Healthcare Management Course Guide Template

Healthcare Management Course Guide: [Your programme and term]

A course guide for the healthcare management elective or major of an MBA: what the course is for, the competencies it builds, a session-by-session roadmap, the key concepts with their primary sources, short summaries of the core topics, an original mini-case with a teaching note, the typical assignments and how they are graded, an exam preparation plan and a self-test. It covers why health care is different as an economic good, insurance (moral hazard, adverse selection, risk adjustment), health system models and an international comparison built from OECD Health Statistics, cost growth, the payer, provider and life sciences value chain, provider payment models (fee-for-service, case-based payment, capitation, bundled payment, pay for performance and shared savings), value-based care, health technology assessment and cost-effectiveness, pharmaceutical and medical device economics, and health system strategy. It is international by design: health systems differ, so the guide teaches the shared economics and uses dated country examples. It is for admitted students preparing for the elective, students taking it, and clinicians and managers moving into health care leadership. Source basis: the primary works named in each section (Arrow 1963; Pauly 1968; Rothschild and Stiglitz 1976; Baumol 1967; Donabedian 1988; Berwick, Nolan and Whittington 2008; Porter 2010 and others) written up in original words, with data from OECD Health Statistics retrieved on 2026-10-30, and the fictional Tallow Creek Medical Center. Replace every [bracketed] value and every row marked Example. This is a learning aid, not medical, legal, financial or reimbursement advice.

Document control

Contents

• What the course is for
• Prerequisites
• Session roadmap
• Key concepts
• Core topics in brief
• Mini-case: Tallow Creek Medical Center, joint replacement bundle
• Assignments and grading
• Exam preparation plan
• Common struggles
• Reading list
• Self-test
• Answer key
• My notes and next steps

What the course is for

Health care is one of the largest sectors in every rich economy: in 2024, the nine OECD countries in the comparison table below spent between about 8% and 17% of GDP on it. It is also the sector where ordinary management tools most often fail when applied without thought. The person who receives the service rarely pays for it directly, the person who chooses the service (often a clinician) is not the one who pays either, quality is hard to observe, and the consequences of error are severe. The healthcare management elective teaches you to see these features clearly, to understand how money and incentives flow between patients, payers, providers and the life sciences industry, and to judge where a strategy or an operational change creates value for patients at a cost the system can carry.

After the course you should be able to:

1. Explain why health care markets differ from ordinary markets (uncertainty, information asymmetry, insurance) and what each difference implies for contracts, regulation and professional norms.
2. Describe the main health system models and compare countries on spending, financing and outcomes with care.
3. Map the value chain from payer to provider to supplier and say who bears which risk.
4. Compute the financial effect of a payment model (fee-for-service, case-based, capitation, bundled payment) on a provider, and predict how it changes behaviour.
5. Define value in health care as outcomes per unit of cost, and design an outcome measure set for one condition.
6. Read a cost-effectiveness analysis: compute an incremental cost-effectiveness ratio (ICER) and a net monetary benefit, and explain what a threshold means.
7. Explain the economics of drug and device development, pricing and access, and the role of health technology assessment.
8. Formulate a strategy for a hospital, payer or life sciences company that survives contact with clinicians, regulators and patients.

Prerequisites

No clinical background is required. Students with one should note where their professional instincts differ from the economic argument; those points make the best class contributions.

Session roadmap

Key concepts

Core topics in brief

Why health care is different

Arrow (1963) set the agenda for health economics by asking why medical care is organised so differently from other markets. His answer centred on uncertainty: the need for care is unpredictable, the outcome of treatment is uncertain, and the patient knows much less than the clinician. Because patients cannot judge quality in advance, societies rely on licensing, professional ethics, non-profit organisations and trust, and clinicians act as agents for patients. Insurance follows from the unpredictability of illness, but it brings its own problems (next section).

For a manager, three consequences follow. First, demand is partly created by the supplier: the clinician recommends the treatment the patient buys, so volume-based payment can raise volume. Second, quality is hard to observe, so reputation, accreditation and published outcomes matter more than in most industries. Third, the professional culture of clinicians is a source of value and a constraint: strategies that ignore it fail.

Insurance: moral hazard, adverse selection and risk adjustment

Insurance spreads the cost of illness across people and over time. It also lowers the price of care at the point of use, and people respond by using more of it: this is moral hazard as Pauly (1968) framed it, an ordinary demand response rather than a moral failing. The RAND Health Insurance Experiment (Manning et al. 1987) randomly assigned families to plans with different cost sharing and found that spending fell as cost sharing rose, with little average effect on health for most participants, but with concerns for poorer and sicker groups. Deductibles, co-payments and coinsurance are the tools; their design is a trade-off between financial protection and over-use.

