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Health economics
Health economics
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Health economics

  3. 3. WHAT IS ECONOMICS?  Economics is the science of scarcity. It analyses how choices are structured and prioritized to maximize welfare within constrained resources.  Economics is the study of distribution of scarce resources commonly known as goods and services across a population
  4. 4. WHAT IS ECONOMICS?  The Economics 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 needs how best to use the resources available.
  5. 5. MODELS • to establish cause and effect in a scientific mannerPOSITIVE ECONOMICS • establishing the means by which socially desirable outcomes can be achieved NORMATIVE ECONOMICS
  6. 6. WHAT IS HEALTH? . According to World Health Organization's (WHO) constitution health is 'a state of complete physical, mental and social well being and not merely the absence of disease or infirmity' “Health" in health economic (evaluation) is health status according to some measure.
  7. 7. Health economics is the study of distribution of health care. It 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.
  8. 8. It is the allocation of resources within the health system in the economy, as well as functioning of health care market.
  9. 9. Health economics is concerned with the formal analysis of costs, benefits, management, and consequences of health and health care. It is the branch of economics concerned with the application of economic theory to phenomena and problems associated with health and health care.
  10. 10. Health economics is the 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 health care and health-related services, their costs and benefits, and health itself are distributed among individuals and groups in society. It can, broadly, be defined as 'the application of the theories, concepts and techniques of economics to the health sector'.
  11. 11. CONCEPTS IN HEALTH ECONOMICS  Resources  Scarcity opportunity of cost efficiency production of health  health care market
  12. 12. CONCEPTS IN HEALTH ECONOMICS Macro- economics economy level of outputs level of national income general price level
  13. 13. CONCEPTS IN HEALTH ECONOMICS Microeconomics •Microeconomics is the study of economic behavior of individual decision making units such as: consumers, resource owners and business firms in a free enterprise economy. •This can be measured by conducting market surveys, pilot and feasibility studies.
  14. 14. CONCEPTS IN HEALTH ECONOMICS Health Microeconomics Health microeconomics is concerned with how individuals choose, minimize costs or maximize profit or utilities within a given health care system within a set of rules and prices.
  15. 15. Meaning and scope of health economics Determinants of health Demand for health and health care Supply of health care Health care markets
  16. 16. The relationship between economic growth and health Health sector budgeting and planning National health systems Equity in health outcomes and in health care International health.
  17. 17. Medical advances Due to increase in life expectancy Changes in family structure and norms Advances in health research Higher expectation among people public awareness NEED FOR HEALTH ECONOMICS
  18. 18. IMPORTANCE OF HEALTH ECONOMICS • To formulate health services • To establish the true costs of delivering health care or to estimate all real costs like the use of patients' time, loss of output elsewhere in the system etc
  19. 19. IMPORTANCE OF HEALTH ECONOMICS • To evaluate the relative costs and benefits of particular policy options • To estimate the effects of certain economic variables like user charges, time and distance costs of accessibility, etc on the utilization of health services
  20. 20. • Health and economic development • Organization and economic development • To identify and measure health and diseases ,basic needs. To identify determinants of growth and economic development, elements of health expenditure by use of macro economics • To determine the economic characteristics of health care and Health related activities HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS
  21. 21. • Finance aspects of health sector • Demand analysis • To find out the source of health care financing; social accounting system, self financing insurance etc. • To analyze the determinants of demand, individual and supplier induced behavior, time, cost ,health payment system etc HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS
  22. 22. • Supply analysis • Health man power • To determine the physical resources and costs, estimation of short term And long term cost curve • To determine the labour market and demand for & supply of health workers,remuneration and other determinants of behavior ,productivity etc HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS
  23. 23. •Financial management •Budgeting system and accounting ,inventory managment HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS
  24. 24. Major Tasks of Economics In Health (Care) Descriptive Quantification Explanatory or Predictive Evaluative
  25. 25. FEATURES OF HEALTH ECONOMICS  Health and medical care is considered as economic goods  Health is a private or a public good  Measurement of health is also considered in economics  Stock of health  Investment aspects of health
  26. 26. FEATURES OF HEALTH ECONOMICS  Loss due to ill health  Resource costs of different diseases, effects of health and medical care provision  Planning of health and medical care  Choice of technology in health care system, etc.  Provision of equity in health outcomes and health care;
  27. 27. AREAS OF HEALTH ECONOMICS  Economic aspects of relationship between health status and productivity  Financial aspects of health care services
  28. 28. AREAS OF HEALTH ECONOMICS  Economic decision making in health and medical care institutions  Planning of health development and such other related aspects
  29. 29. FACTORS INFLUENCING HEALTH ECONOMICS  Extensive government intervention  Intractable uncertainty in several dimensions  Information asymmetric  Barriers to entry  Externalities and the presence of a third-party agent
  30. 30. TOOLS USED IN ECONOMIC ANALYSIS Economic Variables Relationships between Economic Variables Graphical Representation of Relationships The Direction of the Relationships
  31. 31. ECONOMIC EVALUATION  Economic evaluation is the comparative analysis of alternative courses of action in terms of both their costs and consequences in order to assist policy decisions
  32. 32. Steps in Economic Evaluation Deciding Upon the Study Question Assessment of Costs and Health Effects Adjustment of timing Adjustment for uncertainity Making a decision
  33. 33. TYPES OF ECONOMIC EVALUATION Cost minimization Analysis (CMA Cost- effectiveness Analysis (CEA) Cost-utility Analysis (CUA) Cost-benefit Analysis (CBA).
