Demand and Supply in Healthcare Economics
The Purpose of Demand Analysis * To determine those factors which on the average most effect a person’s utilization of medical services. * Demand analysis seeks to identify which factors are most influential in determining how much care people are willing to purchase * An understanding of which factors affect demand and to what extent each affects demand will enable us to explain variations in use of medical services.
The Demand for Medical Care Derived from the Demand of Health * According to Michael Grossman consumers have demand for health for two reasons: 1. It is a consumption commodity – fewer sick days makes the consumer feel better 2. It is an investment commodity – a state of health will determine the amount of time available to the consumer for both market and non-market activity. * A view of medical care demand as being derived from the demand for health implies the following: 1. Increases in age result in an increase in the rate at which a person’s stock of health depreciates 2. The demand for medical care will increase with increases in a person’s wage. The higher their wage, the greater the value of an increase in the number of healthy days. 3. It is hypothesized that education has a negative effect for the demand for medical care. More highly educated people are presumed to be more efficient in producing health. They are, therefore, likely to purchase fewer acute medical care services. * Analyzing the demand for medical care as being derived from the individual’s demand for health provides a better basis for determining which factors should be included in a model for demand for medical care, and for hypothesizing their effects.
Determinants of the Demand for Medical Care * Variations in the demand for medical care are determined by a set of patient and physician factors * The patient’s demand for medical care is essentially the demand for a treatment, and variations in demand are a result of variations in the number, type, or equality of treatments demanded. * The physician then combines various inputs to provide treatment of a given quality. * Studies on the demand for medical care should describe: how different factors affect the patient’s demand for medical care and what determines how the physician will provide care for a given treatment. * The aim is to derive an estimate of the relationship between patient and physician factors and use of medical care. * Assumption of choice is implied in the studies of demand and are made with respect to the amounts of medical care purchased and of the combinations of components of care that produce a treatment * Degree of choice by the patient and physician depends on two factors: knowledge and the availability of substitutes * The substitutability of components in providing a medical treatment has been increasing over time, which leads to the underlying assumption that the patient exercises choice in his or her demand for medical care, and the physician exercises it in the treatment provided.
Factors Affecting the Patient’s Demand for Medical Care * They are: * Incidence of illness and Cultural-demographic characteristics * Shape the consumer’s demand for medical care * Actual or perceived illness or desire for preventive medicine determines whether or not an individual is in the market for medical care at any point in time * As individuals age, the incidence of illness increases, and morbidity patterns change; chronic disease become a more important determinant of the need for medical care * Women will have more medical expenses than men up until 45 years of age; this is due to the birthing rate of women. * Higher levels of education may lead to increased efficiency in a family’s purchase and use of medical care because