pdf - Institute for Policy Research - Northwestern University

P. Reese
is financed by the sale of a profitable
“revenue” good. An implication of
this model is that nonprofit and public
universities will act as profit maximizers,
like private firms, in the revenue-good
markets, but systematically differently
in mission-good markets. This project is
supported by the Spencer Foundation.
Healthcare Industry
The vast majority of Americans purchase
health insurance through the private
sector. Moreover, in recent years the
public sector has increasingly turned to
private insurers to deliver some or all
of their commitments to enrollees. In
spite of the enormous sums of public
and private funds entrusted to these
insurance carriers, there is little systematic
research about them. Using a privately
gathered national database of insurance
contracts from a sample of large, multisite
employers, economist Leemore Dafny
investigates whether these markets are
competitive by examining insurance
carriers’ pricing. She finds insurers are
successfully charging higher premiums to
more profitable firms, and such markups
are frequent in markets with little
competition. This suggests that, at least
in some markets, imperfect competition
among carriers is leading to higher health
insurance premiums.
In other recent work, Dafny explores
whether hospital managers face pressure
to maximize reimbursement by exploiting
loopholes in government insurance
programs. A 1988 change in Medicare
rules widened a pre-existing loophole
in the Medicare payment system. This
gave hospitals an opportunity to increase
operating margins by more than 5
percent simply by “upcoding” patients
to codes for more expensive procedures.
Dafny and her colleague, David Dranove,
find that “room to upcode” is a significant
predictor of whether a nonprofit hospital
replaces its management with a new team
of for-profit managers. They also find
that hospitals replacing their managers
subsequently upcode more than a sample
of similar hospitals that did not.
Weisbrod is researching behavioral
differences among for-profit, public,
religious nonprofit, and secular nonprofit
hospitals, examining differences
in public-goods
provision—charity
care, research, and
education—over
21 years for all
California hospitals.
Weisbrod has also
been investigating
market change
for brand-name
and generic drugs
between 1970 and
2004. In looking
at the 50 mostdispensed
drugs question during his presentation on age and choice
Peter Zweifel of the University of Zurich takes a
each year and when
in social insurance.
new drugs first
appear on the list, he finds a substantial
increase in the number of new brandname
drugs on the most-dispensed lists.
Between 1970 and 1981, 6 to 8 percent
of all brand-name drugs on the mostdispensed
list were new each year. In the
past decade, however, it has increased
to more than 10 percent. At the same
time, the quantitative importance of
generic drugs, and of new generics, grew
especially sharply, particularly since 1985.
These reveal a picture of quantitative
change over time, an especially important
consideration given how much brandname
pharmaceuticals are increasing as
a slice of total healthcare expenditures,
despite the growth of low-cost generic
drugs. These measures do not capture the
medical importance of a new drug, except
by usage, but they do reflect a way to
measure available and widely used drugs.
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