Health

1. Health Economics
Efficiency and effectiveness of health
care systems
8/10/2022

2. Why Measure Benefits?
Efficiency
Maximise benefits for given resources

3. Efficacy Vs Effectiveness Vs Efficiency
Efficacy= measure of effect under ideal conditions.
Effectiveness= effect under ‘real life’ conditions.
Efficacy does not imply effectiveness
Efficiency=relationship between costs & benefits.
Effectiveness does not imply efficiency

4. Effectiveness measures
 Intermediate out come measures may be quite
misleading in the analysis of efficiency.
 A surgery to correct the dislocation of spinal disks
may have no impact on health gains. Individuals
receiving the surgery and individuals not getting the
surgery face similar pain and suffering.
 In this case also, we can find productive efficiency and
technical efficiency. Hospitals may perform the
surgery in a very efficient manner although there is no
positive outcome.
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5. Effectiveness (1)
 Effectiveness is concerned with the
degree to which outputs (treatments)
produce improved outcomes for the
patients.
 It does not matter how efficiently
procedures are being produced, if the
procedures are not effective the
resources are actually wasted.
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6. Effectiveness (2)
 A treatment is effective if it achieves its
objectives without causing serious side
effects.
 Impact is the term used to describe the
collective effect of services on populations.
Vaccination against infectious diseases is
effective at the individual leave but it will have
little impact on the community, unless
coverage is high.
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7. What is efficiency?
 We want the health system to be
efficient.
 Policy makers often suggest
interventions to improve efficiency of
health care organizations.
 People may actually imply different
things when they talk about efficiency.
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8. Measuring Efficiency
 Tremendous pressure exists from various stakeholders
to measure “efficiency”
– Concern about rising health care costs
– Variability in intensity of resource use not associated
with better processes and outcomes
 Little is known about how well available metrics capture
the quantities of interest
– Considerable lack of common language, conceptual
clarity
 Little is known about the consequences (intended and
unintended) of applying those metrics at different levels
in the system
 How is efficiency established in an environment with
mixed payment methods?

9. What is efficiency?
The term efficiency is used by
economists to consider the extent to
which decisions relating to the
allocation of limited resources
maximizes the benefits for society and
has been defined as ‘maximizing well-
being at the least cost to society
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10. What is efficiency?
The concept of efficiency embraces
inputs (costs) and outputs and/ or
outcomes (benefits) and the
relationship between them, with a
society being judged in efficiency
terms by the extent to which it
maximizes the benefits for its
population, given the resources at its
disposal.
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11. Key Features of 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”.
1. Costs and consequences - efficiency!
2. Comparative - relative efficiency

12. Benefit Categories
Intervention
Direct Benefits Indirect Benefits
Savings in
productivity.
Improved
patient health
status / utility.
Reduced health
services
resource use
eg. LoS.
Family and
friends quality
of life.

13. Complicating characteristics of health services
Compared with other industries, measuring efficiency in the
health sector is complicated by characteristics specific to health
and health services. This explains why it is necessary to adapt
and modify efficiency concepts and evaluation techniques in the
study of health care efficiency.
Market anomalies
Due to market characteristics specific to the health sector, a
proper economic perspective requires evaluating health
services in terms of health outcomes. There are particular
considerations in relying on the market mechanism to guide the
use of cost-effective health care procedures. Typically
consumers have limited knowledge about health care. The
supply of health services is characterised by regulation and
market segmentation due to geography, service specialty and
reimbursement arrangements.
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14. Providing services versus achieving outcomes
Efficiency measures comparing resources used
against the provision of services and, alternatively,
against the achievement of health outcomes are not
necessarily consistent, as service outputs may not
vary directly with the resulting health outcomes.
For instance, a costly medical procedure may
represent a high level of service output but may offer
little health benefits in terms of disease treatment.
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15. Two Complementary types of efficiency measurement
techniques:
 Benchmarking analysis — which compares service providers,
individually or collectively; procedures, operational efficiency
This form of analysis accounts for the operational aspects of
production, such as resource management and service
administration within an organisation.
 Economic evaluation — which compares alternative health
programs.
 Cost minimization analysis;
 Cost–effectiveness analysis;
 Cost–utility analysis;
 Cost–benefit analysis.
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16. Types of Economic Evaluation
Type of Analysis Result
Consequences
Costs
Cost Minimisation
Cost Benefit
Cost Utility
Cost Effectiveness
Dollars
Single or multiple effects not
necessarily common.
Valued as “utility” eg. QALY
Different magnitude of a
common measure eg.,
LY’s gained, blood
pressure reduction.
Least cost
alternative.
Identical in all
respects.
Dollars
Dollars
Dollars
Cost per unit of
consequence eg. cost
per LY gained.
Cost per unit of
consequence eg. cost
per QALY.
As for CUA but
valued in money. eg
willingness-to-pay
Net $
cost: benefit ratio.

