# Assignment 1 should be done after you have completed

Health
Care Economics
Assignment
1
Assignment
Instructions
1. Assignment
1 should be done after you have completed Units 1, 2, 3, and 4.
2. This
assignment is worth 25% of your final grade. It contains 12 questions, which
have been assigned various marks. Assignment 1 has a total of 100 marks.
3. Prepare
written responses to all questions. Although your responses should be concise,
ensure that you answer all portions of each question as completely as possible.
4. When
you have completed Assignment 1, save a copy for your records, and then send it
5. When
evaluator has made. This review component is an important step in your learning
process. If you have any questions or concerns about the assignment evaluation,
contact your tutor as soon as possible

Questions
10 marks
1.
A model of the determinants of health
combines three economic variables and two economic relationships.
For instance, the three economic variables are:
·
the amount a patient pays for a visit to a
physiotherapist (P);
·
the number of times the patient visits the
physiotherapist (V); and
·
the length of time it takes the patient to recover
from a rotator cuff (shoulder) injury (D) (max.=365 days).
The two economic relationships are:
·
the number of visits (V)=18-\$0.09 (P).
In other words, if the price is zero, the patient will
make 18 visits in order to receive treatment for this injury. If the price is
\$200, the patient will make zero visits.
·
the number of days to recover (365-D).
In this case, the number of healthy days (D) in the
next year will be 180+5V. If the number of visits is zero, the patient will
have 180 healthy days and it will take 185 (365-180) days to recover from the rotator cuff injury. If
the number of visits is 18, the patient will have 270 [180+5(18)] healthy days, and the time to recover from the
injury will be 95 days (365-270).
Use the above information to determine the relationship
between price and health status in this model. In other words, solve for D and
for P, and set up two equations: one showing the value of D in terms of P; and
one showing the value of P in terms of D. Once you have determined the two
equations, provide an interpretation of each equation.
2.

Year

Population

of

Physicians

in

Physician Services (thousands)

2002

31,577,000

56,080

520,800

2003

31,988,700

58,230

558,500

2004

32,509,000

59,850

570,200

2005

33,037,000

60,925

589,300

5 marks
a. Calculate the number of physicians, per
thousand population in Canada, from 2002 to 2005. What conclusions can be drawn

5 marks
b. Calculate the per capita usage of physician
services in Canada for each of the above four years, and determine the annual
percentage changes in per capita usage. (Show all of your work to earn full
marks.)

10 marks
3. Green Shield Insurance provides NEMO Corporation with coverage for
prescriptions, dental work, and extended health services. Each subscriber uses
\$435 worth of dental services per year; \$410 worth of prescriptions per year;
and \$385 worth of extended health coverage per year. Green Shield has a 25
percent copayment clause, and a loading factor of 65 percent.NEMO will pay 50 percent of the plan costs. What is
the annual and monthly premiums charged to the employees ofNEMO corporation? (Show all of your work to earn full
marks.)
4. The services of a certified psychologist
cost \$110 per hour, and an extended health plan covers 50 percent of that cost.
Under the plan, the clients covered used 625 hours of this service in a typical
three-month period. To save money, the extended health plan reduced its
coverage to 40 percent of the cost. As a result, the clients covered reduced
their use of this service to 482 hours in a typical three-month period.

4 marks
a. Calculate the total cost of providing this insured
service to the plan before and after the change in coverage. (Show all of your
work to earn full marks.)

6 Marks
b. Based on the data above, calculate the
elasticity of demand for the services of a certified psychologist. (Show all of
your work to earn full marks.) Interpret the elasticity of demand, and explain
the behaviour of the clients covered based upon this interpretation.

12 marks
5. The northern community of Assiniboine
Narrows has a population of 12,000. It has one medical clinic with three
doctors, each working 40 hours per week. Each doctor sees four patients per
hour. The clinic would like to hire one or two more doctors.
The mortality rate in the community is 11 per 1,000
population. This rate will fall to 9.5 per thousand if one doctor is added and
to 9 per thousand if two doctors are added. Each new doctor will cost the
system \$250,000 per year.
An alternative plan is to bring in two home care
nurses. Each home care nurse will see two patients per hour. The addition of
the first nurse will reduce the mortality rate by 0.8 per thousand, and the
addition of a second nurse will reduce the mortality rate by 0.6 per thousand.
Each home care nurse will cost the system \$100,000 per year.
Use calculations to examine the alternatives available
to Assiniboine Narrows. Then, based on your calculations, make a recommendation
as to the preferred course of action. Ensure that you calculate the output and
outcome of each additional health professional.

