New York University Robert F. Wagner Graduate School of Public Service. Health Economics and Payment Systems P

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1 New York University Robert F. Wagner Graduate School of Public Service Health Economics and Payment Systems P Spring 2009 Monday, 4:55 6:35 Silver 704 Instructor Information: Professor: Brian Elbel, PhD, MPH Phone: Med School Office: 423 E. 23 rd St (at 1 st Ave), #15120N Puck Office: 295 Lafayette St., #3029 Office Hours: TBA/by Appt. For Administrative Matters: Wagner: Rafael Hernandez, , rafael.hernandez@nyu.edu Med School: Amber Hampton, , amber.hampton@nyumc.org (Please Ms. Hampton for scheduling appointments) COURSE OBJECTIVES This course examines the health care system through the lens of microeconomics. In this course we will take the concepts and theories you learned in microeconomics and apply them to health and health care. The goal is to understand what a market-based approach to health care means in the US health care system, how well it currently working or could work, and what the alternative approaches might entail. To tackle this task, in addition to microeconomic theory we will utilize a number of classic and recent empirical papers. It is expected that you will become better equipped to understand and critique such papers over the course of the semester. In particular, the course focuses on how risk and uncertainty, industrial organization, payment systems, and public policy affect incentives, health outcomes, and the economic environment of the health care sector. I hope to make the lectures as interactive as possible and will (hopefully) leave time for discussion and/or small group discussion at each class. Therefore, I will expect that everyone will have done the assigned reading before class, as this will be the basis for our discussion. Depending on the size of the course, we might have a different student/set of students be responsible for leading the discussion each day. Students completing this course should gain the following knowledge and skills: Understand of the distinctive economic characteristics of the health care system, and how they affect resource allocation and the functioning of the health care industry. Understand the extent to which the assumptions inherent in microeconomics are currently being met in the health care market Understand the tools of microeconomics as they apply to the health care sector. Understand the factors affecting the demand for various health care services.

2 Understand the role of insurance in the market for health care services and the implications for efficiency in the allocation of health care resources. Understand the government's role in providing, financing, and regulating health care services and the ability to evaluate alternative proposals for health care reform. Analyze different health care payment systems and their implications. Understand of how consumers and patients operate within the healthcare system. Understand the behavior of health care providers facing different incentives. Understand the special attributes of the market for pharmaceutical products and the functioning of the pharmaceutical industry. PREREQUISITES P Microeconomics for Public Management, Planning and Policy Analysis P Statistical Methods for Public, Nonprofit and Health Management Students must have a working knowledge of basic economic and statistical concepts such as supply-demand analysis, elasticity, economic surplus analysis, decision-making by firms under perfect and imperfect competition, hypothesis testing and multivariable regression. Students are also expected to have a basic understanding of the U.S. health care delivery system. BLACKBOARD AND All course materials will be posted on the Blackboard site for this class. Students can login to Blackboard at using your NYU net ID and password. Some class announcements will be distributed via (as well as posted on Blackboard), thus, it is important to actively use your NYU account, or have appropriate forwarding set up on NYUHome ( READINGS Required Textbook James W. Henderson, Health Economics and Policy, 4rd edition, Thomson South-Western, Note: This is available at the NYU bookstore and has also been placed on reserve at Bobst Library. The 3 rd edition is fine as well. Recommended Textbooks Thomas Rice. The Economics of Health Reconsidered, 2 nd edition, Health Administration Press, This is a very nice book, which I think many of your will find useful. Sherman Folland, Allen C. Goodman and Miron Stano, The Economics of Health and Health Care, 4th edition, Prentice Hall, This is a slightly more advanced, but also at times different, look at health economics. Health Care Economics References Victor Fuchs, Who Shall Live? Health, Economics and Social Choice, expanded edition, World Scientific Publishing Co., This is a good basic book for understanding fundamentals of health care economics. Donald A. Barr, Introduction to U.S. Health Policy, Johns Hopkins University Press, This book is an easier read on health care organization, finance delivery and health care policy reform. Frank W. Musgrave, The Economics of U.S. Health Care Policy: The Role of Market Forces, M.E. Sharpe, Inc., This book provides a good introduction to understanding the role of markets and competition in health care policy.

