Health Economics s1

ECONOMICS 436/530 HEALTH ECONOMICS

Professor Thornton Winter 2015 T,Th, 3:30-4:45 Pray-Harrold 408

Office: Pray-Harrold 703-C Phone: 487-0080 Email: [email protected] Website: http://people.emich.edu/jthornton Office Hours: T, Th, 12:30-2:00; W, 4:30-6:30; and by appointment.

Readings

Required Text: Paul J. Feldstein, Health Policy Issues: An Economic Perspective, Fifth Edition, 2011. Optional Texts: James Henderson, Health Economics and Policy, Fifth Edition, 2012. Frank Sloan and Chee-Ruey Hsieh, Health Economics, First Edition, 2012. Mark Pauly, Thomas McGuire, Pedro Barros, Handbook of Health Economics, Volume 2, 2012. Articles: Required and optional journal articles accessed on the Web. For links to these articles go to the Econ 436 homepage.

Purpose

This class illustrates how economic principles can be used to analyze health care issues and explain the behavior of patients, medical care providers, third-party payers, and employers in health care markets. The main focus is on three important social health care problems that involve medical care spending, medical care access, and medical care outcomes, 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 four quizzes and a final exam. Each quiz is worth 15% and the final exam 40% of your final grade. The quizzes are comprised of multiple choice questions. 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 students to access on the homepage and prepare an answer in advance. Of the ten essay questions, six will be selected for the exam. Students will answer four of these. One is a required question. Students will then select three of the remaining five questions. Students are expected to prepare thoughtful answers to the questions and will be evaluated accordingly. The final exam is Thursday, April 23, 3:00-4:30. In addition, graduate 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

1 have an excused absence from a quiz, then the final exam will receive greater weight to account for the quiz that was missed.

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, past exams, 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 at the Econ 436 homepage.

1. Introduction to Health Economics

A. What is health economics? B. Social organization of medical care services C. Distinctive features of medical care markets

Feldstein, Chapters 4, 5 (pages 54-56), 20, 30. (*). Sloan and Hsieh, Chapter 1. Henderson, Chapters 1, 2, 3 (pages 69-93). 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 Services to the Economy

A. Output produced by the medical care industry B. Nature of the health output

2 C. Economic benefits of health output

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. (*). Sloan and Hsieh, Chapter 16 (pages 693-698; 720-725).

3. Medical Care Spending

A. The problem of medical care spending B. The level and trend in medical care spending C. Why do many economists believe the level of spending is too high? D. Why do many economists believe the level of spending is growing too fast?

Feldstein, Chapters 1, 2, 18. (*) 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. (G), (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). Cutler, D. and D. Ly. (2011). “The Paper Work of Medicine: Understanding International Medical Costs.” Journal of Economic Perspectives, Spring, pp. 3-25. 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. Skinner, J., “Causes and Consequences of Regional Variations in Health Care,” in Handbook of Health Economics, pp. 45-94.

4. Medical Care Quality

A. The problem of medical care quality B. Indicators of the quality of care problem C. Reasons for the quality of care problem

Starfield, B. (2000). “Is U.S. Health Really the Best in the World? JAMA, July 26, pp. 483-485.

3 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.

5. Medical Care Access and the Patient Protection and Affordable Care Act of 2010

A. The argument for healthcare reform 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 healthcare reform H. Implementation of healthcare reform I. Economic implications of healthcare reform

Feldstein, Chapters 32, 33, 34, 36, appendix (*) 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. Fuchs, V., and E. Ezekeil. (2005). “Health Care Reform: Why? What? When?” Health Affairs, November/December, pp. 1399-1414. 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).

6. Health Outcomes: Factors That Affect Health Status

A. Measurement of health status B. Factors influencing health C. Concept of a health production function D. Empirical studies of health outcomes E. Medical care and health F. Socioeconomic status and health G. Other factors affecting health

4 H. Conclusions and policy implications

Feldstein, Chapter 3. (*).

