Economics Lec. 4

  1. Direct to consumer advertising
    • 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
  2. Market Structures
    • Perfect competition
    • Monopolistic Competition
    • Monopoly
    • Oligopoly
  3. 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
  4. 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
  5. Product Differentiation
    • marketing process that showcases the differences between products.
    • make a product more attractive by contrasting its unique qualities
  6. Advantages of DTCA
    • promotes competition between firms
    • informs the customer of choices
  7. Disadvantages of DTCA
    • customer lacks full information
    • induces unnecessary demand
  8. 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
  9. Patent exclusivity advantage
    permits pharmaceutical companies temporary monopoly in order to recoup R&D Costs
  10. Patent Exclusivity Disadvantages
    costly medication within a monopoly decreases choice and increases cost
  11. 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
  12. 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
  13. 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)
  14. Factors contributing to rising health care costs
    • technology generates demand for intense, costly treatments
    • chronic disease
    • Aging population
    • Administrative costs - 7% of healthcare expenditures
  15. Do firms increase or decrease prices in response to inelastic demand?
    Increase, because consumer is not responsive to the price increase
  16. 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.
  17. Moral Hazard
    • patients with insurance coverage over-consume healthcare services.
    • Benefits of the service no longer warrant the cost
  18. How to improve the healthcare system
    • Incentives for hospitals in rural areas
    • Improve patient access
    • Accelerate drug approval process
    • Standardize care
  19. According to economic theory, what happens to prices when a policy enacted creates competition within the marketplace?

    C. Price decreases
  20. Different approaches to improve policy performance
    • use market forces
    • designing incentives
    • balancing costs and values
  21. 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.
  22. Using market forces
    • Decrease overuse of non-essential services
    • increase patients' sensitivity to cost
    • increase copayment amounts of the least essential medications
  23. Designing Incentives
    design reimbursement systems that reduce unnecessary utilization, duration of illness and intensity of treatment.
  24. 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
  25. 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
  26. 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
  27. 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
  28. Dangers at the flat of the curve
    patients insulated from true costs may continue using services despite the minimal benefits in return
  29. Tools used to asses cost vs. value
    • cost effectiveness analysis
    • cost benefit analysis
    • cost utility analysis
  30. 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
  31. Factors affecting patient elasticity of demand and patient medication adherance
    • side effect profiles
    • availability of substitutes in the market
    • perception of need
    • preferences targeted by DTCA
Card Set
Economics Lec. 4
Unique aspects of health economics