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Health Economics and Health Finance :Jordan Health Policy Directions

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This presentation includes general introduction to health economics,the concept of market failure in health, health financing including health insurance and major challenges related to healthcare …

This presentation includes general introduction to health economics,the concept of market failure in health, health financing including health insurance and major challenges related to healthcare financing in Jordan and some policy directions to face these challenges.


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  • 1. 5/2/2014 1 By Dr Musa T. Ajlouni Health Economics and Health Care Financing :Jordan Health Policy Challenges
  • 2. 5/2/2014 2 Contents  Health Economics: Introduction  Market Failure in Health  Health Care Financing  Health Care Financing in Jordan
  • 3. 5/2/2014 3 What is economics?  Economics concerns about allocation of scarce resources among competing demands  If resources are insufficient to meet all demands, they are scarce  All resource uses have an opportunity cost  Health and health care demands appear to be infinite  Resources available for health care are finite
  • 4. 5/2/2014 4 What is Economics?  Economics in general is concerned with making choices between alternative uses of scarce resources by comparing the costs and benefits.  Its primary objective is to assist society in determining the most efficient methods for allocating its scarce resources.
  • 5. 5/2/2014 5 What is Microeconomics?  Two broad classifications of economics – Microeconomics : is a study (branch of social science) that assist us in better understanding the operation, function and relationships among markets, consumers, and producers. Its primary objective is to assist society in determining the most efficient methods for allocating its scarce resources.
  • 6. 5/2/2014 6 What is Macroeconomics? – Macroeconomics : is a study (branch of social science) that assist us in better understanding the interplay of various economic sectors, and their effect on the overall performance of a nation’s economy.
  • 7. 5/2/2014 7 What is Health Economics (HE)?  Efficient allocation of limited resources among competing alternative medications and health services.  Compares the costs and consequences (outcomes) of medical interventions or health programs.  linking investments in health to economic development. Healthy People: healthy economy
  • 8. 5/2/2014 Dr. Musa Ajluni 8 Discussion Questions  Health is a fundamental human right. Can we meet all health needs irrespective of cost?  A healthcare organisation has enough resources to give a 5 year-old child a potentially life-saving operation or to provide a 75 year-old woman with a much-needed hip replacement. How would you decide which to treat? What further information might you need?
  • 9. 5/2/2014 Dr. Musa Ajluni 9
  • 10. 5/2/2014 10 What is the “right” answer?  Health economics can guide choices among alternative medications, treatment regimens and services based on a combination of costs and outcomes.  Results and interpretation of Health economics studies are influenced by the perspective of the decision maker—there is no one ―right‖ answer.
  • 11. 5/2/2014 11 What is Health Economics (HE)? Inputs Costs Health Care Outcomes
  • 12. 5/2/2014 12 Costs  What is cost?  How is cost different from price?  Do we know the cost of health services?
  • 13. 5/2/2014 13 Costs  Direct costs: costs to deliver services to patient; both medical and non-medical  Indirect costs: cost of treatment to patient or society  Intangible costs: quality of life
  • 14. 5/2/2014 Dr. Musa Ajluni 14 Costs can be described in many ways  Cost / unit (cost/tab, cost/vial)  Cost / treatment  Cost / person  Cost / person / year  Cost / case prevented  Cost / life saved  Cost / DALY (disability-adjusted life year)
  • 15. 5/2/2014 15 Outcomes  Both positive and negative outcomes should be addressed  Positive outcomes: drug’s efficacy measure, cure of disease, disease prevention,QALY,…….  Negative outcomes: treatment failure, nosocomial infection, malpractice,……….
  • 16. 5/2/2014 16 Health care costs and Health outcomes  Initially, as health care resources increase, these outcomes improve,  but above a certain level, the slope of the curve diminishes, signifying that increasing investments in health care yield more marginal benefits.
  • 17. 5/2/2014 Dr. Musa Ajluni 17 Health care costs and Health outcomes  A small investment of resources to create more sanitary water supplies and to administer inexpensive hydration therapy yielded dramatic improvements in health.  On the other hand, Large investments of resources in new technologies may produce more marginal and difficult - to - measure improvements in the overall health of a population.
  • 18. 5/2/2014 18 Perspective  Point of view from which the study is taken(physican,patient,third party payer)  Determines what will be measured, what are the costs and benefits, and how they will be valued  Guides and limits application of study results  What are the possible perspectives in HE studies?
  • 19. 5/2/2014 19 Health economic Methods  Cost-minimization analysis (CMA) – assumes equal outcomes  Cost-effectiveness analysis (CEA) – measures outcomes in natural/physical units  Cost-utility analysis (CUA) – measures outcomes in QALYs  Cost-benefit analysis (CBA) – measures both benefits and costs in $$$
  • 20. 5/2/2014 20 Decision Making Higher Cost Lower Cost Higher Effectiveness ? Yes Lower Effectiveness No ?