10 marks
6. Assume a given demand curve for massage
therapy services. In the context of providing massage therapy services, list,
and describe in detail, five different variables that may cause an increase in
the demand for these services.

6 marks
7. In 2006, a hospital with 135 beds had
8,795 admissions. The average length of stay
for each patient was 4.7 days. Assuming full capacity is 100 percent, calculate
the occupancy rate of the hospital for 2006. Also, calculate the hospital
capacity for 2006.

10 marks
8. Based on the information given in the Canada Health Act as
well as the information provided in yourStudy Guide, write
a description of how medical services are funded in Canada. Be sure to describe
the services covered under the following three areas: hospital care, medical
care, and areas not currently funded (unless one has supplementary health
insurance).

5 marks
9. Using the relationship between the price of
a visit to a physiotherapist and the quantity of visits demanded, define and
distinguish among the direction, the slope, and the positionof an economic relationship.

5 marks
10. Following her knee replacement operation, Mrs.
Purtik was sent to a long-term care
facility for rehab for a period of time. She now receives home care and makes visits
to a physiotherapist. How many providing agencies would be responsible for Mrs.
Purtik’s treatment and care in a traditional health care system? How many
providing agencies would be involved in her case in a regionalized health care

6 marks
11. In the context of hospital care, define and
distinguish among occupancy rate, capacity, and utilization.

6 marks
12. Discuss the role and interrelationships between
the following economic units in the
operation of Canada’s health care system: consumers, suppliers, third parties,
and regulators.

Health
Care Economics
Assignment
2
Instructions
1. Assignment 2 should be
done after you have completed Units 5, 6, 7, and 8.
2. This assignment is
worth 25% of your final grade. It contains 12 questions that have been assigned
various marks. Assignment 2 has a total of 100 marks.
3. Prepare written
responses to all questions. Although your responses should be concise, ensure
that you answer all portions of each question as completely as possible.
4. When you have
completed Assignment 2, save a copy for your records, and then send it to
made. This review component is an important step in your learning process. If
you have any questions or concerns about the assignment evaluation, contact
soon as possible.

Questions

4 marks

1. Given a supply curve
for ultrasound clinics, predict how the supply curve will shift (i.e., increase
or decrease) in each of the following situations (justify your prediction in
each case).
a. The technology used
for ultrasound equipment has a breakthrough that dramatically lowers the cost
of the ultrasound machine.
b. The wages of the
clinic’s support staff are increased.
c. New ultrasound
equipment reduces patient examination times.
d. Local utility rates
increase.
2. Predict the impact on
the supply and/or demand for physiotherapy services in each of the situations
described below. In each case, draw a graph that includes an original supply
and demand curve as well as the new, predicted supply or demand curve. Note:You are not required to
submit the graphs; however, you mustindicate
the supply and/or demand curve shifts, the direction of each shift, and the
predicted changes in equilibrium price and quantity (increase, decrease, or
indeterminate).

2 marks

a. Physiotherapy services
are covered less generously by provincial health plans than
previously.

2 marks

b. Physiotherapy
professional associations significantly raise their entrance standards.

2 marks

c. An aging population
incurs more muscle and joint injuries that require
physiotherapy treatments.

2 marks

d. Events b. and c. occur
simultaneously.
3. You are the manager of
a health clinic that is located in a building owned by four physician partners.
The clinic owners hire all the clinic staff, including doctors, nurses, lab
technicians, and office staff.

4 marks

a. Based on what you have
learned in the context of this course, identify and discuss
the decisions that would need to be made in order to efficiently operate this
clinic in both the short run and the long run.

6 marks

b. Discuss and classify the
clinic input costs—fixed inputs and variable inputs—in the
short run. Provide specific examples of both types of inputs.

6 marks

4. Economic theory
suggests that as plant size increases, the average cost of production
should fall. However, when examining the operation of large health and medical
facilities, the opposite is often the case. Identify and discuss at least two
factors that may contribute to diseconomies of scale in the operation of a
large urban hospital.
5. Given a demand curve
for a drug that reduces the joint pain associated with arthritis, what effect
would each of the following circumstances have on the demandor thequantity demandedof this
drug? In each case, explain whyyou
have predicted such a change.

