Book contents
- Applied Healthcare Economics
- Applied Healthcare Economics
- Copyright page
- Contents
- Figures
- Boxes
- Exhibits
- Preface: What Managers Should Do
- 1 Management Mission Impossible
- 2 Ideal Decisions with and about Evidence
- 3 The Managerial Problem with Primary Care
- 4 Doctors and Hospitals
- 5 How Good Can We Be? How Big Should We Be? Should We Try to Conquer the World?
- 6 Dancing in the Dark
- 7 Managing Insurance and Managing with Insurance
- 8 Cost-Effectiveness and Insurance Coverage
- 9 Value-Based Everything in Healthcare
- 10 Pricing That Violates Economic Law
- 11 Who Is the Buyer of Insured Medical Care?
- 12 Competition, Antitrust, and Regulation in Hospital and Healthcare Markets
- 13 Cost Containment
- 14 Drugs
- 15 Social Determinants of Health and Health Spending
- 16 Conclusion: Don’ts, Dos, and Debunks from Economics
- Index
10 - Pricing That Violates Economic Law
How to Learn to Love Price Discrimination
Published online by Cambridge University Press: 26 September 2025
Book contents
- Applied Healthcare Economics
- Applied Healthcare Economics
- Copyright page
- Contents
- Figures
- Boxes
- Exhibits
- Preface: What Managers Should Do
- 1 Management Mission Impossible
- 2 Ideal Decisions with and about Evidence
- 3 The Managerial Problem with Primary Care
- 4 Doctors and Hospitals
- 5 How Good Can We Be? How Big Should We Be? Should We Try to Conquer the World?
- 6 Dancing in the Dark
- 7 Managing Insurance and Managing with Insurance
- 8 Cost-Effectiveness and Insurance Coverage
- 9 Value-Based Everything in Healthcare
- 10 Pricing That Violates Economic Law
- 11 Who Is the Buyer of Insured Medical Care?
- 12 Competition, Antitrust, and Regulation in Hospital and Healthcare Markets
- 13 Cost Containment
- 14 Drugs
- 15 Social Determinants of Health and Health Spending
- 16 Conclusion: Don’ts, Dos, and Debunks from Economics
- Index
Summary
This chapter investigates price discrimination among buyers and sellers of healthcare. It is very common for different buyers to pay different prices for the same medical service or drug. Economics does not predict that profit-maximizing sellers will increase the price to other buyers if one buyer reduces price (no cost-shifting), but it does hypothesize that buyers with less price-responsive demands can be charged more than those with more responsive demands by sellers with market power. Likewise, buyers with more buyer market power (e.g., larger insurers) often pay less than smaller insurers or individual uninsured consumers. This chapter explains why price discrimination may improve efficiency compared to simple monopoly by allowing a lower price to be charged to those with lower willingness to pay that is still above marginal cost. The role of pharmacy benefit managers (PBMs) in extracting discounts for drugs is described.
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- Chapter
- Information
- Applied Healthcare EconomicsUnexpected Insights for Management and Policy, pp. 222 - 238Publisher: Cambridge University PressPrint publication year: 2025
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