The product of health function would eventually bend
downward.  For example, if a patient is
in need of multiple rounds of chemo therapy, the iatrogenic disease stays at
the same rates per unit while the production continues to diminish returns; you
will start to see a downward bend.  If
chemotherapy treatment has harmful adverse reactions that are staying at a
constant rate, while the treatment itself slowly is decreasing in rates, the
healthcare can actually become a harm to the patient rather than a help. Historians believe that modern medicine had very
little to the do with the declining mortality rates.  In fact, the authors of Economics of Health
and Health Care state that in most cases of mortality decline, medical
intervention did not occur until after the decline occurred (pg115).  The textbooks also notes in the works of “Who Shall Live?” By Victor Fuchs that in
New York in the Early 1900’s infant mortality declined.  This was due to the decline of
“pneumonia-diarrhea”, which most would assume was because of medical
advancements, but was noted to be due to better living standards, increased
education, and the fall in birth rates. 
Fuch states that “medical care played almost no role in this decline”
(pg. 115).  Furthermore, with the improvement
of clean water, improved nutrition, and pasteurized milk, health significantly
improved, thus a decrease in mortality rates.    The theory of production states that healthcare
production has a diminishing marginal return. Meaning that the inputs to
healthcare might be large, but the return or outputs on the investment is
small. This can be seen in modern heath care margins.  Historically, the role of medicine and
physician provided health care in mortality rates was minor.  It has been noted, that the decrease in death
were commonly related to better living conditions, introduction to better
nutrition, and education/literacy. 

The production of health in modern-day is difficult
to measure due to morbidity rates and mortality rates.  Health can be measures easiest with death
rates.  “The Economics of Health and Health Care” states that health care is
a huge contributor to health but the effect on health is small with a margin of
around 0.10.  If the average life
expectancy was 76 year old, the increase would be 0.76 years spread over the entire
population.  The government would also
want to look at statistically whether healthcare has shown significant
improvements in the race, gender, and ethnicity that is more common in that
region of the world.  It has been shown
that healthcare is more productive for women and blacks.  If the vast population of this country is
Asian men, the effect would not be as high. 

In conclusion, the government should look at their
country holistically.  Why is the health in
decline?  Is the bigger issues with
resourcing clean water, are citizens living conditions dire, do they have the
means to growing agriculture?  If these
are concerns, maybe their investment should be more economic, meaning they
should invest in finding new ways to have access to clean water, education, and
nutrition food.  Technical efficiency is when a company’s cost and
benefits align to a happy medium. Basically, if you have an increase in cost
but not an increase in benefits, you are running at a technical inefficiency.  If you have a decrease in benefits and a
decrease or increase of costs, you are not effectively utilizing your resources
or inputs.  Technical efficiency is where
you are achieving max output for a given input(s).

Allocative efficiency is different from technical
efficiency in the matter that it requires that efficiency be between not only
firms, but also between outputs.  The
Economics of Health and Heath Care textbook states that allocative efficiency
requires that each type of capital and labor be exhausted to its most rewarding
use in society (pg.146).  Allocative
efficiency looks at how inputs combine to produce an assortment of different

Technical efficiency is when a firm is looking to
have the highest amount of outputs with a minimal amount of cost. If a
healthcare facility is only using technical efficiency, patient welfare could
fall short of being a top concern.  For
example, if a hospital decided to give patient care decrease of 50% of their RN
labor force, but increase the number of LPNs and CNAs, they will be saving
costs on labor and salaries and producing more outputs.  This could affect patient welfare in many
ways, especially if the remaining RN labor force is overworked. Allocative
efficiency is when there is optimal distributions of inputs are allocated to
maximize the welfare of the community. Each of the types of technological change can be
cost increasing.  Anytime there is a
technological change there is an increase in costs associated with the
technology.   Threats of malpractice
suits causing a physician to order more diagnostic tests on an average patient
for a given set of symptoms can cost more money.  This would cost more money for both parties; to
the patient and the insurance company and in turn can cause more labor,
equipment maintenance, and supplies to be used by the healthcare facility. This
can also cause the health care facility to be inefficient.

A new
computer-assisted scanning device that enables physician to take much more
detailed pictures on the brain would cost more for the facility to buy and
maintain, but will eliminate many tests that they might have had to preform,
including expiratory surgery which will save to health care facility money in
the long run.  In turn, because of this
new technology, this could cause unforeseen expenses to the patient.  The
introduction of penicillin earlier in this century would have made the
treatment of diseases with penicillin more expensive at the time, but as time
went on the treatment would have become relatively inexpensive.  It could even be assumed that the medication
could have moved to an over the counter medication.  A greater emphasis on preventive care would
cause an increase in costs for the insurance companies, non-insured patients,
and the hospital.  It would however, not
increase costs for the insured patient as preventative exams are covered 100%
by insurance.   


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