Medical Price Ceilings and Floors

Posted on February 11, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Understanding Basic Health Economic Concepts

[By Dr. David Edward Marcinko; MBA CMP™]

biz-book3Healthcare price ceilings and floors benefit certain groups but impair the distribution of medical goods and services by the price system in free competitive markets. 

And, government intervention interferes in the functioning of competitive markets and is likely to result in “resource allocation” problems. 

Health Economics Definitions

“Price ceilings” are maximum legally charges and always result in shortages when set below market equilibrium prices. How long is the wait at a local charitable hospital vs. a local for-profit medical center? Price ceilings often result in an underground black market economy that exceeds legal limits.  

Non-price rationing (i.e., free medical care) on the other hand, distributes available services to patients on a basis other than ability to pay. The most common non-price rationing device is, “first-come, first-served”. 

“Price floors” establish minimum prices, which often result in surpluses when they exceed equilibrium price levels. The minimum wage is a good example of a price floor.

Assessment 

Remember, Keynesian macro-economic philosophy.  In evaluating managed care price controls, the gains to beneficiaries of price ceilings and floors must be weighed against the resulting allocation problems.

Alternative methods that will make the gainers just as well off without impairing the rationing function of medical prices, can be considered as ways to increase efficiency in the medical economy. 

Conclusion

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What is Preferred Stock?

Posted on February 11, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Physician Investing Basics

By Julia O’Neal; MA, CPA 

fp-book3

Preferred stock is designed to resemble bonds and usually has a par value of $100. Dividends are stated as a percentage of par—6% preferred would pay $6 annually. The stated dividend is the minimum that the company will pay out. If there are not enough earnings to pay the dividend, the company will pay out whatever is available for dividends. 

Preferred Stock Differences 

There are different types of preferred stock, which are based on the method of dividend payment. 

Cumulative preferred carries a provision that all prior dividends due on preferred stock must be paid before dividends can be paid on common stock.  

Participating preferred may earn dividends in excess of the stated percentage if they are available after dividends are paid on common.  

Convertible preferred is also issued at $100 par. The stock may be converted into (exchanged for) a designated number of common shares. The conversion ratio and conversion price are determined at the time the stock is issued. 

Conversion ratio = Par value / Conversion price

When the stock reaches its conversion price, the cumulative preferred stock is said to be “at parity” with the common stock.  

Cumulative preferred stock usually sells “at a premium to” (above) its par value because of the added value attached to the conversion feature. Most of the time, cumulative preferred stock is callable, which means the corporation has the right to “call” or buy back the preferred stock at a specified price, sometimes after a set date. 

Cumulative convertible preferred stock is popular. Investors appreciate the ability to combine the attributes of both stock and bond ownership in one vehicle and, because they are so popular, corporations can market these securities easily, often with a lower coupon than a straight bond would require. 

MORE: C v P

Assessment: Is preferred stock best for personal or corporate portfolios?

Conclusion: Your thoughts are appreciated.

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