Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behaviour in the production and consumption of health and health care. In broad terms, health economists study the functioning of health care systems and health- affecting behaviour such as smoking. It is the discipline of economics applied to the health care.

1. HEALTH ECONOMICS
Ms. Sharon Treesa Antony
Assistant Professor
Govt. College of Nursing
Alappuzha

2. Health
It is a state of complete physical, mental and social well being
and not merely the absence of disease or infirmity.

3. Economics
Economics is the study of wealth. -
-Adam Smith

4. Health economics
Health economics is a branch of economics concerned with issues
related to efficiency, effectiveness, value and behaviour in the
production and consumption of health and healthcare.
Lee & Mills

5. HEALTH ECONOMICS DEALS WITH-
• Allocation of resources between various health activities.
• Quality of resources used in health-care
• The efficiency with which the resources are allocated & used
for health-care purpose.
• The effects of comprehensive health services on individual and
society.
• It covers the medical industry as a whole and also extends the
economic analysis to costing of disease, benefits of a health
programmes and returns from investments.
• How best the limited resources be used on preventive, curative
and rehabilitative services to maximise the health status of a
community.
• Allocation of financial, physical and human resources between
different activity with in a hospital.
• How to promote the efficiency of the health sector.

6. Purpose
To study the pattern of allocation of budget effectiveness and
efficiency
To study health expenditure v/s health status
Evaluation of health services
Improve collaboration between different administrations
To extract maximum benefits from health industry with least
cost combination

7. Importance
 Health and economic development
 Planning finance aspect of health system
 Health manpower planning and Demand Analysis
 Examines the situation where the resources available to us are
limited, the alternative uses for these resources are unlimited
 Promote efficiency and equality in health care sector by
providing analytical techniques to decision makers.
 Organization of health care investment

8. Terminologies in health economics
• GNP: is the gross income generated within the country and
income received from abroad
• GDP: it is the gross income generated within the country
excluding the money from abroad

9. • Poverty line: It is the level of income needed to meet the
minimum standard of living. Currently, poverty line in India
is Rs.32 and Rs.47 in rural and urban areas respectively.
• Per capita income: It is also known as income per person. It
is the mean income of people in an economic unit such as a
country or city. It is calculated by taking a measure of all
sources of income in the aggregate (such as GDP or gross
national income) and dividing it by the total population.

10. • Demand: An economic principle that describes a consumers desire
and willingness to pay a price for a specific good / service.
• Supply: A fundamental economic concept that the total amount of
a specific good or service that is available to consumers.
• Scarcity: When demand overcomes the supply, the scarcity arise
• Cost: cost refers to the amount of money spent on health services
under the various heads of account.

11. Areas of health economics
• Cost of health care:
Cost of healthcare include all those services or facilities to
promote human well being.
• Health problem:
The study of health economics also concentrates on health as an
important economic indicator of economic development. It
deals with the correlation between health industry and
economic development.

12. • Demand of health care:
Demand refers to desire accompanied by ability to pay and
willingness to pay for a product or service in a market. The
demand may be elastic or inelastic. For example, the demand
for medicines has inelastic demand as it is necessary product
which saves life.

13. Cont..
• Supply analysis in health care:
Supply refers to anything material or non-material which is offered for
sale at a particular level of price and at a given period of time.
Supply depends on many factors such as price, cost of production,
Government policy, demand etc. The healthcare services like
hospital, dispensaries etc are all included in the boundary of study of
health economics. It also explains the supply of medicines, services
of nurses, existence of blood banks, lab testing equipment etc.

14. • Health care services market:
Market is an economic environment where buyers and sellers of goods
and services interact for purchase and sale for mutual benefit.
Market is extended forms local to international and covers almost all
the goods ( both private and public goods) and services which are
consumed directly or indirectly. The scope of Health Economics
explains how the market for health services work.

