The Economics of Care in Nursing: Toward Value-Based Health Systems

This work is licensed under a Creative Commons Attribution 4.0 International License. The license permits unrestricted use, distribution, and reproduction in any medium, on the condition that users give exact credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if they made any changes. The Economics of Care in Nursing: Toward Value-Based Health Systems Yousra Nassou  PhD in Management Sciences, ENCG de Tanger, Morocco Abstract The transformation of health systems toward value-based models necessitates a critical rethinking of the economic role of nursing care. Traditionally considered a cost center in hospital budgets, nursing is increasingly recognized as a source of measurable economic and social value. This article explores the economics of care in nursing through the lens of health economics, human capital theory, externalities, organizational economics, and value-based healthcare frameworks. It argues that nursing should be viewed not only as a labor input but as an investment in human capital that yields returns in terms of patient outcomes, efficiency, and system sustainability. Evidence from international research demonstrates that adequate nurse staffing levels and higher educational qualifications are associated with lower mortality, fewer complications, and improved patient satisfaction. These outcomes translate into cost savings, reduced readmissions, and greater health system productivity. By articulating the economics of nursing care, this study positions nursing as a central driver of value creation in modern health systems. It concludes with recommendations for integrating nursing-sensitive indicators into financing mechanisms and policy design, emphasizing the need to align investments in nursing with the broader pursuit of efficiency, equity, and quality in healthcare. Keywords: Nursing economics, value-based healthcare, healthcare efficiency, workforce policy. JEL Classification codes: I10, I11, I18, J24. Suggested citation: Nassou, Y. (2025). The Economics of Care in Nursing: Toward Value-Based Health Systems. European Journal of Management, Economics and Business, 2(2), 241-253. DOI: 10.59324/ejmeb.2025.2(2).21 Introduction Health systems worldwide face mounting pressures to deliver high-quality care under limited resources. Population aging, chronic disease, and rising costs have intensified debates about efficiency and sustainability (OECD, 2023). In this context, value-based healthcare (VBHC) – which measures performance by outcomes achieved per dollar spent (Porter & Teisberg, 2006) – has become a guiding framework. Within this paradigm, nursing is central yet often undervalued. Nurses, who represent nearly half of the global health workforce (WHO, 2020), provide continuous monitoring, early intervention, patient education, and coordination of care. Despite these essential functions, nursing is traditionally treated as a cost center rather than as a strategic investment. Evidence shows that cuts EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 242 to nurse staffing, intended to reduce expenses, increase mortality, complications, and readmissions (Aiken et al., 2002; Needleman et al., 2011). These outcomes generate higher long-term costs, illustrating the false economy of understaffing. Theoretical perspectives highlight why nursing should be reframed economically. Human capital theory (Becker, 1964) links education and training to higher productivity, and studies confirm that bachelor-prepared nurses reduce mortality and readmissions (Aiken et al., 2014; Yakusheva et al., 2014). Nursing also produces positive externalities – from infection control to public health benefits – that markets alone underprovide (Arrow, 1963). Moreover, organizational economics shows that nursing complements physicians and technology, while VBHC frameworks emphasize nursing-sensitive indicators such as infections, falls, and patient satisfaction. Beyond hospitals, nursing has macroeconomic significance. The WHO (2020) stresses that investment in nursing yields a “triple return”: better health, stronger system resilience, and economic growth. Conversely, shortages and underinvestment erode health security and workforce stability, as starkly demonstrated during the COVID-19 pandemic (Buchan et al., 2022). The aim of this article is to analyze the economics of nursing care within VBHC systems, synthesizing theory and empirical evidence. The paper argues that nursing should be recognized as human capital generating measurable returns in efficiency, outcomes, and resilience. The following sections present the theoretical framework (Section 2), empirical literature (Section 3), implications and a conceptual model (Section 4), and conclusions with future research directions (Section 5). Theoretical Framework The economics of nursing care requires a multidimensional framework. Rather than being treated as a controllable cost, nursing must be understood as a productive input with measurable returns. Five perspectives – health economics, human capital theory, externalities, organizational economics, and value-based healthcare – help explain this role. Health Economics and the