Assignment in Health Economics Final

ADVANCED HEALTH CARE ECONOMICS
St. Paul University Philippines

Tuguegarao City, 3500 Cagayan North
GRADUATE SCHOOL
Master of Science in Nursing
AY 2013-2014
MODULE
IN
ANUNCIACION T. TALOSIG, DNS

Professor
ANA MARIE BESA BATTUNG

Student

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MODULE A
Introduction:
Health is defined often simply as the lack of illness, but unless illness is itself defined, this is not
helpful. There are many different ways of defining illness and each may be related to the
different actors supplying the definition. For example, the medical model of illness, as proffered
by the medical profession, defines illness in terms of physical and mental disorders. The
presence or absence of disease and the stage of its invasiveness dominate such definitions which
are pathologically based. Other definitions, however, may be more functionally based. It is
possible to define illness in terms of its effects upon the way in which individuals function in
their daily lives. For example, emphasis would be placed upon the amount of pain suffered or the
degree to which individuals are restricted in undertaking normal activities.
Economic is the study of how people make choices. It is also the study of scarcity and choice,
finally helps how to use scarce or limited resource. The subject matter of economics lies on the
production, distribution and consumption of economic goods. How much should be spent on
education, health, books, travel, food or clothing is of course a matter of political, social or
simply personal judgment as well as a question for the economist. However, as soon as people
have the necessity to choose between having relatively more in the way of health services at
the cost of having relatively less leisure or less to spend on education, they are economizing.
Health economics can be defined as the application of Economic theories, tools and concepts
of economics as a to the topics of health and health care. Since health economics is concerned
with issues related to the allocation of scarce resources to improve health, this includes both

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resource allocation within the economy to the health sector and within the health care system to
different activities and individuals.
The economic perspective in usefulness in the context of health care:
Health economics examines the problem of scarcity as it arises with respect to health and
health care.
It examines how we as individuals and societies confront the fact that while the resources
available to us are limited, the alternative uses for these resources are unlimited. Thus,
health economists are interested in some very important questions. How is health
produced? What role does health care play in its production? What is the value of health?
How do we go about measuring health status? What influences for health and health
care? What influences the supply of health care? How can equilibrium between demand
and supply be achieved? The discipline of health economic is the study of these questions
and the answers to them that individuals and societies have put forward.
1. The chapter begins by asserting that four preconditions are necessary for the
establishment of modern medical care: effective medical technology , sufficient wealth,
low risk of death, and insurance financing. Explain why each is necessary? How are they
interrelated?
To make effective for the establishment of modern medical care, the following are
necessary.

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a. Effective Medical Technology

Effective medical technology is one of the preconditions necessary for the establishment of
modern medical care because of the reason that as modern technologies are being discovered
nowadays,some brought about by technological innovations, these technologies which are
deemed necessary for better health care delivery. As society nowadays are becoming health
conscious,being aware with their health conditions. On the other hand, as the emergence of new
diseases and there would be a need for better technology, in a way that it helps in finding the
solution for curing the ailments in the swiftest manner.
b. Low Risk of Death such that improving Health is worthwhile

Dating back in history ,where humans were living in a crude life and technologies are not as
modernized nowadays, come to a point that when they have contracted a disease and no life
measure is accessible they came to a point that death is their final destination. In contrast,
nowadays, where modern technologies has been discovered, new medicines are being
formulated, it means to say that health is worthwhile .
c. Adequate wealth to pay for advanced medical treatment
Health care as a commodity takes effect in the free market. Like for example, those who are
undergoing knee replacement for osteoarthritis. Since knee replacement is costly those who can
afford will dwell to it and for those who can not afford will just bear the pain of having arthritis.

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d. Financial organization/insurance to pool funds from many people
In a our country, once you enter a hospital, the admitting section will ask you ask if you have
health insurance. One particular is the Phil health once you are a premium member there are
benefits that only premium members are qualified to utilize. The implication of this is that many
if the benefits will outweigh the cost then perhaps many people will enrol to this kind of
membership.
2. It is economic development that creates the foundation for modern medicine. Explain.
The connection between health and national development are complex. The interaction is a twoway phenomenon with health being both influenced by and influencing economic development.
Improved health has been considered solely a result of economic growth, a part of the product of
growth rather than one of its causes. Every country has their own programs in connection to the
health sector. Like for example the vaccines for pneumococcal. In the rich countries like the
Kingdom of Saudi Arabia. Any Saudi who would like to receive such vaccine would be given
freely because their government can afford the amount. In comparison to the Philippines where
such vaccines are limited. You can only have it unless you buy for the vaccine. One
manifestation is that a wealthy country would invest so much on researches for the benefits of its
constituents other than the country with low socio economic status.
3. Economic development, population growth and medical technology are linked. The growth of
humanity is divided into four periods.

