Economics and the Health Care Sector

Economics & the Health Care Sector

Louella Eunice Andrea E. Jamora, RRT

Prepared by:

The Demand for Health Care:An Introduction

›› Basically, health care is not different from other goods.

Like other commodities (i.e. food, clothes, shelter) it is insufficient and thus requires proper allocation.

The Demand for Health Care

›› But there are also a number of distinguishing features of health care compared to other commodities.

First, health care is both consumption good (i.e. people buy clothes because it makes them feel good, same as when they consume antibiotics) and investment good (i.e. people buy food and the consume health because it makes them more productive).

›› Secondly, health-care costs can be high in relation to income of the population (like other commodities, buyers tend to buy less because of the high price).


›› Patients may have an involvement in production and use of health care. Although, there are instances wherein patients have a little idea of effectiveness, of the quality, or of the consequences of having or not having a treatment.


›› Moreover, others still believed that health care may be different such that:


CONSUMERS HEALTH CARE

ORDINARY COMMODITY

Evaluates (-)* (+)

Decides (-)* (+)

Pay (+) (+)

›Note: *In health care, people often rely on health professionals for evaluation and decision-making.

›› To give you a background about the Health Care Sector, see the box below. Analyze how the arrows relate to each of the boxes presented.

General Economic Resources

Health Care Sector

Specific Economic Resources

Supply of Health Services

Health Care Service Utilization

Demand for Health Care

Health Status

Other health-related & socio-economic sectors

›› The gray zone summarizes the components of the Health Care

Sector.

The supply of the health services ` came from both general economic resources (resources that may not be useful for health services, i.e. land & labor) and specific economic resources (resources specific to health, i.e. manpower for health care services).

›› The operation of the health care services depends on both the demand and supply of health services. Obviously, those on the supply side cannot be expected to produce/sell health cares service/s even without demand. It is like saying that the doctors cannot prescribe medications even if there are no patients who consult their service.

›› Aside from these components, several authors are unable to draw a line between aspects of the health sector and non-health sectors. The following items were subject to confusion (which items should be included or excluded?)

›› As a rule of the thumb, those whose primary intention is to improve health may be included such as:

ᴥ Health services : Environmental services (i.e. water, sanitation, pollution control, etc.)

ᴥ Hospitals : Social Welfare Institutions

ᴥ Education & training : Pure medical research

ᴥ Medical work : Social workᴥ Formally trained medical practitioners : traditional medical practitioners


Determinants of HealthSeeking

Behavior

›› Is there really a difference between demand and need?

ᴥ The analysis for demand for health and medical care is an evaluation of the consumer behavior or choice. In other words, this represents what they want.

ᴥ An important purpose of this analysis is to identify the factors that are influential in determining a person’s use of these services. In return, these analyses can help policymaker, planners and managers to address and prioritize the need for health care

Determinants of Health Seeking Behavior

These determinants of consumer’s health seeking behavior can be classified into ECONOMIC variables and SOCIODEMOGRAPHIC/CULTURAL variables.

The demand for health care has distinguishing characteristics from ordinary commodities (i.e. Supermarket goods). One of the most significant is the presence of uncertainty and information gaps between the suppliers and consumer. The doctor often have a direct influence on the patient’s decision, whether or not to consume health. The existence of this agency relationship between doctor and patients is termed SUPPLIER-INDUCED DEMAND.

Determinants of Health Seeking Behavior

Two Types of Needs

NORMATIVE NEED FELT NEED

ᴥAssessed by an expert ᴥAssessed by an individual

ᴥCompared the actual situation with the determined standard

ᴥConsumer may not be the best judge of his needs

*Conflict may arise

Determinants of Health Seeking BehaviorNeeds can be further classified as:

›› So, where does health care fall? Is health care, needed or demanded?

ᴥ It may not be demanded but may be considered a normative need. This may not reflect what a patient want but may be considered as a necessity (i.e. early treatment for hypertension).

ᴥ On the other hand it may be demanded but not needed normatively. (i.e. as in the case of individuals who underwent cosmetic surgery).

Is health care, needed or demanded?

