Allocative Efficiency in Healthcare

Discuss about the National perspective on health care in Australia.

The purpose of this assignment is to understand the meaning of different economic concepts, funding models and casemix based management information and will further discuss the way these concepts applies in the modern healthcare system. The recent era is dealing with several healthcare related issues that are affecting the state’s economy and affecting populations because of differences in socio-economic status (Karanikolos et al. 2013). The economic factor is primarily about increase in the healthcare related spending and effecting the relation between spending growth and Australian economy complex and multifaceted (Folland, Goodman and Stano 2016).

Allocative efficiency is the state of economy where the service is optimally divided between consumer and service provider (Holmes, Hsu and Lee 2014). The consumer preference decides the output level and the marginal cost in this economic state as the utility provided by the service provider is equal to the amount the consumer wants to pay (Holmes, Hsu and Lee 2014). Therefore, in healthcare sector, allocative efficiency determines the condition when the funding of private and public sector healthcare services utilized mostly for the benefit of the consumers. Further, it determines the usage of right amount of resources on the healthcare practices, as without that meeting each consumer’s requirement is not possible. The example of such economic policy in healthcare can be NICE, The National Institute for Health and Care Excellence that determines clinical and cost effectiveness of new technologies and policies of healthcare (Paulden, McCabe and Karnon 2014).

In economic terms, the definition of technical efficiency determines the productivity of an organization in the presence of minimal resources (Kirigia and Asbu 2012). The ability of any organization to produce or provide best service to the consumers within minimal resource or raw materials is determined as the technical efficiency of that organization. Therefore, in case of healthcare providers, the minimal input they require to provide the consumers with quality healthcare will be hospital infrastructure, modern equipment, trained nurse, physicians, and medicines. It is an important concept in the economy of healthcare sector as the aim of every healthcare provider nowadays is to provide maximum output while utilizing minimal amount of input. Therefore, to fulfill the requirement, the healthcare providers will be hiring more healthcare workers to generate maximum output in minimal timeframe (Ozcan 2014).

In the finance and economic market, the opportunity cost is defined as the value of choosing a best alternate for investment than another mutually exclusive best cost (Coyle, Cheung and Evans 2014). If any investor choose, one best alternate for investment than another one or many mutually exclusive best investments options then the value of the first choice will be determined as the alternative cost or the opportunity cost (Chodorow-Reich and Karabarbounis 2016). This decision not only determines the decision made by the consumer related to their choices, but also determines several other factors such as time management, allotment of capital and manufacturing. In case of healthcare providers, utilizing new health technology replacing the old and les effective technology is determined as the opportunity cost, as it leads to provide better and quality healthcare to maximum amount of people leading to increased productivity (Coyle, Cheung and Evans 2014).

Technical Efficiency in Healthcare

Cost effective analysis or CEA is the means to determine the outcomes or effects of two or multiple course of actions (Mogul et al. 2015). In the healthcare analysis, the cost effective analysis helps to determine the effect of used intervention by providing an appropriate value of the ratio between the costs of the applied intervention to the proper measurement of its effects (Muennig and Bounthavong 2016). In the pharmacoeconomics, the cost is referred to the resources utilized in the application of intervention and measurement of the effect of intervention is done by assessing the patient’s improvement over the period within which, the intervention was applied. In this case, the clinical judgment of the physicians and nursing staff also determines the effectiveness of the intervention (Claxton et al. 2015).

According to the Independent Hospital Pricing Authority (IHPA), activity based funding (ABF) is the process to provide resources or funds to the hospitals depending the number of patients and their complications (Independent Hospital Pricing Authority 2018). This funding process determines that the complexity of the disease of the patients in the healthcare facility and the number of such critically ill patients determine the amount of fund the hospital will be allotted. The primary aim of this funding process is to provide the patients with timely and easily accessible support in the healthcare facilities, enhance the value of common people’s investment in the healthcare system and to strengthen and increase the efficiency of healthcare facilities (Victoria state government 2018). The ABF process provides fair and equal fund to public and private healthcare facilities and does not differentiate based on the profit the facility earns (Free et al. 2013). This ABF process provides the healthcare organizations with incentives for their efficiency or ability and provides a transparent and proper way to provide funds to the healthcare facilities across Australia (O’Reilly et al. 2012).  

This Funding process (ABF) can be used to provide the healthcare facilities incentives that provide better healthcare facilities to the individuals in the society. The IHPA functions primarily by providing the data about National Efficient Price (NEP), which helps to determine the level and amount of ABF the healthcare facility, will be funded, as the benchmark of quality healthcare services is determined by NEP (O’Reilly et al. 2012). Therefore, the process helps in reshaping the policies of the funding process and makes in more transparent and easily accessible for the organizations and local individual, decreasing the chances of corruption and dishonesty by the healthcare facilities. This process provides only one way to achieve better funding for the organizations, by implementing quality healthcare facilities and providing better interventions to the patients. Hence, using this strategy the ABF helps the healthcare organizations to earn incentives and increase accountability (Independent Hospital Pricing Authority 2018). Furthermore easily accessible care and reinforce efficiency can also be achieved through activity based funding. As per the norms of the ABF, the healthcare facilities, who provide quality healthcare to a huge number of critically ill patients, their fund automatically increases compared to others. Therefore, healthcare facilities increases their efficiency of dealing critically ill patients and become competitive to other healthcare facilities. Hence, the ABF process end up increasing the number of hospitals where emergency and critical treatment is available with high efficiency, resulting in driving efficiency with easily available healthcare facility (Victoria state government 2018).

