Tuesday, March 16, 2010

An illustration of supply and demand in healthcare

"She was devastated, therefore, when Dr. Sahouri informed her a few months later that he could no longer see her because, like a growing number of doctors, he had stopped taking patients with Medicaid.

Dr. Sahouri said that his reimbursements from Medicaid were so low — often no more than $25 per office visit — that he was losing money every time a patient walked in his exam room.

The final insult, he said, came when Michigan cut those payments by 8 percent last year to help close a gaping budget shortfall.

"My office manager was telling me to do this for a long time, and I resisted," Dr. Sahouri said. "But after a while you realize that we're really losing money on seeing those patients, not even breaking even. We were starting to lose more and more money, month after month." "

When you cut payments to doctors, doctors stop taking patients who yield those payments.
If you cut payments to doctors by every insurance company (or a government-run insurance company, or insurance companies whose rates are implicitly regulated by government), doctors leave the industry.
The same logic applies to those who make pharmaceuticals. See my post on understanding the pharmaceutical industry here: http://tfideas.blogspot.com/2010/02/understanding-pharmaceutical-industry.html
Hat tip to Haiwen for the NYTimes link.

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