You are the administrator for a medical practice. Assume all ofyour practice’s patients are covered by insurance. Insurance pays,on average, 80% of your fee for a physician visit for which yourpractice charge is $100. The patient is responsible for the $100fee, but receives 80% back from the insurer. Currently, yourpractice’s volume for this service is 1,500 per year.
Estimate what would happen to the volume of services and theexpected revenue to the practice should the area’s health insurersincrease patient cost sharing from 20% to 30% of this charge. Usethe concept of “price elasticity” to make the projection.
Use the elasticities given in Wedig’s 1988 study: price elasticityfor physician visits for patients in good or excellent health is–0.35 while the price elasticity for physician visits for patientsin fair or poor health is –0.16. (Wedig, G.J. 1988. Health statusand the demand for health: Results on price elasticities. Journalof Health Economics, 7, 151–163.)
After a quick survey, you decide that 65% of the practice’spatients are in at least good health and account for 1,000 of the1,500 visits. The remaining patients are in fair or poorhealth.
For Questions 2 to 4, write out all the steps of the calculation.For Questions 3 and 4, write answers separately for patients ineach category of health status—excellent, good, fair, poor—and forall patients
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