Supply And Demand in the Healthcare Economics.
Supply And Demand in the Healthcare Economics
Healthcare is an essential element in the well-being of human beings. Just like other goods and services, healthcare services can be described as products. The market forces control the demand and supply in an ideal market. Unlike ordinary goods and services, the demand and supply of healthcare services do not hold those of a typical market. In an ideal or perfect market, when the prices of goods and services are low, the demand increases. The suppliers supply more goods when the prices are high and buyers demand more when the prices are low.
In the healthcare sector, the rule of ideal competition is times overstepped and that makes it unique in some ways as compared to everyday goods and services. One of the main factors that deviate Healthcare sector from the traditional ideal market is the government involvement. The government in most cases supply most of the essential goods needed in the hospitals, and that makes that hurts normal market competition (Scott, Solomon, and McGowan 24-25). When the government provides goods, it protects the hospitals from engaging in competitive pricing.
Moreover, unlike other goods and services, healthcare services are not consumed to deliver any pleasure, but they are consumed for the health wellbeing. Healthcare is not demanded as a want or demand; it is demanded as a need. It is a need that is required to improve health and well-being of a person (Scott, Solomon, and McGowan 26). Consumers cannot exchange healthcare products amongst themselves meaning that the products are non-marketable. The non-marketability nature affects the market forces to determine the prices of goods and services in the market (Scott, Solomon, and McGowan 30). The demand for healthcare services pushes the providers to improve the quality of the services provided.
Regarding supply, healthcare can be outlined in two ways, which are input resource/ output resource model and the market structure model. In the first model, supply is affected by things such as employing a skilled medical practitioner, reducing the number of practitioners and issues that directly relate to professionalism, productivity, economies of scale and quality of services. Those issues can directly affect the supply and demand of services. For instance, the quality of services is not similar when different health practitioners offer them (Richardson 1). The demand for services will be high for the practitioner offering high-quality services.
On the part of a market structure, the healthcare products can fall under the perfect competition, monopoly, and oligopoly. In the perfect competition, producers compete to produce goods and services at low cost to enjoy profits. The competition leads to efficiency in production, and those who are inefficient are driven out of the market (Richardson 1). The law of perfect competition may fail to apply when a hospital is not experiencing any competition. For instance, inefficient production cannot drive out a hospital that experiencing any competition in a particular geographical area (Richardson 1). That can lead to a monopoly market in that geographical area. Moreover, pharmaceutical companies that have patented their production rights will enjoy sole supply of their products. In addition, few sellers in the market may have the power to set prices of health services (Evans 165). For instance, the health insurance companies are few, and they have the ability to set prices the way they want. That affects supply and demand of healthcare services. Another thing that affects supply and demand for health care is the health insurance cover (Evans 162-167). Most of the patients do not incur the high cost because the insurance covers them. The insurance cover denies perfect competition a chance to thrive in the market.
Evans, Roberts. ‘Supplier-induced demand: Some empirical evidence and implications,’ in Pearlman M (ed), The Economics of Health, and Medical Care. London, McMillan, 1974. Print.
Scott, Douglas, Solomon, Steven, and John McGowan. Applying Economic Principles to Health Care. Emerging Infectious Disease Journal, vol. 7, no. 2, 2011, 24–35. Print.
Richardson, Jeff. Supply And Demand For Medical Care: Or, Is The Health Care Market Perverse? Psu.edu. Centre for Health Program Evaluation. 2001. Web. 15 December 2016. <http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.573.3867&rep=rep1&type=pdf>.
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