Lessons for Public Policy Essay

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Healthcare Public Policy

Lessons in public policy

Two economic principles in healthcare organizations

Healthcare organizations, like all economic entities, are subject to the principles of economics in terms of the way they operate. However, the degree to which classical economic theory is reflected in the real world can be controversial, as manifest in the application of two, basic economic ideas, that of opportunity costs and efficiency.

Opportunity costs

Economics has been called 'the dismal science' because it is based upon the principles of scarcity. Within every organization, there is a trade-off when making decisions about alternative uses for resources, both financial and human. Often several options can potentially yield beneficial results. The organization must decide, however, what options are the best -- either for the neediest populations or for the largest percentage of individuals served.

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The notion of opportunity costs can perhaps be seen most starkly in the instance of the nursing shortage that so many healthcare organizations are confronting. When the numbers of nurses are relatively few, they must be directed to perform high-priority tasks, even though the individual nurses might prefer to take more time to spend getting to know patients. Nurses are often forced to work long, grueling shifts to make up for their scarce numbers, which further saps their energy and forces them to be highly efficient in the way they allocate their time to their patients. Some patients feel pressured to pay for private nurses, given that they fear they will not receive sufficient attention from their caregivers.

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Not only are nurses fewer in number: another pressure upon their workload is the fact that to reduce the costs of hiring physicians, nurses are performing more specialized tasks once accorded only to physicians. To cut costs, other organizations are reducing the funds spent upon nurses and using nurse's aides and physician's assistants to perform less critical nursing functions. "The U.S. continues to face an aging nursing workforce and an explosion in the need for skilled nursing, as the baby boom generation starts to retire, and health care and care technology grow increasingly complex" (What is the nursing shortage and why does it exist, 2007, Center for Nursing Advocacy).

Technology is another example of how opportunity costs operate: improved technology has increased the demand for more specialized knowledge on the part of all healthcare providers, yet some organizations strive to use technology to reduce some of the numbers of healthcare workers needed to serve patients. The allocation of funds upon new technology must be balanced against the potential savings of labor costs, as well in terms of how it may improve patient's lives.

When setting priorities for an organization, most healthcare institutions review the organization's mission, the most critical needs of the population the organization is designed to serve, and the financial as well as the clinical impact of what specialties to emphasize and what patients to serve. Some organizations find it challenging to adequately serve Medicaid recipients, for example, as reimbursements for these patients under this government insurance plan for individuals living below the poverty line has traditionally not been as generous as those for other insurance plans. While rates vary between states, "Medicaid reimbursement rates for physicians are very low -- on average, just 69% of Medicare rates," and even lower when compared with private insurance companies (Maher 2008). This has motivated some hospitals not to accept Medicaid patients; other hospitals regard it as their duty to do so.

For other hospitals, choosing to specialize in particular procedures may reflect the demographic composition of the area. A hospital located near many assisted living communities may choose to focus on eldercare, for example, or an institution located within or near a university might choose to focus on disorders currently being researched at the university. Specialization of institutions does not invariably result in compromised care if there is adequate access to a variety of healthcare facilities in the area. However, in rural locations, where access to any type of healthcare can prove challenging, there may be an added ethical question regarding the impact of limiting certain services. Regardless, no healthcare institution can be 'all things to all people.

"An evaluation of the normative 'rightness' depends to some extent on the specific institutional circumstances under which priority setting is taking place, the stakeholders who are affected, and the strategic goals that are being pursued," as well as the great societal impact when evaluating opportunity costs when allocating financial and human resources (Gibson et al. 2004). Still, increased funding for nursing education, to expand the available pool of nurses to the public, and making Medicaid reimbursements more comparable to private insurance would both improve care and lesson the need to make economic trade-offs. The first measure would improve care by enabling nurses to provide more personalized services; the other would act as an incentive for institutions to accept more Medicaid patients.


A more questionable economic notion in the field of healthcare is the notion of efficiency, or the idea that markets eventually 'correct' themselves to reach a state of relative optimization in terms of their use of resources. A lack of health insurance can force individuals to use the emergency room for primary care, where they cannot be turned away. This creates a tremendous drain upon the system in terms of financial as well as human resources.

Patients often lack or do not receive appropriate counseling regarding lifestyle choices from a physician, and only receive care after their condition has become acute. For example, gallstones can frequently be alleviated with dietary changes. "But increasingly…surgeons simply operate. The patient wasn't going to moderate her diet, they tell themselves. The pain was just going to come back. And by operating they happen to make an extra seven hundred dollars" (Gawande 2009:2).

Increased expenditures on healthcare are not often positively associated with improved outcomes. Spending in Rochester, Minnesota near the Mayo Clinic "has fantastically high levels of technological capability and quality, but its Medicare spending is in the lowest fifteen per cent of the country -- $6,688 per enrollee in 2006, which is eight thousand dollars less than the figure for McAllen" in Texas, which has one of the highest expenditures on healthcare in the nation. (Gawande 2009:3). In fact, "the more money Medicare spent per person in a given state the lower that state's quality ranking tended to be…patients in higher-spending regions received sixty per cent more care than elsewhere. .. Yet they did no better than other patients, whether this was measured in terms of survival, their ability to function, or satisfaction with the care they received. If anything, they seemed to do worse" (Gawande 2009:3). When the focus is placed upon acute care, rather than primary care, costs escalate and patients suffer.

In the current financial system of reimbursement, the incentive is often for doctors to intervene with treatments they are sure would be reimbursed by insurance, but not to focus on primary care. For the neediest, sickest, and most expensive patients (from the point-of-view of the health system) often regular primary care is cheaper -- yet not compensated by insurance. Effective care is impossible if the individual is not capable of self-care and social work and mental health treatment is just as necessary as physical care, but psychiatrists and social workers are seldom covered by insurance. For example, one physician, describing the life of a man with out-of-control diabetes said: "You wouldn't grasp what the real problem was until you walked up the cracked concrete steps of the two-story brownstone…According to a state evaluation, he was capable of handling his medications, and, besides, he lived with his mother, who could help. But one look made it clear that they were both incapable" (Gawande 2011).

In an efficient system, this individual would have received counseling and support, so… [END OF PREVIEW] . . . READ MORE

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