Economics can relate to competition as well as choice in the world of healthcare. For example market concentration in healthcare is when there are only a select few companies who produce and sell their products to the majority of the healthcare facilities around the country. In other words, these products may be limited and not many companies may make them, so selling them to most of healthcare facilities will create a larger selling market for them. Therefore, it is a useful economic tool because it reflects the degree of competition within the healthcare market. According to Riley (2011), “If concentration is low, than the industry is considered to be competitive and if the concentration is high, than the industry will be viewed as oligopolistic or monopolistic.” For instance, an oligopoly market has a small number of large companies that produce similar but slightly different products and in a monopoly the vendor charges high prices for the goods because there is no competition.
The next step is to realize how to measure market concentration in the healthcare field. In order to do so, once must use the Herfindahl-Hirschman Index (HHI) by taking each one of the companies being analyzed and squaring their market’s overall sales. Once the squaring is completed, they then have to sum the numbers up to provide the final answer. To have a better understanding of the HHI calculation there is a quote by the U.S. Department of Justice (2016), which stated, “The HHI reflects both the distribution of the market shares of the top four firms and the composition of the market outside the top four firms.” For example, there are unconcentrated results, which means the market is unlikely to have favorable competitive effects....
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...e downside a market economy will produce what people want, not necessarily what they need, which can raise prices for the average consumer/patient. For instance, the more consolidated a healthcare system is the greater the drawbacks. In other words, higher healthcare prices resulting from greater market power. “Market power increases because it is difficult for insurers to bargain successfully with one of only a few health systems and clinicians gain market power through consolidation by raising prices to the payers” (Cutler & Morton, 2013). Therefore, there are many decisions healthcare facilities need to consider before opening up to the public such as looking for a less concentrated area, identifying new sources of patients for referrals, offering something unique to differentiate from other providers, and creating a healthcare market that has not been built yet.
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