Technological Solutions Health economics questions

What are the two basic tools of economics? Give an example of each with respect to health, medical services, and hospitals.

The two basic tools of economics are marginal analysis and optimization techniques and supply and demand analysis. Marginal analysis and optimization techniques underline the fact that economics is the science of studying scarce resources. Only though setting specific criteria when deciding how to use scarce resources can costs be minimized and outputs be maximized. In the field of healthcare such analysis is particularly critical, given that hospitals must often make decisions about what types of technology to spend money on and which types of specialists to hire, based upon the needs of the population. Health insurance agencies are famously criticized for refusing to cover specific procedures because they deem less costly measures to be equally effective, even if the patient or his or her doctor feels otherwise. Finally, one problem which may arise is that an organization may ineffectually use data when making decisions about resources, such as using data from the organization's past which fails to take into consideration new technology.

The second tool is that of supply and demand analysis. Organizations try to predict whether supply or demand will increase when making decisions about pricing and offered services. For example, new technology can create more demand for treatment of formerly untreatable conditions at a hospital. A decrease in the supply of nurses can force the organization to reallocate its resources and try to attract more new nurses. Deciding how much flu vaccine will be needed requires the organization to specifically anticipate a level of supply. And even health insurance organizations must anticipate demand of their neediest policyholders, which will hopefully be offset by less of a need for care from customers who are healthy.

Q2. What are the various purposes that prices serve? Can you provide an example of how...

Prices in an economic sense should reflect the costs of production and the demand for the product. However, the healthcare market is structured differently than conventional markets. "Technological advances go hand in hand with productivity gains in most industries, but in medicine, better technology almost always means higher expenses" (Arnst 2008). Technology is more expensive, but in healthcare, having a better screening device will not necessarily reduce costs. In fact, it might increase costs because this means that cancer can be found and thus must be treated in patients earlier and earlier than ever before.
While many Americans still do not have health insurance or are under-insured, patients that do have comprehensive plans tend to over-consume what they need, given that they are not subjected to the need to pay for their benefits given of their employer-provided health insurance (Arnst 2008). Thus, if the patient's insurance company pays for screenings that may or may not be necessary, the consumer is likely to take such tests, rationalizing that there is no harm or financial cost in not doing so. This increases the potential rate of false positives and encourages overconsumption of procedures of dubious value to the patient. Healthcare organizations may find themselves, because of cost pressures, thus offering more procedures and treatments for patients that are likely to have insurance (such as ageing baby boomers) and ignoring the needs of patients who do not or who have Medicaid, which traditionally reimburses doctors at a much lower rate than private insurance.

Q3. Show how an increase in the quantity of medical care consumed can be achieved through either a demand or supply subsidy. What are the advantages and disadvantages of general vs. targeted demand and supply subsidies?

If patients receive subsidies for antibiotics and flu shots, they are more likely…