health economics

1. Chap # 2
The Role of
Economics
MARYAM AAB D I
ROLL # 3

2. The Role of Economics
ECONOMICS AND POLICY
1- Economics can offer a framework to study the implications of
individual decision making for health System.
2- How to use scarce resources in better way to improve Health
system.
3- The alternative mechanisms available to improve resource
allocation.

3. The Role of Economics
WHAT IS HEALTH ECONOMICS?
A branch of economics concerned with maximizing health gains
given limited resources.
Concerned with issues related to efficiency, effectiveness, values,
and behavior in the production and consumption of health and
health care.
Decision makers with limited resources find it necessary to conduct
studies comparing the costs and consequences of diagnostic and
treatment options to make informed decisions about efficient
allocations of scarce resources. Cost-effectiveness analysis, the
evaluation method of choice in medical decision making

4. The Role of Economics
WHY HEALTH ECONOMY IS IMPORTANT?
First, health is important to us as individuals and as a society, and health care is one, though
not the only way of modifying the incidence and impact of ill health and disease. The
availability of health care can determine the quality of life and the prospect for survival. Quite
literally, the economics of health care is a matter of life and death.
Secondly, the healthcare sector is very large. Health care is a major component of spending,
investment, and employment in every developed country, thus, the economic performance of
the healthcare system is crucially linked to the overall economic well-being of a country and its
citizens.
Third, decisions about how health care is funded, provided, and distributed are strongly
influenced by the economic environment and economic constraints. Global, national, and local
policy responses to health issues are becoming increasingly informed by economic ideas and
methods of analyses

5. The Role of Economics
KEY ECONOMIC CONCEPTS?
1. Scarcity
2. Opportunity cost
3. Marginal analysis
5-The Market
6-Supply and demand
7-Competition
8-Efficiency
9-. Market failure
10- self interest

6. The Role of Economics
THE USE OF ECONOMICS IN HEALTH CARE
Health economics is used to promote healthy lifestyles and positive health
outcomes through the study of health care providers, hospitals and clinics, managed care
and public health promotion activities.
Health economics is about improving the health of the population through the efficientuse
of resources. Economic evaluation provides a formal comparison of benefits and harms as
well as the costs of alternative health programs.
Wealthier countries have healthier populations, and also far better mortality rates.
Developing and under-developed countries, which have high percentage of poverty, suffer
from poor life expectancy, mainly due to infant malnourishmentand mortality.

7. The Role of Economics
ECONOMIC MODELING
All scientific models start with assumptions. Economic models start by assuming that
decisions are made rationally under conditions of scarcity. That is, people’s actions are
directed toward achieving an objective, given constraints. This assumption makes
economics different from other social sciences.
In microeconomics, the assumption of rational behavior establishes a consistent
framework for individual decision making. We assume that individuals must choose
between competing alternatives in order to satisfy certain objectives
Decision makers, motivated by incentives, pursue their self-interest. Decision making is
dominated by the pursuit of self-interest. Individuals use their resources to advance their
own economic well-being.

8. The Role of Economics
THE SCIENTIFIC MODEL
The five basic steps in the scientific method are as follows:
• Every analyst begins with a hypothesis based on his or her perception of how the world
works. The view of the world is affected by our history, training, and cultural norms. This
can introduce biases in the analyses.
• Analysts then observe the real-world phenomena. These observations are recorded.
• A theory is then developed to explain behavior or the phenomena or predict future
behavior.
• The tests of hypotheses are then performed using gathered facts and data. In this step,
quantitative techniques are used to promote accurate predictions.
• Rethinking the model: If the empiricalevidence is contrary to the model and its
hypothesis, then the analyst may rethink the theory being tested. (Santerre and Neun,
2004).

9. The Role of Economics
MODEL BUILDING
One of the main goals of economics is to understand, explain, and predict the actions of
economic factors. In order to do this, it is necessary to simplify the behavior into its
elemental parts. Simplification is accomplished through generalization and the
construction of models.
• An economic model explains how a part of the economy works. Model building and
theoretical developments are used interchangeably.
• Microeconomic models examine the behavior of individual decision makers—individual
households and firms and governmentagents—or specific markets.
• We use microeconomic models to study how patients’ demands for services vary with
income or insurance coverage.
• We can also examine the market for nurses and the effect of graduate medical
education programs on the supply of physicians.

10. The Role of Economics
PROBLEM SOLVING
Most microeconomics can be classified under the frameworks of
neoclassical economics. This framework is based on optimizing
behavior, which is where an economic actor is seeking 12 The Role
of Economics to achieve given objectives, such as profit
maximization, cost minimization, or maximization of satisfaction.

11. The Role of Economics
ECONOMIC OPTIMIZATION
When more than one alternative is available, the optimal choice produces an
outcome that is most consistentwith the decision maker’s stated objectives.
Optimization is nothing more than determiningthe best action given the decision
maker’s goals and objectives.
Choices in the health economy are made at two levels:
1) individual actors must decidethe best courseof treatment or services to
consume,
2) 2) policy makers must decide on the best course of action for the entire
community

12. The Role of Economics
SUMMARY
Central tenets of economics can be summarized below:
• Resources are relatively scarce related to wants. To strike a balance between scarce
resources and unlimited wants involves making choices. In this world, tradeoffs are
inevitable because we cannot always get what we want
• Medical decisions involve costs and benefits. It is essential that clinicians and policy
makers have knowledge of economic models to provide a foundation for understanding
the issues that affect medical care and policy (Henderson, 2005
• It is important to strike a balance between incremental benefits and costs.