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Why the American Healthcare System Needs Economists

It's no secret that the US healthcare system is a complex web of interconnected -- and sometimes contrasting -- objectives designed to both protect and profit off of American citizens. It's messy, and it's uninviting. Now, I'm aware that there is no "one size fits all" solution to the complexities of the US healthcare system, as it spans over 50 different states, each with their own laws and policies. It involves individuals, providers, healthcare firms, insurance companies, medical professionals, government policymakers, policy recipients, supply chains, international trade of pharmaceuticals and equipment, national funding, and the list goes on and on.

Bottom line? It's complex, inefficient, and expensive. 

Over the years, I've been trained to think like an economist, and I'd love nothing more than to offer my two cents on the healthcare system that we've currently got in place. As a quick overview, I simply want to discuss the system as what it is -- a market. 

From an abstract perspective, an economic evaluation of a market allows researchers to compare the costs and consequences of different interventions – an extension of the standard model of supply and demand. When a market is assessed using economic techniques rather than a traditional outlook, issues related to efficiency, effectiveness, and value of resources come to the surface. This is where my economics training comes in handy. While I'm very aware that the healthcare system in the US is much more complex than a standard market, let's just simplify it for a second.

In the healthcare field specifically, the management of goods and services departs from the standard model and deviates into a more complex system, which requires more specialized control by the government and other third-party entities because they have such a significant interest in healthcare outcomes. 

That being said, it’s important to recognize the economical pull of a healthcare market. For example, an area like Raleigh, NC is dominated by a triangular system of three major medical centers. WakeMed serves residents through two hospitals (Raleigh and Cary) and Duke Medicine operates three hospitals in the system (University, Regional, and Raleigh). The last one – the UNC Healthcare System – stems from the university at Chapel Hill and extends into the community at large through its network of primary care and special physician practices in surrounding counties. It is an integrated healthcare system owned by the state, which makes it a primary focus of the market. The widespread control, combined with the value of medical research from the two universities nearby, allows this triangle to dominate the market.

However, how do consumers choose which provider to go to for medical services? Patients often don't know what they need and can't evaluate the treatment they receive. Many are often not thrilled with the availability of options and they consider healthcare more of a task. And large healthcare systems like UNC’s certainly can dominate the market. On the other side of this patient-provider relationship, who is UNC Health’s target audience? Organizations have adapted and expanded their audiences to reach a larger demographic. For example, other hospitals and companies have joined or contracted with UNC Health and subsequently expanded their sphere of influence.

Now, I may be biased, but I believe that economics can help us understand how the market functions from a broader perspective, and with respect to the externalities that exist in the system. The prevalence of externalities occurs because the allocation of resources in the healthcare market is determined by rules that are established by insurers rather than by the market price, and therefore can be (and will be) inefficient. Let the market regulate itself. The more laws, policies, and rules implemented, the more we are tampering with the market, and the more we jeopardize the natural, efficient regulation of the market. Inefficiencies are an economist's nightmare. The question is, how can we maximize the value provided by the goods and services to all parties involved? (And yes, this includes us regular folk, and not just the big-time healthcare guys who are making bank off of us. The sheer cost of healthcare in this country is a whole other discussion.) 

With this type of perspective, it’s beneficial to analyze the effects of certain changes or introductions in the market, too. The best example of a dramatic economic disruption in a market can be seen by our recent societal transition to more remote work and communication due to covid-19; technology has been required to grow and develop at a pace more demanding than ever (which I'll save for another post, too). Essentially, an economical perspective of the healthcare system aids the comprehension -- and prediction -- of a market by examining the risks and benefits on consumers and producers, plus the overall positive or negative effect on our total social welfare.

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