15. • Health plans and outlays: One of the primary motives of every country is
to give primary importance to health services to make citizen healthy both
physically and mentally. For that each country prepares its own plan about
the possible health care programs for human wellbeing. For instance, a
percentage of expenditure is given for healthcare industry through five year
plans.
• Financing for health care industry: Financing here refers to money
invested in health care services. Financing means creation and investment
of funds in creating various health care amenities. Health economics
studies the various sources of finance available for health industry.

16. • Optimum utilization of resources:
The optimum allocation of resources is an important element of
health economics. As every investor or facilitator expects
maximum benefit with minimum cost, the resources play a
major role in deciding the path of progress. The resources in
health industry include all those men and material used to
promote health.
•

17. The elements of health economics
 Microeconomics
 Macroeconomics

18. • Microeconomics:
That is how individual choose, minimise cost or maximise profit
or utilises with in a given health care system with in a set of rules
and prices. Supply and demand influences each other, in turn
affect prices. An increase in or over supply of certain products
lead to less overall consumption (decreased demand) & lowered
prices.

19. • Macroeconomics:
It is a study of aggregate national income and expenditure, aggregate
demand and consumption aggregate investment level in both private
and government sectors.

20. • Cost of healthcare
• Demand of healthcare
• Supply of healthcare

21. Cost of healthcare
• Cost refers to the expenses incurred by the producer to
produce goods and service.
• Objectives of costing:
To know whether a commodity or service is worth
producing at a given cost or not
To ascertain the money value of a product
To forecast whether a particular investment should or
should not be made
To predict the profit of the business concerned
To see that whether it is possible to produce with the
existing resources

22. Types of cost:
• Total cost :
The various costs related to health care are the money the Govt.
spends on health care facilities, costs of identifying & treating
diseases, costs of equipments, costs of building & other
facilities, treatment charges etc. The sum total of all the costs
is known as total cost. It is divided into;
Fixed cost: Do not increase due to increase in various functions or
activities. Eg; cost of building, cost of x ray machine etc.
Variable cost: Vary with the amount of service rendered. Eg;cost of x
ray films according to no. of x rays taken..
• Opportunity cost :
It is used to describe the loss to the community due to failure to
use the available resources/ technologies or institutions in the
best possible way.

23. Cont..
• Capital cost
Represents expenditure of a capital nature:
Eg: expenses for hospital building, machines
• Operating cost:
These are the recurring expenses which are occuring from
time to time in running the programme.
Eg: For providing required items in achieving the particular
task
• Marginal cost:
The cost of producing extra unit of service

24. Cost related to heath problem
• Avoided cost;
Cost caused by a health problem or illness which are avoided by a
health care intervention.
• Direct cost:
Those cost borne by the health care system, community and
patient’s families in addressing the illness.
• Indirect cost;
Mainly productivity loses to society caused by the health problem or
diseases.
• Cost-effectiveness;
given output.
• Cost of illness;
The personal cost of acute or chronic disease. This cost may be an
economic, social or psychosocial cost or personal loss to self, family or
community.

25. Demand of healthcare
• An individual’s demand for a good is the various
quantities of goods and services that the customer is
willing and able to buy at each specific price.
• The demand for healthcare is a derived demand from the
demand for health.
• The demand for health is unlike most other goods
because individuals allocate resources in order to
consume and produce health.

26. • The health care is both a consumption good that yields
satisfaction and utility and an investment good which yields
satisfaction to consumers indirectly through increased
productivity, fewer sick days and higher wages.
• The demand for healthcare service is uncertain, irregular and
unpredictable
• Illness is costly in itself, when a person is ill he can not go out
for work and loses pay in addition to cost of treatment
• Health care industry produces some external benefit ie, when
the consumer engage in an action it yields benefits to the third
party. Eg. Immunization – benefits the recipients as well as the
society by having reduced probability of getting that disease

27. • Government health services are offered at minimal cost
and in some cases, the government or private
organization agrees to pay a portion or full amount of a bill
which is not true for other services.
• There is uncertainty regarding the outcome. So the fee
given is for a service and not for performance.

