1. Economics of Health Care Is Health Care similar to other commodities? Craig A. Pedersen, R.Ph., Ph.D.

2. Objectives for Both Parts After viewing and listening to the Intranet lecture posted on Blackboard, the student will be able to: –Discuss the characteristics of a commodity. –Discuss the characteristics of health care (as related to a commodity).

3. Objectives cont. –Explain how health care is like a commodity and how it differs. –Explain the competitive market model and why it does or does not work for health care. –Analyze why the government efforts to contain health care costs were not effective.

4. Economics of Health Care Part 1 Is Health Care similar to other commodities? Craig A. Pedersen, R.Ph., Ph.D. Department of Pharmaceutical and Administrative Sciences School of Pharmacy Ohio State University

5. Characteristics of a Commodity Undifferentiatable Homogeneous product Individual buyers and sellers can not affect equilibrium (price, quantity demanded, or quantity supplied)

6. Characteristics of Health Care Both “art and science” Heterogeneous Prices differ Imperfect information Imperfect buyer/seller relationship –i.e. directed demand

7. Problems with the Health Care System Cost –Total Cost = Price x Quantity Price has little effect Quantity drives the system –Problem of allocation of scarce resources Access Quality

8. Solution: Competitive Market Model Strategies to Control Cost –Increase Supply –Decrease Demand –Administrative Controls –Cost Conscientiousness –Physician Control See the next slide for the graph. You can also see it on the printed handout.

9. Law of Supply and Demand Price Quanity PePe QeQe

10. Is There a Role for Government in Health Care? Public Perception of Health Care as a Right? Health Care as a Public Good? Externalities

11. Determinants of Demand Price of Commodity Price of Related Commodities –Compliments and Substitutes Income of Buyer Tastes and Preferences

12. Elasticity Ratio of relative change in a dependent variable to the relative change in an independent variable, e.g. quantity and price Price Elasticity:% chg Q/% chg P

13. This Concludes Part One. Economics of Health Care Is Health Care similar to other commodities? Craig A. Pedersen, R.Ph., Ph.D.