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Health economics and its role in the world of healthcare

To understand why healthcare costs are so high, it is essential to comprehend health economics. This area is a vital and emerging field in the healthcare sector. Any economy depends on a healthy population, and anomalies in a given society’s health can lead to larger problems and associated costs. Like any other industry, healthcare is also concerned about its services’ expenses, making health economics a field of study that is a priority for those who want to advance into leadership positions.

As a result, health economics is a common topic in a high-quality doctoral or MSN program in leadership. Even though nursing isn’t typically a role the public thinks of as needing a good understanding of health costs, it is surprisingly important. That’s why institutions of distinction, such as the online Master of Science in Nursing–Nursing and Health Systems Leadership (MSN-NHSL) at the University of Indianapolis prepare their students to understand the implications of everything related to the healthcare sector.

The role of economics in healthcare

Healthcare is a human resource like any other. It consists of people who provide an ongoing service rather than just a one-time occurrence. It’s a long-term commitment that affects the healthcare of an entire population, and many economic factors come into play when determining the cost of care. The most common healthcare cost types include fixed, variable and opportunity costs. Let’s take a closer look at each one.

Fixed vs. variable costs

Fixed costs are a bit of a misnomer since they can change with inflation or the cost of living, but they are generally consistent. Moreover, they are costs that are paid regardless of whether revenue comes in. An example of a fixed cost is the cost of a hospital building. To make money, hospitals often build on a large lot with room to expand later as more patients mean more revenue.

In contrast, variable costs are costs that change. In healthcare or at a hospital, variable costs fluctuate depending on the number of patients who use the service. Variable charges could include consumables such as bandages and sprays. They also encompass the cost of employing temporary staff to handle an increased workload.

Opportunity cost

Opportunity costs merit their own section even though they can sometimes be tough to calculate. Opportunity costs are high when a doctor doesn’t see the patients necessary to maximize health economics. For example, perhaps a doctor sees a patient for less money, or maybe a doctor chooses not to run a test that might have detected something serious. In both examples, the opportunity cost is potentially high.

As stated, opportunity costs are difficult to calculate. For example, imagine that a patient receives complete treatment but the doctor chooses not to follow up on a symptom that ends up leading to a more severe condition. In that case, the opportunity cost is high.

As a healthcare professional, you need to know the opportunity costs and make the best decisions for patients and healthcare. In other words, as an administrator, you need to balance health, wellness and healthcare economics.

Demand-driven and supply-driven pricing

Demand-driven pricing is a method of charging that considers the real-world price and the quantity purchased. Supply and demand are at the core of demand-driven pricing. When the demand for a service is high, prices will typically increase. On the flip side, when demand is low, prices decrease as fewer people need assistance.

Supply-driven pricing is a charging method that considers the real-world price but not the quantity consumed. With demand-driven pricing, the profit margin is determined by looking at health costs and then charging a fee that reflects the actual cost. As you can see, health economics is a dynamic part of health administration.

The complexity of healthcare

Healthcare is complicated, and its decisions affect millions of people. Everyone needs to access it at times and it has significant monetary costs, which makes managing it very complex. The good news is that the more you know about health economics, the better you will be able to make decisions as a healthcare provider. Knowledge is power when it comes to healthcare costs, and equipping yourself with a deeper understanding of health economics can make you more effective in any healthcare role.