The term demand refers to the aspiration to purchase or consume a service or a product, respectively. However, economists further define demand as the willingness and ability to buy a product. It then follows that one does not only need to aspire, but must also be willing and able to purchase a good or a service (Say, Prinsep & Biddle, 2013). Supply, on the other hand, supply refers to any product or service that an individual or an organization provides at a price. It is defined in Economics as the quantity of a product that a seller is willing and able to sell at a given price over a given period (Doi, Ide, Takeuchi, Fujita & Takabayashi, 2017). Nonetheless, the ability and willingness of sellers or a producer to supply a product at a given price are determined by the quantity of stock available and the difference between the buyers’ ability and willingness to buy a commodity at a given price or the prevailing market price and the reservation price of the product.
In healthcare, demand is usually derived from the need for medication and good health. Patients demand healthcare services meet their massive need for health capital. According to Michael Grossman, every person can be a consumer and a producer of health. Economics liken health to a stock of goods whose value vitiate with time when there is lack of investment; hence, economists refer to health as a form of capital (Schwendicke, Jäger, Hoffmann, Jordan & van den Berg, 2016). According to Michael Grossman’s theory, healthcare is a utility, consumption, commodity or an investment which does not only yield direct and indirect satisfaction to its customers, but it also augments wages, productivity, and reduces the number of sick days. The cost of investing in the healthcare sector is relatively higher compared to other industries because patients who are the ultimate consumers of healthcare products and services ought to conduct their trade off time (Doi, Ide, Takeuchi, Fujita & Takabayashi, 2017). Additionally, the clients must work against their regular schedule and budget by devoting their resources to health such as engaging in physical exercises like going to the gym which usually occurs against many people’s goals.
The above parameters are vital in determining the level of healthcare services that a health facility renders to her consumers. The health theory further predicts the impacts of changing the prices of goods and other healthcare services, changing technological, and the outcomes of labour market such as employees’ salaries and wages (Grossman, 2014). According to Grossman’s theory, the ideal dimension of interest in wellbeing happens where the minor expense of wellbeing capital is equivalent to the peripheral benefit. With the progression of time, an individual’s health deteriorates at a given rate. The minimal cost of healthcare capital can be found by including these variables (Schwendicke, Jäger, Hoffmann, Jordan & van den Berg, 2016). The negligible advantage of healthcare capital is the rate of coming back from this capital in both markets and non-advertise sectors. In this model, the ideal health stock can be affected by components like age, wages, and education as a precedent increases with age, so it turns out to be increasingly more exorbitant to accomplish a similar dimension of healthcare stock or capital as consumers advance in age (Doi, Ide, Takeuchi, Fujita & Takabayashi, 2017). Age additionally lessens the peripheral advantage of the stock which is set aside to cater to a person’s health. The ideal wellbeing stock will subsequently decrease as one age.
Besides, according to Jean-Baptiste Say “Demand and supply are the opposite extremes of a beam, whence depend on the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins,” a law which is even more complicated from the healthcare perspective. In healthcare, one end of the grin denotes an impending shortage of physicians and other healthcare practitioners which is also lurked by fecund exhaustion (Grossman, 2014). This hampers and reduces the quantity of healthcare supply. On the other end, the increased number of patients with medical insurance increases demands for healthcare services which go a long way to pose high pressure on the services provided by hospitals and medical clinics. Additionally, the unpredictable and the complicated mix of the content management system (CMS) which regulates procedures, pills, practices, hospitals, payers, healthcare leaders, patients, and the economics in the health sector complicate the economics of demand and supply in healthcare (Doi, Ide, Takeuchi, Fujita & Takabayashi, 2017).
Healthcare facilities experience situations where there are too few physicians attending to many patients resulting in long wait times for patients before being attended to (Schwendicke, Jäger, Hoffmann, Jordan & van den Berg, 2016). This increases the nurse to patient ratio hence causing burnouts during healthcare service delivery. However, different individuals have different preferences and tastes which determine whether or not they will seek direct medical or healthcare attention. On the contrary, people’s choice for health does not change irrespective of whether they are unwilling and unable to find medical care (Grossman, 2014). Therefore, with a constant preference for health, an individual’s demand for healthcare changes with the inception of an illness which in effect, determines how healthcare facilities change their prices during their service delivery.
The Effect of Insurance in Healthcare Services
Different parameters influence the demand for health care at a constant need for health. Such factors include but are not limited to variations in quality of services offered at a healthcare facility, travel costs, and medical insurance among patients. Individuals with healthcare insurance covers receive health care services at no or little prices; hence, this has an effect of escalating the number of services demanded (Grossman, 2014). However, the demand resulting from patients with health insurance covers poses economic constraints to health facilities in many developed countries while their underutilization by patients in developing countries also causes great concern. Usually, this is as a result of the lack or limited supply of health care services in remote regions, or when the hospitals and health care services are present, they may not accept some insurance cards or charge exorbitant costs while providing relatively low or poor quality services which prove uneconomic for the consumer.
