The financing of costs of services in hospitals is a basic and growing problem in Europe. Considering the hospital as a manufacturing company, its product is the health of the patients. But to measure this product is quite hard, and therefore it is difficult to allocate an adequate price for it. Thus, the ascertainment of hospital services occurs by an orientation on inputs. But the menace of such a measuring is that hospitals would increase their inputs and thereby increase costs to maximize their revenues.
Another approach defines the medical care partially as a consumer good. By analyzing the cost-utility-consideration and the evaluation of the medical care, also in this case “The law of diminishing returns” can be noticed. Therefore, more input (expenditures or costs) in the health care system doesn’t automatically lead to more output (morbidity or mortality). Facing the problem of increasing costs and the law of diminishing returns, hospitals in Europe start to change their thinking. More and more the organizational structures transform from a general department focused hospital to a patient and economic focused company. Therefore, medical directors are about to be replaced by business managers in the hierarchic structure. These leaders start to use business models and also economic models to increase efficiency, quality and profit in the hospital. The following chapter introduces one approach of an economic model applied to a hospital.
Table of Contents
1 The situation of the health care in Europe with a focus on hospitals
2 The economic model
2.1 Processes in the hospital
2.2 The goals and variables of the model
2.3 The model
2.4 Maximizing the profit
3 Appraisal
Objectives & Topics
The primary goal of this assignment is to apply principles of production and economic theory to hospital management, investigating how economic modeling can enhance efficiency, quality, and profit in a healthcare setting amidst rising costs and the law of diminishing returns.
- Analysis of hospital organizational structures and shifts in management strategies.
- Identification and mapping of core clinical processes and their associated economic variables.
- Mathematical modeling of profit optimization using the Lagrange technique.
- Evaluation of the tension between economic objectives and the delivery of quality medical care.
Excerpt from the Book
2.1 Processes in the hospital
Generally, a model is a simplified presentation of the reality. To create this model it is necessary to identify basic processes that can demonstrate the important issues and causalities of a hospital system. The processes can be allocated to the catogories: Provide and manage inpatient care, ambulatory care, emergency/urgent care, customer complaints, health services/education, service availability and cost and improve revenue cycle processes. As mentioned before, to create the economic model of the hospital like for a manufacturing company it is also necessary to consider the processes that are related to the clinical pathways (following the value chain concept) to provide full information for a cost, revenue and profit focus. The following processes can be identified:
• Admission
• Diagnostics
• Primary therapy
• Post intervention
• Secondary therapy
• Discharge
Every single process has its own costs and also generates its own revenues. Therefore, general variables must be defined to express costs and revenues with which it is possible to calculate profit.
Summary of Chapters
1 The situation of the health care in Europe with a focus on hospitals: This chapter highlights the rising costs and structural challenges in European healthcare, proposing a shift from traditional models to economically-focused business models for hospitals.
2 The economic model: This section establishes the theoretical framework by identifying hospital processes, defining essential variables, and mathematically deriving profit functions based on production theory.
3 Appraisal: This chapter critically reflects on the model, discussing the inherent conflict between economic optimization and the delivery of high-quality, ethical patient care.
Keywords
Managerial Economics, Hospital Management, Economic Model, Profit Maximization, Healthcare Financing, Production Theory, Clinical Pathways, Cost Analysis, Resource Allocation, Quality of Treatment, Efficiency, Lagrange Technique, Healthcare Reform, Business Models, Patient Care
Frequently Asked Questions
What is the core focus of this academic work?
The paper explores the application of economic modeling to hospital management, treating the hospital as an economic unit to analyze cost structures and revenue generation.
What are the primary thematic fields addressed?
Key themes include hospital organizational structure, production theory applied to medical treatments, profit maximization under budget constraints, and the balance between economic efficiency and medical care quality.
What is the main research goal?
The research aims to demonstrate how business and economic models can be applied to clinical environments to improve efficiency and profitability while managing rising operational costs.
Which scientific methods are employed?
The paper utilizes analytical economic modeling, specifically production theory and the Lagrange technique for mathematical optimization of profit.
What is covered in the main body of the paper?
The main body details the identification of hospital processes, defines variables such as beds, labor, and factor prices, and provides a mathematical derivation for profit maximization.
Which keywords characterize the work?
Key terms include Managerial Economics, Profit Maximization, Hospital Management, Clinical Pathways, and Resource Allocation.
How does the author define the "one-product-case" within the model?
The model simplifies the complexity of healthcare by assuming only one type of patient, which allows for a more focused analysis of inputs like labor and equipment versus outputs.
What does the "Appraisal" section reveal about the conflict between management and medicine?
It highlights that without a singular, well-defined objective, there is a recurring friction between managers aiming for economic sustainability and medical practitioners prioritizing patient health.
- Arbeit zitieren
- M.B.A. Nihat Canak (Autor:in), 2005, The Hospital - An Economic Model, München, GRIN Verlag, https://www.grin.com/document/64767
