This document provides an overview of key concepts in health economics. It discusses the definition and scope of health economics, as well as important microeconomic and macroeconomic factors that influence the health sector. Some key methods covered include economic evaluation techniques like cost-effectiveness analysis, cost-benefit analysis, and cost-utility analysis. Health outcomes measures like QALYs and DALYs are also explained. The document aims to introduce foundational ideas around applying economic principles and evaluation to issues of health, healthcare delivery, and resource allocation.
2.
Health Economics- introduction
- Economics
-Importance of economics on health
- health economics
- how health care market is different
Economic Evaluation
- Definition
-Concepts of cost
-Valuing outcome
-Methods
3.
“Economics is the study of how people and
society end up choosing, with or without the
use of money, to employ scarce productive
resources that could have alternative uses, to
produce various commodities and distribute
them for consumption, now or in the future,
among various persons and groups in the
society. It analyses the costs and benefits of
improving patterns of allocation of resources
“(Samuelson, 1976)
4.
Macro Economics: deals with the behavior of
economy as a whole( Growth rate, level of
employment)
Micro Economics: deals with individual
players in the field, such person, hospitals,
firms etc
5.
Demand for health activities are unlimited
Resources , in contrast, are always scarce in
supply. so have to choose which resources to
use for which activities
6. broadly, defined as „the application of the theories,
concepts and techniques of economics to the health
sector‟
concerned with matters :
-the allocation of resources between various health
promoting activities,
-the quantity of resources used in health services
delivery;
-the efficiency with which resources are allocated and
used for health purposes, and
-the effects of preventive, curative and rehabilitative
health services on individuals and society
8.
Presence and extent of uncertainty
Uncertainty in demand – consumers are uncertain
about their health status and need for health care
in coming days – means demand for health care is
irregular.
9.
Problems of information
Sometimes information is unavailable to all parties
(consumers and providers) concerned. For
example neither gynecologists nor their patients
may recognize the early stages of cervical cancer
without a pap smear.
At other times, the information in question is
known to some parties(providers) but not to
all(consumers) – information asymmetry a problem –
the provider offers both the information and the
service, leading to the possibility of conflicting
interests.
10.
Lack of competition
Licensure requirements for providers
Restrictions in producing health manpower
Regulation to promote quality
11.
Role of equity
In a pure market system the market distributes
output based on demand
however, given our social nature and caring
externalities , there raises the voice of equity
(fairness) in health sector because of correlation
between poverty and ill health
12.
incomplete market
Markets is said to complete if the costs and
benefits of the consuming or producing the
particular goods is restricted to those engaged in
trading. However in health care , it is not always
case.
Positive externalities: vaccination, planting forest
Negative externalities: passive smoking, air
pollution
13.
14.
The identification, measure and comparison of
the costs(resourced consumed) and
outcomes(clinical, economic and humanistic) of
intervention
It is multidisciplinary and involves economics,
epidemiology, biostatistics, medicine,
pharmacy etc
15. Cost is the value of resources used to produce
something, including specific health services.
Types of Cost:
Fixed cost: the costs associated with operating a
particular programme or intervention that do not vary with
the scale of provision such as the number of patients treated
or the number of tests performed, Eg rent, property tax,
insurance, cost of setting clinics.
Variable cost:
the cost associated with a programme or intervention that
varies with the size of the programme or the number of
patients treated with the intervention. Eg drugs, blood
products
16.
Total costs : the sum of all the fixed and variable
costs associated with a particular scale of provision
of a programme or intervention. The greater the
scale of provision, the larger will be the total costs.
Average cost: the cost per unit of output. Each of the
three cost concepts discussed above can be
expressed as an average cost: average fixed costs,
average variable costs and average total costs, by
dividing cost by the measure of output (patient
Days, hospital admissions, diagnostic tests
performed, etc).
17.
Marginal cost is the cost of producing one
extra unit.
marginal cost = the change in total costs
Opportunity cost: The cost of passing up the
next best choice when making a decision. For
example, if an asset such as capital is used for
one purpose, the opportunity cost is the value
of the next best purpose the asset could have
been used for
19.