Health Care can be analyzed in both ways:

ᴥ Demands can be an expression of a felt need.

(i.e. reflected by willingness to pay for the health care service)

In conclusion, the demand for medical care can be regarded as what the people select from the array of possible choices given their perception of their health condition and their socioeconomic circumstances.

ᴥ One of the main purpose of analyzing demand is to identify the factors that are most influential in determining an individuals’ use of health and medical care services. These factors can be classified as sociodemographic and economic factors/variables.

Is health care, needed or demanded?

1. Income ᴥ Higher Income= higher

expenditures for health;

demand for more modern and expensive expenditures.

ᴥ An increase in price may reduce the demand of lower income groups than the upper income groups.

Economic Variables

2. Price of the commodity

ᴥ Lower priced goods or providers will have a higher probability of being used.

ᴥ An increase in price may reduce the demand of lower income groups than the upper income groups.

Economic Variables

3. Education ᴥ Higher education = more open to medical care; increase in preventive methods and decrease in medical care for acute illness.

ᴥ Level of education indicates how a person perceived illness

ᴥ A mother’s level of education and literacy is influential factor in seeking preventive and curative services for her children.

Sociodemographic Variables

4. Marital Status ᴥ Single people will have a

greater tendency to use more medical care than married

individuals.


5. Age and gender ᴥ Sickness reported more often during young childhood and later stage of adult life:

Early stage of life = Affected by nutritional & infectious diseasesLate Stage of life = Affected by chronic & degenerative

ᴥ Higher probability of adults not to report the sickness = self-medicate

ᴥ Females live longer and demand more

ᴥ Young children depend upon to receive medical care and treatment.


6. Locality/Access to health facilities ᴥ Better access to health facilities

> less time consumed to access healthcare

>increase demand for healthcare.


7. Household Size ᴥ The greater the household size the greater the demand but is offset by the effects of the income.


8. Quality and Competition ᴥ Perceptions of outpatients to doctor who don’t give prescription for drug as inferior/ineffective to other provider who does. ᴥ The preference of generic products over the branded medications, was often perceived by the public as ineffective in their health condition.


The Supply of Health Care

Services

›› Health services can be looked at the same way as any other industry that produce and sell goods and services. Usually, the activities of production are common and are interrelated to each other.

Factors that affect Supply of Manpower

Standard Production ActivitiesINPUTS

People (labor), manpower, facilities (i.e. hospital beds), equipment (capital)

PROCESSProductive technique/

technology and/or method that may change inputs into

outputs

OUTPUTEnd result of production

›› The relationship that exist between the inputs and outputs given the characteristics of technology is called the PRODUCTION FUNCTION (PF) of a firm.

In simpler terms, PF is a combination of various inputs required to produce various levels of outputs in an efficient manner. It should be remembered that the ultimate output of health industry is HEALTH. For instance, the Department of Health through the local government, may allocate an array of resources (INPUTS) among primary, secondary and tertiary health care services (PRODUCTION PROCESSES) to reduce morbidity and mortality or increase health days of life (OUTPUTS) of Filipinos. (This has always been the ultimate target of the DOH, “Health for all Filipinos)

I intentionally underlined the phrase above. This is because I want you to become familiar with this term: DECENTRALIZATION


›› DECENTRALIZATION, as mandated by the 1991 Local Government Code, pertains to the delivery of basic services and the operation and maintenance of local health facilities will be devolved to the provinces, cities and municipalities. Thus, each local government is responsible for a minimum set of health services and facilities in accordance with established national policies, guidelines and standards. The devolution of health services conferred to the local government has several functions like:


ᴥ Formulation & enforcement of local ordinances related to health nutrition, sanitation and other health concerns.ᴥ Implementation of health programs in accordance with national policies & standards.ᴥ Provision of promotive, preventive, curative and rehabilitative health programs & services.

ᴥ Operation & maintenance of local health

facilities (e.g. district and provincial hospitals under provincial government; rural health units; health centers and barangay health stations.)ᴥ Monitoring and evaluation of the implementation of various health services.ᴥProvision of funds for health at the local level.

