- From the Discussion Preparation, analyze at least two primary
economic assumptions and examine their short- and long-term impact on
promoting the competitive market model in the health care environment.
Evaluate the fundamental reasons why price and utilization economic
factors in the health care setting influence competitive market status
in regard to supply and demand for health care services. Provide at
least one example of such factors to support your response.
- Take a position on whether or not monopolistic competition works
within a health care setting. Support for your position should include a
discussion of the monopoly model being used to predict the allocation
of resources in health care markets within preferred provider
Expert Solution Preview
The economic assumptions and models play a crucial role in defining the healthcare market’s competitive landscape. As a medical professor who is responsible for designing college assignments and answers for medical college students, I will provide my insights on the impact of primary economic assumptions on promoting competitive market models and the effectiveness of monopolistic competition in the healthcare setting.
1. Impact of primary economic assumptions on promoting competitive market models:
The two primary economic assumptions that promote the competitive market model in the healthcare environment are perfect information and rational behavior. In the short term, both these assumptions encourage market efficiency and reduce knowledge asymmetry between buyers and sellers. In the long term, however, these assumptions can have detrimental effects on promoting the competitive market model in the healthcare environment.
For instance, the assumption of perfect information may not hold in the healthcare setting where patients often rely on the advice of physicians and other healthcare professionals to make informed decisions about their health. Furthermore, rational behavior may not be practical when dealing with healthcare decisions, which are often emotionally charged. Such factors may lead to increased price and utilization of health care services, which can impact the competitive market status in the healthcare environment.
One example of price and utilization economic factors in the health care setting that influence competitive market status is the payment model adopted by insurance companies. Insurance companies’ reimbursement policies significantly impact the pricing of healthcare services, which, in turn, affects the healthcare providers’ supply and demand. For instance, if insurers reimburse healthcare providers at a lower rate, providers may either increase the number of patients they treat or increase the price of their services to offset the revenue loss.
2. Monopolistic competition in the healthcare setting:
Monopolistic competition often results in inefficient resource allocation in the healthcare market. This is because monopolistic competition is driven by the interests of the providers rather than the consumers. The providers aim to maximize their profits by providing services that are in demand, often regardless of the actual need for such services. The resulting healthcare delivery system is characterized by the overuse of expensive tests and treatments and an underprovision of preventive care and primary care services.
Moreover, monopolistic competition can lead to the creation of preferred provider organizations (PPOs), where providers compete to be included in the provider network. However, this competition often leads to providers negotiating higher fees, which are then passed onto patients in the form of higher insurance premiums. Therefore, monopolistic competition in the healthcare market can negatively impact both providers and consumers.
In conclusion, as a medical professor, the economic assumptions and models play a significant role in defining the healthcare market’s competitive landscape. The impact of these assumptions can be both short-term and long-term. Additionally, monopolistic competition may not be effective in the healthcare market because of its tendency to prioritize providers’ interests over consumers.