Direct Costs represent the value of
all goods, services ,other resources ,consumed in
providing health care
direct health care costs
include costs of physician services, hospital services,
drugs, etc. involved in delivery of health care
direct non-health care costs
are incurred in connection with health care, such as for
care provided by family members and transportation to
and from the site of care.
20.
Indirect Costs.
"productivity losses."
include the costs of lost work due to absenteeism or
early retirement, impaired productivity at work, and
lost or impaired leisure activity.
include the costs of premature mortality
Intangible cost: non-financial costs such as
anxiety, pain or depression, which the patient
has to face due to sickness
21.
Health utility: a measure of strength of preference
that people have for particular health states.
1: a year of full health
0:death(extremely bad health)
Health states that lie somewhere between
these two anchor points will have a utility
value that lies somewhere between zero and
one.
Assessment done with TTO, SG , VAS
22.
-
Standard gamble: a method of establishing the
utility of a specified health state.( chronic
Disease)
P = Probability of restoration to full health
1-p= complementary probability of immediate
death
The utility of the specified health state is then
given by p
23.
-
Time trade off: an alternative approach to
establishing health utilities
Given period of time in chronic condition = t
Shorten period of time in full health= x
The value of the health state is then given by
(x/t).
24.
a summary measure of health gain that combines
(changes in) life expectancy and quality of
remaining life years.
It uses health utilities to weight improvements in
life expectancy according to the quality of life
experienced
Definition:” Number of years at full health that
would be valued equivalently to the number of
life years as experienced”
25.
Suppose, dialysis treatment extends life by 15
years.
If individuals valued the first 10 years at 0.75 on
the scale of zero to one and last 5 years at 0.50 on
the same scale
Dialysis generated QALYs=10.0 ( 10 x 0.75 + 5 x
0.5)
26. Typically done with questionnaires
- Disease specific
. International prostate symptom score, LC-13
- Generic( SF-36 , NHP)
- Utility ( EQ-5D, HUI
Utility Assessment
- TTO , SG, VAS
27.
Measures healthy time lost from specific
diseases and injuries in a population
DALYs for a disease are the sum of the years of
life lost due to premature mortality(YLL) in the
population and the years lived with
disability(YLD) for incident cases of the health
condition.
One DALY is one lost year of healthy life
28.
Example : A woman is
blind since 5 years
and she died at the
age of 50. What is
DALY?( weight factor
for blindness = 0.33)
5 x o + 45 X 0.33 + 30 x
1 = 34.85
29.
Contingent valuation: is a method of valuing the
benefits of health services based on estimates of
the maximum amount that people would be
willing to pay for the availability of a service or
the minimum amount that they would accept
as compensation for not having the service
available
31.
it compares two or more options that achieve
the same effect(similar outcome).
Looks for lowest cost for existing service
provision (no benefits considered)
32.
.. is a method to determine which program or
treatment accomplishes a given objective at the
least cost
benefits are expressed in natural units
E.g.: reduced mortality or live-years gained death
averted , points of blood pressure reduced, reducing
the risk of a health problem
33.
Dr Do good wants to compare two different
strategies of for preventing the spread of
malaria which is endemic in district, to see
which one offers the best value for money.
Options: spray mosquitoes sites with
insecticides. Another is to provide impregnated
bed nets for households. What measure of
benefit should he use to compare them. What
information does he need to calculate it?
34.
Cost per death
aveted= cost/
(efficacy x no. treated
x prob. contracting x
CFR
Spraying
breeding
site
Impreg
nated
bdnets
Annual
program cost
$10000
$10000
efficacy of Rx
15%
85%
Number
treated
10000
1000
Prob of cont racting disease
80%
80%
CFR
5%
5%
Death averted(
2x3x4x5)
64
34
Cost/death
averted(1/6)
$156
$118
35.
CEA cannot be used to compare interventions
with different health outcomes
If the quality of life is the health outcome, then
CUA should be considered or if the
productivity increases are significant benefit,
then CBA may be better
36.
CBA is an evaluation method for comparing
the monetary value of all resources
consumed(costs) in providing a program or
intervention with the monetary value of the
outcome(benefit) from that praogram or
intervention
Benefits and costs are expressed in monetary
units!
