monopoly _ monopolistic competition presentation_final
TRANSCRIPT
Monopoly & Monopolistic Competition:Health Care in Western Pa.
Alison BurkeXincheng Han
Jason KirbyDiane Weston
Christine Zapinski
MBA 578 | Fall 2015
Understanding Market Structures
Monopoly and Monopolistic Competition
Monopoly
▷ One company owns entire market
▷ No close substitutes
▷ Considerable power over price
▷ Barriers to entry preclude competitors○ Firm owns all resources○ Government policies○ Greater efficiencies
Profit Maximization of a Monopolist Firm
▷ Profit Maximization
MR=MC
▷ Strategies for Increasing Profits: 1. If marginal revenue is higher than marginal
cost, the firm should increase output.2. If marginal revenue is than lower than
marginal cost, the firm should decrease output.
▷ Profit = TR-TC
Monopoly
Monopoly: Demand & Supply, Shut Down Point & Equilibrium
▷ Demand Curve: Downward sloping
▷ Supply Curve: None
▷ Equilibrium Short Run
Achieved when MR=MC
Shutdown Point:Optimal Price<AVC
▷ Equilibrium Long Run
Achieved where MR curve cuts the LR MC curve & MR=SR MC
or MR=LMC=SMC
Shut down Point: ATR <ATC
Monopolistic Competition
▷ Many competitors in the marketplace
▷ Many substitute goods, but differentiated
▷ No barriers to entry
Profit Maximization in Monopolistic Competition
▷ Profit Maximization
MR=MC
▷ Strategies for Increasing Profits: 1. Select the output level where MR=MC2. Set price using the demand curve .
▷ Profit or loss1. If P > ATC, the firm is earning a profit2. If P < ATC, the company is making a loss3. If P = ATC, the business is earning zero
economic profit
Monopolistic Competition
Demand, Supply, Shut Down Point & Equilibrium of Monopolistic Competition
▷ Demand Curve: Downward sloping/not straight
▷ Supply Curve: None▷ Equilibrium Short Run
Achieved when MR=MC
Shutdown Point: Price is < AVC
▷ Equilibrium Long Run
Zero Profit: MR= MC
Shut down Point: If P=ATC or demands shifts below break-even point
MonopolyMonopolistic Competition
Buyers Multiple Multiple
Sellers One Multiple
Buyer Entry Barriers None None
Seller Entry Barriers Blocked None
Seller Exit Barriers Blocked None
Type of Product/Service
No substitutes Substitutes differentiated
Market Share Largest Small
Price maker Yes Yes
Competition No competition High
Market Power of Monopoly and Monopolistic Competition▷ Monopoly:
○ Small market size○ Patents granted○ Government regulations
▷ Monopolistic Competition○ Product differentiation○ Branding○ Advertising
Two structuresWestern Pa. health care market is segmented into monopoly and monopolistic competition.
Three tiers of health care services
Community hospitals
Basic medical care offered across the region by:
▷ 14 independent ▷ 21 UPMC ▷ 8 AHN
Services may include:
▷ Emergency room▷ Laboratory▷ Medical imaging▷ Nutrition services▷ Primary care▷ Surgical services▷ Wound care
Advanced care
UPMC and AHN both offer:
▷ Level 1 Trauma Centers
▷ Organ Transplantation
▷ Advanced cardiac care
▷ Orthopaedics / sports medicine / concussion
▷ Cancer treatment▷ Neurology/
neuroscience
Unique Services
UPMC has unmatched facilities and services:
▷ Children’s Hospital▷ Western
Psychiatric Institute and Clinic
▷ Magee-Womens Hospital
Facilities of significant UPMC advantage:
▷ Hillman Cancer Center
▷ Sports Medicine / Concussion
Allegheny CountyHospitals & Health Systems
Sources: haponline.org, AHN
Southwestern PennsylvaniaHospitals & Health Systems
Sources: haponline.org, AHN
Northwestern PennsylvaniaHospitals & Health Systems
Sources: haponline.org, AHN
Marketplace BattleHow monopoly and monopolistic competition
developed in Western Pa.’s health care market
Marketplace Development
1990 - UPMC createdWestern Psych, Eye & Ear, Presbyterian-University hospitals
1996 - Highmark formedMerger creates largest health insurer in Pennsylvania.
1996 - UPMC becomes insurerBest HealthCare of Western Pa. becomes UPMC Health Plan in 1997
1998 - AHERF failsMain UPMC competitor declares bankruptcy.
Marketplace Development
1999 - West Penn HS formedCreated with $125M loan from Highmark to ensure competition later becomes West Penn Allegheny HS
2002 - New contract Highmark and UPMC agree on 10-year deal for in-network access.
2011 - Highmark buys WPAHS In $465M deal, Highmark creates Allegheny Health Network.
2012 - Contract impasseCiting competition, UPMC refuses to renew Highmark contract.
Marketplace Development
2011 - New insurers UPMC signs contracts with four national insurers - Aetna, Cigna, Health America, United Healthcare
2012 - Sides sign consent decreesUnder immense pressure, Highmark and UPMC agree to extend contracts to 2014, then start separation.
2012-now - Contract disputes Sides argue over consent decrees; disputes require state, court rulings.
2019 - Agreements expire, then what?Subscribers will not have in-network access to other health system’s services, facilities, doctors.
UPMC vs. AHN at present
Hospitals/Beds 20 / 5,000+ 8 / 2,000+
Revenue $12B $2.4B
Doctors Employed/Affiliated
5,700 2,800
Employees 60,000 17,500
Medical School Affiliation
University of Pittsburgh
Drexel | Temple | LECOM
Socio-political Environment
How are monopolies perceived by the public?
