Decision Making in Health and Social Care - Case Study Example

DECISION-MAKING IN HEALTH AND SOCIAL CARE: ECONOMICS a) Why are market forces unsuitable for health service resource allocation? Refer in your answer to the problems of consumer sovereignty, agency, and health outcome measurement. Market forces, demand and supply, move in opposite directions with respect to price changes. When the price of a good is high the demand for it is less while the supply of it is greater. This is economic sense but nevertheless this positive economic statement about the predictable behavior of the consumer does not hold true when the demand patterns for Giffen and inferior goods are factored in. For instance when income, of the individual consumer, rises his demand for inferior goods such as potatoes, would rise. This is because the consumer’s purchasing power increases when his real income increases. Consumer sovereignty principle illustrates the fact that in a free market economy the consumer is free to consume what he wants. However, the consumer’s sovereignty does not have meaning if he/she is unable to buy what he/she wants. This paradox is solved through government intervention in the provision of those merit goods such as health care and education. On the other hand agency theory indicates that conflicts between principals (e.g. shareholders or owners) and agents (e.g. mangers) occur as a result of the latter misrepresenting facts and misinterpreting information so that resources can be diverted to uses which they regard as more lucrative. Since principals cannot themselves carry out the task of managing the business paid mangers are hired to carry it out. Thus there is an information failure and asymmetry in its distribution. This means agents have more information than principals about the nature and the extent of risk of an investment. Therefore it’s imperative for principals to put in place a monitoring mechanism so that agents’ responsibility to principals’ would be ensured. However again there is the problem associated costs in monitoring. In order to reduce such monitoring costs the relationship or bonding between principals and agents can be more effectively carried out by implementing organizational structures that support positive outcomes (Jensen and Meckling, 1976). In the health and social care industry this becomes more complex because insurance companies come into the picture as a third party. If, as the above explanation to the principals versus agents theory shows, agents behave in a manner that reduces transparency and increases risk to the principals or shareholders what would be the alternative in caring for those who are uninsured or lack adequate funds for health care? In a health care organization this is apparently the relationship between the hospital staff including paid managers and the shareholders. Decisions taken by managers to increase efficiency and profitability would negate the desires of customers but would benefit shareholders. Apparently there is no need for managers to please customers by being more favorable to them in decision making. However, acting in their own interest hospital managers would more likely suppress information flow to shareholders and take riskier decisions bordering on strategic competitive response to rivalry. For example price cutting decisions to increase volumes might jeopardize cash flow thus increasing operating costs in the short run. Coupled with inadequate knowledge about demand elasticities – price, income and cross – the managers might more likely make the wrong decisions. Information available to customers is still less in the health care industry (McGuire, Henderson and Mooney, 1987, p. 121). For instance they might not know as to how a certain surgical procedure ends and the related costs of after-surgery treatment would rise. Basically as the following diagram illustrates there is a mismatch between demand for and supply of health care at any given time in the market. A persistent mismatch would distort market trends in the long run to produce market failure. Being a merit good it’s priced at P1 where the quantity Q1 is sold and bought. Thus health care is both underconsumed and underproduced. If the government intervenes thus ignoring free market forces and gives a subsidy to the producer, a new supply curve, i.e. S2-S2 would shift onto the right. Now at the lower price of P2 the higher amount Q2 would be supplied and demanded. That would increase the amount of social welfare as shown by the triangle marked abc. Social welfare in health care is bound to increase as producers tend to produce more as a result of the subsidy while consumers tend to consume more because some of the benefits of the subsidy are passed on to consumers by producers (Hazlitt, 1988, p.198). Health outcomes associated with the above action of the government can be measured in conformity with a number of positive effects. For instance a series of positive outcomes including a healthier nation, greater productivity, longevity and a bigger Gross Domestic Product could add to incremental values by increasing the relative effectiveness of intervention by the government. If the free market forces of demand and supply are allowed to operate freely, shortages could persist in the long run. In the first place suppliers have no tendency to increase supply when consumers demand less due to their inability to pay free-market determined price. Positive spill-over effects associated with subsidies to health care industry are many. While the subsidy would reduce the price paid by the consumer by a percentage determined by the very price elasticity of demand for health care, there is no hard and fast rule which tells what percentage the producer should keep and what percentage he should pass on to the consumer. However every free market economy tends to operate optimally at least in theory thus maximizing consumer and producer surpluses defined as the amount of benefit above the price paid and below the price received respectively by the two (McCrone, 1998, p.26). (b). Explain what Cost-Effectiveness Analysis is, with reference to at least one outcome measure. “Cost-effectiveness analysis is the primary tool for comparing the cost of a health intervention with the expected health gains” (www.dcp2.org). Such an intervention is basically carried out with resources such as human and capital equipment in order to achieve organizational outcomes such as the reduction in incidence of diseases, disease control and total cure programs. The following shows how the Cost-Effectiveness ratio is defined and illustrates possible outcomes in the field of health care. The sum total of all benefits is divided by the sum total of all costs. For example let’s look at constant efforts of medical staff to increase the life expectancy rate among heart patients. A very simple and less costly treatment method is the prescription of aspirins and beta blockers to the patient. A more expensive but equally more effective method of treatment involves not only continuous medication but also a combination or