1. Healthcare Economics &
Financing
S. A. Tabish
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2. Health Economics
The application of the theories, concepts and
techniques of economics to the health sector.
It is concerned with :
_ allocation of resources between various health
promoting activities
_ quantity of resources used in health delivery
_ organization and funding of h. institutions
_ the efficiency
_ the outcome
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3. The scope of health economics
Economic development and health
Role of the state in health care provision
Economic evaluation concepts & techniques
Economic information relevant to health
Health financing issues
Financial planning & budgeting
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4. Demand, Supply & the Market
Society has to find some way of deciding what, how, &
for whom to produce
Market – A set of arrangements by which buyers &
sellers are in contact to exchange services/goods
_ free markets in HC are rear, almost all systems
in the world operating with some level of government
intervention
_ free market solutions are upheld as efficient
_ the perfect market system would work best for HC &
delivers the highly desirable outcome of consumer
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satisfaction.

5. How does a market work?
Markets are made up of a demand side,
and a supply side with consumers acting
on the side of demand and producers on
that of supply
Markets adjust price signals
Consumer is sovereign
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6. Demand, Supply, & Equilibrium
Demand is the quantity of the good buyers
wish to purchase at each conceivable price
Supply is the quantity of a good sellers wish
to sell at each conceivable price
At the equilibrium price, the quantity
demanded just equals the quantity supplied
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7. Economic Objectives of Health
Care
Efficiency : consumer satisfaction
maximized at least cost to society
_ effectiveness (effective HC is about
improving health status). CEA/CUA/QALY
_ operational efficiency asks the question,
given that some activity is worth doing,
what is the best way of providing it
_ allocative efficiency judges whether an
activity is worth doing. (CBA)
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8. Economic objectives (contd.)
Equity : HC resources and benefits should
be distributed in some fair or just way.
Basic types of HC
_ libertarian values consumer sovereignty
and market forces
_ egalitarian is committed to the pursuit of
community health
In setting the objectives, both efficiency
and equity must be taken into account
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9. Economic Development & Health
ED refers to an historical process that has
many aspects including economic,
demographic & health.
To arrange nations on a scale from poor
(less developed) to rich (developed). And the
process by which poor nations become
richer
Health development is the process by which
populations move from a lower level to a
high level of health.
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10. Consumption and Health
HC :- Responsibility of the state
Private consumption patterns
Public consumption patterns
Developed nations spend 7 to 15% of
GDP
Developing nations spend 3 to 6% of GDP
Foreign aid
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11. Concepts of Economic Efficiency
Economic analysis/the evaluation of HS
Are limited resources used in the best ways
possible?
Is value for money achieved in their use?
It is necessary to have a clear understanding
of objectives, evaluative criteria,
measurement & valuation techniques
Input, process & outcome
Input, resources & costs
Outputs, health & health indicators
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12. Hospital Economics
Hospitals of developing countries utilize
nearly half of the total national expenditure
for the health sector
Hospitals account for 50 t0 80% of
government recurrent HS expenditure
Hospitals use a large proportion of the most
highly trained health professionals
For obtaining additional resources
insurance and user fees are seen the
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means

13. Resource Management by
Hospitals
Poor management leads to wastage of
resources
Economic concepts – efficiency
_ technical efficiency (mix of inputs)
_ economic efficiency (least-cost combination
of the inputs)
_ scale efficiency (whether a system is
producing services at least cost)
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efficiency relationships
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14. Resource generation for hospitals
User charges
Insurance
Defining the role of hospitals
Improving information about hospitals
Developing hospital performance indicators
Enhancing hospital management capacity
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15. WE LIVE IN A WORLD OF DISTURBING
CONTRASTS
3/4ths of the world’s people live in developing
countries enjoy only 16% of the world’s income
More than 17 M people die every year from
infectious & parasitic diseases(D,M,TB)
More than 90% of HIV infected cases live in
developing country
Resources to be generated by cutting excessive
military spending & privatizing inefficient pub.
enterprises
Challenges: reducing pop. growth, providing basic
social services
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16. Healthcare Expenditure
HC system absorb 8% of the total world product
Industrial countries spend 90% of this amount,
with average per capita exp. of $1500 on HC as
compared to $41 in developing countries
India spends 1.6% of GDP (even lower prop.
spent on PH
The institutional base is weak, NGO’s are
underutilized, & finally pvt. sector is gigantic,
virtually completely unregulated & offers some of
the best & worst care seen anywhere.
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17. INVESTING IN HUMAN DEVELOPMENT
Countries must invest liberally in human
development so that they are ready to face the
challenge of Globalization
Globalization is integrating consuming
markets around the world. But it is also creating
new inequalities
The time has come to create a new world
that is more humane, more stable, more just
Components of Human Development paradigm:
Productivity, Equity, Sustainability,
Empowerment
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18. MANAGED CARE
Developed in response to ever increasing HC
costs
Important Tools of MC:
For managed demand
1. Capitation
2. Gatekeeper
3. Advice line to patients
4. User fees
5. Consumer education
For medical management
1. Utilization review
2. Preadmission certification
3. Greater use of cl. Pathways
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19. Managed Care (Contd.)
HC system can be grouped into
4 archetypes:
Socialized medicine (UK)
Socialized insurance (Canada)
Mandatory Insurance (Japan)
Voluntary Insurance (USA)
An integrated & virtual system (brought about by
Disney & Microsoft). With this system service
can be provided any where, anytime by HC
provider.
Informed Consumer
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20. INVESTING IN HEALTH
PRIRITY AREAS FOR FUTURE ACTION:
Ensuring value for money
Poverty reduction
Public health policy
Strengthening national capabilities for
emergency relief
Emphasis of long-term & comprehensive
strategies
Investing in health should be considered
as an investment in HRD to enhance
productivity.
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