Michael Hill, MPH, MPA, is the Aaministrator of the Okeechobee County Health Department in Florida, has 18 years of experience in various public health functions, represents HAS on the APHA Governing Council and is currently studying toward a doctorate in health care administration.

As health care, particularly in the United States, faces ever more stressful financial times, health care leaders need to be educated in economics as well as all of the other facets of their jobs. Health care leaders will need new and more global thinking skills in the coming decades. Generating and reading financial and budget reports will not be sufficient to succeed in healthcare administration in either the private or public sector over the coming years; leaders must understand the underlying complexities of their field, not just the details.

The production function is a useful economic concept and helps one to understand the economic impacts of almost any venture, including health care programs. In the field of economics, the Production Function expresses the relationship between inputs and outputs, generally in terms of labor and capital. For example, in a manufacturing environment, inputs might be labor and equipment; the production function would describe how an increase in labor and equipment would result in an increase in output (product). When the organization’s production function is well defined, the organization can use it to predict output levels for given levels of input. Organizations can also use the production function to determine the optimum labor and capital inputs to reach a desired level of production. The health care industry can use this same function to describe how it does business. In this industry, the input variables are generally labor and capital.

The production function for health care considers the human resources and the equipment/supply resources that go into a process and looks at the relationship between these and the output of the process. A related concept is the law of diminishing returns, this economic concept states that if one of the inputs is held constant and the other is increased, output will increase up to a certain point beyond which increasing the input will decrease output. A common example of this in economics is to increase the number of workers in a factory without increase the amount of equipment. At some point there are more workers than equipment and productivity stops increasing and may begin to decrease as equipment is over used and workers get in each other’s way.

The law of diminishing returns is valuable for health care managers as they try to balance their acquisition of human resources and capital equipment. If the organization hires an ever-increasing number of employees without adding new equipment, production will eventually suffer. Conversely, if the organization constantly adds new equipment without adding employees with the skills to operate that equipment, production will also falter.

Send comments to Michael Hill, MPH, MPA, Michael_Hill@doh.state.fl.us