Market Forces in Health Care

1. Market Forces in Health Care Eric D. Kupferberg, PhD 23 September 2010

2. Two Possible Frames • What force or role does the market play in shaping health care in America? • What are the forces operating in the health care market?

3. Defining Market Forces • Typically supply and demand • Defined in relation to each other • Price as a mediator

4. Defining Market ForcesDemand, Supply, and Price

5. Ideal Markets & Perfect Competition • Assumes large number of small sellers so that no one seller can greatly determine the price • Assumes that both buyers and sellers are well-informed and aware of any changes in price • Assumes that the goods that are bought and sold are nearly homogenous so that buyers make decisions primarily on price

6. No “Ideal” in Health Care Markets • Limited number of insurers • Many small cities and rural areas have few hospitals • Limited suppliers of medical devices, technologies, and pharmaceutical prices • Consumers rarely see the entire cost; only pay 10-20$ per visit

7. No “Ideal” in Health Care Markets • Governments purchase large portion and control costs • Limited health literacy • Patients rarely comparison shop • Health care is not a homogeneous good

8. Who is Demanding?Who’s the Consumer? • Patients and potential patients • Employers • Physicians & specialists • Hospitals, clinics, ACS facilities • Medicare and medicaid branches • Veterans administration

9. Isolated Consumers are Rare • Even the most common transaction in health care involves at least two consumers and two suppliers • Example: standard office visit is the product of a patient purchasing services, a physician purchasing facilities and equipment, an employer purchasing a health plan, etc. • Consumer demands often mediated by a 3rd party (e.g., patient needs negotiated by physician)

10. No Monolithic Heath Care Market • All markets are local • Heterogeneous mix of consumers and suppliers • Market niches matter more than position in general health care marketplace • Consumers are non-uniform with regards to race, ethnicity, gender, geography, education and economic status

11. Fluctuating DemandThe Role of Governments • Expansion of Medicare benefits increases demand • Broadening of eligibility requirements increases demand • Patient “Bill of Rights” legislation increases demand • State cuts in Medicaid reduces demand for most health care products & services • Medicaid cuts increase demand for emergency health care

12. Fluctuating DemandThe Role of Governments

13. Fluctuating Demand and Increased Cost

14. Fluctuating DemandThe Influence of Costs • Higher health care and out of pocket costs decreases demand • Increasing numbers of uninsured decreases demand; numbers of uninsured will top 50 million by 2006 • Economic growth increases demand; increased economic disparities worsens overall health status in the population • Health care is a normal good, but its price elasticity is smaller than other goods (e.g., food, gasoline, automobiles, housing)

15. Fluctuating DemandThreats to Health • Recent and emerging diseases can dramatically increase demand: AIDS, antibiotic resistant TB, new flu variants, bioterrorism, SARS, obesity, etc. • BUT, the greater force is the aging population