Health economics and financing is the health system function concerned with the mobilization, accumulation, and allocation of resources to cover the health needs of the population, individually and collectively, within the health system.

According to the WHO World Health Report 2010, efficiency losses account for 30%-40% of all health expenditure. It is therefore an ethical imperative to ensure that financial resources for universal health coverage are spent in an appropriate and transparent manner in order to offer more services of better quality to the entire population and, in particular, to groups in conditions of vulnerability.

A lack of adequate financing and inefficient use of available resources are major challenges in moving towards universal access to health and universal health coverage. While the average public expenditure on health in the countries of the Organization for Economic Cooperation and Development (OECD) was 8% of GDP in 2011, public expenditure on health in Latin American and Caribbean countries stood at only 3.8% of GDP. Attempts are often made to solve the persistent lack of financial resources for the health sector through the use of direct payment at the point of service. This type of financial strategy creates barriers to service access and directly impacts health outcomes for people and communities. It also increases the risk of people incurring catastrophic expenditures when accessing health services, which in turn can result in impoverishment.

Health systems continue to grow in size. Financial integration-the ownership of hospitals or physician practices-often has anticompetitive effects that contribute to the higher prices for health care seen in the US. To determine whether the potential harms of financial integration are counterbalanced by improvements in quality, we surveyed nationally representative samples of hospitals (n = 739) and physician practices (n = 2,189), stratified according to whether they were independent or were owned by complex systems, simple systems, or medical groups. The surveys included nine scales measuring the level of adoption of diverse, quality-focused care delivery and payment reforms. Scores varied widely across hospitals and practices, but little of this variation was explained by ownership status. Quality scores favored financially integrated systems for four of nine hospital measures and one of nine practice measures, but in no case favored complex systems. Greater financial integration was generally not associated with better quality.

Nurses care about their patients. Some nurses, who like Mary Jane were imprinted with the myth of endless abundance, believe that there should be no limits on what is done for patients. Indeed, earlier generations of nurses, physicians, and other providers were socialized to believe that it is unethical to even consider the cost of care when making treatment decisions.

Contemporary nurses know better. They know that resources both within and beyond heath care are not unlimited. They know that choices among alternatives will be, and need to be, made. What nurses often lack is the tools to help them think about ethical and practical ways in which scarce resources are managed, allocated, and used to maximize value and outcomes. This competency is an essential element of contemporary nursing practice, because the societal transition from a world of certainty and perceived abundance to one of multiplicity and perceived scarcity illustrated in the opening scenarios characterizes today’s health care delivery. Health care is too expensive, fragmented, and characterized by irregular quality. Unfortunately, many health professionals have been educated as if the world they will be working in is Mary Jane’s world of 1964.

Luckily, there is a whole discipline—complete with theories, research, and practical applications—that provides foundational nursing knowledge in the contemporary era of health reform. This discipline is economics. The over-arching field of economics is concerned with the question of how goods and services are produced, organized, and delivered to maximize efficiency and value. The emphasis on value is important: Economics is not necessarily concerned with more, but better, a concern that nurses share as a fundamental value


Theoretical Economic Approaches

There are different theoretical approaches to economics. One approach most nurses have been exposed to since elementary school is classic free market or laissez-faire economics, which contends that less governmental intervention maximizes value. Conversely, Keynesian economics suggests a stronger role for government, particularly in times when the economy is strained. Both of these models assume rational, logical decision making. Newer models of economics question if human behavior is really altogether that logical and instead acknowledge the role of emotions in decision making. This approach is called behavioral economics. All of these orientations are useful to nurses. However, the economic conceptualization that is most useful to nursing care is health economics, yet another different approach that focuses on the unique aspects of health care markets.


Health Economics

Health economics is a relatively new discipline. It emerged as a distinct field following the 1963 publication of a manuscript by Nobel Prize–winning economist Kenneth Arrow titled Uncertainty and the Welfare Economics of Medical Care. Others built on Arrow’s seminal work and furthered understanding of the ways health economics shapes health care.


Why Study Health Economics?

The models and theories of health economics—and the research they have spawned—are useful to nurses. Like a mirror or guidepost, understanding health economics helps the nurse make sense of the often convoluted, paradoxical, and invisible yet pervasive ways economics shapes the organization, financing, and delivery of health care. Moreover, many of the policy decisions at institutional, state, and federal levels relate to economic incentives and how the money flows through the system. Thus, to serve patients and help shape a world in which the holistic, patient-/family-/community-centric vision of the profession of nursing can become a reality, nurses need a confident command of economic terms and ideas and to be able to apply them in the practice setting.

Yet for many of us nurses, the interpersonal aspect of the nursing role—taking care of people and building relationships—is precisely what drew us to the nursing profession in the first place. Economics, with complex mathematical formulas, nuanced theories, and interfaces with systems-level finances, can seem far removed from the working knowledge, concerns, and everyday work life of the nurse. Nevertheless, the field of economics and the profession of nursing share key interests.

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