The Health care industry has experienced tremendous competition in recent years. A growing number of firms, and increasingly aggressive payers, have all contributed to this growth. With antitrust enforcement and government regulation, competition in the health care industry is growing. The key to maintaining competition is identifying opportunities for innovation. Here are some ways in which innovation can benefit the Health care industry. The first step is to understand what drives the costs of health care in the U.S.
Health care is a complex business. Costs are often difficult to predict because of the nuances of health care economics. Costs rise faster than revenues, but there are many factors that cause price increases in the industry. Those costs increase when technology is used to provide care. It also increases when government intervention is necessary. Health care is one of the largest industries in the world, but its costs are high and rising quickly. The government, employers, and consumers are increasing pressure on the industry to find ways to lower costs.
The emergence of technology has changed the business model of the Health care industry. Before, hospitals received payments on the basis of the costs they incurred for patient care. Medicare introduced a prospective payment system in 1983. This system pays hospitals a fixed fee per admission, and in return, they are reimbursed based on the type of diagnosis and severity of the patient’s condition. Prior to this change, hospitals were largely passive payers, but after 1965, they were forced to compete with private insurance companies and employers. However, this has led to the growth of HMOs and other strategies to contain costs. Some of these strategies include utilization review and other cost-cutting measures.
The health care industry is a diverse industry. The industry’s subtypes vary in terms of the types of employees employed. Health service workers are primarily employed in ambulatory care, while health diagnosing and treating occupations are concentrated in hospitals. The characteristics of health care workers vary greatly across these three subtypes. The differences in these factors influence the distribution of the workforce among health care workers. So, understanding how uninsured workers are compensated for their work will help employers improve the quality of care provided to their patients.
Third-party payment has a dramatic effect on the structure of the health care industry. Insurers contribute a large portion of medical care costs, and the insured consumer’s point of purchase price is lower than the doctor’s fee. If the insured consumer pays $40 for a visit to a doctor, she will be charged $8 after the insurance company pays 80 percent of the bill. As a result, the cost of medical care goes down and the quantity demanded increases.
Other studies have found that the United States isn’t as extreme as other advanced countries. Nevertheless, it is still higher than the OECD average. According to Himmelstein and coauthors, the United States spent 1.4 percent of its GDP on health care costs in 2010, compared to 0.8 percent of GDP in the Netherlands and Canada. These differences suggest that the U.S. health-care industry is less efficient than other advanced economies.