  34. 34. Cost analysis Cost analysis is a resource tool for financial management in hospital or department. It is an economic evaluation technique that involves the systematic collection, categorization, and analysis of program or intervention costs, and cost of illness.
  35. 35. When to Use Cost Analysis? Cost analysis can be used as an evaluation method when -Only one program is being assessed, -Information about program effectiveness is not available, or the interventions being assessed and compared are equally effective.
  36. 36. Objectives of Cost Analysis  To assess the efficiency and effectiveness of function and their cost implication.  To improve the policy relevance and utility through assessment, planning and avoidance of wasteful expenditure in the hospital.  To allow researchers to achieve cost minimization for the programs under consideration.
  37. 37. Purposes of Cost Analysis  A tool for planning and cost projection  To assess the efficiency of a programme  To assess the priorities  Accountability  To assess equity
  38. 38. Principles of Cost Analysis  Make explicit the analytic perspective  Describe the anticipated benefits  Specify the components of costs  Discount to adjust for differential timing  Perform a sensitivity analysis  Calculate measurement of efficiency
  39. 39. 1. Identify and define the problem 2. Defining the alternatives 3. Defining the audience 4. Define the perspective 5.Define time frame 6. Determine the time frame and analytic horizon 7. Choose a format/methodology
  40. 40.  Define program, treatment, or technology to be analyzed  Develop a framework for cost analysis of program  Describe objectives of analysis  Select type of cost analysis  Design methodology of cost analysis
  41. 41.  Apply principles of cost analysis  Describe study outcomes  Development of cost inventory  Preparation of cost summary
  42. 42.  Measurement/evaluation of resources used  Calculate cost analysis results : total cost, average costs, and marginal costs  Sensitivity analysis and discounting
  43. 43. Total cost (TC) • The total cost of a program or an intervention is derived by adding all the costs incurred in producing a given level of output. It includes the cost of all the personnel, the supplies, and the equipment that were identified in the cost inventory. TC = Quantity of resource 1 X value of that resource 1 + ....+ Quantity of resource n X value of that resource n
  44. 44. Average cost (AC) • The average cost is the cost per unit of output (e.g., cost per patient treated or cost per child immunized). AC is computed by dividing the total cost by the number of participants or other relevant intervention units. The formula is AC = TC / Q ; Q= Units of output
  45. 45. Marginal cost (MC) The marginal cost is the resource cost associated with producing one additional or one less unit within the same intervention/program MC = Change in total costs/change in quantity produced Or MC = (TC' -TC) / (Q' Q) TC' = Total costs a higher output level TC = Total costs at lower output level Q' = Higher level of output Q = Lower level of output
  46. 46. Cost-of-Illness Method (COI) Non Market Valuation Methods
  47. 47.  Hedonic pricing The hedonic method is based on the principle that the prices that consumers pay or receive depends on characteristics of the person that can be objectively measured. W = f (q,e,ex,a,g) WhereasW= the wage rate; q =a measure of qualification; e= experience; ex = measure of experience; a= age; g=gender
  48. 48.  Hedonic pricing
  49. 49. Averting behavior method The value of a small change in health status can be measured by the amount of money a person is willing and able to spend on some controlling or preventive device or defensive (averting) action.This amount of money represents the person's valuation of safety against a perceived risk.
  50. 50.  This is direct method, uses primary surveys that ask persons to place values on an intervention to attain a level of health outcome.
  51. 51. Cost-of-illness analysis Cost-benefit Analysis (CBA) Cost- effectiveness Analysis (CEA) Cost-utility Analysis (CVA) Cost- minimization Analysis Cost- consequence Analysis
  52. 52. TYPE OF ANALYSIS COST OF INTERVENTION OUTCOME CONCERN Cost benefit analysis Monetary units Valued In cash terms Net cost: benefit ratio Cost effectiveness analysis Monetary units Qualitative non- monetary units eg: reduced morbidity or years of life gained or saved Cost per unit of consequence or cost per years of life gained/saved Cost utility analysis Monetary units Valued as Utility Eg: Quality adjusted life year (QALY) Cost per unit of consequence or cost per QALY Cost-minimisation- analysis Equivalent outcome in all respect The least cost alternative
  53. 53.  Cost-benefit analysis is a practical way of assessing the desirability of projects, where it is important to take a long view (looking at the repercussion in the future as well as in the near future and a wide view in the sense of allowing side effects of many decisions) Le. it implies the enumeration and evaluation of all the relevant cost and benefits. -Prest andTerkey
  54. 54.  Cost BenefitAnalysis (CBA) is an economic evaluation technique that measures all the positive (beneficial) and negative (costly) consequences of an intervention or program in monetary terms.
