Herman has been working in healthcare administration for 10 years. He has finally taken a healthcare strategy course and learned about different market structures. He wondered why different segments of healthcare respond differently in negotiations. One of his responsibilities is negotiating with physicians, insurance companies, and hospitals in his company’s managed care unit. He has found that his ability to exact price concessions from different groups varies dramatically. Primary care physicians’ market structure is a monopolistic competition, while prominent hospitals seem to hold monopoly power. Insurance markets, on the other hand, often are oligopolies. He now believes that the introduction of national quality standards for primary care physicians may make outcomes among physician offices easier to compare and thus reduce their differentiation. As a result, he may be able to gain greater price concessions from physicians in the future. Often, however, he almost has to beg prominent hospitals to join his system’s network, and in turn he pays full prices. In insurance markets of only three or four major companies, each organization seems to offer the same terms. Herman thinks he now understands better what is happening with each group.

Questions 

1. How are Herman’s perceptions regarding his negotiations and market structure correct? Incorrect?

2. How would specialist physicians fit into the market structure, and how would Herman negotiate with them?

3. Could perfect competition exist in healthcare? How would one negotiate in this type of market?