DHA 721 Week 2 Supply and Demand in Health Services Example

Fewer Visits, Fewer Doctors: Supply and Demand for Primary Care in a Rural North Carolina Region

[Student Name]

University of Phoenix

DHA/721: Health Care Economics

Week 2 Assignment

[Instructor Name]

[Date]

The rural region, the employer, visit counts, physician numbers and clinic plans are composites written for a model paper; research findings come from the sources cited.

Two years ago, the region's largest employer, a furniture plant with 1,400 workers, replaced its low-copayment plan with one that required workers to pay the first $3,000 of care each year. Within a year, primary care visits by its employees at the region's clinics fell by about 16%. Over the same months, two of the nine family physicians the region employed resigned, and neither post was filled. The regional vice president asked whether the fall in visits reflected healthier workers, higher prices or fewer doctors. This paper uses supply and demand to sort out the answer.

The Demand for Care

Demand for health care is derived from the desire for health. People seek care when they are sick or want to stay well, and how much they use depends on their illness, income, knowledge, insurance and the out-of-pocket price at the time of care. Demand curves slope downward: when the price people pay rises, they use less.

Movements Along the Curve and Shifts of the Curve

An important distinction is between a movement along the demand curve and a shift of the curve. A higher deductible raises the out-of-pocket price, moving workers along their demand curve to fewer visits. A healthier workforce, by contrast, would shift the whole curve inward. The same drop in visits can come from either, with very different meanings.

Evidence From a Classic Experiment

The strongest evidence on price and demand comes from an experiment. Between 1974 and 1981, the RAND Health Insurance Experiment enrolled more than 5,800 people from about 2,000 households in six locations, randomly assigning them to plans with different levels of cost sharing; decades later it remains the leading evidence on how insurance design affects spending, though Aron-Dine and colleagues caution against summarizing its results with a single elasticity of about -0.2 (Aron-Dine et al., 2013).

Evidence From a Modern Deductible

A more recent natural experiment points the same way. When a large self-insured firm moved all its employees from free care to a high-deductible plan, spending fell by 11.8% to 13.8%, entirely through reductions in the amount of care rather than shopping for lower prices; employees cut both potentially valuable services, such as preventive care, and potentially wasteful ones, such as imaging, and did not learn to price shop over two years (Brot-Goldberg et al., 2017). The deductible did not teach workers to shop; it taught them to stay home.

Applying the Evidence to the Region

The furniture workers' pattern fits the evidence. Their visits fell most in the first months of each plan year, when they were under the deductible. Clinic records show fewer visits for diabetes and blood pressure follow-up, not only for minor complaints. That suggests a movement along the demand curve caused by price, not a healthier workforce.

Why Lower Use Is Not Always Savings

Lower use can raise later costs. The region's emergency departments saw a small rise in visits for uncontrolled diabetes and hypertension among the plant's workers. Care skipped in a clinic may return as a more expensive hospital visit. For the employer, lower claims in the first year may be followed by higher claims later, as untreated conditions worsen. For the region, the pattern means fewer paid clinic visits and more emergency visits, some of them by workers who cannot pay their share of the bill. The deductible, in other words, shifted costs as well as reducing them.

The Supply of Care

Supply depends on the number of clinicians, their time, technology, facilities and payment. In primary care, supply is limited by workforce above all. The region had nine primary care physicians for about 62,000 residents, roughly 14.5 per 100,000, before two left, leaving about 11.3.

What Shrinking Supply Means

Losing two physicians shifted the supply curve inward. With fewer appointment slots, waiting times for a new patient visit grew from eleven days to thirty-four. Some residents traveled to urgent care centers forty minutes away; others went without.

Primary Care Supply and Health

Supply matters for health. Basu and colleagues found that primary care physician density across US counties fell from 46.6 to 41.4 per 100,000 between 2005 and 2015, with greater losses in rural areas, and that each ten additional primary care physicians per 100,000 people was associated with a 51.5-day increase in life expectancy, compared with 19.2 days for specialists (Basu et al., 2019).

When Markets Do Not Clear by Price

In ordinary markets, a shortage raises prices until supply and demand balance. In primary care, prices are largely set by Medicare, Medicaid and insurer contracts, so they do not rise to clear the market. Instead, the market clears by waiting time. Longer waits act as a nonprice cost that reduces the care people receive. For a worker who must take unpaid time off and drive forty minutes, a month's wait may mean the visit never happens. Waiting time, travel and lost wages together can matter as much to rural patients as the price on the bill, which is why economists count them as part of the full price of care.

Both Forces at Once

The region faced both forces at the same moment. Higher out-of-pocket prices moved furniture workers along their demand curves, while the loss of physicians shifted supply inward for everyone. Separating them matters: the first calls for a conversation with the employer about plan design, the second for workforce strategy.

Strategies to Shift Supply Outward

The region can expand supply by adding nurse practitioners and physician assistants to care teams, using telehealth for follow-up visits, extending clinic hours and recruiting physicians through loan repayment programs. Team-based care lets each physician serve more patients. With a nurse practitioner, a care manager and a medical assistant, each physician in the region's model clinic manages a panel about a third larger than a physician working alone, while chronic disease visits shift to other team members. Recruitment is slower, but the North Carolina loan repayment program and residency rotations from the academic center give the region a steady path to new physicians.

Strategies to Reduce Barriers to Demand

The region will meet with the employer to propose exempting chronic disease visits and medications from the deductible, a design that keeps the plan's savings while protecting valuable care. It will also offer transparent self-pay prices and payment plans, so workers under the deductible know the cost of a visit before they decide to skip it.

Measures

Measures include visits per 1,000 residents, days to the third available appointment, primary care clinicians per 100,000 residents, avoidable emergency visits for diabetes and hypertension and blood sugar and blood pressure control among employer plan members.

Conclusion

The fall in primary care visits had two causes: a deductible that moved workers along their demand curves and physician departures that shifted supply inward. Evidence shows that cost sharing cuts useful care along with waste and that primary care supply is linked to longer lives. Expanding supply and redesigning benefits can restore access in the rural region.

References

Aron-Dine, A., Einav, L., & Finkelstein, A. (2013). The RAND Health Insurance Experiment, three decades later. Journal of Economic Perspectives, 27(1), 197-222. https://doi.org/10.1257/jep.27.1.197

Basu, S., Berkowitz, S. A., Phillips, R. L., Bitton, A., Landon, B. E., & Phillips, R. S. (2019). Association of primary care physician supply with population mortality in the United States, 2005-2015. JAMA Internal Medicine, 179(4), 506-514. https://doi.org/10.1001/jamainternmed.2018.7624

Brot-Goldberg, Z. C., Chandra, A., Handel, B. R., & Kolstad, J. T. (2017). What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. The Quarterly Journal of Economics, 132(3), 1261-1318. https://doi.org/10.1093/qje/qjx013