Nursing Production Function Health economics analyzes how resources produce outcomes. Nurse staffing directly affects efficiency. Lower staffing reduces short-term costs but increases mortality, complications, and readmissions (Aiken et al., 2002; Needleman et al., 2011). The marginal product of nursing remains high, making cuts inefficient. Human Capital Theory Applied to Nursing Becker (1964) showed that education raises productivity. For nurses, higher levels of training improve surveillance, judgment, and coordination. Studies confirm that bachelor-prepared nurses reduce mortality and readmissions (Aiken et al., 2014; Yakusheva et al., 2014). At the macro level, investment in nursing education strengthens population health and workforce productivity. Externalities and Public Goods Nursing generates positive externalities – infection control, patient education, community health – that benefit society beyond individual patients. Understaffing produces negative externalities such as overcrowding and systemic inefficiencies. Since markets underprovide public goods, governments must intervene with subsidies, regulations, or outcome-based financing (Arrow, 1963). EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 243 Organizational Economics and Nursing Productivity Hospitals are complex organizations where inputs interact. Physician effectiveness and technological investments depend on adequate nurse staffing. Reductions in staffing diminish returns on other inputs, while professional nurses improve throughput and reduce preventable harm (Needleman & Hassmiller, 2009; Griffiths et al., 2019). Although, Research on hospital management control shows that AI integration generates value only when supported by adequate and skilled nursing staff (Nassou & Moukadem, 2025). Value-Based Healthcare and Nursing Contributions VBHC defines value as outcomes per dollar spent (Porter & Teisberg, 2006). Nursing directly influences outcomes central to VBHC – mortality, complications, satisfaction. Nursing-sensitive indicators such as infections and falls provide measurable evidence of value and should be integrated into financing and performance models (Yakusheva, 2020). Ethical Economics, Gender, and Equity Nursing’s historical undervaluation is linked to gendered perceptions of caring work (Adams & Nelson, 2009). This produces wage gaps, burnout, and migration. Sen (1999) emphasized that equity and justice must complement efficiency. Recognizing nursing fairly is both a justice imperative and an economic necessity. Integrative Conceptual Model An integrative model positions nursing as human capital with positive externalities that drives value creation. Inputs (staffing, education, training, environment) enable processes (surveillance, coordination, education), which yield outputs (better outcomes, satisfaction) and outcomes (cost savings, resilience). This framework highlights the need to align financing and policy with nursing’s true contribution. Literature Review and Stylized Facts The growing body of research on nursing economics provides strong empirical evidence that connects nurse staffing, education, skill mix, and work environments to patient outcomes and health system efficiency. Over the past two decades, studies across multiple countries and settings have converged on a central finding: nursing is not simply a labor cost but a determinant of both health outcomes and economic performance. This literature review synthesizes major contributions and derives several stylized facts that form the empirical backbone of nursing economics. Nurse Staffing and Patient Outcomes One of the most robust findings in the literature is the direct association between nurse staffing levels and patient outcomes. Aiken et al. (2002) conducted a landmark study involving 232,000 patients and 10,000 nurses across Pennsylvania hospitals. They found that each additional patient assigned to a nurse increased the likelihood of 30-day mortality by 7%, as well as the odds of burnout and job dissatisfaction. This study established the principle that staffing ratios are not merely workforce management decisions but determinants of patient survival. Needleman et al. (2011) extended this evidence using data from 197,000 admissions in U.S. hospitals. They found that patients exposed to shifts with nurse staffing below target levels had significantly higher mortality. Importantly, this study introduced the concept of “exposure to understaffing,” showing that cumulative deficits across shifts produce compounding risks for patients. EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 244 In the United Kingdom, Griffiths et al. (2018) conducted a longitudinal cohort study linking nurse staffing levels to hospital mortality. Their results confirmed that low levels of registered nurse staffing increased the risk of death, even after adjusting for case mix and hospital characteristics. These findings were echoed by Griffiths et al. (2019), who linked missed nursing care due to staffing shortages to patient harm and adverse events. Policy interventions also provide natural experiments. In California, legislation mandating minimum nurse-to-patient ratios created an opportunity to assess causal