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Market power in healthcare

Like any branch of the social sphere, healthcare is

under regulatory state influence, which somewhat distorts the manifestation of market laws in the process of functioning of enterprises. The need for state regulation of market relations in healthcare is determined by the fact that the health of the nation is one of the main indicators of the level of socio-economic development of the country and its important strategic resource. State regulation of market processes in the industry occurs through the development of tax, pricing and investment policies, as well as targeted regional programs for socio-economic development (in the Russian Federation - Territorial programs of state guarantees for the provision of free medical care to the population of the subject of the Russian Federation; in England - The Patient? s Charter; in the USA - Medicait and Medicare).

At the same time, healthcare, as a sector of a market economy, proceeds from the general tasks of business and aims to maximize profits. Most clearly, market mechanisms influence the development of two sub-sectors: the pharmaceutical and medical industries.

The main sources of market power in healthcare are administrative barriers: licenses and patents. Entry into the industry is limited by the state by issuing licenses and patents for the invention. In foreign practice, patent control played a significant role in the formation of such corporations as the JOSTRA concern - an innovator in perfusion technology, SHIMADZU - X-ray equipment, computer tomographs, and angiographic units. In modern Russian practice, using this mechanism, the circle of manufacturers of individual medical devices (prostheses of vessels and heart valves, complex metal structures for osteosynthesis, etc.) is also limited.

An important mechanism of state regulation of the turnover of medicines and medical equipment, which serves as a source of increasing the market power of Russian manufacturers in the domestic market, are customs restrictions and direct import bans.

Market power in the pharmaceutical and medical industries depends on the following factors:

1. Cross elasticity of demand. For example, the demand for a drug with the international non-proprietary name “Diclofenac” will be different, depending on the price offer of manufacturers, which in the State Register of Medicines alone number more than fifty (taking into account the dosage forms of the drug) (Table 4).

The presented product is replaceable, and the demand for it is elastic, therefore, an attempt by an individual producer to increase the price will lead to a decrease in demand for its products.
That is, in this example, manufacturing companies practically do not have market power.

2. The number of firms in the market. Currently the bulk

domestic medical products (about 90%) are produced at 168 specialized (base) enterprises and organizations. They produce about 2,500 kinds of medicines and medical equipment and about 7,000 kinds of medical devices. The industry employs about 91 thousand people, including 66 thousand people at the pharmaceutical industry and 25 thousand people - medical equipment.

Table 4 -

brand name options and drug manufacturers

(on the example of INN "Diclofenac")

The regulatory impact of the state leads to a rather high degree of monopolization of the domestic pharmaceutical market (excluding imported analogues). Table 5 shows the information for 2004: 10 leading domestic manufacturers hold 84.7% of sales in the market of Russian finished dosage forms.

3. The behavior of firms in the market. Since getting high income

it is very attractive for any company, therefore the behavior of firms in the market, their price policy is regulated by the state with the help of antitrust laws, the establishment of maximum allowable trade allowances, and the regulation of the procurement of goods for state needs.

Marginal retail and wholesale trade allowances are set as a percentage of the price of the manufacturer by the administrative document of the executive branch of the Russian Federation. The restriction applies to drugs and medical devices purchased from the budget and compulsory medical insurance.

All purchases of goods, works and services worth over 2,000 minimum wages are carried out exclusively on the basis of state or municipal contracts (Article 71. BC RF). The conclusion of government contracts involves a competitive procurement process.

Table 5 -

drug manufacturers rating in 2004


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Market power in healthcare

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