Illustrate the hospital-versus-hospital trade-off using an isoquant/isocost graph and explaining the economic principles involved in obtaining an optimal situation.

In terms of spending, once it is recognized that resources are limited, there is the macro decision regarding how much the state should be spending on healthcare in total. Then there is the micro question of where and how this money should be spent, and this issue essentially concerns factor substitution and opportunity cost. A number of trade-offs are relevant here, and some examples are discussed in the following paragraphs.

1. Beds versus equipment. Treatments are much more capital-intensive than they used to be in past decades, owing to improved technology. This has the effect of reducing hospital-stay times, and 60 per cent of patients are now in and out of hospital in less than a day compared with weeks or months previously. This can reduce the need for beds compared with equipment.
2. Drugs versus hospitals. Health authorities may be under pressure to provide expensive drugs, for example beta interferon for the treatment of multiple sclerosis. This forces unpleasant choices. Morgan, chief executive of the East and North Devon Health Authority, has stated ‘It will be interferon or keeping a community hospital, I can’t reconcile the two.’
3. Administrators versus medical staff. In recent years the NHS has employed more and more administrators, whilst there has been a chronic shortage of doctors and nurses. This was partly related to the aim of the Conservatives when they were in office to establish an internal market . The health secretary, Milburn,was trying to reverse this trend; in a ‘top-to-toe revolution’ Milburn appeared to want a new modernization board of doctors and nurses to replace the existing board of civil servants. The NHS’s chief executive, Langlands, resigned. In the hospitals also there were more administrators, and these took over much of the decision-making previously done by doctors regarding types of treatment. This became necessary because of the clash between scientific advance, increasing costs and budgetary constraints. It became increasingly obvious that rationing had to take place. Related to this issue, nurses were also having to do a lot more administrative work which could be performed by clerical workers. This happened for the same basic reason as before: more information needed to be collected from patients in order to determine the type of treatment.
4. Hospital versus hospital. Because of the piecemeal structure that theNHS inherited it has tended to provide healthcare in an inefficient way. Hospitals and other facilities are not only old and in need of repair, but in many cases small, separated geographically, and duplicating facilities. Division of labour is often non optimal.In Birmingham, for example, there is an accident and emergency unit at Selly Oak Hospital, whereas the brain and heart specialists who might need to perform urgent operations on those involved in car crashes or suffering heart attacks are at the neighboring Queen Elizabeth Hospital. Thus the issue often arises whether it is preferable to concentrate facilities and staff by building a new and larger hospital to replace a number of older facilities.
5. Area versus area. At present there is much variation in the services provided by different local health authorities. For example, some restrict, or do not provide, procedures such as in vitro fertilization, cosmetic surgery and renal dialysis. This has led to the description ‘postcode prescribing’. Much of this has to do with the differences in budgets relative to demand in different areas, and is another example of the greater visibility of rationing.

Illustrate the hospital-versus-hospital trade-off using an isoquant/isocost graph and explaining the economic principles involved in obtaining an optimal situation.