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A. Stone Age
The Stone Age is a broad prehistoric time period during which humans widely used stone for tool
making. Stone tools were made from a variety of different kinds of stone. For example, flint and
chert were shaped (or chipped) for use as cutting tools and weapons, while basalt and sandstone
were used for ground stone tools, such as quern-stones. Wood, bone, shell, antler and other
materials were widely used, as well. During the most recent part of the period, sediments (like
clay) were used to make pottery. A series of metal technology innovations characterize the later
Chalcolithic (Copper Age), Bronze Age and Iron Age. The period encompasses the
first widespread use of tools in human evolution and the spread of humanity from East Africa to
the rest of the world. It ends with the development of agriculture, the domestication of certain
animals, and the smelting of copper ore to produce metal. It is termed prehistoric since humanity
had not yet started writing the traditional start of recorded history. The date range of this
period is ambiguous, disputed, and variable according to the region in question. While it is
possible to speak of a general 'stone age' period for the whole of humanity, some groups never
developed metal-smelting technology, so remained in a 'stone age' until they encountered
technologically developed cultures. However, it is believed that this period began somewhere
around 2.5 million years ago with the first hominid tool makers in Africa. The transition out of
the Stone Age occurred between 6000 BC and 2500 BC for much of humanity living in North
Africa, Asia and Europe.

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B. Agricultural Age
At the beginning of this age, the planet has warmed from the Ice Age to the temperatures of
today. In Alaska, the ice prison has broken up and the humans began migrating to the rest of the
continent. In northern Africa, the lush plains of the Sahara turned into the desert of today. To the
retreating peoples, the Nile River valley beckoned. Climate change caused large stands of wild
grain grew throughout the Middle East. Around 8000 people in northern Iraq began to
deliberately plant these grains. The nearby Tigris and Euphrates Rivers provided irrigation. After
harvest, the grains were ground into flour which kept for long periods of time. Historians call this
age "The New Stone Age" or in Latin the "Neolithic Age". I don't think that advances in
stonework was the determining factor in this era. It was warming of the planet and the
subsequent development of farming. Agriculture provided stability. It supported more people. It
allowed people to congregate into cities. City folk were able to perform specialized tasks.
Organization for defense and for commerce was needed. And people's imaginations were freed to
pursue academic pursuits. Agriculture is the foundation that allows workers of other skills to
prosper. Jericho (yes, the one of the Bible) may be the world's oldest city, dating back to 8000.
Possessing all of 10 acres and 2,500 people, it was the must-see metropolis of 7500. By
6000, pottery was developed. In the Far East, humans independently developed the farming of
rice. In the Sixth Millennium the Sumerians took over the Iraq region and established a network

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of cities. In 4000 they founded the city of Ur and made it into the largest city in the world. Egypt
united under its first ruler in 3100. The Chinese established their first cities along the Yellow
River about this time. Cities began in the Indus River Valley. Towards the end of this era, the
lands around the eastern Mediterranean began civilizations. In 4000 world population reached
the unprecedented number of 85 million people. They lived in isolation from other civilizations.
C. Industrial Age
Industrial Revolution was a period from the 18th to the 19th century where major changes in
agriculture, manufacturing, mining, transport, and technology had a profound effect on the
socioeconomic and cultural conditions starting in the United Kingdom, then subsequently
spreading throughout Europe, North America, and eventually the world.
The Industrial Revolution marks a major turning point in human history; almost every aspect of
daily life was eventually influenced in some way. Most notably, average income and population
began to exhibit unprecedented sustained growth. In the two centuries following 1800, the
world's average per capita income increased over 10-fold, while the world's population increased
over 6-fold. In the words of Nobel Prize winning Robert E. Lucas, Jr., "For the first time in
history, the living standards of the masses of ordinary people have begun to undergo sustained
growth. ... Nothing remotely like this economic behavior has happened before." Starting in the
later part of the 18th century, there began a transition in parts of Great Britain's previously
manual labor and draft-animalbased economy towards machine-based manufacturing. It started
with the mechanization of the textile industries, the development of iron-making techniques and
the increased use of refined coal. Trade expansion was enabled by the introduction
of canals, improved roads and railways. The introduction of steam power fuelled primarily by

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coal, wider utilization of water wheels and powered machinery (mainly in textile manufacturing)
underpinned the dramatic increases in production capacity. The development of allmetal machine tools in the first two decades of the 19th century facilitated the manufacture of
more production machines for manufacturing in other industries. The effects spread
throughout Western Europe and North America during the 19th century, eventually affecting
most of the world, a process that continues as industrialization. The impact of this change on
society was enormous. The first Industrial Revolution, which began in the 18th century, merged
into the Second Industrial Revolution around 1850, when technological and economic progress
gained momentum with the development of steam-powered ships, railways, and later in the 19th
century with the internal combustion engine and electrical power generation. The period of time
covered by the Industrial Revolution varies with different historians. Eric Hobsbawm held that it
'broke out' in Britain in the 1780s and was not fully felt until the 1830s or 1840s, while T. S.
Ashton held that it occurred roughly between 1760 and 1830. Some 20th century historians such
as John Clapham and Nicholas Crafts have argued that the process of economic and social
change took place gradually and the term revolution is a misnomer. This is still a subject of
debate among historians. GDP per capita was broadly stable before the Industrial Revolution and
the emergence of the modern capitalist economy. The Industrial Revolution began an era of percapita economic growth in capitalist economies. Economic historians are in agreement that the
onset of the Industrial Revolution is the most important event in the history of humanity since the
domestication of animals and plants
D. Information Age

