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 DETAILED CONTENTS

List of Cases...............................................................................................xv
Preface to the Fourth Edition....................................................................xvii

Chapter 1. Why Health Economics?....................................................1

1.1 Why Health Economics?..............................................1
1.2 Economics as a Map for Decision Making....................2
1.3 Special Challenges for Healthcare Managers.................3
1.3.1 Risk and Uncertainty.............................................4
1.3.2 Insurance...............................................................4
1.3.3 Information Asymmetries.......................................5
1.3.4 Not-for-Profit Organizations..................................5
1.3.5 Technological and Institutional Change.................6
1.4 Turmoil in the Healthcare System................................6
1.4.1 The Pressure to Reduce Costs................................7
1.4.2 The Fragmentation of Healthcare Payments...........8
1.5 What Does Economics Study?......................................9
1.6 Conclusion.................................................................13
Exercises..........................................................................13
References........................................................................15

Chapter 2. An Overview of the US Healthcare System......................17

2.1 Input and Output Views of Healthcare......................17
2.1.1 The Input View...................................................18
2.1.2 The Output View.................................................20
2.2 Health Outcomes.......................................................20
2.3 Outputs of the Healthcare System..............................22
2.3.1 Why Is How Much We Spend on Healthcare
Interesting?..............................................................22
2.3.2 Why Is Healthcare Spending Rising More Slowly
Than Anticipated?.....................................................22
2.4 The Shifting Pattern of Healthcare Spending.............25
2.5 Disruptive Change in the Healthcare System..............27
2.5.1 Rapid Technological Change................................28

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 viii Det a iled C o n te n ts

2.5.2 Major Features of the Affordable Care Act...........30

2.5.3 The Transformation of the Health Insurance
Industry...................................................................31
2.6 Conclusion.................................................................32
Exercises..........................................................................32
References........................................................................34

Chapter 3. An Overview of the Healthcare Financing System............37

3.1 Introduction..............................................................37
3.1.1 Paying for Medical Care.......................................37
3.1.2 Direct Spending...................................................38
3.1.3 Sources of Insurance............................................39
3.1.4 The Uninsured....................................................39
3.2 What Is Insurance, and Why Is It So Prevalent?.........40
3.2.1 What Insurance Does...........................................40
3.2.2 Adverse Selection and Moral Hazard....................41
3.2.3 Medicare as an Example of Complexity................42
3.3 The Changing Nature of Health Insurance................44
3.4 Payment Systems........................................................48
3.5 Conclusion.................................................................51
Exercises..........................................................................51
References........................................................................52

Chapter 4. Describing, Evaluating, and Managing Risk......................55

4.1 Introduction..............................................................55
4.2 Describing Potential Outcomes..................................56
4.3 Evaluating Outcomes.................................................58
4.3.1 Expected Values...................................................58
4.3.2 Outcome Variation...............................................60
4.3.3 Risk Preferences...................................................62
4.3.4 Decision Analysis.................................................63
4.3.5 Sensitivity Analysis...............................................63
4.3.6 Scenario Analysis..................................................64
4.4 Managing Risk...........................................................64
4.4.1 Risk Sharing.........................................................64
4.4.2 Diversification......................................................65
4.5 Conclusion.................................................................67
Exercises..........................................................................68
References........................................................................71

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 D etailed C ontents ix

Chapter 5. Understanding Costs........................................................73

5.1 Understanding Costs..................................................73
5.2 Cost Perspectives.......................................................74
5.3 Vocabulary.................................................................77
5.4 Factors That Influence Costs......................................79
5.4.1 Outputs...............................................................79
5.4.2 Input Costs..........................................................81
5.4.3 Technology..........................................................81
5.4.4 Efficiency.............................................................81
5.5 Variable and Fixed Costs............................................82
5.6 Conclusion.................................................................85
Exercises..........................................................................85
References........................................................................87

Chapter 6. Realizing the Triple Aim..................................................89

6.1 What Is the Triple Aim?.............................................89
6.1.1 Accountable Care Organizations..........................90
6.1.2 Bundled Payments...............................................91
6.1.3 Patient-Centered Medical Homes........................91
6.1.4 Value-Based Insurance Designs............................93
6.2 Improving the Experience of Care ............................96
6.3 Improving Population Health....................................97
6.3.1 What Is Population Health?.................................97
6.3.2 What Are Modifiable Social Determinants of
Health?.....................................................................98
6.4 Reducing Cost per Capita..........................................98
6.5 Conclusion...............................................................101
Exercises........................................................................102
References......................................................................103

Chapter 7. The Demand for Healthcare Products............................109

7.1 Introduction............................................................109
7.1.1 Rationing...........................................................110
7.1.2 Indirect Payments and Insurance........................111
7.2 Why Demand for Healthcare Is Complex.................111
7.3 Demand Without Insurance and Healthcare
Professionals..............................................................112
7.3.1 Changes in Price................................................112
7.3.2 Factors Other Than Price...................................114
7.4 Demand with Insurance...........................................115

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 x Det a iled C o n te n ts

7.5 Demand with Advice from Providers........................118

7.6 Conclusion...............................................................120
Exercises........................................................................121
References......................................................................123

Chapter 8. Elasticities......................................................................125
8.1 Introduction............................................................125
8.2 Elasticities................................................................126
8.3 Income Elasticities...................................................127
8.4 Price Elasticities of Demand.....................................127
8.5 Other Elasticities......................................................130
8.6 Using Elasticities......................................................130
8.7 Conclusion...............................................................132
Exercises........................................................................133
References......................................................................134

Chapter 9. Forecasting....................................................................137
9.1 Introduction............................................................137
9.2 What Is a Sales Forecast?..........................................138
9.3 Forecasting..............................................................140
9.4 What Matters?..........................................................145
9.5 Conclusion...............................................................148
Exercises .......................................................................149
References......................................................................152

Chapter 10. Supply and Demand Analysis..........................................153

10.1 Introduction..........................................................153
10.1.1 Supply Curves..................................................154
10.1.2 Demand Curves...............................................155
10.1.3 Equilibrium.....................................................155
10.1.4 Professional Advice and Imperfect
Competition...........................................................155
10.2 Demand and Supply Shifts.....................................156
10.2.1 A Shift in Demand...........................................158
10.2.2 A Shift in Supply..............................................159
10.3 Shortage and Surplus.............................................160
10.4 Analyses of Multiple Markets..................................162
10.5 Conclusion.............................................................163
Exercises........................................................................163
References......................................................................167

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 D etailed C ontents xi

Chapter 11. Maximizing Profits.........................................................169