Public view of monopolies
Started in American colonies
▷ British companies given exclusive rights
▷ Generally accepted and perceived as ‘good’ by public
▷ Essential for establishment of new colonies’ financial stability
Source: landofthebrave.info
Late 1800s / Industrial Revolution
Public perception of monopolies began to change
▷ Trust of business tactics low
▷ High barriers for new businesses to enter market
▷ Little government involvement or intervention
Source: findfunfacts.appspot.com
Sherman Anti-Trust Act of 1890
Passed by U.S. Congress based on power to regulate interstate commerce
▷ Gave Congress power to initiate actions against trusts to dissolve them, e.g. Standard Oil
▷ Intended to restore public trust in business and to encourage competition
▷ Shortcomings○ Loose wording○ Vague definitions
Source: econlife.com
Clayton Act of 1914
▷ Expanded on Sherman Act
▷ Clearer language
▷ Directed specific examples of Sherman Act violations○ Interlocking directorships○ Tie-in sales○ Mergers and acquisitions
Source: tessazav.blogspot.com/
Mentality in the 2000s
▷ Public perception of monopolies more positive
▷ With globalization, some want fewer restrictions
▷ World has power to police business, not individual governments
▷ Alan Greenspan: “ Maturity of world’s economy”
Source: wikimedia.org
Stark Law of 1989
▷ Federal law that allows civil penalties
▷ Prohibits physician self-referrals to hospitals where vested financial interest
▷ Medicare and Medicaid
▷ Example: Surgeon owning independent surgery center and only referring cases there Source: www.natlawreview.com
Anti-Kickback Statute
▷ Federal law with criminal penalties,including prison time
▷ Medicare and Medicaid
▷ Prohibits monetary rewards to providers
▷ Example: A hospitalist who gets a yearly bonus from hospital management if he/she hits a present number of RVUs.
Example: Monopoly or monopolistic competition?
▷ Young, healthy patient presents to UPMC-Presbyterian ER with productive cough, mild fever.
▷ No respiratory distress, breathing comfortably
▷ CXR shows PNA
▷ Given antibiotics and cough suppressant
▷ Discharged in stable condition
Example: Monopoly or monopolistic competition?
▷ Patient is 2-month-old neonatal baby with congenital heart defect
▷ Presents to Children’s ER with abdominal distention, edema, dyspnea
▷ Intubated and placed on ventilator for respiratory distress
▷ Needs cardiac transplant or prognosis is POOR
Example: Monopoly or monopolistic competition?
▷ Patient is 50-year-old male with chest pains, presents at Ohio Valley General’s ER
▷ EKG shows evidence of acute ischemic changes, elevated cardiac enzymes
▷ No cath lab at Ohio Valley, facility does not meet patient’s needs
▷ Needs immediate intervention to survive, with ICU monitoring
▷ Transferred to UPMC Shadyside for immediate catheterization and stent placement, with ICU monitoring
Example: Monopoly or monopolistic competition?
▷ Patient is 25-year-old female in active labor
▷ Vitals stable, no obvious distress, fetal tones reassuring
▷ Labor progressing nicely, uncomplicated pregnancy
▷ Admitted to labor and delivery at West Penn Hospital
▷ Delivers healthy baby boy after 6 hours of uneventful labor
▷ Admitted to general floor and baby is admitted to newborn unit
Can monopoly / monopolistic competition
be sustained?A look ahead at factors affecting demand,
supply and market conditions
Demand for health care
Demand should shift slightly to the right due to three key factors:
▷ Price elasticity
▷ Regional population change
▷ Impact of Affordable Care Act (ObamaCare)
Price sensitivity for health care is relatively inelastic
Doctor visits:-0.06
Primary Care:
-0.1 to -0.7
Life-saving care:
Inelastic
Population change
U.S. Census projects indicate a population drop in the 26 counties of Western Pa. between 2000 and 2020.
3.9 %
Impact of Affordable Care Act in Pennsylvania
▷ 891,000 potential enrollees in 2015 (KFF)
▷ 500,000 expected new enrollees (KFF)
▷ 3.8 % increase in primary care visits by newly insured (NYU)
▷ ACA still too new to really know the impact
Supply of health care
External factors affect both monopoly and monopolistic competition segments
▷ Government oversight
▷ AHN’s financial losses
▷ UPMC’s financial strength$
State oversight of consent decrees
▷ Agreements govern dealings between UPMC and Highmark
▷ Consent decrees continue until 2019
▷ Several disputes already
▷ Court decisions impact UPMC and AHN operations
AHN’s financial losses
▷ Formed in 2013 by Highmark
▷ $465M deal approved by state
▷ Operating loss of $37M in 2014
▷ Corrective Action Plan projects more losses
UPMC’s financial strength
▷ $12 billion in revenues in 2015
▷ Revenue up 37% since 2011
▷ 2.8% positive operating margin
Community hospitals: Monopolistic Competition
▷ Differentiated by geography
▷ Distinct options for consumers/patients
▷ Anti-trust concerns support independent hospitals
▷ State and federal push for continued competition
Advanced specialty care
UPMC and Allegheny Health Network both offer, but UPMC has advantages:
▷ Economics of scale - UPMC is bigger
▷ Unique resource - UPMC’s ties to Pitt medical school
▷ UPMC reputation / brand
▷ Community support for continued competition
?
Unique services / Monopoly No foreseeable challenge to monopoly market for:
▷ Children’s Hospital
▷ Western Psychiatric Institute
▷ Magee-Womens Hospital
If AHN fails, UPMC becomes monopoly for :
▷ Hillman Cancer Center
▷ Sports Medicine / Concussion
Thanks!Any questions?
Photo: Pittsburgh Post-Gazette
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