Health Economics Series: Cost Efficiency and Allocative Efficiency

A government can be cost-efficient but have poor allocative efficiency. Cost efficiency achieves the maximum health benefit at a given cost while allocative efficiency maximizes the health of society by achieving the right mixture of health goods and services according to preferences.

Say for example the government wants to produce more midwives under a national scholarship program to address the lack of health care professionals in community health care settings, particularly in BEMONC facilities. The choice of producing more midwives gained traction because it was perceived as relatively cheaper than producing medical doctors. If the cost of producing one midwife is 150,000, the cost of producing one doctor is 200,000 and the budget is 100,000,000, the government will have to look for a combination of inputs that results in the maximum output at minimal costs in order to be cost-efficient.

The red points in the first graph (Figure 1) shows different combinations at which the production of midwives and doctors are technically efficient. The green point shows the maximum number of midwives and doctors that can be produced at the given budget of 100,000,000. In this example, the government is cost-efficient if it produces 400 midwives and 200 doctors.

While producing these numbers of midwives and doctors are said to be cost-efficient, it would not immediately mean that the action depicts allocative efficiency. This type of efficiency occurs when goods (midwives/doctors) are distributed or allocated according to consumer preferences. Usually, allocative efficiency is seen as an output level where price (P) is equal to the marginal cost (MC) of production because the willingness to pay is equivalent to the marginal utility derived from the good consumed. Thus, the optimal distribution is achieved when marginal utility (MU) equals marginal cost.

At an output of 100, the marginal cost of the good is roughly 100 (Figure 2). But at is this output, society is willing to pay a price of 600. Therefore, society is said to be under-producing midwives. At an output of 500, the marginal cost is 600, but society is willing to pay only 100. Thus, society is said to be over-producing midwives. In this example, allocative efficiency will occur at a price of 350 with an output of 300. This is the point where the marginal cost is equal to marginal utility.

Health Economics Series: Average Productivity and Marginal Productivity

Average productivity (AP) is simply the quotient of the total output (O) divided by the number of units of a certain input (I) [i.e. AP = O / I]. Marginal productivity (MP), on one hand, is the additional output derived from an additional unit of a certain input [i.e. MP = ∆O / ∆I].

Example: Suppose that the Philippine Congress is currently deliberating on a bill that seeks to convert the Aparri District Hospital to Aparri Regional Hospital. One of the factors considered in this type of hospital conversion is the increase in the hospital’s authorized capacity which entails the creation of new plantilla positions. We take nursing personnel in the Out-Patient Department as the focus of this example. Table 1 shows the relationship between the nursing input (number of nursing staff), and the desired output (measured in the number of patient visits / attended).

Table 1. Input, Output, Average Productivity and Marginal Productivity for a Proposed Staffing Complement
Input

(Nursing

Staff)

Output

(Patient

Visits)

Average

Productivity

(O/I)

Marginal

Productivity

(∆O / ∆I)

0 0 0
5 10 2.0 2
10 30 3.0 4
15 45 3.0 3
20 50 2.5 1
25 55 2.2 1
30 60 2.0 1

The average productivity provides an insight into the “production process”. This product simply presents the average quantity of service (in this case, nursing services) produced by a nurse. With five nurses, a nurse can attend an average of two patients. Ten and 15 nurses tend to produce the same average productivity per nurse which happens to be the highest among the other averages. At first glance, decision-makers are given the option to choose whether to allocate funds for ten or 15 nurses. Choosing the latter would mean more nurses employed in the government nursing service.

Since decision-makers want to maximize total product, they will look at how adding extra nurses affects marginal product which contributes to the total product. The table shows that adding more nurses generates fewer services in that it demonstrates the law of diminishing marginal productivity. The incremental nurses become less productive due to constraints imposed by other fixed inputs. Thus, at higher levels of output, the marginal productivity of nurses begins to decline. In order for the government to get value for money, decision-makers will look at options where the marginal product continues to rise. In this case, it is at option 3 (ten nurses). While the average productivity of 15 nurses is the same as that of ten nurses, the marginal productivity actually decreased when five more nurses were added to the nursing pool.

Health Economics Series: Uncertainty and Asymmetric Information

Uncertainty is a situation where it is impossible to know the likelihood (unknown probabilities) of an event occurring while information asymmetry is a situation in which one party has more / better information than the other party.

Many Filipinos exhibit the first type of information failure: uncertainty. Filipinos are not keen on examining the financial implications of contracting a disease/illness. Because of the perceived uncertainty of acquiring the disease and its associated financial repercussions, many Filipinos do not know their need for health care. Two policy responses are widely accepted in the country (social health insurance and private insurance) to help address this. Through these insurance schemes, financial uncertainties directly connected to future disease or disability are minimized.

Information asymmetry is seen in the classic case of tobacco smoking. Smokers usually do not know the addictive properties and health consequences of tobacco use. As such, in 2014, the Graphic Health Warnings bill was signed into law. This law seeks to curb tobacco smoking by providing health information through graphic health warnings in tobacco product packages. The law is the government’s response to information asymmetry happening between tobacco manufacturers and tobacco smokers.

Pen Point 47

Duterte & his allies have mastered the art of deception and selective justice. Deception of people for the sake of the people is a contradiction in democracy. Indeed, politics is a dirty game. Remember that there are no permanent friends, or enemies, only permanent (sometimes selfish) interests.

Inaction is action. Our government is responsible both for the things they do and the things they don’t do, especially when they could choose otherwise. Not until the majority of us choose to side with true democracy, we will continue to fail as a society.

Haven’t you had enough?

Share the road

Due to the COVID-19 pandemic, the public transportation system was paralyzed to limit our mobility. Some government agencies, hospitals, and private organizations were quick to assist medical and non-medical frontliners in their day-to-day travel to and from work by providing other means of transportation such as free shuttle services. Notably, more bike riders are now seen on the streets due to various bike programs. Many of whom are health care workers, myself included.