11.1 Introduction..........................................................169
11.2 Cutting Costs to Increase Profits............................170
11.2.1 Cost Reduction Through Improved Clinical
Management..........................................................171
11.2.2 Reengineering..................................................173
11.3 Maximizing Profits.................................................173
11.4 Return on Investment............................................175
11.5 Producing to Stock or to Order.............................176
11.6 Not-for-Profit Organizations..................................177
11.6.1 Agency Problems.............................................177
11.6.2 Differences in Goals.........................................177
11.6.3 Differences in Costs.........................................178
11.7 Conclusion.............................................................180
Exercises........................................................................181
References......................................................................183

Chapter 12. Pricing...........................................................................185

12.1 Introduction..........................................................185
12.2 The Economic Model of Pricing............................186
12.3 Pricing and Profits.................................................187
12.4 Price Discrimination...............................................189
12.5 Multipart Pricing...................................................192
12.6 Pricing and Managed Care.....................................194
12.7 Conclusion.............................................................195
Exercises........................................................................196
References......................................................................198

Chapter 13. Asymmetric Information and Incentives.........................199

13.1 Asymmetric Information........................................199
13.2 Opportunism.........................................................200
13.2.1 Remedies for Asymmetric Information.............201
13.2.2 The Special Challenges for Healthcare.............201
13.2.3 Signaling..........................................................202
13.3 Incentive Design for Providers...............................202
13.4 Insurance and Incentives........................................205
13.5 Limits on Incentive-Based Payments......................208
13.5.1 Risk.................................................................208
13.5.2 Complexity......................................................208
13.5.3 Opportunistic Responses..................................208

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 xii Det a iled C o n te n ts

13.5.4 Team Production.............................................209

13.6 Incentive Design for Managers...............................209
13.7 Conclusion.............................................................213
Exercises........................................................................213
References......................................................................216

Chapter 14. Economic Analysis of Clinical and Managerial

Interventions..............................................................219
14.1 Introduction..........................................................219
14.2 Cost Analysis..........................................................221
14.2.1 Identifying a Cost Perspective..........................221
14.2.2 Identifying Resources and Opportunity Costs....222
14.2.3 Direct and Indirect Costs.................................223
14.3 Types of Analysis....................................................223
14.4 Cost-Minimization Analysis....................................224
14.5 Cost-Effectiveness Analysis.....................................225
14.6 Cost–Benefit Analysis.............................................226
14.7 Cost–Utility Analysis..............................................228
14.8 Conclusion.............................................................233
Exercises........................................................................234
References......................................................................235

Chapter 15. Profits, Market Structure, and Market Power.................237

15.1 Introduction..........................................................237
15.2 Rivalry Among Existing Firms................................239
15.3 Defining Market Structures....................................240
15.4 Customers’ Bargaining Power................................241
15.5 The Bargaining Power of Suppliers........................243
15.6 Entry by Potential Rivals........................................244
15.7 Market Structure and Markups...............................245
15.7.1 Markups...........................................................246
15.7.2 The Impact of Market Structure on Prices.......247
15.8 Market Power and Profits.......................................248
15.8.1 Collusion.........................................................248
15.8.2 Product Differentiation and Advertising...........249
15.9 Conclusion.............................................................253
Exercises........................................................................254
References......................................................................256

Chapter 16. Government Intervention in Healthcare Markets...........257

16.1 Government Intervention in Healthcare.................258

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 D etailed C ontents xiii

16.1.1 On the Virtues of Markets...............................258

16.1.2 Information Processing....................................258
16.1.3 Static Resource Allocation................................260
16.1.4 Dynamic Resource Allocation..........................261
16.2 Market Failure.......................................................261
16.2.1 Externalities.....................................................262
16.2.2 Public Goods...................................................264
16.2.3 Imperfect Competition....................................267
16.2.4 Imperfect Information and Incomplete
Markets..................................................................267
16.2.5 Natural Monopoly...........................................269
16.2.6 Income Redistribution.....................................269
16.3 Remedies...............................................................269
16.3.1 Assignment of Property Rights.........................270
16.3.2 Taxes and Subsidies..........................................271
16.3.3 Public Production............................................272
16.3.4 Regulation.......................................................272
16.4 Conclusion.............................................................272
Exercises........................................................................273
References......................................................................276

Chapter 17. Regulation.....................................................................277

17.1 Introduction..........................................................277
17.2 Market Imperfections.............................................278
17.2.1 Insurance.........................................................279
17.2.2 Market Power..................................................279
17.2.3 Externalities.....................................................279
17.3 Rational Consumer Ignorance................................280
17.4 The Interest Group Model of Regulation...............281
17.4.1 Limiting Competition......................................282
17.4.2 Licensure.........................................................282
17.4.3 Regulation as a Competitive Strategy...............283
17.5 Regulatory Imperfections.......................................283
17.6 Market Responses to Market Imperfections............285
17.6.1 Tort Law and Contract Law.............................286
17.6.2 Information Dissemination..............................286
17.6.3 Contracts.........................................................287
17.7 Conclusion.............................................................288
Exercises........................................................................289
References......................................................................291

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 xiv Det a iled C o n te n ts

Chapter 18. Behavioral Economics....................................................293

18.1 Introduction..........................................................293
18.2 Inconsistent Preferences.........................................294
18.3 Risk Preferences ....................................................296
18.4 Incorrect Beliefs.....................................................297
18.5 Representativeness and the Law of Small
Numbers...................................................................299
18.6 Inconsistent Decision Making: Framing ................300
18.7 Conclusion.............................................................303
Exercises........................................................................304
Note..............................................................................306
References......................................................................306

Answers to Select Chapter Exercises...........................................................309

Glossary..................................................................................................313
Index......................................................................................................323
About the Author....................................................................................341

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 LIST OF CASES

Case 1.1 Why Is the Pressure to Reduce Healthcare Costs

So Strong?...............................................................................7
Case 1.2 Why Does the United States Spend So Much More?.............11
Case 2.1 Comparing Health Outcomes in Adjoining Counties.............23
Case 3.1 Oregon’s Coordinated Care Organizations............................45
Case 3.2 Geisinger’s Transformation....................................................48
Case 4.1 Managing Risk in Medicare Advantage Plans.........................57
Case 4.2 Diversification by Joint Venture and Acquisition....................66
Case 5.1 Cost Reductions at Baptist Health System.............................76
Case 5.2 Improving Performance in Primary Care...............................80
Case 5.3 Costs of Care in the Emergency Department.........................83
Case 6.1 Can Patient-Centered Medical Homes Help Realize
the Triple Aim?......................................................................92
Case 6.2 Centers of Excellence............................................................95
Case 6.3 Would Medicare for All Reduce Costs?................................100
Case 7.1 MinuteClinic.......................................................................117
Case 8.1 The Curious Case of Daraprim............................................128
Case 8.2 Should Sodas Be Taxed?......................................................131
Case 9.1 Forecasting Supply Use........................................................139
Case 9.2 Mistakes to Avoid When Making Forecasts..........................147
Case 10.1 Worrying About Demand Shifts...........................................157
Case 10.2 How Large Will the Shortage of Primary Care
Physicians Be?......................................................................161
Case 11.1 Profiting from Clinical Improvement...................................172
Case 11.2 Tax Exemptions for Not-for-Profit Hospitals.......................178
Case 12.1 Price Discrimination in Practice...........................................190

