Economics in Health Care

Economics in Health Care

Health is an important factor to all human beings. Continued progress in the development
of health care systems to subsidize costs for medicines and access to health care services have
been efforts made by every state government. Push for better investment in healthcare sector has
been an agender in every political movement. Investors also look to get into the prime estate of
medicine and try to reap benefits from the profits of the large demand for better quality
healthcare. Economics in health care evaluates the offering and quality of health care with
respect to demand and economic states.

Utility and Elasticity in Healthcare

Utility is the state of being useful or profitable (google definition). Hospitals provide
health services to the patients but also function as businesses. Hospital abilities to provide
services to the patients come down to how good hospital services and drugs are sold. Private
hospitals are seen to perform better than the hospitals owned by governments. Utility thus draws
patients to the private hospitals as they preserve the services there are better than those in
government owned facilities. High costs for services in private hospitals also render them mainly
accessible to the people with money thus their profitability. Hospital capabilities in the health
care system also determine utility. Fewer hospitals with the ability to offer specialized treatments
will render the health care system less useful. Staff and equipment’s will also determine how a
hospital performs and the utility it brings to the community.
Drury (2021) defines elasticity as the change of demand or supply by consumers or
producers respectively in response to price or income changes. Products and service prices are
never constant but always in flux in dependance to supply and demand. Health care pricing in the
government institutions tends to be relatively the same with private institutions having the most

3
fluctuations. Government health care plans and subsidies is mainly the cause for this distinction
as private hospitals depend solely on the patient’s money. Scarcity of medicine will result to the
rise in medical and drug prices as while abundance will lower the prices. Treatment for rare
diseases that require specialized medical practitioners will also be more costly than ordinary
sickness. Rise in income for populations will make patients have the capability of affording more
quality healthcare thus raising the demand for the private sector. Spiking of medicine may be
experienced when manufacturers lower the rates of drug production. Price reduction may
however be experienced when there is an existence of more common drugs from other drug
manufacturers.

Shifters Affecting Supply and Demand Relationship in Healthcare
Shifters affecting supply and demand are the factors that bring about variance in the
supply and demand curves with respect to customers and producers. Rise in demand may
indicate a low supply of a featured product in health care. Unavailability of doctors in a town
results to rise in demand for medical practitioners by the town. Rise in disease cases such as
during the breakout of a virus may also result into demand for healthcare by consumers. Rise in
demand for health care is thus a factor mainly influenced by the number of patients in need of
medical attention at a particular time. Low demand may be resulted to factors such as healthier
populations where the need for medical attention is lower and hence the need for hospital visits.
High demand may be profitable for medical manufacturers but not for hospitals as they could
end up straining majority of their resources trying to meet the demand rise. Better equipped
hospitals, however, can easily manage the demand rise and successfully gain profits in their
practices. Planning is essential in the management of demand rise.

4
Supply rise on the other hand mainly depends on the demand for the certain aspects
offered by the medical practitioners. Demand rise in medical serveries leads to supply rise in
medical services and vice versa. Decline in supply for medical services however may be as a
result of different factors. Shortage of equipment’s such as emergency rooms or oxygen for
intensive care unit patients may lead to low supply of services for patients in need of the
services. Unavailability of raw materials to manufacture medicine may also lead to low supply
and shortage of medicines in healthcare. Rise of supply is thus beneficials to the consumer of
healthcare products while low supply leads to suffering.

Economies of Scale Effects on Profit Maximization in Healthcare

Economies of scale in healthcare is the benefits a healthcare system gets due to efficiency
in its execution of rendering healthcare. Some healthcare systems are more expensive than others
costing consumers more for the same products and services. Economies of scale provides for
larger healthcare systems to spend less in offering services whole smaller healthcare system
spend more. Cheaper healthcare systems attract more customers which in turn give the healthcare
system power over its competitors. Costs spent on wasted materials such as expiration of medical
drugs are almost eliminated as the existence of demand is always there.
Profit maximization comes easier with health care systems that have larger economies of
scales. Continued flow of customers into the health care system will ensure that demand is
always in need to me supplied for. Larger hospitals offering variety of health care-based services
will have more advantages and larger economies of scale compared to a hospital offering only
one type of healthcare service. A hospital that does not provide for x-ray services would need to
have their patients get it from other facilities resulting to wasted or resources such as time. Profit

