GROUP 2 SGXAPPECO 2022B-3

1. Bagayan, Novie Wilson

2. De Guzman ,Camille Ebillo 
3. Gonzales, Raymond Ramirez 
4. Lequin, Nelson III Villabroza
5. Marzan, Marlo Therenz Garcia
6. Servano, Floralice Hope Suan - presenter
7. Vaporoso, Lenie May Olaguer 

Session 3B
CHAPTER 12: Managed Care

Exercise #3: Consistent with Figure 12.1, assume that the FFS price was $100 per visit and the
average patient made eight visits per year. A competing managed care organization came in
and charged $80 per visit, providing sever visits per year.
a. Calculate the change in total expenditures.
b. Graph the FFS and the managed care market equilibrium as was done in Figure
12.1. What do our findings suggest about demand for managed care compared to
demand for FFS?

a. Calculate the change in total Expenditure.

Total Exp = PQ

Where:
Total Exp = Total expenditure
P = Price of the product
Q = Quantity the product is sold (# of visits per year)

FFS Managed Care

Total Expf = ? Total Expm = ?
Pf = $100 Pm = $80
Qf = 8 Qm = 7

Total Expf = PfQf Total Expm = PmQm

Total Expf = ($100)(8) Total Expm = ($80)(7)
Total Expf = $800 Total Expm = $560
 ΔTotal Exp = Total Expf - Total Expm
ΔTotal Exp = $800 - $560
ΔTotal Exp = $240

Ans: The change in the total expenditure is $240.

b. Graph the FFS and the managed care market equilibrium as was done in Figure
12.1. What do our findings suggest about demand for managed care compared to
demand for FFS?

130

120
Df
110
Dm
100 P
f
Total expenditures
(fee-for-service)
Price

90

80 Pm
Total expenditures
70 (managed care)
60
Qf
50
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Qm
Quantity

Ans: Due to the decrease per-unit price for care (from $100 to $80) and decrease in the
quantity of care (from 8 visits down to 7 visits), there is a decrease in the total expenditure.
Although the natural response to decreased prices is to increase quantity demanded, this
finding suggest that the decrease in both price and quantity, there is a decrease in the
demand in the managed care.
References
Folland, S., Goodman, A. C., & Stano, M. (2017). The Economics of Health and Health Care. New
York: Routledge.