Economic Factors Affecting Health Care Industry

Economic Factors Affecting Health Care Industry

There are many factors affecting healthcare industry. They include socio-economic factors that strongly interact to influence the industry. Economic factors affecting health care industry mainly refer to financial constraints in the industry that directly or indirectly influence hospital revenues. Over the past years, healthcare facilities have witnessed muted revenue growth especially with implementation of new laws. New healthcare provisions in particular lead to a change in reimbursement policies of healthcare facilities.

Health Care industry comprises of providers of preventive, diagnostic, remedial and therapeutic services such as nurses, doctors, hospitals, private and public voluntary organizations. The industry also includes pharmaceutical manufacturers, health insurance companies and medical equipment manufacturers.

Five major economic factors affecting healthcare industry

Reduced hospital funding

Hospital funding is in many cases yanked in an effort to increase profit margins and to ensure shareholders are happy. This leads to dire consequences for patients, staff and the general public. With less money coming from different sources including private and public sector and the government, the efficiency of health care industry is affected.

In the past years, hospital administrators have designed creative ways to manage hospital funds but this is quite costly to the general public. The quality of other essential services such as hospital cleaning is reduced. Nurses and doctors end up exhausted thus, affecting the quality of service delivery.

More uninsured families

There is high unemployment rate across different parts of the globe. As a result, many people have lost their employer’s or company funded health cover. Many families do not afford to pay for covers on their own based on pre-existing conditions. This leaves families and especially those with children and the elderly more vulnerable to diseases, illness and possible death. If unemployment rate continues to rise, the problem will continue to worsen and with more dire consequences.

Shortage of staff

Shortage of staff is as a result of reduced hospital funding. Nurses and doctors are therefore overworked. This leads to a domino effect on patients due to high chances of error and less time for quality patient care.

What’s more, dosages and medicines are no longer double checked due to lack of time. There are many accidental deaths. This happens more than the industry wants to admit.


Obesity is one the rise across the globe. It seems that many people are more aware of foods they need to eat but even so, obesity rate is still high. Research studies show that one in three children are obese or overweight. This exerts a significant strain on health care industry. High blood pressure, diabetes, stroke and high cholesterol as well as cancer are just a few conditions related to being overweight.

Such diseases are often hard and expensive to treat. Therefore, it affects health care industry socially and economically.

Pharmaceutical companies

Advancement in technology and scientific breakthroughs in medical research and development have put Pharmaceutical Companies in control of the industry. Despite the advancements that come with scientific breakthroughs, the cost of accessing quality medicine and other prescriptions is relatively high. Pharmaceutical companies have also become greedy hence, putting a lot of strain on Medicare and Medicaid Industry.

It is however important to note that pharmaceutical drug pricing mechanisms differ from one state to the other. In U.S, pharmaceutical companies negotiate with payers to fix prices while in Europe, prices are regulated by the government.

Economic factors affecting health care industry and hospital revenues

With economic factors affecting healthcare industry in mind, it is imperative to note that out of pocket spending is not a major player in the industry. However, the state of the economy affects a wide range of public policies which, directly impact hospital revenues. Hospitals as mentioned earlier display muted growth due to new hospital laws. New provisions have also led to a change in reimbursement policies of hospitals.

Additionally, major hospital systems including Tenet Health Care, HCA holdings, Community Health Systems, Universal Health Services and Life Point Hospitals.Inc displayed reduced revenue growth rates in the past few years, more specifically in 2010. The reduction can be attributed to change in external environment resulting from the passage of different laws and acts such as Patient Protection and Affordable Care Act on March 23, 2010.

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