HEALTH ECONOMICS
SHIVANGI
Economics
“The study of how men and society end up CHOOSING,
with or Without the use of money, to employ SCARCE
productive RESOURCES that could have ALTERNATIVE
uses, to produce various commodities and DISTRIBUTE
them for consumption, now or in the future, among
various people and groups in society.”
(Samuelson)
Economics is about …
Limited resources
Unlimited “wants”
Choosing between which
‘wants’ we can ‘afford’ by
given resource ‘budget’
Economics….
Three fundamental elements:
scarcity: needs, wants and demands are greater than
resources available to meet them
choosing: analyses and assists decision making
alternative uses: opportunity costs
Types Of Economics
Macroeconomics : aggregate Microeconomics: economic
economic activities behavior of individual decision
making units
Level of national income Consumers
Level of employment resource owners
level of outputs; GDP, Rate
and
of depression, Rate of business firms
stackness
General price level in a free –
enterprise
economy
What is Health Economics?
Theoretical framework to help healthcare professionals
,decision-makers or governments to make choices on…
…HOW to maximize the health of population, by
given constrained health producing resources.
Health economics is a branch of economics concerned
with issues related to efficiency & effectiveness value and
behaviour in the allocation of health and health care. In
broad terms, health economists study the functioning of
the health care system and the private and social causes of
health-affecting behaviours.
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Health Economics
It introduce you to the application of economic thinking to
the analysis of health policy and health systems
Organisation and financing of health care
Priority setting and resource allocation
Economic evaluation of alternative ways of providing
health care
Why health economics?
Rapid growth in health expenditure:
demographic changes
technological advance
changing expectations
Resources available to health care are scarce
Choices must be made as to what health care should be
provided, how it should be provided, in what quantities
and how it might be distributed
Why health economics?
To provide:
a way of thinking
a set of techniques
To assist decision making, usually in the health care sector, to
promote:
efficiency
equity
Economics is about maximizing social benefits subject to the
constraint imposed by resource availability
Key Health Economic Concepts
Opportunity cost
Efficiency
Concept 1: opportunity cost
“The value of forgone benefit which could be obtained
from a resource in its next-best alternative use.”
Economics is about choice
Good ‘B’
Good ‘A’
Budget
Implications of opportunity cost
Deciding to do A implies deciding not to do B (i.e.
value of benefits from A>B).
Value not necessarily determined by “the market”.
Concept 2: efficiency
Efficiency =
maximising benefit for resources used
meeting a given objective at least cost
producing the pattern of output (supply) that matches the
pattern of consumer want (demand)
Efficiency
Price/ Cost
Supply
Demand
Quantity
Efficiency
Price/
Cost
Supply
A
Equilibrium
Price PA
Demand
QA Quantity
Applying economics to health (care) three
Major Tasks
Descriptive = quantification
Predictive = identify impact of
change
Evaluative = relative preference
over situations
Three Major Tasks Of Economics.
i. Descriptive Economics;
Refers to the identification, definition,
and measurement of phenomena.
Concerned with determining the nature
of the phenomena as well as obtaining
estimates of their magnitudes.
No explanation.
Three Major Tasks Of Economics.
ii. Predictive/Explanatory Economics;
Involves explaining and predicting certain
phenomena.
Conducting an analysis in a cause-effect format.
Performed with the aid of models that classify
various causal factors in a systematic framework (e.g.
the health status and the price of the medical
services).
Three Major Tasks Of Economics.
iii. Evaluation;
Involves judging or ranking alternative phenomena
according to some standard.
An acceptable standard must be obtained.
Based on this standard, alternative ways of using
scarce resources are then ranked.
In choosing the standard, one major criterion is
acceptability.
Scope
The scope of health economics is neatly encapsulated by
Alan Williams' "plumbing diagram”, dividing the
discipline into eight distinct topics:
What influences health? (other than health care)
What is health and what is its value
The demand for health care
The supply of health care
Micro-economic evaluation at treatment level
Market equilibrium
Evaluation at whole system level; and,
Planning, budgeting and monitoring mechanisms
Health economics ‘map’
H. E.
E.Market
H.Micro-Economic
Micro-EconomicAppraisal
Appraisal Market
Analysis
Analysis
B.
B.What
Whatinfluences A.
influences A.What
WhatisisHealth?
Health?
Health?
Health?(other
(otherthan What
than Whatisisit’s
it’svalue?
value?
health
healthcare)
care)
C.
C.Demand
Demandfor
for D.
D.Supply
Supplyof
of
Health
HealthCare
Care Health
HealthCare
Care
G.
G.Planning,
Planning,budgeting,
budgeting, F.F.Macro-
Macro-
regulation
regulationmechanisms
mechanisms Economic
Economic
Appraisal
Appraisal
What is ‘health’?
