Economics and health care

Economics and Health Care

Economics provides a structure for becoming aware of fixed cost and variable costs, competition, market demand, and profitability. It assists the managers to concentrate on primary concerns and devise broad approaches for accomplishing the objectives and it impels them to respond to the ideas that influence their functioning and provide sufficient scope for improvement. The theories of economics provide principle for addressing competition, understanding costs and becoming aware of the real value of the goods and services. The application of such economic principles in the field of health care is quite evident. Even amidst a not-for-profit hospital setting, there still exists a necessity to maximize the revenues and to reduce costs. It has become the coveted goal of the managers and health care providers to devise methods so as to become low-cost providers without being forced to lower the quality standards.

Common people, from the common sense perspective, believe that it is not possible to buy and sell health care like other goods and services. Economists, however, analyze and differentiate the health care and market from a theoretical perspective, with use of the market failure theory. The economists visualize that markets fail due to lack of perfect information on right goods at the lowest possible cost. In case of health care severe information problems are being confronted that makes the rational purchasing decisions difficult. It is to be noted that is not always effective and possible that the patient is in a position to explore all the possible available ways of treating oneself and hence finds it really difficult to choose from amongst the most cost effective approach which would be most appropriate. The medical information is technically filled with complexities that it is not possible to be understood by a layman and this is made worse by the fact that several illnesses do not repeat again. Besides the health care has strong externality influences than that of other goods and services. The cost of caring a sick person may entail heavy financial burden on the patient's family.

In the real world markets for other goods and services tends to approach towards market perfection that assumes a strict set of conditions such as, perfect information, several sellers and buyers, a uniform type of product and freedom to enter and exit that makes certain that the firms producing the goods and services are only price takers, which are producing at the lowest probable cost in the long run and only capable of earning normal profits. The market fails when the producers have the authority to considerably influence the price or the total amount of quantity being produced. Doctors and other suppliers of health care sometimes have such enhanced authority. Moreover, the healthcare faces the problems of risk and uncertainty. Purchasing health care in a free market involves requirement of sufficient money to pay for it.