-Source: National Objectives for Health Philippines 1999-2004

›› The highly skilled MANPOWER is the most important input in the supply of health services. However, unlike other inputs, manpower takes a long time to produce (long years of study, licensure examination, years of specialization). Professionalization may have increased the numbers of highly trained personnel and reduced uncertainty about competence, but it is essentially anti-competitive. Thus, trade-off between supply and high-quality manpower should not exist.


››There are several factors that make the examination of productive activities somewhat problematic. Before we analyze these factors, here’s the major findings of the 1990 census which is designed to determine the regional distribution and place of work of selected health professionals:

ᴥ 87% of physicians work in the hospitals while the rest work in other establishments (school, industry, etc.). A large majority work in urban areas (93%)

ᴥ 74% of dentists practice in private hospitals, clinics, laboratories, 10% in public facilities, 3% in school. 91% work in urban areas.

ᴥ 78% of nurses work in hospitals, clinics and laboratories while the rest in other workplaces.

ᴥ 75% of midwives work in hospital facilities. In contrast to other health professionals, they are evenly distributed in the country.

ᴥ As for the other health providers (medical technologists, sanitary inspectors, nutritionists, pharmacists, herbolarios and hilots) little is known about their numbers.


›› Generally speaking, the supply of manpower has been influenced by a number factors. These are often influenced by certain government policies in the country namely:

ᴥ The Commission on Higher Education (CHED)

-regulate the admission and other curricular requirements of medical, nursing, dental and other medical schools. These schools are producing a large group of future health professionals.

Can you find out how many RT schools are there across the country?

ᴥ Professional Regulation Commission (PRC)

-it is in charge of licensing examinations to practice. There are even private institutions that set up their own boards to certify their specialists (i.e. PMA – Philippine Medical Association). However a significant number of health professionals were lost due to immigration and overseas employment.

If this continues, our country may experience “BRAIN-DRAIN” and we would not be surprised to find out that most of the good doctors, nurses and RRT’s practicing abroad are Filipinos.


The Supply of Hospital

Services

››Different health providers in the Philippines (both private and government) offer a variety of health services across the country. Health facilities may range from preventive, curative and rehabilitative care. Hospitals of various categories (primary, secondary and tertiary) and rural health units (RHU) are usually owned and operated by the government while the private health facilities (as its name implies) are owned and managed privately (single corporations/organizations).

The Supply of Hospital Services

››Like the supply of health professionals, there are government policies that affect the growth of hospitals:

1. LicenseNo hospital whether public or private will operate without a license issued by the Bureau of Licensing and Regulation of DOH


2. Provision of Technical StandardsAs a requirement, they should meet the prescribed technical standards (i.e. number and type of personnel, operating and good quality equipment, etc.)


3. Quality Assurance StandardsIncludes technical aspects, interpersonal aspects and social aspects of quality of health care.

ᴥ Technical Aspects: Accuracy of diagnosis, efficacy of treatment, excellence according to professional standards, necessity of care, appropriateness, continuity of care, consistency

ᴥ Interpersonal Aspects: Patient satisfaction, acceptability of care, time spent with the provider, attitudes of provider and treatment, amenities

ᴥ Social Aspects: Efficiency and Acceptability

Example: International Standards Organization (ISO)


4. Revenues of Hospital-10% of private hospital beds should be allotted for charity patients

-Emergency cases should be treated by private hospitals even when they are unable to pay bills (this provision prevents private hospitals to require money deposit from patient in ER)

-35% of government tax from the hospital’s net income


5. Availability of credit for financing the construction of private hospitalsDevelopment bank of the Philippines grants loans to

members of the medical profession or to corporations organized by medical practitioners for establishment of new or improved existing hospitals and medical clinic.

Medical care act provides hospitals especially in the rural areas. On the other hand, special financing are given to hospitals with bed capacities of 100 especially in areas identified as ‘BED DEFICIENT’.

Social security system provides loans for hospitals development as well.