single use of angioplasty/by-pass surgery/stents/cardiac catheterization and so on. As the table illustrates the cost effectiveness is determined by the incremental marginal effectiveness or benefit. The table is based on the Primer on the Cost-Effectiveness Analysis: Effective Clinical Practice, published by the American College of Physicians (Primer on Cost-Effectiveness Analysis, 2000, Vol.5. pp.253-255). The writer of this paper altered it to give a more realistic cost representation. Despite its deviation from the above formula the health outcomes as measured in the table convincingly prove the systematic rise in costs and equally fast improvement in health outcomes. Source: www.acponline.org However it must be noted that according to the above formula all benefits are divided by costs. But nevertheless benefits cannot be quantified in any other way other than by calculating the number of years the patient is likely to live after surgery. Thus it’s practically feasible to calculate the Cost-Effectiveness ratio as shown in the table (Pizzi, 2005, p.21). If we assume that there is another alternative before simple treatment is adopted, then it would be to have no treatment at all. This might as well prove why government intervention is essential. The marginal cost of the complex method involves an incremental addition above the cost for the simple method. As such the final health outcome measure is the CE ratio but it cannot be solely determined by an absolute analysis. There must be a comparative analysis. All available and relevant methods of treatment have to be compared in order to arrive at a conclusion based on a more practical assessment of facts. Next the effectiveness data as shown on the table have to be more realistic. For example if the data are based on hypothetical costs and benefits figures taken from a variety of sources, there is less likely to be a reasonably fair representation of CE outcomes. Therefore randomized data obtained from random samples are better. Next the source of the data matters. In contingency model building, researchers have a tendency not to discriminate between sources of information thus those analysts who fail to take into consideration the additional costs associated with revisits, readmissions and so on are likely to provide the CE analysis with wrong information. Finally the source of funding matters because there can be bias. For example researchers who work for pharmaceuticals companies would naturally be tempted to show more benefits against costs in using the drugs manufactured by those companies. (c). Assess the value of CEA to health sector priority setting Prioritizing the use and adoption of CEA in the health sector of the country requires a series of qualifying data. An effective CEA should have the capacity for adaptability to the practical treatment environment. In other words isolated or/and disconnected CEA cannot have the desired results in a completely practical treatment environment where programs tend to be associated with cost and benefits alone. The psychological impact on the patient apart, there can be an attendant divergence of opinion among the health care staff as to what constitutes moral and non-moral aspects of prioritizing. According to health care planners and specialists who emphasize the need for prioritizing the use of CEA in the health care industry setting, there are a number of associated strategic choices available to the administrator and planner to quantify the effectiveness or benefits arising from such CEA prioritizing, which in turn is determined by efficiency criteria and equity criteria. Cost-Effectiveness of the intervention program. Horizontal equity which refers to equality between the need and the treatment irrespective of the ability/inability of the patient to pay for it. Vertical equity which refers to those patients with worse health conditions either benefiting or not benefiting from such intervention. Vertical equity which refers to those benefits which are directly addressed to meet the needs of the poor or not. The resource constraint criterion which refers to both opportunity cost and direct benefit of intervention to an individual. The criterion for the strategic choice to intervene such as when and on what conditions such intervention would be decided. The need is just one such condition. These efficiency criteria for prioritizing CEA in a health care environment have received greater attention from both specialists and laymen. The first rule tells that the cost-effectiveness must be determined first. For instance a patient with no hope of recovery being put on the life support system simply because euthanasia is not allowed by law is not a practical measure. Since efficiency here refers to the optimum level of societal well-being, there is very little freedom for the planner or administrator to decide otherwise (Whittington, 2008, p.18). The horizontal equity principle in prioritizing CEA in health care intervention environments has acquired a new dimension recently. The ability of the patient to pay the medical bill or affordability maters in every health care establishment whether it’s run by the private sector or the government sector. Especially in a free market economy this is essential. However, health insurance mostly obviates the need to apply this principle on the assumption that every patient would have the means to meet his or her medical cost. Finally the most debated efficiency criterion with regard to prioritizing CEA in a health care environment is based on the vertical equity principle, i.e. whether do those who need medical care the most because their health conditions are worse, get such attention or not. Connected with this there is the next criterion if the poor people get medical attention irrespective of their ability to pay (Culyer and Newhouse, 2000, p.903). All in all these efficiency parameters in prioritizing CEA health care environments significantly reorient the available resources towards meeting the contingency requirements to a greater extent. REFERENCES 1. Culyer, A.J. and Newhouse, J.P. (Eds.). 2000, Handbook of Health Economics : Volume 1B (Handbooks in Economics), Elsevier Science, California. 2. Hazlitt, H. 1988, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics, Three Rivers Press, New York. 3. Jensen, M.C. and Meckling, W.H. 1976, Theory of the firm: Managerial behavior, agency costs, and ownership structure, Journal of Financial Economics, Vol. 3, No.4, pp.305-360. 4. McCrone, P. 1998, Understanding Health Economics: A Guide for Health Care Decision Makers (Health care management), Kogan Page Ltd, London. 5. McGuire, A., Henderson, J., and Mooney, G. 1987, Economics of Health Care, Routledge, New York. 6. Primer on Cost-Effectiveness Analysis, 2000, Effective Clinical Practice, Vol.5, pp253- 255. 7. Pizzi, L. 2005, Economic Evaluation in U. S. Health Care: Principles and Applications, Jones & Bartlett Pub, London. 8. Whittington, R. 2008, Introduction to Health Economics Concepts - a Beginners Guide (Spiral-bound), Rx Communications Ltd, Flintshire, Read More