Productivity is a measure of the output (e.g. widgets or cars) that can be produced given a certain combination of
inputs (e.g. number of employee hours and machines). Typically productivity is measured for a specific input, such
as labor. It’s also possible to consider “system productivity” – the productivity of spending in a hospital, physician
practice, or health system – by looking at the output achieved for any given amount of resources devoted to health
care.
In order to evaluate how policy tools or interventions affect productivity, we need to distinguish between average and
marginal productivity. Average productivity relates total output to the total amount of any given input (or, when
measuring system productivity, aggregated resources). For example, a manufacturing plant might produce three cars
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per worker per day. Marginal productivity refers to the incremental output achieved for an incremental investment
in additional resources – in the same plant, adding one more worker might mean the plant produces only one more
car per day. It’s clear that the two measures are useful in different circumstances. Total productivity is important
when deciding which of two hospitals is more efficient: a hospital that produces very healthy patients for $100,000
per year is more efficient than one that also produces very healthy patients, but needs $200,000 per year to do so.
Marginal productivity is important when we consider whether we should spend more money on health care as a
country. Both marginal and total productivity can vary with the level of output.3
The productivity of any one input also depends on the availability and quantity of other resources utilized. For
example, physician productivity could theoretically be improved by increasing investment in information technology
or nurses. The optimal input mix will depend on the prices of inputs and will minimize costs of production. Thus,
the productivity of particular resources may vary even among highly effective firms or systems because they may
produce different levels of output, and so require different mixes of inputs. Similarly, the size and composition of
the health care workforce play an important role in the productivity of the health care system, and the productivity of
each type of health care worker depends on the availability of other workers and of non-labor inputs.