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The Information Age (also known as the Computer Age, Digital Age, or New Media Age) is a
period in human history characterized by the shift from traditional industry that the industrial
revolution brought through industrialization, to an economy based on information
computerization. The onset of the Information Age is associated with the Digital Revolution, just
as the Industrial Revolution marked the onset of the Industrial Age.
During the information age, the phenomenon is that the digital industry creates a knowledgebased society surrounded by a high-tech global economy that spans over its influence on how the
manufacturing throughput and the service sector operate in an efficient and convenient way. In a
commercialized society, the information industry is able to allow individuals to explore their
personalized needs, therefore simplifying the procedure of making decisions for transactions and
significantly lowering costs for both the producers and buyers. This is accepted overwhelmingly
by participants throughout the entire economic activities for efficacy purposes, and new
economic incentives would then be indigenously encouraged, such as the knowledge economy.
The Information Age formed by capitalizing on the computer microminiaturization advances,
with a transition spanning from the advent of the personal computer in the late 1970s, to the
Internet's reaching a critical mass in the early 1990s, and the adoption of such technology by the
public in the two decades after 1990. This evolution of technology in daily life, as well as of
educational life style, the Information Age has allowed rapid global communications and
networking to shape modern society.The Information Age has impacted the workforce in several
ways. First, it has created a situation in which workers who perform tasks which are easily
automated are being forced to find work which involves tasks that are not easily automated.
Second, workers are being forced to compete in a global job market. Lastly, workers are being
replaced by computers that can do the job more effectively and faster. This poses problems for

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workers in industrial societies, which are still to be solved. However, solutions that involve
lowering the working time usually find high resistance.Jobs traditionally associated with the
middle class (assembly line workers, data processors, foremen, and supervisors) are beginning to
disappear, either through outsourcing or automation. Individuals who lose their jobs must either
move up, joining a group of "mind workers" (engineers, doctors, attorneys, teachers, scientists,
professors, executives, journalists, consultants), or settle for low-skill, low-wage service jobs.
The "mind workers" are able to compete successfully in the world market and command high
wages. Conversely, production workers and service workers in industrialized nations are unable
to compete with workers in developing countries and either lose their jobs through outsourcing
or are forced to accept wage cuts. In addition, the internet makes it possible for workers in
developing countries to provide in-person services and compete directly with their counterparts
in other nations.This has had several major consequences, including increased opportunity in
developing countries and the globalization of the workforce.Workers in developing countries
have a competitive advantage which translates into increased opportunities and higher
wages. The full impact on the workforce in developing countries is complex and has downsides.
In the past, the economic fate of workers was tied to the fate of national economies. For example,
workers in the United States were once well paid in comparison to the workers in other
countries. With the advent of the Information Age and improvements in communication, this is
no longer the case. Because workers are forced to compete in a global job market, wages are less
dependent on the success or failure of individual economies.

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A. FACTORS AFFECTING HEALTH CARE COSTS AND IMPLICATIONS
INSTRUCTION:
Before proceeding further, get the most recent data from the Department of Health
in terms of Morbidity and Mortality for the country where you live.
MORBIDITY: 10 Leading Causes, Number and Rate*
5-Year Average (2000-2004) & 2005
2005
Diseases
5-Year Average (19551959)
Number
Rate
Number
1. Acute Lower Respiratory
694,209
884.6
690,566
Tract Infection and
Pneumonia**
2. Bronchitis/Bronchiolitis
669,800
854.7
616,041
3. Acute watery diarrhea
726,211
928.3
603,287
4. Influenza
459,624
587.0
406,237
5. Hypertension
314,175
400.5
382,662
6. TB Respiratory
109,369
139.7
114,360
7. Diseases of the Heart
43,945
56.1
43,898
8. Malaria
35,970
46.1
36,090
9. Chicken Pox
79,236
41.1
30,063
10. Dengue fever
15,383
19.6
20,107
*
per 100,000 population
** Does not include ALRI, Pneumonia cases only from 2000-2002
Rate
809.9
722.5
707.6
476.5
448.8
134.1
51.5
42.3
36.3
23.6
MORTALITY: TEN (10) LEADING CAUSES

NUMBER AND RATE/100,000 POPULATION
Philippines
5-Year Average (2004-2008) & 2009
CAUSES
5-Year Average
(2004-2008)
2009*
Number Rate Number Rate

1. Diseases of the Heart
82,290
94.5
100,908 109.4
2. Diseases of the Vascular System
55,999
64.3
65,489
71.0

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3. Malignant Neoplasms
43,185
49.6
47,732
51.8
4. Pneumonia
35,756
41.1
42,642
46.2
5. Accidents**
34,704
39.9
35,990
39.0
6. Tuberculosis, all forms
25,376
29.2
25,470
27.6
7. Chronic lower respiratory diseases
20,830
24.0
22,755
24.7
8. Diabetes Mellitus
19,805
22.7
22,345
24.2
9.Nephritis, nephrotic syndrome and nephrosis
11,612
13.4
13,799
15.0
10. Certain conditions originating in the perinatal

period
12,590
14.5
11,514
12.5
Note: Excludes ill-defined and unknown causes of mortality