17. Aspects of efficiency
There are a number of aspects of efficiency
we should consider
 Technical efficiency
 Productive efficiency.
 Allocative efficiency.
 Social efficiency.
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18. 8/10/2022

19. Technical efficiency?
The simplest notion of efficiency is the one
synonymous with economy, and is often
referred to as efficiency savings, where
output is expected to be maintained, while at
the same time making cost reductions, or
where additional output is generated with the
same level of inputs. This type of efficiency
has been referred to as technical efficiency or
operational efficiency, but also as cost-
effectiveness
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An organization achieves technical efficiency when it cannot
produce the same output with any fewer inputs

20. Technical efficiency
 Production of a given quantity of output with the least
cost combination of inputs (value of inputs).
 This is the definition of efficiency we often use in the
discussion of efficiency. Other terms used in the
literature for this type of efficiency: cost-efficiency,
operational efficiency.
 If the relative price of inputs changes, the technically
efficient method of production may also change.
 Technical efficiency — whether health care interventions
for particular health states (such as the treatment of
illnesses) are each performed with the least amount of
inputs.
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21. Productive efficiency
 Productive efficiency is attained if the
production unit produces the output with the
minimum possible quantities of input.
 Effective capacity is the output the enterprise is
capable of achieving given process limitations
such as maintenance.
 Productive efficiency can be measured by taking
the ratio of actual output to effective capacity.
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22. Productive efficiency
 The efficiency of a production process — that is,
productive efficiency — refers to “How well
inputs are converted into final products”.
 An organization achieves productive efficiency
when it cannot produce the same output at a
lower cost
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23. 23
• Productivity is one measure of the effective use of
resources within an organization
• The classical productivity definition measures
outputs relative to the inputs needed to produce
them. That is, productivity is defined as the number
of output units per unit of input
Productivity Definitions

24. 24
Nurses in Unit A worked collectively a total of 25 hours to
treat a patient who stayed 5 days, and nurses in Unit B
worked a total of 16 hours to treat a patient who stayed 4
days. Calculate which of the two similar hospital nursing
units is more productive.
5
5
25



Days
Patient
Hours
Total
HPPDA
4
4
16



Days
Patient
Hours
Total
HPPDB
First, define the inputs and the outputs for the analysis. Is
the proper measure of inputs the number of nurses or of
hours worked? In this case the definition of the input would
be total nursing hours. When the total number of nursing
hours worked per nurse is used as the input measure, then
the productivity measures for the two units are:

25. Example: Technical vs. Productive Efficiency
 Technical Efficiency
– Hospital A has a good HIS system and staff are
able to use it well
– Hospital B has a HIS system but it is difficult to
use; staff follow old order entry process, but
now with the extra step of computer entry
Hospital A has higher technical efficiency than
Hospital B

26. Example: Technical vs. Productive Efficiency
 Productive Efficiency
– Hospital A bought a HIS system, Hospital B did
not; Hospital A now turns around orders more
quickly
– Hospital A and Hospital C both bought a HIS
system, but Hospital A got a better deal
Hospital A has higher productive efficiency than
Hospitals B and C

27. Technical and Productive Efficiency Measures
Point to Different Root Causes of Efficiency
Technical Efficiency
Inputs are put to good use
Productive Efficiency
Inputs are put to good use
Best mix of inputs chosen
Lowest prices are paid
+
+

28. Allocative
This type of efficiency exists when it is
impossible to make one person better
off without at the same time making
someone else worse off. It represents a
situation where no input and no output
can be transferred so as to make
someone better off without at the same
time making someone else worse off.
This situation is called Pareto-efficient.
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29. Allocative efficiency
 Given the distribution of income in a society,
allocative efficiency means that it is not
possible to make one person better – off
without making at least one person worse –
off.
 Allocative efficiency implies both productive
efficiency and technical efficiency.
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30. 30
Unequal distribution of resources
18%
11%
84%
93%
0
10
20
30
40
50
60
70
80
90
100
of world
income
of health
spending
of world's
population
of world's
disease burden
Low and
middle
income
countries
Source: World Health Report 2000

