Health care economics overview and key concepts

¶ … Health Care Economics

Heath care economics

The health care sector in the United States is faced with a series of challenges given by the dynamic and changing features of the modern day society. Two notable challenges in this sense are represented by moral hazard and demand inducement. These are best explained below:

"First, because of the nature of insurance at that time patients demanded all medical services regardless of cost, even those offering an insignificant health benefit (moral hazard). Second, autonomous providers of the traditional health economy received fee-for-service payments. This creates the incentive for physicians to recommend the extravagant of treatments, even if those treatments are inappropriate to the patients condition (demand inducement)" (University of Canterbury).

In order to address these issues, the concept and practice of managed care have been introduced. The scope of this application is that of creating more efficiency within the health care provision sector. And based on the progress made so far, it can be concluded that managed care has indeed had some positive impacts of moral hazard and demand inducement.

At the level of moral hazard, managed care has sought to eliminate the incentives of the physicians in recommending and providing excessive medical services to their patients. In the reduction of demand inducement, the managed care organizations have decided to pay their physicians fixed salaries, regardless of the medical services they provided.

Overall, managed care has led to some degree of containment in the provision of expensive and unnecessary health care services, but optimal efficiency has yet to be attained. Additionally, the challenge is represented by finding the adequate balance between the provision of medical services and the containment of the costs.

(2)

In an effort to reduce their costs with health care, namely with the medicine they have to take, the American citizens sometimes travel to Mexico or Canada and have their prescriptions filled in these countries. The process is normally completed by individuals for their personal use and it is referred to as re-importation of drugs.

These drugs had initially been produced within the United States, but they are sold at lower prices in Mexico and Canada. From the legal standpoint, the re-importation of drugs is illegal and the primary concerns of the FDA (Food and Drug Administration) refer to the safety of the drugs, in the meaning that the U.S. does not have the power to control the distribution systems in Canada and Mexico. Still, the FDA does not promote a policy of complete prohibition since it considers re-importation the lesser evil than people going sick because they do not afford the medicine they need (AARP).

The development and implementation of a policy regarding the re-importation of American drugs from Mexico and Canada would most likely be an ineffective measure and this is due to the fact that the creation of a new policy would recognize and somewhat accept the phenomenon. In other words, it could lead to the legalization of drug re-importation and such a situation would further increase the size of the drug re-importation phenomenon. In such a setting, the American pharmaceutical companies would be faced with decreased revenues and competitiveness within the domestic market place, and this would lead to further price increases in the medicines. Furthermore, the safety of the people would be endangered, since the FDA would be unable to supervise drug distribution.

(3)

Another notable challenge within the modern day American health care sector is represented by the prices of the drugs, which continue to increase and make it more difficult for the population to afford medicine. In such a setting, a question has been raised relative to the possibility of capping the prices for drugs in the country. In other words, a question is now being posed relative to the possibility of regulating the prices of the prescription drugs.

Like with any other debate, there are two stands to the issue. For once, there are those argue against drug price control, believing that the political intervention would disrupt the supply-demand equilibrium within the market, and would also reduce the competition within the industry (Morton). From a political standpoint nevertheless, the control of the prescription drug prices is a more appealing solution.

At the political level, the better control of the prices is attractive as it would allow the federal institution to better monitor the activity and revenues of the pharmaceutical companies. Additionally, it would also help to improve the image of the political parties, who would enhance their reputation by making medicine more accessible to the population.