Economics of Healthcare
The American Medical Association can improve the quality of physicians by making adjustments to the licensing policies, for example, through the use of profiling technology. In theory, the licensing board is capable of profiling doctors, assessing their level of quality in service delivery, improving their performance, and identifying physicians who are competent enough to continue providing services. If complete patients’ database is available, AMA could use this to enhance the way it handles complaints by accessing the database for physicians suspected to be incompetent and establishing if the claims are valid. AMA could also use profiling during the renewal of licenses. Physicians’ profile can be an objective criterion in determining whether their licenses should be renewed (Ginsburg & Moy, 2020). There are several private organizations concerned with the quality of physicians, and they can also make use of profiling in alerting AMA about any doctor providing substandard services. AMA could also come up with research-based guidelines that have proven to be effective. More information about particular procedures is essential, and this can go a long way in guiding physicians on how they can be more productive. Most of the guidelines presently available are not explicit and lack substantial literature background. AMA should also seek the federal government’s support in improving the quality of physicians. The government can guide and also assist in developing guidelines. AMA should change licensing policies that lead to a reduction in the number of physicians since the output of physicians is not dependent on the market variables as seen in other professions
By reducing the cost of healthcare, insurance makes it possible for people to access quality services without having to facilitate the full price. Being aware that they have insurance, individuals end up going for services they wouldn’t go for if they were required to pay the entire cost (kazantseva, 2020). The homoeconomicus concept state that any rational person is likely to make the most out of utilities if given the opportunity. Individuals do not restrain themselves from overusing medical care since they know the burden is lessened by others who’ve purchased the insurance. However, an alternative school of thought has viewed the high utilization of health services as selfish and immoral as people are supposed to be socially responsible. Increased usage of health services due to lowered cost is known as a moral hazard. Moral hazard is, therefore, an important aspect that is always given serious consideration during the formulation of health insurance systems. Moral hazard can either be internal or external. Internal moral hazard can either be in the form of ex-ante or ex-post moral hazard. Ex-ante moral hazard is whereby the insured makes decisions that increase the risk of falling sick before the occurrence of illness, for example, not making any effort to prevent sickness or living lifestyles that lead to poor health status. Ex-post moral hazard, on the other hand, is whereby actions were taken after the occurrence of sickness lead to increased medical bills, for example, the choice of treatment approach. Cost-sharing is one of the effective strategies in minimizing moral hazard in health insurance.
The employment rate in the U.S. during the 2008-2010 period declined by around 5.1% while that of healthcare steadily rose by 6.4%. The healthcare industry’s employment growth is independent of the overall economic growth, and it has been able to provide job opportunities when the economy is not doing well. The healthcare sector is less affected because the nature of supply and demand greatly differs from that of other industries. Health services needs are essential, and the methods used to pay for medical services allow the industry to grow in terms of employment rates consistently. Healthcare Service providers usually get paid by either privately-owned third-party organizations meaning that in most cases, the payment for health expenses is not direct. Paying through third parties makes the cost of services cheaper, and therefore the cost of healthcare becomes a less significant factor in determining healthcare demand (David, 1992). since the demand is not affected, the supplier is under no pressure to reduce the cost of providing services through, for example, laying off workers. Resources used to run healthcare have consistency in supply. They cannot be used for any other purpose aside from health insurance facilitates healthcare service provision, and the fare only restricted to health. Healthcare needs cannot be substituted or pushed to a further date and must regardless of the economic state. Healthcare demand cannot be reduced due to changes in the economy and can even increase because of the emotional distress that comes with economic downturns.