3 Other Required Readings All other readings are posted on Blackboard. Microeconomics Reference N. Gregory Mankiw, Principles of Microeconomics, 3rd edition, Harcourt College Publishers, COURSE REQUIREMENTS Readings Before each class, students should complete the readings for that week and be prepared to summarize and discuss them in class. Assignments There will be three take home assignment. Each assignment will include questions to be answered using the concepts and methods learned in class and in the readings. Assignment will include both problems to solve and writing (essays). While you may work with your classmates on the assignments, each person is responsible for and must write up their own work. Exams Two in-class exams will be given. Both exams will focus on problem solving with questions that involve quantitative and graphical analysis, interpretation, and writing (essay questions). Exam questions could anything from multiple choice responses to open-ended, essay questions. Both exams will be closed note/closed book. Class Participation Participation and discussion are expected. Throughout the semester, discussion questions and newspaper articles may be distributed in class or posted on Blackboard, and students will be encouraged to comment on them in class or in discussion forums on Blackboard. Grading Overall course grades will be based on the following weights (note that this is subject to change slightly): 30% take-home assignments (weighted equally) 60% in-class exams (mid-term and final exams weights to be decided) 10% participation ACADEMIC INTEGRITY As members of the NYU Wagner community, we are all expected to adhere to the highest standards of intellectual and academic integrity. Wagner, as a community, has adopted a disciplinary process, which is available at It is important that all Wagner students are aware of both the type of activities that qualify as infractions and the consequences of academic dishonesty. You are encouraged to review the academic code as soon as possible and to use it as a resource to guide you academically and professionally.

4 COURSE SCHEDULE Date Topic Readings Assignments January 26 Introduction to Health Economics Principles of economics applied to health; What does it take for a market to function; special characteristics of health care; health care spending; Tools of economic analysis Henderson v3: chapters 1 and 2, appendix 2B, chapter 3 (through p. 64) Henderson v4: chapters 1 and 2, appendix 2b, Chapter 3 (through p 71) Arrow, K. Uncertainty and the Welfare Economics of Medical Care. American Economic Review. December T. Rice: The Economics of Health Reconsidered. Ch 1 and 2. February 2 th The Production of Health Health production functions: what produces good health?; elasticities of health with respect to health care and other factors; externalities and public goods Henderson v3: chapter 3, chapter 5 (up to p.137) Henderson v4: chapter 3, chapter 5 (up to 153) Mokdad et al, Actual Causes of Death in the United States, JAMA 291, 10, 2004 Cutler et al. The Value of Medical Spending in the US NEJM 2006 Feldstein, P. Health Care Economics, Ch. 2. Optional: Gruber J, The Economics Of Tobacco Regulation Health Affairs, 2002 February 9 th Market Failures and the Role of Government Current condition of health care market(s); What does this mean?; Imperfect Competition; Government involvement Henderson: chapter 3 (rest of chapter) Baumol and Blinder: chapter 5 The Shortcomings of the Free Market o Folland, Goodman and Stano: chapter 19 Government Intervention in Health Care Markets Hand out Assignment #1 February 16 th NO CLASS (President s Day) February 23 th Health Insurance and the Demand for Health Care (I) Demand for health care; elasticities of demand, price and income; principal-agent relationship; supplier-induced demand Henderson v3: chapter 5 (p.137-end) Henderson v4: chapter 5 (p.153-end) Manning W et al., Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment American Economic Review, 1987 Assignment #1 Due

