A supply-demand model of health care financing with an by Ricardo A. Bitran

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By Ricardo A. Bitran

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Page 1 1 Introduction Developing countries are turning increasingly toward cost recovery, particularly user fees, to pay for health care services. Decisionmakers in those countries face the difficult task of developing and implementing cost-recovery systems. Unfortunately, those who decide are often unfamiliar with health care financing issues and lack the necessary skills to design pricing systems and determine price levels. In recent years health economists have begun to develop computer models of health care financing as an analytic tool for decisionmakers.

2 of exhibit 4-1, with the above-specified input variables, the health center has a negative monthly net income of -Z77,000 before paying for supervision fees and depreciation, and negative net income of -Z178,000 after supervision fees and depreciation. According to the base scenario, this implies that the health center needs external subsidies not only to pay for supervision and depreciation but also to cover part of its recurrent costs. This was a common situation in Zaire in 1987. Exhibit 4-2 shows the baseline elasticities of demand with respect to price, income, and distance, all computed at a distance of 500 meters to the respective provider (table A.

Labor Costs Modeled as Step-Fixed Costs Total monthly labor costs of the health center are computed by calculating the sum of labor costs across the five health care services and the four types of medical personnel: Although labor is treated as a fixed cost in the above specification, it could easily be converted into a variable cost by eliminating the integer function from the above formula. In such a case, the number of minutes of each category of employee would continually be adjusted up or down with demand.

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