Mar 22, 2022 in Analysis

Economic Failure of Health Services


Health care organizations financial failures is a constant cause of discomfort for policy makers and politicians globally. Review in health care systems globally can be viewed as an attempt to tighten financial management in order to address the economic failure discomfort among health care providers. The U.S. health care system, for example, has become both costly and too complex to continue operating on its usual path. Recently, it has faced numerous inefficiencies due to barriers in quality, economic and overwhelming data progression, which has not only threatened the nation's economic stability and global competitiveness, but also affected the health improvement. It is in this regard that this paper will discuss the causes of the economic failure in health care organizations and suggest what needs to be done in order to address the situation.

Issues that Contribute to Economic Failure of Health Services

Literature from organizational scholars, as well as sociological accounting and management proves that embedded values and distinctive cultures in the health care organizations contribute to professional power struggles. Combined with the complexities of managing highly professionalized organizations, it often leads to poor choices or embezzlement of funds by the management. In addition, the lack clinicians’ involvements in managerial practices, such as cost management, budgeting, financial management or their reluctance to actively participate in financial management of the organizations is another major factor that may lead to economic failure (Palmer, 2005).

Economic literature that focuses specifically on economics of the public administration has identified that the limitation or failure is due to the lack of incentive systems within the health care that are funded publicly. For instance, soft budget impacts where chronic loss-makers are constantly bailed out of financial problems have been used to explain many of the recurrent problems experienced in the health care sector (Stencel, 2012).

Individual researchers commonly agree that the operation and design of the controlling mechanisms at the institutions of health care need further development in order to achieve effective financial management (Kurunmaki, 2006).

The central role of accounting has constantly contributed much to the health care reforms for the past few decades. Improving costing procedures and appeals that have repeatedly been made and not implemented have greatly contributed to overspending, which leads to economic failure in the organizations. Other appeals include reviewing of specific criteria for resource allocation, costing procedures, investigations of administrative efficiency and audits, and management information systems; these have all led to inefficiencies in the health care system (Pickles, 2006).

The costs of the system's current inefficiency, which underscores the urgent need for a system wide transformation is another factor. According to statistics, in 2009, “about 30 percent of health spending – about $750 billion – was wasted on excessive administrative costs, unnecessary services, other issues and fraud.” Moreover, these financial discrepancies cause needless suffering. For example, in 2005, an estimate of 75,000 deaths roughly could have been prevented if every state had delivered care, which is at the quality level of states that are best performing. 

This statistics imply that the way in which states health care providers currently learn new information, practice and train is not sufficient in keeping up with the advances in technology and research influx. This explains poor management and policies implementation that encourage economic failure.

The infrastructure that can enable downsizing in the health care organizations is unavailable, which causes deficits mainly due to the staff sizes. This is a common situation in many trusts which often deal with increased long term borrowing or bankruptcy in the private sector, which are both not accessible to the trusts. Many chief executives believe that this current difficult financial situation is promoted by the government policies, rather than local incompetence.

Poor management and inefficiency include high legacy costs and PbR tariffs that eventually mean having fixed costs per unit of financial activity. When these become higher than the usual national average, the organizations experience stranded capacity costs and irreversible sunk capital costs due to their utilization of the existing capacity, which is lower than originally planned. Destabilizing causes shifts in income across trusts and demand, which causes trusts to incur deficits, even if they are efficient and well-managed (Greatorex, 2010).

Solutions to the Economic Failure of Health Services

One probable solution to the health care economic failure is the establishment of a failure regime, which will help in situations where the government no longer wishes to deal with unsustainable and inefficient providers. In the past, trusts and hospitals also incurred deficits, but these deficits were usually met from central funds to allow trusts to continue providing services, using criteria that were not subject to effective external scrutiny and opaque (Department of Health, 2012).

The Department of Health should also consider merging the tripartite formal agreement and failure regime into a single process. This will ensure the trusts are being assessed according to their performance against a set of quality and financial indicators as either: underperforming, performance under review or performing, which would help to address the financial crisis. 

An establishment of mechanisms that will not only help to identify the problem before it occurs, but also have counter measures for deal with the situation after it occurs is important. Their functions should include dealing with failure in the NHS care and ensure that the level and type of services available in the locality will continue to meet patient needs and renew financial viability within the organizations in future (Ernst & Young, 2013).

Establishing of tariffs in order to address the high costs, resulting in the specific circumstances of the provider concerned, is also important. For example, in their location, a mixture of services or scale of delivery, this suggestion would be an appropriate answer to situations, where high costs are not the fault of the current management, but of the objective conditions that it faces.

An implementation of the suggested NHS reform for addressing financial destabilization deficiencies will ensure that the suggested action plan is indorsed in three main levels, which all contribute to financial stability. These include having financial distress regime to apply to trusts with large and “persistent financial deficits – deemed to be in financial distress – before they fail” (Harrison & Dixon, 2012). More flexible financial regime for all NHS trusts facilitates adjustment to emerging financial imbalances. A failure regime applies to trusts that are deemed to have failed (Harrison & Dixon, 2012).

Having a clearly defined financial distress threshold enacted by the health department, which if exceeded, would trigger a failure threshold and a financial distress of the regime, all together should be considered. An example of a financial distress threshold might be, when a trust’s deficit exceeds, say, three per cent of total income for two consecutive years.

Organization adaption of regulations that promote affordable patient care while striving to achieve better outcomes in their services delivery should be promoted. This is mainly achieved by implementing the use of cutting edge management technology to make substantial improvements in both quality and costs. Creating a shared vision roadmap within the health care promotes provision of greater value and higher quality within the health care fraternity. Such enactments will change the freedoms and powers within the NHS foundation trusts and promote changes in the scale and scope of the role and functions of monitors within the financial departments (Perrin, 1975).

Establishment of restructuring plan agreed with the trusts that have an elaborate financial description, targets and milestones prior to failure is also another option. This planning within the organization helps to increase performance, spare capacity, achievet a higher quality care at a lower cost while also engaging the clinicians in its implementation. However for the financial review of the health care to work, it requires an “across-the-board commitment from the government so as to transform into a learning system that continuously improves by systematically capturing and broadly disseminating lessons from past organizational health care failure experience and new research discovery” (National Research Council, 2012).

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Given the current economic situation and the financial pressures on the NHS, more organizations are likely to find themselves financially challenged. Because of this, it is no longer acceptable to keep providing an open-ended public subsidy to these organizations without any clear justification for doing so. Therefore, a plan of how they will be put on a more sound financial footing needs to be given priority if they want to remain relevant and operational. It is wise to know that the effects of the current reforms at the NHS will address the financial imbalance at various trusts, but with the implication that some of them will not succeed and in this regard, other counter measures are necessary to avoid bankruptcy. In the end, all decisions and proposals by the administrators will require the support of both commissioners and the government in order for them to be enacted in all levels of management. It should be noted that when an organization is actually deemed to be in failure and unable to pay its debts, it will still depend on the decisions of the Department of Health whether to inject funds in order to maintain a persistently troubled foundation trust operational or not.

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