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Does supply create its own demand in health care?

Posted May 14 2010 1:21pm

Say’s Law , discussed in college-level economics is often summarized as “supply creates its own demand.” In recent years this notion has been applied in health care. For example, a provider who buys a pricey new CT machine may be more likely to find reasons to use it. In general –because of examples like this– I tend to believe supply does create its own demand in health care.

A NEJM article ( Clarifying Sources of Geographic Differences in Medicare Spending ) urges us to reexamine this assumption. The authors compared Medicare spending across regions and found the results were not so straightforward. There is plenty to say about this article –and I would if I weren’t about to jump on a plane.

But one thing stands out for me: the limitation of doing this and other cost/spending analyses using just Medicare data. Sure Medicare is the biggest individual spender and the data are available, but should we really ignore the whole private market?

A Medscape writeup on the article ( Study May Refute Theory That Physician Supply Boosts Healthcare Spending ) says

Dr. Zuckerman, a senior fellow in health policy at the Urban Institute, and his coauthors analyzed Medicare spending — considered a proxy for all of healthcare — from 2000 through 2002

I don’t consider Medicare a proxy for all health care and you shouldn’t either without more evidence.

The authors of the NEJM piece are careful not to extend the implications too far beyond Medicare and I hope others don’t either.

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