IHP 620: Market Concentration, Power, and Healthcare Economics

This report delves into the economic principles of market concentration and market power within the healthcare industry. It begins by defining these terms, explaining how they are measured using tools like the Herfindahl-Hirschman Index (HHI), and illustrating their relationship to competition. The report then applies these concepts to the healthcare sector, analyzing how market concentration and power influence decision-making and planning. It discusses the impacts of market power on competition, transparency, innovation, and cost containment, highlighting the effects of hospital and insurer concentration on prices and service quality. The report concludes by emphasizing the importance of these economic principles in measuring market competition and shaping the healthcare landscape. The analysis is supported by cited references from academic sources.

Economic principles of health care

Table of contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
CONCLUSION................................................................................................................................4
REFRENCES...................................................................................................................................5

INTRODUCTION
The report is about the market concentration and market power. Impact of market
concentration and market power in decision-making and planning of health care industry.
MAIN BODY
Distribution of given market in the participating companies is called market
concentration. It is also known as industry concentration or seller concentration. The
quantification of the distribution of the market among the competitors is expressed by the market
concentration and hence it is expressed in ratio (CR). The market concentration is calculated by
the Herfindahl-Hirchman Index (HHI), in this the percentage market shares of the individual firm
in the industry is added in the square root. Market concentration is taken as the proxy for the
intensity of the competition (Azar, Marinescu, & Steinbaum, (2020). It measures the extent to
which the market shares are concentrated within a small number of firms.
The ability of the company to change the price of the item in the market place is called
market power and it is done by making changes in the level of demand or supply or in both of
them. N-firm concentration ratio is used for measuring the market shares that are combined of
the largest N firms in the market. Market power is related to the principles of competition as it is
the key factor that is considered by the competition authorities for analysis of acquisitions,
mergers and alleged anti-competitive conduct.
In US based on the criteria for HHI levels along with the changes in the Horizontal
Merger Guidelines in 2016, 202 million people were living in 346 MSAs (De Loecker, &
Eeckhout, (2018). In this MSA high or the moderate level of concern and scrutiny were
warranted for the four specialist physician organisation products or the product grouping. But
only a few MSA are warranting scrutiny across the four products and the product grouping and it
can be concluded that systematic market-level factors are no the driver for the concentration
increase for all the subsectors. The increase in the concentration in the primary care physician
organisation is the result of the physicians owned by the health care or hospitals.
The market power in the health care industry is controlled in different ways. In different
nations the large employer started to purse direct contacting with the CEO to get the control over
the employee cost in the health care benefits (Aleshkova, & Serdyuk). Because of this the
provider competition for the direct contracting will be increased and in some of the cases the
direct contracting will be the initiation of the effort to circumvent the private insurers.

Impact of the economic principles on the decision-making and planning of the health care:
The market power hinders the competition, health care transparency, product innovation and
hospital cost containment methods that are capable of increasing and decreasing the price. The
hospital having the high negotiating power are able to claim higher reimbursement rates along
with less incentive for decreasing the price and the cost (Dincer, (2019). Market power lead to
significant variation in price of hospitals that provide same services. The increasing market
concentration can make adverse effect on the on the quality and the cost of the health care. The
US health care industry depend upon the competition for the provider as well as the health
insurer markets foe lowering the costs and improving the quality. It is found in the study that the
concentration of the hospital and the health insurer market has increased incredibly.
The concentration of the provider can provide with efficiencies that benefits the
purchasers of the health care services. It was found in the studies that the concentrated markets
are directly associated with the higher price in the hospitals. These hospital prices also get
increased by 20% when the market occurs with the merger. But this increase in the price did not
improve the quality of the services provided by the hospitals (Yasar & Kiraci, (2017). The higher
the concentration higher will be the price of the physician in the range of services. The increase
in the concentration of the health insurer can result in the lower premiums for the employers and
the consumers along two pathways: having the efficiencies from the insurers as well as scale that
are negotiating for the lower prices with the hospitals and the organisation with physicians that re
trying to charge prices that are above the level of competition.
It was found in the study that higher the insurer health concentration lower will be the hospital
and the physician price, but this reduction in the price is not given to the consumers but given to
the individuals and the employers that are buying the marketplace plans (Stenber and et.al,
(2018).
CONCLUSION
It can be concluded that the market power and the market concentration are necessary for
the measuring the competition in the market. The economic principles impact the decision
making and planning of the health care industry.

REFRENCES
Books and Journals
Aleshkova, & Serdyuk. The Principles of Competition and Sustainable Development in the
Economy: The Dialectic of Interaction in the Context of Information
Globalization. Competitive Russia: Foresight Model of Economic and Legal
Development in the Digital Age. 503.
Azar, Marinescu, & Steinbaum, (2020). Labor market concentration. Journal of Human
Resources. 1218-9914R1.
De Loecker, & Eeckhout, (2018). Global market power (No. w24768). National Bureau of
Economic Research.
Dincer, (2019). HHI-based evaluation of the European banking sector using an integrated fuzzy
approach. Kybernetes.
Impact of the economic principles on the decision-making and planning of the health care:
Stenber and et.al, (2018). Health economic evaluations of patient education interventions a
scoping review of the literature. Patient education and counselling. 101(6). 1006-1035.
Yasar & Kiraci, (2017). Market Share, the Number of Competitors and Concentration: An
Empirical Application on the Airline Industry. In Anadolu International Conference in
Economics Proceedings.
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