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HEALTH CARE

ECONOMICS
(AN EXPRESSION OF CARING FOR ALL
CITIZENS)

A Learning Package
by:
Mrs. Marilyn D. Junsay, MSN., RN.

presented by:
Ms. Leviene V. Divinagracia, MM
• Health care is something that touches our
lives.

• Everybody visits the doctor, dentist, or


traditional herbalist, and many of us are
treated in the hospital. Yet, health care
seems to be an almost permanent crisis.

• The government keeps on talking about


“Health for all Filipinos” yet, there are
shortages of hospital beds, health care
providers, supplies and equipment.
Why do people
demand health
care?
• People want to be healthy
– This desire to be healthy has led to the demand
for health care

 All health care providers must


have a clear understanding of
the economics of care.
• Economics deals with the efficient allocation
of scarce resources
– It determines which of the alternatives in health care
represent the most efficient use of resources.
– Health care providers must determine whether the most
efficient allocation is also socially, ethically and morally
acceptable.
– Health care providers (physicians, nurses, midwives,
dentists, medical technologists, health aid, diet
therapists, nutritionists, health technicians and other
health and medical auxiliaries) must make their
concerns known to political leaders or officials who
shape the health care system.
– The health care policy and economics are linked and
therefore health care providers must increase their
knowledge regarding economic principles and the ways
these principles affect the health of the nation.
ECONOMICS and HEALTH
ECONOMICS
• ECONOMICS - The study of the
distribution of scarce resources across
a population.
– It is the science concerned with the ways
society allocates scarce resources
commonly known as goods and services.
• HEALTH ECONOMICS – The study of
the distribution of health care.
• Examples of health care economic
environments
Individual consumers
Insurance companies
Employers
State and federal governments

• Examples of resource inputs


Labor
Capital
technology
• Resources are considered scarce
when society demands more
resources and goods than are
generally available.
– It cover all inputs used to produce goods
and services.
• Scarcity has two sides:
The infinite nature of human wants
The finite or limited nature of resources
available to produce goods and servic
• MACROECONOMICS
– In healthcare, the macroeconomic market
is the entire country’s health care system
including the way that it performs in
terms of profit, loss and efficiency.
– Macroeconomics of health is concerned
with parallel sets of large – scale system
issues concerning:
• Spending for employment and other aspects
of health as part of the economy.
• Biological health status: longevity / fertility /
productivity
• MICROECONOMICS
– This is about how individuals choose, minimize costs
or maximize profits or wealth or utilities within a
given trading system subject to a set of rules and
prices.
• ECONOMIC POLICY
– The course of action intended to influence or control
the behavior of an economy.
– It is implemented and administered by the
government.
• FINANCING
– The amount of money that flows from payors to an
insurance plan, either private or government.
• REIMBURSEMENT
– The flow of money from the insurance companies to
providers or hospitals.
The Health Care Market
System
• Market – a place, situation, or a procedure. It is a
mechanism by which buyers and sellers get
together to exchange goods and services including
health care.

• Supply and Demand – is a microeconomic theory.


– Demand is the buyer’s willingness to purchase a
particular product or service.
– Supply is the seller’s willingness to supply a particular
product or service for a price.
• A market for health care involves two groups:
the buyers and sellers who interact to trade
healthcare.
• Everybody then is a potential buyer
(consumer) of healthcare.
– A buyer is anybody who was ill or who wanted
preventive medical treatment or who wanted
information about their health.
– The sellers are the providers of medical and
health care services such as doctors, nurses,
physical therapists, dentists, medical
technologists, nutritionists, health technicians,
health aids/auxiliaries and other personnel in the
healthcare fields.
– Price is the quantity of something that is
required in exchange for something else. It
is generally expressed as a monetary unit
of exchange.
• Supply of healthcare refers to the availability of
resources for the delivery of health services.
Resources include:
– Health care facilities, Human resources and Financing

• Healthcare facilities – while hospitals


continue to be the primary facility for the delivery of
healthcare, economic pressures have resulted in the
closure of many traditional hospitals and the
emergence of alternative delivery facilities such as
managed care organizations, ambulatory care centers
and home health care. (Stoneline &Weiner, 1993)
• Human Resources – health personnel
have grown substantially in the past years, still
distribution inequities continues to persist
especially in the rural areas. Such inequities
provide opportunities for advanced practice
nurses to practice in areas where there are large
groups of medically under-served individuals.
• Financing – this is primarily provided by
either private or commercial insurance
companies or by public entitlement programs like
Medicare and Medicaid.
Healthcare Economic
Terms
• Capitation – amount established to cover the
cost of healthcare services delivered to a person for
a specific length of time, usually one year. This
usually refers to a negotiated, per capita (per
person) rate to be paid periodically by a managed
care organization to a healthcare provider.
• Case Management – the process whereby all
health related matters of a case are managed by a
physician or nurse. Nurses, physicians and case
managers coordinate designated components of
health care such as appropriate referrals to
consultants, specialists, hospitals and services.
• Co-payment – is a cost sharing arrangement
whereby the person who is insured pays a specified
charge.
• Diagnosis-Related Groups (DRGs) – is a
prospective cost reimbursement classification
system for in-patient services based on diagnosis,
age, sex, and the presence of complications. It is
used as a means for both identifying costs for
providing services associated with a given diagnosis
and reimbursing hospitals and providers for services
rendered.
• Fee for service – a payment system whereby
nurses, physicians, hospitals and other healthcare
providers are paid a specific amount for each service
performed as it is rendered and identified by a claim
of payment.
• Managed Care – the external monitoring and co-
managing of an ongoing provider-client relationship to
ensure that the provider delivers only appropriate care.
• This is seen as a means to control costs while also
maintaining quality and access to appropriate care.
• This is also a mechanism for introducing competition into
the health care market and thereby making the health
care market respond in the expected fashion to the supply
and demand cycle.

