HEALTH ECONOMICS

Part I: objectivesINTRODUCTION TO ECONOMICS

Defining Economics.

Explaining the three major tasks of Economics.

Understand the tools used in Economic Analysis.

Understanding the types of Economics.

Understanding economic problem

Economics DefinitionEconomics is the science that deals with the consequences of resources scarcity.

The discipline of economics deals with use of scarce resources to satisfy human wants and how best to use the resources available. (the study of the use of limited resources by a society for meeting its unlimited wants.)

Economics is a social science that studies how individuals and organizations in society engage in production distribution and consumption of goods and services.

Facts about Economics: Objective : the main objective of economic activity is to allocate the scarce resources in such a way that maximum satisfaction may be achieved. The subject matter of economics is therefore the scarcity of resources.

Some economic terms Scarcity: is a relative (comparative) term which means less than requirements. A commodity is considered scarce when it is limited in supply, for example; the production of food may be in thousands of tonnes, but it is scarce because it is less than the requirements.

Some economic terms Needs: Refers to basic human beings requirements for survival; food, clothing, housing and water.

Wants: any human desire is known as want or end.

All wants of human beings cannot be satisfied because human beings’ resources are scarce and wants are virtually unlimited.

All people work in order to Satisfy their wants (i.e. their desire).

Some economic terms Choice: is the selection of the wants which have greater importance than others. Utility: is the quality of the commodity to satisfy any human wants (desire). In economics, the word or term utility is used for individuals to mean satisfaction and the word welfare is used for populations to mean happiness, both provided by commodities.

Human wants and choices Human wants are numerous or unlimited or in the sense that once a goal is achieved another crops up. However, Human beings are able to make choices between competing wants- EG.a new shirt or a book.

What is a commodity? Commodities are either goods (i.e. products that you can touch or hold e.g. medicines) or services (e.g. consultation).

There are three (3) things you can do with a commodity: - you can consume to gain utility - invest for it - trade it ( i.e. exchange it) for some other resources

The meaning of economy The word economy refers to all the economic activities and institutions (i.e. anything involving scarcity and choice) within a geographically defined area; e.g. a district, region, national, global

Ie. Economy is the process which defines how resources are utilized to fulfill wants.

In economy, resources are classified into three classes; Labour, Capital, and Land

Three Major Tasks Of Economics

Descriptive Economics

Explanatory Economics

Evaluation

Three Tasks Of Economics Cont…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 Tasks Of Economics Cont…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 Tasks Of Economics Cont…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.

Tools Used In Economic Analysis Economic Variables Relationship between Economic Variables Graphic representation of relationships. The direction of the relationships The slope of the relationships. The position of the relationship. The shape of the relationships. The nature of economic propositions.

Tools In Economic Analysis Cont…

1. Economic Variables;

Examples ( prices, costs, incomes, and quantities of commodities)

Can be measured along a scale. Once appropriate unites of measurement have

been chosen ( Riyals, visits, days).

Tools In Economic Analysis Cont…

2. Relationships between economic variables;

Relationship show how one variables changes in relation to another variable.

The relationships can be specified in a causal or non-causal manner.

Causal relationships – if …., then….

Tools In Economic Analysis Cont…

3. Graphical representation of relationships;

Step function is solid line relates diagrammatically to only specified values.

We can draw a continuous curve joining all the points specified in the relationship.

Tools In Economic Analysis Cont…

4. The direction of the relationships;

Positive relationship. Opposite or negative relationship. Non-relation or constant relationship in “Y”. Non-relation or constant relationship in “X”.

0

2

4

6

8

10

12

1 2 3 4

constant Ypositivenegativeconstant X

Types Of Economics Economics offers an overall

viewpoint about toward understanding many problems, all of which relate to scarcity in one form or another.

Economics can be; 1. Macroeconomics 2. Microeconomics.

MACROECONOMICSMacroeconomics is the study of aggregate economic activities, such as:

1. The economy level of outputs; We can measure that by some variables such as; GDP,

Rate of depression, Rate of slackness ..ets. Real GDP is the market value of all final goods and

services produced in the domestic economy during a one year period measured with constant prices.

2. Level of national income; We can measure that by some variables such as N.I. National income (N.I) is the income earned by the

factors of production. Income earned of the sold or consumed GDP.

MACROECONOMICS Cont…

3. Level of employment; We can measure that by some variables such as the

rate of unemployment. The Rate of Unemployment is the percent of the total

labor force which is unemployed.

4. General price level; We can measure that by some variables such as

Inflation or Deflation Rate ets. Inflation is the annual rate of increase in a price index. Deflation is the annual rate of decrease in the price

level.

MICROECONOMICSMicroeconomics the study of economic behavior of individual decision making units such as:

Consumers resource owners and business firms in a free –enterprise economy.

We can measure that by some studies such as market , pilot and feasibility studies.

THE CONCEPT OF ECONOMIC PROBLEM

Economic problem is based on the fact that; economy's finite resources are insufficient to satisfy all human wants and needs.

It assumes that human wants are unlimited, but the means to satisfy human wants are scarce.

ECONOMIC PROBLEM Cont…Factors of production are land, labor capital They are the inputs necessary for the production of good and services .The terms “factors of production” and “economic resources” are interchangeable.