Adverse selection is the problem on the other side. If people know more about their own expected costs than the insurer, high-risk people buy more cover, premiums rise, low-risk people leave, and a market can unravel (Akerlof 1970; Rothschild and Stiglitz 1976). Health systems respond with mandatory cover, pooled community rating, open enrolment periods and risk adjustment, which moves money between insurers according to the expected cost of their members so that insurers compete on service and efficiency rather than on selecting healthy members.

Health systems compared

Every system answers three questions: who is covered, who pays, and who delivers care. Courses often use four stylised models. In a national health service model, care is financed mainly from general taxes and many providers are publicly owned (the United Kingdom is the usual example). In a social health insurance model, employers and employees pay contributions to non-profit sickness funds that buy care from mixed public and private providers (Germany, France). A national health insurance model combines a single public insurer with largely private delivery (Canada). In a mixed or market-based model, private insurance, public programmes and out-of-pocket payment coexist (the United States). Real systems mix these features; Switzerland and the Netherlands, for example, mandate individual purchase of regulated private insurance with subsidies and risk adjustment.

Example data exercise: OECD Health Statistics, 2024, retrieved on 2026-10-30 from the OECD Data Explorer (dataflows "Health expenditure and financing" and "Life expectancy"). Spending per capita is in US dollars at purchasing power parity, current prices. "Government and compulsory schemes" is financing category HF.1 of the System of Health Accounts, which includes compulsory insurance whether public or private: it is not the same as "public spending", so read the OECD country notes before you compare it.

Read the chart with care. Life expectancy depends on income, diet, smoking, violence, road safety and inequality as well as health care, so a country cannot be ranked on "efficiency" from two numbers. The useful questions are more specific: why does one country spend 1.5 times as much per person as its neighbours for similar outcomes (prices, administrative costs, volume of specialist care), and what does high out-of-pocket spending mean for access?

Why costs grow

Health spending has grown faster than GDP in most rich countries for decades. Three explanations are taught most often. Baumol (1967) explained why labour-intensive services become relatively more expensive: wages rise with productivity in the rest of the economy, but a consultation or a nursing shift cannot be shortened in the same way. New technology expands what can be treated, which raises spending even when each treatment becomes cheaper. And rising incomes and ageing populations increase demand. Managers meet these forces as wage pressure, workforce shortages and a constant flow of new, more expensive treatments; the response is to change who does what (skill mix), where care happens (from hospital to home) and how care is paid for.

The value chain: payers, providers and life sciences

The value chain shows who pays whom and who decides. Payers pool money and buy care; providers deliver it; life sciences companies supply drugs and devices whose use providers decide and payers reimburse. Intermediaries sit between them: distributors, pharmacies, group purchasing organisations and, in some systems, pharmacy benefit managers. Each link carries a margin and an incentive. Strategy questions in the course usually start with this map: which link captures the value created by a new treatment, a new care model or a merger, and which link bears the risk if costs rise?

Paying providers

How a provider is paid decides which behaviour is rewarded.

Example worked calculation: a primary care group serves 10,000 members. It costs USD 140 to deliver a visit. Under fee-for-service the payer pays USD 160 per visit; under capitation it pays USD 35 per member per month, or USD 4,200,000 a year (=10000*35*12).

Capitation breaks even at 3.0 visits per member (=4200000/140/10000). Under fee-for-service, more visits mean more margin; under capitation, fewer. Neither model is neutral, which is why many systems blend them.

Value-based care

Porter and Teisberg (2006) and Porter (2010) argue that the goal of health care should be value for patients, defined as the health outcomes that matter to patients achieved per unit of cost, measured over the full cycle of care for a medical condition rather than per service or per department. The ideas that follow are organising care around conditions in integrated practice units, measuring outcomes and costs for each patient, paying for the full care cycle (bundled payment), integrating care across sites and building enabling information technology. Berwick, Nolan and Whittington (2008) framed the Triple Aim for a population: better experience of care, better population health and lower per capita cost, pursued together by an organisation that takes responsibility for all three.

Measuring value needs measuring quality. Donabedian (1988) distinguished structure (the resources and organisation), process (what is done) and outcome (what happens to the patient). Outcomes matter most but are slow and need risk adjustment; process measures are easier to collect and act on. A good measure set for a condition combines survival, functional status and complications reported by clinicians with outcomes reported by patients.

