Market of General Practitioners in Perth-Assignment Help
Market Structure of General Practitioners
Two most fundamental characteristics of the general practitioners (GP) market in Perth metropolitan area consist of absolutely free interaction of the forces of demand and supply in the local area and the absence of government intervention for setting price ceilings. As a result of this, the doctors are able to set whatever price they want from the patients, and patients in turn are free to choose, what they believe, is the best medical care for themselves. Government’s reasoning behind giving GPs a free hand is that they believe price freedom and higher fee incentive would allow them to offer better health care services to their patients. The current situation, however, does not represent the fair dealings between the GPs and patients in Western Australia’s capital city. As put forward by Johar, Jones and Savage (2013), the presence of free market forces have resulted in highly variable prices for the same type of healthcare services provided by different physicians. The situation manifests the characteristics of a monopolistic competition among various GPs in the area, whereby every GP has built a particular market share. This has given rise to a situation which involves keen competition among small monopolists in the western and eastern suburbs of the city. GPs try to attract the patients, increase their market share and revenue by charging higher prices for their medical services which they put forward to be “different” or as “the best” in the town. Consequently areas in the city like western suburbs that have higher purchasing power and high demand for medical for differentiated medical services have doctors available in abundance, whereas those with the limited purchasing power like eastern suburbs are running out of sufficient number of doctors.
Variable Prices with respect to Patients and Market Segments
There is no government regulation in Australia relating to price ceiling or maximum price that can be charged by the doctors for providing particular healthcare services. Therefore doctors are not bound to forcefully reduce their service charges, as it may affect the quality of service provided to the patients. However, government has set price floors which is the minimum price charged for level A and level B consultations. The minimum price that should be paid to any GP for a level B consultation which includes the most common type of consultation is $34.90. The minimum price is higher for level A consultation and complex medical operations and surgeries. This minimum price can be reimbursed from government by all citizens, in order to ensure the access of adequate healthcare facilities are within the reach of people with all disposable incomes. However, doctors are allowed to charge over and above the price floors set by the regulating authorities, and in this case amount above the minimum charges are not reimbursed by the government. Hence the patient has to pay the fees in excess of price floor by themselves. The idea behind this type of system is to enhance the quality of service provided by the GPs and to protect their professional rights. So a GP with higher market share and who is well-known for providing higher quality medical services will theoretically charge higher consultation price than a doctor who is new in the market and not known among the patients.
In practicality, GPs in Perth try to differentiate their services and gain a higher market share. Higher market share will allow the doctor to charge higher price, as his monopolistic influence would increase in the market. In addition to price variation with respect to market share, the demand and supply of healthcare services by the GPs is highly price and income elastic, as a result of which when the consumers disposable income increases or decreases the quantity of superior healthcare services demanded by the patients and supplied by the doctors reflect a corresponding increase or decrease in its response. Doctors with monopolistic market influence cannot utilize the barriers to entry of other doctors like a monopoly firm, because doctors are allowed to practice freely in Australia. So what really happens is that they shift their practice to areas where disposable income of the consumers is high, so they can charge higher price over the price floor from these patients who would be willing to expend money for receiving better quality healthcare services. This is the reason why GPs in western suburbs of the city charge more for their services as compared to GPs in eastern suburbs.
Gradual Shift of GPs from Eastern to Western Suburbs
According to news article posted at WA Today in August, the western suburbs of WA has about 4 times more doctors per head of population as compared to the eastern suburbs of the city (WA Today, 2013). West Australian Premier Colin Barnett told media that doctors are concentrated in high wealth and income areas and they also tend to offer their services through local hospitals where earning opportunities are greater, instead of practicing as an individual. The trend of concentration of doctors in hospitals is also evident from the statistics which show that although the number of general physicians in Australia increased by 4.6% from 2003 to 2008, the overall GP practices fell down by 6.7% (Moretti et al, 2010). Moreover the government policy also encourages the formation of larger hospitals and clinics by funding ‘GP Superclinics’. There is also evidence from research studies that suggest that increasing concentration in the GP market may lead to higher prices for the patients (Gravelle et al, 2013).
The non-regulatory environment of Australian GPs allows the doctors to move freely from one location to another. From the economics standpoint, when the price of a particular good or service is increased its quantity supplied is also increased. Due to this direct relation between the price and supply, the doctors tend to move to locations where they have greater income opportunities. Since, people living in western suburbs have higher income compared to the lower income areas of eastern suburbs, doctors tend to move away from eastern to western suburb where they can earn higher profits. This is because patients in eastern suburbs are not willing to pay the price above the government set price floor, as they are not interested in incurring medical expenditure out of their pocket. As a result physicians in these areas have to set their fees equal or closer to the Medicare rebate (i.e., $34.90 for a level B consultation), so they are not able to earn higher profits. So the total fee per patient in this case is equal to the Medicare rebate, say “m”. In contrast, a physician practicing in the western suburbs may charge the gross fee per consultation equal to “m + p”. The patient may recoup m from the Medicare department and pay the price net of it, i.e., p which is the net effect on their disposal income. This is illustrated in the figure below.
Suppose GP 1 is a physician operating in eastern suburb charging just $34.9 for a particular consultation (represented by the blue bar in the figure). GP 2 is the physician operating in the western suburb charging $60 for the same price i.e., $34.9 + $25.1 (represented by the pink bar). The difference $25.1 is the extra revenue earned by the same physician in the western suburb, which is represented by the yellow bar.
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