28. Factors affecting demand for healthcare
1. Patient factors
2. Physician factors

29. Patient factors
• Health status
• Demographic characteristics
Age, late marriages, educational status
• Economic standing
Its importance in determining medical care demand has
dimnished with the increasing publicity of insurance
packages.

30. Physician factors
• Physician acts as advisor to the patients and provider of
services !!!!

31. Supply of health care
• Supply means the quantity of goods the producers wish to
offer for sale at a particular price.
• Health care industry market is regulated by the govt
through agencies like Medical council of India, INC etc to
ensure quality
• Health care costs and education costs are subsidized by
the govt. In some cases the govt provide incentives to
receive the services. Eg: Family planning
• Advertising and price competition in health care industry
are prohibited
• Govt. hospital are run as non profitable organisation

32. Economic evaluation
Economic evaluation is the comparative analysis of alternative
causes of action in terms of both their costs and consequences in
order to assist policy decisions
- Drummond et al,1997

33. Types of Economic Evaluation
1. Cost minimization analysis (CMA)
2. Cost effectiveness analysis (CEA)
3. Cost utility analysis (CUA)
4. Cost benefit analysis (CBA)

34. Cost Effectiveness Analysis (CEA)
• CEA is a ratio of the difference in costs to the difference in
effectiveness of the interventions under consideration.
• When different health care interventions are not expected to
produce the same outcomes both the costs and consequences of
the options need to be assessed. This can be done by cost-
effectiveness analysis, whereby the costs are compared with
outcomes measured in natural units-for example, per life saved,
per life year gained, and pain or symptom free day.

35. Cost minimization analysis
• This approach compares the costs of alternative forms of treatment or
management that produce equivalent health outcomes.
• It is a specific type of economic evaluation in which outcomes of competing
interventions are the same, in which the only inputs that is cost is taken into
consideration. Aim is to decide the least costly way of achieving same outcome .
• Cost minimization analysis is an appropriate evaluation method to use when
the need for an intervention has been established and the programmes and
procedures under consideration are expected to have the same or similar outcomes.
• In these circumstances, attention may focus on the cost side of the equation to
identify the least costly option. It is regarded as a narrow form of cost effectiveness
analysis.

36. 3.Cost utility analysis
• A special form of cost -effectiveness analysis
• Measures the effect of an intervention on health units that
measures both quantity and quality of life
• Measures the quality of life, not just the numbers of years
lived in a particular health state
• Eg: QALY

37. 4. Cost benefit analysis
• Here, the benefit is measured as the associated economic
benefit of an intervention and hence both costs and
benefits are expressed in monetary values.
• In cost-benefit analysis (CBA), costs and benefits are both
valued in cash terms
• It provides a broader comparison between alternative
programmes. This allows to assess whether program is
economically sound or worthwhile.

38. Cost containment
• The process of controlling the expenses to operate an
organization/ to perform a project with in pre planned
budgetary constraints.

39. Strategies
• Reducing need for services
• Primary and secondary prevention
• Health promotion and education
• Patient safety and reduced medical error
• Modifying consumer demands
• High deductible plans: Low monthly premium payment and increased
amount the patient has to pay for care.
• Progressive cost sharing: sharing the cost of care by insurer and patient
• Modifying providers behaviour
• Pay for performance for reimbursement based on the quality of structure,
process and outcome standards of care
• Bundled payment: Providing the health care provider with the cost of
health care of a patient for a specific episode of care as a single payment
• Instrumental measures
• Electronic health record
• Clinical effectiveness and cost effectiveness research

40. Family budgeting in health and illness
• A family spends its money effectively to safeguard their
health and welfare.
• The family can practice health economics in the family in
the following ways:
Obtain health insurance
Follow healthy lifestyle
Seek consultation from health care provide, when ill.
Routine immunization

41. ECONOMICS OF ILLNESS IN THE
FAMILY
• When serious illness or disability strikes a person, the
family as a whole is affected by the disease process and
by the entire health care experience. Patients and families
have different needs for education and counselling.
• When a family member becomes ill, other family
members must alter their lifestyle and take on some of the
role functions of the ill person, which in turn affects their
own normal role functioning.