Dated example (checked on 2026-10-30): in the United States, the Centers for Medicare and Medicaid Services runs the Transforming Episode Accountability Model (TEAM), a mandatory episode-based payment model for hospitals paid under the inpatient prospective payment system in selected areas, running from 1 January 2026 to 31 December 2030 and covering lower extremity joint replacement, surgical hip and femur fracture treatment, spinal fusion, coronary artery bypass graft and major bowel procedures, each episode ending 30 days after discharge (https://www.cms.gov/priorities/innovation/innovation-models/team-model). The page notes that the FY 2027 inpatient payment final rule (published 31 July 2026) updated TEAM policies, so read the current rules before you rely on any detail. The mini-case below uses a different, fictional 90-day design. Other countries use bundled or condition-based payment in different forms; check the programme rules of your own system.

Health technology assessment and cost-effectiveness

Payers cannot fund every treatment, so many systems assess new technologies before deciding coverage or price. A cost-effectiveness analysis compares a new treatment with the current standard. Health gain is often measured in quality-adjusted life years (QALYs): years of life weighted by a utility between 0 (dead) and 1 (full health).

Example worked calculation: a new therapy costs USD 48,000 per patient and yields 6.2 QALYs; the standard treatment costs USD 18,000 and yields 5.4 QALYs. The ICER is =(48000-18000)/(6.2-5.4) = USD 37,500 per QALY. At a willingness to pay $\lambda$ of USD 30,000 per QALY the incremental net monetary benefit is =0.8*30000-30000 = -6,000, so the new therapy is not cost-effective; at USD 50,000 it is +10,000, so it is. Thresholds, methods and the role of other criteria (severity, rarity, innovation, budget impact) differ by agency; read the current methods guide of the relevant health technology assessment body before you use a number.

Life sciences economics

Drugs and devices are expensive to develop and cheap to copy once approved. DiMasi, Grabowski and Hansen (2016) estimated the full cost of bringing a new drug to approval, including the cost of failures and of capital tied up over a long development period; their estimate and its method are both debated, and you should read critics alongside it. Patents and regulatory exclusivity give the developer a limited period to recover these costs, after which generic or biosimilar competition usually lowers prices sharply. Prices are set in negotiation with payers, which in many countries use health technology assessment, reference pricing across countries or managed entry agreements that link payment to results. A launch strategy therefore combines evidence generation for regulators and payers, a price that the evidence can defend, and an access plan for each market.

Health system strategy

Hospital and health system strategy has its own recurring themes: horizontal mergers (more bargaining power with payers, with competition authorities watching), vertical integration (hospitals employing physicians, payers owning providers), the shift of care from inpatient to outpatient and home settings, workforce shortages, and digital care. Artificial intelligence now appears in imaging, documentation and operations; its value depends on clinical validation, integration into workflow, liability and data protection (see mba/mba-ai-strategy-card and healthcare/fhir-integration-design for interoperability). Apply the usual strategy tools (mba/mba-five-forces-card, mba/mba-value-chain-card) but remember that a hospital's "customers" include payers, referring clinicians and regulators as well as patients.

Mini-case: Tallow Creek Medical Center, joint replacement bundle

Situation

Tallow Creek Medical Center is a fictional 380-bed not-for-profit regional hospital. Its orthopaedic service performs about 400 hip and knee replacements a year. Its main payer has announced a two-sided bundled payment programme for these procedures: for each 90-day episode, from admission to 90 days after discharge, the payer will compare actual spending (the hospital admission, surgeon and anaesthetist fees, post-acute care and any readmission) with a target price. If spending is below the target, the hospital receives the difference; if it is above, the hospital repays the difference. Payment to each provider continues as before during the year, and the reconciliation happens afterwards.

Dr. Amara Okafor, chief of orthopaedics, and Ben Halvorsen, the chief financial officer (both fictional), must decide how to respond. Surgeons use implants from four different suppliers. About a third of patients go to a skilled nursing facility after discharge, partly from habit; physiotherapists believe many could go home with home health support. The readmission rate is 8%. A nurse navigator programme, which prepares patients before surgery and follows them after discharge, has been proposed twice and rejected as a cost with no revenue.

