Analyzing Healthcare Demand: Patient Income, Third Party Coverage, and Surgical Inducement

Disclaimer: This document is a class assignment submitted for the Applied Economics for Managers (BUSN 6621) course in the Department of Health Administration at the University of Colorado Denver. It is uploaded to Zenodo strictly for academic archiving and digital portfolio documentation. Description: This academic paper analyzes the microeconomic factors influencing healthcare demand by evaluating patient income elasticity, third party insurance coverage, and physician induced demand (PID). The text provides structured responses to three core health economics prompts, contrasting theoretical market dynamics with applied clinical and administrative observations: Surgical Inducement & Physician-Induced Demand (PID): The paper explores how fee schedule reductions and Relative Value Unit (RVU) models incentivize service volume increases in procedures with broad diagnostic latitude, such as spinal fusions, arthroscopic debridement, and elective cardiovascular interventions. This concept is supported by historical Medicare literature and practical clinical observations of percutaneous coronary intervention (PCI) utilization versus conservative medical maintenance at McLeod Regional Hospital. Medical Insurance & Demand Alteration: The analysis details how third party coverage induces moral hazard by severing direct price rationing and reducing point of service marginal costs for consumers below societal resource costs. It outlines how this insulation suppresses price sensitivity, drives ambulatory overutilization for low acuity complaints, and fuels capital arms races among competing regional health networks. Healthcare vs. Classical Economic Markets: The text contrasts traditional market axioms with healthcare realities, demonstrating how severe clinical information asymmetry forces patients to rely on providers, which undermines consumer sovereignty and enables PID. It further examines how oligopolistic barriers, such as state licensing, Certificate of Need (CON) laws, and hospital consolidation, prevent frictionless market entry and exit. The assignment synthesizes foundational economic frameworks with the author's operational experience in municipal governance, referencing functional eligibility, transit accessibility, and compliance models from the NYC Department of Social Services and NYC Transit.