* reference year
** External causes of Mortality
Health Status is the actual health status of an individual or a population. Health status can be
Measured by:
Morbidity- number of individuals who are ill
Mortality- number of individuals in a population who passed from one
State (alive) to the other (dead)
Health Outcome- net impact of health care on health status
Two activities can be measured: Cost of medical care and cost of illnessQUESTION 1: The economy as a whole is measured by the Gross National Product. From 2005
to 2012, what percentage of the GNP was allocated to Health? What is Gross National Product?
Gross National Product- It is a term denoting the total money value of the goods and services
produced by a nation during a given year. GNP is used for many purposes, but the most

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important one is that it measures the overall importance of an economy. The Gross National
Product (GNP) is the most comprehensive measure of a nations total output of goods and
services. It is the sum of the monetary values of consumption, investment, government purchases
of goods and services and net exports. It is denoted in the formula as:
Y = C+I +Ge+ (X- M)
Y Out put
C - Consumption
I investment
Ge government purchase
(X M) - Net export
YEAR
2005
2006
2007
2008
2009
2010
2011
2012
2013
GROSS NATIONAL
INCOME per capita
PPP or Purchasing
Power Parity (current
international $)
3030
3210
3480
3,670
3,670
3,950
4,120
4400
P34.983B as of 2nd
Quarter2013
GROSS
NATIONAL
PRODUCT
at current
price
$86.9B
$98.8B
$122.21B
$149.359B
$173.602B
$168.333B
$199.589B
$224.754B
9,725,318,000
9,457,285,000
11,398,771,000
18,912,010,000
23,666,655,000
24,649,765,000
31,828,616,000
42,155,963,000
$250.265B
51,269,491,000 3.5%
BUDGET FOR PERCENTAGE

HEALTH
FOR HEALTH
3.45%
3.65%
3.4%
3.35%
3.6%
3.61%
4.4%
4.1%
QUESTION 2: It is clear that national health expenditures rise with income per capita. Do health
outcomes improve in the same way? Explain
Per capita health spending varies widely among countries. In general, simple correlations
indicate that there is little or no connection between health spending and both life expectancy
and infant mortality, whether one is comparing developed nations. Multivariate analyses that

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include such additional determinants of health as incomes, environmental quality, and personal
habits do not change this conclusion. The connection between spending and health outcomes
could be loose for several reasons. One could be that health care is not an important determinant
of health outcomes; however, several studies suggest that this conclusion is false. Another might
be that areas that deliver technologically sophisticatedand costlycare are inefficient in
delivering less-sophisticated care. A third reason might be that much health spending goes to
relieve conditions, such as joint deterioration, cataracts, and some forms of angina, that cause
disability, not death.
QUESTION 3: In terms of health care expenditure, how much had government and the
private sector spent for health care. From the public sector,
39%was spent for preventive research, teaching and training
61% for curative research, teaching and training
How does this compare to the private sector which spent
10% for preventive research, training and teaching
90% curative research, training and teaching
The price of health care is determined by the cost of accessing and utilizing health care. It is
important to know that seeking health care includes costs other than what people pay health
providers for health services rendered or goods assured. (Policarpio, 2006)
So, there are factors that can be considered that can cause high cost of health care.

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QUESTION 4:
Discuss why and how these 11 factors identified have contributed to high cost of health care.
1. Increased use of health care agencies
Increase use of health care agencies being identified to contribute in high cost of health care
in a way that since health care is specifically an singularly consumed on the presumption of
investment benefits in the health care status it will turn out that the demand for healthcare
will take effect on the consumption of health . Health care being a commodity in the free
market and the doctor being the middle man to the people as consumer ,the doctors will offer
options of regimens that could help man in optimizing his health status and so given the
options man will try these options and so frequent use of this will contribute to high cost of
health care.
2. Inflation
Inflation means a reduction in the value of money; in other words, a rise in general price levels.
The literal meaning of the word inflation is to blow up or get bigger. If the amount of money in a
country - the money supply - grows faster than production in that country, the average price will
rise as a result of the increased demand for goods and services. Inflation can also be caused by
higher costs being charged on to the end-user. These might be raw material costs or production
costs which have risen, but could also be higher tax rates. These price rises cause the value of
money to fall. You can therefore buy less with the same amount of money. But this does not need
to have an immediate effect on purchasing power. Purchasing power only declines if wages rises
less rapidly than prices, limited inflation is good for the economy. But high inflation is less

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beneficial. High inflation can cause the populations confidence in their own currency and
economy to decline, and it can be less appealing for foreign investors to invest in the country
concerned. High inflation therefore often has a harmful effect on economic growth. If inflation
gets too high, a countrys central bank will often intervene by raising its interest rates and thus
discourage the creation of money.
3. Population Increase
Since 2009, the balance of the world's population now lives in urban areas, creating a series of
new challenges for governments and the healthcare sector. In Africa, Asia and Latin America,
urbanization has resulted in vast shantytowns and slums with little to no access to health
services, freshwater or sanitation services. And as urban populations swell, so too does the
incidence of illness such as hypertension, heart disease, obesity, diabetes and asthma.
Increasing affluence has also created a series of new challenges for the healthcare industry as the
gap widens between the rich and the poor, resulting in a disparity in the availability and quality
of care. And as more people move into the ranks of the middle class, the impact on the disease
profile has been dramatic as changing diets result in increasing levels of obesity and diabetes.
Responding to growing needs for healthcare services requires investment in those services and in
the infrastructure required to support it.
4.Demography
As we get older, we tend to need more medical care. The baby boom generation is heading into
retirement, with enrollment in Medicare set to grow by an average of 1.6 million people

