Health Care Costs and Product Differentiation

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Healthcare Costs
In the last forty years, the United States has experienced a rapid increase in government expenditures on public welfare. One that has been most significant is the rise in healthcare expenditures. In 2016, the total health care costs span to $3.3 trillion, which places healthcare among the largest industries in the country. It makes 17.9% of the country’s GDP. In the 1960s, healthcare cost stood at $27.2 billion which was just 5% of the GDP. This translates to an annual tfee of $146 per person versus $10, 348 per person in the year 2016 (Amadeo, n.p).
One of the causes of the rapid increase in health care costs is government policy. The United States government created programs such as Medicaid and Medicare to assist those that lacked insurance. These programs led to an increase in healthcare services demand. It also gave the healthcare providers an opportunity to raise the prices. Research indicates that the hospital prices in the United States are higher than those in Europe by over sixty percent (Amadeo, n.p) Another reason that caused an increase is lifestyle changes, which have resulted in chronic illnesses such as heart disease and diabetes. Over 85 of the health care costs is as a result of these diseases.
Production differentiation refers to the marketing of similar products that have minor variations that consumers use when making a choice. Hospitals distinguish themselves in different just like products do. Specializing in a certain kind of care is one and location of the hospital is another.

Sales staff in hospitals selling medical products spends a lot of time learning about the products, studying about healthcare topics and practicing on how to sell. How hospitals differentiate, themselves leads to the rise if “star” hospitals that have brand power (Abraham, Gaynor and Vogt, 268). These are hard for insurers to exclude from their extensive networks. These hospitals demand high prices and have a pricing power monopoly. The demand for their high-quality services is high and hence their high rates. A good example is hospitals treating patients with heart problems, the prices here are too high, and the hospitals are few making their demand high,

Works Cited.
Abraham, J.; Gaynor, M. and Vogt, W. Entry and Competition in Local Hospital Markets, The Journal of Industrial Economics, Vol. LV (2), pp. 265-288. (2007).
Amadeo, Kimberly. “The Rising Cost of Healthcare by Year and Its Causes. 2018. Retrieved on 12th November 2018 from HYPERLINK “https://www.thebalance.com/causes-of-rising-healthcare-costs-4064878” https://www.thebalance.com/causes-of-rising-healthcare-costs-4064878