The demand for healthcare services has increased globally because of several factors including increased knowledge in medical science, technology, efficacy in pharmaceuticals and an increased life expectancy. Therefore, the economic evaluation of health care systems and healthcare programs are necessary and important to healthcare providers, consumers, and policymakers. Frequent economic evaluation of the healthcare industry will keep a finger on the pulse of health spending.
This paper examines economic tools and concepts including supply and demand curves, marginal analysis and elasticity used to evaluate current issues and situations that exist in today’s healthcare industry. Supply and Demand According to Cunningham (2000), fiscal evaluation of health care programs is a memorable tool; it sheds light on the cost and benefits of healthcare programs. A fiscal evaluation helps healthcare systems (HAS) and healthcare providers with the decision making, supports the change in programs and administrative operations.
A fiscal evaluation of health care programs is routine in medicine but is appropriate for other aspects of healthcare including dentistry and research. The goal of a fiscal evaluation of healthcare programs is to determine the use of scarce resources for the greater benefit of the majority (Cunningham, 2000). According to Gotten (2013), the hooch consumers make to purchase is known as demand, and the choices made by Final Economic Tools Concepts By kayaking Consumers move from one end of the trade pole to the other participating either on the demand or the supply end. For example, demander swap funds for merchandise and services.
On other hand, suppliers swap labor and material for funds. It is essential to understand the supply and demand process to appreciate how a deal adds additional as consumers’ surplus on the demand side, and producers’ surplus or profit on the supply side” (Gotten, 2013, p. 3). However, to truly understand the economics of the system one must evaluate the provider side of the equation. The provider side is made up of physicians and other healthcare professionals including health organizations (HO), convalesce facilities, rehabilitation centers, pharmaceuticals, and insurances carriers (Gotten, 2013).
Demand and Supply Curve Gotten (2013) explains the concept of demand and supply; by insisting that a consumer, who desires to purchase healthcare product and services such as total knee replacement, is a fraction of the demand. However, deciding not to buy makes such consumers undetectable; a dormant demander that does not successfully partake in the marketplace. However, if the price of the total knee replacement becomes more feasible because of a decrease in the manufacturing cost of the apparatus and lower cost to perform the procedure, the overall price drops in increments.
For example, the price for total knee replacement decreasing from $1 50,000 to $100,000, to $75,000, to $50,000, to $35,000 to $1 5,000 to the lowest pence tag of $5,000 per total knee replacement (Gotten, 2013). Consequently, many more people will opt to proceed with the procedure because of the decrease in the price. The demand curve represents the number of clients who buys at the current price or other possible prices. Consequently, the demand curve can be used to calculate the total and incremental benefits of each additional artificial knee at different prices.
Lowering the price of the surgery reflects the higher demand for knee replacements (Gotten, 2013). For example, the demand for the surgery will be reflected by the client’s perception of the benefit of the surgery and how it can enhance their lifestyle. The curve will illustrate the number of clients who do the surgery at the top rates because they believe that the benefit outweighs the cost of the surgery. Similarly, the demand curve is indicative of the buyers at differing price ranges. At the lower price, more patients will take the surgery to replace their knee totally.
It is important to note that the demand curve slopes downward because of the decreasing prices (Gotten, 2013). Also, the decreasing cost attracts more people to buy into getting the total knee replacements while all other circumstances remain steady. Another observation s that there is no value to the artificial knee. The value depends on how many clients received the knee replacement. If only a few artificial knees were available, nationally the value would be extremely high, costing millions of dollars for one. Conversely, when consumers purchase many artificial knees, the value decreases dramatically and lowers the margin (Gotten, 2013).
According to Gotten (2013), the supply curve is associated with marketplace requirements concerning all persons and business entities presently trading certain goods for example, total knee replacement, multivitamin, and orange Juice. Also, market supply engages all organizations that are presently trading products or services to the consumers. Since buying and selling go marketplace supply curve inclines upward, with an elevated cost calling for increased quantity abounding (Gotten, 2013). Gotten (2013 suggested that the claim and enthusiasm to pay is contingent on the experience and liking of the person and may be extremely erratic.
However, the normal fiscal study of supply supposes that a business entity is concerned only with its earnings. A sole seller has a monopoly on the market, for example, a neighborhood drug store in Middle Village. In this case, the demand of the market is the same as the company. The supply curve is prominent when there are several competitive drug stores in the same village of the market. Each drugstore has its share of clientele, and do not fill all the prescriptions in Middle village. As a result, one drug store’s business is not equal to the market’s demand (Gotten, 2013).
Conversely, each drugstore can sell a bigger or smaller portion of all the pharmaceuticals sold in the village by altering prices. Economic specialists insist that the drug store “faces a firm demand curve” of possible patrons, which is a portion of the total market (Gotten, 2013, p. 27). Peradventure, one drugstore’s prices are much lower than the others; it will absorb a vast share of the business. On the contrary, a drug store charging higher prices will get its share of business from people who live nearest to it or if it is the only twenty-four drugstore in the area.
It is important to note that cost and inputs determine the shape and the position of the supply curve (Gotten, 2013). Marginal Analysis According to Peacock, S. J. , Mitten, C. , Rata, D. , Donaldson, C. , Bate A. , & Hidden. L. (2010), program budgeting and marginal analysis (PUMA) is a framework used by economists to assist local decision makers set the priorities of health services. The goal of PUMA is to help local decision maker’s use resources to take advantage of reimbursement for health services, considering the opportunity cost, and the shifting of resources at the margin (Peacock et al. , 2010).
