Subject: Healthcare Sciences and Medicine
Language: English (U.S.)
Pages: 6
Consider the following major sectors within health care: Health care equipment Health care services Pharmaceuticals, biotechnology, and related life sciences Based on insights that you have gained throughout the course and this week’s lesson, write a paper of 6–7 pages that discusses the following: Summary: Discuss the role of each sector in the health care industry and the economy. Analysis: Discuss the impact of each sector on the health care industry and the economy. Evaluation: Discuss the impact of the economic practices of these sectors on the industry globally. Ensure that you integrate economic terms, frameworks, and models throughout the review. Finally, recommend policy updates, changes, and revisions to each sector that will address the opportunities and challenges within the industr

HealthCare Economics

There are many sectors within health care whose proper functioning is critical for the entire health care industry and the economy to run smoothly. The health care sector is one of the fastest growing industries in the world and forms a huge chunk of any developed country’s economy. For purposes of accounting, the Global Industry Classification Standard as well as the Industry Classification Benchmark distinguishes the health industry into a number of sectors. These sectors include but are not limited to healthcare equipment, health care services, and pharmaceuticals, biotechnology and other related life sciences.

The health care equipment category includes companies and institutions that offer medical equipment, and supplies. The health care services include institutions such as hospitals, nursing homes, and home caregivers. Both of these categories encompass the distributors of health care products, providers of basic health care services, and the organizations associated with operating health-care facilities (CDP, 2014).

The last category, pharmaceuticals, biotechnology, and related life sciences include co-operations that produce pharmaceuticals, biotechnology, as well as other significant scientific health-related services. These are companies primarily involved in conducting scientific research on new medicines and technology. These companies also focus on developing these medicines and technology as well as marketing the pharmaceutical and biological products to health corporations on a global scale. Advancements in medical technology have enabled physicians to accurately diagnose and treat patients across the world. The merger between medicine and technology is responsible for saving and improving the lives of countless people on an everyday basis.

All these sectors when combined and as stand-alone industries have a significant impact on the country’s economy. The health industry’s impact on the economy has been growing since the 1960s and estimates project that the impact will continue to rise. For instance in 1960, health care expenditures were 5.2% of the Gross Domestic Product. In 2004, the health care expenditures stood at 16.0% of the Gross Domestic Product (Geisler, 2008).

Health Care Equipment and the economy

The medical equipment and supplies industry is propelled by the purchasing power of the hospitals and the distributors i.e. intermediaries. It is also driven by the demand for health services in the market. Increase in the prevalence of lifestyle diseases such as high blood pressure, diabetes and obesity have resulted in a dramatic increase in demand for health care equipment. In particular, the prevalence of obesity has led to an increase in demand for interventional cardiology and electro-psychology devices. In addition, more people are living for longer meaning that the elderly population is increasing. This has led to the increase in orthopedic devices to treat them as well as other devices that can assist the elderly live a comfortable and fruitful life.

The industry is also set to increase through the establishment of emerging markets and the U.S. government’s efforts to expand health insurance in the country. However, regulatory pressure to reduce costs of the technologies involved, extension of government insurance programs, as well as provider and payer consolidation are all contributing to the increasing pressure the industry faces to reduce its costs on the technologies it produces. Furthermore, an additional sales tax has been imposed on medical devices presenting more pricing challenges for the industry (Sustainability Accounting Standards Board, 2013).

The technology is important to the U.S. economy in more ways than one i.e. the economic benefits it generates and the health care benefits brought on by the application of the equipment. According to Tripp, Grueber and Helwig (2012), the medical equipment technology industry creates nearly 1.9 million jobs, generates more than $113 billion in income for U.S. workers, $191 billion in value added activity and $381 billion in economic output.

The industry manufactures medical products that are in demand throughout the world generating significant exports for the U.S economy. In 2010, the industry generated a positive balance of trade of approximately $3 billion. In addition, the innovation and sophisticated medical products that the company sells globally gives the U.S. manufacturers competitive advantage and creates barriers to entry for foreign competition.

Health Care Services and the economy

Health care services too have a tremendous impact on the economy. According to national statistics, health care services accounted for 7.2% of the GDP in 1970. In 2007, this percentage increased to 16.2%. Health expenditures rose from $356 in 1970 to more than $7000 in 2007. Employment in the health care center has risen by more than 320% between 1970 and 2007. In addition, the annual increase in employment in the sector averaged 2% between 2003 and 2007. It is projected that by 2017, the health sector’s output as a percentage of the national GDP is 19.5% compared to 18.4% in 2014 (Gerald, Hartman, & St Clair, 2009).

