Scenario-Based Discussion Questions
APA 7th Edition Requirement: Minimum one reference with correlating in-text citations, as scholarly evidence to support your discussion postings. Minimum 300 words per Discussion Question.
REFERENCE- Lee, R. (2019). Economics for healthcare managers. (4th ed.). Health Administration Press.
Discussion 1:
Case 4.2- Diversification by Joint Venture and Acquisition
The University of Pittsburgh Medical Center (UPMC) has international operations in nine countries (UPMC 2017a). It operates cancer centers and a full-service hospital in Ireland; transplantation, radiotherapy, and biotechnology centers in Italy; information technology and cancer centers in the United Kingdom; cancer center consulting in Colombia, Kazakhstan, and Lithuania; transplantation in Singapore; pathology consulting in China; and educational training in primary care in Japan. UPMC is exploring expansion in Cyprus and Qatar. Most of these represent joint ventures with local partners.
UPMC is headquartered in Pittsburgh, where it has a commanding presence. The largest employer in western Pennsylvania, with more than 70,000 employees and nearly $17 billion in revenue, UPMC owns more than 30 hospitals, 600 outpatient sites, a large insurance plan, and a number of other healthcare ventures (UPMC 2017b).
Moodys Investors Services greeted UPMCs 2017 diversification with a debt downgrade (Moodys Investors Services 2017). Rather than a joint venture, it was an acquisition. In summer 2017, UPMC bought Pinnacle Health System, a seven-hospital system based in Harrisburg, Pennsylvania. This acquisition means that UPMC acquired, built, or otherwise gained access to nine hospitals in 2017, allowing UPMC to sell its health insurance products outside its core western Pennsylvania market. Moodys noted that the purchases added integration and execution risk, marked UPMCs entry into a competitive and rapidly consolidating market, put pressure on profit margins, and increased the ratio of debt to equity (Moodys Investors Services 2017).
Criteria: After reading Chapter 4, Case 4.2 on pages 66-67, from the E-Book, Economics for Healthcare Managers, Fourth Edition by Lee, provide a response to each of the discussion questions for your initial posting:
Why is expansion outside the United States an attractive form of diversification?
What are the pitfalls of international expansion?
What are the potential pitfalls of other diversification efforts?
Why do small profit margins and a high ratio of debt to equity increase risk?
Discussion 2:
Case 11.2- Tax Exemptions for Not-for-Profit Hospitals
Not-for-profit hospitals enjoy federal, state, and local tax exemptions, but they face challenges from governments in both courtrooms and statehouses (Santos 2016). Contemporary hospitals differ markedly from those that existed at the turn of the twentieth century, which were truly charitable institutions. They were supported almost entirely by donations and largely staffed by volunteers. Thus, it can be argued that tax exemption for not-for-profit hospitals is a historical relic. When the income tax started in 1894, there was no Medicare, no Medicaid, and no insurance. Most people with money got care at home. The role of hospitals was to care for the poor.
These days, hospitals serve paying customers, and for-profits, which pay income and property taxes, provide about as much uncompensated care as not-for-profits (Valdovinos, Le, and Hsia 2015). (Not-for-profits do appear to offer more charity care1.9 percent of total expensesthan for-profits, at 1.4 percent.) Not surprisingly, not-for-profits de facto tax-exempt status has come into question.
The case of Provena Covenant Medical Center illustrates this. After a lengthy court battle, in 2010 the Supreme Court of Illinois upheld the Illinois Department of Revenues denial of an application for exemption in 2002, finding that Provena was not a charitable institution and the property was not used for charitable purposes (Santos 2016). Two factors influenced the decision. First, of the hospitals $118 million in total revenue, more than 96 percent came from patient and insurer payments, and less than $10,000 came from charitable donations. Second, Provena Covenant Medical Center did not actively promote its charity care program. The hospital routinely billed indigent patients and forced them to apply for discounts under the terms of the financial assistance program. In short, Provena Covenant Medical Center did not appear to be a charity.
In recent years, increasing numbers of localities have asked not-for-profits to make payments in lieu of taxes. For example, Boston received $32.4 million of these payments in 2017 (City of Boston 2018). Such arrangements are becoming more common as localities seek to cover the cost of services. Furthermore, many health systems look no more like charities than Provena Covenant Medical Center did.
One response to this situation was the changes in the community benefit standard specified by the Affordable Care Act (ACA). First, hospitals must prepare a community health needs assessment every three years. This report identifies the major health challenges facing that community and lays out a plan for the hospital to address them in the coming years. Second, hospitals must create a financial assistance plan that explains the criteria for offering financial assistance and must make the plan freely accessible to the public. Third, hospitals cannot charge patients that qualify for assistance more than they charge insured patients. Fourth, hospitals must make reasonable efforts to establish that a patient is not eligible for assistance before initiating extraordinary collection actions. However, the ACA did not specify the terms of financial assistance plans.
