2Health Economics Answer Key FALSE.The formula for HHI is s?,where s;is firm i's market share.The 5.The hospital's experience with cardiac catheterization is at least as importan as the cardiologist's experience in reducing complication rates following per cutaneous coronary intervention(PCD). TRUE.In fact,McGrath et al.(2000)find that hospital experience is typically more important,likely because such complex procedures require coordina- tion by multipe medical specialists 6.Nonprofit firms can legally raise funds by issuing stock FALSE.Nonprofit firms are forbidden from issuing stock,one of the costs to organizing as a nonprofit. 7.Consider the following theory due to Arrow(1963):nonprofits exist because for-profit firms are less trustworthy in the performance of actions that are hard to obse ng to this the ment hospitalsto on o f nor profit production in the hospital industry. TRUE.If Arrow's asymmetric information and failure of trust hypothesis explains the existence of nonprofits,then government regulations increasing transparency should lower the appeal of nonprofit status 8.Medical arms races,since they are a form of private competition,lead to so- cially optimal levels of technology acquisition by hospitals. FALSE.Medical arms races can produce redundancy of medical technology and overconsumption of hospital care.Even though medical arms races are a form of private competition,the existence of health insurance,moral hazard, and asymmetric knowledge about medical care between doctors and patients can combine to distort the e market. 9.Uncompensated care in the United States is almost entirely covered by gov ernment programs like Medicare and Medicaid FALSE.Medicare,Medicaid,local and state governments,hospital share- holders,and other,non-indigent hospital customers all absorb at least some of the costs of uncompensated care(Hadley and Holahan 2003). Bhattacharya,Hyde Tu 2013 2 2 | Health Economics Answer Key FALSE. The formula for HHI is  s2 i , where si is firm i’s market share. The least competitive market, a monopoly, has HHI = 1. Higher values of HHI indicate lower levels of competition. 5. The hospital’s experience with cardiac catheterization is at least as important as the cardiologist’s experience in reducing complication rates following per￾cutaneous coronary intervention (PCI). TRUE. In fact, McGrath et al. (2000) find that hospital experience is typically more important, likely because such complex procedures require coordina￾tion by multiple medical specialists. 6. Nonprofit firms can legally raise funds by issuing stock. FALSE. Nonprofit firms are forbidden from issuing stock, one of the costs to organizing as a nonprofit. 7. Consider the following theory due to Arrow (1963): nonprofits exist because for-profit firms are less trustworthy in the performance of actions that are hard to observe. According to this theory, government regulations requiring hospitals to report data on outcomes should lead to a lower share of non￾profit production in the hospital industry. TRUE. If Arrow’s asymmetric information and failure of trust hypothesis explains the existence of nonprofits, then government regulations increasing transparency should lower the appeal of nonprofit status. 8. Medical arms races, since they are a form of private competition, lead to so￾cially optimal levels of technology acquisition by hospitals. FALSE. Medical arms races can produce redundancy of medical technology and overconsumption of hospital care. Even though medical arms races are a form of private competition, the existence of health insurance, moral hazard, and asymmetric knowledge about medical care between doctors and patients can combine to distort the market. 9. Uncompensated care in the United States is almost entirely covered by gov￾ernment programs like Medicare and Medicaid. FALSE. Medicare, Medicaid, local and state governments, hospital share￾holders, and other, non-indigent hospital customers all absorb at least some of the costs of uncompensated care (Hadley and Holahan 2003). ￾c Bhattacharya, Hyde & Tu 2013 2