›› Little is known about the impact of these policies on the growth of private hospitals. As a consequence, for those who cannot afford the hospital’s services, the burden of financing is shifted to the paying patients. On the other hand, private hospitals have the option to modify their tax status (35% deduction from net income) by establishing teaching schools. In this way, they could take advantage of tax deduction of educational institutions (i.e. DLSUMC is a teaching hospital).


DemographicTransition

The only thing that is permanent in this world is “CHANGE”.

This famous line is absolutely TRUE and definitely APPLICABLE to health. The process of change in both economic and health is often paralleled to development and is referred to as DEMOGRAPHIC TRANSITION.

A theory of demographic transition was developed to explain the movement of birth and death rates. Basically this theory originated in Europe and in the United States before the Industrial Era.

Nowadays, it is used as a framework to understand and analyze demographic trends.

According to this theory, there are four stages that will best describe demographic transition. You may refer to the graph on the next slide…

STAGE 1

STAGE 2

STAGE 3

STAGE 4

40

20

TIME

Birth

And

Death

rates

Represents birth/fertility rate

LEGEND:

Represents death/mortality rate

Stages of Demographic Transition

STAGE 1

ᴥ Occurs before the so-called Industrial Era ᴥ Both mortality and Fertility rates are very high ᴥ Most people depends on agrarian for their source of living ᴥ Population declined due to insufficient food supply and high incidence of diseases

4 Stages of Demographic Transition

STAGE 2

ᴥ Closely interrelated to what we described as demographic transition nowadays. ᴥ Mortality rates declines while maintaining high levels of fertility rates. ᴥ It is the phase where the population growth booms because during these times, children are exposed to industrial jobs thus improving their family’s income. ᴥ As a consequence, children also helped raised their quality of health and improve their quality of life.


STAGE 3

ᴥ The phase wherein the fertility rates starts to decline ᴥ People have become more aware of the effects of raising too much children in the family ᴥ Mortality rates become stable at this phase


STAGE 4 ᴥ Towards the end of this phase, the gap between birth and death rates were eliminated. ᴥ Mortality levels decreased because of better economic development. ᴥ People began to appreciate the sufficient supply of food secondary to improved transportation and globalization. ᴥ Society has become more organized

because of civil order and adaptedcontraceptive beliefs.

ᴥ Thus, the gap was eliminatedsecondary to industrialization,urbanization and better educationalopportunities.


›› However recent research proves that birth and death rates respond to a variety of factors and this theory could serve as a partial explanation of demographic changes.Nowadays, demographic transition, is a convenient term used for the process by which the population has improved from low level to a high level health. This has been obvious in the case of infant deaths.

ᴥ Most of the infant deaths are caused by communicable and infectious diseases like respiratory and diarrheal diseases. However in the high levels, infant death rates are reduced. Parents were more educated and were more concerned with the health of their children.

ᴥ In addition, there also has been high incidence of accidents among young and middle adults.

On the other hand, mortality rates among older individuals brought about by infectious and communicable diseases like tuberculosis were less compared to chronic and degenerative diseases like cancer, heart disease and UTI.

Reviewing the population’s history, the population of developed countries had grown very slowly.

Two reasons maybe possible: (1) high birth rates were equated with high death rates; (2) lower birth and death rates. The speed at which birth rates follow the fall in death rates, is believed to depend on greater child survival which causes the parents to desire less children and also policies about population control (In fact a very good example of which is China they implemented a ‘one child policy’).

When this happen, only then can a population begin to stabilize. Perhaps, this is a justification why the Philippine Government has been investigating on population control program. But because of the influence of the Church in our state, the government has never mandated it’s people on which policy to follow. The government believes that the people should make their choice on matters like this.

›› Is there any relation between economic and demographic/health development?

-Yes of course, because economic development promotes better health by providing resources for better nutrition, housing and sanitation and other health services. In the end, this transition will bring lower mortality (death rates) and triggers Demographic development. The idea may be simple but the process may bring other complicating factors.

Reference:

Austria, Maria Michelle V., 2003-2004. Module on Health Economics with Taxation and Land Reform. De La Salle Health Sciences Campus

Th

e E

nd

Economics and the Health Care Sector

Health & Medicine

Transcript of Economics and the Health Care Sector