Causes and Prevention of Economic Failure in Health Organizations - Coursework Example

Causes and Prevention of Economic Failure in Health Organizations Student’s Name Institution Table of Contents Introduction 3 Causes of Economic Failure 3 Lack of Competition 3 Information Asymmetry 4 Difficulty in Market Entry and Exit 4 Public Goods 5 Anti-Market Habit of Medical Practitioners 5 Prevention of Economic Failure in Health Organizations 6 Introduction of Competition 6 Balanced Information 6 Ease of Market Entry and Exit 7 Conducting Business-Oriented Courses for Health Practitioners 7 Conclusion 8 References 9 Causes and Prevention of Economic Failure in Health Organizations Introduction The objective of the report is to explain the causes of economic failure in health organizations. The report also seeks to provide the ways in which such economic failure can be prevented in health institutions. Economic failure is a common phenomenon in health organizations, not only in Australia, but also in other countries across the globe (Buseh, 2008). However, before a health institution is considered to fail economically and becomes insolvent, lengthy discussions have to be held between the concerned government agencies and other stakeholders, such as creditors, lenders, and shareholders among others (Aldred, 2009). Economic failure in health organizations is caused by a number of factors. Some of these factors include lack of competition, information asymmetry, difficulty in market entry and exit, and the presence of public goods in the organizations. Economic failure in the health sector can be prevented by independently addressing all the causes of economic failure. For instance, such economic failure can be prevented by introducing and facilitating competition within the health sector (Stiffer, 2006). Causes of Economic Failure Lack of Competition Competition is one of the main factors known to drive economic success in various sectors. In this regard, competition refers to the way different organizations within the health sector initiate unique programs, including price and product differentiations, to attract and retain customers. Through competition, health organizations are able to put all the possible measures in place to ensure that they provide good services to their clients. Competition has also led to more organizations springing up in the health sector; this has resulted in a higher number of organizations within the sector and an improved economy (Bivens, 2011). It has been proven that it is quite difficult to perfect competition in the health sector due to interference from the government, and the fact that treatment services and other health products differ from one organization to another. As a result, organizations in the health sector cannot compete fairly with one another as equal trading goods. In most cases, health products and services are unique to each organization and each of them has its own degree of monopoly. The fact that perfect competition does not exist among health institutions makes it difficult for the stakeholders to enhance the economic performance of the health sector (Sikosana, 2009). Information Asymmetry In sectors where the economy is strong, information is shared equally between the sellers and buyers. However, this is never the case in the health sector where information is never shared equally between sellers (doctors) and buyers (patients); this is because medical practitioners have almost all the information they need, which they keep to themselves. Patients are not often supplied with sufficient information to make their own decision, forcing them to rely entirely on the doctors who then make decisions on their behalf. This results in the doctors (buyer) dominating the health sector, which causes supplier stimulated demand problems. With the problem of supplier dominance in the health economy, it becomes very difficult to induce economic growth and development within the sector (Buse, Mays, & Walt, 2012). Difficulty in Market Entry and Exit Difficulty in entry into- and exit from the medical services market is another factor that causes economic failure in the health sector. It is difficult to enter the market since the entry requires a significant capital, which very few people can raise. It is very expensive to build a hospital and fix it with all the necessary equipment needed for operating such a facility successfully. The entry problem results in very few organizations operating in the health industry, a factor that encourages monopoly in the sector (Makinen, Deville, & Folsom, 2012). The difficulty in market exit also affects economic development in the health sector. It is normally difficult to close a hospital as that move is likely to affect many people who rely on the hospital for their well-being. Hospitals are also interrelated in the way they provide services and consequently, the closure of one medical facility could affect the operations of many others. Doctors and other hospital personnel know that hospitals are rarely closed down even if they engage in malpractice, which gives them the freedom to laze around and fail to initiate programs that promote economic development within the health sector (Carrin, 2009). Public Goods The various health products and services that exist are regarded as public goods. Public goods in this case, refer to commodities that do not incur any additional costs even if an additional person was to use them; it is difficult to deter an individual from using and enjoying the benefits of such goods. For example, public facilities, including hospitals and public clinics, are instituted to provide and facilitate the provision of and access to medical care to every citizen. It is difficult to bar any citizen from enjoying the benefits of these health facilities. However, the fact