  55. 55.  CBA is a practical approach of appraising the desirability of an intervention involving public expenditure in terms of net social gain society.  CBA is the use of analytical techniques involving a monetary assessment to identify the total costs and benefits of a specific intervention
  56. 56. Benefits  Direct Benefits  Indirect Benefits  Intangible Benefits Benefits (B) > Costs (C) or Net Benefits (NB) = B -C > O.
  57. 57.  Cost BenefitAnalysis is used for determining priorities among various alternative programs or interventions.  It provides an estimate of the potential value of undertaking a course of action, i.e. instituting a new program or intervention or revising the old one.  It can also be used to compare health-related interventions to those in other economic sectors.
  58. 58.  It enables policy makers to determine whether the value of its positive consequences exceeds the value of societal resources required to implement the program.  It estimates and totals up the equivalent money value of the benefits and costs of projects to establish whether they are worthwhile. .  It is a powerful and relatively easy tool for deciding whether to make a change or not.
  59. 59.  CBA adopts a broad societal perspective as it includes all costs and all benefits  CBA measures the outcomes in monetary terms.  It assess the desirability of program/intervention
  60. 60.  To assess the economic efficiency  To decide whether to implement a specific program  To select among competing/alternative options
  61. 61. Principles of Cost Benefit Analysis • There must be a common unit of measurement. All the benefits and costs of the program/project must be measured in terms of their equivalent money value • The CBA valuations should represent consumers or producers valuation. • The valuation of benefits and costs should reflect preferences reveled by choices
  62. 62. Principles of Cost Benefit Analysis • The benefits are usually measured by market choices. • The marginal benefit should be equal to the market price. • The gross benefits of an increase in consumption are an area under the demand curve.
  63. 63. Principles of Cost Benefit Analysis • Some measurements of benefits require the valuation of human life. These values can be used to estimate personal costs in terms of increased risk or of reduced risk. • The alternatives must be explicitly specified and considered in the evaluation. • The impacts of the programmes must be defined
  64. 64. Principles of Cost Benefit Analysis • The discounted present value of benefits should exceed the discounted present value of costs. • Compare alternative programmes in terms of the expected benefits and cost ratio of each programme to determine which should receive priority for funding
  65. 65. Advantages of Cost Benefit Analysis • It helps to allocate scarce resources to programs that maximize societal economic benefit • It studies the full economic impact of all potential outcomes of an intervention.
  66. 66. Advantages of Cost Benefit Analysis • It makes possible to compare different programs having different health outcomes, or health programs to non health programs. • lt allows analysts to examine its distributional aspects; who will receive these benefits and who will bear the costs.
  67. 67. Drawbacks of Cost Benefit Analysis • It measures costs and outcomes in monetary terms and not disease specific • There is difficulty in assigning monetary values to all pertinent outcome including changes in the length or quality of human life. • The results of CBA are only as good as the assumptions and valuations on which they are based.
  68. 68. Ratio approach Net benefit approach. Approaches of Cost Benefit Analysis
  69. 69. Procedural Steps in Cost-Benefit Analysis Defining the Discount Rate Defining the Time Frame and Analytic Horizon Defining the Perspective Defining the Audience Identifying Interventions Defining the Problem
  70. 70. Identifying Intervention Outcomes Health Outcome Non-health Outcome Intangible Outcome
  71. 71. Cost-effectiveness analysis • Cost-effectiveness analysis is an economic study design in which consequences of different interventions are measured using a single outcome, usually in 'natural' units (for example, life- years gained, deaths avoided, heart attacks avoided or cases detected). Alternative interventions are then compared in terms of cost per unit of effectiveness.
  72. 72. Cost-effectiveness analysis Cost-effectiveness analysis as tool decision-makers can use to assess and potentially improve the performance of their health systems. It indicates which interventions provide the highest 'value for money' and helps them choose the interventions and programmes which maximize health for the available resources.
  73. 73. Cost-effectiveness analysis Cost Effectiveness Analysis (CEA) is a type of economic evaluation that examines both the costs and health outcomes of alternative intervention strategies.
  74. 74. Aim of Cost Effectiveness Analysis • To maximize the level of benefits- health effects-relative to the level of resources available
  75. 75. Objectives of Cost Effectiveness Analysis To compare alternative programs with a common health outcome To assess the consequences of expanding an existing program.
