HMGT 435 WEEK 3 PRO 3

Running Head: SUPPLY AND MARKET STRUCTURES OF HEALTHCARE 1

Assignment #3: Economic Analysis of Supply and Market Structure of Healthcare Industry

University of Maryland Global Campus

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SUPPLY AND MARKET STRUCTURES OF HEALTHCARE 2

Memorandum To: Marty Dodoo

From: Lenny Batista

Date: April 5, 2020

Subject: Pulmonary Clinic

Introduction

In the healthcare industry there are a variety of factors impacting the services of

pulmonary clinics. Changes in prices that are determined by private and public healthcare

insurance, new technologies for examinations and procedures, the amount and size of

organizations in the market type, patient volume, advertisement, and government regulations. All

of these factors impact the services a pulmonologist provides to their patients. The market

structure and healthcare organization effect the intake of patients. In addition to the prices set for

services offered to patients for claims submitted for physician reimbursement.

Services / Products

Pulmonology is a medical subspecialty practice specializing in the diagnosing, treating and

managing of patients with respiratory disorders. Pulmonologist on average encounter 50 to 75

patients per week [CITATION Cra12 \p 10 \l 1033 ]. Treating patients with conditions such as

Asthma, Chronic Obstruction Pulmonary Disease (COPD), Sleep Apnea, and Interstitial Lung

Disease (ILD). A pulmonologist can practice in a clinical office or in a hospital as part of a

multidisciplinary team. If patients are having respiratory symptoms, they may be referred to a

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SUPPLY AND MARKET STRUCTURES OF HEALTHCARE 3

pulmonologist. In order to diagnose, treat and manage conditions impacting the patient’s

respiratory health [CITATION Hel20 \l 1033 ]. Pulmonary clinics prevent a decline in a patients’

overall health and help avoid possible future acute emergent encounters.

Market Structures and Characteristics of That Market

The healthcare industry operates in an oligopoly market. An oligopoly market in this case

is identified by a limited amount of healthcare organizations that offer services / products. These

healthcare organizations hold a great portion of the market. Having control over the cost of care

for their services / products. Healthcare organizations are in differentiated by policies and

procedures in this type of market [CITATION UMG20 \p 25 \l 1033 ]. Key characteristics of an

oligopoly market for example, barriers to entry, pulmonologist must obtain a state licensure in

order to practice. Pricing behaviors, organizations are aware of the actions of rival organization’s

in the market. Because if an organization makes a change that is in its favor, that action may

change the overall market price for that service / product [CITATION UMG20 \p 17-28 \l 1033 ].

Forming cartels, healthcare organizations that merge can act like a monopoly. In an effort to

maximize profits, larger healthcare organizations are able to set a price for patients that the

market can tolerate [CITATION May10 \p 68 \l 1033 ]. This usually leads to lower output and

higher prices.

Service/Product Price for Pulmonologist

In the healthcare industry, factors in oligopoly markets are determined by the amount an

organization controls, followed by independent prices, intake, output and pricing negotiations

with healthcare insurance. Game Theory allows organizations to better understand the behavior

of oligopoly markets. Based on the outcomes of decisions made by others [CITATION

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SUPPLY AND MARKET STRUCTURES OF HEALTHCARE 4

UMG20 \p 28 \l 1033 ]. These decisions vary on the interdependent decision making of other

organizations in the same market [CITATION May10 \p 68 \l 1033 ]. Service / Product cost

changes will cause rival organizations to judge or react, which for the most part remain constant.

These prices tend to be inflexible in oligopoly markets. The reason is in an oligopoly market,

situations work against the development of a general price and output [CITATION May10 \p 68-

69 \l 1033 ].

Private and Public Insurance Influence on Revenue

The health insurance market is heavily regulated by government policies at the state and

federal level. In order to provide patients with a broad set of insurance benefits. However, these

regulations can favor established healthcare and insurance organizations. Health insurance

organizations that can function in a heavily regulated market, will change that market into an

oligopoly market. Changes in regulations can increase private insurance growth. Because private

insurance groups can use their influence on setting lower prices [CITATION UMG201 \p 8-12 \l

1033 ]. Private insurance groups can use their prerequisites, on what services / products they are

willing to pay for. Government insurance policies and procedures are created that a healthcare

organization must meet. In order to satisfy requirements for services provided to patients so

physicians can be reimbursed. Government insurance also uses patient volume incentives,

manufacturer discounts, preferred listing, and prior authorizations to manage costs [CITATION

May10 \p 74 \l 1033 ].