This issue is not likely to go away. In states that expanded Medicaid after 2014, uncompensated care fell from 3.9 percent to 2.3 percent (Dranove, Garthwaite, and Ody 2017). It fell only 0.12 percent in states that did not expand Medicaid. As more and more people gain health insurance, the case for tax-exempt status gets harder to make.
Criteria: After reading Chapter 11, Case 11.2 (pages 178-180) from the E-Book, Economics for Healthcare Managers, Fourth Edition by Lee, provide a response to each of the discussion questions for your initial posting:
How much community benefit do not-for-profit hospitals provide?
How much community benefit do for-profit hospitals provide?
Why does using list prices tend to inflate estimates of community benefit?
Are there other important differences between not-for-profit and for-profit hospitals?
Would local governments be better off if they taxed hospitals and paid for charity care?
Is tax exemption a good way to encourage private organizations to serve the public interest?
Can you find examples of controversies about hospitals’ tax-exempt status?
Can you find examples of payments in lieu of taxes?
Does tax exemption for not-for-profit hospitals still make sense?
Can you propose an alternative to tax exemption?
Discussion 3:
Case 14.1- Teledermatology
Most dermatologists reside in metropolitan areas, so teledermatology should be considered as an access option for individuals living outside these areas. However, two questions must be answered. How much does it cost? How valuable is it? A team of Veterans Administration researchersattempted to answer these questions (Datta et al. 2015).
The team used two cost perspectives. One examined costs from the perspective of the Veterans Administration, estimating how much it costs to produce teledermatology care and how much it costs to produce a face-to-face visit. Two challenges emerged from this effort. First, costs varied considerably. From the Veterans Administration perspective the average cost of a teledermatology consult was $308, but the standard deviation was $298. The average cost of a face-to-face consult was $338, but the standard deviation was $291. Second, the authors chose not to include the cost of equipment used to take images of the patients skin, arguing that the incremental cost of an image was negligible.
In looking at costs from a societal perspective, the team added spending for dermatologic care from providers who did not work for the Veterans Administration, travel costs, and patient time costs. From a societal perspective the average cost of a teledermatology consult was $460, but the standard deviation was $428. The average cost of a face-to-face consult was $542, but the standard deviation was $403.
This study was a CUA, so the team measured utility before and after treatment. They used a time trade-off technique to measure patients quality of life. This technique presents respondents with directions such as Imagine that you have ten years left to live. You can choose to live these ten years in your current health state, or you can choose to give up some life years to live for a shorter period in full health. Mark the timeline with the number of years in full health that you think is of equal value to ten years in your current health state.
___________________
1 2 3 4 5 6 7 8 9 10
At baseline, average quality of life was 0.90 for both samples. Over nine months the teledermatology groups average increased by 0.03 and the face-to-face visit groups average increased by 0.02.
Criteria: After reading Chapter 14, Case 14.1 (pages 231-233) from the E-Book, Economics for Healthcare Managers, Fourth Edition by Lee, provide a response to each of the discussion questions for your initial posting:
Which perspective on costs seems more valid to you?
Do you think that the costs of the imaging equipment should have been included?
Did the team use the right approach to evaluation? Would a CMA have been acceptable?
What is your reaction to the time trade-off technique?
What is your recommendation for assessing the value of tele-dermatology?
Would you be willing to adopt tele-dermatology for your health system?
Should Medicare use economic evaluation in making coverage decisions?
Congress has largely banned considering costs in making coverage decisions. Do you agree?
Can you find published examples of CMA? CEA? CBA? CUA?
Discussion 4:
Case 5.3- Costs of Care in the Emergency Department
A Colorado woman took her daughters to what she thought was an urgent care clinic in a shopping mall (Olinger 2015). Both were treated for respiratory problems, and the visit went well. I thought it was a fine experience, she commented, until I got the bill. She had gotten care from a free-standing emergency department, not an urgent care clinic, and her out-of-pocket obligation for the visits was nearly $5,000.
This represents an unusually high price, but care is expensive in emergency departments. Ho and colleagues (2017) found that treating respiratory infections in a hospitals emergency department averaged $1,074, and treating respiratory infections in a free-standing emergency department averaged $1,351. In contrast, treating respiratory infections in an urgent care center averaged $165. (These are average prices paid, not charges.) Prices in emergency departments are typically more than ten times those in urgent care clinics.
These high prices explain why many healthcare reform plans seek to steer patients away from using emergency departments. For example, Oregon moved most Medicaid enrollees into coordinated care organizations, with the explicit goal of reducing emergency department use (McConnell 2016). (Because they have difficulty accessing other sources of outpatient care and because they face low out-of-pocket costs, Medicaid enrollees tend to use emergency departments at high rates.) In Oregon, use of emergency departments fell by 8 percent (McConnell 2016).
