Assessment 1 Context
Health Care Economics: An Industry Overview
Providers and consumers of health care services have experienced significant changes
following the enactment of the Patient Protection and Affordable Care Act of 2010 (Affordable
Care Act). New terminology, concepts, methods of valuation, reimbursement, and decisions
accompanied this landmark legislative change. Health care leaders are responsible for
maintaining the financial viability of their organizations, aligning with both the organizational
mission statement and directional strategy, and allocating finite resources. This task has
become increasingly complex due in part to changes associated with the Affordable Care Act.
Conditions of participation in state-funded and federally funded health care programs have
generated new requirements, and some represent major challenges with respect to
implementation and compliance. An example of this can be seen with the electronic medical
records (EMR) initiative, which has been an ongoing challenge. Leaders must grapple with
questions such as:
• What is the actual cost to the organization?
• Are there funding shortfalls for full implementation?
• Are there unexpected additional costs that result from existing software
• Are there additional security measures to ensure HIPAA compliance, such as staff
• What about patient satisfaction scores and how these can affect reimbursement?
The role of the health care executive in exercising sound economic decision making has
become increasingly challenging, especially when one considers the potential adverse financial
and operational consequences, or civil and criminal penalties, that can result from oversights or
errors. Health care executives serve in a fiduciary role within their organizations and
communities. To this end, it is helpful for leaders to understand applicable laws that drive
economic decision making and its accepted tools from authoritative sources, industry standards,
and risk management.
The Provider Organization
How have recent changes in health care affected your current or future desired role within the
industry? Do you recognize new concepts and terminology emerging with our changing health
care system? To illustrate this point, consider your familiarity with the following economic
concepts and their associated implications for providers: accountable care organizations,
Readmissions Reduction Program, HCAHPS scores, HAC Reduction Program, never events,
value-based purchasing, open payments public data, cost shifting, risk sharing, and medical
capital equipment (lease versus purchase). These are just a few examples of facets that involve
financial, and thus economic, decision making.
It is important to maintain the environmental, larger perspective and to understand what
resources are available from the government for economic problem solving and decision
making. It is also important to maintain “bifocal vision” as you consider demand, supply, and
finite human and financial organizational resources.
As a health care leader, you will be challenged to maintain organizational financial viability and
to participate in team-based decision making. A few examples of critical economic decisionmaking topics are the acquisition of necessary capital medical equipment, adjustment of clinical
staffing ratios, funding unexpected implementation and maintenance costs of EMRs, and
funding under-insured and uninsured patient care.
Health Care Supply and Demand
Economics in health care can vary from the typical dynamics of other industries. The rules of
supply and demand are influenced in unique ways. Examples of this can be seen in the fact that
physicians can both supply services as well as control demand for health care services.
Additionally, consumers of health care services can have a need or demand for services, but
may not be able to access supply or available care due to geography or financial constraints
(such as a high insurance deductible).
Suppliers or providers of care can deliver a service and not be reimbursed for the service by the
consumer if various quality and satisfaction standards are not met. Government regulations can
also impact reimbursement. An example of this can be observed in a problematic readmission
within 30 days of a patient’s discharge from a hospital. If the readmission meets criteria for
being preventable, the provider may not be reimbursed for services, nor may the provider bill
the patient for services already consumed.
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