Government Regulations Impacting the Healthcare Industry

The Affordable Care Act changed Medicaid enrollment requirements to insure American

citizens with incomes up to 133% above the poverty line. This was funded completely by the

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SUPPLY AND MARKET STRUCTURES OF HEALTHCARE 5

federal government for three years. The federal government shared costs were expected to

decline by 90% by 2020. Some states announced their concerns about their greater requirements

in the efforts of the expansion as outlined by law. In addition, to the possibility for these states

shares to become increased at a faster rate. If these concerns began to manifest the states would

bring their concerns to a higher level of government. If federal legislators continued to depend on

states to assist future federal budgets. The legislation compelled states to accept the expansion. If

not, then the secretary of Health and Human Services (HHS) was authorized to hold back

Medicaid funding from states that did not comply. This was considered coercive and was not

permitted by the Supreme Court [CITATION Hil18 \l 1033 ].

Market Failures Government Regulations Attempted to Address

The Affordable Care Act was intended to slow down the rising costs in healthcare. The

rising costs are due to several factors such as new technologies, the number of uninsured

patients, the expected increase in pharmaceutical prices, patients with chronic conditions,

adverse selection, and asymmetric information. It is expected by the year 2025 that healthcare

spending is projected to consume one dollar of every five dollars from the Gross Domestic

Product (GDP) [CITATION Mul20 \p 6-13 \l 1033 ]. Based on the 2010 healthcare projection

costs, the Medicare/Medicaid bill in 2017 was ten percent less than what was expected.

However, healthcare costs have increased by 4.6 percent in 2018 and is expected to continue to

rise [CITATION CMS19 \l 1033 ]. The Affordable Care Act did slow down healthcare costs

rising, but only for the short run.

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SUPPLY AND MARKET STRUCTURES OF HEALTHCARE 6

References

CMS.Gov. (2019, 12 17). Historical. Retrieved from Center for Medicare & Medicaid Services:

https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-

reports/nationalhealthexpenddata/nationalhealthaccountshistorical

Crane, M. (2012). Medscape Pulmonologist Compensation Report: 2012 Results. Retrieved from

Medscape:

https://www.medscape.com/features/slideshow/compensation/2012/pulmonarymedicine

Healthline. (2020). Faces of Healthcare: What Is a Pulmonologist? Retrieved from Healthline:

https://www.healthline.com/health/what-is-a-pulmonologist

Hillard, J. (2018, 10 1). The Market Impact of the Supreme Court Decision Regarding the

Patient Protection and Affordable Care Act : Evidence from the Health Insurance

Industry. Retrieved from Unviversity of Maryland Global Campus: https://eds-b-

ebscohost-com.ezproxy.umuc.edu/eds/detail/detail?vid=4&sid=2554b29b-5eaf-4b13-

a728-f889ad3010dc%40pdc-v-

sessmgr01&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d

%3d#AN=edsjsr.26505752&db=edsjsr

Mayer, D. (2010). Everything Economics Book. Avon, Massachusetts 02322: Adams Media.

Mulvey, J. P. (2020). What Market Failures Exist in Health Care Market Impacting ACA

Developmen. Retrieved from University of Maryland Global Campus:

https://learn.umuc.edu/d2l/le/content/446617/viewContent/16961998/View

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SUPPLY AND MARKET STRUCTURES OF HEALTHCARE 7

UMGC. (2020a, 3 9). Week 5: The Supply Side: Alternative Market Structures [Power Point

Presentation]. Retrieved from University of Maryland University College:

https://learn.umuc.edu/d2l/le/content/446617/viewContent/16962007/View

UMGC. (2020b). Week 6: Role of Government: Market Failures and Price Controls. Retrieved

from University of Maryland Global Campus:

https://learn.umuc.edu/d2l/le/content/446617/viewContent/16962009/View

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