The Effect of Supply and Demand in Healthcare

THE EFFECT OF SUPPLY AND DEMAND IN HEALTHCARE 1

The Effect of Supply and Demand in Healthcare

Benitta Williams

Excelsior College

THE EFFECT OF SUPPLY AND DEMAND IN HEALTHCARE 2

Abstract

Our American healthcare system does not follow the rules of demand and supply like other business sectors. Miller (2010) states that this is primarily due to various segments (insurance payments, Medicare and Medicaid payments) that affect the whole that are not regulated, the consumer not taking responsibility for their healthcare, and various other factors that affect the soaring cost of seeing a medical professional for healthcare needs. Demand- side and supply-side issues are addressed as well as identification of a few areas where total costs can be reduced.

Keywords: cost drivers, demand-side, supply-side

THE EFFECT OF SUPPLY AND DEMAND IN HEALTHCARE 3

The Effect of Supply and Demand in Healthcare

One of the essential parts in economics is the rules of supply and demand which basically describes an inverse relationship of two factors. When one increases the other decreases and in doing so, businesses will monitor those factors and position themselves to increase revenues. If supply decreases then demand increases the free market will allow equilibrium to exist. In healthcare demand steadily increases as the supply (or services) becomes scarce, and the consumer cannot turn to substitutions. The factors that have been identified for brevity in this paper are drive spending, and systemic issues facing our healthcare crisis.

In the healthcare arena some of the supply drivers would be tangible materials such as hospital beds, buildings, and laboratory diagnostic equipment. All of which (and more) are needed to treat ill clients. The demand driver side of the equation is the demand of the people that seek medical care. According to Miller (2012) unlimited demand will always exceed...