Carsen Roach
BECO 5310-D01
4 Nov. 2016
Assignment 1
In the words of John Corry, “Beware the people who moralize about great issues;
moralizing is easier than facing hard facts.” While the healthcare industry is flooded everyday
with moral dilemmas on how to allocate their labor and resources most appropriately, the
driving forces behind the allocation of these resources is not always based on morals or ethics.
Upon economic analysis, it can be seen that the allocation of these resources is driven by
economic forces, such as prices and profits. This is not to say that the healthcare industry does
not have morals or ethics. It is simply saying that prices and profits in a free market indicate to
healthcare professionals and providers where and how to allocate their resources in order to
benefit society in the greatest way possible. Prices, growth, human capital, and inflation are
important economic facets of the healthcare industry that play a significant role in the
allocation of healthcare resources.
Prices are a popular topic of discussion concerning the healthcare industry. The high
prices observed for medical services in the healthcare industry indicate that a larger quantity of
healthcare services are needed (31). This is in accordance with the principles of supply and
demand, as shortages are one factor that can cause prices to rise (31, 72). Another factor that
can lead to higher prices is high costs. When a patient undergoes a medical procedure, the
patient is paying for a portion of the cost of their physician’s medical education as well as the
millions of dollars that went into the research and testing of that medical procedure (88).
Although it is widely debated, the healthcare industry in the United States is a relatively free
market compared to other nations.2,3 This means that healthcare prices are the result of free
market competition – prices depend on what competitors are charging (19). Price controls
placed on healthcare services by governments generally prove to be more harmful to society,
as a whole, than beneficial (28). For one, price controls generally result in quality deterioration
(54). If a physician is forced to charge a pre-determined amount for a given service, then that
physician has little incentive to perform more competitively than their peers because they will
receive the same pay regardless of what quality is provided. Furthermore, patients with minor
ailments, such as ones that could easily be treated with home remedies or over the counter
medications, are more likely to see a doctor under a price controlled system because these
systems make doctor visits cheaper (54). This also leads to quality deterioration because it
forces doctors to rush through their appointments in order to accommodate the increased
volume of patients that they must see. Another disadvantage of price controls is that they
increase demand while decreasing supply (71). As the volume of patients increases, the
demand for healthcare professionals also increases while their supply decreases. Under a free-
