Using neo-classical analysis in healthcare and Medicare/Medicaid spending can provide valuable insights and guide policy decisions. Because of the financial benefits healthcare systems receive by leveraging classical economic analysis, readmission rates stay higher while higher average Medicare costs per capita are happening in many of those same States.

1. Reasons we should be using Neo-Classical Analysis in our Healthcare Analysis

2. Link to InterCode’s LinkedIn Article with further commentary: https://www.linkedin.com/pulse/classical-economics-great-drug-horrible-doctor-data-prove

3. 1. Efficient Resource Allocation: Neoclassical economics emphasizes the efficient allocation of resources to maximize societal welfare. By analyzing healthcare and Medicare/Medicaid spending through this lens, policymakers can identify areas where resources are being misallocated or underutilized. This approach helps ensure that healthcare funds are directed towards interventions that deliver the most significant health outcomes per dollar spent.

4. Supply and Demand Dynamics: Neoclassical analysis allows us to examine the supply and demand dynamics in healthcare markets. Understanding how changes in demand for medical services affect prices and quantities supplied can aid in predicting the impact of policy changes, technological advancements, and shifts in demographics on healthcare costs.

6. 2. Consumer Choice and Behavioral Economics: Neoclassical economics takes into account individual decision-making and consumer preferences. Applying behavioral economics principles within this framework can shed light on how patients make healthcare choices, including factors influencing their decisions and potential barriers to seeking care. This information is essential for designing policies that encourage preventive care, reduce overutilization, and enhance patient satisfaction.

8. 3. Cost-Benefit Analysis: Neoclassical analysis often involves cost-benefit assessments of different options. In healthcare and Medicare/Medicaid spending, this approach can help policymakers weigh the costs and benefits of different interventions, treatments, and coverage expansion strategies. It enables them to prioritize investments that yield the greatest health gains for the population while managing budget constraints.

10. 4. Incentives and Moral Hazard: Neoclassical economics underscores the importance of incentives and the potential for moral hazard. By examining how different payment structures and insurance models influence patient and provider behavior, policymakers can design reimbursement mechanisms that align incentives with desirable outcomes. This helps mitigate moral hazard concerns, such as overutilization of medical services when patients are shielded from the true costs.

Incorporating neoclassical economic principles into healthcare and Medicare/Medicaid spending decisions can lead to more efficient, effective, and equitable allocation of resources.