Question

1. Critics of rising health care costs often criticize the large number of channel intermediaries, claiming they cause higher prices for goods and services. Do intermediaries increase or reduce the cost of health care products and services? Would consumers be better off or worse off if there were fewer intermediaries in the health care market? Explain.

2. The number of retail store-based basic primary care clinics is increasing. This health care distribution innovation is simple, and there are low barriers of entry into this market. Why was this distribution strategy not implemented sooner? What other types of new health care distribution strategies could be successful?

Answer 1

1.

The healthcare organizations are intermediaries between healthcare providers and patients. These are health maintenance organizations or insurers which help lower the cost of healthcare but have to compromise with health quality which can be improved as well by these intermediaries. As there is an asymmetry between the doctors and patients regarding the transaction cost it is misused by the intermediaries by charging high and providing cheap facilities to gain more profits. Hence it makes customers worse off if there are a large number of intermediaries.

2.

The innovation in distribution strategy like delivery, technology, medical services emerged by spending a great deal on health spending by the government. The reasons such innovations fail to last long are players, funding, public policy, customers and accountability.