Analysis of Efficiency and Productivity in the Health Sector - Coursework Example

Analysis of Efficiency and Productivity in the Health Sector Introduction The purpose of this essay is to examine how productivity and efficiency in the health sector are analysed. The essay is organised into several sections. In the first part, a brief background of the health sector is presented. This information is followed with that related to indicators that are used to assess the performance of firms and factors that influence the performance of firms in the sector respectively. Lastly, a hypothetical research question and two hypotheses related to a research based on the sector are presented in this essay. Brief Background of the Health Sector Overall, several issues characterise the evolution of the health sector over the last few decades. For example, the sector has undergone changes resulting from the decreasing role of the state as the sole source of its funding. Initially, health care was regarded as a universal social service that was provided the state (Clement, Valdamanis, Bazzoli, Zhao & Chukmaitov, 2008). Thus, hospitals, which are the key organisations in the sector, received all their funding from the government. However, because of implementation of far-reaching structural changes, governments across the world have systematically reduced the level of funding that they have been providing for the health care sector. Pham (2011) notes that currently, the funding structure for the health care sector includes diverse sources of income such as fees from users and payments by insurance companies that provide health-related insurance cover. Moreover, hospitals and other organisations that operate in the sector now focus on the need to deliver high-quality services (Sheingold & Hahn, 2014). The need to deliver high-quality services arises from the growing trend of patients demanding for good services because they pay for them and the need for hospitals to attract and retain clients to increase their revenue (Pham, 2011). Therefore, the current health care sector is characterised by the need for organisations to constantly improve their performance to ensure that they remain profitable at a time when the organisations depend less on state funding and more on user fees. Commonly used Indicators of Performance The use of the indicators to evaluate the performance of the hospitals is normally based on the Data Envelopment Analysis (DEA) approach. The idea behind this approach is that the performance of a sector or organisation can be determined by evaluating the level of technical efficiency and overall quality (Rouse, Harrison & Chen, 2010). Efficiency is determined by assessing the way the organisation or entire sector utilises resources or inputs to produce results or outputs (Kirigia, Emrouznejad, Sambo, Munguti & Liambila, 2004). Thus, the organisations are regarded as decision making units or DMUs. One of the principal indicators that are used to evaluate the performance of the health sector is effectiveness. Within the context of healthcare, effectiveness refers to the extent to which the entire health sector achieves the desired objectives (Kelley & Hurst, 2006). Thus, a health sector whose hospitals and other constituent organisations achieve their set objectives can be said to be effective. Another important performance indicator for the health sector is safety. Safety in healthcare refers to the extent to which organisations that operate in the sector identify the risk of adverse outcomes and manage them so that patients do not experience undesirable results when they undergo healthcare-related processes (Garcia-Altes, Zonco, Borell & Plasencia, 2006). The third important indicator of performance in healthcare, responsiveness, refers to the way the entire health system identifies and meets the expectations of its clients (Kelley & Hurst, 2006, p. 13). The fourth important indicator of health performance is accessibility. The accessibility indicator is used to describe the ease with which clients can healthcare services whenever they need them (Garcia-Altes et al., 2006). The Outputs and Inputs (Factors of Production) The essence of output and input factors of production for the health care sector arises from the concept of the production process. The process of production entails subjecting inputs to a complex process to produce outputs (Rouse, Harrison & Chen, 2010). Moreover, the production process is normally influenced by environmental factors or variables (Rouse, Harrison & Chen, 2010). In the health care sector, there are several inputs and outputs. An example of the most important input in the sector relates to human resources (Pham, 2011, p. 202). In this regard, hospitals need different professionals for them to achieve their objectives. They need nursing staff, trained doctors and other specialists to carry out specific duties to make the hospital achieve its operational objectives. Therefore, nurses, doctors and other specialists collectively form an important input category for the health sector. Moreover, hospitals need various technical resources for them to operate and achieve their main goals. The number of beds is an important input that hospitals need and which determines the extent to which the hospitals achieve their objectives (Clement et al., 2008). An example of an important output for hospitals and for the health care sector, by extension, is the number of outpatient visits that hospitals experience (Pham, 2011). Another important output of hospitals is the number of successful surgeries that are conducted (Sheingold & Hahn, 2014). Moreover, the period that patients stay in the hospital, or the inpatient days, is an important output for hospitals and the entire health care system (Clement et al., 2008). Main Drivers of Total Factor Productivity (TFP) TFP denotes the way organisations effectively and efficiently use labour, capital and technology in their processes. Therefore, in general, the way that hospitals utilise technology, labour and capital, as the main three factors of production, determines the overall level of TFP. For example, the development of new technological processes that are used in the process of providing healthcare facilities has played a major role in improving TFP for the health care sector over the years (Contreras, Patel & Tristao, 2013). The adoption of cutting-edge technological processes first reduces the overall expenses that hospitals encounter when providing services to patients (Contreras at al., 2013, p. 2). Also, the use of advanced technological innovations for specific processes such as diagnostics or treatment helps to improve the quality of services that hospitals offer (Kirigia, Emrouznejad, Sambo, Munguti & Liambila, 2004, p. 161). Another important factor that influences the TFP of hospitals is how they utilise their capital resources. In practice, hospitals, like many other organisations, must allocate limited resources to many competing needs. Furthermore, changes in the funding model of hospitals have increased in the need for hospitals to