l
,Chapter 1: U.S. Medical Care: A System in Transition
This chapter introduces the student to the economic way of thinking as it relates to the study of
the U.S. medical care system. After a brief summary of the historical development of medical
care delivery and finance, the basics of economic modeling and analysis are addressed. The
similarities and differences between medical care and other economic goods and services are
also discussed. As a set of unifying themes providing focus and continuity throughout the book,
ten guiding principles are introduced and defined.
Chapter Outline
a. Historical developments in the delivery of medical care
1. Post-war experience
2. Concern over high and rising spending
3. Changes in medical care delivery
b. Health economics defined
c. Ten key economic concepts
d. Summary and conclusions
Issues in Medical Care Delivery
• Spending Somebody Else’s Money
Chapter Objectives
1. Understand the nature of the health care crisis in America.
2. Identify the important historical developments affecting health care delivery and
finance in the U.S. system.
3. Identify and explain the major reasons for the high and rising cost of medical care.
4. Understand how the third-party payment mechanism and managed care affect
health care delivery.
5. Recognize the relevance of economics in studying health care issues.
6. Understand the aspects of medical care that contribute to its uniqueness as a
commodity.
,Opening Video
A Health Care System in Crisis
The Rainmaker (1997)
Distributed by Paramount Pictures
Produced by Michael Douglas, Steven Reuther, and Fred Fuchs
Directed by Francis Ford Coppola
Written by John Grisham
Screenplay by Francis Ford Coppola
Cast:
Matt Damon as Rudy Baylor, young attorney handling his first case
Jon Voight as Leo F. Drummond, lead attorney for Great Benefit Life
Michael Girardin as Everett Lufkin, vice president of claims for Great Benefit Life
Johnny Whitworth as Donny Ray Black, young man dying from leukemia
Synopsis:
A court room drama where recent law graduate Rudy Baylor teams up with Deck Shifflet, an
“ambulance-chasing” paralegal, who has failed the bar exam six times. From the beginning,
Rudy has misgivings about the questionable ethics of the type of client solicitation practiced by
Shifflet. When Rudy asks, “What’s wrong with ethics?” Deck answers, “Oh, nothing, I guess. I
mean I believe a lawyer should fight for his client, refrain from stealing money, and try not to
lie, you know, the basics.” With these rules of professional conduct guiding him, Rudy accepts
his first case, a lawsuit against Great Benefit Insurance Company. Great Benefit has been
selling its health policies door-to-door in low-income neighborhoods and denying most of the
presented claims, betting on the fact that none of their clients will file suit. For seven years, Dot
Black has paid the premiums, but when she files a claim for Donny Ray’s recently diagnosed
leukemia, Great Benefit denies the request for a bone marrow transplant. Great Benefit Life
refused to pay for the procedure on four grounds: that the leukemia was a pre-existing
condition, that due to his age (21) he was no longer a dependent and therefore not covered by
the policy, that his health status has been misrepresented on the original insurance application
four years before diagnosis, and that the procedure was “experimental.”
Film Clip:
Scene 16, “Do you remember when you first sold out?” starting at 59:53 to 1:05:18 (5 minutes,
22 seconds)
Rudy travels to Cleveland to depose several key insurance company employees. Of the four
employees he wants to depose; only one is available. Jackie Lemancyzk (Claims Handler) has
resigned and Russell Crockett was downsized. In a dramatic confrontation, Baylor asks
Drummond if he remembers “when he first sold out,” implying that Drummond has tampered
with witnesses. The scene ends in Danny Ray’s bedroom with Baylor indictment against the
U.S. healthcare system. “This is how the uninsured die. In a society filled with brilliant doctors
and state-of-the-art technology…it is obscene to let this boy die.” Do you think this is a fair
, indictment of the U.S. healthcare system? What are the circumstances, if any, that would
justify denial of a “valid” insurance claim? Are any of the four grounds used by Great Benefit
Life valid?
Discussion:
In Donny Ray Black’s case we find the behavior of those associated with Great Benefit Life
morally repugnant, as did the jury be rewarding the plaintiff $50 million in economic and
punitive damages. In the case of Great Benefit Life, the verdict resulted in the insolvency of the
company, its eventual bankruptcy, and an opportunity for us to explore the impact of such
awards on other stakeholders in such cases.
Teaching Suggestions
• Get a copy of the survey from Victor R. Fuchs, “Economics, Values, and Health Care
Reform,” American Economic Review 86(1), March 1996, 1-24. Ask your students to answer
the survey and tabulate the answers. Compare their answers with those of the economists
who answered the survey originally. This is a good way to check the pulse of your class.
The ensuing discussion can be a good way to introduce many of the topics covered in the
course.
• National media attention has focused on the problems of the medical care sector
periodically in recent years. The “crisis” in medical care is well documented. Discuss the
various meanings of the term “crisis.” Students will have some interesting perspectives on
this issue.
• It is a good idea to discuss the use of the Internet as a research tool. It is important that
students be able to discern good sources from bad. The Internet is full of both. That is the
purpose of the Internet exercise in my class. Students join a ListServ or eavesdrop on a
newsgroup to get some idea how to judge the quality of the information available in
cyberspace. There are literally thousands of forums to join. Many of my students begin
their electronic discussions with DejaNews, a leading site for Internet discussion groups.
You can find it at http://w2.dejanews.com/.