One of the most significant challenges in health policy is the development of effective methods of setting priorities to help clinicians and managers. Several countries including the United States (US), the United Kingdom (I-J), The Netherlands, Canada, Sweden and New Zealand have attempted to deal with this challenge. Many of these countries have recognized nationwide health technology evaluation programs to produce cost- effective proof and leadership on the implementation of new interventions (Peacock et al. , 2010). Mitten, François and Donaldson (2014) affirm that program budgeting and marginal analysis involve seven stages.
First, decision makers establish the aim and scope of the priority setting exercise, compile a budget for the program, and identify the resources and the cost of programs. The marginal analysis advisory panel is created with crucial stakeholders including consumers, managers, and clinicians. It is important to establish relevant decision-making criteria at the local level. Managers and clinicians must be aware of the alternatives for growth, release of resources from gains in operational efficiency, and release of resources from cutting back or discontinuation of some services.
An evaluation of costs and benefits, recommendations for funding areas of growth and move resources from one area to another is necessary. In the final stage, results are confirmed and resources are allocated depending on the cost-benefit ratio (Mitten, François & Donaldson, 2014). Peacock et al. (2010) argues that a more holistic approach is necessary for analyzing organizational pressures on decision makers. PUMA requires the individuals making decisions to construct a budget for the program. Those individuals also help to make the suggestion for shifting obtainable allocations of resources to services that use marginal analysis.
PUMA focuses on incremental changes in service delivery. Nevertheless, the principle of maximizing reimbursement from limited funds for a particular program stays unchanged (Peacock et al. 2010). Peacock et al. (2010) developed a framework that recognizes the importance of balancing ethical and realistic concerns with economic wisdom in decision making. According to Mitten, François and Donaldson (2014), the Journey from thought to perception to the responsibility of implementing correctly is the most significant challenge in making decisions in health care.
While shifting resources in a more precise and meticulous way, clinicians, managers, and members of the public can be engaged properly to improve the value-laden action (Mitten, Francoise & Donaldson, 2014). Priority setting n health care has come a long way. However, in Canada, only fifty percent of health service delivery organizations admit to having a formal approach to and resource allocation in play at the executive level (Mitten, Francoise & Donaldson, 2014). Elasticity Gotten (2013) noted that elasticity is used to measure price sensitivity.
Economists focus on movement and differences on the sensitivity of the decision to buy, to a raise or reduction in price. A price is elastic when the demand curve indicates that the quantity demanded will change significantly for a small change in price. On the other hand, if the quantity demanded barely moves when the price increases, then the demand is inelastic (Gotten, 2013). According to Gotten (2013), the elasticity measure of the sensitivity of price can be used to examine the differences and similarities in demand.
For example, Cindy demand for Millennial is expected to be rejected by twenty five percent if the price is raised by ten percent, then her elasticity is negative two and a half times (Gotten, 2013). According to Gotten (2013),if the person’s reaction is average, even with thousands of prescriptions, the effect on the racket in its entirety will be a twenty-five percent turn down for a ten percent increase in price. Gotten (2013) believes that average individual demand elasticity and market price elasticity are equal, yet the overall quantities are much more diverse.
One benefit of the elasticity measure is that it has no dimensions. Medical care is very much inelastic because most people have little or no perception of the price of medical care. Gotten (2013) states when individual believes that a specific medication is best and that his provider is the only provider that understands his robber, then, there is no better alternative to the care provided by that provider. Conversely, if one considers all physicians and medication for hypertension to be the same, one will happily make the change to save money.
The alteration in demand due to a shift in price depends on finding a substitute and the time available to do so. For example, a person in life and death situation has no time to shop around for the best provider to care for them (Gotten, 2013). Healthcare goods are inelastic. Since raising the quantity sold by two percent, it involves a large reduction in price; sibyl ten percent the company will lose money (Gotten, 2013). For example, if a company lowers its price from $ 99 to $ 90, it will see a two percent increase in sold from $29,700 to $ 27, 540 (Gotten, 2013).
Also, the proceeds would have remained the same if the price was unit elastic so that the price increased by ten percent to 330 (Gotten, 2013). Gotten (2013) affirms that an elastic demand with ten percent reduction in price would lead to a fifty percent increase in amount, and total income would rise from $29, 700 to $40,500. A company with an inelastic demand and a mailer amount of units will be able to increase the price by a larger percentage and take in more overall income for fewer units sold (Gotten, 2013).
Conclusion An increase in the demand and supply of healthcare products and services fuels the economy of the American healthcare industry. Therefore, the economic important to healthcare providers, consumers, and policymakers. According to Cunningham (2000), fiscal evaluation of health care programs is a remarkable tool; it sheds light on the cost and benefits of healthcare programs. This evaluation helps HAS and healthcare professionals with the decision making, supports the change in orgasm and administrative operations. The goal of a fiscal evaluation is to determine the use of scarce resources for the greater benefit of the majority.
Economic tools and concepts including supply and demand curves, marginal analysis and elasticity are used to evaluate current issues and situations that exist in today’s healthcare industry(Cunningham, 2000). The demand curve is indicative of the buyers at differing price ranges. At the lower price, more patients will decide to accept total knee replacement surgery. It is important to note that the demand curve slopes onward because of the decreasing prices. It is equally important to note that cost and inputs determine the shape and the position of the supply curve (Gotten, 2013).
The program budgeting and marginal analysis (PUMA) is a framework used by of resources at the margin (Peacock et al. , 2010). Gotten (2013) insists that elasticity is used to measure price sensitivity. Economists focus on movement and differences on the sensitivity of the decision to buy, to a raise or reduction in price. A company with an inelastic demand and a smaller amount of units will be able to increase the price y a larger percentage and take in more overall income for fewer units sold (Gotten, 2013). Cunningham, s. J. (2000, March). Practice Economics, 188(5), 250-254. Gotten, T. E. (2013).