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 xvi L is t o f Ca s e s

Case 12.2 What Should You Charge?...................................................192

Case 12.3 Should My Firm Accept This Contract?...............................194
Case 13.1 Incentives in Accountable Care Organizations.....................206
Case 13.2 The Total Care and Cost Improvement Program.................211
Case 14.1 Teledermatology..................................................................231
Case 15.1 Should Governments Participate in Price Negotiations?.......242
Case 15.2 Deregulating Pharmaceutical Advertising.............................252
Case 16.1 Setting Prices for Walkers....................................................259
Case 16.2 To Vaccinate or Not............................................................265
Case 17.1 Monks, Caskets, and the Supreme Court.............................284
Case 17.2 Changing Consumer Information........................................287
Case 18.1 Encouraging Employees and Patients to Be Active...............295
Case 18.2 Children’s Health Insurance................................................301

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 PREFACE TO THE FOURTH EDITION

A fourth edition of Economics for Healthcare Managers was needed for

three main reasons. The principal reason is the dramatic changes underway.
Health insurance and healthcare have already changed, partly because of the
implementation of the Affordable Care Act of 2010 and partly because of
the increasing ability of insurers and sponsors to identify efficient and inef-
ficient providers of care. Providers have begun to respond to these changes
in insurance; the full extent of provider responses is impossible to forecast.
Nonetheless, change is in the wind, and everyone in healthcare must be pre-
pared. The radical idea that success requires offering customers exceptional
value is becoming more common in healthcare. While challenging, this classic
prescription for managing turbulent times is one of the most useful ideas that
economics has to offer.
Second, the purview of healthcare managers has expanded signifi-
cantly. Improving a population’s health, not just its healthcare, has become
a challenge for managers. A population health approach adds genetics, indi-
vidual behavior, public health interventions, and social determinants of health
to the concerns of working managers.
Third, the fourth edition expands opportunities for active learning.
The number of cases has been expanded, and the instructor resources offer
multiple activities that allow students to engage with the thorny economic
issues that healthcare managers must address. With study questions and at
least one case for discussion in each chapter, this text and its online instructor
resources are designed to facilitate discussion and learning.
The fourth edition remains firmly focused on the economics that
healthcare managers must understand to be effective, but it updates the ref-
erences and offers students a glimpse into contemporary research. Although
many classic citations remain vital, research has exploded in the last five years.
The fourth edition shares some of this new work with students in an acces-
sible way.

xvii

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 xviii Prefa c e t o th e Fo u r th E d i ti o n

Instructor Resources

This book’s instructor resources include answers to the study ques-

tions, guides to the cases, a PowerPoint presentation for each chapter,
a lesson plan for each chapter, and a test bank.
For the most up-to-date information about this book and its
instructor resources, go to ache.org/HAP and search for the book’s
order code (2380).
This book’s instructor resources are available to instructors who
adopt this book for use in their course. For access information, please
e-mail hapbooks@ache.org.

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 CHAPTER

WHY HEALTH ECONOMICS? 1

Learning Objectives

After reading this chapter, students will be able to

• describe the value of economics for managers,

• identify major challenges for healthcare managers,
• find current information about health outcomes, and
• distinguish between positive and normative economics.

Key Concepts

• Economics helps managers focus on key issues.

• Economics helps managers understand goal-oriented decision making.
• Economics helps managers understand strategic decision making.
• Economics gives managers a framework for understanding costs.
• Economics gives managers a framework for understanding market
demand.
• Economics gives managers a framework for assessing profitability.
• Economics helps managers understand risk and uncertainty.
• Economics helps managers understand insurance.
• Economics helps managers understand information asymmetries.
• Economics helps managers deal with rapid change.

1.1 Why Health Economics?

Why should working healthcare managers study economics? This simple

question is really two questions. Why is economics valuable for managers?
What special challenges do healthcare managers face? These questions moti-
vate this book.
Why is economics valuable for managers? There are six reasons. We
will briefly touch on each of them to highlight the themes we will develop
in later chapters.

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 2 Ec o n o m ic s f o r H e a l th c a re M a n a g e r s

1. Economics helps managers focus on key issues. Economics helps

managers wade through the deluge of information they confront and
identify the data they need.
2. Economics outlines strategies for realizing goals given the available
resources. A primary task of economics is to explore carefully the
implications of rational decision making.
3. Economics gives managers ground rules for strategic decision making.
When rivals are not only competing against them but watching what
they do, managers must be prepared to think strategically.
cost 4. Economics gives managers a framework for making sense of costs.
The value of a Managers need to understand costs because good decisions are unlikely
resource in its next
best use.
to be made without this understanding.
5. Economics gives managers a framework for thinking about value.
The benefits of the goods and services that successful organizations
provide to customers exceed the costs of producing those goods and
services. Good management decisions require an understanding of how
customers perceive value.
6. Most importantly, economics sensitizes managers to fundamental ideas
that affect the operations of every organization. Effective management
begins with the recognition that consumers are sensitive to price
differences, that organizations compete to advance the interests of
their stakeholders, and that success comes from providing value to
customers.

1.2 Economics as a Map for Decision Making

Economics provides a map for decision making. Maps do two things. They
highlight key features and suppress unimportant features. To drive from Des
Moines, Iowa, to Dallas, Texas, you need to know how the major highways
connect. You do not want to know the name and location of each street in
each town you pass through. Of course, what is important and what is unim-
portant depend on the task at hand. If you want to drive from West 116th
Street and Ridgeview Road in Olathe, Kansas, to the Truman homestead in
Independence, Missouri, a map that describes only the interstate highway
system will be of limited value to you. You need to know which map is the
right tool for your situation.
Using a map takes knowledge and skill. You need to know what infor-
mation you need, or you may choose the wrong map and be swamped in
extraneous data or lost without key facts. Having the right map is no guar-
antee that you can use it, however. You need to practice to be able to use a
map quickly and effectively.

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 C hap ter 1: Why H ealth Ec onom ic s? 3

Like a map, economics highlights some issues and suppresses others.