that these facilities are branded as public goods makes it difficult to use them to enhance the economic performance of the health sector (Fallon, Begun, & Riley, 2013). Anti-Market Habit of Medical Practitioners Medical practices are guided by ethics, which doctors and other health professionals are supposed to follow to the letter. For instance, a doctor is not expected to send a patient away for the lack of treatment fees. With these ethics, medical practitioners tend be less market oriented and care less what happens to the health sector economy. Such ethics make hospitals incur significant losses because sometimes doctors use the available resources on patients who sometimes fail to pay for them as a result of poverty, which impairs the health services economy. The debts that patients fail to pay normally lead to poor economic performance of the medical facilities and the health sector (Dewar, 2010). Prevention of Economic Failure in Health Organizations Introduction of Competition In order to boost good economic performance among health organizations, the government and other stakeholders should find ways of introducing competition into the sector. Perfect competition is one of the factors that can be relied on to propel sellers and buyers within the health sector to work harder and introduce measures that can enable them to remain self reliant and sensitive to economic development. Competition can be introduced into the sector by allowing more health organizations to join the sector. Setting prizes for organizations that excel in the provision of high-quality health care services and initiation of activities that stimulate economic development also encourage competition within the sector (Unger, 2010). Balanced Information Equal sharing of information between sellers and buyers is likely to result in a perfect economy in which both groups have equal power to make decisions regarding the goods traded in the market. The current situation prevailing in the health sector at the moment is one in which health service providers are the ultimate decision makers, with patients being forced to accept the decisions made by the facilities (Jalilian & Sen, 2011). If mechanisms that allow patients to obtain as much information as that received by the doctors are implemented, the health sector is likely to improve economically. Patients are likely to compel doctors to initiate better health programs when they have adequate information that can help them make decisions on where to go for treatment and other services (Annemans, 2008). Ease of Market Entry and Exit It has been proven that the difficulty of entry into and exit from the health market is one of the main factors that create monopolies in the sector. Such monopolies make it difficult to promote economic development in the sector; it then becomes hard to initiate programs that enhance economic development in the health sector (Chawla, 2007). Such monopolies can be eradicated from the health sector by making it easier for more organizations to join it. Market entry can be eased by providing people who want to set hospitals for the first time with grants and discounted prices. The government can also ease market entry by helping the newcomers to meet the required capital and issuing them with licenses at affordable fees. The higher the number of organizations in the health sector, the more the competition in the sector; such competition enhances economic development in the sector (Jan, 2005). Conducting Business Oriented Courses for Health Practitioners It is argued that one of the factors that cause economic failure is lack of economic development oriented health workers. Most doctors and other health workers observe only professional ethics, while they forget that the sector also needs to develop economically to be able to sustain itself. This normally happens as a result of the lack of economic knowledge among the doctors and other health workers. However, this can be improved by organizing short business and economic development courses for doctors to help them gain the knowledge required to enhance the economic performance of the health sector (Lighter, 2011). Conclusion This report outlines the causes and prevention of economic failure by health organizations. Some of the causes of economic failure discussed in the report include lack of competition, difficulty in market entry and exit, information asymmetry, and lack of business-oriented professionals in the sector. The report also outlines how economic failure can be prevented in the sector. Some of the preventive measures discussed include introduction of competition into the sector, organizing business courses for health professionals, and increasing the ease of market entry. References Aldred, J. (2009). The skeptical economist: Revealing the ethics inside economics. Sterling, VA: Earthscan. Annemans, L. (2008). Health economics for non-economists: An introduction to the concepts, methods, and pitfalls of health economic evaluations. New York, NY: Academia Press Bivens, J. (2011). Failure by design: The story behind America’s broken economy. Ithaca: ILR Press. Buse, K., Mays, N., & Walt, G. (2012). Making health policy. Maidenhead: Open University Press. Buseh, A. G. (2008). Empowering resilience: Improving health care delivery in war-impacted African countries: A case study of Liberia. Lanham, MD: University Press of America. Carrin, G. (2009). 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Sikosana, P. L. N. (2009). Challenges in reforming the health sector in Africa. Victoria, BC: Trafford Publishing. Stiffer, M. A. (2006). Performance: Creating the performance-driven organization. Hoboken, NJ: John Wiley. Unger, J. (2010). International health and aid policies: The need for alternatives. New York, NY: Cambridge University Press. Read More