effects. Aiken et al. (2010) showed that hospitals in California, compared to those in states without mandates, achieved lower patient mortality and better nurse outcomes. McHugh et al. (2021) further demonstrated that ratio laws reduced burnout and improved patient care without damaging hospital finances. Stylized Fact 1: Adequate nurse staffing is consistently associated with reduced mortality, fewer complications, and improved outcomes across settings and methodologies. Nurse Education, Skill Mix, and Outcomes The educational preparation of nurses is another critical determinant of outcomes. Aiken et al. (2014), in the RN4CAST Europe study involving 300 hospitals across nine countries, found that a 10% increase in the proportion of nurses with a bachelor’s degree was associated with a 7% decrease in mortality following common surgical procedures. This finding underscores the economic principle that higher levels of human capital yield greater productivity and societal returns. Yakusheva, Lindrooth, and Weiss (2014) quantified this effect by developing a value-added model to estimate the incremental impact of nurse education on patient outcomes. Their analysis demonstrated that bachelor-prepared nurses contributed significantly to reductions in readmissions and complications, outcomes with direct economic implications for hospitals under value-based payment systems. Griffiths et al. (2019) cautioned against substituting registered nurses with less-qualified staff. Their study found that hospitals relying more heavily on nursing assistants faced higher risks of adverse outcomes, including infections and falls. This supports the idea that skill mix, not just raw staffing numbers, matters for efficiency and safety. The International Council of Nurses (ICN) has repeatedly emphasized that attempts to “dilute” the skill mix to save money represent short-term strategies with long-term costs (Buchan et al., 2022). Evidence consistently shows that replacing professional nurses with cheaper substitutes undermines safety, increases complications, and raises overall costs. Stylized Fact 2: Higher levels of nurse education and appropriate skill mix improve outcomes, reduce adverse events, and generate economic returns. Nursing-Sensitive Indicators and Economic Value To attribute outcomes directly to nursing, researchers have developed nursing-sensitive indicators (NSIs). These include rates of pressure ulcers, falls, hospital-acquired infections, patient satisfaction scores, and readmissions. By linking nursing inputs to these outcomes, NSIs provide measurable evidence of nursing’s contribution to health system performance. Needleman and Hassmiller (2009) reviewed evidence showing that adequate nurse staffing reduced adverse events such as falls, infections, and pressure ulcers. These improvements not only saved lives but also avoided substantial costs associated with extended hospital stays and additional treatments. Yakusheva (2020) advanced this field by proposing value-added models that quantify the incremental contribution of nursing to outcomes. For example, preventing a central-line associated EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 245 bloodstream infection saves an estimated $25,000–45,000 in treatment costs, while avoiding a pressure ulcer saves $10,000–20,000. These figures highlight the financial impact of nursing care beyond its clinical significance. Patient satisfaction, another NSI, is increasingly tied to hospital reimbursement under value-based purchasing programs (CMS, 2020). Because nurses are the primary point of contact for patients, their communication, empathy, and responsiveness directly influence satisfaction scores and thus financial performance. Stylized Fact 3: Nursing-sensitive indicators link nursing care to measurable economic value, demonstrating that better outcomes translate into cost savings, efficiency gains, and financial rewards under value-based models. Macroeconomic and Policy-Level Evidence Beyond hospital outcomes, nursing investment has broader macroeconomic implications. The WHO (2020) highlighted that nurses make up nearly 50% of the global health workforce and are central to achieving universal health coverage. The report estimated a global shortage of 5.9 million nurses in 2020, warning that underinvestment in nursing would jeopardize health outcomes, health security, and economic development. Buchan et al. (2022) emphasized that underinvestment leads to burnout, attrition, and migration, weakening system resilience. During the COVID-19 pandemic, health systems with fragile nursing capacity struggled more with surges, highlighting the link between workforce sustainability and national security. Beyond hospital-level outcomes, investment in nursing contributes to broader health security and economic development, consistent with evidence from the Moroccan context of sustainable healthcare models (Nassou, 2025) The OECD (2023) argued that investing in health workers, particularly nurses, yields long-term economic returns by reducing premature mortality, extending healthy life expectancy, and increasing labor productivity. In other words, healthier populations are more economically productive, and