Basic Economic Questions

1. Which goods and services to produce?

2. How to produce the goods and services?

3. Who receives the goods and services?

ECONOMIC PROBLEM Solving…This involves to make the best use of limited

or scarce resources. Solving any economic problem should answer the basic economic questions such as 1. What to produce? 'What and how much will you produce?' This question lies with selecting the type of

supply and the quantity of the supply, focusing on efficiency.

e.g. "What should I produce more; laptops or tablets?"

ECONOMIC PROBLEM Solving… 2. How to produce? 'How do you produce this?' This question deals with the assets and procedures used while making the product, also focusing on efficiency. e.g. "Should I hire more workers, or do I invest in more machinery?"

For whom to produce? 'To whom and how will you distribute the goods?  and 'For whom will you produce this for?' arises from this question. This question deals with distributing goods that have been produced, focusing on efficiency and equity.

Part II. HEALTH ECONOMICSHealth economics deals with a specific portion of “the” economic problem, that concerned with health and health care.

Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and health care.

What differentiates health care from other services;

1.The personal and often urgent needs the service meets. 2.dealing with pain and suffering and with life and death decision.3.access to the service is often considered to be a basic human right irrespective of ability to pay.

HEALTH CARE AND HEALTHOne of the basic principles of the public health care systems is that; - Treatment should be provided on the base of need rather than on the base of that funds are available. 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 AND HEALTH Cont…Health care services can be bought and sold, while health cannot .Health is difficult to define and even more difficult to measure

According to the world health organization {WHO} good health is “a state of complete physical and mental well-being and not merely the absence of disease or infirmity”.

Poor health in an individual will have an impact on and may pose threats to others.

HEALTH CARE AND HEALTH Cont…Improved health care services thus provide benefits to society as a whole if they result in improved health as well as providing benefits to the individual. The role of medicine in improving the health status of the population has been exaggerated and that factors such as housing, education, diet, hygiene and

standard of living have had more significant impact on levels of health than what we conventionally think of as health services.

THE DEMAND FOR HEALTH CAREThe 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.

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.

THE DEMAND FOR HEALTH CARE Cont…Tanzania expect to be effective in public health services which will protect us from infectious diseases

A diverse and sometime conflicting set of interests may happen between;Those who pay for health services.Those who provide them.Those who shape them through strategic and

operational management.Those who would like to benefit from them, if

need be.

Mention and discuss the requirements of Health services.

Discuss about Demand and Supply

Requirements of health services1. Economy.2. Effectiveness.3. Efficiency.4. Value for money {VFM}.5. Equity.6. Ethical issues.

Requirements of health services Cont…1. Economy

We would like the services to be inexpensive. Somebody always pays either directly or indirectly.

2. Effectiveness We expect the service to be effective we want each

procedure to produce perceptible health gains {or reductions in suffering}.

The evidence based medicine beginning to influence health care providers.

3. Efficiency We expect our services to be efficient. If we can deliver an

equally effective service in different ways then we would want to choose the least expensive.

Requirements of health services Cont…4. Value for money {VFM}

These three requirements, economy, effectiveness and efficiency, come under the heading of value for money {VFM}.

5. Equity Three broad ways of defining equity in health care;

A. Equality of health status attained.B. Equality of use of health care {for equal need}.C. Equality of access to health care {for equal need}.

Horizontal equity- the principal of equal treatment for equal need.

Vertical equity- provision of unequal treatment for unequal need.

6. Ethical issues The behavior of doctors and other health care professional may

put them into conflict with those who manage resources. The doctor could manipulate the situation for financial gain. The patient is protected from these abuses by the doctor's

ethical and professional codes of conduct.

DEMAND AND SUPPLYIn 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 Cont…Change in market demand is a shift in 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. a change in the number and or size of producers. a change in the technology a change in the price of

a factor of production a change in the price of other commodities used in

production.

Why Economics for Healthcare?

The scarcity of resources and healthcare resources…..Increasing demand for efficiency

Alternative use of healthcare resources exist…increasing demand for effectiveness

Increasing Demand for Value for money...considering the patients’welfare….

Increasing Demand for Accountability

Increasing demand for equity

Increasing demand for profitability(Public and private)……..Health financing mechanism reform

Scarcity of Health resourcesHealth resourcesEverything input in the delivery of a specific treatment or intervention Medical personnel time, equipment, drugs, patient time,…

ScarcityScarcity means choices and distributionScarcity means trade-off

Why Economics in provision of pharmaceutical services Same reasons……………..but in the pharmaceutical services perspective…………….

Health economics in pharmaceutical services Some concepts in the pharmaceutical services field Equity Providing service with high level of equality cost-effectiveness Affordable costs to all community members cost-benefit Incurred costs should reflect the benefit

acquired by the patient.

practices affecting the adoption of health economics principles These can affect positively or negatively depending on the situational polarity…..

Prescribing practices (rational vs irrational)

Dispensing practices(rational vs irrational)

Procurement practices (Good procurement practice or vice versa)

Storage and distribution practices (Shelf lives, FEFO, scheduled or unscheduled and/or bulk/small distributions)……….

Health economics does not look on health care system only but also on clients’ health protection and seeking behaviors…..……Now check out any patient behaviors/factors that are centrally to health economics