Producers & Supply of Health Care

Input Substitution 

Production and Cost:

Production by definition is the relationship between inputs (nurses time, theatre time, ...) and outputs (health outcomes, patient recoveries...)

We want to quantify how EFFICIENTLY resources are used to achieve specific health improvements.

Substintuality of Inputs: This reflects how inputs can be substituted without reducing output quality "to some extent :)"  for example: A nurse practitioner might perform tasks similar to a general practitioner (GP), or healthcare assistants might handle administrative tasks to free up nurses' time. But what does this imply? 1- Cost efficiency: Substitution can reduce costs if less expensive resources  2- Skill matching: Effective allocation of tasks to the appropriate skill level can optimize resource use.

Limits to substitution: Some tasks can not be replacable due to its training or uniqueness, this emphasizes COMPLEMENTARITY between inputs. certain outputs require a combination of specific resources.

Flexibility and Technology:  New medical technologies (e.g., telemedicine, robotic surgery) provide alternative methods to combine inputs and improve efficiency.

Different ways of combining inputs to achive specific outcomes: It depends on 1- Resource availability (Affordable or Accessible), 2- Efficiency goals (Maximizing output with minimal resources) 3- Policy and regulations (policy might limit substitution like when it requests certain role for a task)

Implications for health policy: 1- Cost-effective substitution without sacrificing quality 2- Training and workforce planning to handle diverse roles 3- Technological adoption to improve input combination and efficiency 

Marginal Productivity (Differences in INPUTS because of this): The change in output as a result of adding additional units of an input 

Output maximisation: for a given budget, inputs are combined in a way that ratio of marginal productivity of an input to the cost of an input is the same for all inputs.

The contribution TO OUTPUT of an additional input should be in direct proportion to the cost of employing this input

Optimal Resource Allocation: Principle: For a given budget, inputs should be combined such that the ratio of their marginal productivity to their cost is equal across all inputs.

Wagedoc / MPdoc = Wagenurse / MPnurse

Diminishing Returns: Adding more of one input (e.g., doctors) without increasing other complementary inputs (e.g., nurses) often leads to reduced marginal gains.

Diminishing Marginal Productivity: 

1. Interdependence of Inputs

• The productivity of any one input (e.g., an additional nurse) depends on the availability of other inputs (e.g., doctors, beds, equipment).
• Example: A nurse can provide better care if there are enough doctors to supervise, beds for patients, and adequate medical supplies.

2. Diminishing Marginal Returns

• When more and more of one input (e.g., nurses) is added while keeping other inputs constant (e.g., doctors, beds), the extra benefit from adding one more nurse begins to decline.
• This doesn’t mean the additional nurse isn’t helpful—just that their impact on output becomes smaller.
• Example: Adding a 10th nurse in a small clinic with only one doctor may result in less efficient use of the nurses’ time because they don’t have enough tasks…