Advantages: allows comparison of programs of
entirely different outcomes
37.
To value benefits in health care in monetary
units is difficult
Solution:
individuals willingness-to-pay approaches
Human capital approaches
Benefit- cost>0 or Benefit/cost>1
38.
a form of cost-effectiveness analysis that
compares costs in monetary units with
outcomes in terms of the quantity and
quality of life e.g., in QALYs, DALYs
Eg $ per DALYs gained, $ per QALY
39.
Average no of life years
gained per death averted =40
Case morbidity rate=20
Average length of illness=1
mo
Degree of disability during
illness=80
DALY gained=(deaths
averted x discoiunted
average number of life years
lost by 1 death) + ( case
morbidity rate x probability
of contracting disease x
number treated x efficacy x
lenth weighting x disability
weighting)
For spraying option:
10000/ (64 x 40) +(0.2x 0.8x
10000x 0.15x 0.083x 0.8) =
just under $ 4 / DALY
gained
For bed nets:
10000/ (34 x 40) +(0.2x 0.8x
1000x 0.85x 0.083x 0.8) = just
under $ 3 / DALY gained
41.
-
Carrying out an economic evaluation is not just
about producing a final figure for the cost
effectiveness of a particular strategy
Decision making required
Marginal cost and benefit information
Affordability
Flexibility
Health service capacity and attitude
44.
Health Economics for DevelopingCounries: A
Practicle Guide, The university of York
Oxford Textbook of Public Health , 6th edition,
oxford publication
Park textbook of Preventive and Social
Medicine, 21st edition
A shiel, E Donaldcon and C. Milton et al
“Health Economic Evaluation” J. Epidemio &
Community Health 2002 56; 85-88
45.
Anne Mills and Lucy Gilson “Health Economics
for Developing Countries: A Survival Kit” HEFP
working paper 01/88, LSHTM, 1988
Himanshu sekhar rout and Narayana chandra
nayak“HEALTH AND HEALTH ECONOMICS: A
CONCEPTUAL FRAMEWORK” “Health Economics
in India” New Century Publications, New Delhi,
2007, pp. 13-29.
Classes of health economics by pramod GC
Class on economic evaluation in ERT vellore
Editor's Notes
This definition does not restrict economics to any one kind of human activity: it applies to allactivities where scarcity exists and there is thus a need for making choices. Indeed, economics isoften described as the study of scarcity and choice.The emphasis of the above quotation is on describing and analysing decisions to do with scarcity andchoice. This area of economics is called positive economics and it is concerned with 'what is', or'was', or 'will be'. In addition, normative economics attempts to determine what 'should be', notmerely 'what is'. Normative economics thus has to make judgements about the norms, or standards tobe applied and disagreement over normative statements cannot easily be settled by empiricalobservation.
The scarcity of resources (not in the sense of ‘rarity’ but in the sense of resource availabilityrelative to demand)Resources here doesnot means only the money but also people,materials,and time which could have been put to some other useEconomics applies to all activities where scarcity and choice exist (Lee and Mills,1983a). Health is no exception to that.
It can, broadly, be defined as ‘the application of the theories, concepts and techniques of economics to the health sector’ (Lee and Mills, 1983a). It is, thus, concerned with such matters as the allocation of resources between various health promoting activities, the quantity of resources used in health services delivery; the organization and funding of health service institutions, the efficiency with which resources are allocated and used for healthpurposes, and the effects of preventive, curative and rehabilitative health services on individuals andsociety (Lee and Mills, 1979).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 societyEconomicaspects of relationship between health status and productivity, financial aspects of health careservices, economic decision making in health and medical care institutions, planning of healthdevelopment and such other related aspects are the major areas covered under health economics.