5
maximization in healthcare system thus depends on the ability of the healthcare system to
increase their economies of scale
Supply and Demand in Today’s Competitive Healthcare Markets
Healthcare is a competitive market today especially with the involvement of many private
investors in the sector. Supply and demand determine and govern which markets get to profit
while which get to make losses. Competition on who provides the best health care has had
hospitals strive to be in the front by having the best doctors and leading in the most recent
medical researches. Integration of the latest methods of treatments in a bid to try and capture
more clients and maximize profits is what denies the health market competition. Progression of
time has reviled that competition gets fiercer between healthcare markets as business people
backing hospitals strive to make profits. Hospitals are larger than ever with some even expanding
in order to be present in as many locations as possible and supply the demand of as many areas
as possible. Newer entries into the health care system may find it hard to penetrate as majority of
the supply and demand is done by the bigger known market owners.
Supply for medical equipment is given to the market with the better demand. Medicine
gets to the bigger hospitals before the smaller hospitals get to have them. Prices of medical
supplies and equipment is also determined by the price bigger health care markets are willing to
buy in. medical staff such as doctors prefer going to the bigger healthcare systems with larger
markets and demand as they pay more as compared to the smaller healthcare institutions. Low
supply of medical staff and also equipment is projected to the smaller markets of healthcare.
Doctors follow demand which is found in the larger markets leaving the smaller markets
will less experienced doctors capable to do the more complicated tasks.

6

Financials Viability

Financial viability of healthcare markets heavily depends on how large said markets are.
Bigger health institutions are more viable than smaller ones. Supply and demand fluctuations is
also easily managed by the bigger financials institutions with investors being guarantee of
returns. Bigger markets indicate bigger demands and hence opportunities for supplying the
demand. The ability for bigger health institutions to supply for the demand make them better
than smaller institutions financial wise. Rise in demand would make the smaller institutions
strain financial wise in an effort to keep up with the demands. Ease of paying suppliers is also a
factor in bigger markets as flow of stock is constant. Smaller markets however make for delays
in product flow as there is no active demand. The ability of viable markets to pay for their
doctors and medical staff better than the smaller markets gives the bigger institutions the ability
to have better medical practitioners than the smaller institution. government grants and donations
are also better considered for the larger healthcare markets than the smaller as they serve more
population densities.
Health sector is quickly turning into grounds for making profit than it is for providing
people with medical services. Hospitals are questioned on the methods they use to serve patients
and the charges the bill consumers. Profitability searching could thus render the inflation of
healthcare especially in the private sector. Majority of government policies and tasks force in the
health departments are on a look out for practitioners who take advantage of their market
superiority.

7

References

Bernet, P.M. and Singh, S. (2015) Economies of scale in the production of public health services:
an analysis of local health districts in florida
https://dx.doi.org/10.2105%2FAJPH.2014.302350
Cooper, R. and Joohn, A.A. Theoru and applications of economics. 16(1).
https://2012books.lardbucket.org/books/theory-and-applications-of-economics/s20-01-
supply-and-demand-in-health-ca.html
Dubey, J. D. (2020). Income elasticity of demand for health care and it’s change over time:
Across the income groups and levels of health expenditure in India (No. 20/324).
https://www.nipfp.org.in/publications/working-papers/1921/
Gerfin, M. (2019). Health insurance and the demand for healthcare. In Oxford Research
Encyclopedia of Economics and Finance.
https://doi.org/10.1093/acrefore/9780190625979.013.257
Giancotti, M., Guglielmo, A., & Mauro, M. (2017). Efficiency and optimal size of hospitals:
Results of a systematic search. PloS one, 12(3), e0174533.
https://doi.org/10.1371/journal.pone.0174533
Hayes, A. (2021). Elasticity.
https://www.investopedia.com/terms/e/elasticity.asp#:~:text=In%20business%20and%20econom
ics%2C%20elasticity,a%20good%20or%20service's%20price.
Ho, F. N., Wang, H. M. D., Ho-Dac, N., & Vitell, S. J. (2019). Nature and relationship between
corporate social performance and firm size: a cross-national study. Social Responsibility
Journal. https://doi.org/10.1108/SRJ-02-2017-0025

8
JA Economics. Demand shifters and supply shifters. https://sites.google.com/ja.org/ja-econ-
resources/home/demand-supply

Longo, F., Siciliani, L., Gravelle, H., & Santos, R. (2017). Do hospitals respond to neighbours’
quality and efficiency? A spatial econometrics approach. Health Economics, 26, 38À62.

Rakovska, M. A., & Stratieva, S. V. (2018, January). A taxonomy of healthcare supply chain
management practices. In Supply Chain Forum: An International Journal (Vol. 19, No.
1, pp. 4-24). Taylor & Francis. https://doi.org/10.1080/16258312.2017.1395276

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more
error: Content is protected !!