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KEYSTONE / Module 5 / Slideshow 1 / Basic Principles of Health Economics

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KEYSTONE HPSR Initiative // Module 5: Economic analysis // Slideshow 1: Basic Principles of Health Economics
This is the first slideshow of Module 5: Economic Analysis, of the KEYSTONE Teaching and Learning Resources for Health Policy and Systems Research

To access video sessions and slides for all modules copy and past the following link in your browser:

Module 5: Economic analysis
An economist’s approach to understanding and studying health systems problems is underpinned by principles of economic reasoning. These principles of reasoning can be applied to a range of questions around the production of health and health services, demand and supply of health services, principal-agent relationships, and incentive mechanisms in health systems. This module outlines the basic concepts of economics and stimulates the participants to think about the debates about failure of market in health care and the role of the Government and give an overview about costing of health care programs and role of economic evaluation in health care.

There are 4 slideshows in this module.

Module 5: Economic analysis
-Module 5 Slideshow 1: Basic Principles of Health Economics
-Module 5 Slideshow 2: Micro Economics for Health
-Module 5 Slideshow 3: Economic Evaluation
-Module 5 Slideshow 4: HPSR Research Ideas Economic Perspective

The other modules in this series are:
Module 1: Introducing Health Systems & Health Policy
Module 2: Social justice, equity & gender
Module 3: System complexity
Module 4: Health Policy and Systems Research frameworks
Module 6: Policy analysis
Module 7: Realist evaluation
Module 8: Systems thinking
Module 9: Ethnography
Module 10: Implementation research
Module 11: Participatory action research
Module 12: Knowledge translation
Module 13: Research Plan Writing

KEYSTONE is a collective initiative of several Indian health policy and systems research (HPSR) organizations to strengthen national capacity in HPSR towards addressing critical needs of health systems and policy development. KEYSTONE is convened by the Public Health Foundation of India in its role as Nodal Institute of the Alliance for Health Policy and Systems Research (AHPSR).

The inaugural KEYSTONE short course was conducted in New Delhi from 23 February – 5 March 2015. In the process of delivering the inaugural course, a suite of teaching and learning materials were developed under Creative Commons license, and are being made available as open access resources. The KEYSTONE teaching and learning resources include 38 videos and 32 slide presentations organized into 13 modules. These materials cover foundational concepts, common approaches used in HPSR, and guidance for preparing a research plan.

These resources were created and are made available through support and funding from the Alliance for Health Policy & Systems Research (AHPSR), WHO for the KEYSTONE initiative

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KEYSTONE / Module 5 / Slideshow 1 / Basic Principles of Health Economics

