HEALTH ECONOMICS COMPREHENSIVE EXAM 2025/2026
QUESTIONS AND SOLUTIONS GRADED A+ TIP
✔✔Herfindahl-Hirschman Index (HHI) - ✔✔measure of market concentration, sum of
squares of individual market shares for all firms in a relevant market, a merger that
increased a market's HHI score by more than 200 points is presumed to raise
anticompetitive concerns
✔✔Unconcentrated Markets - ✔✔HHI below 1500
✔✔Moderately Concentrated Markets - ✔✔HHI between 1500 and 2500
✔✔Highly Concentrated Markets - ✔✔HHI above 2500
✔✔Lerner Index of monopoly power - ✔✔mark-up is influenced by elasticity of demand,
the more elastic, the lower the mark-up
✔✔For-Profit vs Not-For-Profit Hospitals-Differences in performance? - ✔✔the two are
relatively similar with respect to cost, price and quality, with NFPs having only slightly
lower costs
✔✔The early years of hospital payment systems - ✔✔private health insurance
arrangement first set up by providers in late 1920s/early 1930s, fee-for-service, when
Medicare was passed similar approach was used, incentives were very inflationary and
expenditures grew quickly
✔✔Medicare Inpatient Prospective Payment System - ✔✔changed unit of payment to
methodology designed to pay rates to cover the costs that reasonably efficient providers
would incur in furnishing high quality care (from an inpatient day plus individual services
to a payment per discharge), has been replicated for outpatient care, nursing home
care, etc, also has been adopted by many Medicaid programs and private insurers
✔✔DRGs (Medicare severity diagnosis related groups) - ✔✔group patients according to
clinical problems and treatment strategies and determine base rates accordingly
✔✔Managed Care - ✔✔introduced in 1990s, coverage arrangements that seek to
control the utilization and costs (and, hopefully, improve the quality) of medical care
through a variety of measures, including the review/monitoring of care, the
establishment of provider networks and provision of financial incentives
✔✔Managed Care Strategies - ✔✔capitation, tough price negotiation, establishment
and management of provider networks, implementation of new utilization review
procedures
, ✔✔Hospital Marketplace changes in response to payment systems changing - ✔✔1-
major changes in the utilization, supply and type of hospital services provided; 2-an
increase in hospital market concentration; 3-growing variation in payment levels (prices)
paid across different payers
✔✔Horizontal Consolidation - ✔✔improve quality (greater potential for learning/sharing
of best practices across sites/member providers), lower costs (increased
efficiencies/economies in providing care), increases prices (increased market
power/improved leverage in negotiations), provide access to capital/rescue a financially
distressed entity, improved ability to accept and manage capitated or other value-based
contracts (larger base/better systems) or to insulate moving from FFS to value based
payment, increased capacity/ability to assume insurance role
✔✔Impact of Hospital Consolidation - ✔✔generally results in higher prices, for some
procedures reduced quality
✔✔Cost-Shifting - ✔✔a dynamic response to a reduction in/or less than desired
increases in certain payers' payment levels, in the form of a fully or partially
compensating increases in price to private insurers, is a form of price discrimination,
hospitals cost-shift when they're able to (in markets where they have market power and
a significant portion of privately insured patients), in markets without these conditions
they reduce their costs to live within Medicare reimbursement levels
✔✔Price Discrimination - ✔✔different prices charged to different payers for similar
services, can occur in markets that are not completely competitive, objective is to
maximize profits
✔✔Charges - ✔✔list price
✔✔Costs - ✔✔what it costs to produce the services
✔✔Payment - ✔✔amount paid by insurer and amount paid by patient (out-of-pocket)
✔✔Margins - ✔✔% profits, the difference between revenues and costs, divided by
revenues
✔✔Hospital margins - ✔✔vary across rural and metropolitan hospitals, public vs private,
hospitals with different payer mixes; total hospital margin (payments received for
inpatient and outpatient care services from all types of payers, plus any non-patient
revenues, less total hospital expenditures); operating margin (does not include non-
patient revenues/expenses)
✔✔Charge-to-cost ratios - ✔✔total amount of money required to operate a hospital,
divided by the sum of the revenues received from patient care and all other operating
