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Economics of Healthcare

Economics of Healthcare

The Cost That is Being Looked At

Research and development have become essential in the healthcare sector due to the rising cases of new diseases and regulations requiring recent drug approval. According to Congressional Budget Office (2021), spending on drug research and development increased by almost 50% between 2015 and 2019. Although the expenditure on research and development by companies in the pharmaceutical industry has had an upward trend, both small and large firms in the healthcare sectors have started focusing on different research and development activities to understand various ailments and the effectiveness and side effects of the drugs prescribed to patients. For instance, the Mayo Clinic has invested in research and development through clinical trials and investigating different medical mysteries to generate new knowledge and translate discoveries into therapies for advanced patient care. The cost of research and development for the Mayo Clinic has been increasing due to the complexity of new medical mysteries and technology to yield the most effective results. The clinic has also established a reputation of being the best medical research institute globally, thus increasing the amount of research to be conducted, which has, in turn, created a need for more researchers. The clinic has to maintain its good reputation by hiring the best researchers, thus increasing the costs incurred in salaries and benefits.

History of Increases

The increase in the cost of research and development for the Mayo Clinic has occurred gradually as the clinic continues to handle more complex analysis within a timeline provided by regulatory authorities. In 2005, Mayo Clinic initiated an initiative to create a world-class research management system to improve its strategic priorities and vision. The industry was named the Research Infrastructure Service Excellence. It was designed to develop a management system for research, including the best customer service, performance, quality, efficiency, reliability, and cost-effectiveness (Smith & Gronseth, 2011). The initiative was organized into research infrastructure compliance, research vision, and strategic priorities, research infrastructure service excellence, and research infrastructure process improvement. The leadership in charge of the initiative recognized that it needed to improve existing business practices to develop and implement the best research management system.

An assessment of the state of infrastructure at that time indicated that procedures and processes were variable, dispersed, difficult to interpret, and sometimes conflicted (Smith & Gronseth, 2011). The assessment also showed that there were significant operational inefficiencies and process variations in the clinic’s daily operations; performance data was not accessible, thus making management make decisions without verified data; performance expectations were not outlined, leading to a lack of accountability, and the management team did not have a lot of exposure to basic quality principles. Therefore, there was a need to establish a comprehensive research management system to support the highly experienced scientists working at the clinic. The clinic invested in technology to achieve this and has since been upgrading the technology and working with the best scientists worldwide to maintain its reputation in medical research.

Potential Future Increases

Roback et al. (2011) argue that the cost of research and development will increase due to the increasing demand for high-quality healthcare services and the advancement of technology leading to technological equipment that can yield reliable results in medical research. According to Salman et al. (2020), improving healthcare services and the vitalization of the healthcare industry will enhance the general population’s health level and increase national competitiveness in the healthcare sector. Mayo Clinic may, therefore, receive more pressure from the government to offer the best medical research and be the first to solve medical mysteries such as COVID-19 and Ebola so that the United States can gain global recognition as the best country in medical research. The demand for skilled research assistants will also force the Mayo Clinic to raise the salaries paid to research assistants to retain them and maintain high productivity and commitment. Advancement in technology and the emphasis on proficiency in the application of technology in medical care that medical students are getting from learning institutions will also create a new generation of researchers who are technologically skilled and have a high reliance on technology to solve medical mysteries, hence forcing Mayo clinic to invest in acquiring the latest technology to support its research assistants in their medical research.

Suggestions for Improvement or Change

One suggestion to reduce the research and development cost is partnering with medical training institutions to hire interns to serve as research assistants in the research labs. The partnerships will help reduce the cost of paying research assistants because interns are paid much less than qualified research assistants with experience. The assistants can be assigned non-technical tasks such as preparing and cleaning laboratory equipment, monitoring participants in clinical trials, and collecting data for medical research. The second recommendation is partnering with other research institutes to share resources, reducing the cost of acquiring the resources required for medical research. Mayo Clinic may partner with research institutes that already have the technology needed to enhance the effectiveness of their medical examination. Mayo Clinic may also outsource research assistants from other research institutes, reducing the number of assistants on the payroll.


Congressional Budget Office. (2021). Research and Development in the Pharmaceutical Industry.

Roback, K., Dalal, K., & Carlsson, P. (2011). Evaluation of Health Research: Measuring Costs and Socioeconomic Effects. Int J Prev Med.

Salman, A., Fakhraldeen, S. A., Chun, S., Jamil, K., Gasana, J., & Al-Hunayan, A. (2020). We are enhancing research and development in the health sciences as a strategy to establish a knowledge-based economy in Kuwait: A call for action. Healthcare, 8(3), 264.

Smith, S. C., & Gronseth, D. L. (2011). Transforming Research Management Systems at Mayo Clinic. Research Management Review, 18(2).


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People have seen consistent inflation rates in healthcare over the past several decades. Increases in costs for health insurance, technology utilization, and demand for qualified providers and facilities have driven this inflation. Consider the many areas where the U.S. healthcare system has seen steady cost rises. Imagine you are a financial manager for an organization that has seen significant cost increases in the past few years or decades in an area related to your organization (e.g., supplies, technology, outside services). Prepare an outline for a proposal to help reduce or minimize these costs. Use your text and one other library aid as a resource for this assignment. Please cite your sources. The outline should include the following:

Economics of Healthcare

Economics of Healthcare

The cost that is being looked at
History of increases
Potential future increases
1–2 suggestions for improvement or change
Individual Project Rubric

The Individual Project (IP) Grading Rubric is a scoring tool that represents the performance expectations for the IP. This Individual Project Grading Rubric is divided into components clearly describing what should be included within each IP element. It’s the roadmap that can help you develop your IP.

Expectation Points Possible Points Earned Comments
Accurately identifies a cost that has risen over the years for an applicable healthcare organization of choosing; the fee selected should apply and be accurate to the organization.

Thoroughly discusses the history of the item or cost in question and gives background on its growth over the years.

Thoroughly identifies and discusses potential future increases and the possible reasons why they would occur.

Provides a minimum of 1–2 possible improvements or changes that can be made to eliminate or alleviate the cost burden in the future

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