nursing plays a central role in achieving this outcome. Stylized Fact 4: Investing in nursing yields macroeconomic benefits, including improved health, resilience, and national productivity. Underinvestment, by contrast, creates systemic vulnerabilities. Methodological Advances The literature has also advanced methodologically. Researchers now use longitudinal designs, multilevel models, and quasi-experimental approaches to isolate causal effects. For example, difference-in-differences analyses of staffing legislation (McHugh et al., 2021) strengthen causal claims. Instrumental variable approaches, using exogenous labor market shocks, further reduce endogeneity concerns. In addition, frameworks such as Donabedian’s (1988) model of structure-process-outcome provide conceptual clarity. Adequate nurse staffing and education (structure) enable effective monitoring and care (process), leading to improved patient outcomes (outcome). This framework helps operationalize nursing inputs in empirical research. The adoption of electronic health records and big data analytics has also facilitated the measurement of missed nursing care, patient outcomes, and staffing patterns. These tools improve precision and scalability, allowing researchers to move beyond small samples toward system-level analyses. EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 246 Gaps and Emerging Directions Despite the progress, important gaps remain. First, most evidence comes from high-income countries, leaving uncertainty about the economics of nursing in lowand middle-income countries (LMICs), where shortages are most acute. LMICs face unique challenges, including limited budgets, higher disease burdens, and migration of nurses to wealthier nations. More research is needed to assess the ROI of nursing investment in these contexts. Second, much of the literature focuses on hospital outcomes, with less attention to long-term and community-based effects. Nursing also contributes to primary care, chronic disease management, and community health promotion, which have significant economic implications but remain underexplored. Third, the rise of digital health technologies – telehealth, artificial intelligence, and robotics –raises questions about the future of nursing work. Will these tools complement or substitute nursing labor? What are their implications for productivity, costs, and patient outcomes? Early evidence suggests that digital innovations are most effective when integrated with adequate staffing, reinforcing complementarities rather than substitution (Turale et al., 2021). Finally, the undervaluation of nursing is partly a function of gendered labor dynamics. Quantitative studies of wage gaps, career progression, and migration patterns are still limited, and integrating these issues into economic models would strengthen the policy case for equitable investment. Discussion and Implications The literature reviewed in Section 3 provides strong evidence that nursing care is a determinant of both patient outcomes and economic performance. However, the challenge lies not only in acknowledging this relationship but also in integrating it into health policy, financing, and organizational practice. This discussion interprets the empirical evidence through the lens of economics and policy analysis, highlighting implications for efficiency, human capital investment, externalities, organizational productivity, gender equity, and value-based healthcare design. The objective is to move from descriptive associations to actionable strategies that embed nursing into the core of economic decision-making in health systems. Nursing and Health System Efficiency Efficiency in health systems is achieved when resources are allocated in a way that maximizes health outcomes for given expenditures. The evidence on nurse staffing demonstrates that reducing nurse numbers to cut short-term costs undermines efficiency by generating adverse events, extended hospital stays, and readmissions. This is a classic case of false economy –apparent savings that create greater long-term costs. For example, avoiding a hospital-acquired infection not only prevents suffering but also saves thousands of dollars in treatment costs (Yakusheva, 2020). Preventing a single readmission for heart failure or pneumonia can save between $10,000 and $20,000, more than the cost of additional nursing hours required to prevent the event. From a health economics perspective, this means the marginal cost of additional nursing input is lower than the marginal benefit in terms of avoided complications and savings. The logic is analogous to cost-effectiveness analysis used in evaluating drugs and interventions. Just as vaccines are deemed cost-effective because they prevent costly illnesses, nursing can be considered cost-effective because it prevents adverse events and enhances system throughput. Yet, unlike drugs, nursing is rarely subjected to formal cost-effectiveness evaluations, leaving its economic contribution under-recognized. EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 247 Thus, the first implication is that health systems must treat nursing as a lever of efficiency, not as a controllable expense. Budgeting practices