Economics%20of%20Health%20Care%20Is%20Health%20Care%20similar%20to%20other%20commodities?

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• Economics of Health Care Is Health Care similar
  to other commodities?
• Craig A. Pedersen, R.Ph., Ph.D.

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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).

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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.

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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

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Characteristics of a Commodity

• Undifferentiatable
• Homogeneous product
• Individual buyers and sellers can not affect
  equilibrium (price, quantity demanded, or
  quantity supplied)

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Characteristics of Health Care

• Both art and science
• Heterogeneous
• Prices differ
• Imperfect information
• Imperfect buyer/seller relationship
• i.e. directed demand

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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

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SolutionCompetitive 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.
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Law of Supply and Demand
Price
Pe
Qe
Quanity
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Is There a Role for Government in Health Care?

• Public Perception of Health Care as a Right?
• Health Care as a Public Good?
• Externalities

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Determinants of Demand

• Price of Commodity
• Price of Related Commodities
• Compliments and Substitutes
• Income of Buyer
• Tastes and Preferences

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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

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This Concludes Part One.

• Economics of Health Care Is Health Care similar
  to other commodities?
• Craig A. Pedersen, R.Ph., Ph.D.