Opportunity Cost in Healthcare

There are variety of activities in healthcare facilities that cannot be funded under activity based funding procedure. These activities are educational or teaching activities in medical hospitals, nursing institutes, and other allied healthcare facilities (Independent Hospital Pricing Authority 2018). Further, interns and student nurses, researchers, or any research project, services of families of patients, affiliated agencies for food, sanitation and others, public health and health promotional campaigns,  travel of patients such as air ambulance cannot be funding under the ABF funding scheme. Furthermore, services such as emergency service, outpatient services, mental health services, and rehabilitation care or palliative care also did not fall under the category for the ABF funding (Free et al. 2013).

The casemix index (CMI) is the assigned value to diagnosis related group of patients or patients who have similar medical issues and are provided with similar treatment from the healthcare facility (Kem et al. 2013). This CMI value is used by healthcare facilities to identify and determine the resources the group of patient needs for their treatment and the allocation of those resources determined by the healthcare facility (Bardhan and Thouin 2013). The condition of the patents health is determined similar using a set of rules including principles of disease and symptoms, the secondary diagnosis of disease and intervention applied, is procedure and the age of the patient. Furthermore, the complexity of disease and the need of the patient group also determines the formation of the case mix of patient mix group. These groups are termed as medical severity diagnosis related groups or MS-DRG and Diagnosis Related Groups or DRG (Heslop 2012).

 This CMI helps the nursing team to identify the group of patients with the information it provides with each CMI identified group of patients. Therefore, it determines the diversity, complexity and need for resources by each of the patients who are being treated in the healthcare facility. Further, it helps the nursing staff to understand the degree of care they need to apply for the treatment of the patients (Bardhan and Thouin 2013). This process differentiates the group of patients having acute disease into several manageable categories depending on their clinical condition and consumption of the medical resources. Further, the nursing manager gives such patient a DRG code and allocation of each DRG to the patient determines a weightage of average cost, spent by the hospital authority on them. Further, using CMI, the calculation of further more healthcare resources needed for improved patient outcome becomes easier (Otani, Waterman and Dunagan 2012).

Cost-Effective Analysis in Healthcare

It is very important for the healthcare facilities to implement a strategy that will help to manage the resources, to understand the cost involved in the upgradation of the healthcare information system, financial management, and resource allocation and planning the activity for the month or week (Singh and Wheeler 2012). The casemix based management system helps the healthcare facility to achieve this as dividing patients in groups of similar intervention or similar disease condition makes the work less complex and removes the chances of mistakes (Kim 2012). As per the research of Hof et al. (2017), several quality measurement processes can be done using case-mix management system in the healthcare facilities. The facilities application of interventions for improved care, assessing the current quality if care, patient oriented outcomes and data collection. As the process is used for, determining the utility of patient classification and the quality of care different level of examination related to process is applied on the activity. According to Bloom et al. (2015), the CMI helps to determine this as the allotment of resources changes for each patient every week, leading to change the classification system several times and helps in the determination of measured change. If any patient stays for longer duration after allotting a certain amount of medical resource for health improvement, then the review process continues and the patient is allotted a new set of medical resources thus changing the case mix index of the patient (Bloom et al. 2015). On the other hand, Kim (2012) determines that this CMI management information helps in determining the management and quality improvement by judging the process using two criteria, such as effectiveness and patient satisfaction. The evaluation of effectiveness requires four criteria to be matched. First criteria needs to assessment of outcomes of care that determines that present status and trends to determine the effectiveness of care, whereas the other criteria deals with factors that lead to deficiency in the care process. the third criteria deals with interventions and assesses the effectiveness of them to achieve higher patient output and finally through fourth criteria informs the hospital authority about the results and provides them recommendations to use the incentives or resources effectively. Therefore, this is the way; the casemix management information helps the hospital authority in quality improvement and financial planning purposes (Singh and Wheeler 2012).

The biggest and prioritized criteria that is addressed using the casemix based management process throughout the HealthCare facilities are clinical validity and feasibility of the healthcare process (Polyzos et al. 2013). As the casemix management process divides the patient in groups depending on their disease condition or need of intervention, hence the management of resource becomes easier (Daniel et al. 2015). This casemix management system helps to create policies within the organization regarding the usage of hospital resources, as the casemix management distinguishes the patients depending on their clinical distinction (Polyzos et al. 2013). Furthermore, feasibility of the measures that divides the patients is also important aspect as without measurement the patient’s classification cannot be authentic. Therefore, the differentiation of patient should also include case type categories to readily measure the patient outcome (Singh and Wheeler 2015).

Activity-Based Funding in Healthcare

Increasing cost of healthcare facilities and equipment has made the economies of world population to introduce different financial and economical concepts that can help in lowering the cost of healthcare for the ordinary individuals (Karanikolos et al. 2013). This assignment discussed about different economical concepts such as allocation efficiency, technical efficiency, opportunity cost and cost effective analysis and discussed its implication in the healthcare sector. Further, the activity based funding and its related concepts were discussed with its effects on current healthcare activity. The assignment also discussed the casemix management, as it is important for the economic stability of the healthcare system.

References

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