Deck 8: Hospitals

Question 1

A typical complaint by employees, patients, and administrators at hospitals with a fixed budget is that they have too little input in the decisions about the annual allocations of the budgeted amount of funds received by the hospital.

Answer 1

True

Question 2

Capitation is the most common form of hospital payment received from managed care organizations.

Answer 2

False

Question 3

The majority of hospital expenses are for technologies such as CAT scans, PET scans, MRI, and X-Ray machines.

Answer 3

False

Question 4

Cost shifting is a hospital's only means for funding research.

Question 5

Cost shifting and price discrimination are some of the ways that hospitals can use to maintain their status as academic medical centers.

Question 6

The idea that hospital competition has led to a "medical arms race" can help explain why the U.S. has more than twice the OECD average number of MRI machines per 1,000,000 population.

Question 7

Hospital competition on the basis of technology acquisition can lead to welfare losses at the societal level. An example occurs when a high tech robotic surgery assistant is acquired by two competing hospitals. If the machine at hospital B is only used half the time and the machine at hospital A is only used one quarter of the available time, there may be unrealized efficiencies from having only one hospital use the high tech robotic surgery assistant.

Question 8

It is likely that hospitals' marketing of maternity care will be more focused on quality, while marketing of heart transplants will be more focused on price.

Question 9

Hospital X and Hospital Y are both paid by Medicare using the DRG methodology. Assume that the reimbursement for the average Medicare patient (case weight of 1.0) is $3,000. Hospital X has a patient case-mix index of 1.25 and admits 36 patients who stay in the hospital a total of 100 days. Hospital Y. has a patient case-mix of 0.90 and admits 48 patients who stay in the hospital a total of 200 days. Hospital Y gets paid more per day than does Hospital X.

Question 10

Hospital funding has switched from patient dominated to charity to third party payments, in that chronological order, through the 20^th century.

Question 11

Current scientific evidence suggests that there appears to be a substantial difference in the pricing practices between the nonprofit and for-profit hospitals.

Question 12

One of the major determinants of any particular hospital's efficiency is whether the hospital is for-profit or non-profit.

Question 13

A for-profit hospital is more likely to specialize in which one of the following services?

A) immunizations
B) diagnostic radiology
C) prenatal care
D) emergency rooms
E) drug detoxification

Question 14

Economists seem to favor which one of the listed below theories of hospital behavior as the most accurate?

A) Mark Pauly's model of a hospital as a physician workshop.
B) Joseph Newhouse's theory about hospitals being run for the benefit of their managers.
C) Traditional model of the firm/hospital as a profit maximizing entity.
D) AMA definition that asserts that hospitals exist to maximize community benefits.
E) There is no universally "correct" theory, as each of the theories listed above can explain the behavior of at least some of the hospitals quite well, while not necessarily being applicable to absolutely all the hospitals in the U.S.

Question 15

Since the implementation of hospital payment by the DRG system,

A) cost shifting no longer occurs in hospitals.
B) use of RCCAC serves no purpose to the hospital's management.
C) payment for hospital stays is based on a patient's diagnosis at discharge.
D) payment for hospital stays is based on a patient's diagnosis upon admittance to the hospital.
E) payment for hospital stays is less profitable to hospitals.

Question 16

The major problem with using the ratio of cost to charges applied to charges (RCCAC) method of hospital payment was

A) hospitals were often forced to shift costs, after applying the formula, to recover costs of charity and other unreimbursed care.
B) it was not effective in recovering all costs from all payers.
C) hospitals were unable to collect payments from Medicare.
D) hospitals experienced shorter hospital length of stay and could not recover their costs.
E) hospitals made no provision for research and development activities.

Question 17

Over half of all hospital revenues are from

A) federal and state government programs.
B) private insurance.
C) Medicare.
D) Medicaid.
E) philanthropy.

Question 18

Utilization reviews by a nurse or doctor who report to a managed care organization mean

A) managed care organizations (MCOs) analyze individual hospital stays to effectively check the charges and services of hospitals and physicians once a patient is admitted for care.
B) managed care organizations are inefficient.
C) managed care organizations encourage hospitals to extend the number of days a patient is in the hospital.
D) managed care organizations fail to explain why some individuals are outliers in terms of cost and services provided.
E) physicians are happy to provide extra service at no cost to hospitals.

Question 19

Which of the following statements about the DRG payment system is not correct?
DRG payment system

A) was instituted to stem the cost escalation incentive caused by cost reimbursement type payments to hospitals.
B) is an alternative to per diem, capitation or payment via global budgeting.
C) is assessed using patient discharge diagnoses.
D) is a system of administered prices initiated by the government, but which creates a public good since other insurance companies adopt the DRG system.
E) uses the same reimbursement rates within each diagnostically related group for all hospitals in the country.

Question 20

Adjustments to each individual hospital's DRG payments are made

A) to encourage hospitals to release patients sooner rather than later.
B) rarely.
C) to reimburse hospitals for patients who are high cost outliers.
D) to increase payment to hospitals for patients who die while hospitalized.
E) never.

Question 21

XYZ hospital is paid on the basis of the RCCAC method. XYZ has total costs of $8 million, total charges of $12 million, and charges to Blue Cross of $6 million. We expect Blue Cross to pay

A) $6 million.
B) $2 million.
C) $4 million.
D) $8 million.
E) $10 million.

Question 22

When a hospital's cardiac surgery center gets the Medicare certification as a surgical center of excellence, which of the following statements would be an incorrect projection of the likely consequences of this event?

A) Patients are more likely to demand surgery services at that hospital.
B) Insurance companies are more likely to approve payment for services performed at that surgery center.
C) Physicians are more likely to refer patients to that surgery center.
D) The hospital is likely to attract more physicians who want to build their practice through the hospital's reputation for quality.
E) It will be now easier for this hospital to compete for contracts from HMOs.

Question 23

If it is shown that a newly formed large hospital, which was formed by the merger of two competing hospitals, charges more to uninsured patients than do smaller hospitals in the same market, for providing the same services,

A) the large hospital may have market power to do so.
B) the two small hospitals must be taking advantage of the economies of scale.
C) it is an example of price discrimination.
D) consumers' welfare would not be affected.
E) the large hospital must be violating the antitrust laws.

Question 24

A proposal to eliminate the tax deduction for charitable contributions would cause a negative impact on

A) physicians' salaries.
B) the number of patients paying out of pocket for cosmetic surgery.
C) the number of self pay hospital patients.
D) hospitals budget for philanthropic donations.
E) nurses duties.

Question 25

Discuss the importance of multiple sources of revenues (other than revenues from traditional in-patient care) to hospitals.

Question 26

Define the terms "hospital charges" and "hospital reimbursement." Please explain why both might be misleading to the uninformed or casual reader.

Question 27

Explain how cost shifting has led to cream skimming. Be sure to give a definition of both terms. Explain how the emergence of specialty hospitals like cardiac care hospitals may jeopardize revenues to traditional full service hospitals if specialty hospitals take only the most profitable patients.

Question 28

Discuss Joseph Newhouse's theory that hospitals are run for managers. Does Newhouse's theory supplant Mark Pauly's theory of the hospital as the physicians' workshop?

Question 29

Discuss the role of physicians in a hospital's revenue and cost flows. How do physicians contribute to a hospital's revenues? How do physicians contribute to a hospital's costs?

Question 30

Explain why in those hospital markets that are structured on a basis of competing for physicians it is so difficult to incentivize hospitals to reduce costs.