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annually. Additionally, nearly half the worlds population has one or more chronic conditions,
among them asthma, heart disease or diabetes, which drive up costs. And two-thirds of adults are
either overweight or obese, which can also lead to chronic illness and additional medical
spending.
5.Focus on illness care
Focusing on illness care would be a factor in increasing healthcare for the reason that
Most insurers -- including traditional Medicare -- pay doctors, hospitals and other medical
providers under a fee-for-service system that reimburses for each test, procedure or visit.
Coupled with a medical system that is not integrated, this encourages overtreatment, including
repetitive tests and sometimes these test arent included in medicare program.
6.Cost reimbursement
Reimbursementisthestandardmethodofpaymenttohealthcareproviders.Thepayerisoftenan
insurancefirmorgovernmententity.Howthesepaymentsaremadeisacentralconcern.Another
importantissueisthecontinuedtradeoffbetweenanorganization'sefficiencyandbottomline
profitversusthefreedomofpatientsandproviders.InthePhilippinesetting,therearetimes
whensomeofthebenefitsinthePhilhealthinsurancethatarebeyondthecoverageorsometimes
theyexceedthelimitofsuchcoverageandsocostreimbursementisalsoafactorforincreasing
costofhealthcare.
7. Fee for service reimbursement

Fee for service reimbursement increases the cost of healthcare holds true when a certain medical
profession such as doctor is working on a private firm.The doctor being the mediator between the

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patient and his health,the doctor who is all knowing and knows the possible solution for
optimizing health. Professional fee or service fee is being charged every visit and sometimes it is
coved in the insurance and so it would be a factor for increase cost of health care.
8. Technology
Technology increases range of possible treatments. Newer technology, means more expensive.
In cases such as those with kidney problems that needs for kidney transplants. The emergence of
these transplants would mean expensive than the dialysis and so it can contribute to increase cost
of health care.
9. Indigent care
It is one of the rights of every citizen that health is accessible to them, regardless of their status
in life. Indigent care is a factor for the increasing of health care cost because of the reason that
since the indigent are exempted from paying taxes for revenues needed for the programs
implemented for indigent care therefore the tax payers will be paying more taxes thus increasing
health care cost.
10.Malpractice
Malpractice can be a factor for increase cost of health care. Just in the case of patients who
have undergone surgeries where strict aseptic technique is necessary, if not sustained it would
arise to further infection and so increase cost of healthcare will be the effect.

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11.Health pattern changers (Impact on HIV-AIDS, SARS, and DENGUE etc.)
Nowadays,AIDS has caught the attention of the public that HIV cases has increased rapidly
than in the earlier years,the need to combat this type of illness is very costly,in a way that
sophisticated machines,frequent laboratory workouts and expensive medicines are needed..

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MODULE B
OBJECTIVE:
Discuss the changing role of management and the competencies required to function in the
managerial role as well optimize utilization of resources.
Standard cost profile
Cost determination
Patient care classification
Cost center
Quality indicators
Revenue center
Standard Cost profile

Identifies required resources of nursing hours needed for different categories of patients.
It is a method used for grouping patients according to the amount and complexity of their
nursing care requirements over a given period of time.
Cost Center
These are the smallest units of activity of area of responsibility for which costs are
documented. We can also refer to them as service sections of units. They are identified
based on this type of activities they provide as well as its geographical location within a
health facility. Each unit has its own set of activities to perform, a mission to fulfill and

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manager to supervise its operations. Unit supervisors are responsible for the operation,
maintenance and control of accounts under theory responsibility.
Patient Classification System (PCS)

The PCS is a method of grouping patients according to the amount and complexity of
their nursing care requirements. It is a measurement tool used to articulate the
nursing workload for a specific patient or group of patients over a specific period of time.
Patient acuity is the measure of nuring workload that is generated for each patient. As
a patient becomes sicker, the acuity level rises, meaning the patient requires more nursing
care. As a patient acuity level decreases, the patient requires less nursing care
Quality Indicators
Define the care that is provided for patient. These indicators must be measurable and are
necessary to determine if the care provided is of quality.
Revenue Center
Summarizes the income management expected to generate during the planning period.
A. CONCEPT of COST:
Costs are expenses or assets having utility for future periods
1. Cost information in relation to time frame
2. Costs that change in relation to volume or time
3. Cost data utilized for product pricing

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4. Costs related to strategic and operational planning and control
B. WHAT IS COST MANAGEMENT?
It is an ongoing process of planning, monitoring and controlling operations to meet

strategic directions of the organization. Uses are product pricing, inventory valuation and
income determination as well as product planning and control.
There are 5 functions of cost management systems:

a. Cost determination
b. Activity forecasting
c. Functional Cost - Center Budgeting
d. Performance reporting on a product level
e. Performance reporting on a functional level
Cost Determination
The calculation of the unit cost of the activity by dividing the total cost of the function by
the measurement unit or base.

