long corridor in hospital with surgical beds. tinted picture

Supply and Demand Hit: How COVID-19 Harmed Health Care

The health care industry has taken a huge hit since the onset of coronavirus across the United States. This week, JLF’s Jordan Roberts used data from this spring and spring 2019 to determine just how much of a hit COVID-19 has started to take on hospitals throughout the country. Roberts writes:

COVID-19 stressed the health care sector disproportionately and hospitals especially.  Hospitals treat most patients that contracted the disease, and thus there are fewer opportunities to access hospitals due to policies and protocols established to treat patients that have coronavirus.  This produced shocking decreases in supply and demand for hospital-based health care.

Jordan Roberts describes how the health care market has been hit from both sides. Roberts explains:

supply shock is an unexpected event that changes the supply of a product, resulting in an unforeseen change in price. A demand shock is a sudden event that dramatically changes the demand for goods and services…

In the current case, the health care sector has experienced negative supply and demand shocks. The supply shock comes primarily from a combination of stay-at-home orders that force doctors’ offices to close and a decrease in the quality of health care. In this context, decreased quality means that consumers may want to go to the hospital or doctor’s office but choose not to because of the heightened risk of contracting the disease. But on the other hand, there has also been a demand shock. Millions are out of work, and the unemployed may be hoarding savings or choosing to forgo typical health care that they would consume under normal circumstances.

Roberts hypothesizes that these market conditions will likely lead to increased hospital mergers. Roberts writes:

One of the lasting effects will be further consolidation among large hospitals systems. Health care has a merger and acquisition problem, which I have discussed previously (see here and here). As hospital revenue drops, smaller and less profitable hospitals may be acquired by larger, more profitable hospitals. The struggling hospitals see a takeover by a larger hospital chain with more resources as a way to achieve financial stability… Unfortunately, as hospitals consolidate, the market power of each hospital system grows, and so do the prices of health care at that hospital system.

Read the full brief here. Read more research analysis from Jordan Roberts here.

Brenee Goforth / Marketing and Communications Associate

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