Complete the \”NUR-621 Economic Theories and Models in Health Care\” worksheet. This assignment explores the efficiency and components of current health care models.
Your responses should be based on evidence. Include references to your textbook and one scholarly article.
While APA style is not required for the body of this assignment, solid academic writing is expected, and documentation of sources should be presented using APA formatting guidelines
NUR-621 Economic Theories and Models in Health Care
The purpose of this assignment is to describe economic theories and models in health care. Include your responses in the worksheet listed below and base your responses on evidence. Include references to your textbook and one scholarly article. The four theories/models are listed below.
Theories/Models |
Description/Definition | Example Related to Health Care | Components |
| 1. Efficiency | |||
| 2. Supply and Demand | |||
| 3. Economies of Scale
|
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| 4. Market Failure |
NUR-621 Economic Theories and Models in Health Care
Theories/Models |
Description/Definition | Example Related to Health Care | Components |
| 1. Efficiency | As organizations strive to achieve their missions and goals, part of their primary objective is to obtain the best value for the money invested into the business. Asamani et al. (2021) define efficiency as a measure of whether an organization is using its resources in a manner that generates the best value for money. An organization that chooses to adopt the efficiency model must be ready to make choices that yield the best outcomes from the resources it allocates. Basically, efficiency occurs when an organization can comfortably allocate its resources in a manner that can maximize the outcomes generated. | In health care, medical facilities ensure efficiency by maximizing the health of patients or populations using a certain amount of resources. It is a measure of the degree to which healthcare organizations put resources into good use to achieve the desired health outcomes for patients and populations (Asamani et al., 2021). For example, efficiency occurs in a health care organization that is achieving its goal of discharging an average of 20 patients per day at a cost of $400 with all these patients having good health outcomes without requiring frequent readmissions. | The three components of efficiency are technical efficiency, productive efficiency, and allocative efficiency (Asamani et al., 2021). The type of efficiency that relates to physical resource inputs with health outcomes is known as technical efficiency. For example, technical efficiency is achieved when a small amount of input can generate the maximum possible improvement in outcome. On the other hand, a healthcare organization achieves productive efficiency when it can maximize health outcomes for a given cost (Asamani et al., 2021). Allocative efficiency focuses on resource allocation in a manner that distributes outcomes among populations in the community. It is achieved when a healthcare organization allocates resources to maximize benefits for members of the community (Asamani et al., 2021). |
| 2. Supply and Demand | Supply and demand are important economic concepts. Demand is defined as the quantity of a commodity that consumers are willing and able to buy at different prices over a given period of time (Santana et al., 2021). Supply is defined as the amount of a resource that producers are willing and are able to provide to potential users over a given period of time. There is an inverse relationship between demand and supply. According to the law of demand, buyers will demand less of a commodity when prices are high. On the other hand, the law of supply holds that producers will supply more of a commodity when the prices are high (Santana et al., 2021). | Concepts of supply and demand are applicable to health care. In healthcare, demand is the nature of health care services that patients require to address their health needs at affordable costs. On the other hand, is the number of healthcare providers that a facility is able to avail to patients who need healthcare services (Santana et al., 2021). When patients visit a healthcare facility, they always expect that the hospital will provide them with professionals to administer the needed interventions. The benefits of healthcare services must exceed costs for patients to continue to consume such services (Santana et al., 2021). | The components of demand include consumption, government spending, investment, and net exports. Consumption increases demand for healthcare services. This influences the government to spend and invest more in the production of healthcare services to meet the existing demand. Demand for a commodity or service increases when there are positive net exports (Santana et al., 2021). Supply has five components namely planning, sourcing, inventory, returns of goods, as well as production and transportation (Santana et al., 2021). |
| 3. Economies of Scale
|
According to economies of scale theories, the cost per every unit of commodity produced reduces as more and more units are produced (Bernet & Singh, 2016). This assumption enables organizations to spread fixed costs over more units of commodities. This strategy helps them to reduce per unit costs. As more and more units are produced, organizations are able to achieve greater specialization of staff (Bernet & Singh, 2016). | Economies of scale apply to healthcare just like other organizations. For example, a rural-based hospital might not have enough patient volume for a full-time mental health nurse and a nurse educator. To decrease per unit costs and achieve economies of scale, the facility can hire 1 person to perform both roles instead of hiring two different professionals (Bernet & Singh, 2016). | The two main components of economies of scale are internal and external economies of scale. Internal economies are those that can be controlled by the management of an organization. An example is the large size of a healthcare organization that enables it to treat many patients (Bernet & Singh, 2016). On the other hand, external economies are influenced by factors that are external to an organization. Examples of factors that influence external economies include the government, the industry, and the geographical location of a business. An example is flexible government regulations that allow a healthcare organization to operate within a certain geographical location (Bernet & Singh, 2016). |
| 4. Market Failure | Market failure is a concept that is used to describe a situation whereby there is an inefficient supply of commodities in the free market. During market failure, there is a great difference between the quantity of goods supplied to the free market and the quantity of goods demanded by consumers (Bryan & Williams, 2021). Economic value is lost in a market failure situation. A state of equilibrium between demand and supply is usually determined by the price mechanism. The inability of the price mechanism to account for the benefits and costs required to supply and consume a commodity result in an economic situation referred to as market failure (Bryan & Williams, 2021). | An ideal market situation in the healthcare industry is where the provision of healthcare services is efficient in that it is done at the lowest possible cost. At the same time, patients and the community normally get the best value for their money from the services they are receiving from their providers (Bryan & Williams, 2021). However, during market failure, the market is distorted in such a way that the system is unable to locate or distribute resources effectively such that there is a waste in the production and consumption of healthcare services. For example, when the number of healthcare workers in a healthcare organization exceeds the patient volume received by that facility. This can result in a waste of production leading to market failure (Bryan & Williams, 2021). | The two components of market failure include inefficient allocation of resources and a state of disequilibrium between supply and demand. When there is inefficiency in resource allocation, there is either a waste in the production of services or consumers will be unable to obtain value for their money. The disequilibrium between supply and demand causes a situation that cannot be corrected by market forces (Bryan & Williams, 2021). |
References
Asamani, J. A., Alugsi, S. A., Ismaila, H., & Nabyonga-Orem, J. (2021). Balancing equity and efficiency in the allocation of health resources: Where is the middle ground? Healthcare, 9, 1257. https:// doi.org/10.3390/healthcare9101257
Bernet, P. M., & Singh, S. (2016). Economies of scale in the production of public health services: an analysis of local health districts in Florida. American Journal of Public Health, 105 Suppl 2(Suppl 2), S260–S267. https://doi.org/10.2105/AJPH.2014.302350
Bryan, K., & Williams, H. (2021). Chapter 13: Innovation: market failures and public policies: Handbook of industrial organization. Elsevier, 5(1), 281-388. https://doi.org/10.1016/bs.hesind.2021.11.013.
Santana, I., Mason, A., Gutacker, N., Kasteridis, P., Santos, R., & Rice, N. (2021). Need, demand, supply in health care: Working definitions, and their implications for defining access. Health Economics, Policy and Law, 1-13. doi:10.1017/S1744133121000293.