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Cost Containment In Health Care & Poverty And Health

Unit Description
The purpose of the third unit is for you to:
(i) understand the need for providers of health care to be cost conscious;
(ii) understand factors that contribute to resource inadequacy in developing countries;
(iii) know about the various cost-containment strategies in health care delivery;
(iv) define poverty and understand basically why the poor have ill health problems; and
(v) understand the relationship between economy and health problems.

Unit Outline

3.1 – Introduction
3.2 – Cost Consideration In Health Care
3.3 – Cost Containment In Health Care Delivery
3.4 – Ways To Contain Cost Of Health Care
3.5 – Poverty And Health
3.6 – Health Problems And The Economy
3.7 – Summary
Review Questions



The objective of health care is to improve health status by reducing morbidity, postpone mortality and give people a higher quality of life. This can be achieved by promoting health, preventing ill health, curing ill-health when it has occurred, and enabling those whose conditions cannot be cured with existing knowledge to live a full life as much as possible despite their disabilities. All these is at a cost, it has to be  acknowledged that good health like most “goods” costs money. You can recall the various things that make up cost of health. Those who can afford to spend more on their health up to a point, seen to benefit the most.

The Health care market is one of a difficult market in economic analysis since ill-health determines the demand for health care services. The individual’s determination of ill-health is personal, emotional and can be uncertain. Health care is one of a subset of goods and services that provides both psychic and monetary benefits to consumer. The individuals demand for health care is derived from his or her perception of his or her optimal level of health. Demands for health care thus arise because the individual wants to bridge the gap between the perceived current health state and some higher health state that he desires. The individual then takes action to decide to seek health care.

The need for health care and the demand for it is not the same, more so in developing countries. The cost of meeting this need and demand is enormous. Health for all by the year 2000 (HFA 2000) is at risk of remaining a dream without a careful consideration. A plan for health that does not take account of costs amounts to no more than window shopping.



Provision of health care is at a cost to individuals who make the demand and also the individuals, communities, government and nongovernmental agencies who supply it. Consumer health deals with the decisions individuals make in regard to the purchase and use of the available health products and services that will have a direct effect on their health. It involves economic or monetary aspects of health over which individuals have control. Consumer health includes self-motivated or self-initiated actions. From this you know that health care often follow a demand from the consumer (patient).

The fact is that it is no longer possible to meet the increasing cost of health care with the emergence of several new health risks and problems unless; health is built in among the priority economic objectives by individuals, families, communities and government. It is desirable to increase accessibility to health services by either increasing people’s ability to pay or reducing costs. This can positively change health care seeking behaviour such that people benefit from early detection, diagnosis and treatment and ultimately reduce expenditure on chronic or complicated cases which is now usually the case in developing countries.

Resources available for health care are not enough to meet the demand, it is therefore necessary to closely examine the main problems in the health sector that are contributory. These problems are mainly; (1) allocation, (2) internal inefficiency and (3) inequity. 

  1. Allocation Problem

There is a problem in allocation of funds to health care particularly in developing countries. Private and public spending on health care in developing countries average $8 per capital in low income countries which represents about two-thirds of sub-Saharan Africa’s people and $16 per capital in middle income countries which represent nearly 30% of sub-Saharan Africa’s people and $68 per capital in the high income group of countries representing only one-twentieth of Africa’s population.

Even though many developing countries have embraced Primary Health Care, current public and private spending on basic health services is inadequate. Private spending in these countries is substantial but little of it goes to low cost services which are more cost effective. In some countries, individuals expenditure on health account for over 70% of the total health expenditure. If the private and public resources tied up in hospital care are redirected to lower levels of health system, many of these health problems could be treated earlier at a less severe stage or prevented altogether and even at lesser cost.

You can now appreciate from what you have just read that allocation problem exists even at individual level even though it is commonly seen as a problem at government level. Rather people spend money on basic things that can promote or prevent health; they eventually spend illhealth that requires care at the level of a hospital. Allocation problem at the level of government is common in African countries. Government rather than spend appropriately on preventive health care which is cheaper end up spending on curative health care at higher level which is costlier.

 Inefficiency Problem

Inefficiency is common in health care delivery. One of the ways it occurs is the use of higher level facilities by patients who could well be served at less sophisticated units or facilities. It is common in developing countries for the high level facilities to be overcrowded with lengthy waiting times while other health facilities usually at the lower level have few patients. This result in delivery of unnecessary care through costly facilities and use of highly skilled personnel and because of the demand on the high level facilities, they are further expanded at some costs which certainly affects the lower levels. The supply of funds to the lower levels is thus further reduced. 

  1. Inequity Problem

Inequity is another important problem in developing countries. There is inequitable urban-rural distribution of benefits. About 70% or more of government spending goes to urban based care and in developing countries 70-90% of hospital clients live within 10kms to the facility they use therefore about 70% of people in the rural areas receive just about 30% of government health expenditure. There is also inequality in income; the poor who are at greater health risk have low income. 


The goal of cost containment is to keep costs within acceptable limits for volume, inflation and other parameters. It involves costs awareness, monitoring, management and incentives to prevent, reduce, and control costs. 

