Chapter 13 - The Economics of Health and Healthcare, 7/E

Chapter 13 –Nonprofit Firms Key Ideas Nonprofit firms appear to occur most in situations where the public is concerned that inability to monitor quality could allow for-profit providers to “skimp” quality-related expenditures, thus reducing such expenditures, and increasing profits. In most hospital models, physician labor is a key input. The extent to which physicians control the process describes the type of hospital. The Newhouse model generally predicts higher levels of services and of quality. The Pauly-Redisch model predicts lower levels of services and quality, but higher levels of physician income. Evidence suggests that nonprofit hospitals in the United States are not very different in economic efficiency than for-profit hospitals. Teaching Tips It is useful to revisit the concept of “quality” as an item for which people would be willing to pay extra. This helps to explain Figure 13-2. Many institutions “sprung up” to provide aid to victims of Hurricane Katrina in 2005. What advantages may accrue to nonprofit institutions in raising and distributing such aid? We analyze health care institutions as nonprofit institutions. What other institutions are nonprofit? Schools? Religious institutions? Charitable organizations? Country clubs? How do they fit into the model? Chapter 13 –Nonprofit Firms - Multiple Choice Public goods refer to goods or services: which are provided by the government. in which one person’s consumption does not reduce the amount available to others. which everyone receives the same amount. Answers (b) and (c) are correct.* According to economic definitions, _____ has (have) most of the characteristics of public goods: “over the air” radio.* public schools. city-run golf courses. county-run hospitals. In the diagram above the median voter model of public goods would provide level: A C.* D. . In the diagram above, the median voter level of the public good is ____, and the efficient level of the public good ______. A; A. D; less than D. C; greater than C.* E; E. Suppose that two more citizens were to move into the city typified by the diagram above. Citizen 6 is identical to Citizen 1, and Citizen 7 is identical to Citizen 4. The median voter model suggests that the median voter level of public good would be. B. C.* D. E. According to Weisbrod’s arguments, which voters in the figure above are most likely to propose non-profit provision of public services? Voters 1 and 2. Voters 1 and 3. Voters 1 and 5. Voters 4 and 5.* Analysts have suggested that the nursing home sector has large numbers of non-profit providers because: older people cannot afford for-profit care. religious institutions often provide the care. it is difficult to monitor nursing home quality, and nonprofit institutions would have less incentive to skimp on care.* government provides incentives to nonprofit providers. Nursing homes may be more likely to have nonprofit status than otherwise similar hotels because: it is more difficult for nursing homes to earn profits than for hotels. hotels cannot receive treatment through Medicaid. nursing home clients may not be able to monitor or react to low quality status.* nursing homes require the tax advantages that nonprofit status confers. There is a quantity-quality trade-off in the nonprofit sector because: increased quality may be expensive, and the necessarily high price reduces quantity demanded.* consumers are not willing to pay for high quality care. insurers are not willing to pay for high quality care. answers (b) and (c) are correct. In the figure above, the utility maximizing nonprofit would never produce at point: A.* B. D. E. In the figure above, the nonprofit that cared only about serving the largest number of people would produce at point: B. C. D. E. * In the figure above, the nonprofit that cared only about maximizing quality of output would produce at point: A. B.* C. E. In the figure above, competition among nonprofits and profits will move typical nonprofit firms to ___: point A. point B.* point C. a level of quantity and quality inside the current frontier.*  According to Lakdawalla and Philipson, if the above curve characterizes the hospital sector: All of the hospitals will be for-profit hospitals. None of the hospitals will be for-profit hospitals.* Nonprofit hospitals will provide services at minimum average costs. For profit hospitals will provide services at output Q1. According to Lakdawalla and Philipson, if the above curve characterizes the hospital sector: All nonprofit hospitals will be the same size. Nonprofit hospitals can be any size. Nonprofit hospital size depends on the level of donations.* Nonprofit hospitals will minimize quality provided. In the Pauly-Redisch model of nonprofit hospitals, the average product per physician ultimately begins to fall because of: diminishing returns to scale. regulations passed by the states. fixed amounts of non-physician inputs.* answers (a) and (b) are correct. Analysts have found that nurses in nonprofit nursing homes receive higher wages than nurses in for-profit homes because: they have better facilities in which to work. they are more experienced.* they work in larger cities. answers (a) and (c) are correct.  In the figure above, if hospitals are constrained to have wealth no higher than , the wealth constraint, a hospital is most likely to produce at: A* B D answers (a) and (c) are correct. In the figure above, suppose that a nonprofit firm decides to become a for-profit firm. It would likely move from point ___ to point ___. A; C. A; D.* D; A. B; E. Harris’s model of hospital behavior is characterized as: perfect competition. an oligopoly game.* monopolistic competition. pure monopoly. In Harris’s model of hospital behavior _____ negotiate with ____: consumers; insurers. physicians; insurers. physicians; hospital administrators.* consumers; hospital administrators. When one puts the Newhouse and Pauly-Redisch models into the same framework one finds that increased competition: lowers quantity and quality per hospital.* lowers quantity but raises quality per hospital. raises quantity but lowers quality per hospital. raises quantity and quality per hospital. In Figure 13-7, increased competition reduced profits because: wage levels for nurses are bid up. more elastic demand leads to lower prices.* interest rates increase. managed care leads to more mandates. When nonprofit hospitals convert to for-profit hospitals: Existing for-profit hospitals leave the market. The trustees of the formerly nonprofit hospital make windfall profits For-profit hospitals enter the market. The proceeds must fund a nonprofit foundation.* Analysts have found that nurses earn higher wages in non-profit nursing homes than in for-profit nursing homes because: the non-profits are less interested in minimizing costs because they do not distribute residuals. the non-profits hire more experienced nurses.* the non-profits enjoy economies of scale. Answers (a) and (c) are correct. Evidence suggests that nonprofit hospitals in the United States are ________ than for-profit hospitals. less efficient more efficient more efficient and higher quality not very different in efficiency* Hansmann and colleagues found the for-profits to be quicker in adjusting to market demand changes. This may be related to: different decision-making processes in the for-profit firms. for-profits’ better access to the capital markets.* for-profits’ emphasis on patient amenities. nonprofits’ emphasis on quality of care.  Holtmann and Idson looked at nurses’ wages. They found that nurses in nonprofit nursing homes: Earned more than colleagues in for profit homes, because they were overpaid for their talents. Earned less than colleagues in for profit nursing homes, because they did not demand high wages. Earned more than colleagues in for profit homes, because they had more experience.* Earned more than colleagues in for profit home because they had monopoly bargaining power. In the figure above nurses in the ____ sector are compensated ____ per additional year of work than nurses in the other sector: for profit; less. non-profit; less.* for profit; more non-profit; more. In the figure above, wages for nurses in the ____ sector are ___ than wages in the other sector because ____: for profit; higher; marginal wage rate is higher. non-profit; lower; they have less experience. for profit; lower; they have less experience.* for profit; higher; they have more experience.