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Case 4 HPI4001 economics of healthcare
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case 4 economics of healthcare
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Case 4 innovations from an organizational perspective1.Which strategies can be used to integrate health care delivery systems?
Main problem why we want to integrate; Health spending continues to rise. The organization of
provider markets could have a substantial effect on prices, spending, and quality. Understanding the
effects of changes in the provider market is a pressing and unresolved issue for both health policy
and antitrust enforcement.
EvansJM, BakerGR,BertaW,and BarnsleyJ(2013), The evolution of integrated health care
strategies. Annual Review of Health Care Management: Revisiting the Evolution of Health
Systems Organization. Advances in Health Care Management, Volume 15, 125-161.
Six major, inter-related shifts in integration strategies were identified:
(1) from a focus on horizontal integration to an emphasis on vertical integration;
By the early to mid-1990s, the vertical integration of organizations providing different levels
of care became the focus of restructuring efforts with hospitals acquiring physician practices,
long-term care homes, and medical equipment companies in addition to other hospitals.
Yet, like their multihospital predecessors, hospital-led vertically integrated systems
experienced few economies of scale due to higher transaction costs, limited coordination of
medical care, and slower decision-making.
(2) from acute care and institution-centred models of integration to a broader focus on
community-based health and social services;
In the last decade there has been an increasing focus on integrating more broadly
across various levels of medical care and across public health, social services, and
related supports such as education and housing at the community level
(3) from economic arguments for integration to an emphasis on improving quality of care and
creating value;
However, the focus on potential economic benefits of integration in the literature
has expanded to a dual emphasis on both efficiency and quality of care, as Table 2
depicts. This shift in thinking may have occurred for two reasons.
First, the increasing “corporatization” of health care management practices in the US
fueled fear among some observers that quality was at risk, resulting in demands for
greater patient protection and public accountability.
Second, by the mid-1990s evidence began to emerge that successfully integrating
policy, staff, funding, and clinical processes requires substantial investments that
may result in improved quality of care, but not necessarily efficiencies, particularly in
the short term.
Since the early 2000s, there is a growing recognition that efficiency and quality are linked and must
be addressed simultaneously to create enduring value for patients, providers, and purchasers.
(4) from evaluations of integration using an organizational perspective to an emerging interest in
patient-centred measures;
Although, there is a reliance on reporting the perceived extent and impacts of integration from the
perspectives of managers and clinicians, a growing number of scholars are emphasizing or exploring
patient expectations, perceptions, and experiences of integration beyond patient satisfaction.
(5) from a focus on modifying organizational and environmental structures to an emphasis on
changing ways of working and influencing underlying cultural attitudes and norms; and
, The reliance on structures to promote integration may stem from the relative ease with
which structures can be changed compared with processes embedded in them such as
communication, routines, and teamwork. Several studies suggest that structural
modifications are inadequate for integrating services and patient care
Recent studies examine integrative and developmental processes more closely, including
teamwork, communication, decision-making, and knowledge exchange
(6) from integration for all patients within defined regions to a strategic focus on integrating
care for specific populations.
Studies suggest that successful integration is more likely when provider interdependence is
high, situation uncertainty is high, and the services to be integrated have clear boundaries,
such as in cardiac care or women’s health
As depicted in Table 2, the emerging method for achieving integration is to adopt a patient-
centric approach by integrating care for certain subpopulations or disease groups
We propose that underlying many of these shifts is a growing recognition of the value of
understanding health care delivery and integration as processes situated in Complex-Adaptive
Systems (CAS).
Shift within HC strategies (summary text above)
The meaning and focus of health systems integration have shifted over time with the evolution of
health care needs and the broader social environment. Overall, there is a growing movement away
from mechanistic conceptions of health care management and delivery and an increasing recognition
of the value of understanding integration.
- From the late 1980, there was decreasing interest in horizontal integration and increasing
interest in vertical integration. So there were less mergers of organizations providing the
same level of care.
- By the early to mid 1990s, the vertical integration of organizations providing different levels
of care became even more the focus. So more things done under one roof.
- In the last decade, there is an increasing focus on integrating more broadly across various
levels of care
- From economic outcomes to quality outcomes; quality becomes more important
- The focus keeps shifting to more patient-centered measures/care
- From institution-centered to community-based integrated care
Organizations / firm → All people of an organization work toward the attainment of a certain goal.
The relevance of innovation to firms is that it offers them the prospect of achieving their objective(s)
more effectively. There are two polar extremes regarding firms: perfect markets VS monopolies. Both
are assumed to maximize profit, and to have knowledge of all production possibilities to produce a
single product.
Arrow: competitive markets tend to encourage innovation more than monopolies because the profits
resulting from innovation are higher. The objectives for organizational innovation are:
1) Efficiency gain
o Economies of scale (applies to perfect competition markets) = A firm enjoys lower average costs as
the quantity of an output increases.
, A firm enjoys lower average costs as the quantity of an output increases
AC = average costs
Sources of economies of scale:
1) Indivisibilities (spreading fixed costs)
- Cost of production; fixed costs and variable costs
- Fixed costs: we have to make regardless the amount of outputs. The more outputs you have
the lower the average costs will be.
2) Specialization (division of labour)
- 2 steps to make diabetes medicine. If we make 10 doses, we have 1 person that does both
step 1 and 2, but if we make 10.000 doses that’s no longer doable. We have 1 person
dedicated to step 1 and 1 to step 2. By specializing we can get more efficient and specialized.
3) Inventories
4) The cube-square rule
5) Complementarities
Constant returns to scale and diseconomies of scale are estimated to occur at hospitals of
approximately 200 to 300 beds.
Economies of scope = A firm enjoys lower total costs when it produces two types of output than
when it produces only one of the two types of outputs. E.g. in hospitals: adding new type of
specialisation is cheaper than starting a specialized practice
The most efficient diabetes organization can produce for 1euro/unit, the same goes for the
cancer pharmaceutical.
The idea is that if you have one organization of both diabetes and cancer, they might be able
to do it for 1,90 on average because they increased the variance/variety of their output, their
total costs can be lower.
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