The U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services predicts that the per capita expenditure associated with health care services will increase to $13,000 in 2017 compared to $11,043 in 2014. The total health care expenditures are projected to reach $4.3 trillion by 2017 and should continue to rise if current economic conditions prevail (Gerald, Hartman, & St Clair, 2009).

The economic impact of the health care services sector is greatly felt through employment and payroll to the local households. The sector employed more than 12,219,300 individuals before 2007. Employment in the sector grew by 3% since the recession began in late 2007 to more than 15 million in April 2009.

However, the increase in health care costs has disparaging effects on the economy. In More than 84.7% of Americans have some type of health insurance, which contributes significantly to the expenditures in the country. Critics argue that the growth in health care costs is a major problem for the economy. This is because the spiraling costs limit the government’s ability to fund other sectors of the economy including investing in technology that can provide medical breakthroughs, solving the energy crisis in the country, and developing products that can be exported to increase the country’s positive balance of trade (Johnson, 2009).

Increase in the cost of health care services also causes a drag in the country’s economy. Employees’ wages rose by only 34% from 1999 to 2008, while inflation was at 29%. Therefore, the employee wage has not kept up with inflation while majority of the employees’ pay check going towards health care. Consumers have less disposable income to spend on other products resulting in the slowing down of economic growth.

The same goes for employers in the economy who have to pay insurance premiums for their employees. With increased insurance premiums, employers have less money to invest research and technology development, expanding their operations and making their facilities better. This translates to fewer employment opportunities, increased health premiums for the workers, and smaller increments in pay, all of which translate to less disposable income for the consumers to spend on other items. It is imperative that quality health services are provided, as their impact on the economic health of the entire country cannot be underestimated.

Pharmaceuticals, Biotechnology and Related Life Sciences

Medical technology is a field in which innovation plays an essential role in sustaining health across the globe. The pharmaceutical industry is essential because it is an incredible source of innovation in the medical field. The health industry heavily relies on medical technology with health practitioners finding new ways of improving their practice from improved patient care to providing better diagnosis and significantly more efficient surgical procedures (Danzon, 2006). 

Compared to several other industries, the pharmaceuticals and biotechnology industry have a unique impact on the economy because it creates economic opportunities in various ways. The industry is ill equipped to provide large-scale employment in the developing nations. This is because pharmaceutical industry only needs a small group of highly educated workers (Mahmud & Parkhurst, 2007).

The bio-pharmaceutical industry contributes uniquely to the U.S. economy through the generation of high quality employment opportunities as well as increasing the economy’s current national output. These impacts on the economy are propelled by the industry’s research and development sector. The industry spends about 17%- 23.5% of its sales to fund research and development in various medical fields. The bio-pharmaceutical sector also accounts for the U.S. largest R&D share. To put it in other words, America’s bio-pharmaceutical sector is the biggest R & D intensive industry in the country.

The PhRMA, firm committed to bio-pharmaceutical improvements, has been investing trillions of dollars every year since 2000. In 2013, the members of the group spent almost $51.6 billion in R&D in the bio-pharmaceutical industry. Such huge spending has a ripple effect on the economy of the United States. (Pharmaceutical Research and Manufacturers of America, 2012).

The country’s biopharmaceutical sector employs almost 800,000 workers and plays a major role in supporting more than 3.2 million jobs across the country. In addition, the sector supports the vibrant and unique scientific and economic ecosystem in the country. This plays a vital role in the U.S. economy as well as giving the country a competitive advantage over other countries in terms of technology.

The sector creates jobs that require a highly skilled and diverse workforce with exceptional educational levels. These jobs usually attract very high wages with bio-pharmaceutical workers being compensated at least $110,490 in 2011 compared to the nation’s average wage which was at $54,455 in the same year.

The economic impact of the industry is estimated at $790 billion annually when induced, direct, and indirect effects are calculated. This estimate includes suppliers and vendors that support bio-pharmaceutical operations in terms of discovery, development, and the delivery of medicines for patients across the nation.

The industry also affects the economy in indirect ways. For instance, the industry’s innovation leads to the production of drugs that improve the productivity in the workplace. When employees have access to these drugs, the number of absenteeism and disability leave cases significantly decline. This is beneficial to the individual employee, his family and the economy as a whole. Chronic conditions usually cost the economy about $1 trillion in lost productivity.


CDP (2014). Technical note: Global Industry Classification Standards. Retrieved on 9/11/2015 from

Danzon, P.M. (2006). Economics of the pharmaceutical industry. The National Bureau of Economic Research. Retrieved on 9/11/2015 from

Geisler, E. (2008). The role of technology in health care delivery. 2008 Healthcare Leaders Forum. Retrieved on 9/11/2015 from file:///C:/Users/cue/Downloads/presentation-role-of-technology-pdf.pdf  

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