Economics and Health Care: Understanding Economic Concepts and Funding Models

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ASSESSMENT 2
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1ECONOMICS AND HEALTH CARE
The purpose of this assignment is to understand the meaning of different economic
concepts, funding models and casemix based management information and will further discuss
the way these concepts applies in the modern healthcare system. The recent era is dealing with
several healthcare related issues that are affecting the state’s economy and affecting populations
because of differences in socio-economic status (Karanikolos et al. 2013). The economic factor
is primarily about increase in the healthcare related spending and effecting the relation between
spending growth and Australian economy complex and multifaceted (Folland, Goodman and
Stano 2016).
Allocative efficiency is the state of economy where the service is optimally divided
between consumer and service provider (Holmes, Hsu and Lee 2014). The consumer preference
decides the output level and the marginal cost in this economic state as the utility provided by the
service provider is equal to the amount the consumer wants to pay (Holmes, Hsu and Lee 2014).
Therefore, in healthcare sector, allocative efficiency determines the condition when the funding
of private and public sector healthcare services utilized mostly for the benefit of the consumers.
Further, it determines the usage of right amount of resources on the healthcare practices, as
without that meeting each consumer’s requirement is not possible. The example of such
economic policy in healthcare can be NICE, The National Institute for Health and Care
Excellence that determines clinical and cost effectiveness of new technologies and policies of
healthcare (Paulden, McCabe and Karnon 2014).
In economic terms, the definition of technical efficiency determines the productivity of
an organization in the presence of minimal resources (Kirigia and Asbu 2012). The ability of any
organization to produce or provide best service to the consumers within minimal resource or raw
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2ECONOMICS AND HEALTH CARE
materials is determined as the technical efficiency of that organization. Therefore, in case of
healthcare providers, the minimal input they require to provide the consumers with quality
healthcare will be hospital infrastructure, modern equipment, trained nurse, physicians, and
medicines. It is an important concept in the economy of healthcare sector as the aim of every
healthcare provider nowadays is to provide maximum output while utilizing minimal amount of
input. Therefore, to fulfill the requirement, the healthcare providers will be hiring more
healthcare workers to generate maximum output in minimal timeframe (Ozcan 2014).
In the finance and economic market, the opportunity cost is defined as the value of
choosing a best alternate for investment than another mutually exclusive best cost (Coyle,
Cheung and Evans 2014). If any investor choose, one best alternate for investment than another
one or many mutually exclusive best investments options then the value of the first choice will
be determined as the alternative cost or the opportunity cost (Chodorow-Reich and
Karabarbounis 2016). This decision not only determines the decision made by the consumer
related to their choices, but also determines several other factors such as time management,
allotment of capital and manufacturing. In case of healthcare providers, utilizing new health
technology replacing the old and les effective technology is determined as the opportunity cost,
as it leads to provide better and quality healthcare to maximum amount of people leading to
increased productivity (Coyle, Cheung and Evans 2014).
Cost effective analysis or CEA is the means to determine the outcomes or effects of two
or multiple course of actions (Mogul et al. 2015). In the healthcare analysis, the cost effective
analysis helps to determine the effect of used intervention by providing an appropriate value of
the ratio between the costs of the applied intervention to the proper measurement of its effects
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3ECONOMICS AND HEALTH CARE
(Muennig and Bounthavong 2016). In the pharmacoeconomics, the cost is referred to the
resources utilized in the application of intervention and measurement of the effect of intervention
is done by assessing the patient’s improvement over the period within which, the intervention
was applied. In this case, the clinical judgment of the physicians and nursing staff also
determines the effectiveness of the intervention (Claxton et al. 2015).
According to the Independent Hospital Pricing Authority (IHPA), activity based funding
(ABF) is the process to provide resources or funds to the hospitals depending the number of
patients and their complications (Independent Hospital Pricing Authority 2018). This funding
process determines that the complexity of the disease of the patients in the healthcare facility and
the number of such critically ill patients determine the amount of fund the hospital will be
allotted. The primary aim of this funding process is to provide the patients with timely and easily
accessible support in the healthcare facilities, enhance the value of common people’s investment
in the healthcare system and to strengthen and increase the efficiency of healthcare facilities
(Victoria state government 2018). The ABF process provides fair and equal fund to public and
private healthcare facilities and does not differentiate based on the profit the facility earns (Free
et al. 2013). This ABF process provides the healthcare organizations with incentives for their
efficiency or ability and provides a transparent and proper way to provide funds to the healthcare
facilities across Australia (O’Reilly et al. 2012).
This Funding process (ABF) can be used to provide the healthcare facilities incentives
that provide better healthcare facilities to the individuals in the society. The IHPA functions
primarily by providing the data about National Efficient Price (NEP), which helps to determine
the level and amount of ABF the healthcare facility, will be funded, as the benchmark of quality
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