STRUCTURE OF THE HEALTHCARE INDUSTRY

Health Care Industry 1

Structure of the Healthcare Industry

Health Care Industry 2

Health care is one of the fastest growing section of the economy , and differs from other services in various ways (Danzon , 1992 . The output of a bakery is bread but the output of the health care industry is less detailed or defined . The health care industry is changeable and unpredictable , making it less understood by both producers /suppliers and consumers (Danzon , 1992 . However , the health care industry still operates within the basic rules of economics , and economical analysis

is required in assessing public policy (Danzon , 1992

The end product of medical care is , of course , health . Probabilities on health can only be applied and quantified before care is actually provided (Danzon , 1992

The risk and threat of illness usually leads people to require health insurance . In the U .S , the market for health insurance is influenced by the fact that employer contributions are an integral part of employee compensation which is tax-exempt (Danzon , 1992 . Thus , third party payment affects the basic structure of the health care industry (Danzon 1992 . Because insurance companies pay for a large percentage of medical care , a consumer 's point-of-purchase ' price has to be less . If a physician charges 20 and the insurance company pays for 80 for the charge , then the consumer 's price is on 4 . Like any other market , the quantity demanded goes up when price goes

Health Care Industry 3

down . It is hard to measure quality of service based on the effect of insurance (Danzon . The presence of a particular government is heavily felt in the health care industry . In the U .S , the largest health insurer is Medicare or Medicaid (Danzon , 1992

Increase in Health Care Costs

Health care costs have rapidly increased in recent years , mainly because of fast trends in medical technology (Danzon , 1992 Nevertheless , an effective resource allocation ensures that the medical benefits exceed marginal costs (Danzon , 1992 . Hospitals play a major role in the health care industry (Danzon , 1992 . Medicare implemented a prospective payment system ' in 1983 , under which hospitals are paid a fixed charge per admission , basing on the diagnosis of a patient . This way , the hospital shoulders the partial cost of all expenses incurred by the patient

Physicians also play a major role in the health care industry (Danzon , 1992 . The actual number of doctors who are active in providing care for patients have more than doubled (Danzon , 1992 . This increase may be attributed to medical schools ' responses to federal subsidies created to multiply the supply of doctors after the entrance of Medicare and Medicaid (Danzon , 1992 . In most markets , increases in supply would result in lower prices , and thus , a higher quantity . However , many doctors have relocated to

Health Care Industry 4

rural areas that were otherwise unserved . There is a persistent connection between number of doctors per capita , and the prevalence of home-visits and surgical procedures

Another influence in the Health care industry is pharmaceutical trends . U .S . prescription...