This is the Healthcare Marketplace Specialization, Healthcare Marketplace Overview. My name is Steve Parente and this is the beginning of the modules on the provider market. This is module number 2.1.1. So, let's first of all talk about Monopoly, not just the game but markets in general and Monopoly 101. Just so we're all level-set, one thing to keep in mind or several things to keep in mind from Monopolies is that they have key features. One is that they have no close substitutes. So for example, if you're getting your water in a city, it's supplied by a local public utility, there's usually not going to be any water suppliers. Cable television sort of works the same way, there is generally one cable that comes with your home, not multiple cable pieces. Granted we now have a competition with satellite and DSL and phone, but in terms of that type of technology coming into you're home there is usually a monopoly that's a sign for those pieces. And then there's also barriers to entry to come in mind as well. So for example, DeBeers makes it's point to own pretty much all of the diamond mines it can get its hands a hold of, particularly in the in Africa today. So let's talk about barriers to entry and so, if you will, the legal barriers to entry that exist. First one is public franchise, it's an exclusive right granted to a firm to sell a good or service. For example, the US Postal Service, most folks think of the Postal Service as basically these are government employees. Turns out the Postal Service is actually a private enterprise, but it has an exclusive public franchise arrangement with the US Government to handle mail. The second is a Government License controls entry into particular occupations. So for example, for someone to practice medicine in a given state in the United States, they have to basically obtain a Government License or else they will not be seen as a physician able to practice medicine in that state. Insurance companies face the exact same issue, if you're a hospital, you have to have a Certificate of Need from any of the technology components that you're deploying in those areas. And then another one, very core when we talk about modules for pharmaceuticals and medical devices patents, 20 year patent, lifetime, and then copyrights is another major issue as well. There are also Natural Barriers to Entry, so Economies of Scale is one of the most major ones. So for example, to make electric power in any sizeable way requires essentially having the scale economies that generate a major amount of electricity. Now yes, we can use solar power and yes we can gain solar power together, but even the infrastructure to be able to basically sell your power back to the web is not something you can just put up in a little bag and just sort of take it off to market. You need to upon the electricity grid to be able to do that, and just the scale to build that is its own natural barrier to entry. Then we come to another feature of a monopoly, which is how do you set your prices and those price setting strategies. Monopolies can set prices, that's a key thing about what they can do. They can exercise price discrimination, that is they can sell the same good at a different price. So physicians technically have the ability to set prices according to the ability to pay of who their patient tends to be. Software that is all today is priced differently depending upon different markets so for example there's a Cisco software package that I use, called SAS for a lot of the research that I use. I used it for almost 30 years of my professional career, and the academic rate to get SAS through the university is $150, which doesn't sound so bad. The business rate, if I wanted to work with a start up and they don't really care if it's a start up, pretty much starts at about $75,000, put more zeros there for the exact same statistical package. That's SAS has monopoly on their technology, they can exercise price discrimination. And another thing to keep in mind is Single Price Monopoly, same price basically for each unit sold, you don't have any variations at all. So how can price discrimination be practiced? Well, you can sell identical goods and services for different prices, we mentioned that before. You can differentiate that from from selling goods and services that cost different amounts at different prices. That could just simply be the case that, say, for example, if you are in an airline and you're selling your services, it could be that your labor costs in one particular market are much more expensive and thus it increases your cost than it would otherwise be in a different market, and that's fine. So for example, Hospital Corporation of America, HCA, let's say they charge less for healthcare in rural Kansas than in Miami. Is that an evidence of price discrimination? I'd say no, because in rural Kansas basically, the labor cost which is a major part of healthcare cost, it has foreclosed, is quite much less in rural Kansas than it might be in Miami. So other thoughts of price discrimination, it can be seen as an attempt by a monopoly to capture consumer surplus all by itself,consumer surplus basically being what? Consumers are willing to pay, but actually often charge a price point less than what they're willing to pay, because the way the market is developed and so we've talked about this or we will talk about it later. What consumer surplus really gets ads is that there's sort of a demand curve, there's price with one axis and quantity in the other. And the more expensive a good is, say at this point here, the less you're going to demand of that quantity demanded. But the idea is that you have a market price that's going to be here, that's mostly is clear. But and this all area here, actually shows where's consumers are willing to actually pay more money but get less services. What Monopolist might try to do is say you know what? I'm going to try to get all of this back. I'm actually going to bury my price for exactly the right consumer to see what they're willing to pay, and do that. So when we think about how a monopoly might do this or how different groups might do this, they value the good versus the price paid for. And you think about how those MasterCard ads of old might do it and they say, here's this ball game ticket $50, popcorn $10, spending time at the National Championship with your kid at little league, price less. And so, they're illustrating that although you can have these price points here, it's like [SOUND], that thing is so much more valuable than that almost infinity you need to want to get that service. So what other forms of price discrimination might there be? You can see discrimination amongst units of goods. So bulk purchase, Costco people out there you know what that is, where you can basically you buy a mountain of cereal and be charged a lot less than buying it by little boxes. You can discriminate amongst individuals. You kind of get a sense of what their willingness to pay is going to be. This is actually where a lot of data analytics is useful to get a sense of where folks are. Even for buying airline tickets, people know that if you're buying airline tickets on Monday, there's a frenzy to get tickets there whereas Sundays are really quiet days so you're going to be maybe charged to go less to get there. These are often very not practical to be able to do that, Data Analytics is helping but most times, you can't discriminate very easily. And then you discriminate between groups so the health care provider could do this by saying hey, here are folks for Medicare and I'm going to charge them this rate. Here are folks for Medicaid, the program for the poor, I'm going to charge them this rate. Here's private commercial insurance. I'm going to charge them even a different rate. And that is technically allowed in the United States. It is not technically allowed, it is illegal, actually, to do that in other countries. For example, Switzerland, though a private market type of insurance program, basically mandates that physicians charge exactly the same price for the same services across the country. Then you have this issue a Perfect Price Discrimination so this is a really interesting concept you charge everyone just their willingness to pay and you get all the consumer surplus back. So when we have the graph before it showed like here through demand curve and people are plotting there. Literally, what they're going to do is say we the monopolists are going to get all this back, because we know exactly what we can charge. The thought is auctions might give a better sense, because you get to see what people's level of urgency is, whether they want to bail, and sort of take the price where it's going to be. Not wait until the auction is over, but often, this is not practical to get all of these dollars back, though if you can do it, it's actually just as efficient as a competitive market than a monopoly market. What ways can firms price discriminate? Physicians can open two offices, one in a wealthy suburb and one in a poorer urban market area, as we've seen how the demand works in pricing for each one. Contact lens retailer offers discount for bulk purchases. And you could charge more for non-appointment visits that is emergency visits. All these are easy illustrations of price discrimination. But there are limits to this, so consumers generally must be unable to resell their goods or services so why does this maybe sound familiar? There's been a lot of people talking about drug re-importation of pharmaceuticals, so a group of people will as posing as consumers, or consumer buying clubs, will buy drugs in Canada and then resell them back to the United States. The thought is the Canadian prices are much less than the US and as a result of which you can basically charge a different price, but that typically is not allowed to be able to make that occur in the market place that is generally illegal right now. Firms must be able to identify persons or groups with different demand curves and that's also extremely challenging to really identify easily folks with different levels of demand. This concludes our module describing the market conditions and the monopoly rights really of the provider markets as an overview to go into both describing the physician and hospital markets.