Exhibit 1: average episode spending per patient, last 12 months (payer view, USD, Example)

Exhibit 2: programme terms and hospital costs (Example)

Exhibit 3: proposed changes (Example)

Discussion questions

1. If Tallow Creek changes nothing, what does the bundle cost it in a year?
2. Compute episode spending with all three changes. What does the hospital gain, in total, from the reconciliation, the navigator cost and the implant saving?
3. Which change contributes most to payer savings, and which to the hospital's own margin?
4. What could go wrong for patients, and how should the quality gate and the hospital's own monitoring guard against it?
5. The surgeons ask for a share of the savings. What do you need to check before agreeing?
6. Should Tallow Creek treat the programme as a threat or an opportunity? Write the two-sentence answer you would give the board.

Teaching note

Q1: doing nothing. Spending of 23,675 against a target of 22,900 means the hospital repays 775 per episode, or USD 310,000 a year (=(23675-22900)*400), assuming the quality gate is met.

Q2: all three changes. Episode spending becomes 22,250: fees 2,200, admission 14,500, skilled nursing 1,800 (=20%*9000), home health 1,500 (=60%*2500), rehabilitation 1,500, readmissions 750 (=5%*15000). The reconciliation pays 650 per episode, or 260,000 a year. The navigator costs 100,000 (=250*400). The implant saving adds 360,000 (=900*400) to the hospital's margin on the admission, which rises from 1,700 to 2,600 per case. The total gain is USD 520,000 a year (=260000-100000+360000) against the baseline under the old payment, and 830,000 against doing nothing under the bundle.

Q3: sources of savings. The discharge-to-home pathway alone lowers episode spending by 975 (to 22,700); the navigator alone lowers it by 450 (to 23,225, still above target). Post-acute care is the largest lever for the payer; implants are the largest lever for the hospital, and they are invisible to the payer in this design. Students who look only at the hospital's own costs miss the larger part of the opportunity, which lies in other providers' settings.

Q4: patient risks. Discharging patients home who need a skilled nursing facility, selecting healthier patients to keep episode costs low, and delaying readmissions past day 90. The quality gate on readmissions and patient- reported function guards against some of this; the hospital should also track the case mix of patients it operates on, outcomes beyond 90 days and complaints, and have clinicians own the pathway (Donabedian's structure, process and outcome all apply).

Q5: gainsharing. Sharing savings with physicians is regulated in many jurisdictions (for example by anti-kickback and fee-splitting rules); the arrangement must be checked with qualified legal advisers, tied to quality, and designed so that it does not reward reduced care. This is a question to raise, not one the guide answers.

Q6: board answer. An opportunity, if the hospital leads the clinical redesign: the bundle pays for the coordination it previously could not fund, and the navigator programme now has a revenue line. A threat if it waits, because the target price will fall as other hospitals improve.

Assignments and grading

Rubric for a written health care case analysis (Example):

Exam preparation plan

Use mba/mba-exam-prep for the general plan and mba/mba-concept-flashcards for spaced review.

Common struggles

• Ranking countries on two numbers. Spending and life expectancy alone do not measure health system performance. Fix: state the specific question and the confounders before you compare.
• Confusing moral hazard with fraud. It is a price response. Fix: describe it as the demand curve at a lower price.
• Treating one payment model as the answer. Every model creates incentives to game. Fix: list the gaming risk next to every model you recommend.
• Ignoring who captures savings. In the mini-case the payer and the hospital gain from different changes. Fix: draw the money flows first.
• Forgetting the denominator in an ICER. A small QALY gain makes a modest cost difference look huge. Fix: always write both differences before dividing.
• Writing strategy without clinicians. Fix: add a paragraph on clinical leadership and professional norms to every recommendation.
• Quoting old data. Fix: date every figure and link its source.

Reading list

Classic works (primary sources):

