This document provides an overview of key concepts in health economics. It discusses how health economics studies how scarce resources are allocated for healthcare and how health and healthcare services are distributed. It defines equity and efficiency, and explains the importance of both. It also covers the concepts of demand and supply curves, and how bringing them together can lead to an efficient allocation of resources. Different types of economic evaluation techniques like cost-effectiveness analysis, cost-utility analysis, and cost-benefit analysis are introduced. The document provides examples of how these concepts can be applied through case studies.

1. Basics of health
economics
Presenter- Dr Naveen Shyam
Department of community medicine,
SNPH,MGIMS ,sevagram
1

2. What you see??
2

3. Economics ??
Economics is the study of
• how individuals and societies choose to allocate scarce
productive resources
• among competing alternative uses and
• to distribute the 'products’ among the members of a
society
3

4. Health economics
• The study of how scarce productive resources are
allocated
• among alternative uses for the care of sickness and the
promotion, maintenance and improvement of health.
• Also, how health care and health-related services, their
costs and benefits, and health itself, are distributed
among individuals and groups in society.
•
4

5. Concept of equity and equality
5

6. What is equity?
• Equity in health can be defined as the absence of
systematic disparities in health
• between social groups who have different levels of
underlying social hierarchy.
• Equity is not the same as Equality. Equity implies a
value judgment about a situation- i.e. it is about fairness
• equity makes value judgments on the basis of
measurements of equality
6

7. Progress Model
• The Rockefeller Foundation has developed the Progress Model which shows
some of these factors that can be implicated in health inequities:
7

8. Defining Efficiency
get the 'most' out of scarce resources
8
Health services
Determinants of
health
Determinants of well
being
primary care education consumer products
hospital services
income security
programs transportation
pharmaceuticals safe workplace

9. The Three Main components of
Efficiency
• Do not waste resources;
• Produce each output at least cost; and
• Produce the types and amounts of output that people
value most
9

10. Elements of efficiency
• Technical Efficiency
• Cost-effectiveness Efficiency
• Allocative Efficiency
• Pareto Efficiency
• Marginal Analysis
'doing things
right'
'doing the right
things'
10

11. The Nature of Demand
• When economists talk of 'demand' in the market place,
they are talking about consumers who want something
and are able and willing to pay for it
• the economist says that demand becomes “effective” when
customers come forward and express their wants in a
willingness and ability to pay. That’s what makes a
market possible
11

12. The Demand Curve
• The starting point in analyzing demand is to construct a
Demand Curve, which requires three things:
1. Quantify how much of a good or service people want and
will demand at different prices;
2. Get real data from functioning markets and record how
demanded quantities increase or decrease, as prices
increase or decrease; and
3. Plot the data to make the actual Demand Curve.
12

13. Elasticity of Demand
• To better understand and characterize demand,
economists want to know the rate at which the quantity
of a good or service changes with a change in price.
• Does demand fall a lot when the price increases, a modest
amount, very little, or not at all?
• If demand changes a lot when the price changes, we say
that demand is relatively elastic. If demand changes only
slightly when price increases, we say it is relatively
inelastic.
13

14. Analysing Supply
Clearly, the quantity of
health consultations
supplied in the market
varies directly (or positively)
with price. The higher the
price per health
consultation, the more
providers will supply.
14

15. Shifters
• Demand Shifters
• Number of Consumers
• Price of Substitutes
• Supply shifters
• Number of Suppliers
• Costs of Inputs
• New Technologies
15

16. Supply of Health Services
• Many countries have a wide
variety of the supply of
health services throughout
different areas of the
country.
• Usually the supply of health
services in urban areas is
better than in rural areas
16

17. Bringing Supply and Demand
Together
17

18. Efficient Allocation of Society’s
Resources
• Step 1: MC = MU
• Step 2: MC = P = MU
18

19. The Market Concept
• The nine conditions for competitive markets are as
follows
19

20. Submarket , supply , demand with
health
20

21. Components of Economic Evaluation
• Cost-Effectiveness Analysis
• Cost-Utility Analysis
• Cost-Benefit Analysis
21

22. Cost-Effectiveness Analysis
•
22

23. Cost-Utility Analysis
23

24. Cost-Benefit Analysis
24

25. When to use Cost-effectiveness
analysis ?
• Cost-effectiveness analysis is only suitable to compare
programs that have the same outcomes and where there
is a clearly dominant outcome of primary interest.
• In comparing different kinds of life saving programs (e.g.
kidney dialysis and transplantation, emergency air
ambulance system, trauma care), by using lives saved, or
more likely, life years gained as the common measure of
effect.
• However, even this is problematic if any of the programs
have an effect on quality of life as well as quantity of life.
25

26. When to use which technique?
26

27. Components of Economic Evaluation
• The resources consumed by the program (costs) fall into
three sectors:
(1) The health care sector
(2) Patient and family and
(3) Other sectors
• The consequences consist of two main categories:
(1) Resources saved in each of the three sectors discussed
above and
(2) Health effects.
27

28. Overall understanding of health
economy evaluation
28

29. WILLINGNESS‐TO‐PAY (WTP)
method
• used to convert health changes to their equivalent dollar
amounts
• WTP questions can be asked in a number of different
ways and these have different implications for the
analysis
1. WTP questions can be asked regarding only the actual
health change achieved
2. WTP questions can be asked for the whole program
(Global WTP),encompassing how much they are willing
to pay to achieve all of the consequences
29

30. Informational asymmetry; agency
issues; supplier induced demand
30

31. Monopolies and
incomplete/unsustainable markets
• Sometimes there are only a few suppliers of some health
interventions. In this case they can dictate prices at
which services or goods are provided and this creates a
problem for the affordability and accessibility of health
care
31

32. Role of Government
• Regulations
• Taxes and subsides
• Public provision
• Public Information
Campaigns
32

33. How much are we spending?
• An important policy concern for health systems is the
extent to which the level and type of health spending
reflects the health needs of the population
• The Burden of Disease can be viewed as the gap between
current health status and an ideal situation in which
everyone lives until an old age free of disease and
disability.
33

34. Health financing
34

35. Cases studies
• Developing evidence to support introduction of a point of
care NAAT for chlamydia and gonorrhea in the UK
• Family finances and disability: the cost of raising
children with disabilities
• Economic Analysis of Health Projects: A Case Study in
Cambodia
35

36. Economic Analysis of Health Projects: A
Case Study in Cambodia
• A. Least Cost Analysis
 Determine the social cost of capital in real terms
 Using the social cost of capital, discount the stream of economic costs over
the life of the project alternatives to arrive at net present values
 Calculate the equalizing discount rate of the two lowest cost alternatives
 Determine the least cost alternative and make recommendations
• B. Calculation of the Economic Internal Rate of Return
1. Economic Benefit Assumptions
2. Economic Cost Assumptions
3. The Economic Internal Rate of Return
• C. Preliminary Assessment of the Incidence of Benefits
36

37. Supplier –the doctors problem
• In most countries, physicians are licensed by a
professional association or by the government after
completing a long course of study.
• The long duration of the training and the licensing puts
a barrier at the entry point in the market.
• Prospective new doctors must prove that they are fully
qualified before they can enter the market.
37

38. 38