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The main economic rationale for a patent system is that quick imitation and commercialization reduces the expected profits of drug companies which thereby diminishes innovative activities. Given market realities, do you think a patent system is truly necessary? Can you think of other alternatives to a patent that might maintain innovation but preserve competition? 

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How would you describe the current market structure of the pharmaceutical industry? Do you think that the typical drug firm possesses any market power based on market structure? Why or why not? 

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Explain the purpose and functioning of a PBM company. What are the antitrust concerns about a drug manufacturer purchasing a PBM company? What is the efficiency justification for such an acquisition? 

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Explain some methods adopted by third-party payers to control drug prices. 

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How do the six-digit North American Industry Classification System (NAICS) and the therapeutic market definition of the pharmaceutical industry differ in terms of seller concentration? Which do you think is a better measure? Why? Think in terms of actual and potential competition. 

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As mentioned in the chapter some empirical studies have shown that new drugs improve health status. Does that finding invalidate the flat-of-the-curve medicine discussed in Chapter 2? Why or why not? 

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Describe three benefits associated with pharmaceutical products. Cite one example of each. 

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Studies using data prior to 1983 found that increased hospital competition led to higher rather than lower hospital prices. How do researchers explain that result? What have more recent studies concluded about the relation between competition and prices in the hospital industry? What accounts for that change? 

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Explain the theoretical reasoning why economists suspect that hospitals with different ownership forms will behave differently with respect to price, quality, and access. Also, explain some of the reasons why most empirical studies have not found any significant differences between for-profit and not-for-profit hospitals with regards to their performance. 

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Given that empirical studies find that both HMOs and state rate-review programs have been relatively successful at containing costs, would you prefer more managed care competition or a single-payer system? Explain your choice.

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Some economists have suggested that the best way to control medical costs is to remove the profit incentive for health care providers, particularly hospitals. This would involve making all hospitals not-for-profit institutions. Use the utility maximization model to explain the likely impact such a policy would have on the cost of producing hospital services. What would happen if instead a policy was instituted that reduced barriers to entry in the hospital sector and therefore made the market more competitive? 

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Your roommate is working on a paper for a medical sociology class. You are asked by her if the typical hospital in the United States possesses any market power. How would you respond? Use theory and empirical evidence to support your argument.