For example, it tells managers to focus on marginal or incremental costs, marginal or
which makes understanding and managing costs much simpler, but econom- incremental cost
The cost of
ics has little to say about the belief systems that motivate consumer behavior. producing an
If you are seeking to make therapeutic regimens easier to adhere to by mak- additional unit of
ing them more consistent with consumers’ belief systems, economics is not output.
a helpful map. If, on the other hand, you want to decide whether setting up
an urgent care clinic is financially feasible, economics helps you focus on how
your project will change revenues and costs.
Economics also gives managers a framework for understanding rational
decision making. Rational decision making involves making choices that rational decision
further one’s goals given the resources available. Whether those goals include making
Choosing the
maximizing profits, securing the health of the indigent, or other objectives, the course of action
framework is much the same. It entails looking at benefits and costs to realize that offers the best
the largest net benefit. (We will explore this question further in section 1.5.) outcomes, given
Managers must understand costs and be able to explain costs to others. the constraints
one faces.
Confusion about costs is common, so confusion in decision making is also
common. Confusion about benefits is even more widespread than confu-
sion about costs. As a result, management decisions in healthcare often leave
much to be desired.
Economists typically speak about economics at a theoretical level,
using “perfectly competitive markets” (which are, for the most part, mythi-
cal social structures) as a model; as a result, application of economics can be
difficult for managers competing in real-world markets. Yet, economics offers
concrete guidance about pricing, contracting, and other quandaries that
managers face. Economics also offers a framework for evaluating the strategic
choices managers must make. Many healthcare organizations have rivals, so
good decisions must take into account what the competition is doing. Will
being the first to enter a market give your organization an advantage, or
will it give your rivals a low-cost way of seeing what works and what does
not? Will buying primary care practices bring you increased market share or
buyer’s remorse? Knowing economics will not make these choices easy, but it
can give managers a plan for sorting through the issues.

1.3 Special Challenges for Healthcare Managers

What special challenges do healthcare managers face? Healthcare managers
face five issues more than other managers do:

1. The central roles of risk and uncertainty

2. The complexities created by insurance
3. The perils produced by information asymmetries

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 4 Ec o n o m ic s f o r H e a l th c a re M a n a g e r s

4. The problems posed by not-for-profit organizations

5. The rapid and confusing course of technical and institutional change

Let us look at each of these challenges in more depth.

1.3.1 Risk and Uncertainty

Risk and uncertainty are defining features of healthcare markets and health-
care organizations. Both the incidence of illness and the effectiveness of
medical care should be described in terms of probabilities. For example, the
right therapy, provided the right way, usually carries some risk of failure. A
proportion of patients will experience harmful side effects, and a proportion
of patients will not benefit. As a result, management of costs and quality pres-
ents difficult challenges. Has a provider produced bad outcomes because he
was unlucky and had to treat an extremely sick panel of patients, or because
he encountered a panel of patients for whom standard therapies were inef-
fective? Did his colleagues let him down? Or was he incompetent, sloppy, or
lazy? The reason is not always evident.

1.3.2 Insurance
Because risk and uncertainty are inherent in healthcare, most consumers
have health insurance, and healthcare organizations have to contend with
the management problems insurance presents. First, insurance creates confu-
sion about who the customer is. Customers use the products, but insurance
plans often pay most of the bill. Moreover, most people with private medi-
cal insurance receive coverage through their employer (in large part because
the tax system makes this arrangement advantageous). Although economists
generally agree that employees ultimately pay for insurance via wage reduc-
tions, most employees do not know the costs of their insurance alternatives
(and unless they are changing jobs, they have limited interest in finding out).
As a result of this situation, employees remain unaware of the true costs of
care and are not eager to balance cost and value. If insurance is footing the
bill, most patients choose the best, most expensive treatment—a choice they
might not make if they were paying the full cost.
In addition, insurance makes even simple transactions complex. Most
transactions involve at least three parties (the patient, the insurer, and the
provider), and many involve more. To add to the confusion, most providers
deal with a wide array of insurance plans and face blizzards of disparate claim
forms and payment systems. Increasing numbers of insurance plans have
negotiated individual payment systems and rates, so many healthcare provid-
ers look wistfully at industries that simply bill customers to obtain revenues.
The complexity of insurance transactions also increases opportunity for error
and fraud. In fact, both are fairly common.

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 C hap ter 1: Why H ealth Ec onom ic s? 5

Despite this bewildering array of insurance plans, many providers

still rely on a few plans for their revenue (a circumstance most managers
seek to avoid). For example, most hospitals receive at least a third of their
revenue from Medicare. As a result, changes in Medicare regulations or pay-
ment methods can profoundly alter a healthcare organization’s prospects.
Overnight, changes to reimbursement terms may transform a market that
is profitable for everyone to one in which only the strongest, best-led, best-
positioned organizations can survive.

1.3.3 Information Asymmetries

Information asymmetries are common in healthcare markets and create a
number of problems. An information asymmetry occurs when one party information
in a transaction has less information than the other party. In this situation, asymmetry
When one party in
the party with more information has an opportunity to take advantage of the a transaction has
party with less information. Recognizing a disadvantage, the party with less less information
information may become skeptical of the other party’s motivation and decline than the other
a recommendation that would have been beneficial. For example, physicians party.

and other healthcare providers usually understand patients’ medical options

better than patients do. Unaware of their choices, patients may accept rec-
ommendations for therapies that are not cost-effective or, recognizing their
vulnerability to physicians’ self-serving advice, may resist recommendations
made in their best interest.
From a manager’s perspective, asymmetric information means that
providers have a great deal of autonomy in recommending therapies. Because
providers’ recommendations largely define the operations of insurance plans,
hospitals, and group practices, managers need to ensure that providers do
not have incentives to use their superior information to their advantage.
Conversely, in certain situations, patients have the upper hand and are likely adverse selection
to forecast their healthcare use more accurately than insurers. Patients know A situation that
whether they want to start a family, whether they seek medical attention occurs when
buyers have
whenever they feel ill, or whether they have symptoms that indicate a poten- better information
tial condition. As a result, health plans are vulnerable to adverse selection, than sellers. For
meaning that high-risk consumers are more likely to seek insurance whereas example, high-
healthier individuals are more likely to go without. risk consumers
are willing to pay
more for insurance
1.3.4 Not-for-Profit Organizations than low-risk
Most not-for-profit organizations have worthy goals that their managers take consumers are.
(Organizations
seriously, but these organizations can create problems for healthcare manag-
that have difficulty
ers as well. For example, not-for-profit organizations usually have multiple distinguishing
stakeholders. Multiple stakeholders mean multiple goals, so organizations high-risk from low-
become much harder to manage, and managers’ performance becomes risk consumers
are unlikely to be
harder to assess. The potential for managers to put their own needs before profitable.)

