10% increase in DTCA was associated with 1% increase in drug sales
Each $1.00 spent on DTCA yielded $4.20 in additional pharmaceutical sales
Market Structures
Perfect competition
Monopolistic Competition
Monopoly
Oligopoly
Perfect Competition
enough competition that no seller can raise its price without losing business
Many buyers and sellers
freedom of entry and exit
standardized products
consumers and firms are fully informed
No collusion
Monopolistic Competition
identical to perfect competition, but the goods are closely related rather than identical
Many buyers and sellers
Freedom of entry and exit
no standardized products
consumers and firms are fully informed
no collusion
Product Differentiation
marketing process that showcases the differences between products.
make a product more attractive by contrasting its unique qualities
Advantages of DTCA
promotes competition between firms
informs the customer of choices
Disadvantages of DTCA
customer lacks full information
induces unnecessary demand
Monopoly
market that has only one seller of a product that has no close substitutes
many buyers, one seller
barriers to entry and exit
less standardized products
Patent exclusivity advantage
permits pharmaceutical companies temporary monopoly in order to recoup R&D Costs
Patent Exclusivity Disadvantages
costly medication within a monopoly decreases choice and increases cost
Oligopoly
few sellers and many buyers
dominant firm can exert influence though price leadership
high barriers of entry
each produces identical products
a firm's demand depends on another firms price
high risk for collusion
Zocor
3 companies made simvastatinprice fell only slightly for the first 6 monthsmore competitors entered the market resulting in substantial price reductionsmerk was the price leader
example of oligopoly
Few Sellers
Price leadership
Near identical products
patent exclusions and testing are barriers
Differentiation of the healthcare market
Universal Demand (everyone needs healthcare)
Inelastic Demand (health more important than other goods)
Patient Induced Demand (Pt. thinks they need treatment)
Supplier Induced Demand (Dr. has control of therapy)
Unpredictability of Illness
Societal perceptions
Number of buyers and sellers
Barriers to entry and exit (cost, licenser)
Variations in service (few substitutes, customized to patient)
Full and Free information (Pt has incomplete info)
Factors contributing to rising health care costs
technology generates demand for intense, costly treatments
chronic disease
Aging population
Administrative costs - 7% of healthcare expenditures
Do firms increase or decrease prices in response to inelastic demand?
Increase, because consumer is not responsive to the price increase
As people age and live longer with chronic disease, will utilization in general continue to increase?
utilization will increase, therefore price will increase due to increased demand.
Moral Hazard
patients with insurance coverage over-consume healthcare services.
Benefits of the service no longer warrant the cost
How to improve the healthcare system
Incentives for hospitals in rural areas
Improve patient access
Accelerate drug approval process
Standardize care
According to economic theory, what happens to prices when a policy enacted creates competition within the marketplace?
C. Price decreases
Different approaches to improve policy performance
use market forces
designing incentives
balancing costs and values
Market Forces
Health policies that manage health care in a way that allows the interaction of supply and demand to shake the market more effectively.
Using market forces
Decrease overuse of non-essential services
increase patients' sensitivity to cost
increase copayment amounts of the least essential medications
Designing Incentives
design reimbursement systems that reduce unnecessary utilization, duration of illness and intensity of treatment.
Discounted Fee-For-Service
provider paid for all service provided based on average prices in local area
encourages over-treatment
discourages coordination of care and efficiency
Per Diem
provider is paid a set amount per patient each day of care.
All services that day are covered.
Increase number of hospital days
increase bed occupancy
decrease intensity of service
DRG Reimbursement
One or more providers payed a pre-determined fee to cover all services rendered for a specific condition.
Encourages providers to decrease the number of episodes per person
capitation
providers are paid a regular fee to cover all services rendered for the continuous care of patients.
Covers all episodes and all conditions.
Encourages provider to prevent illness
Encourages efficient treatment
Dangers at the flat of the curve
patients insulated from true costs may continue using services despite the minimal benefits in return
Tools used to asses cost vs. value
cost effectiveness analysis
cost benefit analysis
cost utility analysis
Factors affecting volume of consumers at the retail pharmacy
new competitors down the street
new technologies which may increase production
offering unique disease state management services differing your pharmacy from competitors
Factors affecting patient elasticity of demand and patient medication adherance