Health economics lies at the interface of economics and medicine and applies the discipline of economics to the topic of health
Imperfect and assymetric information- consumers often do not know what type of care will generate greatest improvements in their health status and must rely on the providers to advise themConflict of interest= particularly if the provider/ physiciam income is directly linked to the amount of treatment providedAnother important condition for markets to be optimal is that consumers should have full information about the product- not just price but its effectiveness, and appropiateness and be able to use it to plan consumption decisions according to their preferences.
how ever in helath care , there is Restriction on new entrants exist in the form of control by professional association.One of the pre-condition for a perfectly competitive market is that there should be free entry into the market.so consumers are then paying no more than is absolutely necessary to cover the cost of production
It is not strictly necessary to have an equal initial distribution of assets for free markets However, given our social nature and caring eternalities, thereIn a pure market system the market distributes output based on demand.In this type of system, the individuals without sufficient income face a financial barrier to get the goods and services.Equity is the main reason why government fund and manage actvities in the health sector
Markets work best when all the costs and benefits of a product are taken into account in the setting of its price. In such situation market is said to be “complete” marketMarkets is said to complete if the costs and benefits of the consuming or producing the particular goods is restricted to those engaged in trading. However in health care , it is not always case.
Combined with fixed costs, variable costs make up the total cost of production. While the total variable cost changes with increased production, the total fixed costsstays the same
Average cost: the cost per unit of output. Each of the threecost concepts discussed above can be expressed as an averagecost: average fixed costs, average variable costs and averagetotal costs, by dividing cost by the measure of output (patientDays, hospital admissions, diagnostic tests performed, etc).
While considering health problems, costs may be differentiated as follows
Capital cost: cost for setting up the servicesOverhead cost: cost for running services egelctricity, heating cleaningFixed costs: the costs associated with operating a particularprogramme or intervention that do not vary with the scale ofprovision such as the number of patients treated or thenumber of tests performedVariable cost: the cost associated with a programme or interventionthat varies with the size of the programme or thenumber of patients treated with the intervention.Variable cost: the cost associated with a programme or interventionthat varies with the size of the programme or thenumber of patients treated with the intervention.Marginal cost: the additional cost associated with producingone more unit of output. As pointed out earlier, in consideringthe optimal level of service provision, it is this cost conceptthat is crucial in economics.
For chronic health states, people are asked to choose between the certainty of the specified health state for a given period of time or a gamble that involves a probability (p) of restoration to full health and a complementaryprobability (1-p) of immediate death. The value of p ischanged until the respondent regards the two options asequivalent to each other. The utility of the specified healthstate is then given by p. A slightly modified method is neededfor temporary health states24 or states regarded as worse thandeath.
Time trade off: an alternative, and supposedly simpler,approach to establishing health utilities. Here, the respondentfaces a choice between living for a given period of time (t) inthe specified health state or a shorter period of time (x) in fullhealth. The duration in full health is altered until therespondent regards the two options as equivalent to eachother. The value of the health state is then given by (x/t). Aswith the standard gamble technique, the method describedhere needs to be adjusted for short-term conditions.
Quality adjusted life years (QALYs): a summary measure ofhealth gain that combines (changes in) life expectancy andquality of life. It uses health utilities to weight improvements inlife expectancy according to the quality of life experienced.Thus, a given state of health (say living with chronic pain)may be assigned a utility of (say) 0.75. Living for 20 years inthis state of health would then be considered equivalent to 15QALYs (20´0.75) and an intervention that prevented peoplefrom entering this state would lead to a health gain of fiveQALYs.
Quality of life index1.0=normal health0.0=death
Time-Trade-Off (TTO) is a tool used in health economics to help determine the quality of life of a patient or group. The individual will be presented with a set of directions such as:Imagine that you are told that you have 10 years left to live. In connection with this you are also told that you can choose to live these 10 years in your current health state or that you can choose to give up some life years to live for a shorter period in full health. Indicate with a cross on the line the number of years in full health that you think is of equal value to 10 years in your current health state.The SF-36 is a measure of health status and is commonly used in health economics as a variable in the quality-adjusted life year calculation to determine the cost-effectiveness of a health treatmentEQ-5D is a standardised measure of health status developed by the EuroQol Group in order to provide a simple, generic measure of health for clinical and economic appraisal.[1] Applicable to a wide range of health conditions and treatments, it provides a simple descriptive profile and a single index value for health status that can be used in the clinical and economic evaluation of health care as well as in population health surveys.Standard gamble (SG): Respondents are asked to choose between remaining in a state of ill health for a period of time, or choosing a medical intervention which has a chance of either restoring them to perfect health, or killing them.(VAS): Respondents are asked to rate a state of ill health on a scale from 0 to 100, with 0 representing death and 100 representing perfect health. This method has the advantage of being the easiest to ask, but is the most subjective.
