Question

Read the following article

The Mayo Clinic and the technology company Medically Home are partnering to launch a new healthcare delivery model that will deliver “advanced care” typically available inside a hospital into patient homes.

Financial terms of the partnership announced Wednesday weren’t disclosed but executives involved said Boston-based Medically Home is providing “technology infrastructure.” And Mayo, which made an undisclosed investment in Medically Home last year, is providing the medical care or directing those that do provide the treatment for “high acuity patients.”

“Under the direction of Mayo Clinic physicians, advanced care at home offers comprehensive and restorative health care services including infusions, skilled nursing, medications, laboratory and imaging services, behavioral health, and rehabilitation services from a network of paramedics, nurses and an ecosystem of support team members,” Mayo said in a statement.

The first such programs to offer “advanced care at home” will be implemented in July in Jacksonville, Fla., and in August in Eau Claire, Wis. Mayo has long had hospitals, health facilities and physicians in those markets.

The partnership comes as medical care providers escalate their efforts to use the latest technology to center treatment around the patient, making sure healthcare is delivered in the right place, at the right time and in the right amount. Some also see the effort to provide more healthcare into patient homes as ready to take off as cases of the coronavirus strain Covid-19 continue their surge and patients look for new safe and effective ways to get home-based care during the pandemic.

“Offering comprehensive, acute and restorative level care to patients in the comfort and safety of the home is an expectation of patients,” Mayo Clinic Platform president Dr. John Halamka said in a statement accompanying the announcement. “Advances in technology and platform business models allow us to give patients the next generation of medical care and experience consumers expect. It is a shifting paradigm in the health care system and Mayo Clinic intends to lead this new option for patients.”

Medically Home has already been attracting investments for its projects like its “Virtual Hospital,” which the company says “transforms patients’ homes into temporary hospital units, enabling advanced medical care at bedside.” Last year, the big healthcare supplier and distributor Cardinal Health invested $10 million into Medically Home.

Mayo said it selected Medically Home as a partner because the platform allows medical care providers to “shift advanced medical care to patients’ homes safely” and offers “an integrated technology platform and network of in-home services” that can be director by Mayo doctors. “The work we will be doing together in this model will have a profound impact on how we all look at the future of medical care,” Medically Home executive chairman Raphael Rakowski said.

Answer the following questions using concepts from chapters 6 and 7:

1. The article states: “… invite more calls from politicians to enact price controls for drugs”. What kind of government action in markets could some politicians advocate for? Would the result of that action be fair and/or efficient? Explain. (max. word count: 50)
2. What kind of price elasticity of demand does a life-saving drug have?
3. In the US, the allocation of vaccines follows a public-private partnership, where government purchases account for more than 50% of the vaccine market (NCBI, 2003). Would the market price alone work as an allocation method? Explain. (max. word count: 50)

Answer 1

Price control or price ceiling is an economic tool used by the government to fix prices of important goods to be sold at a certain price or below it. It is aimed at making available goods at lower or affordable prices to the consumers, that are otherwise priced too high.

Some politicians are advocating for putting price ceiling on the drugs. Although price control may provide relief to some consumers in terms of lower prices, it is not an efficient or fair action by the government, as it leads to shortage of the goods with price control.

As we can see in the diagram above, price control on bread has created shortage due to an increase in demand owing to lower prices, and a decrease in supply owing to lower prices.

A life - saving drug's price elasticity of demand is very inelastic. Even with a greater change in price, the demanded quantity of the drug more or less remains the same.

Market price alone would not work as allocation method, as government alone accounts for purchasing 50% of the vaccine. Market only works as an efficient allocation method when there are large number of buyers and sellers. Here, there would be negotiation between the parties for deciding the price level.