Supply and Demand: Possible Economic Principles at Work in Longstanding U.S. Healthcare Problems

“The system is tremendously successful at generating new technologies and treating highly complex cases. But it stinks at almost everything else that the general population needs.”

—Merrill Goozner, former editor-in-chief of Modern Healthcare, GoozNews

Those of you who regularly read Merrill Goozner on Substack know that he has been a prominent healthcare writer and commentator for many years—that he is smart, very knowledgeable, and occasionally provocative. And this statement did, indeed, provoke from me a new path of thought about the longstanding bifurcation Goozner identifies between healthcare excellence and inadequacy in the United States.

I certainly agree that the U.S. healthcare system, in its application of sophisticated technology to treat complex conditions, is the envy of the world. And just as certainly, decades of research has shown the system’s shortcomings in access to care, affordability, equity, and health status.

The implication of Merrill’s commentary, and similar others, is that the type of healthcare system that has developed in the U.S. is not what the public wants or needs, and that if we just tried harder, we could do much better on cost and equity, and providing non-inpatient services that would result in better overall public health and wellness.

But what if that reasoning is misguided? What if, in fact, we have the delivery system we have, and that system persists and even grows, because of very well-established economic principles?

The two principles involved here are: 1) in general, economic actors on both the demand and supply sides respond to incentives, and 2) over time, supply tends to meet the asked-for demand.

For serious diseases, we have a delivery system that performs the best in the world. That system is oriented toward excellence in medical procedures. It has benefitted from remarkable innovation in medical technology and pharmaceuticals. As a result, doctors and hospitals can often cure medical maladies that could never be cured before, and if a cure is not available, many patients can be made to feel much better.

It is possible that a majority of Americans want exactly this kind of care; surely, the desire for this type of care is especially intense, coming as it often does as times of extreme need.

Further, it is possible that the desire for this type of healthcare has created a demand curve that is recognizable to many doctors and hospitals, and so those doctors and hospitals have organized to actively and aggressively provide the supply to that demand curve.

These sets of incentives are, in fact, well matched. Patients absolutely want these high-end treatments and want to find the best doctor for every and any major problem. Highly trained doctors want to practice at the highest end of their capability, and doctors and hospitals generally get properly paid for these kind of procedures and interventions.

So, both sides of the demand and supply curve have, over time, moved to the same place on the care curve.

Goozner quite rightly points toward the societal importance of improving primary care, health status, and healthcare affordability. And he quite rightly points to both the political gyrations underway to make progress on these issues and the lack of progress over time from those political efforts.

Given this apparent standstill, perhaps we should consider another factor—not a political factor, but a structural, economic factor, for what the system does well and what it does not do well.

Perhaps, when it comes to health, what we are seeing is supply and demand in action: the intensity of demand for high-tech, highly sophisticated care for the most challenging health conditions, and the inevitable organization of hospitals and doctors to supply what is most dramatically demanded.

Were you forwarded this email? Subscribe to The Ken Kaufman Blog here—it’s always free.

Ken Kaufman is Managing Director and co-founder of Kaufman Hall.

Disclaimer: The views and opinions expressed in this newsletter are those of the author and do not necessarily reflect the views or positions of Kaufman, Hall & Associates, LLC, Vizient, Inc., or their affiliates.