5 March 2 nd Health Insurance and the Demand for Health Care (II) Basics concepts of risk and insurance; demand for insurance; moral hazard Henderson v3: chapter 6 (up to p.165) Henderson v4: chapter 6 (up to p.185) Pauly, M. The Economics of Moral Hazard: Comment. American Economic Review. June Nyman J. Is Moral Hazard Inneficient? The Policy Implication of New Theory. Health Affairs, Sept/Oct Gladwell, M. The Moral Hazard Myth, The New Yorker, August 29, 2005 Optional: Robinson JC, Health Savings Accounts The Ownership Society in Health Care NEJM, Lee TH and Zapert K, Do High- Deductible Health Plans Threaten Quality of Care? NEJM, March 9 Midterm Exam (in class) Exam March 16 NO CLASS (Spring Recess) March 23 Methods of Health Economics Economic Evaluation; Causation and Bias; Endogeneity; Methods to addresses Endogeneity Henderson, Ch. 4 Dowd and Town. Does X Really Cause Y. AcademyHealth/HCFO; March 30 Consumer Behavior in the Health Care System: Behavioral Economics Role of the consumer in market based system; Where do we currently see choice in the HC system; How do consumers respond to choice currently Schlesinger and Elbel. Bounded Rationality and the Conceptual Underpinnings of Health Policy: A rationale and Roadmap for Addressing the Challenges of Choice in Medical Settings. Working Paper., Richard Frank, Behavioral Economics and Health Economics NBER Working paper Jessica Greene Paper on Consumer Behavior Handout Assignment #2

6 April 6 Managed Care, Cost Control, Pay for Performance Henderson v3: chapters 7 and 15 Henderson v4: chapters 7 and 13 Mays GP et al., Managed Care Rebound? Health Affairs Web Exclusive, Felt-Lisk et al. Making Pay-for- Performance Work in Medicaid. Health Affairs June 2007 Optional: Rosenthal MB et al., Paying for Quality: Providers Incentives For Quality Improvement Health Affairs, 2004 Hellinger FJ, The Effect of Managed Care on Quality: A Review of Recent Evidence Arch Intern Med, 1998 Ellis R and McGuire T, Supply-side and Demand-side Cost Sharing in Health Care J Economic Perspectives, 1993 Assignment #2 Due April 13 Guest Lecture: Meghan Taira, MPH Readings TBA Legislative Assistant (Health) Senator Charles Schumer (D-NY) Payment Systems at the Federal Level April 20 Risk Management and Health Insurance Adverse Selection and the Uninsured Adverse selection; Risk adjustment; Death Spiral; Health insurance; The uninsured Henderson v3: chapter 6 (pp.165-end) Henderson v4: chapter 6 (pp.185-end) Morris, Devlin and Parkin chapter 6: Health Insurance and Health Care Financing Cutler DM and Zeckhauser RJ, Adverse Selection in Health Insurance NBER Working Paper, 1997 Rothschild and Stiglitz, Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information The Quarterly Journal of Economics. Nov Reschovsky JD et al., Why Employer- Sponsored Insurance Coverage Changed, Health Affairs, Handout Assignment #3

7 April 27 Expanding Health Insurance Coverage and Expanding Access to Care Single-payer system; individual and employer mandates; medical savings accounts; tax credits; barriers to reform Henderson: chapter 17 Henderson: chapter 15 Woolhandler S and Himmelstein D, Paying For National Health Insurance And Not Getting It Health Affairs, July 2002 Emanuel EJ and Fuchs VR, Health Care Vouchers A Proposal for Universal Coverage, NEJM, Palmisano DJ et al., Expanding Insurance Coverage Through Tax Credits, Consumer Choice, and Market Enhancements JAMA, 2004 Sinaiko AD, Employers Responses to A Play-Or-Pay Mandate: An Analysis Of California s Health Insurance Act Of 2003 Health Affairs Web Exclusive, 2004 Assignment #3 Due May 4 Innovation, Medical Technology and the Pharmaceutical Industry Benefits of innovation to the health care system; relation to market based system; Who is innovating and paying for innovation; Pharma industry snapshot Henderson v3: chapter 13 Henderson v4: chapter 10 Berndt, Ernst, Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price J Economic Perspectives, 2002 Danzon PM and Pauly MV, Insurance and New Technology: From Hospital to Drugstore Health Affairs, 2001 May 11 FINAL EXAM (In Class; During Exam Week) Final Exam