However, even with the enhanced community quarantine, private vehicles continue to swarm the roads. Some of these vehicles deliberately disobey traffic rules (e.g. beating the red light) which increases the probability of road accidents. This makes it more difficult for bike riders or cyclists to navigate their way to their homes or workplaces.

More health care workers are now opting to walk or ride a bike to work. Thus, it is imperative for the government to reemphasize the importance of respecting traffic rules to avoid unnecessary accidents and deaths. With the growing interest in bike riding and road sharing, we hope to see more bike lanes and road sharing policies in the future to ensure the safety of people choosing alternative modes of transportation in the post-pandemic world.

Burned and scarred

WARNING: This post contains sensitive content which some people may find offensive or disturbing.

Many of us assume that pay and other rewards are all that we can expect to receive from our work. There is less emphasis on less-tangible but equally important benefits like trust, respect, civility, and the opportunity to make a positive change. This view of our work encourages behavior and attitude that lead to employees’ burn out. Thus, contributing to a workplace culture that harms people’s well-being and sense of self.

Over the past years, I’ve struggled with the unprecedented consequences of psychological harassment (also known as bullying). Truth be told, I may not be the only one experiencing this. There are many who might have been blinded to see this kind of harassment as simply ‘part of the job’ or an act of ’keeping the organization intact’. Many of whom would not even know that they, too, are victims.

Our culture and system both cultivated a workplace environment that is punitive, antagonistic, cynical, and perhaps self-serving. Some of you might agree that culture, much like a system, is one that is hard to break or change. It takes considerable effort and political will to accomplish this. However, it is my fervent prayer to see the day that workers get to enjoy working in a workplace that emphasizes the importance of openness, trust, transparency, respect, integrity, and accountability.

It has been months since I began thinking about my next big step. And, the recent burn accident that happened to me while on duty showered (figuratively) me with enough motivation to seek some enlightenment. For now, nothing is definite. But I am only sure of one thing: my conscience is clear. Nothing that I ever did or said intended harm to anyone. My views, opinions, and actions are all in accordance with my personal principles, the ethics of nursing, and the vision and mission of the organizations I am affiliated with.

It saddens me that my pure intention to help, no matter how it is expressed, is often dismissed with prejudice. These preconceived opinions, which I believe are not based on reason, have led to several instances of misunderstanding, manipulation, and most especially misinterpretation. The constant desire to prove one’s worth and sincere intentions has surprisingly taken a toll on me.

Today, I begin to seek ways on how to regain myself. I might be better off seeking fertile soil elsewhere to cultivate my skills and share the fruits I long to offer our society, rather than trying to build a garden in a barren desert. I wish to end the nights of loneliness and self-doubt. I pray that one day I will be able to regain or improve my confidence, well-being, self-worth, and sense of self. Tomorrow, we start the process by going back to the bedside and care for people who currently need us most.

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Disclaimer: Views and opinions in this post are my own. They do not reflect the official positions of the organizations I am currently affiliated with. If the shoe fits, wear it.

WE SHOULDN’T BE SILENCED. WE MUST BE HEARD.

WE SHOULDN’T BE SILENCED. WE MUST BE HEARD.

It is almost always difficult to make a decision. Probably, it is harder during a pandemic when you battle against time and limited resources. Not all administrators will make the right decisions. Not all employees will have the same opinion. What’s common, I suppose, is the collective vision of ending the pandemic at the soonest time possible.

Everyone is afraid, anxious, or worried about dealing with many uncertainties. As a result, everybody is doing all things they can to be saved. Obviously, some *subordinates*, as they call them, would want to be heard. Some people talk in small groups. Some in bigger groups. During a pandemic, it is natural for these people to begin to raise their concerns about how things are being handled. It is common for people to criticize decisions they think are doing more harm than good. It is common for people to propose solutions to problems that directly (or indirectly) affect them.

On the one hand, it should NOT be common and natural for people to blatantly silence critics who are airing valid concerns. Issues, concerns and criticisms are all part of leadership. Rather than thinking of them as bullets attacking or undermining the administration, it is more important for administrators to consider them as challenges. Rather than play the victim, administrators can own criticisms and convert them into opportunities.

Too many administrators get too defensive and choose to focus more on their reputation. They tend to impulsively react and dismiss legitimate issues and concerns, rather than objectively assessing or reevaluating the situation at hand. There have been times when administrators turn the criticism around the person speaking up. They end up chasing the ‘mastermind’ who can easily be blamed, rather than seeing it as an opportunity to learn from someone else. Yes, even from someone among the “subordinates”.

Criticisms are sometimes a clear reflection of poor judgment, but never of character or personality. TAKING CRITICISM IS A DIFFICULT THING. But criticism can always be considered a form of communication – an honest feedback on what transpired after a decision was made. Such feedback can make us stronger by allowing us to listen to honest views that tell us what can be done better. Moreover, TAKING CRITICISM IS UNCOMFORTABLE but it forces us to think about how we work and how we decide. Constructive criticism can guide us away from making poor judgment and subscribing to bad practices.

I believe one of the most important qualities of an administrator is being a good listener. And that applies more when one is being criticized. Don’t always shut them down. Turn up the volume, lend your ears, and listen to what is being said. Be the change agent people want you to be. Turn the negativity into an avenue that enables growth, maturity, and innovation. Turn words into action. Show that you can listen to feedback and at the same time get the job done. Together, let us change the workplace culture of blame. Let us heed the call to become more honest, transparent, and consistent.

Rather than flashing your palm at someone, open up your arms and say…
“I have thought about what you said and this is what I’m planning to do. What more do you think can we do?”