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Activity forecasting
It is an activity to calculate or estimate in advance or foretell, it may be projected income
statement, projected or forecast balance sheet, financial forecasts for external users or
expenditures.
Performance reporting on a functional level

Monitor and control the cost to produce a procedure most appropriate for variable cost,
direct cost and indirect fixed costs center costs.
QUESTION 1.
Explain the 5 functions of cost management. You may use any journal on Health
Economics, on managing health care costs, quality and technology.
WHAT IS COST MANAGEMENT?

It is an ongoing process of planning, monitoring and controlling operations to meet strategic
directions of the organization.Uses are product pricing, inventory valuation and income
determination as well as product planning and control. There are 5 functions of cost management
systems

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Cost Determination
The calculation of the unit cost of the activity by dividing the total cost of the function by
the measurement unit or base.
Activity forecasting
It is an activity to calculate or estimate in advance or foretell, it may be projected income
statement, projected or forecast balance sheet, financial forecasts for external users or
expenditures.
Performance reporting on a functional level

Monitor and control the cost to produce a procedure most appropriate for variable cost,
direct cost and indirect fixed costs center costs.
*In activity forecasting, Level I refers to product (demand) and Level II procedure (admissions,
meal, medical record processing, billing, housekeeping, IV therapy, laundry/linen, nursing care
by levels, EKG, X-ray and laboratory)
QUESTION 2:
Select a unit of your hospital (e.g. ICU, NICU, DR, OR, Ward, etc.) and answer the
following questions: In case of those who are working in Health Centers you may get
your own workplace and the same with those in the academe- the Skills Laboratory.

27
C. WHAT IS SETTING PROCEDURE STANDARD COST PROFILES?

WHAT IS FUNCTIONAL COST CENTER BUDGETING?
You need to peruse the literature for the above concepts before answering the question
below.
QUESTION: Final Product Nursing Care

Select a unit of your hospital and answer the following questions:
QUESTION:
Select a unit of your hospital and answer the following questions:
The selected unit is Emergency Room of Tuguegarao City Peoples General Hospital,
Tuguegarao City, Cagayan.
Final product Nursing Care
1. What are the clinical nursing needs?

Clinical nursing needs include insufficient of staff nurses to patients ratio, unavailability
of medicines for patients some medical equipments are lacking and needs to be upgraded.
2. What is their prevalence?

There are 3 staff nurses available from the approximately 80 patients per 8 hours duty.
the average of patients in 8 hour shift. In cases such as wounds, in which there is a need

28
for anti tetanus injections and tetanus toxoid injections, mostly the patients need to buy it
outside. There were times when there is a need to transfer patients for treatments to a
larger hospital because medical equipments are lacking.
3. What are the diagnosis problems and how are they resolved?
The most common diagnosis problems are vehicular accidents, intoxication, wounds such
as gunshot wounds ,stabbing, concussion, contusion, difficulty of breathing or shortness
of breath, hypoglycemia,burns,cardiac arrest, and some trauma. They are resolved
through provision of quality nursing care and compliance of patients to its treatment
regimen.
4. What are the therapy options?

In a case to case basis ,the therapy options , oxygen therapy, fluid therapy ,diet therapy
and physical therapy.
5. What are the costs of developing or continuing to develop the product?

Continuous maintenance of supplies, medicines and therapies depending on the case of each
patient are the costs of developing or continuing to develop the product.
6. What are the costs of producing the product?

The use of medicines, food, and shelter are the cost of producing the product.

29
7. What resources are required?
There must be enough budgets to survive the treatment. In Tuguegarao City Peoples
General Hospital, monetary aid comes Philippine Charity Sweepstakes Office and from
the pork barrel of the government. Non government organizations like the Rotary club
also extend their help to TCPGH.
8. What new information must be learned?

Informations must be provided by the attending physicians,and other health care
providers if there are needs with regards to patiens conditions anf if if there is a need to
update the information then it is possible that they must attend trainings or lectures
9. What are the critical success factors?

Nurses must provide a quality care needed by the patient and through the cooperation of
the patient and significant others.
10. What is the likelihood of success?

Likelihood of success is only possible if only if full cooperation is being given by the
patient and significant others by following the treatment regimen accordingly necessary
for the health care condition.
6. QUALITY AND COSTS
E. NATIONAL HEALTH INSURANCE PROGRAM Republic Act 7875

30
For foreign students they may discuss their own health insurance program available in their
country.
QUESTION:
A. Discuss the NHIP in terms of:
1. Purpose
2. Coverage
3. Nature
4. National Health Insurance Program Fund
(where, whom and percentage how the fund is appropriated)
1. PURPOSE
Promote health insurance coverage and ensure affordable, acceptable, available and
accessible care services. The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make essential goods, health and
other social services available to all the people at affordable cost.
2. COVERAGE
All citizens of the Philippines.
3. NATURE
Tax-exempt attached to the Department of Health for policy coordination and guidance.

31
4. NATIONAL HEALTH INSURANCE PROGRAM FUND
1. Contribution for program members.

