1.
HEALTH
ECONOMICS
Professor Syed Amin Tabish
FRCP (London), FRCP (Edin), FAMS, MD(AIIMS)

2.
What is Health Economics
The application of
the theories,
concepts and
techniques of
economics to the
health sector

3.
It is concerned with
Allocation of resources
between various health
promoting activities
The quantity of resources
used in health delivery
The organization and funding
of health institutions

4.
It is concerned with
The efficiency with which
the resources are allocated
and used for health
purposes
The effect of Preventive,
Curative & Rehabilitative
services on individuals &
society

5.
The scope of health economics
Economic development and
health
Role of the state in health
care provision
Economic evaluation concepts
& techniques

6.
The Scope
Economic information
relevant to health
Health financing issues
Financial planning &
budgeting

7.
Scope (contd.)
 By conducting targeted studies
and data analysis, quantifying
optimum outcomes, and
transferring timely, reliable
information to scientists and
decision-makers, health care
can be delivered effectively,
equitably, and efficiently – now
and in the future.

8.
Demand, Supply & the Market
Society has to find some way
of deciding what, how, & for
whom to produce
Market – A set of
arrangements by which buyers
& sellers are in contact to
exchange services/goods

9.
Demand, Supply & the Market
Free markets in HC are rear, almost all
systems in the world operating with
some level of government intervention
 free market solutions are upheld as
efficient
 the perfect market system would work
best for HC & delivers the highly
desirable outcome of consumer
satisfaction.

10.
How does a market work?
 Markets are made up of a
demand side, and a supply side
with consumers acting on the
side of demand and producers
on that of supply
 Markets adjust price signals
 Consumer is sovereign

11.
Demand, Supply, & Equilibrium
 Demand is the quantity of the
good buyers wish to purchase at
each conceivable price
 Supply is the quantity of a good
sellers wish to sell at each
conceivable price
 At the equilibrium price, the
quantity demanded just equals
the quantity supplied

12.
Economic Objectives of Health Care
 Efficiency : consumer satisfaction
maximized at least cost to society
 Effectiveness (effective HC is about
improving health status).
CEA/CUA/QALY
 Operational efficiency asks the
question, given that some activity is
worth doing, what is the best way of
providing it
 Allocative efficiency judges whether
an activity is worth doing. (CBA)

13.
Economic objectives (contd.)
 Equity : HC resources and benefits
should be distributed in some fair or just
way.
 Basic types of HC
 Libertarian values consumer sovereignty
and market forces
 Egalitarian is committed to the pursuit of
community health
 In setting the objectives, both efficiency
and equity must be taken into account

14.
Economic Development & Health
 ED refers to an historical process
that has many aspects including
economic, demographic & health.
 To arrange nations on a scale from
poor (less developed) to rich
(developed). And the process by
which poor nations become richer
 Health development is the process
by which populations move from a
lower level to a high level of health.

15.
Consumption and Health
 HC :- Responsibility of the state
 Private consumption patterns
 Public consumption patterns
 Developed nations spend 7 to
15% of GDP
 Developing nations spend 3 to
6% of GDP
 Foreign aid

16.
Concepts of Economic Efficiency
Economic analysis/the
evaluation of HS
Are limited resources
used in the best ways
possible?
Is value for money
achieved in their use?

17.
Concepts of Economic Efficiency
 It is necessary to have a clear
understanding of objectives,
evaluative criteria,
measurement & valuation
techniques
 Input, process & outcome
 Input, resources & costs
 Outputs, health & health
indicators

18.
Hospital Economics
 Hospitals of developing countries
utilize nearly half of the total national
expenditure for the health sector
 Hospitals account for 50 t0 80% of
government recurrent HS expenditure
 Hospitals use a large proportion of
the most highly trained health
professionals
 For obtaining additional resources
insurance and user fees are seen the
means

19.
Resource Management by Hospitals
 Poor management leads to
wastage of resources
 Economic concepts – efficiency
technical efficiency (mix of inputs)
economic efficiency (least-cost
combination of the inputs)
scale efficiency (whether a system is
producing services at least cost)
efficiency relationships

