Healthcare Economics: Your marketing department estimates that Medicare urology visits equal

Question

Your marketing department estimates that Medicare urology visits equal 5 – (1.0 x c) + (-6.5 x To) + (5 x Tr) + (0.01 x Y). Here, C denotes the Medicare co payment (now $20), To is waiting time in your clinic (now 30 minutes), Tr is waiting time in your competitors clinic (now 40 minutes), and Y is per capita income (now $40,000).

A) How many visits do you anticipate?
B) Medicare’s allowed fee is $120. What revenue do you anticipate?
C) What might change your forecast of visits and revenue?

Answer 1

A. 5 - (1 * 20) + (-6.5 * 30) + (5 * 40) + (.01 * 40,000) = 5 - 20 - 195 + 200 + 400 = 390 visits.

 

B.  Total Revenue = Price * Quantity = $120 + 390 = $46,800.

 

C. From the equation above, any of the factors will change the number of visits and revenue. However, the biggest one is likely the change in the Copay.  Lower co-pays increase moral hazard (overuse of the product because they aren't paying the full price), so the closer the co-pay gets to the actual price, the fewer people will be going to the visit because they are paying more. So even though the price that medicare pays doesn't change, changes in the co-pay could impact the number of visits because the co-pay is all the patients care about at the time of the service.