use their capital resources efficiently to ensure that they remain sustainable over the years (Kirigia, Emrouznejad, Sambo, Munguti & Liambila, 2004, p. 161). As well, the manner in which hospitals utilise their labour resources influences their TFP. In practice, hospitals must keep their number of nurses, doctors and other specialists at optimum levels to maintain high levels of performance (Clement et al., 2008). If hospitals have few staff members, they may not be able to cater to the needs of their patients. Also, if hospitals have excess doctors, nurses and other professionals, they may not operate efficiently. Factors that Influence Production Efficiency of Firms in the Sector Various factors have an effect on the efficiency of production in the health sector. However, before examining the actual factors that influence production efficiency of hospitals, it is important to point out that the production efficiency of firms can be viewed from the following perspectives: cost, quality and technology. Cost-related efficiency refers to the extent to which an organisation can control its overheads (Pham, 2011). Quality-related efficiency refers to how well an organisation utilises its resources to provide services that meet the established standards of quality (Clement et al., 2008). Technology-related efficiency refers to the extent to which an organisation uses advances in technology to lower its costs of operations and increase the quality of its services. One of the major factors that influence the production efficiency of firms is the inherent characteristics of hospitals. Hospitals offer diverse services to clients. More importantly, the services that hospitals offer to clients determine how well the hospitals perform in terms of costs and profitability. Certain services are more valuable than others, based on the perspective of cost and expected profitability (Ravangard, Hatam, Teimourizad & Jafari, 2014, p. 65). For example, although a hospital requires a relatively high level of capital investment to acquire the capacity to offer highly advanced services, the hospital stands to gain a lot from the services when many clients require the service (Morris, Devlin & Parkin, 2007, p. 80). What this means is that hospitals need to balance the services that they offer so that they can not only address the needs of their patients but also ensure that they are profitable or sustainable, for not-for-profit hospitals. Another important inherent characteristic of hospitals that affects their productivity performance is the quality of the management. The management team of hospitals is charged with the responsibility of allocating resources and maintaining the quality of the services that are offered, among other services (Morris, Devlin & Parkin, 2007, p. 82). Consequently, the decisions of the management have a direct bearing on the quality of services that a hospital offers, the way the organisation manages its cost and how adaptive to technological innovation the hospital is. Another category of factors that affects the production efficiency of hospitals relates to the policy environment. The policies that are set by governments for the health sector influence the performance of hospitals. Specifically, governments are charged with the responsibility of developing policies to regulate the performance of hospitals and ensure that the entire health sector achieves its broad objectives (Ravangard et al., 2014, p. 65). An important change in the policy environment that has had far-reaching implications on the production performance of hospitals relates to the funding model and the need for hospitals to increase the quality of their services. As governments across the world have been drastically reducing the amount of money that they channel to the healthcare industry, hospitals have been forced to adopt new funding models to address the budget deficits that they now face (Sheingold & Hahn, 2014, p. 21). Moreover, hospitals have been forced to focus on the need to constantly improve the quality of the services that they offer to remain sustainable (Morris, Devlin & Parkin, 2007, p. 85). Therefore, policy changes on the funding model for the health care sector have triggered many changes in the way hospitals operate. Hospitals now focus on offering high-quality services to remain financially sustainable. As hospitals offer high-quality services, they end up improving their level of production efficiency from the cost and quality perspectives. Changes in the external environment in which hospitals operate also affect the production efficiency of the hospitals. An example of a major change in the external environment that affects the production efficiency of hospitals is the development of new technologies. Medical technologies play a key role in changing the cost and revenue structures of hospitals (Ravangard et al., 2014). When hospitals acquire new technologies, they must incur capital expenditure. However, such expenditure may be regarded as a form of investment, given the benefits that the hospitals stand to gain from adopting the technology. It is common for hospitals to adopt new medical-related technologies in a bid to reduce their operational costs on the one hand and offer quality services to their clients on the other (Sheingold & Hahn, 2014). Thus, the development of new medical technologies affects the production efficiency of hospitals from the cost and quality perspectives. Empirical Analysis on the Sector The following research question can be used to conduct an empirical analysis in the health sector: does the adoption of new medical technologies by hospitals improve hospital performance? The following two hypotheses can be tested as part of the research. Hypothesis 1: There is a positive relationship between technological advances in health care and the productivity of hospitals. Hypothesis 2: There is no positive relationship between technological advances in health care and the productivity of hospitals. Conclusion In conclusion, the health sector has been transformed into a sector in which patients, medical insurance providers and other parties play the leading role as main sources of funds for hospitals. Moreover, hospitals have put much emphasis on the need to provide high-quality services that meet the basic indicators of performance in the sector. The most common performance indicators that are used in the sector include accessibility, effectiveness and client-responsiveness. Lastly, advances in technology, changes in policies and in other external factors affect the overall performance of hospitals. References Clement, J. P., Valdamanis, V. G., Bazzoli, G. J., Zhao, M. & Chukmaitov, A. (2008). Is more better? An analysis of hospital outcomes and efficiency with a DEA model of output congestion. Healthcare Management Science, 11, 67 – 77. Contreras, J., Patel, E. & Tristao, I. (2013). Production factors, productivity dynamics and quality gains as determinants of healthcare spending growth in U.S. hospitals. Bank de Mexico Working Paper no. 13. 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