Hcs 552 Economic Tools And Concepts
Economic Tools and Concepts Carol Wieden HCS/552 February 13, 2012 Jayme Carrico Economic Tools and Concepts Introduction Controversy surrounds health care. Daily, news reports on television, in newspapers, and the Internet discuss the rising cost of healthcare in the United States. The delivery and utilization of healthcare is a complex process. James and Stokes (2006) indicate “the process of healthcare includes diagnosis, treatment, prevention, rehabilitation and palliative care” (p. 1). Multiple entities help deliver healthcare - physicians, nurses, therapists, hospitals, insurance providers, government agencies, and commercial companies
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Pricing medication is dependent on which pharmaceutical company manufactured the drug. A patent gives a drug company monopoly power, and they can set the price above marginal cost (P>MC). The price is higher so the company can reap the profits. Although there is no chemical difference between the generic equivalent of a name brand drug, consumers may continue to purchase the name brand drug because they are familiar with the name. Once other drug companies start manufacturing, the price of the drug will drop. When the consumer has to pay higher out-of-pocket costs for prescription drugs they use less. In standard economics the reduced use of prescription medication because of the higher out-of-pocket costs would be seen as efficiency (Chernew & Fendrick, 2008). The less medication consumed used would mean less cost for the consumer, thus cost sharing would indicate an efficient health care system. Unfortunately, standard economic reasoning does not always apply to health care. According to Chernew & Fendrick (2008), “The price of prescription drugs generally exceeds marginal costs” and “when faced with cost sharing consumers reduce consumption of both high-value and low-value services” (p.
Pricing medication is dependent on which pharmaceutical company manufactured the drug. A patent gives a drug company monopoly power, and they can set the price above marginal cost (P>MC). The price is higher so the company can reap the profits. Although there is no chemical difference between the generic equivalent of a name brand drug, consumers may continue to purchase the name brand drug because they are familiar with the name. Once other drug companies start manufacturing, the price of the drug will drop. When the consumer has to pay higher out-of-pocket costs for prescription drugs they use less. In standard economics the reduced use of prescription medication because of the higher out-of-pocket costs would be seen as efficiency (Chernew & Fendrick, 2008). The less medication consumed used would mean less cost for the consumer, thus cost sharing would indicate an efficient health care system. Unfortunately, standard economic reasoning does not always apply to health care. According to Chernew & Fendrick (2008), “The price of prescription drugs generally exceeds marginal costs” and “when faced with cost sharing consumers reduce consumption of both high-value and low-value services” (p.