However, just like any other goods and services on the market, healthcare services also experience downward-gradient on their demand curves (Say, Prinsep & Biddle, 2013). Since the law of demand and supply is the same in health care as in entertainment, clothing, cars, and other products, the changes in demand and supply curve for healthcare services occur since the patients’ demand for healthcare is influenced by the price at which health facilities over their services. For instance, assuming that say health care which includes hospital bills, medicine, doctor visits, among other healthcare-related services could be quantified in health care units in the absence of health covers, patients purchase a certain quantity (Q) of health care units, say (Q1) services per annum at a predetermined price say (P1) (Vajracharya, 2017). Then, we assume that (S) represents the supply curve of a certain quantity of health care service offered, the demand and supply curve will be at equilibrium at say (A). At point A, we can calculate the overall cost of healthcare services offered by multiplying the number of healthcare services demanded (Q1) by the (P1) which represents the price at which the healthcare services are provided.
How healthcare services are financed complicates the entire process of analyzing and examining the demand and supply curves for healthcare. Governmental insurance programs such as Medicaid and Medicare and private companies are the major third parties which pay for about 80% of patients’ health care insurance covers (Grossman, 2014). Therefore, (P1) is determined by the ratio at which patients pay from out-of-pocket for the services rendered. To comprehend the effect, it is progressively sensible to expect shoppers are guaranteed and expand the investigation spoke to in Exhibit A-1. Since patients pay just 20% of the bill, the amount of social insurance requested in the figure increments to Q2 at a lower cost of P2.
At point B on the interest bend, covered patients pay a sum equivalent to quadrilateral 0P2BQ2, and cover providers pay a sum equal to quadrilateral P2P3CB. Medicinal services suppliers react by augmenting the amount provided from A to C on the (S), where the entirety gave breaks even with the sum requested of Q2 (Vajracharya, 2017). The reason that there is no deficiency in the therapeutic services showcase is that the consolidated instalments from the protected customers and safety net providers rise to the total expense required for the development upward along the supply bend. Expressed as far as square shapes, the general human services instalment of 0P3CQ2 equivalents 0P2BQ2 paid by shoppers in addition to P2P3CB paid by back up plans.
Changes in Demand and Supply Curve in Healthcare
Changes in (P1) can cause an overall shift in demand and supply curve while other parameters can lead to changes along the same trajectory (Grossman, 2014). Some of the non-cash factors that influence changes along the demand and supply curve include the effects of health insurance covers. When patients do not have insurance covers, the price of healthcare services (P1) and the number of services demanded (Q1) on the market will be in equilibrium at a fixed point A. This would imply that the total expenditure could be 0P1AQ1 (Schwendicke, Jäger, Hoffmann, Jordan & van den Berg, 2016). Other factors which determine shifts in demand and supply curve include the number of patients, the preferences and tastes of consumers, prices of subsidies, and income. When inflation raises causing adjustments on consumers’ salaries, the demand curve will shift rightwards.
Shifts in the Healthcare Supply
Changes in the number of sellers of the healthcare services which include psychologists, chiropractors, drug companies, HMOs, nurses in private sectors, nursing homes, hospitals, and other suppliers cause shifts along the supply curve. However, strict regulations that reduce the number of health care sellers usually move the supply curve to the left. Secondly, the prices of resources also affect the supply curve (Vajracharya, 2017). When the rates of resource increase, the healthcare supply chain curve shifts to the left. However, technological changes are the most critical of all factors that influence the rise in healthcare expenditures. Other factors which increase the costs of healthcare services include implementation of new therapeutic, surgical, and diagnostic equipment. Nonetheless, the changes in supply curves are also determined by changes in the prices of malpractice suits, salaries, and wages.
Conclusion
In summary, demand refers to the willingness and ability of a consumer to purchase a product while supply implies the quantity of a product that a seller is willing and able to sell a product at a given price over a given period (Vajracharya, 2017). However, the ability and willingness of sellers or a producer to supply a product at a given price are determined by the quantity of stock available and the difference between the buyers’ ability and willingness to buy a commodity at a given price or the prevailing market price and the reservation price of the commodity. Changes in (P1) can cause an overall shift in demand and supply curve while other parameters can lead to changes along the same curve. Other factors which determine shifts in demand and supply curve include the number of patients, the preferences and tastes of consumers, prices of subsidies, and income (Grossman, 2014). When inflation raises causing adjustments on consumers’ incomes, the demand curve will shift rightwards. On the other hand, technological changes are the most critical of all factors that influence the increase in healthcare expenditures.
References
Doi, S., Ide, H., Takeuchi, K., Fujita, S., & Takabayashi, K. (2017). Estimation and Evaluation of Future Demand and Supply of Healthcare Services Based on a Patient Access Area Model. International Journal Of Environmental Research And Public Health, 14(11), 1367. doi: 10.3390/ijerph14111367
Grossman, M. (2014). The human capital model of the demand for health. Cambridge [US]: National Bureau of Economic Research.
Say, J., Prinsep, C., & Biddle, C. (2013). A treatise on political economy, or, The production, distribution, and consumption of wealth. Philadelphia: Grigg & Elliot.
Schwendicke, F., Jäger, R., Hoffmann, W., Jordan, R., & van den Berg, N. (2016). Estimating spatially specific demand and supply of dental services: a longitudinal comparison in Northern Germany. Journal Of Public Health Dentistry, 76(4), 269-275. doi: 10.1111/jphd.12142
Vajracharya, S. (2017). Supply and Demand in Healthcare: It’s Complicated. Retrieved from https://www.linkedin.com/pulse/supply-demand-healthcare-its-complicated-suvas-vajracharya
