Future Challenges to Health Care Systems

Actors on markets are under continuous pressure to adjust. Consumers’ changes in taste lead to changes in demand, new technologies provide rivals with competitive advantage, and public authorities step in to regulate or even prohibit business. This pressure to adjust is transmitted by price signals indicating to firms the need to adapt their goods and services to new circumstances. In health care, however, fluctuating market prices formedical services are incompatiblewith the key principal-agent relationship between the patient and the service provider because they might violate both the participation and the incentive compatibility constraints (see Chapter 11, Appendix). One possibility of avoiding fluctuating prices is bargaining over fee schedules, which paves the way for the important role of professional associations and public authorities in health care. The inflexibility of fees and prices is further enhanced by the fact that purchases of health care goods and services such as pharmaceuticals abroad are often legally prohibited. This serves to insulate domestic markets from international shocks but also competition.