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 6 Ec o n o m ic s f o r H e a l th c a re M a n a g e r s

their stakeholders’ needs exists in all organizations but is more difficult to

detect in not-for-profit organizations because they do not have a simple bot-
tom line. In addition, not-for-profit organizations may be harder to run well.
They operate amid a web of regulations designed to prevent them from being
used as tax avoidance schemes. These regulations make setting up incentive-
based compensation systems for managers, employees, and contractors (the
most important of whom are physicians) more difficult. Further, when a
project is not successful, not-for-profit organizations have greater difficulty
putting the resources invested in the failed idea to other uses. For example,
the trustees of a not-for-profit organization may have to get approval from
a court to sell or repurpose its assets. Because of these special circumstances,
managers of not-for-profit organizations can always claim that substandard
performance reflects their more complex environment.

1.3.5 Technological and Institutional Change

This fifth challenge makes the others pale in comparison. The healthcare
system is in a state of flux. Virtually every part of the healthcare sector is
reinventing itself, and no one seems to know where the healthcare system is
headed. Leadership is difficult to provide if you do not know where you are
going. Because change presents a pervasive test for healthcare managers, we
will examine it in greater detail.

1.4 Turmoil in the Healthcare System

Why is the healthcare system of the United States in such turmoil? One expla-
nation is common to the entire developed world: rapid technical change. The
pace of medical research and development is breathtaking, and the public’s
desire for better therapies is manifest. These demands challenge healthcare
managers to regularly lead their organizations into unmapped territory. To
make matters worse, changes in technology or changes in insurance can
quickly affect healthcare markets. In healthcare, as in every other sector of
the economy, new technologies can create winners and losers. For example,
between 2000 and 2007, Medicare payments to ambulatory surgery centers
more than doubled. Medicare changed its policy, and growth slowed down
(Medicare Payment Advisory Commission 2018). What appears profitable
today may not be profitable tomorrow if technology, competition, rates, or
regulations change significantly.
The Affordable Care Act (ACA) has resulted in a wave of innovations
by providers, insurers, employers, and governments. (See chapter 6 for more
detail.) Which of these innovations will succeed is not clear. In addition,
some healthcare organizations will thrive in the environment of the ACA,

Lee.indd 6 1/2/19 3:15 PM

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 Humming-Bird’s Nest.
There are several species of warblers which are very skilful in the
formation of their nests, but we do not recollect to have met with
anything more remarkable in this way than the nest of a species of
grosbeak found in one of the Asiatic islands.
 Nest of the Grosbeak.
It is shaped somewhat like an inverted bottle, with a long neck,
through which the bird passes up to the snug and downy little
chamber above. The nest consists of soft vegetable substances,
basketed and sewed together in a very wonderful manner. But the
strangest part of the story is to come—the whole is suspended on
the leaf of a plant! How the bird could have built the nest in this
position, it is not easy to say, but we have many evidences that
instinct makes that easy to birds, which is difficult to the industry and
ingenuity of mankind.

The Secret.—“Mother,” said a girl of ten years of age, “I want to

know the secret of your going away alone every night and morning.”
“Why, my dear?” “Because it must be to see some one you love very
much.” “And what leads you to think so?” “Because I have always
noticed that when you come back you appear to be more happy than
usual.” “Well, suppose I do go to see a friend I love very much, and
that after seeing him, and conversing with him, I am more happy
than before, why should you wish to know anything about it?”
“Because I wish to do as you do, that I may be happy also.”
“Well, my child, when I leave you in the morning and the evening,
it is to commune with my Savior. I go to pray to him—I ask him for
his grace to make me happy and holy—I ask him to assist me in all
the duties of the day, and especially to keep me from committing any
sin against him—and above all I ask him to have mercy on you, and
save you from the misery of those who sin against him.” “Oh, that is
the secret,” said the child; “then I must go with you.”

The Logue Family.—The crier of a country court was upon a

certain occasion required to go to the court-house door, and, as is
usual in the absence of a witness, call out for Philip Logue, one of
the sons of Erin, who was summoned in a case then pending. The
man of the baton accordingly, stepping to the door, sung out at the
top of his voice, “Philip Logue!” A wag of a lawyer happening to be
passing the door at the time, whispered in his ear, “Epilogue, also.”
“Epi Logue!” sung out the crier. “Decalogue,” said the lawyer in an
under tone. “Dekky Logue!” again sung out the crier at the top of his
voice. “Apologue,” whispered the lawyer. “Appy Logue!” reiterated
the crier, at the same time expostulating with the lawyer—“You
certainly want the whole family of the Logues!” “Prologue,” said the
persevering lawyer. “Pro Logue!” rung through the halls of the court-
house, from the stentorian lungs of the public crier, attracting the
attention of everybody, and shocking the dignitaries on the bench
themselves, who, not understanding the cause of his vociferousness,
despatched the sheriff, with all haste, to stop the constable from
further summoning the family of the Logues.
 HYMN.
the words and music composed for
merry’s museum.

When morning pours its golden rays,

O’er hill and vale, o’er earth and sea,
My heart unbidden swells in praise,
Father of light and life, to Thee!

When night, from heaven, steals darkly down,

And throws its robe o’er lawn and lea,
My saddened spirit seeks thy throne,
And bows in worship still to Thee!

If tempests sweep the angry sky,

Or sunbeams smile on flower and tree,
If joy or sorrow brim the eye—
Father in Heaven, I turn to Thee!
ROBERT MERRY’S MUSEUM.
 My own Life and Adventures.
(Continued from page 133.)

CHAPTER VIII.
Youth a happy period.—​My young days.—​A summer morning.—​A
day’s adventures.