,Chapter 1: U.S. Medical Care: A System in Transition
This chapter introduces the student to the economic way of thinking as it relates to the study of
the U.S. medical care system. After a brief summary of the historical development of medical
care delivery and finance, the basics of economic modeling and analysis are addressed. The
similarities and differences between medical care and other economic goods and services are
also discussed. As a set of unifying themes providing focus and continuity throughout the book,
ten guiding principles are introduced and defined.
Chapter Outline
a. Historical developments in the delivery of medical care
1. Post-war experience
2. Concern over high and rising spending
3. Changes in medical care delivery
b. Health economics defined
c. Ten key economic concepts
d. Summary and conclusions
Issues in Medical Care Delivery
• Spending Somebody Else’s Money
Chapter Objectives
1. Understand the nature of the health care crisis in America.
2. Identify the important historical developments affecting health care delivery and
finance in the U.S. system.
3. Identify and explain the major reasons for the high and rising cost of medical care.
4. Understand how the third-party payment mechanism and managed care affect
health care delivery.
5. Recognize the relevance of economics in studying health care issues.
6. Understand the aspects of medical care that contribute to its uniqueness as a
commodity.
,Opening Video
A Health Care System in Crisis
The Rainmaker (1997)
Distributed by Paramount Pictures
Produced by Michael Douglas, Steven Reuther, and Fred Fuchs
Directed by Francis Ford Coppola
Written by John Grisham
Screenplay by Francis Ford Coppola
Cast:
Matt Damon as Rudy Baylor, young attorney handling his first case
Jon Voight as Leo F. Drummond, lead attorney for Great Benefit Life
Michael Girardin as Everett Lufkin, vice president of claims for Great Benefit Life
Johnny Whitworth as Donny Ray Black, young man dying from leukemia
Synopsis:
A court room drama where recent law graduate Rudy Baylor teams up with Deck Shifflet, an
“ambulance-chasing” paralegal, who has failed the bar exam six times. From the beginning,
Rudy has misgivings about the questionable ethics of the type of client solicitation practiced by
Shifflet. When Rudy asks, “What’s wrong with ethics?” Deck answers, “Oh, nothing, I guess. I
mean I believe a lawyer should fight for his client, refrain from stealing money, and try not to
lie, you know, the basics.” With these rules of professional conduct guiding him, Rudy accepts
his first case, a lawsuit against Great Benefit Insurance Company. Great Benefit has been
selling its health policies door-to-door in low-income neighborhoods and denying most of the
presented claims, betting on the fact that none of their clients will file suit. For seven years, Dot
Black has paid the premiums, but when she files a claim for Donny Ray’s recently diagnosed
leukemia, Great Benefit denies the request for a bone marrow transplant. Great Benefit Life
refused to pay for the procedure on four grounds: that the leukemia was a pre-existing
condition, that due to his age (21) he was no longer a dependent and therefore not covered by
the policy, that his health status has been misrepresented on the original insurance application
four years before diagnosis, and that the procedure was “experimental.”
Film Clip:
Scene 16, “Do you remember when you first sold out?” starting at 59:53 to 1:05:18 (5 minutes,
22 seconds)
Rudy travels to Cleveland to depose several key insurance company employees. Of the four
employees he wants to depose; only one is available. Jackie Lemancyzk (Claims Handler) has
resigned and Russell Crockett was downsized. In a dramatic confrontation, Baylor asks
Drummond if he remembers “when he first sold out,” implying that Drummond has tampered
with witnesses. The scene ends in Danny Ray’s bedroom with Baylor indictment against the
U.S. healthcare system. “This is how the uninsured die. In a society filled with brilliant doctors
and state-of-the-art technology…it is obscene to let this boy die.” Do you think this is a fair
, indictment of the U.S. healthcare system? What are the circumstances, if any, that would
justify denial of a “valid” insurance claim? Are any of the four grounds used by Great Benefit
Life valid?
Discussion:
In Donny Ray Black’s case we find the behavior of those associated with Great Benefit Life
morally repugnant, as did the jury be rewarding the plaintiff $50 million in economic and
punitive damages. In the case of Great Benefit Life, the verdict resulted in the insolvency of the
company, its eventual bankruptcy, and an opportunity for us to explore the impact of such
awards on other stakeholders in such cases.
Teaching Suggestions
• Get a copy of the survey from Victor R. Fuchs, “Economics, Values, and Health Care
Reform,” American Economic Review 86(1), March 1996, 1-24. Ask your students to answer
the survey and tabulate the answers. Compare their answers with those of the economists
who answered the survey originally. This is a good way to check the pulse of your class.
The ensuing discussion can be a good way to introduce many of the topics covered in the
course.
• National media attention has focused on the problems of the medical care sector
periodically in recent years. The “crisis” in medical care is well documented. Discuss the
various meanings of the term “crisis.” Students will have some interesting perspectives on
this issue.
• It is a good idea to discuss the use of the Internet as a research tool. It is important that
students be able to discern good sources from bad. The Internet is full of both. That is the
purpose of the Internet exercise in my class. Students join a ListServ or eavesdrop on a
newsgroup to get some idea how to judge the quality of the information available in
cyberspace. There are literally thousands of forums to join. Many of my students begin
their electronic discussions with DejaNews, a leading site for Internet discussion groups.
You can find it at http://w2.dejanews.com/.
