MHA710 Exam 4 Actual Exam Style V2 |
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which economic theory suggests that physicians may increase the volume of services
provided to patients in response to a decrease in reimbursement rates to maintain a certain
level of earnings?
A. Consumer Sovereignty Theory
B. Target Income Hypothesis
C. Perfect Competition Model
D. Utility Maximization Theory
Answer: B
Rationale: The Target Income Hypothesis posits that physicians have a specific income
goal and will adjust their behavior to reach it. When prices or reimbursement rates per
service decline, they may induce demand for more services to offset the loss. This behavior
is facilitated by information asymmetry between the physician and the patient.
2. In the context of hospital competition, what does the ‘Medical Arms Race’ hypothesis
specifically refer to?
A. Hospitals competing on price to attract low-income patients
,B. Hospitals competing for physicians and patients by investing in high-tech equipment and
amenities
C. A regulatory battle between the FDA and pharmaceutical companies
D. Hospitals merging to create monopolies and reduce operational costs
Answer: B
Rationale: The Medical Arms Race suggests that hospitals in a competitive market
compete for doctors and patients by offering the most advanced technology and luxurious
facilities. Rather than lowering prices, this form of non-price competition can actually lead
to higher overall healthcare costs. It is often cited as a reason for the proliferation of
expensive medical technologies in areas with many hospitals.
3. Which of the following is a primary reason why the pharmaceutical industry is granted
patents for new drugs?
A. To ensure that all drugs are sold at the lowest possible cost to consumers
B. To prevent other companies from ever manufacturing the drug
C. To allow the government to control the distribution of medicine
D. To provide an incentive for research and development by allowing firms to recover high
fixed costs
Answer: D
,Rationale: Patents grant pharmaceutical companies temporary monopoly power, which
allows them to charge higher prices to recover the massive costs of research and
development. Without this protection, competitors could produce generic versions
immediately, making it impossible for the original innovator to break even. This
mechanism balances the need for innovation incentives with the eventual goal of price
competition.
4. A Cost-Effectiveness Analysis (CEA) typically measures outcomes in terms of:
A. Natural units such as life-years gained or blood pressure reduction
B. Monetary units like US Dollars
C. The total number of patients treated in a specific facility
D. The percentage of market share captured by a new drug
Answer: A
Rationale: Cost-Effectiveness Analysis focuses on comparing the relative costs and
outcomes of different health interventions using natural units. Unlike Cost-Benefit Analysis,
which converts all outcomes into currency, CEA looks at metrics like lives saved or cases
prevented. This allows policymakers to determine which intervention provides the most
health benefit for a specific budget.
5. Which characteristic distinguishes non-profit hospitals from for-profit hospitals in terms of
their legal requirements?
A. Non-profit hospitals are not allowed to make any profit or surplus
, B. Non-profit hospitals are exempt from federal and state income taxes in exchange for
providing community benefit
C. For-profit hospitals are not allowed to treat Medicare or Medicaid patients
D. Non-profit hospitals must provide free care to every patient who walks through the door
Answer: B
Rationale: Non-profit hospitals are exempt from most taxes because they are expected to
reinvest their surpluses into the community or the facility itself. While they do earn profits,
they do not distribute them to shareholders as for-profit entities do. In return for this
status, they must justify their tax-exempt status through community benefits like
uncompensated care or research.
6. The ‘Physician-Induced Demand’ model assumes that which of the following conditions
exists in the healthcare market?
A. Perfect information between consumers and providers
B. Price elasticity of demand is perfectly elastic
C. Asymmetric information where the provider knows more than the consumer
D. Consumers have full control over their healthcare decisions
Answer: C
Rationale: Physician-Induced Demand occurs because patients often lack the expertise to
evaluate their own medical needs and rely on the physician’s advice. This information
MHA 710 Healthcare Economics |
Louisiana State University in Shreveport
1. Which economic theory suggests that physicians may increase the volume of services
provided to patients in response to a decrease in reimbursement rates to maintain a certain
level of earnings?
A. Consumer Sovereignty Theory
B. Target Income Hypothesis
C. Perfect Competition Model
D. Utility Maximization Theory
Answer: B
Rationale: The Target Income Hypothesis posits that physicians have a specific income
goal and will adjust their behavior to reach it. When prices or reimbursement rates per
service decline, they may induce demand for more services to offset the loss. This behavior
is facilitated by information asymmetry between the physician and the patient.
2. In the context of hospital competition, what does the ‘Medical Arms Race’ hypothesis
specifically refer to?
A. Hospitals competing on price to attract low-income patients
,B. Hospitals competing for physicians and patients by investing in high-tech equipment and
amenities
C. A regulatory battle between the FDA and pharmaceutical companies
D. Hospitals merging to create monopolies and reduce operational costs
Answer: B
Rationale: The Medical Arms Race suggests that hospitals in a competitive market
compete for doctors and patients by offering the most advanced technology and luxurious
facilities. Rather than lowering prices, this form of non-price competition can actually lead
to higher overall healthcare costs. It is often cited as a reason for the proliferation of
expensive medical technologies in areas with many hospitals.
3. Which of the following is a primary reason why the pharmaceutical industry is granted
patents for new drugs?
A. To ensure that all drugs are sold at the lowest possible cost to consumers
B. To prevent other companies from ever manufacturing the drug
C. To allow the government to control the distribution of medicine
D. To provide an incentive for research and development by allowing firms to recover high
fixed costs
Answer: D
,Rationale: Patents grant pharmaceutical companies temporary monopoly power, which
allows them to charge higher prices to recover the massive costs of research and
development. Without this protection, competitors could produce generic versions
immediately, making it impossible for the original innovator to break even. This
mechanism balances the need for innovation incentives with the eventual goal of price
competition.
4. A Cost-Effectiveness Analysis (CEA) typically measures outcomes in terms of:
A. Natural units such as life-years gained or blood pressure reduction
B. Monetary units like US Dollars
C. The total number of patients treated in a specific facility
D. The percentage of market share captured by a new drug
Answer: A
Rationale: Cost-Effectiveness Analysis focuses on comparing the relative costs and
outcomes of different health interventions using natural units. Unlike Cost-Benefit Analysis,
which converts all outcomes into currency, CEA looks at metrics like lives saved or cases
prevented. This allows policymakers to determine which intervention provides the most
health benefit for a specific budget.
5. Which characteristic distinguishes non-profit hospitals from for-profit hospitals in terms of
their legal requirements?
A. Non-profit hospitals are not allowed to make any profit or surplus
, B. Non-profit hospitals are exempt from federal and state income taxes in exchange for
providing community benefit
C. For-profit hospitals are not allowed to treat Medicare or Medicaid patients
D. Non-profit hospitals must provide free care to every patient who walks through the door
Answer: B
Rationale: Non-profit hospitals are exempt from most taxes because they are expected to
reinvest their surpluses into the community or the facility itself. While they do earn profits,
they do not distribute them to shareholders as for-profit entities do. In return for this
status, they must justify their tax-exempt status through community benefits like
uncompensated care or research.
6. The ‘Physician-Induced Demand’ model assumes that which of the following conditions
exists in the healthcare market?
A. Perfect information between consumers and providers
B. Price elasticity of demand is perfectly elastic
C. Asymmetric information where the provider knows more than the consumer
D. Consumers have full control over their healthcare decisions
Answer: C
Rationale: Physician-Induced Demand occurs because patients often lack the expertise to
evaluate their own medical needs and rely on the physician’s advice. This information