  76. 76. Purposes of Cost Effectiveness Analysis To identify the most cost-effective intervention from a group of alternatives To provide empirical justification for a program
  77. 77. Purposes of Cost Effectiveness Analysis To identify and exclude programs that is wasting resources. To provide general information on the relative costs and health benefits of different alternatives To evaluate the interventions in terms of efficacy (cost effective ratio), absolute health gain and affordability (absolute cost)
  78. 78. Drawbacks of Cost Effectiveness Analysis • The data regarding direct costs such as doctors' or nurses' time and supplies used; indirect costs such as a portion of administrative costs, the cost of equipment are usually not readily available. • It does not facilitate comparisons across different diseases when different outcomes have been used. • Cost-effectiveness is the only one criterion for judging whether an intervention is effective or not.
  79. 79. Benefits of Cost Effectiveness Analysis • This method is easy to understand and more readily suited to decision making. • It provides empirical results for the decision makers to compare the costs and consequences associated with alternative programmes.
  80. 80. MEASURES FOR COST-EFFECTIVENESS cost effectiveness ratio (CER) net health benefits (NHB)
  81. 81. COST EFFECTIVENESS RATIO (CER)  Average cost-effectiveness ratio (ACER)  Marginal cost-effectiveness ratio (MCER)  Incremental Cost-Effectiveness Ratio (ICER)
  82. 82. NET HEALTH BENEFITS (NHB) It is the difference between the health outcome and cost divided by rate of substitution of money for health. NHB = E-C/A.
  83. 83. ELEMENTS OF CEA  A clear study perspective, time frame, and analytic horizon  An explicitly defined study question  Relevant assumptions underlying the study  Detailed descriptions of the interventions  Existing evidence of the interventions' effectiveness  Proper identification of all relevant costs  A comprehensive discussion of the results
  84. 84. PROCEDURAL STEPS IN COST-EFFECTIVENESS ANALYSIS  Defining the Problem  Adopting a Research Strategy  Specify Audience  Define Perspective  Specify the Time Frame Work  Prepare the Analytic Horizon  Decide the Type of Study Design  Identify the Outcome Measures or Variable  Search for Available Alternatives  Identify the Types of Costs to be included in CEA  Analysis
  85. 85.  Utility is the value or worth of a level of health as measured by the preferences of an individual or society. Cost-utility analysis is one form of cost-effectiveness analysis, which allows the comparison of different health outcomes by measuring them all in terms of a single unit-(QALY) (Maurice McGregor).
  86. 86. It weighs costs and. quality adjusted health outcome of each intervention in order to take the decision for the programme to be implemented.
  87. 87. quantity of life years / QALY disability-adjusted life years /DALY
  88. 88. Health rating method Time trade-off method Standard gamble method Health index method
  89. 89.  The World Health Organization defines disability- adjusted life years (DALY) as 'a health gap measure that extends the concept of potential years of life lost due to premature death to include equivalent years of healthy life lost by virtue of being in states of poor health or disability'. In other words, one DALY is one lost year of healthy life.  DALY is a combined measure of years in disability and years of life lost due to premature death (from the disability).
  90. 90.  Years of Life Lost (YLL): YLL is the number of years of life lost due to premature death.  Years Lived with Disability (YLD): YLD is the number of healthy years lost due to disability from the condition until remission or death.
  91. 91.  To measure health care costs and interventions  To evaluate the effect of a nursing intervention on patient outcomes when one of these outcomes is QOL  To compare use of a nursing process management with a disease process (hypertension) management  To assess cost utility for both medical interventions and nursing interventions  To compare current practice and the change in practice need
  92. 92.  It is used for comparing interventions to achieve one quality adjusted life year.
  93. 93.  Cost minimization analysis is a specific type of analysis in which the outcomes of the two or more healthcare interventions are assumed equal. Therefore economic evaluation is based solely on comparative costs and result is least cost alternative
  94. 94.  Cost consequences is a form of cost effectiveness analysis comparing alternative interventions or programs in which the components of incremental costs (e.g., additional therapies, hospitalization) and consequences (e.g., health outcomes adverse effects) are computed and listed, Without aggregating these results (e.g., into a cost- effectiveness ratio).
  95. 95.  Cost consequences analysis is a means to estimate whether the value of results obtained is worth the investment. In a cost- consequences analysis, instead of combining the costs and effects, all the costs and outcomes are reported separately.
  96. 96.  Simple to use and evaluates the entire program of care  Allows decision makers to impute their own values to the different costs and consequences Incorporates several outcome measures and easy to interpret the findings  Used to evaluate practice guidelines and disease state management programs.
  97. 97. There is a difficulty of comparing outcomes between different interventions in order to prioritize them.
  98. 98. DISCUSSION