Deaton, A. (2002). “ Policy Implications of the Gradient of Health and Wealth.” Health Affairs, March/April, pp. 13-29. (*), (w). Cutler, D., et al. (2006). “The Determinants of Mortality.” Journal of Economic Perspectives, pp. 97-120. (*), (w) Ruhm, C. (2000). “Are Recessions Good for Your Health?.” Quarterly Journal of Economics, May, pp. 617-650. (G), (w). Sloan and Hsieh, Chapter 16 (pages 709-720). Henderson, Chapter 11. Cawley, J., and J. Ruhm. “The Economics of Risky Health Behaviors,” in Handbook of Health Economics, pp. 95-200. Marmot, M. (2002). “The Influence of Income on Health: Views of an Epidemiologist.” Health Affairs, March/April, pp. 31-47. (w). Thornton, J. (2010). “Does More Medical Care Improve Population Health? New Evidence for an Old Controversy.” Applied Economics. Thornton, J. (2002) “Estimating a Health Production Function for the US: Some New Evidence,” Applied Economics, 34, pp. 59-62. Fuchs, V. (2004). “More Variation in Use of Care, More Flat-Of-The-Curve Medicine.” Health Affairs, Web Exclusive, October 7. (w). Smith, J. (1999). “Healthy Bodies and Thick Wallets: The Dual Relation Between Health and Economic Status.” Journal of Economic Perspectives, Spring, pp. 1445-1166. Auster, R. et al. (1969). “The Production of Health, an Exploratory Study.” Journal of Human Resources, Fall, pp. 411-36. 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.

7. Cost-Benefit, Cost-Effectiveness, Cost-Utility Analysis

A. Methods of analysis used to make healthcare resource allocation decisions C. Cost-benefit analysis E. Cost-effectiveness analysis F. Cost-utility analysis

Feldstein, Chapter 21. (*). Russell, L. (1992). “Opportunity Costs in Modern Medicine.” Health Affairs, Summer, pp.

5 162-69. (*), (w). Cutler, D., and M. McClellan. (2001). “Is Technological Change in Medicine Worth It?” Health Affairs, September/October, pp. 11-29. (G), (w). Sloan and Hsieh, Chapters 14, 15. Henderson, Chapter 4. Neumann, P., and D. Greenberg. (2009). “Is The United States Ready For QALYs? Health Affairs, September/October 2009, pp. 1366-1371. (w). Garber, A. (2004). “Cost Effectiveness and Evidence Evaluation As Criteria for Coverage Policy.” Health Affairs, Web Exclusive, May. (w). Power, E., and J. Eisenberg. (1998). “Are We Ready to Use Cost-Effectiveness Analysis in Health Care Decision Making?” Medical Care, 36, Supplement, May, MS10-MS17. Detsky, A. (1996). “Evidence of Effectiveness: Evaluating its Quality.” In F. Sloan, Valuing Health Care, Cambridge, , Chapter 2, pp. 15-29. Dranove, D. (1996). “Measuring Costs.” In F. Sloan, Valuing Health Care, Cambridge, Chapter 4, pp. 61-75. Rowland, D., and J. Thornton. (2005). “ Transforming Ideas Into Research.” Clinical Researcher, May, pp. 22-34.

8. 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 specialty hospitals F. Hospital mergers

Feldstein, Chapter 14, 15, 16, 17. (*). Sloan and Hsieh, Chapter 6. Henderson, Chapter 9. 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., 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). Gaynor, M., and D. Hass-Wilson. (1999). “Change, Consolidation, and Competition in Health Care Markets.” Journal of Economic Perspectives, Winter, pp. 141-164. Iglehart, J. (2005). “The Emergence of Physician-Owned Specialty Hospitals.” New England Journal of Medicine, January 6, pp. 78-84.

9. Physicians and the Market for Medical Care

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

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. (G), (w). Sloan and Hsieh, Chapter 5, 7 (pages 291-308). Henderson, Chapters 8. Gaynor, M., and R. Town. “Competition in Health Care Markets,” in Handbook of Health Economics, pp. 499-638. 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).

10. 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. (*). Sloan and Hsieh, Chapter 9. Henderson, Chapter 10. Scott Morton, F., and M. Kyle. “Markets for Pharmaceutical Products,” in Handbook of Health Economics, pp. 763-824. 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).