Current Issues in Nursing Economics
by: Mary Joy Aimee M. Alegria
• Health care professionals historically have been largely
unaware of the economic costs and consequences of
their clinical decisions. This is due, in part, to the nature of
health care financing and the separation of clinical and
management functions within health care organizations.
• . Nurses involved in clinical practice, administration,
education, policy making, and research can use principles
of economics to:
• Provide nursing care in the least costly manner
• Protect the scope of nursing practice by demonstrating the
quality and value of nursing services in relation to other
professionals
• Develop opportunities to expand settings for nursing
practice by demonstrating the cost and quality of nursing
interventions
• Understand what purchasers and consumers want from
nursing and take steps to satisfy these needs and demands
• Promote health system change to expand access,
improve the quality, and ensure more equitable distribution
of health care resources
• Integrate nursing-specific quality measurement systems
and concepts into larger organizational quality improvement
initiatives that are largely controlled by nonnurses (Bolton,
Donaldson, Rutledge, Bennett, & Brown, 2006; Buerhaus,
1992)
• The purpose of this chapter is to introduce the reader to
basic economic concepts that affect professional nursing
practice and, more broadly, the delivery of health care
services.
Health Economics
• Economics is the study of the distribution of resources
across a population. Health economics is the study of the
production and distribution of health care resources and
their impact on a population.
• Health care resources are scarce; that is, there is a limit
to the quantity that can be produced at a given time,
although the demand for these resources can be limitless.
Therefore economists are interested in how society
makes important decisions regarding the consumption,
production, and distribution of these goods and services
within the health care sector and in relation to other
societal needs such as education, housing, and defense.
• As social scientists, health economists seek to answer
four basic questions (Santerre & Neun, 2004):
1. What combination of nonmedical and medical goods
and services should be produced in a general economy?
2. What particular medical goods and services should
be produced in the health economy?
3. What specific health care resources should be used to
produce the final medical goods and services?
4. Who should receive the medical goods and services?
Ten Guiding Principles of Economics
1. The principle of scarcity and choice addresses the
problem of limited resources and the need to economize.
2. The principle of opportunity costs recognizes that
everything and everyone has alternatives.
3. Marginal analysis is a way of thinking about the optimal
use of resources.
4. Self-interest is a primary motivator of economic decision
makers.
5. Markets and pricing serve as the best way to allocate
scarce resources.
6. Supply and demand serve as the foundation for all
economic analysis.
7. Competition forces those who own resources to use their
resources to produce the highest possible satisfaction for
society—consumers, producers, and investors.
8. Efficiency in economics measures how well resources
are being used to promote social welfare.
9. Market failure arises when the free market fails to
promote the efficient use of resources by producing either
more or less than the optimal level of output.
10. Voluntary exchange in a free market environment
promotes economic efficiency and ensures that all mutually
beneficial transactions occur.
UNCERTAINTY
• The need for health care services is irregular and cannot
be predicted by either consumers or providers (Arrow,
1963). Consumers who demand health care cannot
predict when illness or catastrophe will strike, and health
care providers cannot forecast the costs of the
treatment(s) required.
INSURANCE AND THIRD-PARTY PAYMENT
• Consumers buy insurance to guard against the risk and
uncertainty of illness. Insurance introduces an
intermediary between the consumer (person requiring
medical care) and the providers of care (health care
professionals and organizations).
PROBLEMS WITH INFORMATION
• Economic theory assumes that buyers and sellers have
equal information about the cost, price, and quality of
goods and services. However, in health care markets,
professionals (the sellers) typically have more information
about treatment options than do clients (the buyers).
LARGE ROLE OF NONPROFIT FIRMS
• Economists assume that organizations seek to maximize
profits and that models of firm behavior explain how
businesses allocate resources to increase profits. It is
important to note that all businesses must take in more
money than they spend (make a profit or surplus) for
continued operations.
RESTRICTIONS ON COMPETITION
• Competition is a force that produces the most efficient
allocation of resources because owners must use their
resources to produce the highest satisfaction for society.
ROLE OF EQUITY AND NEED
• Economics is concerned with the distribution of scarce
resources so that society receives the highest possible
satisfaction from the combination of goods and services
produced from these resources.
GOVERNMENT SUBSIDIES AND PUBLIC
PROVISION
• The health care sector has more government intervention
than other sectors of the national economy because of
the uncertainty in the demand for, and provision of,
services. In the United States, state and federal
governments play major roles as financiers and payers of
health care through the Medicare
UNDERSTANDING THE SUPPLY AND DEMAND
FOR NURSES
• Supply refers to the amount of a good or service available
to consumers in the market. Demand refers to a
consumer’s willingness to purchase a particular good or
service.
• Economic theory predicts that as demand increases, so
will supply; the pricing mechanism, in the form of wages
and other benefits, will create a balance (equilibrium)
between firms in need of workers and individuals who are
willing to work for the wage offered.
