Case 4 Innovations from an organizational perspective 07-10-2022
To achieve long
Diversification term objectives
Organizational innovation
Organizational efficiency
Costs decrease, outcomes
increase
Horizontal integration
Vertical integration OR Outsourcing
(decision)
TCE
Which strategies can be used to integrate health care delivery systems?
Main problems why we want to integrate
Health spending continues to rise. The organization of provider markets could have a
substantial effect on prices, spending, and quality. Understanding the effects of changes in
the provider market is a pressing and unresolved issue for both health policy and antitrust
enforcement.
Six major, inter-related shifts in integration strategies were identified:
1. Decreasing interest in horizontal integration and increasing interests in vertical
integration (1980)
2. Vertical integration of organizations providing different levels of care became even
more the focus (1990)
3. Last decade, increasing focus on integrating more broadly across various levels of
care
4. Shift from economic outcomes to quality outcomes; move away from economic
arguments for integration towards improving quality and creating value. However,
there should be a dual emphasis on both efficiency and quality of care.
5. Focus to more patient centred care and patient centred measures; from evaluations
of integration using an organizational perspective to interest in patient-centred
measures.
6. From institution centred to community based integrated care (community based
health and social services); across public health, social services and related supports
such as education and housing at the community level
7. From a focus on modifying organizational and environmental structures to an
emphasis on changing ways of working and influencing underlying cultural attitudes
and norms; and
8. From integration for all patients within defined regions to a strategic focus on
integrating care for specific populations.
, Two type of markets
- Perfect markets: Perfect competition, many competitors on the same market,
balancing each other out; goal is to maximize profit across the competition
- Monopolies: 1 supplier who has the complete power over the market; goal is to
maximize profit and remain in monopoly position
Role of innovations in firm
1) Perfect competitive firm (price taker)
a. Innovation is exogenous
b. If fixed costs decrease, profits in short run increase
c. Long run, new firms will enter the market due to attractive market, prices
(and thus also profits) will decrease
2) Monopoly firm
a. Innovation is endogenous
b. Fixed or marginal costs decrease, profits increase
Firm as an innovator (Arrow)
- Competitive markets tend to encourage innovation more than monopolies because
the profits resulting from innovations are higher.
- Objectives of an organizational innovation are:
o Efficiency gain (economies of scale and scope)
o Achieve long term objectives (boundaries of the firm)
Economies of scale
- Applies to perfect competition markets
- A firm enjoys lower average costs as the quantity of an output increases = not infinite
AC = average costs
Q = quantity
Sources of economies of scale
1. Indivisibilities (spreading fixed costs)
a. Cost of production; fixed costs and variable costs
b. Fixed costs: we have to make regardless the amount of outputs. The more
outputs you have the lower the average costs will be.
2. Specialization (division of labour)
a. Allocating different people to different steps of the process by specializing,
firms can get more efficient and specialized.
To achieve long
Diversification term objectives
Organizational innovation
Organizational efficiency
Costs decrease, outcomes
increase
Horizontal integration
Vertical integration OR Outsourcing
(decision)
TCE
Which strategies can be used to integrate health care delivery systems?
Main problems why we want to integrate
Health spending continues to rise. The organization of provider markets could have a
substantial effect on prices, spending, and quality. Understanding the effects of changes in
the provider market is a pressing and unresolved issue for both health policy and antitrust
enforcement.
Six major, inter-related shifts in integration strategies were identified:
1. Decreasing interest in horizontal integration and increasing interests in vertical
integration (1980)
2. Vertical integration of organizations providing different levels of care became even
more the focus (1990)
3. Last decade, increasing focus on integrating more broadly across various levels of
care
4. Shift from economic outcomes to quality outcomes; move away from economic
arguments for integration towards improving quality and creating value. However,
there should be a dual emphasis on both efficiency and quality of care.
5. Focus to more patient centred care and patient centred measures; from evaluations
of integration using an organizational perspective to interest in patient-centred
measures.
6. From institution centred to community based integrated care (community based
health and social services); across public health, social services and related supports
such as education and housing at the community level
7. From a focus on modifying organizational and environmental structures to an
emphasis on changing ways of working and influencing underlying cultural attitudes
and norms; and
8. From integration for all patients within defined regions to a strategic focus on
integrating care for specific populations.
, Two type of markets
- Perfect markets: Perfect competition, many competitors on the same market,
balancing each other out; goal is to maximize profit across the competition
- Monopolies: 1 supplier who has the complete power over the market; goal is to
maximize profit and remain in monopoly position
Role of innovations in firm
1) Perfect competitive firm (price taker)
a. Innovation is exogenous
b. If fixed costs decrease, profits in short run increase
c. Long run, new firms will enter the market due to attractive market, prices
(and thus also profits) will decrease
2) Monopoly firm
a. Innovation is endogenous
b. Fixed or marginal costs decrease, profits increase
Firm as an innovator (Arrow)
- Competitive markets tend to encourage innovation more than monopolies because
the profits resulting from innovations are higher.
- Objectives of an organizational innovation are:
o Efficiency gain (economies of scale and scope)
o Achieve long term objectives (boundaries of the firm)
Economies of scale
- Applies to perfect competition markets
- A firm enjoys lower average costs as the quantity of an output increases = not infinite
AC = average costs
Q = quantity
Sources of economies of scale
1. Indivisibilities (spreading fixed costs)
a. Cost of production; fixed costs and variable costs
b. Fixed costs: we have to make regardless the amount of outputs. The more
outputs you have the lower the average costs will be.
2. Specialization (division of labour)
a. Allocating different people to different steps of the process by specializing,
firms can get more efficient and specialized.
