How Resource Allocation Decisions Are Made in the Health Care Market

This paper describes how economists view resource allocation decisions in health care markets. The basic economic decisions that must be made in any economic system and the resource allocation decisions in a perfectly competitive market are described. An idealized market can achieve an efficient allocation of resources and is contrasted with a more realistic description of the numerous ways in which health care markets depart from the perfectly competitive ideal. The implications of these departures for health care policy are discussed, along with key controversies concerning reliance upon markets for resource allocation in health care. In particular, the failure of competitive markets to achieve what many consider an equitable distribution of health care is emphasized. The paper concludes with some practical observations on how pharmacists can use the increasing emphasis on economic efficiency to the advantage of their profession.