20.
Resource generation for hospitals
 User charges
 Insurance
 Defining the role of hospitals
 Improving information about
hospitals
 Developing hospital performance
indicators
 Enhancing hospital management
capacity

21.
WE LIVE IN A WORLD OF
DISTURBING CONTRASTS
 3/4ths of the world’s people live
in developing countries enjoy
only 16% of the world’s income
 More than 17 M people die every
year from infectious & parasitic
diseases(D,M,TB)
 More than 90% of HIV infected
cases live in developing country

22.
World of Disturbing Contrasts
Resources to be generated by
cutting excessive military
spending & privatizing
inefficient pub. enterprises
Challenges: reducing pop.
growth, providing basic social
services

23.
Healthcare Expenditure
 HC system absorb 8% of the total
world product
 Industrial countries spend 90% of
this amount, with average per capita
exp. of $1500 on HC as compared to
$41 in developing countries
 India spends 1.6% of GDP (even
lower prop. spent on PH
 The institutional base is weak, NGO’s
are underutilized, & finally pvt. sector
is gigantic, virtually completely
unregulated & offers some of the best
& worst care seen anywhere.

24.
Investing in Human Development
Countries must invest liberally in
human development so that they are
ready to face the challenge of
Globalization
Globalization is integrating
consuming markets around the world.
But it is also creating new inequalities
The time has come to create a
new world that is more humane,
more stable, more just

25.
MANAGED CARE
Developed in response to ever increasing HC
costs
Important Tools of MC:
 For managed demand
1. Capitation
2. Gatekeeper
3. Advice line to patients
4. User fees
5. Consumer education
 For medical management
1. Utilization review
2. Preadmission certification
3. Greater use of cl. Pathways

26.
Managed Care (Contd.)
HC system can be grouped into
4 archetypes:
 Socialized medicine (UK)
 Socialized insurance (Canada)
 Mandatory Insurance (Japan)
 Voluntary Insurance (USA)
 An integrated & virtual system
(brought about by Disney &
Microsoft). With this system service
can be provided any where, anytime
by HC provider.
 Informed Consumer

27.
Economic Evaluation
 Cost-minimization analysis:
based on prior epidemiological
findings which show that the
outcome of interest (e.g.
reduction of disability) is
achieved to the same degree by
two or more interventions.
 The technique is used to identify
the least cost intervention

28.
Economic Evaluation
 Cost-effectiveness Analysis (CEA)
 Investigates the best way of
achieving a single objective by
comparing effects and costs.
 It evaluates either which of a
number of possible interventions will
achieve a given health objective at
least cost, or given a fixed budget,
the intervention that maximizes the
effectiveness of the expenditure

29.
Economic Evaluation
 Cost-benefit Analysis (CBA)
 CBA values both costs and
benefits in monetary terms, and
compares them, assessing
whether the project/program is
desirable through the use of
decision criteria [if the benefit
cost ratio (benefit divided by
cost) is greater than 1, the
project is worthwhile

30.
Economic Evaluation
 Cost-utility Analysis
 It measures the effects of a
project/program in terms of
utilities [the quality adjusted
health outcome caused or
averted]
 It can focus on either minimizing
effect, and its results are
expressed in terms of cost per
Quality Adjusted Life Years per
monetary unit

31.
Steps in Healthcare Finance
Define the Health Sector
Describe the scope and
objectives of the survey
Collect and tabulate the
data
Present the results

32.
Public Sources of Finance
 General Tax Revenue
 Deficit Financing
 Earmarked Taxes
 Social Insurance: imposing
mandatory insurance payments
on employed workers as a
percentage of their wages, and
by imposing a similar somewhat
higher payroll tax on their
employers

33.
Private Sources of Finance
 Private Health Insurance
 Employer Financed Schemes
 Charity and Voluntary
Contributions
 Community financing & self-
help
 Direct Household expenditure

34.
Strategic Research Themes
Humanistic and economic
outcomes of health care
interventions, including
pharmaceuticals and
disease management
programs.
Impacts of reorganization
of health services delivery.

35.
Strategic Research Themes
 The value and appropriate use
of innovation and new
technology.
 Pharmaceutical and
biotechnology policy in
Canada,
 with a special emphasis on the
preparation of policy analyses
for health care decision-
makers.

36.
Thank you
Very much