About a third of emergency department visits are not emergencies, and there is an ongoing controversy about how much such a visit costs (Galarraga and Pines 2016). Perspective differences cause part of the controversy. Insurers and patients talk about the prices that they pay, and providers talk about how much it costs to produce such visits. Yet another perspective notes that patients who use emergency departments as usual sources of care have high rates of preventable hospitalizations. Galarraga and Pines (2016) estimate that the average payment for a visit that is not an emergency is $883 but the average payment for a preventable hospitalization is $9,515.
Criteria: After reading Chapter 5, Case 5.3 (pages 83-84) from the E-Book, Economics for Healthcare Managers, Fourth Edition by Lee, provide a response to each of the discussion questions for your initial posting:
Why do patients who are not critically ill go to emergency departments?
Why are prices so high in emergency departments?
Are production costs also high in emergency departments?
What is an example of a fixed cost in an emergency department? A variable cost?
If an emergency department’s volumes fell, how would its costs change?
Should insurers try to reduce emergency department use?
How might insurers reduce emergency department use?
Discussion 5:
Case 9.1- Forecasting Supply Use
More and more healthcare institutions seek to reduce costs while increasing the quality of care. Accurate forecasts of the use of medical supplies represent an important element of this effort. Overordering supplies drives up costs, and under-ordering supplies also can drive up costs and compromise care.
The stakes can be high. Caldwell Memorial Hospital, a 110-bed hospital in North Carolina, saved $2.62 million in less than six months by consolidating and eliminating excess supplies (Belliveau 2016). The hospital used a Lean approach to inventory management, which involves streamlining and simplifying the inventory and ordering systems.
In addition, a number of hospitals have expanded their use of just-in-time inventory management (Green 2015). This method reduces, but does not eliminate, the need for forecasting accuracy. Some supplies are highly specialized and are used intermittently, so they must be ordered well in advance. The savings can be substantial. Mercy Hospital in Chicago was able to reduce its inventory by 50 percent using just-in-time inventory management (Green 2015).
Criteria: After reading Chapter 9.1, Case (pages 139-140) from the E-Book, Economics for Healthcare Managers, Fourth Edition by Lee, provide a response to each of the discussion questions for your initial posting:
What share of hospital costs do supplies represent?
Why would overordering supplies drive up costs?
Why would underordering supplies drive up costs?
Can you offer examples of Lean inventory management? Does it work well?
Can you offer examples of just-in-time inventory management? Does it work well?
Can you offer examples of supplies that have to be available at all times?
What are the main challenges to making accurate forecasts of supply use in hospitals?
How would you forecast supply use in the emergency department? Why?
How would you forecast supply use in hospital clinics? Why?
Would you use judgment in making these forecasts? Why?
Would you use statistical models in making these forecasts? Why?
How are supply chain forecasts different for hospitals than for retail? For manufacturing?
Discussion 6:
Case 9.2- Mistakes to Avoid When Making Forecasts
Business plans require a sales forecast. Scott Fishman, the CEO of Envisage, sees three common mistakes in business plans (Fishman 2015):
They forecast hockey stick revenue growth.
They forecast smoothly rising trend lines.
They lack convincing evidence of market size.
A hockey stick forecasta revenue graph shaped like a hockey stickinvolves limited revenues initially followed by explosive growth. It is a potentially effective sales technique to use in discussions with executives and investors because it suggests that the business opportunity might be extremely valuable.
In contrast, smoothly rising trend lines do not seem plausible from an economic standpoint. The number of customers and their consumption of any product is typically finite. Furthermore, any true blockbuster product will attract competition.
Every new product faces a complex environment: features and benefits, competitive environment, regulatory conditions, payment models, distribution, pricing, market positioning, and so forth. A genuinely new product will have multiple unknowns in its market. If there are no unknowns, it is not really a new product. A convincing forecast demands market research, an honest recognition of what is not known, and a strategy for resolving some of the unknowns.
Criteria: After reading Chapter 9, Case 9.2 (pages 147-148) from the E-Book, Economics for Healthcare Managers, Fourth Edition by Lee, provide a response to each of the discussion questions for your initial posting:
What is problematic about a “hockey stick” forecast?
Can you find an example of a product that displayed “hockey stick” revenue growth?
What is problematic about a forecast with a smoothly rising trend line?
Can you find an example of a product that displayed smoothly rising revenue growth?
From an economic point of view, what is implausible about smoothly rising trend lines?
Can you find an example of a product that wildly underperformed early forecasts?
Can you find an example of a product that wildly overperformed early forecasts?
What external factors might cause below-forecast sales? Above forecast sales?
What internal factors might cause below-forecast revenues? Above forecast revenues?
What are examples of new products with uncertain prospects in healthcare?