Prescription and non-prescription pharmaceuticals have an equal share in terms of volume, but prescription pharmaceuticals receive more revenue than non-prescription medicines by almost six times. Prescription drugs are highly-priced, and this is because the government has allowed pharmaceutical companies and organizations to have a monopoly. Pharmaceutical companies claim that prescription drugs are costly because of the high costs required for research and development. The companies spend between 13-16% of their revenue in promoting research and development(Blackstone, 2004). Only 11% of the that make the cut for clinical trials and get approval for entering the market. One test can cost as much as a hundred million U.S. Dollars, and considering other extra costs; the total can even reach a billion Dollars. Advertising and promotion are other aspects of prescription drugs that require a lot of money, and 20 t0 35% of the revenue is directed towards these activities. Another factor that makes prescription drugs costly is the fact that the Food and Drug Administration is known to block generic drugs from getting into the market. For example, in 2016, the FDA blocked 4036 generics from introduction to the market, which is very different from the European Medicine Agency, which only blocked 24 generics. Generic drugs’ presentation to the market results in reduced spending by the patient. This outcome is mostly because of an increase in competition, which regulates the prices. Lack of transparency also allows prescription pharmaceuticals to make more profits since the price is mostly dependant on who the buyer is and many other variabilities.
Revenue risk is an event that is likely to occur or conditions that can harm revenues in the future. This risk is inclusive of factors that are beyond anyone’s control, such as the state of the economy. Revenue risk management is a critical aspect of healthcare, as it is a tool to mitigate any form of financial loss. Proactive risk management is one of the strategies used by healthcare providers that focuses on preventing rather than solving risk problems (Moskowitz, 2020). This method’s application is through sharing information to every single department, which results in reduced patient risks, reduced cost, and a more efficient process that minimizes the occurrence of malpractice crises. Healthcare providers also have risk managers who have experience in dealing with revenue risk problems. They analyze whether particular approaches used for treatment have the potential of harm, and if there is any way they can be adjusted to reduce risk. The Healthcare sector also makes use of the risk management ladder concept, which involves the identification of priorities. This approach entails pointing out the possibilities of certain events occurring and determining the impact(Moskowitz, 2020). safety always comes first in the list of priorities, but finances are also put into consideration. From there, mitigation strategies become easier to formulate. Healthcare providers make an effort to reduce malpractice claims and also make their communication with insurers much better to get more points and lower the total costs.
Externalities can be termed as an effect on a third party. the third party has no control over the development of these effects. Externalities can either be positive or negative and can come from either consumption or production. These costs or benefits can be on a personal or social organizational level. When it comes to public health, people’s actions affect other people’s health. If these implications are positive, they are termed as positive externalities. If a person gets the yearly influenza vaccine, it results in a positive externality. As much as the person protects him or herself from contracting the flu, it also protects other individuals around that person from getting the flu and, therefore, the decision to take the vaccine protects the entire social organization from getting sick and this is an example of positive externality(white, 2018). Research showed that influenza vaccination led to low mortality rates. National wise, an increase in vaccination was proven to reduce the number of deaths by around 807 people. This benefit would affect most people who are over 75 years of age. It was also evident that the vaccine reduced disease-related absenteeism in workplaces. The study showed that an increase in the vaccination by one percent would result to approximately 15 million reduction in working hours lost due to illness. In terms of the economy, each vaccination results to not less than 64 USD contribution when the social benefit angle is used and 98 USD contribution ion terms of reduced absenteeism(white, 2018)
References
David R. H. Hiles, “Health Services: The Real Jobs Machine,” Monthly Labor Review, November 1992, p. 3, https://www.bls.gov/opub/mlr/1992/11/art1full.pdf
Ginsburg, P., & Moy, E. (2020). Physician Licensure and the Quality of Care: The Role of New Information Technologies. Retrieved 5 May 2020, from https://www.cato.org/sites/cato.org/files/serials/files/regulation/1992/10/reg15n4
kazantseva, O. (2020). GRIN – Moral Hazard Effects in Health Insurance. Retrieved 4 May 2020, from https://www.grin.com/document/276825
Moskowitz, D. (2020). The Importance of Healthcare Risk Management. Retrieved 5 May 2020, from https://www.investopedia.com/articles/personal-finance/072315/importance-healthcare-risk-management.asp
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