Business and Marketing / Economics Essay


Measuring Productivity in Health Care

The cost of health care in most western countries has increased. The health care system accounts for a high proportion of government expenditure. A high proportion of the gross domestic product is assigned to the health care system in the United States.

The health care system is different in each country and this makes this difference a yardstick to measure performances among countries and for measuring productivity in health care.

Measuring productivity in health care is very crucial to the economy. It has been observed by some researches in the United States that aggregate data signify poor performance. Generally, the measured productivity growth has been below the economy and this has been ascribed to measurement problems.

The measured productivity growth is as a result of a lower cost and better quality. The researchers argue that a lot of the innovations which have reduced costs and improved productivity are not always captured in standard measures.

Other researchers have the belief that, even when measured properly, the productivity growth in the health sector is still not high enough because it is seen as a service sector that has restricted capacity for effective improvements.


Productivity is very important in the health care sector and it can be seen in terms of physical inputs. Physical inputs include land, capital, and supplies. These physical inputs are needed to achieve a standard level of outcomes in the treatment of sicknesses and diseases. The production process can be viewed as a combination of management and treatment of sickness. When productivity is improved, countries will be able to reduce the pressure on their systems and still maintain the level of outcomes or improve the level of outcomes without having to increase their expenditure.

Productive Efficiency

Productive efficiency does not indicate allocative efficiency at all times. A country can provide very little health from limited resources and still produce a lot of health from limited resources and demonstrate a high level of productivity. Also, the country can use productive efficiency to achieve a little extra outcome with the abundance of resources but still produce more than the socially optimal quantity.

Traditional Measures of Productivity in Health Care

There are numerous productivity concepts. One of which is labor productivity. This measures the growth in output per worker in the long run. Labor productivity can increase if the workers develop themselves. For instance, workers could get additional skills or qualifications, more educated workers could be employed, and advanced technology could be adopted.

Multifactor productivity growth is used to measure the additional growth in the output in the long run which is achievable using the same inputs. That is the same labor, capital, and energy. The increase is a result of improvement in technology using the same inputs. Multifactor productivity growth is residual. This means that the growth in the capital cannot be explained by the changes that occur in the inputs.

The traditional approach defines output as the expenditure on health goods and services. These health goods and services include medicines, physician services, and other hospital services.

Problems with Traditional Measures of Productivity Growth

According to traditional measures of productivity growth, health care output is defined as a nominal expense on the health care providers. The health care providers include hospitals and physicians. These expenses are reduced by a price index. Normally, this should bring about the measure of the units of output over time but this is only in theory. A mismeasurement of the price of health care will bring about a mismeasurement of output and productivity measures. If there is a problem with the measurement of prices of health care it would lead to the measurement problems of productivity. The measurement of productivity depends on the measurement of prices of health.

There are two major problems of measurement of the price of health care. The first one involves identifying a suitable good. The traditional approach defines the good as the health care service that is bought. For example, purchasing a doctor's appointment, purchasing prescriptions, purchasing a hospital stay. These purchases are seen as intermediate inputs. That is, even though a consumer makes these purchases, the consumer's major want is to have health.

The second problem is that the nature of good chances in the construction of the price indexes for medical care. Because medical care has leaned towards improvement over time, the measures of these prices do not always capture the growth in quality and this can lead to an overstatement in the growth of price in the health care and also and understatement in the growth of productivity.

The Disease-Based Approach in Measuring Health Care Quantities and Price

Health goods and services have been overshadowed by refining the health care system over time to the treatment of diseases. The National Academies Committee on National Statistics promoted this shift. This led to the introduction of the Health Satellite Account by the Bureau of Economic Analysis to account for the health expenses on a disease basis and experimental disease-based price indexes were developed.

Nominal expenses are not affected by the disease based index but it affects the measurement of prices. In the disease based-approach, the treatment for a specific disease is the medical service bought. This leads to an increment in expenditure as a result of the increase in disease prevalence.

There has been a development of disease based-price indexes from the traditional service-based price indexes. The traditional service-based price indexes are defined as the measurement of the price of medical services that are fixed. The disease-based price index has the advantage of capturing shifts between providers. The traditional approach does not capture the shifts because it uses changes in prices for a bundle of medical services that are fixed. For exampleMeasuring Productivity in Health Care, a hospital stay.

An increment in the severity of services adopted in the treatment of diseases will lead to an increment in the average cost of the treatment of a disease and this will bring about an increase in the price in the treatment-based approach.

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