., and B. Ippolito (2017). “Financial Incentives, Hospital Care, and Health Outcomes: Evidence from Fair Pricing Laws.” American Economic Journal: Economic Policy, May. (w)

7. Physicians and the Market for Medical Care

A. Total supply of physician services B. Supply of physician services to geographic areas C. Supply of physician services to medical specialties D. Mode of medical practice E. Theories of physician behavior F. Defensive medicine G. Physician payment system

Thornton, J. Chapter 8. (*). Feldstein, Chapters 4, 10, 11, 12, 13, 23. Thornton, J., and K. Eakin. (1997). “The Utility-Maximizing Self-Employed Physician.” Journal of Human Resources, Winter, pp. 98-128. (w). McGuire, T. (2000). “Physician Agency,” in Handbook of Health Economics, Vol I, edited by A.J. Culyer and J. P. Newhouse, Elsevier, pp. 462-536. (w). Gaynor, M., and R. Town. “Competition in Health Care Markets,” in Handbook of Health Economics, pp. 499-638. Kessler, D. (2011). “Evaluating the Medical Malpractice System and Options for Reform.” Journal of Economic Perspectives, Spring, pp. 93-110. (w). Thornton, J., and F. Esposto, (2003). “ How Important Are Economic Factors in Choice of Medical Specialty?” Health Economics, 12, pp. 67-73. Thornton, J. (2000). “ Physician Choice of Medical Specialty: Do Economic Incentives Matter?” Applied Economics, 32, pp. 1419-1428. Thornton, J. (1998), “ Do Physicians Employ Aides Efficiently?: Some New Evidence on Solo Practitioners.” Journal of Economics and Finance, Summer/Fall, pp. 85-96. Thornton, J. (1999). “The Impact of Medical Malpractice Insurance Cost on Physician Behavior: The Role of Income and Tort Signal Effects.” Applied Economics, 31(7). Thornton, J. (1998). “The Labor Supply Behavior of Self-Employed Solo Practice Physicians.” Applied Economics, 30(1). Berensen, R., and E. Rich. (2010). “US Approaches to Physician Payment: The Deconstruction of Primary Care.” Journal of General Internal Medicine, 25(6), pp. 613-618. (w). Findlay S. (2017). “Implementing MACRA.” Health Affairs Health Policy Brief, March 27. (w). Mello, M., et al. (2010). “National Costs of the Medical Liability System.” Health Affairs, September.

6 8. Pharmaceutical Companies and the Market for Medical Care

A. Function of pharmaceutical companies B. Development of new drugs C. Safety and effectiveness of new drugs D. Manufacturing drugs E. Marketing drugs F. Pricing drugs G. Criticism of pharmaceutical companies

Feldstein, Chapters 25, 26, 27, 28. Scott Morton, F., and M. Kyle. “Markets for Pharmaceutical Products,” in Handbook of Health Economics, pp. 763-824. Howard, D., Bach, P., Berndt, E., and R. Conti. (2015). “Pricing in the Market for Anticancer Drugs.” Journal of Economic Perspectives, Winter, pp. 139-62. (w). Cockburn, L. (2004). “The Changing Structure of the Pharmaceutical Industry.” Health Affairs, January/February, pp. 10-22. (w). Reinhardt, U. (2001). “Perspectives on the Pharmaceutical Industry.” Health Affairs, September/October, pp. 136-149. (w). Kenkel, D. (1991). “Health Behavior, Health Knowledge, and Schooling.” Journal of Political Economy, April, pp. 287-305. (w). Berger, M., and P. Leigh (1989). “Schooling, Self-Selection, and Health.” Journal of Human Resources, pp. 433-55. Calle, E., et al. (1999). “Body-Mass Index and Mortality in a Prospective Cohort of U.S. Adults.” New England Journal of Medicine, October 7, pp. 1097-1104. (w). Thun, M., et al. (1997). “Alcohol Consumption and Mortality among Middle-Aged and Elderly U.S. Adults.” New England Journal of Medicine, December 11, pp. 1705-1714. (w). Lee, I., et al. (1995). “Exercise Intensity and Longevity in Men: The Harvard Alumni Health Study.” Journal of the American Medical Association, April 19, pp. 1179-1184.