The Economics of the Healthcare Industry

Healthcare is a Business

Although healthcare has a benevolent intent, much of its aspects go back to its business nature. Healthcare is often given the general idea of medicine, but the actual economics of it is often overlooked. With most of the population in the world being reliant on the healthcare industry, it is able to strategically earn a profit. Efficiency, effectiveness, value and behavior are all things that the industry must consider in order to keep their consumers or in this case patients coming. Although healthcare is something everyone relies on, there is competition between different hospitals in order to attract more patients to the best quality care. Therefore, just like any other business, healthcare includes a ton of competition, innovation, and quality control to stay at the top of their industry. Even beyond hospitals, the economics of healthcare expands to welfare programs and direct government contact which complicates the equation even more. Overall, healthcare is more than the medical facilitates we see aiming to cure illnesses, but expands more to have more connections with government, competition, and money.

Research Question: In what ways does the healthcare industry function as a business?

Economics Concept #1: Supply and Demand

The healthcare industry follows the same supply and demand curve that most businesses abide by, just like when a product is in low quantity and its price increases, as medicine becomes more scarce, its price will also increase. In fact, with the increasing demand of prescription drugs, "research found the average retail price of 622 prescription medicines widely used by seniors went from $5,571 in 2006 to $11,341 in 2013." This trend is in fact expected to continue as antibiotics become more and more scarce yet their demand continues to rise. This raises an ethical question as it is in some ways putting a price tag on ones life, the fact of the matter is people are tending to avoid medical treatment simply because it is not affordable.

Economics Concept #2: Incentives

The healthcare industry continues to function like a business when analyzing the economic concept of incentives on their employees specifically. The healthcare industry is heavily influenced by incentives due to their primary method of payment being "pay for performance." This means that physicians and hospitals are given compensation based on how well they are doing in their field compared to others rather than a base salary or hourly wage. This creates an incentive for individuals in the healthcare field to do their best as their pay is directly linked to their performance. Although not all hospitals have implemented the P4P (pay for performance) method, "In 2005, 75% of American companies and employers paid part of their employees’ salaries by a P4P method" and that number is still on the rise.

Economic Concept #3: Markets

The main way the healthcare industry acts as a business is through the way it takes part in the economic concept of markets. For the most part, the healthcare industry functions as a free market which creates a ton of controversy. The main controversial aspect of this takes place in insurance, currently, "The insurer-model creates a three-party managed market in which the patient has surrendered their buying power and much of their discretion to an entity whose interests are not aligned with their own." Insurance is concerned with maximizing profit, not your own well being , therefore people are investing money into something that strives to gain more money than ensure their money is put into use to actually aid them in their health. The participation of the health industry in the market moves farther than just the insurance aspect however because of the way it is able to manipulate prices and who is getting access to healthcare and who isn't. For example, "Drug companies are free to price drugs at whatever level they see fit. If prices continue to rise, fewer and fewer people will use them." This means that through having the power to set market prices, there is an inequity gap being created with who is able to afford to get medical treatment and who isn't. This raises another ethical question about the ability for the healthcare industry to set their own prices, should their be a free market when it comes to people's well being?

Economic Conclusion

The healthcare industry acts as a business through the various unique ways it functions including its implementation of the supply and demand economic theory, the crucial role of incentives within its daily operations, and through its ability to manipulate the market. The healthcare industry consists of employees, hospitals, and insurance companies and with its many components, it is bound to get messy and entail a bunch of ethical issues. the main thing that surprised me about discovering the business elements of the healthcare industry is the many ethical dilemmas that arose. Being that this is dealing with people's lives it is really concerning to see the primary goal of health revolving around profit rather than well being. For example the increasing need of antibiotics for elderly patients and the rising prices as a result. This trend results in less people having access to healthcare and creates an inequity gap that puts well being in correlation with financial status. Overall, the healthcare industry functions as a business to such a large extent that it results in many controversial issues. I believe that these trends will only continue being that the health industry brings in billions and billions of dollars in profit, therefore, changing its function would be extremely difficult.