What are the unique characteristics of medical care services as compared with other market products or services?

Question

What will be an ideal response?

Answer 1

Medical care services differ from other commodities in a number of important ways. First, the demand for medical care services stems from the demand for a more fundamental commodity, namely, health itself. Therefore, the demand for medical care is a derived demand. Second is the agency relationship, in which a principal hires an agent to perform a service and delegates the decision-making authority to the agent. Unlike typical agency relationships in which the agent acts purely in the interest of the principal, physicians’ decisions typically reflect not only their patients’ preferences, but also their own self-interests, including pressure from colleagues and institutions, medical ethics, and a desire to make use of resources. As a result, health care utilization may well depend on the organizational environment.

The third difference concerns the price paid for health care. In most medical services, the money paid out-of-pocket at the point of usage is often significantly lower than the total eventual payment, largely due to insurance coverage. It is generally believed that the combination of comprehensive insurance for patients and fee-for-service payment for providers is what has driven the health care system to be the way it is at the present—a voracious black hole for economic resources. Thus, the use of medical care services is related to how the services are financed.

Finally, medical care services are influenced by the environment in which services are provided, namely the social, economic, demographic, technological, political, and cultural contexts surrounding the provision of health services.