Labor, Supply & Demand
Analyzing the fundamental disconnects in the healthcare market: Why supply constraints in labor are driving wage inflation, and how consolidation is distorting price discovery.
The Labor Supply Shock
Healthcare is currently experiencing a classic inelastic supply shock. The supply of clinical labor (Physicians, RNs) cannot expand quickly enough to meet the demand driven by an aging demographic.
The "Burnout" Multiplier
Burnout isn't just a morale issue; it's an economic variable. It reduces the effective supply of FTEs (Full Time Equivalents) as clinicians move to part-time work or exit the workforce entirely, shifting the supply curve further left.
Wage Spiral: Hospitals are forced to rely on locum tenens and travel nursing agencies, paying 3x-4x premiums. This shifts the cost structure permanently, eroding operating margins.
Projected Physician Shortage (2034)
Data Source: AAMC Complexities of Physician Supply and Demand
Market Distortion: Supply & Demand
Inelastic Demand
Patients do not shop for emergency heart surgery based on price. In acute care, demand is perfectly inelastic, which breaks traditional market pricing mechanisms.
Induced Demand
"Roemer's Law": In healthcare, a built bed is a filled bed. Supply can generate its own demand, particularly in fee-for-service environments where volume is incentivized.
Information Asymmetry
The buyer (patient) relies entirely on the seller (doctor) to determine necessity. This imbalance prevents the "Rational Consumer" model from functioning.
The Consolidation Premium
Vertical integration (Insurers buying Providers) and Horizontal integration (Hospital Mergers) creates pricing leverage.
Post-merger prices increase by an average of 6-12%.