Introduction.

Bradford, W. David

Since the publication of Kenneth Arrow's seminal paper on the role of uncertainty in health care decision making (Arrow 1963), the field of health economics has matured into a distinct sub-field of economics. The health care sector constitutes nearly one-eighth of the entire U.S. economy--making the study of health economics (as a sub-discipline of industrial organization) important by the sheer magnitude of the resources it consumes. However, the fact that health care decisions are made in a world with interesting and significant theoretical complications--moral hazard, adverse selection, asymmetric information, fractured agency relationships, and ubiquitous regulatory intrusions to name only a re--raises the field to one of true foundational importance. As a result, health economics continues to command a presence not only in a growing cadre of high-quality field journals, but also in the best general-interest economics journals.

In addition, a growing number of health economics-related conferences have been expanding in all venues, from large international (the biannual International Health Economics Association World Congress) and national conferences (the biannual American Society of Health Economists Conference), to smaller invitational conferences at the national (the Annual Health Economics Conference) and regional levels. These latter formats typically consist of hour-long presentations and discussions of 10-12 papers over a two-day period with 30-40 select attendees. The goals of these highly selective meetings are to not only present the best research, but also to encourage collaborations between researchers with different levels of experience. This issue of the Southern Economic Journal contains a symposium of selected papers from one of the most established of the regional conferences--the Southeastern Health Economics Study Group (SHESG).

The SHESG was inaugurated by the Center for Health Economic and Policy Studies at the Medical University of South Carolina in 2003; the second meeting was held at the Federal Reserve Bank of Atlanta. The papers in this symposium are taken from the Third Annual SHESG, which was hosted by the Department of Economics at the University of South Carolina in the fall of 2005 (Melayne McInnes was the primary conference organizer). Papers presented at that conference encompassed a wide range of methods--both theoretical and empirical--and topics. Four papers were selected for inclusion in this symposium, and were peer-reviewed by members of the SHESG Steering Committee and the conference discussants. The papers were selected in part to reflect some thematic coherence--with two papers exploring issues arising from regulatory distortions and two exploring various features of production functions in a world characterized by asymmetrically imperfect information. However, as attentive readers will quickly realize, each of these contributions touches on more than one of the characteristic domains of health economics.

With respect to regulatory distortions, Bisaka Sen (2006) explores how state abortion restrictions affect agency relationships. In particular, she asks whether greater restrictiveness of abortion rules translates into changes in child mortality from injuries. To the extent that more restrictive abortion rules are effective at discouraging abortion, one would expect that the marginal infant not aborted would be less wanted. Do expected changes in "wantedness" of infants lead parents to invest less care in the child? That is, do abortion restrictions distort one of the most fundamental of agency relationships? Sen finds that the answer is a qualified "Yes." While the impact is not universally adverse, the patterns of changes in fatalities are such that they strongly suggest distortions to agency--a provocative finding, to be sure.

Lindrooth and Bazzoli (2006) span the issues of regulation and production in exploring how external regulatory forces distort hospital decision making with respect to service provision. They investigate the role that a major shock in Medicare reimbursement policy, the Balanced Budget Act of 1998, had in affecting the intensity of service provision for patients in acute care hospitals. Lindrooth and Bazzoli take an innovative approach to the question and also take advantage of one of the unique characteristics of production in the health care sector: hospitals are generally required to offer services to broad categories of patients with some externally determined minimum quality irrespective of the profit those services may generate. Thus, as the authors note, some products (defined in this case as Diagnosis Related Groups) may be more susceptible to reductions in "price" than others, producing greater changes in the input mix used. The theoretical model they derive generates very specific empirical predictions--predictions that are borne out by the data. Thus, Lindrooth and Bazzoli find that the Balanced Budget Act did have pernicious effects on the intensity of hospital services, but effects limited only to those products that were earning some profit prior to the change.

The second pair of papers in the symposium focuses most closely on production issues, though they span additional domains as well. Burke, Fornier, and Prasad (2006) examine the diffusion of new innovations. Health care provides an ideal environment to study innovation, since it is a sector characterized by a high level of innovation and the use of innovative techniques, devices, and pharmaceuticals is often captured automatically in administrative (micro) data. These authors choose to examine innovation through the lens of a new class of medical devices used in coronary interventions known as stents. The question is straightforward, though not often carefully studied: are opinion leaders important in the diffusion process, or do purely economic forces dominate? As economists, they carefully examine a panel of data extracted from the Florida Hospital Discharge Data and come to the conclusion that "stars" do matter. The implications are that, at least for the early phases of innovation, quality and efficiency of care will depend upon a quasi-random distribution of prestigious providers.

Finally, David and Helmchen (2006) provide a purely theoretical contribution to the field in their examination of production of hospital services. In this paper, they explore one of the more interesting trends in hospital production and principle-agent relationships in the past decade: the spread of specialized physicians known as "hospitalists." Hospitalists are physicians who eschew care for patients in private or non-institutional settings and only provide care for patients inside a hospital. As such, they serve as coordinating forces for the smoothed production of health care. There are, of course, competing incentives: Are admitting physicians willing to turn their patients' care over to other physicians? Can hospital administrators "capture" the hospitalist, thereby obtaining more direct control over patient care than they have when admitting physicians make the care decisions? Will hospitalists practice in only one setting or span multiple hospitals? David and Helmchen present an innovative conceptual model to address these (and other) forces, and predict that multiple equilibria should obtain. The implications go beyond pure patient care quality to impact the industrial organization of both the hospital and the admitting physician market.

These papers provide only a sample of the diverse papers presented at the SHESG annual meetings, which are themselves only a sampling of the issues being studied by health economists today. Preparations are underway for the 4th Annual SHESG conference (to be held at the University of Miami from October 6-7, 2006). Future meetings are currently being planned for Emory University, the University of Alabama at Birmingham, and the University of North Carolina at Chapel Hill. Special thanks go to the Steering Committee for their continued oversight not only of the conference, but also of this and future symposia: W. David Bradford (Medical University of South Carolina), Marisa Domino (University of North Carolina), Alvin Headen (North Carolina State University), Richard Lindrooth (Medical University of South Carolina), Michael Morrisey (University of Alabama at Birmingham), Christopher Ruhm (University of North Carolina at Greensboro), and Frank Sloan (Duke University).

References

Arrow, Kenneth. 1963. Uncertainty and the welfare economics of medical care. American Economic. Review 53:941-73.

Burke, M., G. Fornier, and K. Prasad. 2006. The diffusion of a medical innovation: Is success in the stars? Southern Economic Journal 73(3):588-603.

David, G., and L. Helmchen. 2006. On the economic foundations of medical care productivity and specialization: The case of hospitalists. Southern Economic Journal 73(3):604-22.

Lindrooth, R., and G. Bazzoli. 2006. The effect of reimbursement on the intensity of hospital services. Southern Economic Journal 73(3):575-87.

Sen, B. 2006. State abortion restrictions and child fatal injury: An exploratory study. Southern Economic Journal 73(3):553-74.

Received July 2006; accepted July 2006.

W. David Bradford, Center for Health Economic and Policy Studies, Department of Health Administration and Policy, Medical University of South Carolina, 151 Rutledge Avenue, Building B, Charleston, SC 29425 USA; E-mail bradfowd@musc. edu.