MICROECONOMICS APPLIED RESEARCH

MICROECONOMICS AND LONG-TERM HEALTHCARE

Cochise Community College Campus

Microeconomics

Cochise Community College

Microeconomics and Long-term Healthcare It was not long ago that our country was going through some very difficult economic times. Job losses were on the rise, there were many issues leading to an increase in foreclosures, and many financial institutions needed to be bailed out. Many people, however, held the misconception that the health care industry was immune to the economic problems that faced our society. Many thought that those working in the health care industry had no need to worry about losing their job and that they were disconnected from the larger problems of society. Those involved with health care have to deal with issues that are faced by the rest of society. Because of this, it important that the health care industry address these problems in a timely manner due to the lives that are often dependent on their decisions. In 2009, individuals aged 65 years of age and older constituted approximately 12.9 percent of the U.S. population (A Profile of Older Americans, 2010). Projections for 2030 show there will be an increase to 20 percent of the population that will be 65 or over. The aging of the population will affect the demand for healthcare because older individuals encounter more frequent and prolonged spells of illness. Those individuals that are 65 years and older use over three times as much health care as those between 19 and 64. This year, 2011, will bring a significant growth in health care due to the 76 million people born between 1946 and 1964 beginning to turn 65 (McConnell, Brue, and Flynn 437). Many individuals, 65 and older, turn to long-term care and assisted living. The economic climate of long-term care has been of constant importance for healthcare administrators. Due to the influx of our aging community, many feel that nursing homes are thriving and making a large amount of money. However, this is not the case. Most nursing home's margins are often not very far from zero, being at times slightly above or slightly below. They are also facing a $16 billion cut in direct support from Medicare over the next 10 years, as well as Medicaid cuts in many states (Mullman, 2009). To assist their situation, many nursing home facilities have tried to maximize their profit margins. There is nothing wrong with this because health care is a business but, they must not forget their main goal of caring for those that are unable to care for themselves. The problem for these facilities, however, begins when management losses sight of their main goal and starts to evaluate their entire business on the basis of the economics of the facility. It is when they attempt to maximize their profit margin at the expense of resident care that their problem begins. Unfortunately, and all too often, health care management, including long-term care managers and administrators, fail to understand that conducting business of long-term health care is not the same as conducting other forms of business. For these administrators, the lives of dependent individuals are reliant on the decisions they make (Garavaglia, 2009). Many forms of reimbursement have not kept up with the rate of inflation in the medical industry. To make up for this, administrators have been known to control their economic environment by targeting the workforce of the nursing care facility. Consequently, health care organizations have introduced many tools, such as metric systems that inform management staff how many workers are needed for a given number of residents. Also common is the use of metrics of hours per patient day. Although, using measurements to help control excess is important, the administrator has to be aware that these numbers are not etched in stone and that in addition to staff-patient/resident ratios; one has to also calculate many of those intangibles that often do not lend themselves to quantitative analysis. For example, the acuity of an environment, based on wounds, bariatric issues, or the number of acute illnesses that are currently exacerbating chronic conditions, have to be considered and factored in to the control area. These are not always easy to capture through a measurement device. As stated previously, those in health care are not disconnected from the larger economic problems, such as workforce reductions. Although, long-term care has often had resistance towards this, especially with their nursing staff, they are still affected. Workforce reduction may be needed but, administrators must be prudent when using it as a financial control mechanism. They must be aware that although they may be reducing overall labor costs which will make an important impact on the economic environment of their nursing home, there are also costs that cannot be measured. Making workforce reductions often entails losing important social capital, such as those qualities of knowledge, experience, and care that are not easily quantifiable. Although reducing the workforce by two or three individuals save the administrator those measureable costs found in their income statement, the reduction of those two or three individuals could actually entail intangible social capital losses that may amount to really losing more units of quality care ([pic]Garavaglia, 2009). The business mindset, especially during difficult economic times, is often based on reducing members of the workforce to create greater harmony to those financial instruments that are often used in measuring the performance of a business. However, administrators and long-term care organizations cannot successfully manage their health care organization exclusively in this manner. Unfortunately, health care administrators and health care organizations engaged in long-term care too often attempt to take on this business-based mindset. Taking on the common classical and neoclassical economic principles does not always work and attempting to use tangible economic measurements without paying attention to those intangible economic features has caused considerable problems for those in long-term care. Continuing to navigate difficult economic times by using these types of managing microeconomic environments will ultimately impact quality care in a negative manner.

Works Cited
"A Profile of Older Americans: 2010." U.S. Department of Health and Human Services. Administration on Aging, 2010. Web. 9 May 2011. .
[pic] Garavaglia, Brian. "The Microeconomics of Long-Term Care Can Cause Problems." Healthcare POV. Merion Matters, 2011. Web. 5 May 2011. .
McConnell, Campbell R., Stanley L. Brue, and Sean M. Flynn. Microeconomics. 18th ed. New York: McGraw-Hill/Irwin, 2009. 437. Print.
Mullman, Ray. "Profit Margins of Nursing Homes." South Carolina Nursing Home Blog. Poliakoff & Associates, P.A. , 12 Nov. 2009. Web. 5 May 2011. .