HLST274 Global Healthcare Management

Questions: 1.One of the key economic principles is competition or choice. For this short paper assignment, define the terms “market concentration” and “market power” and describe how they are measured. What tools are used? How do these terms relate to the principle of competition? 2.Next, apply these concepts, like market power and choice, to the healthcare industry. How do they impact healthcare decision-making and how has healthcare legislation impacted the industry? Support your response with properly cited references from the assigned readings or other academic sources. Answers: Answer 1) Market concentration is used for measuring the extent to which sales in a market gets dominated by one or more business. Market concentration is a useful economic tool since it reflects the degree of competition in the market. It measures the extent to which the shares of the market are usually concentrated between a small numbers of organizations. Therefore, it can also be used for measuring the competition and is also directly related to the profit of the industry. The market concentration within an industry is the degree to which a small number of firms usually provides a major portion of the total production of the industry (Stiglitz & Rosengard, 2015). The industry will be known to be competitive in nature when the concentration is low. On the other hand, the industry will be known to be either oligopolistic or monopolistic in nature, when the concentration is high in nature. The ability of the organization to raise the price of the product or the service above the marginal cost is referred as the market power. The producers in case of a perfectly competitive market do not enjoy any kind of market power. An organization with a high market power can affect the total price of the economy. Market power also provides the organization the ability to engage in unilateral anti-competitive behaviour. A firm with high market power can raise the price without losing any consumers to competitors. Monopoly can be stated as one of the best examples for stating the market power. Therefore, it is the extent to which the industry can influence the price of the product as well as services by exercising the control over the supply and demand. The Herfindahl –Hirschman Index is used for measuring the market concentration. Lower index of the Herfindahl Hirschman states that the market is more competitive in nature. The market with an HHI measure which exceeds 2000 is characterised as highly concentrated. One of the most common measures of the market power is the concentration ratios. the market concentration ratio is examined with the help of concentration ratio. The standard tools that are used to measure the market concentration and market power are the Herfindahl Hirschman index and the concentration ratios. In case of perfect competition, the index tends towards zero and therefore it can be said that lower the index, the more competitive the market becomes. One of the most common ways that is used for measuring concentration is the four firm concentration ratios. It can be defined as the percentage of the output sold by the industry by the largest firms (Stiglitz & Rosengard, 2015). The index can be calculated by adding the square root of the share of the market of the individual organization in the industry. Answer 2) It can be said the price is one of the major drivers of the cost of the health care in case of United States. According to the health care economists, the market power leads to increase in price and is also associated with payment variation for both hospitals and the physician services. The excessive growth in the expenditures of the health care will have a serious economic consequence for the country. The burden of which falls on those people who use and pat for the services of the healthcare. The excessive growth in the health care expenditures is rising without any improvements in the quality. Therefore, it can be said that instead of quality, the market power is linked to the higher cost of the healthcare (Lewis & Pflum, 2015). More expensive healthcare facilities tend to have high market leverage, huge participation in the healthcare system and less competition. According to a recent report it has been found out that the cost of healthcare in New York were 2.7 times higher in some hospitals as a result of increased market power. Hospitals found in Albany known to have higher cost of healthcare because of their rural status since there were only one hospital system, few rural hospitals and one medical centres (Lewis & Pflum, 2015). As patients have fewer options for treatment, these hospitals will be charging exorbitant price for the treatment. with the rise in market leverage, hospitals are known to have gained more bargaining power with the private players. Reference List Bowles, S. (2009). Microeconomics: behavior, institutions, and evolution. Princeton University Press. Fisk, P. C. (2018). Study measures effect of labor market concentration on wages. Monthly Labor Review, 1E. Lewis, M. S., & Pflum, K. E. (2015). Diagnosing hospital system bargaining power in managed care networks. American Economic Journal: Economic Policy, 7(1), 243-74. Microeconomics, E. E. (2015). KELVIN WONG. Cell, 808, 386-8406. Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector: Fourth international student edition. WW Norton & Company.

HLST274 Global Healthcare Management

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