FIFTH EDITION HealtH economics and Financing tHomas e. getzen This page is intentionally left blank HEALTH ECONOMICS AND FINANCING This page is intentionally left blank HEALTH ECONOMICS AND FINANCING Fifth Edition Thomas E. Getzen Temple University and iHEA VP & Executive Publisher George Hoffman Executive Editor Joel Hollenbeck Content Editor Jennifer Manias Assistant Editor Courtney Luzzi Senior Editorial Assistant Erica Horowitz Associate Director of Marketing Amy Scholz Senior Marketing Manager Jesse Cruz Marketing Assistant Justine Kay Product Designer Greg Chaput Media Specialist Daniela DiMaggio Senior Production Manager Janis Soo Associate Production Manager Joel Balbin Production Editor Yee Lyn Song Designer Kenji Ngieng Cover Photo (cid:2)c Pawel Gaul/istockphoto This book was set in Minion by Aptara, Inc. and printed and bound by Courier Kendallville. The cover was printed by Courier Kendallville. This book is printed on acid-free paper.∞ Founded in 1807, John Wiley & Sons, Inc. has been a valued source of knowledge and understanding for more than 200 years, helping people around the world meet their needs and fulfill their aspirations. Our company is built on a foundation of principles that include responsibility to the communities we serve and where we live and work. In 2008, we launched a Corporate Citizenship Initiative, a global effort to address the environmental, social, economic, and ethical challenges we face in our business. Among the issues we are addressing are carbon impact, paper specifications and procurement, ethical conduct within our business and among our vendors, and community and charitable support. For more information, please visit our website: www.wiley.com/go/citizenship. Copyright(cid:2)c 2013, 2010, 2007, 2004 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc. 222 Rosewood Drive, Danvers, MA 01923, website www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, (201)748-6011, fax (201)748-6008, website http://www.wiley.com/go/permissions. Evaluation copies are provided to qualified academics and professionals for review purposes only, for use in their courses during the next academic year. These copies are licensed and may not be sold or transferred to a third party. Upon completion of the review period, please return the evaluation copy to Wiley. Return instructions and a free of charge return mailing label are available at www.wiley.com/go/returnlabel. If you have chosen to adopt this textbook for use in your course, please accept this book as your complimentary desk copy. Outside of the United States, please contact your local sales representative. Library of Congress Cataloging-in-Publication Data Getzen, Thomas E. Health economics and financing / Thomas E. Getzen.—5th ed. p. ; cm. Includes bibliographical references and index. ISBN 978-1-118-18490-5 (cloth : alk. paper) I. Title. [DNLM: 1. Economics, Medical—United States. 2. Delivery of Health Care—economics—United States. 3. Health Care Reform—economics—United States. W 74 AA1] 2013 338.4(cid:3)33621–dc23 2012028595 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 —to Karen, Matt, Zoa, and Kayla This page is intentionally left blank BRIEF CONTENTS Preface xxiii Acknowledgments xxv About the Author xxvi Foreword xxvii 1 Choices: Money, Medicine, and Health 1 2 Demand and Supply 23 3 Cost–Benefit and Cost-Effectiveness Analysis 44 4 Health Insurance: Financing Medical Care 69 5 Insurance Contracts and Managed Care 96 6 Physicians 124 7 Medical Education, Organization, and Business Practices 146 8 Hospitals 172 9 Management and Regulation of Hospital Costs 191 10 Long-Term Care 212 11 Pharmaceuticals 236 12 Financing and Ownership of Health Care Providers 259 13 Macroeconomics of Medical Care 292 14 The Role of Government and Public Goods 319 15 History, Demography, and the Growth of Modern Medicine 347 16 International Comparisons of Health and Health Expenditures 372 17 Economic Evaluation of Health Policy: The Patient Protection and Affordable Care Act of 2010 408 18 Value for Money in the Future of Health Care 427 Glossary 443 Index 453 vii This page is intentionally left blank