ECONOMICS IN HEALTHCARE

Economics in Healthcare

Economics in Healthcare

Introduction

Perspective on the Healthcare Industry Healthcare systems, whether in a well-developed nation or an economically poor society, should be viewed upon as a system which can improve or replace humanity's biological misfortunes. In other words, the system is always existent and should be open to all members of a community, regardless of financial or socioeconomic status. Healthcare should not be viewed as an industry or a business, rather than something of altruistic origin. If some service is necessary for the improvement of someone's health, the service should be provided because of the potential hazards that may harm a single human being's health. Health is a feature which is unpredictable and sometimes uncontrollable. Sometimes, it is. And the average living person, fifty percent of the time, is almost clueless about the origin of their problem and about the ways to prevent or treat it. This is where the healthcare system comes into play. Sometimes, healthy habits can be taught and learned so that, in the long run, individuals, in essence, build their own healthcare system, in which a diet or exercise program can prevent a certain biological calamity from happening. In this case, a patient does not require as much attention from trained professionals, money and time are saved, and the risk of one's health problems can be dramatically decreased practically within the walls of his or her own home.

Planning, Marketing and Finance in the Healthcare Organization

Successful strategic financial planning depends on an organization's ability to accurately assess the financial risk associated with proposed strategic initiatives. A key responsibility of most healthcare CFOs is strategic financial plan development. Change and growing economic pressures on the healthcare industry have caused the uncertainties associated with strategic financial planning to increase dramatically. A recent article in CFO magazine pointed to health care as one of the most challenging industries for sound financial decision making, asserting that healthcare CFOs have served as scapegoats for a failing industry. (McDonald, 2000)

For many healthcare organizations, the pursuit of popular strategies based on commonly held perceptions of the healthcare environment has led to difficulties because financial decision makers did not adequately account for the risks associated with those strategies. Consider, for example, the risks inherent in two common strategies: primary care physician practice acquisitions and provider ownership of health plans.

Acquisition of primary care physician practices can be an effective strategy for a healthcare organization in an area where the market is shifting toward capitation contracting and physicians are consolidating their practices. In some areas, however, intense competition to acquire practices can push prices higher than might be warranted by the market's underlying economic climate. Moreover, acquired physician practices can become a large financial liability if the shift to capitation occurs more slowly than anticipated or if physician productivity fails to meet expectations. (McDonald, 2000)

Incorporating a health plan into an integrated delivery system (IDS) offers the benefit of bringing providers and customers closer together. The financial rationale for this strategy is sound when market ...