that target nursing for cuts are economically irrational and should be replaced with strategies that evaluate nursing investments in terms of return on investment (ROI). Nursing as Human Capital Investment Human capital theory provides a powerful framework for understanding why nursing education and training are investments rather than costs. The evidence reviewed shows that bachelorprepared and advanced-practice nurses contribute to better outcomes, including lower mortality and readmissions. These outcomes reduce costs and improve system productivity. For example, Yakusheva et al. (2014) demonstrated that patients cared for by bachelor-prepared nurses experienced fewer complications, leading to shorter hospital stays and reduced resource use. This aligns with the principle that investments in education raise the productivity of labor. At a societal level, investments in nursing education yield spillover benefits such as improved public health, greater workforce participation, and enhanced economic growth. However, many countries underinvest in nursing education, treating it as a discretionary expense rather than as part of national human capital strategies. The WHO (2020) has warned that the global shortfall of nearly six million nurses is a threat not only to health outcomes but also to economic development. Addressing this requires reframing nursing education as infrastructure investment akin to building roads or schools. The implication is that governments and institutions must integrate nursing into national human capital strategies, providing sustained funding for education, continuing professional development, and career pathways. Such investments should be evaluated using the same metrics applied to other forms of capital investment: expected returns, productivity gains, and contribution to long-term growth. Externalities and the Case for Public Investment The economics of externalities provides another justification for public investment in nursing. Nursing generates positive externalities such as infection control, improved adherence, and community health promotion. These benefits extend beyond individual patients to families, communities, and society at large. Negative externalities, by contrast, occur when nursing is underprovided: overcrowded emergency departments, hospital bottlenecks, and systemic inefficiencies. Markets alone underprovide goods with positive externalities because individual hospitals or patients cannot capture the full benefits. For instance, when a nurse educates a patient with diabetes about self-care, the benefits extend to reduced long-term complications and lower societal costs, but these are not fully captured in hospital accounts. Similarly, infection prevention reduces transmission risks across the community, producing benefits that are diffuse and collective. Public policy therefore has a clear role in internalizing nursing externalities through regulation, financing, and incentive design. Staffing mandates, subsidies for education, and integration of nursing-sensitive indicators into payment systems are mechanisms that align private incentives with social benefits. Without such interventions, nursing will remain undervalued and underprovided. The implication is that policy frameworks must treat nursing as a public good, ensuring adequate provision through collective financing and regulatory support. Organizational Economics and Nursing Productivity At the organizational level, hospitals are complex systems where productivity depends on the complementarities between inputs. Nursing interacts with physicians, technologies, and EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 248 infrastructure to produce outcomes. Understaffing undermines these complementarities by reducing the effectiveness of other inputs. For example, investing in advanced diagnostic equipment yields limited benefits if there are not enough nurses to monitor patients and ensure timely interventions. Similarly, physician productivity depends on nurses for information gathering, patient preparation, and follow-up care. Organizational economics therefore highlights that cutting nursing inputs reduces the returns on investment in other areas. Needleman and Hassmiller (2009) argue that staffing should be considered a productivityenhancing investment. Adequate nurse staffing reduces length of stay, prevents complications, and facilitates timely discharge – all of which improve hospital throughput and revenue. Griffiths et al. (2019) demonstrated that hospitals with higher reliance on nursing assistants rather than professional nurses experienced worse outcomes and inefficiencies. The implication is that hospital managers must incorporate nursing into productivity and performance models, using nursing-sensitive indicators alongside financial and operational metrics to guide resource allocation. This requires moving away from siloed budgeting toward integrated models that recognize the interdependencies between inputs. Nursing and Value-Based Healthcare Value-based healthcare (VBHC) provides a practical framework for aligning incentives with outcomes. By defining value as health outcomes achieved per dollar spent, VBHC directly links