It is a common remark that youth is the happiest portion of life,

but, like many other wise and deep sayings, it passes by us
unheeded, till, at some late period in the great journey, we look back
upon our track, and, by a comparison of the past with the present,
are forced to feel and confess the truth, which we have before
doubted. Mankind are ever tempted to think that there is something
better before them; if they are not happy yet, they still indulge bright
expectations. They are reluctant, even when advanced in years, to
believe that the noon of life’s joys is past; that the chill of evening is
already mingling in every breeze that feeds the breath; that there is
no returning morn to them; that the course of the sun is now only
downward; and that sunset is the final close of that day that has
dawned upon them, and lighted up a world full of hopes, and wishes,
and anticipations. It is not till the shadows, dark and defined, are
creeping around us, and forcing us to deal honestly with ourselves,
that we admit the truth—that life is made up of a series of illusions;
that we are constantly pursuing bubbles, which seem bright at a
distance and allure us on to the chase, but which fly from our pursuit,
or, if reached, burst in the hand that grasps them. It is not till we are
already at the landing and about to step into the bark that is to bear
us from the shore, that we come to the conclusion that human life is
a chase, in which the game is nothing, and the pursuit everything;
and that the brightest and best portion of this chase is found in the
spring morning, when the faculties are fresh, the fancy pure, and all
nature robed in dew, and chiming with the music of birds, and bees,
and waterfalls.
It is something to have enjoyed life, even if that enjoyment may
not come again, for memory can revive the past, and at least bring
back its echoes. It is a pleasure to me, now that I am crippled and
gray—a sort of hulk driven a-wreck upon the shore, and if incapable
of further adventures upon the main, at least inaccessible to the
surges that rise and rave upon its bosom—to look out to sea—to
mark the sails that still glide over its surface—and, above all, to busy
my fancy with the incidents of my own voyage upon the great ocean
of life.
I love particularly to go back to that period at which my last
chapter closed. I was then full of health, animation, and hope. As yet,
my life was tarnished with no other vices or follies than those that
belong to an ungoverned and passionate boy. My health was perfect.
I can hardly describe the elation of my heart of a spring morning.
Everything gave me delight. The adjacent mountains, robed in mist,
or wreathed with clouds, seemed like the regions of the blest. The
landscape around, tame and commonplace as it might be, was
superior to the pictures of any artist that ever laid his colors upon
canvass, to my vision. Every sound was music. The idle but joyous
gabble of the geese at the brook—the far-off cawing of the crows
that skimmed the slopes of the mountains—the multitudinous notes
of jays, robins, and blackbirds in the orchard—the lowing of cattle—
the cackle of the fowls in the barnyard—the gobble of the
ostentatious turkey—were all melody to me. No burst of harmony
from an Italian orchestra, even though Rossini composed and
Paganini performed, ever touched the heart as those humble
melodies of morn, in the little village of Salem, touched mine at the
age of fifteen. At such times my bosom actually overflowed with joy. I
would sometimes shout aloud from mere pleasure; and then I would
run for no other object than the excitement of the race. At such times
it seemed almost that I could fly. There was an elasticity in my limbs
like that of a mountain deer. So exuberant was this buoyant feeling,
that in my dreams, which were then always blissful, I often dreamed
of setting out to run, and after a brief space of stepping upward into
the air, where I floated like some feather upon the breeze.
At evening, I used again to experience the same joyous gust of
emotion; and during the day, I seldom felt otherwise than happy.
Considering the quiet nature of the place in which I dwelt, my life
was marked with numerous incidents and adventures—of little
moment to the world at large, but important to a boy of my years.
Saturday was, in that golden age, a day always given up to
amusement, for there was no school kept then. A description of a
single day will give a sufficient idea of my way of life at this period.
The day we will suppose to be fine—and in fact it now seems to
me that there was no dull weather when I was a boy. Bill Keeler and
myself rose with the sun—and we must, of course, go to the
mountain. For what? Like knights of the olden time, in search of
adventures. Bound to no place, guided by no other power than our
own will, we set out to see what we could see, and find what we
could find.
We took our course through a narrow vale at the foot of the
mountain, crossed by a whimpling brook, which wound with many a
mazy turn amid bordering hills, the slopes of which were covered
with trees, or consisted of smooth, open pastures. The brook was
famous for trout, and as Bill usually carried his hooks and lines, we
often stopped for a time and amused ourselves in fishing. On the
present occasion, as we were passing a basin of still water, where
the gush of the rivulet was stayed by a projecting bank, Bill saw an
uncommonly large trout. He lay in the shadow of the knoll, perfectly
still, except that the feathery fins beneath his gills fanned the water
with a breath-like undulation. I saw Bill at the instant he marked the
monster of the pool. In a moment he lifted up and waved his hand as
a sign to me, and uttered a long, low she-e-e-e! He then stepped
softly backwards, and at a little distance knelt down, to hide himself
from the view of the trout. All this time Bill was fumbling with a
nervous quickness for his hook and line. First he ran his hands into
the pockets of his trowsers, seeming to turn over a great variety of
articles there; then he felt in his coat pockets; and then he uttered
two or three awkward words, which signified much vexation.
 There was Bill on his knees—it seems as if I could see him now—
evidently disappointed at not finding his hook and line. At last he
began very deliberately to unlade his pockets. First came out a stout
buck-handled knife, with one large blade, and the stump of a smaller
one. Then came a large bunch of tow, several bits of rope, a gimblet,
four or five flints, and a chestnut whistle. From the other pocket of
the trowsers he disclosed three or four bits of lead, a screwdriver, a
dough-nut, and something rolled into a wad that might have been
suspected of being a pocket-handkerchief, if Bill had ever been seen
to use one. The trowsers pockets being thus emptied, our hero
applied himself to those in the flaps of his coat. He first took out a
ball covered with deerskin, then a powder-flask and tinder-box, two
or three corks, and sundry articles difficult to name. From the other
pocket he took his stockings and shoes, for it was May, and we were
both indulging ourselves in the luxury of going barefoot—a luxury
which those only can know who have tried it.
Nothing could exceed the pitch of vexation to which Bill was
worked up, when, turning the last pocket inside out, and shaking it as
if it had been a viper, he found that he had not a hook or line about
him. Gathering up his merchandise, and thrusting the articles back
into their places, he cast about, and picking up a stone, approached
the place where the trout lay, and hurled it at him with spiteful
vengeance, exclaiming—“If I’m ever ketched without a fishhook agin
—I hope I may be shot!”
“Stop, stop, Bill!” said I; “don’t be rash.”
“I say I hope I may be shot if I’m ever ketched without a fishhook
agin!—so there!” said he, hurling another stone into the brook.
“Remember what you say now, Bill!” said I.
“I will remember it,” said my companion; and though nothing more
was said of it at the time, I may as well observe now that the fellow
kept his word; for ever after I remarked that he carried a fishhook in
his hat-band, and, as he said, in fulfilment of his vow. Such was the
eccentric humor of my friend, and such the real depth of his
character and feelings, that a speech, uttered in momentary passion
and seeming thoughtlessness, clung to his mind, and never parted
from him till death. Could that poor boy have had the advantages of
wise cultivation, what a noble heart had now beat in his breast! But,
alas! he was bound to a briefer and more inglorious destiny!
We pursued our way up the valley, though loth to leave the rivulet;
for there is a fascination about running water that few can resist—
there is a beauty in it which enchants the eye—a companionship like
that of life, and which no other inanimate thing affords. And of all
brooks, this that I now describe was to me the sweetest.
After proceeding a considerable distance, the valley became
narrowed down to a rocky ravine, and the shrunken stream fretted
and foamed its way over a rugged and devious channel. At last,
about half way up the mountain, and at a considerable elevation, we
reached the source of the rivulet, which consisted of a small lake of
as pure water as ever reflected the face of heaven. It was
surrounded on three sides by tall cliffs, whose dark, shaggy forms, in
contrast, gave a silver brilliancy and beauty to the mirror-like water
that lay at their feet. The other side of the lake was bounded by a
sandy lawn, of small extent, but in the centre of which stood a lofty
white-wood tree.
The objects that first presented themselves, as we approached
the lake, was a kingfisher, running over his watchman’s rattle from
the dry limb of a tree that projected over the water, by way of
warning to the tenants of the mountain that danger was near; a
heron, standing half-leg deep in the margin of the water, and
seeming to be lost in a lazy dream; a pair of harlequin ducks that
were swimming near the opposite shore; and a bald eagle, that
stood upon the point of a rock that projected a few feet out of the
water near the centre of the lake. This object particularly attracted
our attention, but as we moved toward it, it heavily unfolded its
wings, pitched forward, and with a labored beating of the air gained
