health economics
TRANSCRIPT
HEALTH ECONOMICS
MS. ANCY CHACKO
IIND YEAR M.Sc NURSING
GOVT. COLLEGE OF NURSING
ALAPPUZHA
HISTORICAL VIEW
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
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.
MODELS
• to establish cause and effect in a scientific mannerPOSITIVE
ECONOMICS
• establishing the means by which socially desirable outcomes can be achieved
NORMATIVE ECONOMICS
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.
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.
It is the allocation of resources within the health system in the economy, as well as functioning of health care market.
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.
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'.
CONCEPTS IN HEALTH
ECONOMICS
Resources
Scarcity opportunity of cost
efficiency
production of health
health care market
CONCEPTS IN HEALTH
ECONOMICS
Macro-economics
economy level of outputs
level of national income
general price level
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.
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.
Meaning and scope of health economics
Determinants of health
Demand for health and health care
Supply of health care
Health care markets
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.
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
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
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
• 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
• 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
• Supply analysis
• Health man power
• To determine the physical resources and costs, estimation of short term And long term cost curve
• To determine the labourmarket and demand for & supply of health workers,remuneration and other determinants of behavior ,productivity etc
HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS
•Financial management
•Budgeting system and accounting ,inventory managment
HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS
Major Tasks of Economics In Health (Care)
Descriptive Quantification
Explanatory or Predictive
Evaluative
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
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;
AREAS OF HEALTH
ECONOMICS
Economic aspects of relationship
between health status and productivity
Financial aspects of health care
services
AREAS OF HEALTH
ECONOMICS
Economic decision making in health
and medical care institutions
Planning of health development and
such other related aspects
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
TOOLS USED IN ECONOMIC ANALYSIS
Economic Variables
Relationships between
Economic Variables
Graphical Representation
of Relationships
The Direction of the
Relationships
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
Steps in Economic Evaluation
Deciding Upon the Study Question
Assessment of Costs and Health Effects
Adjustment of timing
Adjustment for uncertainity
Making a decision
TYPES OF ECONOMIC
EVALUATION
Cost minimization
Analysis (CMA
Cost-effectiveness
Analysis (CEA)
Cost-utility Analysis (CUA)
Cost-benefit Analysis (CBA).
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.
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.
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.
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
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
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
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
Apply principles of cost analysis Describe study outcomes Development of cost inventory Preparation of cost summary
Measurement/evaluation of resources used
Calculate cost analysis results : total cost, average costs, and marginal costs
Sensitivity analysis and discounting
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
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
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
Cost-of-Illness Method (COI) Non Market
Valuation Methods
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) Whereas W= the wage rate; q =a measure of
qualification; e= experience; ex = measure of experience; a= age; g=gender
Hedonic pricing
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.
This is direct method, uses primary surveys that ask persons to place values on an intervention to attain a level of health outcome.
Cost-of-illness analysis
Cost-benefit Analysis (CBA)
Cost-effectiveness
Analysis (CEA)
Cost-utility Analysis (CVA)
Cost-minimization
Analysis
Cost-consequence
Analysis
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
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 and Terkey
Cost Benefit Analysis (CBA) is an economic evaluation technique that measures all the positive (beneficial) and negative (costly) consequences of an intervention or program in monetary terms.
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
Benefits Direct Benefits Indirect Benefits Intangible Benefits
Benefits (B) > Costs (C) or Net Benefits (NB) = B -C > O.
Cost Benefit Analysis 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.
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.
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
To assess the economic efficiency To decide whether to implement a specific
program To select among competing/alternative options
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
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.
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
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
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.
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.
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.
Ratio approach
Net benefit approach.
Approaches
of Cost
Benefit
Analysis
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
Identifying Intervention
Outcomes
Health Outcome
Non-health Outcome
Intangible Outcome
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.
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.
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.
Aim of Cost Effectiveness
Analysis
• To maximize the level of benefits-
health effects-relative to the level of
resources available
Objectives of Cost Effectiveness
Analysis
To compare alternative programs with a
common health outcome
To assess the consequences of
expanding an existing program.
Purposes of Cost Effectiveness
Analysis
To identify the most cost-effective intervention from a
group of alternatives
To provide empirical
justification for a program
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)
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.
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.
MEASURES FOR COST-EFFECTIVENESS
cost effectiveness ratio (CER)
net health benefits (NHB)
COST EFFECTIVENESS RATIO (CER)
Average cost-effectiveness ratio (ACER)
Marginal cost-effectiveness ratio (MCER)
Incremental Cost-Effectiveness Ratio (ICER)
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.
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
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
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).
It weighs costs and. quality adjusted health outcome of each intervention in order to take the decision for the programme to be implemented.
quantity of life years /
QALY
disability-adjusted life
years /DALY
Health rating method
Time trade-off method
Standard gamble method
Health index method
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).
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.
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
It is used for comparing interventions to achieve one quality adjusted life year.
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
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).
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.
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.
There is a difficulty of comparing outcomes
between different interventions in order to
prioritize them.
DISCUSSION
