Transcript Economics of Health Care

Economics of Health Care
Is Health Care similar to other
commodities?
Craig A. Pedersen, R.Ph., Ph.D.
Objectives for Both Parts
• After viewing and listening to the Intranet
lecture posted on Blackboard, the student
will be able to:
– Discuss the characteristics of a commodity.
– Discuss the characteristics of health care (as
related to a commodity).
Objectives cont.
– Explain how health care is like a commodity
and how it differs.
– Explain the competitive market model and why
it does or does not work for health care.
– Analyze why the government efforts to contain
health care costs were not effective.
Economics of Health Care Part 1
Is Health Care similar to other
commodities?
Craig A. Pedersen, R.Ph., Ph.D.
Department of Pharmaceutical and Administrative
Sciences
School of Pharmacy
Ohio State University
Characteristics of a Commodity
• Undifferentiatable
• Homogeneous product
• Individual buyers and
sellers can not affect
equilibrium (price,
quantity demanded, or
quantity supplied)
Characteristics of Health Care
•
•
•
•
•
Both “art and science”
Heterogeneous
Prices differ
Imperfect information
Imperfect buyer/seller
relationship
– i.e. directed demand
Problems with the Health Care
System
• Cost
– Total Cost =
Price x Quantity
• Price has little effect
• Quantity drives the
system
– Problem of allocation
of scarce resources
• Access
• Quality
Health
Others
Solution:
Competitive Market Model
• Strategies to Control
Cost
– Increase Supply
– Decrease Demand
– Administrative
Controls
– Cost
Conscientiousness
– Physician Control
See the next slide
for the graph. You
can also see it on the
printed handout.
Price
Law of Supply and Demand
Pe
Qe
Quanity
Is There a Role for Government
in Health Care?
• Public Perception of Health Care as a
Right?
• Health Care as a Public Good?
• Externalities
Determinants of Demand
• Price of Commodity
• Price of Related Commodities
– Compliments and Substitutes
• Income of Buyer
• Tastes and Preferences
Elasticity
• Ratio of relative change in a dependent
variable to the relative change in an
independent variable, e.g. quantity and price
• Price Elasticity:
% chg Q/% chg P
This Concludes Part One.
Economics of Health Care
Is Health Care similar to other
commodities?
Craig A. Pedersen, R.Ph., Ph.D.