42. Factors influencing economic problem
• The extent of family disruption depends on the
seriousness of the illness
 the family’s level of functioning before the illness,
socioeconomic considerations
the extent to which other family members can absorb the role of the
person who is ill.

43. Steps for good home economics (cost
containment strategy at home)
• 1. Record expenses.
• 2. Make a budget.
• 3. Plan on saving money.
• 4. Set savings goals.
• 5. Decide on priorities.
• 6. Different savings and investment strategies for different
goals.
• 7. Make saving money easier with automatic transfers.
• 8. Watch your savings grow

44. Record expenses
• The first step in saving money is to know how much
you’re spending. For one month, keep a record of
everything you spend. That means every coffee, every
newspaper and every snack you purchase for the entire
month. Once you have your data, organize these
numbers by category—for example, gas, groceries,
mortgage and so on—and get the total amount for each.

45. Make a budget
• Now that you have a good idea of what you spend in a
month, you can build a budget to plan your spending, limit
over-spending and make sure that you put money away in
an emergency savings fund. Remember to include
expenses that happen regularly, but not every month, like
car maintenance check-ups.

46. . Plan on saving money
• Taking into consideration your monthly expenses and
earnings, create a savings category within your budget
and try to make it at least 10-15 percent of your net
income. If your expenses won’t let you save that much, it
might be time to cut back. Look for non-essentials that
you can spend less on—for example, entertainment and
dining out—before thinking about saving money on
essentials such as your vehicle or home.

47. Set savings goals
• Setting savings goals makes it much easier to get started.
Begin by deciding how long it will take to reach each goal.
• Some short-term goals (which can usually take 1-3 years)
include:
Starting an emergency fund to cover 6 months to a year of
living expenses (in case of job loss or other emergencies
Saving money for a vacation
Saving to buy a new car
• Long-term savings goals are often several years or even
decades away and can include:
Saving for retirement
Putting money away for your child’s college education

48. Decide on priorities
• Different people have different priorities when it comes to
saving money, so it makes sense to decide which savings
goals are most important to you

49. Make saving money easier with
automatic transfers
• Automatic transfers to your savings account can make
saving money much easier.
• You choose how often you want to transfer money and
which accounts you want to use for the transfers.

50. Watch your savings grow
• Check your progress every month. Not only will this help
you stick to your personal savings plan, but it also helps
you identify and fix problems quickly. With these simple
ways to save money, it may even inspire you to save
more and hit your goals fast.

51. RESPONSIBILITY OF NURSE
• 1. Teaching
• Make the family part of your teaching plan. For example, if your
patient’s wife does all the cooking in the home, it is vital to include her
in diet teaching. Involving family members may be an important future
source of support for the patient as he or she works at behavioural
change.
• 2. Counselling
• 3. Recognize changes
• Long-term illness, even in the most stable and supportive families,
brings changes in family relationships. Illness produces disequilibrium
in the family structure until adjustments can occur.If the nurse does
not recognize the change, what it might mean to the patient and
family, and how it might affect the patient’s willingness and ability to
carry out health care recommendations, the goals of the teaching
process will be diminished.

52. • 4. Identify patterns of relationships
• When teaching the patient and family, it is important to
identify patterns of relationships and to be alert to
attitudes of family members. You may be able to identify
resources within the group and help family members
mobilize their resources to help the patient.
• 5. Identify resources
• A nurse may be able to identify resources within the group
and help family members mobilize their resources to help
the patient. It’s also important to be alert to some of the
factors in family members that act as a barrier to
education. Illness in a family member tends to raise the
anxiety of all those close to the patient.