an elevation and sailed gloriously away beyond the reach of sight.
Those were days of feeling, rather than speech. Neither my
companion nor myself spoke of the beauty of that scene at the time;
but we felt it deeply, and memory, to me, has kept a faithful transcript
of the scene. When the kingfisher had sounded the alarm, he slunk
away, and all was still. The morning overture of the birds had
passed, for it was now near ten o’clock. The mournful metallic note
of the wood-thrush was perchance faintly heard at intervals—the
cooing of a pigeon, the amorous wooings of the high-hole, the hollow
roll of the woodpecker at his work, might occasionally salute the ear,
but all at such distance of time and place as to give effect to the
silence and repose that marked the scene. I had my gun, but I felt no
disposition to break the spell that nature had cast on all around. The
harsh noise of gunpowder had been out of tune there and then. Bill
and myself sauntered along the border of the lake, musing and
stepping lightly, as if not to crumple a leaf or crush a twig, that might
break the peace, over which nature, like a magistrate, seemed to
preside.
But as we were slowly proceeding, Bill’s piercing eye discovered a
dark object upon the white-wood or tulip tree, that stood in the sandy
lawn at some distance. He pointed to it, and both quickened our
steps in that direction. As we approached it, we perceived it to be an
enormous nest, and concluded it must be that of an eagle. As we
came nearer, the nest seemed roughly composed of large sticks,
and occupying a circumference equal to a cart-wheel. It was at the
very top of the tree, which rose to the height of sixty or seventy feet,
and at least half of that elevation was a smooth trunk without a single
limb. But Bill was an excellent climber, and it was resolved, without a
council of war, that he should ascend and see what was in the nest.
Accordingly, stripping off his coat, and clinging to the tree as if by
suction, he began to ascend. It was “hitchety hatchety up I go!” By a
process difficult to describe—a sort of insinuation, the propelling
power and working machinery of which were invisible—he soon
cleared the smooth part of the trunk, and taking hold of the
branches, rose limb by limb, till, with breathless interest, I saw him lift
his head above the nest and peer into its recess. The best
expression of his wonder was his silence. I waited, but no reply.
“What is it?” said I, incapable of enduring the suspense. No answer.
“What is it, Bill—why don’t you speak?” said I, once more. “Look!”
said he, holding up a featherless little monster, about as large as a
barn-door fowl—kicking and flapping its wings, and squealing with all
its might. “Look! there’s a pair on ’em. They’re young eagles, I’ll be
bound, but I never see such critters afore! The nest is as big as a
trundle-bed, and there’s a heap of snake-skins, and feathers, and
fishes’ tails in it; and there’s a lamb’s head here, that looks in the
face like an acquaintance—and I shouldn’t wonder if it belonged to
Squire Kellogg’s little cosset that he lost last week—the varmint!”
As Bill uttered these last words, his attention, as well my own,
was attracted by a rushing sound above, and looking up, we saw an
eagle, about a hundred yards in the air, descending like a
thunderbolt directly toward Bill’s head. The bird’s wings were close to
its body, its tail above and its head beneath, its beak open and its
talons half displayed for the blow. Entirely forgetting my gun, in my
agony of fear, I exclaimed, “Jump, Bill! for Heaven’s sake jump!” But
such was the suddenness of the proceeding, that ere I could fairly
utter the words, the formidable bird, with a fearful and vengeful
scream, swept down upon his mark. I shut my eyes in very horror.
But not so Bill Keeler; there was no taking him by surprise. As the
eagle came down, he dodged his head beneath the nest, exposing
only a portion of his person, together with the seat of his trowsers.
The clash of the eagle’s beak as he swept by, though it seemed like
the clangor of a tailor’s shears when forcibly shut, did no harm; but
we cannot say as much of the creature’s talons. One of the claws
struck the part exposed, and made an incision in the trowsers as well
as the skin, of about two inches in length.
The rent, however, was too superficial to prove mortal, nor did it
deprive Bill of his presence of mind. Taking no manner of notice of
the damage done, he cocked his eye up at the eagle, and seeing
that he was already preparing for another descent, he slid down
between the limbs of the tree with amazing dexterity, and had
approached the lowest of the branches, when again we heard the
rushing sound, and saw the infuriate bird falling like an iron wedge
almost perpendicularly upon him. Although he was full five and thirty
feet from the ground, such was my agony, that again I cried out,
“Jump, Bill—for Heaven’s sake, jump!”
Bill was a fellow to go on his own hook—particularly in a time of
imminent peril, like the present. Evidently paying no attention to me,
he cast one glance at the eagle, and leaping from the branch, came
down upon the wind. The eagle swept over him as he fell, and
striking his talons into his brimless beaver, bore it away in triumph—
dropping it however at a short distance. As Bill struck the ground on
his feet, I immediately saw that he was safe. After sitting a moment
to recover his breath, he put his hand to his head, and finding that
his hat was gone, exclaimed, “There, the critter’s got my clamshell—
why didn’t you fire, Bob?”
The hat was soon found, and after a little while Bill discovered the
success of the eagle’s first attack upon his person; but although
some blood was shed, the incident was not considered serious, and
we proceeded in our ramble.
We had not advanced far, when, on passing through some
bushes near a heap of rocks, I heard a rustling in the leaves. Turning
my eye in the direction of the sound, I saw a black snake, covered by
leaves except his head and about two feet of his body. He was
directly in my path, and, brandishing his tongue, seemed determined
to oppose my progress. Bill had my gun, but I called to him, and he
soon appeared. I pointed out the snake, but, refusing to fire, he
approached the creature with a bold front; who, seeing that he could
gain nothing by his threats, turned and fled through the leaves with
amazing speed. Bill followed upon his trail, and came up with him
just as he was seeking shelter in the crevice of a rock. He had buried
about two feet of his length, when Bill seized his tail, and, holding
fast, prevented his farther progress. We then both of us took hold
and tried to pull him out—but as he had coiled himself around the
protuberances of the rock within, he resisted all our efforts.
Bill now directed me to bend down to him a pretty stout walnut
sapling that was growing near. I complied with the command, and my
companion, taking a piece of rope from his pocket, doubled the tail of
the snake, and firmly lashed it to the top of the young tree. This
being done—“We’ll let go now,” said Bill, “and see which will hold on
the longest.” So, loosing our hold of the tree and serpent, we stood
by to see the result. The snake was so firmly tied as to render it
impossible for him to escape, and the sapling pulled with a vigor and
patience that were likely to prevail at last. We waited at the place for
nearly an hour, when the serpent slowly yielded, and the sapling
jerked him into the air. There he hung, dangling and writhing, and
thrusting out his tongue, but all to no purpose. Taking a fair aim with
the gun, Bill now fired, and cut the reptile in twain.
We pursued our ramble until late in the day, when, on our return,
we saw a gray squirrel leaping about upon the ground at some
distance. The appearance of this animal in its native woods is
singularly imposing. Its long, bushy tail imparts to it an appearance
of extraordinary size, and renders its wonderful agility a matter of
surprise. In the present instance, as the squirrel saw us from a
distance, he ran to a tree, ascended the trunk, and flew along its
branches. From these it leaped to those of another tree, seeming
actually to move like a spirit of the air. At last it reached a large oak,
and disappeared in a hole in the trunk.
Bill’s jacket was off in an instant, and almost as nimbly as the
squirrel himself he ascended to its retreat. I stood below with my
gun, ready to fire if the creature should attempt to escape. At last
Bill, peeping into the hole, and saying, in a subdued voice, “I see the
varmint!” thrust his hand into the place. It was but a moment before
he hauled him out, and holding him forth with one hand, while he
held on to the tree with the other, he exclaimed, “Fire, Bob—fire—he
bites like—like a sarpent!” Accustomed to obey orders, I immediately
fired, and the squirrel dropped dead to the ground. At the same time
I saw Bill snapping his fingers, as if some stray shot had peppered
them. He soon descended, and showed me that one of the little
leaden missiles had passed through the ball of his thumb; he only
remarked, however, “I should think, Bob, you might kill a squirrel
without shooting a friend!”
Such are the adventures of a day in my youth; and such, or
similar, no doubt, have been the experiences of many a Yankee
youth before. I record them here, partly for the satisfaction of
reviewing the sweet memories of the past, and partly to point the
moral of this chapter—that youth is a portion of life to which, in after
years, we usually look back with fond regard, as the happiest, if not
the most useful, part of our existence. Let my youthful friends mark
the observation, and not be unmindful of their present privileges. Let
them enjoy their young days, with thankfulness and moderation, and
not be too sanguine of that future, which will disclose the melancholy
truth that life is a journey, which affords the cares and toils and
dangers of travel, without a resting-place. A resting-place is indeed
found, but it is only given as life ceases. While we live we are
journeying; there is no fixed habitation for man on the earth: he is an
emigrant to another country, and not a settler here. Let us, in
attempting to make our journey as cheerful as we may, still be
careful that the place to which we migrate, and where we must
abide, be in a happy country.
 The Humming-Birds.

