It should be noted that one of the key principles of the market economy is supply and demand, where prices are tied to the number of people seeking a service or product as well as the availability of providers. If unaltered, such a system has the capacity to self-regulate itself. For example, an increase in prices for a healthcare service is caused by more people needing it (Vogenberg & Santilli, 2018). However, due to market competition, the suppliers will additionally try to capitalize on a surge in demand by increasing the supply to take a larger portion of the market’s capital.
In the case of third-party payment, the intervention distorts the healthcare market by shifting the incentives preserving the balance between supply and demand. It does so by transferring the price burden from the consumer of healthcare to a third party, which removes the incentive of patients to lessen their demand for higher prices (Biener & Selden, 2017). For instance, government programs covering healthcare costs for certain groups distort the healthcare market by allowing such consumers not to be concerned with prices. In other words, a third party intervenes to affect the demand aspect of the market economy, but the supply side remains the same. If the third-party payment is provided for some groups, other consumers will be the ones carrying the burden of costs since the suppliers will charge more for their services (Govindan et al., 2020). The latter example applies if the third party is the government, which negotiates fixed prices. Therefore, introducing any alteration to the market economy, including healthcare, needs to be done carefully with additional changes for the supply side as well.
References
Biener, A. I., & Selden, T. M. (2017). Public and private payments for physician office visits. Health Affairs, 36(12), 1-12. Web.
Govindan, K., Mina, H., & Alavi, B. (2020). A decision support system for demand management in healthcare supply chains considering the epidemic outbreaks: A case study of coronavirus disease 2019 (COVID-19). Transportation Research Part E: Logistics and Transportation Review, 138, 101967. Web.
Vogenberg, F. R., & Santilli, J. (2018). Healthcare trends for 2018. American Health & Drug Benefits, 11(1), 48–54. Web.