World Health Organisation:
Health is a “state of complete physical, mental and social
well-being”
“Health Economics” is often “Health Care”
Economics
Usually “health” in health economic (evaluation) is
health status according to some measure
Health status example:
Health Care And Health.
One of the basic principles of the public health care
systems is that treatment should be provided on the base
of need.
And on the base of that equity should be one of the
objectives of the service.
The purpose of health care is to produce an improvement
in health, the maintenance of good health and or a
reduction in suffering.
Health care services can be bought and sold, while health
cannot .
Health Care And Health.
Dealing with
Medical aspects and other factors like…
housing, education, diet, hygiene and standard of living
The demand for health care
The demand for health care services will depend on the
demand for health and on the perception of the link
between health care and health.
One complication of trying to model or predict this
demand is that individuals value apparently equal health
states differently.
Most health care is carried out by families within the
home.
The demand for health care
Health care systems may produce outputs other than
health (Comfort, Security, etc).
The demand for health care will also vary according to the
age structure of the population.
Demand and Supply
In a market economy , output is distributed through a
system of prices.
Each good and service produced is sold to those who are
willing and able to pay the market price.
The market demand for a good or service is presented as a
schedule which relates the number of units (quantities)
that will be purchased at alternative prices, holding
constant other variables that influence the purchase
decision.
Demand and Supply
Change in market demand is a shift the market demand
curve that results from:
a change in the number of consumers in the
market consumer preferences
consumer money income
the price of a substitute commodity
the price of a complementary commodity.
Demand and Supply
Change market supply is a shift of the market supply curve
that results from:
a change in the number and or size of
producers.
a change in the technology a change in the
price of a factor of a production
a change in the price of other commodities
used in production.
Health care markets
The five health markets :
Health care financing market
Physician and nurses services market
Institutional services market
Input factors market
Professional education market
HEALTH - EVALUATION
WHO ranking of health systems (top 20)
1 France 11 Norway
2 Italy 12 Portugal
3 San Marino 13 Monaco
4 Andorra 14 Greece
5 Malta 15 Iceland
6 Singapore 16 Luxembourg
7 Spain
17 Netherlands
8 Oman
18 UK
9 Austria
19 Ireland
10 Japan
20 Switzerland
Economic evaluation is…
“ The comparative analysis of alternative courses of action
in terms of both their costs and consequences in order to
assist policy decisions” (Drummond et al,1997)
Economic evaluation is not “choosing the cheapest”.
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Economic Evaluation criteria
Economic evaluation is used to ensure that limited
resources are allocated as efficiently as possible.
Society may have other goals when allocating resources:
equity or ethical issues.
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Basic types of economic evaluation
Cost minimization Analysis (CMA)
Cost-effectiveness Analysis (CEA)
Cost-utility Analysis (CUA)
Cost-benefit Analysis (CBA)
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Summary
Type of Analysis Costs Consequences Result
Result
Identical in all
Cost Minimisation Money respects.
Least
Leastcost
costalternative.
alternative.
Different magnitude of a Cost
Costper
perunit
unitof
of
Cost Effectiveness Money common measure eg. consequence
consequenceeg.
eg. cost
cost
blood pressure reduction. per
permm
mm Hg.
Hg.
Single or multiple effects Cost
not necessarily common. Costper
perunit
unitof
of
Cost Utility Money Valued as “utility” eg.
consequence
consequenceeg.
eg. cost
cost
QALY per
perQALY.
QALY.
As
As for
forCUA
CUA but
but valued
valued Net
Net ££
Cost
Cost Benefit
Benefit Money
Money in
in money.
money. cost:
cost: benefit
benefitratio.
ratio.
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Assessment of costs
Overview of costing process:
Identification of costs
Cost type: direct vs indirect vs intangible.
Cost category: programme, patient.
Organizational level: national, regional, district.
Input category: capital vs recurrent.
Intervention activities: planning, administration, media, training.
Time: start-up vs post-implementation.
Funding: national govt vs NGO vs donor.
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Assessment of costs
Valuation
Market prices used unless strong belief they do not reflect
opportunity cost
Local currencies vs international currencies.
Adjustments for price inflation.
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Assessment of health effects
Overview of the process:
Measurement
Measure effectiveness not efficacy.
Measure (count) in natural physical units.
Measure final not intermediate outcomes.
Valuation either in terms of:
Utility (e.g. QALY, DALY, HYE)
Money
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Assessment of health effects
Zoom on the concept of QALY:
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References
O’Brien B, Stoddart GL, Torrance GW. Methods for
Economic Evaluation of Health Care Programmes.
Second Edition. Oxford: Oxford University Press, 1997.
Cost-Effectiveness, Cost-Utility, Cost-Benefit. Available
from: http://www.oheschools.org/
On line Lecture Notes – the Economics of Health Care.
Available from:
http://www.worldbank.org/healthreform/class/module1/in
dex.htm
Economics of Canadian Health Care by Robert G.
Evans. Available from: http://www.chspr.ubc.ca