  1. Cost Awareness

This focuses the health staff attention on costs of service delivery and the steps available for containing them. Health staff in developing countries are hardly know or get bothered about the ultimate cost of service to the organization and the consumers. An awareness of the cost can bring about a desire to see how such costs can be contained. 

  1. Cost Monitoring

Is another measure in cost containment? Organizations providing health care can focus on how is to be spent, when, where and why. With answers to these, the cost of providing services can be monitored with the ultimate aim of checking where wastes can be reduced. Incentives can be provided to staff that have clear ideas and have demonstrated money-saving measures in their unit. 

  1. Cost Avoidance

Where possible, cost avoidance for unnecessary procedures can be put in place to minimize expenditures on the unit of the consumer and the organization.  

  1. Cost Reduction

In health care delivery is desirable to contain health care cost. Preventive measures like childhood immunization can save a lot of cost in health care when compared to cost of managing the disease that would have been prevented. 

  1. Cost Control

These can be very useful as a cost-containment strategy. Cost control is effective use of available resources through careful forecasting, planning, budgeting, reporting and monitoring. Cost-effectiveness entails comparing costs and identifying the most beneficial outcomes. This is done by, analyzing the alternative methods in achieving the same objective and then determine the cost implication of all inputs for each method. For each method the cost outcome and cost-effectiveness is determined. 


The main objective in cost cost-containment must be to realize the same benefits at lower cost and to increase benefits without adding costs. The consumer and providers of health care have roles to play in cost containment. Consumers need to make rational use of health care service though they need to be assisted to do this in developing countries through adequate health information on the costs, consequences and quality of treatments, and the adequacy of competition between providers.

Consumers need to be educated to use lower levels of health care where most of the health problems can be solved at reduced cost and referrals made to higher levels when necessary. Financial disincentives can also be used to discourage use of secondary and tertiary health care unnecessarily.

For example if patients choose to go for treatment by-passing the lower level of care such patients can be made to pay more that someone who was referred from the lower levels. 

Other ways costs can be saved include:

  • To ensure that the degree of technical complexity involved in the service delivery is appropriate to the task to be performed.
  • Highly skilled staff not to be used on tasks that can be performed by lesser skilled staff.
  • People should have positive health behaviour to maintain better health.
  • Standardization of construction technology, equipments and drugs to the minimum acceptable standard and therefore relatively inexpensive level. Large sum of the health budget is spent on drugs; costs can be contained through rational prescribing and use of drugs.
  • Using all resource to full capacity, avoiding waste by ensuring that they complement one another where possible and serve as many users as possible.
  • Economy in procurement of resources of given characteristics.

 Cost containment in Primary Health Care

Lack of interest in cost analysis is a characteristic of the whole range of health activities particularly in developing countries. It is particularly pronounced in primary health care, probably because of the diversity of the activities involved.

In developing countries the only health services that can be expected to reah the entire population, are those that are of low cost. The largest element of cost in health services is staff and the least expensive way to do this is through community participation in which people provide some  of the services themselves where possible.

In summing up so far, we can say that providing health care is at a cost, this is increasing in all nations and resources of most countries particularly developing countries are scarce. Also health has to compete with other needs for the scarce resources of individuals, communities and nations. It becomes apparent that cost of health care has to be controlled with efficiency. Consumers and providers of health care need to be cost conscious. Cost saving measures, are required to be put in place in the health sector while at the same time striving to provide quality health care for the populace. It is important that all health care providers are made to be cost conscious, to ensure that services do not cost more than absolutely necessary, so that more people can be reached with health care.

Let us now consider the linkages between poverty and health.



Some two-third of the world’s population go to sleep hungry at night. The world Bank estimated that perhaps as much as one-quarter of the world survives on no more than $1 (about 1600 TZ Shs) per day. Outright famine regularly occurs in various parts of the world. This people had little access to health care, they live in unsanitary environment, infant and child mortality is high and life expectancy is low.

Poverty is related to the economic activities of the country. There is no society that has the resources necessary to produce enough goods and services that will satisfy all wants and desires of its people. The production of goods and services within an economy can be measured by the Gross Domestic Product (GDP). Gross Domestic Product is the measure of all final goods and services produced within an economy during a year. Countries with low GDP among other causes have problem of poverty, though in some countries with high GDP poverty can be found “poverty amidst plenty”. Poverty creates ill-health because it forces people to live in environments that make them sick, without decent shelter, clean water or adequate sanitation. 

The poor are at greater risk of becoming ill. Poor health has adverse effects on productivity which further contribute to poverty. Poverty affects access to health services. Poverty also limits ability to meet the cost of health care. The poor have worse health outcomes than other economic and social groups. Infant, child and maternal mortality rates are higher in poor communities. 



Major causes of death and illness – Perinatal, infectious, and parasitic illnesses are responsible for 75% of infant deaths. This illnessess can largely be attributed to poverty. Infectious diseases and parasitic diseases are responsible for 71% of deaths of children aged one to four and 62% of deaths in children aged five to fourteen. The typical African child under five years has five episodes of diarrhoea per year, it also accounts for 25% of all childhood illness and 15% of admissions in health facilities. Vaccine preventable diseases are implicated in the deaths of 20% of all children in Africa. Maternal mortality rates in Africa are higher than anywhere else in the world.