  1. 1. https://twitter.com/KeystoneHPSR Building the HPSR CommunityBuilding HPSR Capacity KEYSTONE Inaugural KEYSTONE Course on Health Policy and Systems Research 2015 Economic Analysis in HPSR Session 1 Basic Principles of Health Economics
  2. 2. Basic Principles of Health Economics KEYSTONE HPSR Course 25 February 2015 Economic Analysis in HPSR Session 1
  3. 3. Session Outline • Role of Economics in Health • Demand for Health Services • Production and Supply of Health Services • Overview of Market Models • Group Work
  4. 4. Economics in the Health Sector • Choice of using available resources for production and distribution of health services • Scarcity of resources makes these choices even harder, particularly in LMICs • How does the society make this choice? Market or government?
  5. 5. Economics in the Health Sector • Trade-off between efficiency and equity Achievement of better health OR fairer distribution of health • How does economics help policy makers to decide which is the best choice? Tools of economic evaluation
  6. 6. Factors of Demand • Price of good • Price of substitute goods • Price of complementary goods • Income • Tastes How do consumers of health services express their preferences through their ability and willingness to pay? Price Quantity demanded
  7. 7. Is Demand for Health Care Different? Yes and No
  8. 8. How is Demand for Health Care Different? • Information asymmetry • Presence of “other parties” i.e. insurance companies • Consumption of health services with respect to life cycle • Severe illness and decisions of life and death • Do we really enjoy health services?
  9. 9. How is Demand for Health Care not Different? • Not all health services are for severe illness but also needed for improving quality of life • Many health services are “Normal” goods: quantity demanded increases with reduction in price
  10. 10. Why is it Important to Understand Demand? • Predict likely changes in behaviors and reactions What happens with introduction of user fees? • Understand consumers’ value for services Which services should be provided using scarce resources?
  11. 11. Elasticity of Demand • Price elasticity: measure of how much demand responds proportionately to changes in prices • Income elasticity: measure of how much demand responds proportionately to changes in income
  12. 12. Efficiency in Production • Technical efficiency Producing most output from a set of inputs, or producing a set amount of output using the fewest inputs • Economic efficiency: Producing most output for a given cost, or producing a set amount of output at the lowest possible cost. • Allocative efficiency: One allocation is better than another if at least one person is better off under the first allocation and no-one is worse off.
  13. 13. Factors of Production • Technically skilled staff • Semi-skilled staff • Infrastructure • Equipment • Drugs and consumables • Energy • Caring and interpersonal skills • Teamwork, motivation
  14. 14. How Do We Choose Which Factors to Use? 5 Bicycle weeks Person weeks 10 10 0 5 No. of children immunized =1000 Y Axis: 1 unit of capital= 1 bicycle in working order for one week X Axis: 1 unit of labour = 1 person working for one week Isoquant: represents the possible combinations of units of labour and capital that can be used to immunize 1,000 children • Marginal Rate of Technical Substitution measures the average number of units of bicycles which can be substituted for an additional unit of staff in order to produce 1000 immunized children
  15. 15. Supply of Health Services • We need a technically efficient combination of inputs that also minimizes cost of production • Understanding relationship of cost and outputs helps to explain how services are supplied Price Quantity supplied
  16. 16. Markets • A market brings together the demand for goods from consumers and the supply of those goods from suppliers. • Consumers will want to buy more if the price is lower, but suppliers will want to sell more if the price is higher. • Markets help to decide what to produce and how to produce it.
  17. 17. Market EquilibriumPerfect'Market'Model'
  18. 18. Different Market Models • Perfect competition: many small sellers and many buyers, a homogenous product and everyone is a price-taker • Pure monopoly: only one supplier • In between the extremes: monopolistic competition, oligopoly
  19. 19. Essential Conditions for Perfect Markets • Perfect information across buyers and sellers – Rational buyers and sellers • Large number of buyers and sellers • Homogeneity of product • Free entry and exit for all players
  20. 20. Discussions in Group • Topic 1: What are the demand and supply-side factors which influence utilization of institutional delivery in India? Discuss from an economic perspective, how interventions under NRHM aim to address these factors? • Topic 2: Why is there a shortage of health workers in India? Why are health workers often absent from their positions in rural areas? Discuss from an economic perspective, how interventions under NRHM aim to address these challenges?
  21. 21. Open Access Policy KEYSTONE commits itself to the principle of open access to knowledge. In keeping with this, we strongly support open access and use of materials that we created for the course. While some of the material is in fact original, we have drawn from the large body of knowledge already available under open licenses that promote sharing and dissemination. In keeping with this spirit, we hereby provide all our materials (wherever they are already not copyrighted elsewhere as indicated) under Creative Commons Attribution-NonCommercial 4.0 International License. To view a copy of this license visit http://creativecommons.org/licenses/by-nc/4.0/ This work is ‘Open Access,’ published under a creative commons license which means that you are free to copy, distribute, display, and use the materials as long as you clearly attribute the work to the KEYSTONE course (suggested attribution: Copyright KEYSTONE Health Policy & Systems Research Initiative, Public Health Foundation of India and KEYSTONE Partners, 2015), that you do not use this work for any commercial gain in any form and that you in no way alter, transform or build on the work outside of its use in normal academic scholarship without express permission of the author and the publisher of this volume. Furthermore, for any reuse or distribution, you must make clear to others the license terms of this work. This means that you can: read and store this document free of charge distribute it for personal use free of charge print sections of the work for personal use read or use parts or whole of the work in a context where no financial transactions take place gain financially from the work in anyway sell the work or seek monies in relation to the distribution of the work use the work in any commercial activity of any kind distribute in or through a commercial body (with the exception of academic usage within educational institutions such as schools and universities However, you cannot: