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Health Economics - It's All About Supply And Demand

03/11/2016 12:25

In general terms the economic principle of supply and demand also applies to health and health economics. It can be considered at the "micro" scale (a patient interacting with a health care professional) and also at "macro" scale when considering the planning of healthcare services across a region or nation. Simply put there is a demand for healthcare that has to be met by the supply available; in the UK this is largely via the free at the point of use National Health Service.

As the government argues about how much extra money is actually being pledged and given to the NHS over the next 5 years, the underlying mismatch between supply and demand seems to have been overlooked by many commentators in mainstream media. The NHS needs more money each year because demand outstrips supply and demand also inevitably increases (healthcare inflation). There are many drivers of demand which include an ageing population that requires more care, advances in medical treatment that make more care possible, increased patient expectation due to the availability of information, health anxiety, a 24-hour need for instant answers and solutions and cuts in social care funding.

On the other hand, the supply of healthcare is dependent on the number of healthcare workers, the number of hours they work and the efficiency of the work that they do. It is limited by the number of workers qualified to do a particular job and the budget available to pay for them. The numbers of healthcare workers is intrinsically linked to the rate of recruitment and also the ability of the NHS to retain their service. These factors are linked to the budget, as salary is an incentive for work and also to working conditions.

Various healthcare sectors are suffering crises of both recruitment and retention due to working conditions, which are deteriorating because the NHS is trying to meet the demand for healthcare mainly by increasing the efficiency at which healthcare is provided. Essentially, this means providing more care for the same or smaller budget. Whether the government is giving the NHS £10 billion or £4.2 billion over the next 5 years, this is dwarfed by the efficiency savings of £22 billion that the NHS is expected to make by 2020.

It seems to me that a government has two choices about balancing the demand and supply of healthcare. It could increase the capacity to supply healthcare by injecting extra money above and beyond inflation and health inflation, to keep pace with rising demand. This would mean that the appropriate number of healthcare workers can be recruited and have working conditions that lend themselves to job satisfaction and retention. The government could also (or either) address the other side of the demand-supply equation by tackling demand. It could do this by properly funding social care and pledging to decrease health inequality by reducing social inequality, which is a major determinant of health outcomes. Finally, it should have an honest, serious and open discussion with the electorate about what might be reasonable to demand from the NHS at both a micro-level and macro-level.

However all the evidence available points to the fact that people will do anything to save their NHS, unless it means paying more tax or decreasing their expectation of what it can provide for them and governments are too afraid to tackle issues of demand and expectation. This means that the balance between supply and demand will continue to be lopsided and will inevitably topple the whole system. Perhaps that may be the only way to put it back together from scratch, if any salvageable remnants remain.

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