Chapter 7 The Supply of Medical Care: An Overview

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Chapter 7The Supply of Medical Care An Overview

• HSCI 517

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Determinants of Supply

• Market Structure
• Competitive Behavior
• Market Performance
• Public Policies

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Evaluation of Economic Efficiency in Supply

• Characteristics of Production Functions
• Qnpc ?(RNs, LPNs, NAs, UN)
• Substitutability of one factor for another
• Not one-for-one
• Marginal productivity of each input
• Distinction between the short run and long
  run.
• Technical Change

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Assumptions Underlying Medical Services
Production and Cost Functions

• legal restriction on substitution of one input
  for another
• relative prices of inputs used in production are
  not distorted
• decision makers are desirous of minimizing the
  cost of production

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Market Structure

• Types of market Structure
• Competition
• Monopoly
• Oligopoly
• Monopolistic competition
• Need to also define the firms product and
  geographic market

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Competitive Behavior

• Firms in competitive markets do not engage in
  collusive practices
• Product strategies difference by market structure
• Characteristics of Medical Markets
• Physician as the patients agent
• Patients lack of information
• Level of competitiveness various over different
  time periods

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Market Performance

• Market performance is evaluated in terms of
  whether it approximates economic efficiency
• Both technical and economic efficiency
• Figure 7-3 page 151
• In a competitive market price is given to an
  individual firm by the interactions between the
  total demand and supply

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Market structure continued

• Profits are normal in a competitive market.
  Which means that the price includes a normal
  rate of return. Excess profits will draw new
  businesses into the market. Losses will drive
  firms out of the industry.
• A firm with market power has greater discretion
  in setting prices, its output, level of quality,
  and the type of services it provides.

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Public Policies

• It is assumed that the tendency of
  price-competitive industries is to more in the
  direction of desirable market performance.
• The competitive model is better able to predict
  the effects on market performance of changes in
  demand, cost of producing services, supply and
  other changes in the market.
• Market performance can be improved through
  alternative approaches
• The market can be restructured to approximate a
  competitive market.
• Anti-trust laws
• Or a greater emphasis can be placed on regulation

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More Public Policies

• What is needed to compare the approaches is an
  agreed upon set of criteria
• You need agreement on what outcome measures
  should be used or you can never reach a
  conclusion.
• Economic criteria for economic efficiency work
  best when comparing whether market or regulatory
  approaches work best.
• Internal efficiency
• Efficient allocation of resources
• Controlling capital expenditures
• Minimizing cost of medical care