revenues, 327%
QUESTIONS AND SOLUTIONS GRADED A+ TIP
✔✔Herfindahl-Hirschman Index (HHI) - ✔✔measure of market concentration, sum of
squares of individual market shares for all firms in a relevant market, a merger that
increased a market's HHI score by more than 200 points is presumed to raise
anticompetitive concerns
✔✔Unconcentrated Markets - ✔✔HHI below 1500
✔✔Moderately Concentrated Markets - ✔✔HHI between 1500 and 2500
✔✔Highly Concentrated Markets - ✔✔HHI above 2500
✔✔Lerner Index of monopoly power - ✔✔mark-up is influenced by elasticity of demand,
the more elastic, the lower the mark-up
✔✔For-Profit vs Not-For-Profit Hospitals-Differences in performance? - ✔✔the two are
relatively similar with respect to cost, price and quality, with NFPs having only slightly
lower costs
✔✔The early years of hospital payment systems - ✔✔private health insurance
arrangement first set up by providers in late 1920s/early 1930s, fee-for-service, when
Medicare was passed similar approach was used, incentives were very inflationary and
expenditures grew quickly
✔✔Medicare Inpatient Prospective Payment System - ✔✔changed unit of payment to
methodology designed to pay rates to cover the costs that reasonably efficient providers
would incur in furnishing high quality care (from an inpatient day plus individual services
to a payment per discharge), has been replicated for outpatient care, nursing home
care, etc, also has been adopted by many Medicaid programs and private insurers
✔✔DRGs (Medicare severity diagnosis related groups) - ✔✔group patients according to
clinical problems and treatment strategies and determine base rates accordingly
✔✔Managed Care - ✔✔introduced in 1990s, coverage arrangements that seek to
control the utilization and costs (and, hopefully, improve the quality) of medical care
through a variety of measures, including the review/monitoring of care, the
establishment of provider networks and provision of financial incentives
✔✔Managed Care Strategies - ✔✔capitation, tough price negotiation, establishment
and management of provider networks, implementation of new utilization review
procedures
, ✔✔Hospital Marketplace changes in response to payment systems changing - ✔✔1-
major changes in the utilization, supply and type of hospital services provided; 2-an
increase in hospital market concentration; 3-growing variation in payment levels (prices)
paid across different payers
✔✔Horizontal Consolidation - ✔✔improve quality (greater potential for learning/sharing
of best practices across sites/member providers), lower costs (increased
efficiencies/economies in providing care), increases prices (increased market
power/improved leverage in negotiations), provide access to capital/rescue a financially
distressed entity, improved ability to accept and manage capitated or other value-based
contracts (larger base/better systems) or to insulate moving from FFS to value based
payment, increased capacity/ability to assume insurance role
✔✔Impact of Hospital Consolidation - ✔✔generally results in higher prices, for some
procedures reduced quality
✔✔Cost-Shifting - ✔✔a dynamic response to a reduction in/or less than desired
increases in certain payers' payment levels, in the form of a fully or partially
compensating increases in price to private insurers, is a form of price discrimination,
hospitals cost-shift when they're able to (in markets where they have market power and
a significant portion of privately insured patients), in markets without these conditions
they reduce their costs to live within Medicare reimbursement levels
✔✔Price Discrimination - ✔✔different prices charged to different payers for similar
services, can occur in markets that are not completely competitive, objective is to
maximize profits
✔✔Charges - ✔✔list price
✔✔Costs - ✔✔what it costs to produce the services
✔✔Payment - ✔✔amount paid by insurer and amount paid by patient (out-of-pocket)
✔✔Margins - ✔✔% profits, the difference between revenues and costs, divided by
revenues
✔✔Hospital margins - ✔✔vary across rural and metropolitan hospitals, public vs private,
hospitals with different payer mixes; total hospital margin (payments received for
inpatient and outpatient care services from all types of payers, plus any non-patient
revenues, less total hospital expenditures); operating margin (does not include non-
patient revenues/expenses)
✔✔Charge-to-cost ratios - ✔✔total amount of money required to operate a hospital,
divided by the sum of the revenues received from patient care and all other operating
revenues, 327%
