Overview of Healthcare Sector

The Issue of Raising Costs on Healthcare

Healthcare industry plays a crucial role in any country, and it forms an enormous sector of its economy. It is an aggregation and integration of various sectors of the economic system that aims at providing goods and services to treat the ill with curative, rehabilitative, palliative care, as well as preventive measures. It pertains the collective and commercial products and services with the sole aim of maintaining and re-establishing health. Approximately, the healthcare industry consumes about ten percent of Gross Domestic Product (GDP) of developed countries (Hurley 100). The approximated amount accounts for the expenses used by these developed nations to purchase medical equipment and drugs from the manufacturers.
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For the essence of management and financial aspects, the healthcare sector is divided into some areas that perform independent activities. As a basic outline for describing the areas, the UN International Standard Industrial Classification (ISIC) puts the healthcare industry to consist of hospital activities, dental practice, and therapeutic activities, and, finally, other human health activities (Murray 232). The latter includes all activities undertaken by medical staff, which includes midwives, nurses, and physiotherapists. The healthcare facilities and services group comprises companies and firms that supply medical equipment and other essential medical supplies and health services such as hospitals and nursing homes among others. Other approaches in the scope of this industry tend to have a wider definition, also comprising other fundamental actions that relate to health; for instance, training and educating health professionals as well as management of the delivery of health services, the provision of complementary medicine, and administration of health insurance.

It is worth noting that the cost of medical care has tremendously increased over the recent years. Possibly, it is attributed to some reasons that include hospital care. The hospital care amounts to nearly 33 percent of the country's annual health care expense. The rapid growth of medical technology, for instance, robotic surgery, has escalated the cost of these valuable services to higher grounds that cannot be accessed by low-level income individuals. Lab tests and drugs are also driving up the cost of treatment, and the consumers are affected mostly by the higher costs (Hurley 100). The prices for drugs are also observed to be rising but at a slower rate. Health plan administration has also contributed much to the rising cost of medical care in most countries. For instance, the health insurers annually change the costs of their programs so as to accommodate their cost of undertaking business.

With the increase in population, most of the countries have been forced to adjust their budgets to accommodate the new individuals. The demand for medical services has tremendously increased and has exceeded the supply thus; most of the nations have opted to solicit funds from various organizations such as World Health Organization (WHO). The increase in the population of individuals of a particular age, for instance, the infants has attracted a lot of attention from the government since this group is more vulnerable to health-related challenges (Murray 232). The same concerns the aging people. As a result of funding for various organization, some of these countries have tried to subsidize the cost of medical service so as to ensure that the low-income individuals meet these necessary facilities. The subsidy has created a significant impact on both the consumers and producers of health care. Subsidizing the cost of medical service has enabled most of the patients to get access to treatment, and this has greatly enhanced their lifestyle. With the increase in the population, most countries have come up with new medical schools to train more professionals. It has ensured that the medical services are devolved to local communities where challenges related to health are commonly experienced. Services such as maternity care have been enhanced greatly due to subsidized cost of the service.

The health sector has also been boosted by biotechnology industries that have the ability to come up with, manufacture and market new drugs. The new drugs have generated multibillion-dollar income to the country. The biotechnology companies mostly use biological processes that involve the use of microbes or cell lines that are subjected to genetic manipulations so as to produce products that have therapeutic value. The biotechnology industries not only are engaged in the production of drugs but also play a significant role in conducting research on diseases (Hurley 100). Biotechnology and pharmaceutical industries also face some threats. For instance, as these companies channel their products to the consumers, they rely on coverage and insurance from insurance providers to obtain sales, and they are forced to wait for payments. Consequently, this increases the time between producing a product and getting paid for that product.

Distribution is an important part of healthcare supply chain. It comprises all the distributors and wholesalers of medical care products (Murray 232). With an increase in drug and equipment produced, the distribution industry is fast growing. For instance, an America's biggest distribution company called AmerisourceBergen has recorded a 485% increase over the last five years (Hurley 100). Due to fast and efficient distribution industry, hospital and other health care facilities have been able to access drugs and equipment with much ease.

The health sector has got some significant macro drivers that associate with it. The primary factor that significantly influences health care is the government regulations. They, therefore, affect pharmaceutical and biotechnology companies because many drug trial tests are essential before FDA approves the drug itself (Murray 232). This process also takes about 12 years to develop the drug fully. Together with a major time frame, it is again very expensive to develop a new drug, and approximately five billion dollars is needed. In addition to these regulations from the government, unemployment also has an effect on the health care sector. While some drugs subjected to phase trials are being approved, they would have brought high revenues to the company. However, many will fail to pass through a test phase of product development. Regarding the products that have been rejected by the concerned regulatory body or have certain hazardous effects to the public, the total cost incurred during such development helps the company budget and allocate enough funds that will adequately sustain the project.

Just like any other industry, the healthcare industry is in maturity phase. It is the stage in which the industry settles on its key product and the economies of scale achieved. Also, it is at this point where the industry forces itself out of the market, and the consequences are that the company is left in the market, and it no longer aims at the market share and cash flow.

Technology, demographics, and advances in medical care dictate demand for medical services. However, there exists a unique feature in healthcare sector because the relationship between demand and supply is inelastic. The reason for this inelasticity is that the consumers in most cases do not pay for their health care services directly. A higher percentage is paid by the insurance companies they have subscribed to. Because of this, the consumers pick what they need just like other commodities in the market. The other reason is that healthcare is not like other products available in the market; people only go to the hospital when they have to, not because they want to. It is also worth noting that the healthcare industry has minimal competition since the demand is inelastic especially in managed health care and the facilities.

Like drug companies, medical equipment is one of the essential products needed in the healthcare sector. The equipment sphere comprises of those industries that manufacture health care equipment, drug delivery systems, cardiovascular devices, and equipment used for diagnosis. This material is distributed to the hospital setups, and the doctors utilize them to treat patients. With these many industries manufacturing materials and drugs, there is a need to have a distribution industry that ensures all the products required in a facility is disseminated at the appropriate time (Hurley 100). Most of the terminals where these products go are located mostly in local and non-developed areas where roads are poor. The concerned authority has dealt with this challenge by constructing accessible roads in the area.

In conclusion, the healthcare sector comprises of many other industries, sub-industries, and a wide variety of companies. All the firms that are charged with product and service similar to those of health and medical care are encompassed in the health care sector, and they are further classified into six main industries. These industries include biotechnology, pharmaceuticals, distribution, equipment, facilities and finally managed health care. From the above discussion, some supply chain aspects have been highlighted and healthcare sector and its association with the market overall.

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