Weightfator reflects the severity of the condition on scale from 0=full health to 1 deadYLL= no of death at age x global standard life expectancy at that ageYLD= no of incident cases at age x average duration of condition for each age of incidence x disability weight factor
Contingent valuation: is a method of valuing the benefits ofhealth services based on estimates of the maximum amountthat people would be willing to pay for the availability of aservice or the minimum amount that they would accept ascompensation for not having the service available.25
CMA-it compaes two or more options that achieve the same effect. Looks for lowest cost for existing service provision (no benefits considered
Ie the final cost effectiveness ratio tells how one option compares with another but doesnot tell whether the strategy is worth pursuing in an absolute sense
Other methods include using market values of risk or asking individuals to put monetary values on different health states using a willingness-to-pay approach. Willingness to pay refers to compensation paid by the respondent, either for obtaining an improvement in their health or not having their health deteriorate. Willingness to accept refers to compensation paid to the respondent, either for having their health deteriorate or not obtaining an improvement in their health.Human capital approaches: no of deaths averted * expected average life span * average yearly earning plus ( no of disabled life years avoided “* estimated financial losses which would have been incurred per year
Other methods include using market values of risk or asking individuals to put monetary values on different health states using a willingness-to-pay approach. Willingness to pay refers to compensation paid by the respondent, either for obtaining an improvement in their health or not having their health deteriorate. Willingness to accept refers to compensation paid to the respondent, either for having their health deteriorate or not obtaining an improvement in their health.Human capital approaches: no of deaths averted * expected average life span * average yearly earning plus ( no of disabled life years avoided “* estimated financial losses which would have been incurred per yearConjoint analysis: a method of “estimating the relative importance of different aspects of (health) care, the trade-offs between these aspects, and the total satisfaction or utility that respondents derive from health care services”.27 The most common method entails asking respondents to choose between a series of paired descriptions of alternative service configurations, from which the importance of the different attributes of each service can be estimated. The technique is now referred to as discrete choice experimentation
DALY gained=(deaths averted x discoiunted average number of life years lost by 1 death) + ( case morbidity rate x probability of contracting disease x number treated x efficacy x lenth weighting x disability weighting)
That figure is very powerful in showing in that situation how much health benefit can be obtained for a given investment realtive to other possible strategies.Marginal cost and benefit: related to epidemiology of local disease, geographical characteristics of service infrastructure etc. egprograme may be cost efeective but while expanding it might not be if sufferer are living in the remote area, thinnlydistributted. Like if coverage is already high and then expansion will be expensive The marginal cost/benefit is the change in cost/benefit arising from (strictly a one unit) increase ordecrease in service provision. Affordability: no point recommending the expansion of a service if the money is simple not available to fund it. If public funded than think about cost for running program in eligible population, proportion of them likely to attend multiplied by estiamted cost per person compared with resource available. If the user has to pay then think about how likely proce of the service compares with household disposable income or curent expenditure on healthFlexibility: Reccommendation should take account into the degree of flexibilty which manager have over resource use and transferHealth service capacity: Are necessary human and physical resources availabl? How will staff react the new procedure?
Patient attitude: Issues of acceptability of services to patients are also important as these will influence utilization and hence the extent to which benefits are realized.Connecting different options:simplereccommendation to increase or decrease a service may be less useful than presenting the implications of a decision on a range of connected services. Economic evaluation are costly to carry out. It is therefore important for decision makers to know that how generalisation of result can be done.Opportunity cost: What activity will not be funded if this programme is funded? Alternatively, what additional services can be provided of we cut back this programme?
The second Nepal Health Sector Programme (NHSP-2) 2010-15 projects that the share oftotal government budget for health will rise from around 7% (medium case) in 2010/10 to 9.6% in2014/15 (high case). The achieved figure in 2010-11 is 7.05% of total budge. Rs 24.51 billion allocated; expansion of free of cost maternity service; free basic health services; promotion of infant and maternal health2011/2012- 27.12billions health budget-8.6%311.9billion