In the healthcare industry, most provider organizations have market power because their competitors aren’t considered a perfect substitute. In addition, limited competition in the marketplace contributes to a rise in the market power, which, in turn, allows a firm to increase its’ markups over the marginal cost and boost profit margins. Barriers to entry and regulations are other factors that can increase a firm’s market power. If you haven’t noticed, the determinants of market power align fairly well with Michael Porter’s Five Forces Analysis. When discussing market power, it’s important to take into consideration the market structure (e.g., monopolies, monopolistic competitors, and oligopolies), since the market structure will have an impact on market power and a firm’s profit potential. The government through policy development and new regulations has a profound impact of the healthcare market. These governmental interventions may result in tax breaks and subsidies intended to promote operational and clinical efficiencies; promote greater accessibility to healthcare services for those underserved segments of the population; increase accountability for cost containment measures and better utilization of limited resources; and reimbursement incentives for meeting quality metrics.

It’s important that healthcare leaders understand that there are clear linkages between market structure, market power, and profits, since these factors tend to influence financial, operational, clinical, and strategic decision-making within the healthcare and related industries. In addition, this unit will also explore the impact that governmental incentives and regulations have on the imperfect market that typifies the healthcare industry. To gain a deeper appreciation for these economic concepts and their relevance to the healthcare and related industries, you will be expected to complete the following end-of-chapter problem and mini-cases:

Chapter 15: Case 15.1, Deregulation Pharmaceutical Advertising (pp. 249-251; Lee textbook); 15.2 (p. 252)
Chapter 16: Case 16.2, To Vaccinate or Not (p. 263; Lee textbook)

Unit Learning Outcomes

ULO 1. Examine the importance of market power. (CLO 1, 6, and 7)
ULO 2. Apply Porter’s model to pricing. (CLO 1, 3, 6, and 7)
ULO 3. Evaluate the impact of policies and regulations on market power. (CLO 3)
ULO 4. Examine factors that contribute to inefficient and imperfect markets. (CLO 2, 3, 6, and 7)

Directions

The students are expected to carefully read the assignment instructions, then thoroughly and explicitly address each question. Microsoft Excel will be used to perform the mathematical computations and graphs; however, the problem and its corresponding response should be written up in a Microsoft Word document. Your responses to the assigned mini-case studies should also be included in the same document. IMPORTANT: Make certain that there is a detailed description of how the calculations were performed. You will also need to include an interpretation of the results. While there is no minimum number of references that need to be utilized to support the completion of this assignment, it is generally understood that outside sources, including the text, will be necessary to complete the problems. The document must adhere to the APA writing style in terms of using in-text citations and the listing of sources on the references page. The Microsoft Word document and Excel spreadsheet are to be uploaded under the correct unit assignment page.

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