• Arrow, K. J. (1963). Uncertainty and the welfare economics of medical care. The American Economic Review, 53(5).
• Pauly, M. V. (1968). The economics of moral hazard: comment. The American Economic Review.
• Baumol, W. J. (1967). Macroeconomics of unbalanced growth: the anatomy of urban crisis. The American Economic Review.
• Akerlof, G. A. (1970). The market for "lemons": quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488-500. https://doi.org/10.2307/1879431
• Rothschild, M. and Stiglitz, J. (1976). Equilibrium in competitive insurance markets: an essay on the economics of imperfect information. The Quarterly Journal of Economics, 90(4), 629-649. https://doi.org/10.2307/1885326
• Manning, W. G., Newhouse, J. P. and others (1987). Health insurance and the demand for medical care: evidence from a randomized experiment. The American Economic Review.
• Donabedian, A. (1988). The quality of care: how can it be assessed? JAMA, 260(12), 1743-1748. https://doi.org/10.1001/jama.1988.03410120089033
• Porter, M. E. and Teisberg, E. O. (2006). Redefining Health Care: Creating Value-Based Competition on Results. Harvard Business School Press.
• Berwick, D. M., Nolan, T. W. and Whittington, J. (2008). The Triple Aim: care, health, and cost. Health Affairs, 27(3), 759-769. https://doi.org/10.1377/hlthaff.27.3.759
• Porter, M. E. (2010). What is value in health care? New England Journal of Medicine, 363(26), 2477-2481. https://doi.org/10.1056/NEJMp1011024
• DiMasi, J. A., Grabowski, H. G. and Hansen, R. W. (2016). Innovation in the pharmaceutical industry: new estimates of R&D costs. Journal of Health Economics, 47, 20-33. https://doi.org/10.1016/j.jhealeco.2016.01.012

Data and official pages (checked 2026-10-30):

• OECD Health Statistics, via the OECD Data Explorer (dataflows "Health expenditure and financing" and "Life expectancy"), https://data-explorer.oecd.org
• Centers for Medicare and Medicaid Services, Transforming Episode Accountability Model (TEAM), https://www.cms.gov/priorities/innovation/innovation-models/team-model

Textbooks (further reading, by name only): Folland, Goodman and Stano, The Economics of Health and Health Care; Drummond and colleagues, Methods for the Economic Evaluation of Health Care Programmes.

Self-test

1. Name two features of medical care that Arrow (1963) used to explain why it is organised differently from other markets.
2. Define moral hazard in health insurance in one sentence and name one tool that limits it.
3. Why can adverse selection unravel an insurance market, and name two policies that prevent it.
4. Explain Baumol's cost disease in two sentences.
5. Name the four stylised health system models and one country often used to illustrate each.
6. In the 2024 OECD table, which country has the highest out-of-pocket share, and why might that matter?
7. Under capitation in the worked example, what is the margin at 3.2 visits per member, and what is the break-even?
8. Which payment model encourages coordination across hospital and post-acute care, and what is its main gaming risk?
9. Define value in health care as Porter (2010) uses it.
10. Name Donabedian's three dimensions of quality.
11. Compute the ICER for a treatment that costs 12,000 more and adds 0.4 QALYs. Is it cost-effective at 25,000 per QALY?
12. In the mini-case, how much does Tallow Creek repay if it changes nothing?

Answer key

1. Uncertainty about illness and about the outcome of treatment; information asymmetry between patient and clinician (also: the role of trust, licensing and professional ethics).
2. Insured people use more care because its price at the point of use is lower; cost sharing (deductibles, co-payments, coinsurance) limits it.
3. High-risk people buy more cover, premiums rise and low-risk people leave; mandates, community rating with risk adjustment, and open enrolment periods.
4. Wages in labour-intensive services rise with productivity in the rest of the economy, but the services themselves cannot raise productivity as fast. So their relative cost rises.
5. National health service (United Kingdom), social health insurance (Germany or France), national health insurance (Canada), mixed or market-based (United States).
6. Korea, 30.9%; high out-of-pocket spending can deter people from seeking care and expose households to financial hardship.
7. -280,000 (=4200000-10000*3.2*140); break-even at 3.0 visits per member.
8. Bundled (episode) payment; selecting healthier patients or raising the number of episodes.
9. Health outcomes that matter to patients achieved per unit of cost, over the full cycle of care for a condition.
10. Structure, process and outcome.
11. =12000/0.4 = 30,000 per QALY; not cost-effective at 25,000 (net monetary benefit =0.4*25000-12000 = -2,000).
12. USD 310,000 a year (=(23675-22900)*400).

My notes and next steps

Revision history

Standard and licence note

Based on the academic course structure of MBA healthcare management electives and the primary works listed above, with data from OECD Health Statistics (retrieved through the OECD Data Explorer on 2026-10-30) and a dated payment programme fact from the official page named in the reading list. The text, the worked examples, the mini-case and the teaching note are original; no textbook, published case or official text is copied, and Tallow Creek Medical Center, its staff and every number in the mini-case are fictional. The template is independent and not affiliated with or endorsed by the OECD, any government agency, health system, business school or publisher. Health policy, payment programmes and data change often: check the current official sources, and consult qualified clinical, legal and financial professionals before you rely on anything here. Template licence: MIT.