An Analytical Model of Demand for Hospital Inpatient Care

Abstract

This paper presents an analytical model of demand for curative care such as hospital inpatient care. In this essay, a person's illness is used as a measure of the person's health status. Medical care and non-medical consumption are the choice variables in a consumer’s constrained utility-maximization problem. Methodologically, this model of demand for medical care does not rely on capital theory, common in the literature. All else equal, a person's demand for hospital inpatient care depends on how ill the person is. That is, the demand is a function of the severity of the person's illness. The model is static and deterministic, and is based on the fact that, by definition, only sick persons demand curative medical care. One implication of distinguishing curative care from other types of care is the possibility of satiation when the person is healthy. Satiation diminishes differences in medical care expenditures between wealthy and poor persons and can help explain the empirically observed low income elasticity of demand for hospital inpatient care.