Health Economics 2

8/2/2019 Health Economics 2

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Introduction to Economic Analysis in Health Care


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Importance of Health Care Economics Health is important as a society and as individual

One of the wayto prevent the impact of ill health &

diseaseAvailability of health care can determine the quality of

our lives and our prospects for survival.

Economics analysis gives a guideline for analysing

important issues in health care and to identifysolutions to common problems


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Importance of Health Care

Economics Contd..

The healthcare sector of the economy is very large

( USA spending crossed $ 1000 billion , research says

that, healthcare spending in 2014 will be $3600 billionwhich is 1/4th5 of all US Economic activity .

Thus healthcare is an important component of spending

, investment and employment in every developed

country


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Importance of Health Care

Economics Contd.. Decisions regarding how healthcare is funded ,

provided and distributed are strongly economicenvironment and economic constraints . Global,national and local policy responses to healthcare

are increasingly being informed (influenced) byeconomic ideas and methods of analysis

To avoid being deceived by economists

To understand the productivity , efficiency and valueof money in modern healthcare systems .


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Health Economics DefinitionHealth economics is the application of economic theory

, models and empirical ( experimental) techniques tothe analysis ofdecision making by individuals ,

healthcare providers and government with respect tohealth and health care . Although it is solidly basedin economic theory but it also comprises a body oftheory developed specifically to understand thebehaviour of patients , doctors and hospitalsdeveloped to facilitate resource allocation in healthcare


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Health Economics DefinitionThe study of how scarce resources are allocated

among alternative uses for the care of sickness and

the promotion, maintenance and improvement of

health, including the study of how healthcare and

health-related services, their costs and benefits, andhealth itself are distributed among individuals and

groups in society.


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Economics defined

Economics is the social science that examines howpeople choose to use limited or scarce resources inattempting to satisfy their unlimited wants."

"Economics is a science which studies human behavioras a relationship between ends and scarce meanswhich have alternative uses.

Economics deals with allocation of the scarce

resources which have alternate uses in order to obtainthe maximum benefit.


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Economics definedThe definition is based upon the following three facts:

Unlimited wants

Scarce ResourcesAlternative Use of Resources

The focus of economic analysis is decisions and choicesabout the production and consumption of economic

good.


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Health care as an economic good(Using the previous definition)

Health care is an economic good because

- The resources that are used to produce health care

services such as human resource , capital & rawmaterials are scarce and have alternative use

- Our wants for health care what we choose toconsume , in absence of constraint on our ability topay have no bounds ( Wants are also increasing )

- No healthcare system, anywhere in the world hasachieved levels of spending sufficient to met all itsclients wants for health care .


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Health care as an economic good Choices has to be made about What quantity and mix of health care is to be produced?

How to produce it ?

Who pays for it ? And How is it distributed ?

Healthcare is not available in endless supply the

more healthcare we choose , the more of something else hasto be sacrificed . As health care is important for the welfare

of human beings , these choices but be carefully made.

Basic

economicquestions


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HEALTH & HEALTH CARE

Health economics & health care are not same Ultimate goal of health care is to improve health but

there are other determinants which help inimprovement of health.

Health economists may not be just interested in thesupply of treatment that hospitals provide and itsimpact on the health of patients but also of the impactof the housing , unemployment, lifestyle on the health

of the population as a whole


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Deciding who gets what in Health

care ( Distribution of Health care )

Health care as an economic good is not the same as othergoods and services .

Economics is concerned with What to produce ? How to

produce and to whom it should be produced ?Should such issues be decided differently in healthcare ?

Options

Allow market forces to determine who gets whatAllow government to intervene in healthcare and

decide who gets what


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Allow market forces to determine who gets what

Firms decide how much to produce , and how to

produce guided by the profit motive . (Suppliers )

Consumers decide how much to purchase and fromwhere to purchase guided by their own view of interest

Simple economic model of supply and demand predict

how firms and customers behave in such markets

(eg of supply & demand)


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Allow market forces to determine who gets what

In a private market , not everyone who wants a servicereceives it

Those who receives it are both willing and able to payfor it

Unobserved wants are not met because potentialconsumers are not willing or able to turn them intoeffective demand


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Allow government to intervene in healthcare

and decide who gets what

Government intervenes in a greater degree than othereconomic goods

Regulates who may provide services

What producers can charge or what profits they earn

Decide about subsidizing partially or fully fundedthrough tax or directly providing public hospital.

In UK , National Health Service, govt dominates

funding and provisions of health care so supply isessentially fixed in each time by political decisions

Effective demand is higher than it would be ifpatients had to pay .


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Here supply curve is vertical , indicating that supply isfixed .

No price system to reconcile supply and demand ,demand exceeds supply

Who obtains health services is determined by factorsother than price e.g. by waiting lists

Main difference No distinction between wants ,demands and needs , there are observed unmet needs


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WHY IS HEALTH CARE DIFFERENT ?

Demand characteristics- Demand for healthcare is uncertain :-We do not know

when we become ill , which healthcare we will require, which ill health( disease) arises or at what cost.

- There is uncertainty about how a given state of illhealth will respond to healthcare. Recovery is alsouncertain.


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WHY IS HEALTH CARE DIFFERENT ?

Customers cannot test the product before consuming

it . They have difficulty judging the quality of

healthcare even after experiencing it . We cant shoparound

(Asymmetry of information):Difficult for patients to

obtain knowledge is appropriate for their condition

medical knowledge is complex. Consumers know less

than their seller and place their trust in the provider .


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WHY IS HEALTH CARE DIFFERENT ? Contd

There are interdependencies between consumers

action , the healthcare seeking behaviour of oneconsumer affects the likelihood of becoming infectedof others .eg if a person is affected by tuberculosis , ifhe takes the medicines he will get cured andsimultaneously prevent it from spreading to others .


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Supply characteristics Entry into the industry is restricted by medical licensing Advertising and overt competition are virtually absent in

medical markets

Imperfect agency: Advice given by physicians issupposed to be completely divorced from self-interest (not by the financial interests of the provider).Relationship between doctor & patient is often presentedas a principal agent problem. If doctors made thesedecisions in manner fully consistent with patients

preference , unaffected by the consequences forthemselves , then they would be acting as perfect agents .Economists say that doctors cannot or do not act asperfect agents


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Providers with goals other than profit maximizationdominate provision . Social and ethical factors areimportant in determining their behaviour

Doctors sometimes charge different fees to differentpeople


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JUDGING THE USE OF HEALTH CARE RESOURCES

We judge the use of healthcare resources using thecriteria of efficiency & equity

Efficiency : is the allocation of scarce resources thatmaximizes the achievement of aims .

Equity is fairness in the distribution and finance ofhealth and health care between people

Health Economics 2

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