• Can Health Care Costs be


Contained?
• Cost containment – means to keep costs within
acceptable limits.
• It involves cost awareness, monitoring,
management, and incentives to prevent, reduce
and control costs.
• Four (4) Major Contributors to
Escalating Medical Costs
• Overcapacity of hospitals
• Surplus of highly specialized
providers
• Financing of healthcare services
• The role of healthcare consumers
• Hospitals – confinement to tertiary private hospitals is a nightmare.
– An ordinary influenza with no complications with confinement of 5 days without
Medicare or health insurance will cost you P8,000-10,000.
– A few hours of admission in the Emergency room will already slash your pocket by
P1,000 -3,000.The patient pays for the “state of the art” phenomenon in private
hospitals. Government hospitals likewise are getting expensive.

• The surplus of highly specialized providers (Physicians’


influence on healthcare costs):
• Although fees charged by physicians for services account for only 20% of medical costs,
decisions made by physician represents 80% of expenditures.
• Physicians make decisions on when patients are to be hospitalized, for how long, and
treatments to be employed.
• FACTORS contributing to the escalating costs of health care:
– the high income of physicians and greater physician specialization
• The financing of Healthcare Services
– Who will finance? The patient, the patient’s family,
Medicare, Medicaid, the Health Maintenance
Organization (HMO) and other prepaid insurances.
– Medicare is a federal government sponsored
health insurance for the elderly and other clients
with chronic illnesses.
– Medicaid is a federal state cooperative health
insurance plan for the financially indigent.
– In the Philippines, once you are a government
service insurance system (GSIS) or social security
system (SSS) member, you are automatically
covered by a compulsory insurance called Medicare.
The Medicare as such is replaced by the so-called
National Health Insurance or the Phil Health
Insurance.
• The Role of the Health Care Consumer
– A consumer is a person who uses a commodity or a
service. All of us are consumers of health care
commodities and services. It is our choice whether
to settle for less or settle for an optimum value
especially when illness and financial considerations
affect our decision and personal choice.
– Consumers prefer to seek healthcare from
professionals they know or have previously
consulted.
– Some may not seek treatment or hospitalization
because of fear and denial of symptoms
– Some may have financial difficulties and thus have
difficulties in obtaining healthcare.
– Our knowledge of health and disease frequently
affects the way we seek healthcare.
Other Factors Causing the Upward
climb of Health care:
• The cost of new technology
• Construction of new facilities
• Growth in specific population groups – such as the
elderly – requires a health care on a regular basis.
• The surging cost of physicians’ fees
• Lack of competition in the health care field
• Rising cost per volume of service (CPVS)- is the cost
associated with a particular volume of service.
• Per capita increase in volume of services (PCIVS) –
is the increase in client days in hospital, client visits
in an ambulatory clinic, or home visit to the
community health agency over a one-year period.
• Advanced technology
• Client complexity
– Incidents or variances – that may delay the patient’s
discharge, increase cost or alter the quality of care.
– Uncompensated care – refers to the personal health
care rendered by hospitals or other providers without
payment from client or government-sponsored or
private insurance program.
– Health care fraud – “FRAUD” as defined by the
Medicare program, as the deliberate deception or
misrepresentation of an individual who also knows
that the deception could result in some unauthorized
benefits him or some other persons.
• Examples of the most common forms of fraud:
– Billing service not furnished
– Misrepresenting the diagnosis to justify payment
– Soliciting, offering or receiving a kickback
– Unbundling or exploding charges
– Falsifying certificates of medical necessity, plans of treatment
and medical records to justify payment.
– System variance – due to omission in the hospital
system. (e.g. when the patient has to wait for long
hours in the admitting department for a vacant bed
or room, thus, a diagnostic procedure is delayed for
another day.
Health Service
Organizations
• Health Service Organizations are
formed to deliver care through varied
organizations created and influenced
by both the way the clients choose to
finance and pay for that care and the
technology available.
Public Health System
• It is intended to protect the community
against the hazards of group living.
• Some examples of State and local Public
Health programs:
– Public health and primary health care services
– Mental health hospitals and health services
– Nursing home care
– Monitoring, data collection and epidemiological
assessment
– Development, implementation of health laws
Primary Health Care System
• Primary health care as an organization
movement officially began at the 30th world
health organization (WHO) assembly in 1977
with the adoption of the resolution identifying
the goal of health attainment that would
enable the citizens of the world to live socially
and economically productive lives.
• It is defined as essential care made universally
accessible and available to individuals and
families within a community, with emphasis on
health promotion, disease prevention,
community involvement, multi-sectoral
cooperation and at a cost that the community
and the country can afford. (WHO, 1978)
Health Care Delivery
•Hospitals Settings
• Ambulatory care – is a care delivered in an
office or other setting and at the time and
place of the client’s choosing.
• Ambulatory surgery
• Home health care
• Long-term care facilities, Home and
Community based care
– Nursing homes
• Hospice care – is a specific type of care designed for
terminally ill patients who choose to spend their
remaining days at home or in a home-like setting
rather than in an institution.