nursing care to measurable value creation. Nursing-sensitive indicators such as infection rates, pressure ulcers, falls, and patient satisfaction can be embedded in VBHC models to attribute value to nursing. Yakusheva (2020) proposed value-added measures of nursing performance, showing how nursing contributes incrementally to patient outcomes and efficiency. Integrating these measures into payment systems ensures that hospitals and policymakers recognize and reward nursing’s contribution. For example, bundled payments that include responsibility for readmissions incentivize investment in nursing processes that prevent complications. However, VBHC models must be carefully designed to avoid unintended consequences such as risk selection or penalizing hospitals that serve complex populations. Risk adjustment and robust data infrastructure are essential to ensure fairness. Moreover, VBHC must not reduce nursing to a set of narrow metrics, but should capture the holistic contribution of nursing to patient well-being. The implication is that VBHC reforms should explicitly integrate nursing-sensitive indicators and value-added metrics, making nursing’s contribution visible and rewarded within financing systems. Ethical Economics, Gender, and Equity The undervaluation of nursing is not only an economic issue but also a matter of equity and justice. Nursing is a predominantly female profession, and its historical association with “caring work” has contributed to persistent undervaluation (Adams & Nelson, 2009). This has tangible economic effects: wage gaps, limited career progression, and high turnover. Sen’s (1999) concept of “development as freedom” emphasizes that economic evaluation must incorporate equity and justice. Addressing gender disparities in nursing is therefore not only an ethical imperative but also an economic strategy. Fair compensation, safe staffing, and career development pathways reduce turnover, protect human capital, and enhance system resilience. Migration dynamics also reflect inequities. Nurses often migrate from low-income to high-income countries, exacerbating shortages where they are most needed. Policies addressing global nurse EJMEB (ISSN 3041-2102) | VOLUME 2 | NUMBER 2 | 2025 249 migration must balance individual freedoms with collective needs, ensuring fair compensation and mutual benefits between sending and receiving countries. The implication is that economic frameworks for nursing must incorporate gender equity and labor-market dynamics, designing policies that correct structural undervaluation and stabilize the workforce. Measurement and Attribution Challenges A recurring challenge in nursing economics is attribution. Outcomes are the result of multiple inputs, making it difficult to isolate nursing’s contribution. Three strategies help address this. First, focus on nursing-sensitive outcomes where the causal link is strong, such as pressure ulcers, infections, and falls. Second, use quasi-experimental designs such as difference-in-differences analyses of staffing legislation (McHugh et al., 2021) or instrumental variables based on exogenous labor market shocks. Third, integrate clinical and economic endpoints in cost-effectiveness and cost-utility analyses (Drummond et al., 2015). The adoption of electronic health records and big data analytics enhances the ability to measure missed nursing care, staffing patterns, and outcomes at scale. Standardized nursing data elements enable comparability across hospitals and countries, supporting learning health systems. The implication is that investment in measurement infrastructure is essential to make nursing’s value visible and actionable. Conceptual Model for Nursing Economics in Value-Based Systems Synthesizing the evidence, we can propose a conceptual model for integrating nursing into valuebased systems: ● Inputs: nurse staffing levels, education, training, and work environment. ● Processes: surveillance, early intervention, coordination, patient education, relational care. ● Outputs: nursing-sensitive outcomes such as reduced complications, lower mortality, shorter length of stay, improved satisfaction. ● Outcomes: economic value in the form of avoided costs, improved throughput, and enhanced population health. ● Contextual factors: equity, gender, policy frameworks, and organizational culture. Feedback loops are central to this model: improved outcomes generate savings, which can be reinvested in nursing, creating a virtuous cycle of efficiency and sustainability. This model aligns with the Donabedian framework and VBHC principles, providing a practical roadmap for integrating nursing into economic and policy decisions. Policy and Managerial Implications The discussion yields several actionable implications: 1. Mandated staffing ratios: Evidence from California shows that minimum ratios reduce mortality and burnout without harming finances (Aiken et al., 2010; McHugh et al., 2021). Other jurisdictions should evaluate ratio policies with contextual adaptations. 2. Integration of nursing-sensitive indicators into financing: Pay-for-performance and bundled payments should explicitly include indicators such as infection rates and readmissions to reward nursing’s contributions.