2 marks

a. An increase in the
percentage copayment of insurance coverage, which raises the
out-of-pocket price for the drug for the insured client.

2 marks

b. A reduction in fees
charged by chiropractors, which lowers the out-of-pocket
price for chiropractic services, which are a substitute treatment for
prescribing medication.

2 marks

c. An aging of the
population—more elderly people are experiencing joint pain.

2 marks

d. A new TV advertisement convinces people that this drug is extremely
effective in reducing the joint discomfort associated with arthritis.

12 marks

6. Improved Access (IA), a local charity devoted to helping inner city residents, has
opened a downtown, drop-in medical clinic. The space rents for \$3,500 a month
(including utilities), and equipment leases cost \$45,000 per year.IAhas hired two nurse practitioners at \$7,200 a month each, and a
receptionist,
whose monthly wage is
\$3,300. Benefit costs for all staff are \$36,600 per year. Office costs,
including telephone rentals are \$1,500 per month.IA staff
are paid on salary, which
is not dependent upon the volume of patients seen.
Clinic supplies are \$40
per patient, and the clinic sees 975 patients a month.
Use the above information
to calculate the following monthly costs for IA’s clinic:

Total Fixed Cost (TFC):
Total Variable Cost (TVC):
Total Cost (TC):
Average Fixed Cost (AFC):
Average Variable Cost (AVC):
Average Total Cost (ATC):

4 marks

7. a. Describe the
assumptions of the monopoly model, as it applies to health and medical
services, where price discrimination takes place.

4 marks

b. Describe the
assumptions of the market model, as it applies to health and medical
services, where suppliers can induce consumer demand.

12 marks

8. Four common bases of payment
for physicians are salary, fee for service, fee per
visit, and capitation. Describe the effect each payment basis has on output.
Also discuss studies that have examined the relative costs and benefits of each
payment system.
9. The table below indicates
the total weekly costs of operating an X-ray clinic at different volumes of
output (i.e., X-rays).

# of X-rays

Total
Operating Cost/Week
\$

Average Total
Cost
\$

Marginal Cost
\$

0

9,200

20

16,300

40

22,350

60

28,800

80

34,400

100

45,200

120

58,000

4 marks

a. Do the necessary
calculations to enter the correct amounts in the last two
columns. Remember, marginal cost is defined as the extra cost of providing the
service to one more patient.

2 marks

b. What is the fixed cost
of running the X-ray clinic? How do you know?

2 marks

c. Given the fixed cost
above, what is the total variable cost of providing 80 X-rays?
What is the average variable cost at that output level?

4 marks

10. The average total cost
of operating a surgical room is \$700 per case if the volume
is 100 cases, and \$690 per case if the volume is 110 cases. What is total cost
at each of these two volumes? What is the marginal cost of another case within
this range?

8 marks

11. Extended care
facilities are paid on a per diem basis, and they have an upward sloping supply
curve. What will be the effect on supply or quantity supplied in each of
the following cases:
a. a reduction in the
real per diem rate paid to the extended care facility?
b. an increase in wages
paid to the staff who work in the extended care facility?
c. a new cleaner that
allows the extended care facility to hire fewer custodial staff?
d. a greater supply of
home care services (a substitute for extended care facilities)?
12. The federal agency
responsible for covering the cost of dental care for low-income
seniors has set a rate of \$100 for various dental treatments. In addition to
these seniors, dentists have patients who pay for their dental services. The demand
curve for each dentist is shown below.

Out-of-Pocket
Price

Quantity of
Dental Treatments
Demanded

\$160

0

145

3

130

6

115

9

100

12

85

15

70

18

Each dentist also has a
cost schedule, as shown below.

Quantity of
Dental Treatments
Demanded

Total Cost

0

\$ 250

3

350

6

550

9

850

12

1,250

15

1,750

18

2,350

8 marks

a. If each dentist in
this system works on a profit-maximizing basis, how many
treatments will be provided to both the paying patients and to the federally
funded seniors? (Show your work by tabulating appropriate columns for TR andTC, as
well as forMR andMC.)

4 marks

b. What would the number
of paying patients and federally funded seniors be if the
federal funding agency raised its rate to \$120 per treatment? (Show all your
work.)

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