How economic forces affect healthcare pricing
What is market power and what does it mean in the healthcare industry? “The market is the structure in which market forces operate; if that structure is operating properly, market forces can do their job to keep prices low and quality high” (Guterman, 2017). However, if there were flaws in the structure of the market, the forces would not be able to produce the desired results. The power comes into play when one has an advantage over the other. When you have a larger medical group, the physicians are able to refer patients to their own specialists thus giving them a competitive edge over physicians that do not belong to larger groups.
These advantages gave large groups greater bargaining power over health plans than had by independent and small physician practices. As a result, large groups were more likely to be able to negotiate higher payments and increased market share (receiving a greater portion of the health plan’s total number of enrollees). (Feldstein, 2015, p. 190)
There are several reasons why large medical groups have market power over the smaller ones. One reason is that large groups have lower per-unit costs than do small groups (Feldstein, 2015, p. 190). Another reason is that they are also better at being able to spread certain fixed costs over a large number of physicians (Feldstein, 2015, p. 190). Since they have more flexibility of referring their patients within their multi-practice groups, they can negotiate their rates.
Larger medical groups are not always successful.
When you have a large number of physicians within a group, there are bound to be disagreements. “Physicians may not share values or accept the same assumptions regarding their external environment, mission, and relationships with one another. This cultural difference often determines whether physicians will remain in a group” (Feldstein, 2015, p. 192). Another reason for the dissolvement of these groups tend to be over financial disbursement and compensation. “For example, when a multispecialty group is capitated for a large number of enrollees, the group must decide how the primary care physicians and each specialist will share in those capitation dollars” (Feldstein, 2015, p. 192). 1 Timothy 6: 10 says, “For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.” (ESV) Practicing medicine should not be about money and greed, but about taking care of those that are sick and needy.
The advantages of physician groups
Medical groups and market power
According to our text there are several reasons that a medical group will form. There are also different types of medical groups such as single or multispecialty as well as independent practices. Under these groups physicians area able to share some of the patient responsibility, any financial risks or responsibilities as well as recognition for being a part of a large organization. There are a few different reasons that a medical group could hold some power in the market. “Large medical groups have more formalized quality control and monitoring mechanisms than do independently practicing physicians”. (Feldstein, 2015, p. 189) An advantage that a large group has is that they have the ability to refer their patients to their own specialty services, this provides more access to a various number of patients. “Treatment of patients can be much more collaborative and multifaceted if different specialties are working together as a team”. (Garcia, Foley, & Akuthota, 2009) Because of this advantage the large groups have more of an advantage in the market, as well as with health insurance plans.
Large groups can also control where they refer their patients to for further evaluation. When physicians refer patients to certain hospitals, they become part of a risk-sharing pool which helps them to earn more income. The fact that physicians’ control where they send their patient gives them power in the healthcare market. “Multispecialty groups can also more easily provide care coordination to their patients and arrange for consultations with other physicians in the group” (Feldstein, 2015, p. 190). I also think that the power of the group name can give a medical group market power. When there are several physicians that are apart of the same group with a great reputation, it attracts more business and patients which in turn creates more revenue for the who association. Also, being a able to hire better management to handle finances, problems, and etc. to help better manage the office contributes to their power. Small medical groups aren’t able to hire as many workers to manage their offices like large groups can. There is also the possibility that a large medial group could break up.
One of the reasons that large groups could decide to separate in lack of agreeance between physicians. There could be an underlying cultural difference that some physicians are not willing to change. Another reason would be lack of efficient management. “As medical groups increased in size and number, many had inadequate management expertise to handle the clinical and financial responsibilities of the group”. Loss in capital would also be another reason for a medical group to separate. The bible teaches us about finding a common ground with one another to work together for a greater purpose, I believe that when large medical groups come together, it should be with a common goal, and that’s helping patients restore their health. “Two are better than one, because they have a good reward for their labor”.
The health industry is composed of various services that aimto maintain good health of human beings. The nature of the assorted services in the sector makes it hard for the government to intervene and control the pricing of these services(Feldstein, 2015). It is at this point, where the economic forces play their role in controlling the pricing in the health sector services.
The forces operate based on demand and supply of patients and the physicians. In cases where the patients are more than the number of patients available, there is a likely hood for prices to increase and the vice versa is true. Physicians who come together to form a group to influence the pricing of the services might seem to act out of greed for money, but in the real sense they are in a position to provide better care and referrals compared to those working individually. Such a group acts like an oligopoly in an effort to stabilize the pricing in healthcare(Auer, & Schoenle, 2016).
In an economy where some actors are able to influence prises, there bound to be some victims. Physicians who operate solely suffer the negative effect of the stabilized prices due to their high costof operation. It is due to this case that most of them deliver substandard health services.
However, in every economic setup different individuals share different values hence the reason why some group physicians may deliver multi-disciplinary services while other deliver specialized services. The same case others deliver quality while other do not. Such differences end up breaking the oligopoly in this case the group of physicians.
There are many advantages associated with forming a group of physicians. A group of physicians are able to utilize the economies of scale thereby reducing the operation cost and increase profits without making their services worse off. For instance, the services provided at the hospital and those provided by private clinics are very different from each other. The group of doctors has a better bargaining power compared to the single practitioner(Garcia, Foley, & Akuthota, 2017). These doctors pool their resources together and are able to provide better facilities and services to the patient. In addition, the patient is able to access all the services under one roof as compared to the single practitioner who offers only one service(Guterman, 2017). Therefore, services are deemed more expensive when a patient goes toa group of physicians since they have to cater to the operating costs.
On the other hand, the group of physicians is likely to be recognized by the insurance and the government. This means that it will offer services to insured patients and pay higher taxes. However, the cost is minimized as it is distributed among the members of the group. In addition, the cost of attending to patients is greatly reduced due to the economies of scale. That is conducting several operations and services under one premise.
Auer, R.,& Schoenle, R. (2016). Market structure and exchange rate pass-through. Journal of International Economics, 98, 60-77.
Feldstein, P. (2015). Health policy issues: an economic perspective (6th ed.). Chicago, Illinois: Health Administration Press.
Garcia, M., Foley, B., & Akuthota, V. (2017). Single-specialty versus multi-specialty group employment. PM&R, 1(9), 878-880. doi:10.1016/j.pmrj.2009.08.450
Guterman, S. (2017). Making Health Care Markets Work Better: The Role of Regulation | Commonwealth Fund. [online] Commonwealthfund.org. Available at: https://www.commonwealthfund.org/blog/2017/making-health-care-markets-work-better-role-regulation
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