|INSTRUCTOR DISCUSSION NOTES:
Can you stop at the corner—I Need a Burrito, a Big Gulp, and a Flu Shot
1. Would operating a health clinic in a CVS pharmacy store constitute a conflict of interest between the parties? Why or why not?
Depends on the relationship created between the pharmacy and the clinic.
2. The original intent of these clinics was to find a way to defray the costs of health care. Does the creation of these clinics accomplish that goal? Why or why not?
Yes, but not the entire problem. These clinics treat a symptom, but not the entire "cost disease"* of the health care system.
3. Will this have an impact on the fees charged by doctors in cities in which these clinics are located? Why or why not?
Depends on whether these clinics are seen as a substitute to traditional medical facilities--in which case, fees should fall--or as a complement to the traditional facilities
*Professors may want to take this opportunity to discuss William Baumol's "cost disease" thesis about the service sector, first stated in his ground-breaking articlePerforming Arts: The Economic Dilemma (with W.G. Bowen), 1966. It is often used to explain the increasing costs of bureaucracy, particularly public administration.
Baumol's cost disease occurs when there is little or no growth in productivity the result is that unit costs tend to inflate. The original study was conducted for the performing arts sector; it was exemplified by the fact that one needs the same number of musicians to play a Beethoven string quartet today as one would have needed in the 1800's.
Applied to the public administration of a nation, a sector with little or no growth in productivity, the upkeep costs of the bureaucracy will inflate quicker than the growth in the GDP. Education is another sector affected by Baumol's cost disease; the desirable range of student-teacher ratios puts a limit on the increase of productivity.
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