The heavy burden of ill-health in Africa is a reflection of the level of poverty in the continent. You need to know that the effect of poor health goes beyond physical pain and suffering; Learning is compromised, returns to human capital diminish, and the environment for entrepreneurial and productive activities is constrained. Poor health imposes immense economic costs on individuals, households, and society at large.

Household survey in Cote d’Ivoire showed 24% of the adult labour force experienced an illness or injury in the previous month to the study, 15% became at least temporarily inactive. The workers on average lost nine full days of work and the cost of treating them amounted to 11% of their normal monthly earning.

In view of the demonstrated importance of human capital to economic progress, a country cannot attain high level of economic development with a population burdened by high infant and maternal mortality, pervasive illness of its workforce and low life expectancy.

Economic status of an individual, community, and country is related to the health of the individual or its people, though wealth does not necessarily bring health. A buoyant economy can create the enabling environment for health. A poor economy show features of poor housing, inadequate food and nutrition, poor water supply, inadequate environmental sanitation, and low level of education, low affordability of health care.

AIDS is a cause of deaths and Illness in developing countries which has heavy toll on economy of countries. Prevalence of AIDS in sub-Saharan Africa countries remains high. In hard-hit African countries the active age group is most affected. Deaths in this age group affect skilled manpower and professionals which take a heavy toll on countries.

Malaria is endemic in most of sub-Saharan Africa and it appears to be worsening in much of Africa and results in high childhood morbidity and mortality. The cost of treatment of malaria in most countries when put together is enormous. This money would have helped families, communities and the country at large to improve on quality of life. Absenteeism from work among adults affected by malaria is also high,

this affects productivity. From the examples described you can appreciate how poor health imposes immense economic cost on individual and the nation. 

Some Health Effects of Poverty

  • Poverty creates hunger which in turn leaves people vulnerable to diseases.
  • Poverty denies people access to reliable health services and affordable medicines
  • Denies people access to prevent health care. For example it denies poor children access to immunization.
  • Poverty creates illiteracy which eventually make people less informed about health risks
  • Forces people to live in environments that make them susceptible to certain diseases

One of the barriers to health care for the poor is the time it takes to get treatment. Time is a resource since the time taken away from work may mean lost income. 

Improved Economy Leading To Improvement In Health

Economic developments will provide enabling environment that will reduce disease burden and deaths in the following ways:

  • Safe water and sanitation: Poor sanitation and lack of safe water contributes immensely to morbidity and mortality in developing countries. Studies have shown that improvement in excreta disposal reduced diarrhoea morbidity by 22 – 36%.
  • Food and Nutrition: Malnutrition underlies more than one-third of infant and child mortality in rural and urban areas of many African countries. Inadequate quality and quantity of food intake causes growth failure, decreased immunity, learning disabilities and reduced productivity. Increase in income of poor families is likely to lead to increased food consumption. Countries with strong economy are likely to provide an environment where its citizens get good income that can help improve household food security.
  • Housing: Some diseases in developing countries are attributable to poor housing. Poor housing results in overcrowding, poor environmental sanitation, poor ventilation, cohabiting of man and animals among others.
  • Education: Countries with good economy are likely to invest in education. Education of people, particularly female education usually brings about informed choice and right decision that relates to individual’s health or family health. Educated women marry and start having children later, make better use of health services, and make better use of information that will improve personal hygiene and health of their children.
  • Health infrastructure and equipment: Countries with buoyant economy are likely to invest in health infrastructure and equipments. Where there is wide coverage of the population with health facilities, geographical access to these facilities can improve on the health of people. Physical proximity to health facilities is only the beginning of effective health care coverage. A facility that is near people’s homes will have little value if it lacks basic equipment. Money is needed to procure necessary equipment and for maintenance of these equipments. 


3.7 – SUMMARY 

Health care in developing countries continue to increase in demand even though the demand is less than the health care need. The resources available are not enough, and are not likely to be enough to meet the increasing health problems. The economic depression and inadequate management of resources in developing countries has made supply of health care in its various forms grossly inadequate; cost of heath care to individuals, government and agencies is increasing. It is therefore necessary for providers and consumers to be cost conscious with the ultimate aim of cost containment in health care.

It is necessary to increase general awareness on costs of health care, so that cost saving measures can be practiced widely and through this increase affordability and coverage of health care in developing nations. We saw the effect of poverty on ill health and how ill-health can also precipitate poverty. At the level of nations you now see that illness reduces productivity of countries and can therefore affect the economy of such countries. It is also true that economic development provides enabling environment to reduce poverty and also reduce some illness.



  1. What are the factors contributing to inadequacy of resources for health care in your own local area?
  2. List ways cost of health care can be contained. How is this applicable to the public health sector?
  3. Discuss the relationship between poverty and ill-health
  4. Describe how improved economy can lead to improved health


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