Writing Homework Help

Discuss the main reasons why markets fail in the healthcare industry.

reply 1

The week six discussion board prompt question has asked the students to discuss the topic of government intervention. More precisely, the week six question has asked to know what are the main reasons why markets fail in the healthcare industry? By in large, markets fail in any industry – and not just healthcare, because of market failures. The Lee text has listed market failures as being categorized as: 1) externalities, 2) public goods, 3) imperfect information, 4) imperfect competition, 5) natural monopoly, and 6) income redistribution (2019). Though examples can be cited for each category of failure listed, this author will focus on monopolies and imperfect information/asymmetries of information for his response. This author will begin with imperfect information/asymmetries of information.

Imperfect information/asymmetries of information occur when a particular party has information which another party does not. Additionally, this one-sided view of knowledge often contains information which would likely alter the decision-making process of the party not privileged to the information (Landes & Néron, 2018). This occurrence represents a failure because it deprives the market from reaching true equilibrium, because it may lead the consumer to overpay for the good and or service (Lee, 2019). Conceptually, this becomes an issue in billing in healthcare because it is near impossible for a common person to rebuke and challenge the price of the procedure /service because they do not have knowledge / information to know what the true cost of the good or service should actually be (Landes & Néron, 2018; Lee, 2019).

Often times to remedy this issue, regulations will be passed that compels the party with the privilege information to disclose it to those whom with they are dealing with in order that a fair deal can be made (Landes & Néron, 2018). The Landes and Néron article made it a point to incorporate that the state may be better than the market in some instances because of access to resources and organizational structure (2018). While this is not necessarily untrue, this author would argue that the success of the government over the market in this instance lies more in the fact that the government benefits from being the sole legitimate wielder of violence/coercion (Newell, 2019). In highly simplistic terms, the government may intercede and give the cliché ultimatum of comply or else. In the honest sense, this is a form of a monopoly. Which is ironic in a sense because monopolies represent another market failure – does this mean that all governments are failures?

Coming back to monopolies in healthcare, this author may roughly combine imperfect competition and monopolies because these two concepts will overlap in the following example. That being said, monopolies represent one party having absolute control over a portion of the market – be it vertically or horizontally (Lee, 2019). This represents an issue because monopolies are inefficient because there is no competition which could incentivize the company to make improvements, achieve lower prices for consumers, and or embrace innovation; the true market price cannot be realized in this environment (Lee, 2019). For example, 69% or more of the market for syringes and or IV fluid bags are controlled by two companies in each sub-healthcare industry (Baker, 2019). These two companies represent a monopoly, or oligopoly, in their fields as they could passively collude to keep prices high. In some instances, this would warrant a government intervention – the most famous of this style of intervention would be Theodore Roosevelt and the trust-busting which occurred during the early 20th century.

In closing, this author has selected 1 Corinthians 14:40, “But all things should be done decently and in order.” (English Standard Version, n.d.) as his Biblical integration. This author has selected this verse because it speaks to the nature of market failures and the use of government intervention to take action to attempt to bridge the failure. Further, that we should also conduct our business decently towards all, because this proper order of behavior promotes the environment in which civil society must possess in order to exist.

reply 2

A location or system where individuals buy or sell to other individuals through a direct or indirect method is referred to as a market. A healthcare market is quite interesting because healthcare is a necessity for all. This constant necessity is a large part of why the healthcare market differs from any other market. Additionally, the healthcare market in this day and age is highly complex.

Market success or market failure is dependent on five factors. The five factors that give significant market power are “muted price competition, little risk of entry by rivals, limited customer bargaining power, and few satisfactory substitutes” (Lee, p. 238, 2019). Of these five factors, three exist in the healthcare market settings. It is because of the existence of these three factors that markets fail in the healthcare industry. The three reasons that specifically apply to the healthcare market are the lacking number of competitors, cost and regulatory barriers limit entry, and there a few close substitutes for healthcare products (Lee, 2019). Of these three reasons, two of them will be discussed in this post.

Market competition is vital for any success and growth of any market. One of the most significant benefits that come from having a competitive market is what is provided to the consumer. When organizations have to compete with one another, the competition is focused on goods and services. When the focus is on goods and services, those goods and services become better and more innovative. The benefits don’t stop there. Another effect on the goods and services is the fact that the competitors also compete with pricing. In turn, this will lower the prices of those goods and services. Unfortunately, market competition in healthcare is a troubling norm and puts the quality and safety of healthcare at risk (Sivashanker, Fanikos, Kachalia, 2018). An example of the effects of not having market competition is in generic drugs (Sivashanker, Fanikos, Kachalia, 2018). The effect of not having a competitive market for generic medicines is that there are constant shortages and rises in pricing (Sivashanker, Fanikos, Kachalia, 2018).

Another main reason for healthcare market failure is that there are only a few close substitutes for healthcare products. Having few substitutes forces the patient to have to pay whatever the asking price is in order to improve their health. The fact that there are few substitutes makes medical products have inelastic demand. This inelastic demand directly correlates with the market power that established and larger healthcare organizations are able to maintain (Ellis, Martins, & Zhu, 2017). There is a lack of substitutes in the healthcare market because competitors can only create “imperfect substitutes” that do not match location, attributes, or familiarity (Lee, 2019). Another reason that substitutes in the healthcare field do not fare well is because of the fact that they are considered “experience products” (Lee, 2019). An “experience product” means that a consumer must try the product or service to compare it to another one that they have already experienced (Lee, 2019). The likelihood of a patient trying another good or service than the one they have already experienced is low (Lee, 2019).

As this post discusses the reasons behind the failure of healthcare markets, our country must try to continue to improve it. Dealing with failure is not easy, but fortunately, there is a scripture that provides guidance through the path of failure. That scripture is Psalm 73:26. It states, “My flesh and my heart may fail, but God is the strength of my heart and my portion forever.” In this verse, we can see the importance of having faith in our God, as He will help us through our struggles by giving us strength.

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