United States Health Care Industry
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United States Health Care Industry
Industry Overview
The Health care and Social Assistance industry comprises of sectors that provide a wide range of health and social services to individuals. The overlapping nature of health-related services and the associated social services make it difficult to isolate social care and health care (Thomas, 2010). However, the industry is profile is arranged on a continuum that places provision of exclusive medical care at the top and the provision of social assistance only at the other end. In between these two establishments are those that provide both health care and social assistance under the same precincts. Health and social services are delivered by qualified and certified professionals. Entry into this industry is difficult since the individuals must meet a wide range of regulatory requirements (Fulton, 2017). Besides the professional requirements, the government monitors entry and conduct of the players by periodic review of operational licenses. Establishments in the industry share the characteristic process of labor input by the professional practitioners.
Market Structure and Characteristics
The US health care industry is oligopolistic. In an oligopoly, there are a few dominant firms that influence the market conditions. Provision of health care is mainly a private and decentralized affair in the United States. There is limited federal government presence and health care and social services fall under the ownership of private establishments. However, the government regulates in tandem with the private professional bodies to define the minimum requirements for any potential entrant (Thomas, 2010). One of the barriers to market entry is the certification required from a private organization depending on the area of expertise one intends to practice. Once certified, practitioners can open their health care establishments or work within a hospital. State and local governments support public hospitals through funding and assigning medical practitioners to public hospitals.
The oligopolistic nature of the US health care and social work structure is shown in the differentiated products and services in the market. According to Rosenau (2001), there are professionals offering rehabilitative, preventative, curative, and palliative care. In addition to the health care services, the industry is dotted with social assistance including managing mental health management, counseling, rehabilitation of drug and substance addicts, and general social work. Private firms that dominate the industry differentiate their services and products according to perceived level of expertise and years of practice (Fulton, 2017). Practitioners in the private sectors earn supernormal profits by imposing heavy charges for their professional services. With limited interference by the government on the pricing of their services, oligopolistic firms leverage on heavily insured customers to make supernormal profits.
Microeconomic Trends in the Healthcare Industry
There have been notable microeconomic changes in the US health care and Social Assistance industry over the previous years. The emerging concept of health care as constitutional right has seen the share of individual’s spending decrease significantly over time. The percentage of income that individuals spend on health care has decreased mainly because of government insurance covers supplemented by private health insurance plans (Fulton, 2017). A reduction in the household expenditure on health care and social work has had a positive impact on the life expectancy in the United States. Importantly, government subsidy in research work related to health care has led to discovery of new drugs and better health management technologies. The knock-on effect is seen in the improvement of quality of life and longevity.
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Figure 1: Declining household spending on healthcare over years (Source: The Economics of Healthcare)
High rates of expenditure and a reduction in competitive vigor within the healthcare industry and social work would have a negative effect on the economy (Fulton, 2017). Higher expenses as a result of healthcare charges would reduce consumer surplus and negatively affect the economic growth of the country. Fewer persons would afford medical services consigning them to poor quality of life. Such scenario would lead to low productivity in human capital and a dent into the national economy.
How Government can Regulate Pricing
The government can impact the prices charged by health care and social assistance practitioners in many ways. The government can sponsor legislation of a bill that places limits of professional charges across the health care system. By placing caps on the medical fees, the government would reign in on exorbitant charges that are much higher compared with other developed countries such as Germany (Thomas, 2010). However, capping prices would require collaboration with industry players especially the professional bodies that regulate the conduct of its members.
The government also regulates competitive behavior in the healthcare industry through antitrust policies and laws. Private hospitals are expected adopt competitive practices that place the welfare of citizens at the center of their operations. Antitrust laws prohibit merger of private hospitals that may compromise the social welfare of the local population (Fulton, 2017). Mergers can result in one hospital dictating the market dynamics for certain healthcare services. The dominance of one hospital in a given region may result in artificially high prices for professional health care services. The government counters possible cases of market dominance through strengthening of antitrust laws (Thomas, 2010). Similarly, the government can regulate pricing of healthcare services by increasing the number of publicly funded hospitals that offer medical and social care services at reasonable prices. The availability of quality services within publicly-funded healthcare establishments at cheap prices would challenge expensive private hospitals to review their pricing strategies.
References
Fulton, B. D. (2017). Health care market concentration trends in the United States: evidence and policy responses. Health Affairs, 36(9), 1530-1538.
Rosenau, P. V. (2001). Market structure and performance: Evaluating the US health system reform. Journal of health & social policy, 13(1), 41-72.
The Economics of Healthcare. Harvard Education. Retrieved from https://scholar.harvard.edu/files/mankiw/files/economics_of_healthcare.pdf
Thomas, J. R. (2010). Pharmaceutical Patent Law. Bna Books.
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