2. Current balances of the NHIP from GSIS/SSS.
3. Appropriations by national and local government.
4. Donations/grants-in-aid.
5. Twenty-five (25%) of the increment in total revenues collected under RA7654 to be
appropriated solely for the NHIP.
6. Congress appropriation
B. Answer the following questions based on your readings on NHIP:

1. Several guiding principles were adopted in the pursuit of NHIP. Explain each one:
a. Allocation of national resources for health
b. Universality
c. Equity
d. Responsiveness
e. Social Solidarity
f. Cost Sharing
g. Professional responsibility of health care providers
h. Quality of services
i. Cost Containment

32
j. Maximum community participation
1. Several guiding principles were adopted in the pursuit of NHIP. Explain each one.
Allocation of national resources for health

The NHIP shall underscore the importance for bringing about faster economic development and
improving quality life.
Universality
The NHIP shall provide all citizens with the mechanism to gain financial access to health
services, in combination with other government health programs. The NHIP shall give the
highest priority to achieving coverage of the entire population with at least a basic minimum
package of health insurance benefits.
c. Equity
The NHIP shall provide for uniform basic benefits. Access to care must be a function of a
persons health needs rather than ability to pay.
d. Responsiveness
The NHIP shall provide for uniform basic benefits. Access to care must be a function of a
persons health needs rather than ability to pay.
Social Solidarity

33
The NHIP shall be guided by community spirit. It must enhance risk sharing among income
groups, age groups, and persons of different health status, and residing in different geographic
area.
Cost Sharing
The NHIP shall continuously evaluate its cost sharing schedule to ensure that costs borne by the
members are fair and equitable and that the charges by health care providers are reasonable.
Professional responsibility of health care providers
The NHIP shall assure that all participating health care providers are responsible and accountable
in all their dealings with the Corporation and its members.
The NHIP shall promote the improvement in the quality of health services provided through the
institutionalization of programs of quality assurance at all levels of the health service delivery
system. The satisfaction of the community, as well as individual beneficiaries shall be a
determinant of the quality of service delivery.
Cost containment
The NHIP shall incorporate features of cost containment in its designs and operations and
provided viable means of helping the people for health care services.
Maximum community participation

34
The NHIP shall build on existing community initiative for its organization and human resource
requirements.
2. A requisite for accreditation is the existence of a formal ongoing quality assurance

program (QAP). The objective of the program is to:
2.1 ensure health care professionals of accredited health care institution possess the
training and credentials to render quality health care services
2.2 Work towards the promotion of uniform health care standards
2.3 Ensure appropriateness of medical procedures and administration of drugs and
medicines consistent with generally accepted standards of medical practice and
ethics
3. During inspection the Phil Health monitors and verifies compliance to the requisite of a
Quality Assurance Program (QAP)
4. Gross violation of this QAP requisite shall constitute a ground for suspension/ revocation
of accreditation.
QUESTION: Identify 10 activities of the program (QAP) in each institution:
Reference: Rule XVII , section 92 of the Revised Rules and Regulations implementing the
National Health Insurance Act of 1995 (R.A. 7875). Activities of Quality Assurance
Plan specific for health care providers. (Or a more appropriate law existing in the
country where you are)
1. The proper review of credentials of individual health care professionals working in the health
care institution.
2. The provision of referral and practice guidelines for the health care providers.

35
3. A utilization review and monitoring scheme for the performance of health care provider.
4. A measurement of health outcomes and patient satisfaction including mortality, morbidity,
infection rates and other related activities.
5. A data gathering and retrieval system form the health records to support performance
monitoring and outcomes measurement activities.
6. A system of feedback to the health care professionals and mechanism for change in practice
patterns as needed.
7. The appointment of a specific person responsible for quality assurance in the institution.
8. The implementation of remedial measures to correct defects identified in the health system.
9. A documentation of regular meetings for members of quality circles or QAP Committee.
10. The documentation of processes installed.
F. MONITORING NURSING CARE QUALITY

Nursing often has taken the lead in patient care quality assurances by investigating the quality of
service delivered by practitioners.
QUESTION:
Briefly discuss the following issues related to the development of criteria and methodologies in
patient care quality assurance
G. Quality Nursing Care
A review mechanism should replace group accountability and care activities maybe tracked for
individual patients and compared against a set of clearly defined standards. Such a system
provided an excellent framework for quality assurance systems.
How can nursing establish an environment and structure that facilitates QA mechanism?

36
1. Communication through rapid and accurate data retrieval and analysis
An automated retrieval system through the use of sophisticated software. The system connects to
computer network and its easy to use interface ensures rapid access to information.
2. Technology such as bedside based automation, etc

These are used to improve patient care by enhancing operational efficiency, include systems for
physician order management, automated pharmacy retrieval, medication and supply dispensing,
nursing workflow automation at the bedside, and Web-based procurement. These solutions
enable healthcare facilities to reduce errors, operate more efficiently and decrease costs
ultimately contributing to improved clinical and financial outcomes.
These are equipment used in the hospital which provides easy handling of heavy weight patients
especially for bedridden patients.
Diagnostic and monitoring devices will be brought closer to bedside.
What are the advantages of automation in quality assurance mechanisms?

1. It can improve quality and cost-effectiveness of patient care and the morale of those rendering
the nursing care.
2. It can yield processing results in the nursing profession.
3. Assist nurses and other direct caregivers in performing their duties more efficiently.
4. Sets the stage for an accurate, objective, and dynamic patient classification.
5. Assist nurses in the selection of an appropriate problem list for each patient.
6. It can create patient care schedule management scheme.

