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Lecture 11

EC248 Lecture 11: EC-248-Lesson-11

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Wilfrid Laurier University
Logan Mc Leod

EC 248 Lesson 11 – The Supply Side of Health Care Provision: Hospitals & Pharmaceuticals - Distinguishing between the physician as a supplier of labour and human capital, and the practice as a producer of physician services - Health care can be provided publicly or privately meaning:  Public Provision: services provided by employees of an organization owned by local, regional, provincial or federal government. Rationale is publicly provided service will be equitable  Private Provision: Services delivered by employees of an organization with private-sector owners (limited-liability firms, partnerships, sole-proprietorships, etc.) Rationale is on belief privately provided services are produced more efficiently - Delivery of health care can be done by organizations with different profit motives, not-for-profit, not-only-for-profit or for-profit - All three types can be either public or private (Ex. Physicians in Canada are mostly private not- only-for-profit, while physicians in the UK are mostly public not-only-for-profit Institutional Background of Physicians in Canada Economic analysis must distinguish three distinct elements of the physician sector: 1) Physicians themselves 2) Physician practices which combines physician inputs with other inputs to produce physician services 3) Market for physician services, which sets the economic context within Modeling the Physician Practice and Physician Behaviour - Most physician practices have been structured like owner-operated small firms, where the physician plays two roles: 1) Physician supplies labour to the practice, combined with other labour inputs (nurses) and capital (examining rooms, lab equipment) to product physician services for patients 2) Physician is the owner of the practice with a right to the net income of the practice, implicit wage is the net income of the practice divided by number of hours the physician works - Economics model of physician behaviour have three key elements: 1) Physician objective (preferences, or their utility function) 2) The production function (practice) 3) The constraints Physician Preferences - Generally assume Physicians maximize utility subject to the constraints imposed by production technology, time, and market conditions - Physicians are economic agents who care about consumption (C ), leisure (L), and ethics (E) 1) U = U(C, L, E). - Consumption reflects a physician’s desire to purchase consumer goods with the income earned from their practice (assumed as a normal good, consumption increases as income increases) - Leisure reflects the time a physician spends not working, assumed to be a normal good - Ethics represent the idea physicians are socialized to provide appropriate, good-quality care and abide by certain professional ethics - Assume physicians utility decreases when care provided deviates form the appropriate level of care Production Function for Medical Services - Refers to the process by which inputs are converted into outputs, referring to how we produce medical services (the output) by combining physician labour with other outputs - Simple representation of the production function is: M = M(A; I) - M is the quantity of medical care provided, A is the hours of physician labour, and I is the other inputs to the practice - Most models assume production function exhibits constant returns to scale (so if all inputs double, output doubles) and there is some substitutability between A and I Constraints - Generally think of physicians facing two types of constraints: 1) Budget Constraint - Simple representation of physician’s budget constraint is: O + F M =
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