These little fairies of the feathered race—the smallest of birds,

and perhaps the most brilliant—belong exclusively to our American
continent and the adjacent islands. Most of them dwell in the warm
climates, where flowers are ever in bloom, and where spring or
summer hold perpetual sway. One species alone visits our chill New
England climate—the little fellow of the ruby throat. He comes to us
in May, and makes himself familiar with our gardens and trellices,
sports amid the flowers, and holds companionship only with the
“flush and the fair.” His stay is short, for early in September he is
gone to more genial lands.
It is only in tropical countries that the several species of humming-
birds are seen in their abundance, variety, and glory. The islands that
stud the ocean between Florida and the main land of South America,
literally swarm with them. In the wild and uncultivated parts they
inhabit the magnificent forests overhung with parasitical plants,
whose blossoms hardly yield in beauty to the sparkling tints of these
tenants of the air. In the cultivated portions, they abound in the
gardens, and seem to delight in society, becoming familiar and
destitute of fear, hovering often on one side of a shrub or plant while
the fruit is plucked on the other.
 Lively and full of energy, these winged gems are almost
incessantly in the air, darting from one object to another, and
displaying their gorgeous hues in the sunbeams. When performing a
lengthened flight, as during migration, they pass through the air in
long undulations, raising themselves to a considerable height and
then falling in a curve. When feeding on a flower, they keep
themselves poised in one position, as steadily as if suspended on a
bough—making a humming noise by the rapid motion of their wings.
In disposition, these creatures are intrepid, but, like some other
little people, they are very quarrelsome. In defending their nests,
they attack birds five times their size, and drive them off with ease.
When angry, their motions are very violent and their flight as swift as
an arrow. Often the eye is incapable of following them, and their
shrill, piercing shriek alone announces their presence.
 Among the most dazzling of this brilliant tribe is the bar-tailed
humming-bird of Brazil. The tail is forked to the base, and consists of
five feathers, graduated one above another at almost equal
distances. Their color is of the richest flame, or orange red, with a
dazzling metallic burnish. The upper part of the body of the bird is
golden green; the rump is red, and the under surface of emerald
green.

Stokes’ Humming-Bird.
Stokes’ humming-bird may perhaps be cited as a rival of this little
gem of beauty. The head and whole of the back is covered with
scale-shaped feathers, those on the head being brilliant blue and
changing to violet, those on the back being bright emerald green.
The cheeks are purplish green, with small pink spots. Was there ever
any lass of a fancy ball more gaily decked?
Such are a few of the species of this famous race. There are
more than a hundred kinds, all noted for their littleness and their
surpassing beauty. What a beautiful conception in the Author of
nature were these little fairies! It is as if the flowers had taken wings,
and life, and intelligence, and shared in the sports of animal life. And
if we regard their beauty—the delicacy of their feathers—their energy
and power compared with their size—if we consider the ingenious
mechanism of their structure—can we sufficiently admire the
Architect who made them and bade them go forth to add life, and
beauty, and brilliancy to the landscape, while sharing themselves in
the joys of existence?
 Madagascar.

On the eastern coast of Africa is one of the largest islands in the

world, called Madagascar. It is 900 miles long, and contains about
twice as much land as England, Wales, and Scotland, or three times
as much as New England. It is some five or six thousand miles
southeast of the United States, and 1800 miles northeast of the
Cape of Good Hope.

Conducting a person who has passed the ordeal of the Tangena,

home.
It is separated from the continent of Africa by the channel of
Mozambique, through which vessels often pass in going to China. A
long chain of mountains, some of which are 11,000 feet or two miles
high, runs north and south through the island. In these mountains
are volcanoes, though they are not so terrible as in South America.