31. Social efficiency
 The allocative efficiency may not necessarily be the
desired one. In a situation where income is unequally
distributed, it might not be possible to improve the
situation of the poor without taxing the rich.
 This system may make the poor better-off at the
expense of the rich. However, it may be considered
socially just and desirable.
 A change is considered socially efficient if the total
benefits to the gainers outweigh the losses of the group
being made worse-off.
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32. Output in health care
 In the measurement of efficiency, it is clear
that we need to define the output of the
system. Can we measure outputs in health
care in countable form?
 Output measures often used: number of
patient seen, number of in-patient hospital
days, etc. These are actually intermediate
outputs, not he final output.
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33. Efficiency and distribution of output
 Allocative efficiency implies efficiency in
production and distribution. In health
care the equivalent situation can be
achieved if treatments are allocated to
those who will benefit most from them
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34. Efficiency in distribution
 Horizontal target efficiency: proportion of
those needing the service who actually
receive it.
 Vertical target efficiency: the extent to
which services go to those who need them
rather than those who do not.
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35. Target efficiency
measurement
 Vertical target
efficiency=D/(C+D)
– The ratio of the number of
those who needed the
treatment and got it to the
number of all people who got
it, regardless if they needed
it or not
 Horizontal target
efficiency=D/B
– The ratio of the number
of who needed the
treatment and got it to
the number of those who
needed it, whether they
got it or not
B=
need
treatment
A=
don’t need
treatment
C D
TREATED
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36. Efficiency and externality
 Enterprises often look at their own costs and
benefits to calculate the efficiency measures.
However, the firms can also provide benefits or
impose costs others not accounted for by the
accounting system.
 If a firm produces lots of pollution and other
external costs, it may not be efficient from
society's point of view, although efficient from
private point of view.
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37. Examples of externalities
 If a patient is discharged after two days following a
surgery rather than five days, it may impose significant
costs on households or family members.
 A hospital creates medical wastes polluting the
environment around the community.
 Vaccinations of children produce benefits to others
who are not vaccinated.
 When externalities exist, market is not an efficient
mechanism of allocating resources.
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38. Option benefits
 Another type of externality is the benefits that
an individual receives because of the
existence of a health facility near his/ her
home. This is known as the option benefits.
 The fact that a well-equipped emergency
department is there within easy reach is a
benefit, even though we never have used it.
Managers of the health center will not consider
this an important of health planning
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39. How to improve efficiency?
 In most cases, managers of health care facility
focus on costs without reducing the activity
levels.
 Developing appropriate measures: length of
stay, occupancy rates, and turnover interval.
 These measured are interrelated and one can
derive other values from any two of the four
activity measure.
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40. 8/10/2022
Calculating Occupancy rate
 Find the "inpatient days of care" by adding the total number of days
in which each patient occupied a bed in a facility over a specific
period of time.
 Find the "bed days available" by multiplying the number of available
beds in the facility times the number of days in the period being
analyzed. For instance, if a hospital has 100 beds and you are
examining the occupancy rate for a specific year, multiply 100 by
365 to get 36,500 bed days available.
 Divide the number of inpatient days of care by the number of bed
days available. For instance, if you have 36,500 bed days available,
and 32,000 inpatient days of care were used during the year, divide
32,000 by 36,500 to get 0.8767.
 Multiply your answer from Step three by 100 to calculate the
occupancy rate. For example, 0.8767 times 100 equals an
occupancy rate of 87.67

41. Indicator Gaz
a
Outside
Admission per 1000 11,4 4-6
Bed occupancy in 2011-
MOH
82.5
Bed occupancy at NGOs 20
Length of stay at MOH 2.9 EU, 5.6; USA and Turkey
8.2, OECD 7.1
LOS at NGOs 2.5
At EGH in 2011 4.5
Bed turn over 0.5
NGOs 10
Hospitals mortality rate 1.8 At EGH, 3% ; 1.5% at
British hospitals
Some Indicator

42. 43
Inefficiency
 Miss-use of medication;
 Shopping around among providers; un-utilized NGOs
 Unjustified imaging services
 Low utilization of operating rooms
 Lack of evidence based practices
 Large proportions of managers in the health system in comparison
to staff
 Overstaffing of health facilities which is disproportionate to
workload volume.
 Having double management level for most senior position
 Huge volume of administrative staff in proportion to the technical
staff
 Failure of medical equipment due to lack of maintenance services
 Treatment abroad contractual issues; unjustified referrals
 Spending on expensive prophylactic drugs and medical procedures
 Highly centralized structures

43. How to improve efficiency?
 In most cases, managers of health care facility
focus on costs without reducing the activity
levels.
 Developing appropriate measures: length of
stay, occupancy rates, and turnover interval.
 These measured are interrelated and one can
derive other values from any two of the four
activity measure.
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44. Continued
1.Identify cases of overtreatment. ...
2.Reduce clinical errors. ...
3.Strengthen care coordination. ...
4.Simplify administration. ...
5.Accelerate medical research efforts to
reduce prices. ...
6.Fight fraud and abuse.

45. Continued
 Start with training
 Underscore patient safety
 Eliminate redundancies
 Improving coordination across
departments
 Create a better system for decision-

46. Thank you