37
7. It can perform clerical task instantly.
9. It can generate many quantitative and qualitative nursing care services.
10. It can assess all future care for the patient by tracking against the care plan and therefore
allow updates in reaction to individual responses.
H. CONTROLLING HOSPITAL COSTS THROUGH REGULATION Please explain each one

of these:
1. Phil Health Corporation created by the R.A. 7875 (NHIP)
This Corporation was created to adopt an integrated and comprehensive approach to health
development to provide uniform basic benefits to all people at affordable cost. It will deliver a
payment mechanism where fixed rate, whether per person, family, household or group,
negotiated by Corporation with a health care provider who shall deliver or arrange the delivery
of health services due to a covered person under the terms of a health care provider contract.
2. Budgetary Review
Re-examination, reconsideration and restudying the outputs or services provided by the program
on departmental area in determining the costs of these services.
3. Utilization Review
Refers to a formal evaluation of the necessity, cost appropriateness and efficiency of the use of
medical services, procedure and/ or facilities, on a prospective, concurrent or retrospective basis
including but not limited to examination of the clinical application of medical knowledge as
revealed by medical records.

38
4. Administered Prices (Preferred Provider Organization-PPO/ Health Maintenance Org.-HMO)

A preferred provider organization, which is a network of providers whose services are available
to enrollees at a lower cost than the services of non network providers. PPO enrollees may
choose any network provider at anytime.
A healthy maintenance organization (HMO), which is an entity that provides, offers or arranges
for coverage of designated health services needed by plan members for a fixed-pre-paid
premium.
Summary:
Health care providers should identify the inefficiencies that have developed in the industry,
largely because of the manner in which hospitals have been financed. Prospective Payment
(PhilHealth) is designed to encourage hospital administrators to manage the process in the most
cost-effective method possible while simultaneously assuring quality health care. Nurses have a
significant impact on quality assurance programs. Nurses are the only providers who directly
care for the patient 24 hours a day from admission through discharge. Therefore, they are in a
position to identify inefficiencies, redundancies, and omissions. Nurses must develop a formal
review mechanism that will trace the care of specific patients by specific nurses.
Resources:
http://www.philhealth.gov.ph/
http://www.ancient.eu.com/Stone_Age/
http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Industrial_Revolution.html

39
http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Information_Age.html
http://www.investopedia.com/terms/g/gnp.asp
http://www.wpro.who.int/philippines/areas/health_systems/financing/philippines_health_system
_review.pdf
http://whatis.techtarget.com/definition/cost-management
Culver, A. J. and J. P. Newhouse . Handbook of health economics.Amsterdam; New York:
Elsevier, 2000.
Davies, H. T. O., M. Tavakoli, et al. Quality in health care : strategicissues in health care
management. Aldershot, Hants, England ;Burlington, VT: Ashgate, 2001.
Davis, J. B. The social economics of health care. London ; New York:Routledge, 2001.
Detwiler Group. and Hatherleigh Company. Detwiler's directory of health and medical
resources. New York, NY: Hatherleigh Press, 1997.

40

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ADVANCED HEALTH CARE ECONOMICS

St. Paul University Philippines

ANUNCIACION T. TALOSIG, DNS

ANA MARIE BESA BATTUNG

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

The economic perspective in usefulness in the context of health care:

ADVANCED HEALTH CARE ECONOMICS

a. Effective Medical Technology

b. Low Risk of Death such that improving Health is worthwhile

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

MORTALITY: TEN (10) LEADING CAUSES

Number Rate Number Rate

2. Diseases of the Vascular System

ADVANCED HEALTH CARE ECONOMICS

6. Tuberculosis, all forms

7. Chronic lower respiratory diseases

9.Nephritis, nephrotic syndrome and nephrosis

10. Certain conditions originating in the perinatal

Note: Excludes ill-defined and unknown causes of mortality

ADVANCED HEALTH CARE ECONOMICS

BUDGET FOR PERCENTAGE

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

7. Fee for service reimbursement

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

ADVANCED HEALTH CARE ECONOMICS

Standard Cost profile

ADVANCED HEALTH CARE ECONOMICS

Patient Classification System (PCS)

ADVANCED HEALTH CARE ECONOMICS

B. WHAT IS COST MANAGEMENT?

It is an ongoing process of planning, monitoring and controlling operations to meet

There are 5 functions of cost management systems:

ADVANCED HEALTH CARE ECONOMICS

Performance reporting on a functional level

WHAT IS COST MANAGEMENT?

ADVANCED HEALTH CARE ECONOMICS

Performance reporting on a functional level

ADVANCED HEALTH CARE ECONOMICS

C. WHAT IS SETTING PROCEDURE STANDARD COST PROFILES?

QUESTION: Final Product Nursing Care

Final product Nursing Care

1. What are the clinical nursing needs?

2. What is their prevalence?

ADVANCED HEALTH CARE ECONOMICS

4. What are the therapy options?

5. What are the costs of developing or continuing to develop the product?

6. What are the costs of producing the product?

ADVANCED HEALTH CARE ECONOMICS

8. What new information must be learned?

9. What are the critical success factors?

10. What is the likelihood of success?