  • 21. 5/2/2014 21  A free market is a market in which prices of goods and services are arranged completely by the mutual consent of sellers and buyers, determined generally by the law of supply and demand. Market Failure Introduction:
  • 22. 5/2/2014 22  Perfect competition: – perfect information – many buyers and sellers – a uniform product – freedom of entry and exit Market Failure Introduction:
  • 23. 5/2/2014 23  In theory, markets produce the goods and services we want in the right quantities and at the lowest possible cost. This is why markets are so powerful. But in the real world markets do not always work in the way theory predicts. It is possible for a free market to produce market fails. Market Failure Introduction:
  • 24. 5/2/2014 24 Market Failure
  • 25. 5/2/2014 25 Causes of market failure Source: http://tutor2u.net/economics/revision-notes/as-marketfailure-market-failure.html
  • 26. 5/2/2014 26 Reasons of market failure in the health market: 1. The asymmetry of information between patients and health care providers. If the health professional is primarily motivated by the profit motive, the possibility exists for doctors to exploit patients by advising more treatment to be purchased than is necessary, i.e. supply induced demand. Behaviors are controlled by the government through a professional code and a system of licensure.
  • 27. 5/2/2014 27 The asymmetry of information You have enough information to estimate how much benefit you will receive from the purchase of a CD.
  • 28. 5/2/2014 28 Reasons of market failure in the health market: 2. The existence of public goods with positive externalities Some important health services, such as mass immunization, environmental health activities, health education and promotion, surveillance, control for communicable diseases at borders, etc., are not profitable for private providers and are mainly provided by governments. Vaccination: not only benefit the vaccinated person, but also other people will gain because they are now protected against catching that disease from that person.
  • 29. 5/2/2014 29 Reasons of market failure in the health market: 3. Adverse selection.  This is practiced by private insurers not willing to enroll the old, the chronically ill and some vulnerable groups who are in greater need of social protection.  Governments usually intervene to compensate for the market’s reluctance to ensure inclusion of the most vulnerable groups.
  • 30. 5/2/2014 30 Reasons of market failure in the health market: 4. Moral hazard.  Over-consumption of health services occurs when these services are free at the point of use to patients, particularly those who are insured.  Doctors too are affected by moral hazard. They know that the costs of treatment are covered by insurance so the temptation is to over-treat and over-prescribe medicines for their patients.  Moral hazard escalates the cost of health care and leads to an inefficiently large quantity of resources being allocated to health care.  Such behavior calls for cost-containment strategies and programs .
  • 31. 5/2/2014 31 Reasons of market failure in the health market:
  • 32. 5/2/2014 32 Reasons of market failure in the health market: 6. Equity in health care.  In health care, efficiency is not everything. We are also concerned with what is fair.If we had a market distribution of health care, then only those who could afford to pay would be able to purchase it.  This is a major reason why most societies regard health care as different from other commodities
  • 33. 5/2/2014 33 Governments' role and market failure. 1. Supply public goods that are not profitable for the private provider. 2. Increase health education and promotion so as to decrease consumer ignorance. 3. Make cost-containment strategies to combat moral hazard. 4. Compensate for the vulnerable groups by compensating for insurers adverse selection. 5. Ensure equity for all.
  • 34. 5/2/2014 34 Governments’ role and market failure. 6. Prevent supply induced demand by making regulations to control medical procedures. 7. Activate laws of licensure and re- certification for health professionals. 8. Ensure efficiency through quality improvement strategies. 9. Develop pre-payment and insurance schemes to reduce moral risks and adverse selection.
  • 35. 5/2/2014 35 Health financing involves : collecting revenue pooling resources purchasing goods and services Health Care Financing
  • 36. 5/2/2014 36 collecting revenue: the way health systems raise money from households, businesses, and external sources. RISK POOL: A defined patient population and geographic location to which revenue and expenses are determined. Purchasing refers to the many arrangements for buyers of health care services to pay health care providers and suppliers.
  • 37. 5/2/2014 Dr. Musa Ajluni 37
  • 38. 5/2/2014 Dr. Musa Ajluni 38
  • 39. 5/2/2014 Dr. Musa Ajluni 39
  • 40. 5/2/2014 40 Health Financing System Models: National health service (compulsory universal coverage)  Social insurance  Private insurance (employer-based or individual purchase of private health insurance and private ownership of health sector inputs )
  • 41. 5/2/2014 41 National Health Service  Main revenue type: General taxes  Pooling: National pool  Purchasing: National or regional direct purchase of services United Kingdom Canada New Zealand Australia Italy
  • 42. 5/2/2014 42 Social Health Insurance  Main revenue type: Payroll tax  Pooling: Pools by job or income  Purchasing: Collective and selective contracts • France • Germany • Japan
  • 43. 5/2/2014 43 Private Health Insurance  Main revenue type: Individual & employer payments  Pooling: Privately managed pools  Purchasing: Selective contracts United States Greece Singapore
  • 44. 5/2/2014 44 Health Financing in Jordan
  • 45. 5/2/2014 45 Health Care Global Spending on Healthcare(2010) (US$ 6.5 trillion) of Global Population Live in Developed Countries Developing Countries Share USA Developed Countries Share developed Countries 15% 85%45%55%
  • 46. 5/2/2014 Dr. Musa Ajluni 46 Source;WHO,NHA
  • 47. 5/2/2014 Dr. Musa Ajluni 47
  • 48. 5/2/2014 48 Jordan Health Expenditures by Sector,2009 (1 0 millions JD) Public 66% Private 30% Donors 4% Public Private Donors (1 0 millions JD)
  • 49. 5/2/2014 49 Areas of Health Expenditure in Jordan Management 2% Human Resources Development 1% Secondary Health Care 78% Primary Health Care 19%
  • 50. 5/2/2014 50 USA OECD JOR EGYTUR 9.5 5.8 7.6 9.8 16.2 0 2 4 6 8 10 12 14
  • 51. 5/2/2014 51 Public Insurance Schemes in Jordan Public Insurance Schemes Civil Insurance Program (CIP)  The monthly premium for civil service employees is 3% of their monthly salaries, up to a cap of 30 JD  Features of the CIP include: – Coverage of dependents, whether the beneficiary is a male or a female – No limits on coverage – Comprehensive coverage of all medical services, including dental – Patients with medical conditions not treatable within the MoH facilities (e.g., complicated heart surgery) are transferred to other facilities (e.g., private sector) free of charge  Insured individuals have to pay 5% of the price of their medications, with a price ceiling of JD 10  Beneficiaries of the MoH health insurance scheme can seek treatment at private sector hospitals, but need to contribute 10%-30% of treatment fee Royal Medical Services (RMS)  Military personnel pay a monthly flat fee ranging from 2-4 JD, depending on their rank  RMS facilities services are viewed as best-in-class in Jordan Source: Jordan National Agenda (64%) (55%)
  • 52. 5/2/2014 52 Health Finance Challenges, Jordan  A large portion Jordanians remain not covered by any medical insurance  Health spending in Jordan is high when compared to other MENA and middle-income countries.  The public sector spends too much on secondary health care, potentially due to insufficient primary health care management and facilities
  • 53. 5/2/2014 Dr. Musa Ajluni 53  The increasing demands and expectations of the public for effective and accessible health care.  The rapid advances in technology and rising health care costs.  Duplication in the delivery of service and multiple insurance  High percentage of expenditures on drugs Health Finance Challenges, Jordan(cont.)
  • 54. 5/2/2014 54  The public budget funds most of the cost incurred by MoH facilities with little contribution from the insured 18% 13% 69% Ministry of Finance Donors Contributions and User Fees MoH Budget – By Source of Financing
  • 55. 5/2/2014 55 The increasingly aging Jordan population is expected to further strain government budget over the next decade Population Breakdown by Age (In Million) (2005 / 2020) 2005 2020F 45% 36% 16% 4% 33% 35% 26% 5% CAGR (2005-2020) 65+ 0-19 20-39 40-64 0% 2% 6% 5% Government Health Care Expenditure (In JD Million) (2004 / 2020) 350 913 2005 2020F x 2.6 Source: Jordan National Agenda 100% 100%
  • 56. 5/2/2014 56 Proposed Intervention to Improve Healthcare Financing and Improve Efficiency  Fair distribution of funds allocated to primary, secondary and tertiary health care systems.  Adopt a unified procurement system.  Avoid duplication in the delivery of service and multiple insurance and exemption through establishing an independent health insurance commission.  Coordinate the purchase of medical equipment (strategic Purchasing).
  • 57. 5/2/2014 Dr. Musa Ajluni 57 Promote partnership with the private sector in order to save on future capital expenditure while taking advantage of the private sector’s low occupancy rates. Introduce ―Certificate of Need‖ as a mechanism to contain costs. Undertaking a comprehensive study to establish an effective referral system for the individual public programs as well as across programs. Proposed Intervention to Improve Healthcare Financing and Improve Efficiency (cont.)
  • 58. 5/2/2014 58  Proper Health Services Planning and Management  Institutionalizing Quality Assurance Programs  Introducing Cost Accounting and Cost Effectiveness Analysis  Introduce prospective payment methods, to reimburse healthcare providers  Introducing Co-payment Mechanisms  Rational Use of Drugs Proposed Intervention to Improve Healthcare Financing and Improve Efficiency (cont.)
  • 59. 5/2/2014 Dr. Musa Ajluni 59 Thank You