KEYSTONE HPSR Initiative // Module 5: Economic analysis // Slideshow 2: Microeconomics for Health This is the second 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: http://bit.ly/25vVVp1 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

1. https://twitter.com/KeystoneHPSR
Building the HPSR CommunityBuilding HPSR Capacity
KEYSTONE
Inaugural KEYSTONE Course on Health Policy and Systems Research 2015
Health Economics
Session 2
Microeconomics for Health

2. Health Economics
Session 2
Microeconomics for Health
Keystone HPSR Course
25th Feb 2015
New Delhi

3. Recap: Perfect Competition

4. Background: Health sector debates
• Public-private partnerships/ privatization: Buzzword
• Separate budget line in NRHM budget: A.8.2
• New strategies for PPP being mooted by different states
• Chiranjeevi scheme in Gujarat
• 108 referral transport in Punjab
• Contracting-in and contracting-out of specialist services
• Empanelment of private hospitals for delivery of care under RSBY and other
public-funded state health insurance schemes
• Privatization of health care: corporate hospitals
• Corporate hospitals being offered cheap land adjacent to public hospitals
• Empanelment of private hospitals for delivery of cancer care in Punjab

5. Market Equilibrium
• Only in equilibrium is
quantity supplied equal
to quantity demanded.
• At any price level
other than P0, the
wishes of buyers
and sellers do not
coincide.

6. Essential conditions for perfectly competitive
market to function
• 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

7. Analysis of health care market
Condition 1: Perfect Information across buyers and sellers
Actual scenario in health care market
1. Asymmetry of information across buyers and sellers
a) Example of arrhythmia treatment
2. Principal-agent information
a) Supplier-induced demand
3. Uncertainty in health care
a) Consumer and supplier-side

8. Analysis of health care market
Condition 2: Large number of buyers and sellers
Actual scenario in health care market
1. Health care workforce scarcity
2. Skewed distribution
a) Rural-urban, state-wise and inter-country distribution
3. Monopolies in health care
a) Increase with specialization

9. Analysis of health care market
Condition 3: Homogeneity of product
Actual scenario in health care market
1. Extreme Heterogeneity
a) Consumer and Supplier end
• Example of arrhythmia patient/ cancer patient

10. Analysis of health care market
Condition 4: Free entry and exit for buyers and sellers
Actual scenario in health care market
1. Barriers to entry
a) Limited number of medical undergraduate seats
b) Even limited seats for specialization and superspealization
c) Licensure examinations: effect much more pronounced in US
2. Patent laws for drugs
3. Monopolization in health care
a) Increase with specialization

11. Market Failure in Health
• Failure of conditions necessary to establish a perfectly competitive
market in health
• Result:
• Hospitals become price setters rather than price takers: set higher than
optimal prices
• Reduces demand for health care: welfare loss

12. Why should Government engage in health?
• Market failure in health
• Externalities: positive and negative
• Public goods argument
• Merit goods argument
• Incomplete markets
• Social justice arguments

13. Externalities: Positive and Negative
• Market transactions: buyers and sellers make rational decisions
• Dependent on personal costs and benefits
• Externalities: actions of one person affects the utility/ welfare of
other who is not involved in transaction
• Positive externality: immunization
• Negative externality: passive smoking, firm/ vehicle emitting pollutant waste,
infectious diseases

14. Public Goods
• Public Goods’ Properties
• Non-excludable: a person cannot be denied the consumption of a good or service
based on inability to pay
• Non-rival: a person cannot be denied consumption of a good as a result of another
person’s consumption
• Example: national defense, street light, information through mass-media
such as wall painting
• Problem of public goods
• Problem of ‘free-riders’: markets will not establish

15. Policy Response
• Regulation of private provision
• Taxation
• Subsidy
• Audits/ case reviews etc
• Other incentives
• Public provision

16. Problems with Public Provision
• Inefficient
• Not a universal truth
• Example: publicly financed publicly provided model of referral transport
• Biggest inefficiency of public sector: underfunding
• Inequitable
• Universal provision leads to inequity: inverse equity hypothesis
• No good means test for targeted provisioning
• Still more equitable than private provisioning
• Non-responsive
• Needs improvement though better governance

17. What is the final word?
• No single solution which is perfect
• Large private market exists, hence cannot ignore its role in provisioning
